JAMB UTME - Principles of Accounts - 1995

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An effective accounting system should provide information on internal and external reporting for managers and third parties. This means that the system should be able to generate accurate and timely financial reports that can be used by management to make informed decisions and by third parties, such as investors and creditors, to assess the financial health of the organization. The accounting system should be able to provide information on financial transactions, including revenues, expenses, assets, liabilities, and equity. It should also be able to generate financial statements, such as income statements, balance sheets, and cash flow statements, which can be used to analyze the financial performance of the organization. Additionally, the accounting system should have internal controls to ensure the accuracy and integrity of financial information.

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Interest on a partner's drawings refers to the interest charged on the amount of money withdrawn by a partner from the business for personal use. This interest is charged by the partnership firm to the partner, and therefore, it is debited to the Partner's current account. At the same time, since it is an expense for the partnership firm, it is credited to the profit and loss appropriation account. Therefore, the correct answer is "Partners current account and credited to the profit and loss appropriation account."

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The factory cost of producing goods is made up of two components: prime cost and factory overhead. Prime cost is the sum of direct material cost and direct labor cost. It represents the cost of the materials and labor used directly in the production of the goods. Factory overhead, on the other hand, refers to the indirect costs of production, such as rent, utilities, and indirect labor. These costs are not directly related to the production of a specific unit of product, but are necessary for the production process to take place.

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The ratio that gives an idea of the liquidity of a firm is the Quick ratio. The quick ratio, also known as the acid-test ratio, measures a company's ability to pay off its current liabilities with its quick assets, which are assets that can be easily converted to cash. Quick ratio provides a more conservative measure of liquidity compared to other liquidity ratios like the current ratio, which includes all current assets. A higher quick ratio indicates that a company has enough quick assets to cover its current liabilities and can quickly pay off its obligations. Therefore, option B (Quick ratio) is the correct answer.

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A trial balance is a list of all the balances of accounts in the ledger of a company at a specific point in time. The purpose of preparing a trial balance is to test the arithmetical accuracy of the ledger accounts by ensuring that the total of all debit balances equals the total of all credit balances. This process helps to identify any errors in the ledger accounts and to ensure that the financial statements prepared from these accounts are accurate. Therefore, the correct option is "testing arithmetical accuracies of the ledger account balances".

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When a non-profit making organization prepares accounts using the accruals basis of reporting, the statement that shows how well the organization is doing is the income and expenditure account. This account is used to record the organization's revenue earned and expenses incurred during a specific period, regardless of whether the cash has been received or paid. The income and expenditure account helps the organization to measure its financial performance by comparing the revenue generated with the expenses incurred. The resulting surplus or deficit is then transferred to the balance sheet as unrestricted funds. Therefore, the income and expenditure account is the statement that shows how well a non-profit making organization is doing over a given period.

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To calculate the purchase figure for the month, we need to use the formula: Purchase = Opening stock + Purchases - Closing stock We have the opening stock as ₦2,400, and the closing stock as ₦6,400. We also know that the profit for the month is ₦900. Using the formula above, we can rearrange it to solve for purchases: Purchases = Closing stock + Cost of sales - Opening stock We can calculate the cost of sales as the sales figure minus the other expenses and the profit: Cost of sales = Sales - (Other expenses + Profit) = ₦11,000 - (₦2,000 + ₦900) = ₦8,100 Substituting the values we have into the formula, we get: Purchases = ₦6,400 + ₦8,100 - ₦2,400 = ₦12,100 Therefore, the purchase figure for the month is ₦12,100. Answer is correct.

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The total number of shares applied for is 600,000, but only 500,000 shares are available (400,000 issued and 100,000 dishonored). This means that each subscriber will be allocated 5/6 of the shares they applied for. For a subscriber who applied for 5,000 shares, the number of shares allocated to them will be 5,000 x 5/6 = 4,167 shares. The total amount paid by the subscriber for these shares will be 4,167 x ₦1.20 = ₦5,000.40. However, the subscriber only applied for 5,000 shares at a cost of ₦6,000. Therefore, the refund due to the subscriber will be: Refund = Amount paid - Amount due Refund = ₦6,000 - ₦5,000.40 Refund = ₦999.60 Therefore, the refund due to the subscriber who applied for 5,000 shares is ₦999.60. Option A, ₦1,000, is the closest answer to the actual refund due.

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When a partner withdraws money from the business, it is called a "drawing." If the partner continues to keep the money in their current account in the business, the business will usually pay interest to the partner for the use of the money. The correct answer to this question is "Partners current account and credited to the profit and loss appropriation account". This means that the interest on a partner's drawing is debited to the partner's current account (to decrease the balance in the account) and credited to the profit and loss appropriation account (to increase the business's expenses). This treatment of interest on a partner's drawing ensures that the partner is compensated for the use of their money and that the business's expenses accurately reflect the cost of using the partner's money.

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The concept that stipulates that accounting profit is the difference between revenue and expenses is the accrual concept. Under this concept, revenues are recognized when they are earned, regardless of when the payment is received, and expenses are recognized when they are incurred, regardless of when the payment is made. This means that revenue and expenses are recorded in the accounting period to which they relate, rather than when the cash is received or paid out. This allows for a more accurate and fair representation of the financial performance of a company, as it takes into account all the transactions that have occurred during the period, rather than just those for which payment has been received or made.

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The correct entry that properly records the transaction is: Bank account was debited with ₦500,000 and capital account was credited with ₦500,000. This is because Mr. Diamond brought in a cheque of ₦500,000, which was paid into the bank account. Therefore, the bank account should be debited with the ₦500,000 to reflect the inflow of cash into the account. The capital account should be credited with the ₦500,000 to record the increase in the owner's equity in the business resulting from the contribution of capital by the owner. is incorrect because it credits the cash account instead of the capital account, which would result in an incorrect balance in the capital account. is incorrect because it only records the inflow of cash into the bank account and does not reflect the increase in the owner's equity resulting from the contribution of capital. is incorrect because it debits Mr. Diamond's account, which is unnecessary since the transaction is between Mr. Diamond and his business, and does not involve any other parties.

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Departmental accounts are maintained to ascertain the contribution of each department. This means that departmental accounts are used to determine the revenue generated by each department and the corresponding costs incurred in generating that revenue. By analyzing the revenues and expenses of each department, management can make informed decisions about the efficiency and profitability of each department. This information is valuable in helping management to allocate resources, improve performance, and identify areas that require attention or improvement. By maintaining departmental accounts, an organization can improve its financial management and overall performance.

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The measure of a company's ability to pay its debts quickly is called the "acid test ratio." This ratio measures the ability of a company to meet its short-term liabilities with its current assets that can be easily converted into cash, such as cash, marketable securities, and accounts receivable. A higher acid test ratio indicates a better ability to pay off short-term debts and is generally considered to be a good indicator of a company's financial health.

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Adjustments in the profit and loss account are necessary to ascertain the actual expenses incurred and income earned during the year. The purpose of adjustments is to ensure that all expenses and incomes are recognized in the correct accounting period, and to make sure that the financial statements reflect a true and fair view of the company's financial performance. For example, some expenses or revenues may have been recognized in the wrong period or may need to be accrued or deferred. Adjustments may also be necessary to provide for depreciation, bad debts, or other provisions required by accounting standards. By making these adjustments, the profit and loss account can accurately reflect the company's financial performance for the year, which is important for making business decisions and complying with accounting regulations.

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Halidu and Hamed are business partners and the total capital they invested is ₦30,000 + ₦20,000 = ₦50,000. Since no profit sharing ratio is given, we will assume that the profits will be shared in the ratio of their capital investment. Halidu invested ₦30,000 which is 3/5 (60%) of the total capital, while Hamed invested ₦20,000 which is 2/5 (40%) of the total capital. Halidu's salary of ₦3,000 is an expense to the partnership and it is first deducted from the profit before sharing. Therefore, Profit available for sharing = Total Profit - Halidu's salary = ₦12,000 - ₦3,000 = ₦9,000 Halidu's share of the profit = (60% of the total profit available) = (60/100) x ₦9,000 = ₦5,400 Therefore, the answer is option C: ₦5,400.

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The Sales Ledger Control Account is an account in the general ledger that contains the total amount owed to a business by its customers or debtors. It acts as a summary of all the individual customer accounts in the sales ledger, showing the total amount outstanding from all customers. Therefore, the correct option is "debtors."

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A government accounting system must make sure that all applicable legal provisions are complied with. This means that the government's financial transactions should follow the relevant laws and regulations, ensuring transparency and accountability in the use of public funds. This includes ensuring that revenue is collected and recorded accurately, expenditures are authorized and properly documented, and all financial statements are prepared in accordance with the applicable standards and guidelines. The government must also ensure that it has adequate controls in place to prevent fraud, waste, and abuse of public resources.

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The starting point for the production of accounts from incomplete records is to prepare an opening statement of affairs. This is because incomplete records mean that not all financial transactions are recorded in the accounting system. Therefore, the opening statement of affairs is prepared to determine the opening capital, which includes the value of assets, liabilities, and capital at the beginning of the accounting period. This statement helps to establish a starting point for the preparation of financial statements and ensures that all financial transactions are accounted for in a systematic manner. Once the opening statement of affairs is prepared, it is possible to compute the profit or loss made during the period, by calculating the difference between the closing capital and the opening capital, and to prepare other financial statements like the balance sheet and profit and loss account.

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The feature of partnership that is considered strong is that the owners are liable personally for all debts of the business. This means that the partners are not only responsible for their own actions but also for the actions of their partners. This liability makes the partners more careful in their business activities and decisions. It also ensures that the partners have a vested interest in the success of the business, as they will be personally liable for any losses that the business incurs. This liability feature also promotes transparency and accountability among partners as they have to work together to ensure that the business is successful and profitable.

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The sources of revenue to state government in Nigeria are: 1. Statutory allocation: This is the money allocated to states from the federal government's revenue. It is shared based on a formula that takes into account factors like population, landmass, and internally generated revenue. 2. Fines from customary courts: This is the money collected as fines from customary courts. Customary courts are traditional courts that handle cases involving customary law, such as disputes over land, marriage, and inheritance. 3. Petroleum tax: This is a tax imposed on companies that operate in the petroleum industry in Nigeria. The tax is based on the profits earned by these companies from their operations in Nigeria. 4. Income tax: This is a tax imposed on the income earned by individuals and companies in Nigeria. It is collected by the federal government but shared with the states based on the revenue allocation formula. Therefore, the correct options that are sources of revenue to state government in Nigeria are I and IV, which are Statutory allocation and Income tax.

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To correct the error, we need to reverse the incorrect entry by debiting John's account and crediting the cash account with the same amount of the incorrect entry. Therefore, the correct journal entry to rectify the error is: John: ₦20 Dr, Cash: ₦20 Cr This will reduce the amount credited to John's account by ₦20 and increase the cash balance by ₦20, which will cancel out the initial error in the cash book.

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The factory cost of producing goods is made up of prime cost and factory overhead. Prime cost includes direct costs like raw materials, labor, and other direct expenses incurred during production. Factory overhead, on the other hand, includes indirect costs such as rent, utilities, and other expenses that cannot be directly attributed to the production of goods. Therefore, the total cost of producing goods in a factory is the sum of the prime cost and factory overhead.

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If Bola owed ₦1,000 on account of a radio bought and sent in a cheque for ₦1,500, UTC would have an excess of ₦500. To refund this excess payment, UTC would issue a credit note to Bola, which represents a document or a slip given by the seller to the buyer, acknowledging that the buyer has returned goods or has been overcharged. In this case, the credit note would acknowledge that UTC has been overpaid and would serve as evidence to reduce the balance owed by Bola on account. Therefore, the correct answer is a credit note.

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To compute the average amount of stock in hand at cost price, we need to use the inventory turnover ratio formula: Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory We can calculate the cost of goods sold using the given information: Cost of Goods Sold = Total Sales - Gross Profit To calculate the gross profit, we need to know the cost price of the goods sold. From statement I, we know that the selling price is 1.25 times the cost price. Therefore, the cost price is 4/5 of the selling price. Let x be the cost price of an item. Then, the selling price is 1.25x. The gross profit per item is: Gross Profit = Selling Price - Cost Price = 1.25x - x = 0.25x The expenses of the retailer are 10% of his sales, so his net profit per item is: Net Profit = Gross Profit - Expenses = 0.25x - 0.1(1.25x) = 0.125x The turnover rate is 5 times, which means the cost of goods sold is 5 times the average inventory. Cost of Goods Sold = 5 * Average Inventory * x Total Sales = Cost of Goods Sold + Gross Profit + Expenses 23,000 = 5 * Average Inventory * x + 0.25x * 5 * Average Inventory + 0.1 * 23,000 23,000 = 5x * Average Inventory * (1 + 0.25) + 0.1 * 23,000 23,000 = 6.25x * Average Inventory Average Inventory = 23,000 / (6.25x) Substituting the value of cost of goods sold, we get: Average Inventory = 5 * Average Inventory * x / (6.25x) Simplifying, we get: Average Inventory = 4 * Total Sales / 25 Average Inventory = ₦3,680 Therefore, the average amount of stock in hand at cost price is ₦3,680. The answer is (C) ₦3,680.

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