JAMB UTME - Principles of Accounts - 2024

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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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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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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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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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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.

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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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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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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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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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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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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.

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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.

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The Accountant General of the Federation is the head of the Office of the Accountant General of the Federation (OAGF), which is the treasury of the Federal Republic of Nigeria. They are responsible for overseeing the government's receipts and payments, ensuring proper accounting practices, and managing the Federation Account.

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The net worth of a business, also known as the owner's equity or shareholders' equity, is essentially the value left over for the owners after all liabilities have been subtracted from the assets. To put it simply, it represents the company's total assets minus its total liabilities.

Let's break this down:

• Assets: These are all the resources owned by the business, such as cash, property, inventory, and equipment.
• Liabilities: These are the debts and obligations that the business owes to others, such as loans, accounts payable, and mortgages.

The formula to calculate net worth is:

Net Worth = Assets - Liabilities

Understanding the net worth helps in assessing the company's financial health. If the assets exceed liabilities, it indicates a positive net worth, which is a good sign, showing that the business has enough assets to cover its obligations.

Let's examine the options given:

• Bank Loan: This is a liability, a debt that the business needs to repay.
• Capital: This refers to the financial resources that owners invest in the business, which is part of the owner's equity and contributes to net worth.
• Asset: As described, these are resources owned by the business and are a component in calculating net worth.
• Debenture: This is another form of liability. It's a type of debt instrument used by businesses to borrow money.

Thus, the net worth is fundamentally linked to assets and liabilities, and it is a crucial measure of what the owners have in the business once all liabilities are paid off. It is not directly descriptive of just a bank loan, capital, asset, or debenture, but rather a measure involving assets and liabilities.

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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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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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Year 1:

Depreciation = (Book value at the beginning of the year) x (Depreciation rate) = (#120,000) x (40%)
= #48,000
Book value at the end of Year 1 = Cost - Depreciation
= #120,000 - #48,000
= #72,000
Year 2:
Depreciation = (Book value at the beginning of the year) x (Depreciation rate) = (#72,000) x (40%)
= #28,800
Book value at the end of Year 2 = Book value at the end of Year 1 - Depreciation = #72,000 - #28,800
= #43,200
Year 3:
Depreciation = (Book value at the beginning of the year) x (Depreciation rate) = (#43,200) x (40%)
= #17,280
Book value at the end of Year 3 = Book value at the end of Year 2 - Depreciation = #43,200 - #17,280
= #25,920
Year 4:
Depreciation = (Book value at the beginning of the vear) x (Depreciation rate)

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To calculate the net profit, we need to determine the Gross Profit first and then subtract the expenses from it. Follow these steps:

• Opening Stock: #2200
• Add Purchases: #18000
• Less Closing Stock: #1000

COGS = 2200 + 18000 - 1000 = #19,200

• Sales: #27000
• Less COGS: #19200

Gross Profit = 27000 - 19200 = #7,800

• Salaries: #1500
• Rejection in doubtful debts: #500
• Office expenses: #1100
• Other expenses: #1300

Total Expenses = 1500 + 500 + 1100 + 1300 = #4,400

• Net Profit = Gross Profit - Total Expenses
• Net Profit = 7800 - 4400

Net Profit = #3,400

Therefore, the net profit is #3,400.

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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.

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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.

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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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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.

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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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The document used to make lodgments into a current account is the paying-in slip.

Here's why:

A paying-in slip is a small form provided by a bank that allows you to deposit money into your account. When you want to add funds to your current account, you fill out this slip with details such as the amount of money you are depositing, your account number, and your name. You then hand both the slip and the money to the bank teller who processes the transaction for you. Alternatively, it can be used in an automated bank machine that accepts deposits.

Other documents or instruments like a cheque book, pass book, and credit card serve different purposes:

• A cheque book is used to make payments to others; you write cheques to transfer money from your account to someone else or another entity.
• A pass book records transactions for savings accounts, not current accounts, and helps keep track of deposits, withdrawals, and balances.
• A credit card allows you to borrow funds up to a certain limit for purchases, which you then repay at a later date. It does not directly deposit funds into your account.

In summary, when depositing money directly into a current account, the paying-in slip is the correct document used for that purpose.

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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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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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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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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.

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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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To calculate depreciation using the straight-line method, you can use the formula:
Depreciation Expense = (Cost of Asset - Residual Value) / Useful Life
Given:
Cost of the equipment = 9,000 Residual value = 900
Depreciation rate = 10%
Useful life = 10 years (since the depreciation rate is 10%)
First, calculate the annual depreciation:
Depreciation Expense = (9,000 - 900) / 10
= 8,100 / 10
= 810
Therefore, the depreciation charge for the second year would still be #810.

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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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In the context of the Purchase Ledger Control Account, the item labeled as "sales ledger" amounting to #1,200 represents a situation where there is an interaction between the purchase ledger and the sales ledger.

Typically, this means that there has been a sales return or an offset transaction where the company might have paid a supplier for goods or services provided, but due to some reason like a return or an agreement, there is a balance due back to the company. This situation typically arises when there are inter-company transactions where the company is both a customer and a supplier to the same business entity.

In simpler terms, the #1,200 in the "sales ledger" represents an amount due from suppliers. This implies that a balance owed by the supplier is accounted for in the purchase ledger, indicating a receivable situation within the purchase ledger context.

Thus, it reflects an amount that is due back to the entity from their suppliers who are also their customers in some capacity.

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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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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

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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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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.

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When Tolu purchases a machine on credit, the accounting entries reflect the following:
Debit: Machinery (#6,000)
Credit: Supplier (#6,000)
Here's why:
Debit: A debit increases an asset account. In this case, "Machinery" is an asset account that represents the new equipment Tolu acquired.

Credit: A credit increases a liability account. Since Tolu purchases the machine on credit, they now owe money
to the supplier. The "Supplier" account is a liability account that reflects this debt.

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When a difference is noticed in the Trial Balance due to errors that have not yet been located, it is temporarily posted to a suspense account.

Here's a simple explanation:

A **Trial Balance** is a bookkeeping worksheet in which the balances of all ledgers are compiled into debit and credit account column totals that are equal. If the totals do not match, it indicates an error. Sometimes, despite efforts to find the error, the exact location or cause is not immediately identified. When this happens, the difference is placed in a suspense account to temporarily hold and find where the error might be.

The suspense account acts as a placeholder. It's important because it allows the books to be balanced and further accounting and financial reporting processes to proceed normally while the error is being investigated and rectified. Once the error is located and corrected, the suspense account is cleared.

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The acid-test ratio assesses a company's ability to meet its short-term obligations (due within a year) using its most liquid assets. It goes beyond the current ratio by excluding inventory from the calculation, as inventory might take longer to convert into cash to pay off debts.

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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.