JAMB Accounting 2005 Past Questions & Answers

Luca Pacioli, an Italian mathematician, is widely known as the 'Father of Accounting' because he was the first person to publish a detailed description of the double-entry system in 1494. His book, 'Summa de Arithmetica', documented the method of using debits and credits which is the foundation of modern accounting. This principle ensures that for every transaction, the total debits must equal the total credits, keeping the accounting equation in balance.

Common mistake: Students often mistakenly choose Frank Wood or William Pickles because they are the famous authors of many accounting textbooks used in schools.

The conservatism concept, also known as the prudence concept, advises accountants to be cautious when there is uncertainty. This principle states that you should anticipate and record potential losses but only record profits when they are actually earned. This directly affects asset valuation by often choosing lower values (e.g., stock at cost or market price, whichever is lower) and income determination by delaying profit recognition, thus preventing overstatement.

Common mistake: Students often mistakenly choose the matching concept because it also deals with income determination, but they forget that conservatism has a wider impact that includes both asset valuation and income.

According to the double-entry principle, every transaction has a debit and a credit entry. When you buy stock (an asset) on credit, the value of your stock increases, so you debit the stock account. Since you did not pay cash, the amount you owe to your supplier (a liability) also increases, so you credit the liability account.

Common mistake: Students may mistakenly choose option A because they forget the transaction is on credit, and they incorrectly associate any purchase with an immediate outflow of cash.

This question tests your knowledge of the basic accounting equation, which is Assets = Capital + Liabilities. First, you must find the total assets by adding the fixed assets and current assets (₦64,500 + ₦20,300 = ₦84,800). To find the capital, you rearrange the formula to Capital = Assets - Liabilities, which gives you ₦84,800 - ₦23,700 = ₦61,100.

Common mistake: A common mistake is to incorrectly rearrange the formula to Capital = Assets + Liabilities, leading students to add total assets and liabilities together (₦84,800 + ₦23,700 = ₦108,500).

A trial balance lists all debit and credit balances to check if they are equal. Expenses (Rent, Rates, Salaries) and Assets (Cash) have debit balances, which total ₦55,000 $(10,000 + 5,000 + 14,000 + 26,000)$. Liabilities (Creditors) and Capital have credit balances, which also total ₦55,000 $(5,000 + 50,000)$. The total of the trial balance is the sum of either the debit or the credit column, which is ₦55,000.

Common mistake: Students often make the mistake of adding all the given figures together (₦110,000), forgetting that a trial balance total is the sum of one side (either debit or credit), not both.

The correct answer outlines the proper sequence in the accounting cycle. First, every transaction is supported by a source document, like an invoice or receipt. Next, these transactions are posted from the books of original entry into the appropriate ledger accounts. Finally, the balances of all ledger accounts are extracted to prepare the trial balance, which checks the arithmetical accuracy of the postings.

Common mistake: Students may get confused with the order, often forgetting that source documents are the very first evidence of a transaction before any recording in the ledgers can take place.

An error of principle occurs when a transaction is recorded in the wrong class of account, which violates a fundamental accounting principle. In this question, a motor vehicle is a non-current asset (capital expenditure) and should be debited to the Motor Vehicle account. By debiting the Purchases account, which is for goods bought for resale (revenue expenditure), the principle of distinguishing between capital and revenue items has been broken.

Common mistake: Students often mistakenly choose 'error of commission' because a wrong account was debited, but an error of commission involves using the wrong account within the same class (e.g., a different debtor's account), not the wrong class of account entirely (asset vs. expense).

From the bank's point of view, a customer's account is a liability, so a credit balance means the customer has money in the account. Yahya started with a credit balance (positive funds) of ₦1,500,000. By paying in an additional ₦1,700,000, he increased this balance. The new balance is calculated by adding the deposit to the initial balance: ₦1,500,000 + ₦1,700,000 = ₦3,200,000, which remains a credit balance.

Common mistake: Students often mistakenly interpret a 'credit balance' in a bank account as an overdraft (as it would be in the business's cash book), leading them to subtract the balance and arrive at an incorrect answer.

The imprest system works by restoring the petty cash float to its original amount at the start of each period. The original float is ₦500. In Period 2, the cashier spent ₦350, so to bring the cash back up to the ₦500 float, the cashier must be reimbursed for the exact amount spent, which is ₦350.

Common mistake: Students often mistakenly calculate the closing cash balance (₦150) instead of the reimbursement amount needed to restore the imprest float.

The imprest system starts with a fixed amount of cash, called the float, which was ₦500 in this case. During Period 1, the petty cashier spent a total of ₦450 (₦200 on stamps + ₦250 on newspapers). To find the balance at the end of the period, you subtract the total expenses from the initial float: ₦500 - ₦450 = ₦50.

Common mistake: Students may mistakenly choose ₦450, which represents the total amount spent during the period, not the remaining cash balance.

A three-column cash book has columns for discount, cash, and bank on both the debit and credit sides. The debit side is used to record all money received by the business. Discount allowed is a reduction given to customers when they pay their debts, so it is recorded on the debit side alongside the cash or cheque received from them.

Common mistake: Students often mistakenly choose the credit side because they confuse discount allowed (given to customers) with discount received (from suppliers), which is correctly recorded on the credit side.

Rent received from sub-letting a part of the business premises is considered an 'other income' because it is not earned from the main trading activities of the business. In preparing the Profit and Loss Account, we start with the gross profit calculated from sales and cost of sales. All other incomes, including this rent received, are then added to the gross profit before deducting expenses to find the net profit.

Common mistake: Students often mistakenly choose 'total revenue' because they confuse rent received with the main sales revenue, but revenue specifically refers to income from the principal activities of the business.

The amount charged to the profit and loss account is the increase in the provision for bad debt for the year. First, calculate the new provision needed at the end of the year, which is 10% of the debtors' balance of ₦20,000, giving ₦2,000. Next, compare this new provision to the existing provision of ₦1,000 from the start of the year. The increase to be charged to the profit and loss account is the difference: ₦2,000 (new provision) - ₦1,000 (old provision) = ₦1,000.

Common mistake: Students often mistakenly first subtract the bad debts to be written off (₦2,000) from the debtors (₦20,000) before calculating the new provision, which leads to the incorrect answer of ₦800.

When the owner of a business takes goods for personal use, this is called drawings. The double entry for this transaction is to debit the Drawings account and credit the Purchases account. We credit the Purchases account because the goods are no longer available for sale, so their cost must be removed from the total purchases for the year. This ensures that the cost of goods sold is calculated correctly.

Common mistake: Students often mistakenly choose 'drawings' because they identify the transaction correctly but forget that the Drawings account is always debited to record an increase in what the owner has taken from the business.

First, calculate the annual depreciation using the straight-line method, which is 20% of the cost (₦120,000), giving ₦24,000 per year. Next, determine the total time the equipment was used, which is from 1st January 1996 to 30th June 1999, a total of 3.5 years. Finally, multiply the annual depreciation by the number of years (₦24,000 x 3.5) to find the total accumulated depreciation of ₦84,000.

Common mistake: Students often make the mistake of only calculating depreciation for the full years (3 years), which gives ₦72,000, forgetting to include the depreciation for the final 6 months of use in 1999.

To find the net book value, you first calculate the total depreciation. The annual depreciation is 20% of the cost, which is 0.20 x ₦120,000 = ₦24,000 per year. The equipment was used for 3.5 years (1996, 1997, 1998, and half of 1999), so the total depreciation is ₦24,000 x 3.5 = ₦84,000. Finally, subtract the total depreciation from the original cost: ₦120,000 - ₦84,000 = ₦36,000.

Common mistake: Students often make a mistake by calculating depreciation for only three full years (ignoring the final six months), which would lead to an incorrect net book value of ₦48,000.

The Bought Ledger Control Account, also known as the Creditors' Control Account, is a summary account for all transactions with suppliers. Total credit purchases increase the balance (what is owed), while returns outwards (goods returned to suppliers) and discount received from them will reduce the balance. Therefore, purchases, returns outwards, and discount received are all correct items found in this account.

Common mistake: Students often mistakenly choose options containing items like 'discount allowed' or 'returns inwards', as they confuse the Bought Ledger (Creditors) Control Account with the Sales Ledger (Debtors) Control Account.

To find the closing balance of the purchases ledger control account, you start with the opening credit balance and add the total credit purchases for the period. From this total, you subtract all transactions that reduce the amount owed to suppliers, such as payments, returns, and discounts. The calculation is (Opening Balance ₦4,000 + Purchases ₦50,000) - (Cheques Paid ₦42,300 + Returns Outwards ₦2,000 + Discount Received ₦400 + Cash Refunded ₦290), which equals ₦9,010.

Common mistake: Students often incorrectly add the 'Cash refunded by suppliers' to the credit side instead of subtracting it on the debit side, leading to the wrong answer of ₦9,590 (Option C).

The sales ledger control account, also known as the total debtors account, summarises all transactions with credit customers. Items that reduce the total amount customers owe are placed on the credit side. When a customer gives a bill receivable, it settles their debt, thus reducing the total debtors' balance and is recorded as a credit entry.

Common mistake: Students often mistakenly choose 'Credit sales', forgetting that this item increases the amount customers owe and is therefore a debit entry.

The fundamental accounting equation states that Assets are equal to Capital plus Liabilities (Assets = Capital + Liabilities). To find the capital, you must rearrange the formula to make Capital the subject, which gives you Capital = Assets - Liabilities. Therefore, you subtract the value of liabilities from the assets: ₦17,200 - ₦5,120 = ₦12,080.

Common mistake: A common mistake is to add the assets and liabilities together (Option A), which incorrectly applies the accounting equation.

To find the capital, you use the accounting equation: Capital = Assets - Liabilities. First, add up all the assets: Cash (₦50 + ₦1,250) + Stock (₦4,880) + Furniture (₦960) + Building (₦5,500) + Debtor (₦1,750) = ₦14,390. Then, subtract the liability (Creditors: ₦2,150) to get ₦12,240. Finally, you must subtract the drawings of ₦125, as this reduces capital, which gives the final answer of ₦12,115.

Common mistake: The most common mistake is calculating capital as Assets minus Liabilities (₦12,240) but forgetting to subtract the drawings of ₦125, which leads to selecting option A.

To find the net current assets, you first add up all the current assets and then subtract the total current liabilities. The current assets are Cash in hand (₦50), Cash in bank (₦1,250), Stock (₦4,880), and Debtor (₦1,750), which total ₦7,930. The only current liability is Creditors (₦2,150), so you calculate ₦7,930 - ₦2,150 = ₦5,780.

Common mistake: A common mistake is to select the total current assets (₦7,930) without subtracting the current liabilities.

Manufacturing overhead costs are all the indirect costs incurred during the production process. These are expenses that are not directly tied to a specific unit of a product, such as factory rent, supervisor salaries, or electricity. Rent for the factory is a classic example of an overhead because it's a necessary cost for production to happen, but you cannot trace a specific amount of rent to a single item being made.

Common mistake: Students might mistakenly choose 'labour' because it is a production cost, but they forget that only indirect labour is an overhead, while direct labour is a direct cost.

To find the cost of goods manufactured, you must calculate the total factory cost and then adjust for work-in-progress. First, find the prime cost by adding raw materials used (₦18,000) and direct labour (₦50,000) to get ₦68,000. Next, add all factory overheads (indirect labour ₦4,000 + factory supplies ₦7,000 + other overheads ₦19,000 = ₦30,000) to the prime cost to get the total factory cost of ₦98,000. Finally, add the beginning work-in-progress (₦4,000) and subtract the ending work-in-progress (₦9,000) from the total factory cost to arrive at ₦93,000 (₦98,000 + ₦4,000 - ₦9,000).

Common mistake: Students often make the mistake of including non-factory costs like selling expenses in the calculation, which are not part of the production cost.

Prime cost represents the total direct costs of production, which is calculated as Direct Materials plus Direct Labour. In this question, the raw materials used are ₦18,000 and the direct labour is ₦50,000. Adding these two direct costs gives a prime cost of ₦18,000 + ₦50,000 = ₦68,000.

Common mistake: A common mistake is to incorrectly add factory overheads, such as factory supplies used (₦7,000), to the prime cost, which leads to the wrong answer of ₦75,000.