Theory question 106
Departmental AccountsThe following information were taken from the books of Adebola Trading Company which has three departments: (Books / Electricals / Clothing, D)
Stock (01/01/2010): 120,000 / 180,000 / 240,000
Purchases: 3,720,000 / 4,380,000 / 3,240,000
Stock (31/12/2010): 240,000 / 360,000 / 480,000
Sales: 4,800,000 / 5,400,000 / 4,200,000
Wages and salaries: 120,000 / 60,000 / 180,000
Furniture: 360,000 / 180,000 / 240,000
Motor van: 300,000 / 360,000 / 240,000
Additional information: (i) The following expenses cannot be traced to any particular department: Insurance D180,000; Rent D120,000; Advertising D60,000; General expenses D900,000
(ii) The company decided to apportion the insurance and rent in proportion to sales. Advertising and general expenses are to be apportioned in the ratio 2: 1: 1 respectively.
You are required to prepare a Departmental Trading and Profit and Loss Account for the year ended 31st December, 2010. Note: Total columns are not required.
Show the model answer
Sales ratio 4,800,000 : 5,400,000 : 4,200,000 = 8 : 9 : 7
Trading (Books / Electricals / Clothing): opening stock 120,000 / 180,000 / 240,000 + purchases 3,720,000 / 4,380,000 / 3,240,000 − closing stock 240,000 / 360,000 / 480,000 = cost of sales 3,600,000 / 4,200,000 / 3,000,000; gross profit D1,200,000 each
Expenses: insurance 60,000 / 67,500 / 52,500; rent 40,000 / 45,000 / 35,000; advertising 30,000 / 15,000 / 15,000; wages and salaries 120,000 / 60,000 / 180,000; general expenses 450,000 / 225,000 / 225,000
Total expenses D700,000 / D412,500 / D507,500
Net profit: Books D500,000; Electricals D787,500; Clothing D692,500
Furniture and motor vans are fixed assets, not expenses, so they do not enter the account.
Share insurance and rent 8:9:7 by sales and advertising and general expenses 2:1:1.