45 questions. Try each one, then open the answer to check yourself and read the explanation.
Which of the following branches of accounting was first developed?
Answer: B (Financial accounting)
Financial accounting, recording a business's transactions, came first; cost and management accounting grew out of it later.
The accounting convention which states that the performance of a business should be determined by matching all expenses against all revenues is
Answer: A (accruals)
The accruals (matching) concept matches the expenses of a period with the revenue of the same period.
The process of bookkeeping includes records produced from
Answer: B (source documents)
Book-keeping starts from source documents such as invoices and receipts, which are entered in the books.
Given:
Capital ₦2 375 000
Debtors ₦495 000
Motor vehicles ₦870 000
Creditors ₦245 000
Prepayments ₦500 000
Bills receivable ₦505 000
Furniture ₦150 000
What is the total debit for the trial balance?
Answer: C (₦2 520 000)
Debit balances are the assets: 495 000 + 870 000 + 500 000 + 505 000 + 150 000 = ₦2 520 000.
If Odukoya takes money out of the business bank account for his own private use, the effect of the transaction is
Answer: D (decrease in capital and decrease in assets.)
Drawings reduce the bank balance (an asset) and reduce the owner's capital.
Use the information below:
I. Operating machine
II. Furniture
III. Fixtures and fittings
IV. Loan from friends
V. Creditors
What are the current liabilities?
Answer: B (IV and V)
The loan from friends and the creditors are amounts the business owes; this question treats both as current liabilities.
Use the information below:
I. Operating machine
II. Furniture
III. Fixtures and fittings
IV. Loan from friends
V. Creditors
Find the fixed assets
Answer: C (I, II and III)
The operating machine, furniture, and fixtures and fittings are kept for long-term use, so they are fixed assets.
Period 1: Cash to petty cashier 1000; Petty cashier pays out 780
Period 2: Petty cashier pays out 840
If the float is increased to ₦1200, how much should the petty cashier receive after period 2?
Answer: D (1040)
After period 2 the cashier holds 1 000 − 840 = ₦160. To bring it to the new float of ₦1 200 he needs 1 200 − 160 = ₦1 040.
Period 1: Cash to petty cashier 1000; Petty cashier pays out 780
Period 2: Petty cashier pays out 840
What is the balance of cash with the petty cashier at the end of period I?
Answer: A (220)
1 000 received − 780 paid out = ₦220.
Cash discount is often recorded on
Answer: D (both credit and debit side of the cash book)
Discount allowed is in a column on the debit side and discount received on the credit side of a three-column cash book.
The standing order is a payment instruction given by a
Answer: A (customer to the bank)
A customer instructs the bank to make regular fixed payments from his account.
Which of the following should not be added or subtracted from the bank statement balance to determine the adjusted cash balance?
Answer: A (Error by the bank)
An error by the bank is corrected on the bank statement, not in the cash book; undercasting, overcasting and bank charges are adjustments to the cash book balance.
Given:
Balance as per cash book ₦20,000
Unpresented cheques ₦5,200
Direct credit to the bank ₦1,000
Direct debit from the bank ₦1,000
Credit in the cash book ₦500
Calculate the balance as per bank statement at the end of the year
Answer: A (24,700)
Adjusted cash book = 20 000 + 1 000 − 1 000 = ₦20 000. Bank statement = 20 000 + unpresented cheques 5 200 − 500 not yet credited = ₦24 700.
Adodo Enterprises Trading and Loss Account (Extract)
Opening stock ₦5,000; Purchases ?; Less closing stock ₦5,600; Cost of goods sold ?; Gross profit ?; Total ₦100,000
Sales ₦100,000
If the gross profit margin is 10%, what is the value of the cost of goods sold?
Answer: B (₦90,000)
Gross profit = 10% × 100 000 = ₦10 000, so cost of goods sold = 100 000 − 10 000 = ₦90 000.
Adodo Enterprises Trading and Loss Account (Extract)
Opening stock ₦5,000; Purchases ?; Less closing stock ₦5,600; Cost of goods sold ?; Gross profit ?; Total ₦100,000
Sales ₦100,000
If the opening stock is 5% of sales, calculate the purchases.
Answer: C (₦90,600)
Cost of goods sold ₦90 000 = opening stock 5 000 + purchases − closing stock 5 600, so purchases = 90 000 + 5 600 − 5 000 = ₦90 600.
Total current assets ₦2,000
Total fixed assets ₦4,000
Current liabilities ₦1,200
Drawings ₦200
Long-term loan ₦2,000
Determine the capital of the business
Answer: D (₦3,000)
Net assets = 2 000 + 4 000 − 1 200 − 2 000 = ₦2 800. This is capital after drawings, so capital before drawings = 2 800 + 200 = ₦3 000.
Total current assets ₦2,000
Total fixed assets ₦4,000
Current liabilities ₦1,200
Drawings ₦200
Long-term loan ₦2,000
What is the net working capital?
Answer: C (₦800)
Working capital = current assets 2 000 − current liabilities 1 200 = ₦800.
Which of the following items are current assets?
Answer: A (Stock, bills receivable, cash and debtors)
Bills payable is a liability and a bad debt is an expense, so only A lists current assets alone.
Jan. 1 Received 1,000 units at ₦10 each
Jan. 2 Received 2,000 units at ₦12 each
Jan. 3 Issued 1,500 units
Jan. 4 Received 1,000 units at ₦11 each
Jan. 5 Issued 1000 units
Using FIFO method, what is the value of the closing stock?
Answer: C (₦17,000)
4 000 units received, 2 500 issued, 1 500 left. FIFO issues the oldest first, so what is left is 500 @ ₦12 + 1 000 @ ₦11 = 6 000 + 11 000 = ₦17 000.
Jan. 1 Received 1,000 units at ₦10 each
Jan. 2 Received 2,000 units at ₦12 each
Jan. 3 Issued 1,500 units
Jan. 4 Received 1,000 units at ₦11 each
Jan. 5 Issued 1000 units
What is the value of closing stock using simple average?
Answer: B (₦17,000)
Jan 3 issue at (10 + 12)/2 = ₦11: 1 500 × 11 = 16 500. Jan 5 issue at (12 + 11)/2 = ₦11.50: 1 000 × 11.5 = 11 500. Goods received cost 45 000, so closing stock = 45 000 − 28 000 = ₦17 000.
Which of the following methods gives a conservative closing stock value during a period of rising prices?
Answer: A (LIFO)
LIFO leaves the oldest, cheapest goods in stock, so the closing stock value is lowest when prices rise.
Apart from the common control accounts, a control account can also be opened for
Answer: C (cash account)
Besides the sales and purchases ledger controls, a cash control account can be kept to check the cash records.
Which of the following is a debit item in the purchases ledger control account?
Answer: D (Balance c/d)
Creditors are a credit balance, so the balance carried down to close the account is on the debit side.
The costs incurred by departments that support the production department with such activities as maintenance, production control and storage are called
Answer: B (service costs)
Service departments such as maintenance and stores support production; their costs are service costs.
Work-in-progress 1/1 1,000
Work-in-progress 31/12 2,000
Production cost of goods manufactured 20,000
Sales 50,000
Stock of finished goods 1/1 4,000
Stock of finished goods 31/12 5,000
Selling and distribution expenses 2,000
Administrative expenses 1,000
Determine the gross profit
Answer: C (31,000)
Cost of sales = 4 000 + 20 000 − 5 000 = ₦19 000. Gross profit = 50 000 − 19 000 = ₦31 000.
Work-in-progress 1/1 1,000
Work-in-progress 31/12 2,000
Production cost of goods manufactured 20,000
Sales 50,000
Stock of finished goods 1/1 4,000
Stock of finished goods 31/12 5,000
Selling and distribution expenses 2,000
Administrative expenses 1,000
What is the net profit?
Answer: C (₦28,000)
Net profit = 31 000 − selling 2 000 − administration 1 000 = ₦28 000.
Receipts and payments account is a summary of the
Answer: C (cash book)
A receipts and payments account summarises the cash book of a club for the period.
Given:
Furniture and fittings ₦20,000
Equipment ₦15,000
Bank overdrafts ₦6,500
Bar creditors ₦4,800
Subscription in arrears ₦4,700
Subscription in advance ₦650
What is the accumulated fund?
Answer: B (27,750)
Assets = 20 000 + 15 000 + 4 700 = ₦39 700. Liabilities = 6 500 + 4 800 + 650 = ₦11 950. Accumulated fund = 39 700 − 11 950 = ₦27 750.
I. Space occupied by each department
II. Average value of stock held by each department
III. Departmental turnover
IV. Number of articles sold by each department
From the information above, the two most logical bases for apportioning expenses that are common to departments are
Answer: B (I and III)
Expenses like rent are shared by floor space, and selling-related expenses by turnover.
Departments P, Q, R:
Sales value: P ?; Q ₦23,400; R ?
Selling expenses: P ₦1,100; Q ₦1,400; R ₦1,280
Administrative expenses: P ₦1,400; Q ₦1,000; R ₦1,020
Cost of sales: P ₦6,900; Q ₦6,700; R ₦5,500
Sales value of department Q doubles that of P, which is ⅓ of R. Depreciation which amounts to ₦1,800 is to be apportioned among the three departments in the ratio 3:5:7 respectively.
What is the sales value of department R?
Answer: D (₦35,100)
P = 23 400 ÷ 2 = ₦11 700. P is ⅓ of R, so R = 3 × 11 700 = ₦35 100.
Departments P, Q, R:
Sales value: P ?; Q ₦23,400; R ?
Selling expenses: P ₦1,100; Q ₦1,400; R ₦1,280
Administrative expenses: P ₦1,400; Q ₦1,000; R ₦1,020
Cost of sales: P ₦6,900; Q ₦6,700; R ₦5,500
Sales value of department Q doubles that of P, which is ⅓ of R. Depreciation which amounts to ₦1,800 is to be apportioned among the three departments in the ratio 3:5:7 respectively.
Determine the total expenses of department P
Answer: C (2,860)
P's expenses: selling 1 100 + administration 1 400 + depreciation 3/15 × 1 800 = 360. Total = ₦2 860.
One of the purposes of maintaining the account of a branch at the head office is to
Answer: D (check the excesses of members of staff.)
Branch accounts kept at head office help control the branch and detect fraud or waste by its staff.
Which of the following is a common cause of a discrepancy between head office and branch trial balance?
Answer: C (Stock and cash in transit)
Goods and cash sent but not yet received at the end of the year appear in one set of books but not the other.
Sule and Ahmad are in partnership sharing profits and losses equally. If Khadija is admitted as a new partner to take ⅕th as her share, what is the new profit or loss sharing ratio?
Answer: C (Sule ⅖, Ahmad ⅖ and Khadija ⅕)
Khadija takes ⅕, leaving ⅘ shared equally: Sule ⅖ and Ahmad ⅖.
Given:
Net profit b/d ₦10,000
Interest on capital: M ₦2,000; K ₦1,000
Partners' salary: K ₦800
Interest on drawings: M ₦500
Profit sharing ratio M and K 3:2
Determine M's share of profit
Answer: B (4,020)
Residual profit = 10 000 + 500 − 2 000 − 1 000 − 800 = ₦6 700. M's share = 3/5 × 6 700 = ₦4 020.
Given:
Capital balances b/d: P ₦20,000; K ₦10,000
Drawings: P ₦2,000; K ₦1,000
Share of profits: P ₦4,000; K ₦2,000
Salary: P ₦1,000
Interest on drawings: P ₦100; K ₦20
Assuming that the partnership maintains a fixed capital, what is P's closing capital?
Answer: D (₦20,000)
With fixed capitals, drawings, profits, salary and interest go to the current account, so the capital stays at ₦20 000.
In partnership account, conversion of non-cash assets into cash is referred to as
Answer: A (realization)
On dissolution the assets are sold (realised) for cash through the realisation account.
A company advertised and issued 750,000, 12% preference shares of ₦1 each to be issued at ₦1.50 per share. Applications for 1,370,000 were received at 30k per share. 70k per share (including premium) was due on allotment while 25k per share was due on each of the remaining two calls. All amounts due were received. Application money for 120,000 shares was refunded to unsuccessful applicants and the remaining applicants were allotted shares on pro-rata basis.
The share premium account would be
Answer: C (credited with application and allotment ₦375,000)
Premium = 750 000 × 50k = ₦375 000, due with allotment, so share premium is credited (and application and allotment debited) with ₦375 000.
A company advertised and issued 750,000, 12% preference shares of ₦1 each to be issued at ₦1.50 per share. Applications for 1,370,000 were received at 30k per share. 70k per share (including premium) was due on allotment while 25k per share was due on each of the remaining two calls. All amounts due were received. Application money for 120,000 shares was refunded to unsuccessful applicants and the remaining applicants were allotted shares on pro-rata basis.
The second and final call account was debited with
Answer: D (12% preference share capital account ₦187,500)
Final call = 750 000 × 25k = ₦187 500: debit call account, credit 12% preference share capital.
Provision for bad and doubtful debts in companies final acounts is treated in
Answer: B (profit and loss account)
The provision (or its increase) is an expense charged to the profit and loss account.
The book value per share is obtained by dividing
Answer: A (shareholders equity by outstanding shares)
Book value per share = shareholders' equity ÷ number of shares in issue.
Expenditure incurred on consumables and goods for resale is
Answer: A (revenue expenditure)
Goods for resale and consumables are used up in the year, so they are revenue expenditure.
Replacement and renewal of fixed assets are
Answer: C (capital expenditure)
Buying a fixed asset, even as a replacement, is capital expenditure.
Which of the following is credited to the consolidated revenue fund?
Answer: D (International revenue)
The Consolidated Revenue Fund receives government revenue, so revenue is credited to it. Expenditure, recurrent or capital, is paid out of the fund and charged to it.
One of the reasons for the existence of the public sector is to
Answer: C (provide cheap services to all citizens)
Government provides essential services such as water and power cheaply to everybody.