INTER DEPARTMENTAL TRANSFERS

INTER-DEPARTMENTAL TRANSFERS

Whenever goods or services are provided by one department to another, their cost should be separately recorded and charged to the department benefiting thereby and credited to that providing the goods or services. The totals of such benefits (inter-departmental transfers) should be disclosed in the departmental Profit and Loss Account, to distinguish them from other items of expenditure. 

 Basis of Inter-Departmental Transfers

Goods and services may be charged by one department to another usually on either of the following three bases:

(i) Cost,

(ii) Current market price,

(iii) Cost plus agreed percentage of profit. 

 Elimination of Unrealised Profit

When profit is added in the inter-departmental transfers the loading included in the unsold inventory at the end of the year is to be excluded before final accounts are prepared so as to eliminate any anticipatory (internal) profit included therein.

 Stock Reserve

Unrealised profit included in unsold stock at the end of accounting period is eliminated by creating an appropriate stock reserve by debiting the combined Profit and Loss Account.