Departmental accounts

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KRITI MEHTA (Querist)
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12 July 2010 im really confused about when to calculate opening stock reserve in departmental accounts.
In some questions it is written
Opening stock ( at cost to concerned departments)
in some
simply opening stock
in some
opening stock ( at cost)
in which case we calculate opening stock reserve?
Also in some questions in the absence of any information opening stock reserve is not calculated and in some we calculate stock reserve on Closing stock - opening stock.
im really very confused pls help me out and explain me this concept.

Shudhanshu Agrawal

Shudhanshu Agrawal (Expert)
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12 July 2010 Opening stock reserve is calculated when there is a profit element in the Opening stock. This is shown in the credit side of Business P & L A/c.

To understand this concept i want you should know that calculation of Opening reserve needed when the stock in the
deptt is not on cost. The reason behind this is AS 2.

KRITI MEHTA

KRITI MEHTA (Querist)
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12 July 2010 Thanku sir for your help but i wanted to know that out of these 3
when
simply opening stock is written
or
opening stock (at cost) is written
or
opening stock (at cost to departments)is written
which one is at loaded price?
and how do we calculate o/s reserve if no information is given about it? like content ratio and profit ratio is not mentioned.

Shudhanshu Agrawal

Shudhanshu Agrawal (Expert)
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12 July 2010 For your query im taking an example

Suppose there are 2 deptts. A and B. A sell goods to B for cost plus 30%. The cost for deptt A is Rs. 100 then selling price will be Rs. 130. Which means Rs. 130 will be stock at cost for deptt B. But from the point of view of the business there is no actual sale as it is just inter deptt transfer. So there should be no profit for deptt A and similarly the actual cost should be 100 instead of 130 to deptt B. So for this we transfer Rs. 30 to the credit side of Business P & L A/c

Shudhanshu Agrawal

Shudhanshu Agrawal (Expert)
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12 July 2010 I think it will be better if you can bring one ques here in which you are facing problem. I will try to resolve it by telling you the treatment with the reasons and explanations.

KRITI MEHTA

KRITI MEHTA (Querist)
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12 July 2010 ok sir i will do that just give me some time to type them up

KRITI MEHTA

KRITI MEHTA (Querist)
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13 July 2010 These are the two questions sir,
pls tell me in which question will we calculate opening stock reserve and how?
and pls elaborate the concept.
https://docs.google.com/document/edit?id=16yUPKybKyJFle7ENv_aymVIyGt5cEaCBgv77DYecZPg&hl=en#

KRITI MEHTA

KRITI MEHTA (Querist)
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13 July 2010 Sir, pls tell me treatment for this question as well
https://docs.google.com/document/edit?id=1KgsCj-JhD-vCjTn29qYt-Db7m8Te7B0f9X1tQUc6Gn4&hl=en#

Shudhanshu Agrawal

Shudhanshu Agrawal (Expert)
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13 July 2010 I have tried but i am not able to access the questions. If possible just copy and paste the ques here only

KRITI MEHTA

KRITI MEHTA (Querist)
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13 July 2010 sir can u try this now. actually i changed a setting.im so sorry for trouble
i tried to copy and paste here but they are getting mixed up....

KRITI MEHTA

KRITI MEHTA (Querist)
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13 July 2010 sir pls try the link now

Shudhanshu Agrawal

Shudhanshu Agrawal (Expert)
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14 July 2010 I got the link and its working now. Please give me some time to reply.

Shudhanshu Agrawal

Shudhanshu Agrawal (Expert)
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14 July 2010 There was a ques i.e. ques 3. I am telling you how to attempt the ques.

First is the requirements of the ques:

1- Deptt trading A/c

2- Business P & L A/c

While preparing Deptt trading A/c you need to remember onething i.e. trading a/c for both the deptts should be on the same basis. For stock follow the cost basis. It means that both the opening and closing stock should be on the cost basis as per AS 2. Moreover, while preparing deptt trading a/c stock reserve is not considered. So prepare deptt trading a/c as the normal case.

Now come to the business P & L A/c. Before preparing Business P & L A/c you need to prepare the business trading A/c as gross profit will include interdeptt profits. As in the ques nothing is mentioned about interdeptt transfer for opening stock then we will assume that there is no stock left from interdeptt transfer. But in case of closing stock amounts are clearly metioned. So calculate the Gross Profit ratio for both the deptt and calculate the closing reserve after calculating content ration. As this has increased your actual profit so reduce actual profit by debiting it to the Business Trading A/c.

After this you will get actual gross profit of the business. Now transfer it to the Business P & L A/c. Debit general expenses and you will get net profit. This will be the solutions for the ques.

I hope you will be able to understand the concept. In case of further query, you can ask.

KRITI MEHTA

KRITI MEHTA (Querist)
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14 July 2010 Thanku sir i understood the concept of opening stock reserve for this question, now can u explain me the concept for other two questions

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