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COURSE TITLE:-
GENERAL ACCOUNTING II
BHM 107 GENERAL ACCOUNTING II
COURSE
GUIDE
BHM 107
GENERAL ACCOUNTING II
ii
BHM 107 GENERAL ACCOUNTING II
Abuja Office
No. 5 Dar es Salaam Street
Off Aminu Kano Crescent
Wuse II, Abuja
Nigeria
e-mail: centralinfo@nou.edu.ng
URL: www.nou.edu.ng
Published by
National Open University of Nigeria
Printed 2009
ISBN: 978-058-906-6
iii
BHM 107 GENERAL ACCOUNTING II
CONTENTS PAGE
Introduction…………………………………………… 1
Course Contents……………………………………..... 1
Course Aims…………………………………………… 1
Course Objectives……………………………………… 2
Course Materials………………………………………. 2
Study Units……………………………………………. 3
Assignment …………………………………………… 4
Tutor-Marked Assignment……………………………. 4
Final Examination and Grading………………………. 4
Summary……………………………………………… 5
Introduction
BHM 107: General Accounting is a core course which carries two credit
units. It is prepared and made available to all the students who are taking
the Bachelor Degree in Entrepreneurial and Small Business
Management in the School of Business and Human Resources
Management. The course is a useful material to you in your academic
pursuit as well as in your workplace.
The course is made up of twenty one units, covering areas such as the
evolution of accounting, accounting equation and concept of double
entry book-keeping, book-keeping to the trial balance, cash book, bank
reconciliation, depreciation of fixed assets, trading account, profit and
loss account, balance sheet, accounts of non-trading organizations,
department accounts, consignment account, container accounts,
partnership accounts, and ratio analysis.
Course Contents
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BHM 107 GENERAL ACCOUNTING II
Course Aims
The main aim of the course is to expose you to the nature of evolution of
accounting, accounting equation and concept of double entry
book-keeping, book-keeping to the trial balance, cash book, bank
reconciliation, depreciation of fixed assets, trading account, profit and
loss account, balance sheet, accounts of non-trading organizations,
department accounts, consignment account, container accounts. The
course is also meant to introduce you to the treatment of partnership
accounts in the areas of preparation of partnership accounts, admission
of new partners, retirement of partners, and dissolution of partnership
business. Also included in the course is the ratio analysis.
Course Objectives
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BHM 107 GENERAL ACCOUNTING II
Course Materials
1. Course Guide
2. Study Units
3. Textbooks
4. Assignment Guide
Study Units
There are twenty one units in this course, and they are divided into four
modules, which should be studied carefully. They are as follows:
Module 1
Module 2
Module 3
Module 4
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BHM 107 GENERAL ACCOUNTING II
The first unit simply presents the general background on the evolution
of Accounting. The second unit is used to discuss the nature of double
entry system of bookkeeping. The next unit describes the cash book.
The next unit is used to espouse on the bank reconciliation. The next
two units are used to explain the nature of depreciation of the fixed
assets.
The next three units are used to explain the nature of the final accounts
and balance sheet. The next unit (11) discusses the nature of the
accounts of the non-trading organizations. The next unit is used for the
treatment of departmental accounts. The next two units (13 and 14) are
used for the treatment of the consignment and container accounts.
The next five units (15 to 19) are used for the treatment of partnership
accounts. The last two units (20 and 21) are used for the treatment of
ratio analysis.
Each study unit will take at least two hours, and it includes the
introduction, objectives, main content, self-assessment exercises,
conclusion and summary as well as references. The other aspect of the
course borders on the tutor-marked assignment questions, which you are
supposed to attempt and submit for your Tutor's grading.
There are also textbooks under the references and other resources for
further reading. They are meant to give you additional information if
only you can lay your hands on any of them. You are advised to practice
the self-assessment exercises and tutor-marked assignment questions for
greater understanding of the course. By so doing, the stated learning
objectives of the course will be achieved.
Assignment
There are many assignments on this course and you are expected to do
all of them by following the schedule prescribed for them in terms of
when to attempt them and submit same for grading by your tutor.
Tutor-Marked Assignment
vii
BHM 107 GENERAL ACCOUNTING II
in to your Tutor for grading. They constitute 30% of the total score for
the course.
At the end of the course, you will write the final examination. It will
attract the remaining 70%. This makes the total final score to be 100%.
Summary
The course, BHM 107: General Accounting exposes you to the nature of
evolution of accounting, accounting equation and concept of double
entry book-keeping, and preparation of accounts for business
transactions, from the journal entries to ledger, trial balance, final
accounts and the balance sheet. It is also exposes you to the treatment of
bank reconciliation, partnership accounts and ratio analysis, among
others.
On the successful completion of the course, you would have been armed
with the materials necessary for efficient and effective handling of
simple business transactions and the treatment of the accounting records
of the operations of the non-trading organizations.
viii
BHM 107 GENERAL ACCOUNTING II
ix
BHM 107 GENERAL ACCOUNTING II
Abuja Office
No. 5 Dar es Salaam Street
Off Aminu Kano Crescent
Wuse II, Abuja
Nigeria
e-mail: centralinfo@nou.edu.ng
URL: www.nou.edu.ng
Published by
National Open University of Nigeria
Printed 2009
ISBN: 978-058-906-6
x
BHM 107 GENERAL ACCOUNTING II
CONTENTS PAGE
Module 1 ……………………………………………… 1
Module 2 ………………………………………………… 37
Module 3 ………………………………………………… 73
xi
BHM 107 GENERAL ACCOUNTING II
MODULE 1
CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 The Evolution of Accounting
3.2 Evolution of Accountability
3.3 Meaning of Modern Accounting
3.4 Accounting Concepts
3.5 Accounting System
3.6 The Double Entry Principle
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings
1.0 INTRODUCTION
2.0 OBJECTIVES
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BHM 107 GENERAL ACCOUNTING II
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BHM 107 GENERAL ACCOUNTING II
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BHM 107 GENERAL ACCOUNTING II
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BHM 107 GENERAL ACCOUNTING II
The Going Concern assumes that a business once formed, will continue
in operational existence for the foreseeable future. With such a
recognition of perpetual existence, accounting comes face to face with
the problem of breaking such a continuous period into discrete short
period for income determination. Since the determination of such
income is dependent on what values are assigned to the assets of the
enterprise the problem of income determination cannot be divorced from
asset valuation. However, the values assigned to assets for periodic
reports do not constitute any attempt to show their intrinsic worth or
even realize values but only their written down values.
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BHM 107 GENERAL ACCOUNTING II
The Prudence Concept is the accounting rule that "revenue and profits
should not be anticipated but should only be recognized for inclusion in
the profit and loss account when realized in the form of either cash or
other assets, the ultimate cash realization of which can be assessed with
reasonable certainty. It also states that provision should be made for all
known liabilities and losses when the amounts of these are known with
certainty or are the best estimates in the light of the available
information. This concept (formerly called the principle of
conservatism) also states that the accountant should resolve uncertainties
with a conservative attitude especially as they relate to the determination
of net income and the valuation of assets. The conservative lead to the
two very important principles of accounting – the principles of
objectivity and materiality.
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BHM 107 GENERAL ACCOUNTING II
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BHM 107 GENERAL ACCOUNTING II
4.0 CONCLUSION
In this unit, the Evolution of accounting from the days of King
Hammuarbi of Babylon to present day of detailed information disclosure
period was highlighted. The various accounting systems and concept
were also discussed.
5.0 SUMMARY
Accounting systems differ from country to country on the basis of the
differences in the technology employed, but the accounting concept is a
unifying factor were accountants all over the world accept the concept
dogmatically. The issuing of standards also help in uniform reporting
accounting information worldwide.
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BHM 107 GENERAL ACCOUNTING II
CONTENTS
1.0 Introduction
2.0 Objectives
3.0 The Accounting Equation and the Concept of Double Entry
Book-Keeping
3.1 The Accounting Equation
3.2 Double Entry Book-Keeping
3.3 Double Entry Principle
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings
1.0 INTRODUCTION
2.0 OBJECTIVES
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BHM 107 GENERAL ACCOUNTING II
A=C
Where:
A = Assets
C = Capital
Let us assume further that the trader used N20,000 of the each to buy
furniture. In this case, the equation still has to balance i.e.
Assets
A=C+L
Where:
A = Assets
C = Capital, and
L = Liabilities
So, assuming we continue with our earlier example of the sole trader,
should he obtain a Bank loan of N120,000 to finance the business
further, the equation A = C + L, holds as follows:
Or
N220,000 = N200,000
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BHM 107 GENERAL ACCOUNTING II
In cases of profit,
A=C+L+P
Where:
A = Assets
C = Capital
P = Profits
In case of loss,
A = C + L1 L2
Where:
A = Assets
C = Capital
L1 = Liabilities
L2 = Losses incurred
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BHM 107 GENERAL ACCOUNTING II
Classification of Accounts
The accounts used in recording transactions that are temporary, that is,
terminated at the end of particular accounting periods are referred to as
nominal accounts. Example includes all revenue and expenditure
accounts.
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BHM 107 GENERAL ACCOUNTING II
4.0 CONCLUSION
In this unit, we have analysed the golden rule of double entry, once a
transaction is interpreted correctly the bookkeeper applies the golden
rules to pass the double entry.
5.0 SUMMARY
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BHM 107 GENERAL ACCOUNTING II
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BHM 107 GENERAL ACCOUNTING II
CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Book-Keeping
3.2 The Process of Book-Keeping
3.3 Essential Notes
3.4 Uses of the Trial Balance
3.5 Errors not Detected by the Trial Balance
3.5.1 Errors of Omission
3.5.2 Errors of Commission
3.5.3 Errors of Principle
3.5.4 Errors of Compensation
3.5.5 Errors of Original Entry
3.5.6 Errors of Complete Reversal of Entry
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings
1.0 INTRODUCTION
2.0 OBJECTIVES
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BHM 107 GENERAL ACCOUNTING II
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BHM 107 GENERAL ACCOUNTING II
Cash N100,000
Bank Balance N80,000
2/1/96 bought a typewriter N20,000 paying cash
3/1/96 paid rental expenses N2,000 cash
4/1/96 bought goods N70,000 for resale from UTC on credit
6/1/96 sold goods, N15,000 to FCT on credit
7/1/96 cash sales N30,000
9/1/96 introduced N50,000 cash as additional capital
10/1/96 returned goods N6,000 to UTC
11/1/96 paid UTC N50,000 in cash
12/1/96 paid for expenses as follows
N
Stationary 3,000
Telephone 2,500
Wages 2,800
Sundries 4,000
All the payments were in cheques.
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BHM 107 GENERAL ACCOUNTING II
Required:
Open the necessary books of account, enter the individual transactions
and extract a trial balance as at 12 January 1996.
Solutions
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BHM 107 GENERAL ACCOUNTING II
You can now post to the individual ledger accounts going strictly by the
narration in the journal. That means you open a ledger (T) account as
shown by the journal's narration and post the debit or credit entries as
indicated therein.
Note that you may see some accounts featuring many times in the
journal depending on the nature of the transactions. For example cash a/
c. In such situations, you are not supposed to open more than one cash a/
c, rather just open cash a/c and post all entries involving cash into
account.
Below are the ledger accounts we require per the above journal entries.
Cash Account
N N
1/1/96 Capital a/c 10,000 2/1/96 Typewriter a/c 20,000
7/1/96 Sales a/c 30,000 3/1/96 Rental exp. a/c 2,000
9/1/96 Capital 50,000 11/1/96 UTC a/c 50,000
12/1/96 Balance c/d 108,000
180,000 180,000
Bank Account
N N
1/1/96 Capital a/c 80,000 12/1/96 Stationary 3,000
“ Telephone exp. a/c 2,500
“ Wages exp. a/c 2,800
“ Sundry exp. a/c 4,000
80,000 “ Balance c/d 80,000
Capital Account
N N
12/1/96 Capital a/c 230,000 1/1/96 Cash a/c 100,000
1/1/96 Bank a/c 80,000
9/1/96 Cash a/c 50,000
230,000 230,000
Typewriter Account
N N
3/1/96 Cash a/c 20,000 12/1/96 Balance c/d 20,000
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BHM 107 GENERAL ACCOUNTING II
Purchases Account
N N
9/1/96 UTC a/c 70,000 12/1/96 Balance c/d 70,000
Purchases Account
N N
19/1/96 Returns inwards 6,000 4/1/96 Purchase a/c 70,000
11/1/96 Cash a/c 50,000
12/1/96 Balance c/d 14,000
70,000 70,000
FCT Account
N N
5/1/96 Sales a/c 15,000 12/1/96 Balance c/d 15,000
SAMBO ENTERPRISES
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BHM 107 GENERAL ACCOUNTING II
Meanwhile, note that all the 14 (fourteen) ledger accounts were included
in the trial balance because they contain some balances.
N N
3/1/97 10,000 1/1/96 Purchase a/c 10,000
Such an account has no balance and will therefore not from part of a
trial balance assuming it has to be drawn on 3/1/97 or a later date.
1. Errors of Omission
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BHM 107 GENERAL ACCOUNTING II
2. Errors of Commission
This arises where fictitious transactions or figures are brought into the
book keeping system and correct book keeping procedures are followed
in recording such transactions or figures. Assuming a debtor owing a
certain sum of money is mistakenly considered to have paid N1,000
cash, so long as the book keeperpasses a N1,000 debit entry to the cash
a/c and a N1,000 credit entry to the debtor's a/c a trial balance extracted
at the end will not reveal such an error.
3. Errors of Principle
This occurs where a book keeper enters correct amounts but in the
wrong class of accounts against conventional accounting principles.
4. Errors of Compensation
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BHM 107 GENERAL ACCOUNTING II
4.0 CONCLUSION
In this unit, the concept of book keeping to the trial balance was
discussed extensively, all the essential items in the preparation of book
keeping to trial balance was enumerated.
5.0 SUMMARY
This unit considered the basic procedures involved in book keeping with
particular reference to the posting, balancing of ledgers and the
extraction of trial balance. Note was also taken of the uses of the trial
balance and various errors that are detectable by the trial balance.
Mention three types of errors that cannot be detected by the trial balance
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BHM 107 GENERAL ACCOUNTING II
CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 The Cash Book
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings
1.0 INTRODUCTION
2.0 OBJECTIVES
The cash book is the book into which all cash receipts and payments of a
business are entered. Some authors do not regard this book as a book of
original entry, because balancing, which is characteristic of ledger
accounts, also takes place in it and so refer to it as cash account but
because individual items are necessarily posted from it into the ledger it
is still reasonable to regard it as book of original entry. The equivalent
of cash book in non-trading organizations such as clubs, societies and
associations is the receipts and payments account. The term cash book
covers the one-column, two-column, three-column and petty types.
The cash book is ruled in such a way that it has two sides coinciding
with left and right hands. The left side, which is the receiving side, is
called debit side while the right hand side which is the paying or giving
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BHM 107 GENERAL ACCOUNTING II
side, is called the credit side. Any cash received by the entity enters the
debit side while any cash leaving the business goes through the credit
side. The one-column cash book is so called because it contains only
one monetary column in each of its two sides-one at the debit side and
one at the credit side.
Illustration
Required:
Enter the transactions in the column cash book of A. Agbo and balance
the account (book) on 31st January 1988.
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BHM 107 GENERAL ACCOUNTING II
Premium
31 Purchases 1,000.00
Balance c/d 7.580.00
16,200.00 16,200.00
7,580.00
Calculation Method
N
Debit side total 16,200.00
Credit side total 8.620.00
Balance carried down 7.580.00
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BHM 107 GENERAL ACCOUNTING II
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BHM 107 GENERAL ACCOUNTING II
The cash book is the book into which all cash receipts and payments of a
business are entered.
5.0 SUMMARY
Mr. Oji trading as Oji & sons, started business on 1 st April, 2006, with a
capital of N20,000 divided to N8,000 cash in hand and N12,000 as cash
in the bank. The following transactions took place during the month.
N
April 2 Purchased goods for cash 5,000
3 Bought stationery for cash 500
5 Bought furniture & fitting by cheques 2,100
8 Cash sales paid into bank 4,200
9 Withdrew cash from bank for office use 5,000
11 Received a cheque of N1,900 from
J. Ujo in full settlement of his debt of N2000
13 Paid ala N500 cash in full settlement of debt
N550 owned to him
17 Cash sales 3,000
20 T. Ojo who owned in full settlement of debt
of N550 owned to pay N355 cash in full
settlement of the debt
23 Paid cash into bank 2,500
27 Paid cash into bank 500
30 Bought goods by cheques 3,600
30 Cash sales paid into bank 2,400
Required:
Enter the transactions into three-column cash book and balance the
account on 30th April 2004.
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BHM 107 GENERAL ACCOUNTING II
CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Bank Reconciliation (Unpresented Cheques)
3.1.1 Uncredited Cheques
3.1.2 Bank Charges
3.1.3 Direct Payments
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings
1.0 INTRODUCTION
One should be right then to think that the balance in the bank column of
the cash book should always agree with the bank statement since all
cheques received are assumed to be paid straight into the bank while
cheque payment’s are made through the bank; but that is not always true
because of supervening events that may have countervailing positive or
negative effects on either of the balance. One or more of usually
create(s) a difference between a business man's actual cash balance in
the bank column of his cash book and the balance as shown by the bank
statement.
2.0 OBJECTIVES
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BHM 107 GENERAL ACCOUNTING II
At the time the bank is preparing its statement to send to the customer,
some of the customer's cheques issued to outsiders, which are duly
credited to the cash book, may not have been presented to the bank for
payment, so the bank would not have debited the customer's account
with such amounts. The effect of unpresented cheques is that the balance
in the bank statement is higher than the cash book balance in the bank
column.
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BHM 107 GENERAL ACCOUNTING II
The bank may also receive certain amount on behalf of the customer.
When money such as interest, loan or dividend is paid directly into the
customer's account, the bank statement balance will exceed the cash
book balance by such payments and the difference can be corrected by
adding the payments to the cash book during the cash book (bank
column) amendment.
(a) The credit side of the cash book was under-cast to the tune of
N120.00
(b) Cheques dishonoured
Ngozi 156.00
(c) Cheques drawn and recorded in the cash book (Book column) but
not shown in the bank statement.
T. Abel 132.00
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BHM 107 GENERAL ACCOUNTING II
(e) Items duly debited in the cash book but not yet cleared by the
bank:
cheques received from D. Okeke 243.96
cheques received from P. Ojimekwe 174.00
cheques received from R. Owate 562.00
Required:
Show the amended cash book and the bank reconciliation statement for
U. Muhammed on 30th April, 2000.
DR. CR
N N
April 30 Bal. b/f 12,409.44 April 30 Under-cast written
Back 120.00
P. Ngozi
Dishonoured cheques 156.00
Bank charges 30.00
Cost of cheques book 18.96
Balance c/d 12,084.48
12 409.44 12,409.44
April 30 Bal.b/d 12,084.48 12
Note:
(i) What we have done here is to amend the cash book by bringing
up to the cash book all those items that would ordinary be treated
in the cash book. When the cash book has been amended we will
be left with unpresented and uncredited cheques items to use in
reconciliation process.
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BHM 107 GENERAL ACCOUNTING II
N N
Balance as per cash book 12,084.48
Add unpresented cheques
T. Abe l 132.00
Amufu Limited 246.84 378. 84
12,463.32
Less Uncredited Cheques:
D. Okeke 243.96
P. Orjimekwe 174.00
R. Owate 562.92 980.88
Balance as per bank statement 11.482.44
We many also start the process of reconciliation from the balance as per
bank statement.
BANK RECONCILIATION STATEMENT
N N
Balance as per Bank Statement 11,482.44
Add uncredited cheques
D. Okeke 243.96
P. Ojimekwe 174.00
R. Owate 562.92 980.88
12,463.32
Less unpresented cheques
T. Abel 132.00
Amufe Limited 246.84 378.84
Balance as per Cash Book 12,463.43
1. Below are the cash book (bank column only) and the Bank
Statement of R. Nuhu for month of March, 1998.
Dr. Cr.
Date part L/F Amount Date part L/F Amount
Mar.1 Bal. b/f 4,201.50 Mar 1 J. Onalo 1,500.00
5 J. Sambo 400.90 11 E.Uzo 406.50
8 Cash 1,200.08 12 V.Okwuosa 707.70
11 G.Nwanikwe 900.00 16 R. Onuh 133.00
17 Cash 4,200.00 26 K. Idoko 2,100.00
26 M. Dogo 1,600.00 28 S. Agwai 500.00
29 J. Aruwa 2,004.00 31 F. Agada 204.20
31 P. Egbe 100.00 31 A. Atama 300.00
c/d 8,755.14
April Bal. 14,606.54 14,606.54
8,755.14
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BHM 107 GENERAL ACCOUNTING II
UNITY BANK
BANK STATEMENT SENT TO 31ST MARCH, 1998
2. Given below are the cash book (bank columns only) and the bank
statement of Dansani for the month of 31st May, 2006.
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BHM 107 GENERAL ACCOUNTING II
Required:
Amend and balance Dansani cash book (bank column only) and
reconcile this with his bank statement.
4.0 CONCLUSION
This unit treated the issue of reconciling the bank column of the cash
book with the bank statement issued by the bankers. The major causes
of the discrepancy are the unpresented cheques and uncredited
lodgment.
5.0 SUMMARY
D. Bako, trading as Bako Brothers, pays all business takings into the
bank and makes all payments by cheques. The balance of his cash book
on 31st January, 1999 agreed with balance as shown by his cash as at
that date. The following statement shows the summary of figures
appearing on the bank statement for the year.
N
Balance brought forward on 31st January 600.00
Amount paid in by Bako and credited by the bank for the year 15,000.00
Cheques drawn by Bako and paid by the bank for the year 14,500.00
Bank charges 45.00
Dividends received by the bank on behalf of D. Bako 1,255.00
On the 31st December of the same year, D. Bako had drawn two
cheques to Musa and Abdullahi for N60 and N675 respectively. On the
same day, D. Bako paid in a cheques of N80, which he received from
Abubakar. The above cheques were not included in the totals shown
above, having been paid and credited respectively by the bank in
January of the following year.
Required:
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BHM 107 GENERAL ACCOUNTING II
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BHM 107 GENERAL ACCOUNTING II
MODULE 2
CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Depreciation of Items and Fixed Assets
3.2 Methods of Depreciation
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings
1.0 INTRODUCTION
The preparation of final accounts has two main aims-that every trading
and profit and loss account show the 'correct' profits or losses for the
period and every balance sheet gives the 'true and fair' view of the
affairs of the business at a given period. The correct profit or loss can
only be obtained if the accounts carry every kobo of loss incurred and
every kobo of revenue earned. For a balance sheet to show a ‘true and
fair’ view of a business affair it must show the assets and liabilities at
their ‘correct’ values.
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BHM 107 GENERAL ACCOUNTING II
2.0 OBJECTIVES
SSAP 12 which deals with depreciation of fixed assets does not attempt
to recommend particular methods to be used by companies. It concerns
itself with the provision that financial statement should disclose for each
major class of assets, the depreciation method used, the expected useful
lives of the assets or the depreciation rates used, the total depreciation
associated for the period, and the gross amount of depreciable assets and
the related accumulated depreciation. It also provides that where asset is
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BHM 107 GENERAL ACCOUNTING II
Illustration
On 1st January, 2000 a trader buys a plant for N4,000 which the estimate
would have a useful life of ten years. The salvage or scrap value at the
end of the period is estimated at N100.
Required:
Using the straight line method of depreciation, show in the books of the
company for the first three years.
4,000 − 100
=
10
= N390
3,900
=
10
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BHM 107 GENERAL ACCOUNTING II
Plant 4,000.00
Less depreciation 390.00 3,610.00
Illustration
On 1st January, 1998 a trader buys a machinery for N4,000 which by his
experience depreciates at the rate of 10% per annum.
Required:
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BHM 107 GENERAL ACCOUNTING II
Using the reducing balance of depreciation, show the entries for the first
three years.
Solution
Here, the yearly depreciation will not be equal from year to year but will
depend on the value of the asset at the beginning of the period. The
annual values of depreciation will be calculated as follows:
10 4,000
1st Year, 1998 = x or 0.10 x 4,000 = N400.00
100 1
10 4,000 − 400
2nd Year, 1999 = x or 0.10 x (4,000 – 400)
100 1
10 3,600
x or 0.10 x 3,600 = N360.00
100 1
10 3,600 − 360
3rd Year, = x or 0.10 x (3,600 – 360)
100 1
10 3,240
x or 0.10 x 3,240 = N324.00
100 1
JOURNAL PROPER
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BHM 107 GENERAL ACCOUNTING II
MACHINERY ACCOUNT
1ST YEAR 1998
N N
Jan. 1 Cash 4,000.00 Dec. 31 Depreciation 400.00
31 Balance c/d 3,600.00
4,000.00 4,000.00
Jan. 2001
Balance b/f 2,916.00
DEPRECIATION ACCOUNT
1ST YEAR 1998
N N
Dec. 31 Balance b/f 400.00 Dec. 31 Profit & Loss account 400.00
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BHM 107 GENERAL ACCOUNTING II
c) Revaluation Method
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BHM 107 GENERAL ACCOUNTING II
Illustration
An engineering firm bought loose tools for N1,000 on 1st July 1991. On
1st January of the following year, further tools worth N800 were bought
for the business. If the value of the tools at the end of June, 1992 is put a
N1,200, what is the amount written off as depreciation? If by June 1993,
the value of the tools is put at N800, what would be the depreciation
charge for that year?
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BHM 107 GENERAL ACCOUNTING II
2ND YEAR
July 1, 1992 Balance b/f 1,200.00 June 30, 1993 Depreciation 400.00
June 30, 1993 Balance c/d 800.00
1,200.00 1,200.00
June 1, 1993 Balance c/d 800.00
DEPRECIATION ACCOUNT
1ST YEAR
June 30 Loose tools 600.00 June 30 Depreciation 600.00
2ND YEAR
June 30 Loose tools 400.00 June 30 Balance c/d 400.00
4.0 CONCLUSION
5.0 SUMMARY
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BHM 107 GENERAL ACCOUNTING II
46
BHM 107 GENERAL ACCOUNTING II
CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Factors Responsible for Depreciation
3.2 The Machine Hour Method
3.3 The Units Produced Method
3.4 The Sum of Years’ Digit Method
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings
1.0 INTRODUCTION
2.0 OBJECTIVES
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BHM 107 GENERAL ACCOUNTING II
For this method to be realistically used in any company the total hours
the assets can serve the company in its lifetime must be known with
some degrees of certainty. The per hour depreciation will be determined
by dividing the total cost by the total number of hours allocated to its
life expectancy. This is not a very good method of depreciation
especially during slack times as idle plants are also open to some of the
causes of depreciation.
Illustration
A plant costing N20,000 was bought on 1st January, 1998. The plant has
a life span of 2,000,000 hours of active service. The plant spent 80,000
hours in service in its first year and put in 120,000 hours in the second
year.
Required:
Show the depreciation entries in the books of the company for the two
years.
Solution
20,000 80,000
First year 1998 = x = N800.00
2,000,000 1
20,000 120,000
Second year 1999 = x = N1,200.00
2,000,000 1
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BHM 107 GENERAL ACCOUNTING II
JOURNAL PROPER
PLANT ACCOUNT
DEPRECIATION ACCOUNT
49
BHM 107 GENERAL ACCOUNTING II
N
1ST YEAR 1998
Depreciation: Plant 800.00
Illustration
50
BHM 107 GENERAL ACCOUNTING II
Required:
Show the depreciation entries in the books of the company for the first
two years.
Solution
JOURNAL PROPER
Date Particulars L/F Dr. Cr.
N N
1st Year 1991
June 30 Depreciation 1,000.00
Machinery account 1,000.00
(Being depreciation
written off the machinery
for the first year)
June 30 Profit and loss account Dr. 1,000.00
Depreciation account 1,000.00
(Being depreciation for
the first year transferred
to profit and loss account)
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BHM 107 GENERAL ACCOUNTING II
MACHINERY ACCOUNT
DEPRECIATION ACCOUNT
N
st
1 Year 1991
Depreciation Machinery 1,000.00
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BHM 107 GENERAL ACCOUNTING II
Illustration
Required:
Show the entries for the first two years in the books of the business
providing for depreciation by the sum of the years' digit method.
Solution
Since the asset will last for ten years the formular will be obtained by
1+2+3+4+5+6+7+8+9+10, so that the first year depreciation will be
obtained by:
10 Cost
x
1 + 2... + 10 1
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BHM 107 GENERAL ACCOUNTING II
9 10,000
Depreciation = x = N1,636.36
55 1
JOURNAL PROPER
Date Particulars L/F Dr. Cr.
N N
1st Year 1990
Dec. 31 Depreciation Account 1,818.18
Machinery account 1,818.18
(Being depreciation written
off the machinery for the
first year)
Dec. 31 Profit and loss account Dr. 1,181.18
Depreciation account 1,181.18
(Being depreciation for
the first year transferred
to profit and loss account)
MACHINERY ACCOUNT
N N
st
1 Year 1990
Jan. 1 Cash 10,000.00 Jan. 1 Depreciation 1,818.18
Jan. 1 Balance c/d 8,181.82
10,000.00 10,000.00
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BHM 107 GENERAL ACCOUNTING II
DEPRECIATION ACCOUNT
N N
st
1 Year 1990
June 30 Machinery 1,181.18 June 30 Profit and loss 1,181.18
Machinery 10,000.00
Loss depreciation 1,818.18 8,181.82
4.0 CONCLUSION
5.0 SUMMARY
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BHM 107 GENERAL ACCOUNTING II
Ibro Plc. bought an equipment for N613, 000 which is to last for 6 years
with a residual value of N13,000. Compute the amount of the
depreciation to charge in respect of each of the years using sum of the
year's digit method.
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BHM 107 GENERAL ACCOUNTING II
CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Trading Account Formular
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings
1.0 INTRODUCTION
2.0 OBJECTIVES
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BHM 107 GENERAL ACCOUNTING II
Illustration
Prepare the trading account of C. Aondo, a sole trader, for the year
ended 31st December, 1999 from the following particulars:
N
Opening stock 3,200.00
Purchases 12,450.00
Sales 15,600.00
Carriage inwards 300.00
Returns outwards 250.00
Returns inwards 600.00
Closing stock 2,500.00
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BHM 107 GENERAL ACCOUNTING II
On 1st January, 1990 Mal. Abu’s opening stock was valued at N5,200,
his stock on 31st December of the same year was valued at N6,800; he
turned over his stock five times during the year and made on the whole a
gross profit of 25% on the turnover.
Required:
Show the trading account for the year with necessary calculations.
SELF ASSESSMENT EXERCISE 2
What is the purpose of a trading account?
4.0 CONCLUSION
5.0 SUMMARY
In this unit, the steps for preparing trading account are stated as follows
i. Enter on the debit side the opening stock as given in the time
balance
ii. Adjust the purchase where necessary by entering the purchase
figure, adding to it carriage inwards if any and deducting the
figure for returns outwards.
iii. Deduct closing stock from the goods available and you get the
cost of sales.
iv. Enter on the credit side the sales figure from the trial balance and
deduct from any returns inwards. The result is the net sales.
v) Compare the net sales figure in (iv) with the cost of sales in (iii)
if the net sales is higher than the cost of sales, the differences is
the Gross profit. Where the cost of sales is higher than the net
sales you have a Gross loss.
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BHM 107 GENERAL ACCOUNTING II
60
BHM 107 GENERAL ACCOUNTING II
CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Illustration
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings
1.0 INTRODUCTION
The profit and loss account is the financial statement in which the
revenue earned by a business is matched against the expenses incurred
in earning the resulting difference being the net profit or net loss.
Earning a reasonable and fair profit requires generation of income and
incurring expenses.
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BHM 107 GENERAL ACCOUNTING II
In the final account process, the profit and loss account takes over from
where trading account ends.
2.0 OBJECTIVE
At the end of this unit, you should be able:
3.1 Illustration
1. The following list of balances are extracted from the books of
M. Orji at 30th June, 2004:
N
Stock at start 6,000.00
Purchases 14.600.00
Purchase return 300.00
Carriage inwards 700.00
Sales 20,200.00
Sales returns 200.00
Wages 1,000.00
Salaries 1,600.00
Insurance premium 500.00
Rent and rates 200.00
Discount allowed 50.00
Discount received 160.00
Commission received 500.00
Stock at close 7,000.00
Required:
From the above information, prepare M. Orji’s trading and profit and
loss accounts for the year ended 30th June, 2004.
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BHM 107 GENERAL ACCOUNTING II
N N
Salaries 1,600.00 Gross profit b/d 5,000.00
Insurance premium 500.00 Discount received 160.00
Rent and rates 200.00 Commission received 500.00
Discount allowed 50.00
Net profit 3,310.00
5,660.00 5,660.00
N
st
Stock: 1 October, 2004 2,800.00
Stock: 30th September, 2005 3,200.00
Purchases 30,800.00
Returns outwards 400.00
Sales 40,200.00
Returns inwards 200.00
Salaries 2,250.00
Rent and rates 2,000.00
Discount allowed 250.00
Height and heating 1,760.00
Carriage outward 50.00
Insurance premium 1,000.00
Commission paid 750.00
Required:
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BHM 107 GENERAL ACCOUNTING II
a) Prepare trading and profit and loss accounts from the above
records for the year ended 30th September, 2005.
N
bi) Average stock: Opening stock: = 2,800
Closing stock: = 3,200
2,800 + 3,200
= = 3,000.00
2
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BHM 107 GENERAL ACCOUNTING II
10,000 100
= x = 25%
40,000 1
4.0 CONCLUSION
The profit and loss account starts from the gross profit/loss brought
down, then deduct all expenses and add all revenue you will have net
profit/loss.
5.0 SUMMARY
Profit and loss account involves the deduction of expenses and addition
of income or revenue. The revenue items include discount received,
commission, rent and other receivable items.
Prepare the pro-forma of trading and profit and loss accounts of a typical
company for the year ended 30th September, 2005.
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BHM 107 GENERAL ACCOUNTING II
CONTENTS
1.0 Introduction
2.0 Objective
3.0 Main Content
3.1 Assets
3.2 The Liabilities and Owners’ Equity
3.3 Balance Sheet Formula
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings
1.0 INTRODUCTION
The balance sheet of a business just like a coin consists of two sides-the
assets side and the liabilities and owners' equity side. All assets have
sources represented by liabilities and equities. Any process by which an
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BHM 107 GENERAL ACCOUNTING II
2.0 OBJECTIVE
3.1 Assets
The assets side of the balance sheet reports economic resources owned
by the business entity. Assets are properties and rights to properties or
services owned and the potential monetary value and ownership. Some
asset from such economic resources will last over several accounting
periods.
Other assets are termed 'current' because the benefits to be derived from
them will be exhausted within one accounting period. These assets are
cash or assets that may be reasonably be expected to be realized in cash
or consumed within one year or one operating cycle of the business.
Good example of current assets includes quoted investments, stocks,
debtors, prepayments, and cash.
And some assets are fictitious because they represent the expired costs
incurred in the business which management has decided to write-off
over several accounting periods because they feel these expenses will
also benefit those future periods. Examples of these assets include
formation expenses, and discounts on shares and debentures. Assets may
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BHM 107 GENERAL ACCOUNTING II
also be classified into tangible and intangible assets. Tangible assets are
those assets that can be seen and touched. Intangible assets are not
visible but imaginary creations such as patent rights trade marks and
goodwill.
The other side of the balance sheet reports the liabilities and owners'
equity-the sources of finance for the business. Liabilities may be
long-term or current. Long-term liabilities are made up of debentures
and other long-terms loans. Current liabilities on the other hand are
debts that are expected to be liquidated within one year or one operating
cycle, and the payment of which requires the use of presently classified
current assets. This class of liabilities is made up of tax payable,
creditors, accrued expenses, proposed dividends and bank overdrafts.
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BHM 107 GENERAL ACCOUNTING II
Illustration
Prepare A. ldoko's balance sheet from the figures given below in his list
of balances
Dr Cr
Capital 12,000.00
Land and buildings 9,235.00
Mortgage on premises 5,545.00
Drawings 1,500.00
Profit and loss account balance 1,800.00
Furniture and fittings 2,560.00
Motor vehicles 1,731.00
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BHM 107 GENERAL ACCOUNTING II
Long-term Liabilities
Mortgage on premises 5,545.00
17,845.00
FINANCED BY:
Fixed Assets
Land and buildings 9,235.00
Furniture and fittings 2,560.00
Motor vehicle 1,731.00 13,526.00
Current Assets
Stock 1,500.00
Debtors 5,737.00
Cash 759.00
7,996.00
N N
i) Capital = Original capital 12,000.00
ii) Capital owned = Capital at beginning 12,000.00
Add net profit 1,800.00
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BHM 107 GENERAL ACCOUNTING II
13,800.00
Less drawing 1,500.00
12,300.00
iii) Capital employed = Capital owned 12,300.00
Add total liabilities
Long-term liabilities 5,545.00
Current liabilities 3,677.00 9,222.00
21,522.00
iv) Working capital = Capital Assets 7,996.00
Less current liabilities 3,677.00 4,319.00
4.0 CONCLUSION
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BHM 107 GENERAL ACCOUNTING II
5.0 SUMMARY
The balance sheet of a business, just like a coin, consists of two sides, is
made up of the assets side and the liabilities and owner's equity side.
Prepare Dan Musa’s balance sheet from the figures given below in his
list of balances as of 31st March, 2006.
DR CR
N N
Capital 20,000
Furniture and fitting 5,000
Drawings 1,000
Profit and loss account 5,000
Motor vehicles 9,000
Premises 10,000
Debtors 2,000
Closing stock 1,000
Creditors 5,000
Cash 2,000
30,000 30,000
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BHM 107 GENERAL ACCOUNTING II
MODULE 3
CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 The Receipt and Payment Account
3.2 The Income and Expenditure Account
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings
1.0 INTRODUCTION
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BHM 107 GENERAL ACCOUNTING II
The equivalent of capital, cash book, profit and loss account and net
profit or loss in the trading organizations are known as the consolidated
or accumulated fund, receipts and payments account, income and
expenditure account, and the net surplus or deficit respectively in the
non-trading organizations.
2.0 OBJECTIVES
The receipts and payments account operates in the same manner with
the cash book of the trading organizations. It is drawn in such a way that
it has both debit and credit sides. The debit side takes records of all the
entity’s cash receipts, which is the receipt side, while the credit side
(payments side) records all the cash payments.
In effect, all the entity's cash transactions are recorded in this book
irrespective of the period for which the cash is received or paid or
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BHM 107 GENERAL ACCOUNTING II
The income and expenditure account takes records of all revenue items
of the organization for a given period irrespective of whether cash has
been received or paid in respect of them. This account does not take
record of capital items like fixed assets. It operates almost the same way
as the profit and loss account of the trading organizations except that the
end results is either net surplus when revenue exceeds expenditure or net
deficit when expenditure exceeds revenue instead of the profit or loss in
the profit and loss account. All items of revenue nature for the period are
credit entries while all items of expenditure for period are debit entries
in this account.
Illustrations
Required:
RECEIPTS PAYMENTS
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BHM 107 GENERAL ACCOUNTING II
N N
Subscription (3,600x5) 17,000.00 Printing expenses magazine 9,000.00
Staff donations 1,000.00 Secretary’s salary 1,200.00
Sales of magazine 14,400.00 Traveling expenses 2,000.00
Advertisement receipts 150.00 Premises 5,000.00
Stationery and postage 850.00
Balance c/d 14,500.00
32,550.00 32,550.00
Balance b/d 14,500.00
Illustration II
The Benue Club has the following assets and liabilities in the books on
1st October, 1994
N
Club premises 5,000.00
Fixtures and fitting 2,000.00
Subscriptions in arrears 1,000.00
Cash at bank 2,500.00
Expenses accrued 500.00
During the year, receipts and payments were as follows;
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BHM 107 GENERAL ACCOUNTING II
Required:
As the Financial Secretary of the club, you are required to prepared the:
Solution
77
BHM 107 GENERAL ACCOUNTING II
N N
Assets as start:
Club Premises 5,000.00
Fixtures and fitting 2,000.00
Subscriptions in arrears 1,000.00
Bar stock 600.00
Cash at bank 2,500.00 11,100.00
iii. In order to prepare the bar trading account there is need to know
the authentic figure for purchase (bar suppliers). Because there
are different figures for opening and closing creditors, the figure
for bar suppliers in the receipt and payments account does not
represent the true figure for the bar suppliers in the receipt and
payments account does not represent the true figure for the bar
supplies any more. If different figures were quoted for opening
and closing debtors in the question in the authentic figure for
sales (bar taking) different from the one reported in the receipts
and payments account would also need to be calculated to
prepare to prepare the bar trading account.
Bar supplies:
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BHM 107 GENERAL ACCOUNTING II
N
Creditors at close 450.00
Add cash paid to bar suppliers 1,500.00
1,950.00
Less creditors at start 350.00
Bar supplies 1,600.00
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BHM 107 GENERAL ACCOUNTING II
4.0 CONCLUSION
The non-profit making organizations maintain records in an account
similar to the profit-making organizations.
The similarity is that the receipt and payment is like the cash book while
the income and expenditure have the same setting with the profit and
loss account of the profit making organization.
5.0 SUMMARY
The non-profit making organization generate their income in the main
from registrations and sometimes from the proceeds of social activities
organized by them. And since they do not engage in business, they
maintain different accounting records compared to those of the business
enterprise. Such accounts are the Receipts and Payments account, and
the Income and Expenditure account.
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BHM 107 GENERAL ACCOUNTING II
Fixed Assets: N
Plant and equipment 7,500
Furniture and fittings 84,000
Stock:
Catering 2,500
Bar 41,000
Debtor (catering) 1,200
Arrears of subscription 4,300
Prepaid rates and insurance 18,100
Cash at bank 50,500
Liabilities
Creditors:
Catering 4,500
Bar 14,700
Electricity 8,800
Rent 28,000
VAT 5,300
Subscription in advance 20,600
For the year 2006 the club had the following cash book summary
N N N N
Bank Bal. 50,500 Purchases:
Taking; bar 368,000 Bar 262,000
Catering 98,200 466,200 Cathering 97,400 369,400
Subscription 227,600 Wages:
House 82,600
Club 14,300 226,100
Parking rec. 6,400 6,400 Rent, rates
Insurance 85,200
Reg. Fees 37,300 37,300 Electricity 20,600
Printing & Stat. 5,900
Tel./Postage 8,100
Club 23,800
General exp. 9,400
VAT 5,300
Bal. at bank 34,200
788,000 788,000
As at 31st December 2005 the club was owing for; Bar purchase
N16,500, Catering purchases N3,200, Rent N28,000, Electricity N7,400
and VAT N6,000. Subscriptions paid in advance amounted to N22,000
while Rates and insurance paid in advance amounted to N19,800. Club
members owned N1,600 for catering and N4,000 for subscription ending
stock were; Bar N44,200 and catering N3,400, 10 percent is to be
written off the book value of the furniture and fittings.
Required:
Prepared the Zumuata social club's income and expenditure for the
period ended 31st December, and a balance sheet as at that date.
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BHM 107 GENERAL ACCOUNTING II
CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Departmental Accounting
3.2 Departmental Accounts in Practice
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings
1.0 INTRODUCTION
Departmental accounts are kept by companies that have more than one
department and wish to know the contributions of each department to
their total profits. In this case, it is likely that each department is
regarded as a profit center. Departmental accounts of a company are
customarily shown in columnar form right from the subsidiary books to
the final accounts. Departmental accounts may be prepared just to
ascertain net profits. Departmental accounts in a company are used to
decide on which department to encourage or phase out on the basis of
each department's contribution.
When goods are distributed from the central store of a company to its
departments, it is necessary to charge the goods at selling prices. This is
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BHM 107 GENERAL ACCOUNTING II
not only to keep adequate control over the department stock but will also
ensure that each department stock is accounted for what may be
regarded as the selling price is simply the addition of the product of a
fixed percentage to the cost price. It necessitates the preparation of two
major accounts in respect of each department-stock account and
mark-up account.
When goods are charged to each department at selling prices the stock
should be debited accounted with the value of the percentage that had
been added. The proceeds of sales are credited to the stock account. If
all charges goods are not sold, the mark up account is debited with the
value of percentage added to such stock so that any balance could
represent the actual gross profit realized. The balance carried forward on
the stock account minus balance carried forward on the mark-up account
is usually the cost price of the unsold stock.
2.0 OBJECTIVES
At the end of this unit, you should be able to:
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BHM 107 GENERAL ACCOUNTING II
Required:
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BHM 107 GENERAL ACCOUNTING II
Analyses
N N
1. Stock:
Stock at 1st July, 1990 50,400.00
Add purchase 276,300.00 326,700.00
Less cost of sales 314,892.00
Stock at close (June 30) at cost 11,808.00
2. Sales:
Selling price Cost price Gross profit
N N N
a) Opening stock at mark down price
Cost 13,500
Add 20% mark up 2,700
16,200
Less marked down 1,350 14,850.00 13,500.00 1,350.00
b) Current year mark down prices;
Selling price (0.8 x 95,300) 76,240.00 - -
Cost price (0.8 x 81,000) - 64,800.00 11,440.00
c) Balance at full marked up price 283,910.00 236,592.00 47,318.00
375,000.00 314,892.00 60,108.00
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BHM 107 GENERAL ACCOUNTING II
Prepare from the above information the trading and profit and loss
accounts for the year ended 31st December, 2005, showing the
percentage which the gross and net profit bear to the turnover of each
department and the total.
MONGUNO LIMITED
TRADING ACCOUNTING FOR THE ENDED,
31 DECEMBER, 2005
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BHM 107 GENERAL ACCOUNTING II
A B C D
Opening stock 50,000.00 20,000.00 10,000.00 15,000.00
Purchases 625,000.00 375,000.00 125,000.00 325,000.00
Sales 600,000.00 262,500.00 118,750.00 287,500.00
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BHM 107 GENERAL ACCOUNTING II
Required:
Departmental trading and profit and loss account for the year ended 30th
September, 1999.
4.0 CONCLUSION
5.0 SUMMARY
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BHM 107 GENERAL ACCOUNTING II
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BHM 107 GENERAL ACCOUNTING II
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings
1.0 INTRODUCTION
A consignment is an arrangement whereby goods are sent to an agent
who tries to sell then on behalf of the sender on commission basis. There
is therefore a consignment when goods are sent to an agent known as the
consignee for sale by the sending party called the consignor. A paper
called ‘proforma invoice’ which gives brief descriptions of the goods on
consignment and the minimum price in which could be sold normally
accompanies all goods on consignment as instructions from the
consignor to the consignee until they are sold by the consignee. At no
time does ownership of the goods pass to be consignee in his capacity as
a consignee and therefore all expenses in connection with such goods
are borne by the consignor.
Two people’s account books are affected when goods are sent on
consignment-the consignor’s books and the consignee’s books. In the
consignor’s books three main accounts may be opened, namely the
consignment outward account which shows the cost of goods sent on
consignment, the consignment to consignee account which shows the
proceeds of sales of the consigned goods and the consequent net profit
or loss on the consignment, and the consignee account which records the
gross proceeds of the sale, his entitlements and the balance to be
remitted to the consignor. In the consignor's balance sheet unsold goods
on consignment form part of his current assets under the name of goods
on consignment.
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BHM 107 GENERAL ACCOUNTING II
book of sale of the consignment when the consignment is paid the cash
book should be credited. He does not concern himself with any cost not
borne by him. Unlike the consignee, the consignor takes all costs into
account to determine his profit or loss on consignment.
2.0 OBJECTIVES
At the end of this unit, you should able to:
Required
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BHM 107 GENERAL ACCOUNTING II
Show the relevant accounts in the books of the consignor and the
consignee for the month of January, 1998 Journal entries are required.
Solution
DATE PARTICULARS LF DR CR
1998 N N
Jan. 1 Consignment to Achebe Dr. 12,000.00
Consignment Outwards Account (Being 1,200.00
the cost of goods sent on consignment)
to Achebe N15 x 8,000 – N1,200
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BHM 107 GENERAL ACCOUNTING II
Expenses:
Packing 103.00
Insurance 157.00
Custom duties 200.00
Transport 300.00
Jan. 1 Consignee:
Fire insurance 20.00
Import duties 50.00
Warehouse 75.00
Commissions 275.00
Jan. 29 Prof on consignment 2,620.00
5,000.00 5,000.00
ACHEBE, ABAGANA
Jan. 29 Consignment to
Achebe (proceeds
of sales) 5,000.00 Jan. 29 Fire insurance 20.00
Jan. 29 Import duties 50.00
Jan. 29 Warehouse expenses 75.00
Jan. 29 Commission 250.00
Jan. 29 Del credere
Commission 25.00
5,000.00 Jan. 29 Bank 4,500.00
DATE PARTICULARS LF DR CR
1997 N N
Jan. 29 Mai Lafia Dr. 145.00 20.00
Cash: Fire insurance 50.00
Import duties 75.00
Warehouse expenses
(Being sundry expenses paid in
cash by Achebe-the consignee)
Jan. 29 MaiLafia Dr. 275.00
Commission receivable (Being 275.00
commission receivable by Achebe
and deducted from the consignors
account)
Jan. 29 Cash Account Dr. 5,000.00
Mai Lafia 5,000.00
(Being proceeds of sale of
consignment)
Mai Lafia 4,580.00
Bank account 4,580.00
(Being payment of net proceeds of
sale to the consignor
MAILAFIA, LAFIA
N N
Jan. 29 Cash: Jan. 29 Cash (Sales) 5,000.00
Fire insurance 20.00
Import duties 50.00
Ware expenses 75.00
Jan. 29 Commission 275.00
Jan. 29 Bank 4,580.00
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BHM 107 GENERAL ACCOUNTING II
5,000.00 5,000.00
Bankole of Jos consigned goods to Obi in Enugu on 1st April, 1998. The
following data relate to the transactions for the month of April, 1998.
April Bankole consigned 500 crates of goods costing N15 per crate.
April Bankole paid Transport expenses Nl,000
Handling charges 500
Sundry expenses 1,500
April 15 Obi paid Carriage expenses 1,000
Deliver expenses 1,000
Fire insurance 550
April 25 Obi sold 450 of the crates of goods at N30 each
April 26 Obi submitted an account of sale to Bankole and remitted the
net Balance in bank draft to him (Bankole) after deducing his
agree Commission at 5% of the sales.
April 30 10 of the crates were discovered to have been damaged I transit
and had to be discared. Bankole agreed to write them off his
books.
Required:
Solution
This question brings out a situation where both the consignor and
consignee made expenditure on goods that have not been sold in full. It
is suggested that all the expenditure be written-off against the present
revenue instead of spreading the cost in proportion to crates on
consignment as other authors may suggest.
DATE PARTICULARS LF DR CR
1998 N N
April 1 Consignment to Obi Account Dr. 7,500.00 7,500.00
Consignment outwards account
(being the cost of goods sent on
94
BHM 107 GENERAL ACCOUNTING II
95
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OBI, ENUGU
BANKOLE
BALANACE SHEET AS AT 30TH JUNE, 1998
Current Asset
Goods on consignment N600.00
IN THE CONSIGNMENT
JOURNAL PROPER (OBI, ENUGU)
BANKOLE, JOB
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BHM 107 GENERAL ACCOUNTING II
1. What is consignment?
2. What are the parties involved in a consignment transaction and
how do they settle their account?
4.0 CONCLUSION
5.0 SUMMARY
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BHM 107 GENERAL ACCOUNTING II
CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Preparation of Container Account
3.2 Container Account Illustration
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings
1.0 INTRODUCTION
A container is any item that contains goods for the purpose of either
preservation or conveying to agreed destination. In marketing? the
container is called the package, which may be dividend into three main
levels of materials-the primary, secondary and the labeling level. The
primary package is the producer's immediate container, the secondary
package and the labeling is nay-printed information, which appear on
the package to describe the product in it. In modern times, examples of
container abound every where-a carton of beer, a crate for soft drinks,
waterproof bags containing shirts, bed sheets, granulated sugar, salt and
so on.
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BHM 107 GENERAL ACCOUNTING II
which each transaction takes place and the amount column for the net
totals of the transaction. The containers stock account shows the profit
or loss arising on containers while the containers suspense account deals
with movements of containers to and from customers Four main prices
may be associated with container accounts-the book value which
represents the price at which stock of containers is valued for balance
sheet purposes, cost price which is paid for purchase of new containers,
charge-out price which will and credit back price which represents the
amount which customers are credited with on return of the containers.
2.0 OBJECTIVES
At the end of this unit, you should be able to:
The crates are purchased by the company from another, Plastics limited,
at the same rate of N10 per crate.*
On 1st January, 1993 there were 5,000 crates in the warehouse, 17,000
with customers and 500 in transit.
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BHM 107 GENERAL ACCOUNTING II
Prepare appropriate accounting records for all crate transactions for the
year ended 31st December, 1993 in the books of the company,
Solution
Stock at start: Warehouse 5,000
Customers 17,000
In transit 500
22,500 at N10 = N225,000.00
Cost of new purchase: 10,000 at N10 = N100,000.00
Cost of crate newly issued to customers: 20,000 at N10 = N200,000.00
Value of crates returned by customers: 30,000 at N10 = N300,000.00
Value of crates retained customers: 200 at N10 = N2,000.00
Value of damaged crated: 500 = 0
Stock at close Warehouse 24,000
Customers 6,500
In transit 1,200
32,000 at N10 = N320,000.00
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BHM 107 GENERAL ACCOUNTING II
Stock: Containers
Retained by
Customers 200 10 2,000.00
Closing
Balance with
Customers 6,800 10 68,000.00
37,000 370,000.00 37,000 370,000.00
On 1st July, 2004 there were 7,500 crates in the warehouse 25,500 with
customers and 360 in transit. During the year to 30th June, 2005, the
following transactions took place:
On 30th June 1995, the stock of crate had a break down as follows:
In this company, closing stock of crates were valued at N7 each for wear
and tear.
In other words, the crates depreciate at the rate of 12.5% irrespective of
when the purchases are made.
Required:
Show:
i) the wooden containers stock account
101
BHM 107 GENERAL ACCOUNTING II
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BHM 107 GENERAL ACCOUNTING II
4.0 CONCLUSION
5.0 SUMMARY
103
BHM 107 GENERAL ACCOUNTING II
Required to prepare:
CONTENTS
104
BHM 107 GENERAL ACCOUNTING II
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 The Appropriation Accounts
3.2 Maintenance Capital Accounts of Partners
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings
1.0 INTRODUCTION
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BHM 107 GENERAL ACCOUNTING II
(a) That all the partners are entitled to shared equally in the capital
and profit of the business and must contribute equally towards the
losses, whether of capital nature or otherwise, sustained by them.
(b) That the firm must indemnify every partner in respect of payment
made and personal liabilities incurred by him. In the ordinary
and proper conduct of the business of the firm.
(c) That if a partner lends money to the firm in excess of the capital
he agreed to subscribe, he is entitled to interest at the rate of 5%
per annum of the amount.
(d) That no partner is entitled to interest on capital subscribed by
him.
(e) That partners are not entitled to partnership salaries.
(f) That the partnership books shall be kept at the ordinary place of
business of the firm and any of the partners may have access to
them; and
(g) That without the general consent of all no one can be introduced
to the business as a partner.
2.0 OBJECTIVES
In addition to the usual records and accounts from the subsidiary books
of accounts to the profit and loss account, a partnership business
requires the preparation of the appropriation accounts The appropriation
section of the accounts records non-operating costs such as interests on
capital and partnership salaries, non-operating income such as interest
on drawing, and the distribution of the net profit among the partners.
The accounts that are usually found in this section of the partnerships’
financial records are the profit and loss appropriation account, individual
partners' current accounts and the individual partners' drawing account.
If the partnership capital is not fixed, there may be no need for the
current account as all the items of the current account could be used in
adjusting the capital account to their net current value.
Illustration
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BHM 107 GENERAL ACCOUNTING II
Abu and Bello are in partnership sharing profits and losses equally. The
partnership deed allows interest on capital at the rate of 5% per annum.
Bello is entitled to a partnership salary of N500 per annum. Abu and
Bello contributed N8,000 and N6,000 respectively as t heir capitals on
1st April, 1990. The net trading profit for the year amounted to N4,200
on 31st March, 1991.
Required:
Show the profit and loss appropriation account of the firm at 31 st March,
1991.
Solution
Profits to share N N
Net operating profit 4,200.00
Less
Partnership salary - (Bello) 500.00
Interest on capitals – Abu 400.00
Interest on capital – Bello 300.00 1,200.00
3,000.00
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BHM 107 GENERAL ACCOUNTING II
Obi and Oba are partners sharing profits and losses in the ratio of 3:2.
The following trial balance was extracted from their books on 30th June,
1995.
DR DR
N N
Stock 1st July, 1994 12,000.00
Debtor and creditors 18,000.00 14,000.00
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BHM 107 GENERAL ACCOUNTING II
Additional Information:
Required
Prepare:
i. The trading accounts;
ii. The profit and loss account;
iii. The profit and loss appropriation account;
iv. The partners' current accounts and
v. The balance sheet as at 30th June 1995
4.0 CONCLUSION
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BHM 107 GENERAL ACCOUNTING II
5.0 SUMMARY
This unit introduced the concepts of partnership ventures and their book-
keeping peculiarities. What constitutes a partnership deed, the treatment
of interest on partner’s capital interest on drawings and partnership
salaries have been adequately treated. In the next study, we shall
discuss Admission of New Partners.
MODULE 4
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BHM 107 GENERAL ACCOUNTING II
CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Admission of Partners with Premium
3.2 Sharing the Premium in Profit Sharing Ratio
3.3 Premium shared but Retained in the Business
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings
1.0 INTRODUCTION
When a new person is admitted into a business, one out of six decisions
requiring accounting entries must be taken. The new partnership deed
may provide for one of the following:
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BHM 107 GENERAL ACCOUNTING II
2.0 OBJECTIVES
Illustration
Messrs Abba and Yaro who shared profits and losses equally had the
following balance sheet before admitting Bako on 1st January, 1996.
N N N N
Capital Account Abba 5,000.00 Fixed Assets:
Land and building 6,000.00
Yaro 5,000.00 10,000.00 Furniture and fitting 3,000.00
Current Liabilities Current Assets: 9,000.00
Trade creditors 2,500.00 Stock 3,000.00
Expenses creditors 500.00 3,000.00 Cash 1,000.00 4,000.00
13,000.00 13,000.00
Required:
Show the exercise in the books of the firm with the assumption that the
decision was implemented to the letter.
112
BHM 107 GENERAL ACCOUNTING II
JOURNAL PROPER
LF DR CR
N N
1996 Cash account Dr. 5,000.00
Bako’s Capital Account 5,000.00
(Being cash introduced by
Bako as his capital in the firms)
CASH ACCOUNT
We will now assume that the premium was paid through the books of
account to the existing partners in the old profit sharing ratio. The
position will then be as follows:
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BHM 107 GENERAL ACCOUNTING II
JOURNAL PROPER
DATE PARTICULAR LF DR CR
1996 N N
Jan. 1 Cash Account Dr. 5,000.00
Bako’s Capital Account 5,000.00
(Being cash introduced
by Bako as his capital on
Admission in the partnership
Jan. 1 Cash Account Dr. 2,000.00
(Being cash)
Bako’s premium account
(Being cash introduced by
Bako as premium) 2,000.00
Jan. 1 Bako’s Premium Account Dr. 2,000.00
Abba’s current account
Yaro’s current account
(Being Bako’s premium shared 1,000.00
by Abba and Yaro in their old)
Profit sharing ratio
Jan. 1 Abba’s Current Account Dr. 1,000.00
Cash Account
(Being Aba’s share of Bako’s 1,000.00
Premium withdrawn from the
Cash books)
Jan. 1 Yaro Current Account Dr. 1,000.00
Cash Account
(Being Yaro’s share of Bako’s 1,000.00
Premium withdrawn from the
cash book)
CASH ACCOUNT
N N
Jan. 1 Balance b/f 5,000.00
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BHM 107 GENERAL ACCOUNTING II
N N
Jan. 1 Balance b/f 5,000.00
N N
Jan. 1 Cash 5,000.00
N N
Jan. 1 Abba’s current account 1,000.00 Jan. 1 Cash 2,000.00
Jan. 1 Yaro’s current account 1,000.00
2,000.00 2,000.00
N N
Jan. 1 Drawings 1,000.00 Jan. 1 Bako’s premium 1,000.00
N N
Jan. 1 Drawings 1,000.00 Jan. 1 Yaro’s premium 1,000.00
It is now assumed that the premium is shared among the old partners in
their old profit sharing ratio but retained in the business. The
accounting entries would be as follows:
JOURNAL PROPER
DATE PARTICULAR LF DR CR
1996 N N
115
BHM 107 GENERAL ACCOUNTING II
CASH ACCOUNT
N N
Jan. 1 Balance b/f 1,000.00 Jan. 1 Balance c/d 8,000.00
Jan. 1 Bako’s capital 5,000.00
Jan. 1 Premium 2,000.00
8,000.00 8,000.00
Jan. 1 Balance b/d 8,000.00
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BHM 107 GENERAL ACCOUNTING II
4.0 CONCLUSION
The incoming partners become liable for the acts the business after his
admission and is not liable for any act of the firm done prior to his
admission as a partner.
5.0 SUMMARY
117
BHM 107 GENERAL ACCOUNTING II
A and B who shared profit in the ratio of 3:2 admitted C and decided to
give him 1/6 share of profits. What are sacrificing ratio and new
profit-share ratio of the firm?
CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Admission with Revaluation
3.2 Admission with Goodwill
4.0 Conclusion
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BHM 107 GENERAL ACCOUNTING II
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings
1.0 INTRODUCTION
In some instances, the partners may decide to retain the revalued figures
in the books while in other cases, they may decide to write then back
again.
2.0 OBJECTIVES
Illustration
Olu and Okoro were partners sharing profits and losses in the ratio of
3:2. It was agreed that Musa should be admitted to the partnership as
from 1st January, 1997. Musa was to introduce N5,000 as his capital but
before the admission could take place, the assets of the firn1 were
revalued. The balance sheet of the firm before his admission and the
revaluations were as follows:
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BHM 107 GENERAL ACCOUNTING II
Revaluations:
N
Freehold premises 6,000.00
Furniture and fitting 1,600.00
Stock 3,900.00
Debtors 4,500.00
Required:
Show the revaluation process and its effects on the accounts of the firm.
Show the effects to the admission of Musa in the books of the new firm.
Solution
Revaluation Effects:
N N
New value of premises 8,000.00 5,000.00
Less old values 3,000.00
New value of furniture and fittings 1,600.00
Less old value 2,000.00 (400.00)
New value of stock 3,900.00
Less old value 4,000.00 (100.00)
New value of debtors 4,500.00
Less old value 5,000.00 (500.00)
Revaluation surplus 4,000.00
3 4000
Olu’s share = x or 0.6 x 4,000 = N2,400.00
5 1
DATE PARTICULAR LF DR CR
120
BHM 107 GENERAL ACCOUNTING II
1996 N N
Dec. 31 Freehold Premises Account Dr. 5,000.00
Revaluation Account 5,000.00
(Being premises revaluation
surplus)
Dec. 31 Revaluation Account Dr. 400.00
Furniture and Fittings
(Being revaluation deficit on
furniture and fittings)
Dec. 31 Revaluation Account Dr. 100.00
Stock Account 100.00
(Being revaluation deficit
on stock)
Revaluation Account 500.00
Debtors Account 500.00
(Being revaluation deficit
on debtors)
Jan. 1. 1997 Revaluation Account Dr. 4,000.00
Olu’s Capital Account 2,400.00
Okoro’s Capital Account 1,600.00
(Being revaluation surplus
shared between Olu and
Okoro in the profit sharing
Ratio)
Cash Account Dr.
Musa’s Capital Account 5,000.00
(Being cash introduced by
Musa as his capital) 5,000.00
Dec. 31
N N
Dec. 31 Balance b/f 2,000.00 Dec. 31 Revaluation 400.00
Dec. 31 Balance c/d 1,600.00
2,000.00 2,000.00
Jan. 1 (1997) Bal. b/d 1,600.00
STOCK ACCOUNT
121
BHM 107 GENERAL ACCOUNTING II
N N
Dec. 31 Balance b/f 4,000.00 Dec. 31 Revaluation 100.00
Dec. 31 Balance c/d 3,900.00
4,000.00 4,000.00
Jan. 1 (1997) Bal. b/d 3,900.00
REVALUATION ACCOUNT
N N
Dec. 31 Furniture & fitting 400.00 Dec. 31 Freehold premises 5,000.00
Dec. 31 Stock 100.00
Dec. 31 Debtors 500.00
Dec. 31 Balance c/d 4,000.00
5,000.00 5,000.00
Jan. 1 (1997) Jan. 1 (1997) Balance b/f 4,000.00
Olu’s capital 2,400.00
Okoro’s capital 1,600.00
4,000.00 4,000.00
When the admission takes place, the following entries will be made:
CASH ACCOUNT
N N
Jan. 1 Balance b/f 3,000.00 Jan. 1 Balance c/d 8,000.00
Jan. 1 Musa’s capital 5,000.00
8,000.00 8,000.00
Jan. 1 Balance b/d 8,000.00
OLU’S CAPITAL ACCOUNT
N
Jan. 1 Balance b/f 10,400.00
122
BHM 107 GENERAL ACCOUNTING II
N
Jan. 1 Cash 5,000.00
Year 1 150,000.00
2 170,000.00
3 135,000.00
4 190,000.00
5 205,000.00
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BHM 107 GENERAL ACCOUNTING II
900,000.00
N900,000 ÷ 5 x 3
= 180,000 x 3 = 540,000.00
Illustration
The following is the balance sheet of Enayi and Omoka who share profit
and losses in the ratio of 2:1 respectively:
124
BHM 107 GENERAL ACCOUNTING II
The partners agree to admit Atuma into the partnership on 1st January,
1998 on the following conditions:
Required:
Solution
N
Goodwill: Year 1 2,400.00
2 3,500.00
3 3,000.00
9,000
x 2 = 3,000 x 2 = N6,000
3
DATE PARTICULAR LF DR CR
1998 N N
Jan. 1 Goodwill Account Dr. 6,000.00
Enayi’s Capital Account 4,000.00
Omoka’s Capital Account 2,000.00
(Being goodwill raised and
125
BHM 107 GENERAL ACCOUNTING II
4.0 CONCLUSION
Both the revaluation and goodwill methods, are applied before admitting
a new partner in order to allow the existing partners to benefit from the
long time of successful operation of the business.
5.0 SUMMARY
The new partner brings in his share of capital and compensates the
existing partners for sacrificing their share of profit in his favour. This
requires adjustment of goodwill at the time of admission of a partner.
Reserves accumulated losses/profit etc. are distributed among the
existing partners.
126
BHM 107 GENERAL ACCOUNTING II
CONTENTS
1.0 Introduction
2.0 Objectives
127
BHM 107 GENERAL ACCOUNTING II
1.0 INTRODUCTION
2.0 OBJECTIVES
The retiring partner is also entitled to the refund of his current account
balance, if credit. The current account may also require adjustment if the
partner is retiring sometime after the end of the accounting year of the
business as some profits may have been made during the period, interest
may have accrued on his capital, drawing may has been made, interests
128
BHM 107 GENERAL ACCOUNTING II
may have accrued on such drawing and part of his partnership salary
(if any) may have earned during the period. The adjusted current
account balance is normally paid at once to the retiring partner to enable
him start well in his private life.
Illustration
Abiodun retired from the partnership on the date of the balance sheet on
the following terms:
(c) Abiodun to take over the motor vehicle at book value. Any debt
due to him other than that of his current account remains on loan
to the partnership.
(d) A provision of N150 for doubtful debt to be created; and
(e) Current account balance is to be paid in cash.
Required:
Write up the transaction in the books of the partnership and show the
opening balance sheet of the new partnership. Both capital and current
129
BHM 107 GENERAL ACCOUNTING II
Solution:
130
BHM 107 GENERAL ACCOUNTING II
GOODWILL ACCOUNT
N N
Mar. 31 Balance c/d 50.00 Mar. 31 Balance c/d 2,000.00
Mar. 31 Revaluation 1,950.00
2,000.00 2,000.00
2,000.00
TRADEMARKS ACCOUNT
N N
Mar. 31 Balance b/f 2,100.00 Mar. 31 Balance c/d 2,100.00
LONG-TERM ACCOUNT
N N
Mar. 31 Abiodun’s capital 900.00
131
BHM 107 GENERAL ACCOUNTING II
BANK ACCOUNT
N N
Mar. 31 Balance c/d 6,100.00 Mar. 31 Abiodun’s current Account 1,400.00
Mar. 31 Bolade’s Current Account 1,500.00
Mar. 31 Chike’s Current Account 2,700.00
Mar. 31 Balance c/d 500.00
6,100.00 6,100.00
Balance b/d 500.00
N N N N N N
Capital Account Fixed Assets
Bolade 5,900.00 Goodwill 2,000.00
Chike 3,900.00 9,800.00 Freehold land 10,000.00 12,000.00
and building
Long terms Current Asset
Liabilities 4,900.00 Stock 3,700.00
Loan (Abiodun) Debtors 2,850.00
less: provision
for bad debt 150.00 2,700.00
Current Liabilities
Trade creditors 3,200.00
Expenses creditor 1,000.00 Cash 500.00 6,500.00
18,900.00 18,900.00
132
BHM 107 GENERAL ACCOUNTING II
CASH ACCOUNT
FREEHOLD PREMISESACCOUNT
133
BHM 107 GENERAL ACCOUNTING II
STOCK ACCOUNT
DEBTOR’S ACCOUNT
CREDITOR’S ACCOUNT
BANK ACCOUNT
134
BHM 107 GENERAL ACCOUNTING II
REALIZATION ACCOUNT
135
BHM 107 GENERAL ACCOUNTING II
MOTOR ACCOUNT
DEBTOR’S ACCOUNT
136
BHM 107 GENERAL ACCOUNTING II
CASH ACCOUNT
137
BHM 107 GENERAL ACCOUNTING II
MOTOR ACCOUNT
STOCK ACCOUNT
138
BHM 107 GENERAL ACCOUNTING II
N N
Sept. 30 Balance b/f 3,000.00 Sept. 30 Realization 3,000.00
DEBTOR’S ACCOUNT
N N
Sept. 30 Balance b/f 2,000.00 Sept. 30 Realization 2,000.00
REALIZATION ACCOUNT
DATE PARTICULAR LF DR CR
1995 N N
Sept. 30 Cash Account Dr. 30,000.00
Freehold premises account 10,000.00
Furniture and fitting 1,800.00
Realization account 41,800.00
(Being cash from sales
of assets)
Sept. 30 Agbo’s Account Dr. 5,000.00
Realization account 5,000.00
(Being stock van taken
over by Agbo on the
dissolution of partnership)
Sept. 30 Akor’s Account Dr. 3,000.00
Realization account 3,000.00
(Being stock van taken
over by Agbo on the
dissolution of partnership)
Sept. 30 Creditors Account Dr. 1,900.00
Cash account 1,900.00
(Being discount received
from creditors at the time
of setting their debts in cash)
Sept. 30 Discount Account Dr. 100.00
Discount received account 100.00
(Being cash discount
139
BHM 107 GENERAL ACCOUNTING II
received transferred to
realization account)
Sept. 30 Realization Account Dr. 200.00
Dissolution expenses account 200.00
(Being dissolution expenses
transfer to realization account)
Sept. 30 Bank Account Dr. 1,000.00
Cash account 1,000.00
(Being bank overdraft
repaid in cash)
CASH ACCOUNT
CREDITOR’S ACCOUNT
N N
Sept. 30 Cash 200.00 Sept. 30 Realization 100.00
N N
Sept. 30 Cash 1,000.00 Sept. 30 Balance b/f 1,000.00
140
BHM 107 GENERAL ACCOUNTING II
CASH ACCOUNT
141
BHM 107 GENERAL ACCOUNTING II
N N
Sept. 30 Cash 23,000.00 Sept. 30 Balance b/f (stage 2) 23,020.00
Year Amount
1996 6,100
1997 7,800
1998 10,200
1999 12,400
2000 16,000
4.0 CONCLUSION
5.0 SUMMARY
The retiring partner is entitled to receive from the firm the final balance
calculated after taking into account the following.
142
BHM 107 GENERAL ACCOUNTING II
CONTENTS
143
BHM 107 GENERAL ACCOUNTING II
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Procedure for Dissolution of Partnership
3.2 Reason for Dissolution
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings
1.0 INTRODUCTION
(i) In paying the debts and liabilities of the firm to persons who are
not partners in the firm
(ii) In repaying notably, partners’ loans
(iii) In paying to each partner the amount due to him in respect of his
capital and current account balances.
2.0 OBJECTIVES
144
BHM 107 GENERAL ACCOUNTING II
Illustration
Agbo and Akor who have been in partnership sharing profits and losses
in the ratio of 3:2 decided to dissolve their partnership on 30th
September, 1995. The balance sheet on the day was as follows.
Additional information:
Required:
(i) Expiration of the period for which the firm was set up, if a fixed
term was agreed upon.
(ii) Attainment of the objective for which the firm was set up, if a
specific objective was agreed upon.
(iii) Death of a partner
(iv) Retirement of a partner
(v) Bankruptcy of a partner
145
BHM 107 GENERAL ACCOUNTING II
A,B and C were in partnership sharing profits and losses in the ratio of
4:3:1. They decided to dissolve the partnership with effect from 31st
December 1999. In the course of the dissolution, C was adjudicated
bankrupt and could pay 60k in the naira.
The balance sheet of the firm as at that date was as shown below:
A, BAND C
BALANCE SHEET AS AT 31ST DECEMBER, 1999
N N N
Capital Land and Building 12,000
A 18,000 Plant & machinery 7,500
B 4,500 22,500 Stock 2,400
Creditors 7,500 Debtors 5,200
Cash 900
C's capital overdrawn 2,000
30,000 30,000
4.0 CONCLUSION
146
BHM 107 GENERAL ACCOUNTING II
5.0 SUMMARY
147
BHM 107 GENERAL ACCOUNTING II
CONTENTS
1.0 Introduction
2.0 Objectives
3.0 Main Content
3.1 Analytical Method of Ratio Analysis
3.2 Long-Term Solvency and Stability Ratios
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings
1.0 INTRODUCTION
Financial statements are produced for the uses they are put and not
merely for the sake of producing them. Different users are interested in
different aspects of the financial statements.
2.0 OBJECTIVES
148
BHM 107 GENERAL ACCOUNTING II
Dividends are apportioned i.e. they are deducted from the taxed profit.
Fixed dividends do not fluctuate with level of profit. We know that until
every other thing is catered for ordinary shareholders cannot get any
dividend. But preference shareholders are paid dividend before ordinary
shareholders and their dividend is not a function of the level of profit but
a fixed sum (e.g. 5% preference shares) i.e. preference shareholders will
get 5% of whatever amount of preference shares bought. Such dividends
are fixed. Therefore,
This ratio indicates the number of times fixed dividends are covered by
taxed profit.
Therefore:
149
BHM 107 GENERAL ACCOUNTING II
Note that debenture interest for A (5,000) and B (N7,000) had already
been changed to P & L A/C before at the net profit after tax given. But
before ordinary shareholders get their dividend the preference
shareholders will get first.
A B
NAPT 45,000 43,000
5% Pref. Dividend 3,000 4,000
NPAT & PD - -
10% Ord. 42,000 39,000
Dividend 4,200 3,900
You will notice that the NPAT of Coy B is N2,000 less than that of A
because of the difference in the amount of debentures. Also different is
the preference shares (higher in B). Because of the difference in the
capital structure of the two companies their ordinary shareholders earn
dividends of different amounts. This explains the issue of vulnerability
of earning available for ordinary shareholders.
150
BHM 107 GENERAL ACCOUNTING II
Who are various users of financial statement and what are their
information needs?
The ratio shows the frequency in number of times per period at which
the average figure of trading stock is being turned over. Ordinarily, the
average stock being turned opening stock plus closing stock divide’s by
two but if there were fluctuations during the period of sale then
weighted average should be used.
The three names simply mean the same thing. This ratio considers the
liquid assets that can easily be converted to cash to meet current
liabilities. Liquid assets consists of cash and bank balance, debtors and
marketable securities.
151
BHM 107 GENERAL ACCOUNTING II
This looks at the average periods the creditors are unpaid. It is equally
expressed in terms of days, weeks or months. The figure should be VAT
inclusive too.
4.0 CONCLUSION
5.0 SUMMARY
In this unit, you were taught solvency ratios. Solvency ratios were
broken down into long-tern solvency and stability ratios and short-term
solvency and liquidity ratio. The interpretations of these various ratios
were demonstrated/highlighted. It will be meaningless if ratios are
analyzed but cannot be interpreted. So the analysis of ratios and how
they are used for the information need of various users were taught.
In the last study unit of the course, we shall discuss further on ratio and
analysis in terms of potential and actual growth.
The following are the trading and profit and loss account and the
balance sheet of Amudat Nig. Ltd. for the year ended 31 st December,
1969.
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BHM 107 GENERAL ACCOUNTING II
Required:
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BHM 107 GENERAL ACCOUNTING II
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BHM 107 GENERAL ACCOUNTING II
CONTENTS
1.0 Introduction
2.0 Objective
3.0 Main Content
3.1 Network Value per Ordinary Share
3.2 Earnings per Share
3.3 Dividend per Share
3.4 Price/Earnings Ratio
3.5 Earning Yield
4.0 Conclusion
5.0 Summary
6.0 Tutor-Marked Assignment
7.0 References/Further Readings
1.0 INTRODUCTION
In the last unit we treated ratio analysis in the area of solvency, stability
and liquidity. In this unit we shall look at the ratios relating to potential
and actual growth of the business. Investors and their advisers normally
appraise the financial statements of quoted companies. This assists them
in making good investment decisions like buying more shares, selling
out some or all of the shares or holding on to the shares. The appraisal is
done by calculation of certain ratios relating to the potential and actual
growth of the company whose shares are being appraised.
2.0 OBJECTIVE
This ratio indicates the historical cost base to which the price per
ordinary share relates. The net book value in this respect is shareholders’
funds less preferential share capital. Thus
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BHM 107 GENERAL ACCOUNTING II
Note:
It may not necessarily be that the whole earning per share (EPS) is
distributed as dividend. There may be transfer to reserves, writing-off
preliminary expenses etc., before the decision as to the amount of
dividend to be declared is made. So, using the dividend per share (DPS)
m conjunction with the EPS will give us the retention policy of the
company. Thus:
A total dividend is usually the figure of net proposed (or actually paid)
plus the associated tax credits.
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BHM 107 GENERAL ACCOUNTING II
Calculate earning per share, price earning ratio, dividend yield, dividend
cover and dividend per share.
Dividend Yield
The dividend per share is taken as the dividend for the previous year.
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4.0 CONCLUSION
5.0 SUMMARY
In this unit, you were taught ratios relating to potential and actual
growth of the company or business. Then, you were exposed to the
calculation and the interpretation of the ratios.
You are given the following information about two coys, A and B
A B
PBT (on ordinary activity) 45 4.875
Tax on Pref. of Ordinary 15 1.8
Activity
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