Question

ABC Company has a branch in Arba Minch. Arba Minch branch receives all its merchandise from ABC at 25% above cost and sells them at 40% mark-up on cost. ABC also sells merchandise to outsiders at 40% above cost. Below are the data from the trail balance of ABC and Arba Minch branch.
Home Office Sales Purchases
Inventory beginning Shipment to branch Shipment from Ho
Allowance for overvaluation Advance Financial Accounting I
Br.5,880,000 6,000,000 350,000
2,000,000 540,000 Branch
Br.3,360,000 200,000 2,375,000 Page 2WORKSHEET Operating expense Required: Determine the following:
a. Inventory of branch on Dec,31 b. Consolidated inventory c. True net income of the branch d. Net income reported by the branch e. Consolidated net income f. Allowance for over valuation

Answer 1

I can do this, but the trial-balance data you pasted is ambiguous — I can't be sure which numbers belong to which accounts (and I don't see the branch ending inventory amount, which is needed). Could you please confirm/clarify the trial-balance table by copying it in a clearer two-column form (Home Office vs Branch) with labels and amounts for at least:

- Sales (HO) and Sales (Branch)
- Purchases (HO) and Purchases (Branch)
- Beginning inventory (HO) and (Branch)
- Ending inventory (HO) and (Branch) — especially branch ending inventory as recorded on the branch books
- Shipment to branch (amount recorded by HO) and Shipment from HO (amount recorded by branch) if both appear
- Any intercompany receivable/payable or allowance for overvaluation amounts
- Operating expenses for HO and Branch (if on the trial balance)
- Any other amounts you have on the trial balance relevant to inventory/COGS

Also confirm the pricing policy:
- Branch receives merchandise from HO at 25% above HO cost (i.e., branch invoice price = HO cost × 1.25)?
- HO sells to outsiders at 40% above cost (i.e., external sales price = cost × 1.40)?
- Branch sells to customers at 40% mark-up on cost (i.e., branch sales price = cost × 1.40)?

If you prefer, paste a screenshot or retype the full trial balance rows with labels; then I will compute:
a) Branch inventory at Dec 31 (book and adjusted for unrealized profit),
b) Consolidated inventory,
c) True net income of the branch (after eliminating unrealized intercompany profit),
d) Net income reported by the branch (book),
e) Consolidated net income,
f) Allowance for overvaluation (amount of unrealized profit to eliminate).

If you want, I can also show the step-by-step worksheet adjustments once I have the clarified numbers.