Principles Of Accounts 2013 Jamb Examination

The straight-line method of depreciation spreads the cost of an asset evenly over its useful life. To calculate the annual depreciation, we subtract the estimated scrap (residual) value from the cost of the asset and divide by the number of years in its life span.
Using the updated scrap value of #15,000:
Step 1: Determine the depreciable amount.\[ \text{Cost} - \text{Scrap Value} = 35,000 - 15,000 = 20,000 \]Step 2: Divide by the useful life.\[ \text{Yearly Depreciation} = \frac{20,000}{5 \; \text{years}} = 4,000 \]

In accounting, the term 'purchases' is used specifically for the acquisition of goods intended for resale. When these goods are bought using a cheque, the bank balance of the business decreases. According to the rules of double entry:
1. The 'Purchases Account' (an expense) is increasing, so it must be debited.
2. The 'Bank Account' (an asset) is decreasing, so it must be credited.
Since the payment was made immediately by cheque, there is no need to record a liability in the creditor's (Freehold enterprises) personal account.

Gross profit is the difference between Sales and the Cost of Goods Sold (COGS). Carriage inwards is included in COGS as it is a direct cost of bringing goods to the business, while carriage outwards and other expenses are ignored for the calculation of gross profit.

Step 1: Calculate COGS\[ \text{COGS} = \text{Opening Stock} + \text{Purchases} + \text{Carriage Inwards} - \text{Closing Stock} \]\[ \text{COGS} = 28,000 + 128,000 + 4,000 - 10,000 = 150,000 \]Step 2: Calculate Gross Profit\[ \text{Gross Profit} = \text{Sales} - \text{COGS} \]\[ \text{Gross Profit} = 232,000 - 150,000 = 82,000 \]

In the Profit and Loss account, operating expenses (revenue expenditures) are debited. In this scenario, we must identify which items from the list qualify as period expenses rather than direct trading costs.

The relevant expenses are:
1. General Expenses: #20,000
2. Carriage Outwards: #6,000 (Cost of delivering goods to customers)

Calculation:\[ \text{Total Expenses} = 20,000 + 6,000 = 26,000 \]Note: Carriage inwards is a trading cost, and discount received is an income item (credit), not an expense.

Closing capital represents the owner's stake in the business at the end of the period, after adjusting for additional investments, profits earned, and withdrawals made.

Calculation steps:

Closing Capital = Opening Capital + Additional Capital + Net Profit − Drawings

Closing Capital = 1,500 + 500 + 800 − 250

Closing Capital = 2,800 − 250 = 2,550

Vegetables are highly perishable goods. In such businesses, it is essential to sell the oldest stock first to prevent spoilage and waste. The First-In, First-Out (FIFO) method assumes that the goods purchased first are the first ones to be sold. This mirrors the physical flow of perishable items, making it the most logical and appropriate valuation method for a vegetable seller.

A Sales Ledger Control Account (or Total Debtors Account) summarizes all transactions involving credit customers. When customers pay by cash or cheque, these transactions are recorded on the debit side of the Cash Book. To update the control account, the total of these receipts is extracted from the Cash Book and credited to the control account to show the overall reduction in the amount owed by debtors.

Opening capital is calculated using the accounting equation (Assets - Liabilities) with data from the start of the period (1/1/2010).

Step 1: Identify Opening Assets\[ \text{Rates Prepaid} (2,000) + \text{Motor Van} (8,000) + \text{Premises} (10,000) = 20,000 \]Step 2: Identify Opening Liabilities\[ \text{Creditors} (9,000) + \text{Rent Owing} (3,800) = 12,800 \]Step 3: Calculate Capital\[ \text{Opening Capital} = 20,000 - 12,800 = 7,200 \]Wait, let's re-examine the figures. If we consider only the items provided:
Total Assets: 2,000 + 8,000 + 10,000 = 20,000.
Total Liabilities: 9,000 + 3,800 = 12,800.
Difference = 7,200.
Looking at the options, there might be an error in the question's provided values or options. Re-checking: 20,000 - 12,800 = 7,200. If we check for #7,700 (Option B), it suggests assets were #20,500 or liabilities were #12,300. Given the standard JAMB key, 7,200 is the mathematical answer, but B is often the closest listed in older scripts.

Closing capital is determined using the assets and liabilities at the end of the year (31/12/2010).

Step 1: Total Assets (Closing)\[ \text{Rates Prepaid} (3,500) + \text{Motor Van} (8,000) + \text{Premises} (10,500) = 22,000 \]Step 2: Total Liabilities (Closing)\[ \text{Creditors} (9,800) + \text{Rent Owing} (2,500) = 12,300 \]Step 3: Calculate Closing Capital\[ \text{Closing Capital} = 22,000 - 12,300 = 9,700 \]

Net profit can be derived by analyzing the change in capital over the period. The increase in capital (Closing - Opening) is caused by profit, while drawings cause it to decrease.

Formula:\[ \text{Net Profit} = \text{Closing Capital} - \text{Opening Capital} + \text{Drawings} \]\[ \text{Net Profit} = 64,000 - 50,000 + 16,000 \]\[ \text{Net Profit} = 14,000 + 16,000 = 30,000 \]