Departmental ACC H&M

9
Departmental Accounts
Introduction
A business is generally split up into a number of departments when it sells different types of goods or carries
on several activities under the same roof. Such departments are found in businesses of all sizes (particularly
in urban areas). A department is generally a physical part of the rest of the business. It should not be assumed
that departmental accounts refers only to departmental stores. In fact, they refer to the verious facets of a
business. Each department is treated as a separate profit centre, though none of the departments is separated
geographically from the rest of the departments. This type of organisational subdivision creates a need for
internal information about the operating results of each department. Since different departments may have
different rates of growth, profitability and degrees of risk, managerial decisions in regard to pricing, closure
etc. can be made on the basis of such information.Therefore, the various pros and cons of the actions to be
taken to increase the over all profitability of the business concern can not be properly considered until the
departmental profits and losses are known.
Advantages of Departmental Accounting

The main advantages of departmental accounting are as follows:
1. The performance of each department can be evaluated separately on the basis of trading results. An
endeavour may be made to push up the sales of that department which is earning maximum profit.
2. It helps the management to decide whether to drop a department or add a new one.
3. The growth potential of a department as compared to others can be evaluated.
4. More detailed information can be provided to the users of the accounting information like the
shareholders, investors, creditors etc.
5. Friendly rivalry between different departments may help to increase the overall profit of the organisa-
tion.
6. Departmental managers and staff can be rewarded properly on the basis of results.
7. It helps the management to determine the justification of capital outlay in each department.
8. It facilitates the comparison of expense items with those in other departments and in the previous period.
9.2 Departmental Accounts
9. It helps to calculate stock turnover ratio of each department separately, and thus the efficiency of each
department can be revealed.
10. Departmental accounting information also provides a basis for intelligent planning and control.
Methods of Departmental Accounts

In order to ascertain the departmental profit accurately, it is necessary to identify the different expenses and
revenues of each department. The accounting system must be designed in such a manner that it provides
maximum information and is simple to operate.
There are two methods of keeping Departmental Accounts:
(a) where separate set of books are kept for each department; and
(b) where accounts of all the departments are kept together on columnar books.
(a) Where Separate Set of Books are Kept for Each Department
This method of accounting is employed when the size of the organisation is very large or the law of the land requires
the maintenance of separate books for each department. For example, in India, general insurance company is required
to prepare separate revenue account for each type of business ---- fire, marine, accidents, etc.
Under this method each department is regarded as a separate unit and accounts are kept independently. At
the year end the trading results of all the departments are combined to get the trading results of the organisation
as a whole. This method is rarely used and is also expensive in operation.
(b) Where Accounts of All Departments are Kept Together on Columnar Books
When the size of the organisation is small, the entire book keeping system for the business as a whole is
generally kept by a central accounts department.
A department does not maintain a full double-entry book-keeping system of its own, but some records are
normally kept regarding purchases, sales and direct expenses, stock within the department, etc. The central
accounts department generally maintains an analytical or columnar Purchase and Sales Day Book to distinguish
between the purchases and sales of different departments.
After ascertaining purchases and sales of each department and also the direct expenses incurred, it only
requires a departmental closing stock-taking in order to prepare a Trading Account for each department.
Following is a specimen of Departmental Trading Account.
ABC Departmental Store Ltd.
Dr. Departmental Trading Account for the year ended ... Cr.
Particulars Dept. A Dept. B Dept. C Total Particulars Dept. A Dept. B Dept. C Total
To Op. Stock 4,000 10,000 15,000 29,000 By Sales 50,000 70,000 80,000 2,00,000
To Purchases 37,000 45,000 55,000 1,37,000 By Cl. Stock 10,000 5,000 20,000 35,000
To Direct Exp. 10,000 5,000 5,000 20,000
To G. P. c/d 9,000 15,000 25,000 49,000
60,000 75,000 1,00,000 2,35,000 60,000 75,000 1,00,000 2,35,000
Gross profit ratio 15% 20% 25%
Under this system, the gross profit of individual department can be determined accurately. Where it is
desired to determine the departmental net profit in addition to the gross profit, each department is charged with
a share of the common expenses which is apportioned on a suitable basis.
Allocation of Departmental Expenses

In practice, the following general rules are usually applied for allocation and apportionment of expenses:
1. Expenses directly related to a particular department should be charged to that department. For example,
salary of employees of a particular department or bad debts from the sale of a particular department can
be charged to the concerned department directly.
Financial Accounting - II 9.3
2. The expenses which have a direct bearing with the sales should be apportioned on the basis of net sales.
For example, advertisement expenses should be apportioned on the basis of departmental sales to
outside customers.
3. All other business expenses, e.g. rent, rates, lighting, heating, depreciation, insurance etc. should be
apportioned on the most logical basis. The nature of the expense, and the nature of the business will
determine the basis for apportionment of expenses. The basis for apportionment of some important
expenses are given below:
Sl. Expenses Basis
1. (a) Travelling salesman’s salary and commission Sales of each department

(b) Selling expenses
(c) After-sales service
(d) Discount allowed
(e) Freight outwards
(f) Provision for discounts on debtors
(g) Sales manager’s salary and other benefits
2. (a) Rent, rates and taxes Area or value of floor space

(b) Air conditioning expenses
(c) Heating
3. Lighting Light points
4. Insurance on Stock Average stock carried
5. Insurance on Building Area
6. Insurance on Plant & Machinery Value of Plant & Machinery
7. Group insurance premium Direct wages
8. Power H.P. or H.P. x Hours worked
9. (a) Depreciation Value of assets in each department

(b) Repairs and renewals
10. (a) Canteen expenses Number of employees

(b) Labour welfare expenses
11. Works manager’s salary Time spent in each department
12. Carriage inwards Purchases of each department
There are certain types of expenses, most being of a financial nature, which cannot be apportioned on a
suitable basis. Examples are loss on sale of investment or assets, damages payable for the infringement of law,
interest on bank loan etc. There are also some purely financial incomes which cannot be suitably apportioned
among different departments. To ascertain the total profit of a business as whole profits from all the departments
should be added. If department(s) suffers a loss, it should be deducted from the total profits of the other
departments. This figure should be brought down in one total and all the expenses should be deducted from
that figure to arrive at the net profit.
Technique of Departmental Accounts

Columnar Purchases and Sales Books, etc. (Manual System)
If the number of departments are small, it is convenient to use columnar or analytical Purchase Day Book and
Sales Day Book for recording credit purchases and credit sales of each department. Return Inwards Book and
Return Outwards Book are ruled in a similar manner. For recording cash sales and cash purchases, special
columns are also provided in the Cash Book.
Purchases Day Book
Date Particulars Invoice No. L.F. Total Departments
~ A B C
2017
April 4 Century Mills Ltd. 19 / 17 40,000 ---- ---- 40,000
18 Bombay Dyeing Ltd. 14 / 17 50,000 50,000 ---- ----
30 Raymond’s Mills Ltd. 17 / 17 60,000 ---- 60,000 ----
1,50,000 50,000 60,000 40,000
The total monthly purchases of each department are posted to the debit of the respective Department’s
Purchases Account. The Suppliers’ Account is credited in the usual manner.
In the General Ledger the Purchases Account will appear as follows:
Dr. Purchases Account Cr.
Date Particulars Departments Date Particulars Departments
A B C A B C
30.4.2015 To S. Creditors A/c 50,000 60,000 40,000
The same ruling will do for Sales Day Book, Returns Inwards Book and Returns Outwards Book.
Computerised System
If the number of departments are very large, the use of separate journal column for each department
would result in journal of unmanageable size. Now-a-days almost all large departmental stores are
using computer to record transaction data directly into a computerised accounting system. With the
help of computer terminals each department enter sales information into a main computer at the time
each sale is rung up. Journals, ledgers and other reports are prepared at the end of each month for
the use of the management.
Distinction between Departmental Accounts and Branch Accounts

1. In case of a dependent branch, all important accounting records are kept at the head office. The branch
maintains only Cash Account and Customers Account (if necessary). However, an independent branch,
usually maintains its own books of account and prepares its own Trading and Profit and Loss Account.
In case of Departmental Accounts, all accounting records are maintained at one place and Departmental
Trading and Profit and Loss Account is prepared accordingly.
2. As the departments are not geographically separated from each other, the problem of allocation of
common expenditure among different departments arises. But in case of a branch account this problem
of allocation of common expenditure does not arise since branches are geographically separated from
each other.
3. In case of an independent branch, at the end of the accounting year, some adjustment and reconciliation
of head office and branch accounts are required. In case of Department Accounts, the question of
adjustments and reconciliation of accounts does not arise.
4. At the time of finalisation of accounts of head office, the conversion of foreign branch figures may
create some problems. In case of Departmental Accounts, this type of problem does not arise.
Illustration 1
The following balances as at 31.12.2017 have been extracted from the books of Sri Ram & Co which has two departments:
Particulars Dept. A (~) Dept. B (~)
Opening Stock as on 1.1.2017 25,000 20,000
Purchases 2,30,000 1,90,000
Purchase Returns 2,000 1,000
Sales 6,33,000 4,92,000
Sales Returns 3,000 2,000
Wages 1,80,000 1,60,000
Miscellaneous Charges 35,000 32,000
General:
Sundry Debtors ---- ~ 1,90,000; Sundry Creditors ---- ~ 1,73,000; Plant and Machinery ---- ~ 2,40,000; Leaseholds ----
~ 80,000; Buildings ---- ~ 1,20,000; Furniture and Fittings ---- ~ 48,000; Office and Selling Expenses ---- ~ 1,28,000; Cash
in hand on 31.12.2017 ---- ~ 8,000; Cash at Bank on 31.12.2017 ---- ~ 1,10,000; Capital ---- ~ 5,00,000.
Plant and Machinery is to be depreciated by 10%; Buildings by 2%; Furniture and Fittings by 5%; Leaseholds are to
be written-off by ~ 8,000. The stock on hand as on 31.12.2017: Department A ---- ~ 26,000; Department B ---- ~ 24,000.
All unallocated expenditure is to be apportioned in the ratio of the net sales of each department.
Prepare in columnar form, the Trading, Profit and Loss Account of the two departments and Balance Sheet of the
combined business as a whole on 31.12.2017.
Solution Sri Ram & Co
Dr. Departmental Trading and Profit & Loss Account for the year ended 31st December, 2017 Cr.
Particulars Dept A Dept B Particulars Dept A Dept B
To Opening Stock 25,000 20,000 By Sales less returns 6,30,000 4,90,000
To Purchases less returns 2,28,000 1,89,000 By Closing Stock 26,000 24,000
To Wages 1,80,000 1,60,000
To Gross Profit b/d 2,23,000 1,45,000
6,56,000 5,14,000 6,56,000 5,14,000
To Miscellaneous Charges 35,000 32,000 By Gross Profit b/d 2,23,000 1,45,000
To Depreciation:
On Plant & Machinery 13,500 10,500
On Furniture & Fittings 1,350 1,050
On Building 1,350 1,050
To Leaseholds 4,500 3,500
To Office & Selling Expenses 72,000 56,000
To Net Profit ---- transferred to Capital 95,300 40,900
2,23,000 1,45,000 2,23,000 1,45,000
Balance Sheet of Sri Ram & Co. as at 31st December, 2017 Cr.
Liabilities ~ ~ Assets ~ ~
Capital (opening) 5,00,000 Leaseholds 80,000
Add: Profit from Dept. A 95,300 Less: Written-off 8,000 72,000
Add: Profit from Dept. B 40,900 6,36,200 Buildings 1,20,000
Sundry Creditors 1,73,000 Less: Depreciation 2,400 1,17,600
Plant & Machinery 2,40,000
Less: Depreciation 24,000 2,16,000
Furniture & Fittings 48,000
Less: Depreciation 2,400 45,600
Closing Stock (~ 26,000 + 24,000) 50,000
Sundry Debtors 1,90,000
Cash at Bank 1,10,000
Cash in hand 8,000
8,09,200 8,09,200
Working Note : Apportionment of Unallocated Expenditure

Particulars Dept. A Dept. B
(a) Depreciation:
On Plant & Machinery 24,000 24,000
x 63 � ~ 13,500 x 49 � ~ 10,500
112 112
On Furniture & Fittings 2,400 2,400
x 63 � ~ 1,350 x 49 � ~ 1,050
112 112
On Buildings 2,400 2,400
x 63 � ~ 1,350 x 49 � ~ 1,050
112 112
(b) Leasehold 8,000 8,000
x 63 � ~ 4,500 x 49 � ~ 3,500
112 112
(c) Office & Selling Expenses 1,28,000 1,28,000
x 63 � ~ 72,000 x 49 � ~ 56,000
112 112
Illustration 2
From the following Trial Balance, prepare Departmental Trading and Profit and Loss Account for the year ended
31.12.2017 and a Balance Sheet as on that date in the books of P & Co. (all figures in ~):
Particulars Dr. Cr.
Stock on 1.1.2017 Dept A 5,400
Dept B 4,900
Purchases Dept A 9,800
Dept B 7,350
Sales Dept A 16,900
Dept B 13,520
Wages Dept A 1,340
Dept B 240
Rent 1,870
Salaries 1,320
Lighting and Heating 420
Discount allowed 441
Discount received 133
Advertising 738
Carriage inwards 469
Furniture and fittings 600
Plant and Machinery 4,200
Sundry Debtors 1,820
Sundry Creditors 3,737
Capital 9,530
Drawings 900
Cash in hand 32
Cash at bank 1,980
Total 43,820 43,820
The following information is also provided:
(a) Rent, lighting and heating, salaries and depreciation are to be apportioned to A and B Departments as 2 : 1.
(b) Other expenses and incomes are to be apportioned to A and B Departments on suitable basis.
(c) The following adjustments are to be made:
Rent pre-paid ~ 370; Lighting and heating outstanding ~ 180; and Depreciation on Furniture & Fittings and Plant
& Machinery @ 10% p.a.
(d) The stock at 31.12.2017 : Department A ---- ~ 2,748; Department B ---- ~ 2,401.
Solution P & Co.

Particulars Dept A Dept B Particulars Dept A Dept B
To Opening Stock 5,400 4,900 By Sales 16,900 13,520
To Purchases 9,800 7,350 By Closing Stock 2,748 2,401
To Carriage Inwards (Note 1) 268 201
To Wages 1,340 240
To Gross Profit b/d 2,840 3,230
19,648 15,921 19,648 15,921
To Rent 1,000 500 By Gross Profit b/d 2,840 3,230
To Salaries 880 440 By Discount received (Note 1) 76 57
To Lighting and heating 400 200 By Net Loss - transferred to Capital 339 ----
To Discount allowed 245 196
To Advertisement 410 328
To Depreciation 320 160
To Net Profit - transferred to Capital ---- 1,463
3,255 3,287 3,255 3,287
Balance Sheet of P & Co. as at 31st December, 2017

Liabilities ~ ~ Assets ~ ~
Capital (opening) 9,530 Plant and Machinery 4,200
Add: Profit from Dept. B 1,463 Less: Depreciation 420 3,780
Less: Loss from Dept. A 339 Furniture and Fittings 600
10,654 Less: Depreciation 60 540
Less: Drawings 900 9,754 Sundry Debtors 1,820
Outstanding exp. for lighting and heating 180 Stock in trade 5,149
Sundry Creditors 3,737 Cash at bank 1,980
Cash in hand 32
Prepaid rent 370
13,671 13,671
Working Note: (1) Carriage inwards and discount received are apportioned in the purchase ratio and discount allowed and
advertisement in the sales ratio.
(a) Carriage Inward 469 469
x 9,800 � ~ 268 x 7,350 � ~ 201
17,150 17,150
(b) Discount received 133 133
x 9,800 � ~ 76 x 7,350 � ~ 57
17,150 17,150
(c) Discount allowed 441 441
x 16,900 � ~ 245 x 13,520 � ~ 196
30,420 30,420
(d) Advertisement 738 738
x 16,900 � ~ 410 x 13,520 � ~ 328
30,420 30,420
(e) Rent (~ 1,870 -- 370) 1,500 1,500
x 2 � ~ 1,000 x 1 � ~ 500
3 3
(f) Lighting & heating (~ 420 + 180) 600 600
x 2 � ~ 400 x 1 � ~ 200
3 3
(g) Salaries 1,320 1,320
x 2 � ~ 890 x 1 � ~ 440
3 3
(h) Depreciation (~ 420 + 60) 480 480
x 2 � ~ 320 x 1 � ~ 160
3 3
Illustration 3
M/s Suman Hosiery Mills produces three varieties of products: Sona, Mona and Dona. The cost of production during the
year 2017 of these varieties amounted to ~ 8,00,000. Output during the year were: Sona ---- 4,000 units; Mona ---- 8,000
units and Dona ---- 9,600 units.
Stock on 1st January, 2017 were: Sona ---- 450 units; Mona ---- 300 units and Dona ---- 600 units.
Sales during the year were: Sona ---- 4,100 units @ ~ 48 each; Mona ---- 7,700 units @ ~ 54 each and Dona ---- 10,000
units @ ~ 60 each. The rate of gross profit is the same in each case. Total departmental expenses of ~ 96,000 were to be
apportioned to various products in the ratio of 1:2:2.
Prepare Departmental Trading Account. [C.U.B.Com. (Hons.) ---- Adapted]
Solution M/s Suman Hosiery Mills
Dr. Departmental Trading Account for the year ended 31st December, 2017 Cr.
Particulars Sona Mona Dona Particulars Sona Mona Dona
To Opening Stock (Note 1) By Sales
Sona (450 x ~ 32) 14,400 Sona (4,100 x ~ 48) 1,96,800
Mona (300 x ~ 36) 10,800 Mona (7,700 x ~ 54) 4,15,800
Dona (600 x ~ 40) 24,000 Dona (10,000 x ~ 60) 6,00,000
To Cost of Production: By Closing Stock:
Sona (4,000 x ~ 32) 1,28,000 Sona (350 x ~ 32) 11,200
Mona (8,000 x ~ 36) 2,88,000 Mona (600 x ~ 36) 21,600
Dona (9,600 x ~ 40) 3,84,000 Dona (200 x ~ 40) 8,000
To Department Gross Profit
(331/3 of Sales) 65,600 1,38,600 2,00,000
2,08,000 4,37,400 6,08,000 2,08,000 4,37,400 6,08,000
Tutorial Note: Departmental expenses of ~ 96,000 should not be charged to Trading Account, because they are not directly related with
production. However, for the purpose of determining departmental net profit, these expenses are to be charged to: Sona ---- ~ 19,200; Mona
---- ~ 38,400; and Dona ---- ~ 38,400. The resultant profits will be: Sona ---- ~ 46,400; Mona ---- ~ 1,00,200; and Dona ---- ~ 1,61,600.
Working Notes: For the purpose of calculating G.P. ratio, the cost of production to be deducted from the sale value of goods produced only.
(1) Calculation of Rate of Gross Profit and Cost of Production
Sales value of goods produced: ~ ~
Sona : 4,000 x ~ 48 1,92,000
Mona : 8,000 x ~ 54 4,32,000
Dona : 9,600 x ~ 60 5,76,000 12,00,000
Less: Total cost of production 8,00,000
Expected Gross Profit 4,00,000
4,00,000 1
(a) Rate of gross profit = x 100 � 33 % �on sales�
12,00,000 3
(b) Respective departmental cost prices (i.e., Sales price less 33 1/3%) :
Sona : ~ 48 -- ~ 16 = ~ 32; Mona : ~ 54 -- ~ 18 = ~ 36; and Dona : ~ 60 -- ~ 20 = ~ 40.
(2) Calculation of Number of Units Unsold
Department Opening Stock (+) Production (----) Sales (=) Closing Stock
Sona (units) 450 4,000 4,100 350
Mona (units) 300 8,000 7,700 600
Dona (units) 600 9,600 10,000 200
Assumption : Cost of production and sales prices are constant for the last 2 years.
Illustration 4
Brahma Limited has three departments and submits the following information for the year ending on 31st March, 2011 :
Particulars A B C Total (~)
Purchases (units) 5,000 10,000 15,000 ----
Purchases (Amount) ---- ---- ---- 8,40,000
Sales (units) 5,200 9,800 15,300 ----
Selling price (~ per unit) 40 45 50 ----
Opening stock (units) 400 600 700 ----
You are required to prepare Departmental Trading Account of Brahma Limited assuming that the rate of profit on sales
is uniform in each case. [C.A. (IPCE) ---- May, 2011]
Solution Brahma Ltd

Dr. Departmental Trading Account for the year ended 31st March, 2011 Cr.
Particulars A B C Particulars A B C
(~) (~) (~) (~) (~) (~)
To Opening Stock (Note 4) 14,400 10,800 30,000 By Sales (Note 6) 2,08,000 4,41,000 7,65,000
To Purchases (Note 2) 1,20,000 2,70,000 4,50,000 By Closing Stock (Note 5) 9,600 16,200 21,000
To Gross Profit 83,200 1,76,400 3,06,000
2,17,600 4,57,200 7,86,000 2,17,600 4,57,200 7,86,000
Working Notes :
(1) Calculation of Profit Margin Rate
Particulars ~ ~
Department A (5,000 units @ ~ 40) 2,00,000
Department B (10,000 units @ ~ 45) 4,50,000
Department C (15,000 units @ ~ 50) 7,50,000
Total Sales Value 14,00,000
Less: Purchases (given) 8,40,000
Gross Profit 5,60,000

Profit Margin Rate � � 100 � � 100 � 40%
Sales Value 14,00,000
(2) Calculation of Purchase Price and Total Purchases of Each Department
Particulars A B C
Selling Price per unit (~) 40 45 50
Less: Profit Margin @ 40% 16 18 20
Purchase Price per unit (X) 24 27 30
Number of Units Purchased (Y) 5,000 10,000 15,000
Total Purchases (X) x (Y) (~) 1,20,000 2,70,000 4,50,000
(3) Calculation of Opening Stock of Each Department

Department A B C
Closing Stock (units) 400 600 700
Add: Sales (units) 5,200 9,800 15,300
5,600 10,400 16,000
Less: Purchases (units) 5,000 10,000 15,000
Opening Stock (units) 600 400 1,000
(4) Calculation of Value of Opening Stock

Department A : 600 � ~ 24 = ~ 14,400
Department B : 400 � ~ 27 = ~ 10,800
Department C : 10,000 � ~ 30 = ~ 30,000
(5) Calculation of Value of Closing Stock
Department A : 400 � ~ 24 = ~ 9,600
Department B : 600 � ~ 27 = ~ 16,200
Department C : 700 � ~ 30 = ~ 21,000
(6) Calculation of Sales Value
Department A : 5,200 � ~ 40 = ~ 2,08,000
Department B : 9,800 � ~ 45 = ~ 4,41,000
Department C : 15,300 � ~ 50 = ~ 7,65,000
Illustration 5
Rohit Choudhury is the proprietor of a retail business which has two main departments which sell respectively hardware
and electrical goods. On 31.12.2017, the balances in the books of the business were as follows :
Particulars Dr. (~) Cr. (~) Particulars Dr. (~) Cr. (~)
Capital 71,000 Drawings 3,000
Sales ---- Hardware 59,000 Buildings (Cost) 43,000
Electrical 29,500 Equipments at W.D.V. ---- Hardware 18,000
Purchases ---- Hardware 20,000 Electrical 7,000
Electrical 10,000 Debtors and Creditors 10,200 5,319
Stock on 1.1.2017 ---- Hardware 2,320 Bank 5,600
Electrical 2,136 Rent and Rates 1,580
Salaries ---- Hardware 20,560 Canteen Charges 875
Electrical 15,440 Heating and Lighting 880
Advertising 615 Insurance of Stock 940
Discount allowed ---- Hardware 400 General Administrative Expenses 2,073
Electrical 200 Total 1,64,819 1,64,819
Additional information ----
(i) At 31.12.2017, the following amounts were outstanding :
Salaries ---- Hardware ~ 250; Electrical ~ 170; Heating and Lighting ~ 20.
(ii) The general administrative expenses and the rent and rates included prepayments of ~ 33 and ~ 80 respectively.
(iii) Stocks at 31.12.2017 were : Hardware ~ 2,800; Electrical ~ 2,450.
(iv) Depreciation is to be provided on equipments at 10% on W.D.V.
(v) The managers of the hardware and electrical departments are to be paid a commission of 5% of the net profit (prior
to the commission payment) of the respective departments.
(vi) In apportioning the various expenses between the two departments due regard is to be given to the following
information :
Number of Workers Average Stock Levels (~) Floor Area (sq.ft)
Hardware 9 2,500 4,000
Electrical 6 2,200 2,000
(vii) The general administrative expenses are primarily incurred in relation to the processing of purchases and sales
invoices.
Prepare a Departmental Trading and Profit and Loss Account and the Balance Sheet.
Solution Rohit Choudhury
Dr. Departmental Trading and Profit and Loss Account for the year ended 31st December, 2017 Cr.
Particulars Hardware Electrical Particulars Hardware Electrical
(~) (~) (~) (~)
To Opening Stock 2,320 2,136 By Sales 59,000 29,500
To Purchases 20,000 10,000 By Closing Stock 2,800 2,450
To Gross Profit c/d 39,480 19,814
61,800 31,950 61,800 31,950
To Salaries (including outstanding) 20,810 15,610 By Gross Profit b/d 39,480 19,814
To Advertising (Note 1) 410 205
To Discount Allowed 400 200
To Rent and Rates (Note 1) 1,000 500
To Canteen Charges (Note 1) 525 350
To Heating and Lighting (Note 1) 600 300
To Insurance of Stock (Note 1) 500 440
To General Administrative Exp. (Note 1) 1,360 680
To Depreciation on Equipments 1,800 700
To Managers’ Commission 604 41
To Net Profit (transferred to Capital) 11,471 788
39,480 19,814 39,480 19,814
Balance Sheet of Rohit Choudhury as at 31st December, 2017

Liabilities ~ Assets ~
Capital (Opening) 71,000 Buildings (cost) 43,000
Add: Profit from Hardware 11,471 Equipments at W.D.V. (~ 18,000 + 7,000) 25,000
Add: Profit from Electrical 788 Less: Depreciation (~ 1,800 + 700) 2,500 22,500
83,259 Stock ---- Hardware 2,800
Less: Drawings 3,000 80,259 Electrical 2,450 5,250
Creditors 5,319 Debtors 10,200
Outstanding : Bank 5,600
Salaries (~ 250 + 170) 420 Prepayments :
Heating and Lighting 20 General Administrative Expenses 33
Commission (~ 604 + 41) 645 Rent and Rates 80
86,663 86,663
Working Notes : (1) Apportionment of Common Expenses

Expenses Basis Hardware Department Electrical Department
(i) Advertising Sales 615 615

� Rs 59,000 � ~ 410 � 29,500 � ~ 205
88,500 88,500
(ii) Rent and Rates Floor Area 1,500 �Note 3� 1,500
� 4 � ~ 1,000 � 2 � ~ 500
6 6
(iii) Canteen Charges Number of Workers 875 875
� 9 � ~ 525 � 6 � ~ 350
15 15
(iv) Heating and Lighting Floor Area 900 �Note 3� 900
� 4 � ~ 600 � 2 � ~ 300
6 6
(v) Insurance of Stock Average Stock Level 940 940
� 2,500 � ~ 500 � 2,200 � ~ 440
4,700 4,700
(vi) General Total of Sales and 2,040 �Note 3� 2,040
Purchases � 79,000 � ~ 1,360 � 39,500 � ~ 680
Administrative Expenses 1,18,500 1,18,500
(2) Managers’ Commission:
Hardware : 5% of ~ 12,075 = ~ 604 (approx.)
Electrical : 5% of ~ 829 = ~ 41 (approx.)
(3) Rent and Rates : ~ 1,580 -- ~ 80 (prepaid) = ~ 1,500;
Heating and Lighting : ~ 880 + ~ 20 (outstanding) = ~ 900;
General Administrative Expenses : ~ 2,073 -- ~ 33 (prepaid) = ~ 2,040
Illustration 6
The following balances as at 31.12.2017 have been extracted from the books of David, the proprietor of a departmental
store :
Wages and Salaries ~ 1,42,500; Maintenance ~ 12,360; Rent ~ 27,050; Advertising ~ 15,000; Sundry Debtors
~ 41,900; Sundry Creditors ~ 16,800; Provision for doubtful debts ~ 5,000; Investments ~ 50,000; Furniture ~ 46,500; Cash
~ 21,550; Capital Account ~ 2,00,000; Current Account ~ 880 (Cr.); Drawings ~ 75,120.
The records relating to the stocks are : (all figures in ~)
Stock on 1.1.2017 Purchases Purchase Returns Stock on 31.12.2017
Dept. X 10,700 94,600 900 21,000
Dept. Y 68,000 2,20,980 2,200 61,600
Additional information :
(1) Department X sells articles for ~ 40 each which is equivalent to 80% above cost price, while department Y sells
articles for ~ 60 each which is equivalent to double the cost price.
(2) Write off bad debts ~ 3,300 and adjust the provision for doubtful debts to 10% of the remaining outstanding debtors.
These adjustments should be apportioned equally between department X and department Y.
(3) Provide ~ 4,000 investment income due to be received.

(4) Provide ~ 1,150 rent due to be paid.
(5) Depreciate furniture by 10%.
(6) All general expenses should be apportioned between department X and department Y on the basis of the number
of articles sold by these departments during the year.
You are required to prepare Departmental Trading and Profit and Loss Account for the year ended 31.12.2017 and a
Balance Sheet as on that date.
Solution David
Particulars Dept. X Dept. Y Particulars Dept. X Dept. Y
(~) (~) (~) (~)
To Opening Stock 10,700 68,000 By Sales (Note 1) 1,50,120 4,50,360
To Purchases 94,600 2,20,980 By Closing Stock 21,000 61,600
Less: Returns (900) (2,200)
To Gross Profit c/d 66,720 2,25,180
1,71,120 5,11,960 1,71,120 5,11,960
To Wages and Salaries (Note 3) 47,500 95,000 By Gross Profit b/d
To Maintenance (Note 3) 4,120 8,240 By Provision for Doubtful Debts 66,720 2,25,180
To Rent (~ 27,050 + 1,150) 9,400 18,800 (equally ---- Note 2) 570 570
To Advertising (Note 3) 5,000 10,000 By Departmental Loss c/d 1,930 ----
To Depreciation on Furniture (Note 3) 1,550 3,100
To Bad Debts (equally) 1,650 1,650
To Departmental Profit c/d ---- 88,960
69,220 2,25,750 69,220 2,25,750
To Departmental Loss b/d 1,930 By Departmental Profit b/d 88,960
To Net Profit 91,030 By Accrued Income from Investments 4,000
92,960 92,960
Balance Sheet of David as at 31st December, 2017
Capital Account 2,00,000 Furniture 46,500
Current Account : ~ Less : Depreciation 4,650 41,850
Opening balance 880 Stock (~ 21,000 + 61,600) 82,600
Add : Net Profit 91,030
, Sundry Debtors 41,900
91,910 Less : Bad Debts 3,300
Less : Drawings 75,120 16,790 38,600
Sundry Creditors 16,800 Less : Provision for Doubtful Debts 3,860 34,740
Outstanding Rent 1,150 Investments 50,000
Add : Accrued Income 4,000 54,000
Cash 21,550
2,34,740 2,34,740
Working Notes : (1) Calculation of Sales
Particulars Dept X (~) Dept Y (~)
Opening Stock 10,700 68,000
Add : Purchases 94,600 2,20,980
1,05,300 2,88,980
Less: Purchases Return 900 2,200
1,04,400 2,86,780
Less : Closing Stock 21,000 61,600
Cost of Goods Sold 83,400 2,25,180
(a) Department X sells goods at 80% above cost. Therefore, sales = ~ 83,400 / 100��180 = ~ 1,50,120.
(b) Department Y sells goods at 100% above cost. Therefore, sales = ~ ~ 2,25,180 / 100��200 = ~ 4,50,360.
(2) Calculation of Excess Provision for Doubtful Debts ~
Balances of Sundry Debtors 41,900
Less : Bad Debts to be written off 3,300
Adjusted balance of Sundry Debtors 38,600
Existing balance of provision for doubtful debts 5,000

Less: Provision for Doubtful Debts required : 10% of ~ 38,600 3,860
Excess 1,140
This excess provision for doubtful debts will be credited to department X and Y equally, i.e., ~ 570 each.
(3) Calculation of Number of Articles Sold
Department X : ~ 1,50,120 / 40 = 3,753
Department Y : ~ 4,50,360 / 60 = 7,506
Ratio of number of articles sold : 3,753 : 7,506 or 1 : 2
All general expenses are to be apportioned in the ratio of 1 : 2.
Illustration 7
Robinhood is a retail trader whose stores has two departments dealing in clothing and sports equipment respectively. The
following Trial Balance was extracted from books at 31.12.2017, the accounting year end :
Particulars Dr. (~) Cr. (~)
Sales ---- Clothing 1,20,000
Sports Equipment 1,60,000
Stock at cost at 1.1.2017 ---- Clothing 10,000
Sports Equipment 16,000
Purchases ---- Clothing and Sports Equipment 1,92,000
Establishment Expenses ---- Clothing 15,000
Sales and Administrative Expenses ---- Clothing 7,400
Capital 20,000
Reserve 21,460
Creditors 5,800
Bank Overdraft 2,300
Debtors 8,600
Building ---- At cost 20,000
Provision for Depreciation 800
Furniture ---- At cost 26,000
Provision for Depreciation 9,000
Vehicles ---- At cost 42,000
Provision for Depreciation 20,400
Total 3,59,760 3,59,760
(a) Gross profit is earned as follows : Clothing ---- 1/3rd of sales; Sports equipment ---- 3/10th of sales.
(b) Stock is valued at cost on 31.12.2017 :
Clothing ~ 8,000; Sports equipment ~ 14,000
(c) Amounts prepaid at 31.12.2017 :
Establishment expenses ---- Clothing ~ 300.
(d) Amount outstanding on 31.12.2017 :
Sales and administrative expenses ---- Clothing ~ 200; Sports equipment ~ 700.
(e) The sales staff receive commission in June of each year based on the gross profit earned in their department in the
previous financial year :
Clothing ---- 2% of gross profit; Sports equipment ---- 3% of gross profit.
(f) In June 2017, additional furniture was acquired at a cost of ~ 4,000 was debited to purchases.
(g) Depreciation is provided annually on fixed assets at the following percentage of the cost of assets held at the relevant
accounting year end :
Building ---- 2%; Furniture ---- 10%; Vehicles ---- 20%.
(h) In August 2017, a motor vehicle which had been bought in January 2013 at a cost of ~ 6,000 was scrapped, the
firm did not receive anything for the scrap.
(i) The fixed assets depreciation is apportioned to departments as follows :
Clothing Sports Equipment
Building 1/2 1/2
Furniture 3/5 2/5
Vehicles 5/12 7/12
You are required to prepare the Trading and Profit and Loss Account for the year ended 31.12.2017 and the Balance
Sheet as on that date.
Solution Robinhood
Particulars Clothing Sports Particulars Clothing Sports
Equipment Equipment
(~) (~) (~) (~)
To Opening Stock 10,000 16,000 By Sales 1,20,000 1,60,000
To Purchases (Balancing figure) 78,000 1,10,000 By Closing Stock 8,000 14,000
To Gross Profit c/d (given) 40,000 48,000
1,28,000 1,74,000 1,28,000 1,74,000
To Establishment Expenses (Note 1) 14,700 16,920 By Gross Profit b/d 40,000 48,000
To Sales and Administrative Exp. (Note 2) 7,600 6,540
To Outstanding Sales Staff Comm. (Note 5) 800 1,440
To Depreciation on (Note 3) :
Building (1 : 1) 200 200
Furniture (3 : 2) 1,800 1,200
Vehicles (5 : 7) 3,000 4,200
To Loss on Scrap of Vehicle (Note 4) 500 700
To Net Profit (transferred) 11,400 16,800
40,000 48,000 40,000 48,000
Balance Sheet of Robinhood as at 31st December, 2017
Capital (opening) 20,000 Building 20,000
Add: Profit from Clothing 11,400 Less: Provision for depreciation 1,200 18,800
Add: Profit from Sports Equipment 16,800 48,200 Furniture (~ 26,000 + ~ 4,000) 30,000
Reserve 21,460 Less: Provision for depreciation 12,000 18,000
Creditors 5,800 Vehicles (~ 42,000 -- ~ 6,000) 36,000
Outstanding : Less: Provision for depreciation 22,800 13,200
Sales and Administrative Expenses (~ 200 + 700) 900 Stock (~ 8,000 + ~ 14,000) 22,000
Sales Staff Commission 2,240 Debtors 8,600
Bank Overdraft 2,300 Prepaid Establishment Expenses 300
80,900 80,900
Working Notes :
(1) Establishment Expenses
Clothing ---- ~ 15,000 -- ~ 300 (prepaid) = ~ 14,700.
(2) Sales and Administrative Expenses
Clothing ---- ~ 7,400 + ~ 200 (outstanding) = ~ 7,600.
Sports Equipment ---- ~ 5,840 + ~ 700 (outstanding) = ~ 6,540.
(3) Calculation of Depreciation
On Building ---- ~ 20,000 @ 2% = ~ 400.
On Furniture ---- ~ 30,000 @ 10% = ~ 3,000
On Vehicles ---- (~ 42,000 -- ~ 6,000) @ 20% = ~ 7,200.
(4) Loss on Scrap of Vehicle ~
Cost 6,000
Less: Accumulated depreciation (4 years @ ~ 1,200) 4,800
Written down value on the date the asset was scrapped 1,200
Amount realised Nil
Loss 1,200
Loss on scrap of vehicle will be shared by Clothing Department and Sports Equipment Department just like depreciation. Therefore,
clothing department will bear the loss of ~ 500 (5/12 of ~ 1,200) and sports equipment department will bear the loss of ~ 700
(7/12 of ~ 1,200).
(5) Sales staff will get commission in June, 2018 on the basis of gross profit of 2017. Therefore, in the Profit and Loss Account of
2017, provision must be made for such future payment.
Illustration 8
Praveen Choudhury commenced trading on 1.4.2017 as Highway Stores, retail stationers and confectioners, with an initial
capital of ~ 30,000 which was utilised in the opening of a business Bank Account. All receipts and payments are passed
through the Bank Account. The following is a summary of the items credited in the business Cash Book during the year
ended 31.3.2018:
Particulars (~) Particulars (~)
Purchase of fixtures and fittings : Rent for the period 1.4.2017 to 30.4.2018 13,000
Stationery department 26,000 Rates for the year ended 31.3.2018 5,700
Confectionery department 15,000 Electricity 3,700
Staff salaries : Advertising 11,000
Stationery department 22,000 Payment to suppliers 5,35,500
Confectionery department 15,400 Drawings 50,000
The purchases during the year under review were :

Stationery department ~ 2,60,000; Confectionery department ~ 2,92,500.
The above purchases do not include goods costing ~ 5,000 bought by the business and then taken by Mr Choudhury
for his own domestic use. The figure of ~ 5,000 is included in payment to suppliers.
The gross profit in the stationery department is @ 20% on sales while in the confectionery department, it is @ 25% on
sales. In both departments, sales in each month are always at a uniform level. The policy of Mr Choudhury is to have the
month end stocks in each department just sufficient for the following month’s sales. The prices of all goods bought by
Highway Stores have not changed since the business began.
The sundry debtors at 31.3.2018 amounted to ~ 90,000.
In August 2017, Mr Choudhury invested an additional capital of ~ 90,000.
At 31.3.2018, outstanding electricity bill amounted to ~ 1,100. Mr Choudhury has decided that expenses not incurred
by a specific department should be apportioned to departments as follows :
1. Rent and rates ---- according to floor area occupied.
2. Electricity ---- according to consumption.
3. Advertising ---- according to turnover.
Two-thirds of the business floor space is occupied by the stationery department while three-quarters of the electricity
is consumed by that department.
It has been decided that depreciation on fixtures and fittings should be provided @ 10% of the cost of assets held at the
year end.
Required :
(a) A Trading and Profit and Loss Account for the year ended 31.3.2018 for the ---- (i) stationery department; and
(ii) confectionery department.
(b) A Balance Sheet as on 31.3.2018.
Solution Highway Stores
Dr. Departmental Trading and Profit and Loss Account for the year ended 31st March, 2018 Cr.
Particulars Stationery Confectonery Particulars Stationery Confectionery
(~) (~) (~) (~)
To Purchases 2,60,000 2,92,500 By Sales (Note 4) 3,00,000 3,60,000
To Gross Profit c/d 60,000 90,000 By Closing Stock (Note 3) 20,000 22,500
3,20,000 3,82,500 3,20,000 3,82,500
To Staff Salaries 22,000 15,400 By Gross Profit b/d 60,000 90,000
To Rent (~ 13,000 -- 1,000) 8,000 4,000
To Rates (Note 7) 3,800 1,900
To Electricity (~ 3,700 + 1,100) 3,600 1,200
To Advertising (Note 7) 5,000 6,000
To Depreciation on :
Fixtures and Fittings @ 10% 2,600 1,500
To Net Profit 15,000 60,000
60,000 90,000 60,000 90,000
Balance Sheet of Highway Stores as at 31st March, 2018

Capital : Introduced 30,000 Fixtures and Fittings (~ 26,000 + 15,000) 41,000
Add: Further introduced 90,000 Less : Depreciation 4,100 36,900
Profit from Stationery 15,000 Stock (~ 20,000 + ~ 22,500) (Note 3) 42,500
Profit from Confectionery 60,000 Debtors 90,000
1,95,000 Prepaid Rent (Note 6) 1,000
Less: Drawings (~ 50,000 + 5,000) 55,000 1,40,000
Creditors (Note 2) 22,000
Outstanding Electricity 1,100
Bank Overdraft (Note 1) 7,300
1,70,400 1,70,400
Working Notes :
Dr. (1) Bank Account Cr.
Particulars ~ Particulars ~
To Cash (Capital introduced) 30,000 By Fixtures and Fittings 41,000
To Sundry Debtors (Note 5) 5,70,000 By Staff Salaries 37,400
To Cash (Further capital) 90,000 By Rent 13,000
To Balance c/d 7,300 By Rates 5,700
By Electricity 3,700
By Advertising 11,000
By Creditors 5,35,500
By Drawings 50,000
6,97,300 6,97,300
Dr. (2) Creditors Account Cr.
To Bank 5,35,500 By Purchases
To Balance c/d 22,000 ---- Stationery 2,60,000
---- Confectionery 2,92,500
By Drawings (Adjustment for stationery taken over ) 5,000
5,57,500 5,57,500
(3) Closing stock will be equal to next month’s sale. Sales are uniform in each month.
Therefore, purchases during 2017-18 are equal to 13 months’ sale. Therefore, closing stock will be ----
Stationery department : ~ 2,60,000 / 13 = ~ 20,000. Confectionery department ~ 2,92,500 / 13 = ~ 22,500.
(4) Calculation of Sales
Stationery Department ~ Confectionery Department ~
Sales 100 Sales 100
Less: Gross Profit @ 20% 20 Less: Gross Profit @ 25% 25
Cost 80 Cost 75
Cost of Goods Sold (Purchases -- Closing Stock) 2,40,000 Cost of Goods Sold (Purchases -- Closing Stock) 2,70,000
Cost of Goods Sold 3,00,000 Cost of Goods Sold 3,60,000
Sales = � 100 Sales = � 100
80 75
(5) Total sales = ~ 3,00,000 + ~ 3,60,000 = ~ 6,60,000. Amount due from sundry debtors at the end of the year ~ 90,000.
Therefore, amount collected from sundry debtors = ~ 6,60,000 -- ~ 90,000 = ~ 5,70,000.
(6) Rent has been paid for 13 months (1.4.2017 to 30.4.2018).
Therefore, prepaid rent will be ---- ~ 13,000 / 13 = ~ 1,000.
(7) Apportionment of Common Expenses
Expenses Basis Stationery Confectionery
(i) Rent Floor Area (2 : 1) ~ 12,000 x 2/3 = ~ 8,000 ~ 12,000 x 1/3 = ~ 4,000
(ii) Rates Floor Area (2 : 1) ~ 5,700 x 2/3 = ~ 3,800 ~ 5,700 x 1/3 = ~ 1,900
(iii) Electricity Consumption (3 : 1) ~ 4,800 x 3/4 = ~ 3,600 ~ 4,800 x 1/4 = ~ 1,200
(iv) Advertising Turnover (5 : 6) ~ 11,000 x 5/11 = ~ 5,000 ~ 11,000 x 6/11 = ~ 6,000
Illustration 9
X and Y are in partnership managing a small retail store which specialises in sweets and confectionary - managed by X
and newspapers and periodicals - managed by Y. The partnership agreement provides for X to receive three-fifths of the
profit, and Y two-fifths, each partner to be allowed 8% interest on capital and each to receive a commission of 10% of the
profit of their respective sections prior to any other appropriation of profit. During the year to 31st March 2018, a trial
balance extracted at that date revealed the following features. (all figures in ~).
Particulars Dr. Cr.
Capital - X 14,000
Y 8,000
Current Accounts - X 2,020
Y 250
Drawings - X 1,100
Y 900
Freehold shop premises 10,000
Equipment (at written-down value) :
Confectionery section 4,500
Periodical section 3,500
Purchases : Confectionery section 15,900
Stock at 1st April : Confectionery section 2,300
Sales : Confectionery section 18,500
Wages: Confectionery section 1,175
Miscellaneous expenses 230
Rates 500
Light and heat 400
Advertising 250
Debtors and creditors 1,800 2,100
Bad debts - Periodical section 95
Cash in hand 950
Cash at bank 50
Provision for doubtful debts : Periodical section 50
Total 66,170 66,170
Additional information available:
(i) Stock at 31st March, 2018 was ~ 3,600 in the Confectionery section, and ~ 4,400 in the Periodical section.
(ii) The partners have agreed that rates should be apportioned between the Confectionery and Periodical sections on
a 3:2 ratio, advertising on a 1:1 ratio, lighting and heating on a 2:3 ratio, and miscellaneous expenses on a 1:1 ratio.
(iii) Wages owing at 31st March, 2018 : ~ 25 and ~ 30 for the Confectionery and Periodical section respectively.
(iv) Advertising prepaid at 31st March, 2018 amounted to ~ 100.
(v) The provision for doubtful debts is to be increased to 5% of the debtors of the Periodical section, which amount
to ~ 1,500 at 31st March 2018.
(vi) Equipment of both sections is to be depreciated at 10% of the written-down value at 1st April, 2017.
Required:
(a) Prepare a Trading and Profit and Loss Account for the Confectionery and the Periodical sections, and also for the
business as a whole, for the year ended 31st March, 2018. (Note : A Balance Sheet is not required).
(b) Prepare an Appropriation Account for the year ended 31st March, 2018.
Solution XY
Dr. Departmental Trading and Profit & Loss Account for the year ended 31st March, 2018 Cr.
Confec- Periodical Total Confec- Periodical Total
Particulars tionery ~ Particulars tionery ~
To Opening Stock 2,300 3,100 5,400 By Sales 18,500 21,500 40,000
To Purchases 15,900 17,700 33,600 By Closing Stock 3,600 4,400 8,000
To Wages (Note 1) 1,200 1,500 2,700
To Gross Profit c/d 2,700 3,600 6,300
22,100 25,900 48,000 22,100 25,900 48,000
To Misc. Expenses 115 115 230 By Gross Profit b/d 2,700 3,600 6,300
To Rates 300 200 500
To Advertising 75 75 150
To Lighting & Heating 160 240 400
To Bad Debts ---- 95 95
To Prov. for Bad Debts ---- 25 25
To Depreciation 450 350 800
To Net Profit - transferred 1,600 2,500 4,100
2,700 3,600 6,300 2,700 3,600 6,300
Dr. Appropriation Account for the year ended 31st March, 2018 Cr.
To Commission: By Net Profit 4,100
X 160
Y 250
To Interest on Capital:
X 1,120
Y 640
To Share of Profit
X 1,158
Y 772
4,100 4,100
Working Notes:
(1) Wages : Confectionery ~ 1,175 + outstanding ~ 25 = ~ 1,200; and Periodical ~ 1,470 + outstanding ~ 30 = ~ 1,500.
(2) Miscellaneous expenses : Confectionery - 1/2 of ~ 230 = ~ 115 and Periodical - 1/2 of ~ 230 = ~ 115.
(3) Rates : Confectionery - 3/5 of ~ 500 = ~ 300 and Periodical 2/5 of ~ 500 = ~ 200.
(4) Advertising : Confectionery - 1/2 of (~ 250 -- ~ 100) = ~ 75 and Periodical 1/2 of ~ 150 = ~ 75.
(5) Lighting and heating : Confectionery - 2/5 of ~ 400 = ~ 160 and Periodical - 3/5 of ~ 400 = ~ 240.
Inter-Departmental Transfer
Sometimes prices are charged for goods or services transferred by one department to another department. Since
each department is considered as a separate profit centre, it is necessary to have separate records for
inter-departmental transfer. Generally a weekly or monthly Departmental Transfer Analysis Sheet is prepared
to arrange all inter-departmental transfer. The sheet may be in the following form:
Departmental Transfer Analysis Sheet
Date Supplying Departments Receiving Departments
2018 Dept X Dept Y Dept Z Dept X Dept Y Dept Z
April 3 400 ---- ---- ---- 400 ----
April 10 ---- 500 ---- 500 ---- ----
April 20 ---- ---- 300 ---- 300 ----
April 30 200 ---- ---- ---- ---- 200
600 500 300 500 700 200
At the end of the week/month, the transfer is recorded by passing the following entry:
Receiving Department Dr. [Transfer price]
To Supplying Department
Transfer prices can be cost-based or market-based. Dual pricing is also sometimes used. They are discussed below:
Cost-based Transfer Price
Under cost-based transfer pricing, the price may be based on actual cost, total cost or standard cost. Marginal
cost is also sometimes used as a basis of ascertaining transfer price. Standard cost is preferred to actual cost
since the inefficiency of one department cannot be passed on to another department. Taking full cost as transfer
price means that the supplying departments’ fixed cost becomes the variable cost of the receiving department.
Illustration 10
A firm had two departments X and Y. Department Y (which was a Manufacturing Department) received goods from
Department X as its raw materials. Department X supplied the said goods to Y at cost price. From the following particulars
you are required to prepare a Departmental Trading and Profit and Loss Account for the year ended on 31st December,
2017. (all figures in ~).
Particulars Dept X Dept Y
Opening Stock (as on 1.1.2017) 2,50,000 75,000
Purchases (from outside suppliers) 10,00,000 20,000
Sales (to outside customers) 12,00,000 3,00,000
Closing stock (as on 31.12.2017) 1,50,000 50,000
The following information is to be taken into account:

(a) Depreciation of Buildings to be provided at 20% p.a. The value of the Building occupied by both the Departments
was ~ 1,05,000 (Department X occupying two-third portion and Department Y occupying the rest).
(b) Goods transferred from Department X to Department Y ~ 2,50,000 at cost.
(c) Manufacturing Expenses amounted to ~ 10,000.
(d) Selling expenses amounted to ~ 15,000 (to be apportioned on the basis of sales of respective departments).
(e) General expenses of the business as a whole amounted to ~ 58,000.
Solution
Particulars X Y Total Particulars X Y Total
To Opening Stock 2,50,000 75,000 3,25,000 By Sales 12,00,000 3,00,000 15,00,000
To Purchases 10,00,000 20,000 10,20,000 By Y (transfer) 2,50,000 ---- ----
To X (transfer) ---- 2,50,000 ---- By Closing Stock 1,50,000 50,000 2,00,000
To Mfg. Expenses ---- 10,000 10,000 By Gross Loss c/d ---- 5,000 5,000
To Gross Profit c/d 3,50,000 ---- 3,50,000
16,00,000 3,55,000 17,05,000 16,00,000 3,50,000 17,05,000
To Gross Loss b/d ---- 5,000 5,000 By Gross Profit b/d 3,50,000 ---- 3,50,000
To Selling Expenses 12,000 3,000 15,000
To Depreciation 14,000 7,000 21,000
To Dept. Profit c/d 3,24,000 (15,000) 3,09,000
3,50,000 ---- 3,50,000 3,55,000 ---- 3,50,000
To General Expenses 58,000 By Departmental Profit b/d 3,09,000
To Net Profit 2,51,000
3,09,000 3,09,000
Illustration 11
A hotel proprietor has two departments, viz, (i) Apartment Department, and (ii) Meals Department. Following trial balance
of the business is given on 31.12.2017: (all figures in ~)
Provisions 15,500 Income from Apartment Department 46,000
Stock of provisions in the beginning 1,020 Income from Meals Department 32,000
Cash at bank 10,000 Capital 2,20,000
Customers Account 800 Suppliers’ Account 9,800

Buildings (1/10 is used for Meals Dept.) 2,10,000 Provision for Depreciation on Buildings 24,000
Furniture and equipments 60,000 Interest 1,130
General expenses 27,410
Interest accrued 200
Income Tax 400
Life Insurance Premium (for Proprietor) 1,600
Wages 6,000
3,32,930 3,32,930
Additional information: (i) The servants in the Apartment Department had occupied a room worth ~ 120 and took
meals worth ~ 60. Similarly, servants in the Meals Department had occupied a room worth ~ 150 and took meals worth ~
90; (ii) Wages are charged in the proportion of half to the Apartment Department, one- quarter to the Meals Department
and remaining to the General Profit and Loss Account; (iii) Increase provision for depreciation of Buildings to ~ 30,000;
(iv) A sum of ~ 800 representing accommodation ~ 240, and meals ~ 560 is to be charged to proprietor of the hotel.
You are required to prepare Final Accounts (including Balance Sheet) for the year ending 31.12.2017.
Solution
Dr. Departmental Profit and Loss Account for the year ended 31st December, 2017 Cr.
Appartment Meal Appartment Meal
Particulars Dept. Dept. Particulars Dept. Dept.
To Opening Stock of Provisions ---- 1,020 By Income 46,000 32,000
To Provisions (purchases) ---- 15,500 By Drawings 240 560
To Depreciation on Building 5,400 600 By Meal Dept - transfer 150 ----
To Wages (Note 1) 3,000 1,500 By Appartment Dept - transfer ---- 60
To Appartment Dept. - transfer ---- 150
To Meal Dept. - transfer 60 ----
To Departmental profit 37,930 13,850
46,390 32,620 46,390 32,620
Dr. General Profit and Loss Account for the year ended 31st December, 2017 Cr.
To Wages (Note 1) 1,500 By Departmental Profit (~ 37,930 + ~ 13,850) 51,780
To General Expenses 27,410 By Interest 1,130
To Net Profit ---- transferred to Capital 24,000
52,910 52,910
Dr. Balance Sheet as at 31st December, 2017 Cr.

Capital ~ 2,20,000 Building ~ 2,10,000
Add: Net Profit ~ 24,000 Less: Provision for depreciation ~ 30,000 1,80,000
~ 2,44,000 Furniture & Equipment 60,000
Less: Drawings (Note 2) ~ 2,800 2,41,200 Customers Account 800
Suppliers Account 9,800 Interest Accrued 200
Cash at Bank 10,000
2,51,000 2,51,000
Working Notes:
(1) Wages as per trial balance = ~ 6,000. Apartment Dept. will bear 1/2 of ~ 6,000 = ~ 3,000; Meals Dept. will bear 1/4 of ~ 6,000
= ~ 1,500; General Profit and Loss Account will bear ~ 1,500.
(2) Total Drawing = ~ 240 for accommodation + ~ 560 for meals + ~ 1,600 for L.I.P. + ~ 400 for I.T. = ~ 2,800.
(3) Departmental Transfer Analysis Sheet
Date Nature of Service Supplying Department (~) Receiving Department (~)
Appartment Dept. Meals Dept. Appartment Dept. Meals Dept.
? Meal ---- 60 60 ----
? Accommodation 150 ---- ---- 150
150 60 60 150
As per rule, receiving department will be debited and supplying department will be credited.
(i) Apppartment Dept. Dr. 60
To Meals Dept. 60
(ii) Meals Dept. Dr. 150
To Appartment Dept 150
Tutorial Note: No adjustment is required for providing facility to own departmental staff.
Illustration 12
Mohit Udyog operates a general business and the firm’s Trial Balance prepared at 31.12.2017 was as follows:
Purchases : Cars 83,500 Debtors and Creditors 14,000 10,800
Petrol 27,500 Bank 4,700
Spare parts 4,000 Cash 14,600
Capital 62,000 Freehold Garage Premises 42,000
Stock on 1.1.2017 : Cars 9,000 Rates and insurance 1,900
Petrol 2,800 Sales : Cars 1,20,000
Spare parts 400 Petrol 32,000
Workshop wages 10,200 Spare parts 4,700
Plant and Equipment 7,000 Repairs 14,700
Car salesmen’s salaries 7,700 Petrol pump attendant’s wages 3,100
General expenses 6,300
Office wages 5,500 Total 2,44,200 2,44,200
Other information is as follows :
(1) The plant and equipment, all of which is used for repair work, is to be depreciated by 10%.
(2) Stocks at 31.12.2017 were ---- Cars ~ 7,400; Petrol ~ 1,600; Spare parts ~ 700.
(3) No entries have been made for the following ----
(i) Petrol used in demonstration runs cost ~ 200; (ii) Parts used in repair jobs cost ~ 750;
(iii) Repairs on cars subsequently sold were charged out at ~ 2,400.
(4) Expenses which cannot be specifically allocated to one activity are to be apportioned ----
60% to Cars; 10% to Petrol; 10% to Spare parts; 20% to Repairs.
(5) General expenses accrued amount to ~ 300, and a provision is to be made of ~ 500 for car salesmen’s commission.
Prepare Trading and Profit and Loss Account, preferably in columnar form, to show clearly the profit or loss in each
of the four main areas of business activity for the year ended 31.12.2017.
Also prepare the Balance Sheet at that date.
Solution Mohit Udyog
Particulars Cars Petrol Spare Repairs Particulars Cars Petrol Spare Repairs
Parts Parts
(~) (~) (~) (~) (~) (~) (~) (~)
To Opening Stock 9,000 2,800 400 ---- By Sales 1,20,000 32,000 4,700 14,700
To Purchases 83,500 27,500 4,000 ---- By Inter Departmental Sales ---- 200 750 2,400
To Parts used in repairs ---- ---- ---- 750 By Closing Stock 7,400 1,600 700 ----
(Note 2)
To Repairs on cars sold 2,400 ---- ---- ----
(Note 3)
To Wages ---- 3,100 ---- 10,200
To Gross Profit c/d 32,500 400 1,750 6,150
1,27,400 33,800 6,150 17,100 1,27,400 33,800 6,150 17,100
To Office wages (Note 4) 3,300 550 550 1,100 By Gross Profit b/d 32,500 400 1,750 6,150
To Rates and insurance 1,140 190 190 380 By Net Loss ---- 1,000 ---- ----
To Salesmen’s salaries and 8,200 ---- ---- ----
commission(7,700 + 500)
To General expenses (Note 4) 3,960 660 660 1,320
To Demonstration petrol cost 200 ---- ---- ----
(Note 1)
To Depreciation on: ---- ---- ---- 700
Plant and Equipment
To Net Profit 15,700 ---- 350 2,650
32,500 1,400 1,750 6,150 32,500 1,400 1,750 6,150
Balance Sheet of Mohit Udyog as at 31st December, 2017

Capital (Opening) 62,000 Freehold Garage Premises 42,000
Add: Profit from Cars 15,700 Plant and Equipment 7,000
Add: Profit from spare parts 350 Less: Depreciation 700 6,300
Add: Profit from Repairs 2,650 Stock (~ 7,400 + 1,600 + 700) 9,700
Less: Loss from Petrol (1,000) 79,700 Debtors 14,000
Creditors 10,800 Bank 4,700
Outstanding : General Expenses 300 Cash 14,600
Cars Salesmen’s Commission 500
91,300 91,300
Working Notes :
(1) Petrol used for demonstration run will be treated as selling expenses of Car department and sales of Petrol department.
(2) Spare parts used in repairs ~ 750 will be treated as direct expenses of Repairs department and sales of Spare parts department.
(3) Repairs on car subsequently sold ~ 2,400 will be treated as direct expenses of Car department and sales of Repairs department.
(4) Apportionment of Common Expenses

Expenses Basis Total (~) Cars (~) Petrol (~) Spare Parts (~) Repairs (~)
(i) General Expenses 6:1:1:2 6,600* 3,960 660 660 1,320
(ii) Office Wages 6:1:1:2 5,500 3,300 550 550 1,100
(iii) Rates and Insurance 6:1:1:2 1,900 1,140 190 190 380
*~ 6,300 +~ 300(outstanding) =~ 6,600.
Illustration 13
Shri Gangaram sells two products manufactured in his own factory. The goods are made in two departments A and B for
which separate sets of accounts are maintained. Some of the manufactured goods of Department A are used as raw materials
by Department B and vice versa. From the following particulars, you are required to ascertain the total cost of goods
manufactured in these two departments: Dept. A Dept. B
Total units manufactured 10,00,000 5,00,000
Total cost to manufacture (excluding inter-departmental transfers) ~ 10,000 ~ 5,000
Department A transferred 2,50,000 units to Department B and the latter transferred 1,00,000 units to the former.
Solution
Department A has transferred 1/4th of the units produced to B, whereas Department B has transferred 1/5th of the units produced.
Let, X be the total cost of Department A and Y be the total cost of Department B.
Therefore, X = ~ 10,000 + 1/5 Y ... (1) and
Y = ~ 5,000 + 1/4 X ... (2)
Putting the value of Y in the first equation, we get
X = ~ 10,000 + 1/5 (~ 5,000 + 1/4 X)
= ~ 10,000 + ~ 1,000 + 1/20 X
or, X -- 1/20 X = 11,000,
Therefore X = ~ 11,579 (approx.)
Putting the value of X as ~ 11,579 in the 2nd equation, we get
Y = ~ 5,000 + 1/4 (~ 11,579)
or Y = ~ 7,895 (approx.)
Ascertainment of the Total Cost of Goods Manufactured
Cost as ascertained above (~) 11,579 7,895
Less: Transfers to the other department (1/4) 2,895 (1/5) 1,579
Net cost of goods manufactured 8,684 6,316
Market-based Transfer Price

To avoid passing on inefficiencies of one department to the other, market based transfer prices may be used.
It does not give any advantage to either the selling or buying department, compared with trading with the
outsiders. Sometimes a standard market price may also be used.
Dual Pricing
To motivate both the departments, buying and selling departments may be debited and credited respectively
with two different prices. For example, buying department may be debited with the cost price and selling
department credited with the market price.
If the goods are transferred by one department to another department at a profit and at the end of the
accounting period such goods are included in the unsold stock, an appropriate adjustment must be made
for unrealised profit on stock. The entry is :
General Profit and Loss Account Dr.
To Provision for Unrealised Profit on Stock Account
At the beginning of the next year reverse entry will be passed.
Provision for Unrealised Profit on Stock Account Dr.
To General Profit and Loss Account
Illustration 14
Raman carries on a business of selling (both wholesale and retail) electrical materials. The wholesale and retail departments
are separately organised, all goods are purchased by the wholesale department which adds one-seventh on to cost for charging
out goods transferred to the retail department. At 31.12.2017, the total balance of the business as a whole is as follows :
Particulars Dr. (~) Cr. (~)
Capital 1,00,000
Freehold Premises 65,000
Motor Vans : Cost and Accumulated Depreciation (1.1.2017) 9,000 4,000
Motor Cars : Cost and Accumulated Depreciation (1.1.2017) 6,000 3,000
Fixtures etc : Cost and Accumulated Depreciation (1.1.2017) 7,800 7,300
Stock (1.1.2017) : Wholesale at Cost 65,000
Retail and provision for unrealised profit 32,000 4,000
Debtors (31.12. 2017) : Wholesale customers only 67,100
Creditors (31.12. 2017) 41,200
Bad Debts 6,800
Discount Received 4,850
Discount Allowed 8,500
Salaries : Van drivers 8,800
Warehouse staff 24,300
Shop staff 8,250
Car and Van running expenses 5,400
Other Expenses 15,500
Sales : Wholesale 3,40,000
Retail 96,000
Purchases 3,28,000
Cash and Bank (31.12. 2017) 400 21,800
Reserve 35,700
Total 6,57,850 6,57,850

(i) Transfers of goods amounted to ~ 76,000 at transfer prices.
(ii) Stocks at 31.12.2017 : Wholesale at cost ~ 71,500; Retail at transfer price ~ 36,000.
(iii) There are four vans, one of which is likely to be in use by the retail department at any one time.
(iv) The two cars are used by X, who divides their time between the two departments as to two-thirds wholesale and
one-third retail.
(v) Depreciation of cars and vans is at 20% p.a. on cost. It is estimated that the remaining costs of a car and a van
(excluding drivers’ wages) do not differ materially.
(vi) Other expenses are 80% wholesale.
(vii) No further depreciation need be provided on fixtures etc.
You are required to prepare Trading and Profit and Loss Account for the year ended 31.12.2017 and Balance Sheet as
on that date.
Solution Raman
Particulars Wholesale Retail Total Particulars Wholesale Retail Total
(~) (~) (~) (~) (~) (~)
To Opening Stock 65,000 32,000 97,000 By Sales 3,40,000 96,000 4,36,000
To Purchases 3,28,000 ---- 3,28,000 By Transfer to Retail 76,000 ---- ----
To Transfer from Wholesale ---- 76,000 ---- By Closing Stock 71,500 36,000 1,07,500
To Gross Profit c/d 94,500 24,000 1,18,500
4,87,500 1,32,000 5,43,500 4,87,500 1,32,000 5,43,500
To Bad Debts (Note 1) 6,800 ---- 6,800 By Gross Profit b/d 94,500 24,000 1,18,500
To Discounts Allowed (N 1) 8,500 ---- 8,500 By Discount Received 4,850 ---- 4,850
To Salaries : (Note 2)
Van drivers (Note 3) 6,600 2,200 8,800
Warehouse staff 24,300 ---- 24,300
Shop staff ---- 8,250 8,250
To Van Running Expenses 2,700 900 3,600
(Note 4a)
To Car Running Expenses 1,200 600 1,800
(Note 4b)
To Other Expenses 12,400 3,100 15,500
To Depreciation on :
Vans (3 : 1) 1,350 450 1,800
Cars (2 : 1) 800 400 1,200
To Net Profit c/d 34,700 8,100 42,800
99,350 24,000 1,23,350 99,350 24,000 1,23,350
To Provision for Unrealised Profit on Closing Stock (Note 5) 4,500 By Reserve b/d 35,700
To Reserve c/d 78,000 By Provision for Unrealised Profit on Opening Stock 4,000
By Net Profit b/d 42,800
82,500 82,500
Balance Sheet of Raman as at 31st December, 2017
Capital 1,00,000 Freehold Premises 65,000
Reserve 78,000 Motor Vans (at cost) 9,000
Creditors 41,200 Less : Accumulated Depreciation 5,800 3,200
Bank Overdraft 21,800 Motor Cars (at cost) 6,000
Less : Accumulated Depreciation 4,200 1,800
Fixtures (at cost) 7,800
Less : Accumulated Depreciation 7,300 500
Stock 1,07,500
Less : Provision for Unrealised Profit 4,500 1,03,000
Debtors 67,100
Cash 400
2,41,000 2,41,000
Working Notes :
(1) Goods are sold on credit by the wholesale department only. Therefore, discount allowed is totally related to wholesale department.
Similarly, bad debt is also related to wholesale department.
(2) Goods are purchased by wholesale department. Therefore, discount received is totally related to wholesale department.
(3) Out of four vans, one van is used by the retail department. Therefore, 1/4th of van driver’s salary is to be borne by the retail
department and 3/4th is to be borne by the wholesale department.
(4) There are four vans and two cars. Total running cost is ~ 5,400. Running cost of a car and a van (excluding driver’s salaries) do
not differ materially. Therefore, entire running cost will be distributed between van and car in the ratio of 2 : 1.
Vans running cost will be ---- 2/3 of ~ 5,400 = ~ 3,600.
Cars running cost will be ---- 1/3 of ~ 5,400 = ~ 1,800.
(a) Vans running cost will be shared by wholesale department and retail department in the ratio 3 : 1.
(b) Cars running cost will be shared by wholesale department and retail department in the ratio 2 : 1.
(c) Goods are transferred to retail deprtment by adding 1/7th to cost. Therefore, the unrealised profit on closing stock will be :
~ 36,000 � 1/8 = ~ 4,500.
Illustration 15
From the following data, prepare Departmental Trading and Profit and Loss Account for the year ended December 31,
2006:
Opening Stock 40,000 ----
Purchases from Outside 2,00,000 20,000
Wages 10,000 1,000
Transfer of Goods from Department A ---- 50,000
Closing Stock at cost to the Department 30,000 10,000
Sales to Outsiders 2,00,000 71,000
B’s entire stock represents goods from Department A which transfers them at 25% above its cost. Administrative and
Selling Expenses amount to ~ 15,000 which are to be allocated between Departments A and B in the ratio of 4 : 1
respectively. Also show the amount of provision to be made for unrealised profit. [C.U.B.Com. (Hons.) ---- 2007]
Solution
Particulars Dept A Dept B Total Particulars Dept A Dept B Total
(~) (~) (~) (~) (~) (~)
To Opening Stock 40,000 ---- 40,000 By Sales 2,00,000 71,000 2,71,000
To Purchases 2,00,000 20,000 2,20,000 By Goods transferred to B 50,000 ---- ----
To Goods from Dept A ---- 50,000 ---- By Closing Stock 30,000 10,000 40,000
To Wages 10,000 1,000 11,000
2,80,000 81,000 3,11,000 2,80,000 81,000 3,11,000
To Selling Expenses (4 : 1) 12,000 3,000 15,000 By Gross Profit b/d 30,000 10,000 40,000
To Net Profit c/d 18,000 7,000 25,000
30,000 10,000 40,000 30,000 10,000 40,000
To Provision for Unrealised Profit on Closing Stock (Note 1) 2,000 By Net Profit b/d 25,000
To Capital A/c (Net Profit transferred) 23,000
25,000 25,000
Working Note :
(1) Goods are transferred to Dept. A at cost plus 25%. It means the unrealised profit is 20% (25/125) on transfer price. Therefore,
unrealised profit on closing stock = 20% of ~ 10,000 = ~ 2,000.
Illustration 16
A & Co has two departments P and Q. Department P sells goods to Department Q at normal selling prices. From the
following particulars, prepare Departmental Trading and Profit and Loss Account for the year ended 31.3.2017 and also
ascertain the Net Profit to be transferred to Balance Sheet :
Department P (~) Department Q (~)
Opening Stock 5,00,000 ----
Purchases 28,00,000 3,00,000
Goods from P ---- 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 20,00,000
Printing and Stationery 30,000 25,000
The following expenses incurred for both the departments were not apportioned between the departments :
(a) Salaries ~ 3,30,000; (b) Advertisement expenses ~ 1,20,000; (c) General expenses ~ 5,00,000; (d) Depreciation is
to be charged @ 30% on the machinery value of ~ 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.
[C.U.B.Com. (Hons) ---- Adapted]
Solution A & Co
Particulars Dept P Dept Q Total Particulars Dept P Dept Q Total
(~) (~) (~) (~) (~) (~)
To Opening Stock 5,00,000 ---- 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 Dept 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 and 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 on Machinery (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
To Provision for Unrealised Profit on Closing Stock (Note 2) 38,000 By Net Profit b/d 6,45,200
To Capital A/c (Net Profit transferred) 6,07,200 By Provision for Unrealised Profit on Opening Stock Nil
6,45,200 6,45,200
Working Notes :
9,50,000
(1) Gross Profit Ratio of Department P = � 100 � 25%
30,00,000 � 8,00,000
(2) Proportionate P Department’s stock in Department Q
Purchase from Department P 8,00,000

= � Total Stock of Department Q � � Rs 2,09,000 � ~ 1,52,000
Total Purchases of Department Q 11,00,000
Unrealised profit = 25% of ~ 1,52,000 = ~ 38,000.
Illustration 17
The firm "Tantuja" has two departments - first one is "cloth" and the second is "tailoring". Tailoring department gets all
its requirements of cloth from the cloth department at the usual selling price. From the following particulars prepare
Departmental Trading Account and Profit and Loss Account for the year ended 31st March, 2018 : (all figures in ~)
Particulars Cloth Dept. Tailoring Dept.
Manufacturing Expenses ---- 1,08,000
Selling Expenses 45,000 18,000
Stock on 1.4.2017 5,40,000 72,000
Sales 36,00,000 7,20,000
Transfer of Cloth to Tailoring Dept. 4,50,000 ----
Purchases 30,60,000 45,000
Stock on 31.3.2018 9,00,000 1,35,000
The stock in Tailoring Department may be assumed to consist 80% cloth and 20% other expenses. General expenses
of the business for the year came to ~ 2,07,000. In 2016-17 the Cloth Department earned a gross profit of 30% on sales.
Solution Tantuja
Particulars Cloth Tailoring Total Particulars Cloth Tailoring Total
To Opening Stock 5,40,000 72,000 6,12,000 By Sales 36,00,000 7,20,000 43,20,000
To Purchases 30,60,000 45,000 31,05,000 By Tailoring Dept. - transfer 4,50,000 ---- ----
To Cloth Dept. - transfer ---- 4,50,000 ---- By Closing Stock 9,00,000 1,35,000 10,35,000
To Manufacturing expenses ---- 1,08,000 1,08,000
49,50,000 8,55,000 53,55,000 49,50,000 8,55,000 53,55,000
To Selling expenses 45,000 18,000 63,000 By Gross Profit b/d 13,50,000 1,80,000 15,30,000
To Departmental Profit c/d 13,05,000 1,62,000 14,67,000
13,50,000 1,80,000 15,30,000 13,50,000 1,80,000 15,30,000
To General expenses 2,07,000 By Departmental Profit b/d 14,67,000
To Provision for unrealised profit on Departmental By Provision for unrealised profit on Departmental
Closing Stock (Note 2) 36,000 Opening Stock (Note 2) 17,280
To Net Profit transferred to Capital 12,41,280
14,84,280 14,84,280
Working Notes:
(1) Calculation of unrealised profit on stock
13,50,000 1
Rate of Gross profit in cloth department = � 100 � 33 % on sales.
40,50,000 3
* (~ 36,00,000 + ~ 4,50,000) = ~ 40,50,000.
(2) Element of cloth in tailoring department = 80%
Therefore, element of cloth in opening stock ---- 80% of ~ 72,000 = ~ 57,600
Element of cloth in closing stock ---- 80% of ~ 1,35,000 = ~ 1,08,000
Unrealised profit including in opening stock = 30% of ~ 57,600 = ~ 17,280
Unrealised profit included in closing stock = 331/3% on ~ 1,08,000 = ~ 36,000.
Illustration 18
Modern Engineering Works carried on business with two departments : Raw Materials and Manufacturing. The finished
goods are produced by the Manufacturing Department with raw material supplied from Raw Materials Department at
selling price.
Prepare Departmental Trading and Profit and Loss Account for the year ending on 31st December, 2007 after allocation
of expenses on reasonable basis between the two departments.
Necessary particulars are furnished below :
Raw Materials Department Manufacturing Department
Purchases 4,00,000 3,000
Raw materials transferred to Manufacturing Department 60.000 ----
Sales 4,40,000 90,000
Manufacturing Expenses ---- 12,000
Sellling Expenses 800 400
Closing Stock 40,000 12,000
It is estimated that the cost of closing stock in the hands of Manufacturing Department consists of 80% for raw materials
and 20% for manufacturing expenses. The rate of gross profit earned during the preceding year by the Raw Materials
Department was 10%. Other administrative expenses are as follows :
(i) Salaries ~ 2,500; (ii) Insurance premium ~ 800.
[C.U.B.Com. (Hons.) ---- 2008]
Solution Modern Engineering Works
Particulars R.M. Dept Mfg. Dept Total Particulars R.M. Dept Mfg. Dept Total
(~) (~) (~) (~) (~) (~)
To Purchases 4,00,000 3,000 4,03,000 By Raw Materials transferred to 60,000 ---- ----
To Manufacturing Expenses ---- 12,000 12,000 Manufacturing Dept.
To Raw Materials from R.M. Dept. ---- 60,000 ---- By Closing Stock 40,000 12,000 52,000
5,40,000 1,02,000 5,82,000 5,40,000 1,02,000 5,82,000
To Selling Expenses 800 400 1,200 By Gross Profit b/d 80,000 17,000 97,000
To Salaries (Note 3) 2,119 381 2,500
To Insurance Premium (Note 4) 656 144 800
To Net Profit c/d 76,425 16,075 92,500
80,000 17,000 97,000 80,000 17,000 97,000
To Capital A/c (Net Profit transferred) 91,764 By Provision for Unrealised Profit on Opening Stock 800
93,300 93,300
Working Notes :
80,000 80,000
(1) Gross Profit Ratio of Raw Materials Department � � 100 � � 100 � 16%
�4,40,000 � 60,000� 5,00,000
(2) Provision for Unrealised Profit on Opening Stock = (10,000 �� 80%) �� 10% = ~ 800.
Provision for Unrealised Profit on Closing Stock = (12,000 � 80%) �� 16% = ~ 1,536.
(3) Salaries can be shared by the R.M. Dept and Mfg. Dept. in the ratio of Sales of each department. The ratio will be :
(4,40,000 + 60,000) : 90,000
or 5,00,000 : 90,000
or 50 : 9.
(a) Raw materials department’s share = 2,500 / 59 �� 50 = ~ 2,119
(b) Manufacturing department’s share = 2,500 / 59 �� 9 = ~ 381.
(4) Insurance premium can be shared by R.M. Dept. and Mfg. Dept. in the ratio of average stock of each department. The ratio will
be :
�60,000 � 40,000� �10,000 � 12,000�
= :
2 2
or 50,000 : 11,000
or 50 : 11
(a) Raw materials department’s share = 800 / 61 �� 50 = ~ 656.
(b) Mfg. department’s share = 800 / 61 ��11 = ~ 144.
Illustration 19
O and K are two departments of Red Company of Calcutta. O Department sells goods to K Department at normal market
prices. From the following particulars, prepare a Trading and Profit and Loss Account of the two departments for the year
ended 31st March 2018:
Particulars O K General
Stocks on April 1, 2017 12,000 Nil ----
Purchases 2,76,000 24,000 ----
Goods from O Dept. ---- 84,000 ----
Wages 12,000 19,200 ----
Salaries 8,000 5,000 ----
Stock on March 31, 2018 at cost to Dept. 60,000 21,600 ----
Sales 2,76,000 1,74,000 ----
Stationery and Printing 2,560 1,960 ----
Plant and Machinery ---- 14,400 ----
Salaries (General) ---- ---- 18,000
Miscellaneous Expenses ---- ---- 3,600
Advertisement ---- ---- 9,600
Bank charges ---- ---- 2,400
Depreciate Plant & Machinery by 10%. The general unallocated expenses are to be apportioned in the ratio ----
O:3, K:2. [C.U.B.Com. (Hons.) ---- Adapted]
Solution Red Company
Particulas Dept O Dept K Total Particulas Dept O Dept K Total
To Opening Stock 12,000 ---- 12,000 By Sales 2,76,000 1,74,000 4,50,000
To Purchases 2,76,000 24,000 3,00,000 By Goods transferred to K 84,000 ---- ----
To Goods from Dept O ---- 84,000 ---- By Closing Stock 60,000 21,600 81,600
To Wages 12,000 19,200 31,200
To Gross Profit c/d 1,20,000 68,400 1,88,400
4,20,000 1,95,600 5,31,600 4,20,000 1,95,600 5,31,600
To Salaries 8,000 5,000 13,000 By Gross Profit b/d 1,20,000 68,400 1,88,400
To Printing & Stationery 2,560 1,960 4,520
To Salaries (General) 10,800 7,200 18,000
To Miscellaneous expenses 2,160 1,440 3,600
To Advertisement 5,760 3,840 9,600
To Bank charges 1,440 960 2,400
To Depreciation ---- 1,440 1,440
To Net Profit c/d 89,280 46,560 1,35,840
1,20,000 68,400 1,88,400 1,20,000 68,400 1,88,400
To Provision for unrealised profit on By Net Profit b/d 1,35,840
Departmental Closing Stock (Note 1) 5,600 By Provision for unrealised profit on Dept. Opening Stock Nil
To Capital A/c (net profit transferred) 1,30,240
1,35,840 1,35,840
Working Note:
1,20,000 1
(1) Gross profit ratio of Department O = � 100 � 33 %
� 2,76,000 � 84,000 � 3
Purchases from Dept. O

Proportionate Department O stock in Department K = � Total Stock of Dept. ‘K’
Total Purchases of Dept. K
84,000 1
= � 21,600 � ~ 21,600. Profit thereon : 33 % of 16,800 � ~ 5,600.
1,08,000 3
Illustration 20
M/s G,B,T carried on business as Drapers and Tailors in Jaipur. The partners G,B and T were in charge of the Departments,
X,Y and Z respectively. The partners are entitled to a remuneration equal to 50% of the profits (without taking the Partner’s
remuneration into consideration) of the respective departments of which they are in charge and the balance of the profits
are to be divided among G,B and T in the ratio of 5:3:2. The following are the balances of the revenue items in the books
for the year ending March 31, 2018:
Opening Stock : X ---- ~ 75,780; Y ---- ~ 48,000; and Z ---- ~ 40,000.
Purchases : X ---- ~ 2,81,400; Y ---- ~ 1,61,200; and Z ---- ~ 88,800.
Sales : X ---- ~ 3,60,000; Y ---- ~ 2,70,000; and Z ---- ~ 1,80,000.
Closing Stock : X ---- ~ 90,160; Y ---- ~ 34,960; and Z ---- ~ 43,180.
Salaries and wages ---- ~ 96,000; Advertising ---- ~ 4,500; Rent ---- ~ 21,600; Discount allowed ---- ~ 2,700;
Discount received ---- ~ 1,600; Sundry expenses ---- ~ 24,300; Depreciation on Furniture & Fittings ---- ~ 1,500.
(i) Prepare the Departmental Accounts for each of the three departments in columnar form.
(ii) Show the distribution of profits amongst the partners after taking into account the following:
(a) Goods having a transfer price of ~ 21,400 and ~ 1,200 were transferred from Departments X and Y respectively
to Department Z. The inter-departmental transfers are made at 125% of the cost.
(b) The various items shall be apportioned amongst the three departments in the following proportions:
Nos. Particulars Department X Department Y Department Z
1. Rent 2 2 5
2. Salaries 1 1 1
3. Depreciation 1 1 1
4. Discounts received 8 5 3
5. All the other expenses On the basis of the sales (excluding inter-departmental transfers) of each department.
(c) The opening stock of Department Z does not include any goods transferred from other departments, but the
closing stock includes ~ 17,100 valued at the inter-departmental transfer prices.
Solution G.B.T.
Particulars Dept. X Dept. Y Dept. Z Particulars Dept. X Dept. Y Dept. Z
To Opening Stock 75,780 48,000 40,000 By Sales 3,60,000 2,70,000 1,80,000
To Purchases 2,81,400 1,61,200 88,800 By Transfer 21,400 1,200 ----
To Transfer ---- ---- 22,600 By Closing Stock 90,160 34,960 43,180

To Gross Profit c/d 1,14,380 96,960 71,780
4,71,560 3,06,160 2,23,180 4,71,560 3,06,160 2,23,180
To Salaries 32,000 32,000 32,000 By Gross Profit b/d 1,14,380 96,960 71,780
To Rent 4,800 4,800 12,000 By Discount received 800 500 300
To Advertising 2,000 1,500 1,000
To Discount Allowed 1,200 900 600
To Sundry Expenses 10,800 8,100 5,400
To Depreciation 500 500 500
To Departmental Profit 63,880 49,660 20,580
1,15,180 97,460 72,080 1,15,180 97,460 72,080
Dr. Appropriation Account for the year ended 31st March, 2018 Cr.
To Provision for unrealised profit on Departmental By Departmental Profit 1,34,120
Closing Stock (Note 1) 3,420
To Net Profit c/d 1,30,700
1,34,120 1,34,120
To Partners’ Remuneration : By Net Profit b/d 1,30,700
G (1/2 of ~ 63,880) 31,940
B (1/2 of ~ 49,660) 24,830
T (1/2 of ~ 20,580) 10,290
To Share of Profit :
G (5/10 of ~ 63,640) 31,820
B (3/10 of ~ 63,640) 19,092
T (2/10 of ~ 63,640) 12,728
1,30,700 1,30,700
Working Notes: (1) 1/5 of ~ 17,100.
Illustration 21
X Ltd. has two departments A and B. From the following particulars prepare Departmental Trading Account and
Consolidated Trading Account for the year ending 31st December 2017. (all figures in ~)
Opening Stock at cost 40,000 24,000
Purchases 1,84,000 1,36,000
Carriage Inward 4,000 4,000
Wages 24,000 16,000
Sales 2,80,000 2,24,000
Purchased goods transferred by Dept. B to Dept. A 20,000 ----
Purchased goods transferred by Dept. A to Dept. B ---- 16,000
Finished goods transferred by Dept. B to Dept. A 70,000 ----
Finished goods transferred by Dept. A to Dept. B ---- 80,000
Return of finished goods by Dept. B to Dept. A 20,000 ----
Return of finished goods by Dept. A to Dept. B ---- 14,000
Closing stock of Purchased goods 9,000 12,000
Closing stock of Finished goods 48,000 28,000
Purchased goods have been transferred mutually at their respective departmental purchase cost and finished goods at
departmental market price and that 20% of the finished stock (closing) at each department represented finished goods
received from the other department.
Solution X Ltd.
Dr. Departmental Trading Account for the year ended 31st December, 2017 Cr.
Dept. A Dept. B Dept. A Dept. B
Particulars ~ ~ Particulars ~ ~
To Purchases 1,84,000 1,36,000 By Transfer : Purchased goods 16,000 20,000
To Carriage Inwards 4,000 4,000 Finished goods 80,000 70,000
To Wages 24,000 16,000 By Returns : Finished goods 14,000 20,000
To Transfer : Purchased goods 20,000 16,000 By Closing. stock : Purchased goods 9,000 12,000
Finished goods 70,000 80,000 Finished goods 48,000 28,000
To Returns : Finished goods 20,000 14,000
To Gross Profit c/d 85,000 84,000
4,47,000 3,74,000 4,47,000 3,74,000
Dr. Consolidated Trading Account for the year ended 31st December, 2017 Cr.
To Opening Stock (~ 40,000 + 24,000) 64,000 By Sales (~ 2,80,000 + ~ 2,24,000) 5,04,000
To Purchases (~ 1,84,000 + 1,36,000) 3,20,000 By Closing Stock :
To Carriage Inwards (~ 4,000 + 4,000) 8,000 Purchased goods (~ 9,000 + ~ 12,000 ) 21,000
To Wages (~ 24,000 + 16,000) 40,000 Finished goods (Note 2) 71,720
To Gross Profit 1,64,720
5,96,720 5,96,720
Tutorial Note : For combined Trading Account, inter-departmental transfer should be ignored.
Working Notes : (1) Calculation of Stock Reserve in Closing Stock

Particulars Dept A (~) Dept B (~)
Sales 2,80,000 2,24,000
Add: Transfer of finished goods 80,000 70,000
3,60,000 2,94,000
Less: Return of finished goods 20,000 14,000
Sales (Net) 3,40,000 2,80,000
Gross profit 85,000 84,000
Rate of gross profit 85,000 84,000
x 100 � 25 % x 100 � 30 %
3,40,000 2,80,000
Finished goods from other Department included in Closing Stock

Department A ~ Department B ~
20% of ~ 48,000 9,600 20% of ~ 28,000 5,600
Unrealised profit = 30% of ~ 9,600 2,880 Unrealised profit = 25% of ~ 5,600 1,400
(30% is the G.P. ratio of Dept B)
(2) Closing Stock of Finished Goods
Dept A Dept B Total
Closing Stock (~) 48,000 28,000 76,000
Less: Unrealised profit as calculated above 2,880 1,400 4,280
Closing stock (excluding unrealised profit) 45,120 26,600 71,720
Illustration 22
Bubbles Ltd has three operating departments. The details of operations of each department during 1998 had been as follows:
Department I (~) Department II (~) Department III (~)
Sales to Customers 4,00,000 6,00,000 8,00,000
Purchases from Outsiders 3,00,000 4,00,000 5,00,000
Opening Stock (out of local purchases) 80,000 1,00,000 1,20,000
Transfer to Department III 1,35,000 ---- ----
Closing Stock 50,000 50,000 1,00,000
Common expenses :
Selling commission ~ 36,000; Depreciation ~ 45,000; Administration expenses ~ 1,60,000; Interest on capital ~
90,000.
Stock of department III includes 20% transfers from department I.
Prepare Departmental Trading and Profit and Loss Account and ascertain the net profit of the company after considering
the following details :
Department I (~) Department II (~) Department III (~)
Fixed assets installed 3,60,000 2,00,000 1,60,000
Capital employed 2,00,000 3,00,000 3,00,000
Administration expenses to be shared 4/10 3/10 3/10
Department I transfers supplies to Department III at normal price less 10%. [C.U.B.Com. (Hons) ---- 1999]
Solution Bubbles Ltd
Particulars Dept I Dept II Dept IIl Total Particulars Dept I Dept II Dept III Total
(~) (~) (~) (~) (~) (~) (~) (~)
To Opening Stock 80,000 1,00,000 1,20,000 3,00,000 By Sales 4,00,000 6,00,000 8,00,000 18,00,000
To Purchases 3,00,000 4,00,000 5,00,000 12,00,000 By Transfer to Dept III 1,35,000 ---- ---- ----
To Transfer from Dept I ---- ---- 1,35,000 ---- By Closing Stock 50,000 50,000 1,00,000 2,00,000
To Gross Profit c/d 2,05,000 1,50,000 1,45,000 5,00,000
5,85,000 6,50,000 9,00,000 20,00,000 5,85,000 6,50,000 9,00,000 20,00,000
To Selling Commission 8,000 12,000 16,000 36,000 By Gross Profit b/d 2,05,000 1,50,000 1,45,000 5,00,000
To Depreciation 22,500 12,500 10,000 45,000
To Administrative Expenses 64,000 48,000 48,000 1,60,000
To Interest on Capital 22,500 33,750 33,750 90,000
To Net Profit c/d 88,000 43,750 37,250 1,69,000
2,05,000 1,50,000 1,45,000 5,00,000 2,05,000 1,50,000 1,45,000 5,00,000
To Net Profit (Transferred) 1,62,333 By Provision for Unrealised Profit on Opening Stock Nil
1,69,000 1,69,000
Working Notes :
(1) Goods transferred by Department I to Department III at normal price less 10%. Normal price of goods transferred to Department
III = ~ 1,35,000 / 90 � 100 = ~ 1,50,000.
Normal Gross Profit of Department I would have been : ~
Sales to outside customers 4,00,000
Transfer to Department IIl at normal price (as calculated above) 1,50,000
5,50,000
Less: Cost of Goods Sold : ~
Opening Stock 80,000
Purchases 3,00,000
3,80,000
Less: Closing Stock 50,000 3,30,000
2,20,000
Normal rate of Gross Profit = � 100 � 40%
5,50,000
(a) Cost of goods transferred to Department III = 60% of ~ 1,50,000 = ~ 90,000.
(b) Value of goods transferred to Department III = ~ 1,35,000
Therefore, profit on goods transferred (b -- a) = ~ 1,35,000 -- ~ 90,000 = ~ 45,000.
45,000 1
Ratio of profit made by Department I on goods transferred to Department III = � 100 � 33 %
1,35,000 3
(2) Stock of Department III includes 20% transferred from Department I, i.e., 20% of ~ 1,00,000 = ~ 20,000.
1
Therefore, unrealised profit on closing stock = 33 /3% of ~ 20,000 = ~ 6,667.
Illustration 23
Vijoya Ltd has three departments, I, N and K. For the year ended 31.12.1999, the information is given below :
Paticulars I (~) N (~) K (~)
Stock on 1.1.1999 13,500 18,000 27,000
Materials consumed 36,000 54,000 ----
Manufacturing expenses 22,500 45,000 ----
Stock on 31.12.1999 18,000 63,000 36,000
Unrealised profit on stock on 1.1.1999 ---- 4,500 6,000
Sales ---- ---- 1,53,000
Each department values its stocks at cost to the department concerned. Whereas department I transferred goods to
department N at 30% above departmental cost, department N transferred to departrment K at 25% above departmental
cost. Other expenses were : Staff remuneration ~ 6,000; Stationery ~ 4,500; Rent ~ 27,000; Depreciation ~ 18,000; and
Advertising ~ 13,500. These expenses are to be shared by the departments in the ratio of gross profit.
Prepare Departmental Trading and Profit and Loss Account. [C.U.B.Com (Hons) ---- 2000]
Solution Vijoya Ltd
Particulars Dept. I Dept. N Dept. K Total Particulars Dept. I Dept. N Dept. K Total
(~) (~) (~) (~) (~) (~) (~) (~)
To Opening Stock 13,500 18,000 27,000 58,500 By Sales ---- ---- 1,53,000 1,53,000
To Direct Materials 36,000 54,000 ---- 90,000 By Transfer to Dept. N 70,200 ---- ---- ----
To Manufacturing Expenses 22,500 45,000 ---- 67,500 By Transfer to Dept. K ---- 1,55,250 ---- ----
To Transfer from Dept. I ---- 70,200 ---- ---- By Closing Stock 18,000 63,000 36,000 1,17,000
To Transfer from Dept. N ---- ---- 1,55,250 ----
To Gross Profit c/d 16,200 31,050 6,750 54,000
88,200 2,18,250 1,89,000 2,70,000 88,200 2,18,250 1,89,000 2,70,000
To Staff Remuneration 1,800 3,450 750 6,000 By Gross Profit b/d 16,200 31,050 6,750 54,000
To Stationery 1,350 2,587 563 4,500 By Net Loss c/d 4,500 8,625 1,875 15,000
To Rent 8,100 15,525 3,375 27,000
To Depreciation 5,400 10,350 2,250 18,000
To Advertising 4,050 7,763 1,687 13,500
20,700 39,675 8,625 69,000 20,700 39,675 8,625 69,000
To Net Loss b/d 15,000 By Provision for Unrealised Profit on Opening Stock 10,500
To Provision for Unrealised Profit on Closing Stock( Note 2) 15,989 (~ 4,500 + ~ 6,000)
By Profit and Loss A/c ---- Transfer 20,489
30,989 30,989
Working Notes :
(1) Calculation of the Value of Transfer
(a) From Dept I to N ~ (b) From Dept N to K ~
Opening stock 13,500 Opening stock 18,000
Add: Materials consumed 36,000 Add: Materials consumed 54,000
Add: Manufacturing expenses 22,500 Add: Manufacturing expenses 45,000
72,000 Add: Transfer (as calculated) 70,200
Less: Closing stock 18,000 1,87,200
Cost of goods transferred 54,000 Less: Closing stock 63,000
Add: Loading @ 30% 16,200 Cost of goods transferred 1,24,200
Value of transfer 70,200 Add: Loading @ 25% 31,050
Value of transfer 1,55,250
(2) Calculation of Unrealised Profit on Closing Stock

(a) For Dept N (b) For Dept K
Dept I transferred to Dept N at 30% above cost, i.e., unrealised profit Dept N transferred to Dept K at 25% of cost, i.e., unrealised profit
included in Dept N’s stock is at 30/130 on transfer price. Therefore, included in Dept. K’s stock is 25/125 = 1/5 on transfer price.
unrealised profit on stock Therefore, unrealised profit on stock arising from Dept N 1/5 of
~ 36,000 = ~ 7,200. And unrealised profit on stock arising from Dept I
30 Transfer = 30 / 130 (~ 36,000 -- ~ 7,200) x (~ 70,200 / ~ 1,69,200)
� [ Closing Stock � ] Therefore, total = (~ 7,200 + ~ 2,757) = ~ 9,957.
130 Departmental Cost
30 70,200
� [ 63,000 � ] = ~ 6,032
130 54,000 � 45,000 � 70,200
Total provision for unrealised profit = ~ 6,032 (Dept N) + ~ 9,957 (Dept
K) = ~ 15,989.
Illustration 24
M/s Auto Garage consists of three departments ---- Spares, Service and Repairs. Each department is managed by a manager
who is paid a commission which has been fixed @ 5%, 10% and 10% respectively of the departmental profits. In the
absence or adequacy of profits, a minimum commission of ~ 3,000 is to be paid to the manager. Inter-departmental transfers
of goods and services are made on the basis of a loaded price given as under :
from Spares to Service 5% above cost
from Spares to Repairs 10% above cost
from Repairs to Service 10% above cost
For the year ended 31.3.2018, the books had already been closed and positions drawn. On a scrutiny subsequently made,
it was discovered that the closing stock of the departments included inter-departmental transfers at loaded price. From the
following details, you are to prepare a revised statement, recomputing the profits or losses of each of the departments.
Particulars Spares Service Repairs
Book results Loss ~ 19,000 Profits ~ 25,200 Profits ~ 36,000
Inter-departmental transfers at loaded price ---- ~ 10,500 from spares and ~ 22,000 from repairs ~ 2,100 from spares
Solution In the books of M/s Auto Garage
Statement Showing Recomputation of Departmental Profits and Losses for the year ended 31.3.2018
Particulars Spares Services Repairs
(~) (~) (~)
Net Profit / Loss (Given) (--) 19,000 25,200 36,000
Add Back : Commission of Departmental Manager (Note 1) 3,000 3,000 4,000
(--) 16,000 28,200 40,000
Less: Adjustment of Unrealised Profits included in Stocks (Note 2) (--) 691 ---- (--) 2,000
Revised Departmental Profit / Loss (--) 16,691 28,200 38,000
Less: Commission Payable to Departmental Manager (Note 3) (--) 3,000 3,000 3,800
Actual Net Profit / Loss (--) 1,961 25,200 34,200
Working Notes :
(1) Commission of Departmental Managers already taken into Consideration
Spares : This department has incurred a loss. Therefore, commission will be maximum of ~ 3,000.
Service : (i) Actual commission = 1/9 of ~ 25,200 = ~ 2,800.
(ii) Minimum commission = ~ 3,000.
Therefore, commission will be ~ 3,000.
Repairs : (i) Actual commission = 1/9 of ~ 36,000 = ~ 4,000.
(2) Unrealised Profit on Stock ~

Spares : (i) On transfer to Service Department : 5/105 � ~ 10,500 500
(ii) On transfer to Repairs Department = 10/110 � ~ 2,100 191
691
Repairs : On transfer to Service Department = 10/110 � ~ 22,000 = ~ 2,000.
(3) Commission payable to Departmental Managers based on correct Profit (i.e., after considering unrealised profit on stock)
Spares : This department has incurred a loss. Therefore, commission will be minimum of ~ 3,000.
Service : (i) Actual commission = 10% of ~ 28,200 = ~ 2,820.
Repairs : (i) Actual commission = 10% of ~ 38,000 = ~ 3,800
Previous Years’ C.U. Question Papers (with Solution)
[ For General Candidates Only ]

Illustration 25
M/s P & Co. has two departments. You are requested to prepape the trading and profit and loss account for each department
for the year ended on 31st March, 2016 on the basis of following information :
Opening Stock (1.4.2015) 20,000 25,000
Purchase 2,35,000 1,85,000
Sales 6,36,000 4,94,000
Sales Return 6,000 4,000
Closing Stock (31.3.2016) 30,000 18,000
Wages 80,000 60,000
Salaries 40,000 25,000
Other common expenses : ~

Rent 12,000
Electricity 9,000
Depreciation 19,000
Selling expenses 7,000
Some other relevant information is given below : Dept. A Dept. B
Light Points 18 9
Value of assets (~) 3,00,000 2,40,000
Floor area (sq.ft.) 300 200
[C.U.B.Com. (General) ---- 2017]
Solution M/s. P & Co.
To Purchases 2,35,000 1,85,000 Less: Sales Return 6,000 4,000
To Wages 80,000 60,000 6,30,000 4,90,000
To Gross Profit c/d 3,25,000 2,38,000 By Closing Stock 30,000 18,000
6,60,000 5,08,000 6,60,000 5,08,000
To Salaries 40,000 25,000 By Gross Profit b/d 3,25,000 2,38,000
To Rent 7,200 4,800
To Electricity 6,000 3,000
To Depreciation 10,556 8,444
To Selling Expenses 3,938 3,062
To Net Profit 2,57,306 1,93,693
3,25,000 2,38,000 3,25,000 2,38,000
Working Notes : (1) Apportionment of Common Expenses

Expenses Basis Total (~) Dept. A (~)) Dept. B (~)
Rent Floor Area 3 : 2 12,000 7,200 4,800
Electricity Light Points 2 : 1 9,000 6,000 3,000
Depreciation Value of Assets 5 : 4 19,000 10,556 8,444
Selling Expenses Sales (Net) 9 : 7 7,000 3,938 3,062
Illustration 26
On the basis of the following information relating to a departmental organisation having departments X and Y, prepare
Department Trading and Profit and Loss Account for the year ended 31.03.2016 :
Particulars Dept. X (~) Dept. Y (~) Particulars Dept. X (~) Dept. Y (~)
Stock as on 1.4.2015 30,000 30,000 Stock as on 31.3.2016 40,000 30,000
Purchases 2,00,000 1,00,000 Sales 4,50,000 2,50,000
Wages 25,000 20,000 Building 4,00,000 5,00,000
Salaries 20,000 10,000 Machinery (W.D.V. as on 31.3.2016) 2,00,000 2,00,000
Goods from Dept. X (at cost) ---- 10,000 No. of Staff 30 20
Other common expenses :
(a) Salaries ~ 20,000; (b) Advertisement ~ 14,000.
Rate of depreciation of fixed assets 10% p.a. [C.U.B.Com. (General) ---- 2016]
Solution
Dept. X Dept. Y Dept. X Dept. Y
To Purchases 2,00,000 1,00,000 By Goods Sent to Dept. Y 10,000 ----
To Wages 25,000 20,000 By Closing Stock 40,000 30,000
To Goods romr Dept. X ---- 10,000
To Gross Profit c/d 2,45,000 1,20,000
5,00,000 2,80,000 5,00,000 2,80,000
To Salaries (Departmental) 20,000 10,000 By Gross Profit b/d 2,45,000 1,20,000
To Salaries (Common) (Note 1) 12,000 8,000
To Advertisement (Note 2) 9,000 5,000
To Depreciation : (Note 3)
on Building 40,000 50,000
on Machinery 20,000 20,000
To Net Profit 1,44,000 27,000
2,45,000 1,20,000 2,45,000 1,20,000
Working Notes :
(1) Common salaries are to be divided between the departments in the ratio of number of staff, i.e., 3 : 2.
20,000
Dept. X : � 3 = ~ 12,000.
5
20,000
Dept. Y : � 2 = ~ 8,000.
5
(2) Advertisement expenses are to be divided between the departments in the ratio of sales, i.e., 9 : 5.
14,000
Dept. X : � 9 = ~ 9,000.
14
14,000
Dept. Y : � 5 = ~ 5,000.
14
(3) Depreciation :
Dept. X : on Building ---- ~ 4,00,000 � 10% = ~ 40,000.
on Machinery ---- ~ 2,00,000 � 10% = ~ 20,000.
Dept. Y : on Building ---- ~ 5,00,000 � 10% = ~ 50,000.
on Machinery ---- ~ 2,00,000 � 10% = ~ 20,000.
Illustration 27
From the following particulars of Mr. Nobel having a Departmental Organisation with two departments P and Q. Prepare
a Departmental Trading and Profit and Loss Account for the year ended 31.03.2015 :
Particulars Department P (~) Department Q (~)
(i) Stock as on 01.04.2014 40,000 35,000
(ii) Purchase 2,50,000 2,00,000
(iii) Goods from Department Q 30,000 ----
(iv) Salaries 60,000 45,000
(v) Wages 30,000 30,000
(vi) Sales 4,50,000 3,50,000
(vii) Other Expenses 10,000 10,000
(viii) Machinery 2,00,000 2,00,000
(ix) Stock as on 31.03.2015 35,000 40,000
Other information :
(a) Total administrative expenses ~ 10,000.
(b) General electricity expenses ~ 20,000.
Department P and Q have light points 20 and 30 respectively.
(c) Rate of Depreciation on Machinery @ 20% p.a. [C.U.B.Com. (General) ---- 2015]
Solution
Dept. P Dept. Q Dept. P Dept. Q
To Opening Stock 40,000 35,000 By Goods Sent to Dept. P ---- 30,000
To Purchases 2,50,000 2,00,000 By Sales 4,50,000 3,50,000
To Goods from Dept. Q 30,000 ---- By Closing Stock 35,000 40,000
To Wages 30,000 30,000
4,85,000 4,20,000 4,85,000 4,20,000
To Other Expenses 10,000 10,000
To Administrative Expenses (Note 1) 5,625 4,375
To General Electricity (Note 2) 8,000 12,000
To Depreciation on Machinery (Note 3) 40,000 40,000
1,35,000 1,55,000 1,35,000 1,55,000
Working Notes :
(1) Administrative expenses will be shared by departments in the ratio of sales, i.e., 9 : 7.
10,000
Dept. P = � 9 = ~ 5,625.
16
10,000
Dept. Q = � 7 = ~ 4,375.
16
(2) General electricity will be shared by departments in the ratio of light points, i.e., 2 : 3.
20,000
Dept P = � 2 = ~ 8,000.
5
20,000
Dept. Q = � 3 ~ 12,000.
5
(3) Depreciation on Machinery :
Dept. P = ~ 2,00,000 � 20% = ~ 40,000.
Dept. P = ~ 2,00,000 � 20% = ~ 40,000.
Illustration 28
On the basis of the following information related to two departments of D & E Ltd., prepare Departmental Trading and
Profit and Loss Account :
Particulars Dept. D (~) Dept. E (~)
Stock as on 1.4.2013 30,000 30,000
Purchases 3,00,000 1,00,000
Goods from D Dept. (at cost) ---- 50,000
Salaries 40,000 30,000
Wages 20,000 20,000
Sales 5,00,000 2,00,000
Other Expenses 20,000 10,000
Machinery 1,00,000 1,00,000
Stock as on 31.3.2014 (at cost) 30,000 30,000
Other information :
(a) Administratie expenses of ~ 10,000 are to be apportioned in the ratio of 3 : 2 between D and E.
(b) General electricity expenses ~ 30,000. Department D and E have light points 30 and 20 respectively.
(c) Rate of depreciation on machinery is 10% p.a. [C.U.B.Com. (General) ---- 2014]
Solution D & E Ltd.
Dept. D Dept. E Dept. D Dept. E
To Purchases 3,00,000 1,00,000 By Goods Transferred to Dept. E 50,000 ----
To Goods Transferrd from Dept. D ---- 50,000 By Closing Stock 30,000 30,000
To Wages 20,000 20,000
To Gross Profit c/d 2,30,000 30,000
5,80,000 2,30,000 5,80,000 2,30,000
To Salaries 40,000 30,000 By Balance b/d 2,30,000 30,000
To Other Expenses 20,000 10,000 By Net Loss ---- 36,000
To Administrative Expenses 6,000 4,000
To General Electricity Expenses (Note 1) 18,000 12,000
To Depreciation on Machinery (Note 2) 10,000 10,000
To Net Profit 1,36,000 ----
2,30,000 66,000 2,30,000 66,000
Working Notes :
(1) General electricity expenses are to be shared by the departments in the ratio of light points, i.e., 3 : 2.
30,000
Department D : � 3 = ~ 18,000.
5
30,000
Department E : � 2 = ~ 12,000.
5
(2) Depreciation :
Department D : ~ 1,00,000 � 10% = ~ 10,000.
Department E : ~ 1,00,000 � 10% = ~ 10,000.
Illustration 29
From the following particulars of a departmental organisation having two departments B and N, prepare a Departmental
Trading and Profit and Loss Account for the year ended 31st March, 2012 :
Particulars B Dept. (~) N Dept. (~)
Stock as on 1.4.2011 20,000 2,000
Purchases 3,00,000 30,000
Goods from B Dept. (at cost) ---- 40,000
Wages 15,000 20,000
Salaries 10,000 15,000

Stock (at cost) on 31.3.2012 20,000 7,000
Sales 4,00,000 2,00,000
Stationery 2,700 1,700
Plant and Machinery 50,000 50,000
Other information :
Salaries ~ 18,000; Miscellaneous expenses ~ 6,300.
Advertisement expenses ~ 9,000; Bank charges ~ 900.
Depreciate Plant and Machinery by 20%.
Expenses are to be apportioned between Dept. B and Dept. N in the ratio 2 : 1. [C.U.B.Com. (General) ---- 2013]
Solution
Dept. B Dept. N Dept. B Dept. N
To Opening Stock 20,000 2,000 By Goods transferred to Dept. N 40,000 ----
To Purchases 3,00,000 30,000 By Sales 4,00,000 2,00,000
To Goods from Dept. B ---- 40,000 By Closing Stock 20,000 7,000
To Wages 15,000 20,000
4,60,000 2,07,000 4,60,000 2,07,000
To Stationery 2,700 1,700
To Depreciation on Plant and Machinery 10,000 10,000
To Salaries (2 : 1) 12,000 6,000
To Advertisement Expenses ( 2 : 1) 6,000 3,000
To Miscellaneous Expenses (2 : 1) 4,200 2,100
To Bank Charges (2 : 1) 600 300
1,25,000 1,15,000 1,25,000 1,15,000
Illustration 30
Prepare Departmental Trading and Profit and Loss Account from the following particulars assuming that the rate of gross
profit is same in each case :
Particulars Dept. A Dept. B Dept. C
Purchases at total cost of ~ 1,00,000 1,000 units 2,000 units 2,400 units
Closing Stock (1.1.2010) 120 units 80 units 152 units
Sales (1.1.2010) 1,020 units 1,920 units 2,496 units
@ ~ 20 each @ ~ 22.50 each @ ~ 25 each
General expenses of ~ 7,530 is to be apportioned between all the three departments in the ratio of 2 : 2 : 1.
Solution
Dr. Departmental Trading and Profit and Loss Account for the year ended ... Cr.
Particulars Dept. A Dept. B Dept. C Particulars Dept. A Dept. B Dept. C
(~) (~) (~) (~) (~) (~)
To Opening Stock (Note 4) 2,240 ---- 4,960 By Sales (Note 6) 20,400 43,200 62,400
To Purchases (Note 2) 16,000 36,000 48,000 By Closing Stock (Note 5) 1,920 1,440 3,040
22,320 44,640 65,440 22,320 44,640 65,440
To General Expenses 3,012 3,012 1,506 By Gross Profit b/d 4,080 8,640 12,480
To Net Profit 1,068 5,628 10,974
4,080 8,640 12,480 4,080 8,640 12,480
Working Notes :
(1) Calculation of Profit Margin Rate
Particulars ~ ~
Suppose Purchase Units = Sales Units
Department A (1,000 units @ ~ 20) 20,000
Department B (2,000 units @ ~ 22.50) 45,000
Department C (2,400 units @ ~ 25) 60,000
Total Sales Value 1,25,000
Less: Purchases (given) 1,00,000
Gross Profit 25,000
25,000
Rate of Gross Profit � � 100 � 20%
1,25,000
(2) Calculation of Purchase Price and Total Purchases of Each Department
Particulars Dept. A Dept. B Dept. C
Selling Price per unit (~) 20.00 22.50 25.00
Less: Gross Profit 20% of Sales 4.00 4.50 5.00
Purchase Price per unit (X) 16.00 18.00 20.00
Number of Units Purchased (Y) 1,000 2,000 2,400
Total Purchases (X) x (Y) (~) 16,000 36,000 48,000
(3) Calculation of Opening Stock of Each Department

Department Dept. A Dept. B Dept. C
Closing Stock (units) 120 80 152
Add: Sales (units) 1,020 1,920 2,496
1,140 2,000 2,648
Less: Purchases (units) 1,000 2,000 2,400
Opening Stock (units) 140 Nil 248
(4) Calculation of Value of Opening Stock
Department A : 140 � ~ 16 = ~ 2,240
Department C : 248 � ~ 20 = ~ 4,960
(5) Calculation of Value of Closing Stock
Department A : 120 � ~ 16 = ~ 1,920
Department B : 80 � ~ 18 = ~ 1,440
Department C : 152 � ~ 20 = ~ 3,040
(6) Calculation of Sales Value
Department A : 1,020 � ~ 20 = ~ 20,400
Department B : 1,920 � ~ 22.50 = ~ 43,200
Department C : 2,496 � ~ 25 = ~ 62,400
Illustration 31
From the following information, prepare Departmental Trading and Profit and Loss Account for the year ended 31st
December, 2010 :
Particulars Dept. A (~) Dept. B (~) Dept. C (~)
Stock on 1.1.2010 6,000 7,000 3,000
Purchases 7,000 6,500 4,700
Sales 12,000 10,000 6,000
Direct Expenses 2,000 1,500 700
Rates of Gross Profit 40% 30% 20%
Indirect Expenses :
Sundry expenses ~ 700; Salaries ~ 840 and Rent ~ 560.
The indirect expenses are charged in proportion to departmental turnover.
Solution
Particulars Dept. A Dept. B Dept. C Particulars Dept. A Dept. B Dept. C
(~) (~) (~) (~) (~) (~)
To Opening Stock 6,000 7,000 3,000 By Sales 12,000 10,000 6,000
To Purchases 7,000 6,500 4,700 By Closing Stock (Note 1) 5,800 6,500 2,900
To Direct Wages 2,000 1,500 700
To Gross Profit c/d 2,800 1,500 500
17,800 16,500 8,900 17,800 16,500 8,900
To Sundry Expenses (6 : 5 : 3) 300 250 150 By Gross Profit b/d 2,800 1,500 500
To Salaries (6 : 5 : 3) 360 300 180
To Rent (6 : 5 : 3) 240 200 120
To Net Profit 1,900 750 50
2,800 1,500 500 2,800 1,500 500
Working Notes : (1) Calculation of Closing Stock of Each Department
Department Dept. A Dept. B Dept. C
Opening Stock 6,000 7,000 3,000
Add: Purchases 7,000 6,500 4,700
13,000 13,500 7,700
Less: Cost of Goods Sold (Note 2) 7,200 7,000 4,800
Value of Closing Stock 5,800 6,500 2,900
(2) Calculation of Cost of Goods Sold : (3) Ratio of Turnover :
A : ~ 12,000 � (100% -- 40%) = ~ 7,200. A:B:C
B : ~ 10,000 � (100% -- 30%) = ~ 7,000. 12,000 : 10,000 : 6,000
C : ~ 10,000 � (100% -- 20%) = ~ 4,800. or, 6 : 5 : 3
[ For Honours Candidates Only ]

Illustration 32
A hotel proprietor has two departments, viz., (i) Apartment Department and (ii) Meals Department. Following is the Trial
Balance of the business as on 31.03.2016 :
Particulars Dr. (~) Particulars Cr. (~)
Food & Provision 15,500 Income from Apartment Dept. 46,000
Opening Stock of Provisions 1,020 Income from Meals Dept. 32,000
Cash at Bank 10,000 Capital 2,20,000
Customers Account 800 Suppliers Account 9,800
Building (1/10 is used for Meals Dept.) 2,10,000 Provision for Depreciation on Building 20,000
General Expenses 27,410 Provision for Depreciation on Furniture and Equipments 4,000
Furniture and Equipments 60,000 Interest 1,130
Accrued Interest 200
Drawings 2,000
Wages 6,000
3,32,930 3,32,930
Additional information :
(i) The servants of the Apartment Dept. had occupied a room for 5 days @ ~ 120 per day and took meals worth ~ 600.
Similarly the servants of the Meals Dept. had occupied a room for 6 days @ ~ 120 per day and took meals worth
~ 900.
(ii) Wages are charged in the portion of 1/2 to the Apartment Dept., 1/4 to the Meals Dept. and the remaining to the
General Profit and Loss Account.
(iii) Increase provision for depreciation on building to ~ 28,000 and on furniture and equipments by ~ 1,000.
(iv) A sum of ~ 800 representing accommodation ~ 240 and meals ~ 560 is to be charged to the hotel proprietor.
You are required to prepare Departmental Profit and Loss Account for the year ended on 31.03.2016.
[C.U.B.Com. (Hons.) ---- 2017]
Solution
Dr. Departmental Profit and Loss Account for the year ended 31st March, 2016 Cr.
Apartment Meal Apartment Meal
Particulars Dept. Dept. Particulars Dept. Dept.
To Opening Stock of Provisions ---- 1,020 By Income 46,000 32,000
To Food and Provisions (Purchase) ---- 15,500 By Drawings 240 560
To Depreciation on : By Apartment Dept - transfer ---- 600
Building (Note 1) 7,200 800 By Meal Dept - transfer 720 ----
Furniture and Equipments (Note 2) 900 100
To Wages (Note 3) 3,000 1,500
To Apartment Dept. - transfer ---- 720
To Meal Dept. - transfer 600 ----
To Departmental Profit 35,260 13,520
46,960 33,160 46,960 33,160
Tutorial Notes :
(1) No adjustment is required for providing facility to own department staff. Therefore, room charges of Apartment department and
meal charges of meal department are to be ignored.
(2) It has been asked in the question to prepare ‘Departmental Profit and Loss Account’. Therefore, gross profit has not been calculated
separately.
Working Notes :
(1) Depreciation on Building ~
Closing balance of provision for depreciation on building 28,000
Less: Opening balance of provision for depreciation on bulding 20,000
Depreciation for the year 8,000
Depreciation of Meal Dept. = 1/10 of ~ 8,000 = ~ 800.
Depreciation of Apartment Dept. = 9/10 of ~ 8,000 = ~ 7,200.
(2) Depreciation on Furniture and Equipment is ~ 1,000. The question is silent about the sharing of this deprec iation. We assumed
that it is to be shared in the same ratio of depreciation on building. Therefore, the depreciation on furniture and equipment will be
shared as follows :
Meal Dept. : 1/10 of ~ 1,000 = ~ 100
Apartment Dept. : 9/10 of ~ 1,000 = ~ 900.
(3) Division of Wages :
Apartment Dept : 1/2 of ~ 6,000 = ~ 3,000.
Meal Dept. : 1/4 of ~ 6,000 = ~ 1,500.
General Profit and Loss = 1/4 of ~ 6,000 = ~ 1,500.
Illustration 33
M/s. Mega Co. has two departments A and B. From the following particulars, prepare Departmental Trading Account and
General Profit and Loss Account for the year ended 31st March, 2016 :
Opening Stock (at cost) 70,000 54,000
Purchases 3,92,000 2,98,000
Carriage Inward 6,000 9,000
Wages 54,000 36,000
Sales 5,72,000 4,60,000
Purchased Goods Transferred :
By Dept. B to A 50,000 ----
By Dept. A to B ---- 36,000
Finished Goods Transferred :
By Dept. B to A 1,50,000 ----
By Dept. A to B ---- 1,75,000
Return of Finished Goods :
By Dept. B to A 45,000 ----
By Dept. A to B ---- 32,000
Closing Stock :
Purchased Goods 24,000 30,000
Finished Goods 1,02,000 62,000
Purchased goods have been transferred mutually at their respective departmental purchase cost and finished goods at
departmental market price. 30% of the closing finished stock with each department represents finished goods received
from the other department.
[C.U.B.Com. (Hons.) ---- 2016]
Solution M/s Mega Co.
To Purchases 3,92,000 2,98,000 By Transfer : Purchased goods 36,000 50,000
To Carriage Inwards 6,000 9,000 Finished goods 1,75,000 1,50,000
To Wages 54,000 36,000 By Returns : Finished goods 32,000 45,000
To Transfer : Purchased goods 50,000 36,000 By Closing stock : Purchased goods 24,000 30,000
Finished goods 1,50,000 1,75,000 Finished goods 1,02,000 62,000
To Returns : Finished goods 45,000 32,000
To Gross Profit c/d (transferred to General 1,74,000 1,57,000
Profit and Loss Account)
9,41,000 7,97,000 9,41,000 7,97,000
Dr. General Profit and Loss Account for the year ended 31st March, 2016 Cr.
To Stock Reserve : By Gross Profit b/d :
In Closing Stock of Dept. A 8,312 Dept. A 1,74,000
In Closing Stock of Dept. B 4,610 Dept. B 1,57,000
To Net Profit 3,18,078
3,31,000 3,31,000
Working Notes : (1) Calculation of Stock Reserve in Closing Stock

Particulars Dept A (~) Dept B (~)
Sales 5,72,000 4,60,000
Add: Transfer of finished goods 1,75,000 1,50,000
7,47,000 6,10,000
Less: Return of finished goods 45,000 32,000
Sales (Net) (A) 7,02,000 5,78,000
Gross profit (B) 1,74,000 1,57,000
Rate of gross profit (B � A) x 100 1,74,000 1,57,000
x 100 � 24.786 % x 100 � 27.162 %
7,02,000 5,78,000
(2) Finished goods from other Department included in Closing Stock

Department A ~ Department B ~
Finished Goods recd. from Dept. B : 30% of ~ 1,02,000 30,600 Finished Goods recd. from Dept. A : 30% of ~ 62,000 18,600
Unrealised profit = 27.162% of ~ 30,600 8,312 Unrealised profit = 24.786% of ~ 18,600 4,610
Illustration 34
A firm has two departments - Raw materials and Manufacturing. The finished goods are produced by the manufacturing
department with raw materials supplied by Raw Materials Department at selling price. From the following information,
prepare Departmental Trading and Profit and Loss Account for the year ended on 31st March, 2014 :
Particulars Raw Manufacturing

Materials Department
Department
(~) (~)
Purchases 4,00,000 3,000
Raw Materials Transferred to Manufacturing Department 60,000 ----
Sales 4,40,000 90,000
Manufacturing Expenses ---- 12,000
Selling Expenses 800 400
Closing Stock 40,000 12,000
It is estimated that the cost of closing stock of Manufacturing Department consists of 75% of raw materials and 25%
for manufacturing expenses. The rate of gross profit earned during the preceding year by the Raw Materials Department
was 10%. After allocating the following expenses on reasonable basis between the two departments work out the net profit
of the firm as a whole :
(i) Salaries ~ 2,500.
(ii) Insurance premium ~ 800. [C.U.B.Com. (Hons.) ---- 2015]
Solution
Particulars R.M. Dept Mfg. Dept Total Particulars R.M. Dept Mfg. Dept Total
(~) (~) (~) (~) (~) (~)
To Purchases 4,00,000 3,000 4,03,000 By Raw Materials transferred to 60,000 ---- 60,000
To Manufacturing Expenses ---- 12,000 12,000 Manufacturing Dept.
To Raw Materials from R.M. Dept. ---- 60,000 60,000 By Closing Stock 40,000 12,000 52,000
5,40,000 1,02,000 6,42,000 5,40,000 1,02,000 6,42,000
To Selling Expenses 800 400 1,200 By Gross Profit b/d 80,000 17,000 97,000
To Salaries (Note 3) 2,119 381 2,500
To Insurance Premium (Note 4) 656 144 800
To Net Profit c/d 76,425 16,075 92,500
80,000 17,000 97,000 80,000 17,000 97,000
To Net Profit 91,810 By Provision for Unrealised Profit on Opening Stock (Note 2) 750
93,250 93,250
Working Notes :
80,000 80,000
(1) Gross Profit Ratio of Raw Materials Department � � 100 � � 100 � 16%
�4,40,000 � 60,000� 5,00,000
(2) Provision for Unrealised Profit on Opening Stock = (10,000 �� 75%) �� 10% = ~ 750.
Provision for Unrealised Profit on Closing Stock = (12,000 � 75%) �� 16% = ~ 1,440.
(3) Salaries can be shared by the R.M. Dept and Mfg. Dept. in the ratio of Sales of each department. The ratio will be :
(4,40,000 + 60,000) : 90,000
or 5,00,000 : 90,000
or 50 : 9.
(a) Raw materials department’s share = 2,500 / 59 �� 50 = ~ 2,119
(b) Manufacturing department’s share = 2,500 / 59 �� 9 = ~ 381.
(4) Insurance premium can be shared by R.M. Dept. and Mfg. Dept. in the ratio of average stock of each department. The ratio will
be :
�60,000 � 40,000� �10,000 � 12,000�
= :
2 2
or 50,000 : 11,000
or 50 : 11
(a) Raw materials department’s share = 800 / 61 �� 50 = ~ 656.
(b) Mfg. department’s share = 800 / 61 ��11 = ~ 144.
Illustration 35
Raju & Co. has two departments X and Y. Dept. X sells goods to Dept. Y at normal selling price. From the following
particulars, prepare a Departmental Trading and Profit and Loss Account for the year ended 31st March, 2013 and also
ascertain the net profit to be transferred to Balance Sheet :
Particulars Dept. X (~) Dept. Y (~)
Opening Stock 1,00,000 ----
Purchases 23,00,00 2,00,000
Goods from Dept. X ---- 7,00,000
Wages 1,00,000 1,60,000
Travelling Expenses 20,000 14,000
Sales (excluding Departmental transfer) 23,00,000 15,00,000
Printing and Stationery 10,000 8,000
Closing Stock at cost to the Dept. 5,00,000 1,80,000
The following expenses incurred for both the departments were not apportioned between the departments :
Salaries ~ 2,70,000; Advertisement expenses ~ 90,000; General expenses ~ 8,00,000.
Depreciation should be charged at 25% on the machinery value of ~ 96,000. Advertisement expenses are to be
apportioned in the turnover ratio, salaries in 2 : 1 ratio and depreciation in 3 : 1 ratio between Departments X and Y. General
expenses are to be apportioned in the ratio of 3 : 1.
[C.U.B.Com. (Hons.) ---- 2014]
Solution Raju & Co
Particulars Dept X Dept Y Total Particulars Dept X Dept Y Total
(~) (~) (~) (~) (~) (~)
To Opening Stock 1,00,000 ---- 1,00,000 By Sales 23,00,000 15,00,000 38,00,000
To Purchases 23,00,000 2,00,000 25,00,000 By Goods transferred to Y 7,00,000 ---- ----
To Goods from Dept X‘ ---- 7,00,000 ---- By Closing Stock 5,00,000 1,80,000 6,80,000
To Wages 1,00,000 1,60,000 2,60,000
35,00,000 16,80,000 44,80,000 35,00,000 16,80,000 44,80,000
To Travelling Expenses 20,000 14,000 34,000 By Gross Profit b/d 10,00,000 6,20,000 16,20,000
To Printing and Stationery 10,000 8,000 18,000
To Salaries (2 : 1) 1,80,000 90,000 2,70,000
To Advertisement Exp. (Note 3) 60,000 30,000 90,000
To General Expenses (3 : 1) 6,00,000 2,00,000 8,00,000
To Depreciation on Machinery (3:1) 18,000 6,000 24,000
To Net Profit c/d 1,12,000 2,72,000 3,84,000
10,00,000 6,20,000 16,20,000 10,00,000 6,20,000 16,20,000
To Capital A/c (Net Profit transferred) 3,37,333 By Provision for Unrealised Profit on Opening Stock Nil
3,84,000 3,84,000
Working Notes :
10,00,000 10,00,000
(1) Gross Profit Ratio of Department X = � 100 � � 100 � 331�3%
23,00,000 � 7,00,000 30,00,000
(2) Proportionate of X Department’s stock in Department Y
Purchase from Department X 7,00,000

= � Total Stock of Department Y � � 1,80,000 � ~ 1,40,000
Total Purchases of Department Y 9,00,000
1
Unrealised profit = of ~ 1,40,000 = ~ 46,667.
3
(3) Advertisement expenses are to be apportioned in the ratio of turnover. The ratio will be :
(23,00,000 + 7,00,000) : 15,00,000
or, 30,00,000 : 15,00,000 or, 2 : 1.
(a) Department X’s share = 2/3 of ~ 90,000 = ~ 60,000.
(b) Department Y’s share = 1/3 of ~ 90,000 = ~ 30,000.
llustation 36
A Ltd. has three departments X, Y and Z. From the following particulars, prepare a Departmental Trading Account for the
year ended 31st December, 2012 :
Particulars Dept. X (~) Dept. Y (~) Dept. Z (~)
Stock on 1.1.2012 48,000 72,000 24,000
Purchases 2,92,000 2,48,000 96,000
Actual Sales 3,45,000 3,18,800 1,49,200
Gross Profit on Normal Selling Price 20% 25% 331/3%
During the year certain items were sold at discounts and these discounts were reflected in the sales figure shown above.
The items sold at discounts were :
Particulars Dept. X (~) Dept. Y (~) Dept. Z (~)
Sales at Normal Price 20,000 6,000 2,000
Sales at Actual Price 15,000 4,800 1,200
[C.U.B.Com. (Hons.) ---- 2013]
Solution A Ltd.
Particulars Dept X Dept Y Dept. Z Particulars Dept X Dept Y Dept. Z
(~) (~) (~) (~) (~) (~)
To Opening Stock 48,000 72,000 24,000 By Sales (Actual) 3,45,000 3,18,800 1,49,200
To Purchases 2,92,000 2,48,000 96,000 By Closing Stock (Note 1) 60,000 80,000 20,000
4,05,000 3,98,000 1,69,200 4,05,000 3,98,000 1,69,200
Working Notes : (1) Calculation of Closing Stock of Each Department
Department Dept. X Dept. Y Dept. Z
Opening Stock 48,000 72,000 24,000
Add: Purchases 2,92,000 2,48,000 96,000
3,40,000 3,20,000 1,20,000
Less: Cost of Goods Sold (Note 2) 2,80,000 2,40,000 1,00,000
Closing Stock 60,000 80,000 20,000
(2) Calculation of Cost of Goods Sold
Department Dept. X Dept. Y Dept. Z
Actual Sales 3,45,000 3,18,800 1,49,200
Add: Discount Allowed 5,000 1,200 800
Sales at Normal Price (A) 3,50,000 3,20,000 1,50,000
Rate of Gross Profit 20% 25% 331/3%
Gross Profit (B) 70,000 80,000 50,000
Cost of Goods Sold (A -- B) 2,80,000 2,40,000 1,00,000
Illustration 37
A firm has two departments, Ex and Zed. Department Ex transfers goods to Department Zed at normal selling price while
Department Zed transfers goods to Department Ex at cost plus 10%. From the following figures, prepare Departmental
Trading and Profit and Loss Account and General Profit and Loss Account for the year 2011 :
Particulars Ex (~) Zed (~)
Stock ---- 1st January, 2011 1,50,000 25,000
Sales 11,00,000 2,20,000
Purchases 6,00,000 1,15,000
Transfer to other department 1,00,000 1,50,000
Rent and Rates 10,000 15,000
Wages 1,00,000 30,000
Stock ---- 31st December, 2011 1,00,000 20,000
Advertisement ---- ~ 15,000 (to be apportioned based on Sales excluding transfer) General expenses ~ 23,000 (not to
be apportioned) Stock on 31.12.2011 includes transferred goods as 39,600 12,000
[C.U.B.Com. (Hons.) ---- 2012]
Solution
Ex Dept. Zed Dept. Ex Dept. Zed Dept.
To Opening Stock 1,50,000 25,000 By Sales 11,00,000 2,20,000
To Purchases 6,00,000 1,15,000 By Transfer (Contra) 1,00,000 1,50,000
To Wages 1,00,000 30,000 By Closing Stock 1,00,000 20,000
To Transfer (Contra) 1,50,000 1,00,000
13,00,000 3,90,000 13,00,000 3,90,000
To Rent and Rates 10,000 15,000 By Gross Profit b/d 3,00,000 1,20,000
To Advertisement (Note 1) 12,500 2,500
To Net Profit c/d 2,77,500 1,02,500
3,00,000 1,20,000 3,00,000 1,20,000
Dr. General Profit and Loss Account for the year ended 31st December, 2011 Cr.
To General Expenses 23,000 By Gross Profit b/d :
Provision for Unrealised Profit on Closing Stock (Note 2) 6,600 Dept. Ex 2,77,500
To Net Profit 3,50,400 Dept. Zed 1,02,500
3,80,000 3,80,000
Working Notes :
(1) Advertisement will be divided in the ratio of sales (excluding transfer). The ratio will be :
Ex : Zed
11,00,000 : 2,20,000
or, 5 : 1
15,000
Ex’s share = � 5 = ~ 12,500.
6
15,000
Zed’s share = � 1 = ~ 2,500.
6
(2) Calculation of Stock Reserve :
(a) Rate of gross profit on sales of Dept. Ex
3,00,000 3,00,000
= � 100 � � 100 � 25%
�11,00,000 � 1,00,000� 12,00,000
Stock reserve in the closing stock of Dept. Ex = 12,000 � 25% = ~ 3,000.
39,000
(b) Stock reserve in the closing stock of Dept. Zed = � 10 = ~ 3,600.
110
Total Stock Reserve = ~ 3,000 + ~ 3,600 = ~ 6,600.
Memorandum Stock Account and Memorandum Mark-up Account

For an adequate check on department stock, sometimes a Memorandum Stock Account is maintained at selling
price/inflated price. A Memorandum Mark-up Account is also maintained for the loading (selling price -- cost
price). Departmental gross profit comes out from the Memorandum Mark-up Account. This Account can be
compared with the Branch Adjustment Account which is prepared when goods are sent to branch at inflated
price (for details please refer Chapter 7).
Accounting Arrangement
1. The opening stock is brought down on the debit side of the Memorandum Stock Account at selling price
(cost + mark-up).
Amount of mark-down on opening stock is brought down on the credit side of the Memorandum Stock
Account.
2. The loading on opening stock is brought down on the credit side of the Memorandum Mark-up Account.
Amount of mark-down on opening stock is brought down on the debit side of the Memorandum Stock
Account.
3. For goods purchased

Memorandum Stock Account Dr. [Selling price]
To Purchases Account [Cost price]
To Memorandum Mark-up Account [Loading]
4. For sale of goods
Sales Account Dr. [Selling price]
To Memorandum Stock Account [Selling price]
5. For transfer of goods by one department to another (say by X to Y)
Y’s Memorandum Stock Account Dr. [Cost price]
To X’s Memorandum Stock Account [Cost price]
6. For loading on transfer by X Department
Memorandum Mark-up Account Dr. [Loading of X Department]
To Memorandum Stock Account
7. For loading on goods received by Y Department
Memorandum Stock Account Dr. [Loading of Y Department]
To Memorandum Mark-up Account
8. Sometimes goods may have to be marked-down due to competition or due to deterioration of goods
lying in stock. In such a case, the entry will be:
Memorandum Mark-up Account Dr. [Mark-down]
To Memorandum Stock Account
9. For loss of stock
Loss of Stock Account Dr. [Cost price]
Memorandum Mark-up Account Dr. [Loading]
To Memorandum Stock Account [Selling price]
10. For mark-down on goods lying in stock
Memorandum Stock Account Dr.
To Memorandum Mark-up Account
Now, the balance of Memorandum Stock Account will represent the closing stock at selling price.
Loading on closing stock is to be carried forward. The balance of Memorandum Mark-up Account will
represent gross profit.
Illustration 38
Southern Store Ltd. is a retail store operating two departments. The company maintains a Memorandum Stock Account
and Memorandum Mark-up Account for each of the departments.
Supplies issued to the departments are debited to the Memorandum Stock Account of the department at cost plus the
mark-up, and departmental sales are credited to this account. The mark-up on supplies issued to the departments is credited
to the mark-up account for the department.
When it is necessary to reduce the selling price below the normal selling price, i.e., cost plus mark-up, the reduction
(mark-down) is entered in the Memorandum Stock Account and in the mark-up account. Department Y has a mark-up of
331/3% on cost and Department Z 50% on cost.
Following information has been extracted from the records of Southern Store Ltd. for the year ended 31st December,
2017 (all figures in ~) :
Particulars Dept. Y Dept. Z
Stock (1.1.2017) at cost 24,000 36,000
Purchases 1,62,000 1,90,000
Sales 2,10,000 2,85,000
1. The stock of Department Y at 1st January 2017 includes goods on which the selling price has been marked down
by ~ 510. These goods were sold in January 2017 at the reduced price.
2. Certain goods purchased in 2017 for ~ 2,700 for department Y, were transferred during the year to department Z,
and sold for ~ 4,050. Purchase and sale are recorded in the purchases of department Y and the sales of department
Z respectively, but no entries in respect of the transfer have been made.
3. Goods purcahsed in 2017 were marked down as follows: Dept. Y Dept. Z
Cost 8,000 21,000
Mark down 800 4,100
At the end of the year there were some items in the stock of department Z, which had been marked down to ~ 2,300.
With this exception, all goods marked down in 2017 were sold during the year at the reduced prices.
4. During stock taking at 31st December 2017 goods which had cost ~ 240 were found to be missing in department
Y. It was determined that the loss should be regarded as irrecoverable.
5. The closing stock in both departments are to be valued at cost for the purpose of the annual accounts.
You are required to prepare for each department for the year ended 31st December 2017:
(a) a Trading Account;
(b) a Memorandum Stock Account; and
(c) a Memorandum Mark-up Account.
Solution Southern Stores Ltd.
Dr. Trading Account for the year ended 31st December 2017 Cr.
Particulars Dept. Y Dept. Z Particulars Dept. Y Dept. Z
To Opening Stock, at cost 24,000 36,000 By Sales 2,10,000 2,85,000
To Purchases 1,62,000 1,90,000 By Dept. Z - transfer 2,700 ----
To Dept Y - transfer ---- 2,700 By Profit & Loss A/c - goods lost 240 ----
To Gross profit 51,518 92,496 By Closing stock (Note 1) 24,578 36,196
2,37,518 3,21,196 2,37,518 3,21,196
Dr. Memorandum Stock Account Cr.

To Balance b/d (cost + mark up) 32,000 54,000 By Balance b/d (Mark-down on opening stock) 510 ----
To Purchases A/c 1,62,000 1,90,000 By Sales A/c 2,10,000 2,85,000
To Memorandum Mark Up A/c By Dept Z - transfer 2,700 ----
(Mark-up on purchases) 54,000 95,000 By Memorandum Mark Up A/c
To Dept Y - transfer ---- 2,700 (mark up on transfer) 900 ----
To Memorandum Mark Up A/c By Memorandum Mark Up A/c
(Mark up on transferred goods) ---- 1,350 (marked down) 800 4,100
To Memorandum Mark Up A/c (Note 2) By Loss of Stock A/c 240 ----
(On marked down goods lying in stock) By Memorandum Mark Up A/c
---- 344 (on stock cost) 80 ----
By Balance c/d (closing stock) 32,770 54,294
2,48,000 3,43,394 2,48,000 3,43,394
Dr. Memorandum Mark Up Account Cr.

To Balance b/d (Mark-down opening stock) 510 ---- By Balance b/d (Mark-up on opening stock) 8,000 18,000
To Memorandum Stock A/c 900 ---- By Memorandum Stock A/c
(mark up on transfer) (Mark up on purchase) 54,000 95,000
To Memorandum Stock A/c 800 4,100 By Memorandum Stock A/c
(Mark-down) (Mark up on transfer) ---- 1,350
To Memorandum Stock A/c 80 ---- By Memorandum Stock A/c
(mark down on goods destroyed) (marked down on goods lying in stock) ---- 344
To Gross profit (balancing figure) 51,518 92,496
To Balance c/d (Mark-down closing stock) 8,192 18,098
62,000 1,14,694 62,000 1,14,694
Working Notes : (1) Ascertainment of Closing Stock at Cost

Particulars Dept. Y Dept. Z
Closing stock at Invoice price (from Memorandum Stock Account) ~ 32,770 ~ 54,294
Closing Stock at cost 3/4 of ~ 32,770 = ~ 24,578 2/3 of ~ 54,294 = ~ 36,196
Loading on closing stock 1/3 of ~ 24,578 = ~ 8,192 1/2 of ~ 36,196 = ~ 18,098
(2) Ascertainment of Mark-down in Closing Stock of Dept. Z
� Mark down � 4,100
x Value of closing stock � x 2,300 �. ~ 344
� Value after down � 27,400�
*Value after mark-down = ~ 21,000 + 50% of ~ 21,000 -- ~ 4,100 = ~ 27,400.
(3) Verification of Gross Profit ~ ~
Dept. Y Dept. Z
Sales 2,10,000 2,85,000
Add: Mark down (~ 510 + ~ 800) / (~ 4,100 -- ~ 344) 1,310 3,756
2,11,310 2,88,756
Gross profit (Dept Y 1/4 and Dept Z 1/3) 52,828 96,252
Less: Mark down 1,310 3,756
Gross Profit as per Memorandum Mark up Account 51,518 92,496
Illustration 39
M/s Bright & Co., had found departments A,B,C and D, each department being managed by a departmental manager whose
commission was 10% of the respective departmental profit, subject to a minimum of ~ 6,000 in each case. Inter-departmental
transfers took place at a ‘loaded’ price as follows:
From Department A to Department B : 10% above cost; From Department A to Department D : 20% above cost
From Department C to Department D : 20% above cost; From Department C to Department B : 20% above cost
For the year ended 31st March 2018, the firm had already prepared and closed the Deparmental Trading and Profit and
Loss Account. Subsequently it was discovered that the closing stock of departments had included inter-departmentally
transferred goods at loaded price instead of cost price.
From the following information, prepare a statement re-computing the departmental profit or loss: (all figures in ~).
Particulars Dept A Dept B Dept C Dept D
Final Profit / Loss 38,000 (Loss) 50,400 (profit) 72,000 (profit) 1,08,000 (profit)
Inter-departmental transfers included at 70,000 (22,000 from Dept A and 4,800 (3,600 from Dept C
loaded price in the departmental stock 48,000 from Dept C) and 1,200 from Dept A)
Solution Statement showing Recomputation of Departmental Profit or Loss

Particulars A (~) B (~) C (~) D (~)
Final profit / loss (as computed earlier) (38,000) 50,400 72,000 1,08,000
Add: Department manager’s commission already deducted from profit (Note 1) 6,000 6,000 8,000 12,000
Profit before charging manager’s commission (32,000) 56,400 80,000 1,20,000
Less: Profit earned due to transfer of goods at loaded price and included in departmental unsold
stock (Note 2) (2,200) ---- (8,600) ----
Correct departmental profit before charging manager’s commission @ 10% of department profit (34,200) 56,400 71,400 1,20,000
subject to a minimum of ~ 6,000 6,000 6,000 7,140 12,000
40,200 50,400 64,260 1,08,000
Working Notes:
1. Manager’s commission is payable @ 10% of departmental profit before charging such commission (subject to a minimum of
~ 6,000). Alternatively, we can say, manager’s commission is payable @ 1/9 of departmental profit after charging such commission
(subject to a minimum of ~ 6,000). Therefore the manager’s commission, already deducted, will be as follows:
Departments Profit/Loss after charging commission (~) Commission (~)
A (38,000) 6,000
B 50,400 1/9 of ~ 50,400 or 6,000 whichever is higher i.e., 6,000
C 72,000 1/9 of ~ 72,000 = 8,000
D 1,08,000 1/9 of ~ 1,08,000 = 12,000
2. Unrealised profit on unsold departmental stock:

(a) Profit earned by Department A by transferring stock to: Total
10
Dept B @ 110 % � Rs 22,000 � � ~ 2,000
110
20
Dept D @ 120 % � Rs 1,200 � � ~ 200 2,200
120
(b) Profit earned by Department C by transferring stock to:
10
Dept D @ 120 % � Rs 3,600 � � ~ 600
120
20
Dept B @ 120 % � Rs 48,000 � � ~ 8,000 8,600
120
Illustration 40
X Ltd. has a factory which has two manufacturing departments A and B. Part of the output of A Department is transferred
to B Department for further processing and the balance is directly transferred to the selling department.
The entire production of B department is transferred to the selling department. Inter-department Stock transfers are
made as follows:
A Department to B Department at 20% over departmental cost;
A Department to Selling Department at 30% over departmental cost;
B Department to Selling Department at 25% over departmental cost.
The following information is given for the year ending 31st December 2017 :
Particulars Department A Department B Selling
M.T. ~ M.T. ~ M.T. ~
Opening Stock 60 60,000 20 40,000 50 1,60,000
Raw material consumption 100 1,10,000 30 30,000
Labour charges 60,000 80,000
Sales 6,00,000
Closing Stock 40 60 60
Out of total production in A Department 30 M.T. were for transfer to the Selling Department and the balance to B
Department. The per tonne material and labour consumption in A Department on production to be transferred directly to
the Selling Department is 200 per cent of the labour and material consumption on production meant for B Department.
Prepare Department Profit and Loss Account.
Solution
Working Notes :
(1) Department A M.T. (2) Department B M.T.
Total Input 160 Total Input 140
Closing Stock 40 Closing Stock 60
Total Output 120 Total Output 80
Transfer to selling department 30 Total cost incurred (~ 40,000 + 30,000 + 80,000 + 1,33,920) ~ 2,83,920
Transfer to Department B 90 Less: Closing stock (60/120 ~ (30,000 + 1,33,920) ~ 81,960
Equivalent production in terms of these transferred to Dept B M.T. ~ 2,01,960
Transfer to selling department 30 x 2 60 Add: Profit @ 25% on cost ~ 50,490
Transfer to Dept B 90 x 1 90 Transfer price ~ 2,52,450
150 Profit element in transfer price ~ 22,320
~ (Ratio of profit = 22,320 / ~ 1,63,920)
Total cost incurred ~ (60,000 + 1,10,000 + 60,000) 2,30,000 Increase in stock (81,960 -- 40,000) ~ 41,960
Less: Value of closing stock (~ 1,10,000/100 x 40) 44,000 Additional reserve = 41,960/1,63,920 x 22,320 = ~ 5,713
Cost of production of 150 equivalent (MT) 1,86,000 Amount considered for valuation of stock ~
(i) Transfer to Selling Dept (~ 1,86,000/150 x 60) 74,400 Materials consumed directly 30,000
Add: Profit @ 30% on cost 22,320 Transfer from Dept A 1,33,920
Transfer price 96,720 1,63,920
(ii) Transfer to Dept B : (~ 1,86,000/150 x 90) 1,11,600

Add: Profit @ 20% on cost 22,320
Transfer price 1,33,920
(3) Selling Department ~

(a) Profit included in transfer from Dept B 50,490
Profit included in transfer from Dept A 22,320
Total transfer (~ 2,52,450 from A + ~ 96,720 from B) 72,810
Ratio of profit (~ 72,810/3,49,170) 3,49,170
Increase in stock (~ 1,90,456 -- 1,60,000) 30,456
Additional reserve required (72,810/3,49,170 x 30,456) 6,351
(b) Profit in transfer from Dept A to B
Element of transfer from Dept A in increase in stock = 2,52,450/3,49,170 x 30,456 22,019
Profit element = 22,019 x 22,320/1,63,920 2,998
Total (a + b) = ~ 6,351 + 2,998 = ~ 9,349
Solution X Ltd
Dr. Departmental Profit & Loss Account for the year ended 31st December, 2017 Cr.
Particulars Depart A Dept B Selling Particulars Dept A Dept B Selling
M.T. ~ M.T. ~ M.T. ~ M.T. ~ M.T. ~ M.T. ~
To Opening 60 60,000 20 40,000 50 1,60,000 By Selling 30 96,720 80 2,52,450 ---- ----
Stock Dept -
transfer
To Raw 100 1,10,000 30 30,000 ---- ---- By Dept B 90 1,33,920 ---- ---- ---- ----
Materials - transfer
consumed
To Labour ---- 60,000 ---- 80,000 ---- ---- By Sales ---- ---- ---- ---- 100 6,00,000
charges
To Dept A - ---- ---- 90 1,33,920 30 96,720 By Closing 40 44,000 60 81,960 60 1,90,456
transfer Stock
(FIFO)
To Dept B - ---- ---- ---- ---- 80 2,52,450
transfer
To Dept ---- 44,640 ---- 50,490 ---- 2,81,286
Profit
160 2,74,640 140 3,34,410 160 7,90,456 160 2,74,640 140 3,34,410 160 7,90,456
Assumptions:
1. Closing Stock of Dept. A consists of raw materials only. No work has been done on such units.
2. Closing stock of Dept B is a mixture of materials directly introduced and those transferred from Dept A. i.e., 60/120 (~ 30,000
+ ~ 1,33,920).
3. Closing stock of Selling Dept = 60/110 (~ 2,52,450 + ~ 96,720).
Key Points
� A department is generally a physical part of the rest of the business. It should not be assumed that departmental
accounts refers only to departmental stores. In fact, they refer to the verious facets of a business. Each department
is treated as a separate profit centre, though none of the departments is separated geographically from the rest of
the departments.
� Distinction between Departmental Accounts and Branch Accounts
¤ In case of a dependent branch, all important accounting records are kept at the head office. The branch maintains
only Cash Account and Customers Account (if necessary). However, an independent branch, usually maintains
its own books of account and prepares its own Trading and Profit and Loss Account. In case of Departmental
Accounts, all accounting records are maintained at one place and Departmental Trading and Profit and Loss
Account is prepared accordingly.
Key Points (contd.)

¤ As the departments are not geographically separated from each other, the problem of allocation of common
expenditure among different departments arises. But in case of a branch account this problem of allocation of
common expenditure does not arise since branches are geographically separated from each other.
¤ In case of an independent branch, at the end of the accounting year, some adjustment and reconciliation of head
office and branch accounts are required. In case of Department Accounts, the question of adjustments and
reconciliation of accounts does not arise.
¤ At the time of finalisation of accounts of head office, the conversion of foreign branch figures may create some
problems. In case of Departmental Accounts, this type of problem does not arise.
� Under cost-based transfer pricing, the price may be based on actual cost, total cost or standard cost. Marginal cost
is also sometimes used as a basis of ascertaining transfer price. Standard cost is preferred to actual cost since the
inefficiency of one department cannot be passed on to another department. Taking full cost as transfer price means
that the supplying departments’ fixed cost becomes the variable cost of the receiving department.
� If the goods are transferred by one department to another department at a profit and at the end of the accounting
period such goods are included in the unsold stock, an appropriate adjustment must be made for unrealised profit
on stock. The entry is :
General Profit and Loss Account Dr.
To Provision for Unrealised Profit on Stock Account
At the beginning of the next year reverse entry will be passed.
Provision for Unrealised Profit on Stock Account Dr.
To General Profit and Loss Account
THEORETICAL QUESTIONS
1. (a) State briefly the advantages to be derived from a system of Departmental Accounts.
(b) What difficulties are there in the way of arriving at the net profit of each department?
2. Is there any difference between Branches and Departments, from the accounting point of view?
3. Explain the distinguishing features between Departmental Accounts and Branch Accounts and the advantages derived
from Departmental Accounts.
4. How the following indirect expenses are distributed amongst different departments?
(i) Rent; (ii) Insurance premium; (iii) Lighting; (iv) Advertisement; (v) Depreciation; and (vi) Managing Director’s
remuneration.
PRACTICAL QUESTIONS
1. Grewal Brothers own a business which has two departments, A and B.
The following balances appeared in the books for the year ended 31.12.2017 :
Particulars Dept A (~) Dept B (~) Total (~)
Stock (1.1.2017) 5,800 6,400 12,200
Purchases 40,000 50,000 90,000
Sales 1,50,000 1,00,000 2,50,000
Wages of shop assistants 21,800
Rent, rates and insurance 4,320
Stationery and office expenses 1,260
Motor vehicle expenses and depreciation 3,240
Carriage on purchases 1,440
Light and heat 1,270
You are required to prepare a Columnar Trading Account as specified above and Profit and Loss Account (columnar
form is not required) for the year ended 31.12.2017, taking into consideration the following :
(a) Carriage on purchases which is to be apportioned to the separate departments in proportion to purchases, and
wages to be allocated on the same basis as sales.
(b) Stock on 31.12.2017 was: Dept A ---- ~ 9,000; Dept B ---- ~ 6,000.
(c) An amount owing for insurances, ~ 120, has not been recorded in the books.
(d) The provision for doubtful debts which is shown in the books at ~ 300 is to be increased to ~ 400.
2. Raj Singh runs a business which has two departments. The following balances were extracted from his books on
30.6.2018 :
Particulars Dept. A (~) Dept. B (~) Common Expenses ~
Opening Stock on 1.1.2018 12,000 13,000 Commission payable 1,500
Purchases 24,520 36,544 Salaries 15,100
Sales 86,030 89,070 Advertising 2,500
Closing Stock 12,100 13,300 Rates 1,450
Wages 22,800 21,200 Insurance 400
Returns in 1,030 4,070 Repairs 800
Returns out 520 544 Lighting and heating 2,000
You are required to prepare Departmental Trading and Profit and Loss Account for the six month ended on 30.6.2018,
after taking into account the following information :
(a) (i) Salaries of ~ 400 are outstanding;
(ii) Rates ~ 250 have been paid in advance; and
(iii) Insurance ~ 80 is prepaid.
(b) Commission, salaries and advertising are to be charged to the departments in proportion to net turnover (sales
minus returns in); all other expenses are to be apportioned 1/4th to department A and 3/4th to department B.
3. M/s Z & Co has two departments. You are required to prepare the Trading and Profit and Loss Account for each
department for the year ended on 31st March, 2018 on the basis of the following information :
Particulars Dept. I (~) Dept. II (~)
Opening Stock (1.4.2017) 25,000 20,000
Purchases 2,30,000 1,90,000
Sales 6,33,000 4,92,000
Sales Returns 3,000 2,000
Closing Stock (31.3.2018) 30,000 18,000
Wages 80,000 60,000
Salaries 40,000 25,000
Other common expenses : Rent ~ 15,000; Electricity ~ 6,000; Depreciation ~ 18,000; Selling expenses ~ 8,000.
Some other relevant information is given below :
Particulars Dept.A (~) Dept. B (~)
Light Points 18 9
Value of Assets (~) 1,50,000 1,20,000
Floor Area (sq.ft.) 300 200
4. A departmental stores carries on its business through five departments, A, B, C, D and E.
(i) The following information for 2017 is now made available to you:
Salaries and Commission ~ 11,020; Rent and Rates ~ 2,900; Insurance ~ 1,160; Miscellaneous Expenses ~ 2,610.
All these expenses are chargeable to each department in proportion to the cost of the articles sold in the respective
departments.
(ii) The following balances as at 31.12.2017 were ascertained: (all figures in ~)
Particulars A B C D E
Opening stock at cost 10,000 6,000 15,000 8,000 9,000
Purchases 1,00,000 60,000 20,000 52,000 60,000
Sales 96,000 62,000 19,000 46,000 60,000
Closing stock at cost 23,000 8,000 6,000 2,000 11,000
Prepare the Profit and Loss Account to show the final result of each department and also the combined results with
respective percentages on sales.
5 The Trading and Profit and Loss Account of Hindustan Electronics for the year ending March 31, 2018 is as under:
(all figures in ~).
To Purchases: By Sales:
Transistors (X) 1,60,000 Transistors (X) 1,75,000
Tape Records (Y) 1,25,000 Tape Records (Y) 1,40,000
Spare parts for servicing & repair jobs (Z) 80,000 Servicing and repair jobs (Z) 35,000
To Wages 48,000 By Stock on 31.3.2018
To Rent 10,800 Transistors (X) 60,100
To Sundry Expenses 11,000 Tape Records (Y) 20,300
To Net Profit 40,200 Spare parts for servicing and repair jobs ( Z ) 44,600
4,75,000 4,75,000
Prepare Deparqtmental Accounts for each of the three Departments X, Y and Z mentioned above after taking into
consideration the following:
(a) Transistors and Tape Recorders are sold at the showroom. Servicing and repairs are carried out at the workshop.
(b) Wages comprise: Showroom 3/4; Workshop 1/4.
It was decided to allocate the showroom wages in the ratio of 1:2 between Departments X and Y respectively.
(c) The workshop rent is ~ 500 per month. The rent of the showroom is to be divided equally between Dept X & Y.
(d) Sundry expenses are to be allocated on the basis of the turnover of each department.
6. The Profit and Loss Account for the year ended 31st December 2017 of D Q Holidays Limited, a company which
provides holidays at several resorts in Jammu and Kashmir is as follows: (all figures in ~).
Agents’ commission 90,600 Sales of holidays 9,06,000
Hire of aeroplanes 1,05,000 Net loss for the year 10,000
Coaches from airport to resort 7,000
Hotel accommodation 5,81,400
Salary & expenses of resort representatives 32,000
Brochures, advertising, head office and common costs 1,00,000
9,16,000 9,16,000
The managing director has complained to you, as chief accountant, that the form of presentation of this Profit and
Loss Account does not tell him where or why the net loss has been incurred and is of little use for management
purposes.
You are required to redesign the Profit and Loss Account, using also the information given below, so that it will
overcome the complaints of the managing director. You are given the following information:
1. The public book their holidays with the company through local travel agents who were paid a commission of
10% of the gross price of the holiday.
2. Holidays were offered at six resorts in Jammu and Kashmir, namely P, Q, R, S,T and U.
3. Only one hotel was used in each resort.
4. Flights were from Delhi Airport to three airports in Jammu and Kashmir, as follows:
Airport For resorts Annual cost (~)
X P and Q 30,000
Y R and S 40,000
Z T and U 35,000
5. Separate coaches were used for the journey from the aiport to each resort hotel. The annual costs of these were:
To Resort : P ---- ~ 1,100; Q ---- ~ 900; R ---- ~ 1,400; S ---- ~ 1,100; T ---- ~ 1,700; and U ---- ~ 800.
6. The annual cost of hotel accommodation at each resort were:
P ---- ~ 3,05,900; Q ---- ~ 1,53,200; R ---- ~ 22,600; S ---- ~ 45,400; T ---- ~ 10,200; and U ---- ~ 44,100.
7. A separate representative was employed at each resort, and the annual costs were:
P ---- ~ 5,000; Q ---- ~ 4,500; R ---- ~ 6,000; S ---- ~ 5,500; T ---- ~ 5,700; and U ---- ~ 5,300.
8. Sales of holidays at the various resorts were:
P ---- ~ 4,80,000; Q ---- ~ 2,49,000; R ---- ~ 30,000; S ---- ~ 60,000; T ---- ~ 24,000; and U ---- ~ 68,000.
7. Shivam Ltd has three departments D1, D2 and D3. From the following particulars calculate :
1. The Departmental Gross Profit for the year ended 31st March, 2018.
2. The values of stocks as on 31st March, 2018 :
Particulars D1 (~) D2 (~) D3 (~)

Stock as on 1st April, 2017 24,000 36,000 12,000
Purchases 1,46,000 1,24,000 48,000
Actual Sales 1,72,500 1,59,400 74,600
Gross Profit on normal selling prices 20% 25% 331/3%
During the year some items were sold at discount and these discounts were reflected in the values of the sales shown
above. The items sold at discount were :
Particulars D1 (~) D2 (~) D3 (~)
Sales at normal prices 10,000 3,000 1,000
Sales at actual prices 7,500 2,400 600
8. The following is the Trial Balance as at 31st December 2017 of a firm having two partners: A and B, who agreed to
share the annual profits and losses in equal proportion. They have three distinct departments of business. You are
required to prepare Departmental Trading and profit and Loss Account and the Balance Sheet as at 31st December
2017. While preparing the accounts, make the following provisions and adjustments: (1) Allow and charge interest
@ 5% per annum on the partners’ capitals and drawings respectively; (2) Write-off as bad and irrecoverable debts
amounting to ~ 1,600 and thereafter, increase the provision for bad and doubtful debts to 5% on book-debts
outstanding; (3) Bring into account the purchase of stationery on credit for ~ 200, not accounted for the Trial balance;
(4) Write-off depreciation on Furniture and Fixtures @ 5% on cost; (5) ~ 100 of the Insurance premium are prepaid;
(6) The following are the values of the closing stock in the respective departments: Department X ~ 10,462; Department
Y ~ 10,001; Department Z ~ 4,940; (7) Advertisement materials of the value of ~ 300 is in hand; it has not been adjusted
in the Trial Balance; (8) All expenses and losses are to be apportioned among the respective departments in the
proportion of 7 : 6 : 2.
Trial Balance as at 31st December, 2017
Capital Account : A 33,333 Salaries 6,418
Capital Account : B 16,666 Advertising 3,612
Drawings Account : A 4,000 Investments Income 1,200
Drawings Account : B 3,000 Investments 20,000
Stock (1.1.2017) : Dept X 11,438 Debtors and Creditors 8,955 5,493
Y 9,867 Printing and Stationery 485
Z 2,646 Carriage Inwards 450
Purchases and Sales : Dept X 34,657 55,194 Commission 1,107
Y 32,441 47,310 Postage, Telegrams & Telephone 942
Z 14,111 15,769 Provision for Bad Debts 300
Inter-Dept Transfers : Dept X 1,501 Rent and Taxes 8,148
Y 1,201 Furniture 5,000
Z 300 Insurance 403
Returns Inward : Dept X 3,533 Miscellaneous Expenses 1,058
Y 3,029 Bank Overdraft 1,519
Z 1,009 Discount 475
TOTAL 1,78,285 1,78,285
9. Orchard carried on trade as a fruit grower and as a canner. On December 31, 2017 the trial balance extracted from
his book was as follows:
Particulars Dr. Cr. Particulars Dr. Cr.
Orchard : Capital (1.1.2017) 13,500 Bought Ledger balances:
Drawings 1,200 Farm 200
Freehold land and premises at cost 14,900 Cannery 740
Sales during the year 800 Purchases :
Plant and machinery at cost: Farm 250
Farm 1,900 Cannery 1,210
Cannery 4,800 Wages :
Purchases of plant and machinery Farm 1,600
less sales during the year 500 Cannery 2,400
Provisions for depreciation: Sales :

Farm 1,100 Farm 530
Cannery 1,640 Cannery 9,950
Fruit trees and bushes at cost 800 Trade expenses 920
Stock (1.1.2017) Administration and motor expenses
Farm 400 (including loan interest to Sept. 30 2017) 584
Cannery 1,650 Repairs :
Loan at 6% (interest payable on Farm 80
March 31 and September 30) 8,000 Cannery 360
Balance at bank 864 Salaries 1,400
Sales ledger balances 642 36,460 36,460
You are instructed to prepare the accounts and are given further information as follows:
1. Provision is to be made for depreciation for the year of plant and machinery on cost at the end of the year at the
rate of 10 per cent in the case of the farm and 71/2 per cent in case of the cannery.
2. During the year tractor, included in farm plant and machinery at a cost of ~ 600 and in respect of which depreciation
of ~ 500 had been provided was sold for ~ 300 and was replaced by a new tractor costing ~ 800.
3. Fruit to the value of ~ 2,200 was supplied by the farm to the cannery.
4. Stocks in hand on December 31 2017, were valued as follows: Farm ~ 300, Cannery ~ 1,720.
5. Amounts owing, excluding loan interest accrued due at the end of the year were: Purchases : Cannery (included
in stock but not entered in the books) ~ 140; Trade expenses ~ 80.
6. Bought ledger balances at the end of the year included ~ 320 for cans supplied. Since the books were closed the
supplier agreed to allow ~ 160 as the cans were sub-standard. This allowance had been taken into account in
valuing the stock on December 31, 2017.
7. All expenses except where otherwise indicated, are to be apportioned on the basis : Farm ---- one-fourth, Cannery
---- three-fourths.
8. Orchard is to be charged ~ 2 per week for expenses incurred on his private car.
9. Freehold land, sold for ~ 850, had cost ~ 350.
10. Pippin, the manager of the cannery, is to be credited with 5 per cent of the cannery profits after charging his
commission.
You are required to prepare (a) Trading and Profit and Loss Account showing, separately, the net profit or loss of the
farm and of the cannery for the year ended December 31, 2017, and (b) Balance Sheet as on that date. Ignore taxation.
10. The following is the Trial Balance of Automatic Motors and Garage on March 31 2018:
Particulars Dr. Cr. Particulars Dr. Cr.
Opening Stock : Capital Account 76,250
Petrol and Oil 1,675 Drawings 8,500
Spare Parts and Tyres 5,500 Sales :
Tools 2,200 Petrol and Oil 23,000
Hire Cars 72,000 Spare Parts and Tyres 37,000
Purchases : Garage Receipts 4,000
Tools 4,000 Repairs Department 14,000
Spare Parts and Tyres 32,000 Hire Receipts 70,000
Petrol and Oil 41,250 Licence fees & permit fees for HireCars 3,000
Advertising Expenses 4,500 Office expenses 4,000
Rent, Rates and Taxes 12,000 Sundry Debtors 400
Insurance Premia : Sundry Creditors 1,200
On Hire Cars 4,000 Commission received on cars sold 5,000
Fire, theft and burglary cases 425 Loan 4,000
Wages : Cash in hand and at bank 2,000
Drivers 12,000
Repairs Department 16,500
Office 7,500
Garage 1,000 2,34,450 2,34,450
The following additional information is also given to you:

(a) The loan was taken on January 1, 2018 on which 12% interest is to be paid.
(b) Stock in hand on March 31, 2018 were as under:
(i) Tools ~ 5,000; (ii) Petrol and oil ~ 4,300; (iii) Spare parts and tyres ~ 10,000.
(c) Petrol and oil whose value were ~ 15,600 and ~ 1,800 were used by hired cars and the repairs department
respectively.
Besides, the owner of the garage drew petrol and oil worth ~ 3,000 for his personal car.
(d) The repairs department performed work during the year as under:
On owner’s car ~ 600; On hire cars ~ 7,500.
(e) Spare parts used by the repairs department in the year cost ~ 4,000 and the hire cars ~ 750.
(f) Depreciation on hire cars to be provided at 30% p.a.
(g) Licences and taxes amounting to ~ 200 on owner’s car have been paid and included in rent, rates and taxes.
(h) Rent, rates and taxes to be distributed as under:
(i) Repairs department 1/2; (ii) Spare parts 1/4; (iii) Garage 1/8; and (iv) Office 1/8.
You are required to prepare a : (a) Department Trading Account; (b) Profit and Loss Account for the year ending
March 31, 2018; and (c) Balance Sheet as on that date.
11. From January 1 2017, Ramesh & Co have been running three departments A, B and C and the following particulars
have been taken from their books on December 31 2017:
Opening Stock : January 1 : A ---- ~ 36,000; B ---- ~ 24,000; and C ---- ~ 20,000.
Purchases : A ---- ~ 1,20,000; B ---- ~ 1,00,000; and C ---- ~ 95,000.
Goods from other departments : A ---- ~ 8,000; B ---- ~ 5,000; and C ---- ~ 3,000.
Direct wages : A ---- ~ 54,000; B ---- ~ 48,000; and C ---- ~ 35,000.
Sales : A ---- ~ 2,44,000; B ---- ~ 1,96,000; and C ---- ~ 1,44,000.
Goods to other departments : A ---- ~ 6,000; B ---- ~ 4,000; and C ---- ~ 6,000.
Stock in hand on December 31 : A ---- ~ 49,000; B ---- ~ 14,000; and C ---- ~ 18,000.
Carriage inward : A ---- ~ 3,000; B ---- ~ 2,000; and C ---- ~ 2,000.
Other information:
Drawing ---- ~ 8,000; Printing & Stationery ---- ~ 2,400; Carriage outwards ---- ~ 6,000; Salaries ---- ~ 24,000; Rent &
Rates ---- ~ 18,000; Bad debts ---- ~ 3,600; Discount allowed ---- ~ 8,400; Advertisement ---- ~ 12,000; Miscellaneous
expenses ---- ~ 6,600.
Inter-departmental supplies have been made during the year by each department at market price and the stocks at
close valued at cost to A department include ~ 4,000 worth goods supplied by B. Miscellaneous expenses include ~
600 on account of supplies to a partner for personal expenses.
You are required to prepare Departmental Trading and Profit and Loss Account apportioning general unallocated
expenses on the basis of turnover (i.e., sales plus transfers).
12. Complex Ltd. has 3 departments: A, B and C. The following information is provided : (all figures in ~)
Particulars Dept A Dept B Dept C
Opening Stock (1.4.2017) 3,000 4,000 6,000
Consumption of direct materials 8,000 12,000 ----
Wages 5,000 10,000 ----
Closing stock 4,000 14,000 8,000
Sales ---- ---- 34,000
Stocks of each department are valued at cost to the department concerned. Stocks of A Department are transferred to
B at a margin of 50% above departmental cost. Stocks of B Department are transferred to C Department at a margin
of 10% above departmental cost.
Other expenses were: Salaries ---- ~ 2,000; Printing and stationery ---- ~ 1,000; Rent ---- ~ 6,000; Insurance paid ---- ~
4,000; Depreciation ---- ~ 3,000.
Allocate expenses in the ratio of departmental gross profits. Opening figures of reserves for unrealised profits on
departmental stocks were: Department B ---- ~ 1,000; Department C ---- ~ 2,000.
Prepare Departmental Trading and Profit and Loss Account for the year ended 31st March 2018.
13. You are given the following particulars of a business having three departments:
Particulars Purchases Opening Stock Sales
Department A 1,000 Units 120 Units 1,020 Units @ ~ 20 each
Department B 2,000 Units 80 Units 1,920 Units @ ~ 22.50 each
Department C 2,400 Units 152 Units 2,496 Units @ ~ 25 each
Additional information:
(i) Purchases were made at a total cost of ~ 92,000.
(ii) The rate of gross profit is the same in each case.
(iii) Purchases and sales prices are constant for the last two years.
Prepare Departmental Trading Account for the year 2018.
14. You are given the following particulars of a business having three departments:
Particulars Purchases Opening Stock Closing Stock
Department A 1,500 Units 200 Units 100 Units
Department B 1,000 Units 300 Units 160 Units
Department C 2,000 Units 150 Units 200 Units
Additional information:
(i) Purchases were made at a total cost of ~ 92,000.
(ii) The percentage of gross profit on turnover is the same in each case.
(iii) Purchases and sales prices are constant for the last 2 years.
(iv) Selling price per unit: Department A ~ 20; Department B ~ 25; and Department C ~ 30.
You are required to prepare Departmental Trading Account.
15. A company manufacturing electric components operates with two departments. Transfers are made between the
departments of both purchased goods and manufactured finished goods. Goods purchased are transferred at cost and
manufacturing goods are transferred only at selling price as in the case with open market.
Transactions for the year ended 30th June, 2018 are given below:
Particulars Dept X (~) Dept Y (~)
Sales 1,90,000 1,35,000
Wages 12,500 7,500
Purchases 1,00,000 80,000
Closing stock :
Purchased goods 2,000 5,000
Manufactured goods 7,000 8,000
The following were the transfers from Department X to Department Y : purchased goods ~ 6,000 and finished goods
~ 20,000 and from Department Y to Department X : purchased goods ~ 5,000 and finished goods ~ 35,000.
Stocks were valued at cost to the department concerned. Only in closing stock of manufactured goods in the
departments transferred finished goods are 20%.
Draw out Departmental Trading Account and the Company’s Trading Account for the year ended 30th June 2018.
Guide to Answers
Practical Questions
1. Gross Profit : Deparment A ---- ~ 99,480; Department B ---- ~ 40,080;
Net Profit : ~ 1,29,250.
2. Departmental Profits : A ---- ~ 27,470; B ---- ~ 15,110.
3. Departmental Profits : A ---- ~ 2,57,500; B ---- ~ 1,93,500.
4. Departmental Profits : A ---- ~ 3,693; B ---- ~ 462; C ---- ~ 11,769 (loss); D ---- ~ 15,538; and E ---- ~ 1,538.
5. Net Profits : Department X ---- ~ 55,200; Department Y ---- ~ 4,500; Loss : Department Z ~ 19,500.
6. Departmental Profits / Loss : Q ---- ~ 15,10,000; S ---- ~ 41,000 (Loss); U ---- ~ 20,000 (Loss); Total (Loss) ~ 10,000.
7. Departmental Gross Profit : D1 ---- ~ 32,500; D2 ---- ~ 39,400; D3 ---- ~ 24,600.
Closing Stock : D1 ---- ~ 30,000; D2 ---- ~ 40,000; D3 ---- ~ 10,000.
8. Departmental Gross Profit : X ---- ~ 17,319; Y ---- ~ 10,593; and Z ---- ~ 2,583.
Departmental Net Profit : X ---- RS 5,993; Y ---- ~ 864; and Z ---- ~ 660 (loss).
Balance Sheet total ---- ~ 57,541.
9. Departmental Gross Profit : Farm ---- ~ 780; Cannery ---- ~ 4,230.
Departmental Net Profit : Farm ---- ~ 260 (loss); Cannery ---- ~ 1,200.
Net Profit of the business as a whole ---- ~ 1,590;
10. Departmental Net Profit : Garage ---- ~ 1,525; Petrol ---- ~ 4,775; Spare parts ---- ~ 11,300; Car Hire ---- ~ 550;
Repairs ---- ~ 7,300 (loss); Net profit transferred to Capital Account ---- ~ 2,130.
11. Departmental Profit : A ---- ~ 44,500; B ---- ~ 8,200; C ---- ~ 7,100 (loss).
12. Departmental Loss : Department A ---- ~ 2,000; Department B ---- ~ 1,000; Department C ---- ~ 1,000;
Net loss transferred to Profit and Loss Account ~ 4,918.
13. Rate of Gross Profit : 25%. Departmental Gross Profit : A ---- ~ 4,080; B ---- ~ 8,640; and C ---- ~ 12,480.
14. Rate of Gross Profit : 20%. Departmental Gross Profit : A ---- ~ 6,400; B ---- ~ 5,700; and C ---- ~ 11,700.
15. Departmental Gross Profit : X ---- ~ 52,500; Y ---- ~ 59,500; Company’s Profit ---- ~ 1,11,110.
Rate of Gross Profit : X ---- 25%; Y ---- 35%.
Unrealised Profit on Stock : X ---- ~ 49; Y ---- ~ 400.

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9

Advantages of Departmental Accounting

Methods of Departmental Accounts

Allocation of Departmental Expenses

Sl. Expenses Basis

1. (a) Travelling salesman’s salary and commission Sales of each department

2. (a) Rent, rates and taxes Area or value of floor space

3. Lighting Light points

4. Insurance on Stock Average stock carried

5. Insurance on Building Area

6. Insurance on Plant & Machinery Value of Plant & Machinery

7. Group insurance premium Direct wages

8. Power H.P. or H.P. x Hours worked

9. (a) Depreciation Value of assets in each department

10. (a) Canteen expenses Number of employees

11. Works manager’s salary Time spent in each department

12. Carriage inwards Purchases of each department

Technique of Departmental Accounts

Distinction between Departmental Accounts and Branch Accounts

Working Note : Apportionment of Unallocated Expenditure

Solution P & Co.

Balance Sheet of P & Co. as at 31st December, 2017

Solution Brahma Ltd

Gross Profit 5,60,000

(3) Calculation of Opening Stock of Each Department

(4) Calculation of Value of Opening Stock

Balance Sheet of Rohit Choudhury as at 31st December, 2017

Working Notes : (1) Apportionment of Common Expenses

(i) Advertising Sales 615 615

(3) Provide ~ 4,000 investment income due to be received.

Existing balance of provision for doubtful debts 5,000

The purchases during the year under review were :

Balance Sheet of Highway Stores as at 31st March, 2018

The following information is to be taken into account:

Customers Account 800 Suppliers’ Account 9,800

Dr. Balance Sheet as at 31st December, 2017 Cr.

Balance Sheet of Mohit Udyog as at 31st December, 2017

(4) Apportionment of Common Expenses

Market-based Transfer Price

Additional information ----

Purchase from Department P 8,00,000

Unrealised profit = 25% of ~ 1,52,000 = ~ 38,000.

Purchases from Dept. O

To Transfer ---- ---- 22,600 By Closing Stock 90,160 34,960 43,180

Working Notes : (1) Calculation of Stock Reserve in Closing Stock

Finished goods from other Department included in Closing Stock

(2) Calculation of Unrealised Profit on Closing Stock

(2) Unrealised Profit on Stock ~

Previous Years’ C.U. Question Papers (with Solution)

[ For General Candidates Only ]

Other common expenses : ~

Working Notes : (1) Apportionment of Common Expenses

Salaries 10,000 15,000

(3) Calculation of Opening Stock of Each Department

[ For Honours Candidates Only ]

Working Notes : (1) Calculation of Stock Reserve in Closing Stock

(2) Finished goods from other Department included in Closing Stock

Particulars Raw Manufacturing

Purchase from Department X 7,00,000

Memorandum Stock Account and Memorandum Mark-up Account