Departmental and Branch Accounts Practice Questions — JAMB UTME

Question 1Question →

Kofi & Sons Enterprises operates two departments, Department P and Department Q. At the end of the trading period, total Rent and Rates incurred amounted to $\text{₦}200,000$ . The records provide the following information:

- Floor area occupied: Department P = $1,200\text{ m}^2$ ; Department Q = $800\text{ m}^2$
- Sales turnover: Department P = $\text{₦}300,000$ ; Department Q = $\text{₦}700,000$

What is the correct amount of Rent and Rates to be apportioned to Department P?

₦60,000

₦80,000

₦100,000

₦120,000

Show answer & explanation

Answer: ₦120,000

Answer

The correct amount of Rent and Rates to be apportioned to Department P is ₦120,000.

Rent and Rates are space-based expenses and must be apportioned based on floor area occupied. Department P occupies

1,200\text{ m}^2

out of a total

2,000\text{ m}^2

, which is

\frac{3}{5}

or

60\%

. Multiplying

60\%

by total rent of

\text{₦}200,000

yields

\text{₦}120,000

.

Step-by-Step Solution

1

Identify the appropriate basis for apportioning Rent and Rates.

Rent and Rates should be apportioned according to floor area occupied by each department.

Rent is a space-related indirect expense, so floor area provides an equitable basis of apportionment.

2

Calculate total floor area and Department P's share ratio.

Total floor area =

1,200\text{ m}^2 + 800\text{ m}^2 = 2,000\text{ m}^2

. Department P's ratio =

\frac{1,200}{2,000} = \frac{3}{5}

.

Determining the proportion of space utilized by Department P relative to the total space.

3

Calculate Department P's share of total Rent and Rates.

Department P's Rent =

\frac{3}{5} \times \text{₦}200,000 = \text{₦}120,000

.

Multiplying the total expense by Department P's floor area proportion.

Key Concept

Apportionment of Indirect Departmental Expenses

Estimated Time:1m 30s

Question 2Question →

Department P transfers goods to Department Q at cost plus $20\%$ . At the end of the accounting year, Department Q held closing inventory valued at $\text{N}45,000$ , of which $80\%$ represents goods transferred from Department P. If the Provision for Unrealized Profit Account had an opening balance of $\text{N}2,500$ , what amount should be charged to the General Profit and Loss Account as the net provision for unrealized profit at year end?

\text{N}3,500

\text{N}6,000

\text{N}4,700

\text{N}5,000

Show answer & explanation

Answer: $\text{N}3,500$

Answer

\text{N}3,500

is the net amount to be charged to the General Profit and Loss Account.

The transferred portion of Department Q's closing inventory is

80\% \times \text{N}45,000 = \text{N}36,000

. Since Department P transfers goods at cost plus

20\%

(mark-up), the profit margin fraction on invoice price is

\frac{20}{100+20} = \frac{1}{6}

. The total unrealized profit contained in closing stock is

\text{N}36,000 \times \frac{1}{6} = \text{N}6,000

. Subtracting the existing opening provision balance of

\text{N}2,500

gives a net increase of

\text{N}3,500

to be debited to the General Profit and Loss Account.

Step-by-Step Solution

1

Calculate the value of transferred goods contained in Department Q's closing inventory.

Transferred goods

= 80\% \times \text{N}45,000 = \text{N}36,000

.

Only the transferred portion of inventory contains unrealized departmental profit.

2

Convert mark-up on cost (

20\%

) to profit margin on invoice price to compute unrealized profit.

Profit margin

= \frac{\text{Mark-up}}{100 + \text{Mark-up}} = \frac{20}{120} = \frac{1}{6}

. Unrealized profit required

= \text{N}36,000 \times \frac{1}{6} = \text{N}6,000

.

Inter-departmental transfers are valued at invoice price, so mark-up must be converted to margin rate.

3

Determine the net adjustment required in the General Profit and Loss Account.

Net adjustment

= \text{Required Provision} - \text{Opening Provision} = \text{N}6,000 - \text{N}2,500 = \text{N}3,500

.

Only the increase in provision is debited to the General Profit and Loss Account.

Key Concept

Inter-departmental provision for unrealized profit requires removing the profit loading from closing inventory transferred above cost, adjusted for any existing provision balance.

Question 3Question →

Zaria Textiles Plc operates two departments: Weaving and Garment. The Weaving Department transfers fabric to the Garment Department at cost plus a mark-up of $25\%$ . At the beginning of the year, the Provision for Unrealized Profit Account had a credit balance of $\text{N}4,000$ . At the end of the year, the Garment Department held a total closing inventory valued at $\text{N}75,000$ , of which $80\%$ represents transferred fabric from the Weaving Department. What is the net amount to be debited to the General Profit and Loss Account as an adjustment for provision for unrealized profit?

\text{N}8,000

\text{N}11,000

\text{N}12,000

\text{N}15,000

Show answer & explanation

Answer: $\text{N}8,000$

Answer

The net amount to be debited to the General Profit and Loss Account is

\text{N}8,000

.

To find the net charge to the General Profit and Loss Account, first calculate the transferred inventory element (

\text{N}75,000 \times 80\% = \text{N}60,000

). Convert the

25\%

mark-up on cost to a

20\%

margin on transfer price (

\frac{25}{125} = 20\%

). Calculate the required closing provision as

20\% \times \text{N}60,000 = \text{N}12,000

. Subtract the existing opening provision balance of

\text{N}4,000

to get a net increase of

\text{N}8,000

.

Step-by-Step Solution

1

Calculate the value of transferred goods in the closing inventory

\text{Transferred Portion} = 80\% \times \text{N}75,000 = \text{N}60,000

Only the portion of closing stock supplied by the transferring department contains unrealized profit.

2

Convert the mark-up percentage on cost to margin on transfer price

\text{Margin} = \frac{\text{Mark-up}}{100 + \text{Mark-up}} = \frac{25}{125} = \frac{1}{5} \text{ or } 20\%

The transferred inventory value is stated at transfer price (cost + profit), so profit must be extracted using profit margin.

3

Calculate the required closing provision for unrealized profit

\text{Required Provision} = 20\% \times \text{N}60,000 = \text{N}12,000

This is the total unrealized profit contained in the year-end transferred inventory.

4

Determine the net adjustment to the General Profit and Loss Account

\text{Net Increase} = \text{Required Provision} - \text{Opening Provision} = \text{N}12,000 - \text{N}4,000 = \text{N}8,000

Only the increase in provision is charged as an expense to the General Profit and Loss Account for the current period.

Key Concept

Provision for Unrealized Profit on Inter-departmental Transfers

Estimated Time:2m 30s

Question 4Question →

A head office invoices goods to its dependent branch at cost plus $25\%$ . At the end of the financial year, the branch holds closing inventory valued at $\text{N}20,000$ at invoice price. What is the amount of unrealized profit (stock reserve) contained in the closing inventory?

\text{N}4,000

\text{N}5,000

\text{N}16,000

\text{N}25,000

Show answer & explanation

Answer: $\text{N}4,000$

Answer

The unrealized profit contained in the branch closing inventory is

\text{N}4,000

.

Goods are sent to the branch at cost plus

25\%

, which means invoice price is

125\%

of cost. The profit element is

\frac{25}{125}

or

\frac{1}{5}

(

20\%

) of the invoice price. Applying

20\%

to the closing stock at invoice price (

\text{N}20,000

) gives

\text{N}4,000

as the unrealized profit (stock reserve).

Step-by-Step Solution

1

Convert the mark-up on cost to margin on invoice price.

Mark-up of

25\%

(

1/4

on cost) equals a margin of

20\%

(

1/5

on invoice price), using

\text{Margin} = \frac{\text{Mark-up}}{1 + \text{Mark-up}} = \frac{0.25}{1.25} = 0.20

.

Because the closing inventory figure is given at invoice price, the profit fraction must be applied to selling/invoice price.

2

Calculate the stock reserve (unrealized profit).

\text{Stock Reserve} = 20\% \times \text{N}20,000 = \text{N}4,000

.

Multiplying the margin percentage by the total invoice price extracts the profit loading component.

Key Concept

Calculation of Stock Reserve on Branch Closing Inventory at Invoice Price

Question 5Question →

Apex Enterprises operates two departments: Department X and Department Y. Department X transfers finished goods to Department Y at cost plus $33\frac{1}{3}\%$ . At the end of the accounting year ended 31st December 2025, Department Y held closing inventory valued at $\text{N}40,000$ . An inspection of inventory records reveals that $75\%$ of Department Y's closing inventory consists of goods transferred from Department X. Given that the opening provision for unrealized profit at 1st January 2025 was $\text{N}2,500$ , what is the net amount (in Naira) to be debited to the General Profit and Loss Account for provision for unrealized profit for the year?

Show answer & explanation

Answer: 5000

Answer

The net amount to be debited to the General Profit and Loss Account for provision for unrealized profit is 5000.

To calculate the net adjustment to the General Profit and Loss Account, first isolate the transfer component of Department Y's closing inventory (

75\% \times \text{N}40,000 = \text{N}30,000

). Convert the transfer mark-up of

33\frac{1}{3}\%

on cost to a margin on transfer price:

\frac{1/3}{1 + 1/3} = 25\%

. The total unrealized profit contained in closing stock is

25\% \times \text{N}30,000 = \text{N}7,500

. Since an opening provision of

\text{N}2,500

already exists, the additional amount to be debited to the General Profit and Loss Account is

\text{N}7,500 - \text{N}2,500 = \text{N}5,000

.

Step-by-Step Solution

1

Determine the proportion of closing inventory derived from inter-departmental transfers

Transferred goods portion =

75\% \times \text{N}40,000 = \text{N}30,000

Unrealized profit exists only in the portion of closing stock that was transferred from Department X, not in goods purchased externally.

2

Convert mark-up rate to profit margin rate

Margin =

\frac{\text{Mark-up}}{1 + \text{Mark-up}} = \frac{1/3}{4/3} = \frac{1}{4} = 25\%

Department X charges goods at cost plus

33\frac{1}{3}\%

. To extract profit from the transfer price (invoice price), mark-up must be converted to margin on transfer price.

3

Calculate the closing provision required at the end of the year

Closing Provision =

25\% \times \text{N}30,000 = \text{N}7,500

This represents the total profit element included in Department Y's remaining transferred stock that has not yet been sold to third parties.

4

Calculate the net charge to the General Profit and Loss Account

Net P&L Debit = Closing Provision - Opening Provision =

\text{N}7,500 - \text{N}2,500 = \text{N}5,000

The General Profit and Loss Account is debited with the increase in provision required for the current accounting period.

Key Concept

Provision for Unrealized Profit on Inter-Departmental Transfers

Estimated Time:2m 30s

Question 6Question →

A head office transferred goods costing ₦80,000 to its dependent branch at an invoice price calculated using a mark-up of 25% on cost. What is the total invoice price of the goods sent to the branch?

₦20,000

₦64,000

₦100,000

₦60,000

Show answer & explanation

Answer: ₦100,000

Answer

The total invoice price of the goods sent to the branch is ₦100,000.

To find the invoice price when goods are billed at cost plus a percentage mark-up, compute the profit element by taking 25% of the cost (25% of ₦80,000 = ₦20,000) and add it to the cost price (₦80,000 + ₦20,000 = ₦100,000).

Step-by-Step Solution

1

Calculate the mark-up amount in Naira.

Mark-up = 25% of ₦80,000 = 0.25 × ₦80,000 = ₦20,000

Mark-up is the profit percentage added directly to the cost price.

2

Add the mark-up amount to the original cost price to find the invoice price.

Invoice Price = Cost Price + Mark-up = ₦80,000 + ₦20,000 = ₦100,000

The invoice price reflects the selling value billed to the branch.

Key Concept

Invoice Price Calculation for Goods Sent to Branch

Estimated Time:45s

Question 7Question →

Match each managerial decision or operational need on the left with its corresponding objective in departmental accounting on the right.

Click a left item, then click its matching right item

Show answer & explanation

Answer

Evaluating segment profitability matches ascertaining individual net profit/loss; rewarding departmental leadership matches determining performance-based bonuses; deciding to expand or close units matches identifying unprofitable sections for action or closure; and benchmarking efficiency matches comparing departmental margins and cost ratios.

Evaluating individual segment profitability aligns with ascertaining departmental net profit/loss because segment reporting isolates revenues and costs per department. Rewarding departmental leadership aligns with calculating performance bonuses tied strictly to departmental results. Deciding on business expansion or closure aligns with identifying unprofitable sections for corrective action or termination. Benchmarking operational efficiency aligns with comparing departmental margins and expense ratios.

Step-by-Step Solution

1

Analyze the goal of evaluating individual segment profitability in departmental accounting.

It directly matches ascertaining the net profit or loss generated by each separate department.

Departmental accounting segregates income and expenses to determine individual departmental trading results.

2

Examine how managerial compensation and incentives are established.

Departmental accounting provides separate profit figures used to calculate department-specific bonuses.

Departmental managers are held accountable and rewarded based on the financial performance of their respective units.

3

Assess the strategic role of departmental accounting in business expansion or closure decisions.

It isolates weak segments that incur continuous losses from profitable segments suitable for expansion.

Management requires segment financial reporting to decide whether to restructure, expand, or shut down a department.

4

Determine how operational efficiency is monitored across units.

Departmental gross profit ratios and expense allocations are compared internally across departments.

Inter-departmental comparisons reveal relative cost efficiency and operational effectiveness.

Key Concept

Objectives and Reasons for Departmental Accounts

Question 8Question →

A retail store operates two departments, Department X and Department Y. For the year ended 31 December 2025, the following financial details are provided:

- Department X Gross Profit: ₦150,000
- Direct administrative expenses for Department X: ₦25,000
- Total Rent and Rates: ₦60,000 (apportioned based on floor space: Department X occupies $1,200\text{ m}^2$ and Department Y occupies $800\text{ m}^2$ )
- Total Staff Salaries: ₦40,000 (apportioned based on staff headcount: Department X has 6 employees and Department Y has 4 employees)

What is the Net Profit of Department X in Naira (₦)?

Show answer & explanation

Answer: 65000

Answer

The Net Profit of Department X is ₦65,000.

To find the Net Profit of Department X, calculate the apportioned share of shared expenses and add direct expenses. Rent apportioned to Department X based on floor space is

\frac{1,200}{2,000} \times ₦60,000 = ₦36,000

. Salaries apportioned based on headcount are

\frac{6}{10} \times ₦40,000 = ₦24,000

. Adding direct administrative expenses of

₦25,000

yields total expenses of

₦36,000 + ₦24,000 + ₦25,000 = ₦85,000

. Subtracting total expenses from the Gross Profit (

₦150,000 - ₦85,000

) gives a Net Profit of

₦65,000

.

Step-by-Step Solution

1

Apportion Rent and Rates to Department X

Rent for Dept X =

\frac{1,200}{1,200 + 800} \times ₦60,000 = ₦36,000

Rent expense is apportioned in proportion to floor space occupied.

2

Apportion Staff Salaries to Department X

Salaries for Dept X =

\frac{6}{6 + 4} \times ₦40,000 = ₦24,000

Salaries are apportioned in proportion to the number of staff in each department.

3

Compute Total Expenses for Department X

Total Expenses =

₦36,000 + ₦24,000 + ₦25,000 = ₦85,000

Combine the apportioned rent, apportioned salaries, and direct administrative expenses.

4

Determine Department X Net Profit

Net Profit =

₦150,000 - ₦85,000 = ₦65,000

Deduct total departmental expenses from the departmental gross profit.

Key Concept

Apportionment of indirect expenses and computation of departmental net profit.

Estimated Time:1m 30s

Question 9Question →

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

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

What is the net profit of the Hardware Department?

₦60,000

₦40,000

₦36,000

₦16,000

Show answer & explanation

Answer: ₦36,000

Answer

The net profit of the Hardware Department is ₦36,000.

The gross profit of Hardware Department is calculated as Sales (

₦180,000

) minus Cost of Goods Sold (

₦30,000 + ₦110,000 - ₦20,000 = ₦120,000

), yielding

₦60,000

. Apportioning the administrative expenses of

₦40,000

based on Hardware's share of turnover (

₦180,000 / ₦300,000 = 60\%

) gives

₦24,000

. Deducting

₦24,000

from

₦60,000

gross profit gives the net profit of

₦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

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

Gross profit represents revenue remaining after subtracting direct cost of sales.

3

Determine Hardware Department's share of administrative expenses

Turnover Ratio =

\frac{₦180,000}{₦300,000} = 0.60

(or

60\%

). Apportioned Expense =

0.60 \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

Net profit is the final departmental operating profit after overhead allocation.

Key Concept

Preparation of Departmental Trading, Profit and Loss Accounts and Expense Apportionment

Question 10Question →

Match each head office and independent branch reconciliation scenario on the left with its corresponding adjusting journal entry on the right.

Click a left item, then click its matching right item

Show answer & explanation

Answer

1. Goods in transit dispatched by Head Office matches Debit Goods in Transit Account and Credit Head Office Current Account (in Branch books).
2. Cash remitted by Branch in transit matches Debit Cash in Transit Account and Credit Branch Current Account (in Head Office books).
3. Branch operating expenses paid by Head Office matches Debit Operating Expenses Account and Credit Head Office Current Account (in Branch books).
4. Branch trade creditor settled by Head Office matches Debit Trade Creditors Account and Credit Head Office Current Account (in Branch books).

Each reconciliation scenario requires specific journal entries to align the reciprocal Branch Current Account in the Head Office books with the Head Office Current Account in the Branch books. Items in transit are always recorded in the receiving entity's books at year-end, while direct payments by Head Office increase the Head Office Current Account balance in the Branch books.

Step-by-Step Solution

1

Identify the entity responsible for recording transit items at year-end balance sheet date

Goods in transit are recorded in the Branch books, while cash in transit is recorded in the Head Office books.

In-transit reconciliation adjustments are posted in the books of the receiving entity where the transaction remains unrecorded.

2

Determine double-entry adjustments for unreceived goods

Debit Goods in Transit Account and Credit Head Office Current Account in Branch books.

The branch recognizes the asset in transit and adjusts its reciprocal obligation to the head office.

3

Determine double-entry adjustments for unreceived cash remittances

Debit Cash in Transit Account and Credit Branch Current Account in Head Office books.

Head office recognizes cash asset in transit while reducing the reciprocal branch current account balance.

4

Determine double-entry postings for direct Head Office disbursements on behalf of the branch

Debit Expenses or Trade Creditors Account and Credit Head Office Current Account in Branch books.

The branch records the expense or liability reduction while crediting Head Office Current Account to record capital/funding from head office.

Key Concept

Independent Branch Accounts and Head Office Reconciliation Adjustments

Question 11Question →

Ebonyi Processing Company operates two departments: Milling and Bakery. During the financial year ended 31 December 2025, the Milling Department transferred flour to the Bakery Department at cost plus a mark-up of $33\frac{1}{3}\%$ . At the close of the year, the Bakery Department held closing inventory valued at $\text{N}120,000$ , of which $75\%$ represented flour transferred from the Milling Department. Calculate the amount of provision for unrealized profit on closing inventory to be recognized in the general profit and loss account.

Show answer & explanation

Answer: 22500

Answer

The provision for unrealized profit to be recognized in the general profit and loss account is N22,500.

To calculate the provision for unrealized profit, first isolate the value of transferred stock in closing inventory:

75\% \times \text{N}120,000 = \text{N}90,000

. Next, convert the mark-up of

33\frac{1}{3}\%

(

\frac{1}{3}

) on cost to margin on transfer price:

\frac{1}{3+1} = \frac{1}{4}

(

25\%

). Multiplying the margin by the transferred stock value gives

25\% \times \text{N}90,000 = \text{N}22,500

.

Step-by-Step Solution

1

Determine the value of transferred goods included in closing inventory

Transferred inventory = 75% * N120,000 = N90,000

Only the portion of inventory transferred internally contains unrealized profit.

2

Convert mark-up percentage on cost to margin percentage on transfer price

Margin = Mark-up / (1 + Mark-up) = (1/3) / (1 + 1/3) = 1/4 or 25%

Closing inventory is valued at transfer price (selling price), requiring margin to extract the profit element.

3

Calculate the provision for unrealized profit

Provision = 25% * N90,000 = N22,500

Unrealized profit is the profit margin embedded in unsold transferred inventory remaining at year-end.

Key Concept

Provision for Unrealized Profit on Inter-departmental Transfers

Question 12Question →

Which of the following accounting practices uniquely characterizes an independent branch rather than a dependent branch?

Extracting a complete trial balance and preparing its own financial statements

Maintaining only basic cash records and sales memos to submit periodic returns to the head office

Functioning as an entirely separate legal business entity distinct from the head office

Forwarding non-current asset purchase invoices directly to the head office for journalization while ignoring inventory records

Show answer & explanation

Answer: Extracting a complete trial balance and preparing its own financial statements

Answer

Extracting a complete trial balance and preparing its own financial statements

Extracting a complete trial balance and preparing its own financial statements is the primary feature of an independent branch. Because an independent branch maintains a full set of books using double-entry bookkeeping, it can independently verify the arithmetical accuracy of its ledgers by extracting a trial balance at period-end.

Step-by-Step Solution

1

Identify the accounting autonomy level of an independent branch

An independent branch acts as an autonomous accounting unit keeping full double-entry records.

Independent branches record all transactions, including local purchases, sales, and expenses, in their own ledgers.

2

Determine the financial statement output generated by an independent branch

The branch extracts its own trial balance and prepares its trading and profit and loss accounts.

Extracting a trial balance distinguishes an independent branch from a dependent branch, whose accounts are maintained at the head office.

Key Concept

Accounting distinction between dependent and independent branches

Estimated Time:1m 0s

Question 13Question →

Kano Head Office operates a dependent branch in Kaduna, supplying all goods at cost price. For the year ended 31 December 2025, the following records were extracted:

Details	Amount (₦)
Branch stock (1 January 2025)	15,000
Goods sent to branch	120,000
Goods returned to head office	5,000
Cash sales at branch	80,000
Credit sales at branch	45,000
Branch stock (31 December 2025)	20,000
Branch operating expenses paid by head office	4,000

What is the net profit of the Kaduna branch for the year in Naira (₦)?

Show answer & explanation

Answer: 11000

Answer

The net profit of the Kaduna branch for the year is ₦11,000.

The net profit is calculated by subtracting total cost of goods sold and operating expenses from total sales (cash + credit sales). Total sales equal ₦125,000, cost of goods sold equals ₦110,000 (Opening stock ₦15,000 + Net goods sent ₦115,000 - Closing stock ₦20,000), leaving a gross profit of ₦15,000. Deducting branch expenses of ₦4,000 yields the net profit of ₦11,000.

Step-by-Step Solution

1

Determine total branch sales

₦125,000

Total revenue includes both cash sales (₦80,000) and credit sales (₦45,000).

2

Calculate net goods sent to branch from head office

₦115,000

Subtract returns to head office from goods sent: ₦120,000 - ₦5,000 = ₦115,000.

3

Calculate cost of goods sold (COGS)

₦110,000

COGS = Opening Stock (₦15,000) + Net Goods Sent (₦115,000) - Closing Stock (₦20,000) = ₦110,000.

4

Calculate branch gross profit

₦15,000

Gross Profit = Total Sales (₦125,000) - COGS (₦110,000) = ₦15,000.

5

Deduct operating expenses to find net profit

₦11,000

Net Profit = Gross Profit (₦15,000) - Operating Expenses (₦4,000) = ₦11,000.

Key Concept

Accounting for Dependent Branches at Cost Price

Question 14Question →

A commercial enterprise forwards inventory to its dependent branch at an invoice price that reflects a mark-up of $25\%$ on cost. At the close of the financial period, the branch holds a closing inventory valued at an invoice price of $\text{N}50,000$ . What is the amount of unrealized profit to be credited to the Stock Reserve account?

\text{N}10,000

\text{N}12,500

\text{N}40,000

\text{N}62,500

Show answer & explanation

Answer: $\text{N}10,000$

Answer

\text{N}10,000

The correct answer is

\text{N}10,000

. Since inventory is invoiced at cost plus

25\%

, the profit portion represents

\frac{25}{125} = \frac{1}{5}

(

20\%

) of the invoice price. Applying

20\%

to the branch closing inventory of

\text{N}50,000

yields

\text{N}10,000

as the unrealized profit element to be provided for in the Stock Reserve account.

Step-by-Step Solution

1

Convert the given mark-up percentage on cost into a margin percentage on invoice price.

Mark-up of

25\%

(or

\frac{1}{4}

) on cost equals a margin of

\frac{1}{1 + 4} = \frac{1}{5}

(or

20\%

) on invoice price.

Because the closing inventory figure is given at invoice price, the profit fraction must be expressed as a proportion of invoice price.

2

Calculate the loading (unrealized profit) in the closing inventory.

Unrealized Profit =

\text{N}50,000 \times \frac{1}{5} = \text{N}10,000

.

Multiplying the margin fraction by the total invoice value extracts the loading component.

3

Identify the accounting adjustment required to eliminate unrealized profit.

The amount credited to the Stock Reserve account is

\text{N}10,000

.

Stock Reserve account is credited (and Branch Adjustment account debited) to reduce inventory from invoice price to cost price.

Key Concept

Stock Reserve Calculation on Branch Inventory at Invoice Price

Question 15Question →

Apex Trading Company sends goods to its Enugu branch invoiced at a selling price that includes a mark-up of $20\%$ on cost. At the end of the financial year, the branch stock account shows closing inventory valued at $\text{₦}42,000$ at invoice price. What is the required provision for unrealized profit to be credited to the Stock Reserve Account?

\text{₦}7,000

\text{₦}8,400

\text{₦}35,000

\text{₦}49,000

Show answer & explanation

Answer: $\text{₦}7,000$

Answer

\text{₦}7,000

To find the unrealized profit in closing inventory valued at invoice price, convert the mark-up of

20\%

on cost into a margin on selling price:

\frac{20}{100 + 20} = \frac{20}{120} = \frac{1}{6}

. Multiplying

\frac{1}{6}

by the closing inventory at invoice price (

\text{₦}42,000

) gives

\text{₦}7,000

. This amount represents the unrealized profit loading to be credited to the Stock Reserve Account.

Step-by-Step Solution

1

Convert the mark-up percentage on cost to a margin fraction on invoice price.

\text{Mark-up} = 20\% = \frac{1}{5} \implies \text{Margin} = \frac{1}{5 + 1} = \frac{1}{6}

Since closing stock is given at invoice price, the profit element must be calculated using profit margin on selling price.

2

Multiply the profit margin by the closing inventory value at invoice price.

\text{Stock Reserve} = \frac{1}{6} \times \text{₦}42,000 = \text{₦}7,000

The stock reserve eliminates unrealized profit from branch closing inventory to reflect true cost in the combined financial statements.

Key Concept

Calculation of Stock Reserve on Branch Closing Inventory at Invoice Price

Estimated Time:1m 30s

Question 16Question →

Ade and Sons Enterprises operates two departments, Department X and Department Y, which occupy floor areas of $1,200\text{ m}^2$ and $800\text{ m}^2$ respectively. If the total rent expense incurred by the business for the year is ₦ $250,000$ , what is the amount of rent to be apportioned to Department X?

Show answer & explanation

Answer: 150000

Answer

Department X is allocated ₦150,000 of the total rent expense based on floor space occupied.

Rent expense is apportioned using floor space occupied. The total floor area is

1,200\text{ m}^2 + 800\text{ m}^2 = 2,000\text{ m}^2

. Department X occupies

1,200\text{ m}^2

, which represents

\frac{1,200}{2,000} = \frac{3}{5}

of the total area. Multiplying

\text{₦}250,000 \times \frac{3}{5}

gives ₦150,000.

Step-by-Step Solution

1

Calculate the total floor area used as the basis of apportionment.

Total floor area =

1,200\text{ m}^2 + 800\text{ m}^2 = 2,000\text{ m}^2

.

Rent is an indirect expense equitable to apportion on the basis of floor space occupied by each department.

2

Determine Department X's proportion of the total floor area.

Department X fraction =

\frac{1,200}{2,000} = 0.60

(or

60\%

).

To find the fraction of rent attributable to Department X.

3

Multiply total rent by Department X's floor area proportion.

Apportioned rent for Department X =

\text{₦}250,000 \times 0.60 = \text{₦}150,000

.

Applying the calculated proportion to total rent expense gives Department X's share.

Key Concept

Apportionment of expenses based on floor area occupied

Question 17Question →

Apex Commercial Enterprises operates three distinct commercial sections—Groceries, Clothing, and Hardware—all within the same premises. At the end of the financial year, the general manager reviews the enterprise's performance and decides to implement a full departmental accounting system rather than relying solely on the single combined trading and profit and loss account. Which of the following represents the fundamental accounting objective behind management's decision?

To evaluate the relative operational efficiency and individual profitability of each section to inform managerial decisions on expansion or closure

To satisfy statutory company law requirements that mandate separate legal entity status and distinct balance sheets for internal retail divisions

To convert routine bookkeeping tasks into financial accounting by eliminating double-entry postings for departmental transactions

To ensure that all common indirect administrative expenses are completely eliminated without requiring any basis of expense apportionment

Show answer & explanation

Answer: To evaluate the relative operational efficiency and individual profitability of each section to inform managerial decisions on expansion or closure

Answer

The fundamental accounting objective of implementing departmental accounts is to evaluate the relative operational efficiency and individual profitability of each section to inform managerial decisions on expansion or closure.

The primary objective of preparing departmental accounts is to ascertain the financial results (gross and net profit) of each department separately. This allows management to evaluate operational efficiency, compare inter-departmental performance, reward departmental managers accurately based on results, and make informed strategic decisions regarding which departments to expand, modify, or shut down.

Step-by-Step Solution

1

Analyze the core purpose of departmental accounting within a multi-department enterprise.

Departmental accounting breaks down total enterprise trading results into individual segment performance metrics.

When a firm sells multiple product lines or operates distinct units under one roof, a combined trading account masks underperforming units.

2

Distinguish between internal departmental objectives and external legal/reporting requirements.

Departments are internal operating units within the same legal entity, so separate balance sheets and statutory entity filings are not required.

Departmental records serve management accounting needs such as efficiency tracking, segment reward systems, and strategic planning.

3

Evaluate the management decision criteria derived from departmental accounts.

Management can compare departmental gross and net profit margins, identify unprofitable departments, and decide whether to reorganize, expand, or terminate specific units.

Ascertaining segmental profitability provides empirical evidence for optimal resource allocation.

Key Concept

Objectives and Reasons for Departmental Accounts

Estimated Time:2m 0s

Question 18Question →

Match each departmental expense listed on the left with its most appropriate basis of apportionment on the right.

Click a left item, then click its matching right item

Show answer & explanation

Answer

Rent and Rates matches Floor area occupied; Canteen Expenses matches Number of employees; Depreciation of Machinery matches Cost or value of machinery; Lighting and Heating matches Number of light points or floor area.

Each departmental expense is paired with its direct cost driver: Rent and Rates with floor area occupied, Canteen Expenses with number of employees, Depreciation of Machinery with asset value, and Lighting and Heating with number of light points or floor area.

Step-by-Step Solution

1

Determine the cost driver for building occupancy expenses.

Rent and Rates is driven by physical space occupied, matching Floor area occupied.

Property overheads vary directly with the surface space assigned to each department.

2

Determine the cost driver for personnel welfare expenses.

Canteen Expenses is driven by staff headcount, matching Number of employees.

Staff catering and welfare costs scale in proportion to the number of workers.

3

Determine the cost driver for fixed asset usage.

Depreciation of Machinery is driven by asset valuation, matching Cost or value of machinery.

Departments with higher investment in equipment absorb a proportionately higher share of depreciation.

4

Determine the cost driver for lighting overheads.

Lighting and Heating is driven by light fixtures or space, matching Number of light points or floor area.

Illumination costs depend on the number of bulb fittings or space heated.

Key Concept

Selection of equitable bases for apportioning indirect departmental expenses

Question 19Question →

A multi-departmental retail business, Crescent Outfitters, prepares departmental accounts to improve management control. Match each objective of departmental accounting on the left with its corresponding operational application on the right.

Click a left item, then click its matching right item

Show answer & explanation

Answer

1. Evaluating departmental profitability matches calculating the precise net profit contribution of each individual product division.
2. Comparing operational efficiency matches analyzing expense-to-sales ratios across divisions to detect waste or cost savings.
3. Formulating management incentives matches linking department head bonuses directly to segment net earnings.
4. Assessing segment viability for closure or expansion matches identifying underperforming divisions that fail to cover their direct operating costs.

Each objective aligns directly with its management accounting application: measuring departmental net earnings determines profitability; analyzing expense ratios across sections evaluates relative operational efficiency; tying manager remuneration to segment results facilitates fair incentive structures; and identifying departments failing to cover direct expenses supports decisions on business segment expansion or closure.

Step-by-Step Solution

1

Identify the primary purpose of tracking departmental financial outcomes.

Evaluating profitability corresponds directly to computing the specific net financial contribution of each section.

Departmental trading and profit & loss statements separate revenues and expenses per unit to show clear net profits.

2

Relate comparative analysis to internal operational control.

Comparing efficiency corresponds to analyzing cost ratios across departments.

Efficiency comparison requires examining how effectively resources and expenses are controlled across operating units.

3

Determine how performance appraisal is facilitated by departmental financial records.

Formulating management incentives corresponds to linking manager bonuses to departmental net profit.

Departmental accounting provides objective performance data necessary for profit-sharing or performance-based rewards.

4

Analyze strategic decision-making regarding segment continuation.

Assessing segment viability corresponds to identifying underperforming divisions failing to cover direct costs.

Management must isolate departmental results to determine if an unproductive department should be closed or restructured.

Key Concept

Objectives and Reasons for Departmental Accounts

Question 20Question →

Match each strategic management decision or accounting action of a multi-segment business on the left with the corresponding primary objective of departmental accounting on the right.

Click a left item, then click its matching right item

Show answer & explanation

Answer

Discontinuing an unprofitable appliances section matches with identifying unprofitable segments for closure/restructuring; comparing catering and event planning margins matches with assessing relative managerial operational efficiency; calculating departmental gross margins for bonuses matches with providing financial results for rewarding section leadership; and formulating expansion plans for cosmetics matches with facilitating future policy formulation and resource allocation.

Each business scenario represents a core managerial application of departmental accounting: isolating segment loss to decide on unit closure, benchmarking section profit ratios to gauge managerial efficiency, tying segment profit metrics to compensation, and utilizing departmental profitability trends to guide capital budgeting and section expansion.

Step-by-Step Solution

1

Analyze the action of reviewing losses to decide section closure.

Identifies that departmental accounts isolate segment revenues and expenses, allowing management to pinpoint non-performing units.

Departmental accounting aims to reveal segment profitability to decide on continuation, expansion, or shutdown.

2

Analyze cross-departmental net profit margin comparison.

Recognizes that comparing performance metrics across sections evaluates managerial effectiveness.

Departmental financial reporting provides comparative benchmarks for assessing operational efficiency.

3

Analyze using departmental gross margin percentages for bonus calculation.

Connects segment accounting data to manager compensation and incentive programs.

Segment accounting ensures managers are evaluated and rewarded fairly based strictly on costs and profits within their operational control.

4

Analyze floor space expansion planning based on department yield.

Links segment accounting output to long-term strategic budgeting and growth policies.

Management relies on departmental results to channel capital towards high-performing operational units.

Key Concept

Objectives and Reasons for Departmental Accounts

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