Examkin

Question

Difficulty: MediumPreparation of Departmental Trading, Profit and Loss Accounts

Bello & Sons Enterprises operates two departments: Hardware and Stationery. For the accounting year ended 31 December 2025, the following information relates to the Hardware Department:

- Sales: ₦180,000₦180,000
- Opening Stock: ₦30,000₦30,000
- Purchases: ₦110,000₦110,000
- Closing Stock: ₦20,000₦20,000

The total administrative expenses for both departments combined amounted to ₦40,000₦40,000, which are apportioned between Hardware and Stationery in proportion to their sales turnover. The total sales turnover for the business was ₦300,000₦300,000.

What is the net profit of the Hardware Department?

  1. A
    ₦60,000
  2. B
    ₦40,000
  3. ₦36,000Answer
  4. D
    ₦16,000

Answer

The net profit of the Hardware Department is ₦36,000.
The gross profit of Hardware Department is calculated as Sales (₦180,000₦180,000) minus Cost of Goods Sold (₦30,000+₦110,000−₦20,000=₦120,000₦30,000 + ₦110,000 - ₦20,000 = ₦120,000), yielding ₦60,000₦60,000. Apportioning the administrative expenses of ₦40,000₦40,000 based on Hardware's share of turnover (₦180,000/₦300,000=60%₦180,000 / ₦300,000 = 60\%) gives ₦24,000₦24,000. Deducting ₦24,000₦24,000 from ₦60,000₦60,000 gross profit gives the net profit of ₦36,000₦36,000.

Step-by-Step Solution

1
Calculate Cost of Goods Sold (COGS) for Hardware Department
COGS = Opening Stock + Purchases - Closing Stock = ₦30,000+₦110,000−₦20,000=₦120,000₦30,000 + ₦110,000 - ₦20,000 = ₦120,000
Cost of goods sold measures the direct cost of merchandise sold during the period.
2
Calculate Gross Profit for Hardware Department
Gross Profit = Sales - COGS = ₦180,000−₦120,000=₦60,000₦180,000 - ₦120,000 = ₦60,000
Gross profit represents revenue remaining after subtracting direct cost of sales.
3
Determine Hardware Department's share of administrative expenses
Turnover Ratio = ₦180,000₦300,000=0.60\frac{₦180,000}{₦300,000} = 0.60 (or 60%60\%). Apportioned Expense = 0.60×₦40,000=₦24,0000.60 \times ₦40,000 = ₦24,000
Shared overheads must be allocated using the specified turnover ratio basis.
4
Calculate Net Profit for Hardware Department
Net Profit = Gross Profit - Apportioned Expenses = ₦60,000−₦24,000=₦36,000₦60,000 - ₦24,000 = ₦36,000
Net profit is the final departmental operating profit after overhead allocation.

Key Concept

Preparation of Departmental Trading, Profit and Loss Accounts and Expense Apportionment
Rate this question

Topics

Preparation of Departmental Trading, Profit and Loss Accounts

More questions from this topic