Branch accounts A branch is an extension or sub-division of a large business. Divisions or sections, opened in various parts of a country or the world with a view to extend business activities or to capture new market is known as Branches. A branch is a section of an enterprise, geographically separated from the rest of the business, controlled by a head office. Departmental accounts are accounts relating to the different departments or division of a business and are prepared to ascertain the trading results of each department separately. In short, the accounts which are prepared to know the profitability of each department separately are called departmental accounts.

1. BRANCH ACCOUNT
MEANING OF BRANCH
A branch is an extension or sub-division of a large business.
Divisions or sections, opened in various parts of a country or the world
with a view to extend business activities or to capture new market is
known as Branches. A branch is a section of an enterprise, geographically
separated from the rest of the business, controlled by a head office.
NEED OR OBJECTS OF BRANCH ACCOUNTS
The various objects of maintaining branch accounts are:
 To ascertain profit or loss of each branch
 To ascertain financial position of each branch
 To help in controlling branches
 To assess the progress and performance of each branch
 To ascertain the requirement of stock and cash for each branch
 To comply the audit requirements under sec. 228 of the companies Act
1956.
 To ascertain whether the branch should be closed or expanded.

2. TYPES OF BRANCHES
Branches are divided in to the following three types:
DEPENDENT BRANCH
 The branch which does not maintain a complete record of
transaction.
Dependent branches
Independent branches
Foreign branches

3.  It sells goods received from the head office.
 It has no power to purchase goods from others.
 It may sell goods for cash as well as on credit.
 It works strictly according to the instruction of the H.O.
 It does not maintain books of accounts
 The branch maintain only cash book and record of its
debtors.
 All the expenses of the branch are paid by the head office.
CHARACTERISTICS OF DEPENDENT BRANCHES
o They mainly sell goods supplied by the head office
o They sell goods for cash. They sell goods on credit only if
they are authorised to do so.
o All major expenses are paid directly by the head office.
However, petty expenses are met by the manager.

4. o Cash collected is either remitted daily to the head office or deposited I
the head office account in a local bank.
o They do not maintain accounts. They maintain some memorandum
records such as cash book, stock register, sales book, debtors account etc.
METHODS OF MAINTAINING ACCOUNTS OF DEPENDENT BRANCHES
There are four main methods of accounting for dependent branches. They
are:
 Debtors System
 Stock and debtors system
 Final account system
 Whole sale branch system
DEBTORS SYSTEM
Under this method, the head office prepares a branch A/c for each branch.
Such branch is of nominal nature. A branch is assumed to be a debtor of
head office. The branch A/c shows the balances of assets and liabilities of
the Branch. This method is usually followed by small size branches.

5. Head office may send goods either at cost price or at selling price
(invoice price)
Cost price method: Under this method, goods sent to the branch at cost to
the H.O. Here cost price means purchase price plus any purchases
expenses incurred on the goods. No profit is added to the price.

8. Particulars Amount Particulars Amount
To Balance b/d: By Balance b/d:
Stock
Debtors
Petty cash
Fixed assets
Prepaid expenses
xxx
xxx
xxx
xxx
xxx
Creditors
Outstanding expenses
By Bank/Cash
Cash sales xxx
Cash collected from xxx
Debtors
xxx
xxx
xxx
To Goods sent to branch A/c xxx By goods sent to branch A/c
(Returned by branch)
xxx
To Bank/Cash ( Expenses paid )
(Rent, Rates, Taxes, petty cash)
xxx By Balance c/d:
To Balance c/d: Stock xxx
Creditors
Outstanding expenses
xxx
xxx
Debtors
Petty cash
Fixed assets
Prepaid expenses
xxx
xxx
xxx
xxx
To General P/L ( Profit) xxx By General P/L (Loss) xxx
Branch Account

9. Invoice price method: Sometimes the H.O may send goods at a price
higher than the cost price. This higher price is generally termed as
Invoice price.
STOCK AND DEBTORS SYSTEM (ANALYTICAL SYSTEM)
Under stock and debtors system, several accounts relating to the
transactions of a branch are maintained in the books of H.O. This
method is generally used when goods are sent to the branch at
invoice price and the size of the branch is large. The various
accounts to be prepared are:
1. Branch stock A/c
2. Branch Debtors A/c
3. Branch expense A/c
4. Branch Adjustment A/c
5. Goods sent to branch A/c
6. Branch profit and Loss A/c

10. Branch Stock A/c
Particulars Amount Particulars Amount
To Balance b/d
(Opening)
xxx By Goods
returned to H.O
xxx
To Goods sent to
branch a/c
xxx By cash (cash
sales)
xxx
To Branch Debtors
(Sales returns)
xxx By Branch debtors
(Credit sales)
xxx
To branch P/L A/c
(Surplus)
xxx By Balance c/d
(closing)
xxx
By Branch P/L
A/c (Loss)
xxx
xxx xxx

11. Branch Debtors A/c
Particulars Amount Particulars Amount
To Balance b/d
(Opening)
xxx By Cash (Received from
debtors)
xxx
To Branch Stock
(Credit sales)
xxx By Bills receivable xxx
By Branch Stock A/c
(Returns by Debtors)
xxx
By Branch expenses A/c:
Bad debts
Discount Allowed
Allowances
xxx
By Balance c/d (closing) xxx
xxx xxx

12. Branch Expenses A/c
Particulars Amount Particulars Amount
To Bank /Branch
Cash:
Salaries
Rent
Petty cash expenses
Others
xxx
xxx
xxx
xxx
By Branch P&L
A/c
(transfer)
xxx
To Branch Debtors:
Bad debt
Discount allowed
xxx
xxx
To Branch fixed
assets:
Depreciation xxx
xxx xxx

13. Branch Profit & Loss A/c
Branch Cash A/c
Particulars Amount Particulars Amount
To Branch
Expenses A/c
xxx By Branch stock
A/c
xxx
To General P&L
A/c (Profit)
(Bal.fig)
xxx
xxx xxx
Particulars Amount Particulars Amount
To Balance b/d xxx By Bank A/c
(Remittance )
xxx
To Branch stock A/c
( Cash sales)
xxx By Balance c/d xxx
To Branch Debtors
A/c (Cash received)
xxx

14. Goods sent to branch A/c
FINALACCOUNTS SYSTEM
Under this method, the head office may also maintain a branch account.
The branch account so prepared is personal account. The balance in the
branch account at the end of the a particular period represents the net
assets at the branch. Under this system, the profit or loss made by the
branch is ascertained by preparing ‘branch trading and profit &loss
account.’
WHOLESALE BRANCH SYSTEM
Sometimes head office also sells goods at retail or list price besides
sending the goods to branches at wholesale price. The difference
between the wholesale and retail price will be the profit made by the
branch.
Particulars Amount Particulars Amount
To Purchase A/c-
(Transfer)
xxx By Branch stock
A/c
xxx
xxx xxx

15. INDEPENDENT BRANCH
 Independent branch means a branch which maintain its own set of
books and has freedom to operate independently.
 They receives goods from H.O.
 It also purchases from the open market locally.
 Expenses are met by the branch out of its own funds.
 It does not remit cash to the H.O.
 The entire accounting is done at branch.
FEATURES
o It maintains complete books of accounts under double entry
system.
o It maintains a H.O. A/c books in its books. All transaction
between H.O. and branch are recorded in this accounts. H.O. also
maintains a Branch A/c. These two accounts are personal in
nature.
o The branch prepares its trail balance and final accounts and sends
copies of these statements to the H.O. for incorporation.

16. FOREIGN BRANCH
 These branches are located outside the country. They are operated
in the foreign country which has a different currency.
 They generally maintain independent and complete record of
business transacted by them in currency of the country in which
they operate.
PROBLEMS:
DEBTORS SYSTEM
• When goods are send to branch at cost price
 From the following transaction relating to Hyderabad branch for
the year ended 31-12-2019, Prepare Branch A/c in the books of
Head office.

17. Stock at branch on 1-1-2019 15000
Debtors at the Branch on 1-1-2019 30000
Petty Cash at the Branch on 1-1-2019 300
Goods sent to branch during 2019 252000
Cash Sales 60000
Cash received from Debtors 210000
Credit Sales 228000
Cheque sent to branch during 2019:
Salaries 9000
Rent & Rates 1500
Petty Cash 1100
Stock at the branch 31-12-2019 25000
Petty Cash on 31-12-2019 200
Goods returned by the branch 2000
Debtors on 31-12-2019 48000

18. Particulars Amount Particulars Amount
To Balance b/d: By Bank:
Stock
Debtors
Petty cash
15000
30000
300
Cash sales 60000
Cash collected from
Debtors 210000 270000
To Goods sent to branch
A/c
252000 By goods sent to branch A/c
(Returned by branch)
2000
To Bank:
Rent &Rates 1500
Salaries 9000
Petty cash 1100 11600
By Balance c/d:
Stock
Debtors
Petty cash
25000
48000
200
To General P/L ( Profit) 36300
345200 345200
Hyderabad Branch A/c

19. Calculation of Missing figures
 The following information relates to Madurai Branch
Stock on 1-1-2020 11200
Branch Debtors on 1-1-2020 6300
Cash sent to branch for:
Rent 1500
Salaries 3000
Petty cash 500
Sales at branch:
Cash 25000
Credit 39000
Cash received from Debtors 41200
Stock on 31-12-2020 13600
Prepare Branch A/c for the year 2020

20. • In this question closing balance of Debtors is not given, we want
to find out closing balance of debtors by preparing Branch
Debtors A/c.
Working note: Calculation of closing Debtors
Branch Debtors A/c
Particulars Amount Particulars Amount
To Balance b/d 6300 By Cash (Received
from debtors)
41200
To Credit Sales 39000 By Balance c/d
(B.F)
4100
45300 45300

21. Particulars Amount Particulars Amount
To Balance b/d: By Bank:
Stock
Debtors
11200
6300
Cash sales 25000
Cash collected from
Debtors 41200 66200
To Goods sent to branch
A/c
51000 By Balance c/d:
Stock
Debtors
13600
4100
To Bank:
Rent &Rates 1500
Salaries 3000
Petty cash 500 5000
To General P/L ( Profit) 10400
83900 83900
Madurai Branch A/c

22. • When goods are send to branch at invoice price.
 A madras head office has a branch at Salem to which goods are
invoiced at cost plus 20%. Prepare Branch A/c in the books of
head office.
Goods sent to branch 211872
Total sales 206400
Cash sales 110400
Cash received from debtors 88000
Branch Debtors on 1.1.2016 24000
Branch stock on 1.1.2016 7680
Branch stock on 31.12.2016 13440
Solution :
In this question closing balance of Debtors is not given, we want
to find out closing balance of debtors by preparing Branch
Debtors A/c.

23. Working note: Calculation of closing Debtors
Branch Debtors A/c
Particulars Amount Particulars Amount
To Balance b/d 24000 By Cash (Received
from debtors)
88000
To Credit Sales
(Total sales- Cash
sales) 206400-
110400
96000 By Balance c/d
(B.F)
32000
120000 120000

24. Particulars Amount Particulars Amount
To Balance b/d: By Bank:
Stock
Debtors
7680
24000
Cash sales 110400
Cash collected from
Debtors 88000 198400
To Goods sent to branch
A/c
211872 By Stock reserve (7680*20/120)
(Opening stock)
By Goods sent to branch (loading)
(211872*20/120)
1280
35312
To Stock reserve (Closing
stock) (13440*20/120)
2240 By Balance c/d:
Stock
Debtors
13440
32000
To General P/L ( Profit) 34640
280432 280432
Salem Branch A/c

25.  Manian Ltd of calcutta has a branch at Patna. Goods are invoiced
to the branch, the selling price being cost plus 25%. From the
following details, Prepare the Patna branch A/c for the year 2019.
Stock on 1.1.2019 1250
Stock on 31.12.2019 1500
Debtors on 1.1.2019 700
Debtors on 31.12.2019 900
Cash sales for the year 5400
Credit sales for the year 3500
Goods invoiced from calcutta 9100
Rent 400
Wages 340
Sundry expenses 80

26. • In this question cash received from Debtors is not given, we want
to find out by preparing Branch Debtors A/c.
Working note: Calculation of cash received from Debtors
Branch Debtors A/c
Particulars Amount Particulars Amount
To Balance b/d 700 By Cash (Received
from debtors)
(Bal.fig)
3300
To Credit Sales 3500 By Balance c/d 900
4200 4200

27. Particulars Amount Particulars Amount
To Balance b/d: By Bank:
Stock
Debtors
1250
700
Cash sales 5400
Cash collected from 3300
Debtors 8700
To Goods sent to branch
A/c
To Stock reserve (Closing
stock) (1500*25/125)
9100
300
By Stock reserve (1250*25/125)
(Opening stock)
By Goods sent to branch (loading)
(9100*25/125)
250
1820
To Bank:
Rent &Rates 400
Wages 340
Sundry expenses 80 820
By Balance c/d:
Stock
Debtors
1500
900
To General P/L ( Profit) 1000
13170 13170
Patna Branch A/c

28.  Naga of Trichy has a branch at Madras. Goods sent by head office at invoice
price which is at profit of 20% on cost price. All the expenses of the branch are
paid by the head office. From the following particulars, prepare branch A/c.
Opening Balances:
Stock (Invoice price) 11000
Debtors 1700
Petty Cash 100
Goods sent to branch at invoice price 20000
Expenses met by H.O.
Rent 600
Wages 200
Salary 900
Remittances made to H.O.
Cash sales 2650
Cash received from debtors 21000
Goods returned by branch 400
Balances at end
Stock 13000
Debtors 2000
Petty cash 25

29. Particulars Amount Particulars Amount
To Balance b/d: By Bank:
Stock
Debtors
Petty Cash
11000
1700
100
Cash sales 2650
Cash collected from 21000
Debtors 23650
To Goods sent to branch
A/c
To Stock reserve (Closing
stock) (13000*20/120)
20000
2167
By Goods Returned by branch
By Stock reserve (11000*20/120)
(Opening stock)
By Goods sent to branch (loading)
(20000-400= 19600*20/120)
400
1833
3267
To Bank:
Rent 600
Wages 200
Salary 900 1700
By Balance c/d:
Stock
Debtors
Petty cash
13000
2000
25
To General P/L ( Profit) 7508
44175 44175
Madurai Branch A/c

30. STOCK AND DEBTORS SYSTEM
 The calcutta Commercial Company invoiced goods to its
Jamshedpur Branch at cost. The head office paid all the expenses
from its bank except Petty cash expenses which are paid by the
branch. From the following details, prepare,
1. Branch Stock A/c
2. Branch Debtors A/c
3. Branch Expenses A/c
4. Branch P&L A/c
Stock (Opening) 21000
Debtors (Opening) 37800
Petty Cash (Opening) 600
Goods sent from H.O. 78000
Goods returned to H.O. 3000
Cash sales 52500

31. Advertisement 2400
Cash received from Debtors 85500
Stock (Closing) 19500
Allowances to customers 600
Discount to Customers 4200
Bad debt 1800
Goods returned by customers 1500
Salaries & Wages 18600
Rent & Rates 3600
Debtors (Closing) 29400
Petty cash (Closing) 300
Credit Sales 85200

32. Branch Stock A/c
Particulars Amount Particulars Amount
To Balance b/d
(Opening)
21000 By Goods
returned to H.O
3000
To Goods sent to
branch a/c
78000 By cash (cash
sales)
52500
To Branch Debtors
(Sales returns)
1500 By Branch debtors
(Credit sales)
85200
To branch P/L A/c
(Transfer)
59700 By Balance c/d
(closing)
19500
160200 160200

33. Branch Debtors A/c
Particulars Amount Particulars Amount
To Balance b/d
(Opening)
37800 By Cash (Received from
debtors)
85500
To Branch Stock
(Credit sales)
85200 By Branch Stock A/c
(Returns by Debtors)
1500
By Branch expenses A/c:
Bad debts 1800
Discount Allowed 4200
Allowances 600
6600
By Balance c/d (closing) 29400
123000 123000

34. Branch Expenses A/c
Particulars Amount Particulars Amount
To Bank /Branch
Cash:
Salaries
Rent
Petty cash expenses
(600-300)
Advertisement
18600
3600
300
2400
By Branch P&L
A/c
(transfer)
31500
To Branch Debtors:
Bad debt
Discount allowed
Allowances
1800
4200
600
31500 31500

35. Branch Profit & Loss A/c
 A head office at Bhopal invoices goods to its branch at Indoor at
cost and branch sells the goods not only for cash but also on credit.
The expenses of the branch are paid by the head office. From the
following particulars relating to the branch opened on 1-1-2016,
prepare necessary ledgers accounts under stock and debtors system
in the head office books.
Particulars Amount Particulars Amount
To Branch
Expenses A/c
31500 By Branch stock
A/c
59700
To General P&L
A/c (Profit)
(Bal.fig)
28200
59700 59700

36. Goods sent to branch 5000
Goods returned by branch 300
Expenses paid by the H.O. 1000
Remittance from branch 4200
Receipt from debtors not paid 300
Credit sales 5200
Discount allowed to customers 180
Cash sales 250
Branch stock (31-12-2016) 1700
Branch debtors (31-12-2016) 770

37. Branch Stock A/c
Particulars Amount Particulars Amount
To Goods sent to
branch a/c
5000 By Goods
returned to H.O
300
To branch P/L A/c
(Transfer)
2450 By cash (cash
sales)
250
By Branch debtors
(Credit sales)
5200
By Balance c/d
(closing)
1700
7450 7450

38. Branch Debtors A/c
Particulars Amount Particulars Amount
To Branch Stock
(Credit sales)
5200 By Cash (Received from
debtors) (Bal.Fig)
4250
By Branch expenses A/c:
Discount Allowed 180
By Balance c/d (closing) 770
5200 5200

39. Branch Expenses A/c
Goods sent to branch A/c
Particulars Amount Particulars Amount
To Bank Expenses 1000 By Branch P&L
A/c
(transfer)
1180
To Branch Debtors:
Discount allowed
180
1180 1180
Particulars Amount Particulars Amount
To Purchase A/c-
(Transfer)
5000 By Branch stock
A/c
5000
5000 5000

40. Branch Profit & Loss A/c
Branch Cash A/c
Particulars Amount Particulars Amount
To Branch
Expenses A/c
1180 By Branch stock
A/c
2450
To General P&L
A/c (Profit)
(Bal.fig)
1270
2450 2450
Particulars Amount Particulars Amount
To Branch stock A/c
( Cash sales)
250 By Bank A/c
(Remittance )
4200
To Branch Debtors
A/c (Cash received)
4250 By Balance c/d
(Bal.Fig)
300
4500 4500

41. DEPARTMENTAL ACCOUNTS
Meaning of Departmental Accounting
Departmental accounts are accounts relating to the different
departments or division of a business and are prepared to ascertain
the trading results of each department separately. In short, the
accounts which are prepared to know the profitability of each
department separately are called departmental accounts.
Advantages of Departmental Accounts
 Ascertainment of profit: Gross profit and net profit can be
ascertained separately on a reliable basis.
 Comparative performance: It is easy to compare the
performance of one department with other departments.
 Appraisal of personnel: Individuals responsible for improved
results or decline in performance can be identified. This is useful
in implementing incentive system.

42.  Remedial Measures: Areas of poor performance can be identified
for implementing remedial measures.
 Expansion and diversification: It enables the management to take
decision on expansion, continuation or diversification of business.
 Policy formulation: Management policies towards inventories,
extending credit, additional investment etc., are facilitated.
DISTINCTION BETWEEN DEPARTMENTS AND BRANCHES
Basis of
Comparison
Departments Branches
Location All the departments are located
within a single premises.
Branches are located in different
geographical areas.
Growth Departments are confined to
local business and can grow
vertically within the same roof.
Branches cater to wider market and
can expand and grow
geographically.
Accounting All the accounting records are
centralised and maintained
within the same premises.
Branches keeps records of their
operations separetely. The H.O.
consolidates the accounts of all
branches.

43. International
Operations
Departments are confined to
a single place unless similar
organisations are opened
elsewhere.
Branches can be started anywhere in
the world. So there can be local and
foreign branches...
APPORTIONMENT OF EXPENSES
Expenses Basis of Apportionment
Selling expenses like sales commission, bad
debt, discount allowed, salesmen’s salaries,
advertisement, carriage outward etc
In the ratio of net sales of each
department (Net sales= Sales-sales
return)
Rent and Rates, Repairs to Building,
Maintenance of premises, depreciation,
Insurance etc
Floor area or space occupied by
each department.
Expenses in connection with fixed assets
such as Depreciation, repairs, maintenance,
insurance etc.
Value of assets possessed by each
department

44. Lighting No: of Light points in the departments. If
it is not available, floor area occupied as
the case may be.
Power Horsepower (H.P) *Hours worked
Carriage inward Purchase value.
P.F. Contribution, ESI, Workmen’s
compensation, Insurance premium etc.
Direct wages of each department
Factory managers salary or Works
managers salary
Ratio of time spent in each department
Salary of manager, general manager,
accounts dept.
Sales or cost of goods sold in each
department
Workmen’s amenities and welfare
expenses
Number of workers in each department
Note: If the bases for allocation are not given, then the expenses
should be apportioned on the basis of Net sales of each departments.
Net sales = Sales- sales return

45. PROBLEMS:
 From the following details, Prepare departmental trading
accounts.
Dept A Dept B
Opening stock 9000 8400
Total Purchases 27000 21600
Total Sales 42000 36000
Closing stock 10800 4800
Credit Purchases 17000 10600
Credit Sales 5000 6000

46. Solution:
Departmental Trading Account
Particulars Dept A Dept B Particulars Dept A Dept B
Opening Stock 9000 8400 Total Sales 42000 36000
Total Purchases 27000 21600 Closing stock 10800 4800
Gross Profit c/d 16800 10800
52800 40800 52800 40800

47.  The following purchases were made by the a business house having
three departments.
Dept A- 1000 units
Dept B- 2000 units at a total cost of Rs. 100000
Dept C- 2400 units
Stock on 1st January were:
Dept A- 120 units
Dept B – 80 units
Dept C – 152 units
Sales were
Dept A – 1020 units at Rs. 20 each
Dept B – 1920 units at Rs. 22.50 each
Dept C- 2496 units at Rs. 25 each
The rate of gross profit is same in each case. Prepare Departmental
Trading account.

48. Solutions:
Working Notes:
1. Calculation of Closing stock (in units)
Closing stock = Opening stock + Purchases – Sales
Dept A = 120+1000-1020 = 100 units
Dept B = 80+2000-1920 = 160 units
Dept C = 152+2400-2496 = 56 units
2. Calculation of rate of gross profit
Rate of gross profit = Gross profit/Total sales *100
Sales proceeds:
Dept A = 1000 units * 20 = 20000
Dept B = 2000 units * 22.50 = 45000
Dept C = 2400 units* 25 = 60000
125000
Less: Total of goods purchased 100000
Gross profit 25000

49. Rate of Gross profit = 25000/125000 *100= 20% (100-20 = 80)
(cost = 80% of selling price)
3. Cost price of each unit
Dept A = 20*80/100 = 16
Dept B = 22.50*80/100 = 18
Dept C = 25*80/100 = 20
4. Purchase of each department
Dept A = 1000*16 = 16000
Dept B = 2000* 18 = 36000
Dept C = 2400* 20 = 48000
5. Sales proceeds of each department
Dept A = 1020* 20 = 20400
Dept B = 1920 * 22.50 = 43200
Dept C = 2496* 25 = 62400

50. 6. Value of opening stock at cost
Dept A = 120*16 = 1920
Dept B = 80*18 = 1400
Dept C = 152*20 = 3040
7. Value of closing stock at cost
Dept A = 100* 16 = 1600
Dept B = 160*18 = 2880
Dept C = 56*20 = 1120
Departmental Trading A/c
Particulars A B C Particulars A B C
To opening
stock
1920 1400 3040 By sales 20400 43200 62400
To
Purchases
16000 36000 48000 By closing
stock
1600 2880 1120
To Gross
profit c/d
4080 8640 12480
22000 46080 63520 22000 46080 63520

51.  The proprietor of a large retail store wished to ascertain approximately the net
profit of the X, Y, and Z departments separately for the three months ended 31st
March 2016. It is found impracticable actually to take stock on that date, but an
adequate system of departmental accounting is in use, and the normal rates of
gross profit for the three departments concerned are respectively 40%, 30%
and 20% on turnover before charging the direct expenses. The indirect
expenses are charged in proportion to departmental turnover.
The following are the figures for the departments:
X Y Z
Opening stock (1-1-2016) 10000 14000 7000
Purchases 12000 13500 9700
Sales 20000 18000 16000
Direct expenses 2000 1500 700
The total indirect expenses for the period (including those relating to other
departments) were Rs. 5400 on the total turnover of Rs. 108000.
Prepare a statement showing approximate net profit, making a stock reserve
10% for each department on the estimated value on 31-12-2016.

52. Working note:
Calculation of Indirect expenses
Indirect expenses applicable to the three departments are
apportioned on the basis of turnover i.e. Sales
Total sales (including three departments) = 20000+18000+16000
= 54000
i.e., 54000/108000*5400 = 2700 is apportioned in the ratio of
10:9:8 (20:18:16)
Indirect expenses Dept X = 2700*10/27 = 1000
Dept Y = 2700*9/27 = 900
Dept Z = 2700*8/27 = 800

53. Departmental Trading and profit & loss A/c
Particulars X Y Z Particulars X Y Z
To opening
stock
10000 14000 7000 By sales 20000 18000 16000
To Purchases 12000 13500 9700 By closing
stock (b.f)
10000 14900 3900
To Gross profit
c/d
8000
(20000*4
0/100)
5400
(18000*30
/100)
3200
(16000*
20/100)
30000 32900 19900 30000 32900 19900
To Direct
expenses
2000 1500 700 By Gross
profit b/d
8000 5400 3200
To Indirect
expenses
1000 900 800
To stock reserve
at 10%(Clsoing)
1000 1490 390
To Net Profit
(b.f)
4000 1510 1310
8000 5400 3200 8000 5400 3200

54. Inter departmental transfers at cost price.
 From the following information, prepare departmental trading and profit & loss A/c in
a columnar form of the three departments of sharma Dry cleaners Ltd.
Goods transferred from one department to another at cost price as follows:
1. Darning to dry cleaning Rs. 2400 and to dyeing Rs. 40200
2. Dyeing to dry cleaning Rs. 25800 and to darning Rs. 18000
3. Dry cleaning to darning Rs. 3000 and to dyeing Rs. 24000.
Apportion equally:
Stationery 5418
Postage 4050
General expenses 237618
Insurance 10080
Depreciation 32598
Dry cleaning Darning Dyeing
Stock on 1st Jan 2016 400000 340000 940000
Stock on 31st Dec
2016
330000 438000 817000
Purchases 1959000 697000 1373000
Sales 4000000 2000000 4000000
Wages 728000 300000 246000

55. • Rent & Rates Rs. 180000 is to be apportioned to be split in proportion to space
occupied i.e., Dry cleaning 4, Dyeing 2, Darning 2 and other space 2.
Solution: Departmental Trading and profit & Loss A/c
Particulars Dry
Cleaning
Darning Dyeing Particulars Dry
Cleaning
Darning Dyeing
To opening
stock
400000 340000 940000 By Sales 4000000 2000000 4000000
To Purchases 1959000 697000 1373000 By Inter-dept
transfers
27000
(3000+
24000)
42600
(2400+40
200)
43800
(25800+1
8000)
To Wages 728000 300000 246000 By closing
stock
330000 438000 817000
To Inter-dept
transfers
28200
(2400+25
800)
21000
(3000+1
8000)
64200
(40200
24000)
To Gross
profit c/d
1214800 1122600 2237600
4357000 2480600 4860800 4357000 2480600 4860800

56. To stationery 1806 1806 1806 To Gross
profit b/d
1214800 1122600 2237600
To postage 1350 1350 1350
To general
expenses
79206 79206 79206
To
Insurance
3360 3360 3360
To
depreciation
10866 10866 10866
To rent &
rates
72000 36000 36000
To Net profit 1073212 990012 2105012
1214800 1122600 2237600 1214800 1122600 2237600
Working note:
Rent & Rates Ts. 180000 is to be apportioned to be split in proportion to space
occupied i.e., Dry cleaning 4, Dyeing 2, Darning 2 and other space 2. (4:2:2:2)
Dry cleaning – 180000*4/10 = 72000
Darning- 180000*2/10= 36000
Dyeing = 180000*2/10 = 36000

57. Inter-departmental transfer at selling price.
 A firm had two departments, cloth and readymade garments. The garments were made by the
firm itself out of cloth supplied by the cloth department at its usual selling price. From the
following figures, prepare departmental trading and profit and loss a/c for the year ended 31-
3-1994.
The stock in the readymade department may be considered as consisting of 75% cloth
and 25% other expenses. The cloth department earned gross profit at 15% in 1992-1993.
General expenses of the business as a whole came to be Rs.110000.
Cloth dept Readymade dept
Opening stock on 1-4-93 300000 50000
Purchases 2000000 15000
Sales 2200000 450000
Transfer to readymade dept 300000 -
Expenses:
Manufacturing
Selling
-
20000
60000
6000
Stock on 31-12-94 200000 60000

58. Departmental trading and profit & loss A/c for the year ending 31-3-94
Particulars Cloth
dept
Readymade
dept
Particulars Cloth
dept
Readymade
dept
To Opening
stock
300000 50000 By sales 2200000 450000
To Purchases 2000000 15000 By Transfer to
readymade dept
300000 -
To Transfer
from cloth dept
- 300000 By closing stock 200000 60000
To
Manufacturing
expenses
- 60000
To Gross profit
c/d
400000 85000
2700000 510000 2700000 510000
To selling
expenses
20000 6000 By Gross profit
b/d
400000 85000
To Net profit c/d 380000 79000
400000 85000 400000 85000

59. Working note:
Calculation stock reserve
Rate of gross profit on sales of cloth department = Gross profit/Sales *100
Total sales = Sales + transfers
= 2200000+300000 = 2500000
Rate of gross profit = 400000/2500000*100= 16%.
Element of cloth in closing stock of readymade
60000*75/100 = 45000
Reserve required for unrealised profit in closing stock (stock reserve)
= 45000*16/100= 7200
Reserve in opening stock = 50000*75/100*15/100 = 5625

60. General profit & loss A/c
Particulars Amount Particulars Amount
To General expenses 110000 By Net profit b/d
(380000+79000)
459000
To stock reserve
(Closing)
7200 By stock reserve
(opening)
5625
To Net profit (bal.fig) 347425
464625 464625