Unit IV
Departmental accounts and Branch accounts
Q1) Suri is having his Head office at Mumbai and Branch Office at Nasik. Prepare the branch Account in the books of the Head Office from the following transaction with the branch:
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
Opening Balance at Branch: |
| Amounts remitted to the Branch for : |
|
- Petty Cash | 1,000 | - Petty Cash Expenses | 4,000 |
- Stock | 39,500 | - Salary | 12,000 |
- Debtors | 21,000 | - Rent and Taxes | 3,500 |
Goods Supplied to Branch during the year | 3,10,000 | Closing balances ay Branch: |
|
Amounts remitted by the branch |
| - Petty | 950 |
- Cash Sales | 1,13,200 | - Debtors | 53,000 |
- Realisation from Debtors | 2,30,300 | - Stock | 26,500 |
A1)
IN THE BOOKS OF H.O.
Dr. NASIK BRANCH ACCOUNT. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Balance b/d |
| By Bank (Remittance): |
|
Branch petty cash | 1,000 | - Petty Cash Expenses | 4,000 |
Branch Stock | 39,500 | - Salary | 12,000 |
Branch Debtors | 21,000 | - Rent and Taxes | 3,500 |
To Goods sent to Branch | 3,10,000 | Closing balance at Branch |
|
To cash remittedfor: |
| - Petty Cash | 950 |
Petty Cash Expenses | 4,000 | - Debtors | 53,000 |
Salary | 12,000 | - Stock | 26,500 |
Rent | 3,500 |
|
|
To General P&L (Bal Fig) | 32,950 |
|
|
TOTAL | 4,23,950 | TOTAL | 4,23,950 |
Q2) D of Delhi have a branch at Madras. Goods are sent by the Head Office at Invoice Price which is at the Profit of 25% on Cost Price. All the Expenses of the branch are paid by the Head Office. From the following particulars, prepare Branch Account in Head Office Books
BALANCES | OPENING | CLOSING |
Stock at invoice | 11,000 | 13,000 |
Debtors | 1,700 | 2,000 |
Petty Cash | 100 | 25 |
TOTAL | 12,800 | 15,025 |
Goods sent to branch at invoice price Rs. 20,000.
Expenses made by head office: -Rent Rs.600, Wages Rs.200, Salaries Rs.900
Remittance made to Head Office: - Cash Sales Rs. 2,650, Cash collected from debtors Rs. 21,000
Goods Returned by Branch at Invoice Price Rs.400
A2)
IN THE BOOKS OF HEAD OFFICE
Dr. MADRAS BRANCH A/c. Cr.
PARTICULARS | AMOUNT | AMOUNT | PARTICULARS | AMOUNT | AMOUNT |
To Balance b/d |
|
| By Stock Reserve A/c b/d(Load on OP. Stock 11,000 X 25/125) |
| 2,200 |
Stock (IP) |
| 11,000 | By Bank |
|
|
Debtors |
| 1,700 | Cash Sales | 2,650 |
|
Petty Cash |
| 100 | Cash collected from Debtors | 21,000 | 23,650 |
To Goods sent to Branch (IP) |
| 20,000 | By Goods sent to branch (Returns at IP) |
| 400 |
To Bank (Expenses): |
|
| By Goods sent to branch (19,600 X 25/125; net Loading) |
| 3,920 |
Rent | 600 |
| By Balance c/d |
|
|
Wages | 200 |
| Stock (IP) | 13,000 |
|
Salaries | 900 | 1,700 | Debtors | 2,000 |
|
To Stock Reserve A/c c/d(Load on Cl. Stock 13,000 X 25/125) |
| 2,600 | Petty Cash | 25 | 15,025 |
To Net Profit tfd to general P&L (Bal Fig) |
| 8,095 |
|
|
|
TOTAL |
| 45,195 | TOTAL |
| 45,195 |
Note:Goods are sent by Head Office at @ 25% on Cost Price.
So, Cost + Profit = Invoice Price
100 + 25 = 125
Profit charged by Head Office is 1/5 or 20% of Invoice Price.
Q3) One M.P. Head Office has a branch at Berhampur to which goods are invoiced at cost plus 20% .from the following particulars prepare the Branch Account in the Head Office Books :
PARTICULARS | AMOUNT |
Goods sent to Branch at invoice Price | 2,11,872 |
Total Sales | 2,06,400 |
Cash Sales | 1,10,400 |
Cash received from Branch Debtors | 88,000 |
Branch Debtors at commencement | 24,000 |
Branch Stock at commencement at Invoice price | 7,680 |
Branch Stock at Close of the period at Invoice Price | 13,440 |
A3)
IN THE BOOKS OF M.P. HEAD OFFICE
Dr. BERHAMPUR BRANCH ACCOUNT. Cr.
PARTICULARS | AMOUNT | AMOUNT | PARTICULARS | AMOUNT | AMOUNT |
To Balance b/d |
|
| By Stock Reserve A/c b/d(Load on OP. Stock) |
| 1,280 |
Stock (IP) |
| 7,680 | By Bank |
|
|
Debtors |
| 24,000 | Cash Sales | 1,10,400 |
|
To Goods sent to Branch (IP) |
| 2,11,872 | Cash collected from Debtors | 88,000 | 1,98,400 |
To Stock Reserve A/c c/d(Load on Cl. Stock) |
| 2,240 | By Goods sent to branch (2,11,872 X 20/120; net Loading) |
| 35,312 |
To Net Profit tfd to general P&L (Bal Fig) |
| 34,640 | By Balance c/d |
|
|
|
|
| Stock (IP) | 13,440 |
|
|
|
| Debtors | 32,000 | 45,440 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
| 2,80,432 | TOTAL |
| 2,80,432 |
Working Note:
Dr. BERHAMPUR BRANCH DEBTORS ACCOUNT. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Balance b/d | 24,000 | By Cash | 88,000 |
To Credit Sales | 96,000 | By balance c/d (balancing figure) | 32,000 |
TOTAL | 1,20,000 | TOTAL | 1,20,000 |
(2)
Total Sales =2,06,400
Less: - Cash Sales =1,10,400
Credit Sales =96,000
(3)
Goods are sent by Head Office at @ 20% on Cost Price.
So, Cost + Profit = Invoice Price
100 + 20 = 120
Profit charged by Head Office is 1/6 of Invoice Price.
Q4) The Canada commercial company invoiced goods to its Jaipur Branch at cost. The head office paid all the branch expenses from its bank except petty cash expenses which were Paid by the branch. From the following details relating to the branch, prepare
(1): Branch Stock A/c
(2)Branch Debtors A/c
(3)Branch Expenses A/c
(4)Branch P&L A/c
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
Stock (Opening) | 21,000 | Discount to Customer | 4,200 |
Debtors (Opening) | 37,800 | Bad Debts | 1,800 |
Petty Cash(Opening) | 600 | Goods returned by customers to branch | 1,500 |
Goods sent to H.O. | 78,000 | Salaries | 18,600 |
Goods returned to H.O. | 3,000 | Rent | 3,600 |
Cash Sales | 52,500 | Debtors(Closing) | 29,400 |
Advertisement | 2,400 | Petty Cash (Closing) | 300 |
Cash received from debtors | 85,500 | Credit Sales | 85,200 |
Stock(Closing) | 19,500 |
|
|
Allowances to Customer | 600 |
|
|
|
|
|
|
A4)
Dr. BRANCH STOCK A/c. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Balance b/d | 21,000 | By Branch Cash | 52,500 |
To Goods sent to sent Branch | 78,000 | By Goods sent to Branch | 3,000 |
To Branch Debtors | 1,500 | By Branch Debtors | 85,200 |
To Branch P&L (Transfer) | 59,700 | By Balance c/d | 19,500 |
TOTAL | 1,60,200 | TOTAL | 1,60,200 |
Dr. BRANCH DEBTORS A/c. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Balance b/d | 37,800 | By Branch Cash | 85,500 |
To Branch Stock (Credit Sales) | 85,200 | By Branch expenses Bad Debts 1,800 Allowances 600 Discount 4,200
| 6,600 |
|
| By Branch Stock (Returns) | 1,500 |
|
| By Balance c/d | 29,400 |
TOTAL | 1,23,000 | TOTAL | 1,23,000 |
Dr. BRANCH EXPENSES A/c. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Branch Debtors | 6,600 | By Branch P&L | 31,500 |
To Bank Advertisement 2,400 Salaries 18,600 Rent 3,600 | 24,600 |
|
|
To Petty Expenses (600-300) | 300 |
|
|
|
|
|
|
TOTAL | 31,500 | TOTAL | 31,500 |
Dr. BRANCH PROFIT & LOSS A/c. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Branch Expenses | 31,500 | By Branch Stock | 59,700 |
To General P&L (Bal Fig) | 28,200 |
|
|
TOTAL | 59,700 | TOTAL | 59,700 |
Q5) The following are the details of ‘Indore Branch’ for the year 2018
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
Opening stock | 6,000 | Salaries | 2,000 |
Opening Petty Cash | 500 | Rent | 1,500 |
Opening Debtors | 8,000 | Closing Stock | 8,000 |
Goods sent to Branch | 24,000 | Cash sent to Branch | 2,200 |
Goods returned by Branch | 800 | Discount Allowed | 100 |
Remittance from Branch | 33,500 | Bad Debts | 150 |
Returns from Debtors | 2,000 | Commission Paid | 750 |
Collection from Debtors | 34,000 | Closing Petty Cash | 450 |
Cash Sales | 1,500 | Closing Debtors | 9,000 |
Prepare: (1) Branch Stock A/c (2) Branch Debtors A/c (3) Branch Expenses A/c
(4) Branch P&L A/c (5) BranchCash (6) Goods sent to Branch A/c
A5)
Dr. BRANCH STOCK A/c. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Balance b/d | 6,000 | By Branch Cash (Cash Sales) | 1,500 |
To Goods sent to sent Branch | 24,000 | By Goods sent to Branch | 800 |
To Branch Debtors(Return Inwards) | 2,000 | By Branch Debtors(Credit Sales) | 37,250 |
To Branch P&L (Transfer) | 15,550 | By Balance c/d | 8,000 |
TOTAL | 47,550 | TOTAL | 47,550 |
Dr. BRANCH DEBTORS A/c. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Balance b/d | 8,000 | By Branch Cash (Received from Debtors) | 34,000 |
To Branch Stock (Credit Sales) (Bal Fig) | 37,250 | Branch expenses Bad Debts 150 Discount 100 | 250 |
|
| By Branch Stock (Returns) | 2,000 |
|
| By Balance c/d | 9,000 |
TOTAL | 45,250 | TOTAL | 45,250 |
Dr. BRANCH CASH A/c. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Balance (Petty Cash) | 500 | By Branch Expenses Salaries 2,000 Rent 1,500 Commission 750 | 4,250 |
To Bank (Remittance) | 2,200 | By Bank (Remittance from Branch) | 33,500 |
To Branch stock (Cash Sales) | 1,500 | By Balance (Petty Cash) | 450 |
To Branch Debtors (Received) | 34,000 |
|
|
|
|
|
|
TOTAL | 38,200 | TOTAL | 38,200 |
Dr. BRANCH EXPENSES A/c. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Branch Debtors | 6,600 | By Branch P&L | 31,500 |
To Bank Advertisement 2,400 Salaries 18,600 Rent 3,600
| 24,600 |
|
|
To Petty Expenses (600-300) | 300 |
|
|
|
|
|
|
TOTAL | 31,500 | TOTAL | 31,500 |
Dr. BRANCH EXPENSES A/c. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Branch Debtors | 250 | By Branch P&L (Balance Transferred) | 4,500 |
To Branch Cash | 4,250 |
|
|
|
|
|
|
|
|
|
|
TOTAL | 4,500 | TOTAL | 4,500 |
Dr. GOODS SENT TO BRANCH A/c. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Branch Stock | 800 | By Branch Stock | 24,000 |
To Purchase | 23,200 |
|
|
|
|
|
|
|
|
|
|
TOTAL | 24,000 | TOTAL | 24,000 |
Dr. BRANCH PROFIT & LOSS A/c. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Branch Expenses | 4,500 | By Branch Stock (Gross Profit) | 15,550 |
To General P&L (Bal Fig) | 11,050 |
|
|
TOTAL | 15,550 | TOTAL | 15,550 |
Q6) Mumbai Textile Mills Ltd. Has branch at Agra. Goods are invoiced to branch at cost plus 50%. Branch remits all cash received to the head office and all expenses are met by head office. From the following particulars, prepare the necessary accounts under the Stock and Debtors system to Show the Profit Earned at the Branch:
PARTICULARS | AMOUNT |
Stock on the 1st April,2013 (Invoice Price) | 93,000 |
Debtors on 1st April,2013 | 68,000 |
Goods Invoiced to Branch (Cost) | 3,40,000 |
Sales at Branch: |
|
Cash | 2,50,100 |
Credit | 3,10,000 |
Cash Collected from Debtors | 3,04,000 |
Goods Returned by Debtors | 12,000 |
Goods Returned by Branch to head office | 1,500 |
Shortage of Stock | 4,500 |
Discount Allowed to Customer | 2,000 |
Expenses at Branch | 54,000 |
A6)
Dr. BRANCH STOCK A/c. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Balance b/d | 93,000 | By Branch Cash (Cash Sales) | 2,50,100 |
To Goods sent to sentBranch (3,40,000 X 150%) | 5,10,000 | By Branch Debtors(Credit Sales) | 3,10,000 |
To Branch Debtors | 12,000 | By Goods sent to Branch | 1,500 |
|
| By Branch Adjustment (Shortage) | 4,500 |
|
| By Balance c/d | 48,900 |
TOTAL | 6,15,000 | TOTAL | 6,15,000 |
Dr. BRANCH ADJUSTMENT A/c. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Branch Stock(Shortage) | 4,500 | By Stock Reserve(Loading on Opening Stock) | 31,000 |
To Goods Sent to Branch | 500 | By Goods Sent to Branch | 1,70,000 |
To Gross Profit c/d | 1,79,700 |
|
|
To Stock Reserve(Loading on Closing Stock) | 16,300 |
|
|
TOTAL | 2,01,000 | TOTAL | 2,01,000 |
Dr. BRANCH PROFIT & LOSS A/c. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Branch Expenses | 54,000 | By Branch Stock (Gross Profit) | 1,79,700 |
To Discount | 2,000 |
|
|
To General P&L (Bal Fig) | 1,23,700 |
|
|
TOTAL | 1,79,700 | TOTAL | 1,79,700 |
Dr. GOODS SENT TO BRANCH A/c. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Branch Stock | 1,500 | By Branch Stock | 5,10,000 |
To Branch Adjustment | 1,70,000 | By Branch Adjustment | 500 |
To Trading A/c(Bal Fig) | 3,39,000 |
|
|
|
|
|
|
TOTAL | 5,10,500 | TOTAL | 5,10,500 |
Dr. BRANCH DEBTORS A/c. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Balance b/d | 68,000 | By Branch Cash (Received from Debtors) | 3,04,000 |
|
| By Branch expenses (Discount) | 2,000 |
To Branch Stock (Credit Sales) | 3,10,000 | By Branch Stock (Returns) | 12,000 |
|
| By Balance c/d | 60,000 |
TOTAL | 3,78,000 | TOTAL | 3,78,000 |
Dr. BRANCH CASH A/c. Cr.
PARTICULARS | AMOUNT | PARTICULARS | AMOUNT |
To Sales | 2,50,100 | By Head Office Cash | 5,54,100 |
To Debtors | 3,04,000 | (Sent to HO) |
|
TOTAL | 5,54,100 | TOTAL | 5,54,100 |
Q7) A Ltd. Has a branch in Calcutta. Goods are invoiced at cost plus 25%. | |
Opening Balance | 2002 |
Stock | 3,200 |
Debtors | 1,300 |
Goods sent to Branch (Invoice price) | 75,000 |
Sales at Calcutta |
|
Cash Sales | 32,000 |
Credit Sales | 38,000 |
Cash collected from Debtors | 33,400 |
Discount allowed | 400 |
Bad Debts written off | 250 |
Cash sent to Branch for expenses | 5,500 |
Stock at end | 7,900 |
A7)
BRANCH STOCK A/C | |||
To Balance b/d | 3,200 | To Cash Sales | 32,000 |
To Goods Sent to Branch A/c |
| By Branch Debtors | 38,000 |
| 75,000 | By Branch Adjustment A/c | 300 |
|
| By Balance c/d | 7,900 |
| 78,200 |
| 78,200 |
GOODS SENT TO BRANCH A/C | |||
To br. Adjustment A/c (loading) | 15,000 | By Br. Stock A/c | 75,000 |
To Trading A/c (Transfer) | 60,000 |
|
|
| 75,000 |
| 75,000 |
BRANCH STOCK RESERVE A/C
To Br. Adjustment A/c | 640 | By Balance b/d | 640 | |||
To balance c/d | 1,580 | By Branch Adj. A/c | 1,580 | |||
| 2,220 |
| 2,220 | |||
BRANCH DEBTORS A/C | ||||||
To Balance b/d | 1,300 | By Cash | 33,400 | |||
To Branch Stock (Cr. Sales) | 38,000 | By Branch Exp. A/c |
| |||
|
| Discount | 400 |
| ||
|
| Bad Debts | 250 | 650 | ||
|
| By Bal. c/d | 5,250 | |||
| 39,300 |
| 39,300 | |||
BRANCH ADJUSTMENT A/C | ||||||
To Branch Stock Reserve |
|
| ||||
(closing stock) A/c | 1,580 | By Stock Reserve (opening stock) | 640 | |||
To br. Stock A/c(shortage) | 300 |
|
| |||
To Br. Exp. A/c | 7,150 | By Goods sent to br. A/c | 15,000 | |||
To P & L A/c | 6,610 |
|
| |||
| 15,640 |
| 15,640 | |||
BRANCH EXPENSES A/C | ||||||
To Cash | 6,500 | By Branch Adjustment A/c | 7,150 | |||
To branch Dr.s A/c |
|
|
| |||
| Discount | 400 |
|
|
| |
| Bad Debts | 250 | 650 |
|
| |
| 7,150 |
| 7,150 | |||
Q8) From the following Trial Balance, prepare Departmental Trading and Profit and Loss Account for the year ended 31.12.2013 and a Balance Sheet as at the date in the books of Sri S. Maity:
Particulars | Dr. Rs. | Cr. Rs. |
Stock (1.1.2013): Dept. A Dept. B Purchases: Dept. A Dept. B Sales: Dept. A Dept. B Wages: Dept. A Dept. B Rent Salaries Lighting and Heating Discount Allowed Discount Received Advertising Carriage Inward Furniture and Fittings Plant and Machinery Sundry Debtors Sundry Creditors Capital Drawings Cash in hand Cash at Bank |
5,400 4,900
9,800 7,350
1,340 240 1,870 1,320 420 441
738 469 600 4,200 1,820
900 32 1,980 |
16,900 13,520
133
3,737 9,530 |
43,820 | 43,820 |
The following information is also provided:
Rent and Lighting and Heating are to be allocated between Factory and Office in the ratio of 3:2. Rent, Lighting and Heating, Salaries and Depreciation are to be apportioned to A and B Depts. As 2:1. Other expenses and incomes are to be apportioned to A and B Depts. On suitable basis.
The following adjustments are to be made:
Rent Prepaid Rs 370; Lighting and Heating outstanding Rs 180; Depreciation of Furniture and Fittings @ 10% p.a. And Plant and Machinery @ 10% p.a.
The Stock at 31.12.2012: Dept. A Rs 2,748; Dept. B Rs 2,401.
A8)
In the books of Sri S. Maity
Departmental Trading and Profit & Loss Account for the year ended 31.12.2013
Dr. Cr
Particulars | Dept. A Rs | Dept. B Rs | Total Rs | Particulars | Dept. A Rs | Dept. B Rs | Total Rs |
To Opening Stock | 5,400 | 4,900 | 10,300 | By Sales ,, Closing Stock
By Gross Profit b/d
,, Dis. Received (4 :3) ,, Net Loss | 16,900 | 13,520 | 30,420 |
,, Purchase | 9,800 | 7,350 | 17,150 | 2,748 | 2,401 | 5,149 | |
,, Wages | 1,340 | 240 | 1,580 |
|
|
| |
,, Carriage Inwards (4:3) | 268 | 201 | 4691 |
|
|
| |
,, Rent | 600 | 300 | 9006 |
|
|
| |
,, Lighting and Heating | 240 | 120 | 3602 |
|
|
| |
,, Gross Profit c/d | 2,000 | 2,810 | 4,810 |
|
|
| |
| 19,648 | 15,921 | 35,569 | 19,648 | 15,921 | 35,569 | |
To Rent |
400 |
200 |
6006 |
2,000 |
2,810 |
4,810 | |
,, Advertisement | 410 | 328 | 7384 |
|
|
| |
,, Salaries (2:1) | 880 | 440 | 1,3205 |
|
|
| |
,, Lighting and Heating | 160 | 80 | 2402 | 76 | 57 | 1337 | |
,, Discount Allowed |
|
|
| 339 | --- | --- | |
(on Sales) | 245 | 196 | 4413 |
|
|
| |
,, Dep. On (2:1) |
|
|
|
|
|
| |
Plant & Machinery | 280 | 140 | 420 |
|
|
| |
Furniture & Fixture | 40 | 20 | 60 |
|
|
| |
,, Net Profit | --- | 1,463 | 1,124 |
|
|
| |
| 2,415 | 2,867 | 4,943 | 2,415 | 2,867 | 4,943 |
Balance Sheet as at 31.12.2013
Liabilities | Amount Rs | Amount Rs | Assets | Amount Rs | Amount Rs |
Capital | 9,530 |
| Plant and Machinery | 4,200 |
|
Add: Net Profit | 1,124 |
| Less: Depreciation | 420 | 3,780 |
| 10,654 |
| Furniture and Fittings | 600 |
|
Less: Drawings | 900 | 9,754 | Less: Depreciation | 60 | 540 |
Sundry Creditors |
| 3,737 |
|
|
|
Outstanding Liabilities: |
|
| Closing Stock: |
|
|
Lighting and Heating |
| 180 | Dept. A | 2,748 |
|
|
|
| Dept. B | 2,401 | 5,149 |
|
|
| Sundry Debtors |
| 1,820 |
|
|
| Prepaid Rent |
| 370 |
|
|
| Cash at Bank |
| 1,980 |
|
|
| Cash in Hand |
| 32 |
|
| 13,671 |
|
| 13,671 |
Workings:
Allocation of Expenses and Incomes
Sl. No. | Expense/Income | Basis | Dept. A | Dept. B |
1 | Carriage Inward | Purchase (4:3) | =Rs 469 x 4/7 = Rs 268 | = Rs 469 x 3/7 = Rs 201 |
2 | Lighting & Heating (Rs 420 + Rs 180) Factory part = 600 x 3/5 Office part = 600 x 2/5 | Rs 600 (Given)
360 240 |
= Rs 360 x 2/3 = Rs 240 = Rs 240 x 2/3 = Rs 160 |
= Rs 360 x 1/3 = Rs 120 = Rs 240 x 1/3 = Rs 80 |
3 | Discount Allowed | = Sales | = Rs 441 x (16900/30420) = Rs 245 | = Rs 441 x (13520/30420) = Rs 196 |
4 | Advertisement | = Sales | = Rs 738 x (16900/30420) = Rs 410 | = Rs 738 x (13520/30420) = Rs 328 |
5 | Salaries | 2 : 1 | = Rs 1,320 x (2/3) = Rs 880 | = Rs 1,320 x (1/3) = Rs 440 |
6 | Rent Rs 1,500 = (Rs 1,870 – Rs 370) Factory part = 1,500 x 3/5 = 900 Office part = 1,500 x 2/5 =600 | 2 : 1
2 : 1 |
= Rs 900 x (2/3) = Rs 600 = Rs 600 x (2/3) = Rs 400 |
= Rs 900 x (1/3) = Rs 300 = Rs 600 x (1/3) = Rs 200 |
7 | Discount Received | Purchase (4:3) | = Rs 133 x (4/7) = Rs 76 | = Rs 133 x (3/7) = Rs 57 |
Q9) The Trading and Profit & Loss Account of Bindas Ltd. For the year ended 31st March is as under :
Particulars | Amount Rs | Particulars | Amount Rs | ||
Purchases |
|
| Sales |
|
|
Transistors | (A) | 1,60,000 | Transistors | (A) | 1,75,000 |
Tape Recorders | (B) | 1,25,000 | Tape Recorders | (B) | 1,40,000 |
Spare parts for Servicing and |
|
| Servicing and Repair Jobs | (C) | 35,000 |
Repair Job | (C) | 80,000 | Stock on 31st March |
|
|
|
|
| Transistors | (A) | 60,100 |
Salaries and wages |
| 48,000 | Tape Recorders | (B) | 20,300 |
Rent |
| 10,800 | Spare parts for servicing & |
|
|
Sundry Expenses |
| 11,000 | Repair jobs | (C) | 44,600 |
Net Profit |
| 40,200 |
|
|
|
|
| 4,75,000 |
|
| 4,75,000 |
Prepare Departmental Accounts for each of the three Departments A, B and C mentioned above after taking into consideration the following :
- Transistors and Tape Recorders are sold at the Showroom. Servicing and Repairs are carried out at the Workshop.
- Salaries and wages comprise as follows: Showroom 3/4th and Workshop 1/4th
- It was decided to allocate the Showroom Salaries and Wages in ratio 1:2 between Departments A and B.
- Workshop Rent is Rs 500 per month. Showroom Rent is to be divided equally between Departments A and B.
- Sundry Expenses are to be allocated on the basis of the turnover of each Department.
A9)
Departmental P&L Accounts for the year ended 31st March (Amount in Rs)
Dr. Cr.
Particulars | A Rs | B Rs | C Rs | Particulars | A Rs | B Rs | C Rs |
To Purchases |
| 1,25,000 | — | By Sales | 1,75,000 | 1,40,000 | — |
To Spares | — | — | 80,000 | By Services | — | — | 35,000 |
To Salary & Wages | 12,000 | 24,000 | 12,000 | By Closing Stock | 60,100 | 20,300 | 44,600 |
To Rent | 2,400 | 2,400 | 6,000 | By Net Loss | — | — | 19,500 |
To Sundry Expenses* | 5,500 | 4,400 | 1,100 |
|
|
|
|
To Net Profit | 55,200 | 4,500 |
|
|
|
|
|
| 2,35,100 | 1,60,300 | 99,100 |
| 2,35,100 | 1,60,300 | 99,100 |
Note :Sundry Expenses are apportioned in the ratio of Turnover (5 : 4 : 1) i.e. 1,75,000 : 1,40,000 : 35,000.
Inter Departmental Transfer
Transfer made by one department to another may be recorded either:
- At Cost Price; and
- At Invoice Price i.e., Market Based Price.
At Cost Price
When transfers are made, Recipient Department should be debited at cost price and Transferring Department should be credited at Cost Price.
Q10) Make an appropriate entry for inter transfer of goods from one department to another. Department A transferred goods for Rs 30,000 to Department B.
A10)
In the Books of...
Journal
Date | Particulars | L/F | Debit Rs | Credit Rs |
| Department Trading (B) A/c Dr. To Department Trading (A) A/c (Goods are transferred to Department B from Department A.) |
| 30,000 |
30,000 |
At Invoice Price i.e. Provision for unrealized Profit.
In case of goods transfer from one department to another, no problem arises if all goods are sold within the year. On the other hand, problem arises where all goods are not sold. Under the circumstances, appropriate adjustments must be made against the unsold stock for ascertaining the correct profit or loss. As such, provision to be made for both opening stock and closing stock. The entries for this purpose are:
For Opening Stock Reserve:
Opening Stock Reserve A/c Dr.
To General Profit and Loss A/c
For Closing Stock Reserve:
General Profit and Loss A/c Dr.
To Closing Stock Reserve A/c
Q11) Department A sells goods to Department B at a profit of 25% on cost and to department C at 10% profit on cost. Department B sells goods to Department A and Department C at a profit of 15% and 20% on sales respectively. Dept. C charges 20% and 25% profit on cost and department A and department b respectively.
Department managers are entitled to 10% commission on net profit after eliminating unrealised profit on department sales being eliminated. Departmental profit after charging managers commission but before adjustment of unrealized profits are: Dept. A Rs 72,000; Dept. B Rs 54,000; and Dept. C Rs 36,000. Stock lying at different departments at the end of the year are:
Particulars | Department A Rs | Department B Rs | Department C Rs |
Transfer from Department A Transfer from Department B Transfer from Department C | --- 28,000 12,000 | 30,000 --- 10,000 | 22,000 24,000 --- |
Find out the correct departmental profit after charging manager’s commission.
A11)
Computation of correct Profit
Particulars | Department A Rs | Department B Rs | Department C Rs |
Profit after charging manager’s commission. Add back: Manager’s Commission @ 1/9th | 72,000 8,000 | 54,000 6,000 | 36,000 4,000 |
Less: Unrealised Profit on stock | 80,000 8,000 | 60,000 9,000 | 40,000 4,000* |
Profit before charging Manager’s Commission Less: Manager’s Commission @10% Correct Profit after charging commission | 72,000 7,200 | 51,000 5,100 | 36,000 3,600 |
64,800 | 45,900 | 32,400 |
Workings:
Computation of unrealized Profit on Stock
Particulars | Department A Rs | Department B Rs | Department C Rs | Total Rs |
Department - A | --- | 30,000 x 1/5 = Rs 6,000 | 22,000 x 1/11 = Rs 2,000 | 8,000 |
Department - B | 28,000 x 15/100 = Rs 4,200 | --- | 24,000 x 20/100 = Rs 4,800 | 9,000 |
Department - C | 12,000 x 1/6 = Rs 2,000 | 10,000 x 1/5 = Rs 2,000 | --- | 4,000 |
Q12) Snow White Ltd has two departments — Cloth and Readymade Clothes. Ready Made Clothes are made by the Firm itself out of cloth supplied by the Cloth Department at its usual selling price. From the following figures, prepare Departmental Trading and Profit and Loss Accounts for the year ended 31st March 2013.
Particulars | Cloth Department (Rs) | Readymade Clothes (Rs) |
Opening Stock on 1st April, 2012 Purchases Sales Transfer to Readymade Clothes Department Expenses - Manufacturing Selling Closing Stock on 31st March, 2013 | 3,00,000 20,00,000 22,00,000 3,00,000 — 20,000 2,00,000 | 50,000 15,000 4,50,000 — 60,000 6,000 60,000 |
The Stock in the Readymade Clothes Department may be considered as consisting of 75% Cloth and 25% other expenses. The Cloth Department earned Gross Profit at the rate of 15% during the year 2011-12.
General Expenses of the business as a whole came to Rs 1,10,000.
A12)
Departmental Trading and Profit and Loss A/c for the year ended 31st March 2013
Dr. Cr.
Particulars | Cloth (Rs) | RM (Rs) | Total (Rs) | Particulars | Cloth (Rs) | RM (Rs) | Total (Rs) |
To Opg. Stock | 3,00,000 | 50,000 | 3,50,000 | By Sales | 22,00,000 | 4,50,000 | 26,50,000 |
To Purchases | 20,00,000 | 15,000 | 20,15,000 | By Tfr. To RM | 3,00,000 | — | 3,00,000 |
To Tfr from | — | 3,00,000 | 3,00,000 | By Closing | 2,00,000 | 60,000 | 2,60,000 |
Cloth Dept. |
|
|
| Stock |
|
|
|
To Mfg. Exps. |
| 60,000 | 60,000 |
|
|
|
|
To Gross Profit | 4,00,000 | 85,000 | 4,85,000 |
|
|
|
|
| 27,00,000 | 10,000 | 32,10,000 |
| 27,00,000 | 5,10,000 | 32,10,000 |
To Selling Exp. | 20,000 | 6,000 | 26,000 |
| 4,00,000 | 85,000 | 4,85,000 |
To Profit c/d | 3,80,000 | 79,000 | 4,59,000 | By Gross Profit |
|
|
|
4,00,000 | 85,000 | 4,85,000 | 4,00,000 | 85,000 | 4,85,000 | ||
|
|
|
| By Profit b/d |
|
| 4,59,000 |
To Gen. Exp. To Stock Reserve | 1,10,000 1,575 |
|
| ||||
(See Note below) To Net profit | 3,47,425 |
|
| ||||
4,59,000 | 4,59,000 |
Note 1 :Stock Reserve to be additionally provided is 7,200 – 5,625 = Rs 1,575; calculated as under :
Particulars | On Opening Stock | On Closing Stock |
Rate of GP on Sales in Cloth Dept Element of Cloth Stock in Readymade Clothes Stock Reserve required to be maintained | Given = 15% 75% of 50,000 = 37,500 37,500 × 15% = 5,625 | 4,00,000 ÷ 25,00,000 = 16% 75% of 60,000 = 45,000 45,000 × 16% = 7,200 |
Note 2: In this case, it is possible to ascertain the Reserve already created against Unrealised Profit in the Opening Stock. In the absence of information, the Reserve should be calculated on the difference in the Opening and Closing Stocks i.e. Rs 10,000 in this question. Since the Closing Stock has increased, the Reserve calculated would be debited to P&L A/c. In case of decrease in Stocks, the Reserve would be credited to P&L A/c.
Q13) A & Co. Has two departments P & Q. Department P sells goods to department Q at normal selling prices. From the following particulars, prepare departmental Trading & PL account for the year ended 31.03.2018 and also ascertain the net profit to be transferred to Balance Sheet:
Particulars | Department P (Rs) | Department Q (Rs) |
Opening stock | 5,00,000 | NIL |
Purchases | 28,00,000 | 3,00,000 |
Goods from P | NIL | 8,00,000 |
Wages | 3,50,000 | 2,00,000 |
Travelling expenses | 20,000 | 1,60,000 |
Closing stock at cost to the department | 8,00,000 | 2,09,000 |
Sales | 30,00,000 | 2,00,0000 |
Printing & Stationery | 30,000 | 25,000 |
The following expenses incurred for both the departments were not apportioned between the departments:
Salaries Rs 33,000, advertisement expenses Rs 1,20,000, General expenses Rs 5,00,000, Depreciation is to be charged @30% on the machinery worth Rs 96,000.
The advertisement expenses of the departments are to be apportioned in the turnover ratio. Salaries and depreciation are to be apportioned in the ratio 2:1 and 1:3 respectively. General expenses are to be apportioned in the ratio 3:1.
A13)
A & CO.
Departmental Trading and P/L Account for the year ended 31.03.2018
Dr. Cr.
Particulars | Deptt. P (Rs) | Deptt. Q (Rs) | Total (Rs) | Particulars | Deptt. P (Rs) | Deptt. Q (Rs) | Total (Rs) |
To Opening Stock |
| Nil | 5,00,000 | By Sales | 30,00,000 | 20,00,000 | 50,00,000 |
To Purchases | 28,00,000 | 3,00,000 | 31,00,000 | By Goods Transferred to Q | 8,00,000 |
|
|
To Goods from P |
| 8,00,000 |
| By Closing Stock | 8,00,000 | 2,09,000 | 10,09,000 |
To Wages | 3,50,000 | 2,00,000 | 5,50,000 |
|
|
|
|
To Gross Profit c/d | 9,50,000 | 9,09,000 | 18,59,000 |
|
|
|
|
| 46,00,000 | 22,09,000 | 60,09,000 |
| 46,00,000 | 22,09,000 | 60,09,000 |
To Travelling Expenses | 20,000 | 1,60,000 | 1,80,000 | By Gross Profit b/d | 9,50,000 | 9,09,000 | 18,59,000 |
To Printing & Stationery | 30,000 | 25,000 | 55,000 |
|
|
|
|
To Salaries (2:1) | 2,20,000 | 1,10,000 | 3,30,000 |
|
|
|
|
To Advertisement Expenses (3:2) | 72,000 | 48,000 | 1,20,000 |
|
|
|
|
To General Expenses (3:1) | 3,75,000 | 1,25,000 | 5,00,000 |
|
|
|
|
To Depreciation (1:3) | 7,200 | 21,600 | 28,800 |
|
|
|
|
To Net Profit c/d | 2,25,800 | 4,19,400 | 6,45,200 |
|
|
|
|
| 9,50,000 | 9,09,000 | 18,59,000 |
| 9,50,000 | 9,09,000 | 18,59,000 |
|
|
|
| By Net Profit b/d |
|
| 6,45,200 |
To Provision for unrealised profit on closing stock (note 2) |
|
| 38,000 |
|
|
|
|
To Capital A/c (net profit transferred) |
|
| 6,07,200 |
|
|
|
|
Working notes:
1. Gross profit ratio of department P = 9,50,000/(30,00,000 + 8,00,000)×100 = 25%
2. Proportionate P department’s stock in department Q
(Purchase from department P/total purchases of department Q)*total stock of department Q
= Rs (8,00,000/11,00,000) × Rs 2,09,000 = Rs 1,52,000
Unrealised profit = 25% of Rs1,52,000 = Rs 38,000
Q14) Samudra & Co, a Partnership Firm has three departments viz. K, L, M which are under the charge of the Partners B, C and D respectively. The following Consolidated P&L Account is given below :
Dr. Profit and Loss Account Cr.
Particulars | Amount Rs | Particulars | Amount Rs |
To Opening Stocks (Note 1) | 81,890 | By Sales (Note 7) | 4,00,000 |
To Purchases (Note 2) | 2,65,700 | By Closing Stocks (Note 8) | 89,000 |
To Salaries and Wages | 48,000 | By Discounts Received (Note10) | 800 |
(Note 3) |
|
|
|
To Rent Expenses (Note 4) | 10,800 |
|
|
To Selling Expenses (Note 5) | 14,400 |
|
|
To Discount Allowed (Note 5) | 1,200 |
|
|
To Depreciation (Note 6) | 750 |
|
|
To Net Profit for the year | 67,060 |
|
|
| 4,89,800 |
| 4,89,800 |
From the above Account and the following additional information, prepare the Departmental P&L Accounts for the year ended 31st March, 2013.
- Break up of Opening Stock Department wise is: K - Rs 37,890; L - Rs 24,000 and M - Rs 20,000.
- Total Purchases were as under: K - Rs 1,40,700; L - Rs 80,600; M - Rs 44,400.
- Salaries and Wages include Rs 12,000 wages of Department M. The balance Salaries should be apportioned to the three departments as 4:4:1.
- Rent is to be apportioned in the ratio of floor space which is as 2:2:5.
- Selling Expenses and Discount Allowed are to be apportioned in the ratio of Turnover.
- Depreciation on assets should be equally charged to the three departments.
- Sales made by the three departments were: K - Rs 1,80,000; L - Rs 1,30,000 and M - Rs 90,000.
- Break up of Closing Stock Department wise is: K - Rs 45,100; L - Rs 22,300 and M - Rs 21,600. The Closing Stock of Department M includes Rs 5,700 goods transferred from Department K. However, Opening Stock does not include any goods transferred from other departments.
- Departments K and L sold goods worth Rs 10,700 and Rs 600 respectively to Department M.
- Discounts received are traceable to Departments K, L and M as Rs 400; Rs 250 and Rs 150 respectively.
- Partners are to share the profits as under: (a) 75% of the Profits of Departments K, L and M to the respective Partner in Charge, (b) Balance Profits to be credited as 2:1:1.
A14)
- Departmental P&L Accounts for the year ended 31st March, 2013
Dr. Cr.
Particulars | K (Rs) | L (Rs) | M (Rs) | Particulars | K (Rs) | L (Rs) | M (Rs) |
To Opening Stock |
| 24,000 | 20,000 | By Sales | 1,80,000 | 1,30,000 | 90,000 |
To Purchases | 1,40,700 | 80,600 | 44,400 | By Transfer | 10,700 | 600 | — |
To Inter-Dept Trf | — | — | 11,300 | By Closing Stock | 45,100 | 22,300 | 21,600 |
To Wages | — | — | 12,000 |
|
|
|
|
To Gross Profit c/d | 57,210 | 48,300 | 23,900 |
|
|
|
|
| 2,35,800 | 1,52,900 | 1,11,600 |
|
|
|
|
To Salaries (4:4:1) | 16,000 | 16,000 | 4,000 |
| 2,35,800 | 1,52,900 | 1,11,600 |
To Rent (2:2:5) | 2,400 | 2,400 | 6,000 | By Gross Profit b/d | 57,210 | 48,300 | 23,900 |
To Selling Exp | 6,480 | 4,680 | 3,240 | By Discounts |
|
|
|
To Disc. (18:13:9) | 540 | 390 | 270 | Received |
|
|
|
To Depreciation | 250 | 250 | 250 |
| 400 | 250 | 150 |
To Net Profit c/d | 31,940 | 24,830 | 10,290 |
|
|
|
|
| 57,610 | 48,550 | 24,050 |
| 57,610 | 48,550 | 24,050 |
2. Computation of Stock Reserve
From the above profits, Stock Reserve should be eliminated on the Closing Stock.
- GP Rate in Department K = (57,210 x 100)/1,90,700 = 30%.
- Stock Reserve = 30% on Rs 5,700 = Rs 1,710.
3. Profit and Loss Appropriation Account
Dr. Cr.
Particulars | Amount Rs | Particulars | Amount Rs | |
To Stock Reserve |
| 1,710 | By Profit b/d | 67,060 |
To Profits transferred to Capital: |
|
| (31,940 + 24,830 + 10,290) |
|
B : 75% of 31,940 | 23,955 |
|
|
|
C : 75% of 24,830 | 18,623 |
|
|
|
D : 75% of 10,290 | 7,718 | 50,296 |
|
|
To balance profits trfd in 2: 1: 1 |
|
|
|
|
B : 50% of 15,054 | 7,527 |
|
|
|
C : 25% of 15,054 | 3,763 |
|
|
|
D : 25% of 15,054 | 3,764 |
|
|
|
(bal.fig) |
| 15,054 |
|
|
|
| 67,060 |
| 67,060 |
Q15) Pooma Ltd. Has 2 departments M & S. From the following particulars, prepare Departmental Trading Account & Consolidated Trading Account for the year ended 31st March, 2013.
Particulars | M (Rs) | S (Rs) |
Opening Stock Purchases Carriage Inwards Wages Sales (excluding inter departmental transfers) Purchased Goods transferred By S to M By M to S Finished Goods transferred By S to M By M to S Return of Finished Goods By M to S By S to M Closing Stock Purchased Goods Finished Goods | 20,000 92,000 2,000 12,000 1,40,000
10,000 —
35,000 —
10,000 —
4,500 24,000 | 12,000 68,000 2,000 8,000 1,12,000
— 8,000
— 40,000
— 7,000
6,000 14,000 |
Purchased Goods have been transferred at their respective departmental Purchase Cost & Finished Goods at Departmental Market Price. 20% of Finished Stock (Closing) at each Department represented Finished Goods received from the other Department.
A15)
- Departmental Trading, Profit & Loss Account for the year ended 31st March, 2013
Dr. Cr.
Particulars | M (Rs) | S (Rs) | Particulars | M (Rs) | S (Rs) |
To Opening Stock |
| 12,000 | By Sales | 140,000 | 112,000 |
To Purchases | 92,000 | 68,000 | By Transfer: |
|
|
To Transfer : |
|
| Purchased Goods | 8,000 | 10,000 |
Purchased Goods | 10,000 | 8,000 | Finished Goods | 35,000 | 40,000 |
Finished Goods | 40,000 | 35,000 | By Closing Stock Purchased |
|
|
To Wages | 12,000 | 8,000 | Goods | 4,500 | 6,000 |
To Carriage Inwards | 2,000 | 2,000 | Finished Goods out of t/f | 4,800 | 2,800 |
To Return of Finished Goods | 7,000 | 10,000 | Balance | 19,200 | 11,200 |
To Gross Profit | 38,500 | 46,000 | By Return of Finished Goods | 10,000 | 7,000 |
|
|
|
|
|
|
| 2,21,500 | 1,89,000 |
| 2,21,500 | 1,89,000 |
b. Calculation of Gross Profit Ratio
Particulars | M (Rs) | S (Rs) |
Sales Add : Transfer of Finished Goods Less : Return of Finished Goods Net Sales [A] Gross Profit [B] as calculated below Gross Profit Ratio [B ÷ A] | 140,000 35,000 (7,000) 168,000 38,500 22.9% | 112,000 40,000 (10,000) 142,000 46,000 32.4% |
c. Consolidated Trading Account for the year ended 31st March, 2013
Dr. Cr.
Particulars | Amount (Rs) | Particulars | Amount (Rs) | ||
To | Opening Stock (20,000+12,000) |
| By | Sales (1,40,000 + 1,12,000) | 2,52,000 |
To | Purchases (92,000 + 68,000) | 160,000 | By | Closing Stock |
|
To | Wages (12,000 + 8,000) | 20,000 | By | Purchase Goods 10,500 |
|
To | Carriage Inwards | 4,000 |
| (4,500+6,000) |
|
| (2,000+2,000) |
| By | Finished Goods 38,000 | 48,500 |
To | Stock Reserve: |
|
| (24,000+14,000) |
|
| [24,000 × 20%] × 32.4% | 1,555 |
|
|
|
| [14,000 × 20%] × 22.9% | 641 |
|
|
|
To | Net Profit | 82,304 |
|
|
|
|
| 3,00,500 |
|
| 3,00,500 |
Q16) Department X sells goods to Department Y at a profit of 25% on cost & to Department Z at a profit of 10% on cost. Department Y sells goods to X & Z at a profit of 15% & 20% on sales, respectively.
Department Z charges 20% & 25% profit on cost to Department X & Y, respectively.
Department Managers are entitled to 10% Commission on Net Profit subject to Unrealized profits on Departmental sales being eliminated.
Departmental profits after charging manager’s commission, bur before adjustment of unrealized profits are : X = Rs 36,000; Y = Rs 27,000; Z = Rs 18,000
Stocks lying at different departments at the year end are as under :
Particulars | X (Rs) | Y (Rs) | 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.
A16)
Computation of Unrealised Profits
From Department X to Y and Z At 25% and 10% of Cost |
Nil | 15,000 × 25/125 = 3,000 | 11,000 × 10/110 = 1,000 | 4,000 |
From Department Y to X and Z At 15% and 20% of Sales | 14,000 × 15/100 = 2,100 | Nil | 12,000 × 20/100 = 2,400 | 4,500 |
From Department Z to X and Y At 20% and 25% of Cost | 6,000×20/120 = 1,000 | 5,000×25/125 = 1,000 | Nil | 2,000 |
Computation of Correct Departmental Profits after charging Manager’s Commission correctly
Particulars | Department X (Rs) | Department Y (Rs) | Department Z (Rs) |
Profits after charging Manager’s Commission Add :Wrong Commission = 10% of Profits = 1/10 on Profits before charging commission = 1/9 on Profits after charging commission | 36,000 1/9 × 36,000 = 4,000 | 27,000 1/9 × 27,000 = 3,000 | 18,000 1/9 × 18,000 = 2,000 |
Profits before charging commission Less :Unrealised Profits i.e. Stock Reserve | 40,000 4,000 | 30,000 4,500 | 20,000 2,000 |
Profits qualifying for commission Less :Commission at 10% of above | 36,000 3,600 | 25,500 2,550 | 18,000 1,800 |
Correct Profits after charging commission | 32,400 | 22,950 | 16,200 |
Q17) The following details are available in respect of a business for a year.
Department | Opening Stock | Purchase | Sales |
X Y Z | 120 units 80 units 152 units | 1,000 units 2,000 units 2,400 units | 1,020 units at Rs 20.00 each 1,920 units at Rs 22.50 each 2,496 units at Rs 25.00 each |
The total value of purchases is Rs 1,00,000. It is observed that the rate of Gross Profit is the same in each department. Prepare Departmental Trading Account for the above year.
A17)
Computation of Closing Stock Quantity (in units)
Particulars | X | Y | Z |
Opening Stock Add: Purchases Less : Units Sold | 120 1,000 (1,020) | 80 2,000 (1,920) | 152 2,400 (2,496) |
Closing Stock | 100 | 106 | 56 |
Computation of Gross Profit Ratio
We are informed that the GP Ratio is the same for all departments. Selling Price is given for each department’s products but the Sale Quantity is different from that of Purchase Quantity. To find the Uniform GP Rate, the sale value of Purchase Quantity should be compared with the Total Cost of Purchase, as under. Assuming all purchases are sold, the sale proceeds would be
Department | X | 1,000 | Units | @ | Rs 20.00 | 20,000 |
Department | Y | 2,000 | Units | @ | Rs 22.50 | 45,000 |
Department | Z | 2,400 | Units | @ | Rs 25.00 | 60,000 |
Total Sale Value of Purchase Quantity | 125,000 |
| ||||
Less :Cost of Purchase | 1,00,000 |
| ||||
Gross Profit Amount Gross Profit Ratio | 25,000 25,000 ÷ 1,25,000 |
20% of Selling Price | ||||
Computation of Profit and Cost for each article
Department | Selling Price | Profit at 1/5 of SP | Cost = Sales – Profit |
Department X Department Y Department Z | Rs 20.00 Rs 22.50 Rs 25.00 | 1/5 of Rs 20.00 = 4.00 1/5 of Rs 22.50 = 4.50 1/5 of Rs 25.00 = 5.00 | Rs 16.00 Rs 18.00 Rs 20.00 |
Departmental Trading Account for the year ended
Dr Cr
Particulars | X (Rs) | Y (Rs) | Z (Rs) | Total (Rs) | Particulars | X (Rs) | Y (Rs) | Z (Rs) | Total (Rs) |
To Op. Stock To Purchase To Gross Profit | 1,920 16,000 4,080 | 1,440 36,000 8,640 | 3,040 48,000 12,480 | 6,400 100,000 25,200 | By Sales By Cl. Stock | 20,400 1,600 | 43,200 2,880 | 62,400 1,120 | 126,000 5,600 |
22,000 | 46,080 | 63,520 | 131,600 | 22,000 | 46,080 | 63,520 | 131,600 |
Opening and Closing Stocks are valued at Cost as indicated in WN 3 above. Sale Amount in the Trading Account is computed for the Sale Quantity only. Gross Profit is calculated at 20% of Sale Value.
Q18) What is the need of Branch Accounting?
A18) Need For Branch Accounting
- Ascertain the profitability of each branch separately for particular accounting period.
- Ascertain the financial position of each branch separately at the end of that accounting period.
- Assess the progress and performance of each branch
- Incorporate the profit or loss made by the branch and its assets and liabilities in the firm's final accounts
- Ascertain the requirements of cash and stock for each branch,
- Ascertain whether the branch should expended or closed.
Q19) What are the different types of Branch Accounting?
A19) Types of branches
From accounting point of view, the branches can be divided into the following main cases:
1) HOME BRANCHES: -
a) Dependent Branches (Where the head office maintains all the accounts)
b) Independent Branches (Where the branch keeps its own accounts)
2) FOREIGN BRANCHES: -
They almost invariably trade independently and record their transaction in foreign currency.
Dependent Branches
When the policies and administration of a branch are totally controlled by the head office, who also maintains its accounts, the branch is called as dependent branch.
Independent Branches
Independent Branches are those which make purchases from outside, get goods from Head Office, supply goods to Head Office and fix the selling price by itself Thus an independent Branch enjoys a good amount of freedom like an American Son.
Q20) Explain the Accounting System of Branches.
A20. The accounting arrangement of a branch depends upon its size, the type of activities, the methods of operation and the degree of control to be exercised by the head office. There are three main system of accounting for branches transaction, viz.
- Debtors System.
- Stock and Debtors System.
- Final Account system.
This system of accounting is suitable for the small- size branches. Under this, a Branch Account is opened for each branch in the head office ledger. All the transaction relating to that branch is recorded in this account. The branch account is prepared in such a way that it discloses the profit or loss of the branch.
Head office may send goods to branch either at "cost price" or "selling price".
Cost price method: - under this method at the beginning of the year the branch Account is debited with the opening balances of asset such as stock, petty cash, furniture, prepaid expenses, etc. lying with the branch. Similarly, it is credited with the opening balance of liabilities of the branch such as, creditors, ots salary, rent, etc.
The branch is then debited with the amount of goods sent to the branch and other amounts remitted to meet various expenses such as, salaries, rent, rates, taxes, etc. Likewise, the branch account is credited with the return of goods by the branch and receipts from branches. At the year end, Branch Account is debited with the closing values of liabilities and credited with the closing values of assets. The difference between the two sides represents profit or loss for the branch for a particular period.
DEBTORS METHOD
Journal entries
1) For goods sent to branch
Branch A/c _______Dr.
To Goods Sent to Branch A/c
(Being goods sent to branch)
2)For goods returned by the branch
Goods Sent to Branch A/c _______Dr.
To Branch A/c
(Being goods returned by the branch)
3) For amount sent to branch for expenses
Branch A/c _______ Dr.
To Bank A/c
(Being cheque sent to branch for expenses)
4) For amount received from branch
Bank A/c _______ Dr.
To Branch A/c
(Being cash or cheque received from branch)
5) For closing goods sent to branch account
Goods Sent to Branch Alc Dr.
To Purchase A/c
(Being balance transferred to Trading Account)
6) For closing balances of assets at the branch
Branch Assets A/c ________ Dr. (Individually)
To Branch A/c
(Being closing balances of assets brought into account)
7) For closing balances of Liabilities at the branch
Branch A/c ________Dr.
To Branch Liabilities A/c (Individually)
(Being closing balances of liabilities brought into account)
8) For transferring Profit or Loss to General Profit and Loss Account
i) If Profit
Branch A/c _______ Dr.
To General Profit and Loss A/c
(Being branch profit transferred to General P & L A/c)
Ii) If Loss
General Profit and Loss A/c ________ Dr.
To Branch A/c
(Being branch loss transferred to General P & L A/c)
The closing balances of branch assets and liabilities are shown in the Balance Sheet
Of the head office. At the beginning of the next year, the entire numbers 6 and 7 are
Reversed so as to show opening balances in the Branch Account.
Q21) What is a lease? Explain its benefits.
A21) A lease is a contract that allows an asset / asset owner to use the asset / asset in exchange for something, usually money or other asset, by another party. The two most common types of leases in accounting are operating leases and finance (capital leases) leases. This step-by-step guide covers all the basics of lease accounting.
Benefits of leasing
- Leasing has many advantages that can be used to attract customers.
- Payment schedules are more flexible than loan contracts.
- After-tax costs are lower because the tax rates are different for lenders and borrowers.
- The lease includes financing 100% of the value of the asset.
- For operating leases, the company creates expenses instead of debt, allowing the company to obtain funding. This is often referred to as "off-balance sheet financing."
Q22) What is a finance lease?
A22) Finance leasing is a way of providing finance. In effect, a leasing company (lessor or owner) buys asset for a user (usually called an employer or lessee) and rents them to them for an agreed period of time.
Finance leases are a statement of Standard Accounting Practice 21.
"Practically all risks and rewards of ownership of an asset to a lessee."
This basically means that the lessee is in much the same position as if he had bought the asset.
The lessor charges rent as compensation for hiring the property to the lessee. The lessor retains ownership of the asset, while the lessee uses the asset exclusively (if the terms of the lease are complied with).
The lessee pays a rent that covers the original cost of the asset during the initial or major period of the lease. You are obliged to pay all of these rents, including balloon payments at the end of the contract. When all of this is paid, the lender will recover the investment in the asset.
The customer promises to pay these rents during this period and technically the finance lease is defined as non-cancellable, although it may be possible to terminate early. At the end of the lease
What happens at the end of the primary finance lease term is different and depends on the actual contract, but the possible options are:
- The lessee acts on behalf of the lessor and sells the asset to a third party.
- Assets will be returned to the lessor for sale
- Customer enters secondary lease term
When an asset is sold, the customer may be given a rent rebate equivalent to the majority of the sale price (minus disposal costs), as agreed in the lease agreement. If the asset is held, the lease enters the second period.
Secondary rentals can be much lower than primary rentals (“pepper cone” rentals). Alternatively, the same rental may continue to be leased monthly.
Q23) Give an example of Finance lease.
A23) Finance lease example
Finance leases are commonly used to finance vehicles, especially hard-working commercial vehicles. The company wants the benefits of leasing, but does not want the responsibility to return the vehicle to the lender in good condition.
Besides commercial vehicles, finance leases can be used for many other assets. An example is shown below.
The Health Club was considering investing in new gym equipment. The total loan amount is £ 20,000 and the contract is set to pay for 60 months without deposits. Importantly, the balloon payment was set to £ 0. This means that the client (or most likely a gym user!) Is free to sweat the device, knowing that they are not responsible when concluding the contract. After 60 months the option is to sell the equipment – keep the money made or enter the peppercorn (secondary) rental period in a relatively small amount.
Q24) Define Operating lease.
A24) In contrast to finance leases, operating leases do not transfer virtually all risks and rewards of ownership to the lessee. It usually runs for less than the full economic life of the asset, and the lessor expects the asset to have resale value (known as residual value) at the end of the lease term.
This residual value is predicted at the beginning of the lease and the lessor bears the risk of whether the asset will achieve this residual value at the end of the contract.
Operating leases are common when assets such as aircraft, vehicles, construction plants, and machinery have residual value. Customers can use the asset for the agreed term in exchange for rent payment. These payments do not cover the full cost of the asset as in the case of a finance lease.
The operating lease may include other services included in the contract. Vehicle maintenance contract.
Ownership of the asset remains with the lessor and the asset is returned at the end of the lease when the leasing company rehires it under another contract or sells it to release the residual value. Alternatively, the lessee may continue to rent the asset at the fair market rent agreed at that time.
Accounting rules are currently under consideration, but at this time operating leases are off-balance sheet arrangements and finance leases are on the balance sheet. For accounting under international accounting standards, IFRS 16 will bring operating leases to the balance sheet. Learn more about IFRS16.
A common form of operating lease in the vehicle sector is contract employment. This is the most common way to fund company cars and is growing steadily.
Q25) Why choose one sort of lease over the other?
A25) This is a complex question, and each asset investment needs to be considered individually to see which type of financing is most beneficial to the organization. However, there are two important considerations. The type and lifetime of the asset, and the way the leased asset is reflected within the organization's account.
Asset type and lifespan
As mentioned above, it is important to remember that in operating leases the risks and rewards of owning an asset remain with the lessor, and in finance leases these are primarily transferred to the lessee.
Very generally, if an asset has a relatively short service life within the business, an operating lease may be a more commonly selected option before it needs to be replaced or upgraded. This is because the asset is likely to hold a significant portion of its value at the end of the contract, thus lowering the rent during the lease term. This is priced to the overall cost of the contract, as the lessor bears the risk in terms of the residual value of the asset.
This “cost of risk” can be significantly reduced for assets that can affect their condition at the time of return to the lessor and therefore have a high degree of certainty in estimating the residual value. Asset types to which this applies include automobiles, commercial vehicles, and IT equipment.
If an asset is likely to have a longer useful life in the business, its residual value consideration is less important as it is likely to be a much smaller percentage of its original value. This may mean that the lessee is willing to take this risk internally rather than paying the lessor. Here, finance leasing is a more obvious choice.
Because the rent paid on a finance lease pays off all or most of the capital, it is often possible to set a secondary lease period and maintain the use of the asset at a significantly reduced cost.
Q26) Difference between Financial Leasing and Operating Leasing
A26) As you can see, there are some differences between financial and operating leases. Let's look at the important differences between them –
- A financial lease is a type of lease that allows the lessor to use the former asset instead of a long-term, recurring payment. An operating lease, on the other hand, is a type of lease that allows the lessee to use the former asset in exchange for short-term recurring payments.
- Financial leases are leases that need to be recorded under the accounting system. Operating leases, on the other hand, are a concept that does not need to be recorded in any accounting system. For this reason, operating leases are also known as "off-balance sheet leases."
- In a financial lease, ownership is transferred to the lessee. In an operating lease, ownership isn't transferred to the lessee.
- Contracts based on financial leases are called loan contracts / contracts. Contracts based on operating leases are called rental contracts / contracts.
- Once both parties have signed the contract, it is generally not possible to cancel the financial lease. Even after an agreement between the parties, the operating lease can only be revoked during the initial period.
- Financial leasing provides tax credits for depreciation and financing costs. Operating leases provide tax credits for rent payments.
- Financial leases offer asset purchase options at the end of the contract period. With operating leases, there are no such offers.
