Principles Of Accounts 2016 Jamb Examination

To find the purchases, we first need to determine the Cost of Goods Sold (COGS) using the Gross Profit margin.

Step 1: Calculate Gross Profit\[ \text{Gross Profit} = 20\% \text{ of } 10,000 = 2,000 \]Step 2: Calculate Cost of Goods Sold\[ \text{COGS} = \text{Sales} - \text{Gross Profit} = 10,000 - 2,000 = 8,000 \]Step 3: Calculate Purchases using the COGS formula\[ \text{COGS} = \text{Opening Stock} + \text{Purchases} - \text{Closing Stock} \]\[ 8,000 = 250 + \text{Purchases} - 200 \]\[ 8,000 = 50 + \text{Purchases} \]\[ \text{Purchases} = 8,000 - 50 = 7,950 \]

The simple average method calculates the issue price by taking the average of the different unit prices of the stock currently in hand, regardless of the quantities held at each price. On Jan 20, the stock in hand consists of two batches received earlier in January.

Step 1: Identify prices of stock in hand on Jan 20\[ \text{Price 1} = \text{₦1.00}\]\[ \text{Price 2} = \text{₦}1.05 \]Step 2: Calculate simple average\[ \text{Average Price} = \frac{1.00 + 1.05}{2} = 1.025 \]

The Receipts and Payments account is merely a summary of the cash book, showing actual cash inflows and outflows. In contrast, the Income and Expenditure account follows the accrual basis of accounting. This means it includes non-cash items such as depreciation, bad debts, and specifically, adjustments for opening and closing stocks of consumables (like bar stock or stationery), as well as accrued and prepaid items (debtors/creditors for services). This provides a more comprehensive view of the organisation's actual performance for the period.

Capital reserves are created out of capital profits and are generally not available for distribution as dividends. Examples include share premium, profits made before a company was officially incorporated, and surpluses from revaluing assets. General reserves, however, are revenue reserves created out of normal trading profits (retained earnings) and are kept aside to strengthen the company's financial position or for future dividend payments.

To be useful for decision-making, accounting information must possess qualitative characteristics such as timeliness (available when needed), accuracy (reliable and free from bias), and completeness (all relevant facts included). While the cost of producing accounting reports is a factor for the business, 'affordability' is not a formal qualitative characteristic or a standard feature of the information itself as defined in accounting frameworks.

The Going Concern concept is a fundamental assumption that a business entity will continue to operate for the foreseeable future and has neither the intention nor the necessity of liquidation. This concept justifies why assets are recorded at historical cost and depreciated over time rather than being recorded at their current market liquidation value. If a business is not a going concern, its financial statements must be prepared on a 'break-up' basis.

The trading account is the first part of the final accounts of a trading concern. Its primary objective is to show the result of the core buying and selling activities of the business. By matching the net sales against the cost of goods sold (opening stock + purchases + carriage inwards - closing stock), the business determines its Gross Profit or Gross Loss. Net profit is determined later in the Profit and Loss account.