2015 JAMB ACCOUNTING PAST QUESTIONS AND ANSWER

An expense is revenue in nature if it contributes to the regular operations of the business, such as salaries, utilities, and supplies. These expenses are short-term and do not add long-term value to the company’s assets, unlike capital expenses. Thus, they reduce the business’s operational profits but do not affect its capital directly.

A memorandum entry is an informal record of transactions that do not affect the double-entry system. Such entries might include reminders or information that do not immediately impact the accounts. They are not part of the official financial records.

The wage expense is calculated as: wages paid during the period (15,000) plus wages outstanding at the end (2,000), minus wages outstanding at the beginning (0). This gives a total wage expense of 17,000.

The average method smooths out price fluctuations by using a weighted average of the costs of all goods available for sale during the period. It works well in both rising and falling price environments as it averages the prices rather than favoring the older or newer stock.

The acid test ratio is calculated as (Current Assets – Inventory) / Current Liabilities. Using the given data, [(18,750 + 4,000) – 11,250] / 3,750 gives an acid test ratio of 3:1.

The number of shares to be issued is based on a prorated allocation. If the full 50,000 units cannot be issued, the most likely allocation would be 20,000 shares, which is a typical prorated reduction from the original application.

Osinbajo’s profit share is calculated as 60% of the net profit after adding interest on capital and subtracting salaries and drawings. With a net profit of N80,000, his share is N48,000.

The appropriation account is unique to partnerships. It shows how profits are shared among partners, including adjustments for interest on capital, salaries, and profit-sharing ratios, unlike in a sole trader’s account.

The debtors’ collection period is calculated as (Debtors/Sales) × 365. In this case, (18,750/60,000) × 365 gives 114 days.

Prime cost refers to the total of direct material costs, direct labor costs, and any other variable expenses directly related to production. It excludes indirect costs like factory overheads.

The materiality concept allows for small-value items like kitchen cutlery to be expensed immediately rather than capitalized. Since the cost is insignificant relative to the overall financials, it’s treated as an expense.

In this partnership, Timo and Chris contribute capital, with Timo bringing a total of 100,000 and Chris contributing 150,000. The ratio based on these capital contributions is 2:3.

A credit note is issued when an invoice is overcast. This document reduces the amount payable by the customer, correcting the error.

Under LIFO, the most recent purchases are issued first. In this case, the latest prices are N1.50 for 350 units and N1.00 for 350 units, making the total 700 units.

The sales ledger control account records total amounts from sales transactions. After applying balances and discounts, the total brought down is N90, N870.

When cash sales are banked, the correct entry is to debit the bank account and credit sales. This reflects that the cash has been deposited into the bank.

Dishonoured cheques represent a reversal of payments and are added to the aggregate balance as per the cash book, reflecting the outstanding balance.

Credit sales increase the amount owed by debtors, and therefore, it’s recorded as a debit in the debtors’ control account.

The incorrect equation is the one where liabilities are added to both assets and capital. The correct equation is Assets = Liabilities + Capital.

The prudency convention requires assets like stock to be valued at the lower of their cost or their market value, to ensure that profits are not overstated.

Liquidity ratios measure a company’s ability to meet its short-term obligations using its most liquid assets. These ratios are crucial for assessing financial health.

The stock turnover period is calculated by dividing average stock by cost of sales, then multiplying by 365. In this case, (23,000 / 300,000) × 365 gives 28 days.

When bad debts are recovered, the correct entry is to debit the bad debts recovered account and credit the bad debts account, as this reflects the recovery of previously written-off debt.

Bank signatories are not part of the memorandum and articles of association, which focus on company objectives, powers, and governance structures.

Cost control involves monitoring and making adjustments to align actual costs with budgeted or targeted costs, ensuring efficient resource use.

The sales ledger control account tracks the total amount owed by debtors for credit sales, reflecting the overall receivables.

Branch adjustment accounts are used to track discrepancies or adjustments related to branch activities, unlike the other accounts listed, which deal with regular branch transactions.

The cash basis is typically used in public sector accounting, meaning transactions are recorded when cash is received or paid, not when they are incurred.

Closing capital is calculated as assets minus liabilities at the end of the year. For the given data, (20,500 + 10,000 + 1,200 + 2,500 + 4,000) – (17,000) gives a closing capital of 21,200.

In the absence of an agreement, profits are divided equally between partners. This ensures fairness in the absence of specific terms.

Rent is apportioned based on floor space. For Department Z, the space is 60 square meters, and the total rent is divided accordingly. Z receives N1,800.

The error committed is an error of original entry, where the initial amount is incorrectly entered into the accounting records.

The capital is calculated by subtracting liabilities from assets. For 1st Jan 2014, (850 + 15,500 + 18,000 + 9,000) – (10,000) gives 33,350.

Returns outwards refer to goods sent back to suppliers, which do not affect the capital account, unlike other transactions like drawings or profit.

Shareholders can only lose the amount of their investment in a limited liability company, not their entire personal wealth, which distinguishes it from other forms of ownership.

A bank overdraft is typically repayable on demand, while a loan is usually repaid over a fixed term. This is the main difference between the two financial products.

A major benefit of partnerships is the ability to combine resources and skills, giving businesses more strength in their operations and decisions.

A suspense account is used to temporarily hold transactions when there is uncertainty about where they should be recorded in the ledger, allowing time for clarification.

The debt/equity ratio helps assess a company’s financial leverage, indicating the proportion of debt used to finance the company’s assets relative to equity.

The insurance payment is a prepaid expense, so the correct entry is to debit the prepaid insurance account and credit cash or bank, reflecting the future benefit.