JAMB UTME - Principles of Accounts - 2024

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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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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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To calculate the Cost of Goods Sold (COGS), we need to use the formula:

COGS = Opening Stock + Purchases - Closing Stock

Let's break it down:

• Opening Stock (beginning of the year): #2,200
• Purchases (during the year): #18,000
• Closing Stock (end of the year): #1,000

By plugging these values into the formula, we get:

COGS = 2,200 + 18,000 - 1,000

After calculating, we find:

COGS = 19,200

So, the Cost of Goods Sold is #19,200.

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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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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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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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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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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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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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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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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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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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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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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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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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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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To find the percentage of net profit to sales, we need to calculate the net profit first.

Here's how you can find the net profit:

Step 1: Calculate Cost of Goods Sold (COGS)

• Opening Stock (1-09-2006): 20,000
• Purchases: 140,000
• Closing Stock (31-08-2007): 10,000

COGS = Opening Stock + Purchases - Closing Stock

COGS = 20,000 + 140,000 - 10,000 = 150,000

Step 2: Calculate Gross Profit

Gross Profit = Sales - COGS

Gross Profit = 200,000 - 150,000 = 50,000

Step 3: Calculate Net Profit

Net Profit = Gross Profit - Expenses

In this case, the only expense given is General Expenses: 10,000

Net Profit = 50,000 - 10,000 = 40,000

Step 4: Calculate the Percentage of Net Profit to Sales

Percentage of Net Profit to Sales = (Net Profit / Sales) * 100%

Percentage of Net Profit to Sales = (40,000 / 200,000) * 100% = 20%

Therefore, the percentage of net profit to sales is 20%.

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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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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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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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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 Local Council's revenue for 2008, we need to identify and sum up all the revenue-generating items. The revenue for the Ifedapo Local Council includes:

• Fines: #5,000
• Allocation from state government: #20,000
• Tenement rates: #10,000
• Licences: #12,000

Add these amounts together to calculate the total revenue:

Total Revenue = Fines + Allocation from state government + Tenement rates + Licences

Total Revenue = #5,000 + #20,000 + #10,000 + #12,000

Total Revenue = #47,000

Note that amounts related to Hospital beds (#8,000), Ambulance (#13,000), Salaries (#15,000), and Vehicles fueling (#7,000) are not considered part of revenue as they represent expenses or services provided by the council.

Therefore, the Local Council's revenue for 2008 was #47,000.

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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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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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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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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 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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When a business is sold as a "going concern," it means that the business is being sold with the expectation that it will continue to operate in the same manner as before the sale. The amount paid by the buyer for such a business is commonly referred to as the purchase consideration.

The purchase consideration includes the total value that the buyer agrees to pay to acquire all the assets, liabilities, and operational components of the business. This value can be in the form of cash, shares, debt arrangements, or a combination of these.

Let's clarify why the other terms are not the correct answer in this context:

• Conversion fees: These are charges that may apply when converting one asset or form of ownership to another but are not related to the purchase of a business.
• Consolidation fees: These may involve costs associated with combining two or more companies or departments, but again, they do not refer to the act of purchasing a business as a going concern.
• Premium fees: These might indicate additional payments above the standard price for specific benefits or services but do not encompass the entire cost of purchasing a business.

In summary, the correct term for the amount paid by the buyer of a business sold as a going concern is purchase consideration.

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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 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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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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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 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 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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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 the Gross Profit, we need to determine the difference between Sales and Cost of Goods Sold (COGS).

Step 1: Determine Sales

The sales figure is already given as #200,000.

Step 2: Calculate Cost of Goods Sold (COGS)

• Starting Stock on 1st September 2006: #20,000
• Add Purchases: #140,000
• This gives the total goods available for sale: #160,000 (20,000 + 140,000)
• Deduct Closing Stock on 31st August 2007: #10,000

So, COGS = (#160,000 - #10,000) = #150,000

Step 3: Calculate Gross Profit

Gross Profit = Sales - COGS = #200,000 - #150,000 = #50,000

Therefore, the Gross Profit is #50,000.

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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 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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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.