JAMB Accounting 2021 Past Questions & Answers

A control account is a summary account in the general ledger used to check the accuracy of a subsidiary ledger. The sales ledger contains the individual accounts of all customers who bought goods on credit, making them debtors. Therefore, the sales ledger control account summarises these individual accounts to show the total amount owed by all debtors to the business.

Common mistake: Students often confuse the sales ledger with the purchases ledger and incorrectly choose 'creditors', which are people the business owes money to and are tracked in the purchases ledger control account.

During inflation, prices are constantly increasing. The LIFO (Last-In, First-Out) method assumes that the last items bought, which are the most expensive, are the first ones to be sold. This matches the high current cost of goods against sales revenue, which gives a more realistic profit figure and can lead to tax savings. The remaining stock is valued at the older, cheaper prices.

Common mistake: Students often mistakenly choose FIFO because it is a very common method, but they forget that during inflation, FIFO would match old, cheaper costs against current high selling prices, overstating profit.

Ordinary shareholders are the real owners of a company, and the dividend they receive depends on the profit the company makes and the amount the directors decide to pay out. Therefore, their dividend is not fixed or predetermined. It is preference shareholders who are entitled to receive dividends at a fixed rate before any payment is made to ordinary shareholders.

Common mistake: Students often confuse the rights of ordinary shareholders with those of preference shareholders, mistakenly believing that all types of shareholders receive a fixed dividend.

Public sector accounting, which is how the government manages its finances, uses a system called fund accounting. This system separates money into different 'funds' to ensure that resources are used for their intended purposes. The main types of funds used to account for government capital and revenue expenditures include technical funds, special trust funds, and commercial funds.

Common mistake: Students often get confused by options that include 'personal advances' or 'treasury clearance funds', but these are specific accounting items within the government system, not the broad categories of funds themselves.

Factory overhead costs are all the indirect expenses incurred in the factory during production, excluding direct materials and direct labour. To find the total factory overhead, you simply need to add up all the indirect costs given. This includes depreciation of plant (₦1,600), factory rent (₦650), indirect wages (₦695), general indirect expenses (₦726), lubricants (₦1,235), and factory power (₦350), which sum up to ₦5,256.

Common mistake: A common mistake is a simple calculation error when summing the various costs, which could lead to choosing one of the other incorrect options.

In the accounts of not-for-profit organisations like clubs or charities, the 'excess of income over expenditure' is the surplus, which is the equivalent of profit for the year. This surplus is not taken by owners but is added to the organisation's total wealth, which is called the accumulated fund. The accumulated fund is similar to the capital account in a regular business, so adding the surplus to it increases the organisation's net worth.

Common mistake: Students often mistakenly choose 'profit and loss account' because it is where profit is transferred in a regular business, but not-for-profit organizations use an 'Income and Expenditure Account' and transfer the surplus to the 'Accumulated Fund'.

In departmental accounts, expenses that cannot be directly traced to one department are shared or 'apportioned' using a fair basis. Carriage outwards is the cost of delivering goods to customers, which is directly related to sales. Since turnover is another name for total sales, it is the most logical basis to share the cost of carriage outwards among departments.

Common mistake: Students often mistakenly choose carriage inwards, but this expense is related to the purchases made by a department, not its sales turnover.

To find the total credit sales, you reconstruct the Debtors Control Account. The formula is: Sales = Closing Debtors + Cheques Received - Opening Debtors. Using the figures provided, the calculation is ₦15,000 (closing balance) + ₦255,000 (cheques) - ₦25,000 (opening balance). This gives a total of ₦245,000.

Common mistake: A common mistake is to incorrectly add the opening balance to the cash received and subtract the closing balance (₦255,000 + ₦25,000 - ₦15,000 = ₦265,000), which leads to the wrong option D.

To find the net profit for Department A, start with its gross profit of ₦6,000. Next, calculate its total expenses by adding the direct expenses (salaries ₦1,800 and depreciation ₦600) to its share of the indirect expenses. The only indirect expense to be shared is electricity (₦2,000), and Department A's share is 60%, which is ₦1,200. Therefore, total expenses for Department A are ₦1,800 + ₦600 + ₦1,200 = ₦3,600. Finally, subtract the total expenses from the gross profit: ₦6,000 - ₦3,600 = ₦2,400.

Common mistake: Students often correctly calculate the total expenses for Department A (₦3,600) but mistakenly choose it as the final answer instead of subtracting it from the gross profit.

This question is about sharing expenses between different departments. The total depreciation for the business is ₦1,000. Since Department A is allocated ₦600, the remaining amount must be for Department B. To find Department B's share, you simply subtract Department A's portion from the total: ₦1,000 - ₦600 = ₦400. Alternatively, you can use the given ratio of 40% for Department B, which is 40% of ₦1,000, also giving you ₦400.

Common mistake: Students might mistakenly assume the expenses are shared equally $(50/50)$ and calculate half of ₦1,000 to get ₦500, ignoring the specific 60:40 ratio given in the question.

The accrual concept is a fundamental accounting principle which states that income should be recognized when it is earned, and expenses should be recorded when they are incurred. This happens regardless of when the actual cash is received or paid. This method provides a more accurate view of a company's performance for a specific period.

Common mistake: Students often mistakenly choose cash accounting because it is more straightforward, as it only records transactions when cash actually moves in or out of the business.

The materiality concept states that an item is material if its omission or misstatement could influence the economic decisions of users. Because the value of stationery is usually very small (immaterial) compared to the company's total assets, it is more practical to record it as an expense immediately. The cost and effort of tracking it as an asset over time would outweigh the benefit of the information.

Common mistake: Students might mistakenly choose 'accrual' because the question mentions an expense, but the accrual concept is about matching expenses to the period they are incurred, not about whether an item is significant enough to be treated as an asset.

To find the total credit amount for the trial balance, you must identify which accounts have credit balances. Assets like Cash (₦2,000) and Furniture (₦4,000) have debit balances. A Bank overdraft (₦2,000) is a liability, which means the business owes money to the bank, so it has a credit balance. Therefore, the only item on the credit side is the bank overdraft of ₦2,000.

Common mistake: Students often mistakenly add all the figures together (₦2,000 + ₦2,000 + ₦4,000 = ₦8,000), forgetting that a trial balance separates balances into debit and credit columns based on the type of account.

Fixed assets are long-term resources owned by a business for more than one year to help generate income, and they are not meant for resale. In the given list, 'premises' (buildings) and 'land' fit this description as they are used for a long time in the business's operations. Other items like cash are current assets, while creditors and loans are liabilities (what the business owes).

Common mistake: Students might mistakenly choose an option that includes cash, forgetting that cash is a current asset because it is used for daily transactions, not a long-term fixed asset like land.

Current assets are resources a business owns that it expects to convert into cash or use up within one accounting year. In the list provided, 'cash at bank' and 'cash in hand' are the most liquid forms of assets and are therefore classified as current assets. Premises and land are non-current assets because they are used for a long time, while creditors and loans are liabilities, which is money the business owes to others.

Common mistake: Students often mistakenly include 'creditors' (option A) because it's a short-term item, but they fail to recognise that creditors are a current liability (money owed), not a current asset (what is owned).

The share premium is the extra amount paid for a share above its normal (par) value, which is ₦1.50 - ₦1.00 = ₦0.50 per share. For the 750,000 shares that were issued, the total premium is 750,000 shares multiplied by ₦0.50, which equals ₦375,000. The Share Premium account is a capital reserve, and increases in capital reserves are always recorded as a credit entry.

Common mistake: Students might correctly calculate the total premium as ₦375,000 but mistakenly debit the account, forgetting that capital reserves like share premium have credit balances.

The second and final call is made on the 750,000 shares that were issued. The amount for this call is 25 kobo (₦0.25) per share, which totals ₦187,500 (750,000 x ₦0.25). When a call is made, the accounting entry is to debit the Call Account (to show money is due from shareholders) and credit the Share Capital Account (to increase the capital). Therefore, the corresponding credit entry for the debit to the Second Final Call account is a credit to the 12% Preference Share Capital account for ₦187,500.

Common mistake: Students might mistakenly choose the bank account, confusing the entry for when the call is made with the separate entry for when the cash is actually received from shareholders.

LIFO stands for Last-In, First-Out, which means the company assumes it sells the most recently purchased stock first. During a period of rising prices, the most recent stock is also the most expensive. Therefore, by matching the most recent (and highest) costs against revenue, the company records a higher cost of goods sold.

Common mistake: Students often confuse LIFO with FIFO and incorrectly choose option B; it is the FIFO method that would result in a higher value of closing stock during a period of rising prices.

Departmental accounts are prepared by businesses with different sections to measure the performance of each one. The main objective is to calculate the individual profit or loss for every department. This shows how much each department is contributing to the overall profit of the business, helping management make informed decisions.

Common mistake: Students might mistakenly choose option A because calculating materials sold is a step in preparing the account, but the ultimate goal is to determine the overall profitability of the department, not just its sales.

To legally form a company in Nigeria, the promoters must submit key documents to the Registrar of Companies at the Corporate Affairs Commission (CAC). These include the Memorandum of Association, which states the company's purpose and capital, and the Articles of Association, which sets out the internal rules. Along with these, other statutory incorporation documents are also required, so all three items listed must be delivered for the company to be incorporated.

Common mistake: Students often choose option B because they correctly identify the Memorandum and Articles of Association as crucial, but they forget that other statutory forms, also called incorporation documents, are required as well.

Issued share capital is the portion of a company's authorised capital that has been offered to investors and which they have agreed to buy. When investors agree to take up the shares offered, the shares are said to be 'subscribed'. Therefore, issued share capital represents the shares that have been fully subscribed for by shareholders.

Common mistake: Students often mistakenly choose option B, confusing 'issued capital' with 'authorised capital', which is the maximum amount of capital a company is legally permitted to issue.

The straight-line method of depreciation spreads the cost of an asset evenly over its useful life. To calculate the annual depreciation, you first find the total amount the asset will lose in value, which is its original cost minus its estimated scrap value at the end. Then, you divide this amount by the number of years the asset is expected to be useful, which gives you the fixed depreciation amount for each year.

Common mistake: Students might mistakenly choose an option involving 'sales' because they confuse the calculation of annual depreciation with the calculation for profit or loss when an asset is eventually sold.

In Nigeria, the practice of accounting is regulated by professional bodies established by law. The two main bodies legally recognized by Acts of the National Assembly are the Institute of Chartered Accountants of Nigeria (ICAN) and the Association of National Accountants of Nigeria (ANAN). These organizations are responsible for setting professional standards, conducting examinations, and regulating the activities of accountants in the country.

Common mistake: Students may get confused by other options with official-sounding names, but it is a key fact that only ICAN and ANAN are the two accounting bodies legally established by the Nigerian government.

According to the double-entry principle, for every debit entry, there must be a corresponding credit entry. When cash is received from a personal account (like a debtor), the cashbook is debited to show an increase in cash. The corresponding entry is to credit the personal account in the ledger, which reduces the amount that person owes the business.

Common mistake: Students often mistakenly choose 'debit the ledger' because they forget that the double-entry system requires an opposite entry, so a debit in one account must be matched by a credit in another.

The quick ratio, also known as the acid-test ratio, is calculated by dividing quick assets by current liabilities. Quick assets are current assets minus stock, which in this case are Debtors (₦87,000) + Cash (₦60,000) + Bank (₦100,000), totaling ₦247,000. The current liabilities are Creditors (₦200,000) + Other current liabilities (₦100,000), totaling ₦300,000. Therefore, the ratio is ₦247,000 divided by ₦300,000, which gives 0.82, making the answer 0.82 : 1.

Common mistake: A common mistake is to forget to subtract stock from current assets, which results in calculating the current ratio $(₦275,000 ÷ ₦300,000 = 0.91)$ and incorrectly choosing option D.