Principles Of Accounts 2009 Jamb Examination

A provision for bad and doubtful debts is an estimate of the amount of debt that a business may not be able to recover from its credit customers (debtors). According to the prudence concept, a business should provide for expected losses rather than wait for them to occur. This provision is treated as an operating expense for the period. Any increase in the provision is debited to the profit and loss account, while a decrease is credited as a gain. It essentially reduces the net profit of the company before it is shown as a deduction from the total debtors in the balance sheet to present a more realistic valuation of current assets.

Book value per share (BVPS) is a financial ratio that represents the equity available to common shareholders on a per-share basis. It is calculated by taking the total shareholders' equity—which is effectively the net asset value of the company (total assets minus total liabilities)—and dividing it by the total number of outstanding common shares. This figure provides a theoretical value of what shareholders would receive if the company were liquidated at the values currently recorded on the balance sheet. It is a key metric used by investors to assess if a stock is potentially undervalued or overvalued relative to its market price.

Revenue expenditure refers to the money spent by a business on its day-to-day operational activities. These expenses are fully consumed within a single accounting period and are incurred to maintain the earning capacity of the business rather than to acquire long-term assets. Purchasing goods specifically for the purpose of reselling them (stock) and buying consumables like fuel, stationery, or raw materials are classic examples of revenue expenditure. These costs are matched against the revenue of the period in the trading and profit and loss accounts.

Capital expenditure (CapEx) involves the funds used by a company to acquire, upgrade, and maintain physical assets such as property, buildings, or equipment. When a fixed asset is replaced or renewed, the expenditure typically extends the asset's useful life, increases its productive capacity, or improves its overall efficiency. Because these costs provide an economic benefit that spans several accounting years and involve the acquisition of long-term productive capacity, they are capitalised on the balance sheet rather than being fully expensed as a single-year operational cost.

In government accounting, the Consolidated Revenue Fund (CRF) is the main treasury account where all public revenues are deposited. Credits to this account represent inflows of money. Recurrent and capital expenditures are debits to the fund as they represent outflows. Revenue generated from international trade, duties, and foreign agreements, along with domestic taxes, are credited to the fund to reflect the increase in available public resources. Therefore, international revenue is an appropriate source of credit for the consolidated revenue fund.

The public sector exists primarily to provide essential services and goods that the private commercial sector might either ignore or find unprofitable to provide (public goods). One of its fundamental roles is the redistribution of wealth and opportunities to correct perceived inequalities within society. This is achieved through social welfare programmes, progressive taxation, and the provision of equal access to basic services like health and education, ensuring that resources are not solely concentrated in the hands of the wealthy and providing a safety net for all citizens.

To determine the Cost of Goods Sold (COGS), we must first calculate the Gross Profit using the provided margin. The Gross Profit margin is given as 10% of Sales. \[ \text{Sales} = 100,000 \] \[ \text{Gross Profit} = 10\% \times 100,000 = 10,000 \] The standard formula for Gross Profit is: \[ \text{Gross Profit} = \text{Sales} - \text{Cost of Goods Sold} \] Rearranging the formula to solve for the Cost of Goods Sold: \[ \text{Cost of Goods Sold} = \text{Sales} - \text{Gross Profit} \] \[ \text{Cost of Goods Sold} = 100,000 - 10,000 \] \[ \text{Cost of Goods Sold} = 90,000 \] Therefore, the value of the cost of goods sold is N90,000.

First, we must determine the Cost of Goods Sold (COGS). From the previous context, we know the Gross Profit margin is 10%, meaning COGS is 90% of Sales. \[ \text{COGS} = 90\% \times 100,000 = 90,000 \] The formula for Cost of Goods Sold is: \[ \text{COGS} = \text{Opening Stock} + \text{Purchases} - \text{Closing Stock} \] Given values: \[ \text{Opening Stock} = 5,000 \] \[ \text{Closing Stock} = 5,600 \] \[ \text{COGS} = 90,000 \] Substituting these into the formula: \[ 90,000 = 5,000 + \text{Purchases} - 5,600 \] \[ 90,000 = \text{Purchases} - 600 \] \[ \text{Purchases} = 90,000 + 600 \] \[ \text{Purchases} = 90,600 \] The total value for purchases is N90,600.

To find the insurance expense for the Profit and Loss account, we must adjust the actual cash paid for the accruals at the start and end of the period. According to the accrual concept, we add liabilities at the end (expenses incurred but not yet paid) and subtract liabilities at the start (payments made for the previous year). \[ \text{Insurance Premium (P&L)} = \text{Cash Paid} + \text{Accrued at end} - \text{Accrued at start} \] \[ \text{Insurance Premium (P&L)} = 1,850 + 710 - 600 \] \[ \text{Insurance Premium (P&L)} = 1,850 + 110 \] \[ \text{Insurance Premium (P&L)} = 1,960 \] The adjustment shows that N1,960 represents the true expense for the accounting year ended 30/9/07.

To determine the rent income to be credited to the Profit and Loss account, we apply the accrual principle to the cash received. We must add the opening prepayment (income received in the previous year but earned this year) and subtract the closing prepayment (income received this year but earned next year). \[ \text{Rent Income (P&L)} = \text{Cash Received} + \text{Prepaid at start} - \text{Prepaid at end} \] \[ \text{Rent Income (P&L)} = 2,100 + 490 - 630 \] \[ \text{Rent Income (P&L)} = 2,590 - 630 \] \[ \text{Rent Income (P&L)} = 1,960 \] This adjustment ensures that only the income actually earned during the current period is reflected in the financial statements.