Preparation of Departmental Trading and Profit and Loss Accounts for SS 3

Class: SSS 3
Term: First Term
Week: 10
Age: 14 years
Duration: 45 minutes
Subject: Financial Accounting
Curriculum Theme: Preparation of Final Accounts
Previous Lesson: Departmental Accounts and Apportionment of Expenses
Topic: Departmental Account
Subject Matter: Preparation of trading, profit and loss account; Stressing departmental transfer; Preparation of departmental balance sheet

Specific Objectives

By the end of the lesson, pupils/students should be able to:

Cognitive Domain

• Define departmental accounts.
• State the need for departmental accounts.
• Identify the advantages of preparing departmental accounts.
• Explain the concept of departmental transfers.
• Prepare departmental trading and profit and loss accounts.
• Prepare a departmental balance sheet.

Affective Domain

• Appreciate the importance of departmental accounts for business decision-making.
• Recognise the need for accurate allocation of expenses in departmental accounting.

Psychomotor Domain

• Construct departmental trading and profit and loss accounts from given data.
• Demonstrate the proper treatment of departmental transfers in accounts.

Reference Materials

The following resources were used in planning this lesson:

• 2025 Revised 9 Years Basic Education Curriculum
• Relevant State Unified Scheme of Work
• Financial Accounting for Senior Secondary Schools, Book 3
• The HeadTeacher Scheme of work

Instructional Materials

The teacher will teach this lesson with the aid of:

• A chart showing a sample departmental trading and profit and loss account format.
• Flash cards with key terms like “departmental transfer,” “common expenses,” “specific expenses.”
• Whiteboard and markers.

Rationale for the Lesson

This lesson is important as it equips students with the knowledge and skills to prepare financial statements for businesses operating with multiple departments. Understanding departmental accounts helps in assessing individual departmental performance, which is crucial for effective management decision-making and resource allocation.

Prerequisite/Previous Knowledge

Students should have a good understanding of the preparation of basic final accounts, including the trading account, profit and loss account, and balance sheet for a single business entity.

Lesson Content/Board Summary

Departmental Account

Meaning of Departmental Accounts

Departmental accounts are financial statements prepared to show the trading results (gross profit or loss) and net profit or loss of each department within a business entity. This allows management to assess the performance of individual departments.

Need for Departmental Accounts

The preparation of departmental accounts is necessary for several reasons:

1. To compare the performance and profitability of different departments.
2. To identify profitable and unprofitable departments.
3. To provide information for making informed decisions regarding expansion, contraction, or closure of departments.
4. To motivate departmental managers by linking their performance to the profitability of their department.
5. To facilitate better control over departmental operations and expenses.

Advantages of Departmental Accounts

The advantages of preparing departmental accounts include:

1. Performance Evaluation: It enables the evaluation of the efficiency and profitability of each department.
2. Decision Making: Provides data for strategic decisions such as resource allocation and investment in specific departments.
3. Control: Helps in exercising better control over departmental expenses and revenues.
4. Motivation: Can be used as a basis for incentive schemes for departmental managers.
5. Comparison: Facilitates comparison of current performance with past performance or with other departments.

Departmental Transfers

Departmental transfers refer to the movement of goods or services from one department to another within the same business. These transfers are treated as follows:

1. For the Transferring Department: The goods transferred are treated as sales or revenue.
2. For the Receiving Department: The goods received are treated as purchases or expenses.

The value of transferred goods is usually at cost or at a transfer price (cost plus a margin), depending on company policy.

Preparation of Departmental Trading and Profit and Loss Account

This involves preparing separate columns for each department to show their individual revenues and expenses, and then a total column. Key considerations include:

1. Direct Expenses: Expenses directly attributable to a specific department (e.g., departmental salaries, specific advertising) are charged to that department’s column.
2. Common Expenses: Expenses that benefit all departments (e.g., rent, general lighting, head office salaries) are allocated among departments on a suitable basis. Common allocation bases include:
   1. Rent, Rates: Floor area occupied by each department.
   2. Lighting, Heating: Floor area, number of light points, or meter readings.
   3. Depreciation of Assets: Value of assets used by each department.
   4. General Manager’s Salary, Office Expenses: Sales turnover or number of employees.
   5. Advertising: Sales turnover or specific campaign costs.
3. Departmental Transfers: These are recorded as sales for the transferring department and purchases for the receiving department.

The format generally follows that of a regular trading and profit and loss account, but with additional columns for each department.

Preparation of Departmental Balance Sheet

While the trading and profit and loss account focuses on departmental performance, the balance sheet typically presents the financial position of the business as a whole. However, for internal management purposes, assets and liabilities may sometimes be allocated to departments:

1. Specific Assets/Liabilities: Assets and liabilities directly identifiable with a particular department (e.g., departmental machinery, stock) are assigned to that department.
2. Common Assets/Liabilities: Assets and liabilities used by or benefiting multiple departments are usually not split but shown in the consolidated balance sheet. If allocated, suitable bases (similar to expense allocation) would be used.

The final balance sheet presented to external users is usually a consolidated one for the entire business, not departmental.

Teaching Methods/Instructional Techniques

Discussion, Explanation, Demonstration, Question and Answer, Guided Practice.

Instructional Procedures

Step 1: Introduction

Time: 5 minutes

Teaching Skill: Recalling/Introducing

Teacher’s Activity: The teacher greets the students and asks them to recall what they know about final accounts (trading, profit and loss account, and balance sheet). The teacher then introduces the concept of departmental accounts, explaining that many businesses have different departments.

Pupils’ Activity: Pupils respond to questions about final accounts and listen attentively to the introduction of departmental accounts.

Learning Point: Final accounts recap, departmental accounts introduction

Step 2: Meaning, Need, and Advantages of Departmental Accounts

Time: 8 minutes

Teaching Skill: Explaining/Discussing

Teacher’s Activity: The teacher explains the meaning of departmental accounts, highlighting their purpose. The teacher then discusses the need for and advantages of preparing departmental accounts, using real-world examples of businesses with multiple departments.

Pupils’ Activity: Pupils listen, ask questions for clarification, and participate in the discussion by suggesting reasons why businesses might need departmental accounts.

Learning Point: Meaning, need, advantages of departmental accounts

Step 3: Departmental Transfers

Time: 7 minutes

Teaching Skill: Explaining/Illustrating

Teacher’s Activity: The teacher explains the concept of departmental transfers, stressing how goods or services moving between departments are treated as sales for one and purchases for the other. The teacher uses simple numerical examples to illustrate this.

Pupils’ Activity: Pupils listen to the explanation and work through the examples provided by the teacher, asking questions about the treatment of transfers.

Learning Point: Understanding departmental transfers

Step 4: Preparation of Departmental Trading Account

Time: 7 minutes

Teaching Skill: Demonstrating/Guiding

Teacher’s Activity: The teacher uses the chart to demonstrate the format of a departmental trading account. The teacher then guides students through preparing a simple departmental trading account, showing how direct expenses and departmental transfers are recorded.

Pupils’ Activity: Pupils observe the demonstration, ask questions about the format and entries, and follow along with the teacher’s guidance.

Learning Point: Departmental trading account preparation

Step 5: Preparation of Departmental Profit and Loss Account

Time: 7 minutes

Teaching Skill: Demonstrating/Problem Solving

Teacher’s Activity: Building on the previous step, the teacher demonstrates how to prepare the departmental profit and loss account. The teacher focuses on the allocation of common expenses using appropriate bases and how net profit or loss for each department is determined.

Pupils’ Activity: Pupils pay close attention to the allocation methods and work on a guided example to prepare the departmental profit and loss account.

Learning Point: Departmental profit and loss account preparation

Step 6: Preparation of Departmental Balance Sheet

Time: 4 minutes

Teaching Skill: Explaining/Summarising

Teacher’s Activity: The teacher explains that while the balance sheet is usually consolidated, for internal purposes, assets and liabilities can be allocated. The teacher briefly outlines how specific departmental assets and liabilities would be treated in a departmental balance sheet.

Pupils’ Activity: Pupils listen to the explanation and understand the difference between a consolidated and a departmental balance sheet.

Learning Point: Departmental balance sheet overview

Step 7: Evaluation/Review

Time: 5 minutes

Teaching Skill: Questioning/Assessment

Teacher’s Activity: The teacher evaluates the learning by asking the following questions:

1. What is the primary purpose of preparing departmental accounts?
2. Give two reasons why a business would need departmental accounts.
3. How is a departmental transfer treated in the accounts of the transferring department?
4. Mention one basis for allocating rent expense to different departments.

Pupils’ Activity: Pupils answer orally and in writing.

Learning Point: Assessment of departmental accounts understanding

Step 8: Note-Taking

Time: 4 minutes

Teaching Skill: Guided Writing

Teacher’s Activity: The teacher guides pupils/students to copy the essential Board Summary notes into their notebooks, ensuring they capture the key definitions, needs, advantages, and principles of departmental account preparation.

Pupils’ Activity: Pupils/students copy the notes carefully into their notebooks.

Learning Point: Recording lesson key points

Step 9: Conclusion

Time: 3 minutes

Teaching Skill: Summarising/Reinforcing

Teacher’s Activity: The teacher briefly summarises the main points of the lesson, reiterating the importance of departmental accounts in assessing performance and aiding management decisions. The teacher encourages students to practice preparing these accounts.

Pupils’ Activity: Pupils listen to the summary and prepare for the next lesson.

Learning Point: Consolidation of departmental accounting concepts

Continuous Assessment/Further Study

Type: Homework

Instruction: Students are to solve the following problem in their notebooks:

1. A company has two departments, A and B. Prepare a Departmental Trading and Profit and Loss Account for the year ended 31st December 2023 from the following information:
   • Opening Stock: Dept A N20,000; Dept B N15,000
   • Purchases: Dept A N150,000; Dept B N120,000
   • Sales: Dept A N250,000; Dept B N180,000
   • Closing Stock: Dept A N25,000; Dept B N18,000
   • Transfer from Dept A to Dept B: N10,000 (at cost)
   • Salaries: Dept A N15,000; Dept B N12,000
   • Rent (total): N10,000 (to be allocated in the ratio of floor area 3:2 for A:B)
   • General Expenses (total): N8,000 (to be allocated in the ratio of sales)

Lesson Keywords

• Departmental Accounts – Financial statements showing performance of individual departments.
• Departmental Transfers – Movement of goods/services between departments.
• Trading Account – Section of final accounts showing gross profit/loss.
• Profit and Loss Account – Section of final accounts showing net profit/loss.
• Balance Sheet – Statement of financial position at a specific date.
• Common Expenses – Expenses benefiting multiple departments, requiring allocation.

Differentiation

For weaker learners, the teacher will provide simpler, pre-formatted templates for departmental accounts and guide them step-by-step through the allocation of expenses. Faster learners will be given more complex problems involving multiple allocation bases and additional types of departmental transfers to solve independently.

Suggested Lesson Videos

For further understanding, students can search on YouTube for: “Departmental Accounts preparation financial accounting” or “Departmental Trading and Profit and Loss Account example”.

Teacher Guide for Using This Lesson Plan

Before the lesson, ensure you have a clear chart demonstrating the format of departmental trading and profit and loss accounts, possibly with a simple example. Prepare flash cards for key terms to aid quick recall. Begin by reviewing basic final accounts to connect prior knowledge. When explaining departmental transfers, use practical scenarios to make the concept clear. Emphasise the rationale behind allocating common expenses and guide students through the calculation and recording process. Encourage active participation during the demonstration of account preparation. Ensure students copy the Board Summary accurately into their notebooks during the note-taking stage. Provide constructive feedback on their homework to reinforce learning.