Departmental accounting Presented By Kritika 4013 Surbhi Kaushal

Departmental accounting Presented By- Kritika 4013 Surbhi Kaushal 4007 Mandeep Kaur 4049 Manpreet 4141 B. Com 1 st year Sec- A

Objectives of departmental accounting �To have a comparison of the results of a particular department with previous year and also with the other department of the same concern. �To help the proprietor in formulating policy to expand the business on proper lines so as to optimize the profits of the concern. �To allow departmental managers commission on the basis of the profits of their departments. �To generate information which may be helpful for planning , control, evaluating of performance of each department and for taking various managerial decisions.

Advantages: �The trading results of each department may help to evaluate the performance of each department. �The profitability of each department may help the management for taking decision whether to drop a department or add a new one. �The growth potentials of a department can be evaluated by having comparison with the other department.

�The users of accounting information can be provided more detailed information like the shareholders, investors, creditors. �The overall profits of the organization can be increased by having friendly rivalries between different department �The department managers and staff can be suitable rewarded on the basis of the departmental results. �The information provides by departmental accounts may be helpful to the management for future intelligent planning and control.

Departmental expenses DIRECT EXPENSE Related to a particular department Eg: wages , material INDIRECT EXPENSES Related to more than one department. Further divided into 1. Exp. Can be allocated 2. Exp. Cannot be allocated

Allocation of departmental expenses 1. There are certain expenses which can be specially incurred for a particular department. Eg: salary pain to sales man in sales department 2. There are certain expenses which can be precisely charged to specific departments as these departments are benefitted by these expenses. Eg: lightening will be charged to the departments according to separate meters.

Apportionment of departmental expenses 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. EXPENSES Sales expenses as travelling salesman, salary & commission, selling expenses after sale services, discount allowed, bad debts, freight outwards, provision for discount on debtors , sales manager’s salary & other benefits etc. All exp relating to building as rents , rates, taxes, ac exp, heating, insurance of building etc. Lighting Insurance on stock Insurance on plant & machinery Group insurance premium Power Depreciation, renewals & repairs Canteen exp & labour welfare exp Works managers salary Carriage inwards BASIS 1. Sales of each department 2. Area or value of floor space 3. 4. 5. 6. 7. 8. 9. 10. 11. Light points Average stock carried Value of plant & machinery Direct expenses H. P. or H. P. * hours worked Value of assets in each deptt. No. of employees Time spent in each department Purchases of each department

v There are certain expenses which cannot be allocated on some equitable basis such as debenture intrest, share transfer, office expences, general manager’s salary etc. and thus should not be apportioned. Profits of all departments should be brought down in one total and such expenses should be debited and non department profits credited to this profit without making any efforts for its apportionment among different departments in combined income account.

Inter departmental transfers �Sometimes goods or employment of staff or performances of services are transferred from one department to another department. As each departments is treated as a separate profits centers, so it is necessary to have separate records for such inter- departmental transfers. �At the end of the week/month the following entry is passed for transfer. Receiving department a/c Dr. ( transfer price) To Supplying department a/c

THE COMBINED INCOME ACCOUNT OF JORHAT TRADER LIMITED FOR THE YEAR ENDED 31 st MARCH 2010 Stock 1 -4 -2009 Purchase from outside Wages Salaries Transfer from department A Stock 31 -3 -2010 Sales to outsiders DEPARTMENT A RS DEPARTMENT B RS 30, 000 2, 05000 10, 000 3, 600 _ 35, 000 2, 000 5, 000 20, 000 1, 000 2, 400 50, 000 12, 000 70, 000 THE ENTIRE CLOSING OF DEPARTMENT B REPRESENT GOODS TRANSFERRED FROM DEPARTMENT A AT COST PLUS 20 %. ADMINISTRATIVE AND SELLING EXPENSES AMOUNT Rs 14000 WHICH IS TO BE ALLOCATED BETWEEN THE TWO DEPARTMENTS IN THE RATIO OF 6: 1. AN AMOUNT OF Rs. 3000 IS DUE FOR INTREST ON DEBENTURES OF THE COMPANY.

ANSWER : A Rs To opening stock To purchases To interdepartmental transfers To wages To gross profit c/d To salaries To adm& selling exp To net profit transferred to general P/L AC 30, 000 2, 05, 000 10, 000 40, 000 B Rs By sales 5, 000 20, 000 By inter 50, 000 department transfer By closing stock 1, 000 B Rs Rs 2, 000 70, 000 50, 000 35, 000 12, 000 2, 85, 000 40, 000 82, 000 6, 000 40, 000 6, 000 2, 85, 000 3, 600 12, 000 82, 000 2, 400 2, 000 24, 400 1, 600 40, 000 A 6, 000 By gross profit b/d

GENERAL PROFIT & LOSS ACCOUNT To debenture interest 3, 000 Rs To provision against unrealized profit on 2 , 000 stock (1/6 x 12, 000 ) To net profit transferred 21, 000 & carried to balance sheet 26, 000 By department N/P transferred dep't. P/L A/c A 24, 400 B 1, 600 26, 000

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