Mada za sehemu hiiAccounting For Department StoresMada 2
- Concept of departmental stores
- Accounts for Departmental Store
When the books and accounts are maintained on a columnar basis, Trading and Profit and Loss Account can also be prepared on a columnar basis. There arises no difficulty in finding out gross profit and net profit for each department separately. From the analytical ledger accounts and subsidiary books, department-wise figures are readily available. If an item of expenses definitely identified with a particular department, it can be termed as direct expenses with reference to the department.
For instance, the salary of the Manager and salesman of a particular department, special advertising, separately metered electricity etc. are expenses and exclusively meant for and identified with particular departments. Apart from this, there are some expenses termed indirect expenses.
Certain types of expenses are not readily identifiable departmentally and the benefit of such types of expenses goes to all departments. And such types of expenses, called joint expenses, are incurred for the business as a whole.
For instance, rent, depreciation, selling expenses, welfare expenses, advertising etc. Allocation of such expenses among the various departments becomes indispensable on an equitable basis at the date of the account. The important point in such cases is to fix the basis on which the different revenue items are to be split up. It is neither possible nor desirable to sub-divide all items on an equal basis.
Normally, all direct expenses are charged to the respective departments, in the case of indirect or general expenses, proper allocation among the departments must be made in order to ascertain the profit and loss made by each department. Each department is charged with proper business expenses. If the basis for such allocation is not specially mentioned, then the following procedure may be followed.
| Indirect Expenses | Basis of allocation |
|---|---|
| Expenses on Purchases (Carriage, freight … ) | In the ratio of departmental Net purchases (But ignore interdepartmental purchases) |
| Expenses on selling (Discount allowed, Bad debts Discount allowed carriage out etc.) | In the ratio of net sales of various departments (Ignore inter-departmental sales) |
| Expenses on land and building | On the basis of space occupied by each department. |
| Expenses on machinery | On the basis of the value of machinery of each department. |
| Expenses on Electricity | On the basis of meter reading or points or space occupied by each department. |
| Expenses on insurance | On the basis of stock value or/and cost of machinery or actual premiums. |
| Expenses on welfare, canteen, recreation etc. | On the basis of the number of employees of each department. |
| Expenses on workmen's compensation | On the basis of wages of each department |
| Salary of factory manager | On the basis of time devoted by him to each department |
| Non-departmental expenses | Charge to general profit and loss account |
Some expenses cannot be apportioned and no basis for apportionment is practicable. For instance, interest on loans, Income Tax, Salary to General Manager, Share Transfer expenses, Bank charges, Audit fees etc. Here these expenses can safely be transferred to General Profit and Loss Account. Similarly, an income of general nature such as Interest on Calls-in-arrears, Interest on Investment, fees on share transfers etc. is credited to General Profit and Loss Account. The Departmental Trading Account shows the Gross Profit or Loss and the Departmental Profit and Loss Account shows the Net Profit or Loss earned or suffered by each department.
Purchases made for one department may be subsequently sold in another department. In such a case, the items should be deducted from the figure for purchases of the original purchasing department and added to the figure for purchases for the subsequent selling department.
The following Trial Balance was extracted from the books of KIBAMBA Enterprise on June 30th 2002.
| DR | CR | ||
|---|---|---|---|
| SHS | SHS | ||
| Drawings/capital | 800 | 5,000 | |
| Machinery | 2,600 | ||
| Debtors/creditors | 1,500 | 3,100 | |
| Cash and bank | 4,200 | ||
| Carriage on purchases | 600 | ||
| Carriage on sales | 400 | ||
| Discounts | 500 | 900 | |
| Returns | 700 | 500 | |
| Insurance | 1,600 | ||
| Medical expenses | 1,800 | ||
| Taxes | 1,300 | ||
| Rent | 2,100 | ||
| Stock 30.5.2001: Dept H | 900 | ||
| Dept I | 600 | ||
| Furniture | 1,400 | ||
| Purchases/sales: Dept H | 7,800 | 11,200 | |
| Dept I | 9,200 | 14,600 | |
| Mortgage loan | 2,700 | ||
| 38,000 | 38,000 | ||
Notes:
-
Stock 30.6.2002: Dept H 1,100 Dept J 900
-
During the year goods costing Shs. 1,200 were transferred from Dept H.
-
Medical expenses are outstanding by Shs. 200.
-
Expenses and incomes should be apportioned to departments on the following bases:
-
Rent – according to floor space.
-
Medical expenses – number of employees.
-
The rest – equally.
| Dept H | Dept J | |
|---|---|---|
| Area | 9 m² | 12 m² |
| Employees | 2 | 3 |
Required:
Prepare department trading profit and loss accounts for the year ended 30th June 2002 and a balance sheet as at that date.
Workings
Apportionment of Expenses and Incomes
| KIBAMBA ENTERPRISE TRADING AND PROFIT AND LOSS A/C FOR THE YEAR ENDED 30.06.2002 | |||||||
| DR | CR | ||||||
| DEPT H | DEPT J | TOTAL | DEPT H | DEPT J | TOTAL | ||
| Opening stocks | 900 | 600 | 1,500 | Sales | 11,200 | 14,600 | 25,800 |
| Add: Purchases | 7,800 | 9,200 | 17,000 | Less: Returns inwards | 350 | 350 | 700 |
| 8,700 | 9,800 | 18,500 | |||||
| Less: Returns outwards | 250 | 250 | 500 | ||||
| 8,450 | 9,550 | 18,000 | |||||
| Add/Less: Transfers | 1,200 | (1,200) | - | ||||
| 9,650 | 8,350 | 18,000 | |||||
| Add: Carriage on purchases | 300 | 300 | 600 | ||||
| COGAS | 9,950 | 8,650 | 18,600 | ||||
| Less: Closing stock | 1,100 | 900 | 2,000 | ||||
| Cost of sales | 8,850 | 7,750 | 16,600 | ||||
| Gross profit c/d | 2,000 | 6,500 | 8,500 | ||||
| 10,850 | 14,250 | 25,100 | 10,850 | 14,250 | 25,100 | ||
| Carriage on sales | 200 | 200 | 400 | Gross Profit b/d | 2,000 | 6,500 | 8,500 |
| Discount Allowed | 250 | 250 | 500 | Discount Received | 450 | 450 | 900 |
| Insurance | 800 | 800 | 1,600 | Net Loss | 1,150 | - | 1,150 |
| Medical Expenses | 720 | 1,080 | 1,800 | ||||
| Outstanding medical expenses | 80 | 120 | 200 | ||||
| Taxes | 650 | 650 | 1,300 | ||||
| Rent | 900 | 1,200 | 2,100 | ||||
| Net Profit | - | 2,650 | 2,650 | ||||
| 3,600 | 6,950 | 10,550 | 3,600 | 6,950 | 10,550 |
Aminata's business is divided into two departments – Department A and Department B. The following information is provided for the year ended 31st March 2002.
| Dept A | Dept B | |
|---|---|---|
| Shs. | Shs. | |
| Stock 1 April 2001 | 1,100 | 3,900 |
| Stock 31 March 2002 | 800 | 4,800 |
| Sales | 22,000 | 66,400 |
| Purchases | 12,300 | 43,200 |
| Returns inwards | - | 400 |
| Carriage inwards | 200 | - |
You are required to prepare a columnar trading account for Aminata for the year ended 31st March 2002.
| AMINATA DEPARTMENTAL TRADING A/C FOR THE YEAR ENDED 31ST MARCH 2000 | ||||
| DR | CR | |||
| A | B | A | B | |
| Opening stock | 1,100 | 3,900 | Sales | 22,000 |
| ADD: Purchases | 12,300 | 43,200 | Less: Sales Returns | - |
| Carriage inwards | 200 | - | ||
| COGAS | 13,600 | 47,100 | ||
| LESS: Closing stock | 800 | 4,800 | ||
| COGAS | 12,800 | 42,300 | ||
| Gross Profit c/d | 9,200 | 23,700 | ||
| 22,000 | 66,000 | 22,000 | ||
| Gross Profit b/d | 9,200 |
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