Question 5 (c)
Stock reserve on departmental closing stocks
4 marks
- Time to write
- About 8 minutes
From an older CBCS paper
Question
Question 5 (c) · 4 marksMEGH & DHANUSH gives you the information below for the year ending 31st March, 2021:
| Particulars | Dr. (₹) | Cr. (₹) |
|---|---|---|
| Capital | 27,12,000 | |
| Fixed Assets | 4,50,000 | |
| Opening Stock: | ||
| Department A | 90,000 | |
| Department B | 1,20,000 | |
| Purchases: | ||
| Department A | 21,00,000 | |
| Department B | 39,00,000 | |
| Sales: | ||
| Department A | 54,00,000 | |
| Department B | 87,00,000 | |
| General Expenses | 54,36,000 | |
| Debtors | 30,00,000 | |
| Bank | 9,15,000 | |
| Creditors | 3,00,000 | |
| Drawings | 8,40,000 | |
| Discount Received | — | 75,000 |
| Discount Allowed | 1,56,000 | — |
| Rent & Rates | 1,80,000 | — |
| 171,87,000 | 171,87,000 |
Additional Information:
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.
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.
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:
- Calculate the Stock Reserve on each Department's Closing Stock. [ 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
Read from the question
- CalculateFormula first, then the working, then the answer with its unit (₹, %, units).
What the paper leaves open
- "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.
- 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.
- The trial balance agrees as printed (₹ 171,87,000 here, printed in that form).
Write it in this order
- Read the data; note exactly what is asked 1 min
- 1 Goods from the other department 1 mark 2 min
- 2 Reserve on each closing stock 3 marks 5 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, the departments are dependent and accounting for the inter-departmental transfers is required: the transfers appear in both departments' trading accounts.
Goods transferred at selling price carry the transferring department's profit. Stock still held by the receiving department includes that unrealised profit, which is removed by a stock reserve, debited in the General Profit and Loss Account, at the transferring department's gross profit ratio (A 55%, B 60%; see part (b)).
| Particulars | Dept A's closing stock | Dept B's closing stock |
|---|---|---|
| Closing stock (₹) | 3,90,000 | 7,80,000 |
| Goods from the other department (30%) (₹) | 1,17,000 | 2,34,000 |
| Gross profit ratio of the transferring department | 60% (B) | 55% (A) |
| Stock reserve (₹) | 70,200 | 1,28,700 |
(On the opening stocks: A 30% × 90,000 × 60% = ₹16,200; B 30% × 1,20,000 × 55% = ₹19,800, on the same ratios.)
Where the 4 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Goods from the other department | 1 |
| 2 | Reserve on each closing stock | 3 |
| Total | 4 |
Report a problemopens an email to admin@getkunji.com with the question IDFAH21-Q5calready filled in.