Theory question 103
Departmental Accounts(a) Which business organisations have the need to prepare departmental accounts?
(b) State two reasons for preparing departmental accounts.
(c) State how the following incomes and expenses are apportioned in departmental accounts: (i) discount allowed; (ii) discount received; (iii) rent and rates; (iv) staff related costs; (v) depreciation; (vi) canteen expenses; (vii) electricity; (viii) advertising; (ix) bad debts.
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(a) Businesses with several sections dealing in different goods or services under one roof, e.g. supermarkets and department stores, hotels (rooms, restaurant, bar), firms of accountants (audit, tax, consultancy), insurance companies (life, motor, marine).
(b) Any two: to find each department's profit; to compare departments; to decide which to expand or close; to control costs; to reward departmental managers.
(c) (i) Discount allowed – sales of each department. (ii) Discount received – purchases of each department. (iii) Rent and rates – floor area occupied. (iv) Staff related costs – number of staff (or wages) in each department. (v) Depreciation – value (cost/book value) of assets used by each department. (vi) Canteen expenses – number of employees. (vii) Electricity – floor area (or metered usage/number of points). (viii) Advertising – sales. (ix) Bad debts – credit sales of each department.
Give examples of departmental businesses, two reasons, then one basis per item.