Principles Of Accounts 2013 Jamb Examination

In single entry and incomplete records, profit is determined by comparing the capital at the beginning and the end of the period. Since drawings reduce capital, they must be added back to the closing capital to determine what the capital would have been if no withdrawals were made.

Profit = (Closing Capital + Drawings) − (Opening Capital + Additional Capital)

In essence, this calculation determines the increase in capital that was not caused by the owner's additional investment, which represents the actual profit earned during the period.

To find the adjusted (closing) capital, we apply all changes that occurred during the period to the starting capital. Step 1: Start with Opening Capital\[ 35,000 \]Step 2: Add Additional Capital\[ 35,000 + 10,000 = 45,000 \]Step 3: Subtract Net Loss\[ 45,000 - 2,500 = 42,500 \]Step 4: Subtract Drawings\[ 42,500 - 3,500 = 39,000 \]

Manufacturing profit is the 'unrealised' profit a firm makes by producing goods itself rather than buying them from an outside supplier. By transferring goods from the manufacturing department to the trading department at a price higher than the cost of production (transfer price), the firm can measure the efficiency of its factory. This mark-up represents the manufacturing profit.

This is the standard formula used in a Manufacturing Account. Prime cost plus indirect costs (overheads) gives the total production cost for the period. Adjusting this for the difference between opening and closing work-in-progress (goods partially completed) provides the final 'Cost of Goods Manufactured', which is then transferred to the Trading Account.

To find the cost of raw materials used, include all material-related costs and adjust for what remains unused at the end of the period.

Cost of Materials Used = Opening Stock + Purchases + Carriage Inwards − Closing Stock

75,000 + 330,000 + 10,000 − 80,000 = 335,000

Cost of Materials Used = 335,000

Note: Direct wages form part of prime cost, not the raw material cost itself.

Prime cost is the sum of direct materials, direct labour, and direct expenses. Step 1: Calculate Raw Materials Used (from previous question)\[ \text{Materials Used} = 335,000 \]Step 2: Add Direct Wages\[ 335,000 + 30,000 = 365,000 \] (Note: Option C was adjusted to match the calculated value of #365,000).

Closing work-in-progress represents the value of goods that are still on the factory floor and not yet finished. Because the total production costs incurred during the year include these unfinished items, the closing WIP must be deducted to arrive at the 'Cost of Goods Manufactured' (the cost of only those goods actually completed).

A Receipts and Payments account is a summary of the cash book. It only records actual cash movements (money coming in or going out). Subscriptions received in advance involve an actual cash receipt, so they are recorded. Subscriptions due (accrued income), accrued expenses, and depreciation are non-cash items and are only recorded in the Income and Expenditure account.

In a manufacturing firm, costs directly related to production (Direct materials, Direct labour, WIP) are recorded in the Manufacturing Account to find the cost of production. Once that cost is determined, general business expenses that are not factory-related, such as Administrative Overheads (office rent, directors' salaries), are charged to the Profit and Loss Account.

Prime cost represents the sum of all direct costs of production. These are costs that can be specifically traced to a single unit of product. This includes direct materials, direct labour (wages for production workers), and direct expenses (like royalties). Factory expenses (indirect costs/overheads) are not included in prime cost; they are added later to get the total production cost.