(a) Which business organizations have the need to prepare departmental accounts?
(b) State two reasons for preparing departmental accounts.
(c) State how the following incomes and expenses are apportioned in departmental accounts:
i. discount allowed
ii. discount received
iii. rent and rates
iv. staff related costs
v depreciation
vi. canteen expenses
vii. electricity
viii. advertising
ix. bad debts
Explanation
(a) Business organizations that have need to prepare departmental accounts
(i) Large general stores having separate departments such as frozen foods, household appliances, books/stationery
(ii) Firm of chartered accountants which have an audit, tax, and business consultancy departments.
(iii) Insurance companies-life, marine, motor, burglary departments.
(b) Reasons for preparing departmental accounts
(i) To ascertain the profit or loss for each department
(ii) To compare the performance of the departments over the years
(iii) To assist management in taking decisions on which department to support or drop
(iv) To assist management in its effort to control costs in the various departments
(v) To provide a basis for rewarding staff:
(vi) To stimulate competition among the departments
(vii) To enable management to apportion expenses to various departments.
(C) Apportionment of Incomes and Expenses in departmental accounts
Item Basis
(i) Discount allowed Sales of each department
(ii) Discount received Purchases of each department
(i) Rent & rates Floor space occupied
(iv) Staff related costs Number of employees in each Department
(v) Depreciation Book value/cost of the fixed asset in each department
(vi) Canteen Number of employees o
(vii) Electricity Area Occupied
(vii) Advertisement Value of sales
(xi) Bad debt Credit sales of each department.