Unit 3: Voyage & Departmental accounts
Financial Accounting notes · PTU syllabus (BCOM 102-18)
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Unit summary
Shipping companies need to know the profit of each voyage, and large stores need to know the profit of each department. This unit covers complete and incomplete voyage accounts, departmental accounts, apportionment of common expenses and treatment of inter-departmental transfers.
After this unit you can
- Prepare a voyage account for complete and incomplete voyages
- Explain the need for departmental accounts
- Apportion common expenses among departments on suitable bases
- Account for inter-departmental transfers and unrealised profit
PTU syllabus topics
- Complete and incomplete voyage accounts
- departmental accounts
- apportionment of expenses
- interdepartmental transfers
Rent and rates
Floor area occupied
Lighting
Number of light points
Power
Horse-power or units used
Salaries of supervisors
Time spent or number of workers
Selling expenses
Departmental sales
Topic 1
Voyage accounts
A voyage account is a nominal account prepared by shipping companies to find the profit or loss of each voyage.
Items in a voyage account
| Debit (expenses) | Credit (incomes) |
|---|---|
| Fuel, coal, oil, stores | Freight (outward and inward) |
| Port charges, dock dues, pilotage | Passage money (passenger fares) |
| Wages and salaries of crew | Primage (extra charge on freight for loading care) |
| Depreciation of ship (for the voyage period) | Closing stock of fuel and stores |
| Insurance (proportionate) | |
| Address commission and brokerage |
- Primage: a small percentage added to freight (often 10%) — an income.
- Address commission: commission to the charterer's agent on freight — an expense.
- Brokerage: on freight + primage — an expense.
Incomplete voyage
If a voyage is incomplete on the date of the final accounts, the proportionate expenses for the unexpired voyage are carried forward as "voyage in progress" (a current asset), and the proportionate freight received in advance is shown as a liability.
Example
Voyage of 60 days; 20 days unexpired at year end; total voyage expenses ₹6,00,000; freight earned ₹9,00,000. Voyage in progress = 6,00,000 × 20/60 = ₹2,00,000. Profit for the completed part = (9,00,000 × 40/60) − (6,00,000 × 40/60) = ₹2,00,000.
Topic 2
Departmental accounts
Departmental accounting prepares separate trading and profit and loss accounts for each department of a business (grocery, clothing, electronics) to find the profit of each.
Need
- Compare performance of departments.
- Decide which departments to expand, improve or close.
- Fix commission or bonus of departmental managers.
- Formulate pricing and purchase policies.
Methods
- Independent books for each department (rare).
- Columnar books: one set of books with separate columns for each department — common.
Topic 3
Apportionment of common expenses
| Expense | Basis of apportionment |
|---|---|
| Rent, rates, lighting (without meters), building repairs | Floor area occupied |
| Power (with meters) | Metered units; otherwise horsepower × hours |
| Salaries of supervisors | Time spent or number of employees |
| Advertisement, discount allowed, sales commission | Sales |
| Carriage inwards, discount received | Purchases |
| Depreciation, insurance of assets | Value of assets |
| Workmen's compensation, canteen | Number of employees or wages |
| General expenses not identifiable | Sales or equally |
Exam tip
Expenses that cannot be apportioned on any fair basis (e.g., audit fees, interest on loan, general manager's salary) are charged to the combined (general) P&L account, not to departments.
Topic 4
Inter-departmental transfers
Goods or services transferred from one department to another are credited to the supplying department and debited to the receiving department — at cost or at cost plus profit (selling price).
- When transferred at cost plus profit, the unrealised profit included in the closing stock of the receiving department must be removed by creating a stock reserve.
Unrealised profit
Closing stock of transferred goods × Profit ÷ Transfer price
Profit on selling price from cost markup
If cost + 25%, profit = 25 ÷ 125 = 1/5 of transfer price
Example
Department A transfers goods to B at cost + 25%. B's closing stock includes such goods worth ₹50,000. Unrealised profit = 50,000 × 25/125 = ₹10,000 — debit General P&L A/c and credit Stock Reserve A/c; closing stock shown at ₹40,000 in the balance sheet.
- Opening stock reserve (from the previous year) is credited back to the General P&L account.
Key terms
- Voyage account
- Nominal account to find profit or loss on each voyage
- Primage
- Extra charge on freight for care in loading and unloading
- Voyage in progress
- Proportionate expenses of an incomplete voyage carried forward
- Departmental accounts
- Separate trading and P&L accounts for each department
- Stock reserve
- Provision for unrealised profit in closing stock
Quick revision
- Voyage A/c: expenses debit, freight and passage money credit.
- Incomplete voyage → voyage in progress (asset) and advance freight (liability).
- Departmental accounts compare departmental profits.
- Apportion common expenses on a fair basis (area, sales, purchases, employees).
- Inter-departmental transfers at a profit → remove unrealised profit via stock reserve.
Important exam questions
Practice questions written to the PTU exam pattern for this unit's syllabus: short answers (Section A style) and long answers (Sections B and C style).
Short-answer questions
- Q1.What is a voyage account?
- Q2.What is primage?
- Q3.What is voyage in progress?
- Q4.Why are departmental accounts prepared?
- Q5.On what basis is rent apportioned among departments?
- Q6.What is stock reserve?
Long-answer questions
- Q1.Explain the preparation of a voyage account for complete and incomplete voyages.
- Q2.Explain the need and methods of departmental accounting.
- Q3.Discuss the bases of apportionment of common expenses among departments.
- Q4.Explain the accounting treatment of inter-departmental transfers.
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