NDEX
SR. TITLE PAGE NO.
NO.
1 Departmental Accounting 4 - 12
2. Insurance claims 13-18
3. Hire purchase system 19 - 31
4. Royalty 32 – 37
5 Acquisition of Business of Non- Corporate 38 – 44
Entities
6. Books for reference 45
1
, HAPTER -1 DEPARTMENTAL ACCOUNTING
INTRODUCTION:
A Departmental undertaking refers to large organization or a concern
which has a number of departments, each of which is specialized in a particular
line of activity or a particular product or service.
ADVANTAGES OF DEPARTMENTAL ACCOUNTS:
The following are the major advantages of departmental accounts:
It enables the management to know the specific results of each department, thereby
helping it in various aspects of decision making.
The profitability of each department may help the management for taking
decisions whether to drop a department or to add a new one.
The growth potentials of a department can be evaluated by having comparison
with the other departments.
The users of accounting information like shareholders, investors, creditors etc can
be provided more detailed information.
It helps the management to determine the justification of proper use of capital
invested in each department.
It helps to have comparison of various expenses of each department with previous
period or with other department of the same concern.
The information provided by departmental accounts may be helpful to the
management for future intelligent planning and control.
The departmental managers and staff can be suitably rewarded on the basis of the
departmental results.
APPORTIONMENT OF REVENUE ITEMS:
ITEMS OF DIRECT BASIS OF APPORTIONMENT
EXPENDITURE
Freight & carriage inwards for Ratio of net purchases
purchases.
Import duty, octroi etc on Ratio of net purchases
purchases
Power charges Ratio of floor space occupied by
2
, each department
Water charges Ratio of floor space occupied by
each department
ITEMS OF INCOME BASIS OF APPORTIONMENT
Discount received Ratio of net purchases
Commission earned on sales Ratio of net sales
Reserves for discount on creditors Ratio of net purchases.
ITEMS OF INDIRECT BASIS OF APPORTIONMENT
EXPENDITURE
Discount allowed Net sales
Selling commission Net sales
Sales tax Net sales
Carriage outwards Net sales
Salesmen salary & commission Net sales
After sales service Net sales
Advertisement Net sales
Bad debts Net sales
Reserve for bad debts Net sales
Rent and rates Ratio of floor space occupied by
each department
Repairs and insurance Ratio of floor space occupied by
each department
Air conditioning expenses Ratio of floor space occupied by
each department
Electricity bills (lighting) Ratio of no. of light points in each
department
Insurance premium Ratio of value of subject matter
insured
Workman‘s compensation Ratio of wages to workers of each
insurance department
Canteen expenses Ratio of no. of workers of each
department
Recreation expenses Ratio of no. of workers of each
department
Labour welfare expenses Ratio of no. of workers of each
department
Note: If the problem specifies any particular basis for apportionment, the same
must be adopted and not the basis stated in the table above.
On preparation of departmental profit & loss A/c, the net profit or net loss of
each department can be ascertained . this profit or loss must be transferred to the
general profit and loss A/c.
3
, NOTE: Common expenses and income which are not apportionable are included in
General profit and loss A/c.
Common expenses which are not apportionable among departments include:
Interest on capital
Interest on debentures
General managers salary
Audit fees
Directors fees
Bank charges
Legal charges
Office expenses which are incurred by the administration.
Common incomes which are not apportion able among departments include:
Dividend received
Transfer fees
Interest on bank deposit.
Q.1 From the following particulars prepares department trading and profit and loss
A/c and balance sheet.
Particulars Dept A Dept B
Stock on 1-04-2010 17400 14700
Purchases 35000 30000
Sales 60000 40000
Wages 8200 2700
Rent ,tax & insurance 9390 -
Sundry expenses 3600 -
Salaries 3000 -
Lighting & heating 2100 -
Discount allowed 2220 -
Discount received 650 -
Advertising 3680 -
Carriage inwards 2340 -
Furniture 3000 -
Plant & machinery 21000 -
Sundry debtors 6060 -
Capital 47660 -
Drawings 4500 -
Cash 10070 -
4
SR. TITLE PAGE NO.
NO.
1 Departmental Accounting 4 - 12
2. Insurance claims 13-18
3. Hire purchase system 19 - 31
4. Royalty 32 – 37
5 Acquisition of Business of Non- Corporate 38 – 44
Entities
6. Books for reference 45
1
, HAPTER -1 DEPARTMENTAL ACCOUNTING
INTRODUCTION:
A Departmental undertaking refers to large organization or a concern
which has a number of departments, each of which is specialized in a particular
line of activity or a particular product or service.
ADVANTAGES OF DEPARTMENTAL ACCOUNTS:
The following are the major advantages of departmental accounts:
It enables the management to know the specific results of each department, thereby
helping it in various aspects of decision making.
The profitability of each department may help the management for taking
decisions whether to drop a department or to add a new one.
The growth potentials of a department can be evaluated by having comparison
with the other departments.
The users of accounting information like shareholders, investors, creditors etc can
be provided more detailed information.
It helps the management to determine the justification of proper use of capital
invested in each department.
It helps to have comparison of various expenses of each department with previous
period or with other department of the same concern.
The information provided by departmental accounts may be helpful to the
management for future intelligent planning and control.
The departmental managers and staff can be suitably rewarded on the basis of the
departmental results.
APPORTIONMENT OF REVENUE ITEMS:
ITEMS OF DIRECT BASIS OF APPORTIONMENT
EXPENDITURE
Freight & carriage inwards for Ratio of net purchases
purchases.
Import duty, octroi etc on Ratio of net purchases
purchases
Power charges Ratio of floor space occupied by
2
, each department
Water charges Ratio of floor space occupied by
each department
ITEMS OF INCOME BASIS OF APPORTIONMENT
Discount received Ratio of net purchases
Commission earned on sales Ratio of net sales
Reserves for discount on creditors Ratio of net purchases.
ITEMS OF INDIRECT BASIS OF APPORTIONMENT
EXPENDITURE
Discount allowed Net sales
Selling commission Net sales
Sales tax Net sales
Carriage outwards Net sales
Salesmen salary & commission Net sales
After sales service Net sales
Advertisement Net sales
Bad debts Net sales
Reserve for bad debts Net sales
Rent and rates Ratio of floor space occupied by
each department
Repairs and insurance Ratio of floor space occupied by
each department
Air conditioning expenses Ratio of floor space occupied by
each department
Electricity bills (lighting) Ratio of no. of light points in each
department
Insurance premium Ratio of value of subject matter
insured
Workman‘s compensation Ratio of wages to workers of each
insurance department
Canteen expenses Ratio of no. of workers of each
department
Recreation expenses Ratio of no. of workers of each
department
Labour welfare expenses Ratio of no. of workers of each
department
Note: If the problem specifies any particular basis for apportionment, the same
must be adopted and not the basis stated in the table above.
On preparation of departmental profit & loss A/c, the net profit or net loss of
each department can be ascertained . this profit or loss must be transferred to the
general profit and loss A/c.
3
, NOTE: Common expenses and income which are not apportionable are included in
General profit and loss A/c.
Common expenses which are not apportionable among departments include:
Interest on capital
Interest on debentures
General managers salary
Audit fees
Directors fees
Bank charges
Legal charges
Office expenses which are incurred by the administration.
Common incomes which are not apportion able among departments include:
Dividend received
Transfer fees
Interest on bank deposit.
Q.1 From the following particulars prepares department trading and profit and loss
A/c and balance sheet.
Particulars Dept A Dept B
Stock on 1-04-2010 17400 14700
Purchases 35000 30000
Sales 60000 40000
Wages 8200 2700
Rent ,tax & insurance 9390 -
Sundry expenses 3600 -
Salaries 3000 -
Lighting & heating 2100 -
Discount allowed 2220 -
Discount received 650 -
Advertising 3680 -
Carriage inwards 2340 -
Furniture 3000 -
Plant & machinery 21000 -
Sundry debtors 6060 -
Capital 47660 -
Drawings 4500 -
Cash 10070 -
4
