Theory question 106
Departmental AccountsSESSAY operates shop with two departments A and B. The following balances were extracted from his book on 31st December 2019. (DR / CR, GH¢)
Sales Department A / 30,000; Department B / 20,000
Stock: Department A (01/01/19) 500; Department B (01/01/19) 400
Purchases: Department A 23,600; Department B 16,400
Wages of sales Assistants: Department A 2,000; Department B 1,500
Delivery Expenses (Department A) 300
Common Expenses: General office salaries 1,500; Rates 260; Fire insurance 100; Electricity 240; Repairs to premises 500; Telephone 500; Cleaning 600; Auditing charges 2,400; Stationery 1,200
Additional Information: (a) Stock at 31st December, 2019 were valued at Department A GH¢600, Department B GH¢300 (b) General office salaries, Telephone, audit charges and stationery are to be apportioned on the bases of sales (c) All other common expenses are to be apportioned as follows: Department A one-fifth; Department B four-fifth
You are required to prepare: Departmental, Trading, Profit and Loss Account for the year ended 31st December, 2019.
Show the model answer
Sales ratio A:B = 30,000:20,000 = 3:2; other common expenses 1/5 : 4/5.
Trading (GH¢) – A | B: Sales 30,000 | 20,000; opening stock 500 | 400 + purchases 23,600 | 16,400 − closing stock 600 | 300 = cost of sales 23,500 | 16,500; Gross profit 6,500 | 3,500.
Expenses – A | B: wages 2,000 | 1,500; delivery 300 | –; general office salaries 900 | 600; telephone 300 | 200; audit 1,440 | 960; stationery 720 | 480; rates 52 | 208; fire insurance 20 | 80; electricity 48 | 192; repairs 100 | 400; cleaning 120 | 480. Totals 6,000 | 5,100.
Net profit A GH¢500; net loss B GH¢1,600 (overall net loss GH¢1,100).
Apportion each common expense in a working first; department B ends with a loss.