JAMB UTME - Principles of Accounts - 2024

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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.

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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.

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The written acknowledgement of a loan to a company is known as a debenture.

Let's explain further: A debenture is a type of long-term security issued by a company. It acts as a contract that specifies the details of the loan, including the amount borrowed, the interest rate, and the repayment schedule. Unlike some other forms of debt, debentures do not have any physical assets pledged as collateral. This means they are backed solely by the creditworthiness and reputation of the issuer.

In summary, a debenture serves as a formal and written promise from the company to pay back the borrowed money with interest at a future date. It is a common tool for companies to raise capital while providing investors an opportunity to earn interest on their investment.

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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.

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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.

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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.

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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.

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To determine the Total Fixed Assets, we need to focus on the accounts that represent fixed assets. In a company's balance sheet, fixed assets are long-term tangible property that a firm owns and uses in its operations to generate income. In this context, typical fixed assets include items like land, buildings, furniture, machinery, etc.

From the list provided:

• Land and Building: #70,000
• Furniture: #10,000

Both "Land and Building" and "Furniture" are considered fixed assets. To calculate the Total Fixed Assets, you simply add these amounts together:

#70,000 (Land and Building) + #10,000 (Furniture) = #80,000

Therefore, the Total Fixed Assets for Adama Ltd as of 31st August 2007 is #80,000.

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Capital expenditure = Hospital beds (8000) + Ambulance (13000) = #21,000
Note that the question is only asking for the value of capital expenditure

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The amount by which assets exceed liabilities is known as capital. This is a crucial concept in finance and accounting. Here's a simple explanation:

Assets are things of value that an individual or a company owns. They can include items like cash, property, equipment, and investments. They represent what the entity owns or is owed.

Liabilities are the obligations or debts that an individual or a company owes to others. They can include loans, mortgages, and other forms of debts or financial responsibilities. They represent what the entity owes to others.

The capital, also known as equity, is the net value that remains after all liabilities have been subtracted from all assets. In a simplified equation, it can be expressed as:

Capital = Assets - Liabilities

Therefore, if a company has more assets than liabilities, the excess amount is positive, indicating a strong capital position. This is an important measure of financial health, showing the remaining value available to the owners or shareholders after all debts have been paid.

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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.

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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.

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This method assumes the last items purchased are the first ones sold. It can result in a higher COGS during periods of inflation, potentially leading to lower reported profits. LIFO can be beneficial for tax purposes in inflationary times.

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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.

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When shares are over-subscribed, directors may decide to scale down the number of shareholding by allotting shares at pro rata. This means that the available shares are distributed among the applicants in proportion to the number of shares they have applied for.

For example, if a company issues 1,000 shares and the demand is for 1,500 shares, each applicant will receive a percentage of the shares they applied for based on the total available. This method ensures fairness as it maintains the same ratio of allocation relative to each investor's demand.

Allotting at pro rata ensures that all investors get an opportunity to receive a share, albeit a reduced amount than initially requested, in proportion to their original application. This approach helps to manage the allocation efficiently and maintains balance among potential shareholders.

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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.

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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.

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In accounting, the opening stock at the beginning of an accounting period represents the value of the inventory that a company has on hand at the start of that period. This includes all the goods available for sale at the beginning. It is essentially the remaining stock from the previous accounting period.

To clarify further:

• The opening stock is not simply the cost of goods purchased, as purchases are made throughout the period and opening stock represents only the existing stock at the commencement of the period.
• It is also not just the cost of goods sold, because those are related to the inventory that has already been sold within the period.
• It is similarly not only the goods returned from the last accounting period, as opening stock includes all unsold stock, regardless of returns.

Thus, in summary, the opening stock truly encapsulates the goods available for sale at the start of the new accounting period.

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The realization account is used to record the sale of assets and settlement of liabilities during the dissolution process.
When assets are sold, cash is received. This cash is credited to the cash account to reflect the increase in cash holdings.
Ultimately, the goal of dissolution is to convert all assets into cash, settle liabilities, and distribute any remainin cash among the partners according to their profit-sharing ratios

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A public limited liability company can get additional funds through the issue of debentures.

Let's break this down in simple terms:

• Debenture: A debenture is like a loan that the company takes from the public. The company issues these debt instruments to raise funds from investors, with a promise to pay back the principal along with interest at specified intervals. Debentures do not give ownership rights to investors, unlike shares, but they are a popular way for companies to raise capital when they need additional funds.
• Cheque: This is a method of payment, not a way of raising funds. It is used to transfer money from one bank account to another.
• Accumulated Fund: This term generally refers to the surplus funds collected over time that are used for specific purposes. It's not a method of generating new funds but rather a reserve from the excess monies accumulated in the past.
• Consolidated Fund: This is typically related to government finances, where it denotes a fund used for the financial management of the public sector, and not a means for a private company to raise funds.

Hence, debentures are a common and effective way for public companies to generate additional funds by attracting investments from the public without diluting ownership. The company gets the capital it needs, while investors earn interest on their investment.

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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.

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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

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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.

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In government budgeting, funds are authorized for spending through a voting process. Each government department or agency submits a budget request, which is then debated and approved (or voted on) by the legislature. The approved amounts for each department's programs and activities become the official votes that they can spend from.

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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.

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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.

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In the absence of a partnership agreement specifying otherwise, a partner who advances a loan to the partnership is typically entitled to interest at the rate prescribed by the laws of the relevant jurisdiction. While this can vary depending on the jurisdiction, a common default rate is 5%

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The Simple Average Price (SAP) method is a stock valuation method where the average cost of all units of stock is calculated and used as the value for inventory. This method takes the total cost of goods available for sale and divides it by the total number of units to determine the average price. The average price is then multiplied by th number of units on hand to calculate the value of the inventory

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The body that regulates accounting practices in Nigeria is ANAN, which stands for the Association of National Accountants of Nigeria.

Here is a simple explanation to help you understand:

Association of National Accountants of Nigeria (ANAN): This is a professional body responsible for regulating the practice of accountancy in Nigeria. It sets standards for accounting professionals, conducts examinations to certify accountants, and ensures that its members adhere to professional ethics and continue their professional development. This guarantees that accounting practices in the country meet both local and international standards.

Therefore, in the given options, ANAN is the correct one as it serves the primary function of regulating the accountancy profession in Nigeria.

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The person credited with developing the idea of double entry book-keeping is Francia Luca Pacioli. He was an Italian mathematician and Franciscan friar who lived during the Renaissance period. Pacioli is often referred to as the "Father of Accounting" because he published a comprehensive text on double-entry bookkeeping in 1494. This text was part of his larger work called Summa de arithmetica, geometria, proportioni et proportionalità, which aimed to educate merchants about keeping financial records.

Double entry bookkeeping is a method that involves recording each financial transaction twice: once as a debit in one account and once as a credit in another. This approach helps to ensure the accuracy and completeness of financial records by maintaining a balance between accounts.

Pacioli's contribution was significant because it provided a systematic way for businesses to track their financial transactions, fostering improved financial management and accountability. His work laid the foundation for modern accounting practices, making it a crucial advancement in the field of commerce and economics.

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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.

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A person who prepares, analyses, and interprets financial statements is known as an accountant. An accountant is a professional who is highly trained in the field of accounting, which involves managing financial records, summarizing financial positions, and ensuring compliance with financial regulations.

Here is why the role of an accountant is important:

• Preparation of Financial Statements: Accountants prepare financial statements like balance sheets, income statements, and cash flow statements, providing a comprehensive view of an organization's financial health.
• Analysis: They analyze these statements to understand and interpret the financial performance of the business. This helps in identifying trends, forecasting future financial conditions, and making informed business decisions.
• Interpretation: Accountants use their expertise to interpret financial data, explaining the significance of the figures to stakeholders, including management, investors, and regulatory bodies.

The role of a cashier is primarily to handle cash transactions. A bookkeeper assists in recording day-to-day financial transactions, and an analyst often focuses on analyzing various data sets and trends rather than specifically preparing financial statements. However, it is the accountant who brings together preparation, analysis, and interpretation of comprehensive financial data.

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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.

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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.

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This situation is an example of an error of principle. Let me explain:

An error of principle occurs when an entry is recorded in the wrong account but respects the double-entry rule of debit and credit. In this case, a commission, which should have been recorded as an expense and debited to a "Commission Expense" account, was incorrectly debited to the "Debtors Account", which is an asset account.

Because the nature of the accounts is different (expenses vs assets), recording it in the wrong type of account constitutes an error of principle. This type of error doesn't affect the balancing of the trial balance but reflects a misclassification in the financial statements.

Other types of errors like errors of original entry involve wrong amounts recorded, whereas errors of compensation involve two mistakes that offset each other. An error of commission refers to when a correct amount is posted to the wrong account of the correct type, unlike the principle error where the wrong type of account is used.

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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.

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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.

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

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A limited liability company (LLC) is a business structure that offers the owners (referred to as members) limite liability protection. This means that the personal assets of the owners are separate from the liabilities and debts of the company. The owners' liability is limited to their investment in the company, and their personal assets an generally protected from company obligations.
This separation of the company's liabilities from the owners' personal assets is a key characteristic of an LLC. It provides a layer of protection for the owners in case the company faces financial difficulties or legal issues.

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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.