47 questions. Try each one, then open the answer to check yourself and read the explanation.
One of the major features of bookkeeping is that it
Answer: A (provides permanent records for all financial transactions)
Book-keeping records every financial transaction so that a permanent record is kept.
Which of the following accounting conventions suggests that accountants should use a method of valuation that understates rather than over-states results?
Answer: A (Conservatism)
Conservatism (prudence) means providing for likely losses but not counting profits until they are earned, so results are understated rather than overstated.
A financial analyst needs accounting information to
Answer: C (advise on how to manage the business)
A financial analyst studies the accounts to give advice on how the business should be run and financed.
One basic assumption of the double entry theory is that it allows
Answer: D (debit and credit entries in corresponding accounts.)
Every transaction has a debit in one account and a matching credit in another account.
Given:
Sales ₦4 000
Light expenses ₦2 900
Rent ₦15 000
Purchases ₦7 500
Debtors ₦6 000
Creditors ₦29 325
Drawings ₦25
Bank ₦400
General expenses ₦1 500
Calculate the total of the trial balance
Answer: D (N33 325)
Credit side: sales 4 000 + creditors 29 325 = ₦33 325. Debit side: 2 900 + 15 000 + 7 500 + 6 000 + 25 + 400 + 1 500 = ₦33 325.
Bariga, a stock broker bought stationery for N12000 by cash. To record this transaction, debit
Answer: C (stationery and credit cash)
Stationery (an expense) increases, so debit stationery; cash goes out, so credit cash.
Use the information below:
I. Cash at bank
II. Cash in hand
III. Premises
IV. Land
V. Creditors
VI. Loan from friends/bank
Determine the fixed assets
Answer: D (III and IV)
Premises and land are kept for long-term use in the business, so they are fixed assets.
Use the information below:
I. Cash at bank
II. Cash in hand
III. Premises
IV. Land
V. Creditors
VI. Loan from friends/bank
What are the current assets?
Answer: A (I and II)
Cash at bank and cash in hand are current assets; creditors and loans are liabilities.
Given:
Cash Book
Debit: Capital ₦65 000; Sales ₦30 000
Credit: Purchases ₦12 250; Rent ₦9 100; Motor vehicle ₦2 400
Find the bank balance.
Answer: B (N71 250 debit)
Receipts 65 000 + 30 000 = ₦95 000; payments 12 250 + 9 100 + 2 400 = ₦23 750. Balance = ₦71 250, and since receipts are larger it is a debit balance.
An entry made in the bank column of the cash book to record movement of cash between the office and the bank is the
Answer: D (contra entry)
When cash is paid into or drawn from the bank, both sides of the entry are in the cash book itself: a contra entry.
Abba offered 5% cash discount on goods worth N 10 000. The discount allowed account is to be
Answer: C (debited with N 500)
Discount = 5% × 10 000 = ₦500. Discount allowed is an expense, so it is debited.
Commission-on-turnover is charged on
Answer: A (current accounts only)
Banks charge commission on turnover on the withdrawals from current accounts.
The medium that enables the ATM to read the account details and process transactions directly with the account held in the bank is the
Answer: A (smart card)
The customer's smart (ATM) card carries the account details that the machine reads to process the transaction.
Given that the balance as per cash book after adjustment was N6315, unpresented cheques N1000 and the bank statement balance N3240. What was the balance of the uncredited cheques?
Answer: A (N4075)
Bank statement = adjusted cash book + unpresented cheques − uncredited cheques: 3 240 = 6 315 + 1 000 − x, so x = ₦4 075.
Trading Account (Extract)
Opening stock ₦19 500; Add purchases ₦68 700 = ₦88 200
Less closing stock ?
Cost of goods sold ?
Gross profit c/d ?
Sales ₦96 000
The gross profit margin is 20%.
What is the gross profit?
Answer: C (N19 200)
Gross profit margin is profit as a percentage of sales: 20% × 96 000 = ₦19 200.
Trading Account (Extract)
Opening stock ₦19 500; Add purchases ₦68 700 = ₦88 200
Less closing stock ?
Cost of goods sold ?
Gross profit c/d ?
Sales ₦96 000
The gross profit margin is 20%.
Determine the closing stock
Answer: D (N11 400)
Cost of goods sold = 96 000 − 19 200 = ₦76 800. Closing stock = 88 200 − 76 800 = ₦11 400.
Capital ₦12 700; Debtors ₦4 000; Sales ₦2 400; Purchases ₦7 100; Stationery ₦1 900; Wages ₦1 230.
The owner wishes to maintain an amount equal to ¾ of capital as drawings.
What is the amount withdrawn?
Answer: A (N9525)
Drawings = ¾ × 12 700 = ₦9 525.
Capital ₦12 700; Debtors ₦4 000; Sales ₦2 400; Purchases ₦7 100; Stationery ₦1 900; Wages ₦1 230.
The owner wishes to maintain an amount equal to ¾ of capital as drawings.
Determine the closing balance of the cash book.
Answer: A (N655 credit)
Receipts: capital 12 700 + debtors 4 000 + sales 2 400 = ₦19 100. Payments: 7 100 + 1 900 + 1 230 + drawings 9 525 = ₦19 755. Payments exceed receipts by ₦655, a credit (overdrawn) balance.
The factors that determine the periodic depreciation charge are
Answer: D (asset cost, salvage and useful life.)
Depreciation per year = (cost − salvage value) ÷ useful life, so it depends on these three.
Aug. 1 Received 20 units at N60 each
Aug. 6 Received 20 units at N68 each
Aug. 10 Issued 16 units
Aug. 20 Received 40 units at N80 each
Aug. 31 Issued 48 units
Using the FIFO method, what is the value of the closing stock?
Answer: A (N1280)
80 units received, 64 issued, 16 left. Under FIFO the oldest goes out first, so the 16 left are from the ₦80 batch: 16 × 80 = ₦1 280.
In a period of inflation, which of the following methods normally gives a closing stock value very close to the market value?
Answer: A (FIFO)
FIFO leaves the most recent purchases in stock, and their prices are closest to current market prices.
The main purpose of control account is to
Answer: A (detect errors and irregularities)
Control accounts check the accuracy of the ledgers and help to find errors and fraud.
Which of the following is a credit item in creditors ledger control account?
Answer: C (Purchases)
Credit purchases increase what we owe, so they go on the credit side of the creditors (purchases ledger) control account.
Discount allowed as represented in the control account appears on the
Answer: C (credit side of the sales control account)
Discount allowed reduces what debtors owe, so it is credited in the sales ledger (debtors) control account.
31 Dec. 05: Total fixed assets ₦7 800; Total current assets ₦12 100; Total current liabilities ₦4 700
31 Dec. 06: Total fixed assets ₦6 600; Total current assets ₦17 800; Total current liabilities ₦3 800
Drawings for 2006 is N5 200
Determine the capital balances as at Dec. 31, 2005
Answer: B (N15 200)
Capital = assets − liabilities = 7 800 + 12 100 − 4 700 = ₦15 200.
31 Dec. 05: Total fixed assets ₦7 800; Total current assets ₦12 100; Total current liabilities ₦4 700
31 Dec. 06: Total fixed assets ₦6 600; Total current assets ₦17 800; Total current liabilities ₦3 800
Drawings for 2006 is N5 200
What is the net profit for 2006?
Answer: D (N10 600)
Capital 2006 = 6 600 + 17 800 − 3 800 = ₦20 600. Net profit = closing capital − opening capital + drawings = 20 600 − 15 200 + 5 200 = ₦10 600.
The floor space occupied by manufacturing and administration departments in a company is 200 sqm and 300 sqm respectively. N20 000 rent incurred is shared using floor space occupied. How much is the rent chargeable to manufacturing?
Answer: A (N 8000)
Manufacturing share = 200/500 × 20 000 = ₦8 000.
Stock of materials 1/1 ₦10 000
Purchase of raw materials ₦160 000
Manufacturing wages ₦420 000
Royalties ₦3 000
Stock of raw materials 31/12 ₦14 000
What is the cost of raw materials consumed?
Answer: D (N156 000)
Opening stock 10 000 + purchases 160 000 − closing stock 14 000 = ₦156 000.
Stock of materials 1/1 ₦10 000
Purchase of raw materials ₦160 000
Manufacturing wages ₦420 000
Royalties ₦3 000
Stock of raw materials 31/12 ₦14 000
Calculate the prime cost
Answer: B (N579000)
Prime cost = materials consumed 156 000 + manufacturing wages 420 000 + royalties 3 000 = ₦579 000.
Receipts and payments account discloses
Answer: C (prepayment)
A receipts and payments account records all cash paid, including amounts paid in advance, while debtors, creditors and depreciation involve no cash.
Given:
Subscription in arrears 01/01/06 ₦2 000
Subscription in advance 01/01/06 ₦1 500
Subscription paid during the year ₦7 000
Subscription in arrears 31/12/06 ₦3 000
Determine the amount of subscription included in the income and expenditure account for the year
Answer: C (N 9500)
Income = cash received 7 000 − opening arrears 2 000 + opening advance 1 500 + closing arrears 3 000 = ₦9 500.
The main reason for adopting a departmental account is to
Answer: C (continuously evaluate the profitability of different departments)
Departmental accounts show the profit of each department so that their performance can be compared.
Departmental Trading Account (Extract)
Stock: Total ₦3 000; P ₦2 000; Q ₦1 000
Purchases: Total ₦4 000; P ₦2 500; Q ₦1 500
Sales: Total ₦10 000; P ₦6 000; Q ₦4 000
Closing stock: Total ₦2 000; P ₦1 500; Q ₦500
Goods worth N 300 was transferred from department Q to P. Similarly, P's total expenses for the period was N 200.
What was department Q's gross profit?
Answer: B (N2 300)
Q: cost of sales = 1 000 + 1 500 − 300 transferred − 500 closing = ₦1 700. Gross profit = 4 000 − 1 700 = ₦2 300.
Departmental Trading Account (Extract)
Stock: Total ₦3 000; P ₦2 000; Q ₦1 000
Purchases: Total ₦4 000; P ₦2 500; Q ₦1 500
Sales: Total ₦10 000; P ₦6 000; Q ₦4 000
Closing stock: Total ₦2 000; P ₦1 500; Q ₦500
Goods worth N 300 was transferred from department Q to P. Similarly, P's total expenses for the period was N 200.
Department P's net profit was
Answer: D (N 2 500)
P: cost of sales = 2 000 + 2 500 + 300 − 1 500 = ₦3 300. Gross profit = 6 000 − 3 300 = ₦2 700; net profit = 2 700 − 200 = ₦2 500.
Given:
I. Cost price
II. Selling price
III. Cost plus fixed percentage
IV. Price above cost and selling price
From the information above, the prices used in charging goods to the branches are
Answer: B (I, II and III)
Head office may invoice goods to a branch at cost, at selling price or at cost plus a fixed percentage.
Given:
Capital: G ₦5 000; T ₦8 000
Drawings: G ₦2 000; T ₦1 000
Interest on capital 10%
Interest on drawings 5%
Find the interest on drawings of G
Answer: B (N 100)
Interest on G's drawings = 5% × 2 000 = ₦100.
The entry in the partnership books of accounts for interest on drawings is to
Answer: B (debit partners capital account)
Interest on drawings is a charge against the partner, so his account is debited (and the appropriation account credited).
In partnership dissolution, an asset taken over by a partner is debited to
Answer: A (partners capital account and credited to realization account)
The partner pays for the asset out of his capital, so his capital account is debited and the realisation account credited.
Goodwill can be in the balance sheet as
Answer: C (fictitious asset)
Goodwill cannot be seen or touched; this question treats it with the fictitious (non-physical) assets.
Given:
I. Ascertainment of the particulars of the proposed company
II. Preparation of the incorporation documents
III. Filling of the documents
IV. Registration of the company
From the information above, the stages involved in the formation of a company are
Answer: D (II, III and IV)
Forming a company involves preparing the documents, filing them with the Registrar and registration of the company.
Cash received from the subscribed shares is recorded by debting
Answer: D (cash, crediting application and allotment account)
Cash comes in, so debit cash; the application and allotment account is credited.
Ordinary shareholders received dividend before
Answer: D (deferred shareholders)
Deferred (founders') shares are paid only after ordinary shareholders have received their dividend.
Uju Nig. Ltd. Balance Sheet (Extract)
Capital ₦200 000; Net profit ₦50 000; 5% debenture ₦100 000; Creditors ₦80 000; Total ₦430 000
Land and building ₦250 000; Stock ₦20 000; Debtors ₦50 000; Bank ₦10 000; Total ₦430 000
Which of the following is true of Uju Nig. Ltd?
Answer: D (It's working capital is zero)
Current assets 20 000 + 50 000 + 10 000 = ₦80 000 equal current liabilities (creditors) ₦80 000, so working capital is zero.
A source of revenue that is compulsory payment without any derivable benefit is
Answer: B (taxes)
Taxes must be paid by law and the payer gets no specific service in return.
Which of the following is among the categories of government cash book?
Answer: D (Treasury cash book)
Government departments keep a treasury (main) cash book.
The salary of the Chief Justice of the Federation is paid from the
Answer: A (consolidated revenue fund)
The salaries of judges and other statutory officers are a direct charge on the Consolidated Revenue Fund.
The Auditor General of the Federation can be removed by the
Answer: C (The President)
The President removes the Auditor-General (acting on an address supported by the Senate).