Principles Of Accounts 2021 Jamb Examination

Issued share capital refers to the portion of a company's authorised share capital that has been offered to and taken up by shareholders. While authorised capital represents the maximum amount of shares a company is legally allowed to issue according to its memorandum, issued capital represents the actual value of shares held by investors. When investors apply for these shares and the company accepts their application, the shares become 'subscribed'. Therefore, issued share capital specifically identifies the shares that have been fully subscribed to by the public or private investors, forming the actual equity base upon which the company operates.

The straight-line method is the simplest and most commonly used technique for calculating depreciation. It assumes that an asset loses its value evenly over its estimated useful life. To calculate the annual depreciation charge, you must first determine the 'depreciable cost,' which is the original cost of the asset minus its estimated scrap (or residual) value. This amount is then divided by the number of years the asset is expected to be in use. The mathematical expression for this is:\[\text{Annual Depreciation} = \frac{\text{Cost} - \text{Scrap Value}}{\text{Useful Life}}\]This ensures that by the end of the asset's life, its book value on the balance sheet exactly equals the estimated scrap value.

In Nigeria, the profession of accounting is regulated by specific acts of parliament that grant legal recognition to professional bodies. The two primary bodies with this legal mandate are the Institute of Chartered Accountants of Nigeria (ICAN), established by the Act of Parliament No. 15 of 1965, and the Association of National Accountants of Nigeria (ANAN), established by Decree No. 76 of 1993 (now an Act). Both bodies are responsible for the training, examination, and regulation of accountants in the country. While other accounting associations exist, ICAN and ANAN are the only ones currently recognised by law to license auditors and regulate general practice in Nigeria.

In double-entry bookkeeping, the cash book serves as a book of original entry and a ledger account. When a transaction is recorded on the debit side of the cash book, it represents an increase in cash or bank balance (receiving money). According to the principle of double entry, every debit must have a corresponding credit. If the money is received from a person or a customer (a personal account), that individual's account in the ledger must be credited to show the reduction in the amount they owe the business. Therefore, the corresponding entry for a debit in the cash book is to credit the relevant account in the ledger.

The quick ratio (also known as the acid-test ratio) measures a company's ability to meet its short-term obligations with its most liquid assets. It excludes inventory (stock) because stock cannot always be converted to cash quickly.
The formula is:\[\text{Quick Ratio} = \frac{\text{Current Assets} - \text{Stock}}{\text{Current Liabilities}}\]First, identify the Current Assets (excluding stock):\[\text{Debtors (Net)} = 87,000\]\[\text{Cash} = 60,000\]\[\text{Bank} = 100,000\]\[\text{Quick Assets} = 87,000 + 60,000 + 100,000 = \text{₦}247,000\]Next, identify the Current Liabilities:\[\text{Creditors} = 200,000\]\[\text{Other current liabilities} = 100,000\]\[\text{Total Current Liabilities} = 200,000 + 100,000 = \text{₦}300,000\]Calculate the ratio:\[\text{Quick Ratio} = \frac{247,000}{300,000} \approx 0.8233\]Rounded to two decimal places, the ratio is 0.82:1.

Owner's equity, also known as shareholders' funds, represents the residual interest in the assets of the company after deducting all its liabilities. In a corporate balance sheet, this typically comprises the share capital and all reserves, including retained earnings and share premiums. Based on the provided extract, we sum the following items:
1. Paid-up Capital: ₦200,000
2. Share Premium: ₦15,000
3. Profit and Loss Account (Retained Earnings): ₦60,000
The calculation is as follows:
Owner's Equity = Paid-up Capital + Share Premium + Profit and Loss Balance\[\text{Owner's Equity} \]\[= 200,000 + 15,000 + 60,000\]\[\text{Owner's Equity} = \text{₦}275,000\]Note that the long-term loan and current liabilities are external obligations and are excluded from the equity calculation.

In a manufacturing account, costs are categorised to help management understand the stages of production. Prime cost is the very first stage and represents the summation of all direct costs—those costs that can be specifically and wholly identified with a single unit of production. These typically include:
1. Direct Materials: Raw materials that become part of the finished product.
2. Direct Labour/Wages: The pay of workers directly involved in making the goods.
3. Direct Expenses: Any other expenses directly linked to production (e.g., royalties).
Therefore, the calculation for prime cost is:
Prime Cost = Direct Materials + Direct Labour + Direct Expenses
All indirect costs (overheads) are added later to determine the total factory cost.

In both public and private sector accounting, expenditures are broadly classified into two categories: capital and recurrent. Recurrent expenditure refers to the regular, ongoing costs required for the day-to-day running of an organisation or government. These are operational costs that do not result in the creation of a long-term asset. By definition, recurrent expenditures are intended to cover the requirements of a single financial year. Examples include salaries, rent, stationery, and utility bills. Because these expenses are consumed within the immediate accounting cycle, the period for such expenditure does not exceed 1 year.

A source document is the original record that provides evidence of a financial transaction. In accounting, these documents (such as invoices, receipts, and vouchers) are the foundation of the audit trail. While source documents are used to record many things, their primary role in financial reporting and auditing is to provide objective evidence of the existence and valuation of transactions. For fixed assets, a purchase invoice serves as the primary source document to verify the 'actual cost' of the asset. This verification is essential for compliance with the cost concept, which states that assets should be recorded at the price paid to acquire them. Thus, it ensures that the figures appearing in the ledger are accurate and verifiable.

This problem involves converting a mark-up (percentage on cost) into a margin (percentage on selling price) to find the original cost. The relationship between cost, profit, and selling price is defined as:\[\text{Selling Price} = \text{Cost} + \text{Profit}\]Given that profit is 25% on cost, we can represent cost as 100%.
Let Cost = 100%
Profit = 25%
Selling Price = 100% + 25% = 125%
We are given that the Selling Price is ₦100,000, which corresponds to 125%. To find the cost (100%), we use the following ratio:\[\text{Cost} = \frac{100}{125} \times 100,000\]\[\text{Cost} = 0.8 \times 100,000\]\[\text{Cost} = \text{₦}80,000\]Alternatively, you can calculate the profit first: \(25/125 \times 100,000 = 20,000\). Subtracting this from the selling price gives \(100,000 - 20,000 = 80,000\).