On January 1, 2020, Dragon Empire, Inc., created a separate branch in Palawan City by transferring to the branch cash of P40,000, inventory with a book value of P120,000, and land with a book value of P150,000. At that time, the inventory had a fair value of P180,000, and the land was worth P190,000. The transfers were recorded at fair value by both the home office and the branch.
The branch purchases all its inventory from the home office. During 2020, Dragon Empire purchased additional inventory for P200,000 and sold it to the branch for P280,000. Both the home office and the branch uses a FIFO cost flow assumption for inventory.
In 2020, the branch decided not to build on the land transferred from the home office and sold it for P165,000. An income statement prepared by the branch for 2020 contained the following items:
Cost of goods sold P320,000
Rent Expense 40,000
Loss on Sale of Land 25,000 385,000
Contribution to Profits 65,000
Determine the correct net income of the branch as far as the home office is concerned.
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