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Departmental Accounting

CA/CMA Santosh Kumar

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Departmental Accounting

CA/CMA Santosh Kumar

DEPARTMENTAL ACCOUNTING Question:1

From the following figures prepare accounts to disclose total profit and the profit of the two departments. X and Y : Rs. Rs. Opening Stock : X 15,200 Sales : X 1,00,000 Y 10,800 Y 80,000 Purchase : X 75,100 Purchase Returns : X 1,100 69,800 Y Y 800 Carriage inwards 2,860 Salaries : 9,000 Discount Received X 1,430 8,500 Y General (Salaries) 11,600 Rent and Rates 6,000 Advertising 8,100 Insurance 1,000 General Expenses 5,400 Discount Allowed 1,800 500 Accountancy charges The following Further information is supplied: (a) Goods transferred from department X to Y were Rs. 5,000. This has not been recorded. (b) General salaries are to be allocated equally. (c) Allocate carriage inward and discount received on suitable basis. (d) The area occupied is in the ratio of 3: 2. (e) Insurance premium is for a comprehensive policy, allocation being inconvenient. (f) The closing Stocks of the two departments were: X, Rs. 17,800 and Y, Rs. 15,600. (g) Allocate Advertising, General Expenses and Discount Allowed in the ratio of Sales. ( BAHUT HI AASAN QUESTION)

Question:2 Green & Co, has two departments P and Q. Department P Sells goods to Department Q at normal selling prices. From the following particulars prepare Departmental Trading and Profit & Loss Account for the year ended 31-3-1994 and also ascertain the Net Profit to be transferred to Balance Sheet. Particulars Department P Rs, Department Q Rs, Opening stock 1,00,000 Nil Purchases 23,00,000 2,00,000 Goods from Department P --------7,00,000 Wages 1,00,000 1,60,000 Traveling expenses 10,000 1,40,000 Closing stock at cost to the Dept. 5,00,000 1,80,000 Sales 23,00,000 15,00,000 Printing and stationary 20,000 16,000 The following expenses incurred for both the departments were not apportioned between the departments: (a) Salaries Rs. 2,70,000 (b) Advertisement expenses Rs. 90,000 (c) General expenses Rs. 8,00,000 (d) Depreciation @ 25% on the machinery value of Rs, 48,000. Advertisement expenses are to be apportioned in the turnover ratio, salaries in 2 : 1 ratio and depreciation in 1:3 ratio between the departments P and Q General expenses are to be apportioned in 3 : 1 ratio. (TYPICAL QUESTION BUT ……………………………………..)

(CA-1994 May, 20 Marks)

Question:3 From the following balance extracted from the books of Lux cozi , Prepare Departmental Trading st Account and General Profit & Loss Account for the year ended 3 1 October, 2001 and a Balance Sheet as on that date after adjusting the unrealized departmental profits if any:-

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Departmental Accounting

CA/CMA Santosh Kumar Dr,

Capital Land & Building Furniture Opening stock Purchases Sales

( Rs,)

Cr,

{ Rs,) 3,00,000

Dept, A Dept, B Dept, A Dept, B Dept, A Dept, B

General Expenses Sundry Debtors Sundry Creditors Drawings Cash & Bank Total

1,25,000 25,000 30,000 40,000 10,00,000 15,00,000 20,00,000 32,00,00 14,00,000 2,00,000 1,00,000 2,80,000 10,00,000 56,00,000

56,00,000

Additional information: 1. Closing stock of Dept A Rs. 1,30,000 including goods from dept B Rs. 40,000 at cost to Dept A and Dept B Rs. 2,60,000 including goods from Dept A Rs. 90,000 at cost to Dept B. 2. Sale of Dept A include transfer of goods to Dept B of the value of Rs. 2,00,000 and sales of Dept B include transfer of goods to Dept A of the value of Rs. 3,00,000 both at market price to transferor Depts. 3. Opening stock of Dept A and Dept B, includes goods of the value of Rs. 10,000 and Rs. 15,000 taken from Dept B and Dept A respectively at cost to transferee Dept. 4. Depreciate Land & building by 5% and furniture by 10% p.a. (ICWA-INTER- 16 MARKS), (CA- PE 2- 16 marks) Question:4 A Company manufacturing electronic components operates with Departments. Transfers are made between the departments of both purchased goods and manufactured finished goods. Goods purchased are transferred at cost and manufacturing goods are transferred only at selling price as is the case with open market. Transactions for the year ended 30th June, 2017 are given below: Particulars Dept. X Rs. Dept. Y Rs. Opening stock 20,000 15,000 Sales 1,90,000 1,35,000 Wages 12,500 7,500 Purchases 1,00,000 80,000 Closing stock: Purchased goods 2,000 5,000 7,000 8,000 Manufactured goods The following were the transfers From Dept. X to Dept. Y :- purchased goods Rs. 6,000 and Finished goods Rs. 20,000 and from Dept. Y to Dept. X :- Purchased goods Rs. 5,000 and finished goods Rs. 35,000. Stocks were valued at cost to the Dept. concerned. Only in closing stock of manufactured goods in the Dept, transferred finished goods are 20% th Draw out Departmental Trading Account and the General P/L Account for the year ended 30 June. 2017. Question:5

Calculate stock Reserve. A,B,C are three departments: Content Ratio Profit Ratio Closing stock A Nil ¼ of sales 15,000 B 2/10 1/5 of cost 22,000 C 5/15 not available 40,000 Assume A sales to B and B sales to C. (Ans: Stock reserve 3878)

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COC Question:6

Departmental Accounting

CA/CMA Santosh Kumar

Calculate stock Reserve. A,B,C,D are four departments: Content Ratio Profit Ratio Closing stock A Nil 1/10 of cost 40,000 B 7/15 ¼ of cost 50,000 C D

8/20 1/6 on sales 70,000 6/24 1/10 of sales 80,000 Assume A sales to B, B sales to C and C Sales to D. (Ans: 13563) ( KUCHH ACHCHHA SA FEEL HO RAHA HAI, PATA NAHI KYON ?)

Question:7 31.3.2004:

FGH Ltd. has three departments I.J.K. The following information is provided for the year ended

Opening stock Opening reserve for unrealized profit Material Direct Labour Closing stock Sales Area occupied (Sq.mtr.) No. of employees

I Rs. 5,000 …… 16,000 9,000 5,000 ……. 2,500 30

J Rs. 8,000 2,000 20,000 10,000 20,000 ……. 1,500 20

K Rs. 19,000 3,000 …… …… 5,000 80,000 1000 10

Stock of each department are at cost to the department concerned. Stock of dept. I are transferred to Dept. J at cost plus 20% and stock of J are transferred to K at a gross profit of 20% on sales. Other common expenses are Salaries and Staff Welfare Rs.18,000 ,Rent Rs. 6,000. Prepare Departmental Trading, profit and Loss Account for the year ending 31.3.2004. (CA-IPCC, CMA-INTER)

Question:8 A firm had two departments, cloth and readymade clothes. The clothes were made by the firm it sells out of cloth supplied by the cloth department at its usual selling price. From the following figures prepare departmental st Trading and Profit & Loss accounts for the year ended 31 March, 2017:Cloth Department

Readymade clothes

Rs. Rs. st Opening stock on 1 April, 2016 3,00,000 50,000 Purchases 20,00,000 15,000 Sales 22,00,000 4,50,000 Transfer to Readymade Clothes Department 3,00,000 Expenses—Manufacturing 60,000 Selling 20,000 6,000 st Stock on 31 march, 2017 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 2015-16. General expenses of the business as a whole came to Rs. 1,10,000. (CA- Inter- 12 marks) Question:9

Complex Ltd. has three departments A, B and C the following information is provided;Particulars A B C Rs. Rs. Rs. Opening stock 3,000 4,000 6,000 Consumption of Direct Materials 8,000 12,000 Wages 5,000 10,000 Closing Stock 4,000 14,000 8,000 Sales 34,000 Stocks of each department are valued at cost to the department concerned. Stocks of A department are transferred to B at a margin of 50% above departmental cost. Stocks of B department are transferred to C department at a margin of 10% above departmental cost. Other expenses were:

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Departmental Accounting

CA/CMA Santosh Kumar

Salaries = Rs. 2,000 Printing & Stationary Rs. 1,000 Rent Rs. 6,000 Interest paid Rs. 4,000 Depreciation Rs. 3,000 Allocate expenses in the ratio of departmental gross profit. Opening figures of reserves for unrealized profit on departmental stocks were : Department B: Rs. 1,000 Department C: Rs. 2,000 Prepare Departmental Trading and Profit & Loss a/c. (CMA- Inter 16 marks) Question:10 X Ltd. has two departments A and B. Form the following particulars prepare the consolidated Trading st Account and Departmental Trading Account for the year ending 31 December, 2002 A B Rs. Rs. Opening Stock (at cost) 20,000 12,000 Purchases 92,000 68,000 Sales 1,40,000 1,12,000 Wages 12,000 8,000 Carriage 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 10,000 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 purchase cost and finished goods at a profit of 25% over dept. cost and that 20% of the finished stock (closing) at each department represented finished goods received from the other department. (ICWA-INTER 16 MARKS) Question:11 Telerad & Co. has two departments A and B. From the following particulars, Prepare Departmental st Trading Account and Consolidated Trading Account for the year ending on 31 March, 2002 Department A (Rs.) Department B (Rs.) Opening stock (at cost) 1,00,000 60,000 Purchase 4,60,000 3,40,000 Carriage inward. 10,000 10,000 Wages 60,000 40,000 sales (excluding inter-transfer) 7,00,000 5,60,000 Purchased goods transferred; By B to A 50,000 By A to B 40,000 Finished goods transferred: By B to A 1,75,000 By A to B 2,00,000 Return of finished goods: By B to A 50,000 By A to B 35,000 Closing Stock: Purchased goods 22,500 30,000 Finished goods 1,20,000 70,000 Purchased goods have been transferred at their respective departmental purchase cost and finished goods at departmental market price. 20% of finished stock (closing) at each department represented finished goods received from the other department. (CA –Inter 1993-may)15 Marks CONCEPTONLINECLASSES.COM Ph. No. 0120-4225005/4/3 OR 7303445575, 8448322142, 9999631597

COC

Departmental Accounting

CA/CMA Santosh Kumar

Ans.: Departmental trading account Particulars Deptt. A Deptt. B Particulars Dept. A To opening stock 1,00,000 60,000 By Sales 7,00,000 To purchases 4,60,000 3,40,000 By inter-Deptt. Transfer To Inter-Deptt. Transfer: Purchased goods 40,000 Purchases goods 50,000 40,000 Finished goods 2,00,000 Finished goods 1,75,000 2,00,000 Less: Stock Reserve 50,000 Less: Returns 35,000 50,000 1,50,000 1,40,000 1,50,000 By Closing Stock Purchased goods 22,500 To Carriage inward 10,000 10,000 Finished Goods 1,20,000 To Wages 60,000 40,000 To Gross Profit 2,12,500 2,10,000 10,32,000 8,50,000 10,32,000

(2)

Deptt A Rs.

Rate of Gross profit Sales (excluding inter-departmental transfers) Inter-departmental transfer

Sales and Transfer

7,00,000 1,50,000 8,50,000

(4)

(5)

30,000 70,000

8,50,000

5,60,000 1,40,000 7,00,000

2,12,500 x 100

Deptt. A 20%

50,000 1 75,000 35,000 1,40,000

Deptt B Rs.

8,50,000 = 25% (3) Content Ratio Given in Question

Dept. B 5,60,000

2,10,000 x100 7,00,000 = 30%

Deptt B 20%

Stock Reserve Deptt. A Closing Stock A x Content Ratio A x profit Ratio B 1,20, 000 x 20% x 30% =7,200 Deptt. B Closing Stock B x Content Ratio B x profit Ratio B 14,000,x 20% x 25% =3,500 Gross profit of Deptt. A 2,12,000 Gross profit of Deptt B 2,10,000 4,22,500 Less: Stock Reserve 10,700 Consolidated Gross profit 4,11,800

Question:12 In the month of January, 1990 the following purchases were made by a business house having three departments: Department A 1,000 units Department B 2,000 units at a total cost of Rs. 1,00,000. Department C 2,400 units st Stock on 1 January were: Department A 120 units Department B 80 units Department C 152 units The sales for the month were: Department A 1,020 units at Rs. 20.00 each Department B 1,920 units at Rs. 22.50 each Department C 2,496 units at Rs. 25.00 each The rate of Gross Profit is the same in each case. Prepare Departmental Trading Accounts.

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Departmental Accounting

Answer. Particulars

CA/CMA Santosh Kumar

Departmental Trading Account for the ending on December 31-1-1989 A Dept. B Dept. C Dept. Total Particulars A Dept. B Dept. C Dept. Rs. Rs. Rs. Rs.

Total

To Stock 1,920 1,440 3,040 6,400 By Sales 20,400 43,200 62,400 1,26,000 To Purchase 16,000 36,000 48,000 1,00,000 By 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 1,31,600 Total 22,000 46,080 63,520 1,31,600 In this case, it is assumed that the cost of goods was same in earlier year also as in the current year and so the valuation of opening stock has made at same price. Working Notes: 1Closing Stock of Deptt. A = Opening Stock + Purchase – Sales value of closing stock = 120+1,000-3,020= 100 units 100 unit @ 16.00 = 1600 2 Closing Stock of Deptt. B = 80 + 2,000 - 1,920 = 160 units 160 unit @- 18.00 = 2880 3 Closing Stock of Deptt. C = 152 + 2,400 - 2,496 = 56 units 56 unit @. 20.00 = 1120 4

The rate of gross profit; Assuming all the purchase are sold, the sale-proceeds would be;

A 1,000 units @ Rs. 20.00 B 2,000 units @ Rs. 22.50 C 2,400 units @Rs. 25.00 Total Sales Total Profit = Total Sales - Total Cost = Rs. 1,25,000 - Rs. 1,00,000 = Rs.25,000 GROSS PROFIT RATIO WITH SALES = Rs.25,000/ 1,25,000 x 100-20% For each article the profit and cost: S. P. Profit (Rs.) A Rs. 20.00 (20.00x20/100) 4.00 B Rs. 22.50 (22.50x20/100) 4.50 C

Rs. 25.00

(25.00x20/100)

5.00

20,000 45,000 60,000 1,25,000

Cost Rs (S. P-profit) 16.00 18.00 20.00

Question:13

Becket & Co Purchased goods for its three departments as follows: Department: X 4,000 Units Department: Y 9,000 Units Total Cost Rs. Department: Z 4,000 Units 1,10,000 Sales of three departments were as follows: Department: X 3,600,Units @ Rs. 7.50 per unit Department: Y 9,800 Units @ Rs. 9.00 per unit Department: Z 3,650 Units @ Rs. 13.50 per unit Opening Stock as on 01-01-2002 was as follows: Department: X 200 Units Department: Y 1,400 Units Department: Z 150 Units st Assuming that the gross profit ratio is uniform in all the three departments, prepare trading A/c for the year ended 31 December 2002. (CMA- INTER , IPCC Group 2) Ans. Gross Profit GP Ratio

X 9000 33.33% as Sale

Y 29,400 Z 16,425

Question 14. A Ltd. has a factory which has two manufacturing departments X and Y. Part of the output of X Department is transferred to Y Department for further processing and the balance is directly transferred to the Selling Department. Inter-departmental stock transfers are made as follows: X Department to Y Department of 33 1/3 % over-departmental cost. X Department to Selling Department of 50% over-departmental cost. CONCEPTONLINECLASSES.COM Ph. No. 0120-4225005/4/3 OR 7303445575, 8448322142, 9999631597

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Departmental Accounting

CA/CMA Santosh Kumar

Y Department to Selling Department of 25% over-departmental cost. The following information is given for the year ending 31st March, 1986: Particulars Department X Department Y MT Opening Stock Raw Material Consumption Labour Charges Sales Closing Stocks

60 90 -

Rs.

MT

Rs.

MT

Rs.

60,000 1,00,000 50,000

20 20 50

40,000 20,000 80,000 -

50 60

1,45,000 -

30

Selling Department

-

5,00,000 -

Out of the total production in X Department, 30 MT were transfer to the Selling Department. Apart from these stocks which were transferred during the year the balance output of X Department were for transfer to Y Department. The per tonne material and labour consumption in X Department on production to be transferred directly to the Selling Department is 300 per cent of the labour and material consumption on production meant for Y Department. (i) Prepare Departmental Profit and Loss Account, and (ii) General Profit and Loss Account ignoring material wastages. [CA Inter Nov., 1976 & Nov., 1981, adapted] RECTIFICATION OF ERROR QUESTION 15. Department X sells goods to Department Y at a profit of 25% on cost and to Department 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 to Department X and Y respectively. Department Managers are entitled to 10% commission on net profit subject to unrealized profit on Departmental sales being eliminated. Departmental profits after charging Managers' commission, but before adjustment of unrealized profit are as under: Department X Rs. 36,000 Department Y Rs. 27,000 Department Z Rs. 18,000 Stock lying at different departments at the end of the year are as under: Dept. X Rs. Dept. Y Rs. Dept. Z Rs. Transfer from department X Transfer from department Y Transfer from department Z

......... 14,000 6,000

15,000 …….. 5,000

11,000 12,000 ……..

Find out the correct Departmental profits after charging managers’ commission. (PE2, Nov 2001- 8 marks, (CMA Inter, IPCC Group 2)) Answer: Calculation of correct Profit Department X Rs...