INTER-DEPARTMENTAL TRANSFERS

INTER-DEPARTMENTAL TRANSFERS

The goods transferred by one department to another department is called inter-departmental transfers. The rule applies to inter-departmental transfers is:

Debit the Receiver

Credit the Giver

The department sending the goods is debited and the account of receiving department is credited.

Inter-departmental transfers is made on the following basis:

INTER-DEPARTMENTAL TRANSFER AT COST PRICE

The price at which one department supplies goods to another department or when some services are rendered by department to the another department is known as Transfer Price. It refers to the charge made for goods and services sold internally. It may be market price if one is available. The transfer price is adjusted with the following amounts:

  • Cash discount
  • Selling costs (not in internal transfers)
  • Margin of profit
  • Standard costs.

Recording inter-departmental transfers helps the management in setting up profit centres, fixing responsibility on departmental managers and eventually, evaluate the performance and efficiency of the concerned departments.

STANDARD COST BASED TRANSFER PRICE

Under this method of pricing the prices may be based on the actual cost or total cost or standard cost or marginal cost. Standard cost is preferred to actual cost as the efficiency of one department is not allowed to pass to another department. When goods are transferred at cost, the fixed cost of supplying department becomes the variable cost of the receiving department.

INTER-DEPARTMENTAL TRANSFER AT SALE OR INVOICE PRICE

The goods may also be transferred from one department to another at sale or invoice price. The department which transfers the goods is known as Transferor department and the department to which goods are transferred is known as Transferee department. In this case, the transferor department retains the normal profit and does not allow the transferee department to increase its profit at the cost of the transferor.

When the goods received are sold out, the load or profit retained by the transferor department becomes the actual profit realized.

But if the goods remain unsold, then there will be unrealized profit in the closing stock. Unrealized profit is the difference between transfer price and the cost price of unsold stock. These reserves are created as follows:

FOR CLOSING STOCK

General Profit and Loss A/c     Dr.
     To stock reserve A/c

AT THE BEGINNING OF THE YEAR

Stock reserve A/c     Dr.
      To General profit and loss A/c
Also StudyAlso StudyAlso StudyAlso Study
AccountingNon profit organisationDepreciationLiquidity ratios
Nature of AccountingReceipts and Payments AccountDepreciation AccountingAcid Test Ratio
Benefits of AccountingScope of accountingHire Purchase AccountingCash Ratio
Difference between cost accounting and financial accountingFinancial accounting, cost accounting and management accountingDifference between hire purchase and instalment systemFinancial ratio analysis
Difference between transaction and eventTransactionsUsers of AccountingRatio analysis
Limitation of AccountingCapital ExpenditureInstalment SystemDifference between consignment and sale
Book KeepingRevenue ExpenditureReserves AccountingAbnormal loss vs normal loss in consignment
AccountancyDifference between capital and revenue expenditureProvisions Treatment of loss on consignment
Accounting as science or an artAccounting EquationSingle entry systemAccounting treatment of consignment
Book Keeping vs accountingDeferred Revenue ExpenditureDifference between statement of affairs and balance sheetJoint venture vs consignment
Book keeping vs accountancyCapital receiptIFRSDepartmental Accounting
Accounting vs accountancyRevenue receiptBalance SheetMethods of departmental accounting
Basis of AccountingDifference between capital and revenue receiptProfit and loss AccountAllocation of expenses in departmental accounting
Branches of accountingDifference between accounting concepts and conventionsTrading AccountInter-departmental transfers
Cash and mercantile system of accountingAccounting StandardsVoyage AccountDifferent types of branches
Accounting PrinciplesObjectives of AccountingAccounting for Incomplete VoyageDepartmental vs Branch accounting
Golden rules of accountingProcess of AccountingJoint ventureMethods of branch accounting
Double entry system of book keepingScope of AccountingJoint Venture Vs PartnershipIncorporation of branch trial balance
Double entry vs Single entry systemAccounting Concepts vs Accounting conventionsMethods of recording transactions in Joint VentureGarner VS Murray Rule
History of AccountingDifference between provisions and reservesConsignment

Leave a Reply