Principles Of Accounts 2021 Jamb Examination

A control account is an account in the general ledger that summarizes the total balance of a group of individual accounts found in a subsidiary ledger. Specifically, the Sales Ledger (also known as the Debtors Ledger) contains individual accounts for all customers who have purchased goods or services on credit. Therefore, the Sales Ledger Control Account serves as a summary of these individual accounts, reflecting the total amount of money owed to the business by its credit customers. This system allows management to verify the accuracy of the subsidiary records and provides a single figure for total trade debtors to be reported on the balance sheet. Conversely, the Purchases Ledger Control Account reflects the total amount owed to creditors.

In an inflationary environment, the prices of goods and materials are constantly rising. The LIFO (Last-In, First-Out) method assumes that the items most recently purchased (the more expensive ones) are the first ones sold. As a result, the Cost of Goods Sold (COGS) reflects the current higher market prices, which matches current revenue with current costs. This leads to a lower reported net profit compared to other methods like FIFO, which in turn reduces the taxable income of the business. By reporting higher costs and lower profits during inflation, LIFO helps a company maintain better cash flow by deferring tax payments.

Ordinary shareholders are the equity owners of a company and bear the highest level of risk. They possess several rights, including the right to vote on company matters, elect the board of directors, and pre-emptive rights to participate in new share issues. However, unlike preference shareholders, ordinary shareholders do not have a fixed or 'predetermined' rate of dividend. Their dividends are variable and are only paid after preference shareholders have received their fixed dividends, and only if the company has sufficient distributable profits and the directors recommend a payment. This makes the dividend income for ordinary shareholders uncertain and dependent on the company's annual performance.

In public sector accounting, government financial activities are managed through various funds to ensure accountability and legal compliance. These funds are used to track both recurrent (revenue) expenditure and long-term (capital) projects. The specific categories often include Personal Advances Funds (for staff loans and advances), Treasury Clearance Funds (used for inter-governmental transactions and suspense items), and Special Trust Funds (designated for specific purposes or held on behalf of third parties). These funds allow the government to monitor the inflow and outflow of public money according to legislative approvals and financial regulations, ensuring that capital developments and administrative costs are properly segregated.

Factory overheads consist of all indirect costs associated with the production process that occur within the factory walls. To calculate the total, we must exclude items that are part of prime cost (direct costs) or non-manufacturing expenses (selling, distribution, or financial expenses).
The relevant factory overheads from the list are:
1. Depreciation of plant and machinery: ₦1,600
2. Factory rent: ₦650
3. Indirect wages: ₦695
4. General indirect expenses: ₦726
5. Lubricants: ₦1,235
6. Factory power: ₦350
Note: Carriage inwards is added to purchases (Direct Material Cost), Bank charges are financial/administrative expenses, and Carriage outwards is a selling/distribution expense.
Summation: \[\text{Total Overheads} = 1,600 + 650 + 695 + 726 + 1,235 + 350\] Total Overheads} = ₦5,256
This figure represents the total indirect cost of manufacturing the products.

In non-profit making organisations (such as clubs, societies, or charities), the financial statements differ from those of commercial entities. Instead of a Profit and Loss Account, they prepare an Income and Expenditure Account. When the total income exceeds the total expenditure, the resulting balance is termed a 'Surplus'. In accordance with the accounting principles for non-profit entities, this surplus is not distributed but is added to the organisation's capital base, known as the 'Accumulated Fund'. This fund represents the total equity or net worth of the organisation over time, similar to how a sole trader's net profit is added to their capital account.

Apportionment of expenses in departmental accounts involves dividing common costs among various departments based on a logical and fair relationship. Turnover (also known as Sales) is the most appropriate basis for expenses that vary directly with the volume of sales made by each department. Carriage outwards refers to the cost of transporting finished goods to customers. Since a department with higher sales volume is generally expected to incur more shipping and delivery costs, using the turnover of each department ensures that the expense is allocated proportionately to the revenue generated. Carriage inwards, conversely, is usually apportioned based on purchases, while discount received relates to payment terms on purchases.

To determine the total credit sales for the period, we reconstruct the Sales Ledger Control Account. The opening balance (brought down) is on the debit side, while payments received and the closing balance (carried down) appear on the credit side. The missing figure represents the credit sales for the year.
The formula to find Sales (Credit Sales) is:
Credit Sales = Closing Debtors + Cash/Cheques Received - Opening Debtors
Applying the data:\[\text{Opening Debtors} = 25,000\]\[\text{Cheques Received} = 255,000\]\[\text{Closing Debtors} = 15,000\]Calculation:\[\text{Sales} = 15,000 + 255,000 - 25,000\]\[\text{Sales} = 270,000 - 25,000\]\[\text{Sales} = \text{₦}245,000\]This calculation accounts for the decrease in debtors over the period added to the total liquidity received from customers.

To find the net profit for Department A, we must first calculate the electricity expense allocated to it and then subtract all departmental expenses from its gross profit. The organisation uses a ratio of 60% for A and 40% for B for common expenses.
Step 1: Calculate Electricity for Dept A.\[\text{Electricity (Total)} = 2,000\]\[\text{Electricity for A} = 0.60 \times 2,000 = 1,200\]Step 2: Summarise all expenses for Dept A.\[\text{Salaries and wages} = 1,800\]\[\text{Electricity} = 1,200\]\[\text{Depreciation} = 600\]\[\text{Total Expenses for A} = 1,800 + 1,200 + 600 = 3,600\]Step 3: Calculate Net Profit for Dept A.\[\text{Net Profit} = \text{Gross Profit} - \text{Total Expenses}\]\[\text{Net Profit for A} = 6,000 - 3,600 = 2,400\]

Depreciation is an indirect expense that must be apportioned among the departments. According to the policy of the organisation, all expenses are shared in the ratio of 60% to Department A and 40% to Department B. To find the specific charge for Department B, we apply this percentage to the total depreciation figure provided in the total column.\[\text{Total Depreciation} = 1,000\]\[\text{Apportionment Ratio for B} = 40\%\]Calculation:\[\text{Depreciation for B} = 0.40 \times 1,000\] Depreciation for B} = ₦400