UCP 21 FINANCIAL ACCOUNTING UNIT-1 BRANCH ACCOUNTS Type: 80% Theory 20% Problem Question & Answers

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1 UCP 21 FINANCIAL ACCOUNTING UNIT-1 BRANCH ACCOUNTS Type: 80% Theory 20% Problem Question & Answers PART A ANSWERS 1. What is branch? (Nov 2014, April-2010) The word branch is any subordinate division of a business, subsidiary shop, office etc. Business is carried out in different areas scattered over a large territory. 2. What is meant by Invoice price method? (April-2011) When the goods are sent by the head office to the branch at invoice price means cost plus some percentage of profit, the branch manager required to sell the goods at invoice price only. 3. What are the types of branch? (Nov 2011, Nov 2012, April-2011, April-2014) Home branch Foreign branch 4. What is meant by Independent branch? (April-2014) Branch which maintains its own set of books and has freedom to operate independently. If a branch is big and carries on manufacturing operations also, it is allowed to operate freely within the framework of head office policies. 5. What are the types of home branch? Dependent branch Independent branch 6. What is meant by Dependent branch? (Nov 2011, Nov 2013, April-2010) These branches are inland branches wholly dependent on the head office for their requirements. These branches do not maintain their own set of books, and all the records of the branch are maintained by the head office. 7. What is meant by Debtors system? ( Nov-2010) This system is adopted in case of branches of small size. Under this system a branch account is opened separately for each branch in the books of head office. 8. What is meant by Stock and Debtors system? Profit or loss of a branch can be found out by preparing branch account, but there is another method for the same purpose is known as stock and debtors method. RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit 1 Answers Page 1 of 18

2 9. What is meant by Wholesale Branch System?( Nov 2012) Manufacturers may sell goods to the consumers either through the wholesalers and approved stockiest or through their branches. The person/corporate buy the goods at bulk for the purpose of sell. 10. What is meant by Final account system? The head office can also ascertain the profit or loss of a dependent branch by preparing branch trading and profit and loss of a dependent branch by preparing branch trading and profit and loss account at cost. 11. What is meant by Foreign Branch? The head office in inland and its branch in foreign country, these branches is called foreign branch. The foreign branch keeps their accounts not in the home currency the values will be expressed in foreign currency, now the same has to be converted into home currency. 12. Give journal entries for good sent to branch(april-2013) Branch a/c To goods sent to Branch A/c 13. Give journal entries for good sent to branch transferred to trading account. Goods sent to Branch A/c To Trading A/c 14. Give journal entries for profit arises at the branch(april-2013) Branch A/c To Profit and Loss A/c 15. Give journal entries for cash sent to bank for expenses Branch A/c To Bank A/c 16. Give the journal entry for closing stock in the branch Branch stock A/c To Branch 17. Give the journal entry for closing debtors in the branch Branch Debtors A/c To Branch A/c RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit 1 Answers Page 2 of 18

3 18. Give the journal entry for shortage of stock Branch adjustment A/c To Branch Stock A/c 19. What is meant by Inter-branch transactions? The head office has many branches and there is a possibility that some branch may supply goods or send cash to the other branch are called inter-branch transactions. 20. What is meant by goods in transit? When goods are dispatched by the head office to branch and the branch does not receive it even upto the end of the year, it is known as goods in transit. 21. What is meant by cash in transit? The cash sent by branch to H.O. or the cash sent by H.O. to branch has not been received by the other party upto the end of the year, it is known as cash in transit. 22. What is meant by branch adjustment account? This account is prepared for ascertaining the amount of gross profit earned by the branch. This is done by eliminating the profit element or the loading included in the value of opening and closing stock at branch, goods sent to branch, less returns made by branch to head office and in surplus or shortage in branch stock etc. 23. Write down the objectives for goods sent on invoice price. (a) In order to keep secret from the branch manager the cost price of the goods and profit made,so that the branch manager may not start a rival and competitive business with the concern ;and (b) In order to have effective control on stock i.e., stock at any time must be equal to opening stock plus goods received from head office minus sales made at the branch. 24. What are the accounts that should be maintained in Stock and debtors system? Branch Stock Account. Branch Debtors Account Branch Expenses Account. Branch Adjustment account Branch profit and loss account and Goods sent to the branch account RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit 1 Answers Page 3 of 18

4 PART B ANSWERS 1. Write down the objectives of branch accounting.( NOV 2010, Nov 2014, April-2010, April-2013, April-2014) To Ascertain the profit or loss of the branches To have a better control over the branches by the head office To know the financial position of the branches To enable the head office to know the requirements of goods and cash of each branch To provide suggestions for improvements To formulate further programmes and policies relating to the branches. 2. Distinction between wholesale and retail profit at branch. Sometimes head office also sells goods at retail or list price besides sending the goods to branches at wholesale prices. The difference between the retail price and wholesale price will be the profit made by the branch. Suppose if an article costs to head office Rs. 100 and it is supplied to the branches at Rs. 160 at wholesale price but both head office and branches sell goods at Rs. 200, then, profit made by the branch will be Rs. 40 (i.e., Rs. 200 Rs. 160) and not Rs. 100 (Rs. 200-Rs.100). The goods are sent by the head office to the branches at Wholesale price and if all the goods are sold there is no problem but if some goods remain unsold at the end of the accounting year, these unsold goods at the branches must be reduced to cost price by making a stock reserve for unrealized profit for the difference between eh wholesale and cost price and will be debited to the head office profit and loss account, as previously the head office must have earned profit while sending goods to the branches. 3. Write down the features of independent branch. () They need not depend on the Head office for their requirements of supplies of goods. They can make purchases themselves. Of course, they can also obtain supplies of goods from the head office as and when they want. They can only sell goods for cash and credit at any price they consider profitable. They need not remit the money received by them from cash sales and debtors to the Head office periodically. They can retain the funds and meet their dayto-day expenses out of those funds. Finally, if they have surplus cash in their hands, they can remit the same to the Head office. RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit 1 Answers Page 4 of 18

5 They keep a complete set of books for recording their transactions. So, they can prepare their own Trial Balance, Trading and Profit and Loss Account and Balance Sheet. However, as they are ultimately responsible to the Head office, at the end of every financial period, they are required to submit a copy of their Trial Balance to the Head office 4. Write down the features of dependent branch. (Nov 2013) It do not maintain its books of accounts Goods are supplied by head office to the branch. Branch receives the goods and sells them as per the direction of the head office. All the expenses of branches are paid directly by the head office. The head office provides petty cash to the branch to meet some petty expenses, so only simple petty cash book is maintained at the branch The branch remits cash to the head office which are from the sale proceeds and collection from debtors in case of credit sales. 5. Journal entries passed in the books of head office (i) Branch a/c Invoice value of goods sent. To goods sent to Branch A/c (ii) Branch A/c Cash sent for expenses. To Bank A/c (iii) Bank A/c Dr Cash remitted by the branch to the H.O. To Branch A/c (Cash consists of sales and receipts from Drs.) (iv) Branch Stock A/c Branch stock (at invoice Price) and branch Branch Debtors A/c debtors at the end of year. To Branch A/c (v) Goods Sent to Branch A/c Invoice price on goods sent to branch adjusted. To Branch A/c (Loading on the goods sent) (vi) Branch A/c Invoice value of closing stock adjusted. To Branch Stock Reserve A/c (vii) Branch A/c Profit at branch To Profit and Loss A/c (viii) Goods sent to Branch A/c Goods sent to Branch Transferred. To Trading A/c RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit 1 Answers Page 5 of 18

6 6.Layal company opened a branch at madras on From the following particulars the madras branch account for the year 1989 and (Nov 2011, Nov 2013) 1989 Rs Rs. Goods sent to branch Cash sent to branch for : Rent Salaries Other expenses Cash received from the branch Stock on 31st December Petty cash on 31st December IN THE BOOKS OF HEAD OFFICE Madras branch A/c for 1989 Particulars Rs. Rs. Particulars Rs. Rs. To balance b/d NIL By cash TO Goods sent to branch By Balance C/d To Cash: Stock 2300 Rent 1800 Petty cash Salaries 3000 Other expenses To General P&L A/c Madras branch A/c for 1989 Particulars Rs. Rs. Particulars Rs. Rs. To balance b/d By cash Stock 2300 By Balance C/d Petty cash Stock 5800 TO Goods sent to branch Petty cash To Cash: Rent 1800 Salaries 5000 Other expenses To General P&L A/c RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit 1 Answers Page 6 of 18

7 7. Prepare branch accounts for the year From the following particulars the Madurai branch account for the year 1994 (Nov 2011, Nov 2012, Nov 2014, April-2010, April- 2011, April-2013, April-2014) Stock on Debtors on Goods sent to branch Cash sent to branch for : Rent 1500 Salaries 3000 Petty cash Sales at branch Cash Credit Cash received from debtors Stock on Madurai branch A/c for 1994 Particulars Rs. Rs. Particulars Rs. Rs. To balance b/d By Bank : Stock Cash sales Debtors Cash from debtors TO Goods sent to branch To Bank: Rent 1500 By Balance C/d Salaries 3000 Stock Petty cash Debtors To General P&L A/c From the following particulars prepare a branch account showing the profit or loss at the branch Rs. Opening stock at the branch Goods sent to branch Sales Salaries 5000 Other expenses 2000 Closing stock could not be ascertained but it is known that the branch usually sells at cost plus 20%. The branch manager is entitled to a commission of 5% of the profit of the branch before charging such commission. RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit 1 Answers Page 7 of 18

8 Branch A/c Particulars Rs Particulars Rs To Opening stock at the branch To Goods sent to branch By Sales By Closing stock To Salaries To Other expenses To Manager s commission To Net profit transfer to P & L A/c A Madras head office has a branch at Salem to which goods are invoiced cost plus 20%. From the following particulars prepare branch a/c in the books of head office. (Nov 2012, April-2011, April-2013) Stock on Debtors on Stock on Goods sent to branch Total sales Cash sales Cash received from debtors Salem branch A/c for 1996 Particulars Rs. Rs. Particulars Rs. Rs. To balance b/d By Bank : Stock 7680 Cash sales Debtors Cash from debtors To Goods sent to branch By Stock Reserve 1280 By Goods sent to branch - Loading By Balance C/d Stock To Stock Reserve 2240 Debtors To General P&L A/c RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit 1 Answers Page 8 of 18

9 10. A head office sends goods to its branch at 20% less than the list price. Good are sold to customers at cost plus 100%. From the following particulars ascertain the profit made at the head office and the branch on whole sale basis. Head Particulars Head office office Branch Purchases Goods sent to branch Sales Trading, Profit & Loss A/c Particular Head office Branch Particular Head office Branch To Purchases By Sales To Goods received from H.O To Gross Profit By Goods sent to branch By Closing stock To Stock reserve 6000 By Gross Profit To Net Profit RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit 1 Answers Page 9 of 18

10 PART C ANSWERS 1. Difference Between Independent & Dependent Branch. (NOV 2010) Sr. Basis Independent Branch Dependent Branch 1. Accounting System Independent branch keeps full system of accounting at their place. The accounts of branches are maintained at the Head Office level. At branch only Cash Register. Debtors Register are maintained. 2. Sale of Goods These branches sell goods received from head office as well as from the purchases made by them. These branches sell only those goods which are supplied by the Head office. They are normally not allowed to make own purchases. 3. Point of Payment of Expenses Branch keep the required cash to meet the expenses of regular nature with themselves. 4. Remittance of Cash Independent Branches are not required to remit all the cash daily to head office. 5. Trial Balance A trial balance has been extracted from the ledger maintained at branch level. 6. Reconciliation Reconciliation between branch Account in books of head office and head office Account in the books of Branch is to be made before finalising the Accounts. 7. Methods of Accounting is done on the Preparing Final double entry system basis, so Account Trading/P&L A/c has been prepared in normal way. All branch expenses of regular nature like salary, Rent normally paid directly by head office. Branch managers are allowed to incur petty expenses only. All the daily cash sale and collection from debtors will be deposited at local bank or remitted to H.O. Trial Balance is not required to be extracted as accounts are maintained at Head Office. There is no need of reconciliation as accounts are maintained at head office level itself. Accounting under Dependent branches can be made by three different methods are Debtors system, Final Account system and Stock and Debtors system. 2. A Limited opened a branch at Shimla in Goods were invoiced at cost plus 25%. From the following prepare ledger accounts in the books of A Limited.( April-2010) RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit 1 Answers Page 10 of 18

11 Rs. Goods sent to Shimla (Invoice Price) 40,000 Sales at Shimla : Cash Sales 21,000 Credit Sales 16,000 Cash collected from debtors 14,500 Discount allowed 200 Cash sent to Branch for expenses 4,000 Stock at Branch, 31st Dec.2002 (Invoice Price) 3,200 Branch A/c Date Particulars Rs. Date Particulars Rs Dec.31 To Goods sent to Branch A/c To Bank (Expenses) To Bank stock Reserve A/c To P & L A/c transfer 40,000 4, , Dec.31 By Bank (Remittance) Cash sales 21,000 Cash Form Drs. 14,500 By Branch Stock A/c By Branch Debtors A/c By Goods sent to Branch A/c (loading) 35,500 3,200 1,300 8,000 48,000 48,000 Goods sent to branch A/c Date Particulars Rs. Date Particulars Rs Dec.31 To Shimla Branch A/c (Loading) To Trading A/c (transfer) 8,000 32, Dec.31 By Shimla Brach A/c 40,000 40,000 40,000 RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit 1 Answers Page 11 of 18

12 Branch Debtors A/c Date Particulars Rs. Date Particulars Rs Dec.31 To Sales A/c 16, Dec.31 By Cash By Discount By Balance c/d 14, ,300 16,000 16,000 Branch Stock A/c Date Particulars Rs. Date Particulars Rs Dec.31 To Shimla Branch A/c 3, Dec.31 By Balance c/d 3,200 3, Branch Stock Reserve A/c Date Particulars Rs. Date Particulars Rs Dec.31 To Balance c/d Dec.31 By Shimla Branch A/c A Ltd. has a branch in Calcutta. Goods are invoiced at cost plus 25%. (Nov 2011, Nov 2012, Nov 2013, April-2014) Opening Balance Stock 3,200 Debtors 1,300 Goods sent to Branch (Invoice price) 75,000 Sales at Calcutta Cash Sales 32,000 Credit Sales 38,000 Cash collected from Debtors 33,400 RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit 1 Answers Page 12 of 18

13 Discount allowed 400 Bad Debts written off 250 Cash sent to Branch for expenses 5,500 Stock at end 7,900 Branch Adjustment A/c Date Particulars Rs. Date Particulars R s Dec.3 1 To Stock Reserve (closing stock) A/c To br. Stock A/c (shorta ge) To Br. Exp. A/c To P & L A/c 1, ,150 6, Dec.3 1 By Stock Reserve (openi ng stock) By Goods sent to br. A/c ,000 15,640 15,640 Goods sent to branch A/c Date Particulars Rs. Date Particulars Rs Dec.31 To br. Adjustment A/c (loading) To Trading A/c (Transfer) 15,000 60, Dec.31 By Br. Stock A/c 75,000 75,000 75,000 RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit 1 Answers Page 13 of 18

14 Branch Debtors A/c Date Particulars Rs. Date Particulars Rs Jan. To Balance b/d To Branch Stock (cr. sales) 1,300 38, Dec.31 By Cash By Branch Exp. A/c Discount 400 Bad Debts , By Bal. c/d 5,250 39,300 39,300 Branch Stock A/c Date Particulars Rs. Date Particulars Rs Jan.1 To Balance b /d To goods sent t o Branch A/c 3,200 75, Jan.1 To Cash Sales By Branch Debtors By Branch Adjustment A/c 38,000 32, By Balance c/d 7,900 78,200 78,200 Branch Stock Reserve A/c Date Particulars Rs. Date Particulars Rs Dec. 31 To Br. Adjustment A/c To balance c/d Dec.31 By Balance b/d By Branch Adj. A/c RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit 1 Answers Page 14 of 18

15 Branch Expenses A/c Date Particulars Rs. Date Particulars Rs Dec.31 To Cash To branch s A/c Discount 400 Bad Debts 250 6, Dec.31 By Branch Adjustment A/c 7,150 7,150 7, Agra head office supplies goods to its branch at Alwar at invoice price which is cost plus 50%. All Cash received by the branch is remitted to Agra and all branch expenses are paid by the head office. From the following particulars related to Alwar Branch for the year 2006, prepare Branch debtors account Branch stock account and Branch Adjustment Account in the books of the head office so as to find out the gross profit and net profit made by the branch. Rs. Stock with Branch on (at invoice price) 66,000 Branch Debtors on ,000 Petty cash balance on Goods received from head office (at invoice price) 2,04,000 Goods returned to Head Office 6,000 Credit Sales 87,000 Sales Returns 3,000 (already adjusted while invoicing) 2,000 Cash received from debtors 93,000 Discount allowed to debtors 2,400 Expenses (cash paid by Head Office) Rs. Rent 2,400 Salaries 24,000 Petty Cash 2,000 28,400 Cash Sales 1,06,000 Stock with Branch on (at invoice price) 69,000 Petty Cash balance on RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit 1 Answers Page 15 of 18

16 Branch Adjustment Account Date Particulars Rs. Date Particulars Rs. To Stock reserve A/c To Goods sent to Branch A/c To Branch stock A/c To Shortage (Load) 23,000 2,000 2,000 1,000 By stock reserve A/c (66,000 50/150) By Goods sent to Branch A/c (2,04,000 50/150) 22,000 68,000 To Gross profit 62,000 c/d To Branch expenses A/c Rent 2,400 Salaries 24,000 90,000 By Gross profit b/d 90,000 62,000 Petty exp. 2,400 ( ) 28,800 To Branch debtors A/c discount To Shortage (cost) 2,400 2,000 To Net profit 28,800 62,000 62,000 RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit 1 Answers Page 16 of 18

17 Branch Debtors A/c Date Particulars Rs. Date Particulars Rs. To Balance b/d To Branch stock A/c (credit sales) 22,000 87,000 By Branch Cash A/c By Branch Expenses A/c (Discount 93,000 2,400 allowed to Debtors) By Sales 3,000 10,600 Returns By Balance c/d 1,09,000 1,09,000 Branch stock A/c Date Particulars Rs. Date Particulars Rs. To balance b/d To Goods sent to Branch A/c To Branches Debtors A/c Sales Return 66,000 2,04,000 3,000 By branch A/c-cash sales By Branch Debtors A/ccredit sales By Branch Adjustment A/c Allowance to customer On selling price (already Adjusted while invoicing) By Goods sent to branch A/c Returns to H.O. By Shortage-in-stock A/c 1,06,000 87,000 2,000 6,000 3,000 By Balance c/d 69,000 2,73,000 2,73,000 RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit 1 Answers Page 17 of 18

18 5.. A head office sends goods to its branch at 25% less than the list price. Good are sold to customers at cost plus 60%. From the following particulars ascertain the profit made at the head office and the branch on whole sale basis. Particulars Head office Rs. Branch Rs Opening stock (at invoice price in case of branch) Purchases Goods sent to branch Sales Expenses Particulars Trading, Profit & Loss A/c Head office Branch Particulars Head office Branch To opening stock To Purchases By Sales To Goods received from H.O To Gross Profit By Goods sent to branch By Closing stock To Expenses To Stock reserve By Gross Profit By Stock reserve 5000 To Net Profit RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II /UNIT-1 Answers/VER 2.0 Unit 1 Answers Page 18 of 18

19 UCP 21 FINANCIAL ACCOUNTING UNIT-2 DEPARTMENTAL ACCOUNTS Type: 20% Theory 80% Problem Question & Answers PART A ANSWERS 1. What is meant by department accounts? (Nov -2010, April -2011, April -2014) An organization may produce or buy and sell several products or perform different services under the same roof or from the same premises. The modern practice is to divide the organization into independent departments, each of which may deal in a particular class or goods or render a specialized type of service 2. What is meant by interdepartmental transfer? (Nov -2012, April -2010, April -2014) Whenever goods or services are provided by one department to another their cost should be separately recorded and charged to that department benefiting thereby and credited to that providing it. 3. What is stock reserve? (Nov -2011, April -2011) Unrealized profit included in unsold inventory at the ending of accounting period eliminated by creating an appropriate stock reserve by debiting the amount profit and loss account. 4. Write the basis of allocation of expenses any two. (Nov -2013, Nov -2014, April , April -2014) Rent, rates and taxes - Floor area occupied. Salaries - Time allocated to each department. Selling expenses, Bad debts- Sales of each department Carriage inwards - Purchases of each department 5. What are direct expenses? Give some examples. (Nov -2014) Expenses which are directly identified with or incurred for particular departments are called as direct expenses. Example: Wages, insurance of stock etc. 6. What is indirect expenses? (April -2014) Expenses which cannot be identified with a particular department, but incurred for their common benefit. 7. What is cost price? RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II/UNIT-2 Answers/VER 2.0 Unit 2 Answers Page 1 of 10

20 When the good are sold at the price of which incurred for the production of goods that means the cost of goods sold is called as cost price. 8. What is selling price? When the goods are sold at cost price plus profit is known as selling price. 9. Write two advantages of departmental accounts. (Nov -2010, Nov -2012, Nov -2013, April -2010) Evaluation of performance Growth potential of each department Judgement of efficiency Planning and control 10. Write two needs of departmental accounts. To have comparative results of departments To assesses the stock position of each department To analyze the result of each department and to draw up a trend for the future. 11. What are the methods and techniques of departmental accounts? 1. Preparation of trading and profit and loss account, 2. Maintenance of Records, 3. Departmentalization of expenses 12. What is meant by elimination of unrealized profit? When profit added in the inter-department transfers the loading included in the unsold stock at the end of the year is to be excluded before final accounts are prepared so as to eliminates any anticipatory profit included therein. 13. What are the two types of departments? Independent department Dependent department 14. What is independent department? Departments which work independently of each other and have negligible inter department transfer are called Independent Departments. 15. What is dependent department? RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II/UNIT-2 Answers/VER 2.0 Unit 2 Answers Page 2 of 10

21 Departments which transfer from one department to another department for further processing are called dependent departments. 16. What are the two sub-divisions of indirect expenses? Expenses which can be apportioned Expenses which cannot be apportioned 17. What are expenses which cannot be apportioned? (Nov -2011) Expenses which have no connection with the departments or those which have no reasonable basis for apportionment must be shown in the general profit & loss a/c. 18. What are expenses which can be apportioned? All indirect expenses which are amenable for division on some logical or appropriate basis among the departments should be charged to the departments after dividing them on suitable basis. 19. What are the three basis of interdepartmental transfer? Cost Ruling market price Cost plus agreed percentage of profit. 20. What is meant by common expenses? Common expenses, the benefit of which is shared by all the departments and which are capable of precise allocation are distributed among the departments concerned on some equitable basis considered suitable in the circumstances. PART B ANSWERS 1. Explain the advantages of departmental accounting. (Nov -2010, Nov -2013, Nov , April -2011) Evaluation of performance: The performance of each department can be evaluated separately on the basis of trading results. An endeavor may be made to push up the sales of that department which is earning maximum profit. Growth potential of each department: The growth potential of a department as compared to others can be evaluated. RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II/UNIT-2 Answers/VER 2.0 Unit 2 Answers Page 3 of 10

22 Judgement of efficiency: It helps to calculate stock turnover ratio of each department separately, and thus the efficiency of each department can be calculated. Planning and control: Availability of separate cost and profit figures for each department facilitates better control. Thus effective planning and control can be achieved on the basis of departmental accounting information. Justification of capital outlay: It helps the management to determine the justification of capital outlay in each department. 2. Write down the needs of departmental accounting.( April -2013) To compare the results of each department with the results of previous years and ascertain the trend. To know the comparative results of different departments in the same year. To assess the position of stock in each department. To identify areas weakness for cost control and improvement of efficiency. To decide upon expansion, discontinuation and investment policies. 3. Explain the ways of recording transactions in departmental accounts. a) Unitary method: Under this method, the accounts of each department are kept separately. The results of the various departments are finally combined together in one general P & L account. b) Tabular or columnar method: Under this method, the accounts of each department are kept in columnar form with a separate column for each department and also with a separate column for the total. The tabular method is more popular and is adopted by almost all the departmental undertaking, Under this method, at the end of the accounting year, Trading and P & L account is prepared with separate amount column for each of the department and also for the total. The trading and P & L of a departmental organization kept in the columnar basis is called Departmental Trading and P & L account. In trading account, opening stock, purchases, direct expenses and Gross profit are debited and sales and closing stock credited. Indirect expenses have to be apportioned between the departments and debited to the P&L account. 4. Difference between branch and departmental accounts. (Nov -2011, April -2010) BRANCH: Branches are separated from the main organization. DEPARTMENTS: Departments are attached with the main organization under a single roof. RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II/UNIT-2 Answers/VER 2.0 Unit 2 Answers Page 4 of 10

23 BRANCH: Branches are the outcome of tough competition and expansion of business. DEPARTMENTS: Departments are the result of fast human life. BRANCH: Branches are geographically separated. DEPARTMENTS: Departments are not separated rather existed under a same roof. BRANCH: Branches are of different types like dependent, independent and foreign. DEPARTMENTS: There is no such classification in department because all are common under the same roof. BRANCH: Allocation of branch common expenses does not arise. DEPARTMENTS: Allocation of departmental common expenses is a tough job. BRANCH: To find out the net result of the organization, the reconciliation of different branch account is a main job. DEPARTMENTS: In departmental accounting, no reconciliation is necessary because there is a central account division. 5. The proprietor of large retail store department wished to ascertain approximately the net profit of the X, Y, Z departments separately for the three months ended 31 st March It is found impracticable actually to take stock on the date, but an adequate system of departmental accounting is in use, and normal rates of gross profit for the three departments concerned are respectively by 40%, 30% and 20% on turnover before charging the direct expenses. The indirect expenses are charged in proportion to departmental turnover. The following are the figures for the department: X (Rs.) Y (Rs.) Z(Rs.) Opening stock Purchases Sales Direct expenses The total direct expenses for the period(including those relating to other departments) were Rs.5400 on total turnover of Rs Prepare a statement showing the approximate net profit, making a stock reserve of 10% for each department on the estimated value on (April -2010) RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II/UNIT-2 Answers/VER 2.0 Unit 2 Answers Page 5 of 10

24 6.Trading, profit and loss account of Janaki radio and gramophone equipment vo., for the six months ended is presented to you in the following form.( Nov ) Purchases Rs. Sales Rs. Radios(A) Gramophones(B) Spare parts(c) Salaries and wages Rent Sundry expenses Profit Radios(A) Gramophones(B) Spare parts(c) Stock as on Radios(A) Gramophones(B) Spare parts(c) Prepare departmental accounts for each of the three departments A,B and C mentioned above after taking into the account of the following: 1.Radios and gramophones are sold at the show room and spares parts at work shop. 2. Salaries and wages are comprises as follows: Showroom 3/4 th and workshop 1/4 th. It was decided to allocate the show room salaries and wages in the ratio of 1.:2 between the departments A and B. 3. The workshop rent is Rs.500 per month. The rent of show room is to be allocated equally between departments A and B. 4. Sundry expenses are allocated on the basis of turnover of each department. 7. Mixed goods were purchased for Rs and later they were assorted into three categories X, Y and Z as follows: X Selling price Rs.20 each X Selling price Rs each X Selling price Rs.25 each All categories yield the same rate of profit. Calculate the purchases price of each department. 8.A company has two departments A and B. Dept.A supplies good to Dept.B at its usual selling price. From the following figures prepare departmental trading a/c for the year 1982.( Nov -2012, Nov -2014, April -2014) RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II/UNIT-2 Answers/VER 2.0 Unit 2 Answers Page 6 of 10

25 Particulars A (Rs.) B (Rs.) Opening stock Purchases Transfer to B Sales Closing Stock There are two departments X and Y. Good are transferred from Dept.X to Dept.Y at usual selling price. You are required to compute the stock reserves on stock of Dept.Y from the following data(april -2013) G.P. Ratio of the Dept.X :25% on cost Opening stock of Dept.y : Rs Closing stock of Dept.y : Rs From the following particulars, prepare departmental trading account.( Nov -2013, April -2013, April -2014) Opening stock Total Purchases Total Sales Closing Stock Credit Purchases Credit Sales Particulars A (Rs.) B (Rs.) PART C ANSWERS 1. What are the bases of apportionment of expenses.( April -2014) SI.NO EXPENSES BASIS OF APPORTIONMENT 1 Sales expenses as traveling Sales of each department salesman, salary and commission, selling expenses after sales service, discount allowed, bad debts, freight outwards, provision for discount on debtors, sales RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II/UNIT-2 Answers/VER 2.0 Unit 2 Answers Page 7 of 10

26 manager's salary and other benefits etc. 2 All expenses relating to building as rent, rates, taxes, air conditioning expenses, heating, insurance building etc. Area or value of floor space 3 Lighting Lighting points in the department 4 Workmen s amenities and welfare expenses 5 Workmen s compensation insurance, ESI, PF etc. payable at employer 6 Premium for loss of profits insurance Number of workers in each department Wages of each department Profit of each department in the previous year 7 Power Consumption as per meter, horse power, time and hours. 8 Depreciation of assets, fire insurance, repairs on such assets. Value of each assets possessed by each departments 9 Factory manager s salary Time devoted to each department 10 Carriage inwards Purchase value 2. From the following information, prepare trading, profit and loss account in a columnar from the three departments of Sharma dry cleaners ltd. (Nov -2010, April , April -2011) Particulars Dry cleaning (Rs.) Darning (Rs.) Dyeing (Rs.) Opening stock Closing stock Purchases Sales Wages Goods were transferred from one dept. to another dept. at cost price as follows: i) Darning to dry cleaning Rs.2400 and to dyeing Rs ii) Dyeing to dry cleaning Rs and to darning Rs iii) Dry cleaning to darning Rs.3000 and to dyeing Rs Apportion equally: Rs. Stationery 5418 RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II/UNIT-2 Answers/VER 2.0 Unit 2 Answers Page 8 of 10

27 Postage 4050 General expenses Insurance Depreciation Rent & taxes Rs is to be split in proportion to space occupied, i.e., dry cleaning 4, darning 2, dyeing 2 and other space A firm had two departments cloth and readymade garments. The garments were made the firm itself out of cloth supplied by the cloth department at its usual selling price. From the following particulars, prepare departmental trading and profit and loss account for the year ended (Nov -2012, Nov -2013, April -2014) Particulars Cloth dept. (Rs.) Readymade dept.(rs.) Opening stock Closing stock Purchases Sales Transfer to readymade dept. Manufacturing expenses Selling expenses The stock in the readymade garments department may be considered as consisting of 75% of cloth and 25% other expenses. The cloth department earned gross 15% in General expenses of business as a whole came to Rs Modern company has two departments X and Y. Department X sells goods to Y departments at normal market price. From the following particulars, prepare departmental trading and profit & loss account for the year ended (Nov ) Particulars Stock on Purchases Good from dept. X Wages Salaries (departmental) Closing stock at cost Sales Printing & stationery Machinery Advertisement Salaries (general) Dept X (Rs.) Dept Y (Rs.) General total (Rs.) RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II/UNIT-2 Answers/VER 2.0 Unit 2 Answers Page 9 of 10

28 Depreciate machinery by 10%. The general unallocated expenses are to be apportioned in the ratio of 2:1 to the departments X and Y. Half of the closing stock of department Y represents goods received from the department X. 5. The following purchases were made by a business house having three departments. (Nov -2011, Nov -2012, April -2011, April -2013, April -2014) Dept. A units Dept. B units Dept. C units Total cost of purchases for above Rs Stocks on 1 st January were: Dept. A units Dept. B - 80 units Dept. C units Sales were: Dept. A units at Rs.20 each Dept. B units at Rs each Dept. C units at Rs.25 each The rate of gross profit is same each case. Prepare departmental trading account RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCM 21/FIN. ACC- II/UNIT-2 Answers/VER 2.0 Unit 2 Answers Page 10 of 10

29 ACADEMIC YEAR: REGULATION CBCS UCP 21 FINANCIAL ACCOUNTING UNIT-3 HIRE PURCHASE AND INSTALLMENT SYSTEM Type: 20% Theory 80% Problem Question & Answers PART A ANSWERS 1. What is Hire purchase system?(nov-2011, NOV-2012, NOV-2013,APRIL- 2011, APRIL-2014) Hire purchase is the system under which the property is acquired by payment made installments, during the period of which the title in the property remains with the hire vendor. 2. What is Installment system?( NOV-2012, APRIL-2010, APRIL-2014) Installment payment system (also called the deferred installments) is a system where the buyer is given the ownership as well as the possession of the goods at the time of signing the contract. The buyer has the facility to pay the price in installments. 3. Define Installment system.( APRIL-2010) According to J.B. Batliboi, a system under there is an agreement to purchase and pay by installments, the goods which become the property of the Purchaser immediately when he receives the delivery of the same. 4. What is meant by lump sum method? The whole amount of the goods paid immediately at the time of purchase goods and the ownership also transfer immediately to the buyer. 5. What are the methods to maintain the accounts in the books of hire purchaser? A. Outright property method B. Asset accrual method C. Interest suspense method 6. Who is Hire purchaser?(nov-2010,april-2014) A hire purchaser is a person who possesses the goods under hire purchase agreement for use within an option to either purchase it or return after use. RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-3 Unit 3Answers Page 1 of 8

30 ACADEMIC YEAR: REGULATION CBCS Who is Hire vendor?( NOV-2010, APRIL-2010,APRIL-2014) A hire vendor is a person who sells the goods under hire purchase agreement. 8. What is meant by Hire purchase price?(nov-2014,april-2010,april- 2014) It is the price at which the goods are sold under hire purchase system it includes cash price of the goods and interest. 9. What is meant by Hire purchase agreement? It is an agreement between hire purchaser and hire vendor according to section 2(c) of the hire purchase act, 1972 for purchasing of goods according to agreement. 10. What is Net hire purchase price? It is the net amount after deducting the delivery charges, registration charges, insurance charges from hire purchase price. 11. What is meant by termination of hire purchase agreement? The hirer can terminate the agreement at any time by giving the 14 days notice to the owner. However whatever the amount is already paid by the hirer is considered as a hire charges. 12. What is Cash Price?(APRIL-2010, APRIL-2013) This is the retail price of the articles at which they can be purchased immediately for cash. 13. What is Hire or Installment? This is the amount payable by the buyer periodically. be equal or different depending on agreement. The installments may 14. What is meant by rebate? It is an amount which is claimed by the hire purchaser from the hire vendor in case if he decides to remit the balance of the purchase price (future installments) in lump sum without continuing the hire purchasing agreement. 15. What is meant by down payment?( NOV-2011, NOV-2010, APRIL-2010, APRIL-2011) This is the advance payable by buyer while signing the hire purchase agreement. It is also a part of the hire purchase price. RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-3 Unit 3Answers Page 2 of 8

31 ACADEMIC YEAR: REGULATION CBCS What is meant by interest in hire purchase?(april-2010) This is the additional amount apart from the cash price payable by the buyer as compensation for postponed payments. 17. What is meant by repossession of goods or repossessed stock?( APRIL-2014, APRIL-2011) Repossession of goods means the hirer did not pay installment amount the goods will be taken up by the hire vendor. 18. What is meant by partial repossession?(nov-2014, APRIL-2014) The hirer did not pay installment amount the part of the goods only took by the hire vendor and left the remaining goods with the hirer equal to the value of amount paid by the hirer. 19. Write any two contents of Hire purchase agreement. The hire purchase price of the goods for which the agreement is made The number of installments in which the hire purchase price has to be paid 20. Give journal entry for down payment in the books of Hire purchaser. (APRIL-2013) Hire vendor A/c To Bank A/c 21. Give journal entry for down payment in the books of Hire purchaser. (NOV-2013, APRIL-2014) Interest A/c To Hire vendor A/c PART B ANSWERS 1. Write the features of Hire-Purchase System.(NOV-2010, NOV-2014,APRIL- 2013) Hire-purchase is a credit purchase. The price under hire-purchase system is paid in installments. The goods are delivered in the possession of the purchaser at the time of commencement of the agreement. Hire vendor continues to be the owner of the goods till the payment of last installment. The hire-purchaser has a right to use the goods as a bailer. RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-3 Unit 3Answers Page 3 of 8

32 ACADEMIC YEAR: REGULATION CBCS The hire-purchaser has a right to terminate the agreement at any time in the capacity of a hirer. The hire-purchaser becomes the owner of the goods after the payment of all installments as per the agreement. If there is a default in the payment of any installment, the hire vendor will take away the goods from the possession of the purchaser without refunding him any amount. 2. Write the features of Installment Payment System.(NOV-2013) Under this system, there will be an outright sale of goods/assets. The possession as well as the ownership is passed to the buyer right at the time of signing the contract. The buyer can make the payment in installments. In case of default in payment, the seller cannot repossess the goods, but he can sue the buyer for the recovery of unpaid price. The buyer cannot exercise the option of returning the goods and terminate the contract, unless the same becomes void or voidable under the contract act. 3. Write the advantages and disadvantages of hire purchase. Advantages: Costly items can easily be purchased by the consumers which he cannot otherwise purchase by making entire payment in lump sum. It increase turnover and enhances the profitability of the enterprise. It enables the consumer's family to enjoy the possession of the goods before payment is required. Hirer has a right to terminate the agreement at any time before the goods is transferred. Disadvantages: Cost of items purchased by hire purchase system is more than the normal price as the customer has to pay interest on the balance amount. Hirer does not become the owner of goods hired, until payment of last installment is made. Hirer cannot sell or pledge goods hired until he becomes owner of such goods. 4. On , X purchased machinery on hire purchase system. The payment is to be made Rs.4000 down (on signing of the contract) and Rs.4000 annually for three years. The cash price of the machinery is Rs and the rate of interest is 5%. Calculate the interest in each year s installment. (APRIL-2010, APRIL-2014) RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-3 Unit 3Answers Page 4 of 8

33 ACADEMIC YEAR: REGULATION CBCS Mr.X purchased a machine on hire purchase system Rs.3000 being paid on delivery and the balance in five installments of Rs.6000 each, payable annually on 31 st December. The cash price of the machine was Rs Calculate the amount of interest for each year.(nov-2013, NOV-2014) 6. X purchased a typewriter on hire purchase system. As per terms, he is required to pay Rs.800 down, Rs.400 at the end of the first year, Rs.300 at the end of the second year and Rs.700 at the end of the third year. Interest is charged at 5% p.a. Calculate the total cash price of the typewriter and the amount of interest payable in the each installment.( NOV-2012, APRIL-2014) 7. X purchased a machine on hire purchase system. According to the terms of the agreement Rs was to be paid on signing of the contract. The balance was to be paid in four annual installments of Rs each plus interest. The cash price was Rs Interest is chargeable on outstanding balance at 20% per annum. Calculate the interest for each year and the installment amount.(nov-2014) 8. On X bought some trucks under hire purchase system for Rs payable by three equal installments combining principal and interest, the later being a normal rate of 5% p.a. Calculate the cash price.( The present value of annuity of one rupee for the three years at 5% is Rs )(NOV-2010) 9. From the following details of a businessman who sells goods of small value at cost plus 50%. Prepare hire purchase trading account. Rs Stock out with the customer at H.P price 9000 Stock at the shop at cost price Installments due but not received Goods worth Rs.500 repossessed (Inst. Not due Rs.2000) Cash received from customers Purchase made during the year Stock out with the customer at H.P price Stock at the shop at cost (excluding goods repossessed) Installments due but not received Raman purchased a motor car from bharathan whose cash price is Rs on Rs is paid on signing the contract and the balance is to be paid in three equal annual installments of Rs each. The rate of interest is 5% p.a. Calculate the amount of interest included in the each installments.( NOV-2012) RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-3 Unit 3Answers Page 5 of 8

34 ACADEMIC YEAR: REGULATION CBCS Mohan purchased a car on hire purchase system the cash price of the car was Rs.15980, payablers.4000 being paid down and the three installments of Rs.6000 Rs.5000, Rs.2000 at the end of the first, second and third year respectively. Interest is charged at 5% p.a. Calculate the amount of interest for each year.(nov-2011, APRIL-2014) 12. Mr.X purchased a cycle on hire purchase system for Rs.1000 to be paid as follows: Rs.800 on signing of contract, Rs.400 at the end of the first year, Rs.300 at the end of the second year and Rs.700 at the end of the third year. Interest is charged at 5% p.a. Calculate the total cash price of the cycle and the amount of interest payable in the each installment. 13. Calculate the cash price of the machine from the following information. (APRIL- 2013) Down payment Rs Four annual installments at the end of each year Rs Rate of interest 5% per annum PART C ANSWERS 1. Differences Between Hire Purchase System and Installment Purchase System. (NOV-2010, NOV-2011, APRIL-2010, APRIL-2013, APRIL-2014) Hire-Purchase System It is a contract of hiring. It is transferred by seller to buyer only after payment of all installments. In this case, the buyer is like a bailee. Such risk is on the seller. Installment Purchase It is a contract of sale. It is transferred by seller to buyer, immediately on signing the contract. In this case, the buyer is not in the position of a bailee. Such risk is on the buyer. On default of payment of any installment by the buyer, the seller can repossess the goods. The buyer can exercise the option of return of goods. The buyer cannot dispose the goods, until the payment of last installment. If disposed, the third party buyer does not get a better title. On default of payment of any installment by the buyer, seller cannot repossess the goods, but can file a suit in the court of law against the buyer for the recovery of unpaid price. The buyer cannot exercise the option of return of goods. The buyer has the right to dispose the goods, even if all installments are not yet paid. RAAK/B.COM(CA)/PUSHPARAJ/I YEAR/II Sem/UCP 21/FIN. ACC/UNIT-3 Unit 3Answers Page 6 of 8