Principles Of Accounts 2018 Jamb Examination

In branch accounting, the branch is treated as a separate entity or a debtor to the head office. When the head office sends goods to the branch, it is increasing the investment or the amount the branch owes to the head office. Consequently, the head office records this by debiting the Branch Current Account (to show the increase in the branch's indebtedness) and crediting the Goods Sent to Branch Account. This follows the fundamental accounting principle of debiting the receiver (the branch).

When one business acquires another, the 'purchase price' is compared to the 'fair value of net assets' (Total Assets - Total Liabilities). If the buyer pays more than what the physical assets are worth, the excess is considered a payment for the business's reputation, customer base, and future earning potential. In accounting, this intangible asset is known as Goodwill. Therefore, the excess amount is debited to the Goodwill Account to balance the acquisition entry.

Under the Stock and Debtors system of branch accounting, the Branch Adjustment Account is used to calculate the gross profit made by the branch. It records the 'loading' (unrealised profit) on goods sent, returned, and held in stock. Once the gross profit is determined in this account, it is transferred to the Branch Profit and Loss Account, where other operating expenses (like rent, salaries, and insurance) are deducted to arrive at the net profit.

The existing ratio for Ade, Tony, and Rose is 3 : 2 : 1. When a partner retires and the remaining partners continue in their existing relative proportions, the new ratio is simply the ratio between the remaining partners.
Step 1: Identify the ratio shares: Ade (3/6), Tony (2/6), Rose (1/6).
Step 2: Remove the retiring partner (Ade).
Step 3: The relative ratio between Tony and Rose remains 2 : 1.
Mathematically, if they take Ade's share (3/6) in their existing ratio (2:1):
Tony's gain: \( \frac{2}{3} \times \frac{3}{6} = \frac{2}{6} \)
Rose's gain: \( \frac{1}{3} \times \frac{3}{6} = \frac{1}{6} \)
Tony's new share: \( \frac{2}{6} + \frac{2}{6} = \frac{4}{6} \)
Rose's new share: \( \frac{1}{6} + \frac{1}{6} = \frac{2}{6} \)
The new ratio is 4 : 2, which simplifies to 2 : 1.

Calls in advance occur when a shareholder pays part or all of the uncalled amount on their shares before the company has officially made the call for payment. Since the company has received money that it was not yet entitled to receive, it holds this money as a 'debt' or obligation to the shareholder until the formal call is made. Consequently, it is classified as a Current Liability in the Statement of Financial Position.

Financial accounting follows the 'accrual concept' and the 'matching principle'. This means that income must be recorded when it is earned (not just when cash is received) and expenses must be recorded when they are incurred (not just when they are paid). Adjustments (such as accruals, prepayments, and depreciation) are necessary at the end of the year to ensure the Profit and Loss Account reflects only the transactions belonging to that specific accounting period, thereby showing a true and fair view of the net profit.

In accounting, branches are generally classified based on their level of autonomy and location. A 'Dependent Branch' relies on the head office for all records and supplies. An 'Independent Branch' maintains its own complete set of books. A 'Foreign Branch' operates in a different country and deals in foreign currency. 'Single branch' is not a technical accounting classification for branch types, as it refers to quantity rather than the accounting relationship or operational nature.

Remittance in transit refers to money sent by the branch to the head office (or vice versa) that has been recorded by the sender but not yet received by the recipient at the date of reconciliation. If the branch has already sent cash and recorded it by crediting its cash account and debiting the Head Office Current Account, the head office must acknowledge this 'in transit' item during reconciliation. In the context of the branch's books adjusting for discrepancies, it represents a credit to show the reduction in the liability or balance held toward the head office.

In a partnership, it is crucial to distinguish between 'expenses against profit' and 'appropriations of profit'. Items like Partners' Salaries and Interest on Capital are considered appropriations (sharing) of the net profit and are handled in the Profit and Loss Appropriation Account. However, Interest on a Loan provided by a partner is treated as a charge against profit (an expense), similar to interest paid to a bank. Therefore, it is deducted in the main Profit and Loss Account before the net profit is determined.

To find the closing cash balance, we must adjust the opening cash balance by adding all cash receipts and subtracting all cash payments.
Step 1: Identify Opening Cash Balance = ₦28,500.
Step 2: Add Cash Inflows:
Sales = +₦8,200.
Step 3: Subtract Cash Outflows:
Rent = -₦12,000
Purchases = -₦15,000
Sales boy (Wages) = -₦500.
Step 4: Final Calculation:\[ \text{Closing Cash} = 28,500 + 8,200 - 12,000 - 15,000 - 500 \]\[ \text{Closing Cash} = 36,700 - 27,500 = 9,200 \]The resulting balance in the cash account is ₦9,200.