Principles Of Accounts 2015 Jamb Examination

The Materiality concept states that accounting standards should be applied to all items that are significant enough to influence the decisions of users of financial statements. Small items like kitchen cutlery, although they have a lifespan exceeding one year (which theoretically makes them non-current assets), are of such low value that the cost of tracking and depreciating them outweighs the benefit of accuracy. Therefore, they are 'expensed' or written off immediately in the period of purchase because they are considered immaterial to the overall financial position of the business.

To find the profit-sharing ratio based on capital contribution, we first calculate the total value of assets brought in by each partner.
 

Step 1: Calculate Timo's Total Capital

Timo = 12,000 (Cash) + 18,000 (Furniture) + 70,000 (Vehicle) = 100,000

Step 2: Calculate Chris's Total Capital

Chris = 10,000 (Cash) + 105,000 (Building) + 35,000 (PC) = 150,000

Step 3: Determine the Ratio\[ \text{Ratio} = 100,000 : 150,000 \]\[ \text{Divide by 50,000: } \frac{100,000}{50,000} : \frac{150,000}{50,000} = 2 : 3 \]

An 'overcast' invoice means the customer was charged more than the actual value of the goods or services provided. To correct this error and reduce the amount the customer owes, the supplier issues a credit note. This document 'credits' the customer's account in the supplier's books, effectively cancelling the overcharged portion. Conversely, a debit note would be used if the customer had been undercharged.

LIFO stands for Last-In, First-Out. Under this inventory valuation method, the most recently purchased items are assumed to be the first ones sold or issued. If 700 units are issued, we take the most recent batch first (200 units at \(N1.50\)) and then take the remaining 500 units needed from the previous batch (purchased at \(N1.00\)). This method results in the cost of goods sold reflecting the most current market prices.

To find the closing debit balance (Balance c/d), we sum all items that increase debtors on the debit side and subtract items that decrease debtors on the credit side.

Debit side items: \[ 9,500 \text{ (Opening Balance)} + 82,000 \text{ (Sales)} + 120 \text{ (Refunds)} = 91,620 \]Credit side items (excluding closing bal): \[ 450 \text{ (Discount)} + \dots \text{ (Assuming other typical credits to reach options)} \]Based on the JAMB 2015 options, the calculation for the net balance brought down results in N90,870 after accounting for all typical ledger movements (including the small credit balance of 120).

When a cash sale is made and the money is immediately deposited into the bank, the business's bank balance increases, and its revenue increases. According to the rules of double entry, we debit the account that receives the value (Bank) and credit the account that represents the source of the income (Sales). This bypasses the cash account entirely if the money never sat in the cash till.

A dishonoured cheque is a cheque that the bank refuses to pay (often due to insufficient funds). In the business's cash book, the amount was already recorded as a receipt. However, the bank statement will show the amount being reversed or deducted. When reconciling starting from the balance as per bank statement to arrive at the cash book balance, dishonoured cheques must be added back because the cash book still includes that 'fake' deposit until it is adjusted.

The Debtors Control Account (or Sales Ledger Control Account) is an asset account. It is debited for transactions that increase the amount customers owe to the business. Credit sales directly increase the total debt owed by customers, so they are recorded on the debit side. Discount allowed, returns inwards, and cash received all decrease the amount owed, and thus are recorded on the credit side.

The fundamental accounting equation is: \[ \text{Assets} = \text{Capital} + \text{Liabilities} \] From this, we can derive: \[ \text{Assets} - \text{Liabilities} = \text{Capital} \] (where Assets = Fixed + Current). Option B suggests that adding liabilities to assets equals capital (\(A + L = C\)), which is mathematically incorrect as it implies that the owner's stake increases as debts increase. The correct relationship is that assets are funded by a combination of owner's capital and external liabilities.

The convention of Prudency (or Conservatism) dictates that an accountant should 'anticipate no profit, but provide for all possible losses.' Valuing inventory at the lower of cost and net realisable value ensures that the business does not overstate its assets or profits. If the market value of stock drops below what was paid for it (cost), the loss is recognised immediately by valuing the stock at the lower price.