Study Note 5.2 (353-378)

5.2. DEPARTMENTAL ACCOUNTS Introduction : Departmental Accounts helps in identifying the performance of each department. Each department is considered to be an Activity Centre. It is a tool which helps management in decision-making.

Departm entation offe offers rs the following following advant ages — a. b. c.

Proper Proper Allocation Allocation : Expenses that relate to a particular department are estimated on an exact exact basis. Hence, cost cost and profits of each each d epartm ent is estimated more accurat accurat ely. Control ontrol : Availabili Availability ty of separat e cost and profit figur figur es for each each dep artm ent facili facilitates tates control. Proper control and fixation of responsibility is easier. Proper Proper absorption absorption : The processing processing times of different different pr odu cts in in d iffe ifferent rent d epartm ents may vary. Specific cost analysis on a department-wise basis facilitates scientific cost absorption and cost assignment. This provides the right platform for product- pricing d ecisions ecisions also.

Bases Bases of Appointment of Expenses Expenses : N atu re o f Exp e n s e

Tre atm e n t

Exam p l e s

Specific Charge

When a certain expense is s p e c i f i c a l l y incurred f o r o n e departm ent, it it should be charged only. in full to that departm ent only.

• D ep ep r e ci ci at at io io n o f m a c h in in e r y on on value of machinery; • Insurance nsurance on on stoc stock k on the val value ue of stock.

Sh a r e d C o m m o n Expenses

When benefits of certain expenses • Re n t is is a p p o rt r t io io n ed ed b a s ed ed o n are expenses shared by all Floor Space occupied by each departments and are capable of  department. precise allocation, they should • L i gh gh t i n g E x p e n se se s is be app ortioned to all dep artapportioned basis of on the ments on an appropriate and nu mber of light light p oints (or) (or) on the equitable basis. basis of floor floor ar ea. • Cantee Canteen n subsidy subsidy on on the basi basiss of  of  No. of workers.

G en en er er al al Exp e ns ns es es

C om om m o n exp en en se se s w h ic ich a re re no t • A d m i n is i s t ra r a t io io n E xp xp e n s es es l ik ik e O f f i ce ce Salaries m ay be capable of a c cu cu r at at e apportioned equally among all apportionment to various departments are dealt with d e p a r t m e n t s o r a l t er er n a t i v e ly ly debited to General P&L Account. Account.  judiciously, based on facts and circum circum stan ces of each case. • Se ll l l in in g and D is i s t r ib ib u t i on on Expenses may be apportioned based on Sales ratio.

InterInter-D D epartmental epartmental Tr Transfer ansfer :

1.

Methods o f Tr Transfer ansfer Pricing Pricing : Transfers made by one department to another may be recorded either at (a) Cost or (b) Market Price or (c) any other appropriate method e.g. Cost + Agreed Profit Profit Mark Up .

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DEPARTMENTAL ACCOUNTS

2.

Acco Account unting ing : When transfers are made, their value should be credited as Income of the Transferring Transferring Depa rtm ent and debited as cost of the Recipient Recipient Departm ent. When p rofit rofit is ad ded in the inter-dep inter-dep artm ental transfers, the loading (unrealised (unrealised p rofit) rofit) included included in the Closing Stock should be reversed, by debiting the General P&L Account and crediting Stock Stock Reserve Accoun t.

Illustrat Illustrations ions 1 : Snow White Ltd Ltd has tw o departm ents — Cloth Cloth and Readym Readym ade Clothes. Clothes. Ready Ready Mad e Clothes Clothes are m ade by t he Firm itself itself out of cloth cloth sup plied by th e Cloth Departm ent at its usu al selli selling ng pr ice. ice. From From th e foll following owing figures, prepar e Departm ental Trading and Profit Profit and Loss Loss Accounts Accounts for the year ended 31st M ar ar ch ch : Parti cu l ars

Open ing Stock Stock on 1 st A p r il P u r ch a s es Sa les Tr a n s fe r t o Rea d y m a d e C lo t h es D e p a r t m e n t Exp en se s - Ma M a n u fa ct u r in g Sellin g Closing Stock on 31 st M a r ch

Cl o th D e p t

Re ad y m ad e Cl o th e s

3,00,000 20,00,000 22,00,000 3,00,000 — 20,000 2,00,000

50,000 15,000 4,50,000 — 60,000 6,000 60,000

The Stock Stock in in th e Ready Ready mad e Clothes Departm ent m ay be considered as consisting consisting of 75% 75% Cloth and 25% 25% other expenses. The The Cloth Dep artm ent earn ed Gr oss Profit Profit at th e rate of 15% 15% d u ring t he year . General Expenses of the bu siness as a w hole came to Rs.1,1 Rs.1,10, 0,00 000. 0. Solut Solution ion : D epartmental epartmental Trading Trading and Profi Profi t and Loss Loss A/c for the year endin g 31st March (Rs.) Particulars

To Op Op g . St o ck To P u r ch a se s To Tfr fr o m C lo t h D e p t . To M fg . Exp s. To G r o s s P r o fit To tal To Se llin g Exp . To P r o fit c/ d To tal To G e n . Exp . To St o ck Re se r v e (See (See Note below ) To N e t p ro f i t To tal

Cloth

3,00,000 20,00,000

RM

Total

50,000 15,000

3,50,000 20,15,000

— 3, 00,000

3,00,000

60,000 4, 00,000 27,00,000 20,000

60,000 85,000 5,10,000 6,000

3,80,000 4,00,000

79,000 85,000

4,85,000 32,10,000 26,000 4,59,000 4,85,000 1,10,000 1,575

Particulars Particulars

Cloth

RM

Total

By Sa Sa le s 22,00,000 By Tfr . t o 3,00,000 RM By C lo s in g 2,00,000 St o ck  

4,50,000 —

26,50,000 3,00,000

60,000

2,60,000

To tal By G r o ss Profit

27,00,000 4,00,000

5,10,000 85,000

32,10,000 4,85,000

To tal 4,00,000 By P r o fit b / d

85,000

4,85,000 4,59,000

3,47,425 4,59,000

To tal

4,59,000

Stock Reserve to be ad d itionally pr ovid ed is 7,200 7,200 – 5,62 5,625 5 = Rs. Rs. 1,5 1,575 75;; calculated calculated as N o te te 1 : Stock u nd n d er er : 354

Fianancial Accounting

Parti c u l a rs

O n O p g S to ck

O n Cl o s i n g S to ck

Ra t e o f G P o n Sa le s in C lo t h D e p t

G iv en = 15%

4,00,000 ÷ 25,00,000 = 16%

Ele m en en t o f C lo t h St o ck in Readymade Clothes

75% o f 50,000 = 37,500

75% o f 60,000 = 45,000

St o ck Re se r v e r e q u ir ed to be maintained

37,500 × 15% = 5,625

45,000 × 16% = 7,200

No te 2: 2: In this case, it is possible to ascertain the Reserve already created against Unrealised Profit in the Open ing Stock. Stock. In In th e absence of inform ation, the Reserve shou ld be calculat calculat ed on the d ifferen ifferen ce in the Op enin g an d C losing Stocks i.e. i.e. Rs. Rs. 10, 10,00 000 0 in in th is quest ion. Since Since the Closing Stock has increased, increased, th e Reserve Reserve calculated calculated wou ld be debited to P&L A/ c. In case of decrease in Stocks Stocks,, the Reserve Reserve wou ld be credited to P&L A/ c. Illustr Illustration ation 2 :

The Trad Trad ing and Profit Profit & Loss Loss Acco Accoun un t of Bindas Ltd. for the year end ing 31 st March is as u nd n d er er : Pu rch as e s

Rs .

S al e s

Rs .

Tr a n s i s t o r s

(A )

1,60,000

Tr a n s i s t o r s

(A )

1,75,000

Ta p e Re co r d er s

(B)

1,25,000

Ta p e Reco r d er s

(B)

1,40,000

80,000

Se r v icin g a n d r e p a ir jo b s

(C )

35,000

Sa la r ie s a n d w a g e s

48,000

St o ck o n 31 st M ar ar ch ch Tr Tr an an si sist or or s (A (A )

60,100

Re n t

10,800

Ta p e Re co r d er s

20,300

Su n d r y Exp en s e s

11,000

Sp a r e p a r t s fo r s er v icin g &

Sp a r e p a r t s fo r s er v icin g a n d rep air job (C) (C)

(B)

44,600

repair jobs N et P r o fit

40,200 To tal

4,75,000

To tal

4,75,000

Prepar e Departm ental Accoun Accoun ts for for each of the three Departm ents A, B and C mentioned above after after taking into consideration consideration the following following : (a)

Transis Transistors tors and Tape Reco Recorders rders are sold sold at th e Showroom. Showroom. Servi Servici cing ng and Repairs Repairs are carrie carried d out at the Workshop.

(b)

Salaries alaries and w ages comp comp rise as fol follows: lows: Showroom 3/ 4th and Workshop 1/ 1/ 4th 4th It was decided to allocate the Showroom Salaries and Wages in ratio 1:2 between Departm ents A and B. B.

(c) Workshop Workshop Rent is Rs. Rs.5 500 per month . Showroom Showroom Rent Rent is to be divided equally between between Departm ents A and B. B. (d) Sund ry Expenses Expenses are to to be alloc allocated ated on the basis of of the turnover of each each Department.

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S o lu lu ti ti o n : D epartmental epartmental P&L Accounts fo r the y ear end ing 31st March March (Amou nt in Rs.) Parti cu l ars

A

To P u r ch a s es 1,60,000 To Sp a r e s To Sa l. & W a g es 12,000 T o Re n t 2,400 To Su n d r y Exp s .* 5,500 To N et P r o fit 55,200 To tal 2,35,100

B

C

1,25,000 24,000 2,400 4,400 4,500 1,60,300

80,000 12,000 6,000 1,100 99,100

Parti cu l ars

A

B

C

By Sa les 1,75,000 1,40,000 By Se r v ice s 35,000 By C lo s in g St o ck 60,100 20,300 44,600 By N et Lo s s 19,500

To tal

2,35,100 1,60,300 99,100

N ot o te : Sun d ry Exp ens es are a p p ort ione d in th e rat io of Turn over (5: 4: 1) i.e. 1,75, 1,75,000 000:: 1,40 1,40,00 ,000: 0: 35,000. Illustrat Illustration ion 3 :

Samu dr a & Co, a Partnership Firm Firm h as three dep artm ents viz. K, L, M w hich are und er the charge of the Partners B, C and D respectively. The following Consolidated P&L Account is given given belo below w: Parti cu l ars Rs . Parti cu l ars Rs . To To To To To To To To

O p en in g St o ck s (N o t e l) P u r ch a se s (N o t e 2) Sa la r ies a n d W a g es (N ot ot e 3) Ren t Exp en s es (N o t e 4) Sellin g Exp en en s es (N ot ot e 5) D is co u nt nt Al Allo w ed ed (N ot ot e 5) D ep r e cia t io n (N o t e 6) N e t P r o fit fo r t h e y e a r To tal

81,890 2,65,700 48,000 10,800 14,400 1,200 750 67,060 4,89,800

By Sa le s By C lo sin g St o ck s By D is co u n t s Receiv ed

To tal

(N o t e 7) 4,00,000 (N o t e 8) 89,000 (N ot ot e10) 600

4,89,800

From the above Account Account and the following following add itional itional information, information, prepare the Dep artmental st P&L Accoun Accoun ts for the year end ed 31 March 1. Break up of Op ening Stock Dep artm ent w ise is: K - Rs.37 Rs.37,8 ,890 90;; L - Rs.2 Rs.24, 4,00 000 0 and M - Rs.20, Rs.20,00 000. 0. 2. Total Pu rcha ses w ere a s u nd er: K - Rs.1,40 Rs.1,40,70 ,700; 0; L - Rs.80 Rs.80,60 ,600; 0; M - Rs.44,4 Rs.44,400. 00. 3. Salaries and W ages includ includ e Rs. Rs. 12, 12,00 000 0 w ages of Depa rtm ent M. The balance Salaries should be app ortioned to th e three d epartm ents as 4:4: 4:4:1. 1. 4. Rent is to be apportioned in the ratio of floor floor space which is as 2: 2:2:5. 2:5. 5. Selling elling Expenses Expenses and Discoun Discoun t Allowed Allowed are to be app ortioned in the ratio of Turnover. 6. Depreciati Depreciation on on assets assets should be equally equally charged charged to the thr ee departments. 7. Sales mad e by th e thr ee d epa rtm ent s w ere: K - Rs.1, Rs.1,80 80,0 ,000 00;; L - Rs.1, Rs.1,30 30,0 ,000 00 an d M - Rs.90 Rs.90,0 ,000 00.. 8. Break up of Closing Stock Depa rtm ent w ise is: K - 45,1 45,100 00;; L - Rs.2 Rs.22, 2,30 300 0 and M - Rs.21, Rs.21,60 600. 0. The Closing Closing Stock of Departm ent M includ includ es Rs.5, Rs.5,70 700 0 goods tr ansferred from Dep artm ent K. How ever, Opening Stock Stock does not includ includ e any goods transferred from other d epartm ents. 9. Departm ents K and L sold goods w orth Rs.10 Rs.10,7 ,700 00 and Rs.60 Rs.600 0 respectivel respectively y to Departm ent M.

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Fianancial Accounting

10. Discoun Discoun ts received received are traceable to Departm ents K, L and M as Rs.40 Rs.400; 0; Rs.25 Rs.250 0 and Rs.150 Rs.150 resp ectively. 11. 11. Partners are to sha re the p rofits rofits as un der: (a) (a) 75% 75% of the Profits Profits of Departm ents K, L and M to th e respective Par tner in Ch arge, (b) Balance Balance Profits to be credited as 2:1: 2:1:1. 1. S o lu lu ti ti o n : 1. Dep artmental artmental P&L Accounts fo r the the year endi ng 31st 31st March March (Amou nt in Rs.)

To To To To To

Parti cu l ars K O p en in g St o ck 37,890 P u r ch a s es 1,40,700 In t e r -D ep t Tr f — W a g es — G r o s s P r o fit c/ c/ d 57,210 To tal

L 24,000 80,600 — — 48,300

235,800 1,52,900 1,11,600

To Sa la r ies (4:4:1)

16,000

16,000

To To To To To

2,400 6,480 540 250 31,940 57,610

Ren t (2:2:5) Se llin g Exp D is c. (18:13:9) D e p r ecia t io n N et P r o fit c/ d

To tal

M Parti cu l ars K L 20,000 By Sa les 1,80,000 1,30,000 44,400 By Tr a n s fe r 10,700 600 11,300 By C lo s in g St o ck 45,100 22,300 12,000 23,900 To tal

M 90,000 — 21,600

2,35,800 1,52,900 1,11,600

48,300

23,900

2,400 4,680 390 250 24,830

4,000 By G r o ss 57,210 Profit Profit b/ d 6,000 By D is co u n t s r e ed 400 3,240 270 250. 10,290

250

150

48,550

24,050 To tal

48,550

24,050

57,610

2. Comp Comp utation utation of Stock Reserve

From th e above p rofits, rofits, Stock Stock Reserve Reserve should be eliminated eliminated on th e Closing Closing Stock. Stock. • GP Rate in Depar tm ent K = 57, 57,21 210 0 - 1,90 1,90,7 ,700 00 = 30%. 30%. • Stock Reserve = 30% 30% on Rs.5,7 Rs.5,700 00 = Rs.1, Rs.1,71 710. 0. 3. Pr Prof it and Loss Ap propriation A ccount (Rs.) Parti cu l ars Rs . Parti cu l ars Rs . To St o ck Re se r v e To P r o fit s t r a n s fer r ed t o C a p it a l: B : 75% 75% of of 31,9 31,94 40 = 23 23,95 ,955 C : 75% of of 24 24,830 = 18,623 D : 75% o f 10,290 = 7, 7,718

1,710

By P r o fit b / d (31940 + 24830 + 10290)

67,060

To tal

67,060

50 , 2 96

To balance profits trfd in 2: 1: 1 B : 50% of of 15 15,054 = 7, 7,527 C : 25% of 15,054 = 3, 3,764 D : 25% o f 15,054= 3,764 To tal

Financial Accounting

(b a l.fig ) 15,054 67,060

357

DEPARTMENTAL ACCOUNTS

Illustr Illustration ation 4 : Anand Ltd, has 3 dep artm ents X, X, Y and Z The foll following owing information is prov ided: Parti cu l ars X Y Z O p en in g St o ck 3,000 4,000 6,000 C o n s u m p t io n o f d ir ect m a t e r ia ls 8,000 12,000 — W a g es 5,000 10,000 — C lo s in g St o ck 4,000 14,000 8,000 Sa le s — — 34,000

Stocks of each each Departm ent are valued at cost to the Departm ent concerned concerned . Stocks Stocks of X are tran sferred to Y at a m argin of 50% 50% above Depar tm ent cost. Stocks Stocks of Y are tra nsferred to Z at a mar gin of 10% 10% above d epartm ental cost. cost. Other expenses were were : Sa la r ie s P r in t in g a n d St a t io n er y Re n t In t e r e s t p a id D ep r e cia t io n

2,000 1,000 6,000 4,000 3,000

Allocate expenses in the ratio of Departmental Gross Profits. Opening figures of reserves for un realised realised pr ofits ofits on dep artm ental stocks w ere: Departm ent Y-Rs.1 -Rs.1,0 ,000 00;; Departm ent Z-Rs.2 Z-Rs.2,0 ,000 00.. Prepar e Departm ental Trading and Profit Profit and Loss Loss Account Account for the year. Solut Solution ion : 1. Dep artmen artmen tal Tradin Tradin g Accou nt fo r the y ear (Rs.) (Rs.) Parti cu l ars

To O p e n in g St o ck

X

Y

3,000

4,000

Z

6,000

To tal

13,000

Parti cu l ars

X

Y

Z

To tal

—

51,000

— 34,000

34,000

By In t er n a l 18,000 33,000 Transfer

To D ir e ct M a t e r ia l

8,000

12,000

—

20,000

By Sa le s

To W a g e s

5,000

10,000

—

15,000

By C lo s in g

—

4,000 14,000

8,000

26,000

Stock  To In t l. Tr a n sfe r To Gross Profit To tal

—8,000

33,000

51,000

6,000

3,000

3,000

12,000

22,000

47,000

42,000 1,11,000

To tal

22,000 47,000 42,000 1,11,000

2. Dep artmen artmen tal Prof Prof it and Loss Accou nt fo r the y ear (Rs.) Parti cu l ars

To Sa la r ies

X

Y

1,000 500

Z

500

To tal

Parti cu l ars

2,000

By G r o s s

X

Y

Z

To tal

6,000

3,000

3,000

12,000

By N e t lo ss

2,000

1,000

1,000

4,000

To tal

8,000

4,000

4,000

16,000

Profi Profitt b/ d To P r n t g . & St n r y .

500

250

250

1,000

To Re n t

3,000

1,500

1,500

6,000

To Int erest er est p aid

2,000 2,000

1,000 1,000

1,000 1,000

4,000 4,000

To D e p r e cia t io n

1,500

750

750

3,000

To tal

8,000

4,000

4,000

16,000

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Fianancial Accounting

3. Calculation of Unrealised Profit on Closing Stock of Dept Y Pa rti cu l ars

Va lu e o f C lo s in g St o ck a s g iv en a b o v e To t a l C o s t o f t h e D ep a r t m en t C o s t o f I n t e r n a l T r a n s fe r i n a b o v e Value alue of Transf Transferre erred d in Materi Material al in Clos Closing ing Stock tock U n r ea lis ed P r o fit o f D ep t X in clu d ed in a b o v e

D e p artm e n t Y

1 4, 0 0 0 12,000 + 10,000 + 18,000 = 40,000 1 8, 0 0 0 14,0 14,000 00 x 18, 18,000 000 / 40,0 40,000 00 = 6,3 6,300 6,300 x 50/ 150 = 2,100

4. Calculation of Unrealised Profit on Closing Stock of Dept Z Pa rti cu l ars D e p artm e n t Z Va lu e o f C lo s in g St o ck a s g iv en a b o v e 8,000 Pr o offit s o f D ep ar ar ttm m en en t Y in cl clu d ed ed in in a b o v e 10% M aarr g giin = 8, 8,000 x 10/ 110 = 727 Profits Profits of Departm ent X includ includ ed in above (8,00 (8,000 0 – 727)×18. 727)×18.00 000/ 0/ 40,00 40,000×50 0×50// 150 150 = 1,091 1,091 To t a l U n r e a lis ed P r o fit in clu d ed in D ep t Z St o ck 1,818 5. Adjustment of Reserves on Opening and Closing Stocks Parti c u l ars Rs . Pa rti cu l ars Rs . To N e t Lo s s b / d 4 , 0 0 0 By Res er v e o n Op Op en in g St o ck (1000 + 2000)3 , 0 0 0 To Res er er v e o n C lo lo si sin g St oc ock 3 ,9 ,9 18 18 By N et et Lo Lo ss ss a ft ft er er ad ad ju ju st st m en en t o f Res er er ve ve s 4 ,9 ,9 18 18 To tal 7,918 To tal 7 918 Illustr Illustration ation 5 : Pooma Ltd. has 2 departments M & S. From the following particulars, prepare Departmental Trading Account & Consolidated Trading Account for the year ending 31 st March. Pa rti cu l ars

O p e n in g St o ck P u r ch a s e s C a r r i a g e In w a r d s W ages Sa le s (exclu d in g in t e r d e p a r t m en t a l t r a n s fer s) Purchased Goods transferred By S t o M By M t o S Finished Finished Goods tran sferred sferred By S t o M By M t o S Return of Finished Finished Good s By S t o M By M t o S Closing Stock  Stock  P u r ch a s e d G o o d s Fin is h e d G o o d s

M 2 0, 0 0 0 9 2, 0 0 0 2,000 1 2, 0 0 0 14 0, 0 0 0

S 1 2, 0 0 0 6 8, 0 0 0 2,000 8, 0 0 0 11 2 ,0 0 0

10,000 —

— 8,000

35,000 —

— 40,000

10,000 —

— 7,000

4,500 24,000

6,000 14,000

Purchased Goods have been transferred at their respective departmental Purchase Cost & Finished Goods at Departmental Market Price. 20% of Finished Stock (Closing) at each Department represented Finished Goods received from the other Department.

Financial Accounting

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DEPARTMENTAL ACCOUNTS

S o lu lu ti ti o n : 1. Departmental Trading, Profit & Loss Account for the year ended 31st March Pa rti cu l ars To O p en in g St o ck To P u r ch a s e s

M 2 0, 0 0 0 9 2, 0 0 0

To Tran s f e r : P u r ch a s e d G o o d s Fin is h e d G o o d s To W a g e s To C a r r ia g e In w a r d s To Re t ur u r n o f Fin is ish ed ed Go Goo d s To Gross Profit To tal

S 1 2 , 00 0 6 8 , 00 0

10,000 40,000 12,000 2,000 7,000 38,500

8,000 35,000 8,000 2,000 10,000 46,000

221,500

189,000

Pa rti cu l ars By Sa le s By Transfer: P u r ch a s ed G o o d s Fin is h e d G o o d s By Cl o s i n g S to ck P u r ch a s ed G o o d s Fin is h e d G o o d s By Ret u r n o f Fin ish ed G o o d s

To tal

M 1 40 , 00 0

S 11 2, 0 00

8,000 35,000

10,000 40,000

4,500 24,000 10,000

6,000 14,000 7,000

221,500

189,000

2. Calculation of Gross Profit Ratio Parti cu l ars

Sa le s Ad d : Le s s :

M o h an 140,000 35,000 (7,000) 168,000 38,500 22.9%

Tr a n s fer o f Fin ish ed G o o d s Ret u r n o f Fin is h e d G o o d s N et Sales [A] [A] G r o s s P r o fit [B] a s ca lcu la t ed b e lo w Gross Prof Prof it Ratio [B ÷ A ]

S o h an 112,000 40,000 (10,000) 142,000 46,000 32.4%

3. Conso Conso lid ated ated Trading Trading Account for the the y ear end ed 31st March Parti cu l ars To O p e n in g St o ck To P u r ch a se s To W a g es To C a r r i a g e In w a r d s To Stock Reserve [ 2 4, 0 0 0× 2 0% ] × 3 2 . 4% [ 1 4 , 0 00 × 2 0 % ] × 22 22. 9 % To N e t P r o fit To tal

Amount 32,000 160,000 20,000 4 , 00 0

By By By By

Parti cu l ars Sa les (1,40,000+ 1,12,000) C lo s in g St o ck   P u r ch a s e G o o d s 10,500 Fin ish ed G o o d s 38,000

Amo unt 2,52,000

4 8, 5 0 0

1 , 55 5 641 82 , 3 04 300,500

To tal

300,500

Illustr Illustration ation 6 : Khushi & Co has 2 departm ents A & B. B. Departm ent A sells goods to Dep artmen t B at norm al selling selling p rices. rices. From From the following following par ticulars ticulars p repare Departm ental Trading & Profit Profit & Loss Account for the year ended 31st March & also ascertain the Net Profit to be transferred to Balance Sheet.

360

Fianancial Accounting

Parti cu l ars O p e n in g s t o ck P u r ch a s es G o o d s fr o m D e p a r t m e n t B W a g es Tr a v ellin g Exp en s e s C lo s in g st o ck a t co st t o t h e D e p a r t m en t Sa le s P r in t in g & St a t io n er y

A N IL 2,00,000 7,00,000 1,60,000 1,40,000 1,80,000 15,00,000 16,000

B 1,00,000 23,00,000 — 1,00,000 10,000 5,00,000 23,00,000 20,000

The following expenses incurred for the both departments were not apportioned between the departme departments nts : Parti cu l ars Amoun t Sa la r ies 2,70,000 A d v e r t is em en t Exp e n s es 90,000 G e n e r a l Exp en se s 8,00,000 Dep reciation shou ld be charg ed a t 25% 25% on the m achinery v alue of Rs.48 Rs.48,0 ,000 00.. Adver tisemen t Expen Expen ses are to be app ortioned in the tu rn over ra tio, Salaries Salaries in 1:2 1:2 ratio & Depreciation in 1:3 1:3 ratio between Departm ents A & B. B. General Expenses Expenses are to be ap portioned in 1:3 1:3 ratio. Solut Solution ion : 1. Departmental Trading, P&L Account of Khushi & Co for the year ended 31st March (Rs.)

To To To To To

Parti cu l ars O p e n in g St o ck P u r ch a se s W a g es In t er n a l Tr a n s fer G r o ss P r o fit To tal

To To To To

A

B 1,00,000 2,00,000 23,00,000 1,60,000 1,00,000 7,00,000 6,20,000 10,00,000 16,80,000 35,00,000

Tr a v elin g Exp en en se se s 1,40,000 Pr Pr in ti tin g & St a t io n er er y 16,000 Sa la r ies 90,000 A d v e r t is e m e n t 35,526 Expenses To G en er er al al Exp en en se ses 2,00,000 To D ep r e cia t io n (1:3) 3,000 To N e t P r o fit 1,35,474 To tal

Parti cu l ars By Sa les By In t e r n a l Tr a n sfe r By C lo s in g St o ck

10,000 20,000 1,80,000 54,474

To tal

A B 15,00,000 23,00,000 7,00,000 1,80,000 5,00,000

16,80,000 35,00,000

By G r o s s P r o fit b / d

6,20,000 10,00,000

To tal

6,20,000 10,00,000

6,00,000 9,000 1,26,526

6,20,000 10,00,000

N ot o te :

1.

GP Ratio of Dep ar tm ent en t B = Gros s Profit Pro fit * Tota l Sales Sales = 10,00,0 10,00,000 00 + (23,00 (23,00,000 ,000 + 7,00,0 7,00,000) 00) = 33.33% 2. Ad vertisement Expenses Expenses are app ortioned in the ratio of External External Sales Sales i.e. i.e. 15 : 23. 23.

Financial Accounting

361

DEPARTMENTAL ACCOUNTS

2. Computation Computation of Un realised Profit Profit on Closing Stock Stock : Parti cu l ars

D e p artm e n t A

Va lu e o f C lo s in g St o ck a s g iv en a b o v e

1, 80 ,00 0

To t a l M a t e r ia l C o s t o f D ep a r t m e n t a

2,00,000 + 7,00, 000 = 9,00, 000

M a t er ia l C o s t o f In t er n a l Tr a n s fer in a b o v e

7, 00 ,00 0

Value Value of Transferred in Material in Closing Closing Stock Stock 1,80,0 1,80,000×7,0 00×7,00,0 0,000/ 00/ 9,00,0 9,00,000 00 = 1,40,00 1,40,000 0 U n r e a lis ed P r o fit o f D e p t B in clu d e d in a b o v e (GP Ratio Ratio of Depart m ent B = 33.3 33.33% 3% or l/ 3rd)

1 , 4 0 , 0 00 × 1 / 3 = 4 6 , 6 67

3. Profit after adjustment of Unrealised Profit

To St o ck Res er v e (a s ca lcu la t ed ab ab o v e ) To Net Profit c/ c/ d to Balance Balance Sheet Sheet To tal

46,667 2,15,333

By N et P r o fit b / d

2,62,000

[1,26,526+1,35,474]

2,62,000

To tal

2,62,000

Illustrat Illustration ion 7 : Departm ent X sell sellss goods to Departm ent Y at a profit of 25% 25% on cost & to Departmen t Z at a profit of 10% on cost. Department Y sells goods to X & Z at a profit of 15% & 20% sales, respectively. Departm ent Z charges 20% & 25% 25% pr ofit ofit on cost to Dep artm ent X & Y, Y, respectively. Departm ent Man agers are entitled to 10% Comm ission ission on N et Profit subjec subjectt to Un realised realised Profits Profits on Dep artm ental sales sales being eliminated eliminated . Departmental profits after charging manager’s commission, bur before adjustment of  u nr ealised p rofits ar e : X = Rs. 36,00 36,000; 0; Y = Rs. 27,00 27,000; 0; Z = Rs. 18,000 18,000 Stocks tocks lying lying at d iff ifferent departments at th e year end are as u nd er : Parti cu l ars

X

Y

Z

T r a n s fe r f r o m D e p a r t m e n t X

—

15,000

11,000

T r a n s fe r f r o m D e p a r t m e n t Y

14,000

—

12,000

T r a n s fe r f r o m D e p a r t m e n t Z

6,000

5,000

—

Find Find out t he correct correct Depar tmen tal Profits Profits after charging Managers’ Commission. Solut Solution : 1. Comp Comp utation utation of U nrealise nrealise d Profi Profi ts Parti cu l ars o f tran s f e r to

D e p artm e n t X

D e p artm e n t Y

D e p artm e n t Z

15,000 × 25 25/ 125

11,000 × 10 10/ 110

N il

= 3,000

= 1,000

4,000

14,000 × 15/ 100

12,000 × 20/ 100

= 2,100

N il

= 2,400

4,500

6,000× 20/ 120

5,000× 25/ 125

= 1,000

= 1,000

N il

2,000

From D epartment X to Y and Z

a t 25% a n d 10% o f C o st nd Z From D epartment Y t o X a nd a t 15% a n d 20% o f Sa le s Fr o m D e p ar ar t m en en t Z t o X a n d Y a t 20% a n d 25% o f C o s t

362

To tal

Fianancial Accounting

2. Computation of Correct Departmental Profits after charging Manager’s Commission correctly Parti cu l ars

D e p artm e n t X

P r ofit s a ft er ch a r g in g M g r Co m m ission

D e p artm e n t Y D e p artm e n t Z

36,000

27,000

18, 000

1/ 9 x 36,000 1/ 10 10 o n P r o fit s b efo r e ch a r g in g co m m iss io n = 4,000 = 1/ 9 on Profits Profits after charging charging comm ission ission P r o fit s b efo r e ch a r g in g co m m iss io n 40,000

1/ 9 x 27,000 = 3,000

1/ 9x18,000 = 2,000

30,000

20,000

4,000 36,000

4,500 25,500

2,000 18,000

3,600 32,400

2,550 22,950

1,800 16,200

Add : W r on g Co m m iss io n = 10% o f P r ofit s =

Less ess : U n r e a lise d P r o fit s i.e. St o ck Re se r v e

P r o fit s q u a lify in g fo r co m m iss io n Less ess : C o m m is sio n a t 10% o f a b o v e

C o r r e ct P r o fit s a ft e r ch a r g in g co m m is sio n

Illustr Illustration ation 8 : The following details are available in respect of a business for a year. D e p artm e n t X Y Z

O p e n i n g S to ck 120 u n it s 80 u n it s 152 u n it s

Pu rch as e 1,000 u n it s 2,000 u n it s 2,400 u n it s

S al e s 1,020 u n it s a t Rs.20.00 ea ch 1,920 u n it s a t Rs .22.50 ea ch 2,496 u n it s a t Rs.25.00 ea ch

The total va lue of p ur chases is Rs.1, Rs.1,00 00,0 ,000 00.. It It is observed tha t th e rate of Gross P rofit is the same in each each d epartm ent. Prepare Departm ental Trad Trad ing Account Account for the above year. Solut Solution ion : 1. Computation of Closi ng Stock Qu antity (in (in un its) Parti cu l ars X Y Z O p e n in g St o ck 120 80 152 Ad d : P u r ch a s es 1,000 2,000 2,400 Le s s : U n it s So ld (1,020) (1,920) (2,496) Cl o s i n g S to ck 100 160 56  2. Computation of Gross Profit Ratio We are informed that the GP Ratio Ratio is the sam e for all depar tments. Selli Selling ng P rice rice is given for each each d epartm ent’s ent’s prod ucts but th e Sale Sale Quantity is different different from that of Purchase Quantity. To find find th e Uniform Uniform GP Rate, the sale value value of Purchase Quan tity should be comp ared w ith the Total Cost of Purchase, as und er:

Assum ing all pu rchases are sold, sold, the sale sale proceeds wou ld be Parti cu l ars S al e V al u e o f Pu rch as e Q u an ti ty A m o u n t D ep a r t m en t X 1,000 u n it s a t Rs .20.00 20,000 D ep a r t m en t Y 2,000 u n it s a t Rs .22.50 45,000 D ep a r t m en t Z 2,400 u n it s a t Rs .25.00 60,000 Total Sale Value of Purchase Quantity 125,000 Le ss ss : C o s t o f P u r ch a s e 1,00,000 G ro s s Pro f i t A m o u n t 25,000 G r o s s P r o fit Ra t io 25,000 ÷ 1,25,000 20% o f Sellin g P r ice

Financial Accounting

363

DEPARTMENTAL ACCOUNTS

3. Computation of Profit and Cost for each article D e p artm e n t

S e l l i n g Pri ce

Pro f i t at 1/5 o f S P

Co s t = S al e s – Pro f i t

D e p a r t m en t X

Rs.20.00

1/ 5 o f Rs.20.00 = 4.00

Rs. 16.00

D ep a r t m en t Y

Rs .22.50

1/ 5 o f Rs .22.50 = 4.50

Rs .18.00

D ep a r t m en t Z

Rs .25.00

1/ 5 o f Rs .25.00 = 5.00

Rs .20.00

4. Dep artmental artmental Trading Trading Account fo r the the year Parti cu l ars To O p g . st o ck To Pu Pu r ch a s e

X

Y

1,920

Z 3,040

6,400

16,000 36,000 48,000

100,000

To Gr Gr o s s Pr Pr o fit

4,080

To tal

22,000

1,440

To tal Parti cu l ars

8,640 12,480 46,080

63,520

By Sa le s

X

Y

Z

To tal

20,400 43,200 62,400

By Cl Clg . s t o ck 1,600

126,000

2,880

1,120

5,600

46,080

63,520

131,600

25,200 131,600

To tal

22,000

Open ing and Closing Closing Stocks Stocks are valued at Cost as indicated in WN 3 above. Sale Amou nt in the Trad ing Accoun Accoun t is compu ted for the Sale Quantity on ly. Gross Gross Profit is calc calculated ulated at 20% 20% of Sale Value. Illustrat Illustration ion 9 : Anumod Ltd. is a retail store having 2 Departments P and Q. The Company maintains at Memoran du m Stock Stock Accoun Accoun t & Memoran du m Mark Up Accoun Accoun t for for each each of the Departm ents. Supplies issued to the Departments are debited to the Memorandum Stock Account of the Departm ent at Cost plu s Mark Up , and Dep artm ental Sales Sales are credited credited to this Account. Account. The The Mark Up on supplies issued to the Departments is credited to the Mark Up Account for the Departm ent. When it is necessary necessary to r edu ce the Sell Selling ing Price below below the N ormal Selling Selling Price, Price, i.e. Cost plus Mark Up, the reduction (Mark Down) is entered in the Memorandum Stock  Account Account & Mark Up Account. Account. Department P has a m ark up of 3333-1/ 1/ 3% on Cost, and Department Q h as a m ark-up of 50% 50% on cost. The foll following owing inform inform ation has been extracted extracted from the records of the Com pan y for a year st end ing 31 31 December. Parti cu l ars

O p e n in g St o ck (a t C o st )

P

Q

24,000

36,000

P u r ch a s es

162,000

190,000

Sa le s

210,000

285,000

1. 2.

364

Opening Stoc Stock k of Department P incl includ ud es goods goods on which which the Sel Selli ling ng Pric Price has bee been n marked dow n by Rs.5 Rs.510 10.. These These goods were sold in Janu ary at the red uced Selling Selling Price. Price. Certain Certain goods purchased purchased d uring the year year for for Rs. Rs.2 2,70 ,700 for Departm Departm ent P, were transferred transferred du ring th e year to Dep artm ent Q & sold sold for Rs.4 Rs.4,5 ,500 00.. Purchases & Sales Sales are record record ed in the Pur chases of of Departm ent P & the Sales Sales of Departm ent Q resp ectivel ectively, y, but no entr ies have been mad e in respect of the tran sfer. sfer.

Fianancial Accounting

3.

Goods Goods purchas purchased ed during during the year year were were marke marked d d own as follo ollows: ws: Parti cu l ars

C ost M a r k d ow n

P

Q

8,000 800

21,000 4,100

At the end of the year there were some items in the stock of Department Q, which had been mar ked d own to Rs.2, Rs.2,30 300. 0. With this exception, exception, all goods m arked dow n d uring t he year were sold du ring the year at reduced p rices. rices. 4. During stoc stock-taki k-taking ng at the end end of the year, goods which which had cost Rs.2 Rs.240 40 were found found to be missing in Departm ent P. It It was d etermined th at loss should be regarded as irrecoverable. irrecoverable. 5. The Closi Closing ng Stoc Stock k in in both Departments Departments are to be valued valued at Cost Cost for for the pu rpose of of the annual accounts. Prepar e for the year ended 31st 31st December December the following following accoun accoun ts - (a) Trad Trad ing Accoun Accoun t; (b) (b) Memorandu m Stock tock Account Account and (c) (c) Memorandu m Mark Up Acco Account. unt. Solut Solution ion : 1. Memorandu Memorandu m S tock Account (in Rs.) Parti cu l ars

P

Q

To b a la n ce b / d (g iv g n co s t 32,000 + 33-1/ 3% & 50% m -u p ) To P u r ch a se s (g iv e n ) 162,000 To M em o r a n d u m M a r k U p 54,000 (33-1/ 3% 3% & 50% o n p u r e.) To In t er n a l Tr a n s fer - p er — co n t r a To M em o r a n d u m M a r k U p — (50% o n In t er n a l Tfr ) To M em o r a n d u m M a r k U p — (o n M a r k ed D o w n G o o d s still in st ock - See No te 1) 1) By Memorandum Mark 80 Up ( M-up on Stock Lost) Lost)

54,000 190,000 95,000 2,700 1,350 344

Pa Parti cu l ars

P

By b a la n ce b / d (m a r k 510 d o w n - g iv e n ) By Sa le s (g iv e n ) 210,000 285,000 By In t e r n a l 2,700 — Tr a n s fer -p e r co n t r a By M e m o r a n d u m M a r k 900 U p (M -u p o n Tr a n sfe r ) By M em o r a n d u m M a r k 800 4,100 U p (M a r k D o w n - g iv e n ) By A b n o r m a l Lo s s -C o s t 240 — t r a n s fe r r e d t o P & L A / c

By balanc balancee c/ c/ d (Clos Closing ing 32,770 Stock - balancing figu re) To tal

248,000

Q

343,394

To tal

54,294

248.000 343,394

No te 1 : Mark Mark D ow n in Unsol d Stock of Department Department Q

Total otal Mark Mark down × Value alue of Stock tock —

—

—

—

—

—

—

—

—

—

—

—

—

—

Va lu e o f M a r k d o w n g o o d s

—

4.100×2. ×2.300 =

—

—

—

—

27,400*

—

=

Rs.344

* Va lu lu e of of Ma Ma rk rk D ow ow n G oo oo d s = C os os t Add: Norm al Mark Up 50% 50% Less: Amoun t Marked Marked Down = Rs.21 Rs.21,0 ,000 00 Add : Rs. Rs. 10, 10,50 500 0 Less: Rs.4,100 Rs.4,100 (given ) = Rs.27,400

Financial Accounting

365

DEPARTMENTAL ACCOUNTS

N ote 2 : Valuation of Closin g Stack Stack at cost; D e p a rtm e n t

P

Q

C lo s in g St o ck a t In v o ice P r ice a s p er M em o r a n d u m 3 2, 7 7 0 5 4, 2 9 4 Stock tock A/ c C lo s in g St o ck a t C o s t a ft e r r e d u cin g 1/ 3 a n d 1/ 2 32,770 – 1/ 4 54,294 - 1/ 3 on cost cost = 1/ 1/ 4 and 1/ 3 on the Invoice Invoice Price Price respec respective tively ly thereon thereon = 24 24,578 ,578 thereon thereon = 36,196 2. Tr Trading Account for the ye ar end ed 31st D ecemb er (in Rs.) Rs.) Parti cu l ars P Q Parti cu l ars P To O p e n in g St o ck 24,000 36,000 By Sa les 210,000 To P u r ch a se s 162,000 190,000 By In t e r n a l Tr a n s fe r 2,700 To In t e r n a l Tr a n s fer — 2,700 By A b n o r m a l Lo s s 240 51,518 92,496 By Cl To Gross Profit Closin osing g Sto Stocck (Note (Note 2) 24,578

Q 285,000 — — 36,196

To tal

237,518

321,196

P 8,000

Q 18,000

54,000

95,000

237,518

321,196

To tal

3. Memorandu Memorandu m M ark ark Up Account (in Rs.) Parti cu l ars P Q Parti cu l ars To b a la n ce b/ b / d (M a r k 510 — By b a la n ce b / d (33-1/ 3% D o w n -g iv en - p e r co n t r a ) a n d 50% o n co s t g iv e n ) To M em o r a n d u m St o ck 900 By M em o r a n d u m St o ck A / c (M -u p o n Tr a n s fer ) (M a r k U p o n P u r ch a se ) To M em o r a n d u m St o ck 800 4,100 By M em o r a n d u m St o ck A / c (M a r k D o w n - g iv en ) (M a r k U p o n In t . t r a n s fe r ) To Me M em o r a n d u m St St o ck 80 — By M em o r a n d u m St o ck A / c (M -u p o n G o o d s Lo s t ) A / c (m a r k e d d o w n g o o d s still in stock) To Gros Grosss Prof Profiit (as (as abo above ve)) 51,518 92,496 To balance balance c/ d (bal. (bal. fig. fig.)) 8,192 18,098 To tal

62,000 114,694

To tal

1,350 344

62,000

114,694

4. Conf Conf irmation irmation / Verification Verification of Gross Profi Profi t D e p artm e n t

P

Sa les (g iv en ) A d d b a ck : Red u ct io n / M a r k d o w n To t a l N o r m a l G r o ss P r o fit a t 1/ 4 a n d 1/ 3 of above Le s s :

210,000

285,000

510 + 800= 1,310 211,310 (1/ 4) = 52,828

4,100-344 = 3,756 288,756 (1/ 3) = 96,252

1,310

3,756

51,518

92,496

Red u ct io n / M a r k d o w n Gross Gross Profit Profit (as (as per Memo Mark Up a/ c)

366

Q

Fianancial Accounting

Illustrat Illustration ion 10 :

Z Ltd., has 3 departm ents, X, X, Y, Y, Z. The The following following information is pr ovided : X Y R s. R s. O p e n in g St o ck 3 , 0 00 4,000 C o n s u m p t io n o f d ir ect m a t er ia ls 8 , 0 00 12 , 0 0 0 W ages 5 , 0 00 10 , 0 0 0 C lo s in g St o ck 4 , 0 00 1 4, 0 0 0 Sa le s — —

Z R s. 6 , 0 00 — — 8 , 0 00 34 , 0 00

Stock of each department is valued at cost to the department connected. Stocks of X department are transferred to Y at a margin of 50% above departmental cost. Stocks of Y dep artm ent are transferred to Z dep artm ent at a mar gin of 10% 10% above dep artm ental cost. cost. Other expe nse s w ere : Salaries Rs. 2,00 2,000, 0, Pr ingin g & Stat Stat ioner y Rs. 1,00 1,000, 0, Rent Rs. 6,00 6,000, 0, Inte rest p aid Rs. 4,0 4,000 00,, Depreciation Rs. 3,00 3,000, 0, Allocate Allocate expenses in the r atio of d epa rtm ental g ross p rofit. Open ing figures figures of reserve for for unr ealised ealised profits on on d epartm ental stocks stocks were : Departm ent Y Rs. 1,0 1,000 00 ; Depar tm ent Z Rs. 2,00 2,000. 0. Required equired : Prepare Departmental Trading and Profit & Loss Accounts for the year ended March 31, 2008. Departmental Trading and Profit & Loss Acconts for t he y ear en ded 31st M arch, 2008

D r. Part icu lars

X

Y

T o O p e n in g St o ck :

R s. 3,000

R s. 4,000

T o D ir e ct M a t e r ia l co n s id e r e d To W a g e s

8 , 0 0 0 12 1 2 , 00 0 5 , 0 00 10 , 0 0 0

Z

T ot al

R s. R s. 6 , 0 0 0 1 3, 00 0

— —

2 0, 00 0 1 5, 0 0 0

T o In t e r n a l Tr a n s fe r

— 1 8 , 00 0 33 , 0 0 0 5 1, 00 0

T o G r o s s P r o fit c/ d

6 , 0 0 0 3 , 0 0 0 3 , 0 0 0 1 2, 00 0 2 2 , 0 0 0 47 47 , 00 0 42 , 0 0 0 1, 11 ,0 00

Part icu lars

X

C r. Y

R s.

By In t e r n a l b / d By Sa l e s By C lo s in g St o ck

R s. 1 8 , 0 0 0 3 3, 0 0 0

Z

T ot al

R s.

—

Rs 5 1 , 00 0

— — 3 4 , 00 0 4,000 14,000 8,000

34 3 4 , 00 0 26,000

2 2 , 0 0 0 4 7 , 0 0 0 42 4 2 , 00 0 1, 11 ,0 00

T o Sa l a r i e s

1,000

500

500

2,000

By G r o s s P r o fit b / d

6,000

3 , 00 0

3, 0 00

12,000

T o P r in t in g & St a t io n e r y T o Re n t

500 3,000

250 1,500

250 1,500

1,000 6,000

By N e t Lo s s c/ d

2,000

1,000 1,000

4,000

T o D e p r e cia t io n

1,500

750

750

3,000

T o In t e r e s t p a i d

2,000 1,000 8,000 4,000

8,000

4 , 00 0 4 , 0 00

16,000

T o N e t Lo s s b / d

1,000 4,000 4,000 16,000 4,000

To Pr P r o v is io n fo r u n r e a lise d p r o fit o n C lo sin g St o ck

By P r o v is io n fo r u n r e a lis e d p r o fit o n O p e n in g St o ck

3,918

By Ba la n ce t r a n s fe r r e d t o P r o fit & Lo s s A / c

7,918

3,000 4,918 7,918

Working orking Notes :

(i) (i) FIFO FIFO method for stock stock issue issue has been assum assum ed. Alternatively Alternatively this this question could could h ave been solved by assuming other methods for stock issue like LIFO Basis, Weighted Avera ge basis, etc. etc.

Financial Accounting

367

 

DEPARTMENTAL ACCOUNTS

(ii) Calcu lat ion of u n realised profit on Closin g S t ock of D ept t . Y Current cost cost incurred incurred by Dept. Y (Rs. (Rs. 12,000 ,000 + Rs. Rs. 10, 10,00 000 0 + Rs. Rs. 18,000 ,000)) P r o fit in clu d e d in A b o v e (Rs . 18,000 × 50 50/ 15 150) Profit included in Closing Stock of Rs. 14,000 (Rs . 6,000 × Rs . 14,000/ Rs . 40,000)

R s. 40,000 40,000 6,000

2,100

(iii) Calcu lat ion of u n realised profit on Closin g S t ock of D ept C R s. C u r r en t C o s t in cu r r e d b y D e p t . Z 3 3, 0 0 0 P r o fit o f D ep t . B in clu d ed in a b o v e (Rs . 33,000 × 10/ 110) 3,000 Cost Cost eleme element nt of of Dept. Dept. Y incl ncluded in current urrent cos costt (R (Rs. 33,000 – 3,000) 30,0 30,000 00 Pr ofit of Dep t. a inclu d ed in ab ove cost (Rs. 6,00 6,000 0 × Rs. 30,000 30,000// Rs. 40,0 40,000) 00) Total otal Prof Profit inc inclluded in curre current nt cos costt of of Dept. Dept. Z (R (Rs. 3,000 + Rs. Rs. 4,500) 7,50 7,500 0 Unrealised p rofit rofit included in closing closing stock of  Rs . 8,000 (Rs . 7,500× Rs . 8,000/ Rs . 33,000) 1,818 (iv ) To t a l u n r e a lise d p r o fit (Rs . 2,1000 + Rs . 1,818) 3,918 Illustrat Illustration ion 11 :  X  Limited is a retail organisation with several departments. Goods supplied to each department are debited to a Memorandum Departmental Stock Account at cost,  plus fixed percentage (make-up (make-up ) to give give the norm al selli selling ng p rice. rice. The mark u p is credited to a Memora nd um Departm ental “Mark-up A ccoun ccoun t”. Any redu ction ction in selling selling prices (mar (mar k-down ) will require adjustment in the stock account and in mark-up account. The mark up for Department A for the last three years h as been 40%. 40%. Figures Figures r elevant elevant t o Departm ent A for th e end ed 31st 31st Dec. 2008 2008 were as follows follows : Stcok 1st Janu ar y 2008 at Co st, Rs. 80,000 80,000,, Pu rcha ses a t C ost Rs. 1,80, 1,80,00 000, 0, Sales Sales Rs. 3,20,00 3,20,000. 0. It is is further further ascertaine ascertained d that : (a) Goods p ur chased in the p eriod w ere marked dow n by Rs. 1,4 1,400 00 from a cost of Rs. 16,0 16,000 00.. Mar ked -dow n stock costing Rs. 4,00 4,000 0 remained un sold on 31st Decemb Decemb er 2008 2008.. (b) Stock shortages shortages at th e year end , which had cost cost Rs. 1,20 1,200 0 were to be wr itten off. off. (c) (c) Stock at 1st Jan. Jan. 2008 2008 includ includ ing good s costing costing Rs. 8,2 8,200 00 had been sold du ring th e year and has been m ark d own in the selling selling pr ice ice by Rs. 740. 740. The ramaining stock had been sold sold du ring the year. (d) The departm ental closi closing ng stock stock is to be valued valued at cost cost subjec subjectt to adjustm adjustm ents for for markup and m ark-down. ark-down. Trad ing Accoun Accoun t (ii) (ii) A Mem orand um Stock tock Accoun Accoun t Required equired : Prepare (i) A Depar tmenta l Trad (iii (iii)) A Memoran du m Mark-up Accoun Accoun t for the year 2008. 2008. Solut Solution : (i) D epartmental epartmental Trading Trading Account D r.

To To To

for t he y ear en ded 31st D ecem ber, 2008 Part icu lars O p e n in g St o ck P u r ch a s e s G r o s s P r o fit c/ d

R s. 8 0 , 00 0 1,8 0, 000 9 0 , 15 0 3 ,5 0 , 1 5 0

368

C r.

Part icu lars

By By By

Sa le s So r t a g e C lo s in g s t o ck   (Rs. 40,180 – Rs. 11,230)

R s. 3 ,20 ,0 00 1, 2 0 0

28,950 3 ,5 0 ,1 5 0

Fianancial Accounting Accounting

 Dr.

To To

(ii) Memo randum D epartmental epartmental Stock Account (At Sellin g Price) Price) Part icu lars Ba la n ce b / d (Rs . 80,000 + Rs . 32,000) P u r ch a s es (Rs . 1,80,000 + Rs . 72,000)

R s.

By 1, 12, 000 By 2,52,000 By

By

By

Part icu lars P r o fit & Lo s s A / c (C o st o f Sh o r t a g e) M em or a n d u m D ep a r t m a n t a l M a r k -u p A / c (Load (Load on Shortage) M a r k -u p A / c (Mark (Mark Down in Current Purchases) D e b t o r s A / c (Sa les ) M ar ar kk-u p A / c (Mark (Mark Down on Opening Stock) Ba la n ce c/ d

3,64,000  Dr.

To To To To To

R s.

By 480 By 1,400

Part icu lars Ba la n ce b / d (Rs . 1,12,000× 40/ 140) M e m o r a n d u m D e p a r t m en t a l St o ck A / c (Rs . 2,52,000× 40/ 140)

480 1,400

3,20,000

40,180

Cr. R s.

32,000 72,000

740 90,150

11,230 1,04,000

Working orking Note : (i) Calcu lat ion of Cost of sales a .Sa les a s p er Bo o k s b.Add : M a r k -d o w n in o p en in g st o ck (g iv en ) c.Add : Mark-down in sales out of current Purchases ( R s . 1 , 40 0 × 1 2, 00 0 / 16 , 0 0 0 ) d .Va lu e o f s a le s if t h er e w a s n o m a r k -d o w n (a + b + c) (40/ 140 of Rs. 3,21, 3,21,79 790) 0) su bject bject to Ma rk Do w n e.Less : Gro ss Pro fit (40/ (Rs . 740 + Rs . 1,050) f.C o s t o f s a le s (d - e) (ii) Calcu lat ion of Closin g S t ock a .O p e n in g St o ck b.Add : P u r ch a s e s

Financial Accounting

R s. 1,200

3,64,000

(iii) Memo randum D epartmental epartmental Mark Mark up A ccount Part icu lars M em o r a n d u m D ep a r t m e n t a l St o ck A / c (Rs. 1,200× 40/ 100) M em o r a n d u m D ep a r t m e n t a l St o ck A / c M e m o r a n d u m D ep a r t m e n t a l St o ck A / c Gross Gross Prof Profit transf transfer erre red d to P r o fit & Lo ss A / c Ba la n ce ce c/ d [(Rs. 40,18 40,180+Rs. 0+Rs. 350)×40/ 350)×40/ 140 – (Rs . 350)

Cr.

1,04,000 R s. 3, 20 ,00 0 740

1,050 3, 21 ,79 0 9 1, 9 4 0 2, 29 ,85 0 R s. 8 0, 0 0 0 1, 80 ,00 0 369

DEPARTMENTAL ACCOUNTS

c.  Less : C o s t o f Sa les d .  Less : Sh o r t a g e e . C lo s in g St o ck (a + b –c–d )

2, 29 ,85 0 1,200 2 8, 9 5 0

Illustrat Illustration ion 12 :

Southern Store Ltd. is a retail store operating two departments. The company maintains Memorandu m Stock tock account account an d Memorandu m Mark-up Mark-up acc account for for each of the departments. Supplies issued to the department are debited to the Memorandum Stock account of the departm ent at cost cost  plus the Mark-up , and d epartm ental sales sales are credited credited to this account. account. The The mark-up on supplies issued to the departments is credited to the Mark-up account for the dep artm ent. When it is necessary necessary to red uce the selling selling p rice rice below th e norm al selling selling price, i.e i.e.. cost  plus Mark-up, the reduction (mark down) is entered in the Memorandum Stock account and in the mark-up acc account. Department Y  has Mark-up of 33-1 33-1// 3% on cost, cost, and Depar tmen t  Z  50% on cost. The following information has been extracted from the records of Southern Store Ltd. for the yea r en d ed 31st 31st December , 200 2008. 8. Dep Department tment Dep Department  tment  Y Z  R s. R s. St o ck , 1st Ja n u a r y , 2008 a t co s t 24,000 36,000 P u r ch a s e s 1,62,000 1,90,000 Sa le s 2,10,000 2,85,000 (a) The stoc stock k of Depart Department ment Y  on 1st january, 2008 2008 includ includ ed goods on w hich the selling selling pr ice ice has been m arked dow n by Rs. Rs. 510 510.. These These goods w ere sold in Janu ary, 2008 2008 at th e reduced price. (b) Certain goods pu rchased in 200 2008 8 for for Rs. Rs. 2,7 2,700 00 for Departm Departm ent Y , were transferred du ring the year to Department  Z , and sold for Rs. 4,05 4,050. 0. Pu rchase an d sale are r ecorded in the pu rchases of Departm ent Y  and the sales of Departm ent  Z  resp ectively, bu t no entr ies in in respect of the transfer have been mad e. (c) Goods Goods purchase purchased d in 20 2008 were marked marked down as foll follows ows :   De Depa partme rtment nt Y Depa Departme rtment nt Z  R s. R s. C ost 8,000 21,000 M a r k d ow n 800 4,100 At the end of the year year there w ere some items in the stock stock of Departm Departm ent  Z , which had been m arked dow n to Rs. Rs. 2,3 2,300 00.. With this exception exception all goods m arked dow n in 2008 2008,, w ere sold sold du ring the year at the redu ced ced p rices. rices. (d) During stock taking on 31st 31st December December 2008 2008,, goods goods w hich had cost Rs. Rs. 240 240 were foun foun d to be missing missing in d epartment Y . It was determined that the loss should be regarded as irrecoverable. (e) (e) The clo closi sing ng stock stock in both departm ents are to be be valued at cost cost for for the pu rpose of the annual accounts. 31st December, December, 200 2008 8: Required equired : Prepare for each dep artm ent for the year end ed 31st (i) (i) a Trading Accoun Accoun t, (ii (ii)) a Memoran du m Stock Account, Account, and (iii (iii)) a Memoran du m Markup Acc Account.

370

Fianancial Accounting

Solut Solution ion : Southern Stores Ltd. Trading Account for the year ended 31st December, 2008

 Dr. Part icu lars

D ept . Y D ept . Z R s. R s. 24 , 0 00 3 6 ,0 0 0

To O p en in g St o ck To P u r ch a s es

1, 62, 0001 ,9 0,0 00

To Tr a n s fer fr o m Y D e p t . To G r o s s P r o fit c/ d

—

2,700

51 , 5 18 9 2 , 49 6

Part icu lars

By Sa les By Tr a n s fe r t o D e p t . Z By G o o d s Lo s t

Cr.

D ept . Y D ept . Z   R s. R s. 2, 10, 00 0 2, 85, 00 0

2,700

—

240

—

24,578

36,196

2,37,518

3,21,196

By C lo s in g St o ck   (a t co s t )

2,37,518 3,21,196 Mem orandum orandum S tock Accoun Accoun t (At (At Sell ing Price) Price)

 Dr. Part icu lars

D ept . Y D ept . Z R s.

R s.

To Ba la n ce b / d (C o s t + M a r k -u p )

32,000

54,000 By Sa les By Tr a n sfe r

510 2,10,000

2,85,000

2,7000

(o n t r a n s fer ) 54,000

900

95,000 By M e m o r a n d u m 2,700

To M e m o r a n d u m M a r k -u p A / c (o n t / f) f)

R s.

M a r k -u p A / c

m a r k -u p A / c To Tr a n s fer

D ept . Z  

1,62,000 1,90,000 By M e m o r a n d u m

To M e m o r a n d u m (o n p u r ch a s es )

D ept . Y R s.

By Ba la n ce b / d

To P u r ch a se s (C o s t )

Part icu lars

Cr.

M a r k -u p A / c

800

4,100

(M a r k ed d o w n o n 1,350

cu r r en t p u r ch a se r s ) By P & L A/ c (C o st & Sh o r t a g e )

To M em o r a n d u m

By M em o r a n d u m

M a r k -u p A / c

M a r k -u p A / c

(o n M a r k e d d o w n

(o n lo s t St o ck )

g o o d s s t ill in St o ck )

80

344 By Ba la n ce c/ d (C lo s in g St o ck ) 2,48,000 3,43,394

Financial Accounting

240

32,770

54,294

2,48,000

3,43,394

371

DEPARTMENTAL ACCOUNTS

Memorandum Mark-up Account

 Dr. Part icu lars

D ept . Y D ept . Z R s.

To Ba la n ce b / d To M e m o r a n d u m St o ck A / c (M a r k -u p o n Tr a n s fer ) To M e m o r a n d u m St o ck A / c (M a r k d o w n o n C u r r en t P u r ch a s es ) To M e m o r a n d u m St o ck A / c (M a r k d o w n o n g o o d s lo s t ) To Gross Profit (Ba la n cin g Fig u r e) To Ba la n ce c/ d

510 900

800

4,100

80

—

—

—

—

—

—

—

D ept . Y

—

—

—

—

—

D ept . Z  

R s.

R s.

By Ba la n ce b / d 8, 0 0 0 By M e m o r a n d u m St o ck A / c (p u r ch a s e ) 54,000 By M em o r a n d u m St o ck A / c (M a r k -u p o n t r a n s fe r ) By M em o r a n d u m St o ck A / c (M a r k ed d o w n o n g o o d s s t ill in St o ck )

1 8 , 0 00

62,000

1,14,694

51,518 92,496 8,192 18,098 62,000 1,14,694

95,000 1,350

344

Y D ept . (Rs.)

 Z Dept. (Rs.)

3 2, 7 70

5 4, 2 9 4

32,770× 3/ 4 = Rs . 24,578 54,294× 2/ 3 = 36,196

otal Mark down × Value alue of of Stock tock (ii) Total —

Part icu lars

R s.

Working orking Notes : (i) Calcu lat ion of Closin g S t ock at Cost Calculation of Closing Stock at In v o ice p r ice Calculation of Closing St o ck a t C o s t —

Cr.

—

Va l u e o f M a r k d o w n g o o d s (iii) V erificat ion of Gross Profit Sa le s  Add : Re d u ct io n  Add : M a r k d o w n G r o s s P r o fit  Less : M a r k d o w n Gross Profit as per Memorandum M a r k u p A cco u n t

4,10 4,100×2, 0×2,30 300 0 =

—

—

—

—

27,400*

—

=

Rs.344

Y D ept . (Rs.) 2, 10, 000 510 800 2, 11, 310 ( 1 / 4 ) 5 2, 828 1 , 3 10

 Z Dept. (Rs.) 2, 85, 00 0 — 3,756 2, 88, 75 6 (1 / 3 ) 9 6, 252 3 , 7 56

51 , 5 18

9 2, 4 9 6

Illustrat Illustration ion 13 : factory w ith two m anu facturing facturing Dep artm ents ‘ X ’ and ‘Y ’. Part of the outp ut of   X  Ltd., has a factory Department  X  is transferred to Departm ent Y  for fur fur ther pr ocesing ocesing and th e balance balance is directly directly transferred to selling selling Departm ent. The The entire prod uction of Departm Departm ent Y  is directly transferred to the selling selling Departmen t. Inter depar tmenta l stock stock transfers are made as follows follows : 33-1,3 ,3% % over Depar tmenta l Cost.  X  Department to Y  Departm ent at 33-1 selling dep artm ent at 50% 50% over over Departm ental Cost.  X  Departm ent to selling

372

Fianancial Accounting

Y  Department to selling department at 25% over Departmental Cost. The following information is given for the year ended 31st March, 2008. Part icu lars

D et p. X U n it s R s.

D ept . Y U n it s R s.

S ellin g D ept . U n it s R s.

O p en in g St o ck o f Fin is h ed G o o d s

60

60,000

20

40,000

50 1,28,000

O p en in g St o ck o f Ra w M a t er ia ls

—

—

—

—

—

Ra w m a t e r i a l C o n s u m e d

—

1,82,000

—

20,000

—

—

La b o u r C h a r g e s

—

70,000

—

32,000

—

—

Sa les

—

—

—

—

C lo sin g St o ck o f Fin is h e d G o o d s

40

—

50

—

120 4,80,000 60

—

Out of the total transfer transfer by  X  Departm ent, 30 30 units were transferred to selli selling ng d epartm ent, wh ile ile the reamining to Department Y . The per unit material and labout consumption in  X  Departm ent on p rodu ction ction to be tran sferred sferred d irectly irectly to selling selling depa rtm ent is 300 300 per cent of the labour and material consum consum ption on u nits transferred transferred to Y  Department. General Ad ministration ministration expe nse s Rs. 80,000. 80,000. Required equired : Prepare Departmental Profit and Loss Account and General Profit and Loss Account for the year ended 31.3.2008. S o lu lu ti ti o n : D epartmental epartmental Profit Profit and Loss Account for t he y ear en ded 31st M arch, 2008

D r. X D ept . Part icu lars

Qty.

T o O p e n in g s t o ck 6 0 T o R a w M a t e r ia l co n s u m e d To U n it s p r o d u ce d

140

Y D ept .

S ellin g D ept .

R s.

Qty.

R s.

6 0, 00 0

20

4 0 , 00 0

Qty.

R s.

C r.

X D ept . Part icu lars

Qty.

Y D ept . R s.

Qty.

S ell D ept . R s.

Qty.

R s.

5 0 1 , 2 8 , 0 0 0 By St o ck   1 6 0 3 ,7 0, 000

1, 82 ,0 00

—

2 0 , 00 0

—

— By Sa le s

—

—

—

—

—

70,000

—

32,000

—

—

130 2,08,000

30

1,62,00

100

2, 2,50,000

—

1,20,000

4,18,000 150 3,50,000 180

6,60,000

By C lo s in g St o ck

10 10 0 2 , 5 0 , 0 0 0

—

—

—

—

—

— 1 2 0 4 , 80 ,00 0

40

48,000

50

1,00,000

60

1,80,000

200 4,18,000

150

3,50,000

180

6,60,000

T o La b o u r Ch a r g es To St o ck   Transferred From  X  D e p t . To St o ck   Transferred From Y  D e p t . To D ep ep a rt rt m en en ta ta l Profit Profit t/ f to General P & L A/ C

1,06,000 200

Financial Accounting

—

50,000

373

DEPARTMENTAL ACCOUNTS

General Profit and Loss Account for t he y ear en ded 31st M arch, 2008

D r. Part icu lars

R s.

To G en er a l A d m . Exp en s es

8 0 , 00 0

To St o ck Re se r v e fo r C lo s in g St o ck

Part icu lars

By

R s.

P r o fit t r a n sfe r r d fr fr o m : X D ep t .

1,06,000 50,000

on D ep t . Y

12,000

Y D ep t .

o n Sellin g D ep t .

18,175

Se llin g D ep t .

To N et p r o fit

Cr.

1,20,000

1,65,825 2,76,000

2,76,000

Working Working Notes Notes : (a) (a) Selling De pt. Part icu lars

U n it s

Part icu lars

O p en in g St o ck

50

Sa Sa les

T/ f fr o m X D ep t .

30

C lo s in g St o ck

T/ f from Y Dept. Dept. (Balanc alanciing figure) gure)

120 60

100 180 (b)

Part icu lars

180 Y  Dept.

U n it s

O p en in g St o ck T/ f fr o m X D ep t .

U n it s

20 130

Part icu lars

T/ f t o Sellin g D e p t .

U n it s

100

C lo sin g St o ck

50

150

150

(c)  X  Dept. Part icu lars

U n it s

O p e n in g St o ck P r o d u ct io n (Ba la n cin g fig u r e )

60 140

Part icu lars

T/ f t o Se llin g D e p t .

U n it s

30

T/ f t o Y D e p t .

130

C lo s in g St o ck

40 200

200 (d) Total Total Equivalent Equivalent u nits prod uced in  X  Dept. in in terms of those t/ f to Y  Dept. = Equivalent un its of those t/ f to Sell Sell Dept. + t/ f to Y Dept. + Closing Closing Stock. Stock. = (30 × 300/ 300/ 100) 100) + 130 + 40 = 260 (e) Calculation of Transfer Pr ices ices and Closing Stock. Stock.

374

Fianancial Accounting Accounting

A B C D E F G H I

J

C o s t o f O p e n in g St o ck  Add : C o st o f Ra w M a t e r ia ls C o n s u m ed  Add : La b o u r C h a r g e s  Add : T/ f fr o m X D ep t .  Add : T/ f fo r m Y D ep t . To t a l C o s t (A + B+ C + D + E) Eq u iv a la n t U n it s A v er a g e C o st p e r Eq u iv a le n t U n it (F/ G) G) Transf ransfer Pric Price of of 130 Units Units t/ f to Dept Dept.. Y (a ) C o s t of of 130 U n it it s (130× Rs. 1,200) (b)  Add : Pr Pr o fit elem en t @ 33-1/ 3%

X D ept . R s. 6 0, 0 0 0 1 ,8 2, 00 0 7 0, 0 0 0 — — 3, 12 ,00 0 260 1,200

Y D ept . R s. 40 , 00 0 20 ,0 00 32 , 00 0 2, 08, 000 — 3, 00, 000 150 2 , 00 0

S ellin g D ept . R s. 1, 28 ,00 0 — — 1, 62 ,00 0 2, 50 ,00 0 5 ,40 ,0 00 180 3,000

1,56,000 52,000 2,08,000

Transf ransfer Pri Pricce of of Uni Units ts t/ t/ f to to Sel Selli ling ng Dept. Dept. (a ) C o s t o f U n i t s t / f (b)  Add : P r o fit e le m e n t

1,08,000 54,000 50,000 1,62,000 2,50,000 K C lo s in g St o ck 48,000 1,00,000 1,80,000 (40×R ×Rs. s. 1,2 1,200) (50×R ×Rs. s. 2,000) (60×R ×Rs. s. 3,000) (f) Un realised realised Profit Profit on Increase Increase in Closing S tock of of Y Dept. (Rs. 1,00,000 – Rs. 40,000) A Current Cost incurred incurred by Dept. Y  = Rs. 20,000 + Rs. 32,000 + Rs. 2,08,000 = Rs. 2,60,000 B Profit Profit charged by Dep t.  X  inclu d ed in ab ove (Rs. 2,08 2,08,00 ,000 0 × 1/ 1/ 4) = Rs. 52,0 52,000 00 C Profit includ ed in Increase in Closing Stock. Stock. = (Rs. 52,000 × Rs. 60,000/ 60,000/ Rs. 2,60,000) 2,60,000) = Rs. 12,000 12,000 (g) Profit Included in output transferred by Y Deptt. to Selling Dept. A Tra nsfer Price = Rs. 2,50, 2,50,00 000 0 B Profit of Dep t. Y  includ includ ed in Above (Rs. (Rs. 2,5 2,50, 0,00 000 0 × 25/ 25/ 125) 125) = Rs. 50,0 50,000 00 C Cost Element of Dept.  X  in Tra nsfer P rice (Rs. (Rs. 2,50 2,50,0 ,000 00 – Rs. 50, 50,00 000) 0) = Rs. 2,0 2,00, 0,00 000 0 D Profit of Dept.  X  includ includ ed in above (Rs. 2,00,000 2,00,000 × Rs. 52,000/ 52,000/ Rs. 2,60,000) 2,60,000) = Rs. 40,000 E Total Pr ofit Inclu d ed in Tr an sfer p rice (Rs. 50, 50,000 000 + Rs. 40,00 40,000) 0) = Rs. 90,0 90,000 00 (h) Profit Profit Included Included in outp outp ut transferred transferred by  X  Dep t. to Selli Selling ng Dep t. = (Rs. 1,62,000 1,62,000 × 50/ 150) = Rs. 54,000 54,000 (i) (i) Total Total Profit Profit included included in outpu t transferred transferred to Sel Selli ling ng Dept. = Rs. 90,000 + Rs. 54,000 = Rs. 1,44,000 (j) (j) Total Transfer Transfer Price Price for for the Transfer Transfer mad e by  X  Dept. and Y  Dept. = Rs. 1,62,000 + Rs. 2,50,000 = Rs. 4,12,000 (k) Unrealised Profit included included in increas in in Closing Stock Stock of Sell Dept. = Rs. 1,44 1,44,0 ,000 00 × Rs. 52, 52,00 000/ 0/ Rs. 4,1 4,12, 2,00 000 0 = Rs. 18, 18,17 175 5

Financial Accounting

375

DEPARTMENTAL ACCOUNTS

EXERCISE following information. Problem Problem 1 : X Ltd. provid es you th e following St o ck a s o n 1.1.2008 P u r ch a s e (fo r Rs . 4,00,000) Sa le s D e p a r t m en t A 120 u n it s 1000 U n i t s 1020 u n it s @ Rs . 80.00 D ep a r t m en t B 80 u n it s 2000 U n it s 1920 u n it s @ Rs . 90.50 D e p a r t m en t C 152 u n it s 2400 U n it s 2496 u n it s @ Rs . 100.00 The rate of gross profit is the same in each case. Required equired : Prepare Departmental Trading Account for the year 2008. Problem Problem 2 : Zeenat is earning uniform rate hand ing. Foll Following owing are the relevant relevant details details : P u r ch a s e : D ep t . A D ep t . R D ep t . Z

of gross profit in all three departmens he is 15,000 ca r t o n s 20,000 ca r t o n s 15,000 ca r t o n s

The total cost of the purchase amounted to Rs. 6,00,000. Sa l e s :

D ep t . A D ep t . R D ep t . Z

D et a ils o f o p e n in g st o ck :

16,000 ca r t o n s a t Rs . 20 p e r ca r t o n 22,000 ca r t o n s a t Rs . 15 p e r ca r t o n 17,000 ca r t o n s a t Rs. 10 p e r ca r t o n D ep t . A D ep t. R D ep t . Z

4,000 c a r t o n s 5,000 c a r t o n s 4,000 c a r t o n s

trading acco account unt for three departm ent : Required equired : Prepare the trading carried on a bu siness of Drapers and Tailors Tailors in Delhi; D w as Problem Problem 3 : Messers D, B and R carried in charge of Departm ent “A” dealing in cloth. B of Departm ent “B” “B” for selling selling garm ents and R of Departm ent “C” the tailoring section. section. It It had been agreed th at each of the thr ee partners w ould reveive 75% 75% of the profits disclose disclosed d by accoun accoun ts of the dep artm ent of wh ich ich h e was in charge and the balance balance of of the profits profits would be shared in the prop ortion ortion : D 1/ 2, B 1/ 4 and R 1/ 1/ 4. The foll following owing is the Trading and Profit and Loss Acco Accoun un t of the firm firm for the six mon ths end ed 30th 30th September, 200 2008. 8.  Dr. Cr. Trading and Profit and Loss Account   for the year ended  30.09.08 Part icu lars R s. Part icu lars R s. To O p e n in g St o ck : By Sa le s : C lo t h (A ) 37 , 8 90 C lo t h (A ) 1, 80 ,00 0 Re a d y -m a d e G a r m en t s (B) 24 , 0 00 Re a d y -m a d e G a r m en t s (B) 1, 30 ,00 0 Ta ilo r in g Jo b s (C ) 20 , 0 00 Ta ilo r in g Jo b s (C ) 9 0, 0 0 0 To P u r ch a s e s : By D isco u n t r e ce iv ed 800 C lo t h (A ) 1, 40, 700 By C lo s in g St o ck : Re a d y -m a d e G a r m en t s (B) 80 , 6 00 C lo t h (A ) 4 5, 1 0 0 T a i l o r i n g G o o d s (c ) 44 , 4 00 Re a d y -m a d e G a r m en t s (B) 2 2, 3 0 0 To Sa la r ies a n d Wa Wa g e s 48 , 0 00 Ta ilo r in g Jo b s (C ) in clu d in g To A d v e r t is in g 2 , 4 00 Rs . 5,700 fo r g o o d s t r a n sfe r r ed To R e n t 10 , 8 00 fr o m d e p a r t m en t (A )] 2 1, 6 0 0

376

Fianancial Accounting

To To To

D is co u n t A llo w e d Su n d r y Exp en s es Deprec Deprecia iati tion on on Furniture urniture a n d Fit t in g s N e t P r o fit

1 , 20 0 12 , 00 0

750 To 67 , 06 0 4, 89, 800 4, 89 ,80 0 After consideration consideration of the following, following, prep are Departm ental Accoun Accoun ts and Profit Profit and Loss Loss Appropriation Account. (i) (i) Cloth of the value of Rs. Rs. 10, 10,70 700 0 and other good s of the value of Rs. Rs. 600 600 were transferred at selling price by Departments A and B respectively to Department C. (ii) ii) Cloth and garm ents are sold sold in the show-room. Tail Tailoring oring work is carried carried out in the workshop. (iii) iii) The details details of of salari salaries es and w ages were as fol follows lows : (a) Gener al Office Office 50%, 50%, show -room 25% and 25% 25% for for w orksh op 75% of wh ich is for tailoring tailoring alone. (b) (b) Alloc Allocate ate General General Offi Office ce Expenses, Expenses, in the proportion of 3 : 2 : 1 among the Departments A, B, C. (c) (c) Distrib Distribute ute show-room show-room expenses expenses in in the p roportion roportion of 1 : 2 between between Departments A and B. (d) the w orkshop rent is Rs. Rs. 1,0 1,000 00 per m onth th e rent of the General Offi Office ce and Show room is to be divided divided equally equally between Department A and B (e) Depreciation Depreciation charges are to be allocate allocated d equ ally ally amon gst the three Departm ents. (f) (f) All other expenses expenses are to be allocated allocated on the basis of tur nover. (g) Discount Discount s received received are to be credited to the th ree Departm ents as follows follows : A Rs. 400; 400; B Rs. 250; C Rs. 150. (h) The opening stock stock of Departm Departm ent C does not includ includ e any goods transferred from Department A. Bright and Co, had four d epartments A, B, B, C and D. Eac Each h d epartment Problem Problem 4 : M/ s Bright being managed by a departmental managar whose commission was 10% of the respective departmental profit, subject to a minimum of Rs. 6,000 in each case. Interdepartmental transfers took place at a ‘loaded’ ‘loaded’ price as foll follows ows : Fr o m De D e p ar ar t m en en t A t o D ep ar ar t m en en t B 10% a b o v e co st Fr o m De De p ar ar t m en en t A t o D ep ar ar t m en en t D 20% a b o v e co s t Fr o m De De p ar ar t m en en t C t o D e p ar ar t m en en t D 20% a b o v e co s t Fr o m De D e p ar ar t m en en t C t o D ep ar ar t m en en t B 20% a b o v e co s t For the year ending on 31st March, 2008 the firm had already prepared and closed the departmental Trading and Profit and Loss Account. Subsequently, it was discovered that the closing stocks of departments had included interdepartmentally transferred goods at loaded price instead of cost price. From the following information, prepare a statement recompu recompu ting the departmental profit profit or loss loss : D ept . A D ept . B D ept . C D ept . D R s. R s. R s. R s. Fin a l P r o fit (Lo s s) ( 3 8, 0 00 ) 5 0 , 40 0 7 2, 0 0 0 1, 08, 00 0 In t e r d e p a r t m en t a l t r a n sfe r s in clu d e d 7 0 , 00 0 — 4,800 a t lo a d ed ed p rriice in t h e d ep ep ar ar t m en en t a l s t o ck (Rs . 22,000 fr o m (Rs . 3,600 fr o m D ep t. A a n d D ep t . C a n d Rs . 48,000 fr o m Rs . 1,200 fr o m D ep t . C D ep t . A ) Financial Accounting

377

DEPARTMENTAL ACCOUNTS

Problem Problem 5 : X  Ltd., has two departments A and B. From the following particulars, prepare the Consolidated Trading Account and Departmental Trading Account for the year ending on 31st Dec., 2008.  A B R s. R s. O p en in g s t o ck (a t co st ) 2 0, 0 0 0 12 , 0 00 P u r ch a s e s 9 2, 0 0 0 12 , 0 00 Sa le s 1 ,40 ,00 0 1, 12, 000 W ages 1 2 , 00 0 8 , 0 00 C a r r ia g e 2,000 2 , 0 00 Closing Stoc Stock k: (i) P u r ch a se d g o o d s 4,500 6 , 0 00 (ii) Fin ish ed g o o d s 2 4, 0 0 0 14 , 0 00 Purchase Purchased d goods goods transferre transferred d : by B to A 1 0, 0 0 0 by A to B 8 , 0 00 Finishe Finished d goods transferred transferred : by A to B 3 5, 0 0 0 by B to A 40 , 0 00 Return Return of fini finished shed goods : by A to B 1 0, 0 0 0 by B to A 7 , 0 00 You are informed th at pu rchased goods have been transferred m utu ally at their respective respective departmental purchased 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. Problem Problem 6 : Department  X  sells goods to Department Y  at a profit of 25% on cost and to Departm ent Z at 10% profit on cost. cost. Departm ent Y  sells goods to  X  an d  Z  at a profit of 15% and 20% on sales, respectively. Department  Z  charges 20% and 25% profit on cost to Department  X  an d Y , respectively. Departm ent Man agers are entitled to 10% commission on net p rofit rofit subject subject to u nrealised nrealised pr ofit ofit on d epartm ental sales sales being eliminated eliminated . Depart Depart menta l profits after charging charging Ma nagers’ commission, but before adjustmen t of un realised realised profit are as und er :  Rs. Department  X  36,000 Deapartment Y  27,000 Department  Z  18,000 Stock tock lying lying at d iffe ifferent rent dep artments at the end of the the year are as und er :

Transfer from Department  X  Transfer from Department Y  Transfer from Department  Z 

378

D ept . X R s. — 14 , 0 00 6 , 00 0

D ept . Y R s. 1 5 , 00 0 — 5, 0 0 0

D ept . Z   R s. 1 1 , 00 0 1 2 , 00 0 —

Fianancial Accounting