Professional Documents
Culture Documents
ACCOUNTING
Separate Trading and Profit and Loss account are prepared for each
department in order to measure the relative efficiency and profitability of
each department.
ALLOCATION OF EXPENSES
Charging of The expenses which can be directly identified with a particular department,
individual are charged directly thereto.
identifiable
expenses
Charging of The common expenses which have been incurred for various departments
common are charged to various departments proportionately on some equitable
expenses basis. Some bases of distribution of the common costs are given below:
Expenses Basis
Rent, rates, taxes, repairs and Floor area of each department
maintenance of building
Lighting No of Light points in each
departments
Power Consumption as per separate
meter or horse power of
machines
Discount Received/ Carriage inwards Purchases of each department
Note There are certain expenses and income, most being of financial nature,
which can’t be apportioned on a suitable basis, therefore they are
recognised in the combined profit and loss account.
Ex: Interest of loan, profit/ loss on sale of investment etc.
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TYPES OF DEPARTMENTS
Independent / Departments which work independently of each other and have negligible
Retail inter department transfer are called Independent / retail departments.
Departments
Basis of Inter Goods and services are provided by one department to another usually on
Departmental either of the following three bases:
Transfers a. Cost
b. Ruling market price
c. Cost plus agreed percentage of profit
Elimination of When profit is added in the inter departmental transfers the loading
Unrealised included in the unsold stock at the end of the year is to be excluded before
profit final accounts are prepared so as to eliminate any anticipatory profit
included therein.
Journal Entry
Profit & Loss A/c Dr ****
To Stock Reserve ****
(Being a provision made for unrealised profit included in closing inventory)
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In the beginning of the next accounting year, the aforesaid journal entry
will be reversed)
Disclosure in
Liabilities Amount Assets Amount
Balance Sheet
Current Assets
Inventory ****
Less: Stock Reserve (***)
Accounting 1. The opening stock is brought down on the debit side of the
Treatments Memorandum Stock account at selling price ( Cost + Mark up). Amount
of mark down on opening stock is brought down on the credit side of the
memorandum stock account.
2. The loading on opening stock is brought down on the credit side of the
memorandum mark up account. Amount of mark down on opening stock is
brought down on the debit side of the memorandum stock account.
Now, the balance of memorandum stock account will represent the closing
stock at selling price. Loading on closing stock is to be carried forward. The
balance of memorandum markup account will represent gross profit.