JAMB UTME - Principles of Accounts - 2024

Answer Details

Fictitious assets are intangible assets that do not have a physical form and lack inherent value. They represent deferred expenses or prepaid costs that provide benefits over future periods. For example: Preliminary Expense: Discount on Issue of Shares, Goodwill etc.

Answer Details

The nominal ledger, also sometimes called the general ledger, is the main book of accounts used in a double- entry bookkeeping system. It records all the financial transactions of a business during an accounting period. These transactions are categorized into different types of accounts.

Answer Details

To calculate the value of raw materials consumed, we need to follow these steps:

Step 1: Determine the Opening Stock of Raw Materials. This is the stock at the beginning of the period. According to the information provided, the opening stock of raw materials is #20,000.

Step 2: Add any Purchases made during the year. In this case, raw materials purchased during the year amount to #18,000.

Step 3: Calculate the Closing Stock of Raw Materials. This is the stock at the end of the period, which is #500.

Step 4: Use the formula for the value of raw materials consumed:

Raw Materials Consumed = Opening Stock + Purchases - Closing Stock

Substitute the values:

#20,000 (Opening Stock) + #18,000 (Purchases) - #500 (Closing Stock) = #37,500

Therefore, the value of raw materials consumed is #37,500.

Answer Details

Expenditure:
#15,000 (Salaries) + #7,000 (Vehicles fueling)
= #22,000
Note that the question is only asking for expenditure and not capital or recurrent expenditure

Answer Details

A partner whose liability does not extend beyond the amount of capital they contributed is known as a limited partner.

In a partnership, there are different types of partners, and each has different roles and responsibilities. A limited partner is an investor within the partnership who contributes capital but does not participate in the day-to-day management or decision-making of the business. The key feature of a limited partner is that their financial liability is restricted to the amount they have invested in the partnership. This means that if the business faces financial losses or legal liabilities, the limited partner risks only losing their investment amount. They are not required to contribute more money beyond what they initially invested.

On the other hand, a general partner, who typically manages the business, has unlimited liability and is personally responsible for all the debts and obligations of the partnership. In contrast, the limited partner enjoys protection against such personal liabilities.

This arrangement is beneficial for individuals who want to invest in a business without the risk of losing more than their original investment, while also not being involved in its operations.

Answer Details

A trial balance is a worksheet that summarizes the ending balances of all ledger accounts after a specific accounting period. It lists each account title and its corresponding debit or credit balance.

Answer Details

A debenture is a type of long-term debt instrument issued by a company to borrow money from investors. When you hold a debenture, you are effectively lending money to the company, and in return, you expect a regular return. The return received by debenture holders is in the form of interest.

Here's a simple explanation of why it's interest:

• Interest: Debentures are like loans to the company. Just as banks earn interest on loans they provide, debenture holders earn interest on their investment in the debentures. This interest is predetermined and is usually paid at regular intervals, such as semi-annually or annually.
• Fixed Payment: The interest on debentures is usually a fixed percentage of the principal amount, which means it doesn’t change based on the company's profits or losses.
• Priority Payment: Interest on debentures is paid before any dividends are paid to shareholders, making it a relatively secure form of investment in terms of receiving payments.

In contrast:

• Share bonus and dividend: These are returns on equity shares, not debentures. They depend on the company's profits and decisions made by the board of directors.
• Net profit: This term refers to the total profit of a company after all expenses, taxes, and interest have been deducted. It's not directly associated with debenture holders as a form of return.

Therefore, the return on debenture holding is characterized by interest payments. These payments are made regardless of whether the company makes a profit, as long as it is solvent enough to meet its interest obligations.

Answer Details

A prospectus is a formal legal document that provides detailed information about a company's financial condition, its plans for the future, and the risks involved in investing.
The primary purpose of issuing a prospectus is to attract potential investors to buy (subscribe for) shares of the company's stock.

Answer Details

Raw materials available: Opening Stock + Raw materials purchased Raw materials available: #20,000+ #18,000
Raw materials available: #38,000

Answer Details

To calculate the current ratio, we need to understand that it is a measure of a company's ability to pay its short-term obligations with its short-term assets. The formula for the current ratio is:

Current Ratio = Current Assets / Current Liabilities

Let's identify the current assets from the given balances:

• Debtors: 50,000
• Bank: 10,000
• Stock (31-08-2007): 10,000

Adding these up:

Total Current Assets = 50,000 + 10,000 + 10,000 = 70,000

Next, we identify the current liabilities:

• Creditors: 35,000

Therefore, Total Current Liabilities are: 35,000

Now, let's calculate the current ratio:

Current Ratio = Total Current Assets / Total Current Liabilities

Current Ratio = 70,000 / 35,000 = 2:1

Therefore, the current ratio is 2:1, which means that for every unit of currency in current liabilities, Adama Ltd has 2 units in current assets to pay those liabilities. This is a healthy liquidity position as a current ratio greater than 1 indicates that the company has more current assets than current liabilities.

Answer Details

When a business is sold as a "going concern," it means that the business is being sold with the expectation that it will continue to operate in the same manner as before the sale. The amount paid by the buyer for such a business is commonly referred to as the purchase consideration.

The purchase consideration includes the total value that the buyer agrees to pay to acquire all the assets, liabilities, and operational components of the business. This value can be in the form of cash, shares, debt arrangements, or a combination of these.

Let's clarify why the other terms are not the correct answer in this context:

• Conversion fees: These are charges that may apply when converting one asset or form of ownership to another but are not related to the purchase of a business.
• Consolidation fees: These may involve costs associated with combining two or more companies or departments, but again, they do not refer to the act of purchasing a business as a going concern.
• Premium fees: These might indicate additional payments above the standard price for specific benefits or services but do not encompass the entire cost of purchasing a business.

In summary, the correct term for the amount paid by the buyer of a business sold as a going concern is purchase consideration.

Answer Details

Prime Cost = Direct Materials Cost + Direct Labor Cost 
Direct Materials Cost (Cost of Raw Materials Consumed): We have already calculated this in the previous question and found it to be #435,000 
Prime Cost = #435,000 (Direct Materials) + #65,000 (Direct Labor) 
Prime Cost = #500,000 

Answer Details

To calculate the Factory Overhead Cost, we need to consider the expenses that are not directly tied to the production process but are essential for running the factory smoothly. These include indirect costs like lighting, heating, depreciation of machinery, and indirect labor. From the data given, we will identify the elements that contribute to the Factory Overhead Cost:

• Indirect Wages: #28,000
• Depreciation on Plants: #32,000
• Factory Rent: #3,500

Other elements in the data such as stock of raw materials, purchase of raw materials, direct wages, and work in progress are part of the cost of production but do not contribute to the Factory Overhead Cost.

Therefore, the total Factory Overhead Cost is calculated by summing up all the overhead costs:

Factory Overhead Cost = Indirect Wages + Depreciation on Plants + Factory Rent

= #28,000 + #32,000 + #3,500

= #63,500

Thus, the Factory Overhead Cost is #63,500.

Answer Details

The correct accounting entry to credit when a discount is allowed is the debtor account.

Here's a simple explanation:

The "Discount Allowed" is a type of expense for a business which provides an incentive to customers to make payments promptly. Therefore, you need to record this as a reduction in the total receivables.

• Discount Allowed is recorded in the books of accounts as an expense, so you debit the "Discount Allowed" account.
• You credit the debtor account (the account of the customer), because by allowing a discount, the customer now owes you less money than originally recorded. This means the amount you have as receivables from the customer (debtor) decreases.

In summary, when a discount is allowed, the accounting entry is to debit the "Discount Allowed" account to reflect it as an expense, and credit the debtor account to reduce the outstanding amount owed by the customer.

Answer Details

A bank deposit typically wouldn't cause a discrepancy; rather, it would lead to an increase in both the cash book and bank statement balances. Therefore, it is not a cause of discrepancies between the two balances.

Answer Details

In Nigeria, the body that regulates accounting practices is the Association of National Accountants of Nigeria (ANAN). ANAN is a professional body chartered by Act 76 of 1993 and is responsible for setting standards, guiding, and supervising the practice of accountancy in the country.

Here's why ANAN is important for accounting practices:

• Standard Setting: ANAN is involved in creating accounting standards that practitioners should follow, ensuring that financial reporting is consistent and reliable.
• Professional Guidance: ANAN provides guidelines and resources for accountants to maintain proper ethical standards and professionalism in their work.
• Supervision and Certification: ANAN certifies accountants, which involves ensuring that individuals meet the necessary educational and professional criteria to practice accounting.

By regulating accounting practices, ANAN helps maintain the integrity and accuracy of financial information, which is crucial for businesses, government agencies, and stakeholders.

Answer Details

The amount of #30,000 represents credit purchases. In accounting, the Purchase Ledger Control Account is used to track what a business owes to its suppliers. This account is part of the liabilities section of the balance sheet since it reflects amounts that need to be paid for goods or services received on credit.

Here's a breakdown of why the amount represents credit purchases:

• The terminology “Purchase Journal” is used in accounting to record transactions related to credit purchases of goods.
• When items are purchased on credit, they are logged as debits to the Purchase Ledger Control Account. Hence, this value indicates the total goods acquired on credit from the suppliers during a specific period.
• This allows a business to track how much is owed to suppliers, as opposed to goods purchased and paid for immediately with cash, which would be logged differently.

This is significant because businesses often purchase items on credit to improve cash flow and benefit from any creditor terms like discounts for early payment. Hence, the #30,000 recorded in the Purchase Ledger Control Account is indicative of the total amount of purchases made on credit during the period.

Answer Details

The diminishing balance method of depreciation, also known as the reducing balance method, calculates depreciation based on the book value (cost minus accumulated depreciation) at the beginning of each year. In this method, both the asset's residual value and the annual depreciation rate are used to determine the depreciation charge.

Let's break down the solution for the first three years to figure out the depreciation charge:

Year 1:
The initial cost is #9,000.

Depreciation for Year 1 = Cost × Depreciation Rate = 9,000 × 10% = #900

Book Value at the end of Year 1 = Initial Cost - Depreciation = 9,000 - 900 = #8,100

Year 2:
Book value at the beginning of Year 2 is #8,100.

Depreciation for Year 2 = Book Value × Depreciation Rate = 8,100 × 10% = #810

Book Value at the end of Year 2 = Book Value - Depreciation = 8,100 - 810 = #7,290

Year 3:
Book value at the beginning of Year 3 is #7,290.

Depreciation for Year 3 = Book Value × Depreciation Rate = 7,290 × 10% = #729

The depreciation charge for the third year using the diminishing balance method is #729.

Answer Details

The ledger that contains the accounts of debtors and creditors is called the personal ledger. This is an essential distinction in accounting because it helps categorize the accounts appropriately. Here is why:

Personal Accounts are accounts that relate specifically to individuals or entities with whom the business has direct dealings such as customers (debtors) and suppliers (creditors). These are entities that the business can identify by name, and they usually consist of accounts that show the amounts the business owes to others or the amounts others owe to the business.

The two primary classifications within personal accounts are:

• Debtors: These are individuals or entities who owe money to the business, typically resulting from credit sales.
• Creditors: These are individuals or entities to whom the business owes money, usually due to credit purchases.

In contrast:

Impersonal Accounts are divided into Real Accounts and Nominal Accounts.

• Real Accounts: Related to assets and liabilities, not individuals' accounts.
• Nominal Accounts: Associated with incomes, expenses, losses, and gains, rather than with living persons.

In summary, any account representing a person or entity that can be identified by name, such as debtors or creditors, falls under personal accounts in the ledger.

Answer Details

When a new partner joins the existing partnership, they bring in capital or expertise. The existing goodwill of th business (positive reputation, customer base, etc.) might justify paying the existing partners a premium above the book value of their capital investment. This premium is recorded as goodwill.

Answer Details

Assets + Liabilities = Owner's Equity. This equation is the foundation of double-entry bookkeeping and ensures that a company's financial statements are balanced. Let's break down the equation:
Assets: These are the resources a company owns, such as cash, inventory, property, and equipment. Liabilities: These are the company's debts or financial obligations that need to be repaid.
Owner's Equity (also called Shareholders' Equity): This represents the owners' claim on the company's assets after all liabilities are settled. It's essentially the difference between the company's assets and liabilities.

Answer Details

When manufactured goods are transferred to the trading account at the market price, the difference between the cost of production and the market price is known as the profit or loss on manufacturing.
To account for this difference, it is credited to the profit and loss account. If the market price is higher than the cost of production, it results in a profit, which is credited to the profit and loss account. Conversely, if the marke price is lower than the cost of production, it results in a loss, which is also credited to the profit and loss
account.

Answer Details

Cost of Goods Produced = Prime Cost + Factory Overhead Cost + Opening Work in Progress - Closing Work in Progress 
Prime Cost: #500,000 (from previous question) Factory Overhead Cost: #63,500 (from previous question) 
Cost of Goods Produced = #500,000 + #63,500 + #32,500 - #37,500 
Cost of Goods Produced = #558,500 

Answer Details

Ordinary shares, also known as common shares or equity shares, represent ownership in a company. When individuals or investors purchase ordinary shares, they become shareholders and have ownership rights in the company.
Equity refers to the ownership interest or residual claim on the assets of a company after deducting liabilities. Ordinary shares represent the equity portion of a company's capital structure, and shareholders who hold ordinary shares have voting rights and the potential to receive dividends.

Answer Details

In bookkeeping and accounting, the term "set off" in control accounts is most commonly referred to as a contra entry.

To explain this in simple terms:

• A contra entry occurs when an amount is recorded in both the debit and credit sides of the same account or two related accounts. Essentially, it's an internal transaction.
• The main purpose of a contra entry is to offset two entries against each other. This is often used to reflect that part of a transaction has cleared or been offset by another transaction.

For example, if a business has an account that records both money received and money spent, a contra entry would allow the business to show that a certain amount received has effectively been set off by a corresponding expenditure.

It’s important because it provides a method to track the exact operations within a business’s accounts, ensuring transparency and accuracy in financial statements.

Answer Details

To find the percentage of net profit to sales, we need to calculate the net profit first.

Here's how you can find the net profit:

Step 1: Calculate Cost of Goods Sold (COGS)

• Opening Stock (1-09-2006): 20,000
• Purchases: 140,000
• Closing Stock (31-08-2007): 10,000

COGS = Opening Stock + Purchases - Closing Stock

COGS = 20,000 + 140,000 - 10,000 = 150,000

Step 2: Calculate Gross Profit

Gross Profit = Sales - COGS

Gross Profit = 200,000 - 150,000 = 50,000

Step 3: Calculate Net Profit

Net Profit = Gross Profit - Expenses

In this case, the only expense given is General Expenses: 10,000

Net Profit = 50,000 - 10,000 = 40,000

Step 4: Calculate the Percentage of Net Profit to Sales

Percentage of Net Profit to Sales = (Net Profit / Sales) * 100%

Percentage of Net Profit to Sales = (40,000 / 200,000) * 100% = 20%

Therefore, the percentage of net profit to sales is 20%.

Answer Details

The transaction involves paying an amount in cash to John. In accounting terms, when a payment is made to a person or an entity, a debit and credit entry is recorded to keep the accounts balanced. Here's how it works in this scenario:

1. Debit (Dr) to John: Since the payment is being made to John, his account is debited. This is because John's account balance increases from the perspective of the payer's books (as they no longer owe that amount to John). Debiting his account shows a reduction of liability.

2. Credit (Cr) to Cash: The credit entry is made to the Cash account because when cash is paid out, it represents a decrease in the cash balance of the business or individual making the payment. This is why the Cash account is credited.

In summary, when an amount is paid in cash to John:

• The entry would be: Dr John, because John is gaining more value in his account from the perspective of the payer.
• The entry would be: Cr Cash, indicating that the payer's cash reserves have decreased as a result of the payment.

So, in this specific scenario, the correct credit entry is made to the Cash account.

Answer Details

Debentures are long-term debt instruments issued by companies to raise funds. Debenture holders are the creditors of the company, and they receive regular interest payments as a reward for lending their money to the company.

Answer Details

To determine the gross profit, we need to calculate the difference between the sales and the cost of goods sold (COGS). The formula for gross profit is:

Gross Profit = Sales - Cost of Goods Sold (COGS)

The Cost of Goods Sold (COGS) is calculated as follows:

COGS = Opening Stock + Purchases - Closing Stock

• Opening Stock: #10,000
• Purchases: #70,000
• Closing Stock: #15,000

Calculating the COGS:

COGS = 10,000 + 70,000 - 15,000

COGS = 80,000 - 15,000

COGS = 65,000

Now, calculate the Gross Profit:

Gross Profit = Sales - COGS

Gross Profit = 120,000 - 65,000

Gross Profit = 55,000

Therefore, the gross profit is #55,000.

Answer Details

Prime cost refers to the direct costs associated with producing a good. These are costs that can be easily traced and directly linked to each unit of production. It consists of direct materials, direct labour and direct cost.

Answer Details

Rent accrued: This refers to the expense incurred for using an asset (property, equipment, etc.) for a period, ever though the rent payment hasn't been made yet.
Current liability: A current liability is a short-term financial obligation that a company expects to settle within one year or the operating cycle (whichever is longer). Rent accrued falls under this category because it's a debt that needs to be paid to the landlord soon.

Answer Details

Sales for the year = 10,000 +60000 - 2000 = #14,000 
Note that: the question is not asking to prepare a sales ledger but rather, the figure of sales only. 

Answer Details

The coming together of two sole trading businesses to form a partnership is an amalgamation.

To understand why this is an amalgamation, let's delve into the concept:

Amalgamation refers to the merging or blending of two or more entities into one. In the context of business, it specifically means the combination of two or more organizations to form a single new entity that benefits from the pooled resources, combined expertise, and shared goals. In this case, when two sole traders decide to unite their efforts and resources to operate jointly as a partnership, they are undergoing an amalgamation. This process allows them to leverage each other's strengths, share risks, and potentially enjoy greater market influence and operational efficiency.

It's important to note that amalgamation is different from terms like acquisition, which involves one company taking over another, and association, which usually implies a less formal collaboration without forming a new structure or entity.

Answer Details

Suppliers accounts are found in the purchase ledger. The purchase ledger is a part of a company's financial accounts where all transactions related to purchases from suppliers (or creditors) are recorded. This includes the amounts owed for goods or services received but not yet paid for. It helps businesses keep track of what they owe to each supplier and ensures that the financial statements accurately reflect these liabilities. Therefore, the purchase ledger is essential for managing accounts payable and maintaining good relationships with suppliers.

Answer Details

When goods are bought on credit, they are first recorded in the purchases day book. The purchases day book is a special journal used to record all credit purchases of goods meant for resale. This is crucial because it keeps track of the amounts owed to suppliers and helps manage the accounts payable for a business.

Here's a simple breakdown of why it is the purchases day book:

• The purchases day book contains a record of all transactions involving goods purchased on credit. It helps maintain an organized list of suppliers and the amounts due to them.
• The cash book records cash transactions and is not suitable for credit transactions.
• The journal proper is used for transactions that do not fit into any other specific journal, but regular credit purchases have their own designated day book.
• The sales day book is used for recording sales made on credit, and is not for purchases.

Therefore, by recording the credit purchases in the purchases day book, a business keeps an accurate and organized record of its obligations, facilitating better financial management.

Answer Details

A Purchase Ledger Control Account is used to track and summarize the transactions related to purchases made from creditors. The balance on the credit side of the account represents the total purchases made from the creditors, while the balance on the debit side represents the payments made to the creditors.

Answer Details

A cash book serves as both a subsidiary book and a ledger. It is a subsidiary book because it records all cash and bank transactions of a business in a chronological order. It includes details of cash receipts and cash payments, as well as bank deposits and withdrawals. The cash book acts as a primary record for cash and bank transaction before they are posted to the general ledger.

Answer Details

A statement of affairs is a financial statement that provides a snapshot of an organization's financial position at specific point in time. It typically includes information about assets, liabilities, and capital.

Answer Details

First, we calculate the depreciation for the first year: Depreciation for year one = Cost x Rate of Depreciation = 120,000 x 40%
= 48,000
Next, we calculate the remaining book value after the first year: Book value after year one = Cost - Depreciation for year one
= 120,000 - 48,000
= 72,000
To calculate the depreciation charge for year two, we apply the rate of depreciation to the remaining book value Depreciation for year two = Remaining book value x Rate of Depreciation
= 72,000 x 40%
= 28,800

Answer Details

To calculate the Cost of Goods Sold (COGS), we need to use the formula:

COGS = Opening Stock + Purchases - Closing Stock

Let's break it down:

• Opening Stock (beginning of the year): #2,200
• Purchases (during the year): #18,000
• Closing Stock (end of the year): #1,000

By plugging these values into the formula, we get:

COGS = 2,200 + 18,000 - 1,000

After calculating, we find:

COGS = 19,200

So, the Cost of Goods Sold is #19,200.