FINAL

FINAL
Inter AUDIT
DT
Accounting
PRACTICE
100 IMPORTANT
QUESTIONS
Practice questions
QUESTIONS
CHAPTER 2
 Departmental Accounts

Question 1
Mega Ltd. has two departments, A and B. From the following particulars, prepare departmental

Trading A/c and General Profit & Loss Account for the year ended 31st March, 2014.
Particulars Amount (Rs.)
Department A Department B
Opening stock as on 01.04.2013 (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 Department B to A 50,000
By Department A to B 36,000
Finished Goods Transferred:
By Department B to A 1,50,000
By Department A to B 1,75,000
Return of Finished Goods:
By Department B to A 45,000
By Department 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 and that 30% of the
closing finished stock with each department represents finished goods received from the
other department.

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Answer
Departmental Trading Account in the books of Mega Ltd.

for the year ended 31st March, 2014

Particulars Department Department Particulars Department Department
A B A B
(Rs.) (Rs.) (Rs.) (Rs.)
To Opening Stock 70,000 54,000 By Sales 5,72,000 4,60,000
To Purchase 3,92,000 2,98,000 By Transfer:
To Carriage Inward 6,000 9,000 Purchased 36,000 50,000
To Wages 54,000 36,000 Goods 1,30,000 1,18,000

To Transfers: Finished

Purchased 50,000 36,000 Goods 24,000 30,000

Goods By Closing Stock:
Purchased
Finished** 1,18,000 1,30,000 1,02,000 62,000
Goods
Goods
Finished*
To Gross Profit c/d 1,74,000 1,57,000
Goods

8,64,000 7,20,000 8,64,000 7,20,000

* Finished goods from other department included in closing stock

Particulars Department A (Rs.) Department B (Rs.)
Stock of Finished Goods 1,02,000 62,000
Stock related to other department 30,600 18,600
(30% of Finished Goods)

** Net transfer of Finished Goods by

Department A to B = Rs. (1,75,000 – 45,000) = Rs.1,30,000
Department B to A = Rs. (1,50,000 – 32,000) = Rs.1,18,000

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 General Profit and Loss A/c

For the year ended 31st March, 2014

Particulars Amount Particulars Amount
(Rs.) (Rs.)
To Provision for unrealised profit By Gross Profit b/d:
included in closing stock: Department A 1,74,000
Department A (W.N.2) 8,311 Department B 1,57,000
Department B (W.N.2) 4,611
To Net Profit 3,18,078
3,31,000
3,31,000

Working Notes
1. Calculation of ratio of gross profit margin on sales
Particulars Department A (Rs.) Department B (Rs.)
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)
7,02,000 5,78,000
Gross Profit 1,74,000 1,57,000
Gross Profit margin = 1,74,000 1,57,000
x100 = 24.79% x100 27.16%
7,02,000 5,78,000

2. Unrealised profit included in the closing stock

Department A = 27.16% of Rs. 30,600 (30% of Stock of Finished Goods Rs.
1,02,000) = Rs. 8311.00

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 Department B = 24.79% of Rs.18,600 (30% of Stock of Finished Goods Rs. 62,000)
= Rs. 4611.00

Question 2
Department P sells goods to Department S at a profit of 25% on cost and to Department Q at
a profit of 15% on cost. Department S sells goods to P and Q at a profit of 20% and 30% on
sales respectively. Department Q sells goods to P and S at 20% and 10% profit on cost
respectively.
Departmental Managers are entitled to 10% commission on net profit subject to unrealized
profit on departmental sales being eliminated. Departmental profits after charging
Manager's commission, but before adjustment of unrealized profits are as below:
Rs.
Department P 90,000
Department S 60,000
Department Q 45,000

Stock lying at different Departments at the end of the year are as below:
Figures in Rs.
DEPARTMENTS
P S Q
Transfer from P - 18,000 14,000
Transfer from S 48,000 - 38,000
Transfer from Q 12,000 8,000 -

Find out correct Departmental Profits after charging Managers' Commission.

Answer
Calculation of correct Departmental Profits
Department P Department S Department Q
(Rs.) (Rs.) (Rs.)

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Profit after charging Manager’s 90,000 60,000 45,000
Commission
Add: Manager’s Commission (1/9) 10,000 6,667 5,000
1,00,000 66,667 50,000
Less: Unrealised profit on Stock (WN) (5,426) (21,000) (2,727)
Profit Before Manager’s Commission 94,574 45,667 47,273
Less: Manager’s Commission 10% (9,457) (4,567) (4,727)
Correct Profit after Manager’s 85,117 41,100 42,546
Commission

Working Notes:
Department P Department S Department Q Total
(Rs.) (Rs.) (Rs.) (Rs.
)
Unrealized Profit of:
Department P - 25/125X18,000 15/115X14,000 5,426
=3,600 =1,826
Department S 20/100X48,000 - 30/100X38,000 21,000

=9,600 =11,400

Department Q 20/120X12,000 10/110X8,000 2,727

=2,000 =727

Question 3
State the basis on which the following common expenses, the benefit of which is shared by all
the departments is distributed among the departments:
(i) Rent, rates and taxes, insurance of building;
(ii) Selling expenses such as discount, bad debts, selling commission and other such

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 selling expenses;
(iii) Carriage Inward;
(iv) Depreciation;
(v) Interest on loan;
(vi) Profit or loss on sale of investment;
(vii) Wages;
(viii) Lighting and Heating Expenses.

Answer

Allocation of Expenses
S.No. Expenses Basis
1. Rent, rates and taxes, repairs, Floor area occupied by each department (if
insurance of building given) otherwise on time basis.
2. Selling expenses, e.g., discount, bad Sales of each department.
debts, selling commission, and other
such selling expenses
3. Carriage inward Purchases of each department.
4. Depreciation Value of assets of each department
otherwise on time basis.
5 Interest on loan Utilisation of loan amount in each
department(if can be identified),otherwise
in combined P& L A/c.
6 Profit & loss on sale of investment Value of investments sold in each
department (if value can be
identified),otherwise in combined P& L
A/c.
7 Wages Time devoted to each department
8. Lighting and Heating expenses Consumption of energy by each
(eg. energy expenses) department.

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Question 4
Department A sells goods to Department B at a profit of 50% on cost and to Department C
at 20% on cost. Department B sells goods to A and C at a profit of 25% and 15%
respectively on sales. Department C charges 30% and 40% profit on cost to Department
A and B respectively.
Stock lying at different departments at the end of the year are as under:
Department A Department B Department C
Rs. Rs. Rs.
Transfer from Department A - 45,000 42,000
Transfer from Department B 40,000 - 72,000
Transfer from Department C 39,000 42,000 -

Calculate the unrealized profit of each department and also total unrealized profit.

Answer
Calculation of unrealized profit of each department and total unrealized profit

Dept. A Dept. B Dept. C Total

Rs. Rs. Rs. Rs.
Unrealized Profit of:
Department A 45,000 x 42,000 x 20/120 22,000
50/150 = = 7,000
15,000
Department B 40,000 x .25 = 72,000 x .15= 20,800
10,000 10,800
Department C 39,000 x 30/130 = 42,000 x 21,000
9,000 40/140 =
12,000
63,800

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Question 5
Department A sells goods to Department B at a profit of 20% on cost and Department C at
15% profit on cost. Department B sells goods to A and C at a profit of 10% and 20% on sales
respectively. Department C sells goods to A and B at 15% and 10% profit on cost
respectively.
Departmental managers are entitled to 10% commission on net profit subject to unrealized
profit on departmental sales being eliminated. Departmental profits after charging
manager's commission, but before adjustment of unrealized profit are as under:
Rs.
Department A 36,000
Department B 27,000
Department C 18,000
Stock lying at different departments at the end of the year are as below:
Department A Department B Department C
Rs. Rs. Rs.
Transfer from Department A - 7,200 5,750
Transfer from Department B 19,000 - 15,000
Transfer from Department C 4,600 3,300 -

Find out correct departmental profits after charging manager's commission.

Answer
Calculation of correct Departmental Profit
Department Department Department
A B C
Rs. Rs. Rs.
Profit after charging managers’ commission 36,000 27,000 18,000
but before adjustment for unrealized profit 4,000 3,000 2,000
Add back : Managers’ commission (1/9) 40,000 30,000 20,000
(1,950) (4,900) (900)

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 Less: Unrealised profit on stock (Working Note) 38,050 25,100 19,100
Profit before Manager’s commission (3,805) (2,510) (1,910)
Less: Commission for Department
Manager @10%
Correct profit after charging manager 34,245 22,590 17,190
commision

Working Note :
Department A Department B Department C Total
Rs. Rs. Rs. Rs.
Unrealised Profit on transfer to:
Department A 7,200 x 20/120 = 5,750 x 15/115= 750 1,950
1,200
Department B 19,000 x 10% = 15,000 x 20% = 3,000 4,900
1,900
Department C 4,600 x 15/115= 600 3,300 x 10/110= 300 900

Question 6
Brahma Limited has three departments and submits the following information for the year

ending on 31st March, 2011:

Particulars A B C Total (Rs.)
Purchases (units) 5,000 10,000 15,000
Purchases (Amount) 8,40,000
Sales (units) 5,200 9,800 15,300
Selling price (Rs. per unit) 40 45 50
Closing 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.

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Answer

Departmental Trading Account for the year ended 31st March, 2011
Particulars A B C Particulars A B C
Rs. Rs. Rs. Rs. Rs. Rs.
To Opening Stock By Sales 2,08,000 4,41,000 7,65,000
(W.N.4) 14,400 10,800 30,000 By Closing stock 9,600 16,200 21,000
1,20,000 2,70,000 4,50,000 (W.N.4)
To Purchases 83,200 1,76,400 3,06,000
(W.N.2)
To Gross profit
2,17,600 4,57,200 7,86,000 2,17,600 4,57,200 7,86,000

Working Notes:
Profit Margin Ratio
Selling price of units purchased: Rs.
Department A (5,000 units х Rs. 40) 2,00,000
Department B (10,000 units х Rs. 45) 4,50,000
Department C (15,000 units х Rs. 50) 7,50,000
Total selling price of purchased units 14,00,000
Less: Purchases (8,40,000)
Gross profit 5,60,000

Gross profit 5,60,000

Profit margin ratio = × 100 = × 100 = 40%
Selling price 14,00,000

Statement showing department-wise per unit cost and purchase cost

Particulars A B C
Selling price per unit (Rs.) 40 45 50
Less: Profit margin @ 40% (Rs.) (16) (18) (20)
Purchase price per unit (Rs.) 24 27 30
No. of units purchased 5,000 10,000 15,000

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 Purchases (purchase cost per unit x units 1,20,000 2,70,000 4,50,000
purchased)

Statement showing calculation of department-wise Opening Stock (in units)

Particulars A B C
Sales (Units) 5,200 9,800 15,300
Add: Closing Stock (Units) 400 600 700
5,600 10,400 16,000
Less: Purchases (Units) Opening (5,000) (10,000) (15,000)
Stock (Units) 600 400 1,000

Statement showing department-wise cost of Opening and Closing Stock

Particulars A B C
Cost of Opening Stock (Rs.) 600 х 24 400 х 27 1,000 х 30
14,400 10,800 30,000
Cost of Closing Stock (Rs.) 400 х 24 600 х 27 700 х 30
9,600 16,200 21,000

Question 7
Department R sells goods to Department S at a profit of 25% on cost and Department T at 10%
profit on cost. Department S sells goods to R and T at a profit of 15% and 20% on sales
respectively. Department T charges 20% and 25% profit on cost to Department R and S
respectively.
Department managers are entitled to 10% commission on net profit subject to unrealized profit
on departmental sales being eliminated. Departmental profits after charging manager’s
commission, but before adjustment of unrealized profit are as under:
Rs.
Department R 54,000
Department S 40,500

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 Department T 27,000
Stock lying at different departments at the end of the year are as under:
Deptt. R Deptt. S Deptt. T
Rs. Rs. Rs.
Transfer from Department R - 22,500 16,500
Transfer from Department S 21,000 - 18,000
Transfer from Department T 9,000 7,500 -

Find out the correct departmental profits after charging manager’s commission.

Answer
Departments
R S T
Rs. Rs. Rs.
Profit 54,000 40,500 27,000
Add : Managerial commission (1/9) 6,000 4,500 3,000
60,000 45,000 30,000
Less: Unrealised profit on stock (Refer W.N.) (6,000) (6,750) (3,000)
54,000 38,250 27,000
Less: Managers’ commission @ 10% (5,400) (3,825) (2,700)
48,600 34,425 24,300

Working Notes:
Value of unrealised profit
Rs.
Transfer by department R to
S department (22,500 × 25/125) = 4,500
T department (16,500 × 10/110) = 1,500 6,000
Transfer by department S to
R department (21,000 × 15/100) = 3,150

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 T department (18,000 × 20/100) = 3,600 6,750
Transfer by department T to
R department (9,000 × 20/120) = 1,500
S department (7,500 × 25/125) = 1,500 3,000

Question 8
Goods are transferred from Department P to Department Q at a price 50% above cost. If
closing stock of Department Q is Rs. 27,000, compute the amount of stock reserve.

Answer
Calculation of Stock Reserve
Rs.
Closing stock of Department Q 27,000
Goods sent by Department P to Department Q at a price 50% above cost
Rs.27,000×50 9,000
Hence, profit of Department P included in the stock will be ( )
150

Amount of stock reserve will be Rs. 9,000

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