Theory question 104
Departmental AccountsThe following balances were extracted from the books of Goody Enterprises for the year ended 31st December 1990.
Insurance ₦800
Commission paid ₦3,500
Rents and Rates ₦2,460
Delivery expenses ₦700
Purchases: Department A ₦30,000; B ₦45,000; C ₦25,000; total ₦100,000
Sales: Department A ₦52,000; B ₦68,000; C ₦30,000; total ₦150,000
Administrative expenses ₦4,560
Discount received ₦770
Salaries ₦18,300
Advertising ₦1,210
Depreciation ₦2,100
Opening Stock: Department A ₦7,000; B ₦12,000; C ₦3,000; total ₦22,000
Closing Stock: Department A ₦10,000; B ₦15,000; C ₦5,000; total ₦30,000
Additional information: Expenses are to be apportioned on the following bases: (a) Salaries, depreciation, rents and rates, administration and general expenses – equally (b) Discount received – Purchases (c) Advertising commission and delivery expenses – Sales (d) Insurance – ratio 5: 3: 2 to A, B and C respectively. You are required to prepare Department Trading, Profit and Loss Account for the year ended 31st December 1990.
Show the model answer
Departmental Trading, Profit and Loss Account for the year ended 31 December 1990 (A | B | C | Total)
Sales 52,000 | 68,000 | 30,000 | 150,000
Cost of sales (opening + purchases − closing): 27,000 | 42,000 | 23,000 | 92,000
Gross profit 25,000 | 26,000 | 7,000 | 58,000
Add discount received (by purchases 30:45:25): 231 | 346.50 | 192.50 | 770
Expenses: insurance (5:3:2) 400 | 240 | 160; commission (by sales 52:68:30) 1,213 | 1,587 | 700; rent and rates (equal) 820 each; delivery (by sales) 243 | 317 | 140; administration (equal) 1,520 each; salaries (equal) 6,100 each; advertising (by sales) 419 | 549 | 242; depreciation (equal) 700 each
Total expenses 11,415 | 11,833 | 10,382 | 33,630
Net profit A ₦13,816; B ₦14,514; C net loss (₦3,190); total net profit ₦25,140
Work out each basis as a ratio first (sales 52:68:30, purchases 30:45:25) and check the department columns add to the totals.