Pg7.

Chapter -7 Departmental Accounting

Mark-Up Accounting
Journal Entries
When Goods Sent To Departt. Loss of stock
Departt. Stock A/c – Dr. [Total] Shortage A/c – Dr.
To Shop stock A/c / Purchase A/c [Cost] To Departt stock A/c [At mark up price]
To Departt. Mark up A/c [Mark-up]
Departt. Mark-up A/c – Dr. [Mark- up]
Goods sent from one department to other departt. Departt P/L A/c – Dr.
Goods sent to other departt. [cost]
Receiving Departt A/c – Dr. [Cost] To Shortage A/c [Mark-up price]
Mark up A/c – Dr . [Loading]
To Departt. Stock A/c [Total] Mark down of Stock during the year
Departt. Mark-up A/c – Dr. [Actual mark
Goods received from other departt. down]
Departt stock A/c -Dr. [Total] To Departt stock A/c
To Sending Departt A/c [Cost]
To Mark - up A/c [Own mark-up] Balance in mark-up is transferred to
Sales departt P/L A/c
Debtors A/c – Dr . (Credit ) Departt mark up A/c – Dr.
Cash A/c – Dr. (Cash ) To Departt P/L A/c
To Departt. Stock A/c [ Mark-up price]

Department. Stock A/c [ Mark up prices ]

To Balance B/d [ Opening stock] -- By Sales [cash or credit]
- cost By Mark up A/c [mark -Down]
- Actual Mark- up [x] By Receiving Depart A/c
To Purchases A/c - Cost (cost + Mark-up )
To Mark up A/c ------ By shortage (At Mark- up Price )
To Sending Departt A/c - Cost
To Mark- up A/c ------ By Balance C/d - Cost
To Bal c/d (Mark down on closing stock) - Actual mark - up [Y]

Mark - up A/c
To Departt. Stock A/c By Balance b/d [X]
-on transfer (Actual mark- up on opening stock )
-mark down -- By Departt. Stock A/c
To Shortage A/c [Mark-up on shortage] -- - on purchase
To Departt Profit & Loss A/c ( B. f) - on transfer received
To Balance C/d ( actual mark up on [Y] - additional mark up
closing stock) By Bal c/d (Mark down on closing
stock)

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 Pg7.2

Problem 1. Suman Ltd. is a departmental store having three departments X, Y and Z. The
manager of each department is entitled to a commission of 10% of the net profit of the
department besides their annual salary of Rs. 3,000 each. The information regarding three
departments for the year ended 30th June, 1993 are given below:
X Y Z
Rs. Rs. Rs.
Opening Stock 72,000 48,000 40,000
Purchases 2,64,000 1,76,000 88,000
Debtors at end 15,000 10,000 10,000
Sales 3,60,000 2,70,000 1,80,000
Closing stock 90,000 35,000 42,000
Floor space occupied by each department (In sq. ft.) 3,000 2,500 2,000
Number of employees in each Deptt. 25 20 15

The balance of other revenue items in the books for the year and the basis of their
allocation amongst three departments are given below:
Items Amount Basis
Rs.
Carriage Inwards 6,000 Purchases
Carriage Outwards 4,500 Turnover
Salaries including Managers’ salaries 81,000 No. of Employees
Advertisement 5,400 Turnover
Discount allowed 2,250 Turnover
Discount received 1,800 Purchases
Rent, Rates and Taxes 7,500 Floor Space occupied
Depreciation on furniture 1,500 equal

Assets and liabilities on 30th June, were as follows:

Debit Credit
Rs. Rs.
Share Capital 3,00,000
Goodwill 1,00,000
Bills Payable 12,100
Bills Receivable 42,500
Furniture 13,500
Sundry Creditors 27,000
Cash in hand 1,750
Cash at bank 1,62,000
You are required to prepare Trading and Profit & Loss Account for the year ended 30 th
June, 1993 (after providing provision for Bad Debts at 5%)and a Balance Sheet as on that date.

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 Pg7.3

Answer: In the Books of Suman Ltd.

Departmental Trading and Profit & Loss Account
Dr. For the year ended 30 th June, 1993 Cr.
Particulars Dept. Dept. Dept. Total Particulars Dept. Dept. Dept. Total
X Y Z X Y Z
Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.
To stock 72,000 48,000 40,000 1,60,000 By Sales 3,60,000 2,70,000 1,80,000 8,10,000
To Purchases 2,64,000 1,76,000 88,000 5,28,000 By Stock 90,000 35,000 42,000 1,67,000
To Carriage Inwards 3,000 2,000 1,000 6,000
To Gross Profit c/d 1,11,000 79,000 93,000 2,83,000
4,50,000 3,05,000 2,22000 9,77,000 4,50,000 3,05,000 2,22,000 9,77,000
To Carriage Outwards 2,000 1,500 1,000 4,500 By Gross
To Salary of Manager 3,000 3,000 3,000 9,000 Profit b/d 1,11,000 79,000 93,000 2,83,000
To Salaries 30,000 24,000 18,000 72,000 By Discount
To Advertisement 2,400 1,800 1,200 5,400 received 900 600 300 1,800
To Discount allowed 1,000 750 500 2,250
To Rent, Rates and
Taxes 3,000 2,500 2,000 7,500
To Depreciation 500 500 500 1,500
To Provision for Bad
Debts 750 500 500 1,750
To Managers
Commission 6,925 4,505 6,660 18,090
To Net Profit 62,325 40,545 59,940 1,62,810
1,11,900 79,600 93,300 2,84,800 1,11,900 79,600 93,300 2,84,800

Balance Sheet as on 30th June, 1993.

Liabilities Rs. Assets Rs.
Share Capital 3,00,000 Fixed Assets
Reserves and surplus Goodwill 1,00,000
Profit and Loss Account 1,62,810 Furniture 15,000
Secured Loans Nil Less: Dep. 1,500 13,500
Uncured Loans Nil Investments Nil
Current Liabilities and Current Assets
Provisions Stock 1,67,000
Sundry Creditors 27,000 Sundry Debtors 35,000
Bills payable 12,100 Less: Provision for Bad Debts 1,750 33,250
Outstanding Managers 18,090 Bill Receivable 42,500
commission Cash in hand 1,750
Cash at bank 1,62,000
5,20,000 5,20,000

Notes:
(i) Allocation of Salaries: Total salary of Rs. 81,000 includes salary of the departmental
manager being Rs. 3,000 for each department. Therefore, salary of other employees i.e.
(81,000 – 9,000) Rs. 72,000 will be allocated in the ratio of number of employees.
(ii) Commission to manager has been calculated on net profit before charging such commission.
(iii) Value of Furniture given is after depreciation.

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 Pg7.4

Problem 2. The following purchases were made during the year 1989 by a business house having
three departments:
Department A 1000 units
B 2000 units at total cost of Rs. 1,00,000
C 2400 units
Stock on 1st January 1989 were: Department A 120 units
B 80 units
C 152 units
The sale during 1989 were : Department A 1,020 units at Rs. 20 each
B 1,920 units at Rs. 22.50 each
C 2,496 units at Rs. 25 each
The rate of gross profit is the same in each case, Prepare Department Trading Account for the
year 1989.
Ans.
Dr. Departmental Trading Account for the ending on December 31-1-1989 Cr.
Particulars A Dept. B Dept. C Dept. Total Particulars A Dept. B Dept. C Dept. Total
Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.
To Stock 1,920 1,440 3,040 6,400 By Sales 20,400 43,200 62,400 1,26,000
To Purchases 16,000 36,000 48,000 1,00,000 By Stock 1,600 2,880 1,120 5,600
To Gross profit 4,080 8,640 12,480 25,200
22.000 46,080 63,520 1,31,600 22,000 46,080 63,520 1,31,600

Working Notes:
(i) Closing Stock of Deptt. A = Opening Stock-+ Purchases -Sales
= 120 + 1,000 -1,020 = l00
(ii) Closing Stock of Deptt. B = 80 + 2,000 -1,920 = 160
(iii) Closing Stock of Deptt. C = 152 + 2,400- 2,496 = 56
(iv) The rate of gross profit; Assuming all the purchases are sold the sare- proceeds would Pe;
Rs.
A 1,000 units @ Rs 20.00 20,000
B 2.000 units @ Rs 22.50 45,000
C 2,400 units @ Rs 25.00 60,000
1,25,000

Total cost is Rs 1,00,000; hence total profit would be Rs 25,000 or 20% of the selling price.
For each article the profit and cost;
S. P. Profit (Rs) Cost (Rs)
A 1/5 of Rs 20.00 4.00 16.00
B 1/5 of Rs 22.50 4.50 18.00
C 1/5 of Rs 25.00 5.00 20.00

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 Pg7.5

Inter Departmental transfers

Problem 3. A firm has two departments, Timber and Furniture. Furniture was made by he firm
itself out of timber supplied by the Timber Department. The trading and Profit and Loss Accounts
for the year 1992 is as follows:

Timber Furniture
Rs. Rs.
Opening Stock (1.1.1992) 3,00,000 50,000
Purchases 20,00,000 15,000
Sales 22,00,000 4,50,000
Transfer to Furniture Deptt. 3,00,000 ––
Expenses –– Manufacturing –– 60,000
–– Selling 20,000 6,000
Stock – 31-12-1992 2,00,000 60,000

The Stocks in the Furniture Department may be considered as consisting of 75 percent of timber
and 25 percent other expenses. Timber Department earned gross profit at the rate of 20 percent in
1991. General expenses of the business as a whole came to Rs. 1,00,000.

Ans. Trading and Profit and Loss Account for the year ended 31st Dec., 1992
(i) Stock at Shop Account
Particulars Timber Furniture Particulars Timber Furniture
Rs. Rs. Rs. Rs.
To Opening Stock 3,00,000 50,000 By Sales 22,00,000 4,50,000
To Purchases 20,00,000 15,000 By Transfer to
To Transfer from Timber Furniture Dept. 3,00,000
Deptt. 3,00,000 By Closing Stock 2,00,000 60,000
To Manufacturing
Expenses. 60,000
To Gross Profit c/d. 4,00,000 85,000
27,00,000 5,10,000 27,00,000 5,10,000
To Selling Expenses 20,000 6,000 By Gross Profit b/f. 4,00,000 85,000
To Net Profit 3,80,000 79,000
4,00,000 85,000 4,00,000 85,000

General Profit and Loss Account for the year ended 31st Dec, 1992.
Particulars Rs. Particulars Rs.
To Stock Reserve (On closing stock By Net Profit.
Of furniture) 7,200 Furniture Deptt. 79,000
To General Expenses 1,00,000 Timber Deptt. 3,80,000
To Net Profit 3,59,300 By Stock Reserve 7,500
_______ (on opening stock of furniture) ________
4,66,500 4,66,500

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 Pg7.6

Working Notes:
Calculation of Stock Reserve
(i) On opening stock of Furniture:
75% of stock is Timber i.e. portion of timber included in furniture = 50,00075/100 = Rs.
37,500.
20
Stock Reserve  37,500   Rs.7,500
100
(ii) On closing stock of furniture:
For calculating stock Reserve, G.P. Rate of Timber Deptt. Will be calculated.

4,00,000  100
G.P. Rate =  16%
22,00,000  3,00,000

60,000  75  16
Stock Reserve =  Rs. 7,200.
100  100

Problem 4. Telerad & Co. has two departments A and B. From the following particulars, prepare
Departmental Trading Account and consolidated Trading Account for the year ending 31st March
1993.
Deptt. A Rs. Deptt. B Rs.
Opening stock (at cost) 1,00,000 60,000
Purchases 4,60,000 3,40,000
Wages 60,000 40,000
Sales (excl. inter transfers) 7,00,000 5,60,000
Carriage 10,000 10,000
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.
[Ans. Gross Profit Dept, A Rs. 2,12,500 Dept. B Rs. 2,10,000;
Consolidated trading account gross profit [Rs. 4,11,800.]

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 Pg7.7

Problem 5. 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
Rs. Rs.
Opening Stock 1,00,000 Nil
Purchases 23,00,000 2,00,000
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 Department 5,00,000 1,80,000
Sales 23,00,000 15,00,000
Printing and Stationery 20,000 16,000
The following expenses incurred for both the departments were not apportioned between the
departments:
(a) Salaries Rs. 2,70,000
(b) Advertisement expenses Rs, 90,000
(c) General expenses Rs. 8,00,000
(d) Depreciation @ 25% on the machinery value of Rs. 48,000, advertisement expenses are to be
apportioned in the turnover ratio, salaries in 2:1 ratio and depreciation in 1:3 ratio between the
departments P and Q General expenses are to be apportioned in 3:1 ratio.
Ans.
Green & Co.
Departmental Trading and Profit and Loss Account
Dr. for the year ended 31st March, 1994 Cr.
Particulars Deptt. P Deptt. Q Particulars Deptt. P Deptt. Q
Rs. Rs. Rs. Rs.
To Opening Stock 1,00,000 — By Sales 23,00,000 15,00,000
To Purchase 23,00,000 2,00,000 By Transfer to Deptt Q 7,00,000 —
To Wages 1,00,000 1,60,000 By Closing Stock 5,00,000 1,80,000
To Transfer from Deptt. P — 7,00,000
To Gross Profit c/d 10,00,000 6,20,000
35,00,000 16,80,000 35,00,000 16,80,000
To Salaries (2:1) 1,80,000 90,000 By Gross profit b/d 10,00,000 6,20,000
To Travelling exp. 10,000 1,40,000
To Printing and
Stationery 20,000 16,000
To Adverti. exps. (23:15) 54,474 35,526
To Gen. exp. (3:1) 6,00,000 2,00,000
To Depreciation on
Machinery (1 :3) 3,000 9,000
To General P & L A/c
(Depart. profit trans.) 1,32,526 1,29,474
10,00,000 6,20,000 10,00,000 6 ,20,000

General Profit and Loss Account for the year ended 31st March, 1994
Particulars Rs. Particulars Rs.
To Provision for unrealised profit on By Departmental Trading &
stock of Deptt. Q 39,623 Profit & Loss A/c (Profit)
To Net Profit (Transferred to Balance Deptt. P 1,32,526
Sheet) 2,22,377 Deptt. Q 1,29,474 2,62,000
2,62,000 2,62,000

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 Pg7.8

Working Notes:
(1) Apportionment of advertisement expenses: Advertisement expenses are apportioned on the
basis of outside sales made by two departments. No advertising effort is required for inter
departmental transfers.
(2) Calculation of unrealised profit on stock of Deptt. Q:
Gross profit percentage on sales of Deptt. P:
Rs. 10,00,000 / 30,00,000 × 100 = 33 1/3 %

Proportion of stock transferred by P included in the closing stock of Q : 1,80,000 ×

7,00,000/10,60,000 = Rs. 1,18,868. Therefore, provision for unrealised profit = 33 1/3 % of Rs.
1,18,868 = Rs. 39,623.

Problem 6. Moon Ltd. three departments. They are ‘Cloth Stitching Deptt’, Selling Departments
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. 2002.
Cloth Stitching Selling Deppt.
Rs. Rs.
Opening Stock 1,20,000 80,000
Purchase 5,00,000 ---
Wages and other Exp. 1,25,000 25,000
Clothing Stock 45,000 95,000
Sales ---- 11,05,000
During the year goods costing Rs. 50,000 to selling department, were returned back to cloth
department.
The expenses of General Admn. Deppt. are as follows:
Manager’s Salary @ Rs. 1,000 p.m
Clerk’s Salary (2 Nos.) @ Rs. 600 p.m (each)
Maintenance Expenses Rs. 9,600
Apportion General Deppt. Expenses equally to the ‘Cloth stitching’ and ‘Selling Deptt.’.
Ans.
Gross Pr ofit Cloth 1,40,000; Selling 2,55,000;
Net Pr ofit 3,56,572
Stock Re serve 
8,40,000 1
95,000  80,000    2,428
8,65,000 6

Problem 7. Calculate stock reserves A, B & C are three departments:

Content Ratio Profit Ratio Closing Stock
A Nil 1 of Sale 15,000
4
B 2/ 10 1 of cos t 22,000
5
C 5/ 15 Not available 40,000
Assume A sales to B Sales to C Ans. Stock Reserve 3878.

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 Pg7.9

Problem 8. Calculate stock A, B, C & D are four departments:

Content Ratio Profit Ratio Closing Stock
A Nil 1 of Sale 40,000
10
B 7/ 15 1 of cos t 50,000
4
C 8/ 20 1 of sales 70,000
6
D 6/ 24 1 of sales 80,000
10
Assume A sales to B to C Sales to D [Ans. 13893]
Problem 9 .Complex Ltd. has three departments. AB & C The following information is provided;
Particulars A B C
Rs. Rs Rs.
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
Stocks of each department are valued at cost to the department concerned. Stocks of A
department are transferred to B at a margin of 50% above departmental cost. Stocks of B
department are transferred to C department at a margin of 10% above departmental cost.
Other expenses were :
Salaries Rs. 2,000
Printing & Stationery Rs. 1,000
Rent Rs. 6,000
Interest paid Rs. 4,000
Depreciation Rs. 3,000
Allocate expenses in the ratio of departmental gross profit. Opening figures of reserves for
unrealized profits on departmental stocks were: Department B -Rs. 1,000. Departmental C –
2,000. Prepare Departmental Trading and Profit & Loss Account.

Ans. Complex Ltd.

Dr. Departmental Trading and Profit & Loss Account for the year ended 31 st March, 1993 Cr.
Particulars Dept A Dept B Dept C Total Particulars Dept A Dept B Dept C Total
To Opening Stock 3,000 4,000 6,000 13,000 By Sales — — 34,000 34,000
To Direct materials By Transfer to Dept B 18,000 — — —
(consumed} 8,000 12,000 — 20,000 By Transfer to Dept C — 33,000 — —
To Wages 5,000 10,000 — 15,000 By Closing Stock 4,000 14,000 8,000 26,000
To Transfer from Dept A — 18,000 — —
To Transfer from Dept B — — 33,000 —
To Gross Profit c/d 6,000 3,000 3,000 12,000
22,000 47,000 42,000 60,000 22,000 47,000 42,000 60,000
To Salaries (2:1:1) 1,000 500 500 2,000 By Gross Profit b/d 6,000 3,000 3,000 12,000
To Printing & Stationery 500 250 250 1,000 By Net Loss c/d 2,000 1,000 1,000 4,000
To Rent (2:1:1) 3,000 1,500 1,500 6,000
To Interest (2:1:1) 2,000 1,000 1,000 4,000
To Depreciation 1,500 750 750 3,000
8,000 4,000 4,000 16,000 8,000 4,000 4,000 16,000
To Net Loss b/d 4,000 By Provision for unrealised profit on Op Stock
To Provision for unrealised profit on CI Stock (Note 2) 3,918 (Rs 1,000 + 2,000) 3,000
By Profit & Loss A/c -Transfer 4,918
7,918 7,918

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 Pg7.10

Working Notes: (1) Calculation of the value of transfers

(a) From Dept A to Dept B Rs. (b) From Dept B to Dept C Rs.
Opening stock 3,000 Opening Stock 4,000
Add Materials consumed 8,000 Add Materials consumed 12,000
Wages 5,000 Wages 10,000
16,000 Transfers (as calculated) 18,000
Less Closing stock _4,000 44,000
Cost of goods transferred 12,000 Less Closing stock 14,000
Add Loading @ 50% _6,000 Cost of goods transferred 30,000
Value of transfer 18,000 Add Loading @ 10% _3,000
Value of transfer 33,000

(2) Calculation of Unrealised profit on Closing Stock

(a) For Dept. B (b) For Dept. C
Dept A trans. to Dept B at 50% of cost, i.e., unrealised profit. Dept. B transfers to Dept.. Cat 10% of cost, i e.,
unrealised
included in Dept. B's stock is at 1/3rd on transfer price Profit included in Dept C's stock is 1/11th
Therefore, unrealised profit on stock on transfer price
Therefore, Rs
Unrealised profit on stock arising from Dept B
= 1/3rd [closing stock × Transfer ] 1/11 of Rs. 8,000 727
Departmental cost
= 1/3rd of [ Rs. 14,000 × Rs. 18,000 ] And unrealised profit on stock arising from dept. A
Rs. (12,000 + 10,000 + 18,000) 1/3 × (Rs.8,000 – Rs.727) × Rs. 18,000/ Rs. 40,000
1,091
Total 1,818

Total for Departments B and C = Rs 2,100 + Rs 1,818= Rs 3,918.

Problem 10. A Ltd. has a factory which has two manufacturing departments X and Y. Part of the
output of X Department for further processing and the balance in directly transferred to the
Selling Department. Inter-departmental stock transfers are made as follows:
X Department to Y Department of 33-1/3 % over-departmental cost.
X Department to Selling Department of 50 % over departmental cost.
Y Department to Selling Department of 25 % over departmental cost.
The following information is given for the year ending 31st march, 1986.
Particulars Department X Department Y Selling Department
MT Rs. MT Rs. MT Rs.
Opening stock 60 60,000 20 40,000 50 1,45,000
Raw Material 90 1,00,000 20 20,000 — —
Consumption
Labour charges — 50,000 — 80,000 — —
Sales — — — — — 5,00,000
Closing stocks 30 — 50 — 60 —
Out of the total production in X Department 30 MT were for transfer to the Selling
Department. Apart from these stocks which were transferred during the year the balance output
and the entire opening and closing stocks of X Department were for transfer to Y Department.
The per tonne material and labour consumption in X Department on production to be transferred
directly to the Selling Department is 300 per cent of the labour and material consumption on
production meant for Y Department

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 Pg7.11

(i) Prepare Departmental Profit and Loss Account; (ii) General Profit and Loss Account.

Ans.
Departmental Accounts & General Profit and Loss Account for the year ended 31st March,
1995
Particulars Deptt. X Deptt. Y Selling Dept. Particular Deptt. X Deptt. Y Selling Dept.
s
Qty. Amount Qty. Amount Qty Amount Qty. Amount Qty. Amount Qty. Amount
Mt. Mt. .Mt Mt. Mt. Mt.
.
To Opening 60 60,000 20 40,000 50 1,45,000 By Sales — — — — 100 5,00,000
Stock
To Raw 90 1,00,000 20 20,000 — — By Stock 30 1,35,000 80 2,00,000 — —
Material Transfer to
Consumed Sales
Deptt.
To Labour — 50,000 — 80,000 — — By 90 1,20,000 — — — —
Charges Transfer to
Y Deptt.
To Stock — — 90 1,20,000 30 1,35,000 By 30 30,000 50 1,00,000 60 1,80,000
transferred Closing
from X Stock
Deptt.
To I.D.T. –– –– –– –– 80 2,00,000
from
Y Deptt.
To Gross — 75,000 — 40,000 — 2,00,000
Profit
150 2,85,000 130 3,00,000 160 6,80,000 150 2,85,000 130 3,00,000 160 6,80,000

Dr. General Profit and Loss Account for the year ended 31st March, 1995 Cr.
Particulars Rs. Particulars Rs.
To Stock Reserve By Gross Profit From:
(increase required) Deptt. X 75,000
Y Department 8,181 Deptt. Y 40,000
Selling Deptt. 11,160 Selling Deptt 2,00,000
To Net Profit 2,95,659
3,15,000 3,15,000
Working Notes:
(1) Calculation of Value of goods transfer:
(a) Transfer from X Deptt.:
Total Quantity of input in X Deptt. is (60 + 90) = 150 MT. This includes 30 Mt. being transferred
to Selling Deptt. Cost of production of goods transferred to Selling Deptt is 300% of the goods
meant for Y Deptt. Therefore 30 MT. will be equal to 90 MT. of the goods meant for Y Deptt.
Hence, effective production of X Deptt. will be (60 + 90 + 60) = 210 MT.

Cost of goods transferred to Y Deptt. = 2,10,000 ÷ 210 × 90 = Rs. 90,000

Add: Profit 33 1/3 % on Cost = Rs. 30,000
Transfer value = Rs. 1,20,000

Cost of goods transferred to Selling Deptt. = 2 10,000 ÷ 210 × 90 = Rs. 90,000

Add: Profit 50% on Cost = Rs. 45,000
_ 1,35,000
(b) Transfer from Y Deptt:
Cost of goods transferred to Selling Deptt. = 2,60,000 ÷ 130 × 80 = Rs. 1,60,000
Add: Profit @ 25% on Cost = Rs. 40,000
Transfer value = Rs. 2,00,000

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 Pg7.12

(2) Calculation of Stock Reserve:

Reserve on opening stock is not given, therefore, Stock Reserve will be calculated on net stock
i.e. difference of opening and closing stock.

(a) Reserve on stock of Y Deptt: (1,00,000 – 40,000 = Rs. 60,000)

Portion of goods transferred from X Deptt = 60,000 × 1,20,000 ÷ 2,20,000 = Rs. 32,727
Profit charged by X Deptt. included in stock = 32,727 × 1 ÷ 4 = Rs. 8,181
(b) Reserve on Stock of Sales Deptt: (1,80,000 – 1,45,000 = Rs. 35,000)
Stock of Sales Deptt includes goods transferred from X Deptt and Y Deptt.
Portion of goods transferred from X Deptt = 35,000 × 1,35,000 ÷ 3,35,000 = Rs. 14,104
Profit charged by X Deptt. included in stock = 14,104 × 50 ÷ 150 = Rs. 4,701

Portion of goods transferred by Y Deptt. = 35,000 × 2,00,000 ÷ 3,35,000 = Rs. 20,896

Profit charged by Y Deptt. included in stock = 20,896 × 25 ÷ 125 = Rs. 4,179

Cost in Deptt Y = 20,896 - 4,179 = Rs. 16,717

Portion of goods transferred from X Deptt. = 16,717 × 1,20,000 ÷ 2,20,000 = Rs. 9, 118
Profit charged by X Deptt. included in Stock = 9,118 × 1 ÷ 4 = Rs. 2,280

Total unrealised profit included in stock of selling deptt. (Rs. 4701 + Rs. 4179 + Rs. 2280)
= Rs. 11,160
Value of closing stock is more than opening stock in both departments. Therefore, stock
reserve will be debited in General Profit and Loss Account.

Problem 11. M/s bright & co., had four department 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 Rs. 6,000 in each case. Interdepartmental transfers took place at a
‘loaded’ price as follows:
from department A to department B 10% above cost
from department A to department D 20% above cost
from department C to department B 20% above cost
from department C to department D 20% above cost
For the year ended 31st March, 1991 the firm had already prepared and closed the departmental
trading and Profit & 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:-
Dept. A Dept. B Dept. C Dept. D
Rs. Rs. Rs. Rs.
Final profit/loss 38,000 50,400 72,000 1,08,000
( loss) ( profit ) (profit ) ( profit )
Interdepartmental — 70,000 — 4,800
transfers included (Rs. 22,000 from Deptt. A (Rs.3,600 from Deptt. C
At loaded price and Rs. 48,000 from and Rs. 1,200 from
in the departmental Stock Deptt. C) Deptt. A)

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 Pg7.13

Ans.
Statement showing Re computation of Departmental Profit or Loss
Particulars A (Rs) B (Rs) C (Rs) D (Rs)
Final profit / loss (as computed earlier) (38,000) 50,400 72,000 1,08,000
Add Department manager's commission already departmental
deducted from profit (Note 1) 6,000 6,000 8,000 12,000

Profit before charging manager's commission (32,000) 56,400 80,000 1,20,000

Less Profit earned due to transfer of goods at loaded
price and included in departmental unsold stock (Note 2) (2,200) — (8,600) —
Correct departmental profit before charging manager's
commission @ 10% of (34,200) 56,400 71,400 1,20,000
Department profit subject to a minimum of Rs 6,000 (6,000) (6,000) (7,140) (12,000)
40,200 50,400 64,260 1,08,000
Working Notes:
1. Manager's commission is payable @10% of departmental profit before charging such
commission (subject to a minimum of Rs 6,000). Alternatively, we can say, manager's
commission is payable @ 1/9 of departmental profit after charging such commission (subject
to a minimum of Rs 6,000). Therefore the manager's commission, already deducted, will be
as follows:
Departments Profit/Loss after charging commission (Rs.) Commission (Rs.)
A (38,000) 6,000
B 50,400 6,000
C 72,000 1/9 of Rs. 72,000 = 8,000
D 1,08,000 1/9 of Rs. 1,08,000 = Rs. 12,000
1/9 of Rs. 50,000 or 6,000 whichever is higher
2. Unrealised profit on unsold departmental stock:
(a) Profit earned by Department A by transferring stock to: Total
Dept B @ 110 % = Rs. 22,000 × 10 = Rs. 2,000
100
Dept D @ 120 % = Rs. 1,200 × 20 = Rs 200 2,200
120
(b) Profit earned by Department C, by transferring stock to:
Dept D @ 120 % = Rs 3,600 × 10 = Rs 600
120
Dept B @ 120 % = Rs 48,000 × 20 = Rs 8000 8,600
120

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 Pg7.14

Rectification of Errors

Problem 12. Boming Limited has three departments. They are Alpha, Beta and Gamma. The
profits of these departments are Rs. 30,000, Rs. 40,000 and Rs. 17,400 respectively. (before
charging manager’s commission, and unrealised 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. Department Gama transfers its goods at cost to other
departments. However, original goods of respective departments are only transferred.
On scrutiny of records you find.
(i) Purchases made for Alpha Deptt. Rs. 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 Rs. 8,400.
(iii) General expenses amounting to Rs. 2,100 have been excessively charged in Gama Deptt.
Instead of Beta Deptt.
(iv) The following transfers were made :
Dept. Alpha To Beta Rs. 24,000 (Rs. 12,000 still in closing stock)
To Gama Rs. 3,600
Dept. Beta To Gama Rs. 11,000 (Rs. 4,400 still in closing stock)
Dept. Gama To Alpha Rs. 7,700 (Rs. 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 : Rs. 83,600 (before commission) Commission Rs. 7,600.]

Mark up Accounting

Problem 13. 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 memorandum
departmental mark up account ,any reduction in selling prices (Mark-down) will require
adjustment in stock account and in mark-up account. The mark up for department A for the last
three years has been 40%. Figures for the year ended 30th June, 1998 were as follows :
Stock 1st July, 1997, at cost 80,000
Purchases at cost 1,80,000
Sales 3,20,000
It is further ascertained that;
(i) Goods purchased in the period were marked down by Rs.1,400 from a cost of Rs. 16,000.
Such Marked down stock costing Rs. 4,000 remained unsold on 30th June 1998.
(ii) Stock shortages at the year end which had cost Rs. 1,200 were to be written off.
(iii) Stock at 1st July 1997 includes goods costing Rs. 8,200 which had been sold during the
year and had been marked down in the selling price by Rs. 740.
You are required to prepare A departmental trading account for the year ended June 1988 in
head office books. A memorandum stock account for the year; & memorandum mark-up
account for the year

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 Pg7.15

Ans.
(i) Trading Account (Department A)
Rs. Rs.
To Opening Stock 80,000 By Sales 3,20,000
To Purchases 1,80,000 By Shortage 1,200
To Gross Profit c/d 90,150 By Closing stock
(Working Note 3) 28,950
3,50,150 3,50,150

Memorandum Stock Account for the department

Date Particular Rs. Date Particular Rs.
1997 1997
July 1 To Balance b/d By Stock shortage A/c
Cost 80,000 P & L A/c 1,200
Mark-up 32,000 Mark-up A/c 480 1,680
1,12,000 By Mark up A/c 1,400
Less :Mark down 740 1,11,260 By Debtors A/c(Sales) 320000
To Purchases:
Cost 1,80,000
Mark-up 72,000 2,52,000

1998
June 30 By Balance c/d (B.f.) 40,180
3,63,260 3,63,260

(iii) Memorandum Mark up Accounts

Date Particular Rs. Date Particular Rs.
1997-98 1997
To Memo. Stock A/c July 1 By Balance b/d
shortage 480 (32,000- 740) 31,260
mark down 1,400 1,880 By Stock A/c 72,000
To Gross Profit trans-
ferred to P&L A/c (B.f.) 90,150
1998
June 30 Balance c/d 11,230
1,03,260 1,03,260

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 Pg7.16

Problem 14. Southern Store Ltd. is a retail store operating two departments. 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 Dec. 1988:
Dept Y Dept Z
Rs. Rs.
Stock 1st January 1988 at cost 24,000 36,000
Purchases 1,62,000 1,90,000
Sales 2,10,000 2,85,000
1. The stock of department Y at 1st January 1988 includes goods on which the selling price has
been marked down by Rs. 510. These goods were sold in January 1988 at the reduced price.
2. Certain goods purchased in 1988 for Rs. 2,700 for department Y, were transferred during the
year to department Z, and sold for Rs. 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.
3. Goods purchased in 1988 were marked down as follows: Dept Y Dept Z
Rs. Rs.
Cost 8,000 21,000
Mark Down 800 4,100
At the end of year there were some items in the stock of department Z, which had been marked
down to Rs. 2,300 with this exception all goods marked down in 1988 were sold during year at
reduced prices.
4. During stock taking at 31st December 1988 goods which had cost Rs. 240 were found to be
missing in department Y. It was determined that the loss should be regarded as irrecoverable.
5. The closing stock in both departments are to be valued at cost for the purpose of the annual
accounts.
You are required to prepare for each department for the year ended 31st December 1988:
(i) Trading Account (ii) Memorandum stock account and Memorandum mark up account
Ans. Southern Stores Ltd.
Trading Account
for the Year Ended 31st December, 1988
Particulars Deptt. y Deptt. Z Particulars Deptt. y Deptt. Z
Rs. Rs. Rs. Rs.
To Opening Stock at Cost 24,000 36,000 By Sales 2,10,000 2,85,000
To Purchases 1,62,000 1,90,000 By Transfer to Deptt Z 2,700
To Transfer from Y Deptt. 2, 700 By Goods Lost 240
To Gross Profit 51,518 92,496 By Closing Stock at Cost 24,578 36,196
2,37,518 3,21,196 2,37,518 3,21,196
Memorandum Stock Account
Particulars Deptt. Y Deptt. Z Particulars Deptt. Y Deptt. Z
Rs. Rs. Rs. Rs.
To Balance b/d 32,000 54,000 By Balance b/d 510
To Purchases 1,62,000 1,90,000 By Sales 2,10,000 2,85,000
To Memorandum Mark-up By Transfer 2,700
A/c (on purchases) 54,000 95,000 By Memorandum mark-
To Transfer 2,700 up A/c (on transfer) 900
To Memorandum Mark-up By Memorandum Mark- up A/c
A/c (on transfer) 1,350 (marked down on purchases) 800 4,100
By Loss of Stock 240
To Memorandum Mark up A/c By Memorandum Mark- up A/c
(on marked down goods still (on lost stock) 80
in stock) _______ 344 By Balance c/d (closing stock) 32, 770 54,29 4
2,48,000 3,43,394 2,48,000 3,43,394

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 Pg7.17

Memorandum Mark-up Account

Particulars Deptt. y Deptt. Z Particulars Deptt. y Deptt. Z
Rs. Rs. Rs. Rs.
To Balance b/d 510 By Balance b/d 8,000 18,000
To Memorandum Stock A/c By Memorandum Stock
(on transfer) 900 (mark-up on purchase) 54,000 95,000
To Memorandum Stock A/c
(mark-down) 800 4,100 By Memorandum Stock
To Memorandum Stock A/c A/c (mark-up on
(mark-down on goods transfer) — 1,350
lost) 80 By Memorandum Stock
To Gross Profit (balancing (marked down on
figure) 51,518 92,496 goods still in stock) — 344
To Balance c/d 8,192 18,098
62,000 1,14,694 62,000 1,14,694
Working Notes:
(1) Closing Stock at Cost: Y Deptt. Z Deptt.
Rs. Rs.
Closing stock at Invoice Price 32,770 54,294
At Cost (3/4 ) 24,578 (2/3) 36,196

(2) Mark down in unsold Stock of Z Deptt. :

Mark-down × Value of Stock = 4,100 × 2,300 = Rs. 344
Value after mark -down 27,400

Verification of Gross Profit: Y Deptt. Z Deptt.

Rs. Rs.
Sales 2,10,000 2,85,000
Add: Reduction (mark-down) 1,310 3,756
2,11,310 2,88,756
Gross Profit (1/4) 52,828 (1/3) 96,252
Less: Mark-down 1,310 3,756
Gross profit as per Memorandum Mark-up Account 51,518 92,496
* Rs. 4,100 — 344
Note : 1. Mark-down on opening stock, purchases and closing stock have been shown on the
reverse side of Stock A/c and Mark-up A/c. Alternatively, these can be shown as a deduction
from respective values.
2. Trading Account will be prepared at Cost.

LGF-2, BASEMENT, Hans plaza, side building ICAI , Ghaziabad, Ambedkar road