Theory question 105
Departmental AccountsSection B – Financial Accounting Practice (answer three questions only from this section)
5. Fashions Shop is organised into Fabrics and Footwear Departments. The Trial Balance below was extracted for the shop for the year ended 31st October, 1999.
Capital: N12,856 (Cr)
Drawings: N2,423 (Dr)
Furniture and fittings: N2,040 (Dr)
Delivery van: N8,160 (Dr)
Purchases and sales: Fabrics N14,110 (Dr), N20,400 (Cr); Footwear N7,650 (Dr), N10,200 (Cr)
Debtors and creditors: N591 (Dr); N1,275 (Cr)
Salaries and wages: N3,600
Insurance: N1,955
Rent and rates: N850
Delivery van expenses: N555
Electricity: N1,020
Bank: N383
Stock – 1/11/98: Fabrics N850; Footwear N544
Totals: N44,731 / N44,731
Additional information:
(a) Stocks at 31/10/99 were: Fabrics N2,210; Footwear N1,632
(b) Depreciation should be provided as follows: Furniture and fittings 10%; Delivery van 25%
(c) Provision for doubtful debts should be made at 10% on debtors.
(d) The ratio of floor areas between fabrics and footwear is 3:2.
(e) Expenses are to be apportioned between the departments as follows: Rent and rates, insurance and electricity – Floor area; Salaries and wages, delivery van expenses and doubtful debts – Turnover; Others – Equal
You are required to prepare: (i) Trading and profit and Loss Account in Columnar form for the year ended 31st October, 1999. (ii) Balance Sheet for the whole business as at that date.
Show the model answer
Bases: floor area 3 : 2; turnover 20,400 : 10,200 = 2 : 1; others (depreciation) equally.
(i) Trading (fabrics / footwear): opening stock 850 / 544 + purchases 14,110 / 7,650 − closing stock 2,210 / 1,632 = cost of sales 12,750 / 6,562; sales 20,400 / 10,200; gross profit 7,650 / 3,638 (total 11,288).
Profit and loss: rent and rates 510 / 340; insurance 1,173 / 782; electricity 612 / 408 (floor area); salaries and wages 2,400 / 1,200; delivery van expenses 370 / 185; provision for doubtful debts (10% × 591 = 59) 39 / 20 (turnover); depreciation of furniture 204 and delivery van 2,040 shared equally: 1,122 / 1,122.
Total expenses 6,226 / 4,057. Net profit: fabrics 1,424; footwear loss (419); overall net profit 1,005.
(ii) Balance sheet as at 31st October 1999: furniture 2,040 − 204 = 1,836; delivery van 8,160 − 2,040 = 6,120; fixed assets 7,956. Current assets: stock 2,210 + 1,632 = 3,842; debtors 591 − 59 = 532; bank 383 = 4,757. Creditors 1,275; working capital 3,482. Net assets 11,438 = capital 12,856 + net profit 1,005 − drawings 2,423.
Apportion each expense on its stated basis and check the two departments' profits add up to the business profit.