yee b/d: Jo Balance . By Balance b/d (Assets in the beginning) (Opening balance of liabilities accounts if any) stock 200% Creditors Debtors ax Outstanding expenses petty Cash Pod By Bank: ~| Furniture 200% Cash sales 100 | prepaid expenses 2% | 7%] Cash collected from debtors | sc | 70% jo. Goods sent fo branch A/c 2ex|By Goods sent to Branch | ‘ nses Ale (returns | ro Bank (expel turns to H.O,) paid by H.0.) | 2»at| By Balance e/d (closing | ,™ obalance c/d (closing | balance of Assets ) ) | palance of liabilities Stock wx | accounts if any) Debtors | Creditors YOK | Petty Cash 1% | Outstanding expenses xx | ot! Furniture > General P & L A/e | xx] (at depreciated value) | ranch profit) (bal. fig) Prepaid expenses 20 | 700% By General P & L A/c x s(Branch Profit) (bal.fig) (Branch Loss)* (bal.fig) | Y palancing figure is either profit or loss. the following Journal entries are passed in the books of head office to record branch transactions: {) When goods are sent to branch Branch Account Dr To goods sent to branch account. ote: Reverse entry for goods returned to head office. ii) When cheque or draft is sent for branch expenses Branch Account Dr. To Bank Account iit) When cheque or draft is received as remittance from branch: Bank Account Dr To Branch Account is) For closing balances of assets: Branch Assets Account Dr. To Branch Account ) For opening balances of assets Branch Account Dr To Branch Assets Account. ‘Sanne wih CamScamer(vd For closing balances of liabilities: Branch Account Dr. To Branch liabilities Account (vi/) Por opening balances of liabilities Dr. Branch liabilities Account To Branch Account (viii) For transferring the balance of goods sent to branch account Goods sent to branch account Dr. To Purchase Account (trading concern) or Trading Account (manufacturing concern) ° (ix) For branch profit: Branch Account Dr. To General Profit and Loss Account Note: Reverse entry for loss. ‘Scanned with CamSeannerATIONG ILLUSTRATIONS = DEPENDENT BRANCHES DEBTORS SYSTEM (a) When goods are sent to branch at cost price Mlustration 1 Layal shoe company opened a branch at Madras on 1.1.89, From the following particulars, the Madras Branch account for the years 1989 and 1990, 1989 1999 — = Rs. Rs. Goods sent to Madras Branch 15,000 45,000 Cash sent to Branch for Rent 1,800 1,800 Salaries 3,000 5,000 Other expenses 1,200 1,600 Cash received from the branch 24,000 | 60,000 Stock on 31st December 2,300 5,800 Petty cash in hand on 31st December 40 30 [Madras, B.Com., Oct. 1995; Periyar, BBA May 2004, B.Com. April 2001 (3 times); [Pondicherry, B.Com, Dec. 1999 (3 times)] Solution: In the Books of Head Office Madras Branch A/c for 1989 | Rs, Rs. Jan, 1] To Balance b/d NIL| By Cash 24,000 To Goods sent to Branch _—_| 15,000)31 Dec.| By Balancec/d To Cash: Stock 2,300 Rent 1,800 Petty cash 40 Salaries 3,000 Other expenses 1,200 | 6,000) To General P&L A/c (Profit) | 5,340 26,340] 26,340 Madras Branch A/c for 1990 7 Rs| * Rs. Jan. 1] To Balance b/d |By Cash 60,000 Stock 2,300|Dee. 31) By Balance c/d Petty cash 40) Stock 5,800 To Goods sent to branch 45,000) Petty Cash 30 To Cash:— Rent 1,800 Salaries 5,000 Other expenses 1,600 | 8,400 To General P & L A/c (Profit) 10,090} 65,830 65,830 ‘Scanned with CamSeanner— ation 2 sus Stock at the Branch on 1.1.90 Debtors at the Branch on 1.1.90 rom the following particulars relating to Hyderabad bran é 2 31.12.90, Prepare Branch A/c in the head office books: fl Petty cash at the Branch on 1.1.90 Goods sent to Branch during 1990 Cash Sales 1990 Received from Debtors 1990 Credit Sales during 1990 Cheques sent to branch during 1990: for Salaries for Rent & Rates for Petty Cash Stock at the branch on 31.12.90 Petty Cash 31.12.90 Goods returned by the branch Debtors on 31.12.90 art ch for the year Ee 15,000 30,000 300 2,52,000 60,000 2,10,000 2,28,000 9,000 1,500 1,100 11,600 a 25,000 200 2,000 48,000 [Madras, B.Com., April 2005; March 1993] Solution: Inthe Books of Head Office Hyderabad Branch A/e Dr. Rs| Cr | Rs, Jen,1 {To Balance b/d Dec. 31|By Bank Stock 15,000 Cash Sales 60,00 Debtors 30,00 Cash recei Petty cash 3 -ved from Dec. 31/To Goods sent to Debtors _2,10,0002,70,000 branch A/c 2,52,000 Dec. 31|By Goods » {fo Bank: Sent to branch 2,000 Salaries 9,000 [Retums to H.0.] Rent & Rates 1,500 By Balance e/d: Petty Cash 1,100} 11,601 Stock 25,000 {To General P&L A/e 36,30 Debio (Profit) Y cash 3,45,20 ‘Scanned with CamSeannerIllustration 3 The following information relates to Stock on 1.1.94 Branch debtors on |. 1.94 Goods sent to Branch Cash sent to Branch for: Rent Salaries Petty Cash les at branch: oak Credit Cash received from Debtors Stock on 31.12.94 Prepare Branch account for the year 1994 Madurai branch 1,500 | 3,000 500 5,000 25,000 39,000 | 64,000 41,200 | 13,600 ‘ads, Born, BCS. ee. Sen) Nox 206; B Cora (Ser) Nox. 2003; Mar 1995, My 199 Solution: In the books of Head Office Madurai Branch A/C Rs. Rs. Jan. 1 [To Balance b/d Dec. 31[ By Bank: Stock 11,200 Cash Sales 25,000 Debtors 6,300 Cash collec Dec. 31|To Goods sent to Branch | 51,000 ~ted from » [To Bank: debtors 41,200 | 66,200 Rent 1,500 By Balancec/d Salaries 3,000 Stock 13,600 Petty Cash _ 500 | 5,000) Debtors 4,100 {To General P&L A/c 10,400 (Profit) 3,900 33,900 Working Note: Caleulation of Closing Debtors Branch Debtors A/e Rs. i= 1.1.94 | To Balance b/d. 41,200 | 6,300 By Cash 7 ToSales(eredit) | 39,000] 31.12.92] By Balance fd (bal.fa)| 4! ano 50 45,300 | ee ‘Scanned with CamSeanneralcnlalon OV ibsiis SOCK aid Manager's commission |ustration 4 From the following particulars prepare a branch account showing the profit rloss at the branch. | Rs. Opening Stock at the branch | 15,000 Goods sent to the branch 45,000 Sales 60.000 Salaries 5,000 Other expenses | 2,000 Closing stock could not be ascertained but it is known that the branch usually sellsat cost plus 20%. The branch manager is entitled to a commission of 5% on the profit of the branch before charging such commission. [Madras, BBA, Nov. 2004; B.Sc., Oct. 2001 (Double Fig.) B.Com., Nov. 1994; April 1981; Periyar BBA Nov. 2004] Solution: Working Note Computation of Closing Stock | Opening Stock | Add: Goods sent to branch Less: Cost of goods sold i Sales x 2 _ {60,000 100)) 120 \ 720) | | 50,000 Cost of Closing Stock | 10,000 In the books of Head Office Branch Ale [Rs [ke To Opening Stock 15,000. By Cash (sales) | 60,000 To Goodis Sent to branch 45,000 By Closing stock | 10,000 ToCash (Salaries) 5,000 | To Cash (Other expenses) 2,000 To Manager's commission 150 | (8,000 x 5%) To Net Profit - transferred to 2,850 General P& L Ale , 70,000 70,000 ‘Scanned with CamSeannerM intaining Petty Cash balance Under 'mprest System ai ) Mlustration 5 A Head office invoic es goods to its branch at cost price, The by sand maintain petty cash balance ofp branch iy Sc: jtted to ineur petty expens a ee enprest system, It is also permitted to buy furniture of the . st SYS - Rs. 2,000. Rs. | Stock 1.1.93 4l 000 | Cash Purchase by the branch isk s 3 . 12,500) (with H.O. permission) 1,000 | Payment to Creditors 10,000 Closing balance of Creditors A, 250 Payment by H.O. 75,000 Rent for one year Debtors 1.1.93 Petty Cash 1.1.93 Creditors 1.1.93 Rent upto 31.3.93 45,009 Ve 27509 Goods sent to branch n Credit Sales 40,000 (Paid on 1.4.93) ad Cash Sales 75,000) Salaries 6.000 Cash received from debtors 45,000 | Insurance (paid upto 31.3.94) 750 ‘Allowances 50) Payment by Branch Discount 100, Furniture 2000 Bad debt 150| Petty expenses 250 : Stock on 31.12.93 100,000 Prepare Branch A/c in the Books of Head Office. Solution: In the Books of H.0. Branch Ale 1993 Rs|_ 1994 ine Jan. | |To Balance b/d Jan 1] By Balance b/d | Stock 41,00 Creditors | 10,000 Debtors 12,50 By Bank: Petty Cash 1,001 Cash remitted Rent Prepaid 25 to H.O. 60,250 To Goods sent to Branch | 75,000}Dee.31 By Balancec/d To Bank: Stock 1,00,000 Rent 1,200 Debtors 7,200 Salaries 6,000 Petty Cash | 1,000 Insurance 150)|f 7,95) Furniture | 2,000 To Petty expenses 250, Rent Prepaid 300 Dec.3i|To Balance o/d {1200 x 4) | 2 Creditors 27,50 Insurance oa | asns0 To General P&L Ale | 15,487.5 (70 x 2) \ | (Profit) 1 | 7809. 1,80,937- 37.50 Note: Petty cash spent by bi 30) it ry ranci4 ie a not sen money for it adn from branch cash and H.O. has Seanned with Cmseannerapalance b/d 12,500] By Cash so sales (Credit) 40,000} By Allowances 50 By Discount 100 By Bad debt 150 By Balance o/d (Bal. fig) 7,200 52,500 3,500 Branch Cash A/e Rs. Rs. To Sales (Cash) 75,000| By Petty Cash 250 To Debtors 45,000] By Cash Purchases 12,500 By Creditors 45,000 By Furniture 2,000 By Remittance to H.O. (Bal-fig)} 60,250 1,20,000 1,20,000 Branch Petty Cash A/c [__ps. | Rs. ToBalance b/d 1,000 |By Expenses 250 ToCash (Bal. fig) 250 |By Balance cid 1,000 1,250 1,250 B. When goods are sent to branch at invoice price Illustration 6 ‘A Madras head office has a branch at Salem to which goods are invoiced at cost plus 20%. From the following particulars, prepare Branch A/c in the head office books: Goods sent to branch Total sales Cash sales Cash received ftom Branch debtors Branch debtors on 1-1-96 Branch stock on 1-1-96 Branch stock on 31-12-96 ‘Scanned with CamSeanner Rs, 2,11,872 2,06,400 1,16,400 88,000 24,000 7,680 13,440awe “er i? Solution: ve ce : head offic — esate Branch A/e for the year ended 31-12-96 : ~ a ae a yt eo 2 ain 7 oo : 7,680 Cash sales 1,10,400 | Debtors 24,000 | Cash received To Goods sent to branch 2,11,872 from debtors _ 88,000 | 1,98,400 To Stock reserve 2,240| By Stock reserve 1,280 (13,440 x 20/120) | (7,680 x 20/120) | | By Goods sent to branch: Loading (2,11,872 x 20/120) | 35,312 To Profit - transferred to By Balance c/d | IP& LAI 34,640 Stock 13,440 — | Debtors | 32,000 | T8050 | |2,80,432 Working Note: Calculation of closing debtors Branch Debtors A/e fo : ae | Rs. To Balance b/d 24,000 | By Cash | 88,000 To Sales-credit 96,000 | By Balance e/d (bal.fig) | 32,000 (2,06,400 - 1,10,400) 1,20,000 1,20,000 Illustration 7 Manian Ltd., of Calcutta has a branch at Patna. Goods are invoiced to the Patna branch, the selling price being cost plus 25% The Patna branch keeps its own sales ledger and transmits all cash received to Calcutta. All expenses are paid from Cale the Patna branch A/c for the year 1989, utta, From the following details prepare | Rs. Stock (1.1.89) (invoice price) | 1,250 Stock (31.12.89) (invoice price) | 1,300 Debtors (1.1.89) 700 Debtors (31.12.89) 900 Cash sales for the year 5,400 Credit sales for the year 3,500 Goods Invoiced from Calcutta 9,100 Rent 400 Wages | 340 Sundry expenses | gp [Madras, B.Com., Dee. 1982, Sep. 1990] ‘Scanned with CamSeannerBOoKs of Manian Ltd., Calcutta (H.0.) Patna Branch A/c < |__ Rs] 1580 Rs, c Fo Balancebid | By Bank: jan. Stock 1,250 | Cash Sales 5,400 Debtors | 700 Cash recei- To Goods sent to branch 9,100, | ved from To Bank: debtors 3,300] 8,700 Rent 400 | | Deel By Stock Reserve 250 Wages 340 | (1.250 x 25/128) Sundry expenses _80/ 820, Dec.31] By Goods sent to pec3l) To Stock Reserve | 300 | | Branch=loading | 1,820 (1.500 « 25/125) | | | (0,100 « 25/125) | | |To General P&L Ale | 1,000 Dec.31 By Balance c/d | (Profit) Stock 1,500 | | Debtors 900 | 13,170. 13,170 Working Note: Caleulation of Cash received from Debtors Branch Debtors A/c _ ieee eee i. 1.1.89 | To Balance b/d 700 | B | To Sales (Credit) | 3,500 | 31.12.89 By Balance c | | 420 | Mlustration 8 Naga of Trichy has a branch at Madras, Good: invoice price which is at the profit of 20% on cost price. All expenses of the branch are paid by head office. From the following Particulars, prepare branch account in the H.O. books, showing goods at invoice price, Is are sent by head office at Rs. Opening Balances: | Stock at invoice price: | 11,000 Debtors. | 1,700 Petty Cash -— 100 Goods sent to branch at invoice price 20,000 Expenses paid by H.O. Rent 600 Wages. 200 Salary 900 ‘Scanned with CamSeannerRemittance made to 1.0. 2,650 Cash Sales 21,000 Cash collected from debtors a | a Goods returned by branch at invoice price Balances at the end 13,000 Stock at invoice price 2000 Debtors 5 Cash Petty [Madras, B.Com., May 1982, Nov. 1984, Sep, 1995] Solution: In the Books of Naga, Trichy (H.O.) Madras Branch A/c 7 By Bank: bid * ae 11,000 Cash Sales 2,650 Debtors 1,700 Cash collected Petty Cash 100 from debtors 21,000 23,650 it to branch 20,000 | By Goods sent to branch 400 a (Returns to HO, To Bank: ) Rent: 600 By Stock Reserve Wages 200 (11,000 x 29/1 20) 1,833 Salary 900. 1,700) By Goods sent to branch 3,267 To Stock Reserve 2,167 — Loading (net) (13,000 x 20/120) (19,600 x 20/120) | To General P&L A/c 7,508} By Balance o/d (Profit) Stock 13,000 Debtors 2,000 Petty Cash 25 | Wars ais Mustration 9 FINAL ACCOUNTS SYSTEM ‘A Madras merchant has a branch at Pudukkottai to which oods are sent at Cost plus 25%, ‘ & : to ie hoa pe branch keeps its own sales ledger and remits all cash received ce every day. All ex i The transactions for the branch Were a fillowse ee ten ine ‘Stock (Li. 9ay att p————_Bs. Rs. Debtors (1.1.94) ee Cheques sent to branch: . Petty Cash (1.1.94) i Rent © Cash Sales oa Wages ao Salary ‘Scanned with CamSeannerCredit Sales 23,950 Stock (31.12.94) at LP. 13,000 Goods sent to branch at LP. 20,000) Debtors (31.12.94) 2,000 Goods returned to head office 300! Petty Cash (31.12.94) 125 Bad debts 300| (Including miscellaneous income Allowances to Customers 250 Rs. 25 not remitted) Retum Inwards - 500| Collection from debtors 21,000 Prepare the Branch Trading and Profit and Loss A/c and Branch A/e for the year 1994, [Madras, B.Com., Nov. 2005; B.C.S. April 2004; B.Com. May 1995; Bharathiar B.Com., Nov. 2004] Solution: Branch Trading and Profit & Loss A/c for the year ending 31.12.94 Rs, Rs. To Opening Stock (at cost) | 8,800 By Sales (11,000 ~ 2,200) Cash 2,650 To Goods sent to 16,000 Credit _23,950 Branch (at cost) 26,600 Less: Returns to H.O. 240 | 15,760] Less: Returns 500 | 26,100 (300 - 60) By Closing Stock (at cost) 10,400 To Wages 200 (13,000 — 2,600) To Gross profit c/d (bal.fig) | 11,740 36,500 36,500 To Bad debis 300 By Gross Profit b/d | 11,740 To Allowances 250 By Miscellaneous To Rent 600 income 25 To Salaries 900 To Net Profit c/d 9,715 /11,765 11,765 Branch A/e (Personal A/c) Rs. Rs. To Balance b/d | ByBank: Stock | 8,800 CashSales 2,650 Debtors | 100 Cash received Petty Cash | 100 from debtors 21,000 | 23,650 To Goods sent to branch at cost) 16,000 ByGoods sent to branch To Bank (expenses) | 1,700) at cost (return) 240 To Profit 9,715| ByBalance e/d 12,595 (10,400 + 2,000 + 125) : (Bal. figy 36,415 Pee 36,415 oo =o ‘Scanned with CamSeannerIllustration 10 Goods are invoiced by head office to its branch at Jaipur at cost ph lus 25Y the expenses of the branch are paid by head office. Branch iss ty Al a and sales ene Prepare Jaipur branch account and its trading and te and loss account for the year ended 31.12.91 from the following parti branch given below:- Sac Closing Stock (invoice price) Credit Sales Cash received from debtors Opening Stock (invoice price) Cash Sales Expenses of branch paid by head office Goods received from head office Debtors on 31.12.91 Rs, 13,500 30,750 28,425 18,000 13,125 7,800 22,500 6,870 Goods in transit from head office on 31.12.91 1,350 Solution: Branch Trading and Profit & Loss A/c for the year ended 31.12.91 Rs. Rs. To Opening Stock 14,400| By Sales: (18,000 - 3,600) Cash: 13,125 To Goods from H.O. 19,080} Credit 30,750 | 43,875 (23,850 - 4,770) By Closing Stock 10,800 Less: Cost of goods (13,500 - 2,700) in transit _ 1,080] 18,000 (1,350 - 270) To Gross Profit c/d 22,275 34,675 SATS To Expenses 7,800| By Gross Profit b/d 22,275 To Net Profit c/d 14,475 ue 22,275 22,275 Jaipur Branch A/c (Personal A/c) Rs. | Rs. To Balance b/d By Bank: Stock (18,000 —3,600) | 14,400 CashSales 13,125 Debtors. 4,545 Cash received en To Goods sent to branch | 19,080 from debtors 28,425 | 41 (22,500 + 1,350) - 4,770 ByGoods in transit 080 To Bank (Expenses) 7,800 (1350- 210) i pis To Profit 14,475 By Balance i . (13,500-2, S00) + 6.870 oe pao 60,300 60,300 ‘Scanned with CamSeannerWorking Note: I Calculation of Opening Debtors Branch Debtors A/c Rs. | fo Fppalance a ean 4,545 | By Cash | 28,425 qo Sales (Credit | 30,750 | By Balance c/d 6,870 295 | 35,295 2, Goods from Head Office = Goods received from H.O. + Goods in transit 23,850 = 22,500 + 1,350 ; WHOLESALE BRANCH SYSTEM Distinction between wholesale and retail profit at Branch [lustration 11 AHead office sends goods to its branch at 20% less than the list price. Goods are sold to customers at cost plus 100%. From the following particulars ascertain the profit made at the head office and the branch on wholesale basis. Head office Branch Rs. Rs, Purchases 2,00,000 - Goods sent to branch (invoice price) 80,000 Sales 1,70,000 80,000 [Madras, B.Com., Nov. 1983, Sep. 1993; Periyar, B.Com. April/May 2001 (10 times); Bangalore, B.Com. 1993; Bharathiar, B.Com. April 1997] Solution: Trading and Profit & Loss A/c H.O.{ Branch H.O.| Branch Rs. | Rs. | Rs. Rs. To Purchases 2,00,000 —| By Sales 1,70,000| 80,000 To Goods received By Goods sent to from H.O. —| 80,000 branch 80,000 - To Gross Profit c/d By Closing stock 65,000 16,000 E 10 | 96,000 To Stock Reserve sam —| By Gross Profit b/d “16,000 (Closing stock) 60 ) | (1.000 Teo To Net Profit c/d | 1,09,000] 16,000 1,15,000] 16,009 eee eer |-——. 16,000 1,15,000] 16,000 ‘Scanned with CamSeannerWorking No! Calculation of Closing Stock Rs. Rs, Value of Closing Stock at H.O. Purchase 2,00,000 Less: Cost of goods sold 1,70,000 | -—— «100 ( 300 85,000 Less: Cost of Goods sent to Branch 50,000 1,35,000 (am 7 100) 160 Closing Stock 65,000 Value of closing Stock at Branch: “~ Goods received from H.O. 80,000 Less: Cost of goods sold 64,000 80,000 ) —— x 160 ( 200 * Closing Stock 16,000 Note: H.O. Cost Price Whole sale Rate List Price 100 i.e. Rate at which 200 (100+100) Goods supplied to branch 160(200-200 x 20%) Illustration 12 A Head Office sends goods to its branch at 25% less than the list price. Goods are sold to customers at Cost plus 60%, From the following particulars ascertain the profit made by the head office and by the branch. Head Office | Branch Rs. Rs. Opening Stock at Cost 50,0007 30,000 (at invoice Price in case of branch) | Purchases 1,50,000 - Goods sent to branch 1,08,000 | 7 Sales 1,60,000 80,000 Expenses 10,000 6,000 [Madras, B.Com.,Sep. 1990] ‘Scanned with CamSeannerHrading and Profit & Loss A/e atom # H.O. Branch H.O.| Branch Rs. Rs, Rs. Rs. 50,000 | 30,000 | By Sales 1,60,000 | 80,000 1,30,000 — By Goods sent to | 108,000 - Branch 1,08,000 | By Closing Stock 10,000 78,000 20,000 138,000 6,000 By Gross Profit b/d’ 78,000 20,000 By Stock Reserve | 5,000 - (Opening Stock) | | 20) | (30.000, 22) \ 120. 60.000 14,000 | | 83,000 20,000 83,000 20,000 Supplied to branch List Price (wholesale rate) 160 (100+60) 120(160—160 x 259%) Rs | Rs. of value of closing stock of H.O. i Opening Stock | , 30.000 buries 1,50,000 7,00,000 (1,60.000 | Less: Costof goods sold | — «0 | | Less: Cost of goods sent to branch | 108,000 90,000 | 1.90,000 ——_ | 0005 Closing Stock — Calculation of value ofelasing stockat Branch = ing Stock : Coots taied from head office 1,08,000 | 1,38,000 (si 900. 20) | 60,000 Less: Cast of goods sold |G ag i ! | 78000 Closing stock ~ ‘Scanned with CamSeannerwwii” eank E Stock Reserve on Stock of Branch it 30,000 as On Opening stock: 120 5.000 78,000 «Y On Closing stock: 120 13,000 STOCK AND DEBTORSYSTEM (a) When goods are sent at cost price Illustration 13 The Calcutta Commercial Company invoiced goods to its Jamshedpur Branch at cost. The Head office paid all the branch expenses from its bank except pet cash expenses which were paid by the branch. From the following details rel lating to the Branch, prepare, (1) Branch Stock A/e (2) Branch Debtors A/c (3) Branch Expenses A/c (4) Branch P & L Ale pare _ Rs. - 7 ___Rs, Stock (Opening) « 21,000) Discount to customers 4200 Debtors (Opening) 37,800] Bad debts 1.800 Petty Cash (Opening) 600} Goods returned by Goods sent from H.O. 78,000 customers to branch 1,500 Goods returned to HO. 3,000] Salaries & Wages 18,600 Cash Sales 52,500] Rent & Rates 3,600 Advertisement 2400) Debtors (Closing) 29,400 Cash reevived from debtors 85,500) Petty Cash (Closing) 300 Stock (Closing) 19,500} Credit Sales 85200 Allowances to customers 00 ell (Madras, B.Com., March 1989] Branch Stock A/e | Rs. Be See To Balance b/d 21,00 sh 7] 0 To Goods sent to branch | 78.000 ® Goods sent to Branch | a Team Pot Lae | f2 8 Blah Debows|Sam mero & Los Ale | 59.700 By Balance el | 19.500 1 1,60,200 ‘Scanned with CamSeannerRs, oe. 37,800 |By Cash ~~ nee bid : Y Cas! 85,500 stock Ac 85,200 | By Branch expenses 6,600 50 (Credit sales) [bad debts, allowances, discount] By Branch Stock (Returns) 1,500 By Balance c/d 29,400 1,23,000 1,23,000 Branch Expenses A/e a. Rs, Rs. rd Branch Debtors A/c 6,600 | By Branch P&L Ale 31,500 qonank (Advt. , Salaries & (transfer) Wages, Rent & Rates)| 24,600 qo Petty expenses (600-300) 300 31,500 31,500 Branch Profit & Loss A/e 4 Rs, - Rs, ToBranch Expenses Ale 31,500 | By Branch Stock A/e 59,700 To General P&L A/c (Profit) 28,200. (Bal. fig) 59,700 Illustration 14 Ahead office at Bhopal invoices goods to its branch at Indoor at cost, and the branch sells the goods not only for cash but on credit also. The expenses of thebranch are paid by the head office, From the following particulars relating to ‘he branch opened on 1-1- 1996, prepare the necessary accounts under stock and tkbtors system in the head office books. oe ee OS Rs, Goods sent to branch at cost 5,000 | Credit sales 5,200 Goods returned by the Discount allowed to customers 180 branch at cost 300 | Cash sales 250 Expenses paid by the head office 1,000 Branch stock (31-12-96) 1,700 Remittance from branch 4,200 | Branch debtors (31-12-96) 770 Receipts from debtors not paid i in by branch 300 | \ : Nov. 2004; Periyar B.Com., May 2006 ~ Figg) (Madras, B.Com. Jo ‘Scanned with CamSeannerSolution: rs Branch Stock A/e Rs. | To Goods sent to branch To Branch Profit & Loss A/c 5,000 | By Goods retuned to HO a ~ 2,450 | By Cash — cash sales ' 2 (Surplus) (Bal. fig) By Branch debtors - Credit sales 3, percentage of growth, return on investment etc. f 7 7 ‘Scanned with CamSeanner(iii) Appraisal of personnel: Individuals sed. This is useful ie eee eal decline in performance can be identified. This is useful in implemen (iv) pamee ice x: Areas of poor performance can be identi implementing remedial measures. If situation warrants decisions i discontinue some products or closing a See e taken Accurately, (v)_ Expansion and Diversification: Decisions to expand and diversify Profitabje lines of business become easier. a : : (vi) Policy formulation: Management policies towards inventories, extending credit, additional investment etc., are facilitated. Distinction between departments and branches 1. Lecation: All the departments are located within asingle premises, Branches are located in different geographical areas, physically separated from the head office and one another. 2. Growth: Departments are confined to local business and can grow vertically within the same roof. Branches cater to a wider market and can expand and grow geographically. 3. Accounting: All the accounting records are centralised and maintained within the same premises for all the departments. Branches keep records of their operations separately. The head office consolidates the accounts of all the branches. fied for 4. International operations: Departments are confined toa single place unless similar organisations are opened elsewhere, 7 Branches can be started anywhere in the worl branches, Methods and Techniques of Departmental Accounting (i) When accounts are finalised, departmental trading and profit and loss account is prepared in columnar form to find gross profit and net profit of each department. Id. So, there can be local and foreign A general profit and loss account is also prepared t or loss of the firm. The balances ton aid oe Hen a : ¢ sheet is common and s| ition of the business as a whole. a (ii) Maintenance of Records department, Closing sto. taking. The following lepartments, Purchases, wages etc. of each Parately ascertained at the time of stock sales book with columns for different ‘Scanned with CamSeanner is the ModelAPPORTIONMENT OF COMMON EXPENSES stration 1 2 te leoiniea js the Trial Balance of Mr. Rajan as on 31-1 ao Capital A/e 1 500 4600~ Drawings heh Dept. A 8 500 ing Stocl : . Opening Sto Dept. B 5.700 : Dept. C 1,200 2 : Dept. A 22,000 g ne Dept. B 17,000 : Dept.C 8,000 é Sales Dept. A - 54,000 Dept. B - 33,000 Dept.C - 21,000 Sales Returns Dept. A 4,000 i Dept. B 3,000 - Dept.C 1,000 | - Freight and Carriage Dept. A 1,400 - Dept.B 800 - Dept. C 200 - Wages Dept. A 800 Dept.B 550 Dept. C 150 Fumiture & fixtures 4,600 Plant and Machinery 20,000 Bills Receivable 4,200 z Bills payable - | 8,000 Motor vehicles 40,000 | - Sundry Debtors 8,000 - Sundry Creditors 7 7,000 Salaries 4,500 Power and Water 1,200 : Telephone charges 2,100 ie Bad debts "750 : Rent and Taxes 6,000 : Insurance 1 500 : Printing and Stationery 2,000 Advertising 31500 2 Bank overdraft . 12,000 Cash in hand 850 : 5000 75,000 : 1,75,000 TBO ac te acetal Trading and Profit and Loss A/e and the Balanc® sheet ik: following adjustments: ilies ‘Scanned with CamSeannera) Outstanding Wages Dept.B = Rs.150 Dept. € 50 b) Salaries payable = Rs. 500 c) Depreciate plant & machinery and motor vehicles @ 10% d) Create a Reserve of 5% for bad and doubtful debts. e) Each Department shall share the expenses in proportion to their sales. f) Closing stock: Dept. A =Rs. 3,500 Dept. B =Rs. 2,000 Dept.C =Rs. 1,500 [Madras, B.Com., March 1994; Manonmaniyam, B.Com., Nov. 1994] Solution: Departmental Trading A/e of Mr. Rajan for the year ending 31-12-92 Bl] c A Bete i El | Rs | Rs. | Rs. |_Rs. |_Rs._ To Opening stock 5,700| 1,200] By Sales | 4,000] 33,000] 21,000 To Purchases —_|22,000/ 17,000} 8,000] Less: Sales | To Freight Returns | 4,000| 3,000| 1,000 To Wages & Carriage 1,400 800) 200] NetSales {50,000 au 20,000 Add: Wages due 800 700) 200 By Closing} stock | 3,500] 2,000 1,500 To power & water {sales ratio= 5:3:2]| 600) 360] 240 To Gross profit c/d |20,200) 7,440] 11,660 [53,500 | 32,000/31,500 33,306 32,000 21,500 Departmental Profit & Loss A/c of Mr, Rajan for the year ending 31-12-92 ] a] Bl c A | Bic | Rs. |_Rs.|_Rs. |_Rs. | Rs. | Rs. To Salaries (5,000) By Gross | | | (including due) 2,500} 1,500] 1,000 profit |20,200| 7,440| 11,660 ‘ToTelephone charges | 1,050] 630] "420 To Bad debts 375| 225| 150 To Rent & taxes 3,000] 1,800] 1,200 To Insurance 750) -450| "300 | ‘To Printing & |. Stationery | 1,000] 600] 400 | To Advertising 1,750] 1,050] 700 To Depreciation: | On Plant & Machinery, 1,000] 600/400 | On Motor vehicles | 2,000] 1,200} 800 To Provision for Debtors | "200/120 80 | To Net profit 6,575 6,210|By Net loss; -|_ 735] = eeeeeet [20,200 8,175] 11,660 20,200 | 8.175{11,660 Note: All expenses are divided in Sales Ratio, tt . as per instruction given. Sales Ratio = A~Rs, 50,000, B- Rs. 30,000, C — Re. 20,000 or $ ‘Scanned with CamScannerro —_— **V 0} Balance Sheet of Mr. Rajan as on 31-12-92 —ating Liabilities Re oe ee Fixture & Furniture ital 40,000 . 4,605 peas ae 1,500. 38,500) Plant & Machinery 20,999 Less:10% Depreciation 2,999 18,000 Add: Net profit (6,575+6,210) 12,785 Motor vehicle 49,999) 31,285 Less:10% Depreciation 4,099 36,009 Less: Net loss (Dept. B) 735|50,550| Bills receivable 4200 Sundry Debtors 8,000 Salary due bio , Outstanding wages Less: 5% provision 400] 7,609 1.B 150 Cash in hand 7 as Dent c 50 200] Stock: Bills payable 8,000 Dept. A 3,500 Sundry Creditors 7,000 Dept. B 2,000) Bank overdraft | 12,000 Dept.C 1,500 7,000 [78,250 78350 Iustration 2 The proprietor of a large retail store wished to ascertain approximately the net profit of the X, Y and Z departments separately for the three months ended 31st March 1996, It is found i i impracticable actually to take stock on that date, but an artmental accounting is in use, and the normal rates of ¢ departments concerned are respectively 40%, 30% and fe charging the direct expenses, The indirect expenses are charged in Proportion to departmental turnover, The following ate the figures for the departments: ee Y | Zz : Rs. | Rs. | Opening stock (1-1.96) 10.000 | ~~ 14000 | Purchases 12000 | 13.500 | Sales 20000 | 18009 Direct, expenses, 2,000 | 1,500 The total indirect ex] ‘penses for the per 400 on the total t lent showing the appro; Partment on the estim: departments) were Rs, 5, Prepare a statem 0F 10% for each de Tiod (including those relating to othet “mover of Rs, 1,08,000. rcimate net profit, making astock reser ated value on 31.3.96, (Madras, B.Com., April 2005] bi... ‘Scanned with CamSeannerpepartmental Aceounting Ae ee sol : Departmental Trading & Profit & Loss A/c for three months ended 3 | x Y ] , x] ¥ Z Rs. | Rs. | ks | Rs, | Rs. opening stock | 10,000) 14,000) 7,000] By Sates 20,090} 18,000 | 16,000 qo Prehses 12,000] 13,500] 9,700) By Closing fo.00 1.500 3,900 fo Gross profit c/d | 8,000] 5,400) 3,200 Stock (bal. fig) | 5 30,000 19.900 |30,000| ate 19,900 ToDirect expenses | 2,000) 1,500) 700| By Gross profi 8.009 5,400] 3,200 Tolndirect expenses) 1,000} 900 800 | tpsStock reserve 1,000] 1,490) 390 | @10% | Jo Net profit 4,000] 1,510] 1,310 a (bal-fig) Se 8,006) 5,400 3,200 Note: (1) Indirect expenses applicable to the three departments: 54,000 1,08,000 (2) Direct expenses are not shown in Trading A/c because rates of gross profit given are before charging the direct expenses. Mlustration 3 Trading and profit & loss account of Janaki Radio and Gramophone Equipment Co., for the six months ended 31-3-93 is presented to you in the following form. | 8,000] 3,400[ 3,200) %5.400= Rs, 2,700 to be apportioned in the ratio of 10:9: 8 Purchases Ree Sila ~ Radios (A) 1,40,700 Radios (A) 1,50,000 Gramophones (B) 90,600 | Gramaphones (B) 1,00,000 Spare parts (C) ©4400 | Spare parts (C) 25,000 Salaries and wages 48,000 | Stock as on 31-3-93 Rent 10,800 Radios (A) 60,100 Sundry Expenses 11,000 Gramophones(B) 20,300 Profit 34500 | Spare paris (C) 44,600 4,00,000 00,000 | Prepare Departmental Accounts for each of the three departments, A;B and C mentioned above after taking into account the following: § Radios and Gramophones are sold at the show foom and spare parts at work shop. Gi) Salaries and Wages comprise as follows: S 3 il Showrooms “and work shop — It was decided to allocate the show room salaries and wages in the ratio of | : 2 between the departments A and B. Ce - ‘Scanned with CamScannera ao The rent of show room is k sl is Rs. 500 per month, The an aeee eae ae jaca the departments A and B. vi ral z 7 - oe are to be allocated on the basis of the turnover of each (iv) Sundry expenses a Sera Madras, B.CA/B.Se. Oct 2003; B.Com, Oct. 2002 April 2001, Oct. 1998; May 1996) Solution: ee and wages are to be allocated first between show room 3/4 i.e i) Sa Rs. 36,000; workshop 1/4 ie., Rs.12,000. Work shop salaries are to be charged Dept. *C’. : iD) Since Ratio and Gramophones are sold at show room, salaries are to beallocated i to Dept. ‘A’ and Dept. ‘B’ respectively in the ratio of | ; 2 2 = 36,000 x = 12,000, 36,000 x 3 = 24,000 Gii)_Rent of workshop at Rs. 500 p.m. for six months, Rs.3,000 is to be charged to Dept. ‘C’ first and the balance Rs.7,800 is to be divided equally between Dept. “A’ and ‘B’. : (iv) Tumover Ratio = 1,50,000 : 1,00,000 : 25,000 = 6:4: 1 Departmental Trading and P & L A/c for the six months ending 31-3-93 A Bc A | B € [Rs | Rs | Rs. Rs, | Rs, | Rs. To Purchases |1,40,700] 90,600] 64,400|By Sales | 1,50,000|1,00,0001 25,000 To Gross 69,400, 29,700] 5,200 [By Closing profit cfd | stock 60,100] 20,300) 44,600 2,10,100|1,20,300 69,600, 2,10,100|1,20,300) 69,600 To Salaries | | & wages | 12,000 24,000] 12,000|By Gross | To Rent 3,900 3,900) 3,000] profit b/d | 69,4001 29,700] 5,200 To Sundry | By Net loss exp. (6:4:1)| 6,000, 4,000! 1,000 (Departmental) -| 2,200) 10,800 To Net profit | 47,500 4 di eee (Departmental) | a_ara0 Te Gaol 31-900) 6,000 General Profit & Loss Alc for the six months e Rs, To P & LAse (Dept. ‘B’) 2,200 To P & L Ale (Dept. ‘C”) 10,800 To Profit (to be transferred 34,500 to Balance Sheet) nding 31-3-93 Rs. By P&L Ave (Dept. *A’) | 47,500 | 47300 a0 ‘Scanned with CamScannerdil eee et iustration 4 The ents. cepa Dept.A — 1,000 units : Dept.B - 2,000 units Dept.C - 2,400 units Stocks on Ist January were: Dept.A — 120 units Dept.B -— 80units Dept.C - 152 units Sales were: Dept.A ~ Dept.B — Dept.C - eeet OF departmental purchases following purchases were made by a business house having three ata total cost of Rs. 1,00,000 1020 units at Rs. 20 each 1920 units at Rs.22.50 each 2496 units at Rs.25 each ‘The rate of gross profit is same in each case. Prepare Departmental trading account. (Madras, B.Com., B.Com.(CS)(ICE) Oct. 2008; B.Com., April 2007; B.Com. (PZIA) Nov. 2006; (PZA) Nov. 2006; BCA/B.Sc. Nov. 2006; B.Com, BBA etc. Ap 2007; Thiruvalluvar, B.C.A. April 2005; Madras, B.Com, April 2006; Nov. 2005; B.B.M, Oct. 2004] Solution: Departmental Trading A/e Particulars A B] C Particulars) A | B | C Rs.|__Rs. as. | | Rs. | Rs. | Rs. ToOpening Stock | 1,920] 1,440] 3,040] By Sales 20,400] 43,200] 62.400 To Purchases 16,000 36,000) 48,000) By Closing | To Gross profit stock | 1,600! 2,880 1,120 (Bal. fig) 4,080! 8,640/ 12,480) 22,000 | 46,080 | 63,520) [22,000] 46.080. 63: Working Notes: (1) Caleulation of closing stock (in units) Opening stock + Purchase — sales Dept. A: 120 + 1,000 - 1,020 Dept. B: 80 + 2,000 - 1,920 Dept. C: 152 + 2,400 - 2,496 (2) Calculation of rate of' ‘gross profil. = closing stock = 100 units 160 units = 56 units |n order to determine the rate of gross profit, it is assumed that all the units Putchase have been sold away. Then the sale proceeds would be: Dept. A = 1,000 units x 20 = 20,000. Dept. B= 2,000 units x 22.50 = 45,000 leas Ty Dept. C = 2,400 units x 25 = 60,000 z000 * Total cost of goods purchased 1,00,000 25,000 Gross profit i. ‘Scanned with CamScannerSE EEE Eee eee eee oS forties eee 1002 20% Rate of gross profit on selling price ,25,000 (-. cost = 80% of selling Price) (3) Cost price of each unit: 80 i Dept. A = 20x55 = 16 80. Dept. B =2250x7>> = 18 80 a Dept. C = 25% 555 = 20 (4) Purchase of each department: Dept. A. = 1,000 units x 16 = 16,000 Dept. B- = 2,000 units x 18 = 36,000 Dept. C= 2,400 units x 20 = 48,000 (8) Sale proceeds of each department: Dept. A = 1,020 units x20 = 20,400 Dept. B= 1,920 units x 22.50 = 43,200 Dept. C= 2,496 units x 25 = 62,400 (6) Value of opening stock at cost: Dept. A = 120 units x 16 = 1,920 Dept. B= 80 units x 18 = 1,440 Dept. C= 152 units x 20 = 3,040 (7) Value of closing stock at cost Dept. A = 100 units x16 = 1,600 Dept. B= 160 units x 18 = 2,880 Dept. C= 56 units x29 = 1,120 Inter-departmental transfer at cost price Mlustration 5 ‘hotel proprctorhas two departments vi, Apartment Department and Meals Department. Following is the trial balanee of his business, ‘Scanned with CamSeannerDepartmental Accounting : 17.13 Debit | Rs. Credit | Rs. Provisions PEE 15,500 | Income from apartment & Stocks of provisions in attendence‘department 46,000 : the beginning 1,020 | Income from meals Cash in hand and at bank 10,000 department 32,000 Customers’ debit balance 800 | Capital 2,20,000 Buildings (1/10 th used Suppliers A/c 9,800 for! meals department) 2,10,000 | Provision for depreciation Furniture and equipment 60,000 onbuilding | 24,000 General expenses 27,410 | Interest | 1130 Interest accrued | Life Insurance 1,600 | Income tax 400 Wages 6,000 332,930 3,32,930 Additional Information: (a) The servants in the Apartment Dept. had occupied a room worth Rs.120 and took meals worth Rs.60. Similarly, servants in the Meals Dept. had occupied a room worth Rs.150 and took meals worth Rs.90. (b) Wages are charged in the proportion of 1/2 to the Apartment Dept. 1/4 th to the Provision Dept. and remaining to the general P & L A/c, (c) Increase provision for depreciation of buildings to Rs.30,000. (4) Asum of Rs.800 representing accommodation Rs.240 and meals Rs.560 to be charged to proprietor of the hotel. You are required to prepare profit & loss A/c and Balance Sheet as on 31.3.92. [Madras, BCA / BCS, April 2001, April 2000; B.Com., Sep. 1986] Solution: Departmental Profit & Loss A/c for the year ending 31-3-92 | Apartment | Meals Apartment | Meals Rs. Rs. Rs. Rs. To Stock - | 1,020) By Income 46,000 | 32,000 To Provisions — | 15,500 | By Proprietor's A/c’ To Depreciation (Drawings)) 240 560 on buildings | 5,400 600 | By Inter-dept. To Wages 3,000 | 1,500 adjustment 270 150 To Inter-dept. adjustment 180 240 To Net Profit e/d (Departmental) | 37,930 | 13,850 | Gesi0 | 32710 46,510 | 32,710 ‘Scanned with CamScanner—_ng General P & LA/e Rs, ‘To Wages 1,500 | By Net profit b/d To General Expenses 27,410 Apartment 37,939 To Net profit c/d 24,000 Meals 13.859 By Interest 1,130 52,910 52,910 Balance Sheet as on 31-3-92 Liabilities [Rs Assets LR. Capital 2,20,000 | Buildings 7 210,000 Less: Drawings: | ; Incometax 400 Furniture & Equipment 60,000 Premium — 1,600 | Customers A/e | 300 Meals 560 Interest accrued 200 Apartment 240 2,800 Cash in hand & at bank 10,000 217,200, Add: Net profit 24,000| 2.41,200 | | * Suppliers A/c 9,800 | Provision for Depreciation 30,000 2,81,000 | 281,000 Note: Provision for depreciation can also be reduced from buildings. Working Notes: Apartment | Meals | Total Dept._| Dept. | expenses (i) Expenses on Servants in. §=§ — apartment dept, 120 60 180 (for apartment dept.) (ii) Expenses on Servants in Meals dept. 150 90 240 (for meals dept.) Total income 20 | BHO | Illustration 6 From the following information, prepare departmental trading and profit & loss A/e ina columnar form of the three departments of Sharma Dry Cleaners Lid. | Dry cleaning | Daming Stock Ist Jan, 1996 4,00,000 340,000 =| 9,40,000 Stock 31stDee. 1996 | 330,000 438,000 8,17,000 Purchases 19,59,000 697,000 13,73,000 Sales 40,00,000 20,00,000 40,00,000 Wages 7.28,000 3,00,000 2,46,000 ‘Scanned with CamSeanner— Goods were transferred from one department to another at cost price as follows: @ Darning to dry cleaning Rs. 2,400 and to dyeing Rs. 40.200. @ Dyeing to dry cleaning Rs. 25,800 and to darning Rs. | 8,000. (i) Dry cleaning to darning Rs. 3,000 and to dyeing Rs. 24,000. Apportion equally: Stationery Postage General expenses Insurance Depreciation Rent & taxes Rs. 1,80,000 is to be split in proportion to space occupied. i.e., ay cleaning 4, darning 2, dyeing 2 and other space 2. [Bharathidasan, B.Com., Nov. 2002; S.V. Univ. B.Com, adapted] Solution: Rs. 5,418 Rs. 4,050 Rs. 2,37,618 Rs. 10,080 Rs. 32, 598 Sharma Dry Cleaners Ltd. Departmental Trading & P & L A/c for the year ended 31-12-1996 Dry |Darning | Dyeing Dry | Darning| Dyeing Cleaning Cleaning | | Rs. Rs | Rs. Rs. Rs | Rs To Opening | | Stock | 4,00,000| 3,40,000/ 9,40,000| By Sales | 40,00,000 |20,00,000 |40,00,000 To Purchases |19,59,000| 6,97,000/13,73,000| By Inter- | To Inter-dept | 28,200] 21,000| 64,200, dept, 27,000] 42,600| 43,800 transfers transfers | To Wages _|.7,28,000| 3,00,000/ 2,46,000| By Closing 3,30,000/ 4,38,000| 8,17,000 To Gross 12,41,800]11,22,600|22,37,600 stock, | | profit od | | | 43,57,000 |24,80,600|48,60,800) '43,57,000 |24,80,600 |48,60,800 To Stationery | 1,806] 1,806) 1,806] By Gross |12,41,800 11,22,600 22,37,600 To Postage 1,350] 1,350] 1,350) profit bd) ToGeneral exp] 79,206] 79,206 79,206| Tolnsurance | 3,360] 3,360] 3,360] | 4 10,866] 10,866] 10,866 | Tig ee 72,000} 36,000] 36,000 it ]10,73,212| 9,90,01221,05,012 12,41,800| 11,22,600|22,37,600] 12,41,800 |! 1,22,600 22,37,600 ‘Scanned with CamSeannerLt laa emma ala aoa lL aac | IMustration 7 Joth and readymade gi A firm had two departments, clot d arments, ae by the firm itself out of cloth supplied by the cloth depan, ex tastal selling price. From the following figures, prepare departm aig profit and loss atcount for the year ended 31-3-94, ang Cloth | nt ental tradi Readymade dep, Rs Rs. | ——E So A Opening stock on 1-4-93 3,00,000 | 30007 —~ Purchases 20,00,000 15000 Sales 22,00,000 450, (Sransfer to readymade garments dept. 3,00,000 ~ Expefises — manufacturing | = 60,000 ~ selling | 20,000 6000 Stock 31-3-94 | 200,000 | 60,000 The stock in the readymade garments department may be considerad a: consisting of,75% cloth and 25% other expenses. The cloth department eared gross profit @ 15% in 1992-93. General expenses of the business as a whole came toRs.1.10,000. Sepang seve (Madras, B.Com. B.Com.(CS) etc. April 2008; B.Com., B.B.A. ete. Nov. 2006; B.Com., Ap 2005; Nov. 2003; April 2002; BCA/B.Sc. Oct. 2001; May 2001 (ICE Solution: Ss To Purchases To Transfer from Departmental Trading and Profit & Loss A/c for the year ending 31-3-94 : ‘| Cloth ~ feadimade Cloth Readmade : po BS | RS aj Be To Opening stock | 00,000, 50,000 22,00, 4,50,000 | 5 20,00,000 15,000 |By Transfer to readymade dept. | 3,00,000) Cloth dept. | — | 3,00,000 |By Closing stock~ | 2,00,000 60,000 To Manufacturing Se expenses - | 60,000 To Gross profit c/d [Departmental] | 4,00,000| 85,000 27,00,000| 5,10,000 20,000] ~~ 6,000 To Selling expenses To Net profit e/d [Departmental] | By Gross profit b/d) 4,00,000| 85,000 Rs. | 4.5900 1,10,000 ) By Net profit b/d i (3,80,000+79,000) By Stock Reserve (opening) (50,000 x 75% x 15%) ‘To General expenses To Stock reserve (closing) (6,000 x 75% x 16%) 7,200 To Net profit (bal.fig) 3,47,425 464,625 ‘Scanned with CamSeannereee Working Notes: stock Reserve has been calculated as follows: 4,00,000 pate of Gross profit on sales of cloth department = 25,00,000 x 100 = 16% Element of cloth in closing stock of readymade garments = 60,000 x 75% = 45,000 Reserve required for unrealised profit in closing stock = 45,000 x 16% = Rs. 7,200 Reserve already existing in opening stock = 50,000 x 75% x 15% = 5,625 Mlustration 8 Modern Company has two departments X and Y. Department X sells goods to Y department at normal market price. From the following particulars, prepare departmental trading and profit & loss account for the year ended 31-12-1996. Department X | Department ¥ | General total Rs. Reee| Rs. Stockon 1-1-96 “15,000 eee - Purchases 2,50,090 40,000 7 Goods from department X = 40,000 7 Wages 15,000 20,000 - Salaries (departmental) 7,000 5,000 - Closing stock at cost to the department 80,000 20,000 = Sales 2,60,000 1,45,000 - Printing & Stationery 2500 1,500 | . Machinery - 15,000 - Advertisement - . | 12,000 Salaties (general) - 7 18,000 Depreciate machinery by 10%. The general unallocated expenses are to be @pportioned in the ratio of 2:1 to the departments X and Y. Half of the closing Stock of department Y represents goods received from department X. (Madras, B.Com.(AF5C) Nov. 2008, B.Com.(PZA) Nov. 2007] [CWA Inter] ‘Scanned with CamSeannerSolution: Departmental Trading & P&L AJe for the year ended 31-12-96 ing On Total ] ] et ric Rs|_Rs_| Rs. | eos __Rs__- i | _Rs.| Rs, To Opening Stock | 15,000) =| 15,000) By Sales [som vasa ool age i To Purchases __[2,50,000) 404 000/2,90 0) By Transfer To Transfer from to baa 40,000; | department X =| 40,000 | To Wages 15,000} 20,000) 35,! 00! By Closing | | To Gross profit e/d |1,00,000) 65, (000 165.000 stock | 80,000| 20,000)1,00,000 ee pecan ee 80,000|1,65,000 5,05,000) | 3,80,000] 165,000) 5,05,000 ra ee | ‘eres To Salaries 19,000} 11,000, 30, 000) By Gross To Printing & ae rot bi 1,00,000| 65,00011,65,000 Stationery 2,300} 1,500] 4,000 To Advertisement | 8,000) 4,000) 12,000 | ‘To Depreciation | ‘on machinery -| 1,500] 1,500) To Net profit 70,500} 47,000 1,17,500| [Departmental] |_| _____§___ | -sepaat esnooTe 7,00,000] 65,000]1,65,000 |1,00,000] 65,0001,65,000 General PEL A a Rs. | | Rs. To Stock reserve 3,333 | By Departmental net profit | To Net profit (bal-fig) | 1,14,167 X 70,500 | } Y 47,000 | = |e "7,500 | Working Notes: (i) Salaries: Department X | Department Y Rs. Rs. Departmental, 7,000 | 5.000 General (2:1) 12,000 | $000 eoatoeee ce 19,000 | T1000 (ii) Calculation of provision for unrealised Profit on closing stock (i.e., stock reserve) 10,000 Rate of gross profit in X department = 229% ,. 199 =334% ariment = 3 99.999 * 10-3937" Goods from X department in the stock of department Y = 20,000 x += Rs. 10,000 Stock reserve = 10,000 x 33-49% = Rs. 3 ‘Scanned with CamSeannerUNIT- IL Hire Purchase and Instalment Purchase Systems Hire purchase and instalment systems are responsible for bringing high value durable goods like cars, Televisions into the reach of middle class and lower middle class people. These systems have revolutionised the world of commerce, Hire Purchase System Definition: According to the Hire Purchase Act 1972 Section 2 (c) “ Hire purchase agreement is‘an agreement under which goods are let on hire and under which the hirer has an option to purchase them in accordance with the terms of the agreement and includes an agreement under which (i) Possession of goods is delivered by the owner thereof to a person on condition that such person pays the agreed amount in periodical instalments. (i) The property in the goods is to pass to such person on the payment of the last of such instalments. Gii) Such person has a right to terminate the agreement at any time before the property so passes. As Per Section 4 of the Hire Purchase Act 1972, every hire purchase agreement must state: (a) The hire purchase price of the goods to which the agreement relates. (b) The cash price of the goods, that is to say, the price at which the goods may be purchased by the hirer for cash. (c) The date on which the agreement shall be deemed to have commenced. (@) The number of instalments by which the hire purchase price is to be paid, the amount of each of those instalments and the date or the mode of determining the date, upon which it is payable and the person [0 whom and the place where it is payable. (e) The goods to which the agreement relates, the manner sufficient (© identify them. Some important terms in the hire purchase system 7 1. Cash price: This is the retail price of the articles at which they can be PY" chased immediately for cash. ‘Scanned with CamSeannerHire purchase price: This is the total amount payable by the buyer, in agreed stalments for the goods purchased. This price includes cash price and interest. Interest: This is the additional amount apart from the cash price payable by ¢ buyer 8s Compensation for postponed payments. Hire or Instalment: This is the amount payable by the buyer periodically. The ysalments may be equal or different, depending on agreement. | Down payment: This is the advance payable by the buyer while signing the jim purchase agreement. It is also a part of the hire purchase price. Hirer: The buyer of the goods on hire purchase basis. }, Hire vendor or owner: The seller of the goods on hire purchase basis. Main features of Hire purchase system. i, The hirer or buyer gets possession of the goods on signing the hire purchase agreement and he has the right to use them. 2. The ownership of the goods continues to be with the seller or hire vendor. The buyer gets ownership of the goods on payment of the last instalment. The hirer has the duty to keep the goods in good condition and take reasonable precautions for their safety till the last instalment is paid. » Each instalment is treated as hire charges. we The hirer has the option to return the goods before the last instalment is paid. rm The hire vendor can repossess the goods if the buyer fails to pay any instalment on the due date. However, permission of the court is needed for repossession, depending on the value of the goods and number of instalments paid. ~_ If goods are repossessed, the value of goods on that date and the instalments paid are added and the total hire purchase price is reduced. The balance is payable by the hire vendor to the hirer. Instalment purchase system or deferred instalment ‘system: In instalment purchase system also, an agreement is entered into by the seller and buyer. An advance or down payment is paid and possession as well as ownership in the goods is transferred to the buyer. The buyer agrees to pay the balance of amount due in a specified number of instalments along with agreed Tate of interest. If buyer fails to pay any instalment, the seller cannot repossess the goods. He can sue the buyer in a court for recovery of the dues. ‘Scanned with CamSeannerFinancial Accounting wy emi purchase and Instalment Systems Distinction between Hire Hire purchase System Instalment System It is an agreement of sale, ature of | isan agement ofl ing 8 agreement option 10 buy. 2, | Transfer of ‘ownership is transferred on Ownership is transferred on © | ownership payment of final instalment. signing of the agreement. 3, | Names of the} The buyers called Hirer and The panies involved are called “| parties seller as Owner or Hire vendor. | yer and seller. i ionship of hit i Jationship between the bi i ‘The relationship of hirer and hire The rel p 7 4, | Relationship) aris that of Bailor and Balee and seller is that of a debtor and creditor till last instalment is paid. sible for | The buyer is responsible for loss ‘The Hirer is not respon | goods because he is the owner. any loss of the goods if he has taken reasonable precautions. 6, | Rightofsale | The Hirer cannot sell the goods till he gets ownership. 5. | Riskofloss | Lrhe buyer has the right to sell the Goods even before instalments are paid. seller cannot repossess the goods. He can sue the buyer for dues. The agreement cannot be terminated. Each instalment includes interest and part payment of cash price. ‘The Hire vendor can repossess 7. | Repossession ; : dds if instalment is not paid] ‘of goods | the goo The Hirer can terminate the agreement by returning the goods. Each instalment includes hire charges and part payment of the cash price. Hire purchase Act 1972 governs the Hire Purchase Agreement _| 8. | Termination of agreement 9. | Instalment | Instalment purchase is governed 10. | Governing by Sale of Goods Act. Accounting Treatment for: Hire purchase syste! The method of recording hire purchase transactions in the books of the Hire vendor depends on the value of ‘the goods involved. The method of recording the transactions in the books of thé Hirer is the same irrespective of the value of the goods. 1. Accounting Treatment of High value goods: High value goods like trucks, costly machinery, etc., can be placed under this category. Books of Hire Purchaser or Hirer ie are two methods of recording the hire purchase transactions in Hirer’s Asset Accrual Method and Credit purchase with Int in hb ete or Interest Method. teh nal a tosted, the asset is deemed to be acquired gradually on Inthe credit redit purchase with inter , . ss soon as ieee a resetting, he assets deemed tobe acquired ‘Scanned with CamSeanner“The following are the entries to record different transactions under both the methods. pacorvenr | Entry in asset accrual method | [Entry in credit purchase with interest method ‘on the date of purchase Asset A/c 1, For down payment payable Dr. To Hire vendor's A/c [Being down payment payable] 2. For paying down payment Hire vendor's A/c Dr. To Cash A/c [Being payment of down payment] |1, For cash price of asset purchased Asset A/c Dr. To Hire Vendor's Ale [Being cash price of asset purchased on hire purchase agreement} | 2. For paying down payment _ | Hire Vendor's A/c Dr. To Cash A/c [Being payment of down payment] On the date of Ist instalment ‘At the end of tht 5. For Depreciation of the asset Accounting year Note: 3. For the amount of first instalment Asset Ale (Cash price in the instalment) Dr. Interest A/c (Interest in Ist instalment) — Dr. To Hire Vendor's A/c [Being Ist instalment payable] 4, For payment of Ist instalment Hire Vendor's A/c Dr. To Cash Ale [Being payment of instalment] For 2nd, 3rd etc., instalments also, entries 3 and 4 are repeated. Dr. ion on the asset] 6. For closing depreciation and interest accounts Profit and loss Ale To Depreciation A/c To Interest A/c Dr. | [Being transfer of depreciation and interest] 3. For interest included in first instalment Interest A/c Dr. To Hire Vendor's A/c [Being interest payable with Ist instalment] | 4. For payment of Ist instalment Hire Vendor’s Ale Dr. To Cash Ale [Being payment of instalment] | For 2nd, 3rd instalments etc., also, entries 3 and 4 are repeated. 5. For Depreciation of the asset Depreciation A/e Dr. To Asset A/c [Being depreciation on the asset] 6. For closing depreciation and interest accounts. Profit & loss A/e To Depreciation A/c To Interest A/c [Being transfer of depreciation and interest] Dr. « Entries 3 and 4 are repeated for every instalment tll the last instalment is paid. Entries for depreciation and transfer to profit and loss account are repeated at the end of every accounting year. Credit purchase with interest method is more popular and is usually used in problems if no method is specifically mentioned. ‘Scanned with CamSeannerce Books of Hire vendor: 8 The following are the journal entries in hire vendor’s books for goods opp. value sold. 5 Of high 1, When goods are sold on hire purchase agreement Hire purchaser's A/c Dr. (Cash price) ‘To Hire sales A/c [Being éash price of goods sold on hire purchase] 2. When down payment is received: Cash Ale Dr. To Hire purchaser's A/c [Being receipt of down payment] 3. On the date of Ist instalment for interest receivable Hire purchaser’s A/c Dr. To interest A/c [Being interest receivable with 1st instalment] 4, For receiving the amount of Ist instalment Cash A/c Dr. To Hire purchaser’s Alc [Being receipt of Ist instalment] Note: Entries 3 and 4 are repeated for every instalment. 5, At the end of the accounting year For transfer of interest to Profit and Loss A/c Interest A/e Dr To Profit and Loss A/c [Being transfer of interest to P&LA/c] Depreciation is not recorded by the hire vendor, though legally the goods sold belong to him because he is not using them. ‘Scanned with CamSeannerILLUSTRATIONS Methods of Calculation of Interest When rate of interest, total cash price and instalments are given : Illustration 1 On 1-1-86, X purchased machinery on hire purchase system. The payment is tobe made Rs. 4,000 down (on signing of the contract) and Rs. 4,000 annually for three years. The cash price of the machinery is Rs. 14,900 and the rate of interest is 5%. Calculate the interest in each year's instalment. [Madras, B.Com.(PZ2A) Ap 2007; B.Com., March 1989, Sep. 1997] ‘Scanned with CamSeannerSolution ; ‘Table showing caleulati Particulars [Total Cash Price| instalment Paid ion of Interest 0) Q) °) Rs. Rs. Cash price 14,900.00 Down Paymen{ 4,000.00 4,000 10,900.00 Ist instalment | 3,455.00 4,000 “ 3455.9) 7,445.00 (10,900 x 5%) 2nd instalment} 3,627.75 4,000 372.25 36015 3,817.25 (7,445 x 5%) 3rd instalment | 3,817.25 4,000 182.75 381725 (4,000- 3,817.25) | Nil__| 16,000 1,100 | 1450009 When rate of interest is not given: Illustration 2 Mr. X Purchased a machine on hire purchase system Rs. 3,000 being paid on delivery and the balance in five instalments of Rs. 6,000 each, payable annually on 31st December. The cash price of the machine was Rs. 30,000. Calculate the amount of interest for each year. Solution : Rs. Ist year. = Amount outstanding for interest after down payment 30,000 2nd year = Amount outstanding for interést after Ist instalment 24,000 3rd year =Amount outstanding for interest after 2nd instalment 18,000 4th year += Amount outstanding for interest after 3rd instalment 12,000 Sth year = Amount outstanding for interest after 4th instalment | 6,000 Ratio of outstanding amounts Hire purchase price Total interest Instalment outstanding Ratio 5:4:3:2 Total of all il instalments = Hire purchase price — Cash price = 33,000 - 30,000 = 3,000 = 30,000 : 24,000 : 18,000 : 12,000 : 6,000 S54 4: Sees ciel ‘Scanned with CamSeanner—paeteents | Instalments No.of outstanding| — Ratio of Interest Instalments Interest Rs. jst instalment 5 3 3,000 x= 15 15 : 4 i nd instalment 4 e 3,000 === 800 3 3 3rd Instalment 4) b 3,000 x 7 600 2 2 4th instalment 2 i. 3,000 == 400 sth Instalment 1 at 3,000 = 200 15 15 15 ‘When cash price is not given Illustration 3 X purchased a typewriter on hire-purchase system. As per terms, heis required - to pay Rs. 800 down, Rs. 400 at the end of the first year Rs. 300 at the end of the Rs. 700 at the end of the third year. Interest is charged at 5% p.a. second year and h price of the typewriter ‘And the amount of interest payable Calculate the total cast oneach instalment. [Madras, B.Com. (PZ2A) Nov. 2006 B.Com, April 2006; B.Com.(CS) Nov. 20055 Periyar, B.Com., April 2004] Solution : .d. The rate of interest on cash Each instalment paid includes interest for the perio ‘ce must be converted to rate of interest on instalment. We assume the Cash price as Rs.100 Interest @ 5% on Rs.100 for one year a: Instalment paid at the end of the year 105 :, Interest on instalment price 5/105 as a ratio. The following table is used to arrive at the cash price of the typewriter. pri Year “Instalment Interest paid [Cask price paid oO @) UU 5 i 700 x = Third Year 700 ae | 667 : | Second Year 300 (300 +667) x we 254 First Year 400 (400+ 254-667) x5 =63 | - Down Payment 800 Nil 800 2,200 Taz 2,058 ee ‘Scanned with CamSeanner \TS re, ee cee ©. Interest : 1 Year Rs, 63 :Il Year Rs. 46 II Year rey -— Rs. Rs. Rs. oh Price a « @ (=>) ama) is 1,40,000 2 Down Payment 40,000 | 40,000 co 100,000 | 45,000 [1,00,000;.20%) 3544 Ist instalment 25,000 = 20,000 : 75,000 | 40,000 | (75,000 x 20%) 500 2nd instalment 25,000 = 15,000 . 50,000 | (50,000 20%) | as 099 3rd instalment 25,000 | 35,000 = 10,000 25,000 (25,000 x 20%) 4th instalment 25,000 | 30,000 Nil | 1,90,000 | Calculation of Cash Price by annuity method: Illustration 5 On 1-1-90 X bought some trucks under hire- purchase system for Rs.51,000 payable by three equal instalments combining principal and interest, the later being a normal rate of 5% per annum. Calculate the cash price . (The presett value of an annuity of one rupee for three years at 5% is Rs. 2.72325). Solution : Caleulation of Cash Price ‘The present value of annuity of Re. 1 paid for three years @ 5% = 2.72325 (annuity fits) 51,000 Instalment => — = 17,000 The present value of annuity = Instalment x Annuity factor = 17,000 x 2,72325 = 46,295.25 Cash price is Rs. 46,295.25, ad ‘Scanned with CamSeannerHire Purchase and Instalment Purchase Systems 18.18 Journal & Ledger in the books of Buyer & Seller [llustration 6 Mr. P purchased 4 cars for Rs. 14,000 each on 1-1-9 i archase system, The hire purchase price for all the 4 cars vn Ro 0,000 tebe id as RS. 15,000 down payment and 3 equal instalments of Rs. 15,000 each at send of each yea. Interest is changed at 5% pa, The buyer epreciates the car at 10% p.aon straight line method. From the above particulars give journal entries and relevant A/csin the books of MP pu andin the books of hire-vendor. [Madras, B.Com. April 2006; Mar?91 & May 96] Solution : Table showing Calculation of interest DuwofPayment] Total Cash price] inst paid) Interest paid [Cash price paid _ (a) | Q) (3) 1) (B)-@=5 56,000 (14,000 x 4) Down Payment 15,000 15,000 | - 15,000 | “41,000 | 12,950 [instalment 12,950 15,000 | (41,000 x 5%)=2,050 28,050 13,597 Hingalment | 13,597 15,000 | (28,050 x 5%)=1,403 14,453 15,000 | (15,000-14,453)=547| 14,453 IM instalment 14453 | — ni [760,000 7,000) 36,000 Journal Entries in the books of Mr. P 1992 1993 1994 De | c@ | De | Ge [| Del & Rs, | Rs | Rs | Rs | Rs | Rs Jan. [Cars Ale Dr. [56,000 -| = - To Hire Vendor A/c 36,000 [Being Purchase of cars on H.P] Jan.1 | Hire Vendor Ale Dr [15,000 -} - - - To Bank Alc 15,000 [Being cash down payment] Dee3i| Interest Alo Dr. | 2,050 1,403 347 To Hire Vendor A/c | 2,050 1,403 S47 [Being int. credited to vendor} Dec3!| Hire Vendor A/c Dr. [15,000 15,000 15,000 To Bank A/c 15,000 15,000 15,000 [Being payment of instalment] Dec31| Depreciation A/c Dr. | 5,600 5,600 5,600 To Cars Alc 5,600 5,600 5,600 [Being dep. charged on cars] Dec31 | Profit & Loss A/c Dr. | 7,650 7,003 6,147 To Interest A/e 2,050 1,403 547 To Depreciation Ale 5,600 5,600 5,600 [Being int.A/c transferred] ‘Scanned with CamSeannerON Financia, Aceon th 18.19 Entries in the hooks of Hire Vendor Dr | ce Rs_| Rs_| Jan |PsAle De 56,000 | oo ‘To Hire Sales A/C . [Being Cars sold on H.-P] ben Jan. | Bank Ale Dr 115,000 | 00! ro ayment received] . Being down paymen Dec.3 rae Dr. | 2,050 nn 1,403 sos | sa To lanes ane , i = ing int. charged to Mr. Dec.3 fae De [15,00 | 15,000 ‘sooo | ‘To P's Ale i . 00 | sa [Being instalment receive: Dec.3] Interest Alo De [2080] 1,403 sans | sar | ToP& LAI , 403 | [Being interest transferred) J L[* Ledger Accounts in the books of P (Hirer) Dr Cars A/e es Rs. le 1.1.92 | To Vendor A/e 56,000 | 31.12.92 | By Depreciation | 564 By Balance c/d | 50,409 36,000 | 36006 1-1-93| To Balance b/d 50,400 | 31.12.93 | By Depreciation 5,600 By Balance c/d 443800 50,400 1-1-94] To Balance b/d 44,800 | 31.12.94 | By Depreciation 5,600 By Balance cfd 39,200 44,800 44,800 11-95 | ToBalencebid _| 39,200 Dr Hire Vendor’s A/e Cr Rs. Rs. 1.1.92] To Bank A/e ] 15,000 | 1.1.92] By Cars Ale | 56,000 31.12.92) To Bank A/e 15,000 |31.12.92] By Interest A/c 2,050 ” To Balance c/d 28,050 58,050 358,050 31.12.93] To Bank A/c 75,000 |31.12.93| By Balance b/d | 28,050 » | ToBalance e/d 14,453 By Interest 1,403 29,453 729,453 31-12-94 To Bank A/c 15,000 1.1.94 | By Balance b/d 14,453 31.12.94] By Interest 547 |__ 15,000 75,000 ‘Scanned with CamSeannerHire Purchase and Instalm« > ient Purchase Systems 1820 Ir - Anterest Ale Cr 31.12.92] To Vendor Ai os | Re Leal lc 2,050 31.12.92 | By P& LAle 2,050 31.12.93} To Vendor A/c =| «1,403 31.12.93 By P& L Ale 7403 2. | = aa 31.12.94, To Vendor A/e 547) 31.12.94 | ByP& LAle 3547 Dr Depreciation A/e cr | Rs.| | | Rs. 31.12.92) To Cars Ave | 5600 /31.1292| ByP&LA | 5,600 31.12.93 To Cars Ale 600 | 31.12.93| By P& LAle 3,600 31.12.94) To Cars Ae | 5,600 | 31.12.94] ByP&LA | _5,600 Ledger Accounts in the Books of Hire Vendor Dr. Fi Interest A/c Cr. Rs. | Rs. 31.12.92|To P&LAlc 2,030 | 31.12.92 | By Mr. P's A/e 2,050 31.1293|To P& LAI 1,403 | 31.12.93 | By Mr. P’s A/c 1,403 31.12.94|To P&LAle =| ~—_547| 31.12.94 | ByMr. P's Ale 347 Dr Mr. P's A/e Cr. Rs.| ] ] Rs. 1.1.92 To Hire Sale A/c 56,000 1.1.92|ByBankA/e | _—‘15,000 31.12.92) To Interest A/c 2,050 | 31.12.92 | By Bank A/e | 15,000 ByBalancecid | 28,050 38,050 1.1.93 | To Balance e/d 31.12.93 | By Bank A/c 15,000 31.12.93) To Interest Balance c/d 14,453 | | 29,453 1.1.94 | To Balance b/d 31.12.94 | By Bank 15,000 31.12.94) To Interest | 15,000 Calculation of Depreciation Since depreciation is charged under straigl (56,000 x 10% = 5,600) is to be charged for all three uears. Tilustration 7 On Ist January 1996 Baba & Co. purchased amachine on hire purchase basis, the total amount payable being Rs. 42,700. Payment was to be made Rs. 12,000 on that date and balance in three half-yearly instalments of Rs. 11,400, Rs. 10,900, and Rs, 8,400 commencing from 30th June 1996, The vendor charged interest @ 10pa., calculated on half -yearly rests. ht line method, the same amount ‘Scanned with CamSeannerBaba & Co. close their books annually on 30th June and provide gg>—~ting @ 10% p.a. on reducing balance method. ide demas Determine the cash price of the machine and show the relevant the books of Baba & Co. Solution : i) \7 | [Maudras, B.Con,Aprit2008; Periyar, BR | J Calculation of Cash rice No.ofinstalment 5 3rd 8,400 8,400 x05 = 400 800 5 ond 10,900 (10,900 +8,000) x=" = 900 re oo Ist 11,400 | (11,400+10,000+8,000 x 105 > 1400 10,009 Down 12,000 Nil | 12,000 42,700 2,700 | 40,000 Ledger Accounts in the Books of Baba & Co. (Hire-Purchaser) Machinery A/c Rs. | Rs 1-1-96| To Hire vendor 40,000 | 30-6-96| By Depreciation 000 + | ByBalance e/d 38,000 40,000 0% 1-7-96| To Balance b/d 38,000 | 30-6-97| By Depreciation 700 || By Balance eld 4200 38,000 | SRM 1-7-91| To Balance b/d 34,200 | _ aie Hire Vendor Ae Rs. Rs, 1-1-96 [To Bank 12,000 ] 11-96 | By Machinery Ale [$000 30-6-96 | To Bank (Ist) 11,400 | 30-6-96 | By Interest 1400 » | To Balance e/d 18,000 47,400 41,400 “31-12-96| To Bank (2nd) 10,900 | 1-7-96 | By Balance bid 18.000 30-6-97 | To Bank (3rd) 8,400 |31-12-96| By Interest 00 30-6-97 | By Interest _ 19,300 1930 Interest A/e Rs. Rs. 30-6-96 | To Hire vendor 1,400 | 30-6-96| By P& LAlc i 1,400 Gi 30-12-96] To Hire Vendor 500 | 30-6-97) By P& LAI . 30-6-97 |To Hire Vendor 400 ¥ = 7305 ie ‘Scanned with CamSeannerHire Purchase and Instalment Purchase Systems 18.22 Default and Repossession A, Complete Repossession Iustration 8 Knight purchased a truck for Rs. 1,60,000 from S, Waugh on 1-1-93 payment tobemade Rs. 40,000 down and Rs, 46,000 at the end of first year, Rs. 44,000 at the end of second year and Rs. 42,000 at the end of third year. Interest was charged at 5%. Knight depreciates the truck at 10% per annum on written down value method. Knight, after having paid down payment and first instalment at the end of the first year, could not pay second instalment. The seller took possession of the truck, and after spending Rs. 4,000 on repairs of the asset, sold it away for Rs, 91,500. Give journal entries and ledger accounts in the books of both the parties. [Madras, B.Com., Nov. 2004; B.C.S. April 2004; Bharathidasan, B.Com., Nov. 2002; April 2002] Calculation of interest No.of instalment | Total Cash | Inst. paid Interest paid Net Cash | price paid price paid | Rs. Rs. Rs. Rs. | en000 Down 40,000 40,000 ee 40,000 1,20,000 Ist Instalment | 40,000 46,000 ((1,20,000 5%) 6,000 40,000 80,000 snd instatment | 40,000 | 4000, (60000520) 400 4o,000 | 40,000 40,000 3rd Instalment | 40,000 42,000 (42,000-40,000) 2,000 aie | 12,000 _|_ 160,000 | _Lerzaco_|] ‘Scanned with CamSeanner18.23 Jan Jan.t Dee. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 1-1-93 31-12-93| To Interest 1-1-94 31-12-94) To Interest Truck Ac Dr. To S. Waugh Ale [Being purchase of truck on H.P] S, Waugh A/e Dr. To Bank A/c [Being cash down payment] Interest A/c Dr. ToS. Waugh A/c [Interest credited to Hire Vendor A/c] | S. Waugh A/c Dr. To Bank A/c [Being Ist instalment paid] Depreciation A/c Dr. | To Truck A/e {Being depreciation charged] P&LAK Dr. To Interest A/c To Depreciation A/c [Being charge of interest & depreciation to P & L A/c] S. Waugh A/e Dr To Truck Ale [Being truck taken over by vendor on default] P&LAL To Truck A/c Dr {Loss on Surrender] | 1 Dr. —_Rs__| Rs. 160,000 40,000 6,000 46,000 16,000 | 22,000 Financial Accounting it (Hire Purchaser) Cr | 1,60,000 | | 40,000 | 6,000 | | 46,000 | 16,000 6,000 16,000 Ledger Accounts in the Books of S. Waugh Knight A/e Rs. 1,60,000 To Hire Sale By Balance c/d 1,66,000 To Balance b/d 80,000 | 31-12-94| By Repossessed Stock A/c (Bal.fig) 4,000 (transfer) 84,000 1.1.93 | By Bank (Down payment)} 40,000 6,000 | 31-12-93) By Bank (Ist) ”* j ein 1994 } Rs. | Ry 4,000 4,000 | 14,400 | | | 14,400 \ | | 18,400 | | 4,000 | 14,400 | | | | 34,000 | | | 84,000 Rs. ‘Scanned with CamSeannerRepossessed Stock A/c Ree Rs. 31-12-94|To Cash Ale 4,000 | 31-12-94 By Cash ot,000 31-12-94|To Knight A/c 84,000 To P& LA/c (Bal.fig)| 3,500 (Profit on sale) (|| 91,500 | 91,500 Ledger A/c’s in the books of Knight __ TruckA/e Rs. Rs. 1-1-93 | To Hire Vendor A/c | 160,000 [31-12-93 |By Depreciation A/c | 16,000 By Balance c/d 1,44,000 1,60,000 1,60,000 1-1-94 | To Balance b/d 1,44,000 |31-12-93 |By Depreciation A/c 14,400 By S. Waugh A/c 84,000 By P& LA/c (Bal.fig) 45,600 1,44,000 1,44,000 S. Waugh A/c Rs. Rs. 1-1-93 |To Bank A/c 40,000 | 1-1-93 | By Truck A/c 1,60,000 31-12-93|To Bank A/c (Ist) 46,000 | 31-12-93] By Interest A/c 6,000 To Balance c/d 80,000 1,66,000 1,66,000 31-12-94|To Truck A/c (Bal.fig) 84,000 | 1-1-94 | By Balance b/d 80,000 (transfer) 31-12-94) By Interest A/c 4,000 84,000 84,000 ‘Scanned with CamSeannerJournal entri fay a ries in the books of S. Waugh (Hire Vendor) ity Date — __1993 Dr | Cr oe Jan. | Knight A/c De] 160,000] | le To Hire sale A/c ~ [Being truck sold on H.P] 1,60,000 Jan. 1 | Bank A/c Dr.| 40,000 | ‘To Knight A/c 4000 | 7 [Being down payment received] Dec. 31) Knight A/c Dr. 6,000 4,000 To Interest A/c ere [Being interest charged to knight] 4,000 Dec. 31| Bank A/c Dr.| 46,000 To Knight A/c 46,000 ~ [Being Ist instalment received] 2 Dec. 31] Interest A/c Dr] 6,000 4,000 ToP&LAL 6,000 fa [Being interest transferred : toP& LA] Dec. 31| Repossessed Stock A/c Dr. 5 84,000 To Knight A/c . 34000 [Truck seized from buyer on default] Dec. 31| Repossessed stock A/e Dr . 4,000 To Cash A/c 7 | 4000 [Being amount spent on repair] Dec. 31] Cash A/c - 91,500 To Repossessed stock A/c 91,500 [Being repossessed truck sold away] Dec, 31} Repossessed stock A/c Dr. ve 3,500 ToP& LAM - 3,500 [Profit on sale of repossessed truck] THustration 9 Malan purchased a machine on hire purchase system on Ist January 1993. The terms of payment are four: annual instalments of Rs. 12,690 at the end ofeach year. Interest is charged @ 5% and is included in the annual payment of Rs. 12,690. ndor account in the books of Malan Show Machinery account and Hire ve who defaulted in the payment of the third yearly payment whereupon the vendor repossessed the Machinery. Malan provides depreciation 0" the machinery @ 10% p.a., on the reducing balance. B.Com (Cs) Nov 2007 [Madras, B.Com. [Periyar, B.Com, April 2] ‘Scanned with CamSeannerSolution: Calculation of cash price and interest No.of instalment | Amount of Tnterest Net cash inst.( Rs.) Price (Rs.) 4th 12,690 12,690 am = 604] 12,086 3rd 12,690 (12,690 +12, 086) x5 = 1,180) 11,510 od 12,690 (12,690+1510+ 12086) x 5 = 1,728] 10,962 Ist 12,690 (12,690 + roar 11,510 + 12,086) == * = 2,250} 10,440 30,760 5162| 44,998 In the books of Malan (Buyer) Machinery Ale Rs, 1.1.93 | To Hire Vendor A/e | 44,998 | 31-12-93] By Depreciation By Balance e/d 31-12-94] By Depreciation 1-1-94 | To Balance b/d By Balance c/d 40,498 141-95 | To Balance b/d 36,448 | 31-12-95) By Depreciation |" + "| By Hire Vendor 24,796 By P&LA/c—Loss | 8,027 | surrender (Bal.fig) 36,448 | 36,448 Hire Vendor A/c Rs. Rs. 31-12-93|To Bank (Ist) 12,690| 1-1-93 | By Machinery 44,998 To Balance c/d 34,558| 31-12-93] By Interest 2250 47248 47248 31-12-94] To Bank (2nd) 12,690| 1-1-94 | By Balance b/d Bey + |ToBalance c/d 23,596| 31-12-94] By Interest as ‘| 36,286 oR 1-12-95)To Machinery A/c 24,776| 1-1-95 | By Balance c/d 1180 + transfer due to 3hc12-95| By Inerest 3 Surrender W776 24,776 ‘Scanned with CamSeanner| 1827 Financial Account $827 EE AOU B. Partial Repossess : s Illustration 10 On 1.1.90 National Transport Company purchased from Metro Motors fy. trucks costing Rs. 40,000 each on the hire purchase system. It was agreeq tha Rs, 50,000 should be paid immediately and the balance in three instalments o¢ Rs, 60,000 each at the end of each year. The Metro Motors charges interest 10% pa. The buyer depreciates trucks at 20% p.a. on the diminishing balance Method, The buyer paid cash down and two instalments but failed to pay the ast instalment. Consequently, the Metro Motors repossessed three trucks leaving two trucks with the buyer and adjusting the value of 3 trucks against the amount due. The trucks repossessed were valued on the basis of 30% depreciation pa on the written down value. The trucks repossessed were sold by Metro Motors for Rs. 60,000 after necessary repairs amounting to Rs. 10,000. Open the necessary ledger accounts in the books of both the parties. 1 (Madras B.Com, Oct. 1998 (old) > figures Solution: Working Notes: W.N.1: Table Showing Calculation of Interest Payment ] Total Cash | instalment | Interest | Net cash | ae || | | Price [Rs Rs. | Rs. | Rs | 2,00,000 | | Down payment | 50,000 50,000 | - | 50,000 | Ist Instalment | | 60,000 | (1,50,000 x 10%)=15,000 45,000 | | | | 2nd Instalment | 60,000 | (1,05,000 x 10%)=10,500 | 49,500 | | 3rd Instalment | 60,000 | (60,000-55,500) = 4,500 | 55,500 o | 2,30,000_| 30,000 | 7,00,000 WN.2: WN: Calculation of value of 3 trucks Calculation of value of 2 trucks Repossessed | left with buyer Rs. | yk Cost: Rs. 40,000 x 3 truks : 120000 | Cost: Rs. | 80,000 Less: \st Year Deprectation | Less: Depreciation for 1990 | 16,000 (i.e.,1990) 1,20,000 x 30% | 36,000 | 80,000 x 20% |\—_ __ 34,000 | 64,000 Less: Depreciation for 1991 25,200 | Less: Depreciation for 1991 | 12,800 84,000 x 30% | 64,000 x 20% 58,800 | 51,200 Less: Depreciation for 1992 17,640 | Less: Depreciation for 1992 | 10,240 58,800 x 30% 51,200 x 20% oS Value of 3 trucks taken away | 41,160 | Value of 2 trucks left with | 40,960 the buyer ‘Scanned with CamSeannerHire Purchase and Instalment Purchase Systems 18.28 In the books of National Transport Company (buyer) Trucks Ale Rs. Metro Motors | 2,00,000 | 31 ati ee 7 2,00, -12.90| By Depreciation 40,000 By Balance e/d 1,60,000 2,00,000 00,000 To Balance b/d 1,60,000 | 31.12.91 | By Depreciation 32,000 By Balance cfd 1,28,000 1,60,000 1,60,000 To Balance b/d 1,28,000 | 31.12.92 By Depreciation 25,600 By Metro Motors | 41,160 (3 trucks repossessed) By P&LAlc 20,280 (Loss on repossession) | (Bal. fig) | By Balance c/d | 40,960 | | (Book valueof | | 2 trucks left) | 1,28,000 1,28,000 Metro Motors A/e Rs. | ] Rs. 1.1.90 | To Bank 50,000 1.1.90 | By Trucks A/e | 2,00,000 (down payment) 31.12.90 | By Interest A/c 15,000 31.12.90] To Bank | 60,000 | (ist Instalment) | To Balance e/d 1,05,000 | |3,15,000 2,15,000 31.12.91] To Bank 60,000| 1.1.91 | By Balance b/d 1,05,000 (2nd Instalment) To Balance c/d 55,500| 31.12.91 | By Interest A/c | 10,500 1,15,500 1,15,500 31.12.92) To Trucks A/e 41,160) 1.1.92 | By Balance b/d 55,500 G trucks repossessed) 31.12.92 | By Interest A/c 4,500 (WN. 2) To Balance c/d 18,840 60,000 60,000 ‘Scanned with CamSeannerIn the Books of Metro Motors National Transport Company A/c Rs. Rs, 1.1.90 | To Hire Sales 2,00,000| 1.1.90 | By Bank 50,000 31.12.90] To Interest 15,000 (Down Payment) 31.12.90 | By Bank 60,000 (Ist Instalment) 31.12.90 | By Balance c/d 1,05,000 3,15,000 2,15,000 1.1.91 | To Balance b/d 1,05,000} 31.12.91 | By Bank 31.12.91] To Interest 10,500 (2nd Instalment) » By Balance ¢/d 1,15,500 1.1.92 | To Balance b/d 55,500| 31.12.92 | By Repossessed 31.12.92 To Interest 4,500 Stock A/c 41,160 (3 trucks seized) ~ By Balance c/d 18,840 60,000 “60,000 Repossessed Stock A/c Rs. | | Rs. 31.12.92] To National Transport 1.1.93 | By Bank (Sales) 60,000 Company A/c 41,160 1.1.93 | To Bank (repairs) 10,000 - |ToP&LAc 8,840 (Profit on Sale) 60,000 60,000 ‘Scanned with CamSeannerInstalment - Purchase system — Illustration 17 On 1.1.93, a firm purchased a Truck on instalment system. The cash price of the Truck was Rs. 11,175 and payment was to be made as follows: Rs. 3,000 was to be paid on signing of the agreement and the balance in three instalments of Rs. 3,000 each at the end of each year. Interest at 5% is charged by the vendor. The firm has decided to write off 10% annually on the diminishing balance of the cash price. Give journal entries and ledger Accounts in the books of the purchaser and Hire vendor. (Madras, BCA/B.Sc., Oct. 2000; B.Com., Mareh 1994] ‘Scanned with CamSeannerSolution: ‘Table showing calculation of Interest —— 7 Date of payment Tonal cash price| Instpatd Inerestpald — | Cash price J 2 2 4 | pald 5 (4-4) _— | 1175 | Down payment | 3000 | 3,000 | 5,000 | 8175 | | | | {st Instalment | 2891 | 3,000 | (8,175 5%) 409 | 2,59) - | , | | | 5,584 | | | | 2nd Instalment | 2,721 | 3,000 | (5,564 75%) 279 2,704 2,863 | 3rd Instalment | 2863 | 3,000. | 6,000-2,863) 137 2,863 Jen 1 | Truck A/c Dr [11,175 - | - | Interest Suspense A/c Dr. | 825 To Seller Alc 12,000 =| = (purchase of truck under | | instalment System) | | Jan 1 | SellerA/c Dr. 3,000 To Bank A/c 3,000 - - (Cash paid on delivery) Dec31 Interest A/c Dr. | 409 2719 137 To Int. Suspense A/c | 409 279 (Adjustment of interest) | | Dec 31 Seller A/c Dr. 3,000 | 3,000 To Bank 3,000 3,000 (Amount of instalment paid) | Dec 31 Depreciation A/c Dr 1,118 1,006 905 To Truck A/c | 1,118 | 1,006 (Depreciation charged at 10%), | Dec 31/P & LA/e Dr | (1,527 1,285 1,042 To Interest A/c | 409 a 137 | To Depreciation A/c 1118 1,006 905 (interest & Depreciation | __ transferred) | Wr ‘Scanned with CamScannerthe books of seller Financial Aceo unting 1993 1994 loa De] cr | De] cp Rs} Rs. | Rs | Rs, Jan. 1) Buyer Ale Dr. | 12,000 . To Sales A/c 11,175 . To interest suspense A/e 825 (Truck sold on instalment system) Jan, 1 | Bank Ale Dr. | 3.000 - ‘To Buyer Ale 3,000 . (Cash received on delivery) Dec.3| Int. suspense A/c 409 279 To Interest Alc 409 279 (Amount of interest due) Dec.3| Bank Alc Dr. | 3,000 3,000 To Buyer Ale 3,000 13,000 (Amount of instalment received) Dec.3| Interest Ale Dr | 409 279 To P& LAle 409 279 ___|(Onterest transferred) | Ledger Accounts in the books of the buyer Interest Suspense A/e Rs. te 1.1.93 | ToSellerA/e 825 | 31.12.93 | By Interest 409 un 7 By Balance c/d 416 es 5 1.1.94 | To Balance b/d 416 | 31.12.94 | By Interest Alo 29 _ : By Balance o/d 137 216 Te 1.1.95. | ToBalance b/d 137 | 31.12.95 | By Interest A/c “7 mw a a Truck A/e Rs. 1.1.93 | ToSeller Ale LM us By Balance c/d 10,057 TLS 1.1.94 | To Balance b/d 31.12.94 | By Depreciation | — 1,006 By Balance c/d 9,051 10,057 1.1.95 | To Balance b/d 31.12.95 | By Depreciation 905 : By Balance c/d 8,146 __| 3051 ‘Scanned with CamSeannerHire Purchase and Instalment Purchase Systems Seller A/e Rs. 1.1.93 | To Bank 3,000 ; Rs, 31.12.93 | To Bank 3000 | atci293| Byim Supe 1,175 " Se alaneeeld et peoog ele eee eee eee 31.12.94 | To Bank 1.000 12.94 | To Banl 1194 |B "| To Balance eid ee 6,000 6,000 31.12.95 | To Bank 1.1.95 | By Balance b/d 3,000 - LL 3,000 __Interest A/e i [Rs 31,12.93 | To Int. Suspense Alc| 409 | 31.12.93 |By P&L Alc 409 31.12.94 | To Int. Suspense A/c|279 | 31.1294 |" P&LAe or 31.12.95 | To Int, Suspense A/c| 137 | 31.12.95 | " P&LAlc “37 Ledger Accounts in the books of Seller fe __BuyerAve ; Rs. 7 1.1.93 | ToSales 17s | 1.1.93. | By Bank 31.12.93] To Int. Sus. A/c | 825 | 31.12.93 | By Bank | By Balance cid 12,000 1.1.94 | ToBalanceb/d | 6,000 | 31.12.94 | By Bank By Balance e/d 6,000 1.1.95 | ToBalanceb/d | 3,000 | 31.12.95 | By Bank L 3,000, Po Interest Suspense A/e Rs. - 31.12.93 | To Interest 409 | 1.1.93 | By Buyer A/c 825 "| To Balance c/d 416 a 825 as 31az94| téinterest Ale | 279 | 1.1.94 | By Balance fd 416 "| To Balance c/d 137 ad 46 48 31.12.95 | To Interest Ale 137 | 11.95 | By Balance'b/d an 137, ‘Scanned with CamSeanner2g Interest A/c Rs. 31.12.93 | ToP & LA/e 409 31.12.93 | By Int. Suspense Ale 31.12.94 | To P& LA/ce “219 31.12.94 | By Int. Suspense A/c 31.12.95 | To P& LA/c 137 31.12.95 _| By Int. Suspense A/c ‘Scanned with CamSeannerChapter 14 Umi a Self Balancing Ledgers and Sectional Balancing Introduction Like journal is subdivided into subsidi: their ledger into several ledgers to acc Asmall business can do with only one ledger, However, in case of big businesses, the number of personal accounts may be quite large and therefore, it may not be convenient to keep all the accounts in one ledger. Moreover, in case of non-agreement of trial balance, it is a time consuming and laborious task to locate the difference in accounts if: tranactions are recorded in one ledger. In order to iary books, the larger enterprisesdlivide “ommodate large number of accounts. Under the self balancing system, Posting of transactions is not done in one ledger but the accounts are opened in more than one ledger. Under'this system, the ledger is subdivided into the following three ledgers: @ Debtors or Sales Ledger @ Creditors or Purchase Ledger and ii) General or Impersonal or Nominal Ledger. () Debtors Ledger:- This ledger contains the personal accounts of the debtors to whom credit sales are effected. The ledger is also known as sales ledger or sold ledger. It should be noted that it is only trade debtors accounts which are opened in this ledger and not any other debtors accounts. If for example, old fumiture is sold to Krishna, then Krishna is a debtor but not a trade debtor and account will not be opened in debtors ledger. It will be opened in the general ‘edger. Trade debtors are the Persons to whom goods are sold on credit. (Wt) Creditors Ledger:- The ledger contains the Personal accounts of the ; tors who supply goods on credit. The ledger is also known as purchase er or bought ledger. It should be remembered that it is only trade creditors eo} which are opened in this ledger and not any other creditors account, whom some services have been received. These creditors are not ded in this ledger. ‘Scanned with CamSeanner