Department Accounts

10 DEPARTMENTAL ACCOUNTS
[CWA INTER J03]

Question: On what basis is the allocation of electricity charges made in case of departmental
Accounts?
A: Common expenses incurred for the benefit of many departments are to be taken into Account to
ascertain the overall profitability of the various departments. The common expenses need to be
apportioned to the various departments on some equitable basis.
Electricity Charges incurred can be allocated in Departmental Accounts among the various
Departments on the basis of kilowatt hour consumed by each Department. But if separate Meter is
installed in each Department then the Electricity Charges will be apportioned directly by apportioning
the total cost by power units consumed by each department.
[CA INTER N98, 4 marks]
Question: Write a note on basis of allocation of common expenditure among different
departments.
Answer: While preparing department accounts, expenses should be allocated among the different
departments on the basis of the following principles:
1.
Expenses incurred specially for each department are charged directly thereto e.g., insurance
charges of stock held by a department.
2.
Common expenses, the benefit of which is shared by all the departments and which are capable
of precise allocation, (e.g., rent, lighting expenses etc.) are distributed among the departments
concerned on some equitable basis considered suitable in the circumstances of the case. Rent is
charged to different departments according to the floor area occupied by each department,
having regard to any favourable location specially allocated to a department. Lighting and
heating expenses are distributed on the basis of consumption of energy by each department and
so on.
3.
Common expenses which are not capable of accurate measurement are dealt with as follows:
i.
Selling expenses, e.g., discount, bad debts, selling commission, etc. are charged on the
basis of sales.
ii. Administrative and other expenses, e.g., salaries of managers, directors, common
advertisement expenses, depreciation on assets, etc., are allocated equally among all
the departments that have benefited thereby. Alternatively, no allocation may be made
and such expenses may be charged to the combined profit and loss account.
PRACTICAL PROBLEMS
[CWA INTER J04]
Question 1: M/s. Star & Co. has two departments which maintain separate records. Prepare Trading
and Profit & Loss A/c for each department and Balance Sheet for the company for the year ended
31.03.2003. Provide depreciation on Plant and Machinery @ 33 %, Building by 5%, Furniture @
10%, other un-allocated expenses to be allocated on the basis of net sales of each department.
Financial Accounting
10.1
Dept. I [] Dept II. []

Opening Stock (01.04.2002)
1,00,000
80,000
Purchases
9,20,000
7,60,000
Purchase Returns
8,000
4,000
Sales
25,32,000
19,68,000
Sale Return
12,000
8,000
Wages & Salaries
7,20,000
6,40,000
Misc. expenses
1,40,000
1,28,000
Closing Stock (31.03.2003)
1,04,000
96,000
General balances for the year
Debtors
7,60,000
Creditors
6,92,000
Plant & Machinery 9,60,000
Land
3,20,000
Building
4,80,000
Furniture
1,92,000
Sales overheads
5,12,000
Cash on 31.03.2003
32,000
Bank Balance on 31.03.2003 4,40,000
Capital
20,00,000
Answer: In the Books of Star Co.
To
Trading and Profit and Loss Accounts for the year ended 31.03.2003
Particulars
Dept I
Dept II
Particulars
Dept I
Opening stock
1,00,000
80,000 By Sales less return 25,20,000
Purchase less return
9,12,000
7,56,000
Closing Stock
1,04,000
Gross Profit
16,12,000 12,20,000
26,24,000 20,56,000
26,24,000
Wages & Salaries
7,20,000
6,40,000
Gross Profit
16,12,000
Misc. Expenses
1,40,000
1,28,000
Sales Overheads
2,88,000
2,24,000
Depreciation
Plant & Machinery
1,80,000
1,40,000
Building
13,500
10,500
Furniture
10,800
8,400
General P/L A/c
2,59,700
69,100
16,12,000 12,20,000
16,12,000
Dept II
19,60,000
96,000
20,56,000
12,20,000
12,20,000
Note: Unrealised expenses such as Sales Overheads and Depreciation have been allocated on the ratio
of net-sales basis. [25,20,000 : 19,60,000] [9:7]
Balance Sheet of M/s. Star Co. as at 31.03.2003
Liabilities
Amount Assets
Amount
Capital
20,00,000
Land
3,20,000
Add: Profit - I 2,59,700
Building
4,56,000
Profit - II
69,100 23,28,800 Plant & Machinery 6,40,000
Creditors
6,92,000 Furniture
1,72,800
Stocks
2,00,000
Debtors
7,60,000
Cash and Bank
4,72,000
30,20,800
30,20,800
Departmental Accounts
10.2
[CA INTER M86]

Question 2: X Ltd, has two departments, A and B. From the following particulars prepare the
consolidated Trading Accounts and Departmental Trading Account for the year ending 31.12.12.
A ()
B ()
Opening Stock (at cost)
20,000
12,000
Purchases
92,000
68,000
Sales
1,40,000 1,12,000
Wages
Carriage
12,000
8,000
2,000
2,000
4,500
6,000
24,000
14,000
Closing Stock:
(i)
Purchased goods
(ii) Finished goods

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 purchases 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.
Departmental Trading A/c for the yr ended 31st March Dec, 2012. X Ltd
Particular
To
Dept. A
Dept. B
Op Stock
20,000
12,000
32,000
Purchases
92,000
68,000
1,60,000
Wages
12,000
8,000
20,000
2,000
2,000
4,000
RM
transferred
10,000
8,000
F.G.
Transferred
40,000
35,000
Carriage
Total
Particular
By
Dept. A
Dept. B
Total
1,40,000
1,12,000
2,52,000
RM
Transferred
8,000
10,000
F.G.
Transferred
35,000
40,000
Return of F.G.
10,000
7,000
4,500
6,000
Sales
Closing
Stock:
Raw Material
10,500
10.3
Return of F.G.
7,000
10,000
Gross Profit
38,500
46,000
2,21,500
1,89,000
Finished
goods
3,00,500
24,000
14,000
38,000
2,21,500
1,89,000
3,00,500
Consolidated A/c
Particular
To Stock Reserve A
1,555 By
Stock Reserve B
Net Gross Profit c/d
Particular
642
Gross Profit A
38,500
Gross Profit B
46,000
82,303
3,00,500
Add:
3,00,500
Working Notes
Dept A
Sales
1,40,000 1,12,000
Transfer
Dept B
35,000
40,000
1,75,000 1,52,000
Less: Return
[a]
Net sales plus transfer
[b]
Gross Profit
[c]
7,000
10,000
1,68,000 1,42,000
38,500
46,000
Rate of gross Profit [c] = [b]/[a]%
22.92%
32.39%
[d]
Closing stock of Finished Goods
24,000
14,000
[e]
Closing stock out of transfer [20%]
4,800
2,800
[f]
[g]
Unrealized profit % included

Unrealized Profit [e][f]
32.39%
1,555
22.92%
642
Calculation of Unrealised Profit on Unsold Stock

[CA INTER N04, 10 marks]
Question 3: FGH Ltd. has three departments I, J and K. The following information is provided
for the year ended 31.3.2004:
Opening stock
Opening reserve for unrealised profit
Materials consumed
Direct labour
Closing stock
Sales
Area occupied (sq. mtr.)
Number of employees
I-
5,000
16,000
9,000
5,000
2,500
30
J-
8,000
2,000
20,000
10,000
20,000
1,500
20
K-
19,000
3,000
5,000
80,000
1,000
10
10.4
Stocks of each department are valued 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.
Answer:
FGH Ltd. - Departmental Trading and P/L A/c for the year ended 31st March, 2004
I-
J-
K-
Total- By
I-
J-
K-
5,000
8,000 19,000 32,000
Sales
80,000
To
Opening
stock
Material
consumed
Direct
labour
Interdepartmental
Transfer
Gross profit
16,000
20,000
9,000
10,000
Total-
80,000
36,000
19,000
30,000
60,000
90,000
Interdepartmental
Transfer [Note1]
Closing stock
5,000
12,000
6,000
23,000
35,000
80,000
85,000
2,00,000
9,000
6,000
3,000
18,000
Gross profit
3,000
1,800
4,200
12,000
1,200
1,800
6,000
6,000
6,000
30,000
Net loss
30,000
60,000
90,000
5,000
20,000
5,000
30,000
35,000
80,000
85,000
2,00,000
5,000
12,000
6,000
23,000
6,000
7,000
30,000
[Note1]
Salaries and
staff welfare
Rent
Net profit
12,000
To Net loss (I)

Stock reserve [note 2]
Balance Transferred to B/S
7,000
12,000
12,000
General P/L a/c

7,000 By Stock reserve b/d (J + K) 5,000
3,000
Net profit (J + K)
6,000
1,000
11,000
11,000
Note1: Calculation of Gross Profit and Transfer Price:

I []
J[]
16,000
20,000
9,000
10,000
30,000
25,000
60,000
Opening Stock of Finished Goods
5,000
8,000
Cost of Goods Available for Sale
30,000
68,000
Closing Stock of Finished Goods
5,000
20,000
100
25,000
80 48,000
20
5,000
20 12,000
Department
Material Consumed
Add
Direct Labour
Add
Received from Transfers

Cost of Production
Add
Less
Cost of Goods Transferred

Profit
Transfer Price
120
30,000 100 60,000
10.5
Note 2: Calculation of unrealized profit on closing stock

Closing Stock
1
Profit%
Profit of Department I in the Stocks of Department J

30,000
20
1,667
20,00060,000 120
2
Profit of Department J in the Stocks of Department K

5,000
60,000
20
1,000
60,000 100
Profit of Department I in the Stocks of Department K

30,000
20
(5,000 1,000)60,000 120
333 1,333
Total unrealized profit
3,000
Question 4: Mr. D is earning uniform rate of gross profit in all three departments he is
handling. Following are the relevant details
Particulars
Department Cartons
Amount
G
15,000
The total cost of purchases
M
20,000
Purchases
amounted to 600000.
N
15,000
G
16,000
20 per carton
M
22,000
15 per carton
Sales
N
17,000
10 per carton
G
4,000
M
5,000
Opening stock
N
4,000
You are required to prepare
Prepare the Trading account for the three departments in columnar form.
Also show the workings in respect of the following:
1 Gross profit (%) assuming that three is no stock situation.
2 Department wise purchase price value and
3 Valuation of opening and closing stock.
Answer: Closing Stock = Opening stock + Purchases - Sales.
Department G 3000 Units
Department M 3000 Units
Department N 2000 Units
Purchase price is not available individually for departments G, M and N, but it is given that
gross profit rate is uniform.
Gross Profit margin can be formed by calculating sale value of purchased units
Department G
300,000
Department M
300,000
Department N
150,000
10.6
Total
Less Purchases (cost)
Profit
750,000
600,000
150,000
20%
Profit Margin = %
Department Selling Price Margin 20% Cost

G
20
4
16
M
15
3
12
N
10
2
8
Opening Stock Purchases Sales Closing Stock

64,000
240,000 320,000
48,000
Department G
60,000
240,000 330,000
36,000
Department M
32,000
120,000 170,000
16,000
Department N
Departmental Trading Account:
To
Particulars
Opening Stock
Purchases
Gross Profit
64,000
240,000
64,000
368,000
60,000
240,000
66,000
366,000
32,000
120,000
34,000
186,000
By
Particulars
Sales
Closing Stock
320,000
48,000
330,000
36,000
170,000
16,000
368,000
366,000
186,000
[CA INTER M89] Mark up and Mark down Concept

Question 5: 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 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 markup 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, 1998:
Dept Y () Dept 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
1. 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.
2. Certain goods purchased in 1988 for 2700 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
10.7
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 ()
Cost
Mark down
8,000
800
21,000
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.
4. During stock taking at 31st 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.
5. 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 31.12.88: trading Account,
Memorandum Stock Account and a memorandum Mark up Account.
Answer:
Southern Stores Ltd. Trading A/c for the year ended 31st Dec, 1998 ()
Particular
To Opening stock at cost
Purchases
Dept Y
24,000
Particular
36,000 By Sales
1,62,000 1,90,000
Transfer from Dept. Y

Gross Profit
Dept Z
2,700
51,518
92,496
Transfer: Dept. Z
Goods lost
Closing stock at cost
2,37,518 3,21,196
Dept Y
Dept Z
2,10,000 2,85,000
2,700
240
24,578
36,196
2,37,518 3,21,196
Memorandum Stock A/c ()

Particular
To
Balance b/d
Purchases [at sale price]
Dept Y
Dept Z
32,000
54,000
2,16,000
2,58,000
Particular
By
Balance b/d
Sales
Dept Y
Dept Z
510
2,10,000
2,85,000
2,700
Transfer
2,700
Transfer
Memorandum Mark up
1,350
Loss of Stock [at sale

value]
320
Memorandum Mark up A/c

(On transfer)
900
Memorandum Mark up A/c

(marked down)
800
4,100
32,770
54,294
2,48,000
3,43,394
Memorandum Mark up
344
(On marked down goods

still in stock)
Balance c/d (cl. stock)

2,48,000
3,43,394
10.8
Memorandum mark-up A/c

Particular
To Balance b/d
Particular
510
- By
Balance b/d
8,000
18,000
Memorandum stock A/c

(on transfer)
900
Memorandum
Stock 54,000
A/c
(Mark-up
on
purchased)
95,000
Memorandum stock a/c

(Mark-down)
800
4,100
Memorandum
stock
A/c
(Mark-up
on
transfer)
Memorandum stock A/c

(mark-down on good
lost)
80
Memorandum
stock
A/c (Marked down on
stock)
8,192
18,098
51,518
92,496
Balance c/d
To Gross Profit
62,000 1,14,694
1,350
344
62,000 1,14,694
Working Notes
Calculation of marked down value on unsold stock of Dept Z
Total
Cl. Stock
Cost of marked down goods
21,000
Mark up [cost plus 50%]
10,500
Normal Sale Price
31,500
Marked down
4,100
Revised Sale Price
27,000
2,300
Unsold stock at marked down value
Total Marked Down [Z Dept ]

Total Revised Sale Value
344
4,100
= 2,300 27,000
10.9

Department Accounts

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10 DEPARTMENTAL ACCOUNTS

[CWA INTER J03]

Dept. I [] Dept II. []

Answer: In the Books of Star Co.

[CA INTER M86]

Opening Stock (at cost)

(ii) Finished goods

Finished goods transferred:

Return of finished goods:

Net sales plus transfer

Rate of gross Profit [c] = [b]/[a]%

Closing stock of Finished Goods

Closing stock out of transfer [20%]

Unrealized profit % included

Calculation of Unrealised Profit on Unsold Stock

To Net loss (I)

General P/L a/c

Note1: Calculation of Gross Profit and Transfer Price:

Opening Stock of Finished Goods

Cost of Goods Available for Sale

Closing Stock of Finished Goods

Received from Transfers

Cost of Goods Transferred

30,000 100 60,000

Note 2: Calculation of unrealized profit on closing stock

Profit of Department I in the Stocks of Department J

Profit of Department J in the Stocks of Department K

Profit of Department I in the Stocks of Department K

(5,000 1,000)60,000 120

Total unrealized profit

Department Selling Price Margin 20% Cost

Opening Stock Purchases Sales Closing Stock

[CA INTER M89] Mark up and Mark down Concept

Transfer from Dept. Y

Memorandum Stock A/c ()

Loss of Stock [at sale

Memorandum Mark up A/c

Memorandum Mark up A/c

(On marked down goods

Balance c/d (cl. stock)

Memorandum mark-up A/c

Memorandum stock A/c

Memorandum stock a/c

Memorandum stock A/c

Cost of marked down goods

Mark up [cost plus 50%]

Normal Sale Price

Revised Sale Price

Unsold stock at marked down value

Total Marked Down [Z Dept ]

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