Accounting For Departmental Undertakings

Dr. R. K.
Sreekantha
BSV Arts & Commerce College for Women
Vijayanagar, Bengaluru – 560040
ACCOUNTING FOR DEPARTMENTAL UNDERTAKINGS

(Meaning and Features of Departmental Undertaking-Examples of Department Specific Expenses and Common
Expenses -Need and Bases of Apportionment of Common Expenses-Preparation of Trading and Profit and Loss
Account in Columnar Form, General Profit and Loss Account and Balance Sheet – Simple problems involving
adjustment on Closing Stock, Depreciation and Inter Departmental Transfers at Cost Price. (Problems may
contain information for a maximum of three departments)
Meaning of Department
A big business concern dealing in different kinds of goods or carrying on several business activities under one
roof may split its activities into a number of units. Each such unit is named as a department and the whole
business concern is called as departmental undertaking. For example, a retail store dealing in several categories
of items like groceries, plastic items, electronic goods, cloth, steel items, cosmetics, frozen foods, stationery,
pharmacy, cooking utensils, games, etc., may group each item into a department and name each department as
groceries department, plastic items department, electronic goods department, cloth department, steel items
department, and so on.
Meaning of Departmental Accounting

The books of accounts of a departmental undertaking is maintained in such a way that the opening stock,
purchases, wages, sales, closing stock, gross profit, other expenses, other incomes, etc., are easily identifiable
with the respective departments. In other words, accounting that enables ascertainment of the performance of
each department separately is called as Departmental Accounting.
Objectives of Departmental Accounting

Basically the books of accounts of a departmental undertaking is maintained so as to identify the various items
of incomes and expenses with the respective departments. The important objectives of departmental
accounting are as under:
● To identify and allocate the incomes and expenses in relation to each department
● To know the profit or loss of each department separately
● To compare the profitability of each department with other departments
● To reward the departmental managers on the basis of profits of the respective departments
● To evaluate the performance of each department on the basis of its trading results
● To enable the management to exercise effective control on the functioning of each department
Advantages of Departmental Accounting

The primary advantage of departmental accounting is that it provides information about efficiency and
profitability of each department separately. The advantages of departmental accounting are as under:
● It provides accurate information about the efficiency and profitability of each department
● Based on the information about the profitability of each department, the management can give special
attention to such departments that are yielding maximum profits
● The employees may be rewarded suitably on the basis of departmental performances
● The expenses and incomes of each department may be compared with other departments or with the
previous period of the same department and suitable action may be initiated
● The efficiency of each department can be easily analyzed by computing profitability ratios and activity
ratios of each department separately
● The management can take decision about continuation or discontinuation of departments based on the
specific information about each department
Methods of keeping Departmental Accounts

Dr. R. K. Sreekantha
The books of accounts for a departmental undertaking may be maintained in any of the following two methods
viz., Unitary Method and Tabular Method. Under unitary method, the books of accounts are maintained
separately for each department and under tabular method, the books of accounts are maintained in a columnar
form.
Distinctions between Departmental Accounting and Branch Accounting

The important differences between departmental accounting and branch accounting are presented in the
following table.
Departmental Accounting Branch Accounting
1. All accounts are maintained at one place 1. All branch accounts, except cash, debtors,
creditors and stock accounts are maintained
at head office
2. All departments function under one roof. 2. All branches function at different places.
Hence, the problem of allocation of common Hence the problem of allocation of common
expenses arises expenses does not arise
3. The question of reconciliation and 3. The question of reconciliation and
adjustments of accounts does not arise adjustments of accounts becomes necessary.
Bases of allocation of common (or indirect) expenses

Following is the suggestive table for allocation of indirect expenses to different departments:
Common or Indirect Expenses Bases of Allocation
Rent, Rates and Taxes Floor Space
Repairs to Fixed Assets Value of Fixed Assets
Labour Welfare Expenses Number of Employees or Amount of Wages
Carriage Outward Sales
Carriage Inward Purchases
Bad Debts Credit Sales
Heating & Lighting Number of Light Points or Floor Space
Depreciation of Fixed Assets Value of Fixed Assets
After Sales Service Sales
General Expenses/Sundry Expenses Sales
Discount Earned Credit Purchases/Sundry Creditors
Discount Allowed Credit Sales/Sundry Debtors
Treatment of inter-departmental transfers

Sometimes, one department may supply goods or render services to other departments. Such supply of goods
or rendering of services is by one department to another department is termed as inter-departmental transfers.
When there is inter-departmental transfer, the receiving department will be debited and the giving department
will be credited.
The inter-departmental transfers may be recorded either at cost price or at invoice price. If the transfer is made
at invoice price (i.e., the price inclusive of profit of the transferor department) it becomes necessary to make
adjustment for the unrealized profit element included in the closing stock by transferring such unrealized profit
element to Stock Reserve A/c in the General Profit & Loss A/c.
The following journal entries are passed for eliminating the unrealized profit included in the opening and
closing stock.
a. For unrealized profit included in the opening stock
Stock Reserve A/c Dr.
To General Profit & Loss A/c
b. For unrealized profit included in the closing stock

General Profit & Loss A/c Dr.
To Stock Reserve A/c
Illustrations on Accounting for Departmental Undertakings

Illustration 1
RKS Departmental Stores has two departments viz., Dept. A & Dept. B. From the following details prepare
Departmental Trading & Profit & Loss A/c in columnar form and ascertain the net profit earned by each
department.
Total Dept. A Dept. B
Particulars
Rs. Rs. Rs.
Opening Stock 2,40,000 1,00,000 1,40,000
Purchases 18,00,000 10,00,000 8,00,000
Sales 35,00,000 20,00,000 15,00,000
Wages 2,20,000 1,00,000 1,20,000
Salaries 2,00,000 1,00,000 1,00,000
Rent & Rates 1,00,000 ? ?
Sundry Expenses 70,000 ? ?
Depreciation on Machinery 1,20,000 ? ?
Closing Stock 4,50,000 2,50,000 2,00,000
Additional information:
1. The area occupied by both the departments is equal
2. Machinery is used by Dept. A & Dept. B in the ratio of 2 : 1
Solution
Analysis
Items Where appear? How apportioned?
Opening Stock Dr. Side of Trading A/c As per direct information
Purchases Dr. Side of Trading A/c As per direct information
Sales Cr. side of Trading A/c As per direct information
Wages Dr. Side of Trading A/c As per direct information
Salaries Dr. Side of P & L A/c As per direct information
Rent & Rates Dr. Side of P & L A/c Ratio of area occupied (Equal)
Sundry Expenses Dr. Side of P & L A/c Sales Ratio (20:15)
Depreciation on Machinery Dr. Side of P & L A/c Usage (2:1)
Closing Stock Cr. Side of Trading A/c As per direct information
* In the absence of specific directions, Sundry Expenses is apportioned in Sales Ratio 20 : 15 or 4 : 3
In the books of RKS Departmental Stores

Departmental Trading & Profit & Loss A/c
Dept. A Dept. B Dept. A Dept. B
Particulars Rs. Rs. Particulars Rs. Rs.
To Opening Stock 1,00,000 1,40,000 By Sales 20,00,000 15,00,000

To Purchases 10,00,000 8,00,000 By Closing Stock 2,50,000 2,00,000
To Wages 1,00,000 1,20,000
To Gross Profit c/d 10,50,000 6,40,000
22,50,000 17,00,000 22,50,000 17,00,000
To Salaries 1,00,000 1,00,000 By Gross Profit b/d 10,50,000 6,40,000
To Rent & Rates (Equal) 50,000 50,000
To Sundry Expenses* 40,000 30,000
To Depreciation (2:1) 80,000 40,000
To Net Profit 7,80,000 4,20,000
10,50,000 6,40,000 10,50,000 6,40,000
Illustration 2
From the following combined Profit & Loss A/c of RKS Enterprises prepare Departmental Trading & Profit & Loss
A/c in columnar form and ascertain the net profit earned by each department.
Profit & Loss A/c
Particulars Rs. Particulars Rs.
To Opening Stock By Sales
Electricals 3,00,000 Electricals 20,00,000
Electronics 9,00,000 Electronics 50,00,000
To Purchases By Closing Stock
Electricals 12,00,000 Electricals 6,00,000
Electronics 30,00,000 Electronics 15,00,000
To Wages 1,00,000
To Salaries 5,00,000
To Rent & Rates 2,00,000
To Sundry Expenses 70,000
To Depreciation 60,000
To Net Profit 27,70,000
91,00,000 91,00,000
1. Wages has to be apportioned in the ratio of 2:3
2. ¼ of the area is occupied by Electricals Department
3. No. of employees in Electricals is 14 and in Electronics is 6
4. Value of assets in Electricals Department is Rs. 4,00,000 and in Electronics Department is Rs. 2,00,000
Solution
Apportionment of Common Expenses

Items Total Basis Electricals Electronics
Wages 1,00,000 As per information 2 : 3 40,000 60,000
Salaries 5,00,000 Number of employees 14 : 6 3,50,000 1,50,000
Rent & Rates 2,00,000 Area Occupied (1/4) : (3/4) 50,000 1,50,000
Sundry Expenses 70,000 Sales Ratio (2 : 5) 20,000 50,000
Depreciation 60,000 Value of Assets (4 : 2) 40,000 20,000
In the absence of specific instructions, sundry expenses is apportioned in the ratio of sales.
In the books of RKS Enterprises


Electricals Electronics Electricals Electronics
Particulars Dept. Dept. Particulars Dept. Dept.
Rs. Rs. Rs. Rs.
To Wages 40,000 60,000
To Gross Profit c/d 10,60,000 25,40,000
26,00,000 65,00,000 26,00,000 65,00,000
To Rent & Rates (1:3) 50,000 1,50,000
To Sundry Expenses* 20,000 50,000
To Depreciation (4:2) 40,000 20,000
To Net Profit 6,00,000 21,70,000
10,60,000 25,40,000 10,60,000 25,40,000
Illustration 3
Following particulars relate to RKS Traders, Bengaluru. You are required to prepare Departmental Trading &
Profit & Loss A/c and calculate the net profit ratio of each department.
Total Dept. A Dept. B
Particulars
Rs. Rs. Rs.
Opening Stock 5,20,000 3,00,000 2,20,000
Purchases 22,00,000 14,00,000 8,00,000
Sales 35,00,000 25,00,000 10,00,000
Wages 3,00,000 1,80,000 1,20,000
Salaries of departmental staff 2,00,000 1,60,000 40,000
Salaries of general staff 1,25,000 - -
Rent & Rates 70,000 - -
Advertising 20,000 - -
Sundry Expenses 30,000 - -
Depreciation on Machinery 1,20,000 - -
Closing Stock 6,50,000 3,50,000 3,00,000
1. 65% of Floor area is occupied by Dept. A
2. 70% of the use of Machinery is attributable to Dept. A
Analysis
Items Where appear? How apportioned?
Sales Cr. side of Trading A/c As per direct information
Salaries of general staff Dr. Side of P & L A/c Sales Ratio (25:10)
Rent & Rates Dr. Side of P & L A/c Ratio of area occupied (65%:35%)
Advertising Dr. Side of P & L A/c Sales Ratio (25:10)
Sundry Expenses Dr. Side of P & L A/c Sales Ratio (25:10)
Depreciation on Machinery Dr. Side of P & L A/c Usage Ratio (70%:30)
In the books of RKS Departmental Stores

Dept. A
Dept. B Dept. A Dept. B
Particulars Rs. Particulars
Rs. Rs. Rs.
To Wages 1,80,000 1,20,000
To Gross Profit 9,70,000 1,60,000
28,50,000 13,00,000 28,50,000 13,00,000
To Salaries 1,60,000 40,000 By Gross Profit 9,70,000 1,60,000
To Salaries of genl. staff. 89,285 35,715
To Rent & Rates 45,500 24,500
To Advertising 14,285 5,715
To Sundry Expenses 21,428 8,572
To Depreciation 84,000 36,000
To Net Profit 5,55,502 9,498
9,70,000 1,60,000 9,70,000 1,60,000
Net Profit Ratio = (Net Profit/Sales) X 100

- Dept. A - (5,55,499/25,00,000) X 100 = 22.22%
- Dept. B - (9,501/10,00,000) X 100 = 0.95%
Illustration 4
RKS Stores has two departments viz., Dept. X & Dept. Y. During the year ending 31st March, 2017 the Gross
Profit of the departments amounted to Rs. 10,00,000 and Rs. 15,00,000 respectively. The expenses to be
debited to Profit & Loss A/c are as under:
● Salaries Rs. 3,60,000
● Advertising Rs. 48,000
● Discount Rs. 24,000
● Rent & Rates Rs. 45,000
● Insurance on stock Rs. 27,000
● Insurance on building Rs. 90,000
● General expenses Rs. 63,000
● Depreciation on building Rs. 1,80,000
In apportioning the various expenses between the two departments, due regard shall be given to the following
information.
Particulars Dept. X Dept. Y
Number of employees 06 12
Sales (Rs.) 18,00,000 22,00,000
Average Stock Level (Rs.) 20,000 25,000
Floor Area (Sq.ft.) 2,000 4,000
Value of Buildings (Rs.) 5,00,000 25,00,000
You are required to prepare Departmental Profit & Loss A/c and ascertain the Net Profit Ratio of each
department.
Solution
Analysis
Common Expenses & their apportionment between Dept. X and Dept. Y
Dept. X Dept. Y
Expenses Basis of apportionment
Rs. Rs.
Salaries Rs. 3,60,000 No of employees ratio 6:12 or 1:2 1,20,000 2,40,000
Advertising Rs. 48,000 Sales ratio 18:22 or 9:11 21,600 26,400
Discount Rs. 24,000 Sales ratio 18:22 or 9:11 10,800 13,200
Rent & Rates Rs. 45,000 Floor area ratio 2:4 15,000 30,000
Insurance on stock Rs. 27,000 Average Stock Level ratio 20:25 or 4:5 12,000 15,000
Insurance on building Rs. 90,000 Value of Buildings ratio 5:25 or 1:5 15,000 75,000
General expenses Rs. 63,000 Sales ratio 18:22 or 9:11 28,350 34,650
Depreciation on building Rs. 1,80,000 Value of Buildings ratio 5:25 or 1:5 30,000 1,50,000
In the books of RKS Stores

Dept. X Dept. Y Dept. X Dept. Y
Rs. Rs. Rs. Rs.
To Discount 10,800 13,200
To Rent & Rates 15,000 30,000
To Insurance of Stock 12,000 15,000
To Insurance of Building 15,000 75,000
To General Expenses 28,350 34,650
To Depreciation 30,000 1,50,000
To Net Profit 7,47,250 9,15,750
10,00,000 15,00,000 10,00,000 15,00,000

Dept. X - (7,47,250/18,00,000) X 100 = 41.51%
Dept. Y - (9,15,750/22,00,000) X 100 = 41.63%
Illustration 5
RKS Stores has two departments viz., Dept. X & Dept. Y. During the year ending 31st March, 2017 the Gross
Profit of the departments amounted to Rs. 4,00,000 and Rs. 2,00,000 respectively. The expenses to be debited
to Profit & Loss A/c are as under:
● Salaries Rs. 1,00,000
● Advertising Rs. 10,000
● Discount Rs. 3,000
● Rent & Rates Rs. 12,000
● Canteen Expenses Rs. 24,000
● Heating & Lighting Rs. 6,000
● Insurance on stock Rs. 5,000
● General expenses Rs. 5,000
● Depreciation on building Rs. 9,000
In apportioning the various expenses between the two departments, due regard shall be given to the following
information.
Particulars Dept. X Dept. Y
Number of employees 8 4
Sales (Rs.) 15,00,000 5,00,000
Average Stock Level (Rs.) 30,000 20,000
Floor Area (Sq.ft.) 3,600 1,200
Value of Buildings (Rs.) 2,80,000 80,000
Salary outstanding as at the end of the year is Rs. 20,000. You are required to prepare Departmental Profit &
Loss A/c and ascertain the Net Profit Ratio of each department.
Solution
Analysis
Common Expenses & their apportionment between Dept. X and Dept. Y
Dept. X Dept. Y
Expenses Basis of apportionment
Rs. Rs.
Salaries Rs. 1,00,000 + Outstanding Number of employees ratio 8:4 80,000 40,000
Salary Rs. 20,000
Advertising Rs. 10,000 Sales ratio 15:5 or 3:1 7,500 2,500
Discount Rs. 3,000 Sales ratio 15:5 or 3:1 2,250 750
Rent & Rates Rs. 12,000 Floor Area ratio 36:12 or 3:1 9,000 3,000
Canteen Expenses Rs. 24,000 Number of employees ratio 8:4 16,000 8,000
Heating & Lighting Rs. 6,000 Floor Area ratio 36:12 or 3:1 4,500 1,500
Insurance on stock Rs. 5,000 Average Stock Level ratio 3:2 3,000 2,000
General expenses Rs. 5,000 Sales ratio 15:5 or 3:1 3,750 1,250
Depreciation on building Rs. 9,000 Value of Building ratio 28:8 or 14:4 7,000 2,000
In the books of RKS Stores

Departmental Profit & Loss A/c
Dept. X Dept. Y Dept. X Dept. Y
Rs. Rs. Rs. Rs.
To Salaries (including By Gross Profit b/d 4,00,000 2,00,000
outstanding salaries) 80,000 40,000
To Discount 2,250 750
To Rent & Rates 9,000 3,000
To Canteen Expenses 16,000 8,000
To Heating & Lighting 4,500 1,500
To Insurance of Stock 3,000 2,000
To Net Profit 2,67,000 1,39,000
4,00,000 2,00,000 4,00,000 2,00,000

Dept. X - (2,67,000/15,00,000) X 100 = 17.80%
Dept. Y - (1,39,000/5,00,000) X 100 = 27.80%
Illustration 6
RKS Industries has two departments viz., Trading Department & Production Department. The production
department receives goods at cost from Trading Department as its raw-materials. From the following
information, prepare the Departmental Trading A/c
Trading Dept. Production Dept.
Particulars
Rs. Rs.
Opening Stock 5,00,000 1,50,000
Purchases from outsiders 20,00,000 40,000
Sales to outsiders 24,00,000 6,00,000
Closing stock 3,00,000 1,00,000
Note:
● Goods transferred from Trading Department to Production Department is Rs. 5,00,000
● Manufacturing expenses Rs. 20,000
Solution
Analysis
Items Where appear? Remarks
Sales Cr. Side of Trading A/c As per direct information
Goods transferred from Trading Adjustment entry is made in Debit the receiver – Production
Department to Production Trading A/c as per the rules of Department
Department accounting Credit the giver – Trading Department
Manufacturing expenses Rs. Entire amount to Production
Dr. Side of Trading A/c
20,000 Department
In the books of RKS Industries

Departmental Trading A/c
Trading Production Trading Production
Rs. Rs. Rs. Rs.
To Purchases 20,00,000 40,000 By Transfer to
To Mfg. expenses - 20,000 Production Dept. 5,00,000 -
To Transfer from Trading By Closing Stock 3,00,000 1,00,000
Dept - 5,00,000 By Gross Loss - 10,000
To Gross Profit 7,00,000 -
32,00,000 7,10,000 32,00,000 7,10,000
Illustration 7
Mr. Vishnu Murthy is the proprietor of a hotel which has two departments viz., Lodging & Restaurant. From the
following information prepare Departmental Trading A/c.
Lodging Dept. Restaurant Dept.
Particulars
Rs. Rs.
Opening stock of provisions - 10,000
Purchase of provisions - 1,50,000
Wages of employees 30,000 15,000

Collections from customers 4,60,000 3,20,000
Closing stock of provisions - 20,000
The employees of Lodging Department were provided with breakfast and meals worth Rs. 6,000 by the
Restaurant Department and the employees of Restaurant Department were provided with accommodation
facility worth Rs. 15,000 by the Lodging Department.
Solution
Analysis
Opening Stock of provisions Dr. Side of Trading A/c As per direct information
Purchase of provisions Dr. Side of Trading A/c As per direct information
Wages of employees Dr. Side of Trading A/c As per direct information
This is on account of credit sales. Therefore,
Collections from customers Cr. Side of Trading A/c
this appears on Cr. Side of Trading A/c
Closing stock of provisions Cr. Side of Trading A/c As per direct information
The employees of Lodging
Adjustment entry is
Department were provided with
made in Trading A/c as Debit the receiver – Lodging Department
breakfast and meals worth Rs.
per the rules of Credit the giver – Restaurant Department
6,000 by the Restaurant
accounting
Department
The employees of Restaurant
Adjustment entry is
Department were provided with
made in Trading A/c as Debit the receiver – Restaurant Department
accommodation facility worth Rs.
per the rules of Credit the giver – Lodging Department
15,000 by the Lodging
accounting
Department
In the books of Vishnu Murthy

Departmental Trading A/c
Lodging Restaurant Lodging Restaurant
Rs. Rs.
To Opening Stock - 10,000 By Collections 4,60,000 3,20,000
To Purchases - 1,50,000 By Lodging Dept. - 6,000
To Wages 30,000 15,000 By Restaurant Dept. 15,000 -
To Restaurant Dept. 6,000 - By Closing Stock - 20,000
To Lodging Dept. - 15,000
To Gross Profit 4,39,000 1,56,000
4,75,000 3,46,000 4,75,000 3,46,000
Illustration 8
RKS Departmental Store has a number of departments & wants to ascertain the profits of three departments
viz., A, B & C. The normal rate of gross profit for the departments concerned are 40%, 30% and 20%
respectively. Indirect expenses are charged in proportion to the departmental turnover. The following are the
other details:
Particulars Dept. A Dept. B Dept. C
Rs. Rs. Rs.

Opening Stock 6,000 7,000 3,000
Purchases 7,000 7,500 4,700
Sales 12,000 10,000 6,000
Direct Expenses 2,020 1,450 710
Closing Stock 7,820 8,950 3,610
The indirect expenses for the period (including those relating to other departments) amounted to Rs. 4,200.
The total turnover of the entire organization amounted to Rs. 84,000. You are required to prepare
Departmental Trading and Profit & Loss A/c. A stock reserve of 10% is required to be created on both opening
and closing stock of each department.
Solution
Analysis
The problem says that the total indirect expenses including the other departments is Rs. 4,200 and the same is
to be apportioned to departments A, B, C & Others on the basis of departmental turnover (sales). Hence, the
departmental turnover ratio is calculated as under
Dept. A Dept. B Dept. C Others
Particulars
Turnover 12,000 10,000 6,000 56,000
Turnover Ratio 12 10 6 56
Thus, the allocation of indirect expenses to Departments A, B & C would be as under
o Dept. A = 4,200 X 12/84 = 600
o Dept. B = 4,200 X 10/84 = 500
o Dept C = 4,200 X 6/84 = 300
The problem requires us to create a stock reserve of 10% on both opening and closing stock of each
department. Sometimes, the business entities show their stock at a value more than the real values. In such a
case, the Trading A/c do not show the true gross profit. Hence, it becomes necessary to remove the profit
element included in the stock. For this purpose, a new A/c called Stock Reserve A/c shall be opened to
eliminate the profit element included in the stock.
To remove the profit element included in the opening stock, the following journal entry is passed:
Stock Reserve A/c Dr.
To P & L A/c
To remove the profit element included in the closing stock, the following journal entry is passed:
P & L A/c Dr.
To Stock Reserve A/c
Stock Reserve on Opening and Closing Stocks are calculated as under:

Dept. A Dept. B Dept. C
Stock Reserve on Opening Stock 6,000 X 10% = 600 7,000 X 10% = 700 3,000 X 10% = 300
Stock Reserve on Closing Stock 7,820 X 10% = 782 8,950 X 10% = 895 3,610 X 10% = 361
In the books of RKS Departmental Store

Departmental Trading and Profit & Loss A/c
Dept. A Dept. B Dept. C Dept. A Dept. B Dept. C
Particulars Particulars
Rs. Rs. Rs. Rs. Rs. Rs.
To Opening Stock 6,000 7,000 3,000 By Sales 12,000 10,000 6,000

To Purchases 7,000 7,500 4,700 By Closing Stock 7,820 8,950 3,610
To Direct Expenses 2,020 1,450 710
To Gross Profit 4,800 3,000 1,200
19,820 18,950 9,610 19,820 18,950 9,610
To Indirect Expenses 600 500 300 By Gross Profit 4,800 3,000 1,200
To Stock Reserve A/c 782 895 361 By Stock Reserve A/c 600 700 300
To General P & L A/c 4,018 2,305 839
5,400 3,700 1,500 5,400 3,700 1,500
Illustration 9
RKS Departmental Stores has three departments viz., A, B & C. From the following details you are required to
prepare Departmental Trading and Profit & Loss A/c.
● Purchases at a total cost of Rs. 1,18,000
o Department A – 1,500 units
o Department B – 2,500 units &
o Department C – 3,000 units
● Opening Stock
o Department A – 150 units
o Department B – 200 units &
o Department C – 250 units
● Sales
o Department A – 1,400 units at Rs. 18 per unit
o Department B – 2,400 units at Rs. 24 per unit &
o Department C – 2,700 units at Rs. 30 per unit
● Other expenses
o Salaries Rs 18,200
o Stationery Rs. 4,550
o Rent Rs. 2,000
o Interest paid Rs. 2,730
o Depreciation Rs. 3,640
Note: The rate of gross profit is same in case of each department. Allocate the rent in the ratio of 2:2:1 and all
other expenses in the ratio of departmental gross profits.
Solution
In this problem
● Opening stock is given only in terms of units and its rupee value is not given.
● Total purchase cost of all the departments is given and purchase of each department is given only in
terms of units and not in terms of rupee value.
● With the available information, the draft Departmental Trading and Profit & Loss A/c appears as below
with missing figures in the question mark form:

Dept.A Dept.B Dept.C Dept.A Dept.B Dept.C
To Opening Stock ? ? ? By Sales 25,200 57,600 81,000
To Purchases ? ? ? By Closing Stock ? ? ?
To Gross Profit ? ? ?
? ? ? ? ? ?
To Salaries ? ? ? By Gross Profit ? ? ?
To Stationery ? ? ?
To Rent 800 800 400
To Interest ? ? ?
To Depreciation ? ? ?
To General P & L A/c ? ? ?
? ? ? ? ? ?
● It is mentioned in the problem that the rate of gross profit is same in case of each department.
Therefore, first we have to ascertain the rate of gross profit assuming that the entire purchases is sold
(ignoring the opening and closing stock) at the respective selling price per unit as under:
Gross Profit
= Total sales value of all the units purchased – Total cost value of all the units purchased
= {(1,500 X 18) + (2,500 X 24) + (3,000 X 30)} – 1,18,000
= (27,000 + 60,000 + 90,000) – 1,18,000
= 1,77,000 – 1,18,000
= 59,000
Rate of Gross Profit

= (Gross Profit / Total Sales) X 100
= (59,000 / 1,77,000) X 100
= 33.3333% or 1/3 on sales
● Total cost value of all the units purchased is given in the problem but cost per unit is not given.
However, by deducting the gross profit per unit from the selling price per unit, we can arrive at the cost
per unit as under:
Cost price per unit

Selling price per unit – Gross Profit per unit
o Department A = 18 – 1/3
= 18 – 6
= 12
o Department B = 24 – 1/3
= 24 – 8
= 16
o Department C = 30 – 1/3
= 30 - 10
= 20
● Now with the help of rate of gross profit and the cost per unit, the Departmental opening stock,
purchases, gross profit & closing stock in rupee value can be arrived at as under:
● Note on opening stock in rupee value

o Department A: 150 X 12 = 1,800
o Department B: 200 X 16 = 3,200
o Department C: 250 X 20 = 5,000

● Note on purchases in rupee value
o Department A: 1,500 X 12 = 18,000
o Department B: 2,500 X 16 = 40,000
o Department C: 3,000 X 20 = 60,000
● Note on gross profit
Gross Profit = Sales X Rate of gross profit
o Department A: 25,200 X 1/3 = 8,400
o Department B: 57,600 X 1/3 = 19,200
o Department C: 81,000 X 1/3 = 27,000
● Note on closing stock in number of units
Closing stock = Opening Stock + Purchases - Sales
o Department A: 150 + 1,500 – 1,400 = 250
o Department B: 200 + 2,500 – 2,400 = 300
o Department C: 250 + 3,000 – 2,700 = 550
● Note on closing stock in rupee value
o Department C: 550 X 20 = 11,000
The Trading and Profit & Loss A/c can be completed as under:

To Gross Profit 8,400 19,200 27,000 (Balancing Figure)
28,200 62,400 92,000 28,200 62,400 92,000
To Salaries 2,800 6,400 9,000 By Gross Profit 8,400 19,200 27,000
To Stationery 700 1,600 2,250
To Rent 800 800 400
To Interest 420 960 1,350
To Depreciation 560 1,280 1,800
To General P & L A/c 3,210 8,160 12,200
8,400 19,200 27,000 8,400 19,200 27,000
Notes:
1. Gross profit ratio = 8,400 : 19,200 : 27,000 or 84 : 192 : 270
2. Salaries, Stationery, Interest & Depreciation are allocated to the departments in the gross profit ratio
Illustration 10
● Purchases at a total cost of Rs. 92,000
● Opening Stock
● Closing Stock
● Selling Price
o Department A – Rs. 20 per unit
o Department B – Rs. 25 per unit &
o Department C – Rs. 30 per unit
● Other expenses
o Rent Rs. 2,000
Solution
In this problem
● Opening & Closing stock is given only in terms of units and its rupee value is not given.
● Selling price per unit is given, number of units sold is not given. It should be arrived at as follows:
Opening Stock in units + Purchases in units – Closing Stock in units
Dept A = 200 + 1,500 – 100 = 1,600
Dept B = 300 + 1,000 – 160 = 1,140
Dept C = 150 + 2,000 – 200 = 1,950

To Opening Stock ? ? ? By Sales ? ? ?
? ? ? ? ? ?
To Stationery ? ? ?
To Rent 800 800 400
To Interest ? ? ?
To General P & L A/c ? ? ?
? ? ? ? ? ?
Gross Profit
= (1,500 X 20) + (1,000 X 25) + (2,000 X 30) – 92,000
= (30,000 + 25,000 + 60,000) – 92,000
= 1,15,000 – 92,000
= Rs. 23,000

= (23,000 / 1,15,000) X 100
= 20% or 1/5 on sales
However, by deducting the gross profit per unit from the selling price, we can arrive at the cost per unit
as under:
Cost price per unit = Selling price per unit – Gross Profit per unit
= 20 – 4
= 16
= 25 – 5
= 20
= 30 - 6
= 24
● Total sales value of all the units purchased is arrived at as follows:

Particulars Rs.
Department A: 1,600 units at Rs. 20 per unit 32,000
Department B: 1,140 units at Rs. 25 per unit 28,500
Department C: 1,950 units at Rs. 30 per unit 58,500
1,19,000
Now with the help of rate of gross profit and the cost per unit, the Departmental opening stock, purchases,
gross profit & closing stock in rupee value can be arrived at as under:

o Department A: 1,500 X 16 = 24,000
o Department B: 1,000 X 20 = 20,000

o Department C: 2,000 X 24 = 48,000

o Department A: 32,000 X 1/5 = 8,400
o Department B: 28,500 X 1/5 = 5,700
o Department C: 58,500 X 1/5 = 11,700


To Gross Profit 6,400 5,700 11,700
33,600 31,700 63,300 33,600 31,700 63,300
To Salaries 4,894 4,359 8,947 By Gross Profit 6,400 5,700 11,700
To Stationery 1,224 1,090 2,236 By General P & L A/c
To Rent (2:2:1) 800 800 400 (Net Loss) 2,231 2,075 3,014
To Interest 734 654 1,342
To Depreciation 979 872 1,789
8,631 7,775 14,714 8,631 7,775 14,714
Note: Salaries, Stationery, Interest & Depreciation are allocated to the departments in the gross profit ratio
which is as follows: 32,000 : 28,500 : 58,500 or 320 : 285 : 585 or 64 : 57 : 117 or 64/238; 57/238 & 117/238.
Illustration 11
● Purchases at a total cost of Rs. 8,00,000
● Opening Stock
● Sales
o Department A – 4,100 units at Rs. 48 per unit
o Department B – 7,700 units at Rs. 54 per unit &
o Department C – 10,000 units at Rs. 30 per unit
● Other expenses
o Rent Rs. 24,000
Solution
In this problem
● Opening stock is given only in terms of units and its rupee value is not given.
To Opening Stock ? ? ? By Sales 1,96,800 4,15,800 6,00,000
? ? ? ? ? ?
To Stationery ? ? ?
To Rent 9,600 9,600 4,800
To Interest ? ? ?
To General P&L A/c ? ? ?
? ? ? ? ? ?
Gross Profit
= Rs. 12,00,000* – 8,00,000
= Rs. 4,00,000

= (4,00,000 / 12,00,000) X 100
= 33.3333% or 1/3 on sales
* Total sales value of all the units purchased is arrived at as follows:

Particulars
Department A: 4,000 units at Rs. 48 per unit 1,92,000

Department B: 8,000 units at Rs. 54 per unit 4,32,000
Department C: 9,600 units at Rs. 60 per unit 5,76,000
12,00,000
However, by deducting the gross profit per unit from the selling price, we can arrive at the cost per unit
as under:
Cost price per unit = Selling price per unit – Gross Profit per unit
= 48 – 16
= 32
= 54 – 18
= 36
= 60 – 20
= 40
Now with the help of rate of gross profit and the cost per unit, the Departmental opening stock, purchases,
gross profit & closing stock in rupee value can be arrived at as under:

o Department A: 450 X 32 = 14,400
o Department B: 300 X 36 = 10,800
o Department C: 600 X 40 = 24,000
o Department A: 4,000 X 32 = 1,28,000
o Department B: 8,000 X 36 = 2,88,000
o Department C: 9,600 X 40 = 3,84,000
o Department A: 1,96,800 X 1/3 = 65,600
o Department B: 4,15,800 X 1/3 = 1,38,600
o Department C: 6,00,000 X 1/3 = 2,00,000
● Note on closing stock in number of units
Closing stock = Opening Stock + Purchases - Sales
o Department A: 450 + 4,000 – 4,100 = 350
o Department B: 300 + 8,000 – 7,700 = 600
o Department C: 600 + 9,600 – 10,000 = 200
o Department A: 350 X 32 = 11,200
o Department B: 600 X 36 = 21,600


To Opening Stock 14,400 10,800 24,000 By Sales 1,96,800 4,15,800 6,00,000
To Purchases 1,28,000 2,88,000 3,84,000 By Closing Stock 11,200 21,600 8,000
To Gross Profit 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
To Salaries 10,496 22,176 32,000 By Gross Profit 65.600 1,38,600 2,00,000
To Stationery 3,936 8,316 12,000
To Rent (2:2:1) 9,600 9,600 4,800
To Interest 1,968 4,158 6,000
To Depreciation 5,248 11,088 16,000
To General P & L A/c 34,352 83,262 1,29,200
65,600 1,38,600 2,00,000 65,600 1,38,600 2,00,000
Note: Salaries, Stationery, Interest & Depreciation are allocated to the departments in the gross profit ratio
which is as follows: 65,600 : 1,38,600 : 2,00,000 or 656 : 1,386 : 2,000 or 656/4042; 1,386/4042 & 2,000/4042.
Illustration 12
Following Trial Balance is extracted from the books of Nischal.
Particulars Dr. (Rs.) Cr. (Rs.)
Opening Capital - 50000
Drawings 10,000 -
Opening Stock
Department A 45,000 -
Department B 21,000 -
Sales
Department A - 2,94,000
Department B - 1,46,000
Purchases
Department A 2,25,000 -
Department B 1,15,000 -
Salaries 12,600 -
Advertising 8,900 -
Rent 3,200 -
Commission 10,600 -
Other expenses 5,000 -
Furniture 12,400 -
Debtors 16,800 -
4% Government Bonds 10,000 -
Creditors - 8,800
Interest on Government Bonds - 400
Opening Reserve for bad debts - 800
Cash 4,500 -
5,00,000 5,00,000
1. Closing Stock: Department A – Rs. 30,000 & Department B – Rs. 24,000
2. Rs. 1,200 shall be written off as bad debts & the reserve for bad debts on the remaining debtors shall
be maintained at 10%
3. Outstanding expense at the end of the accounting year was as follows: Advertising Rs. 1,300; Salaries
Rs. 1,200 and Commission Rs. 1,700
4. Furniture shall be depreciated at 10% per annum
5. All revenue items shall be apportioned in the ratio of 2 : 1 between the two departments.
Prepare Departmental Trading & Profit and Loss A/c and the Balance Sheet.
Solution
In the books of Nischal
Rs. Rs. Rs. Rs.
To Opening Stock 45,000 21,000 By Sales 2,94,000 1,46,000
To Purchases 2,25,000 1,15,000 By Closing Stock 30,000 24,000
To Gross Profit 54,000 34,000
3,24,000 1,70,000 3,24,000 1,70,000
To Salaries 9,200 4,600 By Gross Profit 54,000 34,000
To Advertisement 6,800 3,400 By Int. on Gov. Bonds 267 133
To Rent 2,133 1,067
To Commission 8,200 4,100
To Other Expenses 3,333 1,667
To Depr. on Furniture 827 413
To Bad debts 800 400
To Res. for Bad Debts 507 253
To General P & L A/c 22,467 18,233
54,267 34,133 54,267 34,133
Note on Reserve for bad debts:
Total Debtors after writing off Rs. 1,200 as bad debts is Rs. 15,600 (i.e., Rs. 16,800 – 1,200). Reserve for bad
debts to be maintained at 10% on remaining debtors amounts to Rs. 1,560 (i.e., 15,600 X 10%). Amount to be
charged to Profit & Loss A/c is Rs. 760 (i.e., New Reserve Rs. 1,560 minus Old Reserve Rs. 800)
Balance Sheet
Liabilities Rs. Assets Rs.
Opening Capital 50,000 (+) Furniture 12,400
Net Profit (22,467+18,233) 40,700 (-) Depreciation 1,240 11,160
(-) Drawings 10,000 80,700 4% Government Bonds 10,000
Creditors 8,800 Closing Stock (30,000 + 24,000) 54,000
Outstanding Expenses Debtors 16,800
Advertising (-) Bad Debts 1,200
Salaries Rs. 1,300 (-) Reserve for Bad debts 1,560 14,040
Commission 1,200 Cash 4,500
1,700
93,700 93,700
Illustration 13
Following Trial Balance is extracted from the books of M/s Nischal Departmental Stores
Dr. Cr.
Particulars
Rs. Rs.
Opening Capital - 9,530
Drawings 900 -
Opening Stock
Sales
Department A - 16,900
Department B - 13,520
Purchases
Wages -
Department B 240 -
Rent 1,870 -
Salaries 1,320 -
Lighting 420 -
Discount 441 133
Advertising 738 -
Carriage inwards 469 -
Fixed Assets 4,800 -
Debtors & Creditors 1,820 3,737
Cash 2,012 -
43,820 43,820
2. Prepaid Rent Rs. 370
3. Outstanding Lighting Rs. 180
4. Fixed assets are to be depreciated at 10% per annum
5. Rent, Lighting, Salaries & Depreciation are to be apportioned in the ratio of 2 : 1 and all other expenses
and incomes shall be apportioned on suitable basis
Solution
In the books of M/s Nischal Departmental Stores
Rs. Rs. Rs. Rs.
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 268 201
To Wages 1,340 240
19,648 15,921 19,648 15,921
To Rent 1,000 500 By Gross Profit 2,840 3,230
To Salaries 880 440 By Discount 76 57
To Lighting 400 200 By General P & L A/c 339 -
To Discount 245 196
To Advertisement 410 328
To Depr. on Fixed Assets 320 160
To General P & L A/c - 1,463

3,255 3,287 3,255 3,287
Note on apportionment of Discount & Advertisement:
Discount (Dr.) and Advertisement are apportioned in the departmental sales ratio and Discount (Cr) is
apportioned in the departmental purchases ratio.
Balance Sheet
Opening Capital 9,530 Fixed Assets 4,800
(+) Net Profit (1,463 - 339) 1,124 (-) Depreciation 480 4,320
(-) Drawings 900 9,754 Closing Stock (2,748 + 2,401) 5,149
Creditors 3,737 Debtors 1,820
Outstanding Expenses Cash 2,012
Advertising 180 Prepaid Expenses
Rent 370
13,671 13,671
Illustration 14
Following Trial Balance is extracted from the books of M/s Nischal Departmental Stores
Dr. Cr.
Particulars
Rs. Rs.
Opening Capital - 71,000
Drawings 3,000 -
Opening Stock
Department B 2,13 -
Sales
Department A - 59,000
Department B - 29,500
Purchases
Salaries -
Advertising 615 -
Discount
Department A 400 -
Department B 200 -
Buildings at cost 43,000 -
Equipments at WDV
Debtors & Creditors 10,200 5,319
Bank 5,600 -
Rent & Rates 1,530 -
Canteen expenses 875 -
Heating & Lighting 880 -
Insurance of stock 940 -

General Expenses 2,073 -
1,64,819 1,64,819
1. As at the end of the accounting year the following expenses were outstanding:
a. Salaries – Department A Rs. 250 & Department B Rs. 170
b. Heating & Lighting Rs. 20
2. General expenses and Rent & Rates includes prepayments of Rs. 33 and Rs. 80 respectively.
4. Depreciation is to be provided on Equipments at 10% per annum on WDV
5. The managers of the respective departments are entitled for a commission of 5% of the departmental
profit (prior to the commission payment)
6. In apportioning the various expenses between the two departments due regard is to be given to the
following information:
Particulars Dept. A Dept. B
Number of workers 9 6
Average Stock Levels (Rs.) 2,500 2,200
Floor Area (Sq. Mts.) 400 200
7. General expenses are primarily incurred in relation to the processing of purchases and sales invoices.
Solution
In the books of M/s Nischal Departmental Stores
Rs. Rs. Rs. Rs.
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
61,800 31,950 61,800 31,950
To Salaries (Actual By Gross Profit 39,480 19,814
including outstanding) 20,810 15,610
To Advertising (Sales Ratio) 410 205
To Discount allowed
(Actual) 400 200
To Rent & Rates (Excluding
prepaid in Floor Area 1,000 500
Ratio)
To Canteen charges ( No. 525 350
of Workers Ratio)
To Heating & Lighting
(Including outstanding in 600 300
Floor Area Ratio)
To Insurance of Stock 500 440
(Average Stock Level Ratio)
To General Expenses
(Excluding Prepaid in 1,360 680
Combined Ratio*)
To Depreciation on 1,800 700

Equipments (Actual)
To Managers’ Comn.
(5% on Net Profit before 604 41
commission**) 11,471 788
To General P & L A/c
39,480 19,814 39,480 19,814
* Combined Ratio
= Total Sales & Purchases of Department A : Total Sales & Purchases of Department B
= (59,000 + 20,000) : (29,500 + 10,000)
= 79,000 : 39,500 or 158 : 79 or 2 : 1
** Net Profit before commission is arrived as follows:

= Total of Credit side minus Total of Debit side before commission
Department A = 39,480 – 27,405 = 12,075
Department B = 19,814 – 18,985 = 829
Balance Sheet
Opening Capital 71,000 Buildings 43,000
(+) Net Profit (11,471 + 788) 12,259 Equipments (18,000+7,000) 25,000
(-) Drawings 3,000 80,259 (-) Depreciation 2,500 22,500
Creditors 5,319 Closing Stock (2,800 + 2,450) 5,250
Outstanding Expenses Debtors 10,200
Salaries (250 + 170) 420 Bank 5,600
Heating & Lighting 20 Prepaid Expenses
Managers’ Commission 645 General Expenses 33
(604 + 41) Rent & Rates 80
86,763 86,763
Illustration 15
From the following details pertaining to M/s Nishanth Departmental Stores prepare Departmental Trading &
Profit & Loss A/c and Balance Sheet.
Dept. A Dept. B
Particulars
Rs. Rs.
Opening Stock 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
Salaries 35,000 32,000
● Other balances: Debtors Rs. 1,90,000; Creditors Rs. 1,73,000; Fixed Assets Rs. 4,88,000; General
Expenses Rs. 1,28,000; Cash & Bank Rs. 1,18,000; Capital 5,00,000
● Adjustments required:
2. Depreciate fixed assets at 10% per annum

3. Allocate general expenses & depreciation in the net sales ratio
Solution
In the books of M/s Nishanth Departmental Stores
Rs. Rs. Rs. Rs.
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 2,23,000 1,45,000
6,56,000 5,14,000 6,56,000 5,14,000
To Salaries 35,000 32,000 By Gross Profit 2,23,000 1,45,000
88,550 35,650
2,23,000 1,45,000 2,23,000 1,45,000
Balance Sheet
Opening Capital 5,00,000 Fixed Assets 4,88,000
+ Net Profit (88,550+35650) 1,24,200 6,24,200 (-) Depreciation 48,800 4,39,200
Creditors 1,73,000 Closing Stock (26,000 + 24,000) 50,000
Debtors 1,90,000
Cash & Bank 1,18,000
7,97,200 7,97,200
Illustration 16
Mr. Nandan carries on a business of selling electrical goods. He has two departments viz., Wholesale & Retail.
The Wholesale department purchases all goods and adds one fourth on cost for charging out goods to Retail
department. From the following details you are required to prepare Departmental Trading & Profit & Loss A/c
and General Profit & Loss A/c
Wholesale Dept. Retail Dept.
Particulars
Rs. Rs.
Opening stock at cost 65,000 -
Opening stock at transfer price - 32,000
Purchases 3,28,000 -
Sales 3,40,000 96,000
Wages 6,600 2,200
Salaries 24,300 8,250
Closing stock at cost 1,11,500 -
Closing stock at transfer price - 36,000
1. The goods transferred by Wholesale department amounted to Rs. 76,000 at transfer price
2. General expenses amounted to Rs. 9,000 which is to be allocated between the two departments in the
ratio of 6:3
Solution
Analysis
Adjustment entry is made in This means that the goods transferred
The Wholesale department
General Profit & Loss A/c to from Wholesale department to Retail
purchases all goods and adds one
eliminate the profit element department includes profit element
fourth on cost for charging out
included in the opening and of 1/4 on Cost i.e., 1/5 on Transfer
goods to Retail department.
closing stock at transfer price Price.
Opening Stock at cost Dr. Side of Trading A/c As per direct information
Opening Stock at transfer price Dr. Side of Trading A/c As per direct information
Sales Cr. Side of Trading A/c As per direct information
Closing Stock at cost Cr. Side of Trading A/c As per direct information
Closing Stock at transfer price Cr. Side of Trading A/c As per direct information
Debit the receiver – Retail
The goods transferred by Adjustment entry is made in
Department
Wholesale department amounted Trading A/c as per the rules of
Credit the giver – Wholesale
to Rs. 76,000 at transfer price accounting
Department
General expenses amounted to
As per given ratio of 6:3
Rs. 9,000 which is to be allocated
Dr. Side of P & L A/c Wholesale department Rs. 6,000
between the two departments in
Retail department Rs. 3,000
the ratio of 6:3
In the books of Nandan

Wholesale Wholesale
Retail Dept. Retail Dept.
Particulars Dept. Particulars Dept.
Rs. Rs.
Rs. Rs.
To Opening Stock 65,000 32,000 By Sales 3,40,000 96,000
To Purchases 3,28,000 - By Retail Dept. 76,000 -
To Wholesale Dept. - 76,000 By Closing Stock 1,11,500 36,000
To Wages 6,600 2,200
To Gross Profit 1,27,900 21,800
5,27,500 1,32,000 5,27,500 1,32,000
To Salaries 24,300 8,250 By Gross Profit 1,27,900 21,800
To General P & L A/c 97,600 10,550
1,27,900 21,800 1,27,900 21,800
General Profit & Loss A/c

Rs. Rs.
To Stock Reserve (36,000 X 1/5) 7,200 By P & L A/c
(Loading in Closing Stock) Wholesale Dept. 97,600
To Net Profit 1,07,350 Retail Dept. 10,550
By Stock Reserve (32,000 X 1/5) 6,400
(Loading in Opening Stock)
1,14,550 1,14,550
Illustration 17
M/s RKS & Brothers has two departments viz., Department A & Department B. Following details are provided
to you.
Dept. A Dept. B
Particulars
Rs. Rs.
Purchases 2,00,000 20,000
Wages 10,000 1,000
Closing Stock 30,000 20,000
Sales 2,00,000 71,000
● Transfer from Dept A to Dept B at 25% above cost Rs. 50,000
● Department B’s entire stock represents goods received from Department A
● The following other expenses have to be allocated in the ratio of 4 : 1 between the two departments.
o Salaries Rs. 6,000
o Rent Rs. 1,200
o Stationery Rs. 300
o Postage Rs. 500
o Advertising Rs. 600
o Discount allowed Rs. 200
You are required to prepare Departmental Trading and Profit & Loss A/c
Solution
In the books of RKS Brothers
Rs. Rs. Rs. Rs.
To Opening Stock 40,000 10,000 By Sales 2,00,000 71,000
To Purchases 2,00,000 20,000 By Dept. B 50,000 -
To Dept. A - 50,000 By Closing Stock 30,000 20,000
To Wages 10,000 1,000
2,80,000 91,000 2,80,000 91,000
To Salaries 4,800 1,200 By Gross Profit 30,000 10,000
To Rent 960 240
To Stationery 240 60
To Postage 400 100
To Advertising 480 120
To Discount 160 40
To General P & L A/c 22,960 8,240
30,000 10,000 30,000 10,000
** Inter-departmental transfer is debited to the receiving department and credited to the giving department by
applying the accounting rule “Debit the receiver and Credit the giver”

To Stock Reserve (20,000 X 1/5) 4,000 By P & L A/c

(Loading in Closing Stock) - Dept. A 22,960
To Net Profit 29,200 - Dept. B 8,240
By Stock Reserve (10,000 X 1/5) 2,000
33,200 33,200
Note: Since the opening & closing stock of retail department are recorded at transfer price which includes inter
departmental profit element, the same shall be removed for arriving at the actual net profit of the whole
business. Therefore, one fourth of cost i.e., one fifth of transfer price is eliminated by preparing the above
General P & L A/c
Illustration 18
M/s RKS & Brothers has two departments viz., Department A & Department B. Following details are provided
to you.
Dept. A Dept. B
Particulars
Rs. Rs.
Purchases 3,25,000 4,55,000
Sales 5,00,000 7,50,000
Closing Stock 50,000 1,00,000
● Selling expenses of the entire organization is Rs. 1,00,000
● Opening stock of Department A and Department B includes goods of the value of Rs. 5,000 and Rs.
7,500 taken from Department B and Department A respectively at cost to the receiving department.
● Closing stock of Department A and Department B includes goods of the value of Rs. 10,000 and Rs.
15,000 taken from Department B and Department A respectively at cost to the receiving department.
● The gross profit rate is uniform year to year.
Prepare Departmental Trading and Profit & Loss A/c
Solution
In the books of RKS Brothers
Rs. Rs. Rs. Rs.
To Opening Stock 25,000 20,000 By Sales 5,00,000 7,50,000
To Purchases 3,25,000 4,55,000 By Closing Stock 50,000 1,00,000
To Gross Profit 2,00,000 3,75,000
5,50,000 8,50,000 5,50,000 8,50,000
To Selling Expenses* 40,000 60,000 By Gross Profit 2,00,000 3,75,000
To General P & L A/c 1,60,000 3,15,000
2,00,000 3,75,000 2,00,000 3,75,000
* Selling expenses is apportioned in the ratio of departmental sales 5,00,000 : 7,50,000 or 2 : 3
* The profit element included in the opening and closing stock of departments A & B shall be calculated taking
into consideration the gross profit rate of each department. The gross profit rate of each department is
calculated as under:
GP Rate = (Gross Profit / Sales) X 100
Department A = (2,00,000 / 5,00,000) X 100 = 40%
Department B = (3,75,000 / 7,50,000) X 100 = 50%

To Stock Reserve By P & L A/c
Dept. A (10,000 X 50%) 5,000 Dept. A 1,60,000
Dept. B (15,000 X 40%) 6,000 Dept. B 3,15,000
(Loading in Closing Stock) By Stock Reserve
To Net Profit 4,69,500 Dept. A (5,000 X 50%) 2,500
Dept. B (7,500 X 40%) 3,000
4,80,500 4,80,500
Illustration 19
M/s RKS Textiles has two departments viz., Textiles & Dresses. Cloth required for Dresses department is
supplied by Textiles department at its usual selling price. From the following details prepare Departmental
Trading and Profit & Loss A/c.
Textiles Dresses
Particulars
Rs. Rs.
Opening Stock 1,80,000 30,000
Purchases 14,50,000 10,000
Sales 17,50,000 3,50,000
Wages - 70,000
Closing Stock 50,000 24,000
Textiles department supplied clothes worth Rs. 2,25,000 to Dresses Department during the year. General
expenses incurred for both the departments together amounted to Rs. 60,000. The stocks in Dresses
department may be considered as consisting 2/3 cloth and 1/3 other expenses. The rate of gross profit earned
by the Textiles department for the previous year was 18% on selling price.
Solution
In the books of M/s RKS Textiles
Textiles Dresses Textiles Dresses
Rs. Rs. Rs. Rs.
To Opening Stock 1,80,000 30,000 By Sales less Returns 17,50,000 3,50,000
To Purchases less Returns 14,50,000 10,000 By Dresses Dept. 2,25,000 -
To Textiles Dept. - 2,25,000 By Closing Stock 50,000 24,000
To Wages - 70,000
20,25,000 3,74,000 20,25,000 3,74,000
To General Expenses 50,000 10,000 By Gross Profit 3,95,000 39,000
To General P & L A/c 3,45,000 29,000
3,95,000 39,000 3,95,000 39,000

To Stock Reserve (24,000 X 2/3 X 20%) 3,200 By P & L A/c
(Loading in Closing Stock) - Textiles Dept. 3,45,000
To Net Profit 3,74,400 - Dresses Dept. 29,000
By Stock Reserve (30,000 X 2/3 X 18%) 3,600

3,77,600 3,77,600
Note:
● Since the opening & closing stock of dresses department include inter departmental profit element, the
same shall be removed for arriving at the actual net profit of the whole business.
● Since the textiles department supplied clothes to the dresses department at its usual selling price, the
profit element included in opening stock shall be calculated on the basis of gross profit rate of previous
year and the profit element included in closing stock shall be calculated on the basis of gross profit rate
of current year. The current year gross profit rate is calculated as follows:
Current year gross profit rate
= (Gross Profit of textiles department / Sales of textiles department including supply to dresses
department) X 100
= (3,95,000 / 19,75,000) X 100
= 20%
● Since the opening stock of dresses department consists of 2/3 portion cloth and the rate of gross profit
of the previous year was 18%, the profit element included in it is calculated as follows: (30,000 X 2/3 X
18%) = 3,600
● Since the closing stock of dresses department consists of 2/3 portion cloth and the rate of gross profit
for the current year is 20%, the profit element included in it is calculated as follows: (24,000 X 2/3 X
20%) = 3,200
Illustration 20
supplied by Textiles department at its usual selling price. From the following details prepare Departmental
Textiles Dresses
Particulars
Rs. Rs.
Purchases 2,50,000 40,000
Sales 2,60,000 1,45,000
Wages 15,000 20,000
Salaries 7,000 5,000
Closing Stock at cost to the department 80,000 20,000
Stationery 2,500 1,500
Machinery - 45,000
Textiles department supplied clothes worth Rs. 40,000 to Dresses Department during the year. Common
expenses of the organization amounted to Rs. 30,000 & Machinery is to be depreciated at 10% per annum.
These items may be allocated to the departments in 2 : 1 ratio. 40% of the opening stock of Department B
consists of the goods received from Department A and the rate of gross profit of the previous year was 30%.
Solution
Rs. Rs. Rs. Rs.
To Opening Stock 15,000 5,000 By Sales less Returns 2,60,000 1,45,000
To Purchases less Returns 2,50,000 40,000 By Dresses Dept. 40,000 -
To Textiles Dept. - 40,000 By Closing Stock 80,000 20,000

To Wages 15,000 15,000
3,80,000 1,65,000 3,80,000 1,65,000
To Stationery 2,500 1,500
To Common Expenses 20,000 10,000
To General P & L A/c 67,500 47,000
1,00,000 65,000 1,00,000 65,000

To Stock Reserve 3,333 By P & L A/c
(20,000 X 50% X 33.33%) Textiles Dept. 67,500
(Loading in Closing Stock) Dresses Dept. 47,000
To Net Profit 1,11,767 By Stock Reserve (5,000 X 40% X 30%) 600
1,15,100 1,15,100
Note:
● Since the opening and closing stock of dresses department includes inter departmental profit element,
the same shall be removed for arriving at the actual net profit of the whole business.
department) X 100
= (1,00,000 / 3,00,000) X 100
= 33.3333% or 1/3
● Since the opening stock of dresses department consists of 40% portion cloth and the rate of gross profit
of the previous year was 30%, the profit element included in it is calculated as follows: (5,000 X 40% X
30%) = 600
● Since the proportion of cloth included in the closing stock of Department B is not given in the problem,
it may be calculated as under:
(Procurement from Textiles Department / Total procurement of Dresses Department) X 100
= (40,000 / 80,000) X 100
= 50%
● Since the closing stock of dresses department consists of 50% portion cloth as calculated above and the
rate of gross profit for the current year is 33.3333% or 1/3, the profit element included in it is calculated
as follows: (20,000 X 50% X 33.33%) = 3,333
Illustration 21
supplied by Textiles department at normal market prices. From the following details prepare Departmental
Particulars Textiles Dresses
Rs. Rs.
Opening Stock 10,000 -
Purchases 2,30,000 20,000
Sales 2,30,000 1,45,000
Wages 10,000 16,000
Salaries 6,800 4,200
Closing Stock at cost to the department 50,000 18,000
Stationery 2,000 1,600
Machinery - 45,000
Textiles department supplied clothes worth Rs. 70,000 to Dresses Department during the year. Common
expenses of the organization amounted to Rs. 30,000 & Machinery is to be depreciated at 10% per annum.
These items may be allocated to the departments in 2 : 1 ratio.
Solution
Rs. Rs. Rs. Rs.
To Opening Stock 10,000 Nil By Sales less Returns 2,30,000 1,45,000
To Purchases less Returns 2,30,000 20,000 By Dresses Dept. 70,000 -
To Textiles Dept. - 70,000 By Closing Stock 50,000 18,000
To Wages 10,000 16,000
3,50,000 1,63,000 3,50,000 1,63,000
To Stationery 2,000 1,600
To Common Expenses 20,000 10,000
To General P & L A/c 68,200 39,700
1,00,000 57,000 1,00,000 57,000

Rs. Rs.
To Stock Reserve 1,313 By P & L A/c
(18,000 X 21.875% X 33.33%) (Loading in Textiles Dept. 68,200
Closing Stock) Dresses Dept. 39,700
To Net Profit 1,06,587 By Stock Reserve (Loading in Opening -
Stock)
1,07,900 1,07,900
Note:
● Since the closing stock of dresses department include inter departmental profit element, the same shall
be removed for arriving at the actual net profit of the whole business.
department) X 100
= (1,00,000 / 3,00,000) X 100
= 33.3333% or 1/3
● Since there is no opening stock at dresses department the profit element included in it is not calculated
● Since the proportion of cloth included in the closing stock of Department B is not given in the problem,
it may be calculated as under:
(Procurement from Textiles Department / Total procurement of Dresses Department) X 100
= (70,000 / 3,20,000) X 100
= 21.875%
● Since the closing stock of dresses department consists of 21.875% portion cloth as calculated above
and the rate of gross profit for the current year is 33.3333% or 1/3, the profit element included in it is
calculated as follows: (18,000 X 21.875% X 33.33%) = 1,313
Theory Questions
Section A
1. Give the Meaning of Department

2. What is Departmental Accounting?
3. State the methods of keeping Departmental Accounts
4. Distinguish between Department & Branch
5. What is inter-departmental transfer? Give an example
6. When is Stock Reserve A/c created under Departmental Accounting?
7. What is meant by Loading?
8. Write the journal entry for elimination of loading in opening stock
9. Write the journal entry for elimination of loading in closing stock
Section B
1. Distinguish between Departmental Accounting & Branch Accounting

2. Briefly explain the objectives of Departmental Accounting
3. Briefly explain the advantages of Departmental Accounting
4. Match the following
Expenses Basis of Allocation
1. Rent, Rates and Taxes 1. Number of Employees or Amount of Wages
2. Repairs to Fixed Assets 2. Sales
3. Labour Welfare Expenses 3. Value of Fixed Assets
4. Carriage Outward 4. Number of Light Points or Floor Space
5. Carriage Inward 5. Credit Purchases/Sundry Creditors
6. Bad Debts 6. Sales
7. Heating & Lighting 7. Purchases
8. Depreciation of Fixed Assets 8. Credit Sales
9. General Expenses/Sundry Expenses 9. Floor Space
10. Discount Earned 10. Value of Fixed Assets
11. Discount Allowed 11. Credit Sales/Sundry Debtors

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Dr. R. K.

ACCOUNTING FOR DEPARTMENTAL UNDERTAKINGS

Meaning of Departmental Accounting

Objectives of Departmental Accounting

Advantages of Departmental Accounting

Methods of keeping Departmental Accounts

Distinctions between Departmental Accounting and Branch Accounting

Bases of allocation of common (or indirect) expenses

Treatment of inter-departmental transfers

To General Profit & Loss A/c

b. For unrealized profit included in the closing stock

Illustrations on Accounting for Departmental Undertakings

In the books of RKS Departmental Stores

To Opening Stock 1,00,000 1,40,000 By Sales 20,00,000 15,00,000

Apportionment of Common Expenses

In the books of RKS Enterprises

Departmental Trading & Profit & Loss A/c

Closing Stock Cr. Side of Trading A/c As per direct information

In the books of RKS Departmental Stores

Departmental Trading & Profit & Loss A/c

Net Profit Ratio = (Net Profit/Sales) X 100

In the books of RKS Stores

Net Profit Ratio = (Net Profit/Sales) X 100

In the books of RKS Stores

Net Profit Ratio = (Net Profit/Sales) X 100

In the books of RKS Industries

Wages of employees 30,000 15,000

In the books of Vishnu Murthy

Rs. Rs. Rs.

Stock Reserve on Opening and Closing Stocks are calculated as under:

In the books of RKS Departmental Store

To Opening Stock 6,000 7,000 3,000 By Sales 12,000 10,000 6,000

In the books of RKS Departmental Store

Rate of Gross Profit

Cost price per unit

● Note on opening stock in rupee value

o Department C: 250 X 20 = 5,000

In the books of RKS Departmental Store

In the books of RKS Departmental Store

Rate of Gross Profit

● Total sales value of all the units purchased is arrived at as follows:

● Note on opening stock in rupee value

o Department B: 1,000 X 20 = 20,000

● Note on gross profit

● Note on closing stock in rupee value

In the books of RKS Departmental Store

Rate of Gross Profit

* Total sales value of all the units purchased is arrived at as follows:

Department A: 4,000 units at Rs. 48 per unit 1,92,000

● Note on opening stock in rupee value

In the books of RKS Departmental Store

Dept.A Dept.B Dept.C Dept.A Dept.B Dept.C

To General P & L A/c - 1,463

Insurance of stock 940 -

To Depreciation on 1,800 700

** Net Profit before commission is arrived as follows:

2. Depreciate fixed assets at 10% per annum