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SS2: FINANCIAL ACCOUNTING - 2ND TERM

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Illustration 2

From the following balances of Magnum Limited, you are required to prepare departmental trading, Profit, and Loss Account for the year ended 31st December 1997.

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Additional Information

  1. The total floor area occupied by each department was: Department A: (2/5) Department B: (3/5)
  2. The following basis of apportionment should be used for the departments: Commission, Advertising, Discount allowed:

Proportionate to sales

(ii) Discount received: Proportionate of Purchases

(iii) Cleaning, electricity, Internal telephone, Insurance: On the basis of total floor rate.

  1. All other expenses should be apportioned equally between the departments.

Solution

Magnum Ltd

Departmental, Trading, Profit and Loss Account for the year ended 31st December 1997. 

Solution

MAGNUM LTD.

Departmental, Trading, Profit and Loss Account for the Year ended 31st December, 1997.

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1. Commission Proportionate to Sale

Dept A 30,000/50,000 x 700/1 = 420

Dept B 20,000/50,000 x 700/1 = 280

2. Advertising

Dept A 30,000/50,000 x 230/1 = 138

Dept. B 20,000/50,000 x 230/1 = 92

3. Discount allowed

Dept. A 30,000/50,000 x 60/1 = 36

Dept. B 20,000/50,000 x 60/1 = 24.

Floor Area Basis

4. Cleaning

Dept. A: 2/5 x 20/1 = 8

Dept. B: 3/5 x 20/1 = 12.

5. Electricity

Dept. A : 2/5 x 820/1 = 328.

Dept. B: 3/5 x 820/1 = 492.

6. Internal Telephone

Dept. A: 2/5 x 120/1 = 48

Dept. B: 3/5 x 120 = 72

7. Insurance

Dept. A: 2/5 x250/1 = 100

Dept. B 3/5 x250/1 = 250

Proportionate To Purchase

8. Discount received:

Dept. A: 23,600/40,000 x x 50/1 = 30

Dept B: 16,400/40,000 x 50/1 = 20

Equity Basis

9. General Office Salaries

Dept. A: ½ x 1,000 = 500

Dept. B: ½ x 1,000 = 500

10. Stationery:

Dept. A ½ x 150 =75

Dept. B: ½ x 150 =75

11. Repairs:

Dept. A: ½ x 240 = 120

Dept. B: ½ x 240 = 120

12. Lighting:

Dept. A: ½ x 600 = 300

Dept. B: ½ x 600 = 300

13. Rates:

Dept. A: ½ x 300 = 150

Dept. B: ½ x 300 = 150

14. Sundry expenses:

Dept. A: ½ x 70 =35

Dept. B: ½ x 70 = 35

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