JAMB Accounting 2017 Past Questions & Answers

During the dissolution of a partnership, a special account called the Realization Account is opened to manage the process of selling assets and paying off liabilities. All expenses related to this process, known as dissolution expenses, are charged to this account. The correct double entry is to debit the Realization Account and credit the Bank Account, as it is an expense of the dissolution process. The Realization account is the central account for all transactions related to winding up the partnership.

Common mistake: Students might mistakenly choose the partners' capital account, thinking a partner paid the expense, but unless stated otherwise, dissolution expenses are a firm expense handled through the Realization account.

A profit-making organization, specifically a limited liability company, generates its capital by selling ownership stakes called shares to investors. The money received from the sale of these shares forms the company's share capital, which is used to finance its activities. Subscriptions, donations, and gifts are primary sources of income for not-for-profit organizations like clubs, societies, and charities.

Common mistake: Students often confuse sources of funds, and might choose 'Subscription' because it is a source of income, but it is for not-for-profit organizations like clubs, not for companies.

In a partnership, after the net profit is calculated in the Profit and Loss Account, a separate account called the Appropriation Account is prepared. This account specifically shows how the net profit is shared or 'appropriated' among the partners. It includes items like partners' salaries, interest on capital, and the final distribution of profit according to their agreed ratio.

Common mistake: Students might mistakenly choose the profit and loss account because it calculates the net profit, but this account does not show the actual *distribution* of that profit to the partners.

A manufacturing account is prepared to calculate the cost of goods produced, so it only includes factory-related expenses like depreciation of factory machines. An office machine is used for administration, not for production in the factory. Therefore, its depreciation is an administrative expense which is charged to the Profit and Loss account to determine the net profit of the business.

Common mistake: Students may mistakenly assume that because the question mentions a manufacturing account, the depreciation must be a factory expense, ignoring that an 'office machine' is an administrative asset.

The Purchases Ledger Control Account summarizes the total amount a business owes its suppliers. Any transaction that increases this debt is recorded on the credit side. Credit purchases (IV) directly increase the amount owed, so they are credited. A dishonoured cheque (III) means a payment you made has failed, so you owe the money again, which also increases the debt and is therefore credited.

Common mistake: Students often get confused by 'debit note issued' and think it's a credit item, but it represents returns outwards which reduces the amount owed to suppliers and is therefore a debit entry in the control account.

When preparing a bank reconciliation, we first update the cash book by adding items the bank has credited our account with, such as dividends and credit transfers. In the reconciliation statement that follows, we add unpresented cheques to the adjusted cash book balance. However, uncredited cheques (lodgements not yet cleared by the bank) are subtracted from the adjusted cash book balance to arrive at the bank statement balance. Therefore, the uncredited cheque is the item that is not added.

Common mistake: Students often confuse uncredited cheques with unpresented cheques and mix up whether to add or subtract them in the reconciliation statement.

To find the net profit, you start with the gross profit and then subtract all expenses and add other incomes. The expenses here are bad debts (₦350) and discount allowed (₦500), while the other income is discount received (₦1,000). So, the calculation is: ₦5,000 (Gross Profit) - ₦350 (Bad Debts) - ₦500 (Discount Allowed) + ₦1,000 (Discount Received) = ₦5,150.

Common mistake: Students often get distracted by the debtors' information and try to prepare a control account, which is not needed to find the net profit when the gross profit is already given.

In public sector accounting, the Contingencies Fund is specifically created to handle urgent or unforeseen expenditures that were not provided for in the annual budget. This fund allows the government to respond quickly to emergencies, like natural disasters or unexpected security needs, without having to go through the full legislative process for budget approval. It acts as an emergency purse for the government to ensure smooth operations when unexpected events occur.

Common mistake: Students may mistakenly choose the Consolidated Revenue Fund, but this is the main government account where all revenues are paid into and from which all budgeted expenditures are made, not specifically for unforeseen events.

During a period of rising prices, the Last-In, First-Out (LIFO) method is most appropriate. This is because LIFO assumes that the last items of stock bought (which are the most expensive) are the first ones sold. This matches the higher current costs against current revenue, resulting in a lower reported profit and a more realistic picture of the company's performance in an inflationary environment.

Common mistake: Students often mistakenly choose FIFO because it seems logical to sell the oldest stock first, but this method understates the cost of goods sold and overstates profit during inflation.

Return inwards refers to goods that customers have returned to the business. These transactions are first recorded in a special book of original entry before being posted to the ledger. This specific subsidiary book is called the Return Inwards Journal, which is another name for the Sales Return Journal.

Common mistake: Students often mistakenly choose the Sales day book because 'return inwards' is related to sales, but the Sales day book is only for recording credit sales, not returns.