External Reconstruction Definition

External reconstruction takes place when an existing company goes into liquidation for the express purpose of selling its assets and liabilities to a newly formed company which is generally owned and named alike. It is similar to amalgamation though not exactly the same. In external reconstruction a new company is formed for the purpose of taking over the business of an existing sick company which has incurred huge losses and is facing financial difficulties. Existing company is wound up by selling its business to the newly formed company which is generally similarly named and owned by the same shareholders to a great extent.

Departmental Account
Departmental Account is where departments within an entity have varying degrees of autonomy, but are not usually separated geographically from the rest of the business. They may be concerned with manufacturing or, in the case of a department store, with retailing. Departmental accounts usually include a trading account and may also include a profit and loss account to which overheads are allocated or imputed.

Advantages of Departmental account

The performance of each department can be evaluate separately on the basis of trading results. An endeavor may be made to push up the sales of that department which is earing maximum profit . The growth potential of a department as compared to others can be evaluated. It helps the management to determine the justification of capital outlay in each department. It helps to calculate stock turnover ratio of each department separately and thus the efficiency of each department can be revealed.

Objectives of Departmental account

When a business deals in different kinds of products or services under one roof, it is divided into number of divisions which are known as departments. It is like decentralization of business activities where each department has the freedom to take decisions related to his or her department. Here is the list of objectives of department accounting 1. It helps in determining the commission of the department manager when it is linked to profit achieved by their department. 2. It can help the management in deciding which department should be developed more and which should be closed in order to maximize profitability of the whole company. 3. It also helps in allocating cost to various departments and therefore helps in better control of cost of the departments of the company. 4. For a company which is dealing in multiple products, it is much easier to control and monitor several departments based on the products they sell rather than controlling it as a one single business.

The difference between branch and department

A department is a technical area of the office or workplace which is under same premises while a branch is an extension of the office or workspace with more, less or same features. Departmental accounting and branch accounting give businesses different levels of control over their finances. Departmental accounting is centralized and common in corporations and other types of non-banking businesses. Branch accounting is more common in banking and other industries where business is conducted in more than one location. Both essentially perform the same types of accounting functions.

Location
One of the primary differences in branch accounting and departmental accounting stems from how the business is structured. Businesses with their own accounting departments use departmental accounting when the accounting process takes place in a central location but is compartmentalized because the business consists of various departments. Each department might have some level of autonomy and might undergo separate audits. Branch accounting is used in industries such as banking where the business consists of branches that are generally independent of one another, even though they are all owned by a parent company or organization.

Cost
One way branch accounting and departmental accounting differ is the amount of manpower required to perform the jobs. With departmental accounting, most of the accounting procedures can be performed in-house and might be able to use an individual accountant or a small team that oversees the accounting for all departments. B.K. Banerjee, author of "Financial Accounting: Concepts, Analyses, Methods and Uses," notes that maintaining separate books for each department can be expensive. Instead, many companies opt for one group of accountants to maintain all of the books. This cost consideration can also affect businesses using branch accounting because they might need multiple accountants to maintain books in separate branch locations.

Responsibility
The level of responsibility and oversight is greater with branch accounting than it is with departmental accounting. Lack of centralization requires that each branch keep accurate records of its own. However, this also requires the parent company or organization to keep a watchful eye over the accountant and the branch organization. In departmental accounting, these actions occur within the central organization. Although the need to keep watch over each department remains, it can be easier to do so because it occurs within the parent company.

Profitability
While branch and departmental accounting both help create a financial portrait of the company, with branch accounting, the profitability of each branch can be equally important. Companies can make adjustments as necessary for each branch of their organization. Adjustments can be made within individual departments as well, but profitability is seen within the larger picture of the parent organization's profits, rather than on an individual level.