JAMB UTME - Principles of Accounts - 2008

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Goodwill is an intangible asset that represents the value of a business that is not directly attributable to its physical assets or liabilities. It is generated when a company is sold for a price that is higher than the fair market value of its net assets. Goodwill is considered a type of intangible fixed asset and is listed as such on a company's balance sheet. Therefore, the correct answer is that Goodwill can be in the balance sheet as a fictitious asset.

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In a period of inflation, the FIFO (First In First Out) method normally gives a closing stock. This is because the FIFO method assumes that the goods that were purchased or produced first are also the first ones to be sold. In a period of rising prices, this method results in a lower cost of goods sold and a higher value of ending inventory. This is because the older, cheaper inventory is sold first, and the newer, more expensive inventory remains in the ending inventory. For example, let's say a company purchased 100 units of a product at $10 each at the beginning of the month and then purchased another 100 units of the same product at $15 each later in the month. If the company sells 150 units during the month, the FIFO method assumes that the first 100 units sold were the ones purchased at $10 each, and the remaining 50 units sold were the ones purchased at $15 each. This results in a lower cost of goods sold and a higher value of ending inventory, which can be beneficial in a period of inflation. Therefore, in a period of inflation, the FIFO method is preferred over the LIFO (Last In First Out) method, which assumes that the goods that were purchased or produced last are the first ones to be sold. The LIFO method results in a higher cost of goods sold and a lower value of ending inventory, which can be disadvantageous in a period of rising prices.

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Bookkeeping provides permanent records for all financial transactions. This means that every financial transaction is recorded in a systematic and organized manner, creating a permanent record of all financial activities. These records are useful for financial analysis, tracking of financial performance, and providing evidence for auditing and tax purposes. Bookkeeping records can also be used to prepare financial statements and reports that aid decision making. Thus, bookkeeping is an essential component of accounting, and it ensures that businesses have accurate and reliable financial records.

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The accounting convention that suggests that accountants should use a method of valuation that understates rather than over-states results is conservatism. This convention is also known as the principle of prudence, and it requires that when there are uncertainties or risks in the valuation of assets or the measurement of income, accountants should err on the side of caution and recognize losses or liabilities but not gains or assets until they are reasonably certain. This helps to avoid overstating the financial position or performance of the company, which could mislead users of financial statements. By applying this convention, accountants can ensure that the financial statements are reliable and trustworthy.

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The Auditor General of the Federation can be removed by the National Assembly. According to the Nigerian Constitution, the Auditor General of the Federation is appointed by the President with the approval of the Senate. However, the Constitution also provides that the National Assembly has the power to remove the Auditor General from office. The procedure for removal is stated in Section 85(6) of the Constitution, which states that the Auditor General of the Federation can only be removed from office by the Senate acting on an address supported by a two-thirds majority of its members, praying that he be removed for inability to discharge the functions of his office (whether arising from infirmity of mind or body or any other cause) or for misconduct. Therefore, the National Assembly has the power to remove the Auditor General of the Federation from office for reasons of inability to perform his duties or misconduct, but it requires a two-thirds majority support of its members. The Chief Justice, the President, and the Head of Service do not have the power to remove the Auditor General of the Federation.

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In partnership dissolution, an asset taken over by a partner is debited to the partner's capital account and credited to the asset account. When a partner takes over an asset, it means that they are buying the asset from the partnership. Therefore, the value of the asset needs to be removed from the partnership's books and credited to the partner's capital account, which represents the partner's share in the partnership. At the same time, the asset account needs to be credited to reflect that the asset has been transferred out of the partnership's ownership and into the ownership of the individual partner. The realization account is used to record the gain or loss that arises from the sale of partnership assets during dissolution. It is not directly involved in the accounting for the transfer of assets to individual partners. Therefore, the correct answer is that an asset taken over by a partner is debited to the partner's capital account and credited to the asset account.

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The rent is being shared based on the floor space occupied by each department. The total floor space of the company is 200 sqm + 300 sqm = 500 sqm. The proportion of the floor space occupied by the manufacturing department is 200 sqm ÷ 500 sqm = 0.4 or 40%, and the proportion of the floor space occupied by the administration department is 300 sqm ÷ 500 sqm = 0.6 or 60%. To determine the rent chargeable to the manufacturing department, we multiply the total rent incurred by the proportion of the floor space occupied by the manufacturing department, which is 0.4 or 40%: Rent chargeable to manufacturing = 0.4 × ₦20,000 = ₦8,000 Therefore, the rent chargeable to the manufacturing department is ₦8,000. Answer: ₦8 000

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A financial analyst needs accounting information to advise on how to manage the business. Accounting information such as financial statements (balance sheet, income statement, and cash flow statement) provide insights into the financial performance and position of a business. By analyzing this information, a financial analyst can advise on how to manage resources, identify areas for improvement, make investment decisions, and forecast future performance.

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The current assets are those assets that can be easily converted into cash within one year or the operating cycle of the business, whichever is longer. From the options given, the current assets are (i) Cash at bank and (ii) Cash in hand because they are the only assets that are readily available as cash and can be easily converted into cash within a short period of time. Therefore, the answer is (a) i and ii.

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A financial analyst needs accounting information to advise on how to manage the business. Accounting information provides valuable insights into the financial health and performance of a business. It enables financial analysts to analyze financial statements and other financial data to identify trends, assess risks, and evaluate opportunities for growth and profitability. By analyzing financial information, a financial analyst can identify areas where the business is performing well and areas where improvements are needed. They can also advise on financial strategies, investment opportunities, cost reduction measures, and other ways to improve the financial performance of the business. Therefore, the correct answer is to advise on how to manage the business.

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To calculate the balance of the uncredited cheques, we need to start with the balance as per the cash book after adjustment, which is ₦6315. We then need to add the value of the unpresented cheques, which is ₦1000. This gives us a total of ₦7315. Next, we need to compare this total to the balance on the bank statement, which is ₦3240. Since the cash book balance is higher than the bank statement balance, we know that there are some cheques that have been issued but have not yet been credited to the account. To find out the value of the uncredited cheques, we can subtract the bank statement balance from the total cash book balance, which gives us ₦7315 - ₦3240 = ₦4075. Therefore, the balance of the uncredited cheques is ₦4075.

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The factors that determine the periodic depreciation charge are the asset cost, the estimated useful life of the asset, and the estimated salvage value (or residual value) of the asset. Asset cost refers to the initial cost of acquiring or constructing the asset, which includes all expenses related to getting the asset ready for its intended use. Useful life refers to the period over which the asset is expected to provide benefits, which is typically estimated based on the expected wear and tear or obsolescence of the asset. Salvage value (or residual value) refers to the estimated value of the asset at the end of its useful life, which represents the amount that the asset can be sold for or used for after it is no longer useful to the business. The periodic depreciation charge is calculated by dividing the depreciable cost (which is the asset cost minus the estimated salvage value) by the estimated useful life of the asset. This charge is taken as an expense in the accounting records of the business over the useful life of the asset, reflecting the gradual consumption of the asset's economic benefits.

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The gross profit margin is given as 20%, which means that the cost of goods sold (COGS) is equal to 80% of the total sales. Total sales = ₦96,000 80% of sales = 0.8 x ₦96,000 = ₦76,800 (which is the cost of goods sold) To calculate the closing stock, we use the formula: Closing stock = Opening stock + Purchases - Cost of goods sold We are given the opening stock as ₦19,500 and the purchases as ₦68,700. Therefore: Closing stock = ₦19,500 + ₦68,700 - ₦76,800 Closing stock = ₦11,400 Therefore, the closing stock is ₦11,400. Hence, the correct answer is: ₦11,400.

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The salary of the chief Justice of the Federation is paid from the consolidated revenue fund. This fund is a pool of money that the government uses to pay for various expenses, such as salaries, pensions, and other operational costs. It is made up of revenue from taxes, fees, and other sources of income that the government collects. The consolidated revenue fund is managed by the government and is used to finance public services and other essential government functions. So, the chief Justice of the Federation's salary is paid from this fund because it is a government salary.

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When cash is transferred between the office and the bank, it involves two transactions - one in the cash book and one in the bank statement. The entry made in the bank column of the cash book to record this movement of cash is called a contra entry. It is a special type of journal entry that appears on both the debit and credit side of the cash book. In a contra entry, the amount is entered in the bank column on one side of the cash book and in the cash column on the other side of the cash book. This is because the transaction involves a transfer of funds between two accounts, and the same amount of money is involved in both the accounts. For example, when cash is deposited in the bank, it is recorded as a debit entry in the bank column and a credit entry in the cash column. When cash is withdrawn from the bank, it is recorded as a credit entry in the bank column and a debit entry in the cash column. Therefore, the answer is that an entry made in the bank column of the cash book to record movement of cash between the office and the bank is a contra entry.

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Fixed assets are assets that a company holds for a long-term use and are not intended for resale. Based on the information given, we can identify the fixed assets as follows: - Premises: Premises are considered fixed assets since they are owned by the company and are used for a long-term period. They are not intended for resale, but instead are used for the company's operations. - Land: Land is also considered a fixed asset as it is owned by the company and is used for a long-term period. It is not intended for resale, but instead can be used for the company's operations or can be leased or sold for profit in the future. Therefore, the answer is option (iv) ii and iv.

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To calculate the cost of raw materials consumed, we need to use the following formula: Cost of Raw Materials Consumed = Beginning Inventory of Raw Materials + Purchases of Raw Materials - Ending Inventory of Raw Materials Using the information provided, we can calculate the cost of raw materials consumed as follows: - Beginning inventory of raw materials on 1/1 = ₦10,000 - Purchases of raw materials during the year = ₦160,000 - Ending inventory of raw materials on 31/12 = ₦14,000 Therefore, the cost of raw materials consumed is: Cost of Raw Materials Consumed = ₦10,000 + ₦160,000 - ₦14,000 = ₦156,000 Therefore, the cost of raw materials consumed is ₦156,000. Option (D) ₦156,000 is the correct answer.

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To find out the amount withdrawn by the owner, we need to calculate the balance in the capital account after taking into account the other transactions. Starting with the initial capital of ₦12,700 and subtracting the purchases of ₦7,100, we get a balance of ₦5,600. Next, we add the debtors of ₦4,000 and the stationery of ₦1,900 to get a balance of ₦11,500. Then we subtract the sales of ₦2,400 and the wages of ₦1,230 to get a final balance of ₦7,870 in the capital account. The owner wishes to maintain an account equal to 75% of capital as drawings. Therefore, the amount withdrawn by the owner would be 25% of ₦7,870, which is: (25/100) x ₦7,870 = ₦1,967.50 Rounding this off to the nearest Naira, we get ₦1,965 as the amount withdrawn by the owner. Therefore, the correct answer is ₦1,965.

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To record the transaction of Bariga, a stockbroker buying stationery for ₦12000 by cash, we would debit "stationery" and credit "cash". This is because we are increasing the stationery asset account, which is represented by the debit entry, and decreasing the cash asset account, which is represented by the credit entry. By doing this, we are correctly recording the transaction and maintaining the accounting equation of assets = liabilities + equity.

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Discount allowed is a reduction in the amount of money owed by a customer for a purchase made on credit. Therefore, it is an expense for the seller, and it reduces the amount of revenue earned from the sale. Discount allowed is recorded in the individual customer's account in the sales ledger, which is then totaled and posted to the credit side of the general ledger control account for sales. The control account is used to keep a summary of all the transactions in the subsidiary ledger, and it acts as a check to ensure that the total of the individual customer accounts equals the balance in the control account. Therefore, the answer is that discount allowed is recorded on the credit side of the sales control account, which represents the total sales revenue earned by the company.

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The interest on drawings is the cost or expense incurred by the business when the owner withdraws funds from the business for personal use. The interest on drawings is calculated by multiplying the drawings amount by the rate of interest on drawings. For G, the amount of drawings is ₦2,000 and the rate of interest on drawings is 5%. Therefore, the interest on drawings for G is: Interest on drawings for G = Drawings x Rate of interest on drawings = ₦2,000 x 5% = ₦100 Hence, the interest on drawings for G is ₦100.

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When a partner makes a drawing from the partnership, it is treated as a reduction of their share of the capital. If a partner takes an interest on their drawings, it means they are receiving additional payment on top of their share of the profits. Therefore, the entry in the partnership books of accounts for interest on drawings is to debit the partner's capital account, and credit the drawings account. This is because the interest on drawings is considered an expense of the partnership, and it reduces the partner's capital balance. So the answer is, debit the partner's capital account.

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The main purpose of a control account in accounting is to detect errors and irregularities in the recording and posting of transactions in the individual accounts. A control account is a summary account that reflects the total of a group of related accounts. By comparing the total of the individual accounts to the balance of the control account, it is possible to quickly identify any discrepancies and investigate the causes of any discrepancies. This helps to ensure the accuracy and completeness of the accounting records and enhances the reliability of financial information used for decision-making purposes. Therefore, option A, "detect errors and irregularities," is the correct answer. The other options are not relevant to the purpose of a control account.

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If a GSM operator based in Lagos supplies recharge cards to its branch in Akure, the head office can charge the goods at the company price. The company price is the price at which the head office sells the recharge cards to its branch in Akure. The company price is usually lower than the selling price, which is the price at which the branch in Akure sells the recharge cards to the final customers. The difference between the company price and the selling price is the profit margin for the branch in Akure. The Akure price is not relevant in this scenario because it is not a standard price that is set by the head office or the company. It could refer to the price at which the branch in Akure sells the recharge cards, but this is not useful information for the head office when it comes to charging the goods. Similarly, the Lagos price is not relevant because it could refer to the price at which the head office purchases the recharge cards from the supplier or manufacturer, but this is not useful information for charging the goods to the branch in Akure.