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CHAPTER

2
Introduction Basis of allocation of common expenses Examples Memorandum Method Exercise 2.2 2.2 2.3 2.10 2.12

Departmental Accounting

CA. Gautam Sethi

INTRODUCTION & OBJECTIVE If a business consists of several independent activities, or is divided into several departments, for carrying on separate functions, its management is usually interested in finding out the working results of each department to ascertain their relative efficiencies. This can be made possible only if departmental accounts are prepared. Departmental accounts are of great help and assistance to the managements as information for controlling the business more intelligently and effectively, since thereby all types of waste either of material or of working of departments or units into which the business may be divided. INTER-DEPARTMENTAL TRANSFERS Whenever goods or services are provided by one department to another, their cost should be separately recorded and charged to the department benefiting thereby and credited to that providing it. The totals of such benefits should be disclosed in the departmental Profit and Loss Accounts, to distinguish them from other items of expenditure. Goods and services may be charged by one department to another usually on any of the following three bases: (i) At Cost, (ii) At Prevailing market price, (iii) At Cost plus agreed percentage of profit. ALLOCATION V/S APPORTIONMENT OF EXPENSES Where an expense is specifically incurred or traceable to particular department it is known as allocation of expenses like salary of department manager is to borne by concerned department only. On the other hand, when a common expense is to be distributed amongst various departments, it is known as apportionment of expenses like Rent of premises to be apportioned in the ratio of area occupied by various departments after considering location advantage, if any. BASIS OF ALLOCATION OF COMMON EXPENDITURE AMONG DIFFERENT DEPARTMENTS Some of the common bases used for apportioning the common expenses/incomes are summarized in the following table: S. No. Items of income/expense Commonly used basis for apportionment (i) Rent, rates, taxes, repairs and maintenance of Area of each department. building Number of light points in each department or (ii) Lighting by separate meter or area of department. (iii) Depreciation of assets, fire insurance, common Asset value of each department. repair and maintenance expenses of assets etc. (iv) Discount received, carriage inward etc. Purchases of each department. (v) Discount allowed, bad debts, carriage outward, Sales (or turnover) of each department. salesmen salary, advertising and commission. (vi) P.F. and E.S.I. contributions. Salaries of each department. (vii) Canteen expenses, common room expenses, Number of employees in each department. medical expenses and other Labour welfare exp. Unrealised Profit on unsold stock When profit is added in the inter-departmental transfers the loading included in the unsold stock at the end of the year is to be excluded before final accounts are prepared so as to eliminate any anticipatory profit included therein. This is done by creating an appropriate stock reserve by debiting the combined Profit and Loss Account. Thus, accounting entry for closing Stock reserve: P & L a/c .. Dr. To Stock Reserve Example 1. Green & Co has two Departments P and Q. Department P sells goods to Department Q at normal selling prices. From the following particulars prepare Departmental Trading and Profit and Loss Account for the year ended 31 3 1994 and also ascertain the Net Profit to be transferred to balance Sheet:Particulars Department P Department Q Opening Stock Nil `1,00,000 Purchases 23,00,000 2,00,000

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CA. Gautam Sethi

Comprehensive Accountancy

Goods from Department P 7,00,000 Wages 1,00,000 1,60,000 Travelling Expenses 10,000 1,40,000 Closing Stock at cost to the Dept. 5,00,000 1,80,000 Sales 23,00,000 15,00,000 Printing & Stationery 20,000 16,000 The following expenses incurred for both the departments were not apportioned between the Departments: (a) Salaries `2,70,000 (b) Advertisement expenses ` 90,000 (c) General expenses `8,00,000 Depreciation @ 25% on the machinery value of `48,000. Advertisement expenses are to be apportioned in the turnover ratio, Salaries in 2:1 ratio and Depreciation in 1:3 ratios between the Departments P and Q. General expenses are to be apportioned in 3:1 ratio. [C.A. (Inter) May 1994] Sol. Particulars
To opening stock To Purchases To Wages To inter departmental Transfer To Gross Profit c/d To traveling expenses To Printing & Stationery To Salaries (`2,70,000 in 2:1) To Advertisement (90,000 in 23:15) To General expenses (8,00,000 in 3:1) To Depreciation (25% x 48,000 In 1:3) To net Profit (before adj.) To stock Res. (1) To Net Profit

P
1,00,000 23,00,000 1,00,000 --10,00,000 35,00,000 10,000 20,000 1,80,000 54,474 6,00,000 3,000 1,32,526 10,00,000

Departmental Trading and P & L A/c for the year ended 31/3/94 Q Total Particulars
-2,00,000 1,60,000 7,00,000 6,20,000 16,80,000 1,40,000 16,000 90,000 35,526 2,00,000 9,000 1,29,474 6,20,000 1,00,000 25,00,000 2,60,000 --16,20,000 44,80,000 1,50,000 36,000 2,70,000 90,000 8,00,000 12,000 2,62,000 16,20,000 46,667 2,15,333 2,62,000 By inter department trf. By sales By closing stock

P
7,00,000 23,00,000 5,00,000

Q
--15,00,000 1,80,000

Total
38,00,000 6,80,000

By Gross Profit

35,00,000 10,00,000

16,80,000 6,20,000

44,80,000 16,20,000

10,00,000 By Net Profit

6,20,000

16,20,000 2,62,000 2,62,000

W. N.1: Calculation of unrealized profit on stock of department Q. Closing stock of department Q = `1,80,000 Purchases = 2,00,000 + Inter department transfer receipts = 7,00,000 9,00,000 Prop. of stock recd. from department P = 7,00,000 = 7 9,00,000 9

Stock recd. from department P Still in closing stock = `1,80,000 x 7/9 = `1,40,000 Gross Profit Ratio of department P = `10,00,000 x 100 = 331/3% `30,00,000 Unrealized profit on stock = `1,40,000 x 1/3 = `46,667. Example 2. X Ltd. has two departments A and B. From the following particulars prepare departmental Trading st Account and Consolidated Trading Account for the year ending 31 December 97:-

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Departmental Accounting
Dept. A `40,000 1,84,000 4,000 24,000 2,80,000

CA. Gautam Sethi

Dept. B Opening Stock at cost `24,000 Purchases 1,36,000 Carriage Inward 4,000 Wages 16,000 Sales 2,24,000 Purchased goods transferred: By Dept. B to Dept. A 20,000 By Dept. A to Dept. B 16,000 Finished goods transferred: By Dept. B to Dept. A 70,000 By Dept. A to Dept. B 80,000 Return of finished goods: By Dept. B to Dept. A 20,000 By Dept. A to Dept. B 14,000 Closing stock: Purchased goods 9,000 12,000 Finished goods 48,000 28,000 Purchased goods have been transferred mutually at their respective departmental purchase 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. [C.A. (Inter) May 1988] Sol. Department Trading and P & L A/c for the year ended 31/12/97
To opening stock To Purchases To Carriage inwards To Wages To inter dept. transfer: Purchased goods Finished goods By Return of inter department transfer To Gross Profit c/d A 40,000 1,84,000 4,000 24,000 20,000 70,000 20,000 85,000 4,47,000 To stock reserve (1) To Net Profit (after adj.) 85,000 85,000 B 24,000 1,36,000 4,000 16,000 16,000 80,000 14,000 84,000 3,74,000 84,000 84,000 Total 64,000 3,20,000 8,000 40,000 ------1,69,000 6,01,000 4,280 1,64,720 1,69,000 4,47,000 85,000 85,000 3,74,000 84,000 84,000 6,01,000 1,69,000 1,69,000 By sales By inter dept. transfer Purchased goods Finished goods By Return of inter departmental transfer By closing stock Finished goods Purchased goods A 2,80,000 16,000 80,000 14,000 48,000 9,000 B 2,24,000 20,000 70,000 20,000 28,000 12,000 Total 5,04,000 ------76,000 21,000

By Gross Profit (Before adj.)

W. Note: (1) Calculation of unrealized profit on closing stock. Closing stock of finished goods Department A Total 48,000 Received from other department (20% of total) 9,600 Calculation of G.P. ratio Gross Profit 85,000 Sales 2,80,000 + Inter department transfer of finished goods 80,000 (-) Returns 20,000 3,40,000 Gross Profit Ratio 25% Unrealized profit 9,600 x 30% = 2,880

Department B 28,000 5,600 84,000 2,24,000 70,000 14,000 2,80,000 30% 5,600 x 25% = 1,400

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CA. Gautam Sethi

Comprehensive Accountancy

Example 3. Telerad & Co. has two departments A and B. From the following particulars, prepare st Departmental Trading Account and Consolidated Trading Account for the year ending 31 March 1993: Department A Department B Opening Stock (at cost) ` 1,00,000 ` 60,000 Purchases 4,60,000 3,40,000 Carriage 10,000 10,000 Wages 60,000 40,000 Sale (excluding inter-transfers) 7,00,000 5,60,000 Purchased goods transferred: By B to A 50,000 By A to B 40,000 Finished goods transferred: By B to A 1,75,000 By A to B 2,00,000 Return of finished goods: By B to A 50,000 By A to B 35,000 Closing stock: Purchased goods 22,500 30,000 Finished goods 1,20,000 70,000 Purchased goods have been transferred at their respective departmental purchase cost and finished goods at departmental market price. 20% of finished stock (closing) at each department represented finished goods received from the other department. [C.A. (Inter) May 1993] Sol.
Particulars To op. stock To Purchases To Carriage To Wages To inter dept. Returns To inter department Transfer: Purchased goods Finished goods To Gross Profit c/d

Trading and P & L a/c for the year ended 31/03/93


A 1,00,000 4,60,000 10,000 60,000 50,000 B 60,000 3,40,000 10,000 40,000 35,000 Total 1,60,000 8,00,000 20,000 1,00,000 Particulars By sales By inter Department transfer: Purchased goods Finished goods By inter dept. Returns By closing stock Purchased goods Finished goods A 7,00,000 40,000 2,00,000 35,000 22,500 1,20,000 B 5,60,000 50,000 1,75,000 50,000 30,000 70,000 Total 12,60,000 ------52,500 1,90,000

50,000 1,75,000 2,12,500 11,17,500

40,000 2,00,000 2,10,000 9,35,000

----4,22,500 15,02,500 10,700 4,11,800 4,22,500

11,17,500 By Gross Profit b/d

9,35,000

To stock reserve (1) To net profit 2,12,500 2,10,000

15,02,500 4,22,500

2,12,500

2,10,000

4,22,500

W. N. 1: Computation of stock Reserve Dept. Closing finished Stock Inter department closing finished stock @ 20% Gross Profit Sales + Inter Department (-) Return Net Sales G.P ratio (G.P / Net Sales) Stock reserve (Closing Stock x G.P Ratio of other)

A `1,20,000 24,000 2,12,500 7,00,000 2,00,000 (50,000) 8,50,000 25% 24,000 x 30% = 7,200

B `70,000 14,000 2,10,000 5,60,000 1,75,000 (35,000) 7,00,000 30% 14,000 x 25% = 3,500

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Departmental Accounting

CA. Gautam Sethi

Example 4. Department X sells goods to department Y at a profit of 25% on cost and to department Z at 10% Profit on cost. Department Y sells goods to X and Z at a profit of 15% and 20% on sales, respectively. Department Z charges 20% and 25% profit on cost to Department X and Y respectively. Department Managers are entitled to 10% commission on net profit subject to unrealized profit on departmental sales being eliminated. Departmental profits after charging Managers commission, but before adjustment of unrealized profit are as under: Department X `36,000 Department Y `27,000 Department Z `18,000 Stock lying at different departments at the end of the year is as under: Department X Department Y Department Z Transfer from Department X ` 15,000 ` 11,000 Transfer from Department Y 12,000 ` 14,000 Transfer from Department Z 6,000 5,000 Find out the correct departmental profits after charging Managers commission. [CA (Inter) Nov. 2001 & PCC Nov. 2010] (8 Marks) {CA IPCC Nov. 2012} Sol. Statement showing evaluation of realized profit & revised commission Department X Y Z Net profit ` 36,000 ` 27,000 ` 18,000 (+) Commission Paid 4,000 3,000 2,000 = profit before charging commission 40,000 30,000 20,000 (-) u/r profit (1) (4,000) (4,500) (2,000) Realized profit 36,000 25,500 18,000 (-) Commission @ 10% on realized profit (3,600) (2,550) (1,800) Net profit after commission 32,400 22,950 16,200 Comm. @ 10% = 36000 x 10% = `4000 90% Comm. @ 10% = 27000 x 10% = `3000 90% Comm. @ 10% = 18000 x 10% = `2000 90% W. N.1: Computation of unrealised profit Closing stock of department X = `20,000 Closing stock of department Y is `20,000 Includes received from department Y = `14,000 Includes `15,000 received from X Rate of profit of Y = 15% on sales Rate of profit of X is 25% on cost u/r profit of y = `14,000 x 15 = `2,100 u/r profit = 15,000 x 25 = `3000 100 125 Closing stock of department Z = 23,000 Closing stock of department Z = `23,000 Includes `11,000 received from X includes `12,000 of stock received from Y Rate of profit of Y = 20% on sales Rate of profit = 10% on cost u/r profit = 11,000 x 10 = 1,000 u/r profit of Y = 12,000 x 20% = `2,400 110 Total u/r Profit of Y = `4,500 Total u/r profit of X = 4,000 Closing stock of X includes received from Z = 6,000 Rate of profit of Z = 20% on cost u/r profit = 6000 x 20 = `1000 120 Closing stock of Y includes received from Z = `5,000 Rate of profit of Z = 25% on cost u/r profit = 5,000 x 25 = 1000 125 Total u/r profit of Z = `2000 Example 5. M/s Bright & Co. had four departments A, B, C and D. Each department being managed by a departmental manager whose commission was 10% of the respective departmental profit, subject to a minimum of `6,000 in each case. Interdepartmental transfers took place at a loaded price as follows:-

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CA. Gautam Sethi

Comprehensive Accountancy

From Department A to Department B 10% above cost From Department A to Department D 20% above cost From Department C to Department D 20% above cost From Department C to Department B 20% above cost st For the year ended 31 march 1991, 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 re-computing the departmental profit or loss-: Department A Department B Department C Department C Final Profit/loss 38,000 (Loss) 50,400 (Profit) 72,000 (Profit) 1,08,000 (Profit) Interdepartmental 70,000 4,800 Transfers included (22,000 from (3,600 from At loaded price Dept. A and Dept. C and In the departmental 48,000 from 1,200 from Stock Dept. C) Dept. A) [C.A. (Inter) May 1991] Sol. Statement showing evaluation of realized profit & revised commission Department A B C D Net profit (38,000) 50,400 72,000 1,08,000 (+) Commission already Given 6,000 6,000 8,000 12,000 Profit before charging comm. (32,000) 56,400 80,000 1,20,000 (-) unrealized profit (1) (2,200) (8,600) --Realized profit/correct profit (34,200) 56,400 71,400 1,20,000 (-) Revised comm. (6,000) (6,000) (7,140) (12,000) (10% of correct profit subject to min. `6,000) Net profit after commission 40,200 50,400 64,260 1,08,000 Min. / Guaranteed Commission `72,000 x 10% = `8,000 90% `1,08,000 x 18% = `12,000 90% W.N.1: Calculation of unrealized profit Closing stock of department B = `70,000 Closing stock of Department D = `4,800 Received from other department Received from C = `3,600 From department A = 22,000 Rate of profit = 20% of cost Rate of profit = 10% above cost or 1/11 of sales or 1/6 of sales. Unrealized profit of A = 22,000 x 10 = `2,000 Unrealized profit = `3,600 x 1 = 600 110 6 From department C = `48,000 Received from A = `1,200 Rate of profit = 20% above cost or 1/6 of sales Rate of profit 1/5 of cost or 1/6 of sales Unrealized profit = 48,000 x 1/6 = `8,000 Unrealized Profit of A = `200. Total u/r Profit of A = `2,200 Total u/r Profit of C = `8,600

Example 6. The following purchases were made during the year 1989 by a business house having three departments:Department A 1,000 units Department B 2,000 units at a total cost of `1,00,000 Department C 2,400 units st Stock on 1 January, 1989 were: Department A 120 units Department B 80 units Department C 152 units The Sales during , 1989 were Department A 1,020 units at `20 each Department B 1,920 units at `22.50 each Department C 2,496 units at `25 each

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Departmental Accounting
Sol.

CA. Gautam Sethi

The rate of gross profit is same in each case. Prepare departmental trading Account for the year 1989. [CA (Inter) May 1990] Department Trading A/c for the year ended 31/12/89 Particulars A B C Particulars A B C To opening stock (1) 1,920 1,440 3,040 By sales 20,400 43,200 62,400 To purchases 16,000 36,000 48,000 Closing stock (1) 1,600 2,880 1,120 To Gross Profit 4,080 8,640 12,480 22,000 46,080 63,520 22,000 46,080 63,520 W. Note:(1) Calculation of G.P. ratio. Total cost of purchased Qty. Dept. A 1000 units Dept. B 2000 units Total cost `1,00,000 Dept. C 2400 units Sales value of aforesaid purchases: Department A 1000 x `20 = 20,000 Department B 2000 x `22.50 = 45,000 `1,25,000 Department C 2400 x `25 = 60,000 Total G.P. = `25,000 G.P. ratio = 25,000 x 100 = 20% 1,25,000 (2) Calculation of cost p. u. & value of opening stock & closing stock Depart S.P. G.P. @ Cost Op. Value of op. Cl. Qty Value of cl. ment 20% qty stock Stock A 20 4 16 120 100 1,600 `1,920 B 22.50 4.50 18 80 160 2,880 `1,440 C 25 5 20 152 56 1,120 `3,040

Example 7. The following balances were extracted from the books of A. You are required to prepare the Departmental Trading and Profit and Loss Account for the year ended 31st December,2001 after adjusting the unrealized profits if any: Dept. X Dept. Y Opening Stock 50,000 40,000 Purchases 6,50,000 9,10,000 Sales 10,00,000 15,00,000 The following information is provided: (i) General expenses incurred for both the departments were `1,25,000 to be apportioned in G.P ratio. (ii) Closing Stock of department X `1,00,000 including goods from department Y for `20,000 at cost to department X; (iii) Closing stock at department Y `2,00,000 including goods from department X for `30,000 at cost to department Y; (iv) Opening stock of department X and Y include goods of the value of `10,000 and `15,000 taken from department Y and department X respectively at cost of transferee departments: (v) The gross profit is uniform from year to year. Sol. Trading and P & L A/c
To Op. stock To Purchases To G.P. To General expenses (in G. P. ratio) To N.P. (before adj.) To stock reserve (1) To N.P. (after adj.) X 50,000 6,50,000 4,00,000 11,00,000 43,478 3,56,522 4,00,000 Y 40,000 9,10,000 7,50,000 17,00,000 81,522 6,68,478 7,50,000 Total 90,000 15,60,000 11,50,000 28,00,000 1,25,000 10,25,000 11,50,000 11,000 10,14,000 10,25,000 By Sales By Closing stock X 10,00,000 1,00,000 Y 15,00,000 2,00,000 Total 25,00,000 3,00,000

By G.P.

11,00,000 4,00,000

17,00,000 7,50,000

28,00,000 11,50,000

4,00,000 By Net Profit

7,50,000

11,50,000 10,25,000 10,25,000

W.N. 1: Calculation of unrealized profit

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G.P. Sales Gross Profit ratio Opening stock Value of closing stock of inter department transfer Excess of closing stock over opening stock Stock reserve

Comprehensive Accountancy
X 4,00,000 10,00,000 40% 10,000 20,000 10,000 10,000 x 50% = 5,000 Y 7,50,000 15,00,000 50% 15,000 30,000 15,000 15,000 x 40% = 6,000

Example 8. A company manufacturing electronic components operates with 2 departments. Transfers are made between the departments of both purchased goods and manufactured finished goods. Goods purchased are transferred at cost and manufactured goods are transferred only at selling price as is the case with open market. Transactions for the year ended 30 June, 2001 are given below: Department X Department Y Opening Stock ` 20,000 ` 15,000 Sales 1,90,000 1,35,000 Wages 12,500 7,500 Purchases 1,00,000 80,000 Closing stock: Purchased goods 2,000 5,000 Manufactured goods 7,000 8,000 The following were the transfers from Department X to Department Y: Purchased goods `6,000 and finished goods `20,000; and from Department Y to Department X: Purchased goods `5,000 and finished goods `35,000. Stocks were valued at cost to the department concerned. Only in closing stock of manufactured goods in the departments transferred finished goods are 20%. Draw out Departmental Trading Accounting and the Companys Trading Account for the year ended 30th June, 2001. Sol.
Particulars To opening stock To Wages To Purchases To inter dept. transfer Purchased goods finished goods To Gross Profit c/d

Trading and P & L A/c for the year ended 30/06/2001


X 20,000 12,500 1,00,000 5,000 35,000 52,500 2,25,000 To stock Reserve (1) To Net Profit (after adj.) 52,500 59,500 Y 15,000 7,500 80,000 6,000 20,000 59,500 1,88,000 Total 35,000 20,000 1,80,000 ----1,12,000 3,47,000 890 1,11,110 1,12,000 Particulars By Sales By Closing stock Purchased good Finished goods By Inter dept. transfer Purchased good Finished goods By Gross Profit X 1,90,000 2,000 7,000 Y 1,35,000 5,000 8,000 Total 3,25,000 7,000 15,000

6,000 20,000 2,25,000 52,500 52,500

5,000 35,000 1,88,000 59,500 59,500

3,47,000 1,12,000 1,12,000

W.N.1: Computation of stock Reserve Closing goods Element of Inter department transfer (20%) Gross Profit Sales (+) Inter Departmental Transfer Gross Profit ratio Stock reserve X 7,000 1,400 52,500 1,90,000 20,000 2,10,000 25% 1400 x 35% = 490 Y 8,000 1,600 59,500 1,35,000 35,000 1,70,000 35% 1600 x 25% = 400

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Departmental Accounting

CA. Gautam Sethi

MEMORANDUM METHOD
Particulars To balance b/d To purchases Cost (+) Mark up Memorandum stock a/c (at I.P.) Amount Particulars ---By sales ---By inter department transfer By mark up a/c ---(Mark down on sales) By shortage (at I.P) By closing stock Amount ----------------

-------

Particulars To memo. stock a/c (mark down on sales) To shortage (mark-up) To memo stock a/c (loading on closing stock) To net profit

Memorandum Mark up a/c Amount Particulars ---By stock res. (loading on opening stock) ---By memo stock a/c ---(mark up on purchases) -------

Amount -------

----

Example 9. Southern Store Ltd. is a retail store operating two departments. The company maintains a memorandum stock account and memorandum mark up account for each of the departments. Supplies issued to the departments are debited to the memorandum stock account of the department at cost plus the mark-up, and departmental sales are credited to this account. The mark upon supplies issued to the departments is credited to the mark up account of the department. When it is necessary to reduce the selling price below the normal selling price, i.e. cost plus mark-up, the reduction (mark down) is entered in the memorandum stock account and in the mark up account. Department Y has a mark up of 33-1/3% on cost, and Department Z 50% on cost. The following information has been extracted from the records of Southern Store Ltd. for the year ended 31st December 1988:Department Y Department Z Stock, 1st January, 1988 at cost `24,000 `36,000 Purchases 1,62,000 1,90,000 Sales 2,10,000 2,85,000 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. Certain goods purchased in 1988 for `2,700 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 Y and the sales of department Z respectively, but no entries in respect of the transfer have been made. Goods purchased in 1988 were marked down as follows:Department Y (`) Department Z (`) Cost 8,000 21,000 Mark down 800 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. st During stock taking at 31 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. 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 31st Dec.1988:(a) a trading account (b) a Memorandum Stock Account and (c) a memorandum Mark up Account. [C.A.(Inter) May 1989]

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Sol. Particulars To balance b/d Cost (+) Mark up (1/3) To Purchases (-) Trf. to Dept. Z (+) Mark up (1/3)

Comprehensive Accountancy
Department Y Memorandum Stock Account Details Amount Particulars By sales 24,000 By memo mark up a/c 8,000 32,000 (Mark down) 1,62,000 By Memo mark up (Mark down) 2,700 By shortage (240 + 80) 53,100 2,12,400 By balance c/d 2,44,400 Amount 2,10,000 510 800 320 32,770 2,44,400

Memorandum Mark up A/c Particulars Amount Particulars To M. stock a/c (M. down) 510 By M. Stock a/c To M. Stock a/c (Mark down) 800 By M. stock a/c To M. Stock a/c (loading on shortage) 80 (loading on purchases) To M. Stock a/c 8,192 (loading on closing stock i.e. 1/3rd of cost or of Mark up price) To Net Profit 51,518

Amount 8,000 53,100

61,900 Department Z Memorandum Stock A/c Details Amount Particulars By sales 36,000 By mark up 18,000 54,000 (mark down) 1,90,000 By balance c/d 2,700 96,350 2,89,050 344 3,43,394

61,900

Particulars To bal. b/d Cost + Mark up To purchases (+) Trf. from Dept. Y + Mark up To M. mark up a/c(1)

Amount 2,85,000 4,100 54,294

3,43,394

Memorandum mark up A/c Particulars Amount Particulars To Memo mark a/c By Memorandum Stock A/c (mark down) 4,100 By Memorandum stock A/c To Mark stock A/c (loading on purchases) (loading on closing stock 18,098 By Memorandum stock A/c i.e.1/2 of cost or 1/3 of Mark up price) (Mark down on closing stock) To Net Profit 92,496 1,14694 W. N.1: Calculation of mark down on closing stock. Cost = 21,000 (+) 50% = 10,500 Normal marked Up price = 31,500 (-) Mark down = (4,100) Marked down price = 27,400 Closing stock include marked down price of `2,300 Mark down on closing stock = `4,100 x `2,300 = `344. `27,400

Amount 18,000 96,350

344

1,14694

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Departmental Accounting

CA. Gautam Sethi

Exercise
Ques.1 Write short notes on basis of allocation of common expenditure among different departments. [CA (Inter) Nov 1998] Ques.2 Briefly discuss the advantages of departmental accounting. [CA (Inter) Nov 1992] Ques.3 FGH Ltd has three departments I, J, K. The following information is provided for the year ended 31.3.2004: I J K Opening Stock `5,000 `8,000 `19,000 Opening Reserve for unrealized profit --2,000 3,000 Materials consumed 16,000 20,000 --Direct Labour 9,000 10,000 --Closing Stock 5,000 20,000 5,000 Sales ----80,000 Area occupied (sq. mtr.) 2,500 1,500 1,000 No of employees 30 20 10 Stocks of each department are 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. [CA. Nov. 2004] [Ans. Gross Profit Dept. I `5,000; Dept. J `12,000; Dept. K `6,000; Net profit Dept. J `4,200; K `1,800, Net loss Dept I `7,000; Net Profit after adj. `1,000 ] Ques.4 Complex Ltd has 3 departments, A,B, C. The following information is provided: A B C Opening Stock `3,000 `4,000 `6,000 Consumption of direct materials 8,000 12,000 --Wages 5,000 10,000 --Closing Stock 4,000 14,000 8,000 Sales ----34,000 Stock of each department is valued at cost to the department concerned. Stocks of A department are transferred to B at a margin of 50% above department cost, Stocks of B department are transferred to C department at a margin of 10% above department cost. Other expenses were: Salaries `2,000 Printing & Stationery 1,000 Rent 6,000 Interest paid 4,000 Depreciation 3,000 Allocate expenses in the ratio of departmental gross profit. Opening figures of reserves for unrealized profits on department stock were: Department B `1,000; Department C `2,000. Prepare Departmental Trading and Profit & Loss Accounts for the year ending March 31, 1999. [Ans. Gross Profit Dept. A `6,000 , Dept. B `3,000, Dept. C `3,000 Net loss trfd. to balance sheet `4,918] Ques.5 Becket & Co. Purchased goods for its three departments as follows: Department: X 4,000 Units Department: Y 9,000 Units Total cost `1,10,000. Department: Z 4,000 Units Sales of three departments were as follows: Department: X 3,600 Units @ `7.50 per unit Department: Y 9,800 Units @ `9.00 per unit Department: Z 3,650 Units @ `13.50 per unit Opening Stock as on 1-1-98 was as follows: Department: X 200 Units Department: Y 1,400 Units Department: Z 150 Units

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CA. Gautam Sethi

Comprehensive Accountancy

Assuming that the gross profit ratio is uniform in all the three departments, prepare trading a/c for the year st ended 31 December, 1998. [Ans. Gross Profit: Deptt. X: `9,000, Y: `29,400, Deptt. Z: `16,425. G.P. Ratio @ 331/3% on Sales] . Ques.6 Alpha Ltd has a factory with two manufacturing departments 'X' and 'Y'. Part of the output of department X is transferred to department Y for further processing and the balance is directly transferred to selling department. The entire production of department Y is directly transferred to the selling department. Inter departmental stock transfers are made as follows: X department to Y department at 33 1/3% over departmental cost. X department to selling department at 50% over departmental cost. Y department to selling department at 25% over departmental cost. The following information is given for the year ending 31st March, 1999. Department X Department Y Selling Department Units Unit Unit ` ` ` Opening stock Finished Goods 60 60,000 20 40,000 50 1,28,000 Raw material ------------Raw material consumed --1,82,000 --- 20,000 ----Labour charges --70,000 --- 32,000 ----Sales --------120 4,80,000 Closing stock: Finished Goods 40 --50 --60 --Out of the total transfer by X department 30 units were transferred to selling department, while the remaining to department Y. The per unit material and Labour consumption of X department on production to be transferred directly to the selling department is 300 per cent of the Labour and material consumption on units transferred to Y department. General Administration expenses `1,80,000. Prepare Department Profit and Loss Account and General Profit and Loss Account. [Ans. G.P. Dept. X `1,06,000, Dept. Y `50,000, Dept. Z `1,20,000; Net Profit : `65,825] Ques.7 On the basis of the following trial balance and additional information provided to you thereafter, prepare departmental trading account and general profit and loss account for the year ended 31st March, 2001 and balance sheet as at that date: TRIAL BALANCE AS AT 31ST MARCH, 2001 Debit Credit Capital account --`3,00,000 Land and building --`2,25,000 Furniture 35,000 --Opening stock: Department A 1,20,000 --Department B 2,40,000 --Purchases: Department A 12,00,000 --Department B 17,00,000 --Sales: Department A --20,00,000 Department B --32,00,000 General expenses 14,00,000 --Debtors 2,10,000 --Creditors --1,00,000 Drawings 2,80,000 --Bank 1,90,000 --56,00,000 56,00,000 Additional information: (i) Closing stock of Department A is `1,30,000 which includes goods purchased from Department B and invoiced at `50,000. Department- B transfers goods to Department A at cost plus 25%. (ii) Closing stock of Department B is `2,60,000 which includes goods transferred by Department- A at an invoice price of `1,08,000 which is arrived at by Department A by adding 20% to the cost of the goods.

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Departmental Accounting
(iii)

CA. Gautam Sethi

Sales of Department - A and Department B include goods transferred to the other department at `2,00,000 and `3,00,000 respectively. (iv) Depreciation is to be provided on land and building @ 5% per annum and on furniture @ 10% per annum. [Ans. Gross Profit of Deptt. A is `8,10,000, Deptt. B is `15,20,000; Net Profit transferred to Capital Account `8,87,250; Total of Balance Sheet is `10,07,250] Ques.8 Moon Ltd. has three departments. They are 'Cloth Stitching Deptt', Selling Department and General Administration Department. Cloth Deptt, transfers its goods to Selling Deptt. @ 20% Profit on cost. From the following details, prepare Departmental Trading A/c and Profit and Loss A/c for the year ended 31st Dec. 1998. Cloth Stitching Deptt Selling Deptt Opening Stock ` 1,20,000 ` 80,000 Purchases 5,00,000 --Wages and other exp. 1,25,000 25,000 Closing Stock 45,000 95,000 Sales --11,05,000 During the year goods costing `50,000 to selling department, were returned back to cloth department. The expenses of General Admin. Deptt. are as follows: Manager's Salary @ `1,000 p.m. Clerk's Salary (2 Nos). @ `600 p.m. (each) Maintenance Expenses `9,600 Apportion General Admin. Deptt. Expenses equally to the 'Cloth stitching' and 'Selling Deptt'. [Ans. Gross Profit Cloth Deptt. `1,40,000, Selling Deptt.`2,55,000, Net Profit :Total `3,56,500]. Ques.9 A firm has two departments (i) Cloth Department; and (ii) Readymade Clothes Department. The readymade clothes are made by the firm itself out of the cloth supplied by the Cloth Department at its usual selling price. From the following figures, prepare departmental trading and profit and loss account for the year ended 31st March, 2003: Particulars Cloth Department Readymade Clothes Department Opening stock `2,40,000 `48,000 Purchases 18,00,000 24,000 Sales 20,00,000 6,00,000 Transfer to Readymade Clothes Department 4,00,000 --Manufacturing expenses --68,000 Selling expenses 40,000 4,000 Closing stock 3,00,000 60,000 The stock in Readymade Clothes Department may be considered as consisting of 80% cloth and rest as other expenses. The Cloth Department earned a gross profit of 25% in 2001-2002. [Ans. Net Profit `7,32,400.] Ques.10 Booming Limited has three departments. They are Alpha, Beta and Gamma. The profit of these departments are `30,000 `40,000 and `17,400 respectively (before charging manager's commission and unrealized profit on stock transfers.) Department Alpha transfers its goods @ 20% profit on cost to other departments while Beta transfers its goods @ 10% profit on cost. However, department Gamma transfers its goods at cost to other departments. However, respective Deptt's original goods are only transferred. On Scrutiny of records you find: (i) Purchases made for Alpha Deptt. `10,000 has been debited in Beta Deptt. account. (ii) Goods sent on 'Sale or return basis' by Beta Deptt. @ 120% have been recorded as regular Sale at `8,400. (iii) General expenses amounting to `2,100 have been excessively charged in Gamma Deptt. instead of Beta Deptt. (iv) The following transfers were made: Deptt. Alpha To Beta `24,000 (`12,000 still in closing stock) To Gamma `3,600 Deptt. Beta To Gama `11,000 (`4,400 still in closing stock)

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CA. Gautam Sethi

Comprehensive Accountancy

Deptt. Gamma To Alpha `7,700 (`3,000 still in closing stock) (v) Commission payable to the Manager @ 10% on correct overall Company profit after charging such commission. Find correct Net Profit of the Company and the commission payable to the General Manager. [Ans. Correct Net Profit : `83,600 (before commission), Commission `7,600]. Ques.11 M/s Auto Garage consists of three departments Spares, Service and Repairs. Each department is managed by a manager who is paid a commission which has been fixed @ 5%, 10% and 10% respectively of the departmental profits. In the absence or adequacy of profits, a minimum commission of `3,000 is to be paid to the manager. Interdepartmental transfers of goods and services are made on the basis of a loaded price as under: from Spares to Service 5% above cost from Spares to Repairs 10% above cost from Repairs to Service 10% above cost For the year ended 31.3.1996, the books had already been closed and positions drawn. On a scrutiny subsequently made, it was discovered that the closing stock of the departments included interdepartmental transfers at loaded price. From the following details, you are to prepare a revised statement, re computing the profits or losses of each of the department. Spares Service Repairs Book results Loss `19,000 Profits `25,200 Profits `36,000 Interdepartmental --`10,500 from spares and `2,100 from Spares transfer at loaded price `22,000 (from Repairs) [Ans. Recomputed Amounts: Loss `19,691 (Spares), Profit `25,200 (Service), Profit`34,200 (Repairs)] Ques.12 Messrs D, B and R carried on a business of Drapers and Tailors in Delhi; D was in charge of Department "A" dealing in cloth. B of department "B" for selling garments and R of Department "C" the tailoring section. It had been agreed that each of the three partners would receive 75% of the profits disclosed by the accounts of the department of which he was in charge and the balance of the profits would be shared in the proportion: D1/2, B 1/4, and R1/4. The following is the Trading and Profit and Loss Account of the firm for the six months ended March 31, 1999. Trading and Profit and Loss Account
Particulars To Opening Stock: Cloth (A) Ready made Garments (B) Tailoring Jobs (C) To Purchases: Cloth (A) Ready- made Garments (B) Tailoring Goods (C) To Salaries and Wages To Advertising To Rent To Discount allowed To Sundry Exp. To Depreciation on Furniture Net Profit Details 37,890 24,000 20,000 1,40,700 80,600 44,400 Amount Particulars By Sales: Cloth (A) Ready made Garments (B) Tailoring Jobs (C) By Discount received By Closing Stock: By Cloth (A) Ready made Garments (B) Tailoring Jobs (C) [including `5,700 for goods transferred from department (A)] Details 1,80,000 1,30,000 90,000 Amount

81,890

4,00,000 800

2,65,700 48,000 2,400 10,800 1,200 12,000 750 67,060 4,89,800

45,100 22,300 21,600

89,000

4,89,800

After consideration of the following, prepare Departmental Accounts and Profit and Loss Appropriation Account: (i) Cloth of the value of `10,700 and other goods of the value of `600 were transferred at selling price by Departments A and B respectively to Department C. (ii) Cloth and garments are sold in the show room. Tailoring work is carried out in the work-shop. (iii) The details of salaries and wages were as follows: (a) General Office 50%, show room 25% and 25% for workshop, which is for tailoring. (b) Allocate General Office Expenses, in the proportion of 3:2:1 among the Departments A, B, C. (c) Distribute show room expenses in the proportion of 1:2 between Departments A and B.

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Departmental Accounting

CA. Gautam Sethi

(d) The workshop rent is `1,000 per month. The rent of the General Office and Show room is to be divided equally between Departments A and B. (e) Depreciation charges are to be allocated equally amongst the three Departments. (f) All other expenses are to be allocated on the basis of turnover. (g) Discounts received are to be credited to the three Departments as follows A: `400; B: `250; C: `150. (h) The opening stock of Department C does not include any goods transferred from Department A. [Ans. Gross Profit = `57,210 (A), `48,300 (B), `26,900(C); Net Profit = `31,940 (A), `24830 (B), `10,290 (C)] Ques.13 Gram Udyog, a retail store, has two, departments, 'Khadi and Silks' for each of which stock account and memorandum 'mark up' accounts are kept. All the goods supplied to each department are debited to the stock account at cost plus a 'mark up', which together make up the selling price of the goods and in the account, the sale proceeds of the goods are credited. The amount of 'mark up' is credited to the Departmental Mark up Account. If the selling price of any goods is reduced below its normal selling price, the reduction 'mark down' is adjusted both in the Stock Account and the Departmental 'Mark up' Account. The rate of 'Mark up' for Khadi Department is 33 1/3% of the cost and for Silks Department it is 50% of the cost. The following figures have been taken from the books for the year ended December 31, 1998: Khadi Department Silks Department Stock as on January 1st at cost ` 10,500 ` 18,600 Purchases 75,900 93,400 Sales 95,600 1,25,000 (1) The stock of Khadi on January 1, 1998 included goods the selling price of which had been marked down by `1,260. These goods were sold during the year at the reduced prices. (2) Certain stock of the value of `6,900 purchased for the Khadi Department were later in the year transferred to the Silks department and sold for `10,350. As a result though cost of the goods is included in the Khadi Department the sales proceeds have been credited to the Silks Department. (3) During the year 1998 to promote sales the goods were marked down as the follows: Cost Marked down Khadi ` 5,600 ` 360 Silk 10,000 2,000 All the goods marked down, were sold except Silks of the value of `5,000 marked down by `1,000. (4) At the time of stock taking on December 31, 1998 it was discovered that Khadi cloth of the cost of `390 was missing and it was decided that the amount be written off. You are required to prepare for both the departments for the year 1998. (a) The Memorandum Stock Account; and (b) The Memorandum Mark up Account. [Ans. Closing Stock: Khadi `8,260; Silk `52,350 & Profit: Khadi `22,685; Silk `41,000] Ques.14 KPMG Ltd. has 3 departments A, B, C. The following information is provided: A B C Opening Stock `3,000 `6,000 `6,000 Consumption of direct materials 8,000 12,000 --Wages 5,000 6,000 --Closing Stock 4,000 18,000 4,400 Sales ----34,000 Stock of each department is valued at cost to the department concerned. Stocks of A department are transferred to B at a margin of 50% above department cost. Stocks of B department are transferred to C department at a margin of 16 2/3 % of Transfer Price. Other expenses were: Salaries `2,400 Printing & Stationery 1,800 Rent 6,000 Interest paid 4,800 Depreciation 3,000 Allocate expenses in the ratio of department gross profit. Opening figures of reserves for unrealized profits on department stock were: Department B `1,200. Department C `2,000.

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CA. Gautam Sethi

Comprehensive Accountancy

Prepare Departmental Trading and Profit & Loss Accounts for the year ending March 31, 1999. [Ans. G.P (Dept. A) `6,000; (Dept. B) `4,800; (Dept. C) `3,600; Net Loss after adj. `4,744] Ques.15 Fairways Limited is a retail organization with several departments. Goods supplied to each department are debited to a memorandum departmental stock account at cost, plus a fixed percentage (mark-up) to give the normal selling price. (The mark up is credited to a memorandum departmental 'Markup account", any reduction in selling prices (mark down) will require adjustment in the stock account and in mark up account. The mark up for Department A for the last three years has been 40%. Figures relevant to Department A for the year ended 30th June 1998 were as follows: Stock 80,000 Purchases, at cost 1,80,000 Sales 3,20,000 It is further ascertained that: (1) Goods purchased in the period were marked down by `1,400 from a cost of `16,000. Marked down stock costing `4,000 remained unsold on 30th June, 1998. (2) Stock shortage at the year end, which had cost `1,200, were to be written off. (3) Stock at 1st July, 1997 including goods costing `8,200 had been sold during the year and had been marked down in the selling price by `740. The remaining stock had been sold during the year. (4) The departmental closing stock is to be valued at cost subject to adjustments for mark up and mark down. You are required to prepare: (a) A Departmental Trading Account for Department A for the year ended June, 1998 in Head Office books: (b) A Memorandum Stock Account for the year; (c) A Memorandum Mark up Account for the year. [Ans. Closing Stock `40,530; Net Profit `90,150] Ques.16 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 31st December, 1998: A B Opening Stock (at cost) `20,000 `12,000 Purchases 92,000 68,000 Sales 1,40,000 1,12,000 Wages 12,000 8,000 Carriage 2,000 2,000 Closing Stock: (i) Purchased goods 4,500 6,000 (ii) Finished goods 24,000 14,000 Purchased goods transferred: By B to A 10,000 By A to B 8,000 Finished goods transferred: By A to B 35,000 By B to A 40,000 Return of finished goods: By A to B 10,000 By B to A 7,000 You are informed that purchased goods have been transferred mutually at their respective departmental purchase 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. [Ans. Net Profit `82,304] Ques.17 Rohit limited has three departments A, B and C. The following particulars are given to you: A B C Opening Stock (1.1.2000) 80,000 60,000 1,40,000 Purchases 1,18,000 2,14,000 1,92,500 Actual Sales 1,20,000 2,08,000 2,80,000 G.P. on normal Selling price 25% 20% 10%

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Departmental Accounting

CA. Gautam Sethi

During the year certain items were sold at discount/extra premium and these discounts/premium were reflected in the values of sales shown above. The items sold at discount/premium were: Deptt. A Deptt. B Deptt. C Sales at Normal Prices `20,000 `30,000 `40,000 Sales at Actual Prices 15,000 38,000 30,000 During the year, there was serious fire in the godown of Deptt. B destroying the following: Material (out of stock purchased) = `4,000 (at cost) Finished Goods = `5,500 (at normal selling price). You are required to compute: st (a) The value of stock on 31 December 2000; and (b) The departmental trading results. [Ans. Closing Stock = `1,04,250 (A), `1,05,600 (B), `71,500 (C); Gross Profit = `26,250 (A), `48,000 (B), `19,000 (C)] Ques.18 You are given the following particulars of a business having three departments: Department Purchases Opening Stock Closing Stock A 1,500 units 200 units 100 units B 1,000 units 300 units 160 units C 2,000 units 150 units 200 units Additional Information: (i) Purchases were made at a total cost of `92,000. (ii) The percentage of gross profit on turnover is the same in each case. (iii) Selling price per unit: Department ` A 20 B 25 C 30 You are required to prepare Department Trading Account. [Ans. Gross Profit = `6,400 (A), `5,700 (B), `11,700 (C).]

Ques.19 The following Trial Balance for the year ended 31st March 2001 is extracted from the books of Sh. Bikram Singh: Debit Credit Capital on1-4-2000 50,000 Drawings Account 10,000 Stock on 1-4-2000: Radio 45,000 Watches 21,000 Sales: Radio 2,94,000 Watches 1,46,000 Purchases: Radio 2,25,000 Watches 1,15,000 Salaries 12,600 Publicity Expenses 8,900 Rent, Rates and taxes 3,200 Commission 10,600 Miscellaneous Expenses 5,000 Furniture and Fixtures 12,400 Sundry Debtors 16,800 4% Government of India Loan 10,000 Sundry creditors 8,800 Interest 400 Reserve for Bad and Doubtful debts 800 Cash Balance 4,500 5,00,000 5,00,000

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CA. Gautam Sethi

Prepare the Departmental Trading and Profit and Loss Account for the year ended 31st March 2001, after taking into account the following: st (i) The stock as on 31 March, 2001 was: Radio 30,000 Watches 24,000 (ii) An amount of `1,200 from out of sundry debtors has to be written off as bad and the provision for doubtful debts has to be increased there after to 10 per cent of the debts outstanding. st (iii) The following expenses are outstanding as on 31 March, 2001 Publicity `1,300 Salaries 1,200 Commission 1,700 (iv) Provide 10 per cent depreciation on Furniture and Fixtures. (v) Revenue items to be allocated in the ratio of 2:1 as between Radios and Watches. Ignore fractions of a Rupee in calculations. [Ans. Net Profit `40,700 & Balance Sheet `93,700.]

Comprehensive Accountancy

Ques.20 Mr. Jai and Veeru besides doing graduation also sell two products manufactured in the factory owned by them on partnership. The goods are made in two departments A and B for which separate accounts are maintained. Some of the goods manufactured by department A are used as raw materials by department B and vice versa. From the following particulars, you are required to ascertain the total cost of goods manufactured in department A and B. Deptt. A Deptt. B Total units manufactured 10,00,000 5,00,000 Total cost of manufacture `10,000 `5,000 [Excluding Inter Departmental transfers] It is also given that during the year department A transferred 2,50,000 units to department B and the latter transferred 1,00,000 units to the former. These are already included in the total units manufactured given above. Also calculate the gross profit and sales if the normal G.P. margin is 20% on sales for both departments. [Ans. Cost = `8,684 (A), `6,316 (B) Gross Profit = `2,171 (A), `1,579 (B).] Ques.21 On the basis of the following trial balance and additional information provided to you thereafter, prepare departmental trading account and general profit and loss account for the year ended 31st March, 2008 and balance sheet as at that date: TRIAL BALANCE AS AT 31st MARCH, 2008 Debit Credit Capital account --`5,00,000 Land and building --`3,70,000 Furniture 90,000 --Opening stock: Department A 1,20,000 --Department B 2,40,000 --Purchases: Department A 12,00,000 --Department B 17,00,000 --Sales: Department A --20,00,000 Department B --32,00,000 General expenses 14,00,000 --Debtors 2,10,000 --Creditors --1,00,000 Drawings 2,80,000 --Bank 1,90,000 58,00,000 58,00,000 Additional information: (i) Closing stock of Department A is `1,80,000 which includes goods purchased from Department B and invoiced at `60,000. Department- B transfers goods to Department A at cost plus 20%.

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Departmental Accounting

CA. Gautam Sethi

(ii) Closing stock of Department B is `2,60,000 which includes goods transferred by Department- A at an invoice price of `1,50,000 which is arrived at by Department A by adding 25% to the cost of the goods. (iii) Sales of Department-A and Department B include goods transferred to the other department at `3,00,000 and `4,00,000 respectively. (iv) Addition made to land & Building on 1-07-2007 amounted to `1,25,000. (v) Sale proceeds of Furniture amounted to `12,000 credited to Furniture a/c. The book value on 1-4-2007 was `8,000 & furniture was sold on 1-10-2007. (vi) Depreciation is to be provided on land and building @ 8% per annum and on furniture @ 10% per annum. [Ans. Balance Sheet `12,27,500; Net Profit `9,07,500] Ques.22 Big Apples Ltd. is a retail store operating two departments. The company maintains a memorandum stock account and memorandum mark up account for each of the departments. Supplies issued to the departments are debited to the memorandum stock account to the department at cost plus the mark-up, and departmental sales are credited to this account. The mark up on supplies issued to the departments is credited to the mark up account for the department. When it is necessary to reduce the selling price below the normal selling price, i.e. cost plus mark-up, the reduction (mark down) is entered in the memorandum stock account and in the mark up account. Department Y has a mark up of 25% on cost, and Department Z 33-1/3% on cost. The following information has been extracted from the records of Southern Store Ltd. for the year ended 31st December 1988:Department Y Department Z Stock, 1st January, 1988 at cost `24,000 `36,000 Purchases 1,62,000 1,92,000 Sales 2,10,000 2,85,000 The stock of department Y at 1st January 1988 includes goods on which the selling price has been marked down by `800. These goods were sold in January, 1988 at the reduced price. Certain goods purchased in 1988 for `2,700 for department Y, were transferred during the year to Department Z, and sold for `3,600. Purchase and sale are recorded in the purchases of department Y and the sales of department Z respectively, but no entries in respect of the transfer have been made. Goods purchased in 1988 were marked down as follows:Department Y (`) Department Z (`) Cost 8,000 21,000 Mark down 800 5,000 At the end of the year there were some items in the stock of department Z, which had been marked down to `4,800. With this exception all goods marked down in 1988 were sold during the year at the reduced prices. During stock taking at 31st December 1988 goods which had cost `400 were found to be missing in the department Y. It was determined that the loss should be regarded as irrecoverable. 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 31st Dec.1988: a trading account a Memorandum Stock Account and a memorandum Mark up Account. [Ans. Closing Stock: Y `17,025; Z `18,643 & Profit: Y `40,720; Z `68,282] Ques.23 Vishal mega mart Limited has three departments. They are Alpha, Beta and Gamma. The profits of these departments are `25,000, `45,000 and `30,500 respectively (before charging manager's commission) and unrealized profit on stock transfers. Department Alpha transfers its goods @ 25% profit on cost to other departments while Beta transfers its goods @ 20% profit on cost. However, department Gamma transfers its goods @ 33 1/3% of Transfer price to other departments. However, respective Dept.'s original goods are only transferred. On Scrutiny of records you find. (i) Sale made for Alpha Dept. `10,000 has been credited to Beta Dept. Account. (ii) Goods sent on 'Sale or return basis' by Beta Dept. @ 125% have been recorded as regular Sale at `12,000. (iii) General expenses amounting to `2,100 have been excessively charged in Gamma Dept. instead of Beta Dept. (iv) The following transfers were made:

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CA. Gautam Sethi


Dept. Alpha

Comprehensive Accountancy

To Beta ` 24,000 (`12,000 still in closing stock) To Gamma ` 3,600 Dept. Beta To Gama ` 11,000 (`4,400 still in closing stock) Dept. Gamma To Alpha ` 7,700 (`3,000 still in closing stock) (v) Commission payable to the Manager @ 10% on correct overall Company profit after charging such commission. Find correct Net Profit of the Company and the commission payable to the General Manager. [Ans. Net Profit `85,425; Commission `8,542.] Ques.24 Mehul is earning uniform rate of gross profit in all three departments he is handling. Following are the relevant details: Purchases: Department: A 15,000 cartons Department: R 20,000 cartons Department: Z 15,000 cartons The total cost of the purchases amounted to `6,00,000. Sales: Department: A 16,000 cartons @ `20 Per carton Department: R 22,000 cartons @ `15 Per carton Department: Z 17,000 cartons @ `10 Per carton Opening Stock: Department: A 15,000 cartons Department: R 20,000 cartons Department: Z 15,000 cartons Prepare the trading account for three departments in a columnar form. Also show the working in respect of the following: (a) Gross Profit (%) assuming that there is no stock situation (b) Departmental- wise purchase price and value: and (c) Valuation of opening and closing stocks. [C.A. (Inter) Nov., 2002] [Ans. G. P. Ratio 20%; Gross Profit `64,000; `66,000 & `34,000] Ques.25 A firm had two departments, cloth and readymade clothes. The readymade clothes were made by the firm itself out of cloth supplied by the cloth department at its usual selling price. From the following figures, prepare the Departmental Trading and Profit and Loss Accounts for the year ended 31st March, 2001: Cloth Department Readymade Clothes Opening Stock on 1st April, 2000 3,00,000 50,000 Purchases 20,00,000 15,000 Sales 22,00,000 4,50,000 Transfer to Readymade Clothes department 3,00,000 --Expenses - Manufacturing --60,000 Selling 20,000 6,000 Stock on 31st March,2001 2,00,000 60,000 The stocks in the readymade clothes department may be considered as consisting of 75% cloth and 25% other expenses. The Cloth Department earned gross profit at the rate of 15% in 1999 - 2000. General Expenses of the business as a whole came to `1,01,000. [Ans. `3,56,425] Ques.26 The Z Ltd. has three departments and submits the following information for the year ending on 31st March, 2009: A B C Total Purchases (Units) 6,000 12,000 14,400 Purchases (Amounts) 6,00,000 Sales (Units) 6,120 11,520 14,976 Selling Price (per unit) `40 `45 `50 Closing Stock (Units) 600 960 36 You are required to prepare departmental trading account of Z ltd., assuming that the rate of Profit on sales is the uniform in each case: [C.A. P.C.C June 2009] [Ans. G.P. Ratio 60%; G.P. `1,46,880; `3,11,000; `4,49,280 ]

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Departmental Accounting

Ques.27 Brahma Limited has three departments and submits the following information for the year ending on 31st March, 2011: Particulars A B C Total (`)

CA. Gautam Sethi

Purchases (units) 5,000 10,000 15,000 Purchases (Amount) 8,40,000 Sales (units) 5,200 9,800 15,300 40 45 50 Selling price (`per unit) Closing Stock (Units) 400 600 700 You are required to prepare departmental trading account of Brahma Limited assuming that the rate of profit on sales is uniform in each case. [CA IPCC May, 2011] [Ans. Department Gross Profit A - `83,200; B - `1,76,400; C - `3,06,000] Ques.28 Department A sells goods to Department B at a profit of 50% on cost and to Department C at 20% on cost. Department B sells goods to A and C at a profit of 25% and 15% respectively on sales. Department C charges 30% and 40% profit on cost to Department A and B respectively. Stock lying at different departments at the end of the year are as under: Department A Department B Department C ` ` ` Transfer from Department A 45,000 42,000 Transfer from Department B 40,000 72,000 Transfer from Department C 39,000 42,000 Calculate the unrealized profit of each department and also total unrealized profit. (4 marks) [CA IPCC May 2013]

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