Question 4 OR (b) · Bases of allocating common expenses among departments · Financial Accounting 2019

Expenses that can be identified with a department are charged to it directly. Common expenses are apportioned on a basis that reflects the benefit each department receives; there is no universally accepted basis, but the following are suggested:

Nature of expense	Basis of allocation
Selling expenses, bad debts, discount allowed, carriage outward, storage	Sales of each department
Rent, rates, repairs and insurance of the building	Floor area occupied
Lighting	Number of light points
Power	Horse power (or units) used
Salaries (common staff)	Time spent on each department
Heating and air conditioning	Consumption pattern
Depreciation and repairs of assets	Value of the assets used
Carriage inward, purchase expenses	Purchases (or units) of each department
Expenses that cannot be identified (general management)	Equally, or on sales, or carried to the general P&L

Where no reasonable basis exists, an expense is not apportioned but charged to the general Profit and Loss Account.

#	Component	Marks
1	Direct and common expenses	1
2	Bases of allocation	2
	Total	3

Component

Marks

Direct and common expenses

Bases of allocation

Total

Bases of allocating common expenses among departments

Question

Before you write

Read from the question

Write it in this order

Solution

Where the 3 marks sit