Principles Of Accounts 2016 Jamb Examination

Accounting policies are the specific frameworks and methods chosen by a company to ensure their financial reporting is consistent and compliant with standard regulations. For example, a company's choice to use the FIFO method for inventory or the straight-line method for depreciation constitutes an accounting policy. These must be disclosed in the notes to the financial statements to help users understand the basis on which the accounts were prepared.

In the context of liquidation or dissolution, 'realisation' refers to the process of converting assets into cash. Debtors, motor vehicles, and goodwill (if a buyer exists) are all assets that can be sold or collected to generate cash. Creditors, however, are liabilities—amounts the business owes to others. Liabilities are 'settled' or 'paid,' but they cannot be 'realised' because they are not items owned by the business that can be converted into cash inflows.

A trial balance in agreement simply means that total debits equal total credits. It does not prove that the records are completely error-free. Certain errors, known as 'errors that do not affect the trial balance,' can still exist. These include errors of omission, commission, principle, and original entry. Therefore, stating that the system is 'error free' is untrue, as the trial balance only checks for arithmetical accuracy in the double-entry process.

Total liabilities consist of amounts owed to external parties and income received in advance. In this scenario:
1. Bar Creditors (Amount owed for supplies): \(N85,000\)
2. Subscription Prepaid (Income received from members for a future period): \(N3,000\)

Calculation:\[ \text{Total Liabilities} = \text{Bar Creditors} + \text{Subscription Prepaid} \]\[ \text{Total Liabilities} = 85,000 + 3,000 = 88,000 \]Note: Subscription owing (accrued income), the building, and sport kits are assets.

Sales returns (returns inward) are subtracted from gross sales to determine net sales. If the sales return figure is recorded as lower than it actually is (understated), the final net sales figure (the 'sales figure' presented in the trading account) will remain higher than it should be. Thus, an understatement of returns results in an overstatement of the net sales figure.

The primary interest of investors (who seek returns on investment) and creditors (who seek repayment of loans) is the company's liquidity and solvency. They analyse past financial performance and current asset structures to predict the company's ability to generate future cash flows. Reliable cash flows ensure that dividends can be paid to investors and that principal and interest can be paid to creditors.

Gross profit is calculated as the difference between Sales and the Cost of Sales. Expenses are not deducted at this stage as they are used to find Net Profit later.
For Department A:\[ \text{Sales} = 180,000 \]\[ \text{Cost of Sales} = 79,000 \]\[ \text{Gross Profit} = 180,000 - 79,000 \]\[ \text{Gross Profit} = 101,000 \]

Accounting ratios condense complex financial data into simple, comparable figures. Their primary advantage is that they facilitate decision-making by allowing management, investors, and creditors to evaluate a company's performance over time (trend analysis) or against industry competitors (inter-firm comparison). Ratios highlight strengths and weaknesses in areas like liquidity, profitability, and efficiency, which are critical for strategic planning.

The Articles of Association (AOA) serve as the internal rulebook for a company. While the Memorandum of Association defines the company's external boundary and objects, the Articles focus on internal governance. This includes the rights attached to different classes of shares, the procedure for transferring shares, the conduct of general meetings, the powers and duties of directors, and the payment of dividends. It is a legally binding contract between the company and its members.

In non-profit-making organisations (such as clubs, charities, and societies), the term 'profit' or 'loss' is not used because the primary goal is not wealth generation. When the total expenditure exceeds the total income for a specific period in the Income and Expenditure Account, the resulting balance is referred to as a 'deficit'. Conversely, if income exceeds expenditure, it is called a 'surplus'. This deficit is eventually deducted from the organisation's accumulated fund.