Principles Of Accounts 2013 Jamb Examination

Interest on drawings is an amount charged by the firm against partners who withdraw cash or goods. From the firm's perspective, this is a source of income that increases the total profit available for distribution. Therefore, it is credited to the Profit and Loss Appropriation Account and debited to the individual partners' current accounts.

When the issue price of a share (in this case #1.59) is higher than its nominal or 'face' value (50k), the share is issued at a premium. The excess amount (#1.09) is transferred to a 'Share Premium Account', which is a capital reserve.

When a company acquires another business for less than the fair value of its net assets (Assets minus Liabilities), the 'bargain' or gain is not considered a regular trading profit. Instead, it is treated as a Capital Reserve (often specifically called 'Capital Reserve on Acquisition' or 'Negative Goodwill').

Issuing shares at a discount means selling them for less than their nominal value. This discount is a loss to the company's capital. Under the rules of double entry, this loss is debited to the 'Discount on Issue of Shares Account' and the full nominal value is credited to the Share Capital Account to maintain the legal capital record.

In departmental accounting, if an indirect expense (like general manager's salary) cannot be logically linked to a specific metric like floor space or sales volume, the default accounting principle is to share the expense equally among the departments.

Gross Profit is Sales minus Cost of Goods Sold (COGS).

Step 1: Calculate COGS for K\[ \text{COGS} = \text{Opening Stock} (2,500) + \text{Purchases} (120,000) - \text{Closing Stock} (3,000) = 119,500 \]Step 2: Calculate Gross Profit for K\[ \text{Gross Profit} = \text{Sales} (180,000) - \text{COGS} (119,500) = 60,500 \]

Net Profit is Gross Profit minus operating expenses (Salaries and Rates).

Step 1: Calculate Gross Profit for Y\[ \text{COGS} = 800 + 100,000 - 1,500 = 99,300 \]\[ \text{Gross Profit} = 200,000 - 99,300 = 100,700 \]Step 2: Calculate Y's share of Rate expenses\[ \text{Ratio} = 1:2 \; (\text{Total parts} = 3). \; \text{Y's share} = \frac{2}{3} \times 1,500 = 1,000 \]Step 3: Calculate Net Profit for Y\[ \text{Net Profit} = \text{GP} (100,700) - \text{Salaries} (30,000) - \text{Rates} (1,000) = 69,700 \]

Departmental accounting is designed to track the financial performance of individual sections of a business separately. This allows management to ascertain the specific profit or loss generated by each department, helping them decide which areas to expand, contract, or improve.