Principles Of Accounts 2021 Jamb Examination

When one business acquires another, the 'Purchase Consideration' is the price paid by the buyer. If the purchase consideration is less than the fair value of the 'Net Assets' (Total Assets - External Liabilities) acquired, the transaction is considered a bargain purchase. In accounting, this 'gain' represents a non-operating, non-recurring increase in equity. Therefore, it is not treated as regular net income or revenue reserve; instead, it is credited to a Capital Reserve account (often specifically termed 'Capital Reserve' or 'Negative Goodwill'). This reflects a capital gain arising from the acquisition process rather than from the normal trading activities of the business.

To find the adjusted net profit, we must correct the errors found in the initial calculation. Profit is calculated as \(\text{Revenue} - \text{Expenses}\).
1. Initial Profit = ₦180,000.
2. Error 1: Revenue of ₦15,000 recorded as expenses. This error reduced profit twice—once by missing the revenue and once by adding a non-existent expense. To correct this, we must add the revenue back and remove the expense (effectively adding \(15,000 + 15,000 = 30,000\)).
3. Error 2: Expenses of ₦4,000 recorded as revenue. This error inflated profit twice—once by adding revenue that didn't exist and once by missing the actual expense. To correct this, we must subtract the revenue and subtract the expense (effectively subtracting \(4,000 + 4,000 = 8,000\)).
Calculation:\[\text{Adjusted Profit} = 180,000 + 15,000 + 15,000 - 4,000 - 4,000\]\[\text{Adjusted Profit} = 180,000 + 30,000 - 8,000\]\[\text{Adjusted Profit} = 210,000 - 8,000 = \text{₦}202,000\]

This question asks specifically for the 'revenue' component of the adjustment regarding the first error (revenue recorded as expense).
When ₦15,000 in actual revenue was mistakenly recorded as an expense, the profit was understated by two amounts: the missing revenue (₦15,000) and the overstated expense (₦15,000).
To rectify the revenue side of the ledger, we must record the ₦15,000 revenue that was omitted.
Additionally, since that amount was erroneously placed in the expense account, removing it from expenses has the same mathematical effect as adding it back to profit.
Consequently, to fully correct the impact of that specific error on the profit figure, a total adjustment of ₦30,000 (\(15,000 + 15,000\)) is required for that item.

The double-entry system is based on the dual aspect concept, which states that every financial transaction affects at least two accounts—one is debited and the other is credited with an equal amount. The primary purpose of this system is to maintain a continuous balance within the accounting equation (\(\text{Assets} = \text{Liabilities} + \text{Equity}\)). Because every debit has a corresponding credit, the total of all debit balances must equal the total of all credit balances. When these balances are extracted into a Trial Balance, if the totals match, it provides prima facie evidence of the 'mathematical accuracy' of the bookkeeping. While it doesn't guarantee the absence of all errors (like errors of principle or omission), it ensures the ledger is technically in balance.

Interest on a partner's loan is treated differently from interest on capital. While interest on capital is an appropriation of profit (found in the Appropriation Account), interest on a loan is considered a 'charge against profit'. This is because a loan from a partner is treated as a liability to an external creditor rather than equity. Therefore, the interest must be paid whether the business makes a profit or not. In accounting entries, this interest is debited to the Profit and Loss Account as an expense to reduce the net profit. The corresponding credit goes to either the Partner's Loan Account or the Partner's Current Account to show the amount due to them. Thus, its primary placement in the income statements is a debit in the Profit and Loss Account.

The Purchase Ledger Control Account (or Total Creditors Control Account) is a liability account that summarizes transactions with credit suppliers. Under the rules of double-entry, a liability account increases on the credit side and decreases on the debit side.
Common credit items include the opening balance (balance b/d), credit purchases, and dishonoured cheques (which reinstate the debt). Common debit items include cash/cheque payments to suppliers, discount received, and returns outwards, as these reduce the amount owed. However, the closing balance (balance c/d) is placed on the debit side at the end of the period to equalize the account totals before being brought down to the credit side for the next period. Therefore, among the choices provided, the balance c/d is the item found on the debit side.

According to the principles of double-entry bookkeeping, every transaction affects two accounts: one is debited and the other is credited. The rule for assets and expenses is to 'debit the account that receives value and credit the account that gives value'.
In this scenario:
1. The Stationery account (an expense) is receiving value because the business is acquiring supplies. Therefore, Stationery is debited.
2. The Cash account (an asset) is giving value because money is leaving the business to pay for the items. Therefore, Cash is credited.
Note that 'Purchases' is only used for goods intended for resale; since Forlah is a stock broker and not a stationery dealer, the stationery is an expense for office use, not trading stock.

Working capital measures a company's operational liquidity, showing the funds available for day-to-day trading activities.

Working Capital = Total Current Assets − Total Current Liabilities

Step 1: Calculate Total Current Assets (CA)

Stock = 3,600,000
Cash at hand = 800,000
Cash in bank = 2,400,000
Debtors = 580,000

Total CA = 3,600,000 + 800,000 + 2,400,000 + 580,000 = ₦7,380,000

Step 2: Calculate Total Current Liabilities (CL)

Trade creditors = 920,000
Bank overdraft = 200,000
Tax liabilities = 600,000
Salary owed (Accruals) = 180,000

Total CL = 920,000 + 200,000 + 600,000 + 180,000 = ₦1,900,000

Step 3: Calculate Working Capital

Working Capital = 7,380,000 − 1,900,000 = ₦5,480,000