2024 - JAMB Accounting Past Questions and Answers - page 5

Suppliers' accounts are typically maintained within the general ledger. The general ledger contains all the accounts needed for financial reporting, including those for suppliers (also known as creditors or accounts payable). While purchase accounts may track purchases from suppliers, and nominal accounts are a type of general ledger account, the suppliers' accounts themselves are held within the general ledger.

A subsidiary book is a book of original entry that records specific types of transactions. A ledger is the principal book that summarizes transactions.

The cash book is both a subsidiary book—because it records all cash receipts and payments—and a ledger, because it functions like a cash account with debit and credit entries.

A statement of affairs lists assets and liabilities of a business, often during insolvency or liquidation.

Fixed assets, accruals, and cash in hand are needed because they represent the business's financial position.

Net profit is not required, as it belongs to the income statement and not the statement of affairs.

To calculate the current ratio:

Current Assets:
Debtors: 50,000
Bank: 10,000
Stock (31-08-2007): 10,000
Total Current Assets = 70,000

Current Liabilities:
Creditors: 35,000

Current Ratio:
\( \frac{70,000}{35,000} = 2:1 \)

Using the diminishing balance method:

Year 1:
Depreciation = 9,000 × 10% = 900
Book value = 9,000 − 900 = 8,100

Year 2:
Depreciation = 8,100 × 10% = 810
Book value = 8,100 − 810 = 7,290

Year 3:
Depreciation = 7,290 × 10% = 729

Depreciation charge for the third year = 729

The nominal ledger contains accounts for revenue, expenses, gains, and losses. Drawings is recorded as an expense-like account representing the owner's withdrawals.

In inflationary times, the LIFO (Last-In, First-Out) method is most beneficial for tax purposes.

Because LIFO assigns the most recently purchased (and higher-priced) items to cost of goods sold, profits appear lower—reducing taxable income. FIFO and WAP generally result in higher profits and therefore higher tax liabilities during inflation.