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This material is NOT the property of Goodwill Group of Schools but has been adopted by the school management as
additional teaching aid for teachers and students. Please this material should not be commercialized in any form without
prior formal engagement with school management. This material was developed for the use of teachers and students of the
Goodwill Group of Schools. All financial commitment has been duly fulfilled by the school management. It is prohibited
therefore to commercialize this document in any form without prior formal discussion with the management.
FINANCIAL ACCOUNTING SCHEME OF WORK SS 2 THIRD TERM
SUBJECT: FINACIAL ACCOUNTING WEEK TOPIC
1. Revision of last term’s work. 2. Capital market and Loan Capital: (a) i. instruments ii. Institutions iii. Career in the
capital market(b) Terminologies (ii) Debentures (iii) Mortgage (iv) Interest (c) Preparation of Debenture Accounts (d) methods of raising funds in the capital market
3. Requirements and benefits capital market: (a) Requirements for accessing the Capital Market: (a) Requirement (i) Must be public company (ii) Must present company audited accounts.(iii) Must appoint market operators and consultant(b) Benefits of Capital Market: (1) Benefits to Individual investors (i) Investment (ii) Dividend (iii) Bonus Shares (iv) Capital appreciation (v) Collateral, Benefits of Capital Market :(c) Benefits to government (i) Raising of capital for development projects (ii) Provides Alternative Avenue for deficit financing. (iii) Enhances tax revenue, Benefits of Capital Market: (d) Benefits to the economy (i) Industrial growth (ii) Employment generation (iii) Improvement in the standard of living (e) Benefits to individual companies (i) Raising capital for expansion (ii) enhances the popularity of the Company; (iii) Enhanced access to credit (iv) Perpetuity of the company.
4. Branch Account: (a) Meaning (b) Advantage (c)Difference Between Branch and Departmental Accounts (d) Pricing Methods
5. Branch Account: (a) Accounting Entries :(i)Memorandum (ii) Branch Adjustment Method (iii) Where the branches Keep Separate Accounts.
6. Joint Venture: (a) Explanation (b) Distinction from a partnership (c) Preparation of Individual Accounts (d) Preparation of Memorandum Account
7. Mid Term Break 8. Consignment: (a)Meaning (b) Consignor (c) Consignee 9. Consignment: Consignment Outward (ii) Consignment Inward (iii) Del –Credere
Commission. 10. Revision 11. Examination.
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WEEK ONE (1) DATE:……………….
SUBJECT: FINANCIAL ACCOUNTING
CLASS: SS 2
TOPIC: REVISION OF LAST TERM WORK
WEEK TWO (2) DATE:……………….
SUBJECT: FINANCIAL ACCOUNTING
CLASS:SS 2
TOPIC: CAPITAL MARKET AND LOAN CAPITAL
CONTENTS: CAPITAL MARKET
Terminologies
Debentures
Mortgage
Interest
Preparation of debentures
SUB-TOPIC: CAPITAL MARKET The Capital Market is the market for medium or long-term loan. The capital market is not like
the commodity market because there only stocks and shares instead of goods are sold.
The capital market is a network of institutions and mechanisms through which medium and
long-term funds are made available to businesses and governments and instruments outstanding
are transferred among investors.
Capital market or stock market is a market which deals with the buying and selling of shares
and government bonds. The stock market carries out two important functions. It provides:
1. A Primary market (or new issue) for raising capital by the issue of new stock, shares
and bonds.
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2. A Secondary market for trading in existing or old stocks in the market. This
enhances the easy transferability of securities. (The stock exchange is part of the
secondary market).
Institutions that operate in the Capital Market are: a. Issuing houses
b. Stock Exchange
c. Banks
d. Pension funds
e. Insurance companies
The Instruments used in capital markets include:
Shares
Bond
mortgage
Debentures
Stocks
Careers in the Capital Market Careers are available in the capital market for those who study Accountancy, Economics,
Finance and Business administration. Such people can work in:
a. Stock broking firms
b. Pensions funds administration
c. Stock Exchange
d. Issuing House
e. Insurance Companies, etc.
SUB-TOPIC: TERMINOLOGIES IN CAPITAL MARKET:
LOAN CAPITAL: This is the total amount of money a business borrows from external sources.
A good example of this is Debenture and Mortgage loan.
DEBENTURES: A debenture is a document that either creates a debt or acknowledges it. The
term debenture is used for medium- to long-term debt instruments used by large companies to
borrow money. Debenture holders are paid interest over a definite period of time. Debenture
holder has no right to vote in a company’s general meetings of the shareholders.
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MORTGAGE: A mortgage is a homeowner loan issued by banks and building societies to help
individuals and companies to buy houses and property. Most common mortgages and bonds are
repaid in a period of twenty to thirty years
BONDS: A bond is a financial security issued by a company or by the government as a means
of borrowing long-term funds. They are legal document representing a promise to pay back then
loan with a certain amount of interest over a definite period of time. Bonds are issued for a set
number of years e.g. (ten years) being payable on maturity. Bond is a security (similar to IOU) issued in connection with a borrowing arrangements which
obligates the issuer to make specific payments (coupon payments) to the holder over a period of
time usually semi-annually).
SUB-TOPIC: METHODS OF RAISING FUNDS IN THE CAPITAL MARKET
OFFER FOR SALES: This is the method of raising new share capital by issuing company
shares to the general public at a pre-arranged fixed price sale
Offer for Sale
• Occurs when there is need to replace the equity interest of existing shareholders.
• The fund realized goes to the shareholders whose shares are being offered for sale.
• Offer for sale has no influence on the balance sheet of the company.
– The process will not lead to a change in the issued shares of the company.
OFFER FOR SUBSCRIPTION: This is where the issue price is determined by averaging out
the bid prices offered by prospective buyers (subject to a minimum price bid);
Offer for subscription is simply:
• This is the direct sale of new securities (shares or debentures) to the public before the shares are
admitted by The Exchange for trading.
• Guidelines specified by SEC and The NSE are to be complied with before a company can
undertake a public offering of its shares.
• It involves the preparation of selling documents – referred to as prospectus and abridged
prospectus, underwriting agreement (optional), return sheet, printing of share certificates etc.
• The approval of SEC is required on pricing, timing and amount to be offered
• The NSE approval is required for listing, certificates of exemption.
PRIVATE PLACEMENT: This is a type of issue that shares are issue to specific or selected
persons.
Private Placement is simply: • Securities of a company are sold to clients of the issuing house/stockbrokers handling the issue
• Instead of being offered to the general public or to existing shareholders.
• Private placement involves the invitation to selected high net worth individuals or corporate
organizations to invest in a company’s issue.
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• Companies usually embark upon the process when the promoters do not want complete dilution
of control.
• As the securities are not yet listed on the stock exchange, promoters do not need to meet the
exchange requirement for public issue.
• By SEC directive, Companies undertaking Private Placement are to inform investors on hether
there are plans to list on The Exchange
• Stock Split
• Prompted when the Company’s stock price has risen to a level that management feels is out of
the popular trading range
• The occurrence of this anomaly will cause a decline in the trading volume of the shares
• The outcome of a stock split is for the Company to end up with more outstanding shares that
would sell at a lower price and have a lower par value than before the split
RIGHT ISSUE: This is the issue of shares by a joint-stock company to existing shareholders at a
price that is below the current market price.
It is the issuing of shares to the existing shareholders in proportion to their existing shareholding
at a price known as right price.
Rights Issue simply means: • Offer made to existing shareholders to acquire more shares in the company usually at a
concessionary price.
• The method is used when the majority of the existing shareholders do not want a dilution of the
shareholding structure and they are willing to provide the additional capital required by the
company.
• Rights are offered in proportion to existing shareholding
• May be in varying proportions i.e. 2:1 read as 2 for 1 – For every one share being held, the
holder is entitled to purchase an additional two.
• Rights can also be offered as derivatives to new shareholders.
BONUS/SCRIP DIVIDEND
• Also known as free issue.
• It is a method through which companies increase their capitalization without selling additional
shares.
• The effect is to increase the paid up share capital.
• A company with accumulated capital reserves/share premium out of line with its issued capital
may decide to give additional shares to existing shareholders in bonus.
• It may be offered as a substitute or complement to cash dividend.
• Scrip issues are offered in proportion to existing shareholding at no cost.
• With e-bonus, shareholders account in the depository are credited directly with the bonus
• The shareholders after receiving the notice can sell all or part of it on the Trading Floor.
• For a company to issue scrip, it requires the recommendation of the Board of Directors to the
Shareholders at the AGM for approval
EVALUATION:
1. What is loan capital?
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2. Mention three terminologies in capital market
EVALUATION:
Essay:
a. Define capital market.
b. List the possible careers in capital market.
c. Mention the various methods in raising funds in capital market.
GENERAL EVALUATION:
Objectives
1. The following are instrument used in capital market EXCEPT………. A.shares B. Bonds
C. Cash D. Debenture
2. The issue of shares by a joint-stock company to existing shareholders at a price that is
below the current market price. Best define………………. A. Bonus issue B. Allowance
Issue C. Right Issue D. Discount Received
3. Shares issued to specific or selected persons Is called……… A. private placement B.
Right issue C. Offer for sales D. Bonus issue
4. The following are methods of raising fund in capital market EXCEPT…………. A.
Offer for subscription B. Government bonds C. Offer for sales D. Right Issue
5. The issuing of company’s shares to the general public at a pre-arranged fixed price sale is
called………….. A. Offer for sale B. Offer for subscription C. Bad issue D. Bonus
issues
WEEK END ASSIGNMENT: list ten (10) and explain five terminologies in capital market.
PRE-READING ASSIGNMENT: Read the methods of raising fund in capital market
WEEK END ACTIVITY: Explain the following terms:
Interest
Money market
Treasury bills
Treasury certificate
Call money.
REFERENCE:
O.A. Longe, etal; Essential Financial Accounting, tonad publisher, Lagos , Nigeria 2012.
Frank Wood, Business Accounting 1, Longman, Nigeria, 2008.
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additional teaching aid for teachers and students. Please this material should not be commercialized in any form without
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therefore to commercialize this document in any form without prior formal discussion with the management.
WEEK FOUR (3) DATE:…………………
SUBJECT: FINANCIAL ACCOUNTING
CLASS:SS 2
TOPIC: REQUIREMENT FOR ACCESSING THE CAPITAL MARKET AND BENEFITS
OF CAPITAL MARKET
CONTENTS: Requirements:
requirements
stages in accessing the capital market
benefits of capital market
Sub topic 1:Requirements for accessing the capital market
MUST BE PUBLIC COMPANY:The first requirements a company needs in order to access
the capital market, is to be registered as public company.
MUST PRESENT COMPANY AUDITED ACCOUNT: for the capital market to recognize
companies either register or not, the company must employ the service of a professional
accountant, to audit the financial statement of the company.
MUST APPOINT MARKET OPERATOR AND CONSULTANT: The Company needs a
market operator and consultant. The company needs professional advisers, which a company had
used in the past, may not necessarily be suitable or experienced to take the company to the
market because of the specialist input required.it means that consultant must be a professional.
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STAGES IN ACCESSING THE CAPITAL MARKET
INTRODUCTION From beginning to end, the process of taking a private company to the Daily Official List of
the Nigerian Stock Exchange can be broken down into stages. The stages are:
• Consultation/Discussion Stage
• Decision Making/Mandate Stage
• Documentation/Packaging Stage
• Regulatory – NSE Quotation Approval/SEC Registration Stage
• Completion Board Meeting Stage
• Distribution/Marketing Stage
• Range of Analysis/Allotment Stage
• General Undertaking/Declaration of Compliance Stage
Consultation/Discussion Stage
A company that desires to raise funds and is considering the stock market option may approach
Its local banker or an issuing house. Alternatively, an issuing house may approach a company
with a proposal for re-capitalization through the stock market. If the initiative is from an
Issuing house, the benefits of public quotation will be explained to the company.
Decision Making/Mandate Stage After discussions with the proposed issuing house, the management or Board or owners will
meet and resolve to go public. This meeting could be held alone or with the financial advisers in
attendance. The memorandum and articles of association will be suitably amended through
passing the necessary resolutions to facilitate this. A successful public quotation process is a
product of team effort and the composition of that team will be a crucial factor in the outcome of
the exercise.
Documentation/Packaging Process After all the parties to the issue have been appointed, the first all parties meeting is called. At this
meeting, functions are allocated to everybody and timetable of the issue is also drawn up. Costs
and fees are agreed and all the parties proceed to work and package the issue.
NSE Quotations Approval/SEC Registration Stage
The Stockbroker submits the application to The NSE with a covering letter and the NSE
application fees for registration and queuing for the next Quotations Committee meeting, which
is usually the last Thursday of the month.
The Stockbroker will continue his liaison with the Quotations Department to clarify any possible
queries and to know the date of the Quotations Committee meeting in order to inform the issuer.
Completion Board Meeting Stage Upon final approval by the Committee, The Exchange issues a letter of approval to indicate that
the issue may proceed. However, before the exchange issues the Certificate of
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Exemption, the following offer documents must be submitted with a request for the Certificate,
seven (7) working days to the proposed date for the Completion Board Meeting:
A letter indemnifying The Exchange from any loss associated with any litigation arising from the
issue
• The proof-print of the Prospectus
• The proof-print of the Abridged Particulars of the Prospectus
• The proof-print of the Advertisement and Posters
• The updated Offer timetable and cost of Issue.
Distribution/Marketing Stage
The Issuing House distributes application forms to all receiving agents. The required number (50
copies of abridged and 25 copies of hardcover) is submitted to The Exchange for distribution to
Branches and Council Members. The application list opens on the selected date and closes after 4
to 6weeks. If extension in the application closure date is required, the Stockbroker must get the
written approval of The Exchange .Any variation in the offer documents (both prospectus and
other documents) must also be supported with the written approval of The Exchange.
Range of Analysis/Allotment Stage If the issue is oversubscribed, the Registrar prepares a range of analysis on how the securities
should be allotted. After the range is agreed upon, allotment is done and the pattern used is sent
to SEC for information. A copy of the allotment pattern is also sent to The NSE for information.
Monies in respect of unsuccessful/rejected applications are returned.
General Undertaking/Declaration of Compliance Stage Application for listing supported by: Copy of approved allotment proposal.
Sub topic: Benefits of capital market
Benefits to Individual Investors
The capital market (also referred to as the stock market but this should not be confused with the
term (stock Exchange) is the financial organization which is concerned with the supply of
permanent or long-term capital (e.g. for more than one year) for the use of business enterprise. It
is a market for securities (debt or equities).
Benefits to individual investors: very few investors would be willing to buy shares and stock
unless they knew that they could readily sell them again later if they needed their funds for some
purpose. The capital market allows investors to buy and sell stocks and shares continuously.
The capital market can as well be of benefit to individual investors in the following ways:
A. Investment: the capital market gives an opportunity to individuals investors invest their
surplus or idle fund in buying of shares, stocks and other security for future. It enables
them to buy and sell stocks and shares; they are source of income to investors.
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B. Dividend: in any business venture, the main aim of it is to make profit. For and investors,
he/she expect dividend, interest or profit at the end of the investment from the profit
made by the firm or company.
C. Bonus shares: This is the issue of fully paid shares of a company to existing
shareholders in proportion to their existing shareholding. Bonus issues are issue to
shareholders free of charge. These issues are paid up from the existing reserve of the
company.
D. Capital appreciation: as the value of stocks increases and the investors need their
money back, they sell their stocks to some other investors through the Stock Exchange.
As the investors sell their stock, it must attract interest (dividend) which will definitely
increase their initial capital before investment.
E. Collateral: the stock or shares that an investor bought in a giving company will serve as
collateral for other important investment somewhere or business. Just as fixed assets such
as land, building and other physical items, so can shares and other financial securities can
be used.
Benefits to the Government:
Fulfillment of a long-term credit to finance fixed assets, such as machinery, buildings,
vehicles and so on, so it will better ensure continuity of business enterprise.
Encourage and develop the growth of the business world.
Enhance and create equitable distribution of income for the community.
Increasing national production and national economic growth.
The government obtained additional tax revenue from the resulting increase in economic
growth
Provide income for people associated with the issuance and trading on stock exchanges.
Investors earn profits or interest payments from the company that issued the securities.
People can enjoy the additional production generated by the business.
Provide an opportunity for communities to have company and enjoy the results.
Others are:
Raising of capital for the development of project
Provide Alternative Avenue for deficit financing.
Enhances tax revenue
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additional teaching aid for teachers and students. Please this material should not be commercialized in any form without
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1. Raising of capital for the development of project: Raising of capital for the
development of project capital market provides the necessary lubricant that keeps turning the
wheel of the economy. It is not only providing the funds to projects of best returns to fund
owners but for the stability of the economy.
2. Provide Alternative Avenue for deficit financing: the capital market obviously
occupies an important position in a country’s financial system by providing a mechanism for
channeling savings into investment portfolios. The Nigerian capital market has steadily grown
since its inception and it has contributed immensely to the development of the nation’s
economy. It not only supports commerce and industry, but it also benefits the economy by
providing a kind of ‘money-go-round’ in the financial system.
It also when investors channel their surplus fund into the government by purchase of financial
securities, it enable the government to meet her financial obligations that will enhance economic
growth and international debts
3. Enhances tax revenue: The government obtained additional tax revenue from the
resulting increase in economic growth.
Benefit to the Economy
The capital market has been identified as an institution that contributes to the socio-economic
growth and development even in the developed countries (economies).
The Nigeria capital market provides the necessary lubricant that keeps turning the wheel of the
economy. This helps in determining the overall growth of the economy.
Industrial growth
Employment generation
Improvement in the standard of living
FULL CONTENTS:
1. INDUSTRIAL GROWTH: capital market encourages investors to invest in other
companies to burst their financial stand (capital) to run the company effectively. It
encourages industries to come up. Especially, foreign companies and investors to
strengthened the local companies. It will eradicate the issue of monopoly and encourages
companies to be more efficient. As a collector of public funds to boost economic growth.
2. EMPLOYMENT GENERATION: The capital markets provide employment for stock
brokers, jobbers, clerks’ financial analysts and others. The capital market attracts a lot of
professions and absorbs skillful analyst, scientist, marketers which affect the economy
growth. By providing jobs, people will carter for their families.
3. IMPROVEMENT IN THE STANDARD OF LIVING: capital market leads to
increase of standard of living. As the people are absorbs into working and earning
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additional teaching aid for teachers and students. Please this material should not be commercialized in any form without
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incomes, they will be able to carter and meet the needs of the families. Pay their house
rent, bills and meet other needs.
4. ALLOCATION OF CAPITAL: One of the major economic benefits generated by
development of the Capital Markets is improved allocation of capital. The prices of
Equity and Debt respond immediately to change in market conditions and quickly
embodied in current asset prices. The signal created by the price change encourages or
discourages capital inflow to an industry/company.
5. ALLOCATION OF RISK: The other major economic benefit generated by
development of the Capital Markets is improved allocation of Risk. Capital Markets
facilitates investors to earn returns based on their risk taking ability. Investors invest in
high-risk instruments either because they are less risk averse or because the new risk is
unaffected or negatively correlated with other investments in the portfolio.
6. MOBILIZATION OF SAVINGS: Capital Markets is a good channel to move idle
savings to most productive units in the economy. In any economy savings are moved to
borrowers through Capital Markets or through Banking Financial Corporations/ Non-
Banking Financial Corporations
Benefit to individual companies:
Raising capital for expansion.
Enhances the popularity of the company.
Enhances access to credit.
Perpetuity of the company.
RAISING CAPITAL FOR EXPANSION:
The capital market helps an individual investor to generate capital for a new business by selling
of shares in the stock market.
Capital can be raise in the capital market to establish a new business or company as well.
Encourage and develop business activities.
Enhance and create equitable distribution of income for the community.
ENHANCES THE POPULARITY OF THE COMPANY:
The market ensures that the quoted companies in the Stock Exchange have good reputation. This
will gear up and encourage companies to perform well so that they will be listed in the Nigeria
Stock Exchange.
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additional teaching aid for teachers and students. Please this material should not be commercialized in any form without
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ENHANCE ACCESS TO CREDIT:
Capital market enables a company to fulfillment of a long-term credit to finance fixed assets,
such as machinery, buildings, and vehicles and so on, so it will better ensure continuity of
business enterprise.
ENHANCE THE PERPETUITY OF THE COMPANY: It enables the company to continue
in business without any financial inadequacy. It serves as a backbone to every business
enterprise.
POLICY MAKING:
Capital Markets play an important role in improving policy framework of a country. This is
because when policy makers embark on bad policies the equity and bond prices tend to fall.
Capital markets anticipate the future prospects of a country thus they reduce politicians’
incentives to do things that provide short-term gains, but that brings long-term costs that will hurt
the economy
EVALUATION:
1. Mention the six stages of accessing the capital market
2. Out the requirement of accessing the capital market
EVALUATION:
Essay:
1. Itemize four benefits of capital market to the government.
GENERAL EVALUATION:
Objectives:
1. Which of the following is NOT part of benefits of capital market
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additional teaching aid for teachers and students. Please this material should not be commercialized in any form without
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A. Provide income for people associated with the issuance and trading on stock
exchanges. B. Investors earn profits or interest payments from the company that issued
the securities. C. Generating employment to loot the government funds. D. People can
enjoy the additional production generated by the business.
2. Using of financial securities such as stock, shares, debenture certificate to get a
financial assistance such as loan. Is called A. Credit B. Dividend C.Bonus Shares D.
Collateral
REFERENCE:
O.A. Longe, etal; Essential financial Accounting, tonad publisher, Lagos , Nigeria 2012.
Frank Wood, Business Accounting 1, Longman, Nigeria, 2008.
WEEK FIVE (4) DATE:…………………
SUBJECT: FFINANCIAL ACCOUNTING
CLASS: SS 2
TOPIC: Branch Account
CONTENTS:
Definition Of Branch Account
Description of Branch Organization
Types of Branch local and foreign
Importance of Branch Account
Differentiate between Branch and Departmental Organizations
Preparation of branch account.
SUB-TOPIC: DEFINATION OF BRANCH ACCOUNT
Branch accounting records the trading transactions of different branches of the same business,
whether such branches are situated in the same town or at other towns enables control to be
exercised by management over the affairs of the branch.
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therefore to commercialize this document in any form without prior formal discussion with the management.
In other words, branch account is defined as a small part of the business operating with some
degree of independence. The company may have the head office in Abuja with branches in
different parts of the country. E.g.Kano and Ibadan
DESCRIPTION OF BRANCH ACCOUNT:
(a) Division of Branch Account: Main division of Branch account are:
(b) Home branches where the record are kept by the Head office ( Headquarter)
(c) Branches which keep all their own accounting record
(d) Foreign overseas branches
TYPES OF BRANCHES: LOCAL AND FOREIGN:
For accounting purposes, branches may be divided into three (3) namely:
1. Where the branch bookkeeping is maintained at the head office, with the branch making
returns (Dependent Branch)
2. Where the branch keeps its own book and only forwards its trial balance to the head
office periodically. (Independent Branch)
3. Foreign branch (i.e.) Branches that operate in other situation can only be determined in
the light of the particular circumstances of the branch. Thus factor to consider in
choosing a system of accounting include:
Location of branch
Degree of control exercised by the head office
Number of branches
Nature of activities
OBJECTIVES OF THE BRANCH ACCOUNTING
I. To prevent wastages
II. To prevent fraud and other malpractices
III. To ascertain the profit or the branches
IV. To access the performance of the branches
WHERE THE HEAD OFFICE KEEPS THE ACCOUNT;
The branches for which the whole of the accounting records are kept at the head office as a
system is most popular with retail business whose sales are mainly on cash basis. Where credit
sales are permitted, the head office will keep the Debtors’ Control accounts while the branches
could merely keep the individual debtors’ accounts for the purpose of collection.
The branch will receive goods from the head office at selling price and the branches, as a matter
of necessity, must produce the stock or to cash to cover the value of goods received. The branch
manager should be mandated to forward to head office at weekly or other intervals giving details
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of goods received and returned to head office, cash and credit sales, cash received from debtors,
expenses, stock, debtors and cash at end of the period.
PRICE METHOD: There are three different pricing methods which are for charging goods to
the branches:
Cost price
Cost price plus percentages
Selling price
At cost price: The head office can change goods out to the branches at cost price. This method is
good when the goods are of perishable nature or there are difficulties in determining the selling
price.
At selling price Methods: goods can also be changed to the branch at the selling price. The
price will be fixed by the head office. This method is usually adopted when the goods are sold at
specific price .g proprietary articles. The method is not good for perishable goods.
At cost plus percentage: this is the most effective method of charging goods to branch. Under
this method, the goods will be charged to the branches of cost plus a fixed percentage. This
method can provide a reliable check upon the cash and stock at the branch and the gross profit
will be disclosed by the account.
The Branch stock account, goods sent account and branch adjustments account will be
maintained.
ACCOUNTIN ENTRIES METHODS: There are two methods of accounting entry in Branch
Accounting:
Double column methods or memorandum column
Branch Adjustment method
1. DOUBLE COLUMN METHOD OR MEMORANDUM COLUMN
There is no need for separate branch stock accounts and branch adjustment accounts. The
two accounts can be combined into memorandum or double column account. The branch
stock will be ruled with two columns. One column records transaction at cost and the
other column at invoiced price.
FORMAT:
MEMORANDUM BRANCH ACCOUNT
Invoice
Price
Cost
price
Invoice
price
Cost
Price
Stock at beginning
Goods sent to branch
×××
×××
×××
×××
Return to head office
Credit sales
×××
×××
×××
×××
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Gross profit ×××
×××
×××
×××
Cash sales
Allowance off selling
price
Goods stolen (deffic)
Cash stolen
Expenses paid out of
takings
Normal loss
Stock at close
×××
×××
×××
×××
×××
×××
×××
×××
×××
×××
×××
×××
×××
×××
×××
×××
CR GOODS SENT TO BRANCH ACCOUNT (COST PRICE) DR
N N
Return from branch
Head office trading account
×××
×××
×××
Branch stock account ×××
×××
DR PROFIT AND LOSS ACCOUNT CR
N N
Branch stock account:
Sundry expenses
Stock deficiency at cost price
Cash stolen
Net profit
×××
×××
×××
×××
×××
Gross profit ×××
×××
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WEEK SIX (5) DATE………………..
SUBJECT: FINANCIAL ACCOUNTING
CLASS:SS 2
TOPIC: Preparation of Branch Account
ILLUSTRATION:
2. BRANCH ADJUSTMENT METHOD
Under this system, the profit loading will be taken to a separate account called
“Branch Adjustment Account”. The following will be prepared:
Branch stock account.
Branch Adjustment account.
Goods sent to branch.
Debtors Account.
FORMAT:
DR BRANCH STOCK ACCOUNT (INVOICED PRICE) CR
N N
Stock At Start
Goods sent to branch
×××
×××
Goods transfer to another
branch
Cash sales
Credit sales
Expenses paid out of taking
Reduction in selling price
×××
×××
×××
×××
×××
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×××
Goods inn transit
Returns to Head office
Cash stolen
Goods stolen (pilferage)
Normal loss
Cash in hand
Stock at close
×××
×××
×××
×××
×××
×××
×××
×××
DR GOODS SENT TO BRANCH ACCOUNT (COST PRICE) CR
N N
Returns to head office
Transfer to other branch
Head office trading account
×××
×××
×××
×××
Branch ×××
×××
DR BRANCH ADJUSTMENT ACCOUNT CR
N N
Profit on returns to head
office
Profit on goods returned by
customer to head office
Profit on goods on transit
Normal loss (selling price)
Profit on goods stolen
Profit on transit to other
branch
Reduction In selling price
Profit on stock at close
Gross profit to profit and loss
account
×××
×××
×××
×××
×××
×××
×××
×××
×××
Profit on opening stock
Profit on goods sent to the
branch
×××
×××
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×××
×××
DR PROFIT AND LOSS ACCOUNT CR
N N
Cost of goods stolen
Sundry expenses
Cost of goods lost in transit
Cash stolen
Net profit
×××
×××
×××
×××
×××
×××
Branch adjustment:
Gross profit b/d
×××
×××
ILLUSTRATION 1.
SAM Enterprise is a retail business concern with head office at Lagos and office at Ibadan. The
head office makes all purchases and charges out goods to the branches at cost plus 25% which
represents the selling price to the branch. The branch limit to the head office all cash received
from customers. The following transaction took place at the branch during the year ended 31st
December, 2013
N
Stock on January 1st 2013 9,600.00
Goods received from the head office 25,470.00
Credit sales (net) 15,972.00
Allowance of selling price 218.00
Goods returned to head office 460.00
Discount allowed 278.00
Cash received from debtors 14,926.00
Bad debts written off 194.00
Cash sales ` 12,036.00
Debtors of January 1st 2013 1,280.00
The valued of the stock at selling price at the branch on 31st December was N6, 380.00
. You are required to prepare in the head office books the following accounts.
a. Branch stock account
b. Branch adjustment account
c. Goods sent to branch account
d. Branch debtor account
SUGGESTED SOLUTION:
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DR SAM ENTERPRISE BRANCH STOCK ACCOUNT CR
N N
Balance b/d
Goods sent to branch
9,600.00
25,470.00
35,070.00
Sales at cash
Sales on credit
Allowance off selling price
Goods return to head office
Normal loss
Balance c/d
12,036.00
15,972.00
218.00
460.00
4.00
6,380.00
35,070.00
DR GOODS SENT TO BRANCH ACCOUNT CR
N N
Returns to head office
Head office trading
368.00
2,0008.00
20,376.00
Branch stock 20,376.00
20,376.00
DR BRANCH STOCK ADJUSTMENT ACCOUNT CR
N N
Profit on closing stock
Return to head office
Gross profit
1,276.00
92.00
5,648
7,014.00
Profit on opening stock
Credit sales
1,920.00
5,094.00
7,014.00
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DR BRANCH DEBTORS ACCOUNT CR
N N
Balance b/d
Credit sales
1,280.00
15,972.00
17,252.00
Cash
Bad debt
Discount allowed
Balance c/d
14,926.00
194.00
278.00
1,754.00
17,252.00
EVALUATION: Attempt Question number 35.5 (Pages 366) of Essential Financial
Accounting
ILLUSTRATION: See Page 358 of essential financial accounting
ACCOUNTING ENTRIES:
1. When goods are sent to the branch:
Debit Branch stock account (invoiced price of goods sent)
Credit Branch adjustment (with profit loading)
Credit Goods sent branch account (with cost price)
2. When there are sales : Cash or credit sales
Debit Cash account (with cost price)
Debit Debtors account (credit sales)
Credit Branch stock account (cash and credit sales)
3. Stock at start:
Debit Branch stock account (invoice price)
Credit Branch Adjustment account (profit loading)
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4. Stock at closing:
Debit Branch adjustment account (profit loading)
Credit Branch stock account (invoice Price)
5. Returns to Head office:
Credit Branch stock account (invoice price)
Debit Goods sent to branch account (cost price)
Debit Branch Adjustment account (profit loading)
6. Transfer to Other Branch:
Credit Branch stock account (invoice price)
Debit Goods sent to branch account (cost price)
Debit Branch adjustment account (profit loading)
7. Allowance of selling price or reduction in selling price:
Debit Branch adjustment account (total allowance)
Credit Branch stock account (total allowance)
8. Goods In Transit:
Debit Branch adjustment account (profit loading)
Credit Branch stock account (invoiced price)
9. Goods lost in Transit:
Debit Branch adjustment account (profit loading)
Debit Goods lost in transit account (cost price written off to P and L)
Credit Branch stock account (invoice price)
10. Goods stolen or disficiencies:
Credit Branch stock account (invoice price)
Debit Branch adjustment account (profit loading)
Debit Goods stolen account (with cost price) which will be written off to profit and loss.
11. Cash stolen:
Credit Debtor account (invoice price)
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Debit Branch adjustment (profit loading)
Debit Goods sent to branch (cost price)
General Evaluation
Branch stock account (at selling price) 346,000 – debit Branch mark-up account 62,000 – credit 1. Calculate the stock figure to be included in the balance sheet at the year end. A. D 408,000 B. D
346,000 C. D 284,000 D. D 62,000. 2. The concept applied in answering question 42 above is A. matching B. consistency. C. prudence.
D. entity.
3. Which of the following serves the same purpose as a trading account?(a)Branch
adjustment Account (b)Goods sent to Branch Account (c)Branch Stock Account
(d)Branch Debtors Account.
Use the following information to answer questions 4 and 5
A company charges out goods to a branch at cost plus 25 percent. It invoiced N12,000
worth of goods.
4. The mark-up is (a) N15,000 (b)N9,000 (c) N4,000 (d)N3,000
5. The double entry required for the mark-up is debit Branch(a)sales account, credit Branch
Adjustment Account (b)Adjustment Account, credit Branch Stock Account (c)Stock
account, credit Branch adjustment account (d)profit and loss account, credit branch stock
account..
Essay Test
1. FatokiTrading Company Limited supplies goods to its Lagos branch. The following are
the details of transactions with the branch of December 1993;
On 1st December, 1993 goods costing N6,000 were invoiced to the branch at cost plus
331/1 percent.
At the end of the month the branch returns showed that the sales were N5,000. Goods
invoiced at N80 were returns to head office and the closing stock was; N2,880 at selling
price.
You are required to prepare in the Head Office books
(a). Goods sent to branch Account
(b). Branch stock account.
(c). Branch Adjustment Account.
REFERENCES:
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additional teaching aid for teachers and students. Please this material should not be commercialized in any form without
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therefore to commercialize this document in any form without prior formal discussion with the management.
Essential Financial Accounting for senior secondary schools O.A.Longe et al; Tonad Publishers
Financial Accounting for senior secondary schools M.A.Adesola et al; Melrose Publishing Limited
WEEK SEVEN (6) DATE: ………………….
SUBJECT: FINANCIAL ACCOUNTING
CLASS: SS 2
TOPIC: JOINT VENTURE ACCOUNT
CONTENTS:
Meaning of joint ventures
Features of joint ventures
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Accounting entries
Sub-topic 1:
Meaning of Joint Ventures
A joint venture is simply a venture undertaken jointly by two or more persons with a view to gaining a
profit. Joint venture differs from a partnership in that it is of a more temporary character. Nowadays joint
ventures are often concern with one isolated transaction, such as buying up bankrupt stocks or engaging
in similar operation. In other words, joint ventures refer to the mutual advantage of two or more persons
or firms to tackle a particular business venture together instead of engaging in it separately.
Features of Joint Ventures
1. The profit sharing ratio must be clearly stated
2. The capital, activities and scope of the ventures must be laid down
3. Sometimes one venture is allowed credit for the use of his office, or for services provided, but this must
be agreed to by all parties.
Differences between joint venture and partnership
Basis Joint venture Partnership
Period
regulation
status of parties
nature agreement
nature of activities
Temporary
Non-regulation by law
venturer
oral and /or implied
one off or once
Permanent
Regulated by partnership Act
Partner
Oral/written
Continuous
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responsibilities of parties
accounting records sheet
amount invested
accounting periods
all are involved
memorandum and individual
accounts
venture funds
for the period of the venture
business
All may not be involved
Trading, profit and loss account
and balance sheet
Capital
For every fiscal year
Evaluation:
1. Define Joint Venture
2. Outline three features of Joint Venture
3. Differentiate between Joint Venture and partnership
Sub-topic 2:
Accounting procedures
Each venturer opens an account to record all matters which concern the particular venture.
A. if cash is paid out:
DR: Joint venture account
CR: Cash
B .if cash is received from sales or even from the other party
DR: Cash
CR: Joint venture account
C .any charges agreed upon e.g. commission,
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DR: Joint venture
CR: the account of the person who is to receive the commission, etc
D. At the close of the ventures, or end of the year whichever is earlier, the joint accounts of each
venture are combined together in a Memorandum joint venture account, on which the profit or loss on the
venture is ascertained.
NOTE: This account does not form part of the double entry records in any set of books, being prepared
purely for the purpose of ascertaining profit or loss.
E. If there is profit:
DR: venture account and
CR: profit and loss account
F. if there is a loss:
DR: profit and loss account
CR: Joint Venture a/c
When these entries have been made, the balances remaining on the various joint venture account show
the indebtedness of one venture to another.
Example: A and B entered into a joint venture to acquire surplus and reject crockery from the
manufacturers and to sell them at a series of one-day markets. The agreed to share joint venture profits
and losses in ratio 3:2 respectively.
At the outset, A sent B a cheque for N2, 000 to provide him with funds for his participation in the
venture.
They managed to sell all the goods they had bought by 31st January, 2004 by which date their cash
transaction had been:
A B
Sales 3,200 2,100
Travelling expenses 327 463
Advertising 103 91
Stall rents or market tolls 85 70
Wages of casual workers 48
Sundry expenses 59 29
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Purchases 1,600 1,100
Settlement between the co-venturers took place by cheque
You are required to prepare:
a. Joint venture with B account in the ledger of A
b.Joint venture with A account in the ledger of B
C.Memorandum Joint venture account
SOLUTION
In the ledger of A
Dr Joint venture with B account Cr
N N
Bank: transfer to B 2,000 Bank: sales 3,200
“ Travelling expenses 327 Bank 1,817
“ Advertising 103
“ Stall rent/toll 85
“ Wages 48
“ Sundry expenses 59
“ Purchases 1,600
Profit and loss a/c 795
5,017 5,017
In the ledger of B
Dr Joint venture with A account Cr
Bank: travelling expenses 463 Bank: transfer from A 2,000
“ Advertising 91 Bank: sales 2,100
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“ Stall rent /tolls 70
“ Sundry expenses 29
“ Purchases 1,100
Profit and loss a/c 530
Bank 1,817
4,100 4,100
Dr Memorandum joint venture account Cr
Travelling expenses (327+463) 790 Sales (3,200+2,100) 5,300
Advertising (103+91) 194
Stall rent /tolls (85+70) 155
Wages 48
Sundry expenses (59+29) 88
Purchases (1,600+1,100) 2,700
Share of profit:
A (3/5 X 1,325) 795
B (2/5 X 1,325) 530
5,300 5,300
Dr Profit of Joint venture account Cr
31st Jan joint venture with A 795
31st Jan joint venture with B 530
Evaluation:
1. Practise revision exercise 6.6B of the Essential Financial Accounting page347
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therefore to commercialize this document in any form without prior formal discussion with the management.
Objective Test:
1. The memorandum joint venture account is similar to
a. Balance sheet b.trading, profit and loss account c.cash book d.trading account
2. The parties involved in joint venture business are called
a. Joint venturers
b.partners
c.sole proprietor
d.shareholder
3. The aim of joint venture is to make
a.cash b.sales c.profit d.money
4. All these are sets of accounting books to be kept in joint venture business except
a. bank a/c b.cash a/c c.expenses a/c d.journal
5. The goods not disposed off during a period of joint venture business activities are called_____
a.cost of goods b. goods returns c.stock of goods d.goods for sales
Essay
1. Define joint venture
2. Mention three features of joint ventures
3. Differentiate between joint venture and partnership
4. Practice revision exercise 5.5B of the Essential Financial Accounting page 347
WEEKEND ASSIGNMENT
Read about contract account
REFERENCES:
Essential Financial Accounting for senior secondary schools O.A.Longe et al; Tonad Publishers
Financial Accounting for senior secondary schools M.A.Adesola et al; Melrose Publishing Limited
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additional teaching aid for teachers and students. Please this material should not be commercialized in any form without
prior formal engagement with school management. This material was developed for the use of teachers and students of the
Goodwill Group of Schools. All financial commitment has been duly fulfilled by the school management. It is prohibited
therefore to commercialize this document in any form without prior formal discussion with the management.
EVALUATION:
Essay:
List three benefits of capital markets to economy.
WEEK EIGHT (8) DATE:……………………
SUBJECT: FINANCIAL ACCOUNTING
CLASS: SS 2
TOPIC: Consignment Account
CONTENTS:
Consignment Account: (a) Consignment Accounts terminologies; meaning, consignment,
consign or consignee, consignment outwards, consignment inwards, del-credere commission
Sub-topic 1: Meaning and explanation of:
Consignment
Consignor and Consignee
Consignment inward and Consignment outward
Consignment: This is a process of sending goods by a person that owns the goods (Principal) to another
person (agent) who agrees to sell the goods on behalf of the owner for a fee. The relationship between the
consignor and the consignee is the principal – agent relationship.
Consignor: This is the person who sends the goods to the agent with the purpose of selling them on his
behalf, for commission. The goods still belongs to the principal even in the possession of the agent until
the goods are sold and money dully remitted.
Consignee: This is the agent to which the goods were sent to by the principal for a commission. While
goods are in his possession, he has no title to the goods.
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Commission: This is the remuneration given to the consignee for selling the goods for the principal, this
is usually expressed as a percentage of the value of sales.
Consignment outward: When goods are forwarded to the consignee, it is referred to a consignment
outward. The consignment is called “outward” when the dispatch of a quantity of goods from one country
to another is made for the purpose of sales. Goods sent on consignment do not become the property of the
consignee because he has not bought them.
Consignment inwards: When goods are sent to the agent, the goods received by the agent is referred to
as consignment inwards in the accounts of the agent.
Del-credere commission: This is a special commission given to the consignee for accepting the
responsibility for any bad debts arising from sales made on credit.
Account Sales: This is a document that the returns made by the consignee after the sales or return of the
goods. The items in the account sales include; sales by the consignee, the expenses of the consignee, the
commission due to the consignee and the balance due to the consignor.
Format of Account Sales.
N N
Sales xx
Less: Expenses
Import duty xx
Storage charges xx
Selling and distribution expenses xx
Consignee’s commission xx (xx)
Balance due to consignor xx
Differences between Consignment and Sales
Consignment
i. The receiver of goods is referred to as the
agent ii. Ownership remains with the principal until
the goods are paid for. iii. The agent can return unsold goods to the
Sales
i. The receiver of the goods is called a debtor.
ii. Ownership passes along with possession.
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principal iii. Goods once sold can not be retuned
EVALUATION:
Define i. Consignment
ii. Consignor
iii. Consignee
State five differences between a consignment and sale.
EVALUATION:
1. Outline five benefits of capital market to the Economic
2. Mention four benefits of capital market to companies
REFERENCE:
O.A. Longe, etal; Essential financial Accounting, tonad publisher, Lagos , Nigeria 2012.
Frank Wood, Business Accounting 1, Longman, Nigeria, 2008.
WEEK NINE (9):
SS2
TOPIC: CONSIGNMENT ACCOUNT
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additional teaching aid for teachers and students. Please this material should not be commercialized in any form without
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therefore to commercialize this document in any form without prior formal discussion with the management.
CONTENTS: Preparation of Consignment accounts
Entries in the Consignor’s Book
a. On dispatch of goods
DR. Consignment account
CR. Goods on consignment account
(with the cost of goods)
b. Expenses paid by Consignor
DR. Consignment account
CR. Cash/Bank
(with the amount paid)
c.Upon drawing bill on consignee
DR. Bills receivable account
CR. Consignee’s personal account
d. Bills receivable honoured by the consignee
DR. Bank account
CR. Bills receivable account
d. Advance by consignee
DR. Bank account
CR. Consignee account
e. Expenses incurred by the consignee
DR. Consignment account
CR. Consignee account
f. On proceeds from sales
DR. Consignee account
CR. Consignment account
This material is NOT the property of Goodwill Group of Schools but has been adopted by the school management as
additional teaching aid for teachers and students. Please this material should not be commercialized in any form without
prior formal engagement with school management. This material was developed for the use of teachers and students of the
Goodwill Group of Schools. All financial commitment has been duly fulfilled by the school management. It is prohibited
therefore to commercialize this document in any form without prior formal discussion with the management.
g. Upon payment by the consignee
DR. Bank account
CR. Consignee account
h. Agents commission
DR. Consignment account
CR. Consignee account
i. Transfer of balances
DR. Consignment account
CR. Profit and loss account
(if it is a profit)
DR. Profit and loss
CR. Consignment account
Illustration 1
Kingdom Blessings Limited of United Kingdom consigned goods worth N500, 000 to her
agent Winner Nig. Ltd. She paid freight N40, 000; Insurance N30,000; shipping charges
N50, 000; and a bill was drawn on Winner Nig. Ltd at 90 days for N10, 000. This bill,
Winner Nig. Ltd. discounted with their bankers, the charge therefore being N6, 000.
Later, Winner Nig. Ltd renders account sales showing the amount for which the goods
were disposed off as being N700, 000. She deducts her commission which is 5% and
expenses on landing N5,000; warehouse rent N10, 000 and remits a draft on National
Bank for the balance.
Required: Show the necessary ledger accounts in the books of the :
Consignor
Consignee
Solution
In the Consignor’s books
Dr Kingdoms Blessings Limited Cr
This material is NOT the property of Goodwill Group of Schools but has been adopted by the school management as
additional teaching aid for teachers and students. Please this material should not be commercialized in any form without
prior formal engagement with school management. This material was developed for the use of teachers and students of the
Goodwill Group of Schools. All financial commitment has been duly fulfilled by the school management. It is prohibited
therefore to commercialize this document in any form without prior formal discussion with the management.
N,000
Goods on consignment 500
Freight 40
Insurance 30
Shipping charge 50
Commission 35
Landing expenses 5
Warehouse rent 10
Profit and loss 30
700
N,000
Sales 700
700
Dr Goods on consignment account Cr
N,000
Trading account 500
N,000
Consignment 500
Dr Discount charges account Cr
N,000
Bank 6
N,000
Profit and loss account 6
Dr Cash Book Cr
N,000 N,000
This material is NOT the property of Goodwill Group of Schools but has been adopted by the school management as
additional teaching aid for teachers and students. Please this material should not be commercialized in any form without
prior formal engagement with school management. This material was developed for the use of teachers and students of the
Goodwill Group of Schools. All financial commitment has been duly fulfilled by the school management. It is prohibited
therefore to commercialize this document in any form without prior formal discussion with the management.
Bills receivable 10
Consignee 640
650
Discount charges 6
Consignment account:
Freight 40
Insurance 30
Shipping charges 50
Balance c/d 524
650
Dr Consignee (Winner) Account: Cr
N,000
Consignment a/c: Sales 700
700
N,000
Bills receivable 10
Commission 35
Landing expenses 5
Warehouse 10
Bank 640
700
Dr Bills receivable account Cr
N,000
Consignee (Winner) 10
N,000
Cash book 10
Accounting Entries in Consignee’s Book
a. On receipt of the goods
(no entry in the books)
b. Payment of expenses
DR. Consignor account
This material is NOT the property of Goodwill Group of Schools but has been adopted by the school management as
additional teaching aid for teachers and students. Please this material should not be commercialized in any form without
prior formal engagement with school management. This material was developed for the use of teachers and students of the
Goodwill Group of Schools. All financial commitment has been duly fulfilled by the school management. It is prohibited
therefore to commercialize this document in any form without prior formal discussion with the management.
CR. Bank account
c. On sending advance
DR. Consignor account
CR. Bank or Bills payable account
d. Goods sold by the consignee
DR. Bank/Cash or Debtor account
CR. Consignor account
e. Consignee’s commission
DR. Consignor’s account
CR. Commission account
f. Money received from consignment debtors
DR. Bank/Cash account
CR. Consignment debtor account
g. Bill of exchange accepted by consignee in favour of consignor
DR. Consignor account
CR. Bills payable account
h. On settlement of balance due to consignor
DR. Consignor account
CR. Cash account
Illustration 2
From illustration 1 above, prepare the relevant ledgers in the Consignee’s books.
This material is NOT the property of Goodwill Group of Schools but has been adopted by the school management as
additional teaching aid for teachers and students. Please this material should not be commercialized in any form without
prior formal engagement with school management. This material was developed for the use of teachers and students of the
Goodwill Group of Schools. All financial commitment has been duly fulfilled by the school management. It is prohibited
therefore to commercialize this document in any form without prior formal discussion with the management.
Solution
Dr Consignor (Kingdom Blessing Ltd) account Cr
N,000
Commission 35
Landing expenses 5
Warehouse rent 10
Bills payable 10
Cash 640
700
N,000
Sales 700
700
Dr Cash book Cr
N,000
Sales 700
700
N,000
Bills payable 10
Commission 35
Landing expenses 5
Warehouse 10
Consignor 640
700
Dr Bills payable account Cr
N,000
Cash book 10
N,000
Consignor 10
Dr Commission account Cr
This material is NOT the property of Goodwill Group of Schools but has been adopted by the school management as
additional teaching aid for teachers and students. Please this material should not be commercialized in any form without
prior formal engagement with school management. This material was developed for the use of teachers and students of the
Goodwill Group of Schools. All financial commitment has been duly fulfilled by the school management. It is prohibited
therefore to commercialize this document in any form without prior formal discussion with the management.
N,000
Profit and 35
N,000
Consignor 35
Treatment of unsold stock
Occasionally, goods consigned may remain unsold when preparing accounts, such goods must be shown
at cost plus proportionate part of the expenses incurred on it i.e. freight, insurance, rent e.t.c.
Format
N
Cost price of goods xx
Consignor expenses (Stock unsold x expenses) xx
Goods consigned
Consignee expenses (Stock unsold x expenses) xx
Value of unsold stock xx
Xx
Treatment of stock losses
Loss not covered by insurance:
DR: Profit and loss account
CR. Consignment account
Loss covered by insurance:
DR: Insurance claim account
CR. Consignment account
Illustration 3
Goods costing N50, 000 were sent by Limousine Limited on 1st February, 2oo5 to Acura Legend
Limited in United States of America. On the date, expenses paid in cash by Limousine in respect of the
goods were freight N5,000 and Insurance N2,000. On receipt of the goods on 1st March, 2005 a bill was
drawn by Limousine Ltd on Acura Legend for N3, 000, payable in three month’s time which was
discounted by the company for N2, 000 on 4th April, 2005. An account sales received from Acura Legend
This material is NOT the property of Goodwill Group of Schools but has been adopted by the school management as
additional teaching aid for teachers and students. Please this material should not be commercialized in any form without
prior formal engagement with school management. This material was developed for the use of teachers and students of the
Goodwill Group of Schools. All financial commitment has been duly fulfilled by the school management. It is prohibited
therefore to commercialize this document in any form without prior formal discussion with the management.
on 31st May, 2005 disclosed that he had goods on hand to the value of N6, 000 at original cost and sales
amounted to N75, 000. It showed further that he had made deductions for commission on sales to date of
N4, 000 and for selling expenses N1,000. The balance due for goods was settled by Acura Legend by
means of a two months bill accompanying the account sales which Limousine discounted with its bank
being charged N1, 500.
Required: Show the ledger accounts:
i. in the books of Limousine Ltd and;
ii. in the books of Acura Legend Ltd.
Solution
In the books of Limousine Ltd.
Dr Consignment account Cr
N,000
Goods on consignment 50
Freight 5
Insurance 1
Discount charges 1
Commission 4
Selling expenses 1
Discount charges 19.720
81.720
N,000
Sales 75
Stock (see workings) 6.720
81.720
Dr Goods sent on Consignment account Cr
N,000
Trading a/c 50
N,000
Consignment 50
This material is NOT the property of Goodwill Group of Schools but has been adopted by the school management as
additional teaching aid for teachers and students. Please this material should not be commercialized in any form without
prior formal engagement with school management. This material was developed for the use of teachers and students of the
Goodwill Group of Schools. All financial commitment has been duly fulfilled by the school management. It is prohibited
therefore to commercialize this document in any form without prior formal discussion with the management.
Dr Bill Receivable account Cr
N,000
Acura Legend 3
Acura Legend 67
70
N,000
Bank 2
Discount 1
Bank 65.5
Discount 1.5
70
Dr Consignee account Cr
N,000
Sales 75
75
N,000
Bill receivable 3
Commission 4
Selling expenses 1
Bill receivable 67
75
Dr Cash book Cr
N,000
Bills receivable 3
Bills receivable 67
70
N,000
Discount 1
Discount 1.5
Freight 5
Insurance 1
Balance c/d 61.5
70
This material is NOT the property of Goodwill Group of Schools but has been adopted by the school management as
additional teaching aid for teachers and students. Please this material should not be commercialized in any form without
prior formal engagement with school management. This material was developed for the use of teachers and students of the
Goodwill Group of Schools. All financial commitment has been duly fulfilled by the school management. It is prohibited
therefore to commercialize this document in any form without prior formal discussion with the management.
In the Consignee’s books
Dr Consignor account Cr
N,000
Bills payable 3
Selling expenses 1
Commission 4
Bills payable 67
75
N,000
Sales 75
75
Dr Bills payable account Cr
N,000
Balance c/d 70
70
N,000
Limousine 3
Limousine 67
70
Dr Commission account Cr
N,000
Profit and Loss 4
N,000
Limousine 4
Workings
Calculation of unsold stock
N,000 N,000
Stock 6
Consignor expenses on total consignment:
This material is NOT the property of Goodwill Group of Schools but has been adopted by the school management as
additional teaching aid for teachers and students. Please this material should not be commercialized in any form without
prior formal engagement with school management. This material was developed for the use of teachers and students of the
Goodwill Group of Schools. All financial commitment has been duly fulfilled by the school management. It is prohibited
therefore to commercialize this document in any form without prior formal discussion with the management.
Freight 5
Insurance 1
6
Proportion applicable to closing stock
Stock x expenses
Goods on consignment
= 6 x 6
50
= 0.72
EVALUATION
From Essential Financial Accounting For Senior Secondary Schools by O.A. Longe & R.A.
Kazeem, prepare solution to Exercise 4.4 on page 354.
GENERAL EVALUATION
Objective Test
(i) Another name for the consignor is -----------A. Agent. B. Principal C. Consignee. D.
Manufacturer.
(ii) The main difference between the completed and uncompleted consignment is------ A.
Stock B. Expenses C. Commission. D. Bad debt.
(iii) The special reward paid to the consignee for indemnifying the consignor against any bad
debts from consignment is called --------A. Bonus B. Commission C. Del-Credere D. De-
Credere.
(iv) Commission paid on consignment to the consignee is based on --------A. Value of goods
consigned on him B. Period of the consignment C.Distance between the two parties D.
Sales.
(v) The minimum number of parties involved in a consignment account is--------- A.5 B. 3
C.2 D. 4
Essay
On August 2010, Tanko sent 100 cases to Princess, on consignment terms. Tanko paid N80
per case for these goods and it was agreed that he should bear all the expenses of the
consignment. He paid freight and insurance amounting to N240.
This material is NOT the property of Goodwill Group of Schools but has been adopted by the school management as
additional teaching aid for teachers and students. Please this material should not be commercialized in any form without
prior formal engagement with school management. This material was developed for the use of teachers and students of the
Goodwill Group of Schools. All financial commitment has been duly fulfilled by the school management. It is prohibited
therefore to commercialize this document in any form without prior formal discussion with the management.
0n 31 December 2010, Tanko received an account sales from Princess showing that 60 cases
had been sold for N6, 900. Princess had paid duty and laundering charges on the whole
consignment amounting to 220. His selling expenses were N70 and he was entitled to a
commission of 5% on the gross value of the goods sold. Princess enclosed with the account
sales a remittance for the amount due from him to Tanko.
You are required to set out the ledger accounts in the books of the consignor and the
consignee.
WEEKEND ASSIGNMENT.
From Simplified and Amplified Book Keeping & Accounting for Senior Secondary Schools 1, 2, 3 by
Femi Longe, prepare solution to Exercise 6, 8x and 10x on pages 314 and 315.
PRE-READING ASSIGNMENT:
From Simplified and Amplified Book Keeping & Accounting for Senior Secondary Schools 1, 2, 3 by
Femi Longe, read about Joint Venture
REFERENCE TEXTS:
Essential Financial Accounting For Senior Secondary Schools by O.A. Longe & R.A. Kazeem
Financial Accounting for Senior Secondary Schools 1 by M.A. Adesola etal.
Financial Accounting Made Simple by Robert O. Igben.
Simplified and Amplified Book Keeping & Accounting for Senior Secondary Schools 1,2,3 by Femi
Longe
WEEK TEN (10): Revision and Examination
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