JAMB UTME - Principles of Accounts - 2024

The following balances were extracted from the books of Adama Ltd on 31st August 2007

Percentage of net profit to sale is 

Answer Details

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%.

Ordinary shares are also known as

Answer Details

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.

The term "set off" in control account is also called

Answer Details

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.

The document used in making lodgments into a current account is

Answer Details

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.

Shares issued free of charge to existing shareholders based on their previous holdings is __ issue

Answer Details

The shares given free of charge to existing shareholders based on their previous holdings are referred to as a bonus issue.

A bonus issue, also known as a scrip issue or capitalization issue, is when a company decides to reward its existing shareholders by issuing them additional shares. This is done in proportion to their current shareholding without any additional cost. For example, a company might issue one bonus share for every ten shares held.

The main reasons for a bonus issue include:

• Rewarding Shareholders: It is a way to reward shareholders for their loyalty without paying out cash dividends.
• Increasing Liquidity: With more shares available, trading in the shares becomes more liquid.
• Signalling Confidence: It often signals that the company is confident about its future profits.
• Adjusting Share Prices: The increase in the number of shares can help lower the individual share price, making them more affordable and attractive to investors.

It is important to note that while a bonus issue increases the number of shares outstanding, it does not change the overall market capitalization of the company, as the value of each share is adjusted accordingly.

The following accounts have debit balances except

Answer Details

In accounting, a debit balance typically refers to an increase in asset or expense accounts. Here’s a breakdown of each account to determine which one does not usually have a debit balance:

• Share Premium: This is part of the equity on the balance sheet. It occurs when shares are issued at a price higher than their nominal value. Since it is an equity account, it typically has a credit balance, which means it is not a debit balance account.
• Rents and Rates: These are usually categorized under expense accounts, which typically have a debit balance, because expenses increase with debits.
• Return Inwards: Also known as Sales Returns, refers to goods returned by customers. It is considered a contra-revenue account, which typically has a debit balance because it is subtracted from sales (a major revenue account with a credit balance).
• Advertising: This is also an expense account, as expenditures made for advertising purposes are considered costs of doing business. Thus, they usually have a debit balance.

Based on the above explanations, the account that does not have a debit balance is typically the Share Premium account.

The following balances was exgtracted from the books of Oluwalambe Ltd, manufacturer, on 31st December 2007

Factory overhead cost is

Answer Details

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.

Who among the following developed the idea of double entry book-keeping?

Answer Details

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.

In government accounting, money allocated to each head and sub-heads is referred to as  

Answer Details

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.

The short term solvency of a company is determined with ___ ratio

Answer Details

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.

Purchase Ledger Control Account

The amount #30,000 represents

Answer Details

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.

Which of the following is not required in preparing a statement of affairs?

Answer Details

A statement of affairs is a financial statement that provides a snapshot of an organization's financial position at specific point in time. It typically includes information about assets, liabilities, and capital.

The net worth of a business is the

Answer Details

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.

An equipment costing #9,000 has an estimated residual value of #900, and is depreciated at 10% per annum. Using the straight-line method, what is the depreciation charge for the second year?

Answer Details

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.

A public limited liability company can get additional fund through the issue of

Answer Details

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.

Which of the following is a written acknowledgement of a loan to a company?

Answer Details

The written acknowledgement of a loan to a company is known as a debenture.

Let's explain further: A debenture is a type of long-term security issued by a company. It acts as a contract that specifies the details of the loan, including the amount borrowed, the interest rate, and the repayment schedule. Unlike some other forms of debt, debentures do not have any physical assets pledged as collateral. This means they are backed solely by the creditworthiness and reputation of the issuer.

In summary, a debenture serves as a formal and written promise from the company to pay back the borrowed money with interest at a future date. It is a common tool for companies to raise capital while providing investors an opportunity to earn interest on their investment.

Goodwill is taken into account in partnership business when

Answer Details

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.

The raw materials available for production is ___

Answer Details

Raw materials available: Opening Stock + Raw materials purchased Raw materials available: #20,000+ #18,000
Raw materials available: #38,000

A method of stock valuation is

Answer Details

The Simple Average Price (SAP) method is a stock valuation method where the average cost of all units of stock is calculated and used as the value for inventory. This method takes the total cost of goods available for sale and divides it by the total number of units to determine the average price. The average price is then multiplied by th number of units on hand to calculate the value of the inventory

A commission of #5000 to a sales manager was debited to debtors account. This is an error of

Answer Details

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.

Rent accrued at the end of an accounting period is a

Answer Details

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.

The chief accounting officer of the Federation is

Answer Details

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.

The following balances was extracted from the books of Oluwalambe Ltd, manufacturer, on 31st December 2007

Cost of goods produced is

Answer Details

Cost of Goods Produced = Prime Cost + Factory Overhead Cost + Opening Work in Progress - Closing Work in Progress 
Prime Cost: #500,000 (from previous question) Factory Overhead Cost: #63,500 (from previous question) 
Cost of Goods Produced = #500,000 + #63,500 + #32,500 - #37,500 
Cost of Goods Produced = #558,500 

The value of raw materials consumed is

Answer Details

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.

Where there is no partnership agreement, a partner who advances loan to the partnership is entitled to ____ Interest

Answer Details

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%

The following are causes of discrepancies between the cash book and the bank statement balances except

Answer Details

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.

Tolu purchased a machine for #6,000 on credit. The effect is to debit.. supplier
and credit the account of the

Answer Details

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.

Depriciation is?

Answer Details

Depreciation refers to the gradual decrease in the value of a fixed asset over time due to factors such as wear an tear, obsolescence, or passage of time. It represents a decrease in the asset's value rather than an increase. As assets are used or become outdated, their value diminishes, which is reflected as depreciation in the financial statements.

The following extracts are made from the books of Agama Enterprises.

Method of depreciation used is Diminishing Balance The scrap value of the asset at the end of year four is

Answer Details

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)

A list of all debit and credit balances from the ledger accounts are made in the

Answer Details

A trial balance is a worksheet that summarizes the ending balances of all ledger accounts after a specific accounting period. It lists each account title and its corresponding debit or credit balance.

Suppliers accounts are found in the

Answer Details

Suppliers accounts are found in the purchase ledger. The purchase ledger is a part of a company's financial accounts where all transactions related to purchases from suppliers (or creditors) are recorded. This includes the amounts owed for goods or services received but not yet paid for. It helps businesses keep track of what they owe to each supplier and ensures that the financial statements accurately reflect these liabilities. Therefore, the purchase ledger is essential for managing accounts payable and maintaining good relationships with suppliers.

Pending the location of an error, the difference in the Trial Balance is posted to a __

Answer Details

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.

An example of fictitious assets is

Answer Details

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.

The amount paid by the buyer of a business which is sold as going concern is

Answer Details

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.

Which of the following bodies regulates accounting practices in Nigeria?

Answer Details

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.

The basic accounting equation is

Answer Details

Assets + Liabilities = Owner's Equity. This equation is the foundation of double-entry bookkeeping and ensures that a company's financial statements are balanced. Let's break down the equation:
Assets: These are the resources a company owns, such as cash, inventory, property, and equipment. Liabilities: These are the company's debts or financial obligations that need to be repaid.
Owner's Equity (also called Shareholders' Equity): This represents the owners' claim on the company's assets after all liabilities are settled. It's essentially the difference between the company's assets and liabilities.

An equipment costing # 9,000 has an estimated residual value of #900, and is depreciated at 10% per annum. What is the depreciation charge for the three using diminishing balance method?

Answer Details

The diminishing balance method of depreciation, also known as the reducing balance method, calculates depreciation based on the book value (cost minus accumulated depreciation) at the beginning of each year. In this method, both the asset's residual value and the annual depreciation rate are used to determine the depreciation charge.

Let's break down the solution for the first three years to figure out the depreciation charge:

Year 1:
The initial cost is #9,000.

Depreciation for Year 1 = Cost × Depreciation Rate = 9,000 × 10% = #900

Book Value at the end of Year 1 = Initial Cost - Depreciation = 9,000 - 900 = #8,100

Year 2:
Book value at the beginning of Year 2 is #8,100.

Depreciation for Year 2 = Book Value × Depreciation Rate = 8,100 × 10% = #810

Book Value at the end of Year 2 = Book Value - Depreciation = 8,100 - 810 = #7,290

Year 3:
Book value at the beginning of Year 3 is #7,290.

Depreciation for Year 3 = Book Value × Depreciation Rate = 7,290 × 10% = #729

The depreciation charge for the third year using the diminishing balance method is #729.

A partner whose liability does not extend beyond the amount of capital contributed by him is known as

Answer Details

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.

When shares are over-subscribed, directors may decide to scale down the number of shareholding by alloting shares at ___

Answer Details

When shares are over-subscribed, directors may decide to scale down the number of shareholding by allotting shares at pro rata. This means that the available shares are distributed among the applicants in proportion to the number of shares they have applied for.

For example, if a company issues 1,000 shares and the demand is for 1,500 shares, each applicant will receive a percentage of the shares they applied for based on the total available. This method ensures fairness as it maintains the same ratio of allocation relative to each investor's demand.

Allotting at pro rata ensures that all investors get an opportunity to receive a share, albeit a reduced amount than initially requested, in proportion to their original application. This approach helps to manage the allocation efficiently and maintains balance among potential shareholders.

Purchase Ledger Control Account

The balance of #11,800 represents the amount

Answer Details

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.