DEPARTMENTAL ACCOUNTING

Departmental accounts are prepared to know the performance of each department and ascertain their relative
efficiencies. This requires maintenance of books of account department-wise and allocation of common
expenses among the departments.

Basis of allocation
(1) Expenses incurred specially for each department are charged directly to that department.
(2) Common expenses, the benefit of which are shared by all the departments and which are capable of
precise allocation are distributed among the departments concerned on some equitable basis.
(3) Common expenses which are not capable of precise allocation are dealt with as follows:
(a) Selling expenses are charged on the basis of sales.
(b) Administrative and other expenses are charged equally to all department or these expenses are
charged to combined profit & loss account.

Inter-departmental transfer
When goods are transferred from one department to another department, for first department it will be treated
as sales and for the later department it will be purchase. The accounting will be done at the price transferred.
They may be transferred at (i) Cost, or (ii) Market price, or (iii) Cost plus agreed profit.
When goods are transferred at price higher than cost, the profit included in closing stock should be eliminated
by creating stock reserve by debiting consolidated profit and loss account. This amount will be credited to
combined profit and loss account of the following year.

Mark-Up Accounting

Journal Entries:
When goods sent to Department
Department Stock A/c Dr. (Total)
To Shop stock A/c/ Purchase A/c (cost)
To Department Mark-Up A/c (Mark Up)
Goods sent from one department to other department
- Goods sent to other department
Receiving department A/c Dr (Cost)
Mark-Up A/c Dr. (Loading)
To Department Stock A/c (Total)
- Goods received from other department
Department Stock A/c Dr. (Total)
To Sending Department A/c (Cost)
To Mark Up A/c (Own Mark-up)
Sales
Debtors A/c Dr. (credit)
Cash A/c Dr. (cash)
To Department Stock A/c (mark-up Price)
Loss of Stock
Shortage A/c Dr.
To Department Stock A/c (mark-up price)
Department Mark-up A/c Dr. (mark-up)
Department P/L A/c Dr. (cost)
To Shortage A/c (mark-up price)

Page 29 By Ranjit Kumar Yadav, Chartered Accountant

Mark down of stock during the year
Department Mark-Up A/c Dr. (actual mark down)
To Department stock A/c
Balance in mark-up is transferred to department P/L Account
Department mark-up A/c Dr.
To Department P/L A/c
Department Stock A/c (mark-up price)
To balance b/d (opening stock) By sales (cash or credit)
- Cost By Mark-up A/c (mark down)
- Actual mark-up By receiving department (mark-up price)
To Purchases (cost) By Shortage (mark-up price)
To mark-up A/c By balance c/d - cost
To Sending Department - actual mark up
To mark-up A/c
To balance c/d (mark down on closing
stock)
Mark –up A/c
To department stock A/c By balance b/d
- on transfer (actual mark-up on opening stock)
- mark down By Department stock A/c
To shortage (mark up on shortage) - on purchase
To department P/L A/c (B. F.) - on transfer received
To Balance c/d (actual mark up on closing - additional mark-up
stock) By balance c/d (mark down on closing
stock)
Question No.1
Suman Ltd. is a departmental store having three departments X, Y & Z. The manager of each department is
entitled to a commission of 10% of the net profit of the department besides their annual salary of Rs.3,000
each. The information regarding three departments for the year ended 30th June, 2005 are given below:
X Y Z
Rs. Rs. Rs.
Opening stock 72,000 48,000 40,000
Purchases 2,64,000 1,76,000 88,000
Debtors at end 15,000 10,000 10,000
Sales 3,60,000 2,70,000 1,80,000
Closing Stock 90,000 35,000 42,000
Floor space occupied by each Dept (in Sp.ft.) 3,000 2,500 2,000
Number of employees in each department 25 20 15
The balance of other revenue items in the books for the year and the basis of their allocation amongst three
departments are given below:
Items Amount (Rs.) Basis
Carriage Inwards 6,000 Purchases
Carriage Outwards 4,500 Turnover
Salaries including Manager’s Salaries 81,000 No. of Employees
Advertisements 5,400 Turnover
Discount Allowed 2,250 Turnover
Discount Received 1,800 Purchases
Rent, Rates and Taxes 7,500 Floor space occupied
Depreciation on furniture 1,500 Equal

Assets and Liabilities on 30th June, were as follows:

Dr. Rs. Cr. Rs.
Share Capital 3,00,000
Goodwill 1,00,000
Bills Payable 12,100
Bills Receivable 42,500
Furniture 13,500
Sundry Creditors 27,000
Cash in Hand 1,750
Cash at Bank 1,62,000

Page 30 By Ranjit Kumar Yadav, Chartered Accountant

You are required to prepare Trading and Profit and Loss Account for the year ended 30 th June, 2005(after
providing provision for Bad Debts at 5%) and a Balance Sheet as on that date.
[Ans. Total profit Rs.1,62,810, Total of B/S Rs.5,20,000]
Question No. 2
The following purchases were made during the year 1989 by a business house having three departments:
Department A 1000 units
B 2000 units at a total cost of Rs.1,00,000
C 2400 units
Stock at 1st January, 1989 were Department A 120 units
B 80 units
C 152 units
The sale during 1989 were: Department A 1,020 units at Rs.20 each.
B 1,920 units at Rs.22.50 each.
C 2,496 units at Rs.25 each.
The rate of gross profit is same in each case. Prepare Department Trading Account for the year 1989.
[Ans. Gross Profit Dept. A Rs.4,080, B Rs.8,640 and C Rs.25,200]
Question No. 3
A firm has two departments, Timber and Furniture. Furniture was made by the firm itself out of timber
supplied by the Timber Department. From the following information, prepare Trading and Profit and Loss
Account for the year 1992:
Timber (Rs.) Furniture (Rs.)
Opening stock (1.1.1992) 3,00,000 50,000
Purchases 20,00,000 15,000
Sales 22,00,000 4,50,000
Transfer to Furniture Department 3,00,000 -----
Expenses - Manufacturing ----- 60,000
- Selling 20,000 6,000
Stock (31.12.1992) 2,00,000 60,000
The stocks in the Furniture Department may be considered as consisting of 75 percent of timber and 25
percent other expenses. Timber Department earned gross profit at the rate of 20 percent in 1991. General
expenses of the business as a whole came to Rs.1,00,000.
[Ans. Net Profit Dept Timber Rs.3,80,000, Furniture Rs.79,000 and Total Gross Profit Rs.3,59,300]

Question No. 4
Green & Co. has two departments P and Q Department. P sells goods to Department Q at normal selling
prices. From the following particulars prepare Departmental Trading and Profit and Loss Account for the
year ended 31-3-1994 and also ascertain the profit to be transferred to Balance Sheet:
Particulars Dept. P Dept. Q
Rs. Rs.
Opening stock 1,00,000 --
Purchases 23,00,000 2,00,000
Goods from Department P -- 7,00,000
Wages 1,00,000 1,60,000
Traveling expenses 10,000 1,40,000
Closing stock at cost to the department 5,00,000 1,80,000
Sales 23,00,000 15,00,000
Printing and Stationery 20,000 16,000
The following expenses incurred for both the departments were not apportioned between the departments:
(a) Salaries Rs.2,70,000
(b) Advertisement Rs.90,000
(c) General Expenses Rs.8,00,000
(d) Depreciation @ 25% on the machinery value of Rs.48,000, advertisement expenses are to be apportioned
in the turnover ratio, salaries in 2 : 1 ratio and depreciation in 1 : 3 ratio between the departments P and Q,
general expenses are to be apportioned in 3 : 1 ratio.
[Ans. Profit for Dept. P Rs.1,32,526, Q Rs.1,29,474 and the profit to be transferred to Balance Sheet
Rs.2,22,377]
Question No. 5
Complex Ltd. has three departments A, B & C. The following information is provided:
Particulars A B C
Rs. Rs. Rs.
Opening stock 3,000 4,000 6,000
Consumption of Direct Materials 8,000 12,000 --
Page 31 By Ranjit Kumar Yadav, Chartered Accountant
Wages 5,000 10,000 --
Closing stock 4,000 14,000 8,000
Sales -- -- 34,000
Stocks of each department are valued at cost to the department concerned. Stocks of A department are
transferred to B at a margin of 50 % above departmental cost. Stocks of B department are transferred to C
department at a margin of 10 % above departmental cost.
Other expenses were:
Salaries Rs.2,000
Printing & Stationery Rs.1,000
Rent Rs.6,000
Interest paid Rs.4,000
Depreciation Rs.3,000
Allocate expenses in the ratio of departmental gross profit. Opening figures of reserves for unrealized profit
on departmental stocks were: Department B- Rs.1,000, Department C- Rs.2,000. Prepare Departmental
Trading and Profit and Loss Account.
[Ans. Loss on Department A- Rs.2,000, B- Rs.1,000, C- Rs.1,000 and total loss Rs.4,918]
Question No. 6
A Ltd. has a factory which has two manufacturing departments X and Y. Part of the output of X department
are transferred for further processing and balance is directly transferred to the Selling Department. Inter-
departmental stocks transfers are made as follows:
X Department to Y Department of 33-1/3 % over departmental cost.
X Department to Selling Department of 50 % over departmental cost.
Y Department to Selling Department of 25 % over departmental cost.
The following information is given for the year ending 31st March, 1986:
Particulars Department X Department Y Selling Department
MT Rs. MT Rs. MT Rs.
Opening stock 60 60,000 20 40,000 50 1,45,000
Raw Material
Consumption 90 1,00,000 20 20,000 -- --
Labour Charges -- 50,000 -- 80,000 -- --
Sales -- -- -- -- -- 5,00,000
Closing stocks 30 -- 50 -- 60 --
Out of the total production in X Department 30 MT were for transfer to the Selling Department. Apart from
these stocks which were transferred during the year the balance output and the entire opening and closing
stocks of X Department were for transfer to Y Department. The per tonne material and labour consumption
in X Department on production to be transferred directly to the Selling Department is 300 percent of the
labour and material consumption on production meant for Y Department.
You are required to prepare Departmental Profit and Loss Account and General Profit and Loss Account.
[Ans. Gross Profit Dept. X – Rs.75,000, Dept. Y –Rs.40,000 and Selling Dept.- Rs.2,00,000. Total Net Profit
Rs.2,95,659]
Question No. 7
M/s Bright & Co. had four department A, B, C and D. Each department being managed by a departmental
manager whose commission was 10 % of the respective departmental profits subject to a minimum of
Rs.6,000 in each case. Interdepartmental transfers took place at a ‘loaded price’ as follows:
From Department A to Department B 10 % above cost
From Department A to Department D 20 % above cost
From Department C to Department B 20 % above cost
From Department C to Department D 20 % above cost
For the year ended 31st March, 1991 the firm had already prepared and closed the departmental trading and
Profit & Loss Account. Subsequently it was discovered that the closing stocks of departments had included
interdepartmentally transferred goods at loaded price instead of cost price. From the following information
prepare a statement re- computing the departmental profit or loss:
Dept. A Dept. B Dept. C Dept. D
Rs. Rs. Rs. Rs.
Final Profit/loss 38,000 50,400 72,000 1,08,000
(loss) (profit) (profit) (profit)
Interdepartmental -- 70,000 -- 4,800
transfers included (Rs. 22,000 from Dept. (Rs.3,600 from Dept. C
at loaded price --- A and Rs.48,000 from -- and Rs.,1200 from
in the departmental stock Dept. C) Dept. A)
[Ans. Departmental Profit Dept. A – Rs.40,200, Dept. B- Rs.50,400, Dept. C – Rs.64,260 and Dept. D
Rs.1,08,000]
Page 32 By Ranjit Kumar Yadav, Chartered Accountant
Question No. 8
Department X sells goods to Department Y at a profit of 25% on cost and to Department Z at 10% profit on
cost. Department Y sells goods to X and Z at a profit of 15% and 20% on sales respectively. Department Z
charges 20% and 25% profit on cost to X and Z Department. Department managers are entitled to 10%
commission on net profit subject to unrealized profit on department sales being eliminated. Departmental
profit after charging Managers commission, but before adjusting of unrealized profit are as under:
Rs.
Department X 36,000
Department Y 27,000
Department Z 18,000
Stocks lying at different departments at the end of the year are as under:
Dept. X Dept. Y Dept. Z
Rs. Rs. Rs.
Transfers from Department X -- 15,000 11,000
Transfers from Department Y 14,000 -- 12,000
Transfers from Department Z 6,000 5,000 --
Find out the correct departmental profits after charging Manager’s Commission.
[Ans. Profits Dept. A- Rs.32,400, Dept. B- Rs.22,950 and Dept. Z- Rs.16,200]
Question No. 9
Fairway Limited is a retail organization with several departments. Goods supplied to each department are
debited to a memorandum departmental stock account at cost plus a fixed percentage (mark – up) to give the
normal selling price. The mark up is credited to memorandum departmental mark up account, any reduction
in selling price (mark down) will require adjustment in stock account and mark up account. The mark up for
Department A for the last three years has been 40 % on cost. Figures for the year ended 30th June, 1998 were
as follows:
Rs.
Stock 1st July, 1997, at cost 80,000
Purchases at cost 1,80,000
Sales 3,20,000
It is further ascertained that:
(i) Goods purchased in the period were marked down by Rs.1,400 from a cost of Rs.16,000. Such marked
down stock costing Rs.4,000 remained unsold on 30th June, 1998.
(ii) Stock shortages at the year end which had cost Rs.1,200 were to be written off.
(iii) Stock at 1st July, 1997 includes goods costing Rs.8,200 which had been sold during the year and had
marked down in the selling price by Rs.740.
You are required to prepare a Departmental Trading Account for the year ended 30 th June, 1998 in head office
books. A memorandum stock account for the year and memorandum mark up account for the year.
[Ans. Gross Profit Rs.90,150]
Question No. 10
Southern Stores Ltd. is a retail store operating two departments. Department Y has a mark up of 33-1/3 % on
cost and Department Z 50% on cost. The following information has bee extracted from the records of
Southern Stores Ltd. for the year ended 31st December, 1988:
Dept. Y Dept. Z
Rs. Rs.
Stock 1st January 1988 at cost 24,000 36,000
Purchases 1,62,000 1,90,000
Sales 2,10,000 2,85,000
1. The stock of department Y at 1st January 1988 includes goods on which the selling price has been marked
down by Rs.510. These goods were sold in January 1988 at the reduced price.
2. Certain goods purchased in 1988 for Rs.2,700 for Department Y, were transferred during the year to
Department Z, and sold for Rs.4,050. Purchase and sale were recorded in the purchases of Department
Y and the sales of Department Z, but no entries in respect of the transfer have been made.
3. Goods purchased in 1988 were marked down as follows:
Dept. Y Dept. Z
Rs. Rs.
Cost 8,000 21,000
Mark Down 800 4,100
At the end of year there were some items in the stock of Department Z, which had been marked down to
Rs.2,300 with this exception all goods marked down in 1988 were sold during year at reduced prices.
4. During stock taking at 31st December 1988 goods which had cost Rs.240 were found to be missing in
Department Y. It was determined that the loss should be regarded as irrecoverable.
Page 33 By Ranjit Kumar Yadav, Chartered Accountant
5. The closing stock in both departments are to be valued at cost for the purpose of the annual accounts.
You are required to prepare for each department for the year ended 31st December 1988:
(i) Trading Account; (ii) Memorandum Stock Account; and (iii) Memorandum Mark-up Account.
[Ans. Gross Profit Dept. Y –Rs.51,518 and Dept. Z –Rs.92,496]
Question No. 11
X Ltd. has two departments A and B. From the following particulars prepare the consolidated Trading and
Departmental Trading Account for the year ending 31st December, 1998:
A(Rs.) B(Rs.)
Opening Stock (at cost) 20,000 12,000
Purchases 92,000 68,000
Sales 1,40,000 1,12,000
Wages 12,000 8,000
Carriage 2,000 2,000
Closing stock:
(i) Purchased goods 4,500 6,000
(ii) Finished goods 24,000 14,000
Purchased goods transferred:
by B to A 10,000
by A to B 8,000
Finished goods transferred:
by A to B 35,000
by B to A 40,000
Return of finished goods:
by A to B 10,000
by B to A 7,000
You are informed that purchase goods have been transferred mutually at their respective departmental
purchase cost and finished goods at departmental market price and that 20% of the finished stock (closing)
at each department represent finished goods received from the other department.
[Ans. Departmental Gross profit A- Rs.38,500; B – Rs.46,000 and the consolidated- Rs.82,304]
Question No. 12
Gram Udyog a retail store, has two departments, ‘Khadi and Silks’ for each of which stock account and
memorandum ‘mark up’ accounts are kept. All the goods supplied to each departments are debited to the
stock account at cost plus a ‘mark up’, which together make-up the selling-price of the goods and in the
account of the sale proceeds of the goods are credited. The amount of mark-up is credited to the Departmental
Mark-up Account. If the selling price of any goods is reduced below its normal selling price, the reduction,
marked down is adjusted both in the Stock Account and the Departmental Mark-up Account. The rate of
“Mark up’ for Khadi Department is 33-1/3% of the cost and for Silks Department it is 50% of the cost.
The following figures have been taken from the books for the year ended December 31, 1998:
Khadi Silks
Rs. Rs.
Stock as on 1st January at cost 10,500 18,600
Purchases 75,900 93,400
Sales 95,600 1,25,000
(1) The stock of Khadi on 1st January, 1998 included goods the selling price of which had been marked
down by Rs.1,260. These goods were sold during the year at the reduced prices.
(2) Certain stock of the value of Rs.6,900 purchased for the Khadi Department were later in the year
transferred to the Silks Department and sold for Rs.10,350. As a result though cost of the goods is
included in the Khadi Department the sale precedes have been credited to the Silks Department.
(3) During the year 1998 to promote sales the goods were marked down as follows:
Cost (Rs.) Marked Down (Rs.)
Khadi 5,600 360
Silk 10,000 2,000
All the goods marked down, were sold except silks of the value of Rs.5,000 marked down by Rs.1,000.
(4) At the time of stock taking on 31st December 1998 it was discovered that Khadi cloth of the cost of
Rs.390 was missing and it was decided that the amount be written off.
You are required to prepare for both the departments for the year 1998.
(a) The memorandum stock account; and
(b) The memorandum Mark up account.
[Ans. Balance in Silk Stock A/c- Rs.51,350; Silk Mark up A/c –Rs.16,450; Khadi Stock A/c- Rs.8,260; and
Khadi Mark up A/c- Rs.2,065]

Page 34 By Ranjit Kumar Yadav, Chartered Accountant