JAMB Accounting 2017
Questions & Answers

1) Distractor check: Students might mistakenly pick interest accrued or account duration because fixed deposits involve time periods and interest rates, but fees specifically target breaches of contract. 2) Reasoning to the answer: Fixed deposit charges often arise from early withdrawal penalties, as funds are locked until maturity. 3) Common mistake: Assuming bank charges relate to normal earnings rather than penalty terms.

1) Distractor check: Students might mistakenly pick a multi-column cash book like the two-column or three-column variant assuming modern businesses require bank and discount columns. 2) Reasoning to the answer: A single-column cash book tracks only cash transactions, ideal for a farmer without banking services. 3) Common mistake: Choosing a multi-column format when there are no bank transactions to record.

1) Distractor check: Students might mistakenly pick barcode scanner or internet connection because point-of-sale machines rely heavily on network signals and peripheral hardware to function. 2) Reasoning to the answer: EMV chips on cards securely transmit account data to POS terminals for transaction processing. 3) Common mistake: Confusing data storage and security hardware with peripheral input devices.

1) Distractor check: Students might mistakenly pick date, narration, debit, and credit because those terms look like standard ledger or journal entries rather than specialized book formats. 2) Reasoning to the answer: The purchases day book records credit purchases with details like date, particulars, invoice number, and amount. 3) Common mistake: Mixing up day book columnar requirements with ledger account formatting.

1) Distractor check: Students might mistakenly pick recording transactions chronologically because that describes a journal or day book rather than a final classified summary. 2) Reasoning to the answer: A ledger organizes transactions into specific accounts for financial reporting. 3) Common mistake: Confusing the chronological listing function of journals with the classifying function of ledgers.

1) Distractor check: Students might mistakenly pick transferring all liabilities or continuing operations without changes because restructuring sounds administrative rather than legally transformative. 2) Reasoning to the answer: Merging requires dissolving the old partnership and establishing new terms with the merging firm. 3) Common mistake: Overlooking the legal requirement to dissolve the prior entity before a merger.

1) Distractor check: Students might mistakenly pick financial statements first or trial balance before ledgers because they see final reports more often than raw posting books. 2) Reasoning to the answer: Transactions are posted to the ledger, summarized in a trial balance, then used for financial statements. 3) Common mistake: Getting the accounting cycle steps out of chronological order.

1) Distractor check: Students might mistakenly pick omission or compensation thinking a transaction was completely left out or accidentally balanced by another error. 2) Reasoning to the answer: Misclassifying an expense (rent) as purchases violates the principle of account classification. 3) Common mistake: Confusing classification errors with mechanical entry mistakes.

1) Distractor check: Students might mistakenly pick ₦130,000 or ₦110,000 due to arithmetic errors when subtracting the margin percentage from the total sales figure. 2) Reasoning to the answer: Gross profit = 20% of ₦150,000 = ₦30,000. Cost of goods sold = Sales - Gross profit = ₦150,000 - ₦30,000 = ₦120,000. 3) Common mistake: Misapplying the gross profit margin percentage to the wrong base number.

1) Distractor check: Students might mistakenly pick ₦37,500 or ₦38,500 by improperly adding or subtracting discounts received instead of treating them correctly in the control account formula. 2) Reasoning to the answer: Closing creditors = Opening creditors + Purchases - Payments - Discounts. ₦12,500 = ₦10,000 + Purchases - ₦35,000 - ₦500. Purchases = ₦38,000. 3) Common mistake: Forgetting to account for discounts received when computing total credit purchases.

1) Distractor check: Students might mistakenly pick unpresented cheques because those are common bank reconciliation items, even though they affect the bank statement balance instead. 2) Reasoning to the answer: Unrecorded bank charges reduce the cash book balance, causing a discrepancy. 3) Common mistake: Attributing items that adjust the bank statement directly to the cash book balance.

1) Distractor check: Students might mistakenly pick ₦18,000 or ₦18,500 by misclassifying assets, capital, or drawings items during the summation process. 2) Reasoning to the answer: Debits: Cash ₦3,000, Purchases ₦5,000, Inventory ₦2,000, Fixed assets ₦6,000, Drawings ₦1,500 = ₦17,500. Credits: Capital ₦10,000, Sales ₦12,000, Creditors ₦2,500 = ₦17,500. 3) Common mistake: Including drawings incorrectly on the credit side instead of treating it as a contra-equity debit.

1) Distractor check: Students might mistakenly pick revenues and expenses when incurred because that describes accrual accounting rather than the simpler cash-focused method. 2) Reasoning to the answer: Cash basis accounting recognizes transactions only when cash is received or paid. 3) Common mistake: Confusing cash-basis timing with accrual-basis matching principles.

1) Distractor check: Students might mistakenly pick having a maximum of 50 shareholders because that restriction applies to private limited companies rather than public entities. 2) Reasoning to the answer: Public limited companies can sell shares publicly, unlike private ones. 3) Common mistake: Mixing up shareholder limits and stock-offering rules between private and public companies.

1) Distractor check: Students might mistakenly pick ₦1,200 or ₦800 by calculating the percentage against closing capital or including new capital/drawings incorrectly. 2) Reasoning to the answer: Interest = 4% of ₦25,000 = ₦1,000. 3) Common mistake: Applying interest on capital to the closing balance instead of the opening balance.

1) Distractor check: Students might mistakenly pick ₦300,000 or ₦310,000 due to simple addition slips when combining multiple asset contributions from different partners. 2) Reasoning to the answer: Segun: ₦30,000 + ₦50,000 + ₦90,000 = ₦170,000. Amina: ₦20,000 + ₦100,000 + ₦40,000 = ₦160,000. Total = ₦330,000. 3) Common mistake: Omitting one of the non-cash asset contributions while calculating total capital.

Students might choose option B or C by adding rather than subtracting costs or miscalculating the difference. To find the gross profit, subtract the cost of goods sold from the net sales amount. Taking the net sales of ₦400,000 and subtracting the cost of goods sold of ₦290,000 gives a gross profit of ₦110,000. Common mistake: Subtracting expenses like salaries when calculating gross profit instead of waiting for the net profit calculation.

Students might select option A or B due to arithmetic errors or forgetting to subtract new capital. To isolate profit, adjust the closing capital by reversing the effect of drawings and new capital, and comparing it to the opening capital. Specifically, taking the closing capital of ₦32,000, subtracting the opening capital of ₦25,000, adding back the drawings of ₦4,000, and subtracting the new capital of ₦6,000 results in a profit of ₦9,000. Common mistake: Adding new capital to closing capital instead of deducting it during the capital reconciliation.

Students might mistakenly pick option A, thinking the trading account covers all final profits. The trading account specifically computes the initial trading margin by comparing total sales against the cost of goods sold. Through this comparison, it arrives at either a gross profit or a gross loss before operating expenses are applied. Common mistake: Confusing gross profit with net profit when identifying the purpose of the trading section.

Students might select option A or B if they misallocate certain items between assets and liabilities or miscompute interim totals. The missing cash balance can be determined by balancing the fundamental accounting equation where total assets equal liabilities plus capital. Adding the known asset values of equipment ₦90,000, stock ₦40,000, and debtors ₦20,000 gives ₦150,000 plus cash. On the other side, combining share capital ₦100,000, creditors ₦15,000, and net profit calculated from sales ₦200,000 minus purchases ₦110,000, salaries ₦30,000, and utilities ₦10,000 yields a total of ₦165,000. Solving for cash gives an exact balance of ₦15,000. Common mistake: Forgetting to compute operating profit to include within the capital and liability side.

Students might pick option A or C by missing an entry or miscalculating individual category sums. To verify the trial balance, the total of all debit balances must equal the total of all credit balances. Summing up the debits for equipment ₦90,000, stock ₦40,000, debtors ₦20,000, purchases ₦110,000, salaries ₦30,000, utilities ₦10,000, and creditors gives ₦315,000. Summing the credits for sales ₦200,000, share capital ₦100,000, and creditors ₦15,000 also yields ₦315,000. Common mistake: Treating creditors as a debit item instead of a credit balance.

Students might select option A by combining retained earnings with initial capital contributions. The total capital invested by owners strictly represents the original funds injected into the business by shareholders. Taking only the share capital of ₦100,000 provides this figure, whereas retained earnings represent accumulated profits rather than direct owner contributions. Common mistake: Treating accumulated retained profits as part of the initial owner investment.

Students might choose option B or C by omitting one of the liabilities or duplicating figures. Total liabilities represent all external financial obligations owed by the business to outside parties. Combining the creditors of ₦15,000 with the loan of ₦5,000 for Dara Ltd gives an aggregate liability total of ₦20,000. Common mistake: Forgetting to include bank loans or trade payables when summing up total short-term and long-term debts.

Students might choose option B or D due to misclassifying capital accounts or forgetting specific items like drawings. A trial balance requires that the sum of all debit entries matches the sum of all credit entries. Adding the debit items—cash ₦2,000, purchases ₦4,000, inventory ₦1,500, fixed assets ₦5,000, and drawings ₦1,000—yields a total of ₦13,500. Similarly, adding the credit items—capital ₦8,000, sales ₦10,000, and creditors ₦1,500—totals ₦13,500. Common mistake: Placing drawings on the credit side instead of recognizing it as a contra-capital debit balance.

Students might select option B or C by only summing one partner's allocation or incorrectly calculating partial components. The net profit of the partnership can be derived by combining the total appropriations and distributed profits allocated to each partner. Adding Obi's total components (interest ₦500, salary ₦1,000, profit ₦2,000) which equals ₦3,500 to Ada's total components (interest ₦300, salary ₦700, profit ₦2,000) which equals ₦3,000 results in a combined net profit of ₦6,500. Common mistake: Calculating only one partner's share instead of combining all distributions.

Students might choose option B, C, or D by attempting to simplify the numbers into standard textbook ratios like 3:2. The profit-sharing ratio in a partnership is directly derived from the relative capital contributions of the partners. Expressing Segun's contribution of ₦170,000 against Amina's contribution of ₦160,000 forms the exact ratio of 17:16. Common mistake: Assuming profit-sharing ratios must always simplify to small whole numbers like 3:2 or 4:3.

Students might pick option A or C, assuming fees depend on how much money is in the account or interest accrued. Bank charges on a savings account are typically structured around account activity levels and operational overhead. Specifically, they are determined by transaction frequency, such as penalties for excessive withdrawals within a given period. Common mistake: Confusing maintenance and transaction fees with the overall balance or interest earned.

Students might choose option A or C by treating the provision as an addition or a direct profit and loss credit. The provision for doubtful debts represents an estimated reduction in the value of trade receivables. Therefore, it is deducted from debtors on the balance sheet to present a more realistic and conservative figure for collectible amounts. Common mistake: Adding the provision to debtors instead of subtracting it to show net realizable value.

Students might select option A or B, thinking the cash book calculates profit or records credit purchases. A primary function of a cash book is to act as a specialized book of original entry for tracking all cash and bank transactions. Through chronological recording, it maintains a real-time account of liquid inflows and outflows. Common mistake: Confusing cash books with ledgers that record credit sales and purchases.

Students might select option B or D, confusing the income statement with a balance sheet or trading summary. In a charitable or non-profit organization, the income and expenditure account tracks operational revenues and expenses over a period. It serves the exact same analytical purpose as a profit and loss account does in profit-making entities by revealing a surplus or deficit. Common mistake: Assuming non-profit organizations use a trading account instead of an income and expenditure statement.

Students might pick option A or C, viewing the equipment purchase as a routine operating expense or short-term inventory. Long-term items acquired for business operations, such as a warehouse refrigerator, provide economic benefits over multiple accounting periods. Consequently, this expenditure is classified and recorded as a fixed asset. Common mistake: Treating large equipment purchases as immediate revenue expenses.

Students might pick option A, C, or D by miscalculating inventory adjustments or cost of goods sold. Purchases can be derived by using the cost of goods sold formula where cost of goods sold equals opening stock plus purchases minus closing stock. Given a cost of goods sold of ₦120,000, an opening stock of ₦8,000, and a closing stock of ₦7,000, setting up the equation as ₦120,000 = ₦8,000 + Purchases - ₦7,000 reveals that purchases equal ₦119,000. Common mistake: Adding closing stock and subtracting opening stock during the purchases calculation.

Students might choose option B or C by incorrectly adding profit or omitting closing capital components. Drawings can be computed by rearranging the capital statement formula where closing capital equals opening capital plus profit minus drawings. Using the given profit of ₦18,000 and closing capital of ₦80,000, and working back from an implied opening capital of ₦70,000 derived from the asset structure (Warehouse ₦60,000 + Inventory ₦10,000), the equation becomes ₦80,000 = ₦70,000 + ₦18,000 - Drawings, which calculates drawings to be ₦8,000. Common mistake: Subtracting profit instead of adding it when reconciling capital changes.

Students might select option A, C, or D, which represent long-term capital investments. Revenue expenditure refers to short-term costs incurred during the normal day-to-day operations of running a business. Among the choices, the payment of staff salaries qualifies as a recurring operational cost. Common mistake: Confusing capital asset acquisitions with routine operational expenditures like salaries.

Students might select option A, C, or D, which describe information found on the balance sheet. The profit and loss account is an income statement designed to summarize business revenues and operating expenses. By matching these incomes against expenses, it calculates the final net profit or net loss for the period. Common mistake: Confusing the income statement with the balance sheet regarding asset and liability reporting.

Students might choose option B or C by forgetting to deduct salaries or miscalculating gross profit. Net profit is found by taking the gross profit and subtracting operating expenses such as salaries. Starting with the gross profit of ₦110,000 and subtracting the salaries expense of ₦40,000 leaves a net profit of ₦70,000. Common mistake: Stopping at the gross profit stage or failing to subtract operating expenses.

Students might select option B, C, or D by incorrectly including non-current items or miscalculating the liabilities sum. Working capital is determined by subtracting total current liabilities from total current assets. Summing current assets (Cash ₦3,000 + Inventory ₦2,000 + Debtors ₦1,500) gives ₦6,500, and summing current liabilities (Creditors ₦1,800 + Bank overdraft ₦700) gives ₦2,500, resulting in a working capital of ₦4,000. Common mistake: Including non-current assets or long-term liabilities in the working capital calculation.

Students might select option B, C, or D by forgetting to subtract scrap value or using the wrong number of years. Straight-line depreciation is calculated by taking the initial cost of the asset, subtracting its scrap value, and dividing the result by its useful life in years. Taking the machine cost of ₦200,000, subtracting the scrap value of ₦50,000 to get ₦150,000, and dividing by 5 years yields an annual depreciation of ₦30,000. Common mistake: Dividing the total asset cost by its useful life without subtracting the scrap value first.

Students might choose option B, C, or D due to arithmetic errors in division. The current ratio evaluates liquidity by dividing total current assets by total current liabilities. Dividing the current assets of ₦150,000 by the current liabilities of ₦50,000 results in a ratio of 3.0:1. Common mistake: Inverting the formula and dividing liabilities by assets instead of assets by liabilities.

Students might pick option A, B, or D by misinterpreting how incoming partner adjustments affect existing capital accounts. When a new partner introduces goodwill upon admission, that value compensates the existing partners for their sacrificed profit shares. Consequently, the goodwill amount is credited directly to the old partners in their old profit-sharing ratio. Common mistake: Crediting incoming goodwill to the profit and loss account instead of the old partners' capital accounts.