MATERI PRAKTIKUM AKUNTANSI KEUANGAN LANJUTAN FATA 2018

MATERI LAB 1
HOME OFFICE AND BRANCH OFFICE


 Definition of Branch Office
Branch offices are part of entities. Branch offices are treated separately in
terms of their accounting system, but not in terms of legal business entities.

 The Differences between Branch Offices and Sales Agencies
Aspects Sales Agencies Branches

Sales to outside entities Sales are controlled by Branches can do their own

controlling entities sales to outside entities

Merchandise inventory Sales agencies do not Branches account for their

account for their inventory, own inventories
but they can display them

Sales requirements Controlling Entities Branches don’t have sales

requirements from
controlling entities

Operating Expenses Controlled by Controlling Branches account for their

Entities, treated similar to own expenses
petty cash

Customer Credit Sales agencies do not pass on Branches pass on customer

customer credit credit

Accounting System Petty cash Branches have their own

accounting system

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
 Transactions between Home Office and Branch Office



 Combining Home Office and Branch Office Financial Statements
1. Eliminate Reciprocal Accounts
Reciprocal accounts have a corresponding nature, which means whenever there
is a debit entry of a reciprocal account in the home office, there will also be a
credit entry of its matching reciprocal account in the branch office, and vice
versa.
Examples: Home Office & Branch Office, Shipment to Branch Office &
Shipment from Home Office
2. Combine Non-Reciprocal Accounts
 Examples
- Creation of a New Branch
A company creates a new branch by transferring an amount of cash and equipment
Home Office (in $) Branch Office (in $)
Branch Office xxx Cash xxx
Cash xxx Equipment xxx
Equipment xxx Home Office xxx

Branch office remits an amount of cash to Home Office

Cash xxx Home Office xxx
Branch Office xxx Cash xxx

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Branch office transfers $xxx to another branch

Home Office Branch A Branch B
Branch B xxx Home Office xxx Cash xxx
Branch A xxx Cash xxx Home Office xxx

- Merchandise Shipment
Home Office transfers merchandise to Branch Office at a cost of $xxx
Home Office Branch Office
Branch Office xxx Shipment from HO xxx
Shipment to BO xxx Home Office xxx

Excess Cost (At Cost and At Billing Price)

Home Office transfers merchandise to Branch, the cost is $xxx excluding a markup
of A% using one of the following methods:
 At Cost
Branch Office yyy Shipment from HO yyy
Shipment to BO xxx Home Office yyy
Loading in Branch xxx*A%
xxx = price of merchandise at cost (excluding markup)
xxx*A% = total markup in merchandise
yyy = price of merchandise at billing price (including markup)
yyy = xxx*(100%+A%)

 At Billing Price
Branch Office yyy Shipment from HO yyy
Shipment to BO yyy Home Office yyy

at the end of the period, Home Office records :

Shipment to BO xxx*A% To adjust shipment of merchandise to a
Loading in Branch xxx*A% cost basis

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to adjust for branch profit, assuming $ppp profit was realized

Loading in Branch ppp
Branch Profit ppp
ppp = realized profit on the period

- Freight Cost
Home Office paid freight cost of $aaa for merchandise transferred to branch. The
merchandise cost $yyy
Branch Office aaa+yyy Shipment from HO yyy
Shipment to BO yyy Freight In aaa
Cash aaa Home Office aaa+yyy

- Merchandise Return
Branch returned A% of the merchandise from Home Office, Branch paid $bbb for the
shipment back to home office
Shipment to BO yyy*A% Home Office zzz
Loss on Excess Freight ccc Shipment from HO yyy*A%
Branch Office zzz Freight In aaa*A%
Cash bbb
yyy = previous shipment transfers from home to branch
aaa = freight in that was accrued at previous transfer transaction
ccc = (aaa*A%) + bbb

- Expense Allocation
Branch pays $xxx for operating expenses that relates equally to branch and home office
Operating Expenses xxx*1/2 Operating Expenses xxx*1/2
Branch Office xxx*1/2 Home Office xxx*1/2
Cash xxx

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- Working Paper Entries

a. To Eliminate Loading in Beginning Branch Inventory
Loading in Branch xxx
Cost of Sales xxx
b. To Eliminate Loading in Current-Year Shipments to Branch
Loading in Branch xxx
Cost of Sales xxx
c. To Eliminate Loading in Ending Branch Inventory
Cost of Sales xxx
Inventories xxx
d. To Eliminate Reciprocal Home Office and Branch Balances
Home Office xxx
Branch Office xxx

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
 Illustration
Bee Company created a new branch in Bogor at the beginning of December 2021. All
merchandise shipped to Bogor branch is transferred at excess cost, which is marked up
25% of cost. Bogor branch purchased merchandise from outside suppliers on account.
Balance sheets for Bee Company’s home office at December 1, 2021, were as follows
(In thousand Rupiah):
Home Office
Assets
Cash Rp 170.000
Accounts Receivable-net Rp 30.000
Inventories Rp 80.000
Equipment-net Rp 180.000
Total Assets Rp 460.000

Liabilities and Equity

Accounts Payable Rp 80.000
Other Liabilities Rp 21.000
Capital Stock Rp 180.000
Retained Earnings December 1,
Rp 179.000
2021
Total Liabilities and Equity Rp 460.000

Transactions that occurred in December 2021 were as follows (In thousand Rupiah):
Date Transactions
December 1 Bee Company created a new branch in Bogor by transferring
Rp30.000 in cash and equipment valued at Rp9.000
December 3 Bogor Branch remitted Rp5.000 to Home Office
December 6 Bee Company transferred merchandise to Bogor Branch, Rp35.000
in cost excluding a markup of 25% using at billing price method
December 11 Bee Company paid Rp300 for Rp40.000 of merchandise shipped to
Bogor Branch

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December 12 Bogor Branch returned 40% of the merchandise transferred from Bee
Company on December 11, Bogor Branch paid Rp150 for the
shipment
December 20 Bogor Branch paid Rp1.000 for advertising expense equally for
Branch and Home Office

Additional Information (In thousand Rupiah):

HO BO
Sales Rp200.000 Rp165.000 All sales transactions and purchase
Ending Inventory at transactions were done on account.
Rp 10.000 Rp 8.000
Dec 31, 2021 50% of branch’s ending inventory was
Purchases Rp 90.000 Rp 19.000 acquired from outside entities.
Depreciation Expense Rp 1.500 Rp 1.500

Instructions:

Prepare the necessary journal entries, including adjusting and closing entries for both
home office and branch office to record the transactions above and prepare the working
paper entries and combining working papers. The home office recorded transfers of
inventory using at billing price method.

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Solutions:

- Journal entries

Home Office Branch Office

Date
(In thousand Rupiah) (In thousand Rupiah)
Dec 1 Bogor Branch 39.000 Cash 30.000
Cash 30.000 Equipment 9.000
Equipment 9.000 Home Office 39.000
Dec 3 Cash 5.000 Home Office 5.000
Bogor Branch 5.000 Cash 5.000
Dec 6 Bogor Branch 43.750 Shipments from HO 43.750
Shipments to BO 43.750 Home Office 43.750
Dec 11 Bogor Branch 40.300 Shipments from HO 40.000
Shipments to BO 40.000 Freight In 300
Cash 300 Home Office 40.300
Dec 12 Shipment to BO 16.000 Home Office 16.270
Loss on Excessive Freight 270 Shipments from HO 16.000
Bogor Branch 16.270 Freight In 120
Cash 150
Dec 20 Advertising Expense 500 Advertising Expense 500
Bogor Branch 500 Home Office 500
Cash 1.000
Dec 31 Depreciation Expense 1.500 Depreciation Expense 1.500
Equipment 1.500 Equipment 1.500

Dec 31 Shipment to BO 8.750

Loading in Branch 8.750

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- Adjusting and Closing Entries

Home Office Branch Office
Date
(In thousand Rupiah) (In thousand Rupiah)
Dec 31 Loading in Branch* 7.950 Sales 165.000
Branch Profit 7.950 Ending inventory 8.000
Dec 31 Bogor Branch 84.070 Shipment from HO 67.750
Branch Profit 84.070 Purchase 19.000
(from branch office journal for reciprocal home office) Freight In 180
Dec 31 Sales 200.000 Depreciation Expense 1.500
Ending Inventory 10.000 Advertising Expense 500
Shipments to BO 59.000 Home Office 84.070
Branch Profit 92.020
Beginning Inventory 80.000
Purchases 90.000
Depreciation Expense 1.500
Advertising Expense 500
Loss on Excess Freight 270
Retained Earnings 188.750

*Branch Profit Calculations (In thousand Rupiah)

Ending Inventory from HO After Mark-Up of 25% = 8.000 x 50%
= 4.000
Ending Inventory from HO (Cost Basis) = 4.000/125%
= 3.200
Loading in Branch for 4.000 Ending Inventory = 800
Realized Loading Inventory = 8.750 - 800
= 7.950

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- Working paper entries (In thousand Rupiah)

a To Eliminate Loading in Current-Year Shipments to Branch

Loading in Branch 8.750
Cost of Sales 8.750
b To Eliminate Loading in Ending Branch Inventory
Cost of Sales 800
Inventories 800
c To Eliminate Reciprocal Home Office and Branch Balances
Home Office 101.280*
Bogor Branch 101.280
*Obtained from the ending balances of Home Office and Bogor Branch before
adjusting and closing

- Cost Of Sales Calculations (In thousand Rupiah)

Home Office Bogor Branch
Inventory Dec 1, 2021 80.000 -
Purchases 90.000 19.000
Shipments To BO (59.000)
Shipments From HO 67.750
Goods Available For Sale 111.000 86.750
Inventory Dec 31, 2020 (10.000) (8.000)
Cost of Sales 101.000 78.750

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- Combining Working Papers (Trial Balance Approach)

BEE COMPANY HOME OFFICE AND BRANCH WORKING PAPERS

FOR THE YEAR ENDED DECEMBER 31, 2021
(In thousand Rupiah)
Home Bogor Adjustments and Income Balance
Office Branch Eliminations Statement Sheet
Debits Debit Credit
Cash 144.700 23.850 168.550
Accounts Receivable-net 230.000 165.000 395.000
Inventories 10.000 8.000 b 800 17.200
Equipment-net 169.500 7.500 177.000
Bogor Branch 101.280 c 101.280 -
Cost of Sales 101.000 78.750 b 800 a 8.750 (171.800)
Freight-In 180 ( 180)
Advertising Expense 500 500 ( 1.000)
Depreciation Expense 1.500 1.500 ( 3.000)
Loss on Excess Freight 270 ( 270)
758.750 285.280 757.750
Credits
Accounts Payable 170.000 19.000 189.000
Other Liabilities 21.000 21.000
Loading in Branch 8.750 a 8.750 -
Home Office 101.280 c 101.280 -
Capital Stock 180.000 180.000
Retained Earnings Dec 1,
179.000 179.000
2021
Sales 200.000 165.000 365.000
758.750 285.280
Net Income 188.750 188.750
757.750

DANENDRA – MARGARETA – TITAN – WINONA FATA 2018