Departmental accounting

Presented By- Kritika 4013 Surbhi Kaushal 4007 Mandeep Kaur 4049 Manpreet 4141B.Com 1st yearSec- A

Objectives of departmental accountingTo 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 Departmental expenses

DIRECT EXPENSE INDIRECT EXPENSESRelated to a

particular department Eg: wages , material

Related to more than one department.Further divided into-1. Exp. Can be allocated2. 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 EXPENSES 1. 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.

2. All exp relating to building as rents , rates, taxes, ac exp, heating, insurance of building etc.

3. Lighting4. Insurance on stock5. Insurance on plant & machinery6. Group insurance premium7. Power8. Depreciation, renewals & repairs9. Canteen exp & labour welfare exp10. Works managers salary11. Carriage inwards

BASIS1. Sales of each department

2. Area or value of floor space

3. Light points4. Average stock carried5. Value of plant & machinery6. Direct expenses7. H.P. or H.P. * hours worked8. Value of assets in each deptt.9. No. of employees10. Time spent in each department11. Purchases of each department

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 transfersSometimes 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

DEPARTMENT A RS

DEPARTMENT B RS

Stock 1-4-2009Purchase from outside WagesSalariesTransfer from department A Stock 31-3-2010Sales to outsiders

30,000 2,05000 10,000 3,600 _ 35,000 2,00,000

5,000 20,000 1,000 2,400 50,000 12,000 70,000

THE COMBINED INCOME ACCOUNT OF JORHAT TRADER LIMITED FOR THE YEAR ENDED 31 st MARCH 2010

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.

To opening stockTo purchasesTo inter-departmental transfersTo wages To gross profit c/d

To salariesTo adm& selling exp To net profit transferred to general P/L A\C

A Rs

30,0002,05,000

10,00040,000

2,85,0003,600 12,000

24,400

40,000

B Rs

5,00020,00050,000

1,0006,000

82,0002,400 2,000

1,600

6,000

By salesBy inter-department transferBy closing stock

By gross profit b/d

A Rs 2,00,000 50,000

35,000

2,85,00040,000

40,000

B Rs 70,000

12,000

82,0006,000

6,000

ANSWER :

GENERAL PROFIT & LOSS ACCOUNT

To debenture interest To provision against unrealized profit on stock (1/6 x 12,000 ) To net profit transferred & carried to balance sheet

3,000 Rs

2 ,000

21,000

26,000

By department N/P transferred dep't. P/L A/c A 24,400 B 1,600

26,000

26,000

THANK YOU