49 questions. Try each one, then open the answer to check yourself and read the explanation.
In preparing the final accounts, the bad debt account is closed by a transfer to the
Answer: C (profit and loss account)
Bad debts are an expense, so the bad debts account is closed off to the profit and loss account.
Given:
(₦)
Stock (1/4/94) 800
Purchases of flour 2450
Sales 4745
Wages of bakery staff 675
Carriage outwards 50
Salary of administrative staff 225
Stock (31/3/95) 940
Capital 1540
Determine the cost of goods sold
Answer: B (₦2985)
Cost of goods sold = opening stock 800 + purchases 2 450 + bakery (production) wages 675 − closing stock 940 = ₦2 985.
In a petty cash book the imprest is ₦1380
Expenses: (₦)
Stationery 350
Cleaning material 335
General expenses 265
How much was received to maintain the imprest at the end of the month?
Answer: A (₦950)
Under the imprest system the cashier is refunded exactly what was spent: 350 + 335 + 265 = ₦950.
Income Statement for the year ended June 30, 2001
Office rent ₦20,000
NEPA (Light) ₦15,000
Salary of staff ₦120,000
Miscellaneous Expenses ?
Net income ?
Revenue ₦820,000
Miscellaneous expenses is 10% of revenue.
Calculate the net income
Answer: A (₦583,000)
Miscellaneous = 10% × 820 000 = 82 000. Net income = 820 000 − (20 000 + 15 000 + 120 000 + 82 000) = ₦583 000.
An entry in a subsidiary book which does not form part of the double entry system is a
Answer: D (memorandum entry.)
A memorandum entry is made only for information (e.g. trade discount) and is not posted as part of the double entry.
In an incomplete reocrd, the preparation of the bank reconciliation ensures that
Answer: A (all cash takings are banked)
Reconciling the bank statement with the records helps check that the cash takings have actually been paid into the bank.
I. Fixtures account II. Machinery account III Wages account IV. Rent account.
Which of the above are nominal account?
Answer: A (III and IV)
Nominal accounts record expenses and incomes, such as wages and rent; fixtures and machinery are real (asset) accounts.
NAFARA & SONS Balance Sheet items as at 31st December, 1987.
(₦)
Capital 74480
Creditors 15875
Prepaid expenses 580
Motor vehicles 34750
Furniture 35850
Accrued expenses 645
Stock 8100
Cash balances 9911
Debtors 1809
Compute the value of current assets
Answer: A (₦20400)
Current assets = prepaid 580 + stock 8 100 + cash 9 911 + debtors 1 809 = ₦20 400.
Use the information below to answer questions 9 and 10.
The Assets and Liabilities of Udo Co. Ltd. as at 31st December, 2000. (₦)
Creditors 50000
Debtors 46000
Loan 100000
Stock 20000
Motor vehicle 120000
Building 70000
Accrued wages 30000
Bank 25000
The value of capital invested by the owners is
Answer: C (₦101,000)
Assets = 46 000 + 20 000 + 120 000 + 70 000 + 25 000 = 281 000. Liabilities = 50 000 + 100 000 + 30 000 = 180 000. Capital = ₦101 000.
Use the information below to answer questions 9 and 10.
The Assets and Liabilities of Udo Co. Ltd. as at 31st December, 2000. (₦)
Creditors 50000
Debtors 46000
Loan 100000
Stock 20000
Motor vehicle 120000
Building 70000
Accrued wages 30000
Bank 25000
The liabilities of Udo Co. Ltd is
Answer: A (₦180,000)
Liabilities = creditors 50 000 + loan 100 000 + accrued wages 30 000 = ₦180 000.
The normal accounting entry to record the dishonour of a cheque by a businessman is to
Answer: D (credit cash book and debit drawer.)
A dishonoured cheque reverses the receipt: credit the cash book (bank) and debit the drawer, who owes the money again.
Use the information below to answer questions 12 and 13.
Statement of Assets and Liabilities as at 31st December, 2001. (₦m)
Shareholders' interest 240
Current liabilities 20
Current assets 110
Fixed assets 140
What is the net working capital?
Answer: A (₦90m)
Working capital = current assets − current liabilities = 110 − 20 = ₦90m.
Use the information below to answer questions 12 and 13.
Statement of Assets and Liabilities as at 31st December, 2001. (₦m)
Shareholders' interest 240
Current liabilities 20
Current assets 110
Fixed assets 140
Determine the value of the trade investment
Answer: B (₦10m)
Total claims = 240 + 20 = 260. Assets listed = 110 + 140 = 250. The missing asset, trade investment, = ₦10m.
The concise statement used to explain entries in the general journal is known as
Answer: A (narration)
Each journal entry is followed by a short explanation called the narration.
Use the information below to answer questions 15 and 16.
Erero's Trading Account for the month ended 31/05/2001.
Opening Stock ₦45000
Purchases ₦110000, Less returns ₦6000: ₦104000
(₦149000)
Less closing stock ???
Cost of sales ???
Gross profit ???
Total ₦157,000
Sales ₦161000, Less returns ₦4000: ₦157000
The gross profit ratio for the company is 25%.
If the total expenses is ₦20845, what will be the net profit for the company during the month?
Answer: D (₦18405.)
Gross profit = 25% × 157 000 = 39 250. Net profit = 39 250 − 20 845 = ₦18 405.
Use the information below to answer questions 15 and 16.
Erero's Trading Account for the month ended 31/05/2001.
Opening Stock ₦45000
Purchases ₦110000, Less returns ₦6000: ₦104000
(₦149000)
Less closing stock ???
Cost of sales ???
Gross profit ???
Total ₦157,000
Sales ₦161000, Less returns ₦4000: ₦157000
The gross profit ratio for the company is 25%.
The closing stock for this company is
Answer: D (₦31250.)
Cost of sales = 157 000 − 39 250 = 117 750. Closing stock = 149 000 − 117 750 = ₦31 250.
In a departmental accounting system, which of the following expenses will most likely be apportioned on the basis of turnover?
Answer: A (carriage outwards)
Carriage outwards is a selling cost, so it is shared in proportion to each department's sales (turnover).
Use the information below to answer questions 18 and 19.
(₦)
Stock of raw materials (1st January) 3000
Direct wages 2500
Direct expenses 1000
Factory overheads 2000
Cost of raw materials used 5500
Stock of finished goods (31st December) 2000
Determine the prime cost
Answer: C (₦9000)
Prime cost = raw materials used 5 500 + direct wages 2 500 + direct expenses 1 000 = ₦9 000.
Use the information below to answer questions 18 and 19.
(₦)
Stock of raw materials (1st January) 3000
Direct wages 2500
Direct expenses 1000
Factory overheads 2000
Cost of raw materials used 5500
Stock of finished goods (31st December) 2000
The cost of goods manufactured is
Answer: A (₦11000)
Cost of goods manufactured = prime cost 9 000 + factory overheads 2 000 = ₦11 000.
Use the information below to answer questions 21 and 22.
Adex Ltd. issues stock to its retail branches at cost price. The following particulars relate to Ede branch.
(₦)
Stock at branch 1st January at cost 400
Goods sent to branch at cost 8000
Returns to head office 340
Cash sales 9160
Stock at branch 31st December at cost 720
What is the gross profit carried to the profit and loss account?
Answer: A (₦1820)
Cost of sales = 400 + (8 000 − 340) − 720 = 7 340. Gross profit = 9 160 − 7 340 = ₦1 820.
Use the information below to answer questions 21 and 22.
Adex Ltd. issues stock to its retail branches at cost price. The following particulars relate to Ede branch.
(₦)
Stock at branch 1st January at cost 400
Goods sent to branch at cost 8000
Returns to head office 340
Cash sales 9160
Stock at branch 31st December at cost 720
Calculate the cost of goods credited to the head office trading account
Answer: A (₦7660)
Net goods sent to the branch = 8 000 − returns 340 = ₦7 660.
Nasara Manufacturing Plc has three direct labour employees that work 40 hours each a week for 50 weeks a year. Factory overhead costs of ₦60,000 is distributed on the basis of direct labour hours. Compute the overhead rate
Answer: C (₦10 per hour)
Labour hours = 3 × 40 × 50 = 6 000. Rate = 60 000 ÷ 6 000 = ₦10 per hour.
Use the information below to answer questions 24 and 25.
Receipts and Payments Account (Extract)
Receipts (₦): Bal. b/d 4000; Subscription received ?; Donations received 6000; Refreshment sales 10000
Payments (₦): Motor vehicle expenses 12000; Insurance 3000; Ambulance expenses 12500; Electricity 1000; Balance c/d ?
Subscriptions received are always put at 125% of the total donations received and refreshment sales.
What is the closing cash balance?
Answer: A (₦11500)
Subscriptions = 125% × (6 000 + 10 000) = 20 000. Receipts = 4 000 + 20 000 + 6 000 + 10 000 = 40 000. Payments = 28 500. Balance = ₦11 500.
Use the information below to answer questions 24 and 25.
Receipts and Payments Account (Extract)
Receipts (₦): Bal. b/d 4000; Subscription received ?; Donations received 6000; Refreshment sales 10000
Payments (₦): Motor vehicle expenses 12000; Insurance 3000; Ambulance expenses 12500; Electricity 1000; Balance c/d ?
Subscriptions received are always put at 125% of the total donations received and refreshment sales.
Compute the subscriptions received
Answer: D (₦20000.)
125% × (donations 6 000 + refreshment sales 10 000) = 1.25 × 16 000 = ₦20 000.
Use the information below to answer questions 26 and 27.
(₦: Total; Dept. P; Dept. Q)
Sales 10000; 6000; 4000
Purchases 4000; 1000; 3000
Discount received 1000; ?; —
Discounts allowed 2000; —; ?
Discount (allowed and received) are apportioned to the two departments on the basis of departmental sales and purchases.
Department P's share of discount received is
Answer: C (₦250)
Discount received is shared by purchases: P = 1 000/4 000 × 1 000 = ₦250.
Use the information below to answer questions 26 and 27.
(₦: Total; Dept. P; Dept. Q)
Sales 10000; 6000; 4000
Purchases 4000; 1000; 3000
Discount received 1000; ?; —
Discounts allowed 2000; —; ?
Discount (allowed and received) are apportioned to the two departments on the basis of departmental sales and purchases.
What is department Q's share of discount allowed?
Answer: C (₦800)
Discount allowed is shared by sales: Q = 4 000/10 000 × 2 000 = ₦800.
Use the information below to answer questions 28 and 29.
Income and Expenditure Account
Expenditure (₦): Wages 12000; Electricity 5000; Depreciation: furniture 1000; Other expenses ?; Excess of income over expenditure ?; Total 35000
Income (₦): Subscriptions received 20000; Donations received 10000; Profits on sale of investment 5000; Total 35000
It is the tradition of the club to write off an amount equal to 25% of the subscriptions received as other expenses.
What is the amount to be written off as other expenses?
Answer: D (₦5000.)
25% × subscriptions 20 000 = ₦5 000.
Use the information below to answer questions 28 and 29.
Income and Expenditure Account
Expenditure (₦): Wages 12000; Electricity 5000; Depreciation: furniture 1000; Other expenses ?; Excess of income over expenditure ?; Total 35000
Income (₦): Subscriptions received 20000; Donations received 10000; Profits on sale of investment 5000; Total 35000
It is the tradition of the club to write off an amount equal to 25% of the subscriptions received as other expenses.
Determine the club's excess of income over expenditure
Answer: A (₦12000)
Income 35 000 − (12 000 + 5 000 + 1 000 + 5 000) = ₦12 000.
The gross profit on manufactured goods is the difference between the cost of goods manufactured and the
Answer: A (market value of goods produced)
Manufacturing profit compares what it would cost to buy the goods (market value) with what it cost to make them.
Given that ⅓ of the ₦6000 stock held by a branch is purchased from outsiders. If goods are invoiced to branch at 25% on cost, the provision for unrealized profit is
Answer: D (₦800.00.)
Stock from head office = ⅔ × 6 000 = 4 000 at invoice price. Unrealised profit = 4 000 × 25/125 = ₦800.
A.S.D. Club Balance Sheet (Extract)
Accumulated fund ₦6,000; Add surplus income ₦1,000: ₦7,000
Creditors for supplies ₦1,000
Subscriptions advance ₦2,000
Total ₦10,000
Motor van ₦4,000
Stock ₦3,500
Debtors for subscriptions ₦1,000
Bank ₦1,500
Total ₦10,000
The working capital of the club is
Answer: C (₦3000)
Current assets = 3 500 + 1 000 + 1 500 = 6 000. Current liabilities = 1 000 + 2 000 = 3 000. Working capital = ₦3 000.
Costs that vary in proportion to the level of production in a manufaturing environment are known as
Answer: C (direct costs)
Direct costs (materials, direct labour) rise and fall in step with the quantity produced.
A company operating a chain of retail provision stores invoices goods to the branches at cost plus a mark-up of 25%. What is the mark-up percentage on selling price?
Answer: C (20%)
If cost is 100, selling price is 125, so profit as a percentage of selling price = 25/125 = 20%.
Given:
(₦)
Cash purchases 25000
Trade creditors 45000
Opening balance of trade creditors 35000
Calculate the purchases for the period
Answer: B (₦35,000)
Credit purchases = closing creditors 45 000 − opening creditors 35 000 = 10 000 (no payments given). Total purchases = 25 000 + 10 000 = ₦35 000.
Which method of pricing can be used satisfactorily in either a rising or falling price situation?
Answer: D (Average method.)
The average method smooths out price changes, so it gives reasonable values whether prices are rising or falling.
Given:
(₦)
Capital at start 3250
Capital at close 6250
Additional capital during the period 1000
Calculate the profit or loss
Answer: C (₦2000 profit)
Profit = closing capital 6 250 − opening 3 250 − new capital 1 000 = ₦2 000 profit.
In a control account, discount received is found on the
Answer: A (debit side of the purchases ledger control account)
Discount received reduces what we owe suppliers, so it is debited in the purchases ledger control account.
In an incomplete record system, a trading account cannot be prepared until the
Answer: D (amount of sales and purchases has been established.)
A trading account needs sales and purchases figures, which must first be worked out from the incomplete records.
Use the information below to answer questions 40 and 41.
Purchases (Date; Qty. (units); Rate ₦; Total ₦):
January 2nd; 500; 25; 12500
March 7th; 250; 28; 7000
Issues were made as follows (Date; Qty. (units)):
January 9th; 200
February 14th; 200
March 11th; 200
The closing stock on March 11th by LIFO valuation is
Answer: D (₦3900.)
After Jan 9 and Feb 14, 100 units at ₦25 remain. Add 250 at ₦28. LIFO issues 200 at ₦28 on Mar 11, leaving 100 × 25 + 50 × 28 = ₦3 900.
Use the information below to answer questions 40 and 41.
Purchases (Date; Qty. (units); Rate ₦; Total ₦):
January 2nd; 500; 25; 12500
March 7th; 250; 28; 7000
Issues were made as follows (Date; Qty. (units)):
January 9th; 200
February 14th; 200
March 11th; 200
The value of closing stock as at February 14th by simple average method is
Answer: B (₦2500)
Up to February 14 only the January purchase (₦25) exists, so every issue is at ₦25. Units left = 500 − 400 = 100, worth ₦2 500.
Given an incomplete record without sufficient information to determine profit, the necessary thing to do is to
Answer: A (draw up the statement of affairs)
Statements of affairs at the start and end give the capitals, and the change in capital gives the profit.
Control accounts help to verify the arithmetic accuracy of the postings from the
Answer: D (subsidiary books into the ledgers.)
Control account totals come from the books of original entry and are compared with the ledger balances, checking postings into the ledgers.
Keeping records under the single entry system has the advantage of
Answer: D (simplicity in terms of operation.)
Single entry is simple and cheap to keep, though it is incomplete and less accurate.
Given:
(₦)
Sales 195,200
Stock 1st January 34,000
Purchases 126,000
Sales returns 1,200
Purchases returns 2,000
If the gross profit is ₦66,000, what is the value of stock at 31st December?
Answer: A (₦30,000)
Net sales = 194 000, so cost of sales = 194 000 − 66 000 = 128 000. Goods available = 34 000 + 124 000 = 158 000. Closing stock = ₦30 000.
Given:
(₦m)
Balance at 31st December 14,744
Treasury Bills issued Jan-Dec 7124
Revenue for the year 6387
Expenditure 8767
What is the opening balance on the consolidated revenue fund account?
Answer: A (₦10,000m)
Opening = closing 14 744 − treasury bills 7 124 − revenue 6 387 + expenditure 8 767 = ₦10 000m.
Use the information below to answer questions 47 and 48.
The partnership agreement between Abba, Baba and Kaka contains the following provisions:
(i) 5% interest to be paid on capital and no interest to be charged on drawings
(ii) Profits and losses to be shared in the ratio 3:2:1 respectively
(iii) Net profit as at 31/12/95 ₦2,250.
(₦: Abba; Baba; Kaka)
Capital 5000; 4000; 3000
Current account 250; 100; 175
Salary 300; 300; —
Drawings 600; 500; 250
Abba's capital balance at the end of the year will be
Answer: D (₦5000.)
With current accounts kept, interest, salary, profit share and drawings go to the current account, so Abba's capital stays at ₦5 000.
Use the information below to answer questions 47 and 48.
The partnership agreement between Abba, Baba and Kaka contains the following provisions:
(i) 5% interest to be paid on capital and no interest to be charged on drawings
(ii) Profits and losses to be shared in the ratio 3:2:1 respectively
(iii) Net profit as at 31/12/95 ₦2,250.
(₦: Abba; Baba; Kaka)
Capital 5000; 4000; 3000
Current account 250; 100; 175
Salary 300; 300; —
Drawings 600; 500; 250
Current account balance of Kaka at the end of the year will be
Answer: A (₦250)
Interest (5%) = 250 + 200 + 150 = 600; salaries = 600; residue = 2 250 − 1 200 = 1 050, Kaka's ⅙ = 175. Kaka: 175 + 150 + 175 − drawings 250 = ₦250.
Upon the dissolution of a partnership, the Partnership Act provides that the amount realized should be
Answer: D (used in paying the debts and liabilities of the firm to persons who are not partners.)
On dissolution, money realised is first used to pay outside creditors, then partners' loans and capital.
In the public sector, the method of accounting that reports revenues and expenditures in the period in which they are received and paid is called
Answer: C (cash accounting)
Cash accounting records items only when cash is received or paid.