Question 5 (b)

Departmental gross profit ratios

4 marks

Time to write
About 8 minutes

From an older CBCS paper

Question

Question 5 (b) · 4 marks

MEGH & DHANUSH gives you the information below for the year ending 31st March, 2021:

ParticularsDr. (₹)Cr. (₹)
Capital27,12,000
Fixed Assets4,50,000
Opening Stock:
Department A90,000
Department B1,20,000
Purchases:
Department A21,00,000
Department B39,00,000
Sales:
Department A54,00,000
Department B87,00,000
General Expenses54,36,000
Debtors30,00,000
Bank9,15,000
Creditors3,00,000
Drawings8,40,000
Discount Received—75,000
Discount Allowed1,56,000—
Rent & Rates1,80,000—
171,87,000171,87,000

Additional Information:

  1. Closing Stock: Department A ₹ 3,90,000, Department B ₹ 7,80,000. At each department, 30% of the Opening and Closing Stocks were goods received from the other department.

  2. A Department transferred goods of ₹ 7,50,000 to B Department at selling price, and B Department transferred goods of ₹ 11,25,000 to A Department at selling price. Of the goods so transferred, 20% were returned by transferring department to transferee department. Neither the transfers nor the returns have been recorded yet.

  3. Depreciate Fixed Assets @ 10% p.a. Deptt. A and Deptt. B occupy 6000 square feet and 4000 square feet of Area respectively.The Departments' share in General Expenses is half of the General Office's share, and is to be borne by Department A and Department B in the ratio of their departmental Gross Profit.

Answer:

  1. Calculate each Department's Gross Profit Ratio. [ 2 x 2 = 4 Marks]

[Note: Financial Statements in detail need not be prepared.]

Reworded from the university paper: names and figures differ, the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.

Before you write

Read off the question and its marks

8 minfor 4 marks

Read from the question

  • CalculateFormula first, then the working, then the answer with its unit (₹, %, units).

What the paper leaves open

  1. "Returned by transferring department to transferee department" is read in the ordinary sense, as goods sent back by the department that received them; the answer states this and shows the other reading.
  2. The departments' share of general expenses is half of the general office's share, so the departments together bear one-third of the total (the general office two-thirds), split between them in the ratio of gross profit; rent and depreciation by floor area.
  3. The trial balance agrees as printed (₹ 171,87,000 here, printed in that form).

Write it in this order

  1. Read the data; note exactly what is asked 1 min
  2. 1 Department A 2 marks 3 min
  3. 2 Department B 2 marks 3 min
  4. Check: arithmetic, units (₹, %), final answer underlined 1 min

Try it first. About 8 minutes for 4 marks. Write it out, then open the solution.

Solution

Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.

Transfers (paper note): 20% of the goods transferred were sent back by the receiving department, so the net transfers are A to B 7,50,000 × 80% = ₹6,00,000 and B to A 11,25,000 × 80% = ₹9,00,000, at selling price. Where one department's output is another's input, inter-departmental transfers are accounted for in both departments' trading accounts.

The gross profit ratio is gross profit ÷ the department's total sales, including its transfers to the other department at selling price.

ParticularsDept A (₹)Dept B (₹)
Sales54,00,00087,00,000
Add: transfers out6,00,0009,00,000
Total sales60,00,00096,00,000
Gross profit (sales + transfers out + closing stock − opening stock − purchases − transfers in)33,00,00057,60,000
Gross profit ratio55%60%

Where the 4 marks sit

#ComponentMarks
1Department A2
2Department B2
Total4
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