JAMB UTME - Principles of Accounts - 2004

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Bayanin Amsa

Bayanin Amsa

Bayanin Amsa

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According to the provisions of the 1999 Constitution of Nigeria, all revenues generated by the Federal Government must be paid into the Consolidated Revenue Fund. This fund is a general pool of all revenues generated by the Federal Government, and the funds are managed and disbursed in accordance with the approved budget.

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In a sales ledger, contra entry is found on the credit side of the debtors' control account. A contra entry is an entry that cancels the effect of a previous entry in the books of accounts. In a sales ledger, a contra entry arises when a debtor who owes money to the organization also becomes a creditor who is owed money by the organization. For example, if a debtor makes a payment for goods or services that they previously purchased on credit, then this will be recorded as a credit entry in their account. At the same time, the organization owes the debtor money for some other reason, such as a refund or a rebate. This will be recorded as a debit entry in the debtor's account. The two entries in the debtor's account cancel each other out and are known as a contra entry. The credit entry is recorded on the credit side of the debtor's control account, and the debit entry is recorded on the debit side of the debtor's control account. Therefore, in a sales ledger, a contra entry is found on the credit side of the debtor's control account. This helps to keep track of the amounts owed by the organization to its debtors and also helps to reconcile the accounts of the debtors.

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The accounting equation states that Assets = Liabilities + Equity. Accounts payable is a liability, meaning it represents an amount owed by the business to its suppliers for goods or services purchased on credit. Therefore, accounts payable should be placed under liabilities in the balance sheet in order to satisfy the requirements of the accounting equation.

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To calculate the balance of profit and loss account, we need to follow these steps: Step 1: Calculate the interest on capital for each partner Jumoke's interest on capital = 3% of ₦25,000 = ₦750 Kunle's interest on capital = 3% of ₦15,000 = ₦450 Step 2: Calculate the salaries for each partner Jumoke's salary = ₦1,500 Kunle's salary = ₦1,000 Step 3: Calculate the total expenses Total expenses = salaries + interest on capital + miscellaneous expenses Total expenses = ₦1,500 + ₦1,000 + ₦750 + ₦450 + ₦2,500 Total expenses = ₦6,200 Step 4: Calculate the net profit Net profit = gross profit - total expenses Net profit = ₦6,500 - ₦6,200 Net profit = ₦300 Step 5: Allocate the net profit based on the profit sharing ratio Jumoke's share = 3/5 * ₦300 = ₦180 Kunle's share = 2/5 * ₦300 = ₦120 Step 6: Calculate the balance of profit and loss account Balance of profit and loss account = Jumoke's share - Jumoke's salary + Kunle's share - Kunle's salary Balance of profit and loss account = ₦180 - ₦1,500 + ₦120 - ₦1,000 Balance of profit and loss account = ₦4,000 Therefore, the correct answer is ₦4,000.

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To determine the amount of beginning inventory, we need to use the formula: Beginning inventory = Estimated beginning inventory ratio x Sales The question states that the beginning inventory was estimated at 80% of sales. Therefore, we can calculate the beginning inventory as follows: Beginning inventory = 0.8 x ₦12,800 Beginning inventory = ₦10,240 So, the amount for the beginning inventory is ₦10,240. Explanation: The beginning inventory is the value of the inventory at the start of an accounting period. In this question, the beginning inventory is estimated at 80% of sales. This means that 80% of the goods available for sale at the beginning of the period were still unsold. Therefore, we can use the estimated beginning inventory ratio of 80% and the sales of ₦12,800 to calculate the beginning inventory. The calculated beginning inventory is ₦10,240.

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To find the figure for purchases, we need to use the formula: Beginning Inventory + Purchases - Ending Inventory = Cost of Goods Sold We are given the following information: Beginning Inventory = 80% of Sales Ending Inventory = ₦4,800 Sales = ₦12,800 Cost of Goods Sold = Sales - Gross Profit We are not given the figure for Gross Profit, but we can calculate it using the given information: Gross Profit = Sales - Cost of Goods Sold Gross Profit = Sales - (Beginning Inventory + Purchases - Ending Inventory) Gross Profit = ₦12,800 - (80% of Sales + Purchases - ₦4,800) Gross Profit = ₦12,800 - (0.8 x ₦12,800 + Purchases - ₦4,800) Gross Profit = ₦12,800 - (₦10,240 + Purchases - ₦4,800) Gross Profit = ₦7,360 - Purchases We are also given that the Gross Profit is ₦5,900, so we can substitute this value and solve for Purchases: ₦5,900 = ₦7,360 - Purchases Purchases = ₦7,360 - ₦5,900 Purchases = ₦1,460 Therefore, the figure for purchases is ₦1,460. The correct option is not among the options given.

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Credit sales by a department are treated in the same way as normal debtors' transactions. Credit sales refer to sales made by a business on credit, which means that the payment for the sale is not received immediately but at a later date. When a department of a business makes credit sales, it is treated in the same way as normal debtors' transactions. The department will issue an invoice to the customer for the goods or services provided. This invoice will show the amount owing, the payment terms, and the due date. The customer will then be recorded in the department's debtor's ledger, and the amount owing will be recorded as a credit sale. The department will continue to monitor the account, send statements, and follow up on any overdue amounts in the same way as for normal debtors. The aim is to ensure that the outstanding amounts are collected within the specified payment terms. Therefore, credit sales by a department are treated in the same way as normal debtors' transactions, with the department maintaining a debtor's ledger and following up on any overdue amounts in order to ensure that the outstanding amounts are collected within the specified payment terms.

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Debentures can be redeemed out of the existing share capital reserve or the existing general reserve. Redemption refers to the process of repaying the debenture holders at the maturity of the debentures. The company can use its profits or reserves to redeem the debentures. When the debentures are redeemed, the company repays the principal amount along with any interest due to the debenture holders. Existing share capital reserve is a reserve created out of the profits earned by the company from the issue of shares. The reserve can be used for the redemption of debentures. Similarly, the existing general reserve is a reserve created out of the company's profits, and it can also be used for the redemption of debentures. Proceeds from a new issue of shares are not used for the redemption of debentures. Instead, the proceeds are used for financing new projects or expansion plans of the company. Withholding tax is a tax deducted at source from the interest payments made to the debenture holders. It is not used for the redemption of debentures. In summary, debentures can be redeemed out of the existing share capital reserve or the existing general reserve. These reserves are created out of the profits earned by the company, and they can be used for the repayment of the debenture holders at the maturity of the debentures.

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When the debit side of the income and expenditure account is higher than the credit side, it means that the total expenses for the period are more than the total income. In other words, the organization has spent more money than it has earned. The difference between the two sides of the income and expenditure account is called a "deficit" or "loss". This represents the amount by which expenses exceed income for the period. A deficit is a negative amount, indicating that the organization is not generating enough income to cover its expenses. In contrast, if the credit side of the income and expenditure account is higher than the debit side, it means that the organization has earned more income than it has spent. The difference between the two sides in this case is called a "surplus" or "gain". A surplus is a positive amount, indicating that the organization has generated more income than it has spent on expenses.

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When the closing stock is undervalued, it means that the value assigned to the remaining inventory at the end of a financial period is lower than its actual worth. This has an effect on the calculation of the cost of goods sold (COGS), which is the cost of the products that were sold during the period. If the closing stock is undervalued, the COGS will be overstated, which in turn will decrease the gross profit. This is because the cost of goods sold is subtracted from the revenue to calculate the gross profit. If the COGS is higher than it should be, then the gross profit will be lower. An undervalued closing stock doesn't affect the purchases made during the period, as the value of the inventory is determined at the end of the period, after the purchases have already been made. Therefore, the correct answer is "a decrease in gross profit".

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To find the amount of prepaid rates, we need to first determine how many months were paid for in advance. The total amount paid for rates in the year was ₦2,250, which was at a rate of ₦125 per month. This means that 2,250/125 = 18 months' worth of rates were paid. Similarly, the total amount paid for electricity was ₦1,035, which was at a rate of ₦115 per month. This means that 1,035/115 = 9 months' worth of electricity were paid. To find the amount of prepaid rates, we need to subtract the number of months paid for in advance from the total number of months in the year (12). Prepaid rates = 12 - 18 = -6 A negative result means that there is no prepaid amount, but rather an accrual of ₦750 (6 months x ₦125) as the rates were paid for in advance for the following year. Therefore, the amount of prepaid rates is ₦0, and the amount of prepaid expenses is ₦750.

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In the balance sheet of a not-for-profit-making organization, subscription paid in advance is regarded as a current liability. Subscription paid in advance refers to the amount of money received by the organization from its members for the subscription fees for a future period. For example, if a member pays for a one-year subscription in advance, the organization receives the payment before the subscription period starts. Since the organization has not yet provided the service or benefits related to the subscription fees, it has an obligation to provide the service or benefits in the future. Hence, the subscription paid in advance is recorded as a current liability in the balance sheet of the organization. Current liabilities are the debts or obligations that are expected to be paid within a year. Examples of current liabilities include accounts payable, salaries payable, and taxes payable. In summary, subscription paid in advance is considered a current liability in the balance sheet of a not-for-profit-making organization as it represents an obligation to provide services or benefits in the future.

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A rapidly growing business organization with multiple units that is interested in comparing the performances and weaknesses of each unit should adopt departmental accounts. Departmental accounts are a type of accounting system that divides the organization into different departments and analyzes the financial performance of each department separately. This system allows the organization to compare the revenues, expenses, and profits of each department, identify areas of strengths and weaknesses, and make informed decisions to improve the overall performance of the organization. Consolidated accounts, on the other hand, are financial statements that combine the financial information of all the subsidiaries of the organization. They provide a comprehensive overview of the financial performance of the organization as a whole but do not provide detailed information about the performance of each unit. Manufacturing accounts are used by manufacturing companies to calculate the cost of goods produced, and joint venture accounts are used to account for joint ventures or collaborations between two or more businesses. In summary, a rapidly growing business organization with multiple units that wants to compare the performances and weaknesses of each unit should adopt departmental accounts as it allows for a more detailed analysis of each unit's financial performance.

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In a fire disaster, the loss of equipment results in a decrease in assets. This is because equipment is considered a part of the company's assets. When it is lost due to a fire, the total value of the assets owned by the company decreases. There is no direct impact on liabilities since liabilities refer to the amount owed by the company to other parties, such as loans, debts, and accounts payable. However, if the company is unable to replace the lost equipment, it may lead to a decrease in its ability to generate revenue, which can, in turn, result in financial difficulties and an increase in liabilities. There is also no direct impact on capital since capital refers to the owner's equity in the company. However, the loss of equipment can indirectly affect capital since it can lead to a decrease in revenue and profits, which can lower the value of the company and, in turn, decrease the value of the owner's equity. Therefore, the most appropriate option is "a decrease in assets and capital" since the loss of equipment results in a direct decrease in assets and can indirectly impact capital.

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Share premium is an example of capital reserve. Capital reserve is a reserve that is created out of capital profits or receipts. Capital profits are those profits that are not earned from the normal business operations but from activities such as the sale of a capital asset or the issue of shares at a premium. Share premium is the excess amount that a company receives when it issues shares at a price that is more than the face value of the shares. It is the difference between the issue price and the face value of the shares. This excess amount is not revenue earned from the normal business operations, but a capital receipt. Share premium is therefore an example of a capital reserve, which is a reserve created out of capital receipts or profits. The purpose of a capital reserve is to provide a cushion against potential losses or to finance future capital expenditure. In summary, share premium is an example of a capital reserve, which is a reserve created out of capital profits or receipts that are not earned from the normal business operations.

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On dissolution of a partnership, the partners may decide to liquidate the assets of the business and distribute the proceeds to the partners. The final distribution of cash to the partners is based on the capital balances of the partners. The capital balance represents the amount of capital that each partner has invested in the business, plus or minus any adjustments for profits or losses. The capital balances are calculated by subtracting each partner's share of the partnership's liabilities from their share of the partnership's assets. Once the capital balances have been determined, the remaining cash is distributed to the partners in proportion to their capital balances. This means that partners with higher capital balances will receive a larger share of the remaining cash, while partners with lower capital balances will receive a smaller share. Therefore, the correct answer is "capital balances". This reflects the fact that the final distribution of cash to the partners is based on the amount of capital each partner has invested in the business.

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The receipt whose name appears on a cheque is called the "payee". This is the person or entity who is authorized to receive payment from the issuer of the cheque. When a cheque is written, the name of the payee is typically written on the "pay to the order of" line. Once the payee receives the cheque, they can then deposit or cash it to receive the payment specified on the cheque.

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In converting single entry to final account, the balancing figures on the income and expenses accounts are transferred to the profit and loss account. The profit and loss account is used to determine the net profit or loss of a business for a particular period. All the expenses and losses are deducted from the total revenue earned during the period, and the resulting figure is the net profit or loss. Therefore, the balancing figures on the income and expenses accounts, which represent the total revenue earned and total expenses incurred during the period, respectively, are transferred to the profit and loss account to determine the net profit or loss of the business.

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When a new partner is admitted to a partnership, the partnership agreement usually requires that the new partner invests some capital into the business in exchange for a share of the profits. To determine the value of the new partner's investment, there is a need to revalue the assets and liabilities of the business. This is because the admission of a new partner changes the ownership structure of the business, and therefore the value of the business as a whole. Revaluing the assets and liabilities of the business allows the partners to determine the true value of the business, taking into account any changes in the value of the assets or liabilities since the last valuation. This information is then used to determine the new partner's share of the partnership and the amount of capital they need to invest to become a partner. Therefore, the correct answer is "assets and liabilities of the business". This reflects the need to revalue the assets and liabilities of the business in order to determine the value of the new partner's investment.

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The balance on the provision for depreciation account is deducted from the fixed assets on the balance sheet. Provision for depreciation is a reserve that is set aside to represent the decrease in the value of fixed assets over time due to wear and tear or obsolescence. The provision for depreciation account is used to record the annual depreciation charged to the fixed assets. The balance on the provision for depreciation account represents the total amount of depreciation charged to the fixed assets since the fixed assets were acquired. This balance is used to adjust the value of the fixed assets on the balance sheet to their net book value. Net book value is the value of the fixed assets after deducting the accumulated depreciation from the original cost of the fixed assets. It is the amount at which the fixed assets are shown on the balance sheet. Therefore, the balance on the provision for depreciation account is deducted from the fixed assets on the balance sheet to arrive at the net book value of the fixed assets. This helps to provide a more accurate picture of the value of the fixed assets that the organization currently owns. In summary, the balance on the provision for depreciation account is deducted from the fixed assets on the balance sheet to arrive at the net book value of the fixed assets.