56 questions. Try each one, then open the answer to check yourself and read the explanation.
When shares are oversubscribed, the promoter may decide to scale down the number of shareholding. When this is done, the shares are being
Answer: C (issued on prorata)
Scaling down means each applicant gets a proportion (pro rata) of the shares applied for.
Preliminary expenses of a limited liability company are
Answer: C (fictitious assets)
Preliminary (formation) expenses have no resale value; they are a fictitious asset to be written off.
In government imprest system the amount reimbursed is the
Answer: A (actual amount spent)
Under the imprest system the holder is refunded exactly what was spent, bringing the float back to its fixed amount.
Use the following:
Stock in hand: ₦4,000
Purchases for resale: ₦5,000
Sales: ₦3,500
Margin: 20%
The closing stock is
Answer: A (₦6,200)
Margin 20% of sales: cost of sales = 80% × 3,500 = 2,800; closing stock = 4,000 + 5,000 − 2,800 = ₦6,200.
Recurrent expenditure of government is paid from
Answer: B (consolidated revenue fund)
Day-to-day (recurrent) spending is charged to the Consolidated Revenue Fund; capital projects use the development fund.
Use the following information:
Balance brought forward: ₦500 Cr
Amount paid to suppliers: ₦12,000
Returns outwards: ₦150
Balance carried forward: ₦650 Cr
What is the value of purchases?
Answer: C (₦12,300)
Purchases = payments 12,000 + returns 150 + closing 650 − opening 500 = ₦12,300.
Which of the following is related to debtors account?
Answer: D (Sales ledger)
Debtors' (customers') accounts are kept in the sales ledger.
The price paid for the purchase of a business is
Answer: B (credited to the Cash account and debited to the Vendor's account)
Paying the vendor reduces cash (credit cash) and clears the amount owed to the vendor (debit vendor).
The principle of double entry accounting says that
Answer: D (every debit entry must have a corresponding credit entry)
Double entry: every debit has an equal and opposite credit.
Depreciation is
Answer: A (a charge for the wear and tear of a fixed asset)
Depreciation spreads the fall in value of a fixed asset (wear and tear) over its life.
Where there is provision for depreciation account, fixed assets must be shown in the Balance Sheet at the I. written down values; II. historical costs less depreciation for a particular period only; III. historical costs less total depreciation to date.
Answer: C (III only)
With a provision account the balance sheet shows cost, minus all depreciation to date, giving net book value.
₦100 received from Latifat was entered on the payments side of the cash book with the double entry completed in her account. The correcting journal entries are
Answer: C (credit Latifat's account, debit cash book with ₦200)
Cash was credited ₦100 instead of debited, and Latifat debited instead of credited; reversing and re-posting needs ₦200 each way.
Discount allowed is a charge to
Answer: C (Profit and Loss Account)
Discount allowed is an expense, so it is charged in the profit and loss account.
Use the following information:
Goodwill: Dr ₦10,000
Plant and Machinery: Dr ₦32,000
Freehold premises: Dr ₦50,000
Stock: Dr ₦15,000
Debtors: Dr ₦12,500
Cash in bank: Dr ₦7,500
Cash in hand: Dr ₦2,000
Profit and Loss Account: Cr ₦34,000
Accrued rent: Cr ₦500
Sundry creditors: Cr ₦9,500
Capital: Cr (figure not given)
Totals: ₦129,000, ₦129,000
What is the value of fixed tangible assets?
Answer: C (₦82,000)
Plant 32,000 + freehold premises 50,000 = ₦82,000 (goodwill is intangible).
Use the following information:
Goodwill: Dr ₦10,000
Plant and Machinery: Dr ₦32,000
Freehold premises: Dr ₦50,000
Stock: Dr ₦15,000
Debtors: Dr ₦12,500
Cash in bank: Dr ₦7,500
Cash in hand: Dr ₦2,000
Profit and Loss Account: Cr ₦34,000
Accrued rent: Cr ₦500
Sundry creditors: Cr ₦9,500
Capital: Cr (figure not given)
Totals: ₦129,000, ₦129,000
What is the value of current liabilities?
Answer: B (₦10,000)
Accrued rent 500 + sundry creditors 9,500 = ₦10,000.
Use the following information:
Goodwill: Dr ₦10,000
Plant and Machinery: Dr ₦32,000
Freehold premises: Dr ₦50,000
Stock: Dr ₦15,000
Debtors: Dr ₦12,500
Cash in bank: Dr ₦7,500
Cash in hand: Dr ₦2,000
Profit and Loss Account: Cr ₦34,000
Accrued rent: Cr ₦500
Sundry creditors: Cr ₦9,500
Capital: Cr (figure not given)
Totals: ₦129,000, ₦129,000
The capital is
Answer: C (₦85,000)
Capital is the missing credit: 129,000 − (34,000 + 500 + 9,500) = ₦85,000.
Use the following information:
Goodwill: Dr ₦10,000
Plant and Machinery: Dr ₦32,000
Freehold premises: Dr ₦50,000
Stock: Dr ₦15,000
Debtors: Dr ₦12,500
Cash in bank: Dr ₦7,500
Cash in hand: Dr ₦2,000
Profit and Loss Account: Cr ₦34,000
Accrued rent: Cr ₦500
Sundry creditors: Cr ₦9,500
Capital: Cr (figure not given)
Totals: ₦129,000, ₦129,000
What is the value of current assets?
Answer: A (₦37,000)
Stock 15,000 + debtors 12,500 + bank 7,500 + cash 2,000 = ₦37,000.
Use the following information:
Goodwill: Dr ₦10,000
Plant and Machinery: Dr ₦32,000
Freehold premises: Dr ₦50,000
Stock: Dr ₦15,000
Debtors: Dr ₦12,500
Cash in bank: Dr ₦7,500
Cash in hand: Dr ₦2,000
Profit and Loss Account: Cr ₦34,000
Accrued rent: Cr ₦500
Sundry creditors: Cr ₦9,500
Capital: Cr (figure not given)
Totals: ₦129,000, ₦129,000
What is the value of intangible assets?
Answer: E (₦10,000.)
The only intangible asset is goodwill, ₦10,000.
Use the following information:
Goodwill: Dr ₦10,000
Plant and Machinery: Dr ₦32,000
Freehold premises: Dr ₦50,000
Stock: Dr ₦15,000
Debtors: Dr ₦12,500
Cash in bank: Dr ₦7,500
Cash in hand: Dr ₦2,000
Profit and Loss Account: Cr ₦34,000
Accrued rent: Cr ₦500
Sundry creditors: Cr ₦9,500
Capital: Cr (figure not given)
Totals: ₦129,000, ₦129,000
The value of working capital is
Answer: A (₦27,000)
Current assets 37,000 − current liabilities 10,000 = ₦27,000.
Use the following information:
Goodwill: Dr ₦10,000
Plant and Machinery: Dr ₦32,000
Freehold premises: Dr ₦50,000
Stock: Dr ₦15,000
Debtors: Dr ₦12,500
Cash in bank: Dr ₦7,500
Cash in hand: Dr ₦2,000
Profit and Loss Account: Cr ₦34,000
Accrued rent: Cr ₦500
Sundry creditors: Cr ₦9,500
Capital: Cr (figure not given)
Totals: ₦129,000, ₦129,000
Current ratio is
Answer: D (3.7:1)
37,000 ÷ 10,000 = 3.7:1.
Which of the following is in the Personal Ledger?
Answer: D (Debtors Account)
Personal accounts are those of people, such as debtors.
Use the following information: Acquah has sold goods on credit and received ₦2,000 in cash from debtors. At the end of the previous year ₦500 was owed by customers. The balance outstanding this year is ₦300.
Sales for the year amounted to
Answer: D (₦1,800)
Credit sales = cash received 2,000 + closing debtors 300 − opening debtors 500 = ₦1,800.
The authorised share capital of a limited liability company is the number of shares
Answer: C (approved in the memorandum of association)
Authorised capital is the maximum the memorandum of association allows the company to issue.
The document evidencing a disbursement of government fund is known as
Answer: D (Payment Voucher)
Every government payment is supported by a payment voucher.
The authority of the Accountant-General to disburse from government fund is called
Answer: B (warrant)
A warrant is the formal authority to release funds for spending.
Where the cash book does not show a credit balance in a bank reconciliation; unpresented cheques are I. added to the cash book balance; II. added to the bank statement balance; III. deducted from the cash book balance.
Answer: A (I only)
Starting from a debit cash book balance, add back cheques not yet presented to reach the (higher) bank statement balance.
If the opening stock is undervalued,
Answer: A (goods available would be understated and gross profit overstated)
Lower opening stock lowers goods available and cost of sales, so gross profit comes out too high.
Manufacturing cost of finished goods: ₦75,000
Selling and distribution expenses: ₦5,000
Mark-up is 25%
The gross profit for the year is
Answer: C (₦18,750)
Mark-up 25% on cost: 25% × 75,000 = ₦18,750.
Manufacturing cost of finished goods: ₦75,000
Selling and distribution expenses: ₦5,000
Mark-up is 25%
The sales value for the year is
Answer: A (₦93,750)
Sales = 75,000 + 18,750 = ₦93,750.
Manufacturing cost of finished goods: ₦75,000
Selling and distribution expenses: ₦5,000
Mark-up is 25%
The net profit for the year is
Answer: E (₦13,750)
Net profit = 18,750 − 5,000 = ₦13,750.
Capital is the
Answer: A (liability of the business to its proprietor)
Under the business entity concept, capital is what the business owes its owner.
Carriage outwards is accounting term for amount spent on
Answer: B (goods sold)
Carriage outwards is the cost of delivering goods sold to customers (a P&L expense).
In a manufacturing organization, which of the following expenses does not relate to cost of production?
Answer: D (Administration overhead)
Administration overheads go to profit and loss, not to the manufacturing account.
The cost of goods sold at ₦32,000. The gross profit is 25% on cost. Returns inwards amount to ₦2,000. What is the value of sales?
Answer: C (₦40,000)
Net sales = 32,000 + 25% × 32,000 = ₦40,000 (the net figure after returns).
Which of the following accounts are treated in the nominal ledger? I. Wages II. Discounts allowed III. Purchases
Answer: D (I, II and III)
Wages, discounts allowed and purchases are all nominal (expense) accounts.
Bought Ledger Control Account
Debit side: Purchases returns ₦1,500; Bills payable ₦4,500; Bank ₦6,100; Discount allowed ₦200; Balance c/f ?; Total ₦15,800
Credit side: Balance b/f ₦5,000; Purchases ₦10,500; Cheques dishonoured ₦300; Total ₦15,800
Creditors at the end of the year amounted to
Answer: E (₦3,500.)
Balance c/f = 15,800 − (1,500 + 4,500 + 6,100 + 200) = ₦3,500.
Bought Ledger Control Account
Debit side: Purchases returns ₦1,500; Bills payable ₦4,500; Bank ₦6,100; Discount allowed ₦200; Balance c/f ?; Total ₦15,800
Credit side: Balance b/f ₦5,000; Purchases ₦10,500; Cheques dishonoured ₦300; Total ₦15,800
Net credit purchases for the year amounted to
Answer: E (₦9,000.)
Net purchases = 10,500 − returns 1,500 = ₦9,000.
Bought Ledger Control Account
Debit side: Purchases returns ₦1,500; Bills payable ₦4,500; Bank ₦6,100; Discount allowed ₦200; Balance c/f ?; Total ₦15,800
Credit side: Balance b/f ₦5,000; Purchases ₦10,500; Cheques dishonoured ₦300; Total ₦15,800
Payments effected amount to
Answer: E (₦5,800)
Bank payments 6,100 less the 300 of cheques that were dishonoured = ₦5,800 actually paid.
The Trading Account is usually headed
Answer: A (for the year ended .........19x1)
The trading account covers a period, so it is headed 'for the year ended …'; 'as at' is for the balance sheet.
Which of the following statements is not true of a non-profit making organization?
Answer: E (Receipts and Payments account is a substitute for Income and Expenditure account)
A receipts and payments account is only a cash summary; it cannot replace the income and expenditure account.
The capital sum which represents the difference between the assets and liabilities of a society or club is referred to as
Answer: C (accumulated fund)
A club's capital is called its accumulated fund.
A business which converts raw materials to finished goods prepares
Answer: E (Manufacturing, Trading, Profit and Loss Account and Balance Sheet.)
A manufacturer needs a manufacturing account as well as the trading, profit and loss account and balance sheet.
Payment of salaries to partners is
Answer: C (an appropriation of divisible profit)
Partners' salaries are a share-out of profit, shown in the appropriation account.
Accounting term used to describe the excess of current assets over current liabilities is
Answer: B (working capital)
Working capital = current assets − current liabilities.
A delivery van was bought on credit. The transaction would be entered by the customer first in the
Answer: E (Journal Proper.)
Credit purchases of fixed assets are not goods for resale, so they go in the journal proper.
Which of the following is not a liability?
Answer: C (Prepayment)
A prepayment is an amount paid in advance, a current asset.
1/1/86: Creditors ₦5,000; Stock ₦1,200
31/12/86: Creditors ₦8,000; Stock ₦1,100
Mark-up: 25%
Cash paid to creditors: ₦7,000
Purchases for the year amounted to
Answer: A (₦10,000)
7,000 + 8,000 − 5,000 = ₦10,000.
1/1/86: Creditors ₦5,000; Stock ₦1,200
31/12/86: Creditors ₦8,000; Stock ₦1,100
Mark-up: 25%
Cash paid to creditors: ₦7,000
Cost of sales is
Answer: A (₦10,100)
1,200 + 10,000 − 1,100 = ₦10,100.
1/1/86: Creditors ₦5,000; Stock ₦1,200
31/12/86: Creditors ₦8,000; Stock ₦1,100
Mark-up: 25%
Cash paid to creditors: ₦7,000
Gross profit is
Answer: B (₦2,525)
25% × 10,100 = ₦2,525.
1/1/86: Creditors ₦5,000; Stock ₦1,200
31/12/86: Creditors ₦8,000; Stock ₦1,100
Mark-up: 25%
Cash paid to creditors: ₦7,000
Sales for the year amounted to
Answer: A (₦12,625)
10,100 + 2,525 = ₦12,625.
Section A (compulsory)
Odigwe Garuba and Taiwo are running a partnership whose terms are: (a) Payment of commission of ₦3,000 and salary of ₦6,020 yearly to Odigwe and Garuba respectively; (b) Interest at 5% per annum on partnership capital at the beginning of the year; (c) Equal share of profit. The Trial Balance of the firm as at 31st December 1989 was:
Capital 1st Jan. 89: Odigwe Cr ₦30,000; Garuba Cr ₦30,000; Taiwo Cr ₦25,000
Drawings: Odigwe Dr ₦2,500; Garuba Dr ₦2,000; Taiwo Dr ₦1,000
Purchases and Sales: Dr ₦100,000, Cr ₦160,000
Stock 1st Jan.: Dr ₦5,000
Debtors and Creditors: Dr ₦27,500, Cr ₦15,780
Bad Debts: Dr ₦500
Electricity: Dr ₦300
Postage and Stamps: Dr ₦100
Provision for doubtful debts 1st Jan.: Cr ₦3,000
Premises at cost: Dr ₦70,000
Salaries and wages: Dr ₦10,000
Leasehold property at cost: Dr ₦25,000
Motor Vehicle at cost: Dr ₦42,000
3% Bank Loan: Cr ₦25,000
Furniture: Dr ₦3,200
Provision for depreciation of furniture Jan. 1: Cr ₦320
Totals: ₦289,100, ₦289,100
Additional information: (i) Closing stock ₦3,000 (ii) Provision for doubtful debts is to be adjusted to 10% of debtor (iii) Expenses accrued were: Electricity ₦100; Postage and stamps ₦50. (iv) Depreciation of the furniture is at 10% per annum. (v) The leasehold property is to be written off over ten years (vi) Bank loan interest for the year is outstanding.
Prepare: (a) Partnership Trading, Profit and Loss Account and Appropriation Account for the year ended 31st December 1989. (b) Partner's Capital Accounts and (c) Balance Sheet as at 31st December 1989.
(a) Trading, Profit and Loss and Appropriation Account for the year ended 31 December 1989
Sales 160,000; opening stock 5,000 + purchases 100,000 − closing stock 3,000 = cost of sales 102,000; gross profit ₦58,000
Add decrease in provision for doubtful debts (3,000 − 10% × 27,500 = 2,750) 250 = 58,250
Expenses: bad debts 500; electricity 400; postage and stamps 150; salaries and wages 10,000; loan interest (3% × 25,000) 750; depreciation of furniture (10% × 3,200) 320; leasehold written off (25,000 ÷ 10) 2,500; total 14,620
Net profit ₦43,630
Appropriation: commission Odigwe 3,000; salary Garuba 6,020; interest on capital Odigwe 1,500, Garuba 1,500, Taiwo 1,250; total 13,270; residual profit 30,360 shared equally: ₦10,120 each
(b) Capital Accounts (Odigwe | Garuba | Taiwo): opening 30,000 | 30,000 | 25,000; + commission/salary 3,000 | 6,020 | –; + interest 1,500 | 1,500 | 1,250; + share of profit 10,120 each; − drawings 2,500 | 2,000 | 1,000; closing ₦42,120 | ₦45,640 | ₦35,370 (total 123,130)
(c) Balance Sheet as at 31 December 1989
Fixed assets: premises 70,000; leasehold 25,000 − 2,500 = 22,500; motor vehicle 42,000; furniture 3,200 − 640 = 2,560; total 137,060
Current assets: stock 3,000; debtors 27,500 − 2,750 = 24,750; total 27,750
Current liabilities: creditors 15,780; accrued electricity 100, postage 50, loan interest 750; total 16,680
Net assets 137,060 + 27,750 − 16,680 = 148,130; less 3% bank loan 25,000 = ₦123,130 = total capital
The provision falls from ₦3,000 to ₦2,750, so the ₦250 decrease is a gain credited to profit and loss.
Section B (Answer any three questions from this section)
Government approved for the year ended 31st December, 1989, ₦10,000,000 to ten local authorities of the federation. The allocation was distributed as follows: (a) 80% on population basis and (b) 20% on equality of local authorities
Local Authority and Population: A 200,000; B 450,000; C 300,000; D 375,000; E 680,000; F 490,000; G 320,000; H 350,000; I 375,000; J 460,000; Total 4,000,000
Local Authority E generated the following additional revenue during the year: Fines ₦25,000; Licenses ₦15,000; Parks Operations ₦1,000; Rates ₦17,500
it also made the following payments: Salaries and wages ₦25,000; Electricity ₦2,000; Stationery ₦5,000; Servicing of vehicles ₦36,000
Prepare: (i) A statement of allocation made to each of the local authorities and (ii) Receipts and Payments Accounts of Local Authority "E" for the year ended 31st December 1989.
(i) Population share 80% × 10,000,000 = 8,000,000 ÷ 4,000,000 people = ₦2 per head; equality share 20% = 2,000,000 ÷ 10 = ₦200,000 each
Allocation (population + equality = total): A 400,000 + 200,000 = 600,000; B 900,000 + 200,000 = 1,100,000; C 600,000 + 200,000 = 800,000; D 750,000 + 200,000 = 950,000; E 1,360,000 + 200,000 = 1,560,000; F 980,000 + 200,000 = 1,180,000; G 640,000 + 200,000 = 840,000; H 700,000 + 200,000 = 900,000; I 750,000 + 200,000 = 950,000; J 920,000 + 200,000 = 1,120,000; total ₦10,000,000
(ii) Local Authority E: Receipts and Payments Account for the year ended 31 December 1989
Receipts: allocation on population 1,360,000; on equality 200,000; fines 25,000; licences 15,000; parks 1,000; rates 17,500; total 1,618,500
Payments: salaries and wages 25,000; electricity 2,000; stationery 5,000; servicing of vehicles 36,000; total 68,000
Balance c/d ₦1,550,500
Work out the rate per head first (₦2), then add the equal share of ₦200,000 to each authority.
Etuk Enterprises opted to buy the business of Haruna Enterprises on 1st January 1989 on the basis of its last Balance Sheet which is as follows:
Haruna Enterprises Balance Sheet as at 31st December 1989
Capital Account ₦166,000
Current Liabilities: Creditors ₦10,000; Salaries Accrued ₦750; total ₦10,750
Total ₦176,750
Fixed Assets: Premises ₦60,000; Motor Vehicles ₦70,000; Fixtures & Fittings ₦20,000; Office Equipment ₦6,000; total ₦156,000
Current Assets: Stock ₦7,500; Debtors ₦8,000; Bank ₦5,000; Cash ₦250; total ₦20,750
Total ₦176,750
Additional information: (a) The purchases consideration was agreed at ₦180,000 (b) Debtors realised ₦7,500 and creditors were paid ₦8,000 in full settlement (c) All the assets and liabilities except cash and bank balance were to be taken over (d) Etuk Enterprises paid the purchases price on 1st January 1989.
Prepare: (i) Journal entries in respect of the acquisition and (ii) Balance sheet as at 1st January 1989.
Taking (b) to mean Haruna collected the debtors and paid off the creditors before the sale, Etuk takes over the fixed assets, stock and accrued salaries
Net assets taken over = 156,000 + 7,500 − 750 = 162,750; goodwill = 180,000 − 162,750 = ₦17,250
(i) Journal: Dr premises 60,000; motor vehicles 70,000; fixtures and fittings 20,000; office equipment 6,000; stock 7,500; goodwill 17,250 / Cr accrued salaries 750; Haruna (vendor) 180,000 (being assets and liabilities taken over)
Dr Haruna (vendor) 180,000 / Cr bank (or capital introduced) 180,000 (being purchase price paid)
(ii) Etuk Enterprises Balance Sheet as at 1 January 1989: fixed assets 156,000; goodwill 17,250; stock 7,500; total ₦180,750
Financed by: capital 180,000 (the price paid, treated as capital introduced); accrued salaries 750; total ₦180,750
Goodwill is the price paid minus the net assets taken over.
Mufutau is in brick making business. On 2nd January, 1989 he had the following assets and liabilities:
Assets: Delivery Van ₦42,000; Brick-making machine ₦18,000; Debtors ₦7,000; Bank ₦10,000; Stock ₦1,500
Liabilities: Creditors for expenses ₦300
He does not keep proper records of account but the following cash records are available for the year ended 31st December 1989.
Balance 2/1/89 ₦10,000; Receipt from debtors ₦4,500; total ₦14,500
Less Payments: Materials for brick-making ₦5,200; Rep of van ₦1,200; Telephone ₦500; Creditors for expenses ₦300; total ₦7,200; balance ₦7,300
On 31st December 1989, debtors were owing ₦15,000 and closing stock was valued ₦500. The following additional information were also available: (a) Provision for depreciation: Delivery Van ₦1,000; Brick-making machine ₦1,800 (b) Accrued Telephone expenses ₦100 (c) Provision for doubtful debts ₦350
Prepare: (i) Statement of capital at 2/1/89 (ii) Trading, Profit and Loss Account for the year ended 31st December 1989 and (iii) Balance Sheet as at that date.
(i) Statement of capital at 2 January 1989: assets 42,000 + 18,000 + 7,000 + 10,000 + 1,500 = 78,500 − creditors 300 = capital ₦78,200
Credit sales (debtors control): closing debtors 15,000 + receipts 4,500 − opening debtors 7,000 = ₦12,500
(ii) Trading, Profit and Loss Account for the year ended 31 December 1989: sales 12,500; opening stock 1,500 + materials 5,200 − closing stock 500 = cost of sales 6,200; gross profit ₦6,300
Expenses: van repairs 1,200; telephone 500 + 100 = 600; provision for doubtful debts 350; depreciation van 1,000, machine 1,800; total 4,950; net profit ₦1,350
(iii) Balance Sheet as at 31 December 1989: delivery van 42,000 − 1,000 = 41,000; machine 18,000 − 1,800 = 16,200; fixed assets 57,200
Current assets: stock 500; debtors 15,000 − 350 = 14,650; bank 7,300; total 22,450; total assets ₦79,650
Capital 78,200 + net profit 1,350 = 79,550; accrued telephone 100; total ₦79,650
The ₦300 paid to creditors for expenses clears last year's liability, so it is not this year's expense.
ABC Ltd, manufacturing toys. Its authorized Share Capital is ₦800,000 made up of 600,000 ordinary shares of ₦1 each and 400,000 3% Preference shares of ₦0.50 each. During the year ended 31st December, 1989, the following balance were extracted from the financial records of the company:
Issued and fully paid capital: Ordinary shares of ₦1 each ₦500,000; 3% Preference shares of ₦0.50 each ₦100,000
General Reserve ₦30,000
Goodwill ₦20,000
5% Debentures ₦20,000
Stock at 31st Dec. 1989 ₦25,000
Net profit for the year ₦80,000
Land and building at cost ₦517,500
Fixtures and fittings at cost ₦25,000
Motor vehicles at cost ₦80,000
Provision for Depreciation: Fixtures and Fittings ₦2,500; Motor Vehicles ₦16,000
Creditors ₦10,000
Debtor ₦50,000
Bank ₦40,000
Cash in hand ₦1,000
Additional information: (a) Provision is to be made for the preference shares dividend. The directors recommended ordinary share dividends of 4%. (b) Goodwill to be written off over four years.
Prepare: (i) Appropriation Account for the year ended 31st December, 1989 and (ii) Balance Sheet as at that date.
(i) Profit and Loss Appropriation Account for the year ended 31 December 1989: net profit 80,000; less goodwill written off (20,000 ÷ 4) 5,000; proposed preference dividend (3% × 100,000) 3,000; proposed ordinary dividend (4% × 500,000) 20,000; retained profit c/f ₦52,000
(ii) Balance Sheet as at 31 December 1989
Fixed assets (cost − depreciation): land and building 517,500; fixtures 25,000 − 2,500 = 22,500; motor vehicles 80,000 − 16,000 = 64,000; total 604,000; goodwill 20,000 − 5,000 = 15,000
Current assets: stock 25,000; debtors 50,000; bank 40,000; cash 1,000; total 116,000
Current liabilities: creditors 10,000; proposed dividends 3,000 + 20,000; total 33,000; working capital 83,000
Net assets 604,000 + 15,000 + 83,000 = 702,000; less 5% debentures 20,000 = ₦682,000
Financed by: authorised capital shown as a note (600,000 ordinary at ₦1, 400,000 preference at 50k = ₦800,000); issued: ordinary 500,000; 3% preference 100,000; general reserve 30,000; profit and loss 52,000; total ₦682,000
The preference dividend is 3% of the nominal value issued (₦100,000), i.e. ₦3,000.
The following information were extracted from the ledgers of Shehu Ltd, for the month of January, 1986.
1/1/86 Debit balance in the Sales ledger ₦4,002
Debit balance in the Bought ledger ₦78
31/1/86 Sales of Goods ₦10,000
Returns Inwards ₦800
Bad debts written off ₦120
Cash received ₦4,990
Discount allowed ₦110
Purchases ₦6,780
Cash paid ₦3,240
Returns Outwards ₦200
Customers cheques dishonoured ₦400
Discount received ₦220
Interest charged to customers on overdue accounts ₦20
Prepare for the month of January, 1986 (a) Sales Ledger Control Account (b) Purchases Ledger Control Account
(a) Sales Ledger Control Account
Dr: balance b/d 4,002; sales 10,000; dishonoured cheques 400; interest charged 20; total 14,422
Cr: returns inwards 800; bad debts 120; cash 4,990; discount allowed 110; balance c/d 8,402; total 14,422
Balance b/d ₦8,402 (debit)
(b) Purchases Ledger Control Account
Dr: balance b/d (debit balance) 78; cash 3,240; returns outwards 200; discount received 220; balance c/d 3,042; total 6,780
Cr: purchases 6,780; total 6,780
Balance b/d ₦3,042 (credit)
A debit balance in the bought ledger is brought down on the debit side of the purchases ledger control account.