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Expenses incurred specially for each department are charged directly thereto e.g., insurance
charges of stock held by a department.
2.
Common expenses, the benefit of which is shared by all the departments and which are capable
of precise allocation, (e.g., rent, lighting expenses etc.) are distributed among the departments
concerned on some equitable basis considered suitable in the circumstances of the case. Rent is
charged to different departments according to the floor area occupied by each department,
having regard to any favourable location specially allocated to a department. Lighting and
heating expenses are distributed on the basis of consumption of energy by each department and
so on.
3.
Common expenses which are not capable of accurate measurement are dealt with as follows:
i.
Selling expenses, e.g., discount, bad debts, selling commission, etc. are charged on the
basis of sales.
ii. Administrative and other expenses, e.g., salaries of managers, directors, common
advertisement expenses, depreciation on assets, etc., are allocated equally among all
the departments that have benefited thereby. Alternatively, no allocation may be made
and such expenses may be charged to the combined profit and loss account.
PRACTICAL PROBLEMS
[CWA INTER J04]
Question 1: M/s. Star & Co. has two departments which maintain separate records. Prepare Trading
and Profit & Loss A/c for each department and Balance Sheet for the company for the year ended
31.03.2003. Provide depreciation on Plant and Machinery @ 33 %, Building by 5%, Furniture @
10%, other un-allocated expenses to be allocated on the basis of net sales of each department.
Financial Accounting
10.1
Debtors
7,60,000
Creditors
6,92,000
Plant & Machinery 9,60,000
Land
3,20,000
Building
4,80,000
Furniture
1,92,000
Sales overheads
5,12,000
Cash on 31.03.2003
32,000
Bank Balance on 31.03.2003 4,40,000
Capital
20,00,000
To
Trading and Profit and Loss Accounts for the year ended 31.03.2003
Particulars
Dept I
Dept II
Particulars
Dept I
Opening stock
1,00,000
80,000 By Sales less return 25,20,000
Purchase less return
9,12,000
7,56,000
Closing Stock
1,04,000
Gross Profit
16,12,000 12,20,000
26,24,000 20,56,000
26,24,000
Wages & Salaries
7,20,000
6,40,000
Gross Profit
16,12,000
Misc. Expenses
1,40,000
1,28,000
Sales Overheads
2,88,000
2,24,000
Depreciation
Plant & Machinery
1,80,000
1,40,000
Building
13,500
10,500
Furniture
10,800
8,400
General P/L A/c
2,59,700
69,100
16,12,000 12,20,000
16,12,000
Dept II
19,60,000
96,000
20,56,000
12,20,000
12,20,000
Note: Unrealised expenses such as Sales Overheads and Depreciation have been allocated on the ratio
of net-sales basis. [25,20,000 : 19,60,000] [9:7]
Balance Sheet of M/s. Star Co. as at 31.03.2003
Liabilities
Amount Assets
Amount
Capital
20,00,000
Land
3,20,000
Add: Profit - I 2,59,700
Building
4,56,000
Profit - II
69,100 23,28,800 Plant & Machinery 6,40,000
Creditors
6,92,000 Furniture
1,72,800
Stocks
2,00,000
Debtors
7,60,000
Cash and Bank
4,72,000
30,20,800
30,20,800
Departmental Accounts
10.2
B ()
20,000
12,000
Purchases
92,000
68,000
Sales
1,40,000 1,12,000
Wages
Carriage
12,000
8,000
2,000
2,000
4,500
6,000
24,000
14,000
Closing Stock:
(i)
Purchased goods
10,000
By A to B
8,000
35,000
By B to A
40,000
10,000
By B to A
7,000
You are informed that purchased goods have been transferred mutually at their respective
departmental purchases cost and finished goods at departmental market price and that 20% of the
finished stock (closing) at each department represented finished goods received from the other
department.
Departmental Trading A/c for the yr ended 31st March Dec, 2012. X Ltd
Particular
To
Dept. A
Dept. B
Op Stock
20,000
12,000
32,000
Purchases
92,000
68,000
1,60,000
Wages
12,000
8,000
20,000
2,000
2,000
4,000
RM
transferred
10,000
8,000
F.G.
Transferred
40,000
35,000
Carriage
Financial Accounting
Total
Particular
By
Dept. A
Dept. B
Total
1,40,000
1,12,000
2,52,000
RM
Transferred
8,000
10,000
F.G.
Transferred
35,000
40,000
Return of F.G.
10,000
7,000
4,500
6,000
Sales
Closing
Stock:
Raw Material
10,500
10.3
Return of F.G.
7,000
10,000
Gross Profit
38,500
46,000
2,21,500
1,89,000
Finished
goods
3,00,500
24,000
14,000
38,000
2,21,500
1,89,000
3,00,500
Consolidated A/c
Particular
To Stock Reserve A
1,555 By
Stock Reserve B
Net Gross Profit c/d
Particular
642
Gross Profit A
38,500
Gross Profit B
46,000
82,303
3,00,500
Add:
3,00,500
Working Notes
Dept A
Sales
1,40,000 1,12,000
Transfer
Dept B
35,000
40,000
1,75,000 1,52,000
Less: Return
[a]
[b]
Gross Profit
[c]
7,000
10,000
1,68,000 1,42,000
38,500
46,000
22.92%
32.39%
[d]
24,000
14,000
[e]
4,800
2,800
[f]
[g]
32.39%
1,555
22.92%
642
Departmental Accounts
I-
5,000
16,000
9,000
5,000
2,500
30
J-
8,000
2,000
20,000
10,000
20,000
1,500
20
K-
19,000
3,000
5,000
80,000
1,000
10
10.4
Stocks of each department are valued at costs to the department concerned. Stocks of I are
transferred to J at cost plus 20% and stocks of J are transferred to K at a gross profit of 20% on
sales. Other common expenses are salaries and staff welfare 18,000, rent 6,000.
Prepare Departmental Trading, Profit and Loss Account for the year ending 31.3.2004.
Answer:
FGH Ltd. - Departmental Trading and P/L A/c for the year ended 31st March, 2004
I-
J-
K-
Total- By
I-
J-
K-
5,000
8,000 19,000 32,000
Sales
80,000
To
Opening
stock
Material
consumed
Direct
labour
Interdepartmental
Transfer
Gross profit
16,000
20,000
9,000
10,000
Total-
80,000
36,000
19,000
30,000
60,000
90,000
Interdepartmental
Transfer [Note1]
Closing stock
5,000
12,000
6,000
23,000
35,000
80,000
85,000
2,00,000
9,000
6,000
3,000
18,000
Gross profit
3,000
1,800
4,200
12,000
1,200
1,800
6,000
6,000
6,000
30,000
Net loss
30,000
60,000
90,000
5,000
20,000
5,000
30,000
35,000
80,000
85,000
2,00,000
5,000
12,000
6,000
23,000
6,000
7,000
30,000
[Note1]
Salaries and
staff welfare
Rent
Net profit
12,000
7,000
12,000
12,000
J[]
16,000
20,000
9,000
10,000
30,000
25,000
60,000
5,000
8,000
30,000
68,000
5,000
20,000
100
25,000
80 48,000
20
5,000
20 12,000
Department
Material Consumed
Add
Direct Labour
Add
Add
Less
Financial Accounting
120
10.5
Profit%
20
1,667
20,00060,000 120
2
60,000
20
1,000
60,000 100
20
333 1,333
3,000
Question 4: Mr. D is earning uniform rate of gross profit in all three departments he is
handling. Following are the relevant details
Particulars
Department Cartons
Amount
G
15,000
The total cost of purchases
M
20,000
Purchases
amounted to 600000.
N
15,000
G
16,000
20 per carton
M
22,000
15 per carton
Sales
N
17,000
10 per carton
G
4,000
M
5,000
Opening stock
N
4,000
You are required to prepare
Prepare the Trading account for the three departments in columnar form.
Also show the workings in respect of the following:
1 Gross profit (%) assuming that three is no stock situation.
2 Department wise purchase price value and
3 Valuation of opening and closing stock.
Answer: Closing Stock = Opening stock + Purchases - Sales.
Department G 3000 Units
Department M 3000 Units
Department N 2000 Units
Purchase price is not available individually for departments G, M and N, but it is given that
gross profit rate is uniform.
Gross Profit margin can be formed by calculating sale value of purchased units
Department G
300,000
Department M
300,000
Department N
150,000
Departmental Accounts
10.6
Total
Less Purchases (cost)
Profit
750,000
600,000
150,000
20%
Profit Margin = %
Particulars
Opening Stock
Purchases
Gross Profit
64,000
240,000
64,000
368,000
60,000
240,000
66,000
366,000
32,000
120,000
34,000
186,000
By
Particulars
Sales
Closing Stock
320,000
48,000
330,000
36,000
170,000
16,000
368,000
366,000
186,000
24,000
36,000
Purchases
1,62,000
1,90,000
Sales
2,10,000
2,85,000
1. The stock of Department Y at 1st January 1988 includes goods on which the selling price has been
marked down by 510. These goods were sold in January.1988 at the reduced price.
2. Certain goods purchased in 1988 for 2700 for department Y, were transferred during the year to
Department Z, and sold for 4,050. Purchase and sale are recorded in the purchases of department
Financial Accounting
10.7
Y and the sales of department Z respectively, but no entries in respect of the transfer have been
made.
3. Goods purchased in 1988 were marked down as follows:
Dept Y () Dept Z ()
Cost
Mark down
8,000
800
21,000
4,100
At the end of the year there were some items in the stock of department Z, which had been
marked down to 2,300. With this exception all goods marked down in 1988 were sold during the
year at the reduced prices.
4. During stock taking at 31st December 1988 goods which had cost 240 were found to be missing
in the department Y. It was determined that the loss should be regarded as irrecoverable.
5. The closing stocks in both departments are to be valued at cost for the purpose of the annual
accounts.
You are requested to prepare for each department for the year ended 31.12.88: trading Account,
Memorandum Stock Account and a memorandum Mark up Account.
Answer:
Southern Stores Ltd. Trading A/c for the year ended 31st Dec, 1998 ()
Particular
To Opening stock at cost
Purchases
Dept Y
24,000
Particular
36,000 By Sales
1,62,000 1,90,000
Dept Z
2,700
51,518
92,496
Transfer: Dept. Z
Goods lost
Closing stock at cost
2,37,518 3,21,196
Dept Y
Dept Z
2,10,000 2,85,000
2,700
240
24,578
36,196
2,37,518 3,21,196
Balance b/d
Purchases [at sale price]
Dept Y
Dept Z
32,000
54,000
2,16,000
2,58,000
Particular
By
Balance b/d
Sales
Dept Y
Dept Z
510
2,10,000
2,85,000
2,700
Transfer
2,700
Transfer
Memorandum Mark up
1,350
320
900
800
4,100
32,770
54,294
2,48,000
3,43,394
Memorandum Mark up
344
Departmental Accounts
3,43,394
10.8
Particular
510
- By
Balance b/d
8,000
18,000
900
Memorandum
Stock 54,000
A/c
(Mark-up
on
purchased)
95,000
800
4,100
Memorandum
stock
A/c
(Mark-up
on
transfer)
80
Memorandum
stock
A/c (Marked down on
stock)
8,192
18,098
51,518
92,496
Balance c/d
To Gross Profit
62,000 1,14,694
1,350
344
62,000 1,14,694
Working Notes
Calculation of marked down value on unsold stock of Dept Z
Total
Cl. Stock
21,000
10,500
31,500
Marked down
4,100
27,000
2,300
Financial Accounting
344
4,100
= 2,300 27,000
10.9