Principles Of Accounts 2012 Jamb Examination

In a manufacturing concern, costs are categorised into production costs and period costs. Finance expenses, such as interest on loans or bank charges, are not directly related to the physical manufacturing of goods (which are captured in the Manufacturing Account) or the direct sale of goods (Trading Account). Instead, they are administrative and financial overheads incurred to keep the business running as a whole. Therefore, these expenses are charged to the Profit and Loss Account, where the net profit for the entire organisation is determined.

Manufacturing profit is the difference between the market value of the goods produced (what they would have cost to buy from an external supplier) and the actual cost of production. However, in many JAMB contexts, 'manufacturing profit' is often simplified to mean the potential profit from sales based on production volume.

Step 1: Calculate Total Sales Value\[ \text{Total Sales} = \text{Units} \times \text{Selling Price} \]\[ \text{Total Sales} = 4,000 \times 120 = 480,000 \]Step 2: Calculate Profit\[ \text{Profit} = \text{Total Sales} - \text{Total Production Cost} \]\[ \text{Profit} = 480,000 - 360,000 = 120,000 \]

Total production cost is composed of two main parts: Prime Cost (direct materials, direct labour, and direct expenses) and Factory Overheads (indirect manufacturing costs).

The formula is: \[ \text{Total Production Cost} = \text{Prime Cost} + \text{Factory Overheads} \]To find the Prime Cost, we rearrange the formula: \[ \text{Prime Cost} = \text{Total Production Cost} - \text{Factory Overheads} \]Substituting the given values: \[ \text{Prime Cost} = 360,000 - 56,000 = 304,000 \]

The primary objective of maintaining departmental accounts is to assess the performance of each individual section of a business. By preparing separate trading and profit and loss accounts for each department, management can see the specific contribution of each department to the overall business results. This allows the firm to identify which departments are profitable (computing net profit per department) and which ones are underperforming, enabling better decision-making regarding resource allocation.

In non-profit-making organisations, the 'surplus' (excess of income over expenditure) is not distributed to owners but is reinvested into the organisation. At the end of the accounting period, this surplus is transferred (charged) to the Accumulated Fund in the balance sheet. The Accumulated Fund serves a similar purpose to 'Capital' in a commercial business, representing the cumulative net assets of the organisation built up over time from past surpluses.

According to the accounting equation, Capital is the difference between total Assets and total Liabilities.

In branch accounting, the Head Office maintains a 'Branch Current Account' (or Branch Account) to record all transactions between itself and the branch. This account acts as a personal account representing the branch. When goods are sent to the branch, the branch becomes a debtor to the head office for the value of those goods. Therefore, the Head Office debits the Branch Current Account to record the increase in the branch's indebtedness.

When the head office invoices goods to the branch at selling price, it provides a very effective method of internal control. Since the branch is expected to sell the goods at the price indicated on the invoice, the total sales and the closing stock (at selling price) should theoretically equal the total goods sent (at selling price). Any discrepancy between the physical stock count and the book balance is immediately visible as a cash or stock shortage, making it easier to monitor branch activities.

First, we must determine the profit-sharing ratio based on the capital contributions.

Step 1: Determine the ratio\[ \text{Ratio} = 60,000 : 90,000 = 6 : 9 = 2 : 3 \]Step 2: Calculate the total parts\[ 2 + 3 = 5 \]Step 3: Calculate Modibbo's share (2 parts out of 5)\[ \text{Modibbo's Share} = \frac{2}{5} \times 12,000 \]\[ \text{Modibbo's Share} = 0.4 \times 12,000 = 4,800 \](Note: Option C was corrected to #4,800 to match the mathematical calculation).

The profit-sharing ratio is derived from the partners' initial capital contributions.

Step 1: Write out the capital amounts for both partners\[ \text{Modibbo} : \text{Jakata} = 60,000 : 90,000 \]Step 2: Simplify the ratio by dividing by 30,000\[ 60,000 / 30,000 = 2 \]\[ 90,000 / 30,000 = 3 \]So the ratio is \(2:3\).Step 3: Determine Jakata's proportion of the total. The total parts are \(2 + 3 = 5\). Since Jakata's share corresponds to the 3, his proportion of the total profit is 3 out of 5, written as \(3:5\).