What is the balance of the allowance for overvaluation

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Reference no: EM132844128

The income statement submitted by Loon Branch to the Home Office for the month of December 31, 2013 follows:

Sales P600,000

Cost of Sales:

Inventory, December 31, 2013 P80,000

Shipments from Home office 350,000

Purchased locally by branch 30,000

Total P460,000

Inventory, December 31, 2013  100,000         360,000

Gross Margin P240,000

Operating Expenses 180,000

Net Income for the month P60,000

The Branch inventories consisted of:

                                                      12/1/2012                        12/31/2012

Merchandise purchased from home         P70,000                               P84,000

Local purchases                                  P10,000                              P16,000

Total                                                 P80,000                               P100,000

After effecting the necessary adjustments, the Home Office ascertained the true net income of the Branch to be P156,000.

Problem 1. At what percentage of cost did the home office bill the branch for merchandise shipped to it?

Problem 2. What is the balance of the Allowance for Overvaluation in the branch inventory at December 31, 2013?

Reference no: EM132844128

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