46 questions. Try each one, then open the answer to check yourself and read the explanation.
The double entry principle of accounting was developed by
Answer: B (Luca Pacioli)
The Italian monk Luca Pacioli first published the double entry system in 1494.
The concept that has much influence over asset valuation and income determination is
Answer: D (matching)
Matching sets each period's expenses against the revenue they helped earn, which decides both profit and which costs are carried forward as assets.
The journal entries for the purchase of stock on credit are to debit
Answer: C (purchase account and credit liability account)
Goods bought for resale are debited to purchases, and the supplier (a liability) is credited because nothing has been paid.
Given:
Liabilities ₦23 700
Current assets ₦20 300
Fixed assets ₦64 500
What is the capital introduced by the proprietor?
Answer: B (₦61 100)
Capital = assets − liabilities = (20 300 + 64 500) − 23 700 = ₦61 100.
Given:
Rent ₦10 000
Rates ₦5 000
Capital ₦50 000
Salaries ₦14 000
Cash ₦26 000
Creditors ₦5 000
The total trial balance is
Answer: C (₦55 000)
Debits: rent 10 000 + rates 5 000 + salaries 14 000 + cash 26 000 = ₦55 000. Credits: capital 50 000 + creditors 5 000 = ₦55 000.
What are the appropriate recording procedures for entries in the trial balance?
Answer: A (Source documents, ledgers and trial balance)
Transactions start from source documents, are posted to the ledgers, and the ledger balances are then listed in the trial balance.
Mr. Bassey purchased a motor vehicle for use in his business and debited the purchases account with the same value. This is an error of
Answer: B (principle)
A fixed asset was entered as if it were goods for resale: the wrong class of account, which is an error of principle.
Use the information below to answer questions 9 and 10.
Five hundred naira monthly is allowed on an imprest system. The following transactions took place:
Period 1: Cash advanced to petty cashier ₦500; Petty cashier paid out: Stamp ₦200, Newspapers ₦250
Period 2: Cash to petty cashier ₦450; Cashier paid for writing materials ₦350
How much should the petty cashier receive after period 2?
Answer: C (₦350)
Balance after period 2 = 50 + 450 − 350 = ₦150. To restore the ₦500 imprest the cashier receives 500 − 150 = ₦350, the amount spent.
Use the information below to answer questions 9 and 10.
Five hundred naira monthly is allowed on an imprest system. The following transactions took place:
Period 1: Cash advanced to petty cashier ₦500; Petty cashier paid out: Stamp ₦200, Newspapers ₦250
Period 2: Cash to petty cashier ₦450; Cashier paid for writing materials ₦350
What was the balance of cash with the petty cashier at the end of period 1?
Answer: A (₦50)
₦500 advanced − (200 + 250) spent = ₦50.
In a three-column cash book, the discount allowed is shown on the
Answer: A (debit side)
Discount allowed is recorded beside the cash received from debtors, on the debit (receipts) side.
A rent received by a trader for sub-letting part of his business premises should be added to the
Answer: A (gross profit)
Rent received is other income, so it is added to gross profit in the profit and loss account before expenses are deducted.
Musa merchants Trading and Profit and Loss Account for the year ended Dec. 31st, 2003
Stock (1/1/2003) ₦60 000
Purchases ₦90 000
Cost of goods available for sale ₦150 000
Stock 31/12/2003 ?
Cost of goods sold ?
Gross profit ₦180 000
Total ₦290 000 | Sales ₦290 000
Determine the closing stock
Answer: C (₦40 000)
Cost of goods sold = 290 000 − 180 000 = ₦110 000. Closing stock = 150 000 − 110 000 = ₦40 000.
A sole trader provides the following balance for the financial year ended 30th June, 2003
Capital ₦8 400; Net profit ₦1 500 (= ₦9 900); Drawings ₦900 (= ₦9 000); Creditors ₦2 500; Accruals ₦1 500; Total ₦13 000
Land and Building ₦4 500; Furniture ₦3 400; Stock ₦2 800; Debtors ₦2 200; Cash ₦100; Total ₦13 000
The capital employed is
Answer: C (₦9 000)
Capital employed = owner's closing capital = 8 400 + 1 500 − 900 = ₦9 000 (also total assets 13 000 − current liabilities 4 000).
Given:
Provision for bad debt (Jan. 2003) ₦1 000
Debtors (Dec. 2003) ₦20 000
Bad debt to be written off (Dec. 2003) ₦2 000
The provision for bad debt stands at 10% of debtors. How much is to be charged to profit and loss account as provision for bad debt?
Answer: A (₦800)
Debtors after write-off = 20 000 − 2 000 = ₦18 000. Provision needed = 10% = ₦1 800. Old provision ₦1 000, so charge the increase: ₦800.
Goods withdrawn from business for private use are credited to
Answer: B (purchases)
Debit drawings and credit purchases, because the goods were bought for the business but not sold.
Use the information below to answer questions 17 and 18.
A piece of equipment costing ₦120 000 was purchased on 1/1/1996. Depreciation was provided at 20% per annum on a straight-line basis. It was sold on 30/6/1999 for ₦31 500.
The accumulated depreciation provision at the time of sale was
Answer: D (₦84 000)
Yearly depreciation = 20% × 120 000 = ₦24 000. From 1/1/1996 to 30/6/1999 is 3½ years: 3.5 × 24 000 = ₦84 000.
Use the information below to answer questions 17 and 18.
A piece of equipment costing ₦120 000 was purchased on 1/1/1996. Depreciation was provided at 20% per annum on a straight-line basis. It was sold on 30/6/1999 for ₦31 500.
The net book value of the piece of equipment at the time of sale was
Answer: C (₦36 000)
Net book value = cost − accumulated depreciation = 120 000 − 84 000 = ₦36 000.
Use the information below to answer questions 19 and 20.
Date | Particulars | Quantity (Units) | Unit Price (₦)
Jan. | Received | 100 | 2.00
Feb. | Received | 110 | 2.50
March | Issued | 80 |
April | Received | 200 | 3.00
May | Issued | 100 |
Determine the closing stock under LIFO method.
Answer: A (₦575)
March issue (80) comes from Feb, leaving 30 @ 2.50; May issue (100) comes from April, leaving 100 @ 3. Closing stock = 100 × 2 + 30 × 2.50 + 100 × 3 = 200 + 75 + 300 = ₦575.
Use the information below to answer questions 19 and 20.
Date | Particulars | Quantity (Units) | Unit Price (₦)
Jan. | Received | 100 | 2.00
Feb. | Received | 110 | 2.50
March | Issued | 80 |
April | Received | 200 | 3.00
May | Issued | 100 |
Calculate the closing stock under FIFO method.
Answer: B (₦675)
The 180 units issued use the 100 from Jan and 80 from Feb, leaving 30 @ 2.50 and 200 @ 3: 75 + 600 = ₦675.
The items that are contained in the bought ledger control account are
Answer: D (discount received, returns outwards and purchases)
The bought (purchases) ledger control account deals with suppliers: purchases, returns outwards and discount received. Bad debts, sales and discount allowed belong to the sales ledger.
Given:
Purchases ledger balance ₦4 000
Purchases for the period ₦50 000
Cash refunded by suppliers ₦290
Cheques paid to suppliers ₦42 300
Returns outwards ₦2 000
Discount received from suppliers ₦400
The balance of the purchases ledger control account is
Answer: C (₦9 590)
Credits: 4 000 + 50 000 + refunds 290 = ₦54 290. Debits: 42 300 + 2 000 + 400 = ₦44 700. Balance = 54 290 − 44 700 = ₦9 590.
Which of the following items is found on the credit side of the sales ledger control account?
Answer: D (Bills receivable)
Bills receivable accepted from debtors reduce what they owe, so they are credited. Credit sales and dishonoured cheques are debits; discount received belongs to the purchases ledger.
If the assets and liabilities of a firm were valued at ₦17 200 and ₦5 120 respectively, the capital of the firm would be
Answer: C (₦12 080)
Capital = assets − liabilities = 17 200 − 5 120 = ₦12 080.
Use the information below to answer questions 25 and 26.
Zazzau Company
Cash in hand ₦50
Cash in bank ₦1 250
Stock ₦4 880
Furniture ₦960
Building ₦5 500
Debtors ₦1 750
Creditors ₦2 150
Drawings of ₦125 were made by the shareholders of the company.
The capital of the company stands at
Answer: A (₦12 240)
Total assets = 50 + 1 250 + 4 880 + 960 + 5 500 + 1 750 = ₦14 390. Capital = 14 390 − creditors 2 150 = ₦12 240; the drawings are already reflected in the balances.
Use the information below to answer questions 25 and 26.
Zazzau Company
Cash in hand ₦50
Cash in bank ₦1 250
Stock ₦4 880
Furniture ₦960
Building ₦5 500
Debtors ₦1 750
Creditors ₦2 150
Drawings of ₦125 were made by the shareholders of the company.
The company's net current assets amount to
Answer: A (₦5 780)
Current assets = 50 + 1 250 + 4 880 + 1 750 = ₦7 930. Less creditors 2 150 = ₦5 780.
A component of an overhead manufacturing cost is
Answer: D (rent)
Factory overheads are indirect costs such as factory rent, lighting and indirect labour. Direct labour is prime cost, and work-in-progress is stock.
Use the information below to answer questions 28 and 29.
Direct labour ₦50 000
Beginning work-in-progress ₦4 000
Raw materials used ₦18 000
Indirect labour ₦4 000
Ending finished goods ₦16 000
Ending work-in-progress ₦9 000
Factory supplies used ₦7 000
Selling expenses ₦25 000
Beginning finished goods ₦21 000
Other factory overheads ₦19 000
What is the cost of goods manufactured?
Answer: D (₦93 000)
Prime cost 68 000 + overheads (4 000 + 7 000 + 19 000) = ₦98 000. Add opening WIP 4 000, less closing WIP 9 000: ₦93 000. Selling expenses and finished goods are left out.
Use the information below to answer questions 28 and 29.
Direct labour ₦50 000
Beginning work-in-progress ₦4 000
Raw materials used ₦18 000
Indirect labour ₦4 000
Ending finished goods ₦16 000
Ending work-in-progress ₦9 000
Factory supplies used ₦7 000
Selling expenses ₦25 000
Beginning finished goods ₦21 000
Other factory overheads ₦19 000
Calculate the prime cost.
Answer: B (₦68 000)
Prime cost = direct labour 50 000 + raw materials used 18 000 = ₦68 000.
Use the information below to answer questions 30 and 31.
Purchase: Raw materials ₦15 000; Finished goods ₦11 400
Stock (1/7/01): Raw materials ₦2 250; Work-in-progress ₦1 875
Wages: Direct ₦17 100; Indirect ₦5 400
Stock (30/06/02): Raw materials ₦3 000; Work-in-progress ₦3 375
The cost of raw materials consumed is
Answer: D (₦14 250)
Opening stock 2 250 + purchases 15 000 − closing stock 3 000 = ₦14 250.
Use the information below to answer questions 30 and 31.
Purchase: Raw materials ₦15 000; Finished goods ₦11 400
Stock (1/7/01): Raw materials ₦2 250; Work-in-progress ₦1 875
Wages: Direct ₦17 100; Indirect ₦5 400
Stock (30/06/02): Raw materials ₦3 000; Work-in-progress ₦3 375
What is the cost of manufactured goods?
Answer: D (₦35 250)
Materials 14 250 + direct wages 17 100 + indirect wages 5 400 = ₦36 750; add opening WIP 1 875, less closing WIP 3 375 = ₦35 250.
The not-for-profit-making organizations generate their income mainly from
Answer: B (subscriptions)
Clubs and societies are financed mainly by their members' subscriptions.
Gamji Memorial Club carried out an activity which yielded a profit of ₦10 000. This amount is to be transferred to the
Answer: D (credit side of its income and expenditure account)
A club has no profit and loss account; profit from an activity is income, credited to the income and expenditure account.
A company incurred ₦21 000 in running its four departments, namely J, K, L and M with a corresponding number of employees as 1500, 2000, 3000 and 500 respectively. What is the share of department K?
Answer: B (₦6 000)
Total employees = 7 000. K's share = 2 000/7 000 × 21 000 = ₦6 000.
The movement of goods from head office to a branch is treated in the head office accounts as
Answer: C (purchase)
Goods sent to a branch are not sales; in the head office trading account they are deducted from purchases, so they are treated through the purchases account.
The head office of Emeka Stores maintains the financial accounts of all its branches. The branch store account in the head office serves as the branch
Answer: B (trading account)
The branch stock account is debited with goods sent and credited with sales; its balancing figure is the gross profit, so it acts as the branch's trading account.
In reconciling the branch and head office accounts, remittance in transit in the branch books is treated as a
Answer: C (contra entry)
The key treats cash in transit as a contra item: it is entered on both sides when the two current accounts are agreed.
Profit or loss in a partnership is usually arrived at after deducting from gross profit all expenses including
Answer: D (interest on loans)
Interest on a partner's loan is an expense charged before net profit. Salaries and interest on capital are appropriations, and drawings are not expenses.
Use the information below to answer questions 42 and 43.
Jide and Haruna contribute ₦12 000 each as capital and share profit equally. Jide draws ₦1 500 and Haruna ₦1 700 half-yearly. The profit for the year is ₦10 000. Jide receives a salary of ₦2 000.
Calculate the profit available for appropriation
Answer: B (₦10 000)
The appropriation account starts with the net profit of ₦10 000. From it Jide's salary of ₦2 000 is appropriated and the remaining ₦8 000 is shared equally.
Use the information below to answer questions 42 and 43.
Jide and Haruna contribute ₦12 000 each as capital and share profit equally. Jide draws ₦1 500 and Haruna ₦1 700 half-yearly. The profit for the year is ₦10 000. Jide receives a salary of ₦2 000.
The balances of current accounts of Jide and Haruna are respectively
Answer: D (₦3 000 and ₦600)
Residue 8 000 shared equally = ₦4 000 each. Jide: 4 000 + 2 000 − drawings 3 000 = ₦3 000. Haruna: 4 000 − 3 400 = ₦600.
When assets are realized during a partnership dissolution, the entries for the proceeds are to debit
Answer: A (cash account and credit realization account)
Money received from selling the assets comes into cash (debit) and is set against their book values in the realization account (credit).
A company paid cash in redemption of ₦10 000 debenture. The accounting entry to record this will be to debit
Answer: B (debenture and credit cash)
Paying off the debt reduces the debenture liability (debit) and cash (credit).
Use the information below to answer questions 46 and 47.
Balance Sheet (Extract)
Capital ₦40 000; Net profit ₦12 000 (= ₦52 000); Creditors ₦8 000; Wages owed ₦4 000; Rent owed ₦3 000; Total ₦67 000
Building ₦25 000; Equipment ₦12 000; Stock ₦10 000; Debtors ₦15 000; Cash ₦5 000; Total ₦67 000
The current ratio is
Answer: B (2:1)
Current assets = 10 000 + 15 000 + 5 000 = ₦30 000. Current liabilities = 8 000 + 4 000 + 3 000 = ₦15 000. Ratio = 30 000 : 15 000 = 2:1.
Use the information below to answer questions 46 and 47.
Balance Sheet (Extract)
Capital ₦40 000; Net profit ₦12 000 (= ₦52 000); Creditors ₦8 000; Wages owed ₦4 000; Rent owed ₦3 000; Total ₦67 000
Building ₦25 000; Equipment ₦12 000; Stock ₦10 000; Debtors ₦15 000; Cash ₦5 000; Total ₦67 000
The quick ratio is
Answer: B (1.3:1)
Quick assets exclude stock: 15 000 + 5 000 = ₦20 000. 20 000 ÷ 15 000 ≈ 1.3:1.
Earnings per share is measure of
Answer: D (profitability)
Earnings per share shows how much profit was earned for each ordinary share, so it measures profitability.
The accounting method that reports incomes when earned and expenses when incurred is called
Answer: D (accrual accounting)
Accrual accounting records income when it is earned and expenses when they are incurred, whether or not cash has moved.
The tier of government that uses financial memorandum is the
Answer: C (local government)
Local governments in Nigeria keep their finances under the Financial Memoranda, the rules that guide local government accounting.