Principles Of Accounts 2018 Jamb Examination

When a new partner joins an existing firm, they benefit from the reputation, customer base, and brand name already established by the founding partners. To compensate the old partners for their years of effort in building this intangible value, the new partner is often required to pay an additional sum over and above their capital contribution. This specific payment is referred to as a 'Premium for Goodwill'. It is subsequently shared among the old partners in their sacrificing ratio.

To find the Gross Profit, we first calculate the Cost of Goods Sold (COGS) and then subtract it from Sales.
Step 1: Calculate Net Purchases\[ \text{Net Purchases} = \text{Goods Sent} - \text{Returns} = 8,000 - 340 = 7,660 \]Step 2: Calculate Cost of Goods Sold (COGS)\[ \text{COGS} = \text{Opening Stock} + \text{Net Purchases} - \text{Closing Stock} \]\[ \text{COGS} = 400 + 7,660 - 720 = 7,340 \]Step 3: Calculate Gross Profit\[ \text{Gross Profit} = \text{Sales} - \text{COGS} \]\[ \text{Gross Profit} = 9,160 - 7,340 = 1,820 \]Therefore, the gross profit earned by the Ede branch is ₦1,820.

Invoicing goods at 'Selling Price' (also known as the retail price method) provides the most effective internal control. Since the branch is charged with the total retail value of the goods, the head office can easily check the branch's performance: the total of cash remitted plus the value of remaining stock at selling price must equal the total value of goods sent. Any discrepancy immediately highlights a shortage or surplus, making it a superior method for monitoring branch activities compared to the cost price method.

Transfer pricing refers to the methods used to value goods or services exchanged between different departments or divisions within the same company. Standard methods include Cost-based (valuing at production cost), Market-based (valuing at external market prices), and Dual pricing (using different prices for the buying and selling divisions). 'Peak pricing' is a strategy used in utilities and transport (like electricity or airlines) to charge higher prices during periods of high demand; it is not a method for internal departmental transfers of goods.

While 'dissolution' refers to the legal end of the partnership relationship, 'winding up' (or liquidation) is the actual administrative and accounting process that follows. During winding up, the firm's affairs are finalised: any outstanding contracts are completed, assets are sold (realised), debts are settled with creditors, and the remaining cash is distributed to the partners. It is the practical phase of closing the business before it is finally terminated.

The 'Adjusted Cashbook Balance' is determined by updating the cashbook with items that the bank has processed but the business has not yet recorded.
Step 1: Start with the unadjusted balance: Overdraft of ₦4,000 (which is a negative balance or credit balance in the cashbook).
Step 2: Account for bank charges: Bank charges are an expense that reduces the balance (or increases the overdraft).
Calculation:\[ \text{Overdraft} = -4,000 \]\[ \text{Bank Charges} = -300 \]\[ \text{Adjusted Balance} = -4,000 - 300 = -4,300 \]This results in an adjusted overdraft balance of ₦4,300. Note: Uncredited and unpresented cheques are timing differences used for the bank reconciliation statement, not for adjusting the cashbook balance itself.

The Branch Stock Adjustment Account is specifically used when goods are sent to the branch at 'Invoice Price' (Cost + Loading). The purpose of this account is to record the 'loading' or unrealised profit included in the invoice price. By tracking the difference between the cost and the invoice price, the head office can calculate the actual gross profit made by the branch. Therefore, it is intrinsically linked to the invoice price system.

A partnership deed is a legal document that outlines the terms and conditions of the partnership (such as profit-sharing ratios, capital contributions, and duties of partners). Its primary purpose is to provide a clear framework for operations and to prevent future disputes. By clearly defining the rights and obligations of each partner at the start, it promotes mutual understanding and harmony within the firm.

In branch accounting, the cost price method is used when the head office wants the branch's primary records to reflect the actual cost of goods. This is most practical when the goods are of such a nature that they do not have a uniform selling price or when they carry different gross profit percentages. Using cost price allows the head office to accurately calculate and disclose the actual gross profit or loss earned by the branch after all sales are completed.

The amount to be credited to the Head Office Trading Account represents the net goods sent to the branch. The Goods Sent to Branch account is closed by transferring its balance to the Head Office Trading Account, reflecting the reduction in stock available for the head office's own sales.

Net Goods Sent = Goods Sent to Branch − Returns to Head Office

Net Goods Sent = 8,000 − 340 = 7,660

Therefore, ₦7,660 is credited to the trading account.