52 questions. Try each one, then open the answer to check yourself and read the explanation.
The Bank Column in the Cash Book shows a credit balance of ₦180. This means
Answer: D (an overdraft of ₦180)
A credit balance on the bank column means the business has taken out more than it put in, i.e. it owes the bank (an overdraft).
T. Trader sets aside from his private funds ₦1,500 for business purposes. The ₦1,500 would be referred to as
Answer: A (Capital)
Money the owner puts into the business from his own funds is capital.
When goods are sold for cash the credit entry goes to the
Answer: D (sales account)
Cash sale: debit cash book (cash comes in), credit sales account.
The Sales Account is written up from
Answer: E (both credit and cash sales.)
The sales account receives the total of the sales day book (credit sales) and cash sales from the cash book.
The Petty Cash Book can have
Answer: A (a debit balance only)
Petty cash is money in hand, so it can never be overdrawn: its balance is a debit (cash still in the box), never a credit.
Which of the following may have been recorded in the Cash Book and fail to appear in the Bank Statement?
Answer: C (Bank lodgements)
Money paid in late (uncredited lodgements) is already in the cash book but the bank has not yet entered it.
Which of the following accounts belongs to the Private Ledger?
Answer: A (Drawings account)
The private ledger keeps the owner's confidential accounts such as capital and drawings.
Which of the following accounts belongs to the Personal Ledger?
Answer: E (V. Okafor's account.)
Personal accounts are accounts of people or firms, such as V. Okafor's account.
A cheque for ₦400 drawn in favour of Jeje was posted to the credit of his account. The entry necessary to correct the error is
Answer: D (debit Jeje's account ₦800, credit suspense account ₦800)
Jeje should have been debited ₦400 but was credited ₦400, so his account must be debited ₦800 (₦400 to cancel, ₦400 to post correctly), with suspense credited.
A sales for ₦2,570 was recorded in the Day Book as ₦2,750. The error committed was
Answer: D (error of original entry)
The wrong figure was entered in the book of original entry, so both ledger entries carry it: an error of original entry.
Which of the following would be posted to the proprietor's capital account?
Answer: D (Net profit)
Net profit belongs to the owner and is added to his capital.
The drawings account of a sole proprietor is transferred to the
Answer: A (capital account)
Drawings reduce what the business owes the owner, so they are deducted from capital.
A business marked up its cost by 50%. This would mean a Gross Profit of
Answer: E (33⅓% on the selling price.)
Cost ₦100 + 50 = selling price ₦150; profit 50/150 = 33⅓% of selling price.
Which of the following shows the stock at the start of an accounting period?
Answer: D (Trading account)
Opening stock is added to purchases on the debit side of the trading account; the balance sheet shows the closing stock.
The balance in the purchases ledger control account is
Answer: D (the total of the creditors)
The purchases ledger control account summarises suppliers' accounts, so its balance is the total owed to creditors.
Discount allowed would appear on the
Answer: D (credit side of the Sales Ledger Control Account)
Discount allowed reduces what debtors owe, so it is credited in the sales ledger control account.
Sales Ledger Control Account (1986)
Debit side: Jan. 1 Balance b/d ₦1,300; Jan. 31 Sales ₦7,630; Dishonoured Cheques ₦250; Stopped Cheques ₦100; Balance c/d ₦92; Total ₦9,372
Credit side: Jan. 1 Balance b/d ₦86; Bank ₦6,555; Discounts ₦345; Returns ₦130; Purchases Ledger ₦360; Balance c/d ₦1,896; Total ₦9,372
Feb. 1 Balance b/d ₦1,896 (debit); Feb. 1 Balance b/d ₦92 (credit)
The amount of ₦7,630 represents
Answer: A (total credit sales)
Only credit sales go through the sales ledger control account; cash sales never create a debtor.
Sales Ledger Control Account (1986)
Debit side: Jan. 1 Balance b/d ₦1,300; Jan. 31 Sales ₦7,630; Dishonoured Cheques ₦250; Stopped Cheques ₦100; Balance c/d ₦92; Total ₦9,372
Credit side: Jan. 1 Balance b/d ₦86; Bank ₦6,555; Discounts ₦345; Returns ₦130; Purchases Ledger ₦360; Balance c/d ₦1,896; Total ₦9,372
Feb. 1 Balance b/d ₦1,896 (debit); Feb. 1 Balance b/d ₦92 (credit)
The sum of ₦6,555 described as 'Bank' represents
Answer: C (receipts from trade debtors only)
Money credited in the sales ledger control account is what trade debtors paid in settlement of their accounts.
Sales Ledger Control Account (1986)
Debit side: Jan. 1 Balance b/d ₦1,300; Jan. 31 Sales ₦7,630; Dishonoured Cheques ₦250; Stopped Cheques ₦100; Balance c/d ₦92; Total ₦9,372
Credit side: Jan. 1 Balance b/d ₦86; Bank ₦6,555; Discounts ₦345; Returns ₦130; Purchases Ledger ₦360; Balance c/d ₦1,896; Total ₦9,372
Feb. 1 Balance b/d ₦1,896 (debit); Feb. 1 Balance b/d ₦92 (credit)
The balance of ₦92 represents the I. amount necessary to balance the account II. sum due to the customers III. amount due from the customers.
Answer: D (I and II only)
₦92 is entered as balance c/d to make the debit side add up, and it comes down on the credit side, so it is a sum the business owes customers (I and II).
Sales Ledger Control Account (1986)
Debit side: Jan. 1 Balance b/d ₦1,300; Jan. 31 Sales ₦7,630; Dishonoured Cheques ₦250; Stopped Cheques ₦100; Balance c/d ₦92; Total ₦9,372
Credit side: Jan. 1 Balance b/d ₦86; Bank ₦6,555; Discounts ₦345; Returns ₦130; Purchases Ledger ₦360; Balance c/d ₦1,896; Total ₦9,372
Feb. 1 Balance b/d ₦1,896 (debit); Feb. 1 Balance b/d ₦92 (credit)
The items 'Purchases Ledger ₦360' means I. cash purchases during the period II. credit purchases during the period III. trade debtors set off against debts on purchases
Answer: C (III only)
A purchases ledger entry in the sales ledger control account is a contra (set-off) of a customer's debt against what we owe him as a supplier.
Sales Ledger Control Account (1986)
Debit side: Jan. 1 Balance b/d ₦1,300; Jan. 31 Sales ₦7,630; Dishonoured Cheques ₦250; Stopped Cheques ₦100; Balance c/d ₦92; Total ₦9,372
Credit side: Jan. 1 Balance b/d ₦86; Bank ₦6,555; Discounts ₦345; Returns ₦130; Purchases Ledger ₦360; Balance c/d ₦1,896; Total ₦9,372
Feb. 1 Balance b/d ₦1,896 (debit); Feb. 1 Balance b/d ₦92 (credit)
The balance of ₦1,896 represents I. The sum required to balance the account II. amount due to the customers III. amount due from the customers.
Answer: E (I and III only)
₦1,896 is the balancing figure (balance c/d) and comes down as a debit, i.e. money customers owe the business.
The balance of the provision for Depreciation Account is shown in the
Answer: B (Trial Balance as a credit)
Provision for depreciation is a credit balance; in the balance sheet it is deducted from the asset's cost.
The concept of Double Entry Book-Keeping states that
Answer: B (for every debit entry there must be a corresponding credit entry)
Double entry: every transaction is recorded twice, a debit in one account and an equal credit in another.
Outstanding rent of ₦300 is paid by the proprietor. The effect on the balance sheet is that
Answer: B (both the liability and asset are decreased)
Paying rent owed reduces the liability (rent owing) and reduces cash, an asset.
Which of the following in a classified form contains a permanent record of all transactions? The
Answer: C (Ledger)
All transactions end up classified into accounts in the ledger, the main book of record.
When a buyer returns damaged goods to the seller, the buyer receives a
Answer: B (credit note)
The seller sends a credit note to show the buyer's account has been reduced for the returns.
Trade discount is
Answer: C (allowance off price list)
Trade discount is a reduction off the list price given to traders; it is not entered in the ledger.
Pending the location of error, the difference disclosed in the Trial Balance is normally posted to
Answer: C (a Suspense Account)
A suspense account holds the trial balance difference until the errors are found and corrected.
Use the following information:
Issued Capital: ₦100,000
Ordinary shares: ₦40,000
Preference shares: ₦30,000
Reserves: ₦10,000
Debentures: ₦60,000
Current Liabilities: ₦150,000
Fixed Assets: ₦90,000
Current Assets: ₦240,000
What is the total of Net Assets of the business?
Answer: B (₦180,000)
Net assets = fixed assets + current assets − current liabilities = 90,000 + 240,000 − 150,000 = ₦180,000.
Use the following information:
Issued Capital: ₦100,000
Ordinary shares: ₦40,000
Preference shares: ₦30,000
Reserves: ₦10,000
Debentures: ₦60,000
Current Liabilities: ₦150,000
Fixed Assets: ₦90,000
Current Assets: ₦240,000
What is the total of the loan capital of the business?
Answer: D (₦60,000)
Loan capital is the long-term borrowing, here the debentures of ₦60,000.
Which of the following is not true of capital expenditure? I. Assets acquired for the purpose of earning income II. Extension of office building III. It is incurred and its full benefits consumed in one period of account.
Answer: E (III only)
Capital expenditure gives benefits over many years; spending used up within one period is revenue expenditure.
Which of the following may cause depreciation? I. wear and tear II. obsolescence and passage of time III. fluctuation in prices.
Answer: B (I and II only)
Depreciation comes from use (wear and tear), going out of date and the passing of time, not from price changes.
A machine cost ₦12,000 and has a useful life of 4 years and an expected disposal value of ₦400. Using the straight line method, the annual depreciation is
Answer: C (₦2,900)
(12,000 − 400) ÷ 4 = ₦2,900 a year.
A machine cost ₦12,000 and has a useful life of 4 years and an expected disposal value of ₦400. The accumulated depreciation at the end of year 3 using the straight line method is
Answer: C (₦8,700)
3 years × ₦2,900 = ₦8,700.
A machine cost ₦12,000 and has a useful life of 4 years and an expected disposal value of ₦400. Using the reducing balance method what will be the depreciation charge for year 2 at 20%? (ignore residual value)
Answer: D (₦1,920)
Year 1: 20% × 12,000 = 2,400, leaving 9,600. Year 2: 20% × 9,600 = ₦1,920.
A machine cost ₦12,000 and has a useful life of 4 years and an expected disposal value of ₦400. Using the reducing balance method, what is the net book value at the end of year 2? (ignore residual value)
Answer: E (₦7,680.)
9,600 − 1,920 = ₦7,680.
Factory cost consists of
Answer: D (direct materials, direct labour, direct expenses and factory overhead)
Factory (production) cost = prime cost (direct materials, labour, expenses) + factory overheads.
Use the Manufacturing and Trading Accounts shown (X marks figures you must work out). What is the total of raw materials consumed?
Answer: D (₦62,000)
10,000 + 60,000 − 8,000 = ₦62,000.
Use the Manufacturing and Trading Accounts shown (X marks figures you must work out). What is the Prime Cost?
Answer: D (₦102,000)
Prime cost = materials 62,000 + direct labour 20,000 + direct expenses 20,000 = ₦102,000.
Use the Manufacturing and Trading Accounts shown (X marks figures you must work out). What is the factory cost of production?
Answer: A (₦114,000)
Prime cost 102,000 + factory overhead 12,000 = ₦114,000.
Use the Manufacturing and Trading Accounts shown (X marks figures you must work out). What is the cost of finished goods Purchased?
Answer: E (₦20,000)
Cost of sales is 132,000, so goods available = 132,000 + closing stock 12,000 = 144,000; purchases = 144,000 − 10,000 − 114,000 = ₦20,000.
Use the Manufacturing and Trading Accounts shown (X marks figures you must work out). What is the net sales for the period?
Answer: C (₦165,000)
Gross profit is 20% of sales, so cost of sales 132,000 is 80% of sales: 132,000 ÷ 0.8 = ₦165,000.
Use the Manufacturing and Trading Accounts shown (X marks figures you must work out). What is Average Stock of finished goods?
Answer: D (₦11,000)
(Opening 10,000 + closing 12,000) ÷ 2 = ₦11,000.
Use the Manufacturing and Trading Accounts shown (X marks figures you must work out). What is the Gross Profit?
Answer: A (₦33,000)
Gross profit = 20% of net sales 165,000 = ₦33,000 (or 165,000 − 132,000).
The term Bad Debt means
Answer: C (debt that can not be collected)
A bad debt is money owed that will never be received, so it is written off.
A subsidiary record is a book
Answer: C (of original entry)
Subsidiary books (day books, journal, cash book) are the books of original (prime) entry.
Section A
The following Trial Balance was extracted from the books of Yisa Aliyu, a sole proprietor as at 31st December, 1987.
Capital: Cr ₦50,000
Cash at Bank: Dr ₦10,820
Leasehold Premises: Dr ₦13,000
Plant and Equipment: Dr ₦11,000
Furniture and Fixtures: Dr ₦6,000
Motor Van: Dr ₦7,000
Stock 1/1/87: Dr ₦3,700
Wages and Salaries: Dr ₦1,800
Debtors and Creditors: Dr ₦850, Cr ₦770
6% Loan: Cr ₦2,000
Purchases and Sales: Dr ₦7,600, Cr ₦10,300
Office Expenses: Dr ₦80
Rent: Dr ₦200
Insurance: Dr ₦40
Discount Allowed and Received: Dr ₦20, Cr ₦40
Drawings: Dr ₦1,000
Totals: Dr ₦63,110, Cr ₦63,110
You are given the following additional information: (a) Stock at 31st December, 1987 was valued ₦8,000 (b) the leasehold premises is for a term of 10 years (c) Depreciation is to be charged as follows: Plant and Equipment 5%; Motor Van 10%; Furniture and Fixtures 2½%. (d) A debt of ₦10 is irrecoverable.
You are required to prepare: (i) Trading, Profit and Loss Account for the year ended 31st December 1987 (ii) The Balance Sheet as at the date.
Yisa Aliyu: Trading, Profit and Loss Account for the year ended 31 December 1987
Sales 10,300; opening stock 3,700 + purchases 7,600 = 11,300 − closing stock 8,000 = cost of sales 3,300
Gross profit = ₦7,000; add discount received 40 = 7,040
Expenses: wages and salaries 1,800; office expenses 80; rent 200; insurance 40; discount allowed 20; bad debt 10; loan interest accrued (6% × 2,000) 120; depreciation: plant 550 (5% × 11,000), motor van 700 (10% × 7,000), furniture 150 (2½% × 6,000); leasehold amortised 1,300 (13,000 ÷ 10); total 4,970
Net profit = ₦2,070
Balance Sheet as at 31 December 1987
Fixed assets (cost − depreciation = NBV): leasehold 13,000 − 1,300 = 11,700; plant 11,000 − 550 = 10,450; furniture 6,000 − 150 = 5,850; motor van 7,000 − 700 = 6,300; total ₦34,300
Current assets: stock 8,000; debtors 850 − 10 = 840; cash at bank 10,820; total 19,660
Current liabilities: creditors 770; loan interest accrued 120; total 890; working capital 18,770
Net assets 34,300 + 18,770 = 53,070; less 6% loan 2,000 = ₦51,070
Financed by: capital 50,000 + net profit 2,070 − drawings 1,000 = ₦51,070
Remember the year's 6% loan interest (₦120) is not in the trial balance, so accrue it.
Section B
Archibong Stores Limited registered with an Authorised Share Capital of ₦500,000, consisting of 500,000 ordinary shares of ₦1 each. The shares were issued and payable on the following terms: (a) ₦0.50 on application (b) ₦0.30 on allotment (c) ₦0.10 on first call and (d) ₦0.10 on final call. All the shares were fully subscribed and paid for. You are required to prepare: (i) Cash Book (ii) Application and Allotment Account (iii) Share Capital Account (iv) First Call Account and (v) Final Call Account.
Workings: application 500,000 × ₦0.50 = 250,000; allotment × ₦0.30 = 150,000; first call × ₦0.10 = 50,000; final call × ₦0.10 = 50,000
(i) Cash Book (Dr): application and allotment 400,000; first call 50,000; final call 50,000; total 500,000 = balance c/d (Cr) ₦500,000
(ii) Application and Allotment Account: Dr share capital 400,000 / Cr cash 400,000 (application 250,000 + allotment 150,000)
(iii) Ordinary Share Capital Account: Cr application and allotment 400,000; first call 50,000; final call 50,000; balance c/d (Dr) ₦500,000
(iv) First Call Account: Dr share capital 50,000 / Cr cash 50,000
(v) Final Call Account: Dr share capital 50,000 / Cr cash 50,000
Each instalment account is debited when the money becomes due (credit share capital) and credited when cash comes in.
The political structure of country 'X' comprises five states A, B, C, D and E and the Federal Government. The following information relate to the revenue for the fiscal year ended 31st December 1986.
Receipts from mineral resources: ₦7,250,000
Receipts from agriculture: ₦669,000
Import duties: ₦1,275,000
Excise duties: ₦500,000
Personal and Company Income Tax: ₦2,652,000
Other Incomes: ₦3,654,000
You are also given the following information: (a) Revenue is shared as follows: 40% to the Federal Government, 10% to each of the states on equal basis, 5% of the total revenue to the Federal Government Consolidated Fund. (b) The population of each state is as follows: A. 500,000 B. 450,000 C. 400,000 D. 350,000 E. 300,000. You are required to compute the: (i) Total revenue for the country (ii) Revenue for the Federal Government. (iii) Revenue for the states collectively and individually.
(i) Total revenue = 7,250,000 + 669,000 + 1,275,000 + 500,000 + 2,652,000 + 3,654,000 = ₦16,000,000
Sharing: Federal 40%, Consolidated Fund 5%, states equally 5 × 10% = 50%; remaining 5% shared among states by population
(ii) Federal Government: 40% × 16,000,000 = 6,400,000 + Consolidated Fund 5% = 800,000; total ₦7,200,000
(iii) States collectively: equal share 8,000,000 + population share 800,000 = ₦8,800,000
Individually (equal 1,600,000 each + population share of 800,000 over total population 2,000,000): A 1,600,000 + 200,000 = 1,800,000; B 1,600,000 + 180,000 = 1,780,000; C 1,600,000 + 160,000 = 1,760,000; D 1,600,000 + 140,000 = 1,740,000; E 1,600,000 + 120,000 = 1,720,000
The 5% left after 40% + 5% + 50% is the part shared by population (₦0.40 per head).
The following balances have been extracted from the books of Willy Billy Limited:
1/1/86 Purchases Ledger Balance CR: ₦11,874
1/1/86 Sales Ledger Balances: ₦19,744
Total for the year 1986:
Purchases Journal: ₦154,652
Sales Journal: ₦199,662
Returns Outwards Journal: ₦2,648
Returns Inwards Journal: ₦4,556
Cheques paid to Suppliers: ₦146,100
Petty Cash paid to suppliers: ₦78
Cheques and Cash received from customers: ₦185,960
Discounts allowed: ₦5,830
Discounts received: ₦2,134
Bad debts written off: ₦394
Customers cheque dishonoured: ₦30
Balance on Sales Ledger set off against balances in Purchases Ledger: ₦1,036
31/12/86 Purchases Ledger: ₦14,530
31/12/86 Sales Ledger: ₦21,658
You are required to prepare the Control Accounts.
Purchases Ledger Control Account
Dr: returns outwards 2,648; bank 146,100; petty cash 78; discounts received 2,134; sales ledger set-off 1,036; balance c/d 14,530; total 166,526
Cr: balance b/d 11,874; credit purchases 154,652; total 166,526 → closing creditors ₦14,530, which agrees with the purchases ledger
Sales Ledger Control Account
Dr: balance b/d 19,744; credit sales 199,662; dishonoured cheque 30; total 219,436
Cr: returns inwards 4,556; cash and cheques 185,960; discounts allowed 5,830; bad debts 394; purchases ledger set-off 1,036; balance c/d 21,660; total 219,436
Closing debtors ₦21,660 (the sales ledger list of ₦21,658 is ₦2 short, so the ledgers should be checked)
Set-offs (contras) appear in both control accounts: credit sales ledger control, debit purchases ledger control.
Kadiri and Bello are trading partners. Their Balance Sheet as at 31st December 1986 when the partnership was dissolved was as follows:
Kadiri and Bello Balance Sheet as at 31/12/86
Capital: Kadiri ₦2,500; Bello ₦2,500
Creditors: ₦2,000
Total: ₦7,000
Furniture: ₦1,000
Stock: ₦3,000
Debtors: ₦2,000
Cash: ₦1,000
Total: ₦7,000
Additional Information: (a) Profits and Losses are shared equally. (b) All the assets (except cash) realised ₦7,500 (c) Creditors were paid off and dissolution expenses of ₦300 were also paid. You are required to prepare: (i) Realisation Account (ii) Cash Book (iii) Partner's Capital Accounts (iv) Creditor Account.
(i) Realisation Account: Dr furniture 1,000, stock 3,000, debtors 2,000, cash (expenses) 300, profit on realisation: Kadiri 600, Bello 600; total 7,500 / Cr cash (assets sold) 7,500
Profit = 7,500 − 6,000 − 300 = 1,200, shared equally
(ii) Cash Book: Dr balance b/d 1,000, realisation 7,500 = 8,500 / Cr realisation expenses 300, creditors 2,000, Kadiri 3,100, Bello 3,100 = 8,500
(iii) Capital Accounts (Kadiri | Bello): Cr balance b/d 2,500 | 2,500, realisation profit 600 | 600 = 3,100 | 3,100 / Dr cash 3,100 | 3,100
(iv) Creditors Account: Dr cash 2,000 / Cr balance b/d 2,000
Cash is not taken to the realisation account; it is used to pay creditors and expenses first, then the partners.
Sule runs two departments for Suya and Tea. The following balances were extracted from his ledgers at 31st December, 1986.
Sales: Suya Cr ₦5,000; Tea Cr ₦4,500
Stocks 1/1/86: Suya (Raw Meat) Dr ₦200; Tea Dr ₦250
Purchases: Raw Meat for suya ₦2,000; Ingredients for suya ₦500; Tea bags ₦1,000; Milk and Sugar for Tea ₦600
Sundry expenses for suya: ₦300
Salaries of Assistants: Suya ₦600; Tea ₦400
Electricity: ₦240
Cleaning: ₦110
General Expenses: ₦200
Debtors: ₦3,100
Totals: Dr ₦9,500, Cr ₦9,500
You are given the following additional information: (a) Stocks at 31st December 1986: Suya (raw meat) ₦50; Tea bags ₦40 (b) Electricity, cleaning and general expenses are apportioned equally between the two departments.
Prepare in departmental form the Suya and Tea Trading and Profit and Loss Accounts for the year ended 31st December, 1986. (Total Column is not required).
Departmental Trading and Profit and Loss Account for the year ended 31 December 1986 (Suya | Tea)
Sales 5,000 | 4,500
Opening stock 200 | 250; purchases: raw meat 2,000 + ingredients 500 | tea bags 1,000 + milk and sugar 600; goods available 2,700 | 1,850
Less closing stock 50 | 40; cost of sales 2,650 | 1,810
Gross profit ₦2,350 | ₦2,690
Expenses: sundry expenses 300 | –; salaries 600 | 400; electricity 120 | 120; cleaning 55 | 55; general expenses 100 | 100; total 1,175 | 675
Net profit ₦1,175 | ₦2,015
(Debtors ₦3,100 is a balance sheet item, not in these accounts.)
Charge each department its own costs directly and split only the shared costs (electricity, cleaning, general) equally.