JAMB UTME - Principles of Accounts - 1998

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Gearing ratio is a financial ratio that measures the proportion of a company's capital that is financed through debt. To compute the gearing ratio, you need to divide the long-term debts of the company by its equity capital. This ratio helps investors and analysts understand the level of financial risk associated with the company's capital structure, and how much of the company's operations are financed through debt. The higher the gearing ratio, the more debt the company has relative to its equity capital, which may increase financial risk in the event of economic downturns or other adverse events.

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The year's purchase is the ratio of the total credit purchases to the average creditors. To calculate the total credit purchases, we need to add the opening creditors balance (creditors b/f) to the purchases made during the year, then subtract the closing creditors balance (creditors c/f). Using the information provided, we can calculate the total credit purchases as follows: Total credit purchases = Creditors b/f + Purchases - Creditors c/f Total credit purchases = 7,200 + Purchases - 8,400 Total credit purchases = Purchases - 1,200 We do not have the purchases figure, but we can calculate it by adding the total cash payment to suppliers to the total credit purchases: Total credit purchases + Total cash payment to suppliers = Total purchases Purchases - 1,200 + 98,800 = Purchases + 97,600 97,600 = 1,200 + Purchases Purchases = 96,400 Now we can calculate the year's purchase by dividing the total credit purchases by the average creditors: Year's purchase = Total credit purchases / Average creditors Average creditors = (Creditors b/f + Creditors c/f) / 2 Average creditors = (7,200 + 8,400) / 2 Average creditors = 7,800 Year's purchase = 96,400 / 7,800 Year's purchase = 12.359 Rounding off to the nearest whole number, the year's purchase is 12. Therefore, the answer is: ₦100,000

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The balance on a purchase ledger control account represents the present amount that a business owes its suppliers at a particular date. It is a summary of all the balances on individual supplier accounts in the purchase ledger, and it shows the total amount owed to all suppliers collectively. This balance is important for managing cash flow and ensuring that the business has enough funds to pay its suppliers on time.

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The book value per share is calculated by dividing the net assets by the number of shares outstanding. In this case, the net assets are ₦600,000 and the number of shares outstanding is 30,000, so the book value per share is ₦20 per share (₦600,000 ÷ 30,000 shares). Therefore, the corporation has a book value of ₦20 per share.

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New partners should record non-monetary assets on the new partnership's books at their current fair market values. This is because the fair market value represents the most accurate estimate of the asset's value at the time of the formation of the partnership. The historical costs when first used or purchased may not reflect the current value of the asset, and using the highest values practical for future income tax deductions could lead to overvaluing the assets. Therefore, using the fair market value ensures that the assets are recorded at a realistic value that is fair to all partners.

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The voucher system is a method of controlling and documenting financial transactions in a business. One of its advantages is that it ensures that every expenditure is reviewed and verified before payment is made. This is because a voucher is created for each transaction, and it must be approved by an authorized person before payment can be made. This helps to prevent errors, fraud, or unauthorized spending. Therefore, option D, "ensure that every expenditure is reviewed and verified before payment is made", is the correct answer.

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The contribution margin on a job is the excess of sales revenue over variable costs. In other words, it is the amount of money available from a particular job or product to cover the fixed costs of the business and contribute to the profit. It is calculated by subtracting the variable costs associated with a product or job from the revenue generated by that product or job. The contribution margin is important because it helps businesses determine how much they need to sell in order to cover their fixed costs and make a profit. By understanding the contribution margin, businesses can make better decisions about pricing, production, and sales strategies.

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The limitations of the receipts and payments account arise mainly because of the reliance on cash movement as evidence of transaction. This means that only cash transactions are recorded, which may not give a complete picture of the financial status of the organization. Non-cash transactions such as credit sales, purchases on credit, and depreciation are not taken into account. Also, the timing of cash receipts and payments may not correspond with the actual timing of the transaction. In addition, the receipts and payments account does not provide information on the capital account of the organization.

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Under cash accounting, money not required to meet chargeable expenditure in any fiscal year should be carried forward to the next financial year. This is because cash accounting records transactions when actual cash is received or paid, and any excess funds not used for expenses in the current fiscal year can be used to cover expenses in the future. It is important to note that the funds should be used for legitimate expenses and not for any other purposes. Therefore, carrying forward the unused funds ensures that they are available for future expenses and not surrendered to the consolidated revenue fund or returned to the taxpayer.

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If Abdullahi purchases one-third interest with no bonus, he will acquire one-third of the total capital of the partnership. The total capital of the partnership is the sum of Umar's capital balance and Ahmed's capital balance, which is ₦40,000 + ₦60,000 = ₦100,000. Therefore, one-third of the total capital of the partnership is ₦100,000/3 = ₦33,333. This means Abdullahi will have to contribute ₦33,333 to the partnership to acquire one-third interest with no bonus. Hence, the answer is ₦33,333.

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Dan's capital = ₦50,000 Baker's capital = ₦30,000 Total capital = ₦80,000 Interest on Dan's capital = 6% of ₦50,000 = ₦3,000 Interest on Baker's capital = 6% of ₦30,000 = ₦1,800 Total interest on capital due to the partners = ₦3,000 + ₦1,800 = ₦4,800 Therefore, the answer is ₦4800.

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The Act establishing the Institute of Chartered Accountants of Nigeria (ICAN) came into force on 1st September, 1965. This act provided for the establishment of the ICAN as a professional accounting body in Nigeria with the mandate to regulate the accounting profession and promote the highest standards of professional conduct among its members.

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A statement of affairs prepared from incomplete records is a balance sheet at a particular date showing the assets and liabilities of the business. It is called a "statement of affairs" because it lists the financial position of the business as it "stands" or exists at a specific moment in time. The statement is prepared by the accountant from incomplete records provided by the trader or business owner. The accountant uses available information to prepare the statement of affairs, such as a list of assets, liabilities, and any other information that can help determine the financial position of the business. This statement does not show the profit or loss made during the period but rather it shows the financial position of the business at a specific point in time.

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The difference between the closure of the books of a branch and those of a separate company is that there is no retained earnings account on the branch's books. When the books of a branch are closed, the revenue and expenses account is closed to the branch current account, while in a separate company, the revenue and expenses account is not closed to the home office current account. In other words, a branch is considered a part of the parent company, and its financial records are consolidated with those of the parent company, whereas a separate company operates independently and maintains its own financial records.

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The trading account is to a sole trader what income and expenditure account is to a non-profit making organization. The trading account shows the gross profit earned or loss incurred from buying and selling goods during an accounting period. It includes the cost of goods sold and the sales revenue. It is prepared by a trading organization like a sole trader, partnership, or a company that engages in buying and selling goods. Similarly, the income and expenditure account is used by non-profit organizations to record their income and expenses. It is used to calculate the surplus or deficit of the organization's operations for the accounting period. It includes all the revenue and expenses incurred by the organization in that period, including donations, grants, and other sources of income.

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If a monthly insurance premium is remitted to a company by the state government, the initial deductions from employees are recorded in an Agency Fund. An Agency Fund is a fund established to account for assets held by a government in a purely custodial capacity for other governments, private organizations, or individuals. It is used to record assets that are received by one entity on behalf of another, with no intention of adding to or reducing the assets of the recipient entity. In this case, the state government is acting as an agent for the employees by deducting the insurance premium from their pay and remitting it to the insurance company on their behalf. Therefore, the deductions are recorded in an agency fund until they are remitted to the insurance company.

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The purchase of two generators by Hassan Electronics Enterprises should be recorded as an acquisition of fixed assets. This is because generators are considered as tangible long-term assets that are used to generate revenue over an extended period of time. The cost of acquiring the generators should be capitalized and recorded as an asset on the balance sheet. It is important to note that this is different from an expense in the general office expenses account, which is usually associated with the day-to-day running of the business. Similarly, it is not considered as a part of the capital in the capital account, which usually reflects the contributions made by the owners of the business.

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Cost reports for the intention of management should reflect cost and comparable data useful in decision-making. This means that management should receive reports that provide information that will help them make informed decisions about the organization's operations. The reports should include detailed information on costs, including both controllable and non-controllable expenses, as well as comparisons with industry benchmarks and other relevant data. This will allow management to identify areas where costs are high and take corrective action, as well as identify areas where the organization is performing well and make decisions that will help maintain or improve that performance. Therefore, the option that best reflects this idea is "cost and comparable data useful in decision-making".

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Goodwill is an intangible asset and a measure of a firm's superior earning power. Goodwill represents the difference between the amount paid for a company during an acquisition and its net tangible assets (assets that can be physically touched or quantified). It arises when a company is acquired for a price that exceeds the fair value of its net assets, and reflects the value of its reputation, customer base, brand, and other intangible factors that contribute to its future earnings potential. Therefore, option B (Goodwill) is the correct answer.

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The ordinary shareholders of a company have various rights, including the right to vote at annual general meetings, elect the board of directors, and participate in additional issues of shares. One of the most important rights is to receive dividends at a predetermined rate. However, the right that they do not enjoy is the right to determine their own level of dividends or to force the company to pay dividends if it does not want to. This is the prerogative of the board of directors, who may decide to retain earnings for future growth or other purposes. Therefore, the answer is: determine their own level of dividends or to force the company to pay dividends if it does not want to.

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The correct answer is "purchase consideration". This refers to the amount paid by the acquiring company to the target company in exchange for the ownership of the target company's shares or assets. It can take the form of cash, shares, or a combination of both, and is typically negotiated as part of the merger or acquisition process. The purchase consideration reflects the value of the target company as determined by the acquiring company and is often influenced by factors such as market conditions, the target company's financial performance, and strategic considerations.

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Responsibility accounting is a type of management accounting that focuses on evaluating and analyzing the performance of individual departments, managers, or other organizational units within a company. It is particularly concerned with controllable costs, which are costs that can be directly influenced or managed by the individual or department responsible for them. By monitoring and analyzing the performance of individual units, responsibility accounting allows for greater accountability and decision-making at the operational level, ultimately contributing to the overall success of the company. Therefore, the correct answer is "controllable costs."

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When a transaction causes an assets account to increase, there is no corresponding decrease of equal amount in the owner's equity account, an increase in a liability account, or a decrease of equal amount in a liability account. Therefore, the first option is incorrect. Instead, an increase in an assets account means that the value of the asset has gone up. This can be due to various reasons such as purchase, production, or an increase in the value of an existing asset. Since assets are owned by the company, an increase in assets increases the overall value of the company, which is reflected in the owner's equity account. So, the correct answer is that an increase in assets account will lead to an increase in the owner's equity account.

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The objective of allocating all costs to producer is to compute the contribution of the product to the final profit. By allocating all costs to the producer, a company can determine the total cost of producing a product, including both direct and indirect costs. This information can then be used to calculate the contribution margin, which is the amount of money left over after deducting all costs directly related to the production of the product. This contribution margin is a key indicator of the product's profitability, as it shows how much money the product is contributing towards the company's overall profit. Allocating all costs to the producer helps ensure that the contribution margin is accurate and reflects all of the costs associated with producing the product.

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The company purchased the equipment for ₦18,000 and estimated its useful life to be eight years, with a salvage value of ₦2,000. Straight-line depreciation method is used to depreciate the equipment, which means that the cost of the equipment will be equally spread over eight years. Depreciation per year = (Cost - Salvage value) / Useful life Depreciation per year = (18,000 - 2,000) / 8 Depreciation per year = ₦2,000 So, by the end of 1996 (four years), the accumulated depreciation on the equipment will be: Accumulated depreciation = Depreciation per year x number of years Accumulated depreciation = ₦2,000 x 4 Accumulated depreciation = ₦8,000 The equipment's book value at the end of 1996 will be: Book value = Cost - Accumulated depreciation - Salvage value Book value = 18,000 - 8,000 - 2,000 Book value = ₦8,000 When the company sells the equipment for ₦80,000, it will have a gain or loss, which is the difference between the sales price and the book value. Sales price - Book value = Gain or loss ₦80,000 - ₦8,000 = ₦72,000 Since the sales price is higher than the book value, the company will have a gain of ₦72,000. Therefore, the answer is ₦6,000 gain.

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