Principles Of Accounts 2020 Jamb Examination

In branch accounting, the head office maintains a 'Branch Current Account' which acts as a personal account for the branch. This account reflects the investment the head office has made in the branch. According to the rules of double-entry bookkeeping, when the head office sends goods or resources to the branch, the branch is receiving value, and the head office's investment in that branch increases. Consequently, the value of goods sent is debited to the Branch Current Account to record this increase in the branch's indebtedness to the head office. Conversely, when the branch sends cash or returns goods to the head office, the account would be credited.

The straight-line method of depreciation spreads the cost of a fixed asset evenly over its useful life. The calculation is based on the depreciable amount, which is the difference between the initial cost and the estimated scrap (residual) value.

The formula for annual depreciation is:
\[ \text{Annual Depreciation} = \frac{\text{Cost} - \text{Scrap Value}}{\text{Useful Life}}\]
Given the values:
\[ \text{Cost} = 35,000\] \[ \text{Scrap Value} = 9,000\] \[ \text{Useful Life} = 5 \text{ years}\]
Substituting into the formula:
\[ \text{Annual Depreciation} = \frac{35,000 - 9,000}{5}\] \[ \text{Annual Depreciation} = \frac{26,000}{5}\] \[ \text{Annual Depreciation} = \text{₦5,200}\]
This result ensures that the asset's book value is reduced to its scrap value exactly at the end of its 5-year life.

Depreciation is the systematic allocation of the cost of an asset over its useful life. When the estimated scrap value changes, the depreciable base of the asset also changes. The depreciable base is the total amount of value that will be 'used up' over the years.
\[ \text{Annual Depreciation} = \frac{\text{Cost} - \text{Revised Scrap Value}}{\text{Useful Life}}\]
Applying the updated scrap value of ₦15,000:
\[ \text{Cost} = 35,000\] \[ \text{Revised Scrap Value} = 15,000\] \[ \text{Useful Life} = 5 \text{ years}\]
Calculation:
\[ \text{Annual Depreciation} = \frac{35,000 - 15,000}{5}\] \[ \text{Annual Depreciation} = \frac{20,000}{5}\] \[ \text{Annual Depreciation} = \text{₦4,000}\]
By increasing the scrap value, the total amount to be depreciated over the 5-year period decreases, resulting in a lower yearly depreciation charge.

This transaction involves the purchase of a fixed asset (Toyota Hilux vans) for cash. In accounting, all cash-related transactions—whether receipts or payments—must be recorded in the cash book. The double-entry rule states that for every debit, there must be a corresponding credit. Since the vehicle account is debited (to record the increase in assets), the cash book must be credited (to record the decrease in cash). It is important to note that the 'purchase day book' is used only for the purchase of inventory (goods for resale) on credit, and since these vans were bought for cash, they do not belong in any subsidiary book other than the cash book.

The accounting period concept, also known as the periodicity concept, is a fundamental accounting principle. It requires that the economic life of a business entity be divided into artificial time intervals so that financial performance and position can be reported regularly. While a business is a 'going concern' that operates indefinitely, stakeholders need periodic updates. The most common accounting period is one calendar or fiscal year, ending with the preparation of the Balance Sheet and Profit and Loss account. This allows for comparison of performance across different years and ensures that the information provided to investors, management, and tax authorities is timely and relevant.

The Appropriation Account of a partnership is prepared to show how the Net Profit for the year is distributed among the partners. The Net Profit is the starting figure which is then used to cover interest on capital, partners' salaries, and any other agreed allocations, with the remaining balance shared as residual profit. To find the total Net Profit, we must sum all the components distributed to the partners:
Total Interest on Capital: \(750 + 550 = 1,300\)
Total Partners' Salaries: \(800 + 600 = 1,400\)
Total Shared Profit: \(3,300 + 3,300 = 6,600\)
The calculation follows:\[\text{Net Profit} = \sum \text{Interest on Capital} + \sum \text{Salaries} + \sum \text{Share of Profit}\]\[\text{Net Profit} = 1,300 + 1,400 + 6,600\] Net Profit} = ₦9,300
This total represents the profit earned by the partnership before any distributions were made to Tayo and Tope.

While both sole traders and partnerships prepare a Trading, Profit and Loss account to determine the net profit of the business, the partnership requires an additional stage to show how that profit is divided between the owners. This stage is captured in the Appropriation Account. In a sole trader business, the net profit belongs entirely to one individual and is simply transferred to their capital account. However, in a partnership, the profit must be 'appropriated' according to the partnership deed, accounting for items like interest on capital, partners' salaries, and the agreed profit-sharing ratio. Therefore, the presence of an Appropriation Account is the primary structural difference in their final accounts.

In departmental accounting and cost allocation, expenses are charged to the department that directly benefits from the expenditure or is responsible for incurring it. Advertising is a promotional activity specifically designed to increase consumer awareness, generate leads, and drive the volume of goods sold. Since the sales (or marketing) department is responsible for revenue generation and the promotion of the company's products, advertising costs are classified as selling and distribution expenses. Charging it to production would be incorrect as it does not relate to the manufacturing process, and administrative departments handle general management rather than specific product promotion.

Overheads refer to the indirect costs of running a business that cannot be directly traced to a specific unit of output. In cost accounting, these are functionally classified into four major categories to assist in budgeting and price setting:
1. Production Overheads: Indirect costs related to the manufacturing process (e.g., factory rent, power).
2. Selling Overheads: Costs incurred to secure orders and retain customers (e.g., advertising, sales commissions).
3. Distribution Overheads: Costs associated with moving the finished product from the warehouse to the customer (e.g., delivery van maintenance, warehousing).
4. Administrative Overheads: General costs of directing and controlling the organisation (e.g., office salaries, legal fees).
Materials and labour are typically classified as 'Direct Costs' rather than overheads when they form part of the prime cost.

Departmental accounting involves maintaining separate records for each department of a business to evaluate their individual performance. One of the most significant advantages of this system is that it allows management to compare the results of different departments. This comparison often fosters a sense of 'healthy rivalry' or competition between department managers and staff, as they strive to improve efficiency and profitability to outshine other sections of the business. This drive for internal excellence often leads to improved overall company performance. While identifying the most profitable department (Option D) is also a function of these accounts, the 'encouragement of healthy rivalry' is a classic human-resource and management advantage cited in accounting theory.