Professional Documents
Culture Documents
Learning Objectives
Business may have a number of departments each dealing in a different type of goods.
For example, one department may be dealing in medicines, the other may be dealing in
textiles, still another may be dealing in provisions etc. In order to ascertain the profit or
loss made by each Department, it will be advisable to prepare separately Trading and
Profit & Loss Account of each Department at the end of the accounting year.
Preparation of such Departmental Accounts is helpful to the business in the following
respects:
i. It enables the business to compare the performance of one Department
with that of another.
ii. It helps the business in formulating proper policies relating to the
expansion of the business. New profitable lines of production of trading
can be taken up while the existing lines of production or trading which are
giving a loss can be closed down.
iii. It helps in appropriate rewarding or penalizing the Department employees
on the basis of the results shown by them.
The preparation of Departmental Trading and Profit & Loss Account requires
maintenance of proper subsidiary books having appropriate columns for different
departments. For example, if a business has three departments A, B & C, the
subsidiary books such as Purchases Book, Purchases Returns Book, Sales
Book, Sales Returns Books etc., should have separate columns for each of the
departments. Cash Book may also have columns for recording cash sales of
each of the departments separately in case the volume of cash sales is quite
large. The specimen of a Purchases Book having columns for different
Departments is given below:
Purchases Book
The same pattern of rulings may be followed in case of other subsidiary books
also.
DEPARTMENTALISATION OF EXPENSES
TYPE OF PROBLEMS
Departmentalisation of Expenses
Illustration 7.1 M/s Raju Auto Garage have three departments, viz. (i)_ Cars and
Trucks, ( ii) Two wheelers, and (iii) Servicing. The former two sell spare parts and
occupy a godown-cum-showroom. The servicing department uses a garage and
adjoining site.
The following particulars are extracted from the books of the business for the
year ended 31st March, `1989, from which you are required to prepare :
Purchases:
Sales:
Cars and Trucks 6,00,000
Two-Wheelers 3,00,000
Servicing 1,00,000
Wages of counter-salesmen:
Cars and Trucks 30,000
Two-Wheelers 12,000
Wages of garage labour 10,800
Office salaries and wages 12,000
Godown and showroom rent 24, 000
Land and Garage Building 2,72,000
Office Expenses 36,000
Garage Equipment 1,00,000
Showroom Furniture and Fittings 70,000
Office Van 24,000
Sundry Debtors 12,000
Sundry Creditors 60,000
Bank Overdraft 17,200
Power and Lighting 36,000
Bank Interest 1,000
Cash in hand 900
Drawings Account 12,000
Proprietor’s Capital Account 1,63,000