Basak Malut-lut, National Highway

Marawi City, 9700

www.rcakicfound.com

HOME OFFICE, BRANCH, AND AGENCY ACCOUNTING Required:

1. What is the amount of the unrealized profit in the separate books of the
EXERCISE PROBLEMS home office on December 31?
PROBLEM 1. Selected information from the trial balances of the home office 2. What is the branch beginning inventory that came from outside purchases?
and the branch of Pinnacle Company on December 31 is provided. The branch 3. What is the Cost of goods available for sale of the branch?
acquires merchandise from the home office and outside suppliers. 4. What is the total ending inventory to be shown on the combined financial
Home Office Branch statements?
Sales ……………………………….. P60,000 P30,000
Shipments to branch………………. 8,000 PROBLEM 4. The National Home Company ships and bills merchandise to its
Allowance for overvaluation of provisional branch at cost. The branch carries its own accounts receivable and
branch inventory ………………..… 3,600 makes its own collections. The branch also pays its expenses.
Shipments from home office…….… 10,000
Purchase (outsiders)………….…….. 35,000 5,500 The transactions for 2024 are reflected in the branch trial balance that follows;
Merchandise inventory, beginning…. 20,000 15,000 Debit Credit
Expenses ……………………………. 14,000 6,000 Cash………………………………………….. 11,900
National Home Co. Current………………… 90,000
Additional information: Shipments from National Home Co……….. 120,000
Merchandise inventory, December 31 Accounts Receivable ………………………. 62,500
Home office ……………………………………P20,000 Expenses…………………………………….. 8,100
Branch (P7,500 from home office and Sales…………………………………………. 112,500
P2,500 from outsiders)………………………..10,000 Total………………………………………….. 202,500 202,500
Required:
1. The markup on merchandise shipments from home office to branch is? December 31 inventory……………………… 30,000
2. How much of the December 1 inventory of the branch represent Required:
purchases from outsiders and goods shipped from home office? 1. The markup on merchandise shipments from home office to branch is?
3. The net income reported by the branch in its separate books is? 2. The net profit of the branch in its separate books is?
4. The net income reported by the home office in its separate books is? 3. The correct/true branch net income?
5. The correct/true branch net income? 4. The Branch Current Account in the home office books
6. The combined net income for Home office and branch is? 5. What is the balance of the unrealized profit in branch ending inventory on
7. The ending inventory in the books of the branch is? December 31?
8. The ending inventory in the combined financial statements?
PROBLEM 5. A branch store in Caloocan was established by Carlo Company
PROBLEM 2. The following data were provided by the Home Office and on March 1. Merchandise was billed to the branch at 125% of cost. Shipments
Branch for the year ended December 31: of merchandise were as follows;
Home Office Branch March 5………………………………………P 120,000 (at billed price)
Sales to outside customer………..1,000,000 800,000 March 10…………………………………….. 50,000 (at billed price)
Beginning inventory………………. 300,000 140,000 March 20 ……………………………………. 35,000 (at billed price)
Purchases from outside supplier… 800,000 250,000
Shipment to branch …………………400,000 On March 22, the branch returned defective merchandise worth P3,050. On
Shipment from Home Office ……… 500,000 March 31, the branch reported a net loss of (6,200) and merchandise inventory
Ending inventory……………………. 100,000 200,000 of P85,000.
Operating expenses……………….. 200,000 100,000
Required:
⚫ Last year, the Home Office billed its branch with a gross profit rate of 40% 1. In the home office books, the cost of merchandise sold by branch was;
based on cost. 2. In the separate branch books, the cost of merchandise sold was;
⚫ Half of the beginning inventory of the branch was acquired from outside 3. What is the balance of the realized profit in branch ending inventory on
suppliers. December 31?
⚫ The ending inventory of the branch is broken down as follows: 4. The correct/true branch net income?
✓ 60% from outside suppliers
✓ 26% from current year shipment from home office PROBLEM 6. The following information pertains to shipments of merchandise
✓ 14% from prior year shipment from home office from Home Office to Branch during 2024:
Required:
1. What is the net income of the branch in its books for the year ended Home Office cost of merchandise…………………..P 160,000
December 31? Intracompany billing………………………………….. 200,000
2. What is the cost of goods sold of the branch in the combined statements Sales by branch……………………………………… 250,000
for the year ended December 31? Unsold merchandise at Branch on December 31…. 20,000
3. What is the combined net income to be presented by the Home Office in
the Statement of Comprehensive Income for the year ended December Required:
31? In the combined income statement of Home Office and Branch for the year
4. What is the balance of the unrealized profit in branch ending inventory ended December 31, 2024,
on December 31? 1. what amount of the above transactions should be included in sales?
2. The markup on merchandise shipments from home office to branch is;
PROBLEM 3. Home office bills its branch for merchandise shipments at 30% 3. In the separate branch books, the cost of merchandise sold was;
above cost. The following are some of the account balances on the books of
home office and its branch as of December 31: PROBLEM 7. The Aparri branch of Cagayan Products, nc. Buys merchandise
Home Office Branch from third parties and receives merchandise from the fome office for which it is
Inventory, January 1………………………..P115,000 P101,500 billed at 20% above cost. Below are excerpts from the trial balances and data
Shipments from Home Office ………….… 267,150 on the home office and Aparri branch for the month just ended:
Purchases. ………………………….………2,565,500 350,000
Shipments to branch (@ billed price)………332,150 Home office books;
Branch Inventory Allowance…………….. 91,650 Cr. Allowance for overvaluation of branch merchandise……… P 740,000
Sales……………………………………….. 2,100,000 1,260,000 Cr. Shipment to branch…………………………………………….. 1,700,000
Operating expense…………………………. 253,500 46,150 Branch Books;
Dr. Beginning inventory……………………………………………P 2,880,000
Per physical count, the ending inventory of the branch is P69,050 including Dr. Shipments from Home office…………………………………. 2,040,000
goods from outside purchases of P45,650; the ending inventory of the home Purchases………………………………………………………….. 820,000
office is P230,000.
1
 Basak Malut-lut, National Highway
Marawi City, 9700
www.rcakicfound.com

Month end additional data:

Ending inventory of branch……………………………………… P 2,920,000 PRO-FORMA:
From home office (at billed proce)……………………………. P 2,340,000
From outsiders, at cost………………………………………….. 580,000 COST OF GOODS SOLD:
✓ (INTRACOMPANY TRANSACTIONS)
Required: Cost Billed Price AOI
For the month just ended; BI xx xx xx
1. The total cost of goods sold of Aparri Branch at cost (net of overvaluation); Shipments xx xx xx (%= ___)
2. The amount of allowance for overvaluation that was realized from branch -Returns (xx) (xx) (xx)
sales? GAS xx xx xx
3. What is the net income of the branch in its books for the year ended EI (xx) (xx) (xx) (Unrealized profit)
December 31? COS xx xx xx (Realized profit)
4. The net income reported by the branch in its separate books is?
5. The correct/true branch net income? ✓ Outside Branch transactions-COS:
BI xx
Purchases xx
PROBLEM 8. The home office bills its Aklan Branch at 125% of cost. During -PR (xx)
the year 2024, goods costing P300,000 were shipped to the branch. The TGAS xx
account “Allowance for overvaluation of branch inventory”, after adjustment, EI (xx)
shows a balance of P14,000 at the end of the year. COS (outside) xx

Required: ✓ Home Office-COS

1. Compute the amount of ending inventory at cost; BI xx
2. Compute the ending inventory at billed price; Purchases xx
-PR (xx)
PROBLEM 9. Lacoste Philippines hastwo merchandise outlets, its main store -Ship. to branch (xx)
in Manila and its Cebu City branch. For control purposes, all purchases are TGAS xx
nade by the main store, and shipments to the Cebu City branch are at cost plus EI (xx)
10%. On January 1, 2024, the inventories of the main store and the Cebu City COS (HO) xx
branch were P13,600 and P3,960, respectively. During 2024, the main store
purchased merchandise costing P40,000 and shipped 40% of these to the NET PROFIT:
Cebu City branch. ✓ Net Profit in the branch books
Sales xx
At December 31, 2024, the following Journal entry was made to prepare the -COS @ BP (xx)
Cebu City branch books for the next accounting period; -COS outside (xx)
Sales…………………………………………32,000 -OPEX (xx)
Inventory……………………………………. 4,840 Net Profit xx
Inventory……………………… 3,960
Shipments from main store…. 17,600 ✓ Net Profit in the Home office books/ True/Real Net profit
Expenses……………………… 10,480 Sales xx
Main store……………………. 4,800 -COS (HO) (xx)
-OPEX (xx)
Required; Net Profit xx
1. What was the actual branch income of 2024 on a cost basis; +Net profit branch xx
2. What was the branch income at billed price; +Realized profit xx
3. If the main store has P11,200 worth of inventory on hand at the end of 2024, TRUE NET INCOME xx
the total inventory that should appear on the combined balance sheet at
December 31, 2024;

PROBLEM 10. The Manila branch of the Great Company is billed for
merchandise by the home office at 20% above cost. The branch in turn prices
merchandise for sales purposes at 25% above billed price. On February 16 all
of the branch merchandise is destroyed by fire. No insurance was maintained.
Branch account shows the following information;
Merchandise inv, January 1 (at billed price)…………….P26,400
Shipments from home office (Jan 1-Feb 16)…………… 20,000
Sales………………………………………………………… 15,000
Sales returns………………………………………………. 2,000
Sales allowances…………………………………………. 1,000

1. What was the cost of merchandise destroyed by fire?

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 Basak Malut-lut, National Highway
Marawi City, 9700
www.rcakicfound.com

PROBLEM 1. Lakers Trading Co. Operates a branch in Dagupan City.

At close of business on December 31, 2024, Dagupan branch account
in the home office books showed debit balance of P225,770. The
interoffice accounts were in agreement at the beginning of the year.
For purposes of reconciling the interoffice accounts, the following facts
were ascertained:

1. An office equipment casting the home office P3,500 was picked

up by the branch as P350.
2. Insurance premium of P675 charged by the home office was
taken up twice by te branch.
3. Freight charge on merchandise made by the home office for
P1,125 was recorded in the branch books as P1,215.
4. Home office credit memo representing a discount on
merchandise for P800 was not recorded by the branch.
5. The branch failed to take up a P700 debit memo from the home
office representing the share of the branch in advertising.
6. The home office inadvertently recorded a remittance for P3,000
from its Cebu branch as remittance from its Dagupan branch.

Compute the balance as of December 31, 2024.

Required:
1. Unadjusted Balance of the Home Office Account?
2. Adjusted Balance of the reciprocal account?

PROBLEM 2. After examining on a comparative basis the interoffice

account of the Bulacan Company with its suburban Branch and the
similar account carried on the latter’s books, the following
discrepancies at the close of the business on June 30, 2024 were seen:

a. A charge for labor by the Home Office, P500 was recorded twice
by the branch.
b. A charge of P895 was made by the Home Office for freight on
merchandise, but the amount was recorded by the Branch as
P89.50.
c. A charge of P980 (furniture and fixture) on the Home office books
was taken up by the Branch as P890.
d. A credit by he Home Office for P350(merchandise allowances)
was taken up by the Branch as P400.
e. The Home Office charged the Branch P425 for interest on open
account which the branch failed to take up in full: instead, the
branch sent to Home Office a wrong adjusting memo,reducing
the charged by P100 and set up a liability for the net amount.
f. The Home Office received P5,000 from the sale of a truck which
it erroneously credited to the Branch; the Branch did not charge
the Home Office therewith.
g. The Branch by mistake sent the Home Office a debit note for
P370 representing its proportion of a bill for repairs of truck; the
Home Office did not record it.
h. The Branch inadvertently received a copy of the Home Office
entry dated July 19, 2024 correcting item (f) and entered a credit
in favor of the Home Office as of June 30, 2024.

At June 30, 2024, the unadjusted balance of the Branch current

account on the Home Office books showed P175,520. at the beginning
of the year, the interoffice accounts were in balance. Compute the;

Required:
1. unadjusted balance of the Home Office current account on the
branch books, and the branch books?
2. the adjusted balance of the reciprocal account on June 30, 2024?

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 Basak Malut-lut, National Highway
Marawi City, 9700
www.rcakicfound.com

Marketable securities
BUSINESS COMBINATION Inventory
Land
-IFRS 3 defines business combination as a transaction or other Building
events in which an acquirer obtains control of one or more businesses (the Equipment
acquiree). Total Assets
Total Liabilities
Types of Acquisition: Common Stock
1. Assets Acquisition -it takes place when the company’s assets are Additional Paid in Capital
acquired directly and liabilities are assumed.
Retained Earning
➢ Statutory Merger- refers to the absorption of one or more
Total Shareholder’s Equity
existing legal entites by aother existing company that
combines as the sole surviving legal entity.
➢ Statutory consolidation- refers to the combining of two or PROBLEM 2. A Co. Paid the following;
more existing legal entities into one new legal entity. Finders fee P40,000
2. Stock Acquisition- a controlling interest (typically more than 50%) Accountant’s fee (Advisory) 10,000
of another voting common stock is acquired.t Legal fees (Advisory) 15,000
Salaries of A Co’s employees assigned to the
ACQUISITION METHOD OF ACCOUNTING FOR BUSINESS COMBINATION Implementation of the merger 16,000
1. Identify the acquirer Cost of closing duplicate facilities 12,000
2. Determine the acquisition date Cost of shareholder’s meeting to vote on the
3. Determine the consideration given (price paid) by the acquirer. merger 14,000
4. Recognize and measure the identifiable assets acquired, the Cost of printing stock certificates 7,000
liabilities assumed and any non-controlling interest (formerly called Audit and accountant’s fee related to the stock
minority interest) in the acquire. Any resulting goodwill or gain from Issuance 3,000
a bargain purchase should be recognized. SEC registration fess 5,000
Stock listing application fees 4,000
ASSETS ACQUISITION
Based on the preceding information, under the cquisition method following
PROBLEM 1. Coke company and Pepsi company agreed to a combination on PFRS 3,
January 1, 2024. On the date of the combination, the companies reported the
following data: (in thousands) Required:
Coke company Pepsi company 1. What amount of relating to business combination would be expensed?
Book value Fair value Book value Fair value 2. The total stock issuance cost would be?
Cash and Receivables P290 P290 P20 P20
Inventory 100 150 30 42 PROBLEM 3. AA ltd., a supplier of snooker equipment, agreed to acquire the
Land 100 140 10 15 business of a rival firm, BB Lts. Taking over all assets and liabilities as at June
Plant and Equipment 400 300 200 140 1, 2024.
Less: Accumulated Depreciation (150) (80)
Total Assets P740 P880 P180 P217 The price agreed upon was P60,000; payable P20,000 cash and the balance
by the issue to the selling company of 16,000 fully paid shares in AA ltd. These
Current liabilities P80 P80 P20 P20 shares having a fair value of 2.50 per share.
Capital Stock 200 20
APIC 20 5 The trial balance of the two companies as at June 1, 2024 were as follows:
Retained Earnings 440 135 AA BB
Total Liabilities and Equities P740 P180 Share capital P100,000 P 90,000
Retained earnings 12,000 (24,000)
Coke company has 10,000 shares of its P20 par value shares outstanding on Accounts Payable 2,000 20,000
January 1, 2024, and Pepsi Company has 4,000 shares of P5 par value stock Cash 30,000 -
outstanding. The market values of the shares are P300 and P50, respectively Plant assets 50,000 30,000
Inventory 14,000 26,000
Case 1: Purchase price equals the fair value of net identifiable assets Accounts Receivable 8,000 20,000
acquired.
Coke Co. acquired Pepsi company’s net assets by paying P197,00 cash. Coke All the identifiable net assets of BB Ltd. were recorded by BB Ltd. at fair value
Co. pays professional fees of P20,000 to accomplish the acquisition and stock except for the inventory which was considered to be worth P28,000. The plant
issuance cost of P1,000. had an expected remaining life of five years.

Case 2: Purchase price exceeds the fair value of net identifiable assets The business combination was completed and BB Ltd. went into liquidation.
acquired. Costs of liquidation amounted to P1,000. AA ltd. incurred incidental costs of
Coke Co.. issues 500 shares and 75,000 cash for Pepsi Co’s net assets. Coke P500 in relation to the acquisition costs. Costs of issuing shares in AA Ltd were
Co. pays professional fees of P20,000 to accomplish the acquisition and stock P400.
issuance cost of P5,000.
Required:
Case 2: Purchase price below the fair value of net identifiable assets 1. The price consideration would be?
acquired. 2. The Total fair value of net assets acquired would be?
Coke Co.. issues 500 shares and P30,000 cash for Pepsi Co’s net assets. 3. What is the amount of goodwill to be recognized in the combined
Coke Co. pays professional fees of P20,000 to accomplish the acquisition and financial statements?
stock issuance cost of P25,000. 4. The Gain on bargain purchase would be?
5. Acquisition expenses will be recorded at what amount?
Compute the following amounts; 6. The amount of APIC that would be credited as a result of business
combination would be?
CASE 1 CASE 2 CASE 3 7. What is the total amount of inventory after acquisition?
Price consideration given 8. The total assets after business combination is?
9. The total liabilities would be?
Fair Value of Net Assets
10. The Total stock holder’s equity as a result of business combination
Goodwill
would be?
Gain on Bargain purchase
Cash

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Basak Malut-lut, National Highway
Marawi City, 9700
www.rcakicfound.com