Calculating Unrealized Profit in Departmental Accounts

The video tutorial covers the concept of unrealized profit in departmental accounts, focusing on how to calculate and adjust for it. It explains the process of correcting profit calculations by eliminating unrealized profit before applying managerial commission. The tutorial also provides detailed examples of calculating stock reserves when goods are transferred between departments at a profit. The importance of understanding the correct sequence of calculations to ensure accurate financial reporting is emphasized.

What is the primary focus of departmental accounts in this tutorial?

• Calculating unrealized profit

• Recording inter-departmental transfers

• Calculating net sales

• Determining tax liabilities

What is the profit margin applied by Department A when selling to Department B?

• 10% on cost

• 15% on sales

• 25% on cost

• 30% on sales

Why is it important to eliminate unrealized profit before calculating the manager's commission?

• To comply with tax regulations

• To increase the manager's commission

• To ensure accurate profit reporting

• To reduce departmental expenses

What is the first step in correcting the profit calculation?

• Reversing sales entries

• Deducting unrealized profit

• Adding back manager's commission

• Calculating stock reserves

Why is it necessary to reverse incorrect calculations before finding the correct profit?

• To avoid overestimating profits

• To ensure compliance with accounting standards

• To accurately reflect the financial position

• To simplify the calculation process

How is the stock reserve calculated for inter-departmental transfers?

• By applying a fixed percentage

• By deducting the cost price from the selling price

• Using the profit margin of the receiving department

• Using the profit margin of the transferring department

What is the correct sequence of steps to find the accurate departmental net profit?

• Add manager's commission, calculate stock reserve, deduct unrealized profit

• Calculate stock reserve, deduct unrealized profit, add manager's commission

• Deduct unrealized profit, add manager's commission, calculate stock reserve

• Calculate stock reserve, add manager's commission, deduct unrealized profit

Which department's profit margin is applied when calculating stock reserves?

• The department with the lowest cost

• The department with the highest sales

• The transferring department

• The receiving department

What is the correct manager's commission rate applied after eliminating unrealized profit?

• 20%

• 15%

• 10%

• 5%

What is the result of applying the correct calculation method for departmental profits?

• Higher manager's commission

• Reduced stock reserves

• Accurate net profit figures

• Increased departmental expenses