How much is the adjusted Home Office Current account as of December 31, 2022 to be presented in the Statement of Financial Position of the Branch?
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
ABC Co. has a branch operation in Morayta. Merchandise is shipped to the branch at a transfer price of 30% more than cost. At the end of 2022, ABC Co. has determined that the branch should be allocated common expenses but the branch has not yet been notified of the following allocated amounts:
|
Marketing expense |
P15,000 |
|
Rent expense |
10,000 |
|
Other expense |
5,000 |
In addition, a shipment costing P25,000 is still in transit as of December 31, 2022 while a P12,000 branch remittance has not been received by the home office due to limited bank operations as of December 31.
The branch’s accountant is unaware of the accounting treatment of shipments of inventory from the home office and has recorded these as normal purchases. The beginning accounts payable includes P130,000 payable to the home office.
A
|
|
ABC Co. |
|
Branch |
|
Debits: |
|
|
|
|
Cash |
P 35,000 |
|
P 120,000 |
|
|
85,000 |
|
40,000 |
|
Investment in Branch |
480,000 |
|
- |
|
Plant assets |
400,000 |
|
238,500 |
|
Purchases |
450,000 |
|
240,000 |
|
|
15,000 |
|
10,000 |
|
Marketing expense |
70,000 |
|
15,000 |
|
Rent expense |
15,000 |
|
6,000 |
|
Other expense |
30,000 |
|
5,000 |
|
Inventory 1/1/2022 |
125,000 |
|
40,000 |
|
|
|
|
|
|
Credits: |
|
|
|
|
|
P 100,000 |
|
P 24,000 |
|
Accounts and other payables |
191,500 |
|
406,500 |
|
Allowance for overvaluation |
58,500 |
|
|
|
Home office – current |
- |
|
74,000 |
|
Ordinary share capital |
150,000 |
|
- |
|
Share premium |
155,000 |
|
- |
|
|
250,000 |
|
- |
|
Sales |
490,000 |
|
340,000 |
|
Shipments to Branch |
180,000 |
|
- |
Inventory as of December 31, 2022 per physical inventory count made amounted to P50,000 for the home office and P45,000 for the branch. It was determined that P19,500 and P39,000 of the inventory of the branch came from the home office as of January 1, 2022 and December 31, 2022, respectively.
How much is the adjusted Home Office Current account as of December 31, 2022 to be presented in the Statement of Financial Position of the Branch?
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