Principles Of Accounts 2019 Jamb Examination

Departmentalization involves dividing a large business into several autonomous departments based on the nature of goods sold or services rendered. The primary objective of this practice is to enable management to evaluate the trading results and profitability of each department independently. By comparing the gross and net profits of various departments, management can identify which sections are performing well and which ones require restructuring or closure to improve overall business efficiency.

The fundamental accounting equation states that the total assets of a business must equal the sum of its liabilities and owner's capital. To find the capital, we must first determine the total assets and then subtract the total liabilities.



Step 1: Calculate Total Assets:\[ \text{Total Assets} = \text{Fixed Assets} + \text{Current Assets} \]\[ \text{Total Assets} = 55,000 + 13,000 = 68,000 \]Step 2: Calculate Capital:\[ \text{Capital} = \text{Total Assets} - \text{Liabilities} \]\[ \text{Capital} = 68,000 - 20,000 = 48,000 \]

Accounting is limited by the fact that it only records transactions that can be expressed in monetary terms. This is known as the 'money measurement concept'. Because of this, many important factors that affect a business's value—such as the quality of management, staff morale, brand reputation, or the skill level of employees—are excluded from the financial statements. This means the accounts do not provide a complete picture of the company's non-financial health or future potential.

In accounting, profit can be determined by comparing the change in capital over a period, after adjusting for any withdrawals (drawings) made by the owner. The formula to calculate profit using the capital comparison method is:\[ \text{Profit} = (\text{Closing Capital} + \text{Drawings}) - \text{Opening Capital} \]Substituting the given values:\[ \text{Profit} = (400,000 + 15,000) - 250,000 \]\[ \text{Profit} = 415,000 - 250,000 = 165,000 \]The increase in net worth of ₦165,000 represents the profit generated by the business during the year.

The 'Business Entity Concept' is a fundamental accounting principle which dictates that a business is treated as a distinct unit, separate from its owners, regardless of its legal form. This ensures that personal transactions of the owner do not mix with business records. For accounting purposes, the business is viewed as a separate legal entity that owes its owner the amount of capital invested, which is why capital is recorded as a liability on the balance sheet.

To determine the value of the closing stock using the First-In, First-Out (FIFO) method, we assume that the oldest inventory items are sold or issued first. We must track the movement of units and their specific costs through each transaction.



Step 1: Track total units in and out:
Total Units Purchased = \( 200 + 100 + 50 = 350 \) units.
Total Units Issued = \( 120 + 80 + 20 = 220 \) units.
Closing Stock in units = \( 350 - 220 = 130 \) units.

Step 2: Determine which units remain based on FIFO:
Since we issued 220 units, we exhausted the first batch (200 units @ ₦2.00) and 20 units from the second batch.
Remaining units consist of:
From Feb 3 batch: \( 100 - 20 = 80 \) units @ ₦1.00 each = ₦80.00
From Feb 5 batch: 50 units @ ₦3.00 each = ₦150.00

Step 3: Calculate total value:\[ \text{Value of Closing Stock} = 80 + 150 = 230 \]Therefore, the value of the 130 units remaining in stock is ₦230.

Income and Expenditure accounts use the accrual basis. We adjust the cash received to reflect only income belonging to the current year (1999).\[ \text{Cash received for 1999} = 7,500 \]\[ \text{Add: Arrears at end (31/12/99)} = +600 \]\[ \text{Less: Arrears at start (1/1/99)} = -700 \]\[ \text{Income for 1999} = 7,500 + 600 - 700 = 7,400 \]

In a Receipts and Payments account, the 'Balance brought forward' (Bal b/f) represents the cash and bank balance at the start of the accounting period. Looking at the extract, the figure listed as Bal b/f is ₦3,650.

The fundamental principle of double-entry bookkeeping is the dual aspect concept, which states that every financial transaction has two equal and opposite effects. For every transaction, at least two accounts are affected: one account receives a debit entry while another receives an equal credit entry. This ensures that the accounting equation, \( \text{Assets} = \text{Liabilities} + \text{Equity} \), remains in balance at all times.

The primary distinction lies in the underlying logic of the recording process. Double-entry bookkeeping is built upon the dual aspect concept, ensuring that both the giving and receiving ends of every transaction are captured. Single-entry bookkeeping, often described as an incomplete system, does not adhere to this duality; it typically only tracks cash and personal accounts, making it difficult to prepare a trial balance or determine accurate profit.