Theory question 108
Departmental AccountsYallawa Stores Ltd has two departments. The following balances were extracted from its books as at 31st December 2017. (Le)
Purchases: Department A 720,000; Department B 520,000
Rent and rates 50,000
Commission 55,000
Insurance 5,000
Sales: Department A 1,500,000; Department B 1,250,000
Discount received 124,000
Advertising 20,000
Salaries and wages 250,000
Depreciation 35,000
Administration and general expenses 50,000
Opening stock: Department A 150,000; Department B 100,000
Closing stock: Department A 175,000; Department B 142,000
Additional information: Expenses are to be apportioned to the departments as follows: (i) commission - on the basis of sales; (ii) salaries and wages - 3:2 for Department A and B respectively; (iii) discount received - 10% of purchases; (iv) other expenses are to be apportioned equally.
You are required to prepare a Departmental Trading, Profit and Loss Account for the year ended 31st December 2017.
Show the model answer
Trading (Le) – A | B: sales 1,500,000 | 1,250,000; opening stock 150,000 | 100,000 + purchases 720,000 | 520,000 − closing stock 175,000 | 142,000 = cost of sales 695,000 | 478,000; gross profit 805,000 | 772,000.
Add discount received (10% of purchases) 72,000 | 52,000 = 877,000 | 824,000.
Expenses – A | B: commission (sales 6:5) 30,000 | 25,000; salaries and wages (3:2) 150,000 | 100,000; rent and rates 25,000 | 25,000; insurance 2,500 | 2,500; advertising 10,000 | 10,000; depreciation 17,500 | 17,500; administration and general 25,000 | 25,000 = 260,000 | 205,000.
Net profit: A Le 617,000; B Le 619,000 (total 1,236,000).
Apportion first: commission 6:5, salaries 3:2, discount 10% of each department's purchases, the rest equally.