53 questions. Try each one, then open the answer to check yourself and read the explanation.
Prof. Bush who had two accounts with Olive Brother agreed to have only one balance outstanding. By which of the following methods could this be effected?
Answer: E (Contra entry.)
Setting one balance off against the other (he is both a debtor and a creditor) is a contra entry.
A trial balance is a proof of
Answer: A (arithmetical accuracy of postings only)
A trial balance only shows that debits equal credits; errors such as omission or principle can still be hidden.
Sales Ledger Control Account
Debit side: Balance b/d ?; Sales ₦21,610; Acceptance dishonoured ₦542; Total ₦34,742
Credit side: Discount Allowed ₦968; Sales Returns ₦942; Cash received from customers ?; Balance c/d ₦13,740; Total ₦34,742
What is the total debts at the end of the year?
Answer: B (₦13,740)
Debts at the end are the closing balance c/d, ₦13,740.
Sales Ledger Control Account
Debit side: Balance b/d ?; Sales ₦21,610; Acceptance dishonoured ₦542; Total ₦34,742
Credit side: Discount Allowed ₦968; Sales Returns ₦942; Cash received from customers ?; Balance c/d ₦13,740; Total ₦34,742
What is the net sales for the year?
Answer: C (₦20,668)
Net sales = 21,610 − returns 942 = ₦20,668.
Sales Ledger Control Account
Debit side: Balance b/d ?; Sales ₦21,610; Acceptance dishonoured ₦542; Total ₦34,742
Credit side: Discount Allowed ₦968; Sales Returns ₦942; Cash received from customers ?; Balance c/d ₦13,740; Total ₦34,742
What is the total cash received from customers?
Answer: A (₦19,092)
Cash = 34,742 − 968 − 942 − 13,740 = ₦19,092.
Sales Ledger Control Account
Debit side: Balance b/d ?; Sales ₦21,610; Acceptance dishonoured ₦542; Total ₦34,742
Credit side: Discount Allowed ₦968; Sales Returns ₦942; Cash received from customers ?; Balance c/d ₦13,740; Total ₦34,742
What is the total debts at the beginning of the year?
Answer: A (₦12,590)
Opening balance = 34,742 − 21,610 − 542 = ₦12,590.
Which of the following is not true of revenue expenditure? I. It is incurred in one period of account, II. Its full benefits are consumed in the period incurred; III. It includes items for replacement and repairs; IV. It does not include depreciation.
Answer: E (IV only.)
Depreciation is a revenue expense charged to profit and loss, so statement IV is false.
Which of the following does not belong to the group?
Answer: B (Insurance policy)
The others are depreciation terms or methods; an insurance policy is not.
Use the following information extracted from TOM's books:
Stock at 1st January 1901: ₦6,500
Stock at 31st December 1901: ₦5,500
Creditors at 1st January 1901: ₦4,000
Creditors at 31st December 1901: ₦5,000
Cash paid for goods during the year: ₦20,000
Gross Profit: 25% on cost.
Administrative and selling expenses: ₦2,750
The purchases for the year is
Answer: B (₦21,000)
Purchases = cash paid 20,000 + closing creditors 5,000 − opening creditors 4,000 = ₦21,000.
Use the following information extracted from TOM's books:
Stock at 1st January 1901: ₦6,500
Stock at 31st December 1901: ₦5,500
Creditors at 1st January 1901: ₦4,000
Creditors at 31st December 1901: ₦5,000
Cash paid for goods during the year: ₦20,000
Gross Profit: 25% on cost.
Administrative and selling expenses: ₦2,750
The gross profit for the year is
Answer: D (₦5,500)
Cost of sales = 6,500 + 21,000 − 5,500 = 22,000; gross profit = 25% × 22,000 = ₦5,500.
Use the following information extracted from TOM's books:
Stock at 1st January 1901: ₦6,500
Stock at 31st December 1901: ₦5,500
Creditors at 1st January 1901: ₦4,000
Creditors at 31st December 1901: ₦5,000
Cash paid for goods during the year: ₦20,000
Gross Profit: 25% on cost.
Administrative and selling expenses: ₦2,750
What is the turn-over for the year?
Answer: A (₦27,500)
Sales = cost of sales 22,000 + gross profit 5,500 = ₦27,500.
Use the following information extracted from TOM's books:
Stock at 1st January 1901: ₦6,500
Stock at 31st December 1901: ₦5,500
Creditors at 1st January 1901: ₦4,000
Creditors at 31st December 1901: ₦5,000
Cash paid for goods during the year: ₦20,000
Gross Profit: 25% on cost.
Administrative and selling expenses: ₦2,750
Calculate the percentage of net profit on sales
Answer: E (10%.)
Net profit = 5,500 − 2,750 = 2,750; 2,750 ÷ 27,500 × 100 = 10%.
Use the following information extracted from TOM's books:
Stock at 1st January 1901: ₦6,500
Stock at 31st December 1901: ₦5,500
Creditors at 1st January 1901: ₦4,000
Creditors at 31st December 1901: ₦5,000
Cash paid for goods during the year: ₦20,000
Gross Profit: 25% on cost.
Administrative and selling expenses: ₦2,750
What is the amount charged in the Profit and Loss Account?
Answer: E (₦2,750.)
The only expense charged in profit and loss is administrative and selling expenses, ₦2,750.
The equivalent of a club's profit and loss account is prepared as
Answer: D (Income and Expenditure Account)
A club's income and expenditure account works like a profit and loss account, giving a surplus or deficit.
A suspense account is used for error of
Answer: B (items that have not yet been located for lack of sufficient data)
The suspense account holds a difference until the errors causing it are found.
Abid and Onik were in partnership sharing profit in the ratio 3:2. Their respective capitals were ₦4,000 and ₦2,000 and their drawings ₦1,800 and ₦1,200. Profit during the year was ₦5,400; before 5% interest on capital. No interest was chargeable on drawings.
What was Onik's share of the profit for the year?
Answer: C (₦2,040)
Interest on capital: Abid 200, Onik 100; residue 5,400 − 300 = 5,100; Onik gets 2/5 = ₦2,040.
Abid and Onik were in partnership sharing profit in the ratio 3:2. Their respective capitals were ₦4,000 and ₦2,000 and their drawings ₦1,800 and ₦1,200. Profit during the year was ₦5,400; before 5% interest on capital. No interest was chargeable on drawings.
What was Abid's share of the profit?
Answer: B (₦3,060)
Abid gets 3/5 of the residue 5,100 = ₦3,060.
Abid and Onik were in partnership sharing profit in the ratio 3:2. Their respective capitals were ₦4,000 and ₦2,000 and their drawings ₦1,800 and ₦1,200. Profit during the year was ₦5,400; before 5% interest on capital. No interest was chargeable on drawings.
What was the balance carried down on Abid's current account?
Answer: B (₦1,460)
Interest 200 + share of profit 3,060 − drawings 1,800 = ₦1,460.
Abid and Onik were in partnership sharing profit in the ratio 3:2. Their respective capitals were ₦4,000 and ₦2,000 and their drawings ₦1,800 and ₦1,200. Profit during the year was ₦5,400; before 5% interest on capital. No interest was chargeable on drawings.
What was the balance carried down on Onik's current account?
Answer: A (₦940)
Interest 100 + share of profit 2,040 − drawings 1,200 = ₦940.
Which of the following errors affects the Trial Balance?
Answer: E (Lone Entry.)
A single (one-sided) entry leaves debits and credits unequal; the other errors keep the trial balance in agreement.
The Trial Balance will show returns outwards account ₦60, discount allowed account ₦100, respectively as
Answer: B (₦60 credit; ₦100 debit)
Returns outwards reduce purchases (credit balance); discount allowed is an expense (debit balance).
Which of the following is true of the uses of the, Journal Proper? I. Correction of errors II. Opening and closing the accounting books III. Recording cash purchases
Answer: D (I and II only.)
The journal proper records corrections, opening and closing entries; cash purchases go through the cash book.
The principle of double entry book-keeping is that
Answer: C (for every debit there must be a corresponding credit)
Each debit entry has an equal credit entry in another account.
The Sales Day Book will show goods sold
Answer: C (on credit)
Only credit sales are listed in the sales day book; cash sales go in the cash book.
A credit note from a supplier for damaged goods would first be entered in the
Answer: E (Returns outwards book.)
Goods we send back to a supplier are returns outwards, recorded first in the returns outwards book.
The purchase of a typewriter for office use for ₦2,500 should be debited to
Answer: E (assets account.)
A typewriter for office use is a fixed asset, not goods for resale, so it is debited to an asset account.
Which of these entries is wrong?
Purchases Account
Debit: A. Balance b/f ₦130; B. Furniture ₦300; C. Cash ₦200; D. T. Ramoni ₦400; Total ₦1,030
Credit: E. Balance c/d ₦1,030; Total ₦1,030
Answer: B (Furniture)
Furniture is a fixed asset and belongs in the furniture account, not the purchases account.
An overdraft is usually shown as a
Answer: D (credit balance in the bank column of the cash book)
An overdraft means money is owed to the bank, so the bank column has a credit balance.
Cash discount received would be shown in the I. Cash Book II. Discount Received Account III. Supplier's Account
Answer: B (I, II and III)
It is noted in the discount column of the cash book, then posted to the supplier's account (debit) and discount received account (credit).
The balance of the Petty Cash Book should be
Answer: B (shown in the Balance Sheet as cash-in-hand)
Petty cash left is cash the business holds, a current asset.
Which of the following should be included in the adjusted cash book?
Answer: A (Bank charges and commission)
Bank charges appear first on the bank statement, so the cash book must be updated with them.
Which of the following belongs to the Nominal Ledger?
Answer: C (Salaries Account)
The nominal ledger holds income and expense accounts such as salaries.
Which of the following will not affect the agreement of the Trial Balance? I. Compensating error II. Debiting an item instead of crediting it III. Making only a single entry
Answer: A (I only)
Compensating errors cancel out; posting to the wrong side or making one entry leaves the totals unequal.
A balance of ₦102 on wages account was transferred as ₦120. This is error of
Answer: A (transposition)
The digits 0 and 2 were swapped (102 → 120): a transposition error.
Carriage inwards is shown on the
Answer: C (debit side of the Trading Account)
Carriage inwards adds to the cost of goods bought, so it is debited in the trading account.
Stock is ₦200 at start, and ₦320 at close. Purchases ₦2,055 and Sales ₦3,186. Find the cost of goods sold
Answer: E (₦1,935.)
200 + 2,055 − 320 = ₦1,935.
Stock is ₦200 at start, and ₦320 at close. Purchases ₦2,055 and Sales ₦3,186. The value of goods available for sale will be
Answer: B (₦2,255)
Opening stock 200 + purchases 2,055 = ₦2,255.
The salary of a shopkeeper who sells goods would be charged in the
Answer: C (Profit and Loss account)
Salaries of selling staff are selling expenses, charged in the profit and loss account.
Commission received is entered on the
Answer: A (credit side of the Profit and Loss Account)
Commission received is extra income, credited in the profit and loss account.
The balance of the Sales Account is transferred to the Trading Account by
Answer: C (debiting the Sales Account)
The sales account (credit balance) is closed by debiting it and crediting the trading account.
Date of delivery: 4/1/86; Customer: Mr. A.F.P.; Gross Amount: ₦12,000; Trade Discount: 15%; Cash Discount: 10%; Terms of Payment: 30 days of delivery
The amount of discount in the ledger is
Answer: E (₦1,020)
Trade discount (₦1,800) is never entered in the ledger; only the cash discount, 10% of the net 10,200 = ₦1,020, is.
Date of delivery: 4/1/86; Customer: Mr. A.F.P.; Gross Amount: ₦12,000; Trade Discount: 15%; Cash Discount: 10%; Terms of Payment: 30 days of delivery
If Mr. A.F.P. settled his account a week after delivery, his total discount would be
Answer: B (₦2,820)
Trade discount 15% × 12,000 = 1,800; cash discount 10% × 10,200 = 1,020; total ₦2,820.
Date of delivery: 4/1/86; Customer: Mr. A.F.P.; Gross Amount: ₦12,000; Trade Discount: 15%; Cash Discount: 10%; Terms of Payment: 30 days of delivery
If Mr. A.F.P. failed to settle his account in time, the amount due from him would be
Answer: D (₦10,200)
He loses the cash discount but keeps the trade discount: 12,000 − 1,800 = ₦10,200.
What are the entries of posting credit purchases into the Purchases Ledger Control Acount?
Answer: E (Debit Purchases Account, credit Purchases Ledger Control Account.)
Credit purchases increase what we owe suppliers: debit purchases, credit the purchases ledger control account.
When precision for depreciation account is maintained, the annual charge for depreciation shall be
Answer: C (debited to Profit and Loss Account and credited to the Provision Account)
With a provision account the asset stays at cost; each year's charge is debited to profit and loss and credited to the provision.
The straight-line depreciation is
Answer: E (a fixed percentage of the cost of the asset written off each year.)
Straight line charges the same percentage of cost (the same amount) every year.
A motor car costing ₦10,000 was depreciated at 20 per cent per annum by the diminishing balance method. Two years later, it was sold for ₦6,000. The net result of the sale was
Answer: E (₦400 loss.)
Year 1: 2,000 → 8,000; year 2: 1,600 → book value 6,400. Sold for 6,000, so a loss of ₦400.
Section A
Yahaya Usman is a sole trader, the business Trial Balance as at 31st December, 1986 is given below
Stock 1/1/1986: Dr ₦3,406
Capital Account: Cr ₦22,000
Motor Vehicles: Dr ₦3,000
Purchases: Dr ₦36,367
Sales: Cr ₦46,003
Provision for Bad Debts: Cr ₦81
Debtors: Dr ₦5,278
Drawings: Dr ₦1,500
Creditors: Cr ₦5,800
Freehold Premises: Dr ₦8,250
Cash: Dr ₦4,763
Insurance: Dr ₦711
Returns Inwards: Dr ₦314
Returns Outwards: Cr ₦511
Discount Allowed: Dr ₦342
Discount Received: Cr ₦509
Interest on Deposit Account: Cr ₦537
Carriage Inwards: Dr ₦118
Salesmen Salaries and Commission: Dr ₦1,228
Wages: Dr ₦1,601
Transport Expenses: Dr ₦130
General Expenses: Dr ₦1,506
Office Salaries: Dr ₦2,500
Furniture and Fittings: Dr ₦1,000
Tenement Rate: Dr ₦212
Advertisement: Dr ₦1,421
Bank Deposit: Dr ₦1,800
Totals: ₦75,441, ₦75,441
You are given the following additional information: (a) The stock in hand on 31st December, 1986 was ₦4,318. (b) Insurance of ₦130 was outstanding (c) An employee took a salary advance of ₦110 (d) The provision for bad debts should be increased to ₦255. (e) Depreciation: (i) Motor Vehicle ₦450 (ii) Furniture and fittings 10% per annum. You are required to prepare: (i) Trading Profit and Loss Accounts for the year ended 31st December 1986 (ii) The Balance Sheet as at that date.
Trading, Profit and Loss Account for the year ended 31 December 1986
Sales 46,003 − returns inwards 314 = net sales 45,689
Opening stock 3,406; purchases 36,367 − returns outwards 511 + carriage inwards 118 = 35,974; wages 1,601; goods available 40,981; less closing stock 4,318; cost of sales 36,663
Gross profit = ₦9,026; add discount received 509 and interest on deposit 537 = 10,072
Expenses: increase in bad debts provision (255 − 81) 174; insurance (711 + 130) 841; discount allowed 342; salesmen salaries and commission 1,228; transport 130; general expenses 1,506; tenement rate 212; office salaries (2,500 − 110 advance) 2,390; advertisement 1,421; depreciation: motor vehicle 450, furniture (10% × 1,000) 100; total 8,794
Net profit = ₦1,278
Balance Sheet as at 31 December 1986
Fixed assets: freehold premises 8,250; furniture 1,000 − 100 = 900; motor vehicle 3,000 − 450 = 2,550; total 11,700
Current assets: stock 4,318; debtors 5,278 − 255 = 5,023; salary advance (prepaid) 110; bank deposit 1,800; cash 4,763; total 16,014
Total assets ₦27,714
Capital 22,000 + net profit 1,278 − drawings 1,500 = 21,778; current liabilities: creditors 5,806 (see note) + insurance accrued 130 = 5,936; total ₦27,714
The salary advance is not this year's expense: take it off office salaries and show it as a current asset.
Section B (Answer any three questions)
Below is an extract of the Bank Statement of Messrs Jackson & Co. for April, 1987
Date | Details | Debit ₦ | Credit ₦ | Balance ₦
1/4/87 | Balance | | | 176,000 Cr
4/4/87 | Dasco Engineering | | 40,000 | 216,000 Cr
5/4/87 | Adeboya Builders | | 60,000 | 276,000 Cr
7/4/87 | Bisi Motors Cheque 011201 | 32,000 | | 244,000 Cr
9/4/87 | Jide Foods–Cheque 011202 | 57,000 | | 187,000 Cr
13/4/87 | Okin Oloja & Co. Cheque 011204 | 32,800 | | 154,200 Cr
14/4/87 | Bank charges | 7,280 | | 146,920 Cr
15/4/87 | Interest on Fixed Deposit | | 4,000 | 150,920 Cr
16/4/87 | Tolu Adeola & Co. cheque 011205 | 8,000 | | 142,920 Cr
30/4/87 | Kingsway Stores Cheque 011206 | 19,200 | | 123,720 Cr
You are given the following additional information: (a) Cheque No 011203 issued in favour of Tayo Ajao and Associates for ₦24,000 was presented to the Bank on 2nd May, 1987. (b) Advice in respect of Bank charges was received by Messrs Jackson & Co. on 6th May, 1987. (c) Cheque issued in favour of Jide Foods is for supplies to the Directors.
You are required to prepare: (i) The Cash Book of Messrs Jackson & Co. for April 1987 and (ii) A Bank Reconciliation Statement as at 30th April, 1987.
(i) Cash Book (bank column), April 1987
Dr: balance b/d 176,000; Dasco Engineering 40,000; Adeboya Builders 60,000; total 276,000
Cr: Bisi Motors 32,000; Jide Foods (directors' supplies, drawings) 57,000; Tayo Ajao and Associates 24,000; Okin Oloja 32,800; Tolu Adeola 8,000; Kingsway Stores 19,200; balance c/d 103,000
Updating the cash book: balance 103,000 + interest on fixed deposit 4,000 − bank charges 7,280 = adjusted balance ₦99,720
(ii) Bank Reconciliation Statement as at 30 April 1987: balance per adjusted cash book 99,720; add unpresented cheque 011203 (Tayo Ajao) 24,000; balance per bank statement ₦123,720
Items that are on the bank statement but not yet in the cash book (charges, interest) are put into the cash book; timing items go in the reconciliation.
The following is the Statement of Affairs of Chukwuemeka's Enterprises as at 1st January 1986.
Creditors ₦2,000; Bills payable ₦600; Capital ₦3,000; Total ₦5,600
Plant and Equipment ₦3,000; Stock ₦1,000; Debtors ₦500; Bills Receivable ₦1,000; Cash ₦100; Total ₦5,600
On 31st December, 1986, the following were the ledger balances: Creditors ₦1,500; Plant and Equipment ₦2,500; Debtors ₦1,000; Bills payable ₦800; Stock ₦500; Bills receivable ₦700; Cash ₦10.
His drawings during the period amounted to ₦800. Prepare statement to show the closing capital and net profit.
Statement of Affairs as at 31 December 1986
Assets: plant and equipment 2,500; stock 500; debtors 1,000; bills receivable 700; cash 10; total 4,710
Less liabilities: creditors 1,500; bills payable 800; total 2,300
Closing capital = ₦2,410
Statement of profit for 1986: closing capital 2,410 + drawings 800 = 3,210 − opening capital 3,000 = net profit ₦210
Profit = closing capital + drawings − opening capital (+ any new capital).
ABC (Nig.) Ltd issued 200,000 ordinary shares of ₦1.00 each at ₦1.20 per share payable as follows: (a) 25k per share on application (b) 40k per share on allotment (including the premium). (c) 35k per share on first call (d) 20k per share on second and final call. Required: Show the ledger accounts to record the above information.
Workings: application 200,000 × 25k = 50,000; allotment × 40k = 80,000 (share capital 40,000 + share premium 40,000 at 20k); first call × 35k = 70,000; final call × 20k = 40,000
Cash (Bank) Account: Dr application 50,000; allotment 80,000; first call 70,000; second and final call 40,000; total ₦240,000 (balance c/d)
Application Account: Dr ordinary share capital 50,000 / Cr bank 50,000
Allotment Account: Dr share capital 40,000, share premium 40,000 / Cr bank 80,000
First Call Account: Dr share capital 70,000 / Cr bank 70,000
Second and Final Call Account: Dr share capital 40,000 / Cr bank 40,000
Ordinary Share Capital Account: Cr application 50,000, allotment 40,000, first call 70,000, final call 40,000; balance ₦200,000
Share Premium Account: Cr allotment ₦40,000
The premium (20k × 200,000 = ₦40,000) is collected with allotment and goes to share premium, not share capital.
Give a brief description of five of the responsibilities of the following institutions: (a) The Board of Inland Revenue (b) The Board of Custom and Excise (c) The Accountant – General.
(a) Board of Inland Revenue (any five): administers and directs internal revenue (income tax) collection; assesses individuals, partnerships, trustees, companies and communities for tax; collects personal income tax, PAYE, capital gains tax and similar taxes; keeps tax assessment uniform; issues tax clearance and advises government on tax policy; prosecutes tax offenders
(b) Board of Customs and Excise (any five): collects import and export duties at ports and borders; collects excise duty on goods made and sold within the country; carries out government policy on imports and exports (prohibited goods, tariffs); prevents smuggling and prosecutes smugglers; seizes and disposes of contraband and uncleared goods; seals factories that fail to pay excise duty
(c) Accountant-General (any five): chief accounting officer of the government; keeps the government's main accounts and the Consolidated Revenue Fund; makes accounting rules and regulations (financial instructions) for ministries; supervises the accounts of all ministries and departments; prepares the annual financial statements for audit; controls payments, government funds and accounting staff; manages government bank accounts and investments
Give five clear points for each of the three bodies: fifteen points in all.
The following information was extracted from the books of Egbeyemi Club of Aiyetoro, for the year ended 31st December, 1986.
Receipts: Subscription ₦6,900; Donations ₦9,600; Interest Received ₦240
Payments: Salaries ₦2,250; Scholarship ₦2,220; Drugs for the handicapped ₦2,070; Printing and stationery ₦510; Office Furniture ₦3,090; Investments ₦4,500
Totals: ₦14,640, ₦14,640
You are also informed as follows: (a) Subscriptions outstanding with members ₦300 (b) Accrued expenses: (i) Salaries ₦300 (ii) Scholarship ₦960 (iii) Drugs ₦180 (iv) Printing and Stationery ₦240
You are required to prepare for the Club (a) Income and Expenditure Accounts, and (b) Balance Sheet as at 31st December, 1985.
Income and Expenditure Account for the year ended 31 December 1986
Income: subscriptions 6,900 + 300 = 7,200; donations 9,600; interest 240; total 17,040
Expenditure: salaries 2,250 + 300 = 2,550; scholarship 2,220 + 960 = 3,180; drugs 2,070 + 180 = 2,250; printing and stationery 510 + 240 = 750; total 8,730
Surplus of income over expenditure = ₦8,310
Balance Sheet as at 31 December 1986
Fixed assets: office furniture 3,090; investments 4,500
Current assets: subscriptions in arrears 300; cash/bank (receipts 16,740 − payments 14,640) 2,100
Total assets ₦9,990
Current liabilities (accrued): salaries 300, scholarship 960, drugs 180, printing 240 = 1,680
Accumulated fund (surplus) ₦8,310; 8,310 + 1,680 = ₦9,990
Furniture and investments are capital items for the balance sheet, not expenditure.