5.2. DEPARTMENTAL ACCOUNTS
5.2. DEPARTMENTAL ACCOUNTS
Introduction : Introduction :
Departmental Accounts helps in identifying the performance of each department. Each Departmental Accounts helps in identifying the performance of each department. Each department is considered to be an Activity Centre. It is a tool which helps management in department is considered to be an Activity Centre. It is a tool which helps management in decision-making.
decision-making. Departm
Departm entation ofentation offefers the rs the folfollowing advantlowing advant agesages —— a.
a. PrProper Allocaoper Allocationtion :: Expenses that relate to a particular department are estimated on anExpenses that relate to a particular department are estimated on an exac
exact basis. Hence, ct basis. Hence, cost and ost and profits of eacprofits of each dh d epartmepartm ent is estimated ent is estimated more more accaccuraturat ely.ely. b.
b. CControntrolol :: AvailabiAvailabilility of separatty of separat e cost and e cost and profit fiprofit figurgur es for eaces for each h depdep artmartm ent facient facililitatestates control. Proper control and fixation of responsibility is easier.
control. Proper control and fixation of responsibility is easier. c.
c. PrProper absoroper absorptionption :: The procesThe processing times of sing times of diffdifferent prerent pr oduodu cts icts in dn d ififfeferent drent d epartmepartm entsents may vary. Specific cost analysis on a department-wise basis facilitates scientific cost may vary. Specific cost analysis on a department-wise basis facilitates scientific cost absorption and cost assignment. This provides the right platform for product- pricing absorption and cost assignment. This provides the right platform for product- pricing d
d eciecisions also.sions also. Ba
Bases of Appointment of Eses of Appointment of Expensesxpenses :: N
N aattuurre e oof f EExxppeennssee TTrreeaattmmeenntt EExxaammpplleess W h e n a c e r t a i n e x p e n s e i s
W h e n a c e r t a i n e x p e n s e i s s pe ci fi ca ll y
sp ec i fi ca ll y incurredincurred for onefor one departm
departm ent, ient, it should bet should be chargedcharged in full
in full to that departm ent onlyto that department only..
•• DeDeprecpreciaiatition of on of machimachinery onery onn value of machinery;
value of machinery;
•• IInsurancnsurance oe on stn stocock on k on the vthe valalueue of stock. of stock. S Sh a r e d h a r e d C o m m o nC o m m o n Expenses Expenses When
When benefits of benefits of certain expensescertain expenses a r e e x p e n s e s s h a r e d b y a l l a r e e x p e n s e s s h a r e d b y a l l departments and are capable of departments and are capable of precise allocation,
precise allocation, they shouldthey should be
be appapp ortioned ortioned to to all depall dep art- art-ments on an
ments on an appropriate andappropriate and equitable basis.
equitable basis.
•• RRe n t ie n t is a p p o rs a p p o rt it io n eo n ed b a s ed b a s ed o nd o n Floor Space occupied by each Floor Space occupied by each department. department. •• LLi gi gh t i n g h t i n g EEx p e n sx p e n se s e s i si s a p p o r t i o n e d b a s i s o f o n t h e a p p o r t i o n e d b a s i s o f o n t h e nu
nu mber of limber of light pght p oints (oints (or) on theor) on the basis of fl
basis of floor aroor ar ea.ea.
•• CantCanteeeen subsn subsidy oidy on the bn the basiasis os of f No. of workers.
No. of workers. Ge
Geneneraral l EExxpenpensesess Common Common eexxpepensnses es whiwhicch h araree nono tt c ap ab le c ap ab le o f o f a cca ccur aur at ete a p p o r t i o n m e n t a p p o r t i o n m e n t t o v a r i o u st o v a r i o u s d e p a r t m e n t s a r e d e a l t w i t h d e p a r t m e n t s a r e d e a l t w i t h judiciously,
judiciously, based on facts andbased on facts and circ
circumum stanstan ces of ces of each case.each case.
•• A d m i n iA d m i n is t rs t ra t ia t io n E xo n E xp e n s ep e n s es l is l ik ek e Offic
Office e Salaries Salaries mm ay ay bebe apportioned equally among all apportioned equally among all d e p a r t m
d e p a r t m e n t s o r e n t s o r a l t ea l t er n a t i v e lr n a t i v e lyy debited
debited to General P&L Acto General P&L Account.count. •• SSe le ll il in g n g a n d a n d D iD is t r is t r ib u t i ob u t i onn Expenses may be apportioned Expenses may be apportioned based on Sales ratio.
based on Sales ratio. Specific Charge
Specific Charge
Int
Inter-er-DD eparepartmental tmental TrTransferansfer :: 1.
1. Methods o f TrMethods of Transfer ansfer PrPricingicing :: Transfers made by one department to another may beTransfers made by one department to another may be recorded either at (a) Cost or (b) Market Price or (c) any other appropriate method e.g. recorded either at (a) Cost or (b) Market Price or (c) any other appropriate method e.g. Cost + Agreed Profi
2
2.. AcAccocountuntinging ::When transfers are made, their value should be credited as Income of theWhen transfers are made, their value should be credited as Income of the Transfe
Transferring Deparring Depa rtmrtm ent and ent and debited as cost of debited as cost of the Recthe Recipient Departmipient Departm ent. When pent. When p rofirofit ist is ad
ad ded ded in the inter-in the inter-depdep artmartm ental transfers, ental transfers, the loading (unrealisethe loading (unrealised pd p rofirofit) it) included ncluded in thein the Closing Stock should be reversed, by debiting the General P&L Account and crediting Closing Stock should be reversed, by debiting the General P&L Account and crediting Stoc
Stock Reserve Accounk Reserve Accoun t.t. Illustr
Illustratations 1ions 1 :: S
Snow White Lnow White Ltd has twtd has tw o departmo departm entsents —— CloCloth and th and ReReadymadym ade Cloade Clothes. thes. ReReady Madady Mad e Cle Clothesothes are m
are m ade by tade by t he Firm itselhe Firm itself out of cf out of cloth suploth sup plied by thplied by th e Cloth Departme Cloth Departm ent at its usuent at its usu al selal sellilingng pr
pr icice. Fe. From throm th e fe follollowing figures, preparowing figures, prepar e Departme Departm ental Trading and ental Trading and ProfiProfit and t and LosLoss Acs Accountscounts for the year ended
for the year ended 3131stst MaMarcrchh :: P
Paarrttiiccuullaarrss CCllootth h DD eepptt ReeaR addyymmaadde e CCllootthheess Open
Open ing Sing Stock on 1tock on 1stst AApprriill 33,,0000,,000000 5500,,000000 P
Puu rrcchhaasseess 2200,,0000,,000000 1155,,000000 S
Saalleess 2222,,0000,,000000 44,,5500,,000000
T
Trraannssffeer r tto o RReeaadd yymm aadd e e CCllootthhees s DDeeppaarrttmmeenntt 33,,0000,,000000 —— E
Exxppeennssees s - M- Maannuu ffaaccttuurriinngg —— 6600,,000000 S
Seelllliinngg 2200,,000000 66,,000000
Closing Stock on 31
Closing Stock on 31stst MMaarrcchh 22,,0000,,000000 6600,,000000 The S
The Stock itock in thn th e Ree Readyady madmad e Clothes Departme Clothes Departm ent ment m ay be considered as consistiay be considered as consisting of 75ng of 75%% Cloth and
Cloth and 2525% other expenses. T% other expenses. The Cloth Dephe Cloth Dep artmartm ent earnent earn ed Gred Gr oss Profioss Profit at tht at th e rate of 15e rate of 15%% d
d uu ring tring t he yearhe year . General Expenses of the bu. General Expenses of the bu siness as a wsiness as a w hole came to Rs.1hole came to Rs.1,1,10,0,00000.0. Sol
Solututionion :: D
D eparepartmental Trtmental Trading ading and Prand Profiofi t and Lt and Loss oss A/c for the year endinA/c for the year endin g 31g 31stst March (Rs.)March (Rs.)
Particulars Cloth
Particulars Cloth RMRM Total Total ParParticulars ticulars Cloth Cloth RM RM TotalTotal T
To Oo Opp gg. . SSttoocckk 33,,0000,,000000 5500,,000000 33,,5500,,000000 BBy Sy Saalleess 2222,,0000,,000000 44,,5500,,000000 2266,,5500,,000000 T
To o PPuurrcchhaasseess 2200,,0000,,000000 1155,,000000 2200,,1155,,000000 BBy y TTffrr. . ttoo 33,,0000,,000000 —— 33,,0000,,000000 RM
RM T
To o TTffr r ffrroomm —— 33, , 0000,,000000 33,,0000,,000000 BBy y CClloossiinngg 22,,0000,,000000 6060,,000000 22,,6600,,000000 C
Cllootthh DDeepptt.. SSttoocckk T
To o MMffgg. . EExxpp ss.. 6600,,000000 6600,,000000 T
To o GGrroosss s PPrrooffiitt 44, , 0000,,000000 8855,,000000 44,,8855,,000000 T
Toottaall 2277,,0000,,000000 55,,1100,,000000 3322,,1100,,000000 TToottaall 2277,,0000,,000000 55,,1100,,000000 3322,,1100,,000000 T
To o SSeelllliinng g EExxpp.. 2200,,000000 66,,000000 2266,,000000 BBy y GGrroossss 44,,0000,,000000 8585,,000000 44,,8855,,000000 Profit
Profit T
To o PPrrooffiit t cc// dd 33,,8800,,000000 7799,,000000 44,,5599,,000000 T
Toottaall 44,,0000,,000000 8585,,000000 44,,8855,,000000 TToottaall 44,,0000,,000000 8585,,000000 44,,8855,,000000 T
To o GGeenn. . EExxpp .. 11,,1100,,000000 BBy y PPrrooffiit t bb// dd 44,,5599,,000000 T
To o SSttoocck k RReesseerrvvee 11,,557755 (S
(See Note belowee Note below )) T
To o NN eet t pprrooffiitt 33,,4477,,442255 T
Toottaall 44,,5599,,000000 TToottaall 44,,5599,,000000
Not
No te 1e 1 ::StocStock Reserve to be adk Reserve to be ad dd itionally pritionally pr ovidovid ed is 7,2ed is 7,20000 –– 5,5,62625 = R5 = Rs. 1s. 1,5,57575; c; calculated alculated asas u n
P
Paarrttiiccuullaarrss OOn n OOppg g SSttoocckk OOn n CClloossiinng g SSttoocckk R
Raatte e oof f GGP P oon n SSaallees s iin n CCllootth h DDeepptt GGiivveen n = = 1155%% 44,,0000,,00000 0 ÷ ÷ 2255,,0000,,00000 0 = = 1166%% E
Elleem em ennt t oof f CCllootth h SSttoocck k iinn 7755% % oof f 5500,,00000 0 = = 3377,,55000 0 7755% % oof f 6600,,00000 0 = = 4455,,000000 Readymade Clothes
Readymade Clothes S
Sttoocck k RReesseerrvve e rreeqquuiirreedd 3377,,55000 0 × × 1155% % = = 55,,662255 4455,,00000 0 × × 1166% % = = 77,,220000 to be maintained
to be maintained No
No te 2te 2::In this case, it is possible to ascertain the Reserve already created against UnrealisedIn this case, it is possible to ascertain the Reserve already created against Unrealised Profit in the Open
Profit in the Open ing Stocing Stock. Ik. In thn th e absence of e absence of informinform ation, the Reserve shouation, the Reserve shou ld be calcld be calculatulat ed oned on the d
the d iffiffereneren ce in the Opce in the Op eninenin g ang an d Cd C losing Stocks i.losing Stocks i.e. Re. Rs. 1s. 10,0,00000 i0 in thn th is questis quest ion. Sion. Since the Closingince the Closing S
Stock has increasetock has increased, thd, th e Rese Reserve calcerve calculated ulated wouwou ld be ld be debited debited to P&L A/to P&L A/ c. c. In case of In case of decreasedecrease in S
in Stockstocks, the Re, the Reserve wouserve wou ld be credited to P&L A/ld be credited to P&L A/ c.c. Illust
Illustrratation 2ion 2 :: The T
The Tradrad ing and ing and ProfiProfit & Lt & Loss Acoss Accocounun t of t of BBindas Ltd. for the year endindas Ltd. for the year end ing 31ing 31stst March is asMarch is as u n
u nd ed err :: P
Puurrcchhaasseess RRss.. SSaalleess RRss..
T
Trraannssiissttoorrss ((AA)) 11,,6600,,000000 TTrraannssiissttoorrss ((AA)) 11,,7755,,000000 T
Taappe e RReeccoorrdd eerrss ((BB)) 11,,2255,,000000 TTaappe e RReeccoorrdd eerrss ((BB)) 11,,4400,,000000 S
Sppaarre e ppaarrtts s ffoor r sseerrvviicciinng g aanndd 8800,,000000 SSeerrvviicciinng g aannd d rreeppaaiir r jjoobbss ((CC)) 3355,,000000 rep
rep air job (air job (C)C) S
Saallaarriiees s aannd d ww aaggeess 4488,,000000 SSttoocck k oon n 3311stst M aM ar cr ch Th Tr ar an sn siisst ot or s (r s (A ) A ) 6600,,110000 R
Reenntt 1100,,880000 TTaappe e RReeccoorrdd eerrss ((BB)) 2200,,330000 S
Suunnddrry y EExxppeennsseess 1111,,000000 SpSpaarre e ppaarrtts s ffoor r sseerrvviicciinng g && 4444,,660000 repair jobs
repair jobs N
N eet t PPrrooffiitt 4400,,220000 T
Toottaall 44,,7755,,000000 TToottaall 44,,7755,,000000 Prepar
Prepar e Departme Departm ental Accental Accounoun ts fots for each of the three Departmr each of the three Departm ents A, B ents A, B and and C mentionedC mentioned above af
above after taking into cter taking into consideration the folonsideration the followinglowing :: (a)
(a) TransTransisistors and Tape Retors and Tape Recocorders are solrders are sold at thd at th e Se Showroom. Showroom. Serviervicicing and ng and ReRepairs are cpairs are carriearriedd out at the Workshop.
out at the Workshop.
((b) b) SSalarialaries es and wand w ages ages cocompmp rise rise as fas folollows: lows: SShowroom 3/howroom 3/ 44th and Workshop 1th and Workshop 1// 4t4thh
It was decided to allocate the Showroom Salaries and Wages in ratio 1:2 between It was decided to allocate the Showroom Salaries and Wages in ratio 1:2 between Departm
Departm ents A and Bents A and B..
((c)c) WorkshoWorkshop Rent is Rp Rent is Rs.s.5500 00 per monthper month . S. Showroom howroom ReRent is to be nt is to be divided equally bedivided equally betweentween Departm
Departm ents A and Bents A and B..
So l
So lututi onio n :: D
D eparepartmental P&L tmental P&L Accounts foAccounts fo r r the ythe y ear ear endend ing ing 3131stst MarMarch (Amouch (Amou nt in nt in Rs.)Rs.) P
Paarrttiiccuullaarrss AA BB CC PPaarrttiiccuullaarrss AA BB CC T
To o PPuu rrcchhaasseess 11,,6600,,000000 11,,2255,,000000 BBy y SSaalleess 11,,7755,,000000 11,,4400,,000000 T
To o SSppaarreess 8800,,000000 BBy y SSeerrvviicceess 3355,,000000 T
To o SSaall. . & & WWaaggeess 1122,,000000 2244,,000000 1122,,000000 By By CClloossiinng g SSttoocckk 6600,,110000 2200,,330000 4444,,660000 T
To o RReenntt 22,,440000 22,,440000 66,,000000 BBy y NN eet t LLoossss 1199,,550000 T
To o SSuu nndd rry y EExxppss..** 55,,550000 44,,440000 11,,110000 T
To o NN eet t PPrrooffiitt 5555,,220000 44,,550000 T
Toottaall 22,,3355,,110000 1,,61600,,330000 9999,,110000 TToottaall 22,,3355,,110000 11,,6600,,330000 9999,,110000 N o
N ottee :: SunSun dd ry Expry Exp ensens es are aes are a pppportort ioneione d in d in ththe rate rat io of Turnio of Turn over over (5: (5: 4: 4: 1) 1) i.e. i.e. 1,71,75,5,000000: 1: 1,40,40,00,000:0: 35,000.
35,000. Illustr
Illustratation 3ion 3 :: S
Samuamu drdr a & a & Co, Co, a Partnership a Partnership FiFirm hrm h as three depas three dep artmartm ents viz. ents viz. K, K, L, L, M wM w hich are undhich are und er theer the charge of the Partners B, C and D respectively. The following Consolidated P&L Account is charge of the Partners B, C and D respectively. The following Consolidated P&L Account is gi
given ven bebeloloww ::
P
Paarrttiiccuullaarrss RRss.. PPaarrttiiccuullaarrss RRss.. T
To o OOpp eenniinng g SSttoocckkss ((NN ootteell)) 8811,,889900 BBy y SSaalleess ((NN ootte e 77)) 44,,0000,,000000 T
To o PPuurrcchhaasseess ((NN ootte e 22)) 22,,6655,,770000 BBy y CClloossiinng g SSttoocckkss ((NN ootte e 88)) 8899,,000000 T
To o SSaallaarriiees s aannd d WWaaggeess ((N oN otte e 33)) 4488,,000000 By By DDiissccoouunntts s RReecceeiivveedd ((N oN ottee1100)) 660000 T
To o RReennt t EExxppeennsseess ((NN ootte e 44)) 1100,,880000 T
To o SSeelllliinng g EExxp ep ennsseess ((N oN otte e 55)) 1144,,440000 T
To o DDiissccoou nu nt At Alllloow ew edd ((N oN otte e 55)) 11,,220000 T
To o DDeepprreecciiaattiioonn ((NN ootte e 66)) 775500 T
To o NN eet t PPrrooffiit t ffoor r tthhe e yyeeaarr 6677,,006600 T
Toottaall 44,,8899,,880000 TToottaall 44,,8899,,880000 From the above Acc
From the above Account ount and and the folthe following addlowing add itiitional infonal information, prepare the Depormation, prepare the Dep artmentalartmental P&L
P&L AccAccounoun ts for the year endts for the year end ed 31ed 31stst March -March -1.
1. BBreak reak up up of Opof Op ening ening SStock Deptock Dep artmartm ent ent wwise is: K ise is: K - Rs.- Rs.3737,8,89090; L - R; L - Rs.2s.24,4,00000 and 0 and M - Rs.2M - Rs.20,0,00000.0. 2.
2. Total PuTotal Pu rcharcha ses wses w ere aere a s us u ndnd er: K - er: K - Rs.1Rs.1,40,40,70,700; 0; L - RL - Rs.80s.80,60,600; 0; M - Rs.4M - Rs.44,44,400.00. 3.
3. SSalaries and Walaries and W ages inclages includud e Re Rs. 1s. 12,2,00000 0 ww ages of ages of DepaDepa rtmrtm ent M. The balance ent M. The balance SSalaries shouldalaries should be app
be app ortioned to thortioned to th e three de three d epartmepartm ents as 4:ents as 4:4:4:1.1. 4.
4. Rent is to be apportioned Rent is to be apportioned in the ratio of fin the ratio of floor space which is as 2loor space which is as 2::2:2:5.5. 5.
5. SSellelling Eing Expenses and Discxpenses and Discounoun t Allt Allowed owed are to be are to be appapp ortioned in the ratio ortioned in the ratio of of Turnover.Turnover. 6.
6. DeprecDepreciatiiation on asseton on assets should be equalls should be equally chargey charged to the thrd to the thr ee departments.ee departments. 7.
7. Sales madSales mad e by the by th e thre thr ee dee d epaepa rtmrtm entent s ws w ere: K - ere: K - Rs.Rs.1,1,8080,0,00000; L ; L - R- Rs.1,s.1,3030,0,000 00 anan d d M - Rs.M - Rs.9090,0,00000.. 8.
8. BBreak reak up up of Closing Stock Depaof Closing Stock Depa rtmrtm ent ent ww ise is: ise is: K - 45K - 45,1,10000; L - R; L - Rs.2s.22,2,30300 and 0 and M - Rs.2M - Rs.21,1,60600.0. The Closi
The Closing ng SStock of Departmtock of Departm ent M ent M inclincludud es Rs.es Rs.5,5,70700 goods tr0 goods tr ansferred ansferred from Depfrom Dep artmartm entent K.
K. HowHow ever, ever, Opening StocOpening Stock does not inclk does not includud e any goods transferred from other de any goods transferred from other d epartmepartm ents.ents. 9.
9. DepartmDepartm ents K and L sold goods wents K and L sold goods w orth Rs.orth Rs.1010,7,700 00 and and Rs.Rs.60600 res0 respectivelpectively to Departmy to Departm entent M.
10.
10. DiscDiscounoun ts receits received ved are traceable to Departmare traceable to Departm ents K, L ents K, L and and M as Rs.M as Rs.40400; 0; Rs.Rs.25250 and0 and Rs.1
Rs.150 resp50 resp ectively.ectively. 11
11.. Partners are to shaPartners are to sha re the pre the p rofirofits as unts as un der: (der: (a) 7a) 75% 5% of the Profof the Profits of its of DepartmDepartm ents K, ents K, L and ML and M to th
to th e respective Pare respective Par tner tner in Chin Ch arge, (b) Barge, (b) Balance Profits to be credited alance Profits to be credited as 2:as 2:1:1:1.1. So l
So lututi onio n :: 1. Dep
1. Dep arartmental P&L tmental P&L Accounts foAccounts fo r tr the he year endiyear endi ng ng 3131st Marst March (Amouch (Amou nt in nt in Rs.)Rs.) P
Paarrttiiccuullaarrss KK LL MM PPaarrttiiccuullaarrss KK LL MM T
To o OOppeenniinng g SSttoocckk 3377,,889900 2244,,000000 2200,,000000 BBy y SSaalleess 11,,8800,,000000 11,,3300,,000000 9900,,000000 T
To o PPuu rrcchhaasseess 11,,4400,,770000 8800,,660000 4444,,440000 BBy y TTrraannssffeerr 1100,,770000 660000 —— T
To o IInntteerr--DDeeppt t TTrrff —— —— 1111,,330000 BBy y CClloossiinng g SSttoocckk 4455,,110000 2222,,330000 2211,,660000 T
To o WWaaggeess —— —— 1122,,000000 T
To o GGrroosss s PPrrooffiit ct c// dd 5577,,221100 4488,,330000 2233,,990000 T
Toottaall 223355,,880000 11,,5522,,990000 11,,1111,,660000 TToottaall 22,,3355,,880000 11,,5522,,990000 11,,1111,,660000 T
To o SSaallaarriiees s ((44::44::11)) 1166,,000000 1166,,000000 44,,000000 BBy y GGrroossss 5577,,221100 4848,,330000 2233,,990000 Prof
Profit it b/b/ dd T
To o RReennt t ((22::22::55)) 22,,440000 22,,440000 66,,000000 BBy y DDiissccoouunntts s rreeeedd 404000 225500 115500 T To o SSeelllliinng g EExxpp 66,,448800 44,,668800 33,,224400 T To o DDiisscc. . ((1188::1133::99)) 545400 339900 227700 T To o DDeepprreecciiaattiioonn 225500 225500 225500.. T
To o NN eet t PPrrooffiit t cc// dd 3311,,994400 2244,,883300 1100,,229900 T
Toottaall 5577,,661100 4848,,555500 2244,,005500 TToottaall 5577,,661100 4488,,555500 2244,,005500
2. C
2. Compomp utatutation ion of of Stock ReserveStock Reserve From th
From th e above pe above p rofirofits, Sts, Stock Rtock Reserve should eserve should be elibe eliminated minated on thon th e Closie Closing Stocng Stock.k. •• GP Rate in DeparGP Rate in Depar tmtm ent K = 5ent K = 57,7,21210 - 0 - 1,1,9090,7,700 00 = 30= 30%.%.
•• SStock Reserve = 30tock Reserve = 30% on Rs.5% on Rs.5,7,700 00 = Rs.= Rs.1,1,71710.0. 3. P
3. Prrofof it and Loss Apit and Loss Ap propriation Apropriation A ccount (Rs.)ccount (Rs.) P
Paarrttiiccuullaarrss RRss.. PPaarrttiiccuullaarrss RRss.. T
To o SSttoocck k RReesseerrvvee 1,,7171100 By By PPrrooffiit t bb// dd 6677,,006600 T
To o PPrrooffiitts s ttrraannssffeerrrreed d tto o CCaappiittaall:: ((331199440 0 + + 224488330 0 + + 1100229900)) B B :: 7575% o% of f 3131,9,9440 0 = 2= 233,9,95555 C C :: 7755% o% of 2f 244,,88330 = 0 = 1188,,662233 D : D : 7755% % oof f 1100,,22990 0 = 7= 7,,771188 5500,,229966 To balance profits trfd in 2: 1: 1 To balance profits trfd in 2: 1: 1 B B :: 5500% o% of 1f 155,,00554 = 74 = 7,,552277 C C :: 2255% % of of 1155,,00554 4 = 3= 3,,776644 D D :: 2255% % oof f 1155,,005544= = 33,,776644 ((bbaall..ffiig ) g ) 1155,,005544 T
Illust
Illustrratation 4ion 4 :: Anand
Anand Ltd, has 3 Ltd, has 3 depdep artmartm ents Xents X, Y , Y and and Z The fZ The follollowing information is provowing information is prov ided:ided: P
Paarrttiiccuullaarrss XX YY ZZ
O
Opp eenniinng g SSttoocckk 33,,000000 44,,000000 66,,000000 C
Coonnssuumm ppttiioon n oof f dd iirreecct t mm aatteerriiaallss 88,,000000 1122,,000000 —— W
Waaggeess 55,,000000 1100,,000000 ——
C
Clloossiinng g SSttoocckk 44,,000000 1144,,000000 88,,000000 S
Saalleess —— —— 3344,,000000
S
Stocks of etocks of each Departmach Departm ent are ent are valued valued at cost to the at cost to the DepartmDepartm ent conceent concernedrned . S. Stocks of X tocks of X areare tran
tran sferred to Y sferred to Y at a mat a m argin of 50argin of 50% above Depar% above Depar tmtm ent cost. Sent cost. Stocks of tocks of Y Y are traare tra nsferred nsferred to Z at ato Z at a mar
mar gin of 1gin of 10% 0% above dabove d epartmepartm ental cosental cost.t. Other
Other expenses werexpenses weree :: S
Saallaarriieess 22,,000000
P
Prriinnttiinng g aannd d SttaattiioS onneerryy 11,,000000 R
Reenntt 66,,000000
IInntteerreesstt ppaaiidd 44,,000000
D
Deepprreecciiaattiioonn 33,,000000
Allocate expenses in the ratio of Departmental Gross Profits. Opening figures of reserves for Allocate expenses in the ratio of Departmental Gross Profits. Opening figures of reserves for un
un realiserealised d prpr ofiofits on ts on depdep artmartm ental stocks wental stocks w ere: Departmere: Departm ent ent YY-R-Rs.1s.1,0,00000; Departm; Departm ent ent Z-RZ-Rs.2s.2,0,00000.. Prepar
Prepar e Departme Departm ental Trading and ental Trading and ProfiProfit and t and LosLoss Acs Account for the year.count for the year. Sol
Solututionion ::
1. Dep
1. Dep arartmentmen tal Trtal Tradinadin g Accoug Accou nt font fo r r the ythe y ear (ear (Rs.)Rs.)
P
Paarrttiiccuullaarrss XX YY ZZ TToottaall PPaarrttiiccuullaarrss XX YY ZZ TToottaall T
To o OOppeenniinng g SSttoocckk 33,,000000 44,,000000 6,,0600000 1133,,000000 BBy y IInntteerrnnaall 1188,,000000 3333,,000000 —— 5511,,000000 Transfer
Transfer T
To o DDiirreecct t MMaatteerriiaall 88,,000000 1122,,000000 —— 2200,,000000 BBy y SSaalleess —— —— 3344,,000000 3344,,000000 T
To o WWaaggees s 55,,000000 1100,,000000 —— 1155,,000000 BBy y CClloossiinngg 44,,000000 1144,,000000 88,,000000 2266,,000000 Stock
Stock T
To o IInnttll. . TTrraannssffeerr ——88,,000000 3333,,00000 0 5511,,000000 To Gross Profit
To Gross Profit 66,,000000 33,,000000 33,,000000 1122,,000000 T
Toottaall 2222,,000000 4477,,000000 4422,,000000 11,,1111,,000000 TToottaall 2222,,000000 4477,,000000 4422,,000000 11,,1111,,000000
2. Dep
2. Dep arartmentmen tal Prtal Profof it and Loss Accouit and Loss Accou nt font fo r r the ythe y ear ear (Rs.)(Rs.)
P
Paarrttiiccuullaarrss XX YY ZZ TToottaall PPaarrttiiccuullaarrss XX YY ZZ TToottaall T
To o SSaallaarriieess 11,,00000 0 55000 0 550000 22,,000000 BBy y GGrroossss 66,,000000 33,,000000 33,,000000 1122,,000000 Pro
Profifit b/t b/ dd T
To o PPrrnnttgg. . & & SSttnnrryy.. 550000 225500 225500 11,,00000 0 BBy y NN eet t lloossss 22,,000000 11,,000000 11,,000000 44,,000000 T
To o RReenntt 33,,000000 11,,550000 11,,550000 66,,000000 To
To IntInt ererest est ppaid aid 2,002,000 0 1,001,000 0 1,001,000 0 4,0004,000 T
To o DDeepprreecciiaattiioonn 11,,550000 757500 775500 33,,000000 T
3. Calculation of Unrealised Profit on Closing Stock of Dept Y 3. Calculation of Unrealised Profit on Closing Stock of Dept Y
P
Paarrttiiccuullaarrss DD eeppaarrttmmeennt t YY V
Vaalluue e of of CClloossiinng g SSttoocck k aas s ggiivveen n aabboovvee 1144,,000000 T
Toottaal l CCoosst t oof f tthhe e DDeepp aarrttmm eenntt 1122,,00000 0 + + 1100,,00000 0 + + 1188,,00000 0 = = 4400,,000000 C
Coosst t oof f IInntteerrnnaal l TTrraannssffeer r iin n aabboovvee 1188,,000000 V
Valalue of ue of TrTransfansferreerred in Matd in Materierial al in in ClClososing ing SStoctockk 1414,0,000 00 x 18x 18,,00000 / 0 / 4040,0,000 00 = 6,= 6,330000 U
Unnrreeaalliisseed d PPrrooffiit t oof f DDeeppt t X X iinncclluudd eed d iin n aabboovvee 66,,33000 0 x x 5500// 11550 0 = = 22,,110000 4. Calculation of Unrealised Profit on Closing Stock of Dept Z
4. Calculation of Unrealised Profit on Closing Stock of Dept Z P
Paarrttiiccuullaarrss DD eeppaarrttmmeenntt ZZ V
Vaalluue e of of CClloossiinng g SSttoocck k aas s ggiivveen n aabboovvee 88,,000000 P
Pr or offiitts s oof f DDeep ap ar tr tm em en t n t Y Y iin cn cllu d eu d ed id in n aabboov ev e 1010% % M aM ar gr giin = 8n = 8,,00000 0 x x 1100// 11110 0 ==772277 Profi
Profits of ts of DepartmDepartm ent X ent X inclincludud ed in aboveed in above (8,(8,00000 – 727)0 – 727)×18.×18.00000/0/ 4040,00,000×500×50// 15150 = 0 = 1,01,09191 T
Toottaal l UUnnrreeaalliisseed d PPrrooffiit t iinncclluudd eed d iin n DDeeppt t Z Z SSttoocckk 11,,881188 5. Adjustment of Reserves
5. Adjustment of Reserves onon Opening and Closing StocksOpening and Closing Stocks P
Paarrttiiccuullaarrss RRss.. PPaarrttiiccuullaarrss RRss.. T
To o NN eet t LLoosss s bb// dd 4,,04 00000 BBy y RReesseerrvve e oon On Oppeenniinng g SSttoocck k ((1100000 0 + + 22000000))33,,000000 T
To o RReeseserve rve on on ClClososiing ng SStotocckk 3,3,919188 BBy Ney Net Lt Lososs s afafteter ar adjdjusustmetment nt of of RReeseservrveses 4,4,919188 T
Too ttaall 77,,991188 ToTo ttaall 77 991188 Illust
Illustrratation 5ion 5 ::
P o o m a L t d . h a s 2 d e p a r t m e n t s M & S . F r o m t h e f o l l o w i n g p a r t i c u l a r s , p r e p a r e P o o m a L t d . h a s 2 d e p a r t m e n t s M & S . F r o m t h e f o l l o w i n g p a r t i c u l a r s , p r e p a r e Departmental Trading Account & Consolidated Trading Account for the year ending 31 Departmental Trading Account & Consolidated Trading Account for the year ending 31stst March.
March.
P
Paarrttiiccuullaarrss MM SS
O
Oppeenniinngg SSttoocckk 2020,,000000 1122,,000000 P
Puu rrcchhaasseess 9922,,000000 6688,,000000
C
Caarrrriiaaggee IInnww aarrdd ss 2,,02 00000 22,,000000 W
Waaggeess 1122,,000000 88,,000000
S
Saallees s ((eexxcclluudd iinng g iinntteer r dd eeppaarrttmmeennttaal l ttrraannssffeerrss)) 114400,,000000 111122,,000000 Purchased Goods transferred
Purchased Goods transferred B
Byy SSttoo MM 1100,,000000 ——
B
Byy MM ttoo SS —— 88,,000000
Fi
Finished nished Goods tranGoods tran sfesferredrred B
Byy SSttoo MM 3355,,000000 ——
B
Byy MM ttoo SS —— 4400,,000000
Return of Fi
Return of Finished Goodnished Good ss B
Byy SSttoo MM 1100,,000000 ——
B
Byy MM ttoo SS —— 77,,000000
Closing
Closing StocStock k P
Puurrcchhaasseedd GGoooodd ss 44,,550000 66,,000000 F
Fiinniisshheedd GGoooodd ss 2424,,000000 1144,,000000 Purchased Goods have been transferred at their respective departmental Purchase Cost & Purchased Goods have been transferred at their respective departmental Purchase Cost & Finished Goods at Departmental Market Price. 20% of Finished Stock (Closing) at each Finished Goods at Departmental Market Price. 20% of Finished Stock (Closing) at each Department represented Finished Goods received from the other Department.
So l
So lututi onio n ::
1. Departmental Trading, Profit & Loss Account for the year ended 31st March 1. Departmental Trading, Profit & Loss Account for the year ended 31st March P
Paarrttiiccuullaarrss MM SS PPaarrttiiccuullaarrss MM SS T
To o OOppeenniinng g SSttoocckk 2200,,000000 1122,,000000 BBy y SSaalleess 114400,,000000 111122,,000000 T
To o PPuurrcchhaasseess 9922,,000000 6688,,000000 By Transfer:By Transfer: P
Puurrcchhaasseed d GGoooodd ss 8,,0800000 1100,,000000 F
Fiinniisshheed d GGoooodd ss 3355,,000000 4040,,000000 T
To o TTrraannssffeerr :: BBy y CClloossiinng g SSttoocckk P
Puurrcchhaasseed d GGoooodd ss 1010,,000000 88,,000000 PPuurrcchhaasseed d GGoooodd ss 4,,5450000 66,,000000 F
Fiinniisshheed d GGoooodd ss 4400,,000000 3355,,000000 FFiinniisshheed d GGoooodd ss 2244,,000000 1144,,000000 T
To o WWaaggeess 1122,,000000 88,,000000 BBy y RReettuurrn n ooff 1100,,000000 77,,000000 T
To o CCaarrrriiaagge e IInnww aarrdd ss 22,,000000 22,,000000 FFiinniisshheed d GGoooodd ss T
To o RReet ut ur n r n oof f FFiin in issh eh ed Gd Gooo d so d s 77,,000000 1100,,000000 To Gross Profit
To Gross Profit 3388,,550000 4466,,000000 T
Toottaall 222211,,550000 118899,,000000 TToottaall 222211,,550000 118899,,000000
2. Calculation of Gross Profit Ratio 2. Calculation of Gross Profit Ratio P
Paarrttiiccuullaarrss MMoohhaann SSoohhaann S
Saalleess 114400,,000000 111122,,000000
A
Add dd :: TTrraannssffeer r oof f FFiinniisshheed d GGoooodd ss 3355,,000000 4400,,000000 L
Leessss: : RReettuurrn n oof f FFiinniisshheed d GGoooodd ss ((77,,000000)) ((1100,,000000)) N
N et Sales [et Sales [A]A] 116688,,000000 114422,,000000 G
Grroosss s PPrrooffiit t [[BB] ] aas s ccaallccuullaatteed d bbeellooww 3388,,550000 4466,,000000 Gross
Gross PrProfof it Ratio [Bit Ratio [B ÷÷ AA]] 2222..99%% 3322..44%%
3. C
3. Consoonso lidlid atated Tred Trading ading Account for tAccount for the yhe y ear ear endend ed 31ed 31stst MarchMarch P
Paarrttiiccuullaarrss AmAmoouunntt PPaarrttiiccuullaarrss AAmmoouunntt T
To o OOppeenniinng g SSttoocckk 3322,,000000 BBy y SSaallees s ((11,,4400,,000000++11,,1122,,000000)) 22,,5522,,000000 T
To o PPuurrcchhaasseess 116600,,000000 BBy y CClloossiinng g SSttoocck k T
To o WWaaggeess 2200,,000000 BBy y PPuurrcchhaasse e GGoooodds s 1100,,550000 T
To o CCaarrrriiaagge e IInnww aarrdd ss 4,,04 00000 BBy y FFiinniisshheed d GGoooodd s s 3388,,000000 4488,,550000 To Stock Reserve
To Stock Reserve
[[2244,,000000××2200%%] × ] × 3322..44%% 11,,555555 [[1144,,000000××2200%%]] × 2× 222..99%% 664411 T
To o NN eet t PPrrooffiitt 8822,,330044 T
Too ttaall 330000,,550000 TToo ttaall 330000,,550000 Illust
Illustrratation 6ion 6 ::
Khushi & Co has 2 departm
Khushi & Co has 2 departm ents A & Bents A & B. Departm. Departm ent A sells ent A sells goods to Depgoods to Dep artmenartmen t B t B at normat norm alal sell
selling ping p ricrices. Fes. From rom the follthe following owing parpar ticticulars pulars p repare repare DepartmDepartm ental Trading ental Trading & Profi& Profit & Losst & Loss Account for the year ended 31st March & also ascertain the Net Profit to be transferred to Account for the year ended 31st March & also ascertain the Net Profit to be transferred to Balance Sheet.
P
Paarrttiiccuullaarrss AA BB
O
Oppeenniinngg ssttoocckk N IILN L 11,,0000,,000000 P
Puurrcchhaasseess 22,,0000,,000000 2233,,0000,,000000 G
Goooodd s s ffrroom m DDeeppaarrttmmeennt t BB 77,,0000,,000000 —— W
Waaggeess 11,,6600,,000000 11,,0000,,000000
T
Trraavveelllliinng g EExxppeennssees s 1,,41400,,000000 1100,,000000 C
Clloossiinng g ssttoocck k aat t ccoosst t tto o tthhe e DDeeppaarrttmm eenntt 11,,8800,,000000 55,,0000,,000000 S
Saalleess 1155,,0000,,000000 2233,,0000,,000000 P
Prriinnttiinng g & & SSttaattiioonneerryy 1166,,000000 2200,,000000 The following expenses incurred for the both departments were not apportioned between The following expenses incurred for the both departments were not apportioned between the depa
the departmertmentsnts :: P
Paarrttiiccuullaarrss AAmmoouunntt
S
Saallaarriieess 22,,7700,,000000
A
Addvveerrttiisseemm eennt t EExxppeennsseess 9900,,000000 G
GeenneerraallEExxppeennsseess 88,,0000,,000000 Dep
Dep reciation shoureciation shou ld be chargld be charg ed aed a t 25t 25% on the m% on the m achinery vachinery v alue of Rs.alue of Rs.4848,0,00000. Adver. Adver tisementisemen tt Ex
Expenpen ses are to be appses are to be app ortioned ortioned in the tuin the tu rnrn over raover ra tio, tio, SalSalaries in 1:aries in 1:2 2 ratio & Depreciation in 1:ratio & Depreciation in 1:33 ratio between
ratio between DepartmDepartm ents A ents A & B& B. General Ex. General Expenses are penses are to be apto be ap portioned portioned in 1:in 1:3 ratio.3 ratio. Sol
Solututionion ::
1. Departmental Trading, P&L Account of Khushi & Co for the year ended 31st March 1. Departmental Trading, P&L Account of Khushi & Co for the year ended 31st March
(Rs.) (Rs.) P
Paarrttiiccuullaarrss AA BB PPaarrttiiccuullaarrss AA BB T
To o OOppeenniinng g SSttoocckk 11,,0000,,000000 By By SSaalleess 1155,,0000,,000000 2233,,0000,,000000 T
To o PPuurrcchhaasseess 22,,0000,,000000 2233,,0000,,000000 BBy y IInntteerrnnaal l TTrraannssffeerr 77,,0000,,000000 T
To o WWaaggeess 11,,6600,,000000 11,,0000,,000000 BBy y CClloossiinng g SSttoocckk 11,,8800,,000000 55,,0000,,000000 T
To o IInntteerrnnaal l TTrraannssffeerr 77,,0000,,000000 T
To o GGrroosss s PPrrooffiitt 66,,2200,,000000 1100,,0000,,000000 T
Toottaall 1166,,8800,,000000 3355,,0000,,000000 TToottaall 1166,,8800,,000000 3355,,0000,,000000 T
To o TTrraavveelliin g n g EExxp ep en sn seess 11,,4400,,000000 1100,,000000 By By GGrroosss s PPrrooffiit t bb// dd 66,,2200,,000000 1100,,0000,,000000 T
To Po Prriin tn tiin g n g & & SSttaattiioon en erryy 1616,,000000 2200,,000000 T To o SSaallaarriieess 9900,,000000 11,,8800,,000000 T To o AAdd vveerrttiisseemm eenntt 3355,,552266 5544,,447744 Expenses Expenses T To o GGeen en er ar al l EExxp ep en sn seess 22,,0000,,000000 66,,0000,,000000 T To o DDeepprreecciiaattiioon n ((11::33)) 3,,0300000 99,,000000 T
To o NN eet t PPrrooffiitt 11,,3355,,447744 11,,2266,,552266 T
Toottaall 66,,2200,,000000 1100,,0000,,000000 TToottaall 66,,2200,,000000 1100,,0000,,000000 N o
N ottee :: 1.
1. GP Ratio of DepGP Ratio of Dep arar tmtm enent B t B = Gros= Gros s Pros Profit * fit * TotaTota l Sl Sales = 10,ales = 10,00,000,000 00 + (2+ (23,003,00,000 ,000 + 7,+ 7,00,000,000)00) = 33.33%
= 33.33% 2.
2.
2. ComputaComputation of Untion of Un rrealised Prealised Profit on Closing ofit on Closing StocStockk :: P
Paarrttiiccuullaarrss DD eeppaarrttmmeenntt AA V
Vaalluue e oof f CClloossiinng g SSttoocck k aas s ggiivveen n aabboovvee 11,,8800,,000000 T
Toottaal l MMaatteerriiaal l CCoosst t oof f DDeeppaarrttmmeennt t aa 22,,0000,,00000 0 + + 77,,0000,,00000 0 = = 99,,0000,,000000 M
Maatteerriiaal l CCoosst t oof f IInntteerrnnaal l TTrraannssffeer r iin n aabboovvee 77,,0000,,000000 Val
Value of Transferred in ue of Transferred in Material in ClosMaterial in Closing Stocing Stockk 1,81,80,00,000×7,000×7,00,00,000/00/ 9,09,00,00,000 = 00 = 1,401,40,00,0000 U
Unnrreeaalliisseed d PPrrooffiit t oof f DDeeppt t B B iinncclluudd eed d iin n aabboovvee 11,,4400,,000000××11// 3 =3 = 4466,,666677 (GP R
(GP Ratio of Departatio of Depart mm ent B ent B = 33= 33.3.33% 3% or l/or l/ 3rd)3rd)
3. Profit after adjustment of Unrealised Profit 3. Profit after adjustment of Unrealised Profit T
To o SSttoocck k RReesseerrvve e ((aas s ccaallccuullaatteed ad abboovvee)) 4466,,666677 BBy y NN eet t PPrrooffiit t bb// dd 22,,6622,,000000 To Net Profit c
To Net Profit c// d d to Bto Balance Salance Sheetheet 2,15,3332,15,333 [1,26,526+1,35,474][1,26,526+1,35,474] T
Toottaall 22,,6622,,000000 TToottaall 22,,6622,,000000 Illustr
Illustratation 7ion 7 :: Departm
Departm ent X sent X sellells goods to s goods to DepartmDepartm ent Y at a profit of 2ent Y at a profit of 25% 5% on cost & to Departmenon cost & to Departmen t Z at t Z at aa profit of 10% on cost. Department Y sells goods to X & Z at a profit of 15% & 20% sales, profit of 10% on cost. Department Y sells goods to X & Z at a profit of 15% & 20% sales, respectively. Departm
respectively. Departm ent Z ent Z charges 20% charges 20% & 25& 25% pr% pr ofiofit on t on cost to Depcost to Dep artmartm ent X & Yent X & Y, respectively., respectively. Departm
Departm ent Manent Man agers are entitled to 10% agers are entitled to 10% CommComm issission on Nion on N et Profit subjet Profit subjecect to Unt to Un realirealisedsed Profi
Profits on Depts on Dep artmartm ental saleental sales being elis being eliminatedminated ..
Departmental profits after charging manager’s commission, bur before adjustment of Departmental profits after charging manager’s commission, bur before adjustment of u
u nrnr ealised ealised pprofits rofits arar ee : X : X = Rs. 36,= Rs. 36,00000; Y 0; Y = Rs. 27,= Rs. 27,00000; Z = Rs. 18,0; Z = Rs. 18,000000 S
Stoctocks lyiks lying at dng at d ififfferent departments at therent departments at th e year end are as ue year end are as u ndnd erer :: P
Paarrttiiccuullaarrss XX YY ZZ
T
Trraannssffeer r ffrroom m DDeeppaarrttmmeennt t XX —— 1155,,000000 1111,,000000 T
Trraannssffeer r ffrroom m DDeeppaarrttmmeennt t YY 1144,,000000 —— 1122,,000000 T
Trraannssffeer r ffrroom m DDeeppaarrttmmeennt t ZZ 66,,000000 55,,000000 —— Fi
Find nd out tout t he correche correct Depart Depar tmentmen tal Profital Profits after charging Managers’ Commission.ts after charging Managers’ Commission. Solu
Soluttionion ::
1. C
1. Compomp utatutation ion of Uof U nreanrealiselise d Prd Profiofi tsts
P
Paarrttiiccuullaarrs s oof f ttrraannssffeer r ttoo DD eeppaarrttmmeennt t XX DD eeppaarrttmmeennt t YY DD eeppaarrttmmeennt t ZZ TToottaall F
Frrom Dom D epartmentepartment X to Y andX to Y and ZZ 1155,,00000 0 × 2× 255// 112255 1111,,00000 0 × 1× 100// 111100
aat t 2255% % aannd d 1100% % oof f CCoosst t NN iill ==33,,000000 =1=1,,00000 0 44,,000000 F
Frrom Dom D epartmentepartment Y Y t o t o X X a na nd Zd Z 1144,,00000 0 × × 1155// 110000 1122,,00000 0 × × 2200// 110000
aat t 1155% % aannd d 2200% % oof f SSaalleess ==22,,110000 NN iill ==22,,440000 44,,550000 F
Frroom m DDeep ap arrttm em ennt t Z Z tto o X X aannd Yd Y 66,,000000××2200// 112200 55,,000000××2255// 112255
2. Computation of Correct Departmental Profits after charging 2. Computation of Correct Departmental Profits after charging
Manager’s Commission correctly Manager’s Commission correctly P
Paarrttiiccuullaarrss DD eeppaarrttmmeennt t XX D eepD paarrttmmeennt t YY DD eeppaarrttmmeennt t ZZ
P
Prrooffiitts s aafftteer r cchhaarrggiinng g MMggr r CCoommmmiissssiioonn 3366,,000000 2277,,000000 1188,,000000 A
Adddd :: WWrroonng g CCoomm mmiissssiioon n = = 1100% % oof f PPrrooffiitts s == 1// 9 1 9 x x 3366,,000000 11// 9 9 x x 2277,,000000 11// 99xx1188,,000000 1
1/ 1/ 10 0 oon n PPrrooffiitts s bbeeffoorre e cchhaarrggiinng g ccoomm mmiissssiioonn ==44,,000000 ==33,,00000 0 ==22,,000000 = 1/
= 1/ 9 on Profi9 on Profits after cts after charging commharging comm ississionion P
Prrooffiitts s bbeeffoorre e cchhaarrggiinng g ccoomm mm iissssiioonn 4040,,000000 3300,,000000 2200,,000000 L
Lesesss ::UUnnrreeaalliisseed d PPrrooffiitts s ii..ee. . SSttoocck k RReesseerrvvee 44,,000000 44,,550000 22,,000000 P
Prrooffiitts s qquuaalliiffyyiinng g ffoor r ccoommmm iissssiioon n 3636,,000000 2255,,550000 1188,,000000 L
Lesesss ::CCoomm mmiissssiioon n aat t 1100% % oof f aabboovvee 33,,660000 2,,5255500 11,,880000 C
Coorrrreecct t PPrrooffiitts s aafftteer r cchhaarrggiinng g ccoomm mmiissssiioonn 3232,,440000 2222,,995500 1166,,220000
Illust
Illustrratation 8ion 8 ::
The following details are available in respect of a business for a year. The following details are available in respect of a business for a year.
D
D eeppaarrttmmeenntt OOppeenniinng g SSttoocckk PPuurrcchhaassee SSaalleess X
X 11220 0 uunniittss 11,,00000 0 uunniittss 11,,00220 0 uu nniitts s aat t RRss..2200..000 0 eeaacchh Y
Y 880 0 uunniittss 22,,00000 0 uunniittss 1,,919220 0 uu nniitts s aat t RRss..2222..550 0 eeaacchh Z
Z 11552 2 uunniittss 22,,44000 0 uunniittss 22,,44996 6 uu nniitts s aat t RRss..2255..000 0 eeaacchh The total va
The total va lue of plue of p urur chases is Rs.chases is Rs.1,1,0000,0,00000. I. It is observed t is observed thatha t tht th e rate of Gross Pe rate of Gross P rofit is therofit is the same in eac
same in each dh d epartmepartm ent. Prepare Department. Prepare Departm ental Tental Tradrad ing Acing Account for the above count for the above year.year. Sol
Solututionion ::
1.
1. Computation of ClosiComputation of Closi ng Stock Qung Stock Qu antity (antity (in unin un its)its) P
Paarrttiiccuullaarrss XX YY ZZ
O
Oppeenniinngg SSttoocckk 121200 8800 115522 A
Add dd :: PPuurrcchhaasseess 11,,000000 22,,000000 22,,440000 L
Leessss :: UUnniitts s SSoolldd ((11,,002200)) ((11,,992200)) ((22,,449966)) C
Clloossiinngg SSttoocckk 101000 116600 56 56
2. Computation of Gross Profit Ratio 2. Computation of Gross Profit Ratio We are informed
We are informed that that the GP the GP RatiRatio is the samo is the sam e for all depare for all depar tments. Seltments. Selliling Png P ricrice is given fore is given for eac
each dh d epartmepartm ent’ent’s prods prod ucts but thucts but th e Se Sale Quantity is diffale Quantity is different from that erent from that of Purchase Quantity.of Purchase Quantity. To f
To find thind th e Unife Uniform GP Rate, orm GP Rate, the sale valthe sale value of Purchase Quanue of Purchase Quan tity should be comptity should be comp ared wared w ith theith the Total
Total Cost of Purchase, as undCost of Purchase, as und er:er: Assum
Assum ing all ing all pupu rchases are srchases are sold, the salold, the sale proceeds woue proceeds wou ld beld be P
Paarrttiiccuullaarrss SSaalle e VVaalluue e oof f PPuurrcchhaasse e QQuuaannttiittyy AAmmoouunntt D
Deeppaarrttmm eennt t XX 11,,00000 0 uu nniitts s aat t RRss..2200..0000 2200,,000000 D
Deeppaarrttmm eennt t YY 22,,00000 0 uu nniitts s aat t RRss..2222..5500 4455,,000000 D
Deeppaarrttmm eennt t ZZ 22,,44000 0 uu nniitts s aat t RRss..2255..0000 6600,,000000 Total Sale Value of Purchase Quantity
Total Sale Value of Purchase Quantity 125,000125,000 L
Le se sss :: CCoosst t oof f PPuurrcchhaassee 11,,0000,,000000 G
Grroosss s PPrrooffiit t AAmmoouunntt 2255,,000000 G
3. Computation of Profit and Cost for each article 3. Computation of Profit and Cost for each article D
D ee ppaarrttmmee nntt SSeelllliinng g PPrriiccee PPrrooffiit t aat t 11//5 5 oof f SSPP CCoosst t = = SSaallees s – – PPrrooffiitt D
Deeppaarrttmm eennt t XX RRss..2200..0000 11/ 5 / 5 oof f RRss..2200..000 0 = = 44..0000 RRss. . 1166..0000 D
Deepp aarrttmm eennt t YY RRss..2222..5500 11/ 5 / 5 oof f RRss..2222..550 0 = = 44..5500 RRss..1188..0000 D
Deepp aarrttmm eennt t ZZ RRss..2255..0000 11/ 5 / 5 oof f RRss..2255..000 0 = = 55..0000 RRss..2200..0000 4. Dep
4. Dep arartmental Trtmental Trading ading Account foAccount fo r tr the he yearyear P
Paarrttiiccuullaarrss XX YY ZZ TToottaall PPaarrttiiccuullaarrss XX YY ZZ TToottaall
T
To o OOpp gg. . ssttoocckk 11,,992200 11,,444400 33,,004400 66,,440000 BBy y SSaalleess 2200,,440000 4433,,220000 6622,,440000 112266,,000000 T
To Po Puu rrcchhaassee 1166,,000000 3366,,000000 4488,,000000 110000,,000000 BBy Cy Cllgg. . ssttoocckk 11,,660000 22,,888800 11,,112200 55,,660000 T
To Go Grroosss Ps Prrooffiitt 44,,008800 88,,664400 1122,,448800 2255,,220000 T
Toottaall 2222,,000000 4466,,008800 6633,,552200 113311,,660000 ToTottaall 2222,,000000 4466,,008800 6633,,552200 113311,,660000
Open
Open ing and ing and ClosClosing Stoing Stocks are valued at cks are valued at Cost as indicated in WN Cost as indicated in WN 3 above. 3 above. SSale Amouale Amou nt innt in the Trad
the Trad ing Accing Accounoun t is comput is compu ted ted for the Sale Quantity onfor the Sale Quantity on ly. Grosly. Gross Profit is cs Profit is calcalculated ulated at 20at 20%% of Sale Value.
of Sale Value. Illustr
Illustratation 9ion 9 ::
Anumod Ltd. is a retail store having 2 Departments P and Q. The Company maintains at Anumod Ltd. is a retail store having 2 Departments P and Q. The Company maintains at Memoran
Memoran dudu m Stocm Stock Acck Accounoun t & t & MemoranMemoran dudu m Mark Up m Mark Up AccAccounoun t fot for eacr each of the h of the DepartmDepartm ents.ents. Supplies issued to the Departments are debited to the Memorandum Stock Account of the Supplies issued to the Departments are debited to the Memorandum Stock Account of the Departm
Departm ent at Cost pluent at Cost plu s Mark Ups Mark Up , and Dep, and Dep artmartm ental Sental Sales are cales are credited redited to this Acto this Account. Tcount. Thehe Mark Up on supplies issued to the Departments is credited to the Mark Up Account for the Mark Up on supplies issued to the Departments is credited to the Mark Up Account for the Departm
Departm ent. When ent. When it is neceit is necessary to rssary to r eduedu ce the Sce the Sellelling Price beling Price below ow the Nthe N ormal Selormal Selling Pricling Price,e, i.e. Cost plus Mark Up, the reduction (Mark Down) is entered in the Memorandum Stock i.e. Cost plus Mark Up, the reduction (Mark Down) is entered in the Memorandum Stock Acc
Account ount & Mark Up Acc& Mark Up Account. Department ount. Department P has a mP has a m ark up ark up of 3of 33-3-1/1/ 3% 3% on Cost, on Cost, and and DepartmentDepartment Q h
Q h as a mas a m ark-up ark-up of 5of 50% 0% on cost.on cost. The f
The follollowing owing infoinformrm ation has been extracteation has been extracted d from the records of the Comfrom the records of the Com panpan y for a yeary for a year end
end ing 3ing 311stst December.December.
P
Paarrttiiccuullaarrss PP QQ
O
Oppeenniinng g SSttoocck k ((aat t CCoosstt)) 2244,,000000 3366,,000000 P
Puu rrcchhaasseess 116622,,000000 119900,,000000 S
Saalleess 221100,,000000 228855,,000000
1.
1. Opening SOpening Stoctock of k of Department P iDepartment P inclncludud es ges goods on whicoods on which the Sh the Selelliling Pring Pricce has be has beeeen markedn marked dow
dow n by n by RsRs.5.51010. T. These goods hese goods were were sold in sold in JJanuanu ary at ary at the redthe red uced Seluced Selling Pricling Price.e. 2.
2. CertaiCertain goods purchasen goods purchased dd d uring the yeuring the year far for Ror Rs.s.22,7,7000 0 ffor Deor Departmpartm ent P, ent P, were transfwere transferrederred du
du ring thring th e year to Depe year to Dep artmartm ent Q ent Q & sol& sold d for Rfor Rs.4s.4,5,50000. Purchases & S. Purchases & Sales are recoales are recordrd ed ed in thein the Pur
Pur chases ochases of Departmf Departm ent P & the Sent P & the Sales of ales of DepartmDepartm ent Q respent Q resp ecectiveltively, but no entry, but no entr ies haveies have been mad
3
3.. GoGoods purcods purchashased durined during the g the yeyear wear were marre markeked dd d own as own as ffolollolows:ws: P
Paarrttiiccuullaarrss PP QQ
C
Coosstt 88,,000000 2211,,000000
M
Maarrkk dd ooww nn 880000 44,,110000
At the end of the year there were some items in the stock of Department Q, which had At the end of the year there were some items in the stock of Department Q, which had been mar
been mar ked dked d own own to Rs.to Rs.2,2,30300. 0. With this excWith this exception, all eption, all goods mgoods m arked arked dowdow n dn d uring turing t hehe year were sold du
year were sold du ring the year at reduced pring the year at reduced p ricrices.es. 4
4.. During stoDuring stocck-k-takitaking at the eng at the end of the nd of the year, year, goods whicgoods which had cost h had cost RsRs.2.240 40 were fwere found ound to beto be missing in Departm
missing in Departm ent P. Ient P. It was dt was d etermined thetermined th at loss at loss should should be regarded be regarded as irrecas irrecoverable.overable. 5
5.. The The CloClosising Sng Stoctock ik in both Den both Departments are to partments are to be vabe valued at Colued at Cost fst for the or the pupu rpose orpose of f thethe annual accounts.
annual accounts. Prepar
Prepar e for the year e for the year ended ended 3131st Decest December mber the follthe following owing accaccounoun ts - (a) Tts - (a) Tradrad ing Accing Accounoun t; (t; (b)b) Memorandu
Memorandu m m SStoctock Acck Account ount and and (c(c) Memorandu) Memorandu m m Mark Up Mark Up AcAccocount.unt. Sol
Solututionion ::
1. Memora
1. Memorandundu m Sm S tock Account (in Rs.)tock Account (in Rs.) P
Paarrttiiccuullaarrss PP QQ PPaarrttiiccuullaarrss PP QQ T
To o bbaallaanncce e bb// d d ((ggiivvggn n ccoosstt 3322,,000000 5454,,000000 BBy y bbaallaanncce e bb// d d ((mmaarrkk 551100 +
+ 3333--11// 33% % & & 5500% % mm--uupp)) dd ooww n n - - ggiivveenn)) T
To o PPuurrcchhaassees s ((ggiivveenn)) 116622,,000000 119900,,000000 BBy y SSaallees s ((ggiivveenn)) 221100,,000000 228855,,000000 T
To o MMeemm oorraanndd uum m MMaarrk k UUpp 5544,,000000 9955,,000000 BBy y IInntteerrnnaall 22,,770000 —— ((3333--11/ 3/ 3% % & & 5500% % oon n ppuu rree..)) TTrraannssffeer r --ppeer r ccoonnttrraa
T
To o IInntteerrnnaal l TTrraannssffeer r - - pp eerr —— 22,,770000 BBy y MMeemmoorraanndd uu m m MMaarrkk 990000 ccoonnttrraa UUp p ((MM--uup p oon n TTrraannssffeerr))
T
To o MMeemmoorraanndduu m m MMaarrk k UUpp —— 11,,335500 BBy y MMeemm oorraanndd uum m MMaarrkk 880000 44,,110000 ((5500% % oon n IInntteerrnnaal l TTffrr)) Up Up ((MMaarrk k DDooww n n - - ggiivveenn))
T
To o MMeemm oorraanndd uum m MMaarrk k UUpp —— 334444 BBy y AAbbnnoorrmm aal l LLoossss--CCoosstt 224400 —— ((oon n MMaarrkkeed d DDooww n n GGoooodd ss ttrraannssffeerrrreed d tto o P P & & L L AA/ c/ c
still in st
still in st ock - Seeock - See NoNo te 1te 1)) By Memorandum Mark 80 By Memorandum Mark 80 Up ( M-up
Up ( M-up on Stock Lon Stock Lost)ost)
B
By baly balancance ce c// d d ((ClClososinging 3322,,777700 54,29454,294 S
Stock - balancing figutock - balancing figu re)re) T
Toottaall 224488,,000000 334433,,339944 TToottaall 224488..000000 334433,,339944 No
No te 1te 1 : : MarMark Dk D owow n in Unsoln in Unsol d Stock of Depard Stock of Department Qtment Q T
Totaotal Mal Mark down ×rk down × VValalue of ue of SStoctockk 44..110000×2×2..330000
— — —
— — — — — — — — — — — — — — — — — — — — — — — — — = — — = — — — — — — — — — — ==Rs.344Rs.344
V
Vaalluue e oof f MMaarrk k dd ooww n n ggoooodd ss 2277,,440000** *
* VValalue oue of Mf Marark Dok Down Gown Goodsods == CoCostst Add:Add: NormNorm al Mark Up 50al Mark Up 50%% Less:Less: AmounAmoun t Market Markedd Down
Down =
N
N ote 2ote 2 : : Valuation of ClosinValuation of Closin g Stacg Stack at k at cost;cost; D
D eeppaarrttmmee nntt PP QQ
C
Clloossiinng g SSttoocck k aat t IInnvvooiicce e PPrriicce e aas s ppeer r MMeemm oorraanndd uumm 3322,,777700 5544,,229944 S
Stoctock A/k A/ cc C
Clloossiinng g SSttoocck k aat t CCoosst t aafftteer r rreedd uucciinng g 11// 3 3 aannd d 11// 22 3322,,77770 –0 – 11// 44 5544,,22994 4 - - 11// 33 on c
on cost ost = 1= 1// 4 4 and 1/and 1/ 3 3 on the on the InvoiInvoice ce PricPrice ree respecspectivetivelyly thereothereon = 2n = 244,5,57878 thereothereon =n = 36,19636,196 2. T
2. Trrading ading Account for the yeAccount for the ye ar ar endend ed ed 3131stst DD ecembecemb er er (in Rs.(in Rs.)) P
Paarrttiiccuullaarrss PP QQ PPaarrttiiccuullaarrss PP QQ T
To o OOppeenniinng g SSttoocckk 2244,,000000 3366,,000000 BBy y SSaalleess 221100,,000000 228855,,000000 T
To o PPuurrcchhaasseess 116622,,000000 119900,,000000 BBy y IInntteerrnnaal l TTrraannssffeerr 22,,770000 —— T
To o IInntteerrnnaal l TTrraannssffeerr —— 22,,770000 BBy y AAbbnnoorrmmaal l LLoossss 224400 —— To Gross Profit
To Gross Profit 5511,,551188 9922,,449966 BBy Cy Cllososining Sg Stotocck (k (Note Note 22)) 2244,,557788 3366,,119966 T
Toottaall 223377,,551188 332211,,119966 TToottaall 223377,,551188 332211,,119966 3. Memora
3. Memorandundu m Mm M arark Up k Up Account (in Rs.)Account (in Rs.) P
Paarrttiiccuullaarrss PP QQ PPaarrttiiccuullaarrss PP QQ T
To bo b aallaanncce be b// d d ((MMaarrkk 551100 —— BBy y bbaallaanncce e bb// d d ((3333--11// 33%% 88,,000000 1188,,000000 D
Dooww nn--ggiivveen n - - ppeer r ccoonnttrraa)) aannd d 5500% % oon n ccoosst t ggiivveenn)) T
To o MMeemm oorraanndd uum m SSttoocckk 990000 BBy y MMeemm oorraanndd uum m SSttoocckk 5544,,000000 9955,,000000 A
A/ c / c ((MM--uup p oon n TTrraannssffeerr)) ((MMaarrk k UUp p oon n PPuurrcchhaassee)) T
To o MMeemm oorraanndd uum m SSttoocckk 880000 44,,110000 BBy y MMeemm oorraanndd uum m SSttoocckk 11,,335500 A
A// c c ((MMaarrk k DDooww n n - - ggiivveenn)) ((MMaarrk k UUp p oon n IInntt. . ttrraannssffeerr)) T
To Mo Meemm oorraanndd uum Sm Sttoocckk 8800 —— By By MMeemm oorraanndd uum m SSttoocckk 334444 A
A/ c / c ((MM--uup p oon n GGoooodd s s LLoosstt)) AA/ c / c ((mm aarrkkeed d dd ooww n n ggoooodd ss still in stock)
still in stock) T
To Gro Grososs Prs Profofiit (t (as aas aboboveve)) 5511,,551188 9922,,449966 To balanc
To balance c/e c/ d d (bal(bal. f. fig.ig.)) 88,,119922 1188,,009988 T
Toottaall 6622,,000000 111144,,669944 ToTottaall 6622,,000000 111144,,669944
4. C
4. Confonf irirmation / mation / VerificatVerification ion of of Gross PrGross Profiofi tt D
D eeppaarrttmmeenntt PP QQ
S
Saallees s ((ggiivveenn)) 221100,,000000 228855,,000000 A
Add d d bbaacckk :: RReedd uuccttiioonn// MMaarrk k dd ooww nn 55110 0 + + 880000= = 11,,331100 44,,110000--33444 4 = = 33,,775566 T
Toottaall 221111,,331100 228888,,775566
N
N oorrmm aal l GGrroosss s PPrrooffiit t aat t 11// 4 4 aanndd ((11// 44) ) = = 5522,,882288 ((11// 33) ) = = 9966,,225522 1
1// 3 3 of of aboveabove L
Leessss :: RReedd uu ccttiioon n / / MMaarrk k dd ooww nn 11,,331100 33,,775566 Gros
Illustr
Illustratation ion 1010 ::
Z Ltd., has 3 departm
Z Ltd., has 3 departm ents, Xents, X, Y, Y, Z. T, Z. The folhe following information is prlowing information is pr ovidedovided :: X
X YY ZZ
R
Rss.. RRss.. RRss.. O
Oppeenniinngg SSttoocckk 33,,000000 44,,000000 66,,000000 C
Coonnssuumm ppttiioon n oof f dd iirreecct t mmaatteerriiaallss 88,,000000 1122,,000000 —— W
Waaggeess 55,,000000 1100,,000000 ——
C
Clloossiinngg SttoS occkk 44,,000000 1144,,000000 88,,000000 S
Saalleess —— —— 3344,,000000
Stock of each department is valued at cost to the department connected. Stocks of X Stock of each department is valued at cost to the department connected. Stocks of X department are transferred to Y at a margin of 50% above departmental cost. Stocks of Y department are transferred to Y at a margin of 50% above departmental cost. Stocks of Y dep
dep artmartm ent are transferred to Z depent are transferred to Z dep artmartm ent at a marent at a mar gin of gin of 1010% above % above depdep artmartm ental cental cost. ost. OtherOther expe
expe nsense s ws w ereere : : Salaries Rs. 2Salaries Rs. 2,00,000, 0, PrPr inginingin g & Sg & Stattat ionerioner y Rs. 1y Rs. 1,00,000, 0, Rent Rs. 6,Rent Rs. 6,00000, 0, InteInte rest prest p aidaid Rs. 4
Rs. 4,0,00000, Depreciation Rs. 3,, Depreciation Rs. 3,00000, Al0, Allocate expenses in locate expenses in the rthe r atio of datio of d epaepa rtmrtm ental gental g ross pross p rofit.rofit. Open
Open ing fing figures of igures of reserve freserve for unror unr ealiealised profits osed profits on dn d epartmepartm ental stocental stocks wereks were : : DepartmDepartm ent Yent Y Rs. 1
Rs. 1,0,00000 ; Depar; Depar tmtm ent ent Z Rs. 2,Z Rs. 2,00000.0. R
Requirequireded :: Prepare Departmental Trading and Profit & Loss Accounts for the year endedPrepare Departmental Trading and Profit & Loss Accounts for the year ended March 31, 2008.
March 31, 2008.
Departmental Trading and Profit & Loss Acconts Departmental Trading and Profit & Loss Acconts D
D rr.. ffoor r tthhe e yyeeaar r eennddeed d 3311sst t MM aarrcchh, , 22000088 CCrr..
P
Paarrttiiccuullaarrss XX YY ZZ TToott aall PPaarrttiiccuullaarrss XX YY ZZ TToottaall R
Rss.. RRss.. RRss.. RRss.. RRss.. RRss.. RRss.. RRss T
Too OOpp eenniinn g g SSttoocck :k : 33,,000000 44,,000000 66,,000000 1133,,000000 BByy IInntteerrnnaal l bb/ d/ d 1188,,000000 3333,,000000 —— 5511,,000000 T
Too DDiirreecctt MMaatteerriiaall BByy SSaalleess —— —— 3344,,000000 3344,,000000 ccoonnssiidd eerreedd 88,,00000 10 122,,000000 —— 2200,,000000 BBy y CClloossiinng g SSttoocckk 44,,000000 1144,,000000 88,,000000 2266,,000000 T
Too WWaa ggeess 55,,000000 1100,,000000 —— 1155,,000000 T
Too IInn tteerrnnaal l TTrraannssffeerr —— 1188,,000000 3333,,000000 5511,,000000 T
Too GGrroosss s PPrrooffiit t cc/ d/ d 66,,000000 33,,000000 33,,000000 1122,,000000 2
222,,00000 40 477,,000000 4422,,00000011,,1111,,000000 2222,,000000 4477,,00000 40 422,,000000 11,,1111,,000000 T
Too SSaallaarriieess 11,,000000 550000 5 05000 22,,000000 BByy GGrroosss s PPrrooffiit t bb// dd 66,,000000 33,,000000 33,,000000 1122,,000000 T
Too PPrriinnttiinng g & & SSttaattiioonneerryy 550000 225500 22 5500 11,,000000 BByy NN eet t LLoosss s cc/ d/ d 22,,000000 11,,000000 11,,000000 44,,000000 T
Too RReenntt 33,,000000 11,,550000 11,,550000 66,,000000 T
Too DDeepp rreecciiaattiioonn 11,,550000 757500 77 5500 33,,000000 T
Too IInn tteerreesst t pp aaiidd 22,,000000 11,,000000 11,,000000 44,,000000 8
8,,000000 44,,000000 4,,04 00000 1166,,000000 8,,08 00000 44,,000000 44,,000000 1166,,000000 T
Too NN eet t LLoosss s bb// dd 44,,000000 BByy PPrroovviissiioon n ffoorr T
To Po Prroovviissiioon n ffoorr uu nnrreeaalliisseed d pprrooffiitt u
u nnrreeaalliisseedd pp rrooffiitt oonnOOpp eenniinnggSSttoocckk 33,,000000 o
on n CClloossiinng g SSttoocckk 33,,991188 BByy BBaallaanncce e ttrraannssffeerrrreed d ttoo P
Prrooffiit t & & LLoosss s AA// cc 44,,991188 7
7,,991188 77,,991188
W
Wororking Notesking Notes :: (i
(i)) FIFIFO method for stocFO method for stock isk issue has been asssue has been assumum ed. Aled. Alternatively thiternatively this question cs question could hould h aveave been solved by assuming other methods for stock issue like LIFO Basis, Weighted been solved by assuming other methods for stock issue like LIFO Basis, Weighted Avera
(ii)
(ii) CCaallccuullaattiioon n oof f uunnrreeaalliisseed d pprrooffiit t oon n CClloossiinng g SSttoocck k oof f DDeepptttt. . YY RRss.. Current cos
Current cost inct incurred urred by Dept. Y by Dept. Y (R(Rs. s. 1122,0,000 00 + Rs+ Rs. 1. 10,0,00000 + R0 + Rs. s. 1188,0,00000)) 40,0040,0000 P
Prrooffiit t iinncclluu dd eed d iin n AAbboovve e ((RRss. . 1188,,000000 × 5× 500/ 1/ 15500)) 66,,000000 Profit included in Closing Stock of Rs. 14,000
Profit included in Closing Stock of Rs. 14,000
((RRss. . 66,,000000 ×× RRss. . 1144,,000000// RRss. . 4400,,000000)) 22,,110000 (iii)
(iii) CCaallccuullaattiioon n oof f uunnrreeaalliisseed d pprrooffiit t oon n CClloossiinng g SSttoocck k oof f DDeeppt t CC RRss.. C
Cuurrrreennt t CCoosst t iinnccuurrrreed d bby y DDeepptt. . ZZ 3333,,000000 P
Prrooffiit t oof f DDeepptt. . B B iinncclluudd eed d iin n aabboovve e ((RRss. . 3333,,00000 ×0 × 1100// 111100)) 33,,000000 Co
Cost st elelemeement ont of f DeDept. pt. Y Y iincnclluded in uded in ccurreurrent cnt cosost (t (RRs. s. 3333,,00000 0 – – 33,,000000)) 3030,0,00000 Pr
Pr ofit of Depofit of Dep t. a inclut. a inclu dd ed ed in abin ab ove cost (Rs. 6,ove cost (Rs. 6,00000 × Rs. 0 × Rs. 30,30,000000// Rs. 4Rs. 40,00,000)00) T
Tototal al ProProffiit it incnclluded in cuded in curreurrent cnt cosost ot of f DeDept. pt. Z (Z (RRs. s. 33,,00000 0 + R+ Rs. s. 44,,550000)) 7,7,505000 Unrealised p
Unrealised p rofirofit included t included in cloin closing stock of sing stock of R
Rss. . 88,,00000 0 ((RRss. . 77,,550000××RRss. . 88,,000000// RRss. . 3333,,000000)) 11,,881188 ((iivv)) TToottaal l uu nnrreeaalliisseed d pprrooffiit t ((RRss. . 22,,1100000 0 + + RRss. . 11,,881188)) 33,,991188 Illustr
Illustratation ion 1111 :: X
X Limited is a retail organisation with several departments. Goods supplied to eachLimited is a retail organisation with several departments. Goods supplied to each department are debited to a Memorandum Departmental Stock Account at cost,
department are debited to a Memorandum Departmental Stock Account at cost, plus plus fixedfixed percentage
(make-percentage (make-upup ) to gi) to give the normve the norm al selal selliling png p ricrice. e. The mark uThe mark u p is credited to a Memorap is credited to a Memora ndnd umum Departm
Departm ental “Mark-up Aental “Mark-up A ccccounoun t”. Any redut”. Any redu ctiction in sellon in selling prices (ing prices (marmar k-downk-down ) will ) will requirerequire adjustment in the stock account and in mark-up account. The mark up for Department A for adjustment in the stock account and in mark-up account. The mark up for Department A for the last three years h
the last three years h as been 40as been 40%. %. FiFigures rgures r eleelevant tvant t o Departmo Departm ent A for thent A for th e ende end ed ed 3131st Dec.st Dec. 20
2008 08 were as follwere as followsows :: Stcok 1st Janu
Stcok 1st Janu arar y 2008 at Coy 2008 at Co st, Rs. 80,st, Rs. 80,000000, Pu, Pu rcharcha ses ases a t Ct C ost ost Rs. 1,Rs. 1,80,80,00000, S0, Sales Rs. 3,20ales Rs. 3,20,00,000.0. It i
It is fs further asceurther ascertainertained d thatthat :: (a)
(a) Goods pGoods p urur chased in the pchased in the p eriod weriod w ere marked ere marked dowdow n by Rs. 1n by Rs. 1,4,400 00 from a cost of from a cost of Rs. Rs. 1616,0,00000.. Mar
Mar kedked -dow-dow n stock costing Rs. n stock costing Rs. 4,4,00000 remained 0 remained unun sold on 31st Decsold on 31st Decembemb er 20er 200808.. (b)
(b) SStock stock shortages at thhortages at th e year ende year end , which had , which had coscost Rs. t Rs. 1,1,20200 were to be wr0 were to be wr itten ofitten off.f. (c
(c)) SStock at 1st Jtock at 1st Jan. 20an. 2008 08 inclincludud ing gooding good s costis costing Rs. 8ng Rs. 8,2,200 00 had had been sold been sold dudu ring thring th e yeare year and
and has been mhas been m ark dark d own own in the sellin the selling pring pr icice by Rs. e by Rs. 74740. 0. The ramaining stock had The ramaining stock had beenbeen sol
sold d dudu ring the year.ring the year. (d)
(d) The departmThe departm ental cental closilosing stocng stock is k is to be valto be valued ued at cat cost subjost subjecect to adjt to adjustmustm ents fents for mark-or mark-up and m
up and m ark-ark-down.down. R
Requirequireded ::Prepare (i) Prepare (i) A DeparA Depar tmentatmenta l Tl Tradrad ing Accing Accounoun t (it (ii) i) A MemA Mem orandorand um um SStoctock Acck Accounoun tt (i
(iiiii) A Memoran) A Memoran dudu m m Mark-up Mark-up AccAccounoun t for the year 200t for the year 2008.8. Solu
Soluttionion ::
(i) D
(i) D eparepartmental Trtmental Trading ading AccountAccount D
D rr.. ffoor r tthhe e yyeeaar r eennddeed d 3311sst t DDeecceemmbbeerr, , 22000088 CCrr.. P
Paarrttiiccuullaarrss RRss.. PPaarrttiiccuullaarrss RRss.. T
Too OOppeenniinng g SSttoocckk 8800,,000000 BByy SSaalleess 33,,2200,,000000 T
Too PPuu rrcchhaasseess 11,,8800,,000000 BByy SSoorrttaaggee 11,,220000 T
Too GGrroosss s PPrrooffiit t cc/ d/ d 9900,,115500 BByy CClloossiinng g ssttoocck k
((RRss. . 4400,,11880 0 – – RRss. . 1111,,223300)) 2288,,995500 3
Dr.
Dr. (ii) Memo(ii) Memo rrandum Dandum D eparepartmental Stock Account (At Sellintmental Stock Account (At Sellin g Prg Price)ice) Cr.Cr. P
Paarrttiiccuullaarrss RRss.. PPaarrttiiccuullaarrss RRss.. T
Too BBaallaanncce e bb// dd BByy PPrrooffiit t & & LLoosss s AA// cc 11,,220000 ((RRss. . 8800,,00000 0 + + RRss. . 3322,,000000)) 11,,1122,,000000 ((CCoosst t oof f SShhoorrttaaggee))
T
Too PPuurrcchhaasseess BByy MeemM moorraanndd uum m DDeeppaarrttmm aannttaall
((RRss. . 11,,8800,,000000 ++ RRss. . 7722,,000000)) 22,,5522,,000000 MMaarrkk--uup p AA/ c/ c 448800 (L
(Load oad on Shortage)on Shortage) B
Byy MMaarrkk--uup p AA// cc 11,,440000 (Ma
(Mark Down rk Down in Currentin Current Purchases)
Purchases) B
Byy DDeebbttoorrs s AA// c c ((SSaalleess)) 33,,2200,,000000 Ma
Markrk--up A/up A/ cc (Ma
(Mark Down rk Down on Openingon Opening Stock) Stock) B Byy BBaallaanncce e cc// dd 4400,,118800 3 3,,6644,,000000 33,,6644,,000000 Dr.
Dr. (iii) Memo(iii) Memo rrandum Dandum D eparepartmental Martmental Mark up Ak up A ccountccount Cr.Cr. P
Paarrttiiccuullaarrss RRss.. PPaarrttiiccuullaarrss RRss.. T
Too MMeemm oorraanndduu m m DDeeppaarrttmmeennttaall BByy BBaallaanncce e bb// dd S
Sttoocck k AA// c c ((RRss. . 11,,220000××4400// 110000)) 448800 ((RRss. . 11,,1122,,000000××4400// 114400)) 3322,,000000 T
Too MMeemm oorraanndd uum m DDeeppaarrttmmeennttaall BByy MMeemmoorraanndd uum m DDeeppaarrttmm eennttaall S
Sttoocckk AA// cc 11,,440000 SttoS occkk AA// cc 7722,,000000 T
Too MMeemmoorraanndd uu m m DDeeppaarrttmmeennttaall ((RRss. . 22,,5522,,000000××4400// 114400)) S
Sttoocckk AA// cc 774400 T
Too Gross Gross ProProffiit trat transfnsfererrered tod to P
Prrooffiit t & & LLoosss s AA/ c/ c 9900,,115500 T Too BBaallaan cn ce e cc// dd [(Rs. 4 [(Rs. 40,180,180+Rs. 350+Rs. 350)×40/0)×40/ 140140 – – ((RRss. . 335500)) 1111,,223300 1 1,,0044,,000000 11,,0044,,000000 W
Wororking king NoteNote :: (i)
(i) CCaallccuullaattiioonn ooff CCoosstt ooff ssaalleess RRss.. aa..SSaalleess aass ppeerr BBooookkss 33,,2200,,000000 b.Add
b.Add : : MMaarrkk--dd ooww n n iin n ooppeenniinng g ssttoocck k ((ggiivveenn)) 774400 c.Add
c.Add : Mark-down in sales out of current Purchases: Mark-down in sales out of current Purchases
((RRss. . 11,,440000××1122,,000000// 1166,,000000)) 11,,005500 d
d ..VVaalluue e oof f ssaallees s iif f tthheerre e ww aas s nno o mm aarrkk--dd ooww n n ((aa++bb++cc)) 33,,2211,,779900 e.Less
e.Less: : GroGro ss Pross Pro fit (4fit (40/0/ 140 140 of Rs. of Rs. 3,3,21,21,79790) 0) susu bjecbject to Mat to Ma rk Dork Do ww nn
((RRss.. 774400 ++ RRss.. 11,,005500)) 9911,,994400 ff..CCoosstt ooff ssaalleess ((dd -- ee)) 22,,2299,,885500 (ii)
(ii) CCaallccuullaattiioon n oof f CClloossiinng g SSttoocckk RRss..
aa..OOpp eenniinngg SSttoocckk 8800,,000000
b.Add
