JAMB Accounting 2018 Past Questions & Answers

Capital Employed represents the total long-term funds used by a business to generate profit. It is calculated as Total Assets minus Current Liabilities. From the question, Total Assets are ₦22,000 and Current Liabilities are ₦7,000, so Capital Employed is ₦22,000 - ₦7,000 = ₦15,000. Alternatively, since there are no long-term loans, it is equal to the owner's capital.

Common mistake: A common mistake is to confuse capital employed with total assets, leading students to incorrectly select ₦22,000.

Advertising expenses are costs incurred specifically to promote and increase the sales of a product. In departmental accounting, expenses are allocated to the department that is responsible for or benefits from them. Since the sales department's main function is to sell products, the cost of advertising is correctly charged to it to accurately determine its performance.

Common mistake: Students might incorrectly choose the Administration department, viewing advertising as a general company overhead instead of a direct selling and distribution expense.

The acid test ratio is calculated as (Current Assets - Stock) ÷ Current Liabilities. First, identify the quick assets by taking current assets (Debtors ₦6,000 + Cash ₦8,000) which gives ₦14,000, as stock is excluded. Next, find the current liabilities by adding Creditors (₦9,000) and Accrued wages (₦5,000), which equals ₦14,000. Dividing the quick assets (₦14,000) by the current liabilities (₦14,000) gives a ratio of 1:1.

Common mistake: A common mistake is to incorrectly include the long-term loan in the current liabilities, which would lead to an incorrect calculation and the wrong answer.

When the head office sends goods to a branch at 'cost plus mark-up', it creates an invoice price which is higher than the actual cost. This invoice price is a guide, not a rigid selling price. The branch manager is expected to sell at the best possible price to make a profit, which means they can sell above or even below the stipulated invoice price depending on market conditions.

Common mistake: Students often mistakenly choose option B, confusing the transfer price (invoice price) with the absolute minimum selling price, but the branch can sell below this price as long as it is still above the original cost.

The Auditor General is the correct answer because their primary role is to audit the public accounts of the federation. This means they independently check all government spending (expenditures) to make sure it was done according to the law and the approved budget (appropriations). This process ensures accountability and helps prevent corruption in the use of public funds.

Common mistake: Students often mistakenly choose the Accountant General because they also handle public funds, but the Accountant General's role is to manage and pay out money, not to audit or check how it was spent.

The cost of goods available for sale is calculated by adding the opening stock to the net purchases and any direct costs like carriage inwards. First, find the net purchases by subtracting returns outwards from purchases (₦40,000 - ₦2,000 = ₦38,000). Then, add the opening stock and carriage inwards to this amount: ₦32,000 (Opening Stock) + ₦38,000 (Net Purchases) + ₦1,000 (Carriage Inwards) equals ₦71,000.

Common mistake: Students often make the mistake of subtracting the closing stock, which would calculate the cost of goods sold instead of the cost of goods available for sale.

The cost of goods sold is calculated by adding the cost of purchases to the opening stock and then subtracting the closing stock. The formula is: Opening Stock + (Purchases + Carriage Inwards - Returns Outwards) - Closing Stock. Using the figures provided: ₦32,000 + (₦40,000 + ₦1,000 - ₦2,000) - ₦9,000. This simplifies to ₦32,000 + ₦39,000 - ₦9,000, which equals ₦62,000.

Common mistake: Students often mistakenly omit Carriage Inwards from the calculation, as they confuse it with Carriage Outwards which is a selling and distribution expense.

When a company issues shares, it may ask shareholders to pay the money in instalments. Each request for an instalment is called a 'call'. If a shareholder fails to pay the amount requested by the due date, that unpaid amount is called 'calls in arrears'.

Common mistake: Students often mistakenly choose 'forfeiture' because it is related, but forfeiture is the action the company takes to cancel the shares due to non-payment, not the name for the unpaid amount itself.

When goodwill is not retained in a partnership, it means it is first raised and then immediately written off. To write off the goodwill, the Goodwill account (an asset) must be credited to remove it from the books. The corresponding debit entry is made to the Partners' Capital accounts to reduce their capital balances in the new profit-sharing ratio.

Common mistake: Students often mistakenly choose option A, which is the correct entry for raising goodwill, but the question asks for the entry when goodwill is not retained, meaning it must be written off.

To find the new balance sheet total, you must first calculate the profit or loss. The key is the rent adjustment: ₦12,000 was paid for a year, so the expense for the period (assumed to be a quarter) is ₦12,000 / 4 = ₦3,000. Gross profit is Sales (₦8,200) minus cost of sales (₦15,000 - ₦10,000) = ₦3,200. The net loss is the gross profit (₦3,200) minus total expenses (Rent ₦3,000 + Wages ₦500), which equals a loss of ₦300. The new capital is the opening capital (₦40,000) minus the net loss (₦300), giving ₦39,700, which is the total of the new balance sheet.

Common mistake: Students often mistakenly charge the entire ₦12,000 rent as an expense for the period, instead of correctly identifying the prepayment and only expensing the portion used.

In the head office's books, the branch is treated like a debtor, so an account called 'Branch Account' or 'Branch Current Account' is opened. When goods are sent to the branch, the value of the branch as an asset to the head office increases. Following the rule of double entry, an increase in an asset is debited. Therefore, the Branch Current Account is debited in the head office ledger.

Common mistake: Students often confuse the entry in the head office books with the entry in the branch books; in the branch's books, the 'Head Office Current Account' would be credited for goods received.

When one company buys another, the 'purchase price' is the amount paid. If this price is more than the fair value of the company's net assets (assets minus liabilities), the extra amount is called 'goodwill'. Goodwill represents the value of the company's good name, customer loyalty, and other intangible benefits. Since goodwill is an intangible asset, it is recorded with a debit entry in the goodwill account.

Common mistake: Students might mistakenly choose the purchase account because the question mentions 'purchase price,' but the purchase account is used for recording the buying of goods for resale, not the acquisition of an entire business.

In branch accounting, the branch adjustment account is prepared to find out the profit or loss of a branch. The gross profit is the first part of this calculation and is determined within the branch trading account. Therefore, the gross profit calculated is transferred to the branch trading account to allow for the deduction of branch expenses to arrive at the net profit.

Common mistake: Students often mistakenly choose 'profit and loss account' because it's the next account after the trading account in final accounts, but in this specific branch accounting method, the transfer is to the branch trading account.

The original profit sharing ratio is Ade (3), Tony (2), and Rose (1). When Ade retires, his share of 3 is taken over by Tony and Rose in their existing ratio, which is 2:1. To find their gain, Tony gets $2/3$ of Ade's share $(2/3 * 3 = 2)$ and Rose gets $1/3$ of Ade's share $(1/3 * 3 = 1)$. Tony's new share is his old share (2) plus his gain (2), which is 4, while Rose's new share is her old share (1) plus her gain (1), which is 2. Therefore, the new ratio is 4:2, which simplifies to 2:1.

Common mistake: A common mistake is to assume the retired partner's share is split equally, instead of following the instruction to split it according to the remaining partners' existing profit-sharing ratio.

Calls in advance is money paid by shareholders for their shares before the company officially requests it. This money is treated as a current liability because it represents a short-term obligation the company owes to the shareholder. The obligation is settled when the official call is made and the shares are fully credited as paid.

Common mistake: Students might mistakenly choose 'Current asset' because the company is receiving cash, but they forget that this cash creates a short-term obligation, not an economic resource owned by the company.

Adjustments are made to follow the matching concept, which requires that revenues earned in a period are matched with the expenses incurred to generate those revenues. This process ensures the profit calculated is accurate for that specific period, regardless of when cash was actually paid or received. Therefore, adjustments help to ascertain the actual expenses incurred and income earned during the year.

Common mistake: Students often mistakenly choose option C because they confuse the accrual basis of accounting (matching income earned with expenses incurred) with the cash basis (tracking cash received and paid).

Branch accounts are used for businesses with a head office and other locations called branches. These branches are classified based on how they manage their bookkeeping. The main types are dependent branches (which rely on the head office), independent branches (which keep their own full set of books), and foreign branches (located in another country). 'Single branch' is not a standard classification; it just describes a situation where a company has only one branch, which would still be classified as either dependent or independent.

Common mistake: Students might mistakenly choose 'foreign branch' if they are only familiar with the dependent/independent classification and wrongly assume a branch's location does not define a specific accounting type.

Remittance in transit means cash has been sent by the head office but has not yet been received by the branch. To account for this money that is on its way, the branch must record it as an asset it is about to receive. In accounting, an increase in an asset (like cash) is recorded with a debit entry, so the branch will debit its books to show the incoming cash.

Common mistake: Students often choose 'Credit entry' because they confuse the debit entry for the asset (cash in transit) with the corresponding credit entry to the Head Office account in the branch's ledger.

To find the final profit or loss of a partnership, you must first deduct all business expenses from the gross profit. Interest on a loan from a partner is considered a business expense (a 'charge against profit') and must be paid before the final net profit is calculated. Items like partners' salaries and interest on capital are not expenses; they are ways of sharing the profit ('appropriations of profit') after the net profit has been determined.

Common mistake: Students often mistakenly choose 'Partners salaries' or 'Interest on capital' because they confuse these appropriations of profit with the business expenses used to calculate net profit.

To find the closing cash balance, you start with the opening cash in hand of ₦28,500. Add all the money that came into the business, which is the cash from sales (₦8,200), to get a new total of ₦36,700. From this total, subtract all the money that was paid out: rent (₦12,000), purchases (₦15,000), and the sales boy's pay (₦500). The final cash balance is ₦36,700 - ₦12,000 - ₦15,000 - ₦500, which equals ₦9,200.

Common mistake: A common mistake is forgetting to subtract one of the cash payments, for example, if a student forgets to deduct the ₦12,000 rent paid, they would incorrectly arrive at ₦21,200.

When a new partner joins an existing business, they pay an amount to compensate the old partners for the good reputation (goodwill) they have built. This extra amount paid by the new partner, which is then shared by the old partners, is treated as a bonus to them. It is a reward for their past efforts in making the business successful before the new partner's arrival.

Common mistake: Students often choose 'Goodwill' because it correctly identifies the reputation being paid for, but the question asks what the compensation amount itself represents for the old partners, which is a bonus.

To find the gross profit, first calculate the cost of goods sold (COGS) for the branch. This is Opening Stock (₦400) + Goods Sent to Branch (₦8,000) - Returns to Head Office (₦340) - Closing Stock (₦720), which equals ₦7,340. Then, subtract the COGS from the branch's sales (₦9,160) to get the gross profit of ₦1,820 (i.e., ₦9,160 - ₦7,340).

Common mistake: Students might incorrectly calculate the cost of goods sold, for example by forgetting to subtract the value of goods returned to the head office, leading to an understated profit.

When the head office sends goods to a branch at cost price, it maintains maximum control and can easily check the branch's performance. This method is simple because the head office knows the exact cost of the goods, making it easy to calculate the branch's profit and identify any stock shortages or discrepancies. Invoicing at cost avoids the need for complex adjustments for unrealised profit on closing stock, which is required when goods are sent at a marked-up price.

Common mistake: Students often mistakenly choose 'Selling price' thinking it simplifies sales tracking, but this method actually complicates profit calculation and control for the head office.

Transfer pricing refers to the price set for goods or services exchanged between departments in the same company. Common methods for setting this internal price include using the cost of the item (cost-based), the market price (market-based), or a combination (dual pricing). Peak pricing is different; it's a strategy for charging external customers higher prices during busy periods and is not a method for internal departmental transfers.

Common mistake: Students might mistakenly choose 'Dual pricing system' because it sounds complex, but it is a valid method where the sending and receiving departments record the transfer at different prices.

Dissolution of a partnership is the formal process of ending the business relationship between partners. This process involves several activities to close the business properly, which includes selling off the partnership's assets for cash (realisation), paying off all its debts, and settling the final accounts among the partners. The question describes exactly these steps that occur during the dissolution of a partnership.

Common mistake: Students often confuse 'dissolution' with 'winding up', but dissolution is the formal term for the entire process of ending the partnership, which includes the activities of winding up the business affairs.