JAMB UTME - Principles of Accounts - 2014

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When a partnership is converted into a limited liability company, the partnership is dissolved, and a new company is created. The partners become shareholders of the new company, and their current account balances are transferred to the capital accounts of the new company. A current account is a record of transactions between the partners and the partnership. It represents the amount of money that a partner has contributed to or withdrawn from the partnership during the course of the partnership. In a partnership, the capital account represents the partner's ownership interest in the partnership, and the current account represents the partner's share of the profits and losses of the partnership. When a partnership is converted into a limited liability company, the current account balances of the partners are converted into share capital in the new company. This means that the partners become shareholders in the new company, and their current account balances are reflected as part of their ownership interest in the company. Therefore, the answer to the question is that current account balances of partners are transferred to the capital account of the new company, which represents the ownership interest of the shareholders. It is important to note that this transfer is typically done through a realization account, which is a temporary account used to transfer assets and liabilities from the partnership to the new company.

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The major advantage of an imprest system is that it relieves the chief cashier of the numerous petty cash payments. This means that instead of the chief cashier having to handle and keep track of many small expenses, the responsibility for this is given to another person or department. This can make the cash management process more efficient and help to reduce the workload of the chief cashier.

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The transactions recorded on the debit side of the cash book are "Cash sales" and "Cash purchases." These transactions represent the inflow and outflow of cash for a business. For example, if a business sells goods for cash, the amount received will be recorded as a debit in the cash book, as it represents an inflow of cash. Similarly, if a business buys goods for cash, the amount paid will be recorded as a debit in the cash book, as it represents an outflow of cash. "Cash discount allowed" and "Cash payment" transactions, on the other hand, would be recorded on the credit side of the cash book, as they represent a reduction in the inflow or outflow of cash, respectively. So, the correct answer would be "1 and 11."

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The book of account in which information from the source documents are recorded consists of ledger and subsidiary books. The ledger is the main book of account, where all transactions are recorded in a systematic manner. Subsidiary books are used to record transactions temporarily before transferring them to the ledger. This way, transactions can be recorded and organized efficiently, making it easier to track financial information and prepare financial statements like the profit and loss statement and the balance sheet.

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The company issued 1,300,000 ordinary shares at a price of ₦1.50k per share. This means that the total value of the shares issued is: 1,300,000 x ₦1.50k = ₦1,950,000 The company received applications and allotments for 900,000 shares at 25k each. This means that the total amount received on application and allotment is: 900,000 x 25k = ₦225,000 Therefore, the correct answer is option B: ₦225,000.

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To calculate the depreciation charged for two years using the straight-line method, we need to know the following information: 1. The cost of the machine 2. The anticipated life span of the machine 3. The estimated scrap value of the machine With this information, we can calculate the depreciation charged per year, and then multiply it by the number of years to get the total depreciation charged for two years. Step 1: Calculate the annual depreciation The straight-line method assumes that the asset depreciates by an equal amount each year over its useful life. To calculate the annual depreciation, we can use the following formula: Annual depreciation = (Cost - Scrap value) / Useful life In this case, the cost of the machine is #600,000, the estimated scrap value is #50,000, and the anticipated life span is five years. Therefore, the annual depreciation can be calculated as: Annual depreciation = (#600,000 - #50,000) / 5 years Annual depreciation = #110,000 per year Step 2: Calculate the depreciation charged for two years To calculate the depreciation charged for two years, we simply need to multiply the annual depreciation by the number of years: Depreciation charged for two years = Annual depreciation x 2 years Depreciation charged for two years = #110,000 x 2 years Depreciation charged for two years = #220,000 Therefore, the depreciation charged for two years using the straight-line method is #220,000. The answer to the question is option (C). Note that the depreciation charged in the third year and beyond would be the same as the second year, which is #110,000 per year, since the straight-line method assumes a constant depreciation charge over the useful life of the asset.

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A book of account that possesses the features of both a day book and a ledger is the Cash Book. The Cash Book is a record of all cash transactions, including cash payments and cash receipts. It serves as both a day book, as it records the transactions as they occur, and a ledger, as it summarizes the transactions into account balances. The Sales Day Book and the Purchases Day Book are subsidiary ledgers that record sales and purchases transactions, respectively. These books serve as day books, recording the transactions as they occur, but do not summarize the transactions into account balances. The Returns Day Book is a subsidiary ledger that records returns of goods by customers or suppliers. Like the Sales Day Book and the Purchases Day Book, it serves as a day book but does not summarize the transactions into account balances.

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The current assets are assets that can be easily converted into cash within a year. In this balance sheet extract, the current assets include the following items: 1. Prepaid expenses: This refers to expenses that have been paid in advance, such as prepaid rent or insurance. Its value is ₦290. 2. Accrual expenses: This refers to expenses that have been incurred but not yet paid, such as salaries or rent. Its value is ₦323. 3. Stock: This refers to inventory or goods that are held for sale. Its value is #4,500. 4. Cash balance: This refers to the amount of cash that the company has on hand. Its value is #4,956. 5. Debtors: This refers to amounts that are owed to the company by customers for goods or services that have been provided. Its value is ₦905. To find the total current assets, we add up the values of these items: Current assets = Prepaid expenses + Accrual expenses + Stock + Cash balance + Debtors Current assets = ₦290 + ₦323 + #4,500 + #4,956 + ₦905 Current assets = #10,651 Therefore, the correct answer is option B: #10,651.

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The correct answer is #8,550. When goods are purchased with a cash discount, the amount to be paid can be calculated using the following formula: Net Amount = Gross Amount - Discount In this case, the gross amount is #9,000 and the cash discount is 5%. To calculate the net amount, we first need to determine the discount amount: Discount = Gross Amount x Discount Rate Discount = #9,000 x 0.05 Discount = #450 The net amount can now be calculated using the formula above: Net Amount = Gross Amount - Discount Net Amount = #9,000 - #450 Net Amount = #8,550 Therefore, if prompt payment is made, the amount to be paid is #8,550.

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The control account is a summary account that is used in facilitating the management of a firm's accounting transactions. It is typically used to simplify the management of multiple related accounts by summarizing them into one single account. The main purpose of a control account is to provide a quick overview of the status of related accounts. For example, if a firm has several accounts for its debtors, it can create a control account that summarizes all of the debtor accounts. This control account will show the total amount owed by all the debtors, which makes it easier for the firm to manage its accounts receivable. In addition to providing a summary of related accounts, a control account can also help in the detection of errors. If the total balance in a control account does not match the expected balance, it indicates that there is an error in one or more of the related accounts. This makes it easier to locate the error and correct it. Therefore, the answer to the question is that the control account is primarily used in facilitating the location of errors in the various accounts. While it can also be used for other purposes, such as summarizing related accounts, its primary function is to simplify the management of accounts and to detect errors.

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When there is no basis of apportionment in a departmental account, the apportionment should be done on an equal basis. This means that the expenses are divided equally among the departments without considering any other factors such as profits, employee decisions, or available materials. Apportionment is the process of distributing common expenses among the different departments or cost centers within an organization. It helps in determining the true cost of each department and enables better decision-making. However, if there is no clear basis for apportionment, an equal distribution is the most fair and unbiased way to divide the expenses. This ensures that each department is allocated an equal share of the expenses and reduces the risk of any department feeling unfairly treated or disadvantaged.

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The correct answer is direct deposit. A direct deposit is a payment made electronically from one bank account to another. In this case, a direct deposit refers to a payment made to the firm's bank account that has not yet been recorded in the firm's cash book. When a direct deposit is made, the bank records it in the bank statement. However, the firm may not have yet received the money or recorded it in their cash book, which can create a discrepancy between the bank statement and the firm's records. For example, if a customer pays an invoice through direct deposit, the bank will credit the firm's account, but the firm may not become aware of the payment until they receive the bank statement or check their account balance online. Until the firm records the payment in their cash book, there will be a discrepancy between the bank statement and the firm's records. It is important for the firm to regularly reconcile their bank statement with their cash book to ensure that all transactions are accounted for and to identify any discrepancies or errors.

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To determine the amount to be credited in the company's cash book, we need to calculate the cash discount that Emeka Enterprises will receive for settling its suppliers within 5 days. The cash discount is 12.5% of the amount of goods purchased, which is #22,800. To calculate 12.5% of #22,800, we simply multiply #22,800 by 0.125: #22,800 * 0.125 = #2,850 So the cash discount is #2,850. Next, we subtract this amount from the original cost of the goods to get the final amount that will be credited in the company's cash book: #22,800 - #2,850 = #19,950 Therefore, the amount to be credited in the company's cash book is #19,950.

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The value of the sales ledger control account is derived from the summation of the total debtors' accounts. A sales ledger control account is a summary of all the individual accounts that a business has with its customers. It is used to monitor the total amount of money owed to the business by its customers (also known as debtors) at any given time. In order to calculate the balance of the sales ledger control account, you need to add up the individual balances of all the debtor accounts in the ledger. These balances represent the total amount of money owed to the business by its customers. It is important to note that the sales ledger control account only includes information about the amounts owed by customers to the business, and does not include information about the amounts owed by the business to its suppliers (also known as creditors). The total amount owed to suppliers is recorded in a separate account, called the purchase ledger control account. Therefore, the correct option is: the total debtors' account.

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To determine the cost of goods sold using the FIFO (First-In, First-Out) method, we assume that the first items purchased are the first items sold. Here's how we can calculate the cost of goods sold using the FIFO method based on the given information: 1. First, we calculate the total cost of books purchased on 2/3. Quantity purchased = 900 Cost per book = #1,000 Total cost = Quantity purchased x Cost per book = 900 x #1,000 = #900,000 Therefore, the total cost of books purchased on 2/3 is #900,000. 2. Next, we calculate the total cost of books purchased on 4/3. Quantity purchased = 590 Cost per book = ₦950 Total cost = Quantity purchased x Cost per book = 590 x ₦950 = ₦560,500 Therefore, the total cost of books purchased on 4/3 is ₦560,500. 3. We calculate the total cost of goods available for sale by adding the total cost of books purchased on 2/3 and 4/3. Total cost of goods available for sale = #900,000 + ₦560,500 = #1,460,500 Therefore, the total cost of goods available for sale is #1,460,500. 4. Next, we calculate the cost of goods sold using the FIFO method. According to the given information, 300 books were sold on 15/3. We assume that these are the first 300 books purchased. Quantity sold = 300 Cost per book = cost of the oldest book available = #1,000 (because the books purchased on 2/3 were the oldest) Total cost of goods sold = Quantity sold x Cost per book = 300 x #1,000 = #300,000 Therefore, the cost of goods sold using the FIFO method is #300,000. Hence, the correct option is #300,000.

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The correct entry in the cash book for the issuance of ₦800,000 worth of ordinary shares of 50k at ₦1 each, payable in full on application would be: Debit: ₦800,000 Credit: ₦800,000 Here's why: When a company issues shares, it receives funds from the shareholders in exchange for ownership in the company. In this case, the company issued ordinary shares at a par value of ₦1 per share, and each share has a face value of 50k. Therefore, the total number of shares issued would be ₦800,000 divided by 50k, which is 16,000,000 shares. Since the shares are payable in full on application, the company would receive the full amount of ₦800,000 from the shareholders when they apply for the shares. This means that the company's cash balance would increase by ₦800,000. To record this transaction in the cash book, we would debit the cash account (to reflect the increase in cash) and credit the share capital account (to reflect the increase in the company's equity). However, since the shares were issued at par value, and no premium was charged, we do not need to credit any additional account. Therefore, the correct entry in the cash book would be to debit and credit ₦800,000 each.

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The correct answer is realization. The realization concept is a fundamental principle of accounting that governs when revenue should be recognized. It states that revenue should be recognized when it is earned, regardless of when payment is received. In other words, revenue should be recognized at the point when the sale is deemed to have been made, even if payment has not yet been received. This is based on the idea that a sale has taken place when the seller has fulfilled their obligations to the buyer, which may include the delivery of goods or completion of services. For example, if a company sells products to a customer on credit, the realization concept dictates that the company should recognize the revenue at the point when the sale is deemed to have been made, which is usually the point of delivery of the goods to the customer. The fact that payment has not yet been received does not affect the recognition of revenue. The realization concept is important because it ensures that revenue is recognized in the correct accounting period, which is necessary for accurate financial reporting. It also helps to prevent the manipulation of financial statements by companies that might be tempted to defer revenue recognition to a later period to improve their financial performance.

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The expenses incurred in purchasing a vehicle are generally classified as a capital expenditure. This is because buying a vehicle is considered an investment in the business or personal assets, with the expectation of long-term benefits such as increased productivity, transportation convenience, and potential resale value. Capital expenditures are recorded on the balance sheet as assets and are typically depreciated over time. In contrast, revenue expenditures are expenses incurred in the course of the regular operations of a business, while recurrent expenditures and concurrent expenditures are not commonly used terms in accounting.

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To correct the error of the cheque of #5,000 paid to Sulieman, you would debit Sulieman's account and credit the Bank Account. The cheque was correctly entered in the Cash Book, which means that the Bank Account was credited. However, the entry was not made in Sulieman's account, which means that Sulieman's account was not debited. To correct this error, you would debit Sulieman's account to show that he has received the payment, and credit the Bank Account to show that the bank has paid out the money. The Cash Account and the Purchases Account are not relevant to this situation, as the error is related to a payment made to an individual, not a business transaction. The Suspense Account is a temporary account used to hold funds until the correct account can be determined. In this case, the error has been identified and the correct accounts to be debited and credited have been determined, so the use of the Suspense Account is not necessary.

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Subscription in arrears refers to the subscription fees that are owed to a club or organization by its members but have not been paid. These are considered as a form of debt that the members owe to the club, and hence are treated as a current liability in the balance sheet of the club. A current liability is a debt or obligation that is expected to be settled within the next 12 months. Since the subscription fees are owed by the members to the club, and are expected to be paid within a year, they are classified as a current liability in the balance sheet. By treating subscription in arrears as a current liability, the club is able to provide an accurate picture of its financial position, showing the amount of money it is owed by its members. This information can be useful in managing the club's cash flow and in making decisions about future expenditures. Therefore, the answer to the question is that subscription in arrears is treated as a current liability in the balance sheet of a club.

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Petty cash book is a ledger used to record small, day-to-day transactions of a business. It is maintained to keep track of small expenses, such as stationery, refreshments, and other miscellaneous items, that do not require a formal purchase order. The petty cash book records transactions on both credit and debit sides. When a petty cash transaction occurs, the amount is entered on the debit side of the book, indicating the increase in petty cash. When the petty cash is used to make a payment, the amount is entered on the credit side of the book, indicating the decrease in petty cash. Therefore, the correct answer to the question is: both credit and debit sides. Petty cash book records transactions on both the credit and debit sides of the book.

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The details of the share capital which a company is authorized to issue is contained in the Memorandum of Association. The Memorandum of Association is a legal document that sets out the company's constitution, including its objectives, powers, and structure. It defines the maximum amount of share capital that the company is authorized to issue and the type of shares that can be issued, such as ordinary shares or preference shares. The Articles of Association, on the other hand, contain rules governing the internal management of the company, such as the appointment of directors and the conduct of meetings. The Companies and Allied Matters Act is a Nigerian law that provides for the formation, registration, and regulation of companies in Nigeria. Share capital certificate is a document issued to shareholders as evidence of their ownership of shares in a company.

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The excess of sales over the cost of goods sold is called gross profit. It represents the amount of money a company makes from selling its products or services after deducting the direct costs associated with producing them, such as materials, labor, and manufacturing overhead. For example, if a company sells a product for $100 and it costs $70 to produce, then the gross profit would be $30 ($100 - $70). Gross profit is an important measure of a company's financial performance, as it indicates how much money is left over to cover other expenses and generate a profit. It's important to note that gross profit is different from net profit, which takes into account all expenses, including indirect costs like rent, salaries, and advertising. Net profit is the final amount of money that a company earns after all expenses have been deducted from its revenue. Net sales, on the other hand, represent the total revenue generated by a company from the sale of its products or services, after deducting any discounts, returns, and allowances. It does not take into account the cost of goods sold and is therefore not the same as gross profit.

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The major focus of the trading account is to show the gross margin of a business. Gross margin is the difference between the total sales revenue and the cost of goods sold (COGS), which represents the direct costs associated with producing and selling the products or services. The trading account summarizes the financial transactions related to buying and selling goods during a specific period, typically a year. It includes the total value of purchases made during that period and the total value of sales generated from those purchases. By subtracting the total COGS from the total sales, the gross margin is calculated. The gross margin is an important measure of a company's profitability and helps determine the amount of money available to cover operating expenses and generate net profits. The trading account is a crucial part of a company's financial statements and is used to evaluate the efficiency of its operations and its ability to generate profits.

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