CHAPTER - 5

(DEAPARTMENTAL ACCOUNTING)

1. Following are the indirect expenses and income, determine the basis of apportionment among the
Department.
2. Mention the bases of apportionment of joint expenses to department

SL.NO DIRECT EXPENDITURE/ INDIRECT BASIS OF APPORTIONEMENT

EXPTENDITURE/ INCOME
1. Freight charges Ratio of Purchases
2. Carriage inwards Ratio of Purchases
3. Import duty, octroi Ratio of Purchases
4. Discount received Ratio of Purchases
5. Commission Ratio of Sales
6. Discount allowed Ratio of Sales
7. Sales tax and after sales services Ratio of Sales
8. Carriage outwards Ratio of Sales
9. Travelling Ratio of Sales
10. Advertisement Ratio of Sales
11. Bad debts Ratio of Sales
12. Water charges Ratio of Meter reading
13. Depreciation of machinery Ratio of Power consumed by each machine
14. Power charges Ratio of Floor space
15. Rent and rates Ratio of Floor space
16. Repairs and insurance of buildings Ratio of Floor space
17. Air-conditioning expenses Ratio of Floor space
18. Electricity bills (lightings) Ratio of Number of points
19. Repairs of machinery Value of machinery/floor space occupied by machinery
20. Depreciation Ratio of Value of assets
21. Insurance premium Ratio of Subject matter
22. Workmen’s compensation insurance Ratio of Wages to workers
23. Recreation expenses Ratio of Number of workers
24. Labour welfare expenses Ratio of Number of workers
25 Canteen expenses Ratio of Number of workers

STEP 1 : CALCULATION OF DEPARMTENTAL TRADING AND PROFIT AND LOSS

ACCOUNT FOR THE YEAR ENDING

STEP 2: CACLUCATION OF BALANCE SHEET FOR THE YEAR ENDING

WORKING NOTE: ALLOCATION OF INCOME AND EXPENSES TO EACH

DEPARMTMENT ON THE BASIS OF RATIO
 STEP 1 : CALCULATION OF DEPARMTENTAL TRADING AND
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDING
Dr. Cr.
PARTICULARS AMOUNT PARTICULARS AMOUNT
To Opening stock XX By sales XX
LESS: Returns
To Purchase XX By closing stock XX
LESS: Returns
To carriage inwards XX Transfer To XX
To wages XX XX
Transfer from XX XX
To gross profit c/d XX XX
TOTAL XX TOTAL XX
To Rent, rates, taxes, Insurance XX By gross profit b/d XX
To sundry expenses XX By discount received XX
To office expenses XX By Interest XX
To printing and stationery XX By net loss c/d XX
To Carriage outwards XX
To salaries XX
To general salaries and charges XX
To discount allowed XX
To depreciation on fixed assets XX
To advertisement XX
To lighting and heating XX
To bad debts XX
To Bank interest XX
To commission XX
To provisions and outstanding XX
To other expenses XX
To telephone XX
To travelling expense XX
To debenture XX
TOTAL XX TOTAL XX

STEP 2: CACLUCATION OF BALANCE SHEET FOR THE YEAR ENDING

LIABILITIES AMOUNT ASSESTS AMOUNT

Capital XX Fixed Assets: XX
ADD: Net Profit Furniture and fixtures
LESS: Drawings Plant and machinery
LESS: Net Loss Land and building
Sundry creditors XX Closing stock XX
Loan XX Government securities XX
Outstanding XX Cash in hand XX
Debenture XX Motor lorries XX
Bills payable XX Bills receivable XX
General reserve XX Goodwill XX
Profit and loss a/c XX Current assets XX
TOTAL XX TOTAL XX
1. What is department?
Department is a division or unit established by the parent organization to achieve a
common and specified operational functions. Each department is individually responsible
to its profit or loss.

2. What is departmental accounting?

Departmental accounts are set of accounts prepared to measure each department or
division’s operational performance and trading results. These are prepared at any given
time to measure the earning capacity and find the operational leakage.

3. Mention four advantages of departmental accounting?

 It helps to make sure whether the department makes profit or suffers a loss.
 It makes the management to compare the departments each other to take corrective
actions.
 It helps to take a decision of further investment or disinvestment based on the
results of each department.
 It helps to reward the manager of each department with incentives and
remuneration.
 The trading results of each department may help to evaluation the performance of
each department. The sales of that department which gives maximum profit may be
pushed up by special efforts.
 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 evaluation by having comparison with
the other departments.
 The users of accounting information can be provided more detailed information like
the shareholders, investors, creditors, etc.
 The overall profits of the organization can be increased by having friendly rivalries
between different departments.
 The departmental managers and staff can be suitably rewarded on the basis of the
departmental result.
 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 the
previous period or with other departments of the same concern.
 It helps to know the efficiency of each department by calculating stock turnover
ratio of each department to reveal the fast or slow movement of various items of
stock.
 The information provided by departmental accounts may be helpful to the
management for future intelligent planning and control.
4. Mention important objectives of departmental accounting?
 To assess each department on the basis of operational performance.
 To keep separate set of accounts of each department to monitor the trend of
performance.
 To take special care of weak department to improve the performance.
 To decide the further investment or disinvestment of the fund among the different
departments based on the outcome of the performance assessment.
 To check out interdepartmental performance
 To evaluate the performance of the department with previous period result.
 To help the owner for formulating right policy for future.
 To assist the management for making decision to drop or add a department
 To provide detail information of the entire organization
 To assist management for cost control

5. State the two methods of departmental accounts?

 Singular method
 Columnar method

6. What is Independent method / Singular method / Unitary method of

departmental accounts?
Under this method of accounting treatment, each department is treated like a separate
establishments and a separate set of accounts are maintained to each department to find out
trade efficiency.

7. What is columnar method of departmental accounts?

It is said to be a consolidation method. Under this method of accounting treatment,
common books of accounts are maintained for all the departments or division of the
establishment.

8. Why do you prepare departmental trading account?

This account is similar to common trading account. It is prepared to find out the Gross
Profit or loss of respective departments.
9. Difference between department accounting and Branch accounting.

DEPARTMENT ACCOUNTING BRANCH ACCOUNTING

Accounting are relating to each of the In the case of a branch types of organisation
several department or divisions of a the parent establishment
business
Various parts of the business are located Various parts of the business are located in
under the same roof different places
All accounts are maintained at one place & In case of branch, all branch accounts are
departmental trading and profit and loss kept at Head Office except cash, customers
account is prepared accordingly and stock registers are maintained at branch.
Departments are not geographically As branches are geographically separated
separated from each other, so problem of from each other so the problem of allocation
allocation of common expenses among of common expenses among different
different departments arises. branches does not arises.

The question of adjustments and In case of independent branch some

reconciliation of accounts does not arise in adjustments and reconciliation of head office
departmental accounts. and the branch accounts are required to be
done at the end of the year.
The problem of conversion of foreign The problem of conversion of foreign branch
currency into home currency does not figures may arise at the time of finalization
arise. of accounts of head office.