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

Financial Accounting

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

Departmental Accounts

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

Financial Accounting

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

Departmental Accounts

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

Financial Accounting

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

Departmental Accounts

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

Financial Accounting

Total Marked Down [Z Dept ]

Total Revised Sale Value

344
4,100

= 2,300 27,000

10.9