JAMB UTME - Principles of Accounts - 2019

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Land is the item that cannot depreciate. Depreciation is the reduction in the value of a fixed asset due to wear and tear, obsolescence or other factors. It is a non-cash expense that is charged against the income of a company over the useful life of the asset. However, land is a fixed asset that has an unlimited useful life, and its value does not diminish over time. Therefore, it cannot be depreciated. On the other hand, plant and machinery, motor vans, and premises are all fixed assets that have a limited useful life, and their values decrease over time due to wear and tear, obsolescence or other factors. As a result, they can be depreciated. In summary, land is the item that cannot be depreciated, while plant and machinery, motor vans, and premises are all items that can be depreciated.

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In a partnership, when no agreement is made by the partners, the default provisions of the Partnership Act of the relevant country take effect. These provisions dictate the terms of the partnership, including how profits and losses are to be shared, how interest is to be charged on capital and drawings, and whether partners are entitled to receive salaries. In this context, the statement "the following provisions take place except" is not clear as it suggests that there are several provisions, and one of them does not take effect. However, the options given do not constitute provisions that are part of the default provisions of the Partnership Act. Therefore, the statement is incomplete, and we cannot provide a definitive answer. However, we can say that the default provisions of the Partnership Act are in place to provide a framework for partnerships where there is no agreement between the partners. These provisions may vary from country to country and may be different depending on the legal jurisdiction. Overall, it is always recommended for partners to have a partnership agreement in place that outlines the terms and conditions of the partnership, as this can help avoid potential conflicts and ensure that all partners are on the same page.

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Transactions are recorded or posted to the ledger in line with the Double Entry Principle. This principle is the foundation of modern accounting and states that every transaction has two effects: a debit and a credit. Debits and credits must be equal and opposite to keep the accounting equation (assets = liabilities + equity) in balance. So when a transaction occurs, it is analyzed to determine which accounts are affected and how. The debits and credits are then recorded in the ledger, which is a book that contains all the accounts used by a company. Each account has a balance, which reflects the total of all the debits and credits that have been posted to it. For example, let's say a company purchases inventory for $1,000. This transaction affects two accounts: Inventory (an asset) and Accounts Payable (a liability). Using the Double Entry Principle, the company would record a debit of $1,000 to the Inventory account and a credit of $1,000 to the Accounts Payable account. This ensures that the accounting equation stays in balance and that the company's financial statements accurately reflect its financial position. In summary, the Double Entry Principle is the method by which transactions are recorded in the ledger. It ensures that every transaction is properly analyzed and that the resulting debits and credits keep the accounting equation in balance.

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In a non-profit making organization, the excess of assets over liabilities equals accumulated funds. Accumulated funds, also known as "net assets" or "fund balance", represent the total amount of funds that the organization has accumulated over time from its operations, donations, and other sources, minus any liabilities that it owes. When an organization has more assets than liabilities, it means that it has accumulated more resources than it has used or spent over time, resulting in a positive balance of accumulated funds. This balance can be used by the organization to fund future projects and initiatives or to build up its reserves. It is important to note that in a non-profit organization, accumulated funds are not owned by any individual or group, but rather are dedicated to the organization's mission and objectives. They are held in trust for the benefit of the organization and the people it serves.

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The purpose of a profit and loss (P&L) account is to show the financial performance of a business over a specific period of time, usually a month or a year. It helps to determine the net profit or loss of a company by showing the total revenue earned and the total expenses incurred during the period. The P&L account starts with the gross profit, which is calculated by subtracting the cost of goods sold (COGS) from the total revenue. Gross profit shows the amount of money the company made from its sales before any other expenses are taken into account. Next, the P&L account lists all the expenses incurred by the company during the period, such as wages, rent, utilities, advertising, and other operating costs. These expenses are subtracted from the gross profit to arrive at the net profit or net loss. The net profit or loss is the final result of the P&L account and shows whether the company made a profit or suffered a loss during the period. If the net profit is positive, it means the company had more revenue than expenses and made a profit. If the net profit is negative, it means the company had more expenses than revenue and suffered a loss. In conclusion, the purpose of a P&L account is to determine the net profit or loss of a company by showing the total revenue earned, the total expenses incurred, and the difference between the two.

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To calculate the gross profit, we need to subtract the cost of goods sold (COGS) from the total revenue (sales). COGS represents the cost of the products that were sold during the period, and it is calculated as: COGS = Opening stock + Purchases - Closing stock In this case, the values are: COGS = ₦20,000 + ₦70,000 - ₦15,000 = ₦75,000 Total revenue (sales) is given as ₦100,000. Therefore, the gross profit can be calculated as: Gross profit = Total revenue - COGS = ₦100,000 - ₦75,000 = ₦25,000 Hence, the answer is option (D) ₦25,000.

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The straight line method of depreciation is a simple way of calculating the amount of depreciation to be charged each year for an asset. To use this method, we subtract the residual value (the value of the asset after it has been fully depreciated) from the original cost of the asset, and then divide this by the number of years the asset is expected to last. So, for the machine in this question: - Original cost: ₦10,000 - Residual value: ₦4,000 - Years expected to last: 4 The amount of depreciation to be charged per year would be: ₦10,000 - ₦4,000 = ₦6,000 ₦6,000 ÷ 4 years = ₦1,500 So, the amount of depreciation charged per annum is ₦1,500.

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The statement in a double entry system that records all the transactions of one specific class during a period is called a ledger. A ledger is a book or a collection of accounts in which a business records its financial transactions. It contains all the financial information related to a specific account, such as sales, purchases, expenses, and revenues. In a double entry system, every transaction affects at least two accounts, one being debited and the other credited. These debits and credits are recorded in the ledger in separate columns, which allows for the calculation of the account balance at any given time. For example, a business might have a ledger for its sales transactions, in which all the sales made during a particular period are recorded. Each sale is recorded in the ledger as a debit to the customer's account and a credit to the sales account. At the end of the period, the balance in the sales account represents the total amount of sales made during that period. Overall, the ledger is an important tool in accounting as it provides a detailed record of all financial transactions, allowing businesses to monitor their financial performance and make informed decisions.

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Accounting standards are issued at the international level by the International Accounting Standards Board (IASB). The IASB is an independent organization that sets accounting standards, known as International Financial Reporting Standards (IFRS), for companies to follow when preparing their financial statements. These standards help ensure that financial information is transparent and comparable across different companies and countries. The IASB operates under the oversight of the IFRS Foundation, which provides funding and governance. The Standards Advisory Council and Standing Interpretations Committee are both bodies that provide advice and guidance to the IASB, but they do not have the authority to issue accounting standards. In summary, the IASB is the organization responsible for setting international accounting standards, which are designed to promote transparency and comparability in financial reporting by companies around the world.

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The entity concept is a fundamental principle of accounting that assumes that every economic unit, regardless of its legal form of existence, is treated as a separate entity from parties having an economic interest. This means that a business is viewed as a distinct entity separate from its owners, shareholders, creditors, or any other parties with an economic interest in the business. Under the entity concept, the financial transactions of the business are recorded separately from those of the owner or other parties. This enables the business to track its financial performance and position accurately, and to prepare financial statements that are useful for decision-making. For example, if a business owner invests $10,000 of personal funds into the business, the entity concept requires that the transaction be recorded as a liability owed to the owner by the business. Similarly, if the business borrows $5,000 from a bank, the loan is recorded as a liability owed to the bank by the business. By treating the business as a separate entity, the entity concept enables stakeholders to evaluate the financial performance of the business without confusion or distortion caused by mixing personal transactions with business transactions.

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Discount received is usually apportioned to each department on the basis of their purchases. The reason for this is that the discount is typically given by the supplier as a percentage of the total value of goods purchased. Therefore, the more a department purchases from the supplier, the more discount they receive. For example, if a department purchases $10,000 worth of goods and the supplier offers a 5% discount, the department would receive a discount of $500. If another department purchases $5,000 worth of goods from the same supplier, they would only receive a discount of $250. By apportioning the discount on the basis of purchases, each department receives a fair share of the discount based on their contribution to the total purchases from the supplier. This helps to ensure that the discount is allocated in a way that reflects the actual purchasing activity of each department.

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The officer that is charged with the responsibility of carrying out investigations on the book of accounts to show the true and fair view is the Auditor General. The Auditor General is an independent officer responsible for auditing and reporting on the financial statements of government entities and other organizations to ensure that their financial records are accurate and comply with relevant laws and regulations. Their main task is to review the financial records of an organization and provide an opinion on whether the financial statements represent a true and fair view of the organization's financial position, performance, and cash flows. This helps to enhance transparency, accountability, and good governance in public and private organizations.

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The opening cash balance can be found by looking at the Receipts and Payments Account. The "Bal b/f" column represents the balance brought forward from the previous period, which is the opening cash balance. In this case, the opening cash balance is ₦3,650, which is the first entry under "Bal b/f" in the Receipts and Payments Account. Therefore, the correct option is (3) ₦3,650.

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Double entry accounting is a method of recording financial transactions in which every transaction is recorded in two accounts: one account is debited and another is credited. This means that for every debit entry (money going out of an account), there must be a corresponding credit entry (money coming into an account), and vice versa. The purpose of double entry accounting is to ensure accuracy and provide a clear and complete record of all financial transactions. This helps to prevent errors and fraud, and allows for easy reconciliation and tracking of financial information.

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Discount received is a reduction in the amount paid for goods or services purchased by a company. This reduction is usually given by a supplier to a customer as an incentive to encourage prompt payment or to build customer loyalty. In accounting, discount received is considered a gain for the company and is therefore credited to the profit and loss account. The profit and loss account is an account that records all revenues and gains on one side, and all expenses and losses on the other side, for a particular period. By recording discount received in the profit and loss account, the company can track and report its total gains for a specific period, and also calculate the net profit or loss for that period. This helps the company to make informed decisions about its operations and financial position, and to meet its reporting requirements. Therefore, the correct answer is option (B) - profit and loss account. Discount received is a gain for the company, and it is credited to the profit and loss account to be recorded as part of the company's total gains and revenues for a specific period.

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The two recognized accounting bases are Accrual and Cash. Accrual accounting recognizes economic events regardless of when payment is received or made. This means that transactions are recorded in the accounts when they occur, regardless of when the cash is received or paid. Cash accounting, on the other hand, only recognizes transactions when cash is received or paid. This means that transactions are only recorded in the accounts when the cash changes hands. In simple terms, accrual accounting provides a more complete picture of a company's financial performance, while cash accounting is more focused on the company's actual cash flow.

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The effect of the transaction will be an increase in the assets of the motor vehicle account and a decrease in the assets of the bank account. When you bought the motor vehicle and paid for it by cheque, you transferred ₦60 from your bank account to the account of the seller. This means that the assets of your bank account decreased by ₦60, while the assets of the motor vehicle account increased by ₦60. In other words, the transaction resulted in the transfer of ₦60 worth of value from your bank account to the motor vehicle account. Therefore, there is no increase in liabilities of the bank account because you did not borrow any money to make the purchase. To summarize, the transaction of buying a motor vehicle and paying for it by cheque resulted in an increase in the assets of the motor vehicle account and a decrease in the assets of the bank account.

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To calculate the net profit as a percentage of expenses, we need to first determine the total expenses of the company for the year. We can do this by adding up all of the overhead expenses: admin expenses + selling expenses + other overhead expenses. Total expenses = ₦16,800 + ₦15,000 + ₦6,200 = ₦38,000 Next, we can calculate the net profit as a percentage of expenses by dividing the net profit by the total expenses and multiplying by 100. Net profit as a percentage of expenses = (Net profit / Total expenses) x 100 = (₦25,000 / ₦38,000) x 100 = 65.79% Therefore, the correct answer is 65.79%, which is option (D). This means that for every ₦1 spent on expenses, the company earned a net profit of approximately ₦0.66. It's important to note that this percentage does not take into account the cost of goods sold, which is a separate expense and is already deducted from the sales figure.

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The entry to record the purchase of goods for resale on credit costing ₦150,000 from Tosanwumi International on 30th September 20X8 is: Debit: Purchase Account ₦150,000 Credit: Tosanwumi International Account ₦150,000 This means that the Purchase Account is debited with the value of the goods purchased on credit, while the Tosanwumi International Account is credited for the same amount, representing the amount owed to the supplier. The Purchase Account is a nominal account that is used to record the cost of goods purchased for resale or for use in the business. The Tosanwumi International Account is a personal account, specifically a creditor account, used to record the amount owed to Tosanwumi International for the goods purchased on credit. This entry follows the double-entry bookkeeping system, which requires that every transaction has equal debits and credits. The debit entry represents the increase in expenses, while the credit entry represents the increase in liabilities, specifically accounts payable to the supplier.

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Shares that are offered to existing shareholders at a discounted price are called a "right issue." This is a type of securities offering that allows existing shareholders the opportunity to purchase additional shares of the company's stock, typically at a price lower than the current market price. The purpose of a right issue is to raise capital for the company and provide existing shareholders with the opportunity to increase their ownership in the company at a favorable price. In a right issue, the company will typically set a record date, which determines which shareholders are eligible to participate in the offering. The shares are then offered to these eligible shareholders in proportion to their existing holdings. The shareholders have the right, but not the obligation, to purchase the additional shares. In conclusion, a right issue is a type of securities offering where existing shareholders are offered the opportunity to purchase additional shares of a company's stock at a discounted price, with the goal of raising capital for the company.

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Retained profits are an example of revenue reserves. Revenue reserves are profits earned by a company that are not distributed as dividends to its shareholders but are kept in the business as a form of retained earnings. Retained profits are a portion of the company's profits that are not paid out as dividends but are instead reinvested in the company to support its growth, pay off debts or improve its operations. These retained profits can be accumulated over time, allowing a company to build up its reserves and strengthen its financial position. This can be particularly useful during times of economic uncertainty or market downturns, as the company will have more financial flexibility and resources to weather the storm. Therefore, retained profits are a crucial component of a company's overall financial health, and they are an example of revenue reserves.

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The advantage of double-entry bookkeeping is that it ensures the accuracy of financial records and provides a complete picture of a company's financial transactions. Double-entry bookkeeping is a method of recording financial transactions that involves recording every transaction in at least two accounts, with one account debited and the other credited. This ensures that the total debits always equal the total credits, which means that the books are always in balance. By using double-entry bookkeeping, companies can ensure that their financial records are accurate and complete. They can also quickly identify errors and discrepancies in their records, which can help them to make better financial decisions. In addition, double-entry bookkeeping provides a complete picture of a company's financial transactions. It shows how every transaction affects both sides of the accounting equation (i.e., assets = liabilities + equity), which helps companies to understand the impact of their transactions on their financial position. In summary, the advantage of double-entry bookkeeping is that it ensures the accuracy and completeness of financial records, helps companies to quickly identify errors and discrepancies, and provides a complete picture of a company's financial transactions. It is not related to options such as increasing assets or disbursing cash.

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In the preparation of a statement of profit, the opening capital is the amount of money a business had at the beginning of a given period, and the closing capital is the amount of money a business has at the end of that same period. If the opening capital is greater than the closing capital, it means that the business has used more money than it has received during the period, leading to a decrease in its overall capital. This decrease in capital is referred to as a "loss." Therefore, if the opening capital is greater than the closing capital, it indicates that the business has suffered a loss during the period.

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The item that will not appear in the preparation of a control account is option IV only, which is "Provision for bad debts." A control account is a summary account that provides an overview of the individual accounts that make up a particular category, such as debtors or creditors. The purpose of a control account is to reconcile the total balance of individual accounts with the balance in the control account. In the context of accounts receivable, which is money owed to a company by its customers, the control account typically includes transactions such as sales, cash receipts, discounts, and returns. Bad debts, which are accounts that are unlikely to be paid by customers, are also included in the control account. However, the provision for bad debts is a separate account that is used to estimate the amount of bad debts that are likely to occur in the future, and it is not typically included in the control account. In summary, the provision for bad debts is not included in the preparation of a control account, while bad debts, discounts, and returns are typically included.

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Depreciation is the fall or decrease in the economic service potential of an asset as a result of wear, tear and obsolescence. Think of an asset as something you own, like a car, a computer, or a building. Over time, these assets lose value because they get older, wear out, or become outdated. This loss of value is called depreciation. It's an estimate of how much an asset has lost in value over a certain period of time. In simple terms, depreciation is like getting older - the more time goes by, the less useful you become. The same thing happens to assets. The longer they're in use, the less valuable they become, and that decrease in value is called depreciation.

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Distribution expenses are not charged to manufacturing account. Manufacturing account is a record of all the costs incurred during the production process of goods. It includes direct expenses such as raw materials, direct labor (factory wages) and direct expenses incurred in the production process. On the other hand, distribution expenses refer to the costs incurred in the distribution of finished goods to the customers, such as transportation, packaging, and marketing expenses. These costs are not considered a part of the production process and hence are not charged to the manufacturing account. Instead, they are recorded in the selling and administrative expenses account.

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