Since the departments are just under the single roof and involved in exchanging their goods or employment staff or performance of services among the different departments, which is known as inter-departmental transfer. The journal entry for inter-departmental transfer would be as follows:
Receiving Department..............Dr.
To Supplying Department
If the goods are transferred at cost price, there will not be any serious consideration. It is because the supplying department will record in its books as a sale at cost price and the receiving department records as a purchase at a cost price. But it needs due consideration if the supplying department supplies goods or services to receiving department at purchase cost plus certain percentage of margin. The receiving department after receiving goods at cost price plus margin from supplying department, if unable to sell them totally at the end of accounting period, then in this condition a provision for unrealized profit or stock reserve has to be affected for the unsold stock with the help of following entry:
General profit and loss A/C...........Dr.
To stock reserve A/C
Similarly, if the receiving department holds the goods which are transferred at selling price in its opening stock, the following entry is made:
Stock reserve A/C....................Dr.
To general profit and loss A/C
It is a common practice that calculated rate of gross profit is applied to closing stock and given rate of gross profit is applied in the opening stock to calculate unrealized profit. The rate of gross profit can be ascertained as follows:
a) % of gross profit = (Gross profit/Sales + Departmental transfers) X 100
b) Transferred portion of goods = (Departmental transfers/Purchase+departmental transfers)
c) Unrealized profit= Gross profit rate X Total amount of stock X Transferred portion of goods.
Receiving Department..............Dr.
To Supplying Department
If the goods are transferred at cost price, there will not be any serious consideration. It is because the supplying department will record in its books as a sale at cost price and the receiving department records as a purchase at a cost price. But it needs due consideration if the supplying department supplies goods or services to receiving department at purchase cost plus certain percentage of margin. The receiving department after receiving goods at cost price plus margin from supplying department, if unable to sell them totally at the end of accounting period, then in this condition a provision for unrealized profit or stock reserve has to be affected for the unsold stock with the help of following entry:
General profit and loss A/C...........Dr.
To stock reserve A/C
Similarly, if the receiving department holds the goods which are transferred at selling price in its opening stock, the following entry is made:
Stock reserve A/C....................Dr.
To general profit and loss A/C
It is a common practice that calculated rate of gross profit is applied to closing stock and given rate of gross profit is applied in the opening stock to calculate unrealized profit. The rate of gross profit can be ascertained as follows:
a) % of gross profit = (Gross profit/Sales + Departmental transfers) X 100
b) Transferred portion of goods = (Departmental transfers/Purchase+departmental transfers)
c) Unrealized profit= Gross profit rate X Total amount of stock X Transferred portion of goods.
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