HOTEL AccouNT

INANCIAL AND F & 6 MANAGEMENT

INTERNAL AUDIT AND STATUTORY AUDIT
It is a bit difficuit to
give a precise definition of the word 'audit.
and use was contined merely to Originaly its meaning
auditng of Cash'. These days auditing has a wide
usage and it now means a thorough scrutiny of the books of accounts and its ultimate
aim is to verity the tinancial positon disciosed
Account and Balance Sheet
by the Trading Account, Profit and Loss

Auditing is a systematc examination of the books and records of a business or other

organization in order to ascertain or verity and to report upon the tacts regarding its
financial operation and the result thereof"
R.B. BOSE has defined as 'Audit may be said to be veritication of the accuracy and
correctness of the books of accounts by independent person qualified for the job and
not in any way connected with the preparation of such accounts

Auditing is the verification of the correctness of accounts

andreliability of accounting
system, data and information. An auditing. therefore, includes verification of correctness
of the accounts, statements, reports, data, etc. and finally checking these data to see
that they adhere to accounting principles, plans, procedures and
objectives.
The origin of auditing is traced back to the 18th century. The need of auditing was felt
as the practice of large scale production was developed as a result of industrial revolution.

The word 'audit' is derived from the Latin Word 'auditure' which means to hear. Formerly
a person responsible for maintenance of accounts went to some impartial and
experienced person, who used to check these accounts and express his opinion about
its correctness. These experienced persons were known as 'auditors'

The aim of the audit department is to assess the accuracy and reliability of accounting
system, data, information, and to assess the business efficiency and general operation.
Internal auditor is an integral part of the company's internal control system. Though itis
optional but all large organization do have internal auditing

Role ofthe Auditor:

The role of the internal auditor normally involves checking, veriftying and reporting on:
1. Financial information required by the management.
2. Costing information required by the management for example budget,
variances, cash forecasting, etc.
3. Effectiveness of internal control system, preventing loss of assets or

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 INTERNAL AUDIT AND STATUTORY
AUDIT

manipulation of accounting data. it

the way in which
4. Efficiency of companies management particularly in
formulates its plans, policies and decisions.

AUDITING IN INDIA :
The Chartered Accountants Act was passed in 1949 and it came in existence from July
1, 1949. The regulation control and management of the profession passed from the
Central Government to the profession i.e. in the hands of the Institute of Chartered
Accountants of India which was formed by the Act of Parliament. Now a person nas to
obtain a
pass the examination conducted by the Institute of Chartered Accountanf to
degreeof Chartered Accountant and gets a license to practice as a chartered accountant.

INTERNALAUDITOR:
A person group of persons deputed to audit the accounts
or a
is/arecalled Internal
Auditor/s. These persons may be an internal part of the organization (employees) or
can be hired from outside agency to audit the accounts. Internal auditing of accounts is
not compulsory. The Internal Auditor may not be registered Chartered Accountant
(C.A.).
DUTIES OF AUDITOR
The most important duties ofinternal auditors are as follows

1. Internal auditor checks all the vouchers and ensures their correctness. He
goes
goes through the procedures and methods of accounting adopted by the
management. He audits all the aSsets and liabilities like machinery, equipment,
capital, reserve, etc. and he also audits the incomes and expenditure accounts.
2. He ensures that accounting records are kept accurately and according to the
schedules.
3. He detects all kind of errors and protects the company from frauds.
4 He checks the prescribed control plans and if these require modification than
suggests the remedial measures.
5. He checks the non accounting areas such as administration, marketing,
securities, etc. and suggests the better control measurements.
6. He checks and submits his report on budgets, variances, cash forecasts, sales
cost forecasts, labour cost forecasts, etc.
7.
forecasts, food
He debits all rooms with room charges at 12 midnight before closing the
accounts for the day.

The internal auditor, by virtue of his duties and responsibilities is an integral part of the
organisation's internal control system.

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 HOTEL ACcoUNT, FINANCIAL AND F& B MANAGEMENT

Advantages of Auditing:
An auditing is not only useful to the management but it also ensures socio-economic
benefits.

The following are the advantages of auditing:

Benefits to the Management

1. It detects the errors and frauds.
2. It keeps employees more alert.
3. It reduces the wear and tear of assets and also helps in better utilization of
assets.
4. It increases profitability.
5. It reduces the cost due to better
management, efficiency and control
6. It points out management's weakness and recommends beter
accounung
systems. .

Benefits to Share Holders and General Public:

1. This tells the public whether it is making sufficient profits or no
2. In its reports, it gives the information like
earning per share, cash
earning per
share, debt equity ratio, price equity ratio, comparative balance sheets,
comparative income expenditure statements, etc. This helps public and share
holders in deciding whether to invest in the company or not.
3. The public gets goods and services at reasonable
prices.
Benefits to the Government
The bills at COst plUS nroit Suhm!tea t he p. ..
dispute.
2. Thegovernment can fix prices of essential commodities.
3 The subsidies can be.decided after _tudying the cost and selling price government
wants to fix.
4. It helps in fixing the export price for commodities.
5. The, income tax and other tax authorities accept the reports submitted by the
auditors.

Though auditing has many advantages but the effectiveness of this

depends on the following limitations department
1. Qualification: The auditors must be
well qualified and they must know their
job perfectly.
2. Experience: The prior experience of auditing is very essential to audit the
accounts accurately.
3. Independence: The auditors
must be extended independence. That is why
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 INTERNAL AUDIT AND STATUTORY AUDIT

usually they are hired from outside. Even if internal auditor/ employee are to be
used then he must not work under accounts department. In tact he should
report to General Manager or Director of the company.
4. Access to Records: The auditors must have an
authority to have any or all the
documents, files, etc. for the purpose of auditing
5. Safety: The auditors must not feel unsafe for submitting adverse reports on the
organisation in general or any department in particular.
6. Adequate Staff: There should be adequate number of persons to carry out the
work
Limitations of Internal Audit:
An Internal Auditing is an expensive affair and the small organizations do not find it
Viable to have their accounts audited
internally. But the larger companies lind it very
essential to have internal auditors. It helps in improving the financial position and cost
efficiency of the business.

Summary:
nternal auditing is a part of internal control system. is a perpetual verification of
accounting books, bills, vouchers, cash receipts, payments, bank reconciliation, utmost
utization of assets, safety and control of assets, control of bad debts, etc. They are
responsible for accounting procedure, finding budget variances, ensuring organisation
principles, policies, etc. It is possible either its organization can have its own employees
or appoint an outside agency to perform the duties of internal auditing. Small
organizations generally do not have separate audit department nor arrange any outside
agency. Internal auditor wil head the department and report to General Manager
Chief Accountant/ Director.

EXTERNAL AUDIT/ STATUTORY AUDIT:

It is a compulsory audit done by outside agency at least once, at the end of the financial
year. As per SEBl guidelines public limited companies are required to have the
companies aceounts audited after every three months. Only registered Chartered
Accountant Auditors are authorised to audit the accounts and sign it.
The following are the reasons to have statutory auditing.
1. All Public Limited Companies must have their accounts audited by external
auditors.
2. All Government departments and Government owned companies must get their
accounts audited from external Government approved auditors (usually A.G.
Office).
3. All Government funded organisations, societies; corporations must get their
accounts audited.
4. All registered societies, which collect donations from public, must get their
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 HOTEL AccOUNT, FINANCIAL AND F & B MANAGEMENT

accounts audited from external auditors.

5. Any company which intends to borrow money from
institutions must get their accounts audited. government or financial
6. Any other
company may be asked to get their accounts audited from external
auditors.

Auditing conducted according to statutes is called'Statutory Audit'. The

starts his Work by Statutory Auditor
studying the nature of the business and its organization, the books of
accounts maintained, the procedure in use, the
and the nature and extent of the various principles of accounting systems adopted
internal checkS and control exercised.
The auditors follow the
folloing procedure for auditing the accounts
1. He checks all the vouchers
and ensures its correctness from the documents
attached.
2. He checks the arithmetical
The totals of each
accuracy of the bills, vouchers, reports, records, etc.
page, carried forward, brought forward, etc. are also
He puts a tick mark for
every transaction checked.
checked.
3. He must ensure
that, no over payments or wrong payments are made and all
norms for purchases have been followed.
4. He must check the rules
and regulations, powers and authorities of each officer
and must ensure that all rules are
followed.
5. All cuttings must be
signed by authorised persons.
6. Audit reports must be submitted
along with objections / notes etc. All the
objections must be rectified.

AUDIT FOR HOTELS:

The auditing for hotels differs from the type, size of the hotel. The degree of
mechanization has a great impact on the auditing of a hotel. The auditor must examine
the system or internal check in vogue with
regard to the ordering, purchases, receiving,
storing, storing, issuing, etc. He is also expected to check the system of book and
record keeping in vogue in the hotel. The cash books receipt
and payment side must be
checked and tallied with check books. All cuttings,
overwriting, discounts, allowances,
missing checks, etc. must be examined. All
receipts must be made against the proper
printed and signed receipts and should be entered either in the sales summary sheets
or cash book.

As far as possible no cash

payments should be made expect payments made by petty
cashier. Salaries and wages must be paid
by cheques after receiving the bills from
personnel department and attendance from Time Office and the concerned
Cheques should be issued to suppliers against their bills along with the departments.
invoice, store keepers receipt, etc. Please also refer to supply order,
previous chapter for more details).
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 INTERNAL AUDIT AND STATUTORY AUDIT
NIGHT AUDITING IN HOTELS
Each hotel appoints a
night auditor who works independently and reports to
Chief Accountant or to General
Manager. His duty starts after 9 p.m. and works urstil
next day morning. Due to his
night working hours he is termed as Night Auditor. He
audits the accounts of Front Office Cashiers.
He performs the following duties
1. Reconcile all sales statements submitted by the various departments cashiers
to front office cashiers throughout the day.
2. He verifies all the debit and credit vouchers at
3.
Front Office Cásh.
Checks guest folios.
4. Verifies Front Office Cashiers
5. In some hotels he is also
Report.
and also debit all rooms
required to post the un posted vouchers at Front Desk
6.
with the day's room tarift.
In case of Cash
Register Machine (like N.C.R., Cash Registrex, etc.) He clears
the machine.
7. Prepares a statement of
bills for those rooms whose bill crosses a
amount. specifiedd
8. He audits
night receptionist's room report.
9. Hechecks the
accuracy of accounts like over charging,
under charging, cutting,
discounts, allowances, etc extended to guests.
10. He checks the City
Ledger Account betore transferring to Account Department
for collection of bills.

The motive of night auditor is to

rectify the error before guest checks out so that neither
he is over charged nor under charged. This
helps hotel in improving its revenue and the
image.

Questions

01. What do you mean by Internal and External

Auditing? Explain in detail.
a2. Do you think there is any necessity of internal audit over
and above the statutory
audit in case of a large hotel?
Q3. What do you understand by internal audit and how is it
different from External
audit?
Q4. What is the importance of
Q5. Do you think there is any
Auditing? List its limitations.
necessity of Internal Audit over and above Statutory
Audit in case of a hotel?
Q6. Elucidate the importance of internal audit.
07. Explain in detail about the Night Auditing along withits
advantages.
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a 888 88
a 8 8|8 88
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8
 o
Sals
- CoG s - CI
DEPARTMENTAL ACCOUNTING

G RESTAURANT SALES SUMMARY SHEET

Restaurant Name ..
Date
Dr.
Time... *******
Cr.
C. T. No. Time W. SALE
No. No. of No.
Cash Dis |L Rem| Sig
Pax Food Bev Liq |Tob Vat| Service Total
Charge

Restaurant Manager... . . .Head Cashier .... Cashier..

Note: C. No. = Check Number, T. No. = Table Number, W.No. = Waiter Number (Name),
Bev. = Beverage, Liq. = Liqueur, Tob. = Tobacco, Dis. = Discount, L. = Ledger,
Rem. =
Remarks, Sig. =
Signature (Cashiers)

METHODS TO KNOW DEPARTMENT'S PROFIT

The Management can folow Gross Profit Method, Department Profit Method and Net
Profit Method to know the department's profitability

GROSS PROFIT METHOD

To know the gross profit cost of sale or food cost is deducted from the total department's
sale. All other departmental expenses are ignored. The main advantäe
and other
this system is that it is very simple and can be taught without many efforts. The
of
disadvantage of this system is that other expenses like salaries, wages, depreciation,
lighting. air-conditioning, etc. are not analysed. This is the method most commonly
used in
hotel and catering
establishments. It analysis opening stock+
closing stock and sales i.e. items affecting the groos profit of each department.
purchases
Sometimes a department makes a very good gross profit but when other expenses are
debited it shows a loss.
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 HOTEL ACcoUNT FINANCIAL AND F& B MANAGEMENT

For Example 1
ABC HOTEL
Trading and profit and loss account for the year ended on 31st December, 20006

Particulars Food Beverage Total Particulars Food Beverage Total

Rs Rs Rs. Rs Rs Rs
Opening Stock 500 700 1,200 Sales 40,000 30,000 70,000
Purchases 20,000 12,000 32,000
20,500 12,700 33,200
Less Closing Stock 700 600
Cost of Goods Sold
1,300
19,800 12.100 31,900
Gross Profit 20.200 17.900 38,100
Total 40,000 30.000 70,000 Total 40,000 30,000 70,000

DEPARTMENTAL PROFIT METHOD

In this method from the Gross Profit,
departmental expenses are deducted. Departmental
expenses are attributed and controlled by department like wages, salaries and other
expenses. All other expenses which are not controlled by department are ignored like
advertising, interest, rent, etc.

For example 2
Trading Account

Particulars Food Beverage Liqueur Total

Rs P Rs P Rs. P Rs. P
Sales (S) 40.000 00 35.000 00 | 20,000 00 95,000 00
Cost of Goods (E ) =
Opening Stock (A) 2,000 00 1.000 00
Add Purchases (B)
800 00 3,800 00
15,000 00 12,000 00
5.000 00 32,000 00
C A+ B 17.000 00 13.000 00
Less Closing Stock (D)
5.800 00 35,800 00
500 00 300 00 600 001,400 00
Cost of Goods Sold (E =C- D)
16,500 00 12,700 00 5.200 00 34,400 00
Gross Profit (F. S E)
= -

23.500 00 22.300 00 14,800 00 60,600 |00

(Sale Cost of Goods Sold) =
Total Gross Profit
60.600 00
Less Departmental
Expenses7.000 00 6.000 00 5.000 00 18.00000
Departmental Profit 16,500 00 16,300 00 9.800 00 42.600 00

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 DEPARTMENTAL ACcOUNTING

For example 3

Particulars Food Beverage Liqueur Total

Rs. P Rs. P Rs P P Rs. P
Sales (A) 00 23,000 00 18,000 00 66,00000
25,000
Cost of Sale (B) 8,000 00 6,000 00 4,000 00 18,00000
Gross Profit (C =A B) 17,000 00 17,000 00 14.000 00 48,000 00
Departmental Expenses (D) 5,000 00 3,000 00 2,000 00 10,000 00
Departmental Profit (C - D)
12,000 14,000 00 12,000 00 38,00000
NETPROFIT METHOD
All kinds of expenses which are
directly or indirectly related to the department are
debited to it e.g. The salary paid to kitchen staff is
charged to food sale and salary paid
to bar staff is debited to bar account and in case
expenses are incurred for more than
one department than the expenses are apportioned in the most suitable and fair manner
to the departments so that almost the atual share of expenses are debited to each
department. The expenses tncurred on head office or corporate office is also suitable
apportioned to debit the respective departments to know their net profit.

Some times the individual departments do very good business and make a reasonably
good departmental profit but when other expenses, uncontrollable by departmental
head are debited than department comes in red. Most of the public sector companies
have this problem. Due to excessive head office, zonal office expenditure, even if
individual department is in black it gets in red when uncontrollable departmental expenses
are also debited. The biggest advantage of this method is that management can always
know whether a particular department is making profit or not and if not then what is the
reason whether departmental expenses are to be controlled or other expenses are to
be checked. But this method is subject to many controversies. The departments are
never satisfied the way the expenses are apportioned. Some times a department may
close for renovation; it becomes difficult to ascertain that this department's over heads
should be debited to whom. Some times a major marketing expenditure may have to
be incurred for a new restaurant which has very low sale.

It is very difficult to say that which of this departmental accounting method is most
suitable because each method has its own advantages and disadvantages. Management
has to choose very carefully the most suitable method depending upon its needs.

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 HOTEL ACcoUNT, FINANCIAL AND F
& B MANAGEMENT
COST ALLOCATION
The food service manager is able to make better decision if he is aware of the total cost
of operation e.g.it seems obvious that food cost should be charged to the food sale and
beverage cost to the beverage sale.

The labour charges incurred by the bar tender could.be charged to the beverage service
and salary paid to cook be charged to food sales. There are some common costs that
can not be Identified easily e.g. rent, light, water bill, laundry charges, telephone bill,
etc. can not be assigned to any one individual department.
Cost allocation is not discussed in any signification detail in the Uniform. System of
Accountancy. This cost can be alilocated to the different departments depending upon
various factors.

Advantages of Cost Allocation:

The.main advantage of cost allocation is that
management knows the true financial
position of each department and if so desired the management can take the corrective
measure to make any particular department more efficient and control its overhead and
other costs. In case the costs are not allocated to the
respective departments and it is
debited to the overall gross profit then management never come to know which
may
department is economically viable or not or which department is more viable and which
Is the least viable. The cost alocation also makes department more efficient and
also impose self control to show better financial results.
they
The cost allocation helps
individual Restaurant, Bar, Room, etc. to fix the selling price. The different outlets
operate on different food cost in order to cover their allocated over heads and other
may
costs and still make a reasonable profit. With the knowledge of full costs of each
department and may be for each banquet party the management can decide any revision
in price or if the particular
to be
department is to be closed altogether or if the sales target are
revised upwardly to cover the over heads and still make reasonable profit.
Difficulties with Allocation
lt is impossible to satishy all the departments heads no matter how
carefully the basis
for allocation the cost are designed. These basis are fixed for long times and can not be
changed very regularly. Sometimes a restaurant may close for renovation or it
organize a special theme lunch or dinner but the allocation of costs will remain may
the
same. To over come this
problem usually a meeting of all department heads is called
and management tries to reach consensus about
allocation of costs.
There are faur steps which are taken to allocate costs and these are:

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 COST ALLOCATION

1. The first step is to identify all the departments to which allocation of costs wi
take place.
2. The cost which is to be allocated to the department must also be clearty
identified. In case certain cost can not be easily aliocated to different
departments then the cost should be debited to the concerned department's
total earnings.
3. The methods to be adopted to allocate the costs to different departments.
These are various methods of allocating cost a consensus among department
heads must be reached to decide a particular method.
4. Allocation basis must be established. A cost allocation base is a rational
factor that is used to divide an undistributed cost between applicable cost
centers. The allocation method is chosen without considering the allocation
base e.g. an allocation base (how power expenses to be divided among
restaurants) can be fixed and than the methods used to charge restaurant.

Basis of Cost Allocation

here is no set procedure laid down for cost allocation. The cost allocation may differ
from place to place, from one type of organization to another, from management to
management. Since these cost allocation are internal matter so there are no restriction
from the Government on its implementation in a particular way.
The direct cost is automatically debited to individual departments. It is the indirect cost
which is to be allocated to diferent departments. This indirect cost should not be arbitrarily
divided among departments but it should have a meaningful relationship between the
profit centre and the amount of indirect cost that is to be allocated to it. To allocate a
particular indirect cost to various depatments there may be more than one base to
choose from, one hotel may find one particular method more suitable and another hotel
department head may agree to other method of allocation.
The following are the different basis for allocating the cost.

S. No. Costs Basis for Allocation

1 Interest 1. Total Capital employed in the department
2. Square feet of area occupied
3. Ratio to Sales
2 Insurance 1. Square feet
of area occupied.
2. Amount of each department insured
3. The total value of each asset
3 Taxes 1. Ratio to Sales
2. Basis of Tax

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 HOTEL ACCoUNT, FINANCIAL AND F & B MANAGEMENT

Rent 1. Ratio to Sale

2. Square feet of area occupied.
5. Depreciation 1. Square feet of area occupied (Building)
2. Value of the assets
3. Number of hours machines are used.
5. Telephone 1. Each department can be metered
2. Number of extensions sanctioned
3. Ratio to sales.
Employee's Benefits 1. Number of employes.
2. Refer to payroll records
8. Advertisement 1. Ratio to sale
9. | Light & Power 1. Number of light/ power points.
2. Cubic feet of area occupied.
3. Number of hours the department operates.
4. Ratio to sales.

The above mentioned basis of allocation are some of the basis recommended but a
management may adopt altogether a different base for allocation of indirect costto
different departments. As tar as small amount of indirect costlike light, local telephone
bill,etc. is concerned, there is usually not much dispute on its allocation but when the
cost to be allocated is of significant amount like rent. power expenditure then all
department heads are very particular about its allocation and more realistic base is to
be adopted.

Methods of Allocation:
There are three methods that can be used to allocate costs. These are Direct Method,
Step Method and Formula Approach.

llustration 4
Prepare a Food and Beverage's departmental Profit and Loss account from the
information given below.
Particulars Amount
Rs. P
Sales Food 3,00.00000
Beverage 2,00,000 00
Others 1,00,000 00
Cost of Sales Food 80,000 00
Beverage 50,000 00
Others 20,000 00
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88888S 88S
 HOTEL ACcoUNT, FINANCIAL AND F & B MANAGEMENT

llustration 5
Prepare Profit and Loss Account under the Net Profit Method of
a Departmental
accounting from the information given below.

Particulars Amount
Rs P

Restaurant 3,00,000 00
Sales
Coffee Shop 3,00,000 00
Bar 2,00,000 00
Cost of Sales Restaurant 80,000 00
Coffee Shop 1,00,000 00
Bar 40,000 00
Salaries&Wages Restaurant 7,000,| 00
5,000 00
Coffee Shop 00
Bar 2,000
Unallocated Expenses Office Expenses 6,000 00
8,000 00
Head Office Expenses
Advertisement &Marketing 16,000 00
Fixed Charges 18,000 00
Interest3 25,000 00

Note Unallocated Expenses are to be apportioned amongst departments on the

following
1. basis
Head Office Expenses and Advertisement & Marketing Expenses to be
apportioned on thebasisof Sales'
2. Office Expenses and Fixed Charges to be apportioned equally amongst three
departments.
3. Interest to be apportioned in the ration of 2:2:1 among Restaurant, Coffee
Shop and Bar respectively.

Solution
Departmental Profit &Loss Account
Particulars Restaurant Coffee Shop Bar Total
Rs. P |Rs. P Rs. P Rs.

Sales (S) 3,00,000 3,00,000-2,00,0008,00,000

Less Cost of Sale (A) 80,000 1,00,000 40,0002,20,000
Gross Profit (B = S- A) 2,20,000 2,00,000 1,60,0005,80,000
Salaries and Wages 7,000 5,000 2.000 14,000
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 - CoST ALLOCATION

Proft and Salaries &

Wages (D- B- C)
2.13.000 1,95,000 1,58,000 5,66,000
Uaated Expenses
Oftice Expenses 2,000 2,000 2,000 6,000
Head Office Expenses 3,000 3,000 2,000 8,000
Advertisement & Marketing 6,000 6,000 4,000 16,000
6,000 6,000 6,000 18,000 -
Fived Charges
Interest 10,000 10,000 5,000 25,000
Total Allocated Expenses (E) 27,000 27,000 19,000|73,000
Net Profit (F= D - E)
1,86,000:|1,68,000:1,39,0004,93,000
Total Net Profit 4,93,000

Working Notes:
Apportionment of Allocated Expenses:

Particulars Restaurant Coffee Shop Bar Total

Office Expenses 3
Fixed Charges 1 1 3
Head Office Expenses 3 3
Advertisement & Marketing 3 8
5
Interest

Office Expenses= 6,000 = Rs. 2000 to be debited to each department

3

Fixed Charges =
18,000 = Rs. 6,000 to be debited to each department
3

Head Office Expenses

Restaurant=0 X3 = Rs.3,000
8
Coffee Shop = 8,000 X3= Rs. 3,000
8
Bar 8,000X2 =
Rs.2,000
8

Advertisement and Marketing

Restaurant=6,000 X3
8

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 Q

IN

888888888 888 T
8888
 COST ALLOCATION

Interest 40,000 00
Depreciation9 30,000 00
Light and Power-w 9,000 00
Advertisement 10,000 00

Note
1. Wages and Salaries along with E.S.L and E.P.F. are to be apportioned in the-
ratioof 2 1.5 1.5
2. All Indirect Expenses are to be
apportioned among Food, Beverage and Liqueur
in the following ratioOs.
3 Rent and taxes,
4.
Interest, Depreçiation and Advertisemênt in the ratio of Sales
Light añd Power to be apportioned equally among Food, Beverage and Liqueur.
Solution
Trading and Profit & Loss Account
Particulars Food Beverage Liqueur Total
Rs. P Rs.
Sales (S)
P Rs P Rs P

Opening Stock 3,00,000|-2,00.000-5.00,000-10,00,000

2.000 1,500 2,800 6,300
Add Purchases 80.000 60,000 1,00,000 2.40,000
Total
Less Closing Stock
82,000
500
61,500-
1,000
1.02.800-2.46,300-
5.000 6.500
Cost of Sale (C) 81,500
Direct Expenses 60.500 97.800|-| 2.39.800
Wages and Salaries 20.000 15,000 15.000 50,000
E.S.I. 4,000 3,000 3,000
E.P.F. 10.000
2,000 1,500 1,500 5,000
Direct Cost (D) 26,000
Total 19,500 19,500 65,000
Direct Cost (E= C+ D) 1,07.500
Gross Profit (G = S E) 80,000|1.17.300-|3,04.800
1.92,500-|1.20.000 3,82.7006,95,200
Indirect Expenses
Rent and Taxes 3,000 2,000 5,000 10,000
Interest 12.000 8.000- 20,000
Depreciation 9,000 40,000
6,000 15,000 30,000
Light and Power 3,000 3,000 3,000 9.000
Advertisement
Total Indirect
3,000 2,000 5,000 10,000
Expenses (T) 30,000 21,000 48,000-99.000
Net Profit (N = G - T)
1,62.500
99,000 3.34.7005,96.200
(287)
 HOTEL AccOUNT, FINANCIAL AND F & B MANAGEMENT

llustration Profit (Statement Form) from the

Gross Profit, Departmental Profit and Net
Find out the Hotel
information in the books of Mayur
following Rs.
Room 5,00,000
Sale 1,50,000
Food
1,00,000
Beverage
Others 40,000
Food 30% of Sale
Cost of Sale
20% of Sale
Beverage
Others 10,000
Departmental Expenses Room 2,00,000
B0% of Cost of Food Sale
Faod 120% of Cost of Beverage Sale
Beverage
100% of Cost of Other Sale
Others
The Other income generated by the hotel is:
Rent 30,000
Commission 50,000
Indirect Expenses Rent and Sale 25,000
Repair &Maintenance 20,000
Depreciation 50,000
Heat, Light & Power 10,000
AuvcíuoGiidi
Administrative Expenses 10,000
Miscellaneous Expenses 20,000

Solution
Profit and Loss Account of Mayur Hotel

Particularss Room Food.Beverage Others Total

Rs. Rs. Rs. Rs. Rs.
Sales (S) 5,00,0001,50,000c1,00,000 40,000| 7,90,000
Less Costof Sale(C) 45.000
45.000 20.000 10.000 75.000
Gross Profit 5,00,0001,05,000 80,00030,000 7,15,000
Departmental Expenses (D)2.00.000 36.000. 24.000 10.0002.70.000
Depat.Profit (P =G- D) 3,00,00069,000 56,00020,000|4,45,000
Other Income
Rent 30,000
Commission 50,000 80000
Total Income 5,25,000
Less indirect Expenses
(288)
 COST ALLOCATION

Rent&Rates
Repair& Maintenance 25,000
Depreciation 20,000
Heat, Light & Power 50,000
Advertising 10,000
Administrative Expenses 40,000
Miscellaneous Expenses i10,000
Total Indirect Expenses (E) 20,000
Net Profit (N =1-E) 1,75,000
3:50,000
Note
30 %of Food Cost 1,50,000X 30= Rs. 45,000
100
:
20% of Beverage Cost 1,00,000
100
X20 Rs. 20,000
3. Departmenta!
De Food Cost = 45,000 X 80
100 Rs. 36,000
(80% of Cost of Food Sale)

Departmental Beverage Cost 20.000

= X120 Rs. 24,000
Rs. 24,000
100
(120% of Cost of Beverage Sale).
rr

Departmental Other Expenses = 10,000 X100 Rs. 10,000

100
(100% of Cost of Other Expenses)

Questions
Q1. What do you mean by Departmental Accounting? Explain in detail with its
advantages and limitations.
02. What is the role of departmental accounting in the control of costs? Explain tne
different methods of departmental
03. Whát is the role of
accounting.
cost attocation and apportionment in the departmena
accounting?
Q4. What is the importance of cost allocation and apportionment in this compem
market? What are the difficulties faced in
Q5. What implementing it?
is Cost Allocation and Apportionment? Explain in detail with exampiE
different basis of cost allocation.

(289)
 HOFEL ACcoUNT, FINANCIAL AND F&B MANAGEMENT

Explain what is meant by Departmental accounting. What conditions must bo t

6
satisfied tointroduce departmental accounting.
07. Draw the departmental Income Statement of Food and Bevorage Department
with assumed figures.
08 In the context of Departmental Accounting what should be the basls of
apportionment in case of each of the following Unallocated Expenses: 1) Rent for
Premisesii) Insurance of building ii) Administrative Expenses Iv) Advertisement
vUpkeep and Service cost.
09.The following balances were extracted from the account of Moon Moon Restaurant
on 31st December 2006
Stockat 1st January, 2006 Rs
Food 10,150
Beverage 8,500
Cigarettess 1,500
Purchases:
Food 1,95,000
Beverage 95,000
Cigarettes 12,000
Sales
Food 4,25,000
Beverage 2,35,000
Cigarettes 14,000
Wages & Salaries 49,000
Light& Heat 19,000
Cleaning Material 3,100
Postage&Stationery 1,500
Laundry 4,900
Rent&Taxes 8,000
Advertisin9 5,000
Repair &Replacement 1,000
Depreciation 14,000
,

i
You are required to prepare the restaurant's Trading, Profit &Loss account for the year
ended on 31st December, 2006
Stock at 31st December, 2006 were valued as follows:
ritFood 1* 8,500
Beverage 6,000
CigarettesS 1,200
All Indirect Expenses are to be
apportioned on the basis of Sales / Turnover

(290)
 COST ALLOCATION

010. The following balances were extracted from the books of Great Restaurantae
31st December, 2006. You are required to prepare the restaurant's Trading, Pto
&Loss account.
Sales Food 3,00,000
Beverage 75,000
Opening Stock Food 2,000
Beverage 1,000
Purchases Food 90,000 1, "!
Beverage 30,000 2
Departmental Expenses Food 15,000
Beverage 5,000
Other Expenses Office Rent 4,000
Interest 8,000
General Expenses 2,000
Telephone 3,000
Advertisement 6,000
Insurance 2,000
Depreciation 7,000
Closing Stock as on 31.12.2006 = Food Rs. 2000, Beverage - Rs. 1,000. All Other
Costs are to be apportioned in the ratio of 3:1

Q11. Find out the Gross Profit, Departmental Profit and Net Profit (Statement Form)
from the following information in the books of XYZ Hotel.
Rs
Sales Room 3.00.000
Food 2,00,000
Beverage 50,000
Opening Stock Food 1,000
Beverage 500
Purchases Food 75,000
Beveragee 20,000
Departmental Expenses Room 1,00,000
Food
30,000
Beverage 5,000
Other Expenses:
Wages& Salary
L.T.C 12,000
7,000
General Expenses
5,000
Advertisement 10,000
Interest
Insurance Premium 7,000
8,000
(291)
 HOTEL ACcoUNT, FINANCIAL AND F & B MANAGEMENT
1730

are to be apportioned on the following basis:

Note:

Other Expenses L.T.C. in the ratio of 3 :2: 1 to Room, Food & Beverage
1. Wages & Salary and
respectively. . . 9
ratio of 3:1:1 to Room,
2. General Expenses and Advertisement to be in the
Food &Beverage respectively.
and Rs. 2,000 for food .TH

3. Interest to be apportioned Rs. 5,000 for Room in the ratio of

between Room and Food
4. Insurance Premiumto be apportioned
3:1respectively. .

Himland
Profit& Loss account in the books of
Q12. You are required to prepare Trading,
Hotel as on 31st December, 2006.
Rs.
Room 10,00,000
Sales
2,00,000
Food
50,000
Beverage
Opening Stock Food 1,000
Beverage 1,000
Food 40,000
Purchases
Beverage 10,000

Departmental Expenses
Salaries &Wagés Room 5,000
4,000
Food 1,000
Beverage
Other Departmental EXpenses:
Room 50,000
.

Food 8,000
Beverage ,2,000
Other Expenses:
Telephone &Internet 10,000
Depreciation, 5.000
Interest 2,500
Office Expenses ,7,500
Commission 15,000
Repair &Maintenance 5,000
Electricity& Power 12,500
Water 2,500
Closing Stock as on 31st December, 2006: Food Rs. 1,500, Beverage Rs: 500. All
other expenses are to be apportioned among Room, Food and Beverage in the ratio of
3:1:1.
(292)
 O91AL1OCATION

O11 onile a trading and prolt and loss account (dopartrnent wise) from the deta
tshowing tho rmazirnun amount of information possible. (NCHM 1994)

for tho Poriod

yVr
Roons 1,40,000
Fod 1,11,800
Liquour and Tobacco 85,000
Othor Incomg 10,400

Purctasodfor tho poriod

Food 43,400
1
Liquour and Tobacco 49,300

Stocks at tho boginning of the period:

Food 1,740
Liquour and Tobacco 6,920

Stocks at the ond of the period:

Food 2,200
Liquour and Tobacco 8,000

Wages for the period

Rooms 12,300
Food 31,480
LIqueurand Tobacco 16,980

China, glass and linen consumed during the period

Kitchen 860
General 3,620
Repairs and Maintenance 2,400
Depreciation 15,000
Administrative expenses 10,900
Sales advertising and promotion 7,600
Rates 19,800
Sundries and other expenses 14,300
Q14. Fill in the blanks
a) Net Proit is sales.. . . . expenses.
b) Cost of goods sold is. (+ ).. ...
.)....
c) Segregation of duties is a method of ... ''*°**°
Control
d) Debit balance of real accounts is...
(293)
 HOTEL ACCoUNT, FINANCIAL AND F & B MANAGEMENT

Gross profit is ascertained by . . .

the beginning showS.
Excess of,oapital at the end over the capital at
)
Balance Sheetisa. ***
g
Assets.. Scapital
Increase in liability is . *****
Expired costwith respect to fixed asset is referred to as.
goods cost of used at the end of an accounting
KThe equation for calculating
period is..
Sundry creditors are alsoreferredto
as.

are True or False:

15. State whether the following statements employees
be a proof against fraudulent collusion between
a) Interest Control can
= Assets + External liabilities
b) Owners equity will evaluate their resu!ts
enable the hotelier to
c)Uniform Systm of Accounting
through inter firm comparison
d) Goodwill is an intangible asset are
revenue producing departments
In departmental accounting only
non
e
considered.
liabilities equal to owners equity.
Assets minus total outside
is liability
g)Income received in advance asset
a

h) Outstanding expenses is income

án

i) Pre paid expenses is an to increase in assets.

An increase in profit could be equaled
direct expenses
k)Net Profit is Sales less
Goodwill is a tangible asset
Internal Control
of duties is a method of
m) Segregation Assets Liabilities
n) Owners equity
-

are
revenue producing departments
In departmental accounting only
0)
Considered profit levels.
have effects on
PChanges in Sales mix 1
q) Liabilities = Assets- Owners Equity

(294)