45 questions. Try each one, then open the answer to check yourself and read the explanation.
The accounting principle that is applied to check arbitrary actions on the part of accountants is
Answer: A (consistency)
The consistency concept stops accountants from changing methods (for example of depreciation or stock valuation) from year to year at will, so results stay comparable.
The loss of equipment in a fire disaster results in
Answer: C (a decrease in assets and capital)
The equipment (an asset) is gone and the loss reduces the owner's capital, so both assets and capital fall.
The rule of accounting equation requires that account payable should be placed under
Answer: A (liabilities)
Accounts payable are amounts owed to suppliers, so in Assets = Capital + Liabilities they are liabilities.
Use the information below to answer questions 5 and 6.
Cash Book
Dr: Capital ₦6,600; Sales ₦3,000; Debtors ₦2,500
Cr: Purchases ₦3,500; Stationery ₦1,300; Wages ₦2,700
The owner wishes to maintain an amount equal to ⅓ of capital as drawings.
The amount withdrawn is
Answer: B (₦2,200)
Drawings = ⅓ × capital = ⅓ × ₦6,600 = ₦2,200.
Use the information below to answer questions 5 and 6.
Cash Book
Dr: Capital ₦6,600; Sales ₦3,000; Debtors ₦2,500
Cr: Purchases ₦3,500; Stationery ₦1,300; Wages ₦2,700
The owner wishes to maintain an amount equal to ⅓ of capital as drawings.
The cash book closing balance will be
Answer: B (₦2,400)
Receipts = 6,600 + 3,000 + 2,500 = ₦12,100. Payments = 3,500 + 1,300 + 2,700 + drawings 2,200 = ₦9,700. Balance = 12,100 − 9,700 = ₦2,400.
A debit in the suspense account will appear in the balance sheet as
Answer: A (a current asset)
A debit balance is shown with the assets; a suspense debit is shown under current assets until the error is found.
The recipient whose name appears on a cheque is called a
Answer: D (payee)
The payee is the person named on the cheque to receive the money; the drawer writes it and the drawee is the bank.
The imprest account is subsidiary to the
Answer: C (cash book)
The imprest (petty cash) book is a subsidiary of the main cash book, which reimburses the float spent.
The three-column cash book differs from the two-column cash book in
Answer: B (discount column)
A two-column cash book has cash and bank columns; the three-column one adds a discount column.
Zakari started a business in January 2000. He bought a shop costing ₦54,000 and stock worth ₦7,600. Profit for the year amounted to ₦22,100. His closing capital was ₦73,800. Zakari's personal drawings amounted to
Answer: B (₦9,900)
Opening capital = 54,000 + 7,600 = ₦61,600. Closing capital = opening + profit − drawings, so drawings = 61,600 + 22,100 − 73,800 = ₦9,900.
The balance on the provision for depreciation account is
Answer: B (deducted from fixed assets on the balance sheet)
Accumulated depreciation is subtracted from the cost of the fixed asset on the balance sheet to give its net book value.
Given:
Rates paid during the year amounted to ₦2,250 at ₦125 per month and ₦1,035 was paid for electricity in the same period at ₦115 per month.
Determine the amount of prepaid rates
Answer: B (₦750)
Rates due for the year = 12 × ₦125 = ₦1,500. Paid ₦2,250, so prepaid = 2,250 − 1,500 = ₦750.
Use the information below to answer questions 14 and 15.
Date | Receipt (Units) | Issued (Units)
May 2 | 80 @ ₦3.00 | —
May 10 | 50 @ ₦3.20 | —
May 17 | — | 20
May 25 | — | 60
May 31 | 20 @ ₦2.90 | —
What is the value of raw materials issued on May 17th based on the LIFO method?
Answer: D (₦64)
Under LIFO the 20 units come from the latest receipt before 17 May (May 10 at ₦3.20): 20 × 3.20 = ₦64.
Use the information below to answer questions 14 and 15.
Date | Receipt (Units) | Issued (Units)
May 2 | 80 @ ₦3.00 | —
May 10 | 50 @ ₦3.20 | —
May 17 | — | 20
May 25 | — | 60
May 31 | 20 @ ₦2.90 | —
Based on the FIFO method of valuation, the total cost of the raw materials issued is
Answer: C (₦240)
80 units are issued (20 + 60). Under FIFO they all come from the first batch of 80 at ₦3.00: 80 × 3 = ₦240.
Where closing stock is undervalued, the effect is
Answer: B (a decrease in gross profit)
Lower closing stock raises cost of sales, so gross profit falls.
Use the information below to answer questions 17 and 18.
Opening balance ₦10,640
Purchases ₦26,912
Returns inwards ₦492
Returns outwards ₦810
Cash discount received ₦1,348
Cash discount allowed ₦1,560
Cash paid to suppliers ₦20,808
At the year end, the purchases ledger showed a debit balance of ₦108.
The total on the debit side of the purchases ledger control account will be
Answer: A (₦22,966)
Debit entries are returns outwards 810 + discount received 1,348 + cash paid 20,808 = ₦22,966 (before the closing balance). Returns inwards and discount allowed belong to the sales ledger.
Use the information below to answer questions 17 and 18.
Opening balance ₦10,640
Purchases ₦26,912
Returns inwards ₦492
Returns outwards ₦810
Cash discount received ₦1,348
Cash discount allowed ₦1,560
Cash paid to suppliers ₦20,808
At the year end, the purchases ledger showed a debit balance of ₦108.
The balancing figure in the purchases ledger control account is
Answer: D (₦14,694)
Credit side: 10,640 + 26,912 + debit balance c/d 108 = ₦37,660. Debit side before balancing: ₦22,966. Closing credit balance = 37,660 − 22,966 = ₦14,694.
In a sales ledger, contra entry is found on the
Answer: C (credit side of the debtors' control account)
A contra sets off a debtor's balance against what we owe him: debit creditors' control, credit debtors' (sales ledger) control.
The beginning and ending accounts receivable balances were ₦20,000 and ₦30,000 respectively. The collection from customers during the period was ₦70,000. What was the total sale on account?
Answer: C (₦80,000)
Credit sales = cash collected + closing debtors − opening debtors = 70,000 + 30,000 − 20,000 = ₦80,000.
Given:
General expenses account (₦)
Paid by cheque 671
Paid by cash 70
Accrued b/f 65
Accrued c/f 115
Determine how much to be charged to profit and loss account.
Answer: C (₦791)
Charge = payments (671 + 70) − accrued b/f 65 + accrued c/f 115 = ₦791.
In converting single entry to final account, the balancing figures on the income and expenses accounts are transferred to the
Answer: D (profit and loss account)
The figures worked out for each income and expense account are the amounts for the year, and they go to the profit and loss account.
Use the information below.
Beginning inventory ?
Purchases ?
Ending inventory ₦4,800
Sales ₦12,800
Wages ₦1,040
Gross profit ₦5,900
The beginning inventory was estimated at 80% of sales.
Determine the amount for the beginning inventory.
Answer: B (₦10,240)
Beginning inventory = 80% × ₦12,800 = ₦10,240.
Cost classification in relation to charges is determined by the level of
Answer: C (activity)
Costs are classed as fixed, variable or semi-variable according to how they change with the level of activity (output).
Use the information below to answer questions 26 and 27.
Materials consumed ₦16,600
Direct cost ₦5,400
Factory rent ₦2,300
Factory lighting ₦1,200
Cost of production to be transferred at cost plus 20% mark-up.
The gross profit on manufacture is
Answer: C (₦5,100)
Cost of production = 16,600 + 5,400 + 2,300 + 1,200 = ₦25,500. Profit on manufacture = 20% × 25,500 = ₦5,100.
Use the information below to answer questions 26 and 27.
Materials consumed ₦16,600
Direct cost ₦5,400
Factory rent ₦2,300
Factory lighting ₦1,200
Cost of production to be transferred at cost plus 20% mark-up.
The market value of goods produced is
Answer: B (₦30,600)
Market value = cost of production + 20% = 25,500 + 5,100 = ₦30,600.
Use the information below to answer questions 28 and 29.
On January 1, 2000, a club's assets and liabilities were as follows:
Club house ₦8,000
Subscription in arrears ₦300
Cash ₦1,000
Wages owed ₦100
The club has 50 members and annual subscription is ₦100 per member. Subscription received is ₦4,000 and this includes 1999 arrears of ₦200.
The accumulated fund is
Answer: C (₦9,200)
Accumulated fund = assets (8,000 + 300 + 1,000) − liabilities (100) = ₦9,200.
Use the information below to answer questions 28 and 29.
On January 1, 2000, a club's assets and liabilities were as follows:
Club house ₦8,000
Subscription in arrears ₦300
Cash ₦1,000
Wages owed ₦100
The club has 50 members and annual subscription is ₦100 per member. Subscription received is ₦4,000 and this includes 1999 arrears of ₦200.
In the balance sheet, the subscription in arrears will be
Answer: D (₦1,300)
For 2000, 50 × ₦100 = ₦5,000 is due and ₦4,000 − ₦200 = ₦3,800 was received, so ₦1,200 is owed. The ₦100 of 1999 arrears still unpaid is added: ₦1,300.
Where the debit side of the income and expenditure account is higher than the credit side, the difference is a
Answer: A (deficit)
More expenditure (debit) than income (credit) gives a deficit; a non-profit body says surplus or deficit, not profit or loss.
In the balance sheet of a not-for-profit-making organization, subscription paid in advance is regarded as a
Answer: B (current liability)
Subscriptions paid in advance are owed back to members as future services, so they are a current liability.
A rapidly growing business organization with multiple units that is interested in comparing the performances and weaknesses of each unit should adopt
Answer: C (departmental accounts)
Departmental accounts show the profit of each unit separately so their performance can be compared.
Use the information below to answer questions 33 and 34.
Item | Dept. S (₦) | Dept. T (₦) | Total (₦)
Gross profit b/d | 6,000 | 4,000 | 10,000
Less: Salaries and Wages | 1,800 | 1,200 | 3,000
Electricity | ? | ? | 2,000
Depreciation | 600 | ? | 1,000
Net Profit c/d | ? | 1,600 | 4,000
Totals | 6,000 | 4,000 | 10,000
It is the tradition of the organization to apportion expenses in the proportion 60%:40% for S and T respectively.
What is the net profit made by department S?
Answer: C (₦2,400)
S's electricity = 60% × 2,000 = ₦1,200. Net profit S = 6,000 − 1,800 − 1,200 − 600 = ₦2,400.
Use the information below to answer questions 33 and 34.
Item | Dept. S (₦) | Dept. T (₦) | Total (₦)
Gross profit b/d | 6,000 | 4,000 | 10,000
Less: Salaries and Wages | 1,800 | 1,200 | 3,000
Electricity | ? | ? | 2,000
Depreciation | 600 | ? | 1,000
Net Profit c/d | ? | 1,600 | 4,000
Totals | 6,000 | 4,000 | 10,000
It is the tradition of the organization to apportion expenses in the proportion 60%:40% for S and T respectively.
The depreciation to be charged to department T is
Answer: B (₦400)
T bears 40% of depreciation: 40% × ₦1,000 = ₦400 (or 1,000 − 600).
How are credit sales by a department treated?
Answer: A (the same way as normal debtors' transactions)
A department's credit sales are recorded like any other credit sale: debit the debtor, credit that department's sales.
Discounts granted to branch customers are treated as a debit to branch
Answer: D (discount account and a credit to branch debtors' account)
Discount allowed is an expense (debit discount account) and it reduces what the customer owes (credit branch debtors).
Transfers from the head office to branches are best carried out at
Answer: C (cost plus mark-up)
Goods are often invoiced to branches at cost plus a mark-up, so head office can control branch stock and margins.
On dissolution, the final distribution of cash to partners is based on
Answer: D (capital balances)
After assets are sold and liabilities paid, each partner receives the final balance on his capital account.
Use the information below to answer questions 39 and 40.
Jumoke and Kunle have an original investment of ₦25,000 and ₦15,000 respectively in a partnership. The articles of partnership provide 3% interest on capital and salaries of ₦1,500 and ₦1,000 respectively for the partners. The profits and losses are to be shared in the ratio 3:2. Miscellaneous expenses of ₦2,500 were incurred with gross profit of ₦6,500 during the financial year.
The balance of profit and loss account will be
Answer: A (₦4,000)
Net profit = gross profit 6,500 − expenses 2,500 = ₦4,000, which is carried to the appropriation account.
Use the information below to answer questions 39 and 40.
Jumoke and Kunle have an original investment of ₦25,000 and ₦15,000 respectively in a partnership. The articles of partnership provide 3% interest on capital and salaries of ₦1,500 and ₦1,000 respectively for the partners. The profits and losses are to be shared in the ratio 3:2. Miscellaneous expenses of ₦2,500 were incurred with gross profit of ₦6,500 during the financial year.
What is Kunle's share of the profit?
Answer: D (₦120)
Interest = 3% of 40,000 = ₦1,200; salaries ₦2,500. Residue = 4,000 − 3,700 = ₦300. Kunle gets 2/5 × 300 = ₦120.
When a new partner is admitted to a partnership, there is a need to revalue the
Answer: D (assets and liabilities of the business)
On admission the assets and liabilities are revalued so that gains or losses up to that date go to the old partners.
The accounting entry to record the premium on goodwill is to debit
Answer: A (cash and credit old partners' capital)
The premium the new partner pays comes in as cash (debit cash) and belongs to the old partners for the goodwill they built up (credit their capital accounts).
The expenses incurred in promoting a company are
Answer: C (preliminary expenses)
Costs of forming a company, such as legal and registration fees, are called preliminary expenses.
Use the information below.
Share capital (Issued, ₦):
600,000 10% preference shares of ₦0.50 each: —
600,000 ordinary shares of ₦1 each: 500,000
Capital reserves: 250,000
Revenue reserves: 207,000
Long-term liabilities: 400,000
Total: 1,357,000
The value of the owner's equity is
Answer: C (₦957,000)
Owners' equity = issued capital 500,000 + capital reserves 250,000 + revenue reserves 207,000 = ₦957,000. Long-term liabilities are not equity.
Share premium is an example of
Answer: B (capital reserves)
Share premium comes from issuing shares above par, not from trading profit, so it is a capital reserve.
The budget statement presented to the legislature by the Chief Executive is called
Answer: C (an appropriation bill)
The President or Governor presents the budget as an appropriation bill. Once passed and signed it becomes the Appropriation Act.
The statement of assets and liabilities in the public sector can be described as the
Answer: C (balance sheet of government)
A statement listing what government owns (assets) and owes (liabilities) at a date is its balance sheet.