Study Note 5.2 (353-378)

353Financial Accounting

5.2. DEPARTMENTAL ACCOUNTSIntroduction :Departmental Accounts helps in identifying the performance of each department. Eachdepartment is considered to be an Activity Centre. It is a tool which helps management indecision-making.

Departmentation offers the following advantages —

a. Proper Allocation : Expenses that relate to a particular department are estimated on anexact basis. Hence, cost and profits of each department is estimated more accurately.

b. Control : Availability of separate cost and profit figures for each department facilitatescontrol. Proper control and fixation of responsibility is easier.

c. Proper absorption : The processing times of different products in different departmentsmay vary. Specific cost analysis on a department-wise basis facilitates scientific costabsorption and cost assignment. This provides the right platform for product- pricingdecisions also.

Bases of Appointment of Expenses :

Nature of Expense Treatment Examples

When a certain expense isspecifically incurred for onedepartment, it should be chargedin full to that department only.

• Depreciation of machinery onvalue of machinery;

• Insurance on stock on the valueof stock.

Shared CommonExpenses

When benefits of certain expensesare expenses shared by alldepartments and are capable ofprecise allocation, they shouldbe apportioned to all depart-ments on an appropriate andequitable basis.

• Rent is apportioned based onFloor Space occupied by eachdepartment.

• Lighting Expenses isapportioned basis of on thenumber of light points (or) on thebasis of floor area.

• Canteen subsidy on the basis ofNo. of workers.

General Expenses Common expenses which are notcapable of accurateapportionment to variousdepartments are dealt withjudiciously, based on facts andcircumstances of each case.

• Administration Expenses likeOffice Salaries may beapportioned equally among alldepartments or alternativelydebited to General P&L Account.

• Selling and DistributionExpenses may be apportionedbased on Sales ratio.

Specific Charge

Inter-Departmental Transfer :

1. Methods of Transfer Pricing : Transfers made by one department to another may berecorded either at (a) Cost or (b) Market Price or (c) any other appropriate method e.g.Cost + Agreed Profit Mark Up.

Fianancial Accounting354

DEPARTMENTAL ACCOUNTS

2. Accounting : When transfers are made, their value should be credited as Income of theTransferring Department and debited as cost of the Recipient Department. When profit isadded in the inter-departmental transfers, the loading (unrealised profit) included in theClosing Stock should be reversed, by debiting the General P&L Account and creditingStock Reserve Account.

Illustrations 1 :Snow White Ltd has two departments — Cloth and Readymade Clothes. Ready Made Clothes

are made by the Firm itself out of cloth supplied by the Cloth Department at its usual sellingprice. From the following figures, prepare Departmental Trading and Profit and Loss Accountsfor the year ended 31st March :

Particulars Cloth Dept Readymade Clothes

Opening Stock on 1st April 3,00,000 50,000Purchases 20,00,000 15,000Sales 22,00,000 4,50,000Transfer to Readymade Clothes Department 3,00,000 —Expenses - Manufacturing — 60,000

Selling 20,000 6,000Closing Stock on 31st March 2,00,000 60,000

The Stock 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%during the year. General Expenses of the business as a whole came to Rs.1,10,000.

Solution :Departmental Trading and Profit and Loss A/c for the year ending 31st March (Rs.)

Particulars Cloth RM Total Particulars Cloth RM Total

To Opg. Stock 3,00,000 50,000 3,50,000 By Sales 22,00,000 4,50,000 26,50,000To Purchases 20,00,000 15,000 20,15,000 By Tfr. to 3,00,000 — 3,00,000

RMTo Tfr from — 3, 00,000 3,00,000 By Closing 2,00,000 60,000 2,60,000

Cloth Dept. StockTo Mfg. Exps. 60,000 60,000To Gross Profit 4, 00,000 85,000 4,85,000

Total 27,00,000 5,10,000 32,10,000 Total 27,00,000 5,10,000 32,10,000To Selling Exp. 20,000 6,000 26,000 By Gross 4,00,000 85,000 4,85,000

ProfitTo Profit c/d 3,80,000 79,000 4,59,000

Total 4,00,000 85,000 4,85,000 Total 4,00,000 85,000 4,85,000To Gen. Exp. 1,10,000 By Profit b/d 4,59,000To Stock Reserve 1,575(See Note below)To Net profit 3,47,425

Total 4,59,000 Total 4,59,000

Note 1 : Stock Reserve to be additionally provided is 7,200 – 5,625 = Rs. 1,575; calculated asunder :


Particulars On Opg Stock On Closing Stock

Rate of GP on Sales in Cloth Dept Given = 15% 4,00,000 ÷ 25,00,000 = 16%

Element of Cloth Stock in 75% of 50,000 = 37,500 75% of 60,000 = 45,000Readymade Clothes

Stock Reserve required 37,500 × 15% = 5,625 45,000 × 16% = 7,200to be maintained

Note 2: In this case, it is possible to ascertain the Reserve already created against UnrealisedProfit in the Opening Stock. In the absence of information, the Reserve should be calculated onthe difference in the Opening and Closing Stocks i.e. Rs. 10,000 in this question. Since the ClosingStock has increased, the Reserve calculated would be debited to P&L A/c. In case of decreasein Stocks, the Reserve would be credited to P&L A/c.

Illustration 2 :

The Trading and Profit & Loss Account of Bindas Ltd. for the year ending 31st March is asunder :

Purchases Rs. Sales Rs.

Transistors (A) 1,60,000 Transistors (A) 1,75,000

Tape Recorders (B) 1,25,000 Tape Recorders (B) 1,40,000

Spare parts for servicing and 80,000 Servicing and repair jobs (C) 35,000

repair job (C)

Salaries and wages 48,000 Stock on 31st March Transistors (A) 60,100

Rent 10,800 Tape Recorders (B) 20,300

Sundry Expenses 11,000 Spare parts for servicing & 44,600

repair jobsNet Profit 40,200

Total 4,75,000 Total 4,75,000

Prepare Departmental Accounts for each of the three Departments A, B and C mentionedabove after taking into consideration the following :

(a) Transistors and Tape Recorders are sold at the Showroom. Servicing and Repairs are carriedout at the Workshop.

(b) Salaries and wages comprise as follows: Showroom 3/4th and Workshop 1/4th

It was decided to allocate the Showroom Salaries and Wages in ratio 1:2 betweenDepartments A and B.

(c) Workshop Rent is Rs.500 per month. Showroom Rent is to be divided equally betweenDepartments A and B.

(d) Sundry Expenses are to be allocated on the basis of the turnover of each Department.



Solution :Departmental P&L Accounts for the year ending 31st March (Amount in Rs.)

Particulars A B C Particulars A B CTo Purchases 1,60,000 1,25,000 By Sales 1,75,000 1,40,000To Spares 80,000 By Services 35,000To Sal. & Wages 12,000 24,000 12,000 By Closing Stock 60,100 20,300 44,600To Rent 2,400 2,400 6,000 By Net Loss 19,500To Sundry Exps.* 5,500 4,400 1,100To Net Profit 55,200 4,500Total 2,35,100 1,60,300 99,100 Total 2,35,100 1,60,300 99,100

Note : Sundry Expenses are apportioned in the ratio of Turnover (5: 4: 1) i.e. 1,75,000: 1,40,000:35,000.

Illustration 3 :Samudra & Co, a Partnership Firm has three departments viz. K, L, M which are under the

charge of the Partners B, C and D respectively. The following Consolidated P&L Account isgiven below :

Particulars Rs. Particulars Rs.

To Opening Stocks (Notel) 81,890 By Sales (Note 7) 4,00,000To Purchases (Note 2) 2,65,700 By Closing Stocks (Note 8) 89,000To Salaries and Wages (Note 3) 48,000 By Discounts Received (Note10) 600To Rent Expenses (Note 4) 10,800To Selling Expenses (Note 5) 14,400To Discount Allowed (Note 5) 1,200To Depreciation (Note 6) 750To Net Profit for the year 67,060

Total 4,89,800 Total 4,89,800

From the above Account and the following additional information, prepare the DepartmentalP&L Accounts for the year ended 31st March -

1. Break up of Opening Stock Department wise is: K - Rs.37,890; L - Rs.24,000 and M - Rs.20,000.2. Total Purchases were as under: K - Rs.1,40,700; L - Rs.80,600; M - Rs.44,400.3. Salaries and Wages include Rs. 12,000 wages of Department M. The balance Salaries should

be apportioned to the three departments as 4:4:1.4. Rent is to be apportioned in the ratio of floor space which is as 2:2:5.5. Selling Expenses and Discount Allowed are to be apportioned in the ratio of Turnover.6. Depreciation on assets should be equally charged to the three departments.7. Sales made by the three departments were: K - Rs.1,80,000; L - Rs.1,30,000 and M - Rs.90,000.8. Break up of Closing Stock Department wise is: K - 45,100; L - Rs.22,300 and M - Rs.21,600.

The Closing Stock of Department M includes Rs.5,700 goods transferred from DepartmentK. However, Opening Stock does not include any goods transferred from other departments.

9. Departments K and L sold goods worth Rs.10,700 and Rs.600 respectively to DepartmentM.


10. Discounts received are traceable to Departments K, L and M as Rs.400; Rs.250 andRs.150 respectively.

11. Partners are to share the profits as under: (a) 75% of the Profits of Departments K, L and Mto the respective Partner in Charge, (b) Balance Profits to be credited as 2:1:1.

Solution :1. Departmental P&L Accounts for the year ending 31st March (Amount in Rs.)

Particulars K L M Particulars K L MTo Opening Stock 37,890 24,000 20,000 By Sales 1,80,000 1,30,000 90,000To Purchases 1,40,700 80,600 44,400 By Transfer 10,700 600 —To Inter-Dept Trf — — 11,300 By Closing Stock 45,100 22,300 21,600To Wages — — 12,000To Gross Profit c/d 57,210 48,300 23,900

Total 235,800 1,52,900 1,11,600 Total 2,35,800 1,52,900 1,11,600

To Salaries (4:4:1) 16,000 16,000 4,000 By Gross 57,210 48,300 23,900Profit b/d

To Rent (2:2:5) 2,400 2,400 6,000 By Discounts reed 400 250 150To Selling Exp 6,480 4,680 3,240To Disc. (18:13:9) 540 390 270To Depreciation 250 250 250.To Net Profit c/d 31,940 24,830 10,290

Total 57,610 48,550 24,050 Total 57,610 48,550 24,050

2. Computation of Stock Reserve

From the above profits, Stock Reserve should be eliminated on the Closing Stock.• GP Rate in Department K = 57,210 - 1,90,700 = 30%.• Stock Reserve = 30% on Rs.5,700 = Rs.1,710.

3. Profit and Loss Appropriation Account (Rs.)

Particulars Rs. Particulars Rs.To Stock Reserve 1,710 By Profit b/d 67,060To Profits transferred to Capital: (31940 + 24830 + 10290)

B : 75% of 31,940 = 23,955C : 75% of 24,830 = 18,623D : 75% of 10,290 = 7,718 50,296

To balance profits trfd in 2: 1: 1

B : 50% of 15,054 = 7,527C : 25% of 15,054 = 3,764D : 25% of 15,054= 3,764 (bal.fig) 15,054

Total 67,060 Total 67,060



Illustration 4 :Anand Ltd, has 3 departments X, Y and Z The following information is provided:

Particulars X Y ZOpening Stock 3,000 4,000 6,000Consumption of direct materials 8,000 12,000 —Wages 5,000 10,000 —Closing Stock 4,000 14,000 8,000Sales — — 34,000

Stocks of each Department are valued at cost to the Department concerned. Stocks of X aretransferred to Y at a margin of 50% above Department cost. Stocks of Y are transferred to Z at amargin of 10% above departmental cost.

Other expenses were :Salaries 2,000Printing and Stationery 1,000Rent 6,000Interest paid 4,000Depreciation 3,000

Allocate expenses in the ratio of Departmental Gross Profits. Opening figures of reserves forunrealised profits on departmental stocks were: Department Y-Rs.1,000; Department Z-Rs.2,000.Prepare Departmental Trading and Profit and Loss Account for the year.

Solution :1. Departmental Trading Account for the year (Rs.)

Particulars X Y Z Total Particulars X Y Z TotalTo Opening Stock 3,000 4,000 6,000 13,000 By Internal 18,000 33,000 — 51,000

TransferTo Direct Material 8,000 12,000 — 20,000 By Sales — — 34,000 34,000To Wages 5,000 10,000 — 15,000 By Closing 4,000 14,000 8,000 26,000

StockTo Intl. Transfer —8,000 33,000 51,000To Gross Profit 6,000 3,000 3,000 12,000

Total 22,000 47,000 42,000 1,11,000 Total 22,000 47,000 42,000 1,11,000

2. Departmental Profit and Loss Account for the year (Rs.)

Particulars X Y Z Total Particulars X Y Z TotalTo Salaries 1,000 500 500 2,000 By Gross 6,000 3,000 3,000 12,000

Profit b/dTo Prntg. & Stnry. 500 250 250 1,000 By Net loss 2,000 1,000 1,000 4,000To Rent 3,000 1,500 1,500 6,000To Interest paid 2,000 1,000 1,000 4,000To Depreciation 1,500 750 750 3,000

Total 8,000 4,000 4,000 16,000 Total 8,000 4,000 4,000 16,000


3. Calculation of Unrealised Profit on Closing Stock of Dept YParticulars Department Y

Value of Closing Stock as given above 14,000Total Cost of the Department 12,000 + 10,000 + 18,000 = 40,000Cost of Internal Transfer in above 18,000Value of Transferred in Material in Closing Stock 14,000 x 18,000 / 40,000 = 6,300Unrealised Profit of Dept X included in above 6,300 x 50/150 = 2,100

4. Calculation of Unrealised Profit on Closing Stock of Dept ZParticulars Department Z

Value of Closing Stock as given above 8,000Profits of Department Y included in above 10% Margin = 8,000 x 10/110 =727Profits of Department X included in above (8,000 – 727)×18.000/40,000×50/150 = 1,091Total Unrealised Profit included in Dept Z Stock 1,818

5. Adjustment of Reserves on Opening and Closing StocksParticulars Rs. Particulars Rs.

To Net Loss b/d 4,000 By Reserve on Opening Stock (1000 + 2000)3,000To Reserve on Closing Stock 3,918 By Net Loss after adjustment of Reserves 4,918

Total 7,918 Total 7 918Illustration 5 :

Pooma Ltd. has 2 departments M & S. From the following particulars, prepareDepartmental Trading Account & Consolidated Trading Account for the year ending 31st

March.

Particulars M SOpening Stock 20,000 12,000Purchases 92,000 68,000Carriage Inwards 2,000 2,000Wages 12,000 8,000Sales (excluding inter departmental transfers) 140,000 112,000Purchased Goods transferredBy S to M 10,000 —By M to S — 8,000Finished Goods transferredBy S to M 35,000 —By M to S — 40,000Return of Finished GoodsBy S to M 10,000 —By M to S — 7,000Closing StockPurchased Goods 4,500 6,000Finished Goods 24,000 14,000

Purchased Goods have been transferred at their respective departmental Purchase Cost &Finished Goods at Departmental Market Price. 20% of Finished Stock (Closing) at eachDepartment represented Finished Goods received from the other Department.



Solution :

1. Departmental Trading, Profit & Loss Account for the year ended 31st March

Particulars M S Particulars M STo Opening Stock 20,000 12,000 By Sales 140,000 112,000To Purchases 92,000 68,000 By Transfer:

Purchased Goods 8,000 10,000Finished Goods 35,000 40,000

To Transfer : By Closing StockPurchased Goods 10,000 8,000 Purchased Goods 4,500 6,000Finished Goods 40,000 35,000 Finished Goods 24,000 14,000To Wages 12,000 8,000 By Return of 10,000 7,000To Carriage Inwards 2,000 2,000 Finished GoodsTo Return of Finished Goods 7,000 10,000To Gross Profit 38,500 46,000

Total 221,500 189,000 Total 221,500 189,000

2. Calculation of Gross Profit Ratio

Particulars Mohan SohanSales 140,000 112,000Add: Transfer of Finished Goods 35,000 40,000Less: Return of Finished Goods (7,000) (10,000)

Net Sales [A] 168,000 142,000Gross Profit [B] as calculated below 38,500 46,000Gross Profit Ratio [B ÷ A] 22.9% 32.4%

3. Consolidated Trading Account for the year ended 31st March

Particulars Amount Particulars AmountTo Opening Stock 32,000 By Sales (1,40,000+1,12,000) 2,52,000To Purchases 160,000 By Closing StockTo Wages 20,000 By Purchase Goods 10,500To Carriage Inwards 4,000 By Finished Goods 38,000 48,500To Stock Reserve[24,000×20%] × 32.4% 1,555[14,000×20%] × 22.9% 641To Net Profit 82,304

Total 300,500 Total 300,500Illustration 6 :

Khushi & Co has 2 departments A & B. Department A sells goods to Department B at normalselling prices. From the following particulars prepare Departmental Trading & Profit & LossAccount for the year ended 31st March & also ascertain the Net Profit to be transferred toBalance Sheet.


Particulars A BOpening stock NIL 1,00,000Purchases 2,00,000 23,00,000Goods from Department B 7,00,000 —Wages 1,60,000 1,00,000Travelling Expenses 1,40,000 10,000Closing stock at cost to the Department 1,80,000 5,00,000Sales 15,00,000 23,00,000Printing & Stationery 16,000 20,000

The following expenses incurred for the both departments were not apportioned betweenthe departments :

Particulars AmountSalaries 2,70,000Advertisement Expenses 90,000General Expenses 8,00,000

Depreciation should be charged at 25% on the machinery value of Rs.48,000. AdvertisementExpenses are to be apportioned in the turnover ratio, Salaries in 1:2 ratio & Depreciation in 1:3ratio between Departments A & B. General Expenses are to be apportioned in 1:3 ratio.

Solution :1. Departmental Trading, P&L Account of Khushi & Co for the year ended 31st March

(Rs.)

Particulars A B Particulars A BTo Opening Stock 1,00,000 By Sales 15,00,000 23,00,000To Purchases 2,00,000 23,00,000 By Internal Transfer 7,00,000To Wages 1,60,000 1,00,000 By Closing Stock 1,80,000 5,00,000To Internal Transfer 7,00,000To Gross Profit 6,20,000 10,00,000

Total 16,80,000 35,00,000 Total 16,80,000 35,00,000To Traveling Expenses 1,40,000 10,000 By Gross Profit b/d 6,20,000 10,00,000To Printing & Stationery 16,000 20,000To Salaries 90,000 1,80,000To Advertisement 35,526 54,474

ExpensesTo General Expenses 2,00,000 6,00,000To Depreciation (1:3) 3,000 9,000To Net Profit 1,35,474 1,26,526

Total 6,20,000 10,00,000 Total 6,20,000 10,00,000

Note :1. GP Ratio of Department B = Gross Profit * Total Sales = 10,00,000 + (23,00,000 + 7,00,000)

= 33.33%2. Advertisement Expenses are apportioned in the ratio of External Sales i.e. 15 : 23.



2. Computation of Unrealised Profit on Closing Stock :

Particulars Department A

Value of Closing Stock as given above 1,80,000

Total Material Cost of Department a 2,00,000 + 7,00,000 = 9,00,000

Material Cost of Internal Transfer in above 7,00,000

Value of Transferred in Material in Closing Stock 1,80,000×7,00,000/9,00,000 = 1,40,000

Unrealised Profit of Dept B included in above 1,40,000×1/3 = 46,667(GP Ratio of Department B = 33.33% or l/3rd)

3. Profit after adjustment of Unrealised Profit

To Stock Reserve (as calculated above) 46,667 By Net Profit b/d 2,62,000

To Net Profit c/d to Balance Sheet 2,15,333 [1,26,526+1,35,474]

Total 2,62,000 Total 2,62,000

Illustration 7 :Department X sells goods to Department Y at a profit of 25% on cost & to Department Z at a

profit of 10% on cost. Department Y sells goods to X & Z at a profit of 15% & 20% sales,respectively. Department Z charges 20% & 25% profit on cost to Department X & Y, respectively.

Department Managers are entitled to 10% Commission on Net Profit subject to UnrealisedProfits on Departmental sales being eliminated.

Departmental profits after charging manager’s commission, bur before adjustment ofunrealised profits are : X = Rs. 36,000; Y = Rs. 27,000; Z = Rs. 18,000Stocks lying at different departments at the year end are as under :

Particulars X Y Z

Transfer from Department X — 15,000 11,000

Transfer from Department Y 14,000 — 12,000

Transfer from Department Z 6,000 5,000 —

Find out the correct Departmental Profits after charging Managers’ Commission.

Solution :

1. Computation of Unrealised Profits

Particulars of transfer to Department X Department Y Department Z Total

From Department X to Y and Z 15,000 × 25/125 11,000 × 10/110at 25% and 10% of Cost Nil =3,000 =1,000 4,000

From Department Y to X and Z 14,000 × 15/100 12,000 × 20/100at 15% and 20% of Sales =2,100 Nil =2,400 4,500

From Department Z to X and Y 6,000×20/120 5,000×25/125at 20% and 25% of Cost =1,000 =1,000 Nil 2,000


2. Computation of Correct Departmental Profits after chargingManager’s Commission correctly

Particulars Department X Department Y Department ZProfits after charging Mgr Commission 36,000 27,000 18,000

Add : Wrong Commission = 10% of Profits = 1/9 x 36,000 1/9 x 27,000 1/9x18,0001/10 on Profits before charging commission =4,000 =3,000 =2,000= 1/9 on Profits after charging commissionProfits before charging commission 40,000 30,000 20,000

Less : Unrealised Profits i.e. Stock Reserve 4,000 4,500 2,000Profits qualifying for commission 36,000 25,500 18,000

Less : Commission at 10% of above 3,600 2,550 1,800Correct Profits after charging commission 32,400 22,950 16,200

Illustration 8 :The following details are available in respect of a business for a year.

Department Opening Stock Purchase SalesX 120 units 1,000 units 1,020 units at Rs.20.00 eachY 80 units 2,000 units 1,920 units at Rs.22.50 eachZ 152 units 2,400 units 2,496 units at Rs.25.00 each

The total value of purchases is Rs.1,00,000. It is observed that the rate of Gross Profit is thesame in each department. Prepare Departmental Trading Account for the above year.Solution :

1. Computation of Closing Stock Quantity (in units)Particulars X Y Z

Opening Stock 120 80 152Add: Purchases 1,000 2,000 2,400Less : Units Sold (1,020) (1,920) (2,496)

Closing Stock 100 160 56

2. Computation of Gross Profit RatioWe are informed that the GP Ratio is the same for all departments. Selling Price is given for

each department’s products but the Sale Quantity is different from that of Purchase Quantity.To find the Uniform GP Rate, the sale value of Purchase Quantity should be compared with theTotal Cost of Purchase, as under:

Assuming all purchases are sold, the sale proceeds would beParticulars Sale Value of Purchase Quantity AmountDepartment X 1,000 units at Rs.20.00 20,000Department Y 2,000 units at Rs.22.50 45,000Department Z 2,400 units at Rs.25.00 60,000Total Sale Value of Purchase Quantity 125,000

Less : Cost of Purchase 1,00,000Gross Profit Amount 25,000Gross Profit Ratio 25,000 ÷ 1,25,000 20% of Selling Price



3. Computation of Profit and Cost for each article

Department Selling Price Profit at 1/5 of SP Cost = Sales – Profit

Department X Rs.20.00 1/5 of Rs.20.00 = 4.00 Rs. 16.00

Department Y Rs.22.50 1/5 of Rs.22.50 = 4.50 Rs.18.00

Department Z Rs.25.00 1/5 of Rs.25.00 = 5.00 Rs.20.00

4. Departmental Trading Account for the year

Particulars X Y Z Total Particulars X Y Z Total

To Opg. stock 1,920 1,440 3,040 6,400 By Sales 20,400 43,200 62,400 126,000

To Purchase 16,000 36,000 48,000 100,000 By Clg. stock 1,600 2,880 1,120 5,600

To Gross Profit 4,080 8,640 12,480 25,200

Total 22,000 46,080 63,520 131,600 Total 22,000 46,080 63,520 131,600

Opening and Closing Stocks are valued at Cost as indicated in WN 3 above. Sale Amount inthe Trading Account is computed for the Sale Quantity only. Gross Profit is calculated at 20%of Sale Value.

Illustration 9 :Anumod Ltd. is a retail store having 2 Departments P and Q. The Company maintains at

Memorandum Stock Account & Memorandum Mark Up Account for each of the Departments.Supplies issued to the Departments are debited to the Memorandum Stock Account of theDepartment at Cost plus Mark Up, and Departmental Sales are credited to this Account. TheMark Up on supplies issued to the Departments is credited to the Mark Up Account for theDepartment. 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 StockAccount & Mark Up Account. Department P has a mark up of 33-1/3% on Cost, and DepartmentQ has a mark-up of 50% on cost.

The following information has been extracted from the records of the Company for a yearending 31st December.

Particulars P Q

Opening Stock (at Cost) 24,000 36,000

Purchases 162,000 190,000

Sales 210,000 285,000

1. Opening Stock of Department P includes goods on which the Selling Price has been markeddown by Rs.510. These goods were sold in January at the reduced Selling Price.

2. Certain goods purchased during the year for Rs.2,700 for Department P, were transferredduring the year to Department Q & sold for Rs.4,500. Purchases & Sales are recorded in thePurchases of Department P & the Sales of Department Q respectively, but no entries havebeen made in respect of the transfer.


3. Goods purchased during the year were marked down as follows:

Particulars P QCost 8,000 21,000Mark down 800 4,100

At the end of the year there were some items in the stock of Department Q, which hadbeen marked down to Rs.2,300. With this exception, all goods marked down during theyear were sold during the year at reduced prices.

4. During stock-taking at the end of the year, goods which had cost Rs.240 were found to bemissing in Department P. It was determined that loss should be regarded as irrecoverable.

5. The Closing Stock in both Departments are to be valued at Cost for the purpose of theannual accounts.

Prepare for the year ended 31st December the following accounts - (a) Trading Account; (b)Memorandum Stock Account and (c) Memorandum Mark Up Account.

Solution :1. Memorandum Stock Account (in Rs.)

Particulars P Q Particulars P QTo balance b/d (givgn cost 32,000 54,000 By balance b/d (mark 510+ 33-1/3% & 50% m-up) down - given)To Purchases (given) 162,000 190,000 By Sales (given) 210,000 285,000To Memorandum Mark Up 54,000 95,000 By Internal 2,700 —(33-1/3% & 50% on pure.) Transfer -per contraTo Internal Transfer - per — 2,700 By Memorandum Mark 900contra Up (M-up on Transfer)To Memorandum Mark Up — 1,350 By Memorandum Mark 800 4,100(50% on Internal Tfr) Up (Mark Down - given)To Memorandum Mark Up — 344 By Abnormal Loss-Cost 240 —(on Marked Down Goods transferred to P & L A/cstill in stock - See Note 1)By Memorandum Mark 80Up ( M-up on Stock Lost)

By balance c/d (Closing 32,770 54,294Stock - balancing figure)

Total 248,000 343,394 Total 248.000 343,394

Note 1 : Mark Down in Unsold Stock of Department Q

Total Mark down × Value of Stock 4.100×2.300— — — — — — — — — — — — — — — = — — — — — = Rs.344

Value of Mark down goods 27,400*

* Value of Mark Down Goods = Cost Add: Normal Mark Up 50% Less: Amount MarkedDown

= Rs.21,000 Add: Rs. 10,500 Less: Rs.4,100 (given) = Rs.27,400



Note 2 : Valuation of Closing Stack at cost;

Department P Q

Closing Stock at Invoice Price as per Memorandum 32,770 54,294Stock A/cClosing Stock at Cost after reducing 1/3 and 1/2 32,770 – 1/4 54,294 - 1/3on cost = 1/4 and 1/3 on the Invoice Price respectively thereon = 24,578 thereon = 36,196

2. Trading Account for the year ended 31st December (in Rs.)Particulars P Q Particulars P QTo Opening Stock 24,000 36,000 By Sales 210,000 285,000To Purchases 162,000 190,000 By Internal Transfer 2,700 —To Internal Transfer — 2,700 By Abnormal Loss 240 —To Gross Profit 51,518 92,496 By Closing Stock (Note 2) 24,578 36,196

Total 237,518 321,196 Total 237,518 321,196

3. Memorandum Mark Up Account (in Rs.)Particulars P Q Particulars P QTo balance b/d (Mark 510 — By balance b/d (33-1/3% 8,000 18,000Down-given - per contra) and 50% on cost given)To Memorandum Stock 900 By Memorandum Stock 54,000 95,000A/c (M-up on Transfer) (Mark Up on Purchase)To Memorandum Stock 800 4,100 By Memorandum Stock 1,350A/c (Mark Down - given) (Mark Up on Int. transfer)To Memorandum Stock 80 — By Memorandum Stock 344A/c (M-up on Goods Lost) A/c (marked down goods

still in stock)To Gross Profit (as above) 51,518 92,496To balance c/d (bal. fig.) 8,192 18,098

Total 62,000 114,694 Total 62,000 114,694

4. Confirmation / Verification of Gross Profit

Department P Q

Sales (given) 210,000 285,000

Add back : Reduction/Mark down 510 + 800= 1,310 4,100-344 = 3,756Total 211,310 288,756Normal Gross Profit at 1/4 and (1/4) = 52,828 (1/3) = 96,2521/3 of above

Less : Reduction / Mark down 1,310 3,756

Gross Profit (as per Memo Mark Up a/c) 51,518 92,496


Illustration 10 :Z Ltd., has 3 departments, X, Y, Z. The following information is provided :

X Y ZRs. Rs. Rs.

Opening Stock 3,000 4,000 6,000Consumption of direct materials 8,000 12,000 —Wages 5,000 10,000 —Closing Stock 4,000 14,000 8,000Sales — — 34,000

Stock of each department is valued at cost to the department connected. Stocks of Xdepartment are transferred to Y at a margin of 50% above departmental cost. Stocks of Ydepartment are transferred to Z department at a margin of 10% above departmental cost. Otherexpenses were : Salaries Rs. 2,000, Pringing & Stationery Rs. 1,000, Rent Rs. 6,000, Interest paidRs. 4,000, Depreciation Rs. 3,000, Allocate expenses in the ratio of departmental gross profit.Opening figures of reserve for unrealised profits on departmental stocks were : Department YRs. 1,000 ; Department Z Rs. 2,000.

Required : Prepare Departmental Trading and Profit & Loss Accounts for the year endedMarch 31, 2008.

Departmental Trading and Profit & Loss AccontsDr. for the year ended 31st March, 2008 Cr.

Particulars X Y Z Total Particulars X Y Z TotalRs. Rs. Rs. Rs. Rs. Rs. Rs. Rs

To Opening Stock : 3,000 4,000 6,000 13,000 By Internal b/d 18,000 33,000 — 51,000To Direct Material By Sales — — 34,000 34,000

considered 8,000 12,000 — 20,000 By Closing Stock 4,000 14,000 8,000 26,000To Wages 5,000 10,000 — 15,000To Internal Transfer — 18,000 33,000 51,000To Gross Profit c/d 6,000 3,000 3,000 12,000

22,000 47,000 42,0001,11,000 22,000 47,000 42,000 1,11,000To Salaries 1,000 500 500 2,000 By Gross Profit b/d 6,000 3,000 3,000 12,000To Printing & Stationery 500 250 250 1,000 By Net Loss c/d 2,000 1,000 1,000 4,000To Rent 3,000 1,500 1,500 6,000To Depreciation 1,500 750 750 3,000To Interest paid 2,000 1,000 1,000 4,000

8,000 4,000 4,000 16,000 8,000 4,000 4,000 16,000To Net Loss b/d 4,000 By Provision forTo Provision for unrealised profit

unrealised profit on Opening Stock 3,000on Closing Stock 3,918 By Balance transferred to

Profit & Loss A/c 4,9187,918 7,918

Working Notes :(i) FIFO method for stock issue has been assumed. Alternatively this question could have

been solved by assuming other methods for stock issue like LIFO Basis, WeightedAverage basis, etc.



(ii) Calculation of unrealised profit on Closing Stock of Deptt. Y Rs.Current cost incurred by Dept. Y (Rs. 12,000 + Rs. 10,000 + Rs. 18,000) 40,000Profit included in Above (Rs. 18,000 × 50/150) 6,000Profit included in Closing Stock of Rs. 14,000

(Rs. 6,000 × Rs. 14,000/Rs. 40,000) 2,100

(iii) Calculation of unrealised profit on Closing Stock of Dept C Rs.Current Cost incurred by Dept. Z 33,000Profit of Dept. B included in above (Rs. 33,000 × 10/110) 3,000Cost element of Dept. Y included in current cost (Rs. 33,000 – 3,000) 30,000Profit of Dept. a included in above cost (Rs. 6,000 × Rs. 30,000/Rs. 40,000)Total Profit included in current cost of Dept. Z (Rs. 3,000 + Rs. 4,500) 7,500Unrealised profit included in closing stock of

Rs. 8,000 (Rs. 7,500×Rs. 8,000/Rs. 33,000) 1,818(iv) Total unrealised profit (Rs. 2,1000 + Rs. 1,818) 3,918

Illustration 11 :X Limited is a retail organisation with several departments. Goods supplied to each

department are debited to a Memorandum Departmental Stock Account at cost, plus fixedpercentage (make-up) to give the normal selling price. The mark up is credited to a MemorandumDepartmental “Mark-up Account”. Any reduction in selling prices (mark-down) will requireadjustment in the stock account and in mark-up account. The mark up for Department A forthe last three years has been 40%. Figures relevant to Department A for the ended 31st Dec.2008 were as follows :

Stcok 1st January 2008 at Cost, Rs. 80,000, Purchases at Cost Rs. 1,80,000, Sales Rs. 3,20,000.It is further ascertained that :(a) Goods purchased in the period were marked down by Rs. 1,400 from a cost of Rs. 16,000.

Marked-down stock costing Rs. 4,000 remained unsold on 31st December 2008.(b) Stock shortages at the year end, which had cost Rs. 1,200 were to be written off.(c) Stock at 1st Jan. 2008 including goods costing Rs. 8,200 had been sold during the year

and has been mark down in the selling price by Rs. 740. The ramaining stock had beensold during the year.

(d) The departmental closing stock is to be valued at cost subject to adjustments for mark-up and mark-down.

Required : Prepare (i) A Departmental Trading Account (ii) A Memorandum Stock Account(iii) A Memorandum Mark-up Account for the year 2008.

Solution :(i) Departmental Trading Account

Dr. for the year ended 31st December, 2008 Cr.

Particulars Rs. Particulars Rs.To Opening Stock 80,000 By Sales 3,20,000To Purchases 1,80,000 By Sortage 1,200To Gross Profit c/d 90,150 By Closing stock

(Rs. 40,180 – Rs. 11,230) 28,9503,50,150 3,50,150


Dr. (ii) Memorandum Departmental Stock Account (At Selling Price) Cr.

Particulars Rs. Particulars Rs.To Balance b/d By Profit & Loss A/c 1,200

(Rs. 80,000 + Rs. 32,000) 1,12,000 (Cost of Shortage)To Purchases By Memorandum Departmantal

(Rs. 1,80,000 + Rs. 72,000) 2,52,000 Mark-up A/c 480(Load on Shortage)

By Mark-up A/c 1,400(Mark Down in CurrentPurchases)

By Debtors A/c (Sales) 3,20,000Mark-up A/c(Mark Down on OpeningStock)

By Balance c/d 40,1803,64,000 3,64,000

Dr. (iii) Memorandum Departmental Mark up Account Cr.

Particulars Rs. Particulars Rs.To Memorandum Departmental By Balance b/d

Stock A/c (Rs. 1,200×40/100) 480 (Rs. 1,12,000×40/140) 32,000To Memorandum Departmental By Memorandum Departmental

Stock A/c 1,400 Stock A/c 72,000To Memorandum Departmental (Rs. 2,52,000×40/140)

Stock A/c 740To Gross Profit transferred to

Profit & Loss A/c 90,150To Balance c/d

[(Rs. 40,180+Rs. 350)×40/140– (Rs. 350) 11,230

1,04,000 1,04,000Working Note :(i) Calculation of Cost of sales Rs.

a.Sales as per Books 3,20,000b.Add : Mark-down in opening stock (given) 740c.Add : Mark-down in sales out of current Purchases

(Rs. 1,400×12,000/16,000) 1,050d.Value of sales if there was no mark-down (a+b+c) 3,21,790e.Less : Gross Profit (40/140 of Rs. 3,21,790) subject to Mark Down

(Rs. 740 + Rs. 1,050) 91,940f.Cost of sales (d - e) 2,29,850

(ii) Calculation of Closing Stock Rs.a.Opening Stock 80,000b.Add : Purchases 1,80,000



c. Less : Cost of Sales 2,29,850d. Less : Shortage 1,200e. Closing Stock (a+b–c–d) 28,950

Illustration 12 :Southern Store Ltd. is a retail store operating two departments. The company maintains

Memorandum Stock account and Memorandum Mark-up account for each of the departments.Supplies issued to the department are debited to the Memorandum Stock account of thedepartment at cost plus the Mark-up, and departmental sales are credited to this account. Themark-up on supplies issued to the departments is credited to the Mark-up account for thedepartment. 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 accountand in the mark-up account. Department Y has Mark-up of 33-1/3% on cost, and DepartmentZ 50% on cost. The following information has been extracted from the records of SouthernStore Ltd. for the year ended 31st December, 2008.

Department DepartmentY Z

Rs. Rs.Stock, 1st January, 2008 at cost 24,000 36,000Purchases 1,62,000 1,90,000Sales 2,10,000 2,85,000

(a) The stock of Department Y on 1st january, 2008 included goods on which the sellingprice has been marked down by Rs. 510. These goods were sold in January, 2008 at thereduced price.

(b) Certain goods purchased in 2008 for Rs. 2,700 for Department Y, were transferred duringthe year to Department Z, and sold for Rs. 4,050. Purchase and sale are recorded in thepurchases of Department Y and the sales of Department Z respectively, but no entries inrespect of the transfer have been made.

(c) Goods purchased in 2008 were marked down as follows :

Department Y Department ZRs. Rs.

Cost 8,000 21,000Mark down 800 4,100At the end of the year there were some items in the stock of Department Z, which hadbeen marked down to Rs. 2,300. With this exception all goods marked down in 2008,were sold during the year at the reduced prices.

(d) During stock taking on 31st December 2008, goods which had cost Rs. 240 were foundto be missing in department Y. It was determined that the loss should be regarded asirrecoverable.

(e) The closing stock in both departments are to be valued at cost for the purpose of theannual accounts.

Required : Prepare for each department for the year ended 31st December, 2008 :(i) a Trading Account, (ii) a Memorandum Stock Account, and (iii) a Memorandum Mark-

up Account.


Solution :

Southern Stores Ltd.

Dr. Trading Account for the year ended 31st December, 2008 Cr.

Particulars Dept. Y Dept. Z Particulars Dept. Y Dept. ZRs. Rs. Rs. Rs.

To Opening Stock 24,000 36,000 By Sales 2,10,000 2,85,000

To Purchases 1,62,0001,90,000 By Transfer to Dept. Z 2,700 —

To Transfer from Y Dept. — 2,700 By Goods Lost 240 —

To Gross Profit c/d 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

Dr. Memorandum Stock Account (At Selling Price) Cr.

Particulars Dept. Y Dept. Z Particulars Dept. Y Dept. Z

Rs. Rs. Rs. Rs.

To Balance b/d By Balance b/d 510

(Cost + Mark-up) 32,000 54,000 By Sales 2,10,000 2,85,000

To Purchases By Transfer 2,7000

(Cost) 1,62,000 1,90,000 By Memorandum

To Memorandum Mark-up A/c

mark-up A/c (on transfer) 900

(on purchases) 54,000 95,000 By Memorandum

To Transfer 2,700 Mark-up A/c 800 4,100

To Memorandum (Marked down on

Mark-up A/c (on t/f) 1,350 current purchasers)

By P & L A/c

(Cost & Shortage) 240

To Memorandum By Memorandum

Mark-up A/c Mark-up A/c

(on Marked down (on lost Stock) 80

goods still in Stock) 344 By Balance c/d

(Closing Stock) 32,770 54,294

2,48,000 3,43,394 2,48,000 3,43,394



Dr. Memorandum Mark-up Account Cr.Particulars Dept. Y Dept. Z Particulars Dept. Y Dept. Z

Rs. Rs. Rs. Rs.To Balance b/d 510 By Balance b/d 8,000 18,000To Memorandum By Memorandum

Stock A/c (Mark-up 900 Stock A/con Transfer) (purchase) 54,000 95,000

To Memorandum By MemorandumStock A/c (Mark down Stock A/c 1,350on Current Purchases) 800 4,100 (Mark-up on transfer)

To Memorandum By MemorandumStock A/c Stock A/c(Mark down on (Marked down ongoods lost) 80 goods still in Stock) 344

To Gross Profit(Balancing Figure) 51,518 92,496

To Balance c/d 8,192 18,09862,000 1,14,694 62,000 1,14,694

Working Notes :(i) Calculation of Closing Stock at Cost Y Dept. (Rs.) Z Dept. (Rs.)

Calculation of Closing Stock atInvoice price 32,770 54,294

Calculation of ClosingStock at Cost 32,770×3/4 = Rs. 24,57854,294×2/3 = 36,196

(ii) Total Mark down × Value of Stock 4,100×2,300— — — — — — — — — — — — — — — = — — — — — = Rs.344Value of Mark down goods 27,400*

(iii) Verification of Gross Profit Y Dept. (Rs.) Z Dept. (Rs.)Sales 2,10,000 2,85,000Add : Reduction 510 —Add : Mark down 800 3,756

2,11,310 2,88,756Gross Profit (1/4) 52,828 (1/3) 96,252Less : Mark down 1,310 3,756Gross Profit as per Memorandum

Mark up Account 51,518 92,496

Illustration 13 :X 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 procesing and the balance is directlytransferred to selling Department. The entire production of Department Y is directly transferredto 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 ended 31st March, 2008.

Particulars Detp. X Dept. Y Selling Dept.Units Rs. Units Rs. Units Rs.

Opening Stock of Finished Goods 60 60,000 20 40,000 50 1,28,000

Opening Stock of Raw Materials — — — — —

Raw material Consumed — 1,82,000 — 20,000 — —

Labour Charges — 70,000 — 32,000 — —

Sales — — — — 120 4,80,000

Closing Stock of Finished Goods 40 — 50 — 60 —

Out of the total transfer by X Department, 30 units were transferred to selling department,while the reamining to Department Y. The per unit material and labout consumption in XDepartment on production to be transferred directly to selling department is 300 per cent of thelabour and material consumption on units transferred to Y Department. General Administrationexpenses Rs. 80,000.

Required : Prepare Departmental Profit and Loss Account and General Profit and LossAccount for the year ended 31.3.2008.

Solution :Departmental Profit and Loss Account

Dr. for the year ended 31st March, 2008 Cr.

X Dept. Y Dept. Selling Dept. X Dept. Y Dept. Sell Dept.

Particulars Qty. Rs. Qty. Rs. Qty. Rs. Particulars Qty. Rs. Qty. Rs. Qty. Rs.

To Opening stock 60 60,000 20 40,000 50 1,28,000 By StockTo Raw Material 160 3,70,000 100 2,50,000 — —

consumed 1,82,000 — 20,000 — — By Sales — — — — 120 4,80,000To Units By Closing

produced 140 — — — — — Stock 40 48,000 50 1,00,000 60 1,80,000To Labour

Charges 70,000 — 32,000 — —To Stock

TransferredFrom X Dept. 130 2,08,000 30 1,62,00

To StockTransferredFrom Y Dept. 100 2,50,000

To DepartmentalProfit t/f toGeneralP & L A/C 1,06,000 — 50,000 — 1,20,000

200 4,18,000 150 3,50,000 180 6,60,000 200 4,18,000 150 3,50,000 180 6,60,000



General Profit and Loss AccountDr. for the year ended 31st March, 2008 Cr.

Particulars Rs. Particulars Rs.

To General Adm. Expenses 80,000 By Profit transferrd from :

To Stock Reserve for Closing Stock X Dept. 1,06,000

on Dept. Y 12,000 Y Dept. 50,000

on Selling Dept. 18,175 Selling Dept. 1,20,000

To Net profit 1,65,8252,76,000 2,76,000

Working Notes :

(a) Selling Dept.

Particulars Units Particulars Units

Opening Stock 50 Sales 120

T/f from X Dept. 30 Closing Stock 60

T/f from Y Dept. (Balancing figure) 100

180 180

(b) Y Dept.


Opening Stock 20 T/f to Selling Dept. 100

T/f from X Dept. 130 Closing Stock 50

150 150

(c) X Dept.


Opening Stock 60 T/f to Selling Dept. 30

Production (Balancing figure) 140 T/f to Y Dept. 130

Closing Stock 40200 200

(d) Total Equivalent units produced in X Dept. in terms of those t/f to Y Dept.

= Equivalent units of those t/f to Sell Dept. + t/f to Y Dept. + Closing Stock.

= (30 × 300/100) + 130 + 40 = 260

(e) Calculation of Transfer Prices and Closing Stock.


X Dept. Y Dept. Selling Dept.Rs. Rs. Rs.

A Cost of Opening Stock 60,000 40,000 1,28,000B Add : Cost of Raw Materials Consumed 1,82,000 20,000 —C Add : Labour Charges 70,000 32,000 —D Add : T/f from X Dept. — 2,08,000 1,62,000E Add : T/f form Y Dept. — — 2,50,000F Total Cost (A+B+C+D+E) 3,12,000 3,00,000 5,40,000G Equivalant Units 260 150 180H Average Cost per Equivalent Unit (F/G) 1,200 2,000 3,000I Transfer Price of 130 Units t/f to Dept. Y

(a) Cost of 130 Units (130×Rs. 1,200) 1,56,000(b) Add : Profit element @ 33-1/3% 52,000

2,08,000J Transfer Price of Units t/f to Selling Dept.

(a) Cost of Units t/f 1,08,000(b) Add : Profit element 54,000 50,000

1,62,000 2,50,000K Closing Stock 48,000 1,00,000 1,80,000

(40×Rs. 1,200) (50×Rs. 2,000) (60×Rs. 3,000)(f) Unrealised Profit on Increase in Closing Stock of Y Dept. (Rs. 1,00,000 – Rs. 40,000)

A Current Cost incurred by Dept. Y= Rs. 20,000 + Rs. 32,000 + Rs. 2,08,000 = Rs. 2,60,000

B Profit charged by Dept. X included in above (Rs. 2,08,000 × 1/4) = Rs. 52,000C Profit included in Increase in Closing Stock.

= (Rs. 52,000 × Rs. 60,000/Rs. 2,60,000) = Rs. 12,000(g) Profit Included in output transferred by Y Deptt. to Selling Dept.

A Transfer Price = Rs. 2,50,000B Profit of Dept. Y included in Above (Rs. 2,50,000 × 25/125) = Rs. 50,000C Cost Element of Dept. X in Transfer Price (Rs. 2,50,000 – Rs. 50,000) = Rs. 2,00,000D Profit of Dept. X included in above

(Rs. 2,00,000 × Rs. 52,000/Rs. 2,60,000) = Rs. 40,000E Total Profit Included in Transfer price (Rs. 50,000 + Rs. 40,000) = Rs. 90,000

(h) Profit Included in output transferred by X Dept. to Selling Dept.= (Rs. 1,62,000 × 50/150) = Rs. 54,000

(i) Total Profit included in output transferred to Selling Dept.= Rs. 90,000 + Rs. 54,000 = Rs. 1,44,000

(j) Total Transfer Price for the Transfer made by X Dept. and Y Dept.= Rs. 1,62,000 + Rs. 2,50,000 = Rs. 4,12,000

(k) Unrealised Profit included in increas in Closing Stock of Sell Dept.= Rs. 1,44,000 × Rs. 52,000/Rs. 4,12,000 = Rs. 18,175



EXERCISEProblem 1 : X Ltd. provides you the following information.

Stock as on 1.1.2008 Purchase (for Rs. 4,00,000) SalesDepartment A 120 units 1000 Units 1020 units @ Rs. 80.00Department B 80 units 2000 Units 1920 units @ Rs. 90.50Department C 152 units 2400 Units 2496 units @ Rs. 100.00

The rate of gross profit is the same in each case.Required : Prepare Departmental Trading Account for the year 2008.

Problem 2 : Zeenat is earning uniform rate of gross profit in all three departmens he ishanding. Following are the relevant details :

Purchase : Dept. A 15,000 cartonsDept. R 20,000 cartonsDept. Z 15,000 cartons

The total cost of the purchase amounted to Rs. 6,00,000.

Sales : Dept. A 16,000 cartons at Rs. 20 per cartonDept. R 22,000 cartons at Rs. 15 per cartonDept. Z 17,000 cartons at Rs. 10 per carton

Details of opening stock : Dept. A 4,000 cartonsDept. R 5,000 cartonsDept. Z 4,000 cartons

Required : Prepare the trading account for three department :

Problem 3 : Messers D, B and R carried on a business of Drapers and Tailors in Delhi; D wasin charge of Department “A” dealing in cloth. B of Department “B” for selling garments andR of Department “C” the tailoring section. It had been agreed that each of the three partnerswould reveive 75% of the profits disclosed by accounts of the department of which he was incharge and the balance of the profits would be shared in the proportion : D 1/2, B 1/4 andR 1/4. The following is the Trading and Profit and Loss Account of the firm for the sixmonths ended 30th September, 2008.Dr. Trading and Profit and Loss Account Cr.

for the year ended 30.09.08Particulars Rs. Particulars Rs.

To Opening Stock : By Sales :Cloth (A) 37,890 Cloth (A) 1,80,000Ready-made Garments (B) 24,000 Ready-made Garments (B) 1,30,000Tailoring Jobs (C) 20,000 Tailoring Jobs (C) 90,000

To Purchases : By Discount received 800Cloth (A) 1,40,700 By Closing Stock :Ready-made Garments (B) 80,600 Cloth (A) 45,100Tailoring Goods (c) 44,400 Ready-made Garments (B) 22,300

To Salaries and Wages 48,000 Tailoring Jobs (C) includingTo Advertising 2,400 Rs. 5,700 for goods transferredTo Rent 10,800 from department (A)] 21,600


To Discount Allowed 1,200To Sundry Expenses 12,000To Depreciation on Furniture

and Fittings 750To Net Profit 67,060

4,89,800 4,89,800After consideration of the following, prepare Departmental Accounts and Profit and Loss

Appropriation Account.(i) Cloth of the value of Rs. 10,700 and other goods of the value of Rs. 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

workshop.(iii) The details of salaries and wages were as follows :

(a) General Office 50%, show-room 25% and 25% for workshop 75% of which is fortailoring alone.

(b) Allocate General Office Expenses, in the proportion of 3 : 2 : 1 among the DepartmentsA, B, C.

(c) Distribute show-room expenses in the proportion of 1 : 2 between Departments A and B.(d) the workshop rent is Rs. 1,000 per month the rent of the General Office and Show-

room is to be divided equally between Department 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 Rs. 400;

B Rs. 250; C Rs. 150.(h) The opening stock of Department C does not include any goods transferred from

Department A.Problem 4 : M/s Bright and Co, had four departments A, B, C and D. Each departmentbeing managed by a departmental managar whose commission was 10% of the respectivedepartmental profit, subject to a minimum of Rs. 6,000 in each case. Interdepartmentaltransfers took place at a ‘loaded’ price as follows :

From Department A to Department B 10% above costFrom Department A to Department D 20% above costFrom Department C to Department D 20% above costFrom Department C to Department B 20% above cost

For the year ending on 31st March, 2008 the firm had already prepared and closed thedepartmental Trading and Profit and Loss Account. Subsequently, it was discovered thatthe closing stocks of departments had included interdepartmentally transferred goods atloaded price instead of cost price. From the following information, prepare a statementrecomputing the departmental profit or loss :

Dept. A Dept. B Dept. C Dept. DRs. Rs. Rs. Rs.

Final Profit (Loss) (38,000) 50,400 72,000 1,08,000Inter departmental transfers included 70,000 — 4,800at loaded price in the departmental stock (Rs. 22,000 from (Rs. 3,600 from

Dept. A and Dept. C andRs. 48,000 from Rs. 1,200 from

Dept. C Dept. A)



Problem 5 : X Ltd., has two departments A and B. From the following particulars, preparethe Consolidated Trading Account and Departmental Trading Account for the year endingon 31st Dec., 2008.

A BRs. Rs.

Opening stock (at cost) 20,000 12,000Purchases 92,000 12,000Sales 1,40,000 1,12,000Wages 12,000 8,000Carriage 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 10,000by A to B 8,000

Finished goods transferred :by A to B 35,000by B to A 40,000

Return of finished goods :by A to B 10,000by B to A 7,000

You are informed that purchased goods have been transferred mutually at their respectivedepartmental purchased cost and finished goods at departmental market price and that20%of the finished stock (closing) at each department represented finished goods receivedfrom the other department.

Problem 6 : Department X sells goods to Department Y at a profit of 25% on cost and toDepartment 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 toDepartment X and Y, respectively.

Department Managers are entitled to 10% commission on net profit subject to unrealisedprofit on departmental sales being eliminated. Departmental profits after charging Managers’commission, but before adjustment of unrealised profit are as under :

Rs.Department X 36,000Deapartment Y 27,000Department Z 18,000

Stock lying at different departments at the end of the year are as under :Dept. X Dept. Y Dept. Z

Rs. Rs. Rs.Transfer from Department X — 15,000 11,000Transfer from Department Y 14,000 — 12,000Transfer from Department Z 6,000 5,000 —

Documents

Study Note 5.2 (353-378)