02. Departmental Acc. (1)

5/28/2018 02. Departmental Acc. (1)

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CHAPTER2

Introduction

Basis of allocation of common expenses

ExamplesMemorandum Method

Exercise

2.2

2.2

2.32.10

2.12


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Departmental Accounting CA. Gautam Seth

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INTRODUCTION & OBJECTIVEIf a business consists of several independent activities, or is divided into several departments, for carrying

on separate functions, its management is usually interested in finding out the working results of each departmentto ascertain their relative efficiencies.

This can be made possible only if departmental accounts are prepared. Departmental accounts are ofgreat help and assistance to the managements as information for controlling the business more intelligently andeffectively, since thereby all types of waste either of material or of working of departments or units into which thebusiness may be divided.

INTER-DEPARTMENTAL TRANSFERSWhenever goods or services are provided by one department to another, their cost should be separately

recorded and charged to the department benefiting thereby and credited to that providing it. The totals of suchbenefits should be disclosed in the departmental Profit and Loss Accounts, to distinguish them from other itemsof expenditure. Goods and services may be charged by one department to another usually on any of thefollowing three bases:

(i) At Cost,(ii) At Prevailing market price,(iii) At Cost plus agreed percentage of profit.

ALLOCATION V/S APPORTIONMENT OF EXPENSESWhere an expense is specifically incurred or traceable to particular department it is known as allocation of

expenses like salary of department manager is to borne by concerned department only.On the other hand, when a common expense is to be distributed amongst various departments, it is known asapportionment of expenses like Rent of premises to be apportioned in the ratio of area occupied by variousdepartments after considering location advantage, if any.

BASIS OF ALLOCATION OF COMMON EXPENDITURE AMONG DIFFERENT DEPARTMENTS

Some of the common bases used for apportioning the common expenses/incomes are summarized in thefollowing table:

S. No. Items of income/expense Commonly used basis for apportionment

(i) Rent, rates, taxes, repairs and maintenance ofbuilding

Area of each department.

(ii) Lighting Number of light points in each department or

by separate meter orarea of department.(iii) Depreciation of assets, fire insurance, commonrepair and maintenance expenses of assets etc.

Asset value of each department.

(iv) Discount received, carriage inward etc. Purchases of each department.(v) Discount allowed, bad debts, carriage outward,

salesmen salary, advertising and commission.Sales (or turnover) of each department.

(vi) P.F. and E.S.I. contributions. Salaries of each department.(vii) Canteen expenses, common room expenses,

medical expenses and other Labour welfare exp.Number of employees in each department.

Unrealised Profit on unsold stock

When profit is added in the inter-departmental transfers the loading included in the unsold stock at theend of the year is to be excluded before final accounts are prepared so as to eliminate any anticipatory profit

included therein. This is done by creating an appropriate stock reserve by debiting the combined Profit and LossAccount.Thus, accounting entry for closing Stock reserve:P & L a/c .. Dr.

To Stock Reserve

Example 1.Green & Co has two Departments P and Q. Department P sells goods to Department Q at normalselling prices. From the following particulars prepareDepartmental Trading and Profit and Loss Account for theyear ended 31 3 1994 and also ascertain the Net Profit to be transferred to balance Sheet:-

Particulars Department P Department Q

Opening Stock `1,00,000 NilPurchases 23,00,000 2,00,000


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CA. Gautam Sethi Comprehensive Accountancy

www.gautamsethi.com You are at Page | 2.3

Goods from Department P - 7,00,000Wages 1,00,000 1,60,000Travelling Expenses 10,000 1,40,000Closing Stock at cost to the Dept. 5,00,000 1,80,000Sales 23,00,000 15,00,000Printing & Stationery 20,000 16,000

The following expenses incurred for both the departments were not apportioned between the Departments:(a) Salaries `2,70,000

(b) Advertisement expenses ` 90,000(c) General expenses `8,00,000Depreciation @ 25% on the machinery value of `48,000. Advertisement expenses are to be apportionedin the turnover ratio, Salaries in 2:1 ratio and Depreciation in 1:3 ratios between the Departments P andQ. General expenses are to be apportioned in 3:1 ratio. [C.A. (Inter) May 1994]

Sol. Departmental Trading and P & L A/cfor the year ended 31/3/94

Particu lars P Q Total Particu lars P Q TotalTo opening stock 1,00,000 -- 1,00,000 By inter

department trf.7,00,000 ---

To Purchases 23,00,000 2,00,000 25,00,000 By sales 23,00,000 15,00,000 38,00,000To Wages 1,00,000 1,60,000 2,60,000 By closing stock 5,00,000 1,80,000 6,80,000

To inter departmental --- 7,00,000 ---TransferTo Gross Profit c/d 10,00,000 6,20,000 16,20,000

35,00,000 16,80,000 44,80,000 35,00,000 16,80,000 44,80,000

To traveling expenses 10,000 1,40,000 1,50,000 By Gross Profit 10,00,000 6,20,000 16,20,000To Printing &Stationery

20,000 16,000 36,000

To Salaries 1,80,000 90,000 2,70,000(`2,70,000 in 2:1)To Advertisement(90,000 in 23:15) 54,474 35,526 90,000

To General expenses 6,00,000 2,00,000 8,00,000(8,00,000 in 3:1)

To Depreciation 3,000 9,000 12,000(25% x 48,000 In 1:3)

To net Profit 1,32,526 1,29,474 2,62,000(before adj.)

10,00,000 6,20,000 16,20,000 10,00,000 6,20,000 16,20,000

To stock Res. (1) 46,667 By Net Profit 2,62,000To Net Profit 2,15,333

2,62,000 2,62,000

W. N.1:Calculation of unrealized profit on stock o f department Q.

Closing stock of department Q = `1,80,000Purchases = 2,00,000+ Inter department transfer receipts = 7,00,000

9,00,000

Prop. of stock recd. from department P = 7,00,000 = 79,00,000 9

Stock recd. from department P Still in closing stock = `1,80,000 x 7/9 = `1,40,000

Gross Profit Ratio of department P = `10,00,000 x 100 = 331/3%`30,00,000

Unrealized profit on stock = `1,40,000 x 1/3 = `46,667.

Example 2.X Ltd. has two departments A and B. From the following particulars preparedepartmental TradingAccount and Consolidated Trading Account for the year ending 31

stDecember 97:-


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Dept. A Dept. B

Opening Stock at cost `40,000 `24,000Purchases 1,84,000 1,36,000Carriage Inward 4,000 4,000Wages 24,000 16,000Sales 2,80,000 2,24,000Purchased goods transferred:By Dept. B to Dept. A 20,000

By Dept. A to Dept. B 16,000Finished goods transferred:By Dept. B to Dept. A 70,000By Dept. A to Dept. B 80,000

Return of finished goods:By Dept. B to Dept. A 20,000By Dept. A to Dept. B 14,000

Closing stock:Purchased goods 9,000 12,000

Finished goods 48,000 28,000

Purchased goods have been transferred mutually at their respective departmental purchase cost andfinished goods at departmental market price and that 20% of the finished stock (closing) at eachdepartment represented finished goods received from the other department.

[C.A. (Inter) May 1988]

Sol. Department Trading and P & L A/c for the year ended 31/12/97A B Total A B Total

To opening stock 40,000 24,000 64,000 By sales 2,80,000 2,24,000 5,04,000To Purchases 1,84,000 1,36,000 3,20,000 By inter dept. transferTo Carriage inwards 4,000 4,000 8,000 Purchased goods 16,000 20,000 ---To Wages 24,000 16,000 40,000 Finished goods 80,000 70,000 ---To inter dept. transfer: By Return of inter 14,000 20,000 ---

Purchased goods 20,000 16,000 --- departmental transferFinished goods 70,000 80,000 --- By closing stock

By Return of interdepartment transfer

20,000 14,000 --- Finished goodsPurchased goods

48,0009,000

28,00012,000

76,00021,000

To Gross Profit c/d 85,000 84,000 1,69,000

4,47,000 3,74,000 6,01,000 4,47,000 3,74,000 6,01,000

To stock reserve (1) 4,280 By Gross Profit 85,000 84,000 1,69,000To Net Profit (after adj.) 85,000 84,000 1,64,720 (Before adj.)

85,000 84,000 1,69,000 85,000 84,000 1,69,000

W. Note:(1) Calculation of unrealized profit on closing stock.Closing stock of finished goods

Department A Department B

Total 48,000 28,000Received from other department (20% of total) 9,600 5,600Calculation of G.P. ratioGross Profit 85,000 84,000

Sales 2,80,000 2,24,000+ Inter department transfer of finished goods 80,000 70,000(-) Returns 20,000 14,000

3,40,000 2,80,000

Gross Profit Ratio 25% 30%Unrealized profit 9,600 x 30% 5,600 x 25%

= 2,880 = 1,400


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Example 3. Telerad & Co. has two departments A and B. From the following particulars, prepareDepartmental Trading Account and Consolidated Trading Account for the year ending 31

st March

1993:Department A Department B

Opening Stock (at cost) `1,00,000 `60,000Purchases 4,60,000 3,40,000Carriage 10,000 10,000Wages 60,000 40,000

Sale (excluding inter-transfers) 7,00,000 5,60,000Purchased goods transferred:

By B to A 50,000By A to B 40,000

Finished goods transferred:By B to A 1,75,000By A to B 2,00,000

Return of finished goods:By B to A 50,000By A to B 35,000

Closing stock:Purchased goods 22,500 30,000Finished goods 1,20,000 70,000

Purchased goods have been transferred at their respective departmental purchase cost and finishedgoods at departmental market price. 20% of finished stock (closing) at each department representedfinished goods received from the other department. [C.A. (Inter) May 1993]

Sol. Trading and P & L a/c for the year ended 31/03/93Particu lars A B Total Particu lars A B Total

To op. stock 1,00,000 60,000 1,60,000 By sales 7,00,000 5,60,000 12,60,000To Purchases 4,60,000 3,40,000 8,00,000 By inter DepartmentTo Carriage 10,000 10,000 20,000 transfer:To Wages 60,000 40,000 1,00,000 Purchased goods 40,000 50,000 ---To inter dept. 50,000 35,000 Finished goods 2,00,000 1,75,000 ---

Returns By inter dept. 35,000 50,000 ---To inter department Returns

Transfer: By closing stock

Purchased goods 50,000 40,000 --- Purchased goods 22,500 30,000 52,500Finished goods 1,75,000 2,00,000 --- Finished goods 1,20,000 70,000 1,90,000

To Gross Profit c/d 2,12,500 2,10,000 4,22,500

11,17,500 9,35,000 15,02,500 11,17,500 9,35,000 15,02,500

To stock reserve (1) 10,700 By Gross Profit b/d 4,22,500To net profit 4,11,800

2,12,500 2,10,000 4,22,500 2,12,500 2,10,000 4,22,500

W. N. 1:Computation of stock Reserve

Dept. A B

Closing finished Stock `1,20,000 `70,000Inter department closing finished stock @ 20% 24,000 14,000

Gross Profit 2,12,500 2,10,000Sales 7,00,000 5,60,000+ Inter Department 2,00,000 1,75,000(-) Return (50,000) (35,000)

Net Sales 8,50,000 7,00,00025% 30%

G.P ratio (G.P / Net Sales) 24,000 x 30% 14,000 x 25%Stock reserve (Closing Stock x G.P Ratio of other) = 7,200 = 3,500


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Example 4. Department X sells goods to department Y at a profit of 25% on cost and to department Z at10% 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 to Department X and Y respectively.Department Managers are entitled to 10% commission on net profit subject to unrealized profit ondepartmental sales being eliminated. Departmental profits after charging Managers commission, butbefore adjustment of unrealized profit are as under:

Department X `36,000Department Y `27,000

Department Z `18,000Stock lying at different departments at the end of the year is as under:

Department X Department Y Department Z

Transfer from Department X - `15,000 `11,000Transfer from Department Y `14,000 - 12,000Transfer from Department Z 6,000 5,000 -

Find out the correct departmental profits after charging Managers commission.[CA (Inter) Nov. 2001 & PCC Nov. 2010](8 Marks) {CA IPCC Nov. 2012}

Sol. Statement showing evaluation of realized profi t & revised commissionDepartment X Y Z

Net profit `36,000 `27,000 `18,000(+) Commission Paid 4,000 3,000 2,000

= profit before charging commission 40,000 30,000 20,000(-) u/r profit (1) (4,000) (4,500) (2,000)Realized profit 36,000 25,500 18,000(-) Commission @ 10% on realized profit (3,600) (2,550) (1,800)

Net profit after commission 32,400 22,950 16,200

Comm. @ 10% = 36000 x 10% = `400090%

Comm. @ 10% = 27000 x 10% = `300090%

Comm. @ 10% = 18000 x 10% = `200090%

W. N.1:Computation of unrealised profi t

Closing stock of department X = `20,000

Includes received from department Y = `14,000Rate of profit of Y = 15% on salesu/r profit of y = `14,000 x 15 = `2,100

100Closing stock of department Z = `23,000includes `12,000 of stock received from YRate of profit of Y = 20% on salesu/r profit of Y = 12,000 x 20% = `2,400Total u/r Profit of Y = `4,500

Closing stock of department Y is `20,000

Includes `15,000 received from XRate of profit of X is 25% on costu/r profit = 15,000 x 25 = `3000

125Closing stock of department Z = 23,000Includes `11,000 received from XRate of profit = 10% on costu/r profit = 11,000 x 10 = 1,000

110Total u/r profi t of X = 4,000

Closing stock of X includes received from Z = 6,000Rate of profit of Z = 20% on costu/r profit = 6000 x 20 = `1000

120Closing stock of Y includes received from Z = `5,000Rate of profit of Z = 25% on costu/r profit = 5,000 x 25 = 1000

125Total u/r profit o f Z = `2000

Example 5. M/s Bright & Co. had four departments A, B, C and D. Each department being managed by adepartmental manager whose commission was 10% of the respective departmental profit, subject toa minimum of `6,000 in each case. Interdepartmental transfers took place at a loaded price asfollows:-


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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 ended 31s

t march 1991, the firm had already prepared and closed the departmental

Trading and Profit and Loss Account. Subsequently it was discovered that the closing stocks ofdepartments had included interdepartmentally transferred goods at loaded price instead of cost price.From the following information preparea statement re-computing the departmental profit or loss-:

Department A Department B Department C Department CFinal Profit/loss 38,000 (Loss) 50,400 (Profit) 72,000 (Profit) 1,08,000 (Profit)Interdepartmental - 70,000 - 4,800Transfers included (22,000 from (3,600 from

At loaded price Dept. A and Dept. C andIn the departmental 48,000 from 1,200 fromStock Dept. C) Dept. A)

[C.A. (Inter) May 1991]

Sol. Statement showing evaluation of realized profi t & revised commissionDepartment A B C D

Net profit (38,000) 50,400 72,000 1,08,000(+) Commission already Given 6,000 6,000 8,000 12,000

Profit before charging comm. (32,000) 56,400 80,000 1,20,000(-) unrealized profit (1) (2,200) (8,600) ---Realized profit/correct profit (34,200) 56,400 71,400 1,20,000(-) Revised comm. (6,000) (6,000) (7,140) (12,000)(10% of correct profit subject to min. `6,000)

Net profit after commission 40,200 50,400 64,260 1,08,000Min. / Guaranteed Commission`72,000 x 10% = `8,000

90%`1,08,000 x 18% = `12,000

90%W.N.1:Calculation of unrealized profit

Closing stock of department B = `70,000

Received from other departmentFrom department A = 22,000Rate of profit = 10% above cost or 1/11 of salesUnrealized profit of A = 22,000 x 10 = `2,000

110From department C = `48,000Rate of profit = 20% above cost or 1/6 of salesUnrealized profit = 48,000 x 1/6 = `8,000

Total u/r Profit of A = `2,200

Closing stock of Department D = `4,800

Received from C = `3,600Rate of profit = 20% of cost

or 1/6 of sales.Unrealized profit = `3,600 x 1 = 600

6Received from A = `1,200Rate of profit 1/5 of cost or 1/6 of salesUnrealized Profit of A = `200.Total u/r Profit o f C = `8,600

Example 6. The following purchases were made during the year 1989 by a business house having threedepartments:-

Department A

Department BDepartment C

1,000 units

2,000 units at a total cost of `1,00,0002,400 units

Stock on 1stJanuary, 1989 were:

Department A 120 unitsDepartment B 80 unitsDepartment C 152 unitsThe Sales during , 1989 wereDepartment A 1,020 units at `20 eachDepartment B 1,920 units at `22.50 eachDepartment C 2,496 units at `25 each


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The rate of gross profit is same in each case. Preparedepartmental trading Account for the year 1989.[CA (Inter) May 1990]

Sol. Department Trading A/c fo r the year ended 31/12/89Particu lars A B C Particu lars A B C

To opening stock (1) 1,920 1,440 3,040 By sales 20,400 43,200 62,400To purchases 16,000 36,000 48,000 Closing stock (1) 1,600 2,880 1,120To Gross Profit 4,080 8,640 12,480

22,000 46,080 63,520 22,000 46,080 63,520

W. Note:(1) Calculation of G.P. ratio.Total cost of purchased Qty.Dept. A 1000 unitsDept. B 2000 units Total cost `1,00,000Dept. C 2400 units

Sales value of aforesaid purchases:Department A 1000 x `20 = 20,000Department B 2000 x `22.50 = 45,000 `1,25,000Department C 2400 x `25 = 60,000Total G.P. = `25,000G.P. ratio = 25,000 x 100 = 20%

1,25,000(2) Calculation of cost p. u. & value of opening stock & closing s tock

Department

S.P. G.P. @20%

Cost Op.qty

Value of op.stock

Cl. Qty Value of cl.Stock

A 20 4 16 120 `1,920 100 1,600B 22.50 4.50 18 80 `1,440 160 2,880C 25 5 20 152 `3,040 56 1,120

Example 7. The following balances were extracted from the books of A. You are requiredto prepare theDepartmental Trading and Profit and Loss Account for the year ended 31

stDecember,2001 after

adjusting the unrealized profits if any:Dept. X Dept. Y

Opening Stock 50,000 40,000Purchases 6,50,000 9,10,000Sales 10,00,000 15,00,000

The following information is provided:(i) General expenses incurred for both the departments were `1,25,000 to be apportioned in G.P ratio.(ii) Closing Stock of department X `1,00,000 including goods from department Y for `20,000 at cost to

department X;(iii) Closing stock at department Y `2,00,000 including goods from department X for `30,000 at cost to

department Y;(iv) Opening stock of department X and Y include goods of the value of `10,000 and `15,000 taken

from department Y and department X respectively at cost of transferee departments:(v) The gross profit is uniform from year to year.

Sol. Trading and P & L A/cX Y Total X Y Total

To Op. stock 50,000 40,000 90,000 By Sales 10,00,000 15,00,000 25,00,000To Purchases 6,50,000 9,10,000 15,60,000 By Closing

stock

1,00,000 2,00,000 3,00,000

To G.P. 4,00,000 7,50,000 11,50,00011,00,000 17,00,000 28,00,000 11,00,000 17,00,000 28,00,000

To General expenses 43,478 81,522 1,25,000 By G.P. 4,00,000 7,50,000 11,50,000(in G. P. ratio)

To N.P. (before adj.) 3,56,522 6,68,478 10,25,0004,00,000 7,50,000 11,50,000 4,00,000 7,50,000 11,50,000

To stock reserve (1) 11,000 By Net Profit 10,25,000To N.P. (after adj.) 10,14,000

10,25,000 10,25,000

W.N. 1: Calculation of unrealized profit


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X Y

G.P. 4,00,000 7,50,000Sales 10,00,000 15,00,000Gross Profit ratio 40% 50%Opening stock 10,000 15,000Value of closing stock of inter department transfer 20,000 30,000Excess of closing stock over opening stock 10,000 15,000Stock reserve 10,000 x 50% 15,000 x 40%

= 5,000 = 6,000

Example 8. A company manufacturing electronic components operates with 2 departments. Transfers aremade between the departments of both purchased goods and manufactured finished goods. Goodspurchased are transferred at cost and manufactured goods are transferred only at selling price as is thecase with open market. Transactions for the year ended 30 June, 2001 are given below:

Department X Department Y

Opening Stock `20,000 `15,000Sales 1,90,000 1,35,000Wages 12,500 7,500Purchases 1,00,000 80,000Closing stock:

Purchased goods 2,000 5,000

Manufactured goods 7,000 8,000The following were the transfers from Department X to Department Y: Purchased goods `6,000 andfinished goods `20,000; and from Department Y to Department X: Purchased goods `5,000 andfinished goods `35,000. Stocks were valued at cost to the department concerned. Only in closingstock of manufactured goods in the departments transferred finished goods are 20%.Draw ou tDepartmental Trading Accounting and the Companys Trading Account for the year ended 30

th

June, 2001.

Sol. Trading and P & L A/c for the year ended 30/06/2001Particu lars X Y Total Particulars X Y TotalTo opening stock 20,000 15,000 35,000 By Sales 1,90,000 1,35,000 3,25,000To Wages 12,500 7,500 20,000 By Closing stockTo Purchases 1,00,000 80,000 1,80,000 Purchased good 2,000 5,000 7,000

To inter dept. transfer Finished goods 7,000 8,000 15,000Purchased goods 5,000 6,000 --- By Inter dept.transfer

finished goods 35,000 20,000 ---To Gross Profit c/d 52,500 59,500 1,12,000 Purchased good 6,000 5,000

Finished goods 20,000 35,0002,25,000 1,88,000 3,47,000 2,25,000 1,88,000 3,47,000

To stock Reserve (1) 890 By Gross Profit 52,500 59,500 1,12,000To Net Profit (after adj.) 1,11,110

52,500 59,500 1,12,000 52,500 59,500 1,12,000

W.N.1:Computation of stock ReserveX Y

Closing goods 7,000 8,000

Element of Inter department transfer (20%) 1,400 1,600

Gross Profit 52,500 59,500Sales 1,90,000 1,35,000(+) Inter Departmental Transfer 20,000 35,000

2,10,000 1,70,000Gross Profit ratio 25% 35%Stock reserve 1400 x

35%1600 x

25%= 490 = 400


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MEMORANDUM METHOD

Memorandum stock a/c (at I.P.)

Particu lars Amount Particu lars Amount

To balance b/d ---- By sales ----To purchases ---- By inter department transfer ----

Cost ---- By mark up a/c ----

(+) Mark up ---- ---- (Mark down on sales)By shortage (at I.P) ----By closing stock ----

Memorandum Mark up a/c


To memo. stock a/c ---- By stock res. ----(mark down on sales) (loading on opening stock)To shortage (mark-up) ---- By memo stock a/c ----To memo stock a/c ---- (mark up on purchases)(loading on closing stock)To net profit ----

---- ----

Example 9. Southern Store Ltd. is a retail store operating two departments. The company maintains amemorandum stock account and memorandum mark up account for each of the departments.Supplies issued to the departments are debited to the memorandum stock account of the departmentat cost plus the mark-up, and departmental sales are credited to this account. The mark uponsupplies issued to the departments is credited to the mark up account of the department. When it isnecessary to reduce the selling price below the normal selling price, i.e. cost plus mark-up, thereduction (mark down) is entered in the memorandum stock account and in the mark up account.Department Y has a mark up of 33-1/3% on cost, and Department Z 50% on cost. The followinginformation has been extracted from the records of Southern Store Ltd. for the year ended 31

st

December 1988:-Department Y Department Z

Stock, 1st

January, 1988 at cost`24,000

`36,000

Purchases 1,62,000 1,90,000Sales 2,10,000 2,85,000

The stock of department Y at 1s

tJanuary 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.Certain goods purchased in 1988 for `2,700 for department Y, were transferred during the year toDepartment Z, and sold for `4,050. Purchase and sale are recorded in the purchases of departmentY and the sales of department Z respectively, but no entries in respect of the transfer have beenmade.Goods purchased in 1988 were marked down as follows:-

Department Y (`) Department Z (`)Cost 8,000 21,000Mark down 800 4,100

At the end of the year there were some items in the stock of department Z, which had been markeddown to `2,300. With this exception all goods marked down in 1988 were sold during the year at thereduced prices.During stock taking at 31

stDecember 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.The closing stocks in both departments are to be valued at cost for the purpose of the annualaccounts.You are requestedto prepare for each department for the year ended 31

stDec.1988:-

(a) a trading account(b) a Memorandum Stock Account and(c) a memorandum Mark up Account. [C.A.(Inter) May 1989]


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Sol. Department YMemorandum Stock Account

Particu lars Details Amount Particu lars Amount

To balance b/d By sales 2,10,000Cost 24,000 By memo mark up a/c 510

(+) Mark up (1/3) 8,000 32,000 (Mark down)To Purchases 1,62,000 By Memo mark up (Mark down) 800(-) Trf. to Dept. Z 2,700 By shortage (240 + 80) 320

(+) Mark up (1/3) 53,100 2,12,400 By balance c/d 32,770

2,44,400 2,44,400

Memorandum Mark up A/c


To M. stock a/c (M. down) 510 By M. Stock a/c 8,000To M. Stock a/c (Mark down) 800 By M. stock a/c 53,100To M. Stock a/c (loading on shortage) 80 (loading on purchases)To M. Stock a/c 8,192(loading on closing stock i.e. 1/3rd

of cost or of Mark up price)To Net Profit 51,518

61,900 61,900

Department ZMemorandum Stock A/c

Particul ars Details Amount Particul ars Amount

To bal. b/d By sales 2,85,000Cost 36,000 By mark up 4,100

+ Mark up 18,000 54,000 (mark down)To purchases 1,90,000 By balance c/d 54,294(+) Trf. from Dept. Y 2,700+ Mark up 96,350 2,89,050

To M. mark up a/c(1) 3443,43,394 3,43,394

Memorandum mark up A/c


To Memo mark a/c By Memorandum Stock A/c 18,000(mark down) 4,100 By Memorandum stock A/c 96,350To Mark stock A/c (loading on purchases)

(loading on closing stock 18,098 By Memorandum stock A/ci.e.1/2 of cost or 1/3 of Mark up price) (Mark down on closing stock) 344To Net Profit 92,496

1,14694 1,14694

W. N.1:Calculation of mark down on closing stock.Cost = 21,000(+) 50% = 10,500

Normal marked Up price = 31,500(-) Mark down = (4,100)

Marked down price = 27,400Closing stock include marked down price of `2,300Mark down on closing stock = `4,100 x `2,300 = `344.

`27,400


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Ques.1 Writeshortnotes on basis of allocation of common expenditure among different departments.[CA (Inter) Nov 1998]

Ques.2 Briefly discuss the advantages of departmental accounting. [CA (Inter) Nov 1992]

Ques.3 FGH Ltd has three departments I, J, K. The following information is provided for the year ended 31.3.2004:

I J KOpening Stock `5,000 `8,000 `19,000Opening Reserve for unrealized profit --- 2,000 3,000Materials consumed 16,000 20,000 ---Direct Labour 9,000 10,000 ---Closing Stock 5,000 20,000 5,000Sales --- --- 80,000

Area occupied (sq. mtr.) 2,500 1,500 1,000No of employees 30 20 10

Stocks of each department are at costs to the department concerned. Stocks of I are transferred to J atcost plus 20% and stocks of J are transferred to K at a Gross Profit of 20% on sales. Other commonexpenses are Salaries and Staff Welfare `18,000, Rent `6,000.PrepareDepartmental Trading, Profit and Loss Account for the year ending 31.3.2004. [CA. Nov. 2004]

[Ans.Gross Profit Dept. I `5,000; Dept. J `12,000; Dept. K `6,000; Net profit Dept. J `4,200; K `1,800, Netloss Dept I `7,000; Net Profit after adj. `1,000 ]

Ques.4 Complex Ltd has 3 departments, A,B, C. The following information is provided:A B C

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 concerned. Stocks of A department aretransferred to B at a margin of 50% above department cost, Stocks of B department are transferred to Cdepartment at a margin of 10% above department cost. Other expenses were:

Salaries `2,000Printing & Stationery 1,000Rent 6,000Interest paid 4,000Depreciation 3,000

Allocate expenses in the ratio of departmental gross profit. Opening figures of reserves for unrealizedprofits on department stock were:Department B `1,000; Department C `2,000.PrepareDepartmental Trading and Profit & Loss Accounts for the year ending March 31, 1999.[Ans.Gross Profit Dept. A `6,000 , Dept. B `3,000, Dept. C `3,000 Net loss trfd. to balance sheet `4,918]

Ques.5 Becket & Co. Purchased goods for its three departments as follows:Department: X 4,000 Units

Department: Y 9,000 Units Total cost`1,10,000.

Department: Z 4,000 UnitsSales of three departments were as follows:Department: X 3,600 Units @ `7.50 per unitDepartment: Y 9,800 Units @ `9.00 per unitDepartment: Z 3,650 Units @ `13.50 per unitOpening Stock as on 1-1-98 was as follows:Department: X 200 UnitsDepartment: Y 1,400 UnitsDepartment: Z 150 Units

Exercise


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Assuming that the gross profit ratio is uniform in all the three departments, preparetrading a/c for the yearended 31

stDecember, 1998.

[Ans.Gross Profit: Deptt. X: `9,000, Y: `29,400, Deptt. Z: `16,425. G.P. Ratio @ 331/3% on Sales].Ques.6Alpha 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 processing and the balance is directly transferred to sellingdepartment. The entire production of department Y is directly transferred to 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 ending 31st March, 1999.

Department X Department Y Selling Department

Units ` Unit ` Unit `

Opening stockFinished Goods 60 60,000 20 40,000 50 1,28,000Raw material --- --- --- --- --- ---

Raw material consumed --- 1,82,000 --- 20,000 --- ---Labour charges --- 70,000 --- 32,000 --- ---Sales --- --- --- --- 120 4,80,000Closing stock: Finished Goods 40 --- 50 --- 60 ---

Out of the total transfer by X department 30 units were transferred to selling department, while theremaining to department Y. The per unit material and Labour consumption of X department on productionto be transferred directly to the selling department is 300 per cent of the Labour and material consumptionon units transferred to Y department. General Administration expenses `1,80,000.PrepareDepartment Profit and Loss Account and General Profit and Loss Account.[Ans.G.P. Dept. X `1,06,000, Dept. Y `50,000, Dept. Z `1,20,000; Net Profit : `65,825]

Ques.7 On the basis of the following trial balance and additional information provided to you thereafter, preparedepartmental trading account and general profit and loss account for the year ended 31st March, 2001 andbalance sheet as at that date:

TRIAL BALANCE AS AT 31ST MARCH, 2001

Debit Credit

Capital account --- `3,00,000

Land and building `2,25,000 ---Furniture 35,000 ---Opening stock:

Department A 1,20,000 ---Department B 2,40,000 ---

Purchases:Department A 12,00,000 ---Department B 17,00,000 ---

Sales:Department A --- 20,00,000Department B --- 32,00,000

General expenses 14,00,000 ---Debtors 2,10,000 ---

Creditors --- 1,00,000Drawings 2,80,000 ---Bank 1,90,000 ---

56,00,000 56,00,000Addi tional informat ion:

(i) Closing stock of Department A is `1,30,000 which includes goods purchased from Department Band invoiced at `50,000. Department- B transfers goods to Department A at cost plus 25%.

(ii) Closing stock of Department B is `2,60,000 which includes goods transferred by Department- A at aninvoice price of `1,08,000 which is arrived at by Department A by adding 20% to the cost of thegoods.


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(iii) Sales of Department - A and Department B include goods transferred to the other department at`2,00,000 and `3,00,000 respectively.

(iv) Depreciation is to be provided on land and building @ 5% per annum and on furniture @ 10% perannum.

[Ans. Gross Profit of Deptt. A is `8,10,000, Deptt. B is `15,20,000; Net Profit transferred to CapitaAccount `8,87,250; Total of Balance Sheet is `10,07,250]

Ques.8Moon Ltd. has three departments. They are 'Cloth Stitching Deptt', Selling Department and Genera

Administration Department. Cloth Deptt, transfers its goods to Selling Deptt. @ 20% Profit on cost. Fromthe following details, prepareDepartmental Trading A/c and Profit and Loss A/c for the year ended 31stDec. 1998.

Cloth Stitching Deptt Selling Deptt

Opening Stock `1,20,000 `80,000Purchases 5,00,000 ---Wages and other exp. 1,25,000 25,000Closing Stock 45,000 95,000Sales --- 11,05,000

During the year goods costing `50,000 to selling department, were returned back to cloth department.The expenses of General Admin. Deptt. are as follows:Manager's Salary @ `1,000 p.m.Clerk's Salary (2 Nos). @ `600 p.m. (each)

Maintenance Expenses `9,600Apportion General Admin. Deptt. Expenses equally to the 'Cloth stitching' and 'Selling Deptt'.[Ans.Gross Profit Cloth Deptt. `1,40,000, Selling Deptt.`2,55,000, Net Profit :Total `3,56,500].

Ques.9A firm has two departments (i) Cloth Department; and (ii) Readymade Clothes Department. Thereadymade clothes are made by the firm itself out of the cloth supplied by the Cloth Department at its usuaselling price. From the following figures, preparedepartmental trading and profit and loss account for theyear ended 31st March, 2003:

Particulars Cloth Department Readymade ClothesDepartment

Opening stock `2,40,000 `48,000Purchases 18,00,000 24,000Sales 20,00,000 6,00,000

Transfer to Readymade Clothes Department 4,00,000 ---Manufacturing expenses --- 68,000Selling expenses 40,000 4,000Closing stock 3,00,000 60,000

The stock in Readymade Clothes Department may be considered as consisting of 80% cloth and rest asother expenses. The Cloth Department earned a gross profit of 25% in 2001-2002.[Ans. Net Profit `7,32,400.]

Ques.10 Booming Limited has three departments. They are Alpha, Beta and Gamma. The profit of thesedepartments are `30,000 `40,000 and `17,400 respectively (before charging manager's commission andunrealized profit on stock transfers.)Department Alpha transfers its goods @ 20% profit on cost to other departments while Beta transfers itsgoods @ 10% profit on cost. However, department Gamma transfers its goods at cost to other

departments. However, respective Deptt's original goods are only transferred.On Scrutiny of records you find:

(i) Purchases made for Alpha Deptt. `10,000 has been debited in Beta Deptt. account.(ii) Goods sent on 'Sale or return basis' by Beta Deptt. @ 120% have been recorded as regular Sale at`8,400.(iii) General expenses amounting to `2,100 have been excessively charged in Gamma Deptt. instead ofBeta Deptt.(iv) The following transfers were made:Deptt. Alpha To Beta `24,000 (`12,000 still in closing stock)

To Gamma `3,600Deptt. Beta To Gama `11,000 (`4,400 still in closing stock)


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Deptt. Gamma To Alpha `7,700 (`3,000 still in closing stock)(v) Commission payable to the Manager @ 10% on correct overall Company profit after charging suchcommission.Findcorrect Net Profit of the Company and the commission payable to the General Manager.[Ans.Correct Net Profit : `83,600 (before commission), Commission `7,600].

Ques.11 M/s Auto Garage consists of three departments Spares, Service and Repairs. Each department ismanaged by a manager who is paid a commission which has been fixed @ 5%, 10% and 10% respectively

of the departmental profits. In the absence or adequacy of profits, a minimum commission of `3,000 is to bepaid to the manager. Interdepartmental transfers of goods and services are made on the basis of a loadedprice as under:from Spares to Service 5% above costfrom Spares to Repairs 10% above costfrom Repairs to Service 10% above costFor the year ended 31.3.1996, the books had already been closed and positions drawn.On a scrutiny subsequently made, it was discovered that the closing stock of the departments includedinterdepartmental transfers at loaded price. From the following details, you are to prepare a revisedstatement, re computing the profits or losses of each of the department.

Spares Service Repairs

Book results Loss `19,000 Profits `25,200 Profits `36,000Interdepartmental

transfer at loaded price

--- `10,500 from spares and`22,000 (from Repairs)

`2,100 from Spares

[Ans. Recomputed Amounts: Loss `19,691 (Spares), Profit `25,200 (Service), Profit`34,200(Repairs)]

Ques.12 Messrs D, B and R carried on a business of Drapers and Tailors in Delhi; D was in charge ofDepartment "A" dealing in cloth. B of department "B" for selling garments and R of Department "C" thetailoring section. It had been agreed that each of the three partners would receive 75% of the profitsdisclosed by the accounts of the department of which he was in charge and the balance of the profits wouldbe shared in the proportion: D1/2, B 1/4, and R1/4. The following is the Trading and Profit and Loss

Account of the firm for the six months ended March 31, 1999.Trading and Profit and Loss Account

Particulars Details Amount Particulars Details AmountTo 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 81,890 Tailoring Jobs (C) 90,000 4,00,000To Purchases:Cloth (A) 1,40,700 By Discount received 800Ready- made Garments (B) 80,600 By Closing Stock:Tailoring Goods (C) 44,400 2,65,700 By Cloth (A) 45,100

To Salaries and Wages 48,000 Ready made Garments (B) 22,300To Advertising 2,400 Tailoring Jobs (C) 21,600 89,000To Rent 10,800 [including `5,700 for goodsTo Discount allowed 1,200 transferred from department (A)]To Sundry Exp. 12,000To Depreciation on Furniture 750Net Profit 67,060

4,89,800 4,89,800After consideration of the following, prepare Departmental Accounts and Profit and Loss AppropriationAccount:(i) Cloth of the value of `10,700 and other goods of the value of `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 work-shop.(iii) The details of salaries and wages were as follows:

(a) General Office 50%, show room 25% and 25% for workshop, which is for tailoring.(b) Allocate General Office Expenses, in the proportion of 3:2:1 among the Departments A, B, C.(c) Distribute show room expenses in the proportion of 1:2 between Departments A and B.


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(d) The workshop rent is `1,000 per month. The rent of the General Office and Show room is to bedivided equally between Departments 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: `400; B: `250; C

`150.(h) The opening stock of Department C does not include any goods transferred from Department A.

[Ans.Gross Profit = `57,210 (A), `48,300 (B), `26,900(C); Net Profit = `31,940 (A), `24830 (B), `10,290 (C)]

Ques.13 Gram Udyog, a retail store, has two, departments, 'Khadi and Silks' for each of which stock account andmemorandum 'mark up' accounts are kept. All the goods supplied to each department are debited to thestock account at cost plus a 'mark up', which together make up the selling price of the goods and inthe account, the sale proceeds of the goods are credited. The amount of 'mark up' is credited to theDepartmental Mark up Account. If the selling price of any goods is reduced below its normal selling price,the reduction 'mark down' is adjusted both in the Stock Account and the Departmental 'Mark up' Account.The rate of 'Mark up' for Khadi Department is 33 1/3% of the cost and for Silks Department it is 50% ofthe cost.The following figures have been taken from the books for the year ended December 31, 1998:

Khadi Department Silks Department

Stock as on January 1st at cost `10,500 `18,600Purchases 75,900 93,400

Sales 95,600 1,25,000(1) The stock of Khadi on January 1, 1998 included goods the selling price of which had been marked

down by `1,260. These goods were sold during the year at the reduced prices.(2) Certain stock of the value of `6,900 purchased for the Khadi Department were later in the year

transferred to the Silks department and sold for `10,350. As a result though cost of the goods isincluded in the Khadi Department the sales proceeds have been credited to the Silks Department.

(3) During the year 1998 to promote sales the goods were marked down as the follows:Cost Marked down

Khadi `5,600 `360Silk 10,000 2,000

All the goods marked down, were sold except Silks of the value of `5,000 marked down by `1,000.(4) At the time of stock taking on December 31, 1998 it was discovered that Khadi cloth of the cost of`390 was missing and it was decided that the amount be written off.

You are requiredto prepare for both the departments for the year 1998.(a) The Memorandum Stock Account; and(b) The Memorandum Mark up Account.[Ans.Closing Stock: Khadi `8,260; Silk `52,350 & Profit: Khadi `22,685; Silk `41,000]

Ques.14 KPMG Ltd. has 3 departments A, B, C. The following information is provided:A B C

Opening Stock `3,000 `6,000 `6,000Consumption of direct materials 8,000 12,000 ---Wages 5,000 6,000 ---Closing Stock 4,000 18,000 4,400Sales --- --- 34,000

Stock of each department is valued at cost to the department concerned. Stocks of A department are

transferred to B at a margin of 50% above department cost. Stocks of B department are transferred to Cdepartment at a margin of 16 2/3 % of Transfer Price. Other expenses were:

Salaries `2,400Printing & Stationery 1,800Rent 6,000Interest paid 4,800Depreciation 3,000

Allocate expenses in the ratio of department gross profit. Opening figures of reserves for unrealized profitson department stock were:Department B `1,200.Department C `2,000.


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PrepareDepartmental Trading and Profit & Loss Accounts for the year ending March 31, 1999.[Ans.G.P (Dept. A) `6,000; (Dept. B) `4,800; (Dept. C) `3,600; Net Loss after adj. `4,744]

Ques.15 Fairways Limited is a retail organization with several departments. Goods supplied to each departmentare debited to a memorandum departmental stock account at cost, plus a fixed percentage (mark-up) togive the normal selling price. (The mark up is credited to a memorandum departmental 'Markup account",any reduction in selling prices (mark down) will require adjustment in the stock account and in mark upaccount. The mark up for Department A for the last three years has been 40%.

Figures relevant to Department A for the year ended 30th June 1998 were as follows:Stock 80,000Purchases, at cost 1,80,000Sales 3,20,000

It is further ascertained that:(1) Goods purchased in the period were marked down by `1,400 from a cost of `16,000. Marked down

stock costing `4,000 remained unsold on 30th June, 1998.(2) Stock shortage at the year end, which had cost `1,200, were to be written off.(3) Stock at 1st July, 1997 including goods costing `8,200 had been sold during the year and had been

marked down in the selling price by `740. The remaining stock had been sold during the year.(4) The departmental closing stock is to be valued at cost subject to adjustments for mark up and mark

down.You are required to prepare:

(a) A Departmental Trading Account for Department A for the year ended June, 1998 in Head Office books:(b) A Memorandum Stock Account for the year;(c) A Memorandum Mark up Account for the year.[Ans.Closing Stock `40,530; Net Profit `90,150]

Ques.16 X Ltd has two departments A and B. From the following particulars prepare the consolidated TradingAccount and Departmental Trading Account for the year ending 31st December, 1998:

A B

Opening Stock (at cost) `20,000 `12,000Purchases 92,000 68,000Sales 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 informedthat purchased goods have been transferred mutually at their respective departmenta

purchase 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.[Ans.Net Profit `82,304]

Ques.17 Rohit limited has three departments A, B and C. The following particulars are given to you:A B C

Opening Stock (1.1.2000) 80,000 60,000 1,40,000Purchases 1,18,000 2,14,000 1,92,500

Actual Sales 1,20,000 2,08,000 2,80,000G.P. on normal Selling price 25% 20% 10%


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During the year certain items were sold at discount/extra premium and these discounts/premium werereflected in the values of sales shown above. The items sold at discount/premium were:

Deptt. A Deptt . B Deptt . C

Sales at Normal Prices `20,000 `30,000 `40,000Sales at Actual Prices 15,000 38,000 30,000

During the year, there was serious fire in the godown of Deptt. B destroying the following:Material (out of stock purchased) = `4,000 (at cost)Finished Goods = `5,500 (at normal selling price).You are required to compute:(a) The value of stock on 31

stDecember 2000; and

(b) The departmental trading results.[Ans.Closing Stock = `1,04,250 (A), `1,05,600 (B), `71,500 (C); Gross Profit = `26,250 (A), `48,000 (B)`19,000 (C)]

Ques.18 You are given the following particulars of a business having three departments:Department Purchases Opening Stock Closing Stock

A 1,500 units 200 units 100 unitsB 1,000 units 300 units 160 unitsC 2,000 units 150 units 200 units

Additional Information:(i) Purchases were made at a total cost of `92,000.

(ii) The percentage of gross profit on turnover is the same in each case.(iii) Selling price per unit:

Department `A 20B 25C 30

You are requiredto prepare Department Trading Account.[Ans.Gross Profit = `6,400 (A), `5,700 (B), `11,700 (C).]

Ques.19 The following Trial Balance for the year ended 31stMarch 2001 is extracted from the books of Sh. Bikram

Singh:Debit Credit

Capital on1-4-2000 50,000

Drawings Account 10,000Stock on 1-4-2000:

Radio 45,000Watches 21,000

Sales:Radio 2,94,000Watches 1,46,000

Purchases:Radio 2,25,000Watches 1,15,000

Salaries 12,600Publicity Expenses 8,900Rent, Rates and taxes 3,200

Commission 10,600Miscellaneous Expenses 5,000Furniture and Fixtures 12,400Sundry Debtors 16,8004% Government of India Loan 10,000Sundry creditors 8,800Interest 400Reserve for Bad and Doubtful debts 800Cash Balance 4,500

5,00,000 5,00,000


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Preparethe Departmental Trading and Profit and Loss Account for the year ended 31stMarch 2001, after

taking into account the following:(i) The stock as on 31

stMarch, 2001 was:

Radio 30,000Watches 24,000

(ii) An amount of `1,200 from out of sundry debtors has to be written off as bad and the provision fordoubtful debts has to be increased there after to 10 per cent of the debts outstanding.(iii) The following expenses are outstanding as on 31

stMarch, 2001

Publicity `1,300Salaries 1,200Commission 1,700

(iv) Provide 10 per cent depreciation on Furniture and Fixtures.(v) Revenue items to be allocated in the ratio of 2:1 as between Radios and Watches.Ignore fractions of a Rupee in calculations.[Ans.Net Profit `40,700 & Balance Sheet `93,700.]

Ques.20 Mr. Jai and Veeru besides doing graduation also sell two products manufactured in the factory ownedby them on partnership. The goods are made in two departments A and B for which separate accounts aremaintained. Some of the goods manufactured by department A are used as raw materials by department Band vice versa. From the following particulars, you are required to ascertain the total cost of goodsmanufactured in department A and B.

Deptt. A Deptt . BTotal units manufactured 10,00,000 5,00,000Total cost of manufacture `10,000 `5,000[Excluding Inter Departmental transfers]

It is also given that during the year department A transferred 2,50,000 units to department B and the lattertransferred 1,00,000 units to the former. These are already included in the total units manufactured givenabove.

Also calculate the gross profit and sales if the normal G.P. margin is 20% on sales for both departments.[Ans.Cost = `8,684 (A), `6,316 (B) Gross Profit = `2,171 (A), `1,579 (B).]

Ques.21 On the basis of the following trial balance and additional information provided to you thereafterprepare departmental trading account and general profit and loss account for the year ended 31

stMarch

2008 and balance sheet as at that date:

TRIAL BALANCE AS AT 31st

MARCH, 2008Debit Credit

Capital account --- `5,00,000Land and building `3,70,000 ---Furniture 90,000 ---Opening stock:

Department A 1,20,000 ---Department B 2,40,000 ---

Purchases:Department A 12,00,000 ---Department B 17,00,000 ---

Sales:Department A --- 20,00,000

Department B --- 32,00,000General expenses 14,00,000 ---Debtors 2,10,000 ---Creditors --- 1,00,000Drawings 2,80,000 ---Bank 1,90,000

58,00,000 58,00,000Addi tional informat ion:

(i) Closing stock of Department A is `1,80,000 which includes goods purchased from Department B andinvoiced at `60,000. Department- B transfers goods to Department A at cost plus 20%.


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(ii) Closing stock of Department B is `2,60,000 which includes goods transferred by Department- A at aninvoice price of `1,50,000 which is arrived at by Department A by adding 25% to the cost of the goods.(iii) Sales of Department-A and Department B include goods transferred to the other department at`3,00,000 and `4,00,000 respectively.(iv) Addition made to land & Building on 1-07-2007 amounted to `1,25,000.(v) Sale proceeds of Furniture amounted to `12,000 credited to Furniture a/c. The book value on 1-4-2007was `8,000 & furniture was sold on 1-10-2007.(vi) Depreciation is to be provided on land and building @ 8% per annum and on furniture @ 10% per

annum.[Ans. Balance Sheet `12,27,500; Net Profit `9,07,500]

Ques.22 Big Apples Ltd. is a retail store operating two departments. The company maintains a memorandumstock account and memorandum mark up account for each of the departments. Supplies issued to thedepartments 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 departmentsis credited to the mark up account for the department. When it is necessary to reduce the selling pricebelow the normal selling price, i.e. cost plus mark-up, the reduction (mark down) is entered in thememorandum stock account and in the mark up account. Department Y has a mark up of 25% on cost,and Department Z 33-1/3% on cost. The following information has been extracted from the records ofSouthern Store Ltd. for the year ended 31

stDecember 1988:-

Department Y Department Z

Stock, 1stJanuary, 1988 at cost `24,000 `36,000Purchases 1,62,000 1,92,000Sales 2,10,000 2,85,000

The stock of department Y at 1st January 1988 includes goods on which the selling price has been

marked down by `800. These goods were sold in January, 1988 at the reduced price.Certain goods purchased in 1988 for `2,700 for department Y, were transferred during the year toDepartment Z, and sold for `3,600. Purchase and sale are recorded in the purchases of department Yand the sales of department Z respectively, but no entries in respect of the transfer have been made.Goods purchased in 1988 were marked down as follows:-

Department Y (`) Department Z (`)Cost 8,000 21,000Mark down 800 5,000

At the end of the year there were some items in the stock of department Z, which had been marked

down to`4,800. With this exception all goods marked down in 1988 were sold during the year at the

reduced prices.During stock taking at 31

stDecember 1988 goods which had cost `400 were found to be missing in the

department Y. It was determined that the loss should be regarded as irrecoverable.The closing stocks in both departments are to be valued at cost for the purpose of the annual accounts.You are requestedto prepare for each department for the year ended 31

stDec.1988:-

a trading accounta Memorandum Stock Account anda memorandum Mark up Account.[Ans.Closing Stock: Y `17,025; Z `18,643 & Profit: Y `40,720; Z `68,282]

Ques.23 Vishal mega mart Limited has three departments. They are Alpha, Beta and Gamma. The profits of thesedepartments are `25,000, `45,000 and `30,500 respectively (before charging manager's commission) and

unrealized profit on stock transfers.Department Alpha transfers its goods @ 25% profit on cost to other departments while Beta transfers itsgoods @ 20% profit on cost. However, department Gamma transfers its goods @ 33 1/3% of Transfer priceto other departments. However, respective Dept.'s original goods are only transferred. On Scrutiny ofrecords you find.

(i) Sale made for Alpha Dept. `10,000 has been credited to Beta Dept. Account.(ii) Goods sent on 'Sale or return basis' by Beta Dept. @ 125% have been recorded as regular Sale at

`12,000.(iii) General expenses amounting to `2,100 have been excessively charged in Gamma Dept. instead of Beta

Dept.(iv) The following transfers were made:


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Dept. Alpha To Beta `24,000 (`12,000 still in closing stock)To Gamma ` 3,600

Dept. Beta To Gama `11,000 (`4,400 still in closing stock)Dept. Gamma To Alpha ` 7,700 (`3,000 still in closing stock)

(v) Commission payable to the Manager @ 10% on correct overall Company profit after charging suchcommission.Findcorrect Net Profit of the Company and the commission payable to the General Manager.[Ans.Net Profit `85,425; Commission `8,542.]

Ques.24 Mehul is earning uniform rate of gross profit in all three departments he is handling. Following are therelevant details:Purchases: Department: A 15,000 cartons

Department: R 20,000 cartonsDepartment: Z 15,000 cartons

The total cost of the purchases amounted to `6,00,000.

Sales: Department: A 16,000 cartons @ `20 Per cartonDepartment: R 22,000 cartons @ `15 Per cartonDepartment: Z 17,000 cartons @ `10 Per carton

Opening Stock: Department: A 15,000 cartonsDepartment: R 20,000 cartonsDepartment: Z 15,000 cartons

Preparethe trading account for three departments in a columnar form. Also show the working in respect ofthe following:

(a) Gross Profit (%) assuming that there is no stock situation(b) Departmental- wise purchase price and value: and(c) Valuation of opening and closing stocks. [C.A. (Inter) Nov., 2002]

[Ans.G. P. Ratio 20%; Gross Profit `64,000; `66,000 & `34,000]

Ques.25 A firm had two departments, cloth and readymade clothes. The readymade clothes were made by thefirm itself out of cloth supplied by the cloth department at its usual selling price. From the following figurespreparethe Departmental Trading and Profit and Loss Accounts for the year ended 31st March, 2001:

Cloth Department Readymade Clothes

Opening Stock on 1stApril, 2000 3,00,000 50,000

Purchases 20,00,000 15,000

Sales 22,00,000 4,50,000Transfer to Readymade Clothes department 3,00,000 ---Expenses - Manufacturing --- 60,000

Selling 20,000 6,000Stock on 31

stMarch,2001 2,00,000 60,000

The stocks 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% in 1999 - 2000. GeneralExpenses of the business as a whole came to `1,01,000.[Ans.`3,56,425]

Ques.26 The Z Ltd. has three departments and submits the following information for the year ending on 31stMarch, 2009:

A B C Total

Purchases (Units) 6,000 12,000 14,400Purchases (Amounts) 6,00,000Sales (Units) 6,120 11,520 14,976Selling Price (per unit) `40 `45 `50Closing Stock (Units) 600 960 36

You are required to preparedepartmental trading account of Z ltd., assuming that the rate of Profit onsales is the uniform in each case:

[C.A. P.C.C June 2009][Ans.G.P. Ratio 60%; G.P. `1,46,880; `3,11,000; `4,49,280 ]


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Ques.27 Brahma Limited has three departments and submits the following information for the year ending on 31s

March, 2011:

Particulars A B C Total (`)

Purchases (units) 5,000 10,000 15,000

Purchases (Amount) 8,40,000

Sales (units) 5,200 9,800 15,300

Selling price (`per unit) 40 45 50

Closing Stock (Units) 400 600 700

You are required toprepare departmental trading account of Brahma Limited assuming that the rate of

profit on sales is uniform in each case. [CA IPCC May, 2011] [Ans.Department Gross Profit A - `83,200; B - `1,76,400; C - `3,06,000]

Ques.28 Department A sells goods to Department B at a profit of 50% on cost and to Department C at 20% oncost. Department B sells goods to A and C at a profit of 25% and 15% respectively on sales. Department Ccharges 30% and 40% profit on cost to Department A and B respectively.

Stock lying at different departments at the end of the year are as under:Department A Department B Department C

` ` `Transfer from Department A 45,000 42,000Transfer from Department B 40,000 72,000Transfer from Department C 39,000 42,000

Calculatethe unrealized profit of each department and also total unrealized profit.(4 marks) [CA IPCC May 2013]