Question 5 (d)
Departmental net profit
1.75 marks
- Time to write
- About 4 minutes
From an older CBCS paper
Question
Question 5 (d) · 1.75 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 each Department's Net Profit. [ 1.75 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
- 1 Allocation of expenses 1 mark 2 min
- 2 Net profit of each department 0.8 mark 2 min
Try it first. About 4 minutes for 1.75 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.
Allocation (paper note): the departments' share of general expenses is half of the general office's share, so the departments bear one-third of ₹54,36,000 = ₹18,12,000, split in the ratio of gross profit (33,00,000: 57,60,000 = 55: 96). Rent and rates and depreciation (10% of ₹4,50,000) by floor area, 6,000: 4,000. Discount allowed by sales (the DU text's basis for selling items) and discount received by purchases. The unrealised profit in transferred stock is removed through a stock reserve in the General Profit and Loss Account, after the departmental net profits.
| Particulars | Dept A (₹) | Dept B (₹) |
|---|---|---|
| Gross profit | 33,00,000 | 57,60,000 |
| Add: discount received (purchases 21: 39) | 26,250 | 48,750 |
| Total | 33,26,250 | 58,08,750 |
| General expenses (55: 96) | 6,60,000 | 11,52,000 |
| Rent and rates (6: 4) | 1,08,000 | 72,000 |
| Depreciation (6: 4) | 27,000 | 18,000 |
| Discount allowed (sales 54: 87) | 59,744.68 | 96,255.32 |
| Net profit | 24,71,505.32 | 44,70,494.68 |
Stock reserve, in the General P&L. The increase in the reserve on transferred goods, A's goods in B's stock (1,28,700 − 19,800 = 1,08,900) and B's goods in A's stock (70,200 − 16,200 = 54,000), together ₹1,62,900, is debited in the General Profit and Loss Account. (If it were charged to the departments whose profit is unrealised, their net profits would be ₹23,62,605.32 and ₹44,16,494.68.)
Where the 1.75 marks sit
| # | Component | Marks |
|---|---|---|
| 1 | Allocation of expenses | 1 |
| 2 | Net profit of each department | 0.75 |
| Total | 1.75 |
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