Financial Accounting · Lesson 13

Departmental, branch, joint venture, consignment, contract and hire purchase accounts

JAMBWAECNECO

What the syllabus asks

JAMB: Topic 12 Departmental accounts; Topic 13 Branch accounts; Topic 14 Joint venture accounts

WAEC: Departmental and branch accounts (excluding foreign branches); Miscellaneous accounts (Nigeria): joint venture, consignment, contract and hire purchase accounts

NECO: Departmental and branch accounts (excluding foreign branches); Miscellaneous accounts (Nigeria): joint venture, consignment, contract and hire purchase accounts

What you will learn

Prepare departmental accounts with apportioned expenses.
Prepare a branch account in head office books.
Record a joint venture in a memorandum account and settle between co-venturers.
Prepare a consignment account and value unsold consignment inventory.
Calculate prudent profit on an uncompleted contract.
Record hire purchase transactions and allocate interest.

Key points

Departmental accounts show each department’s profit; apportion common costs fairly.
Closing a loss-making department may lose its contribution to fixed costs.
Dependent branch: HO keeps a branch account; balance is branch profit.
Goods sent to branch are credited to a goods-sent account, closed to HO trading.
Invoicing at selling price reveals shortages.
Joint venture: memorandum account finds profit; co-venturers settle the balance.
Consignment: consignor owns goods until sold; consignee earns commission.
Unsold consignment inventory = cost + share of expenses to arrival.
Contract profit taken = 2/3 × notional profit × cash received ÷ work certified; losses recognised in full.
HP: asset at cash price; interest an expense spread over instalments.

Start here: Departmental accounts: purpose and apportionment

A supermarket in Ikeja may sell groceries, electronics, clothing and cosmetics. Overall profit can hide the fact that one department is losing money while another carries it. Departmental accounts prepare a trading and profit and loss account for each department, side by side in columns.

Purposes

To compare the performance of departments and identify profitable and unprofitable lines.
To decide whether to expand, reorganise or close a department.
To reward departmental managers fairly (bonus based on departmental profit).
To control costs and inventory in each department.

Records

Sales, purchases, returns and inventory are recorded separately for each department using analytical (columnar) day books and tills. Expenses incurred for one department (e.g. salaries of the electronics staff) are charged directly to it.

Apportioning common expenses

Expense	Usual basis
Rent, rates, lighting, building insurance	Floor area
General wages, canteen, staff welfare	Number of employees
Advertising, carriage outwards, discount allowed, bad debts	Sales
Discount received, carriage inwards	Purchases
Insurance of inventory	Average inventory
Depreciation of equipment	Value of equipment used

Always state the basis used. Where a question gives none, choose a sensible one and say so.

Departmental figures are only as good as the records behind them. Each department needs its own till or sales code, separate purchase invoices, and its own inventory count. Point-of-sale software in modern supermarkets records sales by department automatically, making departmental accounts much easier than in the past.

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Practice questions

1. Departmental accounts help management to

compare the profitability of each department
calculate partners’ shares
prepare club accounts
value goodwill

Show answer

A: compare the profitability of each department
Each department’s gross and net profit can be compared.

2. Advertising for the whole store is best apportioned between departments on the basis of

floor area
number of employees
purchases
sales

Show answer

D: sales
Sales reflect the benefit from advertising.

3. Rent and rates are best apportioned on the basis of

number of employees
purchases
floor area
sales

Show answer

C: floor area
Space occupied.

4. Canteen expenses are best apportioned on the basis of

purchases
number of employees
floor area
sales

Show answer

B: number of employees
Each department’s staff use the canteen.

5. In a branch account, goods sent to the branch are

debited to the branch account
credited to the branch account
debited to purchases
credited to cash

Show answer

A: debited to the branch account
The branch becomes accountable for them.

Key words

Department: A section of a business selling a distinct type of goods or service.
Branch: A unit of a business at a different location controlled by head office.
Goods sent to branch: Goods supplied by head office to a branch.
Remittance: Cash sent by a branch to head office.
Joint venture: A temporary arrangement between two or more parties to carry out a specific project and share profit.
Co-venturer: A party to a joint venture.
Consignor: The owner who sends goods to an agent to be sold.
Consignee: The agent who sells goods on behalf of the consignor for commission.
Account sales: A statement sent by the consignee showing sales, expenses, commission and amount due.
Del credere commission: Extra commission for guaranteeing that credit customers will pay.
Contract account: An account recording costs and value of a long-term construction contract.
Work certified: Value of work done as certified by the client’s architect or engineer.

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