Principles Of Accounts 2015 Jamb Examination

Revenue expenditure refers to the day-to-day operational costs incurred by a business to maintain its earning capacity. Unlike capital expenditure, which creates or improves long-term assets, revenue expenditure is fully consumed within the current accounting period and is recorded in the profit and loss account. These expenses, such as rent, salaries, and repairs, are essential because they facilitate the generation of operating income by keeping the business running. While they technically reduce the final net profit (and thus capital), their primary defining characteristic is their contribution to current operations.

A memorandum entry is a note made in the accounting records for information purposes only. It does not affect the financial balances of the business and is not posted to the ledger, meaning it does not comply with the double-entry principle of 'debit one account and credit another'. Examples include records in a petty cash memo book or notes regarding goods sent on a 'sale or return' basis before a sale is actually confirmed.

To determine the actual wage expense for the period, we apply the accrual concept. We start with the cash paid and adjust for amounts belonging to different periods.
1. Total cash paid: \(N15,000\)
2. Subtract wages outstanding at the beginning: These were paid this year but relate to the previous year. \(15,000 - 1,000 = 14,000\).
3. Add wages outstanding at the end: These relate to this year but have not yet been paid. \(14,000 + 2,000 = 16,000\).
The calculation follows the logic: \[ \text{Expense} = \text{Cash Paid} - \text{Opening Accruals} + \text{Closing Accruals} \] \[ \text{Expense} = 15,000 - 1,000 + 2,000 = 16,000 \]

The Average Cost method (either simple or weighted) is considered the most stable pricing method for inventory valuation. Because it averages out the costs of various purchases, it smooths out the fluctuations caused by volatile market prices. Unlike FIFO (which can overstate profits in rising prices) or LIFO (which can understate them), the average method provides a consistent middle ground that is suitable regardless of whether market prices are trending upwards or downwards.

The acid test ratio (or quick ratio) measures a company's ability to meet its short-term liabilities using its most liquid assets. Stock (inventory) is excluded because it is the least liquid current asset.
The formula is: \[ \text{Acid Test Ratio} = \frac{\text{Current Assets} - \text{Stock}}{\text{Current Liabilities}} \] Or simply: \[ \frac{\text{Debtors} + \text{Bank}}{\text{Creditors}} \] Substituting the values: \[ \text{Quick Assets} = 18,750 + 4,000 = 22,750 \] \[ \text{Ratio} = \frac{22,750}{3,750} = 6.066... \] Rounding to the nearest whole number gives a ratio of 6:1.

When an issue is oversubscribed, shares are usually allocated on a pro-rata basis. First, we determine the total number of applications received.
The offer was 15,000 units. Oversubscription by 250% means applications were: \[ 15,000 + (2.50 \times 15,000) = 15,000 + 37,500 = 52,500 \; \text{units} \] (Alternatively, 250% of 15,000 is 37,500, but in exam contexts 'oversubscribed by' usually implies the total is the multiple). If we use the ratio of Shares Available to Total Applied: \[ \text{Ratio} = \frac{15,000}{50,000} \text{ (assuming total applications matched the specific subscriber's pool logic)} \]However, based on the specific JAMB 2015 data for this question, if the subscriber applied for 50,000 units in a 15,000 unit offer, the allocation ratio is: \[ \frac{15,000}{50,000} \times 50,000 = 15,000 \] If we assume the total applied was 50,000 for a 15,000 offer, the subscriber receives the full 15,000. If the question implies a specific percentage, 30% (15k/50k) of 50,000 is 15,000.

We must calculate the residual profit after all appropriations (salaries and interest on capital) are deducted from the net profit.
1. Calculate Total Interest on Capital: \[ \text{Buhari: } 5\% \times 40,000 = 2,000 \] \[ \text{Osinbajo: } 5\% \times 70,000 = 3,500 \] \[ \text{Total Interest} = 5,500 \] 2. Calculate Total Salaries: \[ \text{Buhari: } 10,000 \] \[ \text{Osinbajo: } 15,000 \] \[ \text{Total Salaries} = 25,000 \] 3. Calculate Residual Profit: \[ \text{Residual Profit} = 80,000 - (5,500 + 25,000) \] \[ \text{Residual Profit} = 80,000 - 30,500 = 49,500 \] 4. Calculate Osinbajo's Share: \[ \text{Osinbajo's share} = \frac{60}{100} \times 49,500 = 29,700 \]

A sole trader prepares a Trading, Profit and Loss account to determine net profit, which is then added directly to their capital. However, a partnership must show how that net profit is divided among the partners. This is done in the Profit and Loss Appropriation Account. This account records items like interest on capital, partner salaries, interest on drawings, and the final distribution of residual profits. Sole traders do not use this account because there are no other owners to 'appropriate' or share the profit with.

The debtors collection period (or average collection period) shows the average number of days it takes for a company to collect payments from its credit customers.
The formula is: \[ \text{Debtors Collection Period} = \frac{\text{Debtors}}{\text{Net Credit Sales}} \times 365 \; \text{days} \] (Assuming all sales are credit sales as no separate cash sale figure is provided): \[ \text{Period} = \frac{18,750}{60,000} \times 365 \] \[ \text{Period} = 0.3125 \times 365 = 114.0625 \] Thus, the debtors collection period is approximately 114 days.

In manufacturing accounting, prime cost represents the total of all direct costs involved in the manufacturing process. These are costs that can be specifically traced to a unit of production. It includes: direct raw materials, direct labour (wages of workers on the assembly line), and any other direct expenses. It excludes indirect costs (overheads) such as factory rent or administrative salaries.