I am self teaching myself the above subject, using Ian Harrison's Advanced Accounting for A2. A question I am stuck on and have attached the above question. I understand how to apportion everything, but on paragraph four in the answer where do they get the £380 for rent and rates, and £620 for heating and lighting, I have been looking at this answer all afternoon but cannot see how to work this out. Thanks for any help given to me. Sue
The £380 and £620 figures can't be calculated by looking at the example. They're just figures plucked out of thin air to illustrate a point.
The rent and rates charge has been apportioned between the different departments by floor area, with £700 being allocated to the cot department. That's helped create an overall loss for the department. The fourth paragraph states that if rent and rates of, for example, £380 would actually be saved if the cot department was closed, then the £700 charge arrived at by the apportionment overstates the actual running costs and so overstates the overall loss of the department.
It's the same situation with heat and light. The apportionment has led to a £1,100 charge but if the closure of the department would actually save, for example, £620, then the cost of running the department has been overstated using the apportionment method.
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Pearce & Co - Chartered Accountant and Chartered Tax Adviser
Thanks Robert for your reply, I just did not want to move onto the next chapter with out fully understanding where they got these figures from, completely understand the paragraph now, many thanks Sue
