JAMB UTME - Principles of Accounts - 2018

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The excess of sales over cost of goods sold is called "gross profit". Gross profit represents the amount of money that a company earns from selling its products or services, minus the direct costs associated with producing those products or services. For example, if a company sells a product for $100 and it costs $60 to produce that product, the company's gross profit would be $40. This means that for every product sold, the company earns $40 that can be used to cover other expenses like salaries, rent, and marketing. It's important to note that gross profit is different from net profit. Net profit is the total amount of money a company earns after all of its expenses, including indirect costs like overhead and taxes, have been subtracted from its revenue. Gross profit, on the other hand, only takes into account the direct costs associated with producing and selling products or services.

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The N6,000 subscription received is a current liability. A liability is a debt or obligation that a company owes to another party, which must be settled in the future. In this case, the N6,000 subscription received is for next year, which means that the company has not yet provided the goods or services for which the customer has paid. Therefore, the N6,000 subscription is an obligation that the company must fulfill in the future, making it a current liability. The N30,000 subscription received during the year is a revenue or income for the company, while the N4,000 subscription owed last year is a previous liability that was not settled in the past year. Both of these amounts are not related to the current question.

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A conversion cost is a manufacturing cost that is incurred in the process of converting raw materials into finished goods. It includes the expenses related to the direct labor and factory overhead used in the production process. Out of the options given, wages would be considered a conversion cost. Wages refer to the payment made to workers who are directly involved in the manufacturing process. These workers are typically responsible for transforming the raw materials into finished goods, which makes their wages a necessary part of the conversion process. Factory overhead, which refers to the indirect costs associated with manufacturing, would also be considered a conversion cost. This includes expenses such as rent, utilities, and equipment maintenance, which are necessary to keep the production process running smoothly. On the other hand, purchases and material costs are not considered conversion costs. Purchases refer to the amount paid for raw materials and other items that are used in the production process, while material costs are the costs associated with the raw materials themselves. While both of these costs are necessary for production to occur, they are not directly related to the conversion process itself.

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Departmentalization of accounts is useful because it shows the overall performance of a division. It allows a company to track the financial performance of individual departments or divisions within the company, providing insight into which areas of the business are performing well and which ones need improvement. By analyzing financial data for each department, managers can make informed decisions about allocating resources and making changes to improve overall company performance. This approach helps to ensure that each department is held accountable for its performance, and that managers have the information they need to make effective decisions about the allocation of resources. Ultimately, this can lead to improved financial performance for the entire company.

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In dealing with incomplete records, fixed assets are typically posted to the closing balance sheet as a brought forward figure. This means that the fixed asset is recorded as an asset at the beginning of the accounting period and is carried forward until the end of the period. The asset is then included in the closing balance sheet, which provides a snapshot of the company's financial position at the end of the period. Since incomplete records do not provide a complete picture of the company's financial transactions, it can be difficult to determine the exact value of fixed assets. Posting fixed assets to the closing balance sheet as a brought forward figure provides a way to include the assets in the company's financial statements without the need for extensive record-keeping or complicated calculations. By posting fixed assets to the closing balance sheet, it is easier to calculate the net worth of the company, which is an important indicator of financial health. This information can be used by investors, creditors, and other stakeholders to make informed decisions about the company.

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To compute the prime cost, we need to add the cost of direct materials, direct labour, and direct expenses. Adding the figures for direct materials, direct labour, and direct expenses gives us: 2,500 + 5,000 + 1,000 = 8,500. Therefore, the prime cost of the product is N8,500. The prime cost represents the total cost of direct materials, direct labour, and direct expenses that are directly attributable to the production of a product or service. This cost is essential to know for any manufacturing or production-oriented business, as it is the basis for determining the total cost of production.

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Advertising expenses incurred on a product in a business organization should be charged to the Sales department. The purpose of advertising is to promote a product or service to potential customers, which makes it an important part of the sales process. By generating interest in the product, advertising can help to increase sales and revenue. Therefore, advertising expenses are considered a selling expense and should be charged to the Sales department. This department is responsible for the promotion and sale of the product, and as such, it is appropriate to allocate the cost of advertising to this department. The Production department is responsible for manufacturing the product, while the Purchase department is responsible for acquiring the materials and supplies needed for production. Neither of these departments is directly involved in the sales process, which means that it would not be appropriate to charge advertising expenses to them. Finally, the Administration department is responsible for managing the overall operations of the business, including finance, human resources, and legal affairs. While advertising is an important part of running a successful business, it is not typically considered to be an administrative expense.

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When a bill is negotiated to a bank, it is said to be "discounted". Negotiating a bill means transferring ownership of the bill from the original holder to the bank. In exchange for this transfer, the bank pays the holder an amount that is less than the face value of the bill, usually with a fee for providing this service. This process is known as "discounting the bill" because the holder receives a discounted value for the bill. So, when a bill is negotiated to a bank, it is said to be "discounted" because the holder receives a discounted value for the bill in exchange for transferring ownership to the bank.

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The price-earnings (P/E) ratio of the company can be calculated by dividing the market price per share by the earnings per share (EPS). The P/E ratio shows how much investors are willing to pay for each Naira of the company's earnings. In this case, to calculate the P/E ratio for Tanko Ltd: Market price per share / Earnings per share = P/E ratio N1.50 / N0.47 = N3.19 So, the P/E ratio for Tanko Ltd is N3.19. This means that investors are willing to pay N3.19 for every Naira of the company's earnings. In simple terms, the P/E ratio is a measure of how much investors are willing to pay for every Naira of the company's earnings and in this case, the P/E ratio for Tanko Ltd is N3.19.

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Based on the given information, the term that best describes the scenario is "merger". A merger is a business consolidation that involves the combination of two or more companies into a single new entity. In this case, Bala Ltd acquired the business of Bello Ltd, which means that Bello Ltd is no longer operating as a separate company. Instead, Bello Ltd's assets, liabilities, and operations have been merged with those of Bala Ltd to form a single new entity. It's important to note that a merger can take many forms, and the specific legal and financial details of the transaction can vary. However, the key idea is that two or more companies combine to form a new, larger entity.

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The straight-line method of depreciation assumes that an asset decreases in value evenly over its useful life. To calculate the yearly depreciation using the straight-line method, we need to subtract the scrap value from the original cost and then divide the result by the number of years of the asset's useful life. The original cost of the machine is N35,000, and the scrap value is N9,000. Therefore, the depreciable value of the machine is: Depreciable value = Original cost - Scrap value = N35,000 - N9,000 = N26,000 The useful life of the machine is 5 years. Therefore, the yearly depreciation is: Yearly depreciation = Depreciable value / Useful life = N26,000 / 5 = N5,200 So the yearly depreciation using the straight-line method for this machine is N5,200. Therefore, option C is the correct answer.

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The inventory costing method that is not a recognized method is "LILA." This is because "LILA" is not a common inventory costing method used in accounting practices, and it is not a recognized acronym or abbreviation for any known costing method. In contrast, FIFO, LIFO, and the average cost method are all well-known and widely used inventory costing methods in accounting. FIFO stands for "First-In, First-Out," and it means that the first items added to inventory are the first ones sold, while the newer items are sold later. LIFO stands for "Last-In, First-Out," and it means that the most recent items added to inventory are the first ones sold, while older items are sold later. The average cost method takes the average cost of all items in inventory and uses that cost to calculate the value of goods sold and the value of ending inventory. In summary, while FIFO, LIFO, and the average cost method are all recognized inventory costing methods, "LILA" is not a commonly used or recognized inventory costing method.

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The accumulated fund of a non-trading concern can equally be referred to as the "surplus fund". This is because the surplus fund represents the excess of the organization's total assets over its total liabilities and any other committed funds. Non-trading concerns, such as non-profit organizations, do not operate for the purpose of making a profit for its members or shareholders. Instead, any surplus generated is used to further the organization's objectives or to invest in its activities in the future. The surplus fund can be seen as a reserve that the organization can draw on when needed. The other answer options, such as members equity, share capital, and general fund, are not necessarily applicable to non-trading concerns, and do not specifically refer to the accumulated fund. For example, share capital typically refers to the funds raised by a company through the sale of shares, while members equity typically refers to the ownership interest of the members in a company.

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Transfers from the head office to branches are best carried out at cost plus mark-up. This is because cost plus mark-up allows the head office to recover the cost of producing the goods, and also make a profit to cover its own overheads and expenses. Selling price and market price may not be the best options because they do not take into account the actual cost of producing the goods, which could lead to overcharging or undercharging the branches. In contrast, cost plus mark-up ensures that the branches receive the goods at a fair price, while also allowing the head office to cover its own costs and make a profit. Overall, this method promotes transparency and fairness in the transfer process.

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The amount called in respect of a share but not paid before or on the date fixed for payment is referred to as a "call in arrears". When a company issues shares, it may require shareholders to pay for them in installments. These installments are known as "calls" and the amount that is due but not paid on the due date is called a "call in arrears". For example, let's say a company issues 100 shares with a nominal value of $10 per share. The company may require shareholders to pay for the shares in two installments, with $5 due on the issue of the share and $5 due in six months' time. If a shareholder pays only $4 on the due date of the second installment, they would have a call in arrears of $1. It is important for companies to keep track of calls in arrears because they represent unpaid capital that the company is entitled to collect. The company can take legal action to recover the amount owed, or it may declare the shares forfeited if the shareholder fails to pay the amount due within a specified period of time. In summary, a call in arrears is the amount that a shareholder owes to a company for a share that has been issued but not fully paid for on the due date. It represents unpaid capital that the company is entitled to collect, and the company may take legal action or declare the shares forfeited if the shareholder fails to pay the amount due.

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A partnership deed is used to promote mutual understanding. It is a legal document that outlines the rights, responsibilities, and obligations of each partner in a partnership business. By specifying the roles and expectations of each partner, a partnership deed helps to prevent misunderstandings and conflicts that could arise between partners. The partnership deed typically includes information such as the names of the partners, the nature of the business, the capital contributions of each partner, the profit and loss sharing ratio, the management structure of the partnership, the procedures for adding or removing partners, and the rules for dissolution of the partnership. By having a clear and well-defined partnership deed, all partners can have a shared understanding of how the business will operate and what is expected of each partner. This can help to establish trust and promote a healthy working relationship between partners, which is crucial for the success of any partnership business.

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The profit and loss account is a financial statement that shows a company's revenues, expenses, and profits over a particular period. The purpose of this statement is to give an overview of the company's financial performance during that period. However, it's not always straightforward to determine the exact amount of income and expenses for a particular period, which is why adjustments are necessary. Adjustments are necessary to ascertain the actual expenses incurred and income earned during the year. This involves adjusting the revenue and expenses figures to reflect the actual amounts earned or incurred during the year, including any amounts that have not been received or paid but are still owed or owing. For example, if a company has sold goods to a customer on credit, the revenue from that sale will not be reflected in the profit and loss account until the payment is received. Similarly, if the company has received goods or services from a supplier but has not yet paid for them, the expense will not be reflected in the profit and loss account until the payment is made. Adjustments are also necessary to show the provisions made during the year. Provisions are amounts set aside to cover potential future expenses or losses. For example, a company may set aside a provision for bad debts to cover potential losses from customers who are unlikely to pay. In conclusion, adjustments in the profit and loss account are necessary to provide an accurate representation of the company's financial performance during the period. These adjustments reflect the actual expenses incurred and income earned during the year, as well as any provisions made for potential future expenses or losses.

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Calls in advance are treated in the balance sheet as a current liability. Calls in advance refer to the money paid by shareholders in advance for shares that they have subscribed for, but not yet fully paid for. The company is therefore indebted to the shareholders for this amount until the shares are fully paid for. In the balance sheet, current liabilities are short-term debts or obligations that are due within a year, and calls in advance typically fall under this category. This is because the shareholders have the right to demand a refund of the money they paid in advance if the shares are not allotted to them or if they choose not to take up the shares. Therefore, calls in advance will be listed as a liability in the balance sheet, typically under the "current liabilities" section, until the shares are fully paid for and the liability is discharged.

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The method used in government accounting which records on the basis of financial entity with self-balancing books instead of the entity of proprietorship is called fund accounting. Fund accounting is a method of accounting used by organizations, such as governments, non-profit organizations, and universities, that have multiple funds with separate accounting and reporting requirements. Each fund is treated as a separate accounting entity, and financial transactions are recorded in separate self-balancing books for each fund. The purpose of fund accounting is to provide accountability and transparency in the use of public funds. It allows the government to track and report on the use of funds for specific purposes, such as capital projects, debt service, or operating expenses. It also ensures that funds are used only for their intended purposes and that financial reports accurately reflect the financial position of each fund. In summary, fund accounting is a method of accounting used by government entities that records financial transactions on a fund-by-fund basis with self-balancing books. This provides accountability and transparency in the use of public funds and ensures that funds are used only for their intended purposes.

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The accounting entries used to record a cheque issued by a business are to credit the Cash Book and debit the Drawer's account. When a business issues a cheque, it reduces the balance of cash held by the business, and this reduction in cash is recorded by debiting the Drawer's account. At the same time, the cheque creates a liability for the business, which is recorded by crediting the Cash Book. In other words, when the cheque is issued, the business is reducing its own cash balance and creating a debt or liability that will be paid in the future. Therefore, the Cash Book is credited to reflect the creation of the liability, while the Drawer's account is debited to show the reduction in the business's cash balance.

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The straight-line method is a commonly used depreciation method for accounting purposes. It assumes that an asset loses an equal amount of its value each year over its useful life. To calculate the yearly depreciation using the straight-line method, you need to subtract the scrap value from the original cost and then divide by the useful life of the machine. Original Cost of the Machine = N35,000 Scrap Value = N15,000 Useful Life = 5 years Depreciable Cost = Original Cost - Scrap Value Depreciable Cost = N35,000 - N15,000 Depreciable Cost = N20,000 Yearly Depreciation = Depreciable Cost / Useful Life Yearly Depreciation = N20,000 / 5 Yearly Depreciation = N4,000 Therefore, the yearly depreciation using the straight-line method for this machine is N4,000. is the correct answer.

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The subscription to be charged to the income and expenditure account is N36,000. This is because the subscription received during the year is N30,000, the subscription owed from the previous year is N4,000 and the subscription received for the next year is N6,000. Adding up these three amounts gives us N30,000 + N4,000 + N6,000 = N36,000. So, the total subscription to be charged to the income and expenditure account is N36,000.