JAMB Accounting 2007 Past Questions & Answers

To find the correct allocation, first establish the ratio of the floor space occupied by the departments. If we set Y's space as 2 units, then X's space is twice that (4 units) and Z's space is half of Y's (1 unit), giving a ratio of 4:2:1 for X:Y:Z. The sum of the ratio parts is 4 + 2 + 1 = 7. Department Y's share is $2/7$ of the total rent, so you calculate $(2/7)$ * N70,000, which gives N20,000.

Common mistake: A common mistake is to calculate the rent for department X, which occupies the largest space $(4/7 * N70,000 = N40,000)$, and incorrectly choose option B.

A Receipts and Payments account is a summary of all cash inflows and outflows, where the total of both sides must be equal. To find the total figure, we can sum up all items on the payments (credit) side. This includes the 'Total payments' (N 8,200), the bank deposit which is also a cash outflow (200% of N 1,110 = N 2,220), and the closing cash balance (N 1,110). Therefore, the total figure for the account is N 8,200 + N 2,220 + N 1,110 = N 11,530.

Common mistake: Students often mistakenly calculate only the sum of the given receipt items (N 9,310), leading to option C, while ignoring the other outflows and the closing balance needed to balance the account.

To find the opening cash balance, you must reconstruct the cash account for the period using the formula: Opening Balance + Total Receipts = Total Payments + Closing Balance. First, calculate total cash receipts: N1,200 + N4,310 + N1,500 + N2,300 = N9,310. Next, calculate total cash payments, which includes the stated N8,200 plus the bank deposit (200% of N1,110 = N2,220), giving a total of N10,420. Therefore, the Opening Balance = (N10,420 + N1,110) - N9,310 = N2,220.

Common mistake: The most likely mistake is failing to include the cash deposited in the bank (N2,220) as part of the total cash payments, which leads to an incorrect calculation.

Prime cost represents the total direct costs of production. To calculate it, first find the cost of raw materials consumed by adding the opening stock of raw materials (N57,000) to the purchases of raw materials (N81,000), which equals N138,000. Next, add the direct labour cost (N38,000) to the cost of materials consumed. Therefore, the prime cost is N138,000 + N38,000 = N176,000.

Common mistake: A common mistake is to incorrectly include indirect costs like factory overhead in the calculation, or to confuse it with direct labour, which would lead to a wrong answer.

When partners do not have a formal agreement (a partnership deed), the rules are governed by the Partnership Act of 1890. This Act states that no partner is entitled to receive interest on their capital or be paid a salary for working in the business. Therefore, statements II (Interest is not allowed on capital) and III (Salaries are not allowed) are the correct provisions that apply. The Act also states profits are shared equally and no interest is charged on drawings, making statements I and IV incorrect.

Common mistake: Students often mistakenly believe that interest must be charged on drawings, forgetting that this rule, like interest on capital, only applies if it is explicitly stated in a partnership agreement.

The question states that the opening stock, N2,000, is one-quarter $(1/4)$ of the goods sent to the branch. This means that to find the full value of the goods sent, you must multiply the opening stock value by 4. Therefore, the calculation is N2,000 x 4, which equals N8,000.

Common mistake: Students often make the mistake of dividing the opening stock by 4 instead of multiplying, failing to recognise that the stock is only a fraction of the total goods sent.

To find the closing stock, you need to prepare a Branch Stock Account at selling price. First, calculate the value of 'Goods sent to branch'; since the opening stock (N2,000) is $1/4$ of the goods sent, the goods sent must be N2,000 x 4 = N8,000. In the Branch Stock Account, you debit the opening stock (N2,000) and goods sent (N8,000), giving a total of N10,000. You then credit the sales (N4,500), and the balancing figure will be your closing stock, which is N10,000 - N4,500 = N5,500.

Common mistake: Students often make a mistake by simply subtracting the opening stock from the sales (N4,500 - N2,000 = N2,500), forgetting to first calculate the value of 'Goods sent to branch' and prepare a proper Branch Stock Account.

The Realization Account is used to calculate the profit or loss when a partnership is dissolved or converted into a company. Normally, expenses paid by the partnership are debited to this account. However, if the new company taking over agrees to pay these conversion expenses on behalf of the partnership, it is treated as a form of gain or income for the partnership, and the Realization account is credited.

Common mistake: Students often choose to debit the realization account, which is the correct entry when the partnership itself pays the expenses, but this question's correct option points to a specific scenario where the purchasing company bears the cost.

In a manufacturing organization, a Manufacturing Account is prepared first to calculate the cost of goods produced. Within this account, 'purchases' refers to the purchase of raw materials, which is shown as a separate line item. The final cost of production is then transferred to the Trading Account, meaning the initial purchases figure is always presented separately in the calculation.

Common mistake: Students often mistakenly choose option C, confusing the cost of purchasing raw materials with the total cost of goods manufactured, which also includes direct labour and factory overheads.

The difference of N10,000 (N50,000 sent - N40,000 received) represents goods-in-transit. In the head office books, the 'Goods Sent to Branch' account is adjusted at year-end for any goods still on their way to the branch. To do this, the head office debits the 'Goods Sent to Branch' account with the value of the goods-in-transit, which is N10,000. This entry correctly reduces the amount of goods charged against the branch for the period.

Common mistake: Students often mistakenly choose option A, thinking the branch should record the full N50,000 sent, but a branch can only record the value of goods it has actually received.

The acid test ratio, also known as the quick ratio, is the correct answer because it specifically measures a company's ability to pay its short-term debts without needing to sell its stock (inventory). Quick assets are current assets that can be converted to cash very quickly, which is why inventory is excluded. This ratio provides a stricter test of a firm's liquidity or short-term safety margin than the current ratio.

Common mistake: Students often mistakenly choose the current assets ratio because it also measures short-term liquidity, but they forget that it includes all current assets, not just the 'quick' ones mentioned in the question.

First, find the number of shares issued, which is 80% of 1,000,000, giving 800,000 shares. Next, calculate the amount due per share on the second call by subtracting the amounts already paid from the total issue price (110k - 70k - 25k - 10k = 5k). Finally, multiply the number of issued shares by the amount due on the second call (800,000 shares x 5 kobo) to get 4,000,000 kobo, which is equal to N40,000.

Common mistake: A common mistake is to miscalculate the balance due per share, for example getting 7 kobo instead of 5 kobo, which leads to the incorrect answer of N56,000.

First, calculate the number of shares that were actually issued, which is 80% of the 1,000,000 authorized shares, giving you 800,000 shares. The amount payable on application for each share is stated as 70 kobo (which is N 0.70). To find the total money received on application, you must multiply the number of issued shares by the application money per share, which is 800,000 shares × N 0.70 = N 560,000.

Common mistake: A common mistake is to calculate the total nominal value of the issued shares (800,000 shares x N1.00 = N800,000), forgetting that the question specifically asks for the amount received on application only.

Working capital is calculated by subtracting total current liabilities from total current assets. First, sum up the current assets: Stock (N3,600,000) + Cash (N800,000 + N2,400,000) + Debtors (N580,000) equals N7,380,000. Then, sum up the current liabilities: Creditors (N920,000) + Bank Overdraft (N200,000) + Tax (N600,000) + Salary Owed (N180,000) equals N1,900,000. The working capital is therefore N7,380,000 minus N1,900,000, which gives N5,480,000.

Common mistake: Students often mistakenly choose the total current assets (N7,380,000) without subtracting the total current liabilities to find the final working capital.

A Receipts and Payments Account is a summary of all cash and bank transactions for a not-for-profit organisation over a period. It shows all money received and all money paid out. This function is identical to the role of a Cash Book or cash account in a profit-making business, which is to track all cash movements.

Common mistake: Students may incorrectly choose 'a balance sheet' because both are summary statements prepared at the end of a period, but this is wrong as a balance sheet shows financial position (assets and liabilities) at a point in time, not cash flow over a period.

When a new partner is admitted and pays for goodwill, this amount is treated as the purchase of an intangible asset by the partnership. According to the double-entry principle, an increase in an asset is recorded with a debit entry. Therefore, the N30,000 paid by Takwa is debited to the Goodwill account to bring this asset into the books of the partnership before it is shared among the old partners.

Common mistake: Students often choose option D because they correctly remember that the old partners are compensated for goodwill, but they forget that the first step in the accounting treatment is to create the goodwill asset by debiting the goodwill account.

In the accounts of a not-for-profit organisation like a club, 'subscriptions accrued' can refer to subscriptions paid in advance by members. This means the club has received money for a future period but has not yet earned it. This creates a short-term obligation to provide services to those members, which is reported as a current liability in the balance sheet.

Common mistake: Students often confuse subscriptions accrued (paid in advance, a liability) with subscriptions in arrears (owed to the organisation), which would be correctly classified as a current asset.

This question requires you to share, or apportion, a factory overhead cost (lighting) among different products based on their production volume. First, find Zema's proportion of the total production: 1260 units out of 4500 total units. Then, multiply this proportion by the total lighting cost to find the amount chargeable to Zema: $(1260 / 4500)$ x N2,925 = N819.

Common mistake: Students might incorrectly average the lighting cost by dividing it by the three products $(N2,925 / 3 = N975)$, instead of apportioning it based on the production units as instructed.

To find the salary for Zera, you first need to calculate the number of Zera units produced. This is the total units (4,500) minus the units for Zema (1,260) and Zeta (2,060), which gives 1,180 units for Zera. Since expenses are shared based on production, the salary for Zera is its proportion of the total salary. You calculate this as (Zera units / Total units) x Total Salary, which is $(1,180 / 4,500)$ x N4,050, resulting in N1,062.

Common mistake: A common mistake is to accidentally use the production units of another product, like Zeta (2,060 units), which would incorrectly lead to an answer of N1,854.

The branch stock adjustment account is prepared to find the gross profit of a branch, especially when the head office sends goods at an inflated price. This account removes the extra profit (or 'mark-up') from the value of goods sent and the closing stock. The final balancing figure on this account represents the gross profit made by the branch from its operations.

Common mistake: Students may confuse the final gross profit with 'unrealized profit', which is the profit on unsold stock that is adjusted for within the account, not the final result of the account itself.

In a partnership, the Profit and Loss Appropriation Account is used to show how the net profit is shared among partners. Once the profit is shared, each partner's individual portion is credited to their current account. This is because the current account records the day-to-day transactions between the partner and the business, including profit shares, interest on capital, and drawings.

Common mistake: Students often mistakenly choose the capital account, but this account is typically kept fixed for the initial investment and is not used for recording annual profit shares unless there is no current account.

Public sector accounting involves managing government funds, which are often separated for specific purposes to ensure accountability. While most government revenue goes into the Consolidated Revenue Fund, specific long-term obligations like pensions for former leaders are paid from a dedicated fund. Therefore, a pension for a past president or vice-president is correctly charged to a 'special pension fund' created for that purpose.

Common mistake: Students often mistakenly choose the 'consolidated revenue fund' because it is the main government account, but they forget that specific, significant expenditures are managed through separate, dedicated funds for better control.

The question is about the allocation of funds from the federal government, which is a core concept in public sector accounting. To find the correct answer, you need to calculate the portion of the total fund that is shared based on equality. The total amount is N 140 million, and the percentage for equality is 40%, so the calculation is 40% of N 140,000,000, which equals N 56,000,000.

Common mistake: A common mistake is to calculate the N 56 million allocated for equality and then divide it by the four local governments to get N 14 million (Option B), misinterpreting the question's focus.

Stock valuation is the process of putting a monetary value on unsold inventory at the end of a period. This value is a key adjustment needed to calculate the cost of goods sold, which is then subtracted from sales revenue to find the gross profit. By knowing the cost of the goods, the sales department can set selling prices that will not only cover these costs but also ensure the business makes a desired profit.

Common mistake: Students may mistakenly choose option D because they confuse stock valuation (finding the monetary value) with stock-taking (counting the physical quantity); the valuation's main purpose for sales is to inform pricing for profitability, not just the quantity to sell.

The straight-line depreciation is calculated using the formula: (Cost of Asset - Residual Value) / Estimated Useful Life. First, find the depreciable amount by subtracting the residual value from the cost (N343m - N28m = N315m). Then, divide this amount by the asset's estimated life (N315m / 3 years). This gives an annual depreciation charge of N105m.

Common mistake: Students may mistakenly calculate the accumulated depreciation for two years (N105m x 2 = N210m), choosing option A, instead of the depreciation for just the first year.