JAMB Accounting 2009 Past Questions & Answers

Financial accounting is the oldest branch of accounting, with its roots in the double-entry bookkeeping system developed by Luca Pacioli in 1494. Its primary purpose was to record business transactions and report financial performance to external parties like owners and creditors. Other branches like Cost and Management accounting were developed much later, mainly during the Industrial Revolution, to help managers make internal decisions.

Common mistake: Students might mistakenly choose Cost or Management accounting because they are very important for modern business decisions, but they were developed much later than the original Financial accounting.

The accruals concept states that revenues should be recognized when they are earned and expenses should be recognized when they are incurred, not necessarily when cash is exchanged. This includes the matching principle, which requires that all costs and expenses used to generate revenue must be matched against that revenue in the same accounting period. This process accurately calculates the profit or loss for that period.

Common mistake: Students may mistakenly choose 'periodicity' because matching of revenue and expenses is done within a specific time period, but the periodicity concept only states that business activities are divided into these periods, not how profit is calculated within them.

The bookkeeping process begins with recording financial transactions, and this must be based on verifiable evidence. This evidence is called a source document, such as a receipt, invoice, or payment voucher. These documents provide all the necessary details (date, amount, parties involved) from which records are made in the books of original entry.

Common mistake: Students might mistakenly choose 'ledgers' because they are a core part of bookkeeping, but they forget that ledgers are created from entries that originate from source documents, not the other way around.

The total cost of the recharge cards is a business expense, which amounts to N3,500 (N1500 + N2000). In double-entry bookkeeping, an increase in an expense is recorded with a debit, so the Telephone account is debited. Since the purchase was made from specific suppliers (XYZ and KLM) and not with immediate cash, a liability is created, which is recorded by crediting the suppliers' individual accounts.

Common mistake: Students often mistakenly choose option B, assuming the purchase was made with cash, but the question names the specific suppliers (XYZ and KLM), which implies a credit transaction where the business will pay them later.

To find the total debit for the trial balance, you must first identify all the accounts that have a debit balance. Assets like Debtors (N 495,000), Motor vehicles (N 870,000), Prepayments (N 500,000), Bills receivable (N 505,000), and Furniture (N 150,000) all have debit balances. Adding these amounts together $(495,000 + 870,000 + 500,000 + 505,000 + 150,000)$ gives a total of N 2,520,000.

Common mistake: Students often make the mistake of calculating the total credit balances (Capital + Creditors = N 2,620,000) instead of the total debit balances.

When the owner takes money from the business for personal use, it is called drawings. This transaction reduces the cash in the business's bank account, which is an asset, causing assets to decrease. Drawings also reduce the owner's investment (capital) in the business. Therefore, the overall effect is a decrease in the business's assets and a decrease in the owner's capital.

Common mistake: Students may mistakenly choose option C, thinking that the 'Drawings' account is an asset that increases, while correctly identifying that capital decreases.

Current liabilities are debts that a business expects to pay back within one year. In the list provided, 'Creditors' are suppliers you owe money to for goods, and 'Loan from friends' is money borrowed that must be repaid; both are short-term debts. The other items like machine and furniture are non-current assets, which are things the business owns for long-term use. Therefore, the correct current liabilities are the loan and the creditors.

Common mistake: Students may mistakenly choose option D by confusing assets with liabilities, incorrectly including 'Furniture' (an asset) with 'Loan from friends' (a liability).

Fixed assets are long-term items a business owns and uses for more than one year to generate income. From the list, Operating machine (I), Furniture (II), and Fixtures and fittings (III) are all items used in the business for a long time. Loans from friends (IV) and Creditors (V) are liabilities, which represent money the business owes to others, not items it owns.

Common mistake: Students might mistakenly choose option B, confusing a 'Loan from friends' (a liability or money owed) with an asset (something the business owns).

In a three-column cash book, there are two types of cash discounts. 'Discount allowed' is an expense given to customers who pay us early, and it is recorded on the debit side along with the cash received. 'Discount received' is an income we get from suppliers for paying them early, and it is recorded on the credit side along with the cash paid. Therefore, cash discount is found on both the debit and credit sides of the cash book.

Common mistake: Students often forget that there are two types of cash discounts (allowed and received) and may only remember one, leading them to incorrectly choose either the debit side only or the credit side only.

A standing order is an instruction that a bank account holder, who is a customer, gives to their bank. This instruction tells the bank to pay a specific, fixed amount of money at regular intervals (e.g., monthly) to another person's or company's account. Therefore, the instruction originates from the customer and is directed to the bank to carry out the payment.

Common mistake: Students might mistakenly choose option B, confusing the direction of the instruction and thinking the bank gives the order, when in fact the bank only receives and acts upon the customer's order.

To determine the adjusted cash balance, we must first update our own cash book for items we were not aware of or for our own errors. Items like bank charges, undercasting, or overcasting of the cash book are all used to correct the cash book balance. However, an error made by the bank is not our mistake, so it is used to adjust the bank statement balance, not our cash book balance.

Common mistake: Students often mistakenly choose 'Bank service charges' because it appears on the bank statement, but they forget that the purpose of adjusting the cash book is to record such items that the business was not yet aware of.

To find the balance as per the bank statement, first calculate the adjusted cash book balance: N20,000 (opening balance) + N1,000 (direct credit) - N1,000 (direct debit) = N20,000. Next, reconcile this adjusted balance to find the bank statement balance. The formula is: Adjusted Cash Book Balance + Unpresented Cheques - Uncredited Lodgements. The 'credit in the cash book' of N500 is interpreted as an uncredited lodgement (a deposit not yet reflected by the bank). Therefore, the calculation is N20,000 + N5,200 - N500 = N24,700.

Common mistake: The most likely mistake is ignoring the confusing 'credit in the cash book' item or adding it instead of subtracting, which leads to an incorrect calculation of N25,200 (Option B).

The accounting equation is Total Assets = Total Liabilities + Capital. To account for drawings, we can expand this to Total Assets = Total Liabilities + Capital - Drawings. First, calculate Total Assets as ₦2,000 + ₦4,000 = ₦6,000, and Total Liabilities as ₦1,200 + ₦2,000 = ₦3,200. Substituting these into the equation gives ₦6,000 = ₦3,200 + Capital - ₦200, which means Capital = ₦6,000 - ₦3,200 + ₦200 = ₦3,000.

Common mistake: A common mistake is to incorrectly treat drawings as a liability, adding it to total liabilities (₦3,200 + ₦200 = ₦3,400) and then getting confused or choosing the wrong option.

Net working capital is calculated by subtracting the total current liabilities from the total current assets. Using the figures provided, this is N2,000 (Current Assets) minus N1,200 (Current Liabilities). This gives a final answer of N800; the other figures like fixed assets and drawings are not used in this specific formula.

Common mistake: A common mistake is to incorrectly subtract drawings from the working capital, leading to a wrong answer like N600, but drawings affect the owner's capital, not the working capital formula directly.

Current assets are resources owned by a business that are expected to be converted into cash or used up within one accounting year. The correct option is A because stock, bills receivable, cash, and debtors are all examples of assets that are either cash or will be turned into cash in the short term. The other options are incorrect because they include items like 'bills payable', which is a current liability (money the business owes), or 'bad debt', which is an expense.

Common mistake: Students often confuse current assets with current liabilities, so they might mistakenly choose an option containing 'bills payable' (a liability) instead of 'bills receivable' (an asset).

FIFO means 'First-In, First-Out', so the stock that came in first is sold first. To find the closing stock value, we value the remaining units using the price of the last items received. We have 1,500 units left (4,000 received - 2,500 issued). These are valued as the last 1,000 units at N11 each (N11,000) and the remaining 500 units from the previous batch at N12 each (N6,000), giving a total of N17,000.

Common mistake: The most common mistake is to confuse the number of units remaining (1,500) with the number of units issued (2,500), which leads to an incorrect calculation.

To find the value, we track the stock value step-by-step. First, calculate the cost of the 1,500 units issued on Jan 3 using the simple average of the prices available (N10 and N12), which is $(10+12)/2$ = N11. The cost of this issue is 1,500 x N11 = N16,500. The value of stock remaining is (N10,000 + N24,000) - N16,500 = N17,500. Finally, add the value of the 1,000 units received on Jan 4 at N11 each: N17,500 + (1,000 x N11) = N17,500 + N11,000 = N28,500. This is the value before the final issue on Jan 5.

Common mistake: Students often calculate the final closing stock value after the last issue on Jan 5, which would result in N17,500 (Option C), not realizing the question's value corresponds to the stock level before that final issue.

LIFO stands for Last-In, First-Out. During a period of rising prices, the last goods purchased are the most expensive. The LIFO method assumes these most expensive goods are sold first, which means the closing stock is valued using the prices of the older, cheaper goods. This results in a lower, more conservative value for closing stock, which aligns with the accounting principle of prudence (conservatism).

Common mistake: Students often mistakenly choose FIFO, not realizing that during a period of rising prices, FIFO values closing stock at the more recent, higher prices, which leads to a higher, not a conservative, valuation.

Control accounts are summary accounts used to check the accuracy of a corresponding subsidiary ledger. While the most common ones are for debtors (Sales Ledger Control) and creditors (Purchases Ledger Control), they can be used for any ledger with many individual accounts. A large business with several cashiers might use a Cash Control Account in the general ledger to summarize all the individual cash books. This helps to maintain an internal check on the total cash handled.

Common mistake: Students often mistakenly choose sales or purchases accounts because they confuse the Sales/Purchases Ledger Control Account with the actual Sales/Purchases nominal account.

The Purchases Ledger Control Account, also known as the Creditors' Control Account, is a liability account summarizing what a business owes its suppliers. Liabilities are increased by credits and decreased by debits. At the end of an accounting period, to balance the account, the closing balance (balance c/d) is entered on the side with the lower total, which is typically the debit side. This entry makes the debit and credit sides equal.

Common mistake: Students often mistakenly choose 'Purchases' because the Purchases account itself has a debit balance, but they forget that in the Purchases Ledger Control account, credit purchases increase the liability to suppliers and are therefore a credit entry.

The sales ledger control account, also known as the debtors' control account, summarises all transactions with customers. The debit side is used to record items that increase the total amount customers owe the business. When interest is charged to customers on their overdue accounts, the amount they owe increases, so this is recorded as a debit entry in the sales ledger control account.

Common mistake: Students might mistakenly choose 'Bills receivable honoured', thinking it increases the debt, but it actually means the customer has paid the bill, which reduces their debt and is therefore a credit entry.

In a manufacturing company, some departments do not produce goods directly but provide essential support to the main production departments. These are called service departments, and their activities include maintenance, storage, or even running a staff canteen. The costs these departments incur are called service costs, which are later shared among the production departments to find the total cost of making the goods.

Common mistake: Students often mistakenly choose 'supporting costs' because the description uses the word 'support,' but the correct technical accounting term for these expenses is 'service costs'.

To find the gross profit, you first need to calculate the cost of goods sold (COGS). The formula for COGS is Opening Stock of Finished Goods plus the Cost of Goods Manufactured, minus the Closing Stock of Finished Goods. Using the figures given, this is N4,000 + N20,000 - N5,000 = N19,000. Finally, subtract the COGS from Sales to get the gross profit: N50,000 - N19,000 = N31,000.

Common mistake: Students often make the mistake of calculating gross profit by simply subtracting the production cost from sales (N50,000 - N20,000 = N30,000), forgetting to adjust for the opening and closing stock of finished goods.

To find the net profit, you first calculate the gross profit and then subtract the total expenses. Gross profit is Sales (₦50,000) minus the Cost of Goods Sold (₦19,000), which equals ₦31,000. The Cost of Goods Sold is found by adding the opening stock of finished goods (₦4,000) to the production cost (₦20,000) and subtracting the closing stock (₦5,000). Finally, subtract the total expenses (Selling ₦2,000 + Admin ₦1,000 = ₦3,000) from the gross profit to get the net profit of ₦28,000 (₦31,000 - ₦3,000).

Common mistake: Students often get confused by the work-in-progress figures and incorrectly adjust the final profit with them, not realizing they are already accounted for within the given 'Production cost of goods manufactured'.

A Receipts and Payments account is prepared by not-for-profit organisations to show all money that has come in and all money that has gone out during a period. This is essentially a summary of all the transactions recorded in the cash book. It starts with the opening cash balance, adds all receipts, subtracts all payments, and ends with the closing cash balance.

Common mistake: Students often confuse the Receipts and Payments account with the Income and Expenditure account, which is the not-for-profit equivalent of a profit and loss account.