55 questions. Try each one, then open the answer to check yourself and read the explanation.
Which of the following is the effect of a reduction in the provision for doubtful debts?
Answer: E (Increase in net profit.)
A smaller provision is credited to profit and loss, so net profit rises (gross profit is not affected).
Which of the following is the basis of accounting in the Civil Service?
Answer: B (Cash)
Government accounts record money when it is actually received or paid: the cash basis.
The reward given to a debenture holder is called
Answer: E (interest.)
Debenture holders are lenders, so they receive interest, not dividends.
Which of the following is not a debit entry on a Sales Ledger Control Account?
Answer: B (Cash received)
Cash received from debtors reduces what they owe, so it is a credit entry.
If incorrect entries on the debit side equal other incorrect entries on the credit side, the error is that of
Answer: D (compensation)
Errors that cancel each other out are compensating errors.
The accounting entries required for increase in provision for doubtful debts are
Answer: A (debit Profit and Loss Account, credit Provision for Doubtful Debts account)
An increase is an expense: debit profit and loss, credit the provision account.
Subscription in advance is an example of
Answer: B (accrual)
Subscriptions paid in advance are owed to members as future services, a current liability; of the options, accrual (a liability) fits best.
Which of the following is an example of Personal Accounts?
Answer: E (Debtors.)
Debtors are people who owe the business: personal accounts.
Use the following information:
Sales: ₦45,000
Opening stock: ₦20,000
Closing stock: ₦30,000
Expenses: ₦15,000
Fixed Assets: ₦40,000
Debtors: ₦10,000
Creditors: ₦5,000
Purchases: ₦25,000
The cost of goods sold is
Answer: E (₦15,000)
20,000 + 25,000 − 30,000 = ₦15,000.
Use the following information:
Sales: ₦45,000
Opening stock: ₦20,000
Closing stock: ₦30,000
Expenses: ₦15,000
Fixed Assets: ₦40,000
Debtors: ₦10,000
Creditors: ₦5,000
Purchases: ₦25,000
Net profit is
Answer: E (₦15,000.)
Gross profit 45,000 − 15,000 = 30,000; net profit 30,000 − expenses 15,000 = ₦15,000.
Use the following information:
Sales: ₦45,000
Opening stock: ₦20,000
Closing stock: ₦30,000
Expenses: ₦15,000
Fixed Assets: ₦40,000
Debtors: ₦10,000
Creditors: ₦5,000
Purchases: ₦25,000
Net profit percentage is
Answer: D (33%)
15,000 ÷ 45,000 × 100 = 33%.
Use the following information:
Sales: ₦45,000
Opening stock: ₦20,000
Closing stock: ₦30,000
Expenses: ₦15,000
Fixed Assets: ₦40,000
Debtors: ₦10,000
Creditors: ₦5,000
Purchases: ₦25,000
Current ratio is
Answer: C (8:1)
Current assets (stock 30,000 + debtors 10,000) 40,000 ÷ creditors 5,000 = 8:1.
Use the following information:
Sales: ₦45,000
Opening stock: ₦20,000
Closing stock: ₦30,000
Expenses: ₦15,000
Fixed Assets: ₦40,000
Debtors: ₦10,000
Creditors: ₦5,000
Purchases: ₦25,000
Working capital is
Answer: D (₦35,000)
40,000 − 5,000 = ₦35,000.
Use the following information:
Sales: ₦45,000
Opening stock: ₦20,000
Closing stock: ₦30,000
Expenses: ₦15,000
Fixed Assets: ₦40,000
Debtors: ₦10,000
Creditors: ₦5,000
Purchases: ₦25,000
Gross profit percentage is
Answer: B (67%)
30,000 ÷ 45,000 × 100 = 67%.
Working capital is measured by the excess of
Answer: C (current assets over current liabilities)
Working capital = current assets − current liabilities.
The undistributed profits of a limited liability company is
Answer: D (retained earnings)
Profits kept in the company instead of paid as dividends are retained earnings.
Use the following information:
Balance as per bank statement: ₦240
Amount paid in but not credited: ₦192
Unpresented cheques: ₦70
What is the balance as per Cash Book?
Answer: A (₦362)
240 + uncredited deposit 192 − unpresented cheques 70 = ₦362.
Credit sales were debited to A. Akpan instead of B. Akpan. This is an error of
Answer: D (commission)
Right type of account but the wrong person: an error of commission.
A list of balances extracted from the ledger is known as
Answer: E (Trial balance.)
A trial balance lists all the ledger balances.
Provision for depreciation on office furniture is charged to
Answer: D (Profit and Loss Account)
Depreciation of office assets is an expense in the profit and loss account.
Which of the following is not a cause of discrepancy between cash book and bank statement balances?
Answer: C (Paid cheques)
Cheques already presented and paid appear in both records, so they cause no difference.
The financial plan of the government for a year is contained in the
Answer: C (budget)
The budget sets out the government's planned income and spending for the year.
Which of the following are on the bank statement before reconciliation? (i) Standing order (ii) Payment to a creditor (iii) Receipt from a debtor (iv) Uncredited cheques (v) Unpresented cheques
Answer: C ((i), (ii) and (iii) only)
Standing orders and direct payments/receipts appear on the bank statement first; uncredited and unpresented cheques are not yet on it.
Use the following Debtors Control Account:
Debit side: Balance b/d ₦8,000; 'X' ₦12,000
Credit side: Bank 'Y'; Discount ₦200; Balance c/d ₦3,000
'X' refers to
Answer: D (sales)
The debit entry adding to debtors is credit sales.
Use the following Debtors Control Account:
Debit side: Balance b/d ₦8,000; 'X' ₦12,000
Credit side: Bank 'Y'; Discount ₦200; Balance c/d ₦3,000
How much is the figure for bank?
Answer: C (₦16,800)
8,000 + 12,000 − 200 − 3,000 = ₦16,800.
Use the following Debtors Control Account:
Debit side: Balance b/d ₦8,000; 'X' ₦12,000
Credit side: Bank 'Y'; Discount ₦200; Balance c/d ₦3,000
The closing balance is a
Answer: A (current asset)
The ₦3,000 owed by debtors is a current asset.
A fund established for the payment of minor expenses is
Answer: C (petty cash)
Petty cash pays for small everyday expenses.
The maximum amount which a company can raise by way of selling shares is
Answer: E (authorized capital.)
Authorised capital is the upper limit set in the memorandum.
The aggregate of amounts owed to a business by its customers is known as
Answer: A (accounts receivable)
Money customers owe is accounts receivable (debtors).
Which of the following does a consignee prepare and send to his consignor?
Answer: D (Accounts Sales)
The consignee sends an account sales showing sales, expenses, commission and the balance due.
In the consignee's records, the accounting treatment of expenses paid for on behalf of the consignor is debit
Answer: A (Consignor's Account, credit Cash Account.)
Expenses paid for the consignor are charged to him: debit consignor, credit cash.
Which of the following is a fictitious asset?
Answer: A (Preliminary expenses)
Preliminary expenses have no real value; they are a fictitious asset.
The Department of Administration of Odi Naka Chukwu State Water Corporation has the underlisted staff position on 31st December, 1993.
Post | Grade | Number in post | Rate
Director of Audit | 16 | 1 | ₦200,000 x ₦20,000 – ₦300,000
Assistant Director (Audit) | 15 | 2 | ₦160,000 x ₦18,000 – ₦268,000
Asst. Chief Internal Auditor | 13 | 1 | ₦140,000 x ₦12,000 – ₦224,000
Internal Auditor II | 08 | 2 | ₦60,000 x ₦6,000 – ₦120,000
Higher Executive Officer (Audit) | 08 | 4 | ₦60,000 x ₦6,000 – ₦120,000
Note: (a) All employees are on the first step of their salary (b) Grade Level 12 and above: Housing Allowance ₦24,000 p.a, Transport Allowance ₦18,000 p.a.; 07 to 11: Housing ₦18,000 p.a., Transport ₦12,000 p.a.
The total basic salary for the period is
Answer: D (₦1,020,000)
200,000 + 2 × 160,000 + 140,000 + 2 × 60,000 + 4 × 60,000 = ₦1,020,000.
The Department of Administration of Odi Naka Chukwu State Water Corporation has the underlisted staff position on 31st December, 1993.
Post | Grade | Number in post | Rate
Director of Audit | 16 | 1 | ₦200,000 x ₦20,000 – ₦300,000
Assistant Director (Audit) | 15 | 2 | ₦160,000 x ₦18,000 – ₦268,000
Asst. Chief Internal Auditor | 13 | 1 | ₦140,000 x ₦12,000 – ₦224,000
Internal Auditor II | 08 | 2 | ₦60,000 x ₦6,000 – ₦120,000
Higher Executive Officer (Audit) | 08 | 4 | ₦60,000 x ₦6,000 – ₦120,000
Note: (a) All employees are on the first step of their salary (b) Grade Level 12 and above: Housing Allowance ₦24,000 p.a, Transport Allowance ₦18,000 p.a.; 07 to 11: Housing ₦18,000 p.a., Transport ₦12,000 p.a.
Total housing allowance for the period is
Answer: C (₦204,000)
4 staff (GL 13–16) × 24,000 = 96,000 + 6 staff (GL 08) × 18,000 = 108,000; total ₦204,000.
The Department of Administration of Odi Naka Chukwu State Water Corporation has the underlisted staff position on 31st December, 1993.
Post | Grade | Number in post | Rate
Director of Audit | 16 | 1 | ₦200,000 x ₦20,000 – ₦300,000
Assistant Director (Audit) | 15 | 2 | ₦160,000 x ₦18,000 – ₦268,000
Asst. Chief Internal Auditor | 13 | 1 | ₦140,000 x ₦12,000 – ₦224,000
Internal Auditor II | 08 | 2 | ₦60,000 x ₦6,000 – ₦120,000
Higher Executive Officer (Audit) | 08 | 4 | ₦60,000 x ₦6,000 – ₦120,000
Note: (a) All employees are on the first step of their salary (b) Grade Level 12 and above: Housing Allowance ₦24,000 p.a, Transport Allowance ₦18,000 p.a.; 07 to 11: Housing ₦18,000 p.a., Transport ₦12,000 p.a.
Total transport allowance for the period is
Answer: D (₦144,000)
4 × 18,000 + 6 × 12,000 = ₦144,000.
The Department of Administration of Odi Naka Chukwu State Water Corporation has the underlisted staff position on 31st December, 1993.
Post | Grade | Number in post | Rate
Director of Audit | 16 | 1 | ₦200,000 x ₦20,000 – ₦300,000
Assistant Director (Audit) | 15 | 2 | ₦160,000 x ₦18,000 – ₦268,000
Asst. Chief Internal Auditor | 13 | 1 | ₦140,000 x ₦12,000 – ₦224,000
Internal Auditor II | 08 | 2 | ₦60,000 x ₦6,000 – ₦120,000
Higher Executive Officer (Audit) | 08 | 4 | ₦60,000 x ₦6,000 – ₦120,000
Note: (a) All employees are on the first step of their salary (b) Grade Level 12 and above: Housing Allowance ₦24,000 p.a, Transport Allowance ₦18,000 p.a.; 07 to 11: Housing ₦18,000 p.a., Transport ₦12,000 p.a.
The total emolument for the assistant directors is
Answer: A (₦404,000)
2 × (160,000 + 24,000 + 18,000) = ₦404,000.
The Department of Administration of Odi Naka Chukwu State Water Corporation has the underlisted staff position on 31st December, 1993.
Post | Grade | Number in post | Rate
Director of Audit | 16 | 1 | ₦200,000 x ₦20,000 – ₦300,000
Assistant Director (Audit) | 15 | 2 | ₦160,000 x ₦18,000 – ₦268,000
Asst. Chief Internal Auditor | 13 | 1 | ₦140,000 x ₦12,000 – ₦224,000
Internal Auditor II | 08 | 2 | ₦60,000 x ₦6,000 – ₦120,000
Higher Executive Officer (Audit) | 08 | 4 | ₦60,000 x ₦6,000 – ₦120,000
Note: (a) All employees are on the first step of their salary (b) Grade Level 12 and above: Housing Allowance ₦24,000 p.a, Transport Allowance ₦18,000 p.a.; 07 to 11: Housing ₦18,000 p.a., Transport ₦12,000 p.a.
The total emolument for the Internal Audit Department is
Answer: A (₦1,368,000)
1,020,000 + 204,000 + 144,000 = ₦1,368,000.
Expenditure incurred to maintain an asset's earning capacity is called
Answer: B (revenue expenditure)
Keeping an asset working (repairs, maintenance) is revenue expenditure; improving it is capital.
Which of the following does not relate to a manufacturing concern?
Answer: E (Income and Expenditure Account.)
An income and expenditure account is for non-profit organisations.
Which of the following is not true of a Trial Balance?
Answer: D (List of accounts abstracted from a subsidiary ledger to check their agreement with the related control accounts)
A list from a subsidiary ledger checked against its control account is a schedule of debtors or creditors, not a trial balance.
The chief accounting officer of Nigeria is called the
Answer: D (Accountant General)
The Accountant-General is the chief accounting officer.
Expenses incurred but not yet paid is
Answer: B (current liability)
An accrued expense is owed, so it is a current liability.
Which of the following does not lead to depreciation of assets?
Answer: C (Devaluation of Naira)
A change in the currency's value is not a cause of depreciation.
Which of the following is a capital expenditure?
Answer: D (Extension of building)
Extending a building adds to a fixed asset: capital expenditure.
What are accounting entries for bad debts recovered?
Answer: A (Debit Debtor's Account, credit Bad Debts Recovered Account)
The debt is first reinstated (debit debtor, credit bad debts recovered), then the cash received is recorded.
Halima and Ibinabo are partners sharing profits and losses equally. Extracts from their books showed (Halima | Ibinabo):
Capital Accounts 1st Jan., 1992: ₦100,000 | ₦50,000
Current Accounts 1st Jan., 1992: ₦20,000 | ₦40,000
Drawing during the year: ₦10,000 | ₦15,000
Annual salaries: ₦14,000 | ₦12,000
Interest on capital is 10%. The net profit for the year is ₦60,000.
The interest on Halima's capital is
Answer: A (₦10,000)
10% × 100,000 = ₦10,000.
Halima and Ibinabo are partners sharing profits and losses equally. Extracts from their books showed (Halima | Ibinabo):
Capital Accounts 1st Jan., 1992: ₦100,000 | ₦50,000
Current Accounts 1st Jan., 1992: ₦20,000 | ₦40,000
Drawing during the year: ₦10,000 | ₦15,000
Annual salaries: ₦14,000 | ₦12,000
Interest on capital is 10%. The net profit for the year is ₦60,000.
The share of profit of each partner is
Answer: E (₦9,500.)
60,000 − salaries 26,000 − interest 15,000 = 19,000; half each = ₦9,500.
Halima and Ibinabo are partners sharing profits and losses equally. Extracts from their books showed (Halima | Ibinabo):
Capital Accounts 1st Jan., 1992: ₦100,000 | ₦50,000
Current Accounts 1st Jan., 1992: ₦20,000 | ₦40,000
Drawing during the year: ₦10,000 | ₦15,000
Annual salaries: ₦14,000 | ₦12,000
Interest on capital is 10%. The net profit for the year is ₦60,000.
The balance on Halima's Current Account on 31st December, 1992 is
Answer: D (₦43,500)
20,000 + interest 10,000 + salary 14,000 + share 9,500 − drawings 10,000 = ₦43,500.
Halima and Ibinabo are partners sharing profits and losses equally. Extracts from their books showed (Halima | Ibinabo):
Capital Accounts 1st Jan., 1992: ₦100,000 | ₦50,000
Current Accounts 1st Jan., 1992: ₦20,000 | ₦40,000
Drawing during the year: ₦10,000 | ₦15,000
Annual salaries: ₦14,000 | ₦12,000
Interest on capital is 10%. The net profit for the year is ₦60,000.
The balance on Ibinabo's Current Account on 31st December, 1992 is
Answer: C (₦51,500)
40,000 + interest 5,000 + salary 12,000 + share 9,500 − drawings 15,000 = ₦51,500.
Section A (compulsory)
The treasurer of Annang Football Club presents to you the following information relating to the Financial transactions of the Club for the year ended 31st December, 1993.
Receipt and Payment Account for the year ended 31st December, 1993
Receipts: Bank Balance 1/1/93 ₦1,048; Subscription Received for: 1992 ₦110; 1993 ₦2,472; 1994 ₦80; Bar Sales ₦11,256; Donations received ₦240; total ₦15,206
Payments: Payments for bar supplies ₦7,924; Wages: Groundsman and Assistant ₦1,878; Barmen ₦1,248; Bar expenses ₦468; Repairs to stands ₦238; Ground unkeep ₦458; Secretarial expenses ₦276; Transport costs ₦610; Bank Balance 31/12/93 ₦2,106; total ₦15,206
Additional information: (a) (31/12/92 | 31/12/93): Stock in bar at cost ₦992 | ₦1,116; Owing for bar supplies ₦588 | ₦680; Bar expenses owing ₦50 | ₦72; Transport cost owing – | ₦130 (b) The value of Fixed Assets as at 31st December, 1992 was: Land ₦8,000; Football stands ₦4,000; Equipment ₦1,100 (c) Depreciation is to be charged on straight line method as follows: Football stands 10% per annum; Equipment 20% per annum (d) Subscription owing by members were as follows: 31st December 1992 ₦110; 31st December 1993 ₦132
You are required to: (i) Calculate the Accumulated fund as at 31st December, 1992. (ii) Prepare the Bar Trading, and Expenditure Account for the year ended 31st December 1993. (iii) Prepare the Balance Sheet as at the date.
(i) Accumulated fund at 31 December 1992: land 8,000 + stands 4,000 + equipment 1,100 + bar stock 992 + subscriptions owing 110 + bank 1,048 = 15,250; less owing for bar supplies 588 and bar expenses 50 = ₦14,612
(ii) Bar Trading Account: bar sales 11,256; purchases 7,924 + 680 − 588 = 8,016; cost of sales 992 + 8,016 − 1,116 = 7,892; gross profit 3,364; less barmen's wages 1,248 and bar expenses (468 + 72 − 50) 490; bar profit ₦1,626
Income and Expenditure Account for the year ended 31 December 1993: income: subscriptions (2,472 + 132 owing) 2,604; donations 240; bar profit 1,626; total 4,470
Expenditure: groundsman's wages 1,878; repairs to stands 238; ground upkeep 458; secretarial 276; transport (610 + 130) 740; depreciation: stands 400, equipment 220; total 4,210
Surplus ₦260
(iii) Balance Sheet as at 31 December 1993: land 8,000; stands 3,600; equipment 880; fixed assets 12,480; bar stock 1,116; subscriptions owing 132; bank 2,106; total ₦15,834
Accumulated fund 14,612 + 260 = 14,872; creditors for bar supplies 680; bar expenses owing 72; transport owing 130; subscriptions in advance 80; total ₦15,834
Subscriptions received for 1992 settle last year's arrears and those for 1994 are a liability; only 1993's belong in this year's income.
Section B (Answer any three questions from this section)
Abike Amuluduri is the proprietress of a shop selling books, periodicals, newspapers and children's games and toys. For the purpose of her accounts, she decided to divide her business into two departments. Department A Books, Periodicals and Newspapers. Department B Games, toys and fancy goods. The following balances were extracted from her nominal ledger on 31st March, 1993.
Sales – Department A Cr ₦150,000; Department B Cr ₦100,000
Stock 1/4/92: Department A ₦2,500; Department B ₦2,000
Purchases: Department A ₦118,000; Department B ₦82,000
Wages of Sales Assistants: Department A ₦10,000; Department B ₦7,500
Newspaper delivery wages ₦1,500
General office salaries ₦7,500
Rates ₦1,300
Insurance ₦500
Electricity ₦1,200
Repairs to premises ₦250
Telephone ₦250
Cleaning ₦300
Accounting and Audit fees ₦1,200
General Office expenses ₦600
Stocks 1/3/93: Department A ₦3,000; Department B ₦1,500
The portion of the total floor area occupied by each department was: Department A - One - fifth; Department B - Four - fifth
You are required to: Prepare a Departmental Trading, Profit and Loss Account of Abike Amuluduri for the year ended 31st March 1993, Note: Apportionment should be made using the following bases. Area - Rates, Insurance, electricity, repairs, telephone and cleaning Turnover - General Office salaries, Accountancy and Audit fees, and general office expenses.
Departmental Trading, Profit and Loss Account for the year ended 31 March 1993 (A | B | Total)
Sales 150,000 | 100,000 | 250,000
Cost of sales: 2,500 + 118,000 − 3,000 = 117,500 | 2,000 + 82,000 − 1,500 = 82,500 | 200,000
Gross profit ₦32,500 | ₦17,500 | ₦50,000
Expenses: sales assistants' wages 10,000 | 7,500; newspaper delivery (A only) 1,500 | –; by turnover (3:2): office salaries 4,500 | 3,000, audit fees 720 | 480, office expenses 360 | 240; by area (1:4): rates 260 | 1,040, insurance 100 | 400, electricity 240 | 960, repairs 50 | 200, telephone 50 | 200, cleaning 60 | 240
Total expenses 17,840 | 14,260 | 32,100
Net profit A ₦14,660; B ₦3,240; total ₦17,900
Newspaper delivery wages belong only to department A (newspapers).
The following balances were extracted from the books of Usen Stores on 31st December, 1993.
Returns Outwards ₦190
Cash payment to creditors for goods supplied ₦11,250
Returns inwards ₦410
Cash received from debtors for sales ₦17,784
Bills payable ₦3,404
Discount received ₦1,054
Bills receivable ₦2,400
Discount Allowed ₦1,092
Bad Debts ₦506
Balance of sundry creditors for goods supplied as at 1/1/93 ₦2,452
Balance of sundry debtors for sales as at 1/1/93 ₦4,260
Balance of creditors for goods supplied as at 31/12/93 ₦2,678
Balance of debtors for sales as at 31/12/93 ₦5,720
You are required to determine by Control Accounts the amount of: (a) Purchases as at 31st December 1993 and (b) Sales as at that date.
(a) Purchases Ledger Control Account: Dr returns outwards 190; cash 11,250; bills payable 3,404; discount received 1,054; balance c/d 2,678; total 18,576 / Cr balance b/d 2,452; credit purchases (missing figure) ₦16,124
(b) Sales Ledger Control Account: Dr balance b/d 4,260; credit sales (missing figure) ₦23,652 / Cr returns inwards 410; cash 17,784; bills receivable 2,400; discount allowed 1,092; bad debts 506; balance c/d 5,720; total 27,912
Put every known item in the control account; the balancing figure is the purchases (or sales).
James Aluko, a trader engaged the services of an inexperienced book keeper, The book-keeper produced the following Balance Sheet as at 31st December, 1993.
Capital ₦50,224; Loan – Johnson 12% ₦20,000; Trade Creditors ₦26,000; Accruals ₦282; Bank Overdraft ₦14,634; Profit and Loss Account ₦18,400; total ₦129,540
Fixed Assets ₦72,208; Stock ₦18,826; Debtors ₦26,016; Prepayments ₦600; Drawings ₦8,260; Suspense Account ₦2,930; Cash ₦700; total ₦129,540
An investigation into the accounts revealed the following: (a) The Suspense Account balance represent the difference on the Trial Balance (b) The Purchases Day Book total for October of ₦8,240 was posted to Purchases Account as ₦8,420 (c) Closing Stock were overcasted by ₦2,000 (d) Cash in hand should be ₦110 (e) Fixtures and fittings Account balance of ₦4,600 has been omitted from the Trial Balance (f) Interest for a half year on Loan Account has not been paid and no provisions made for it (g) An invoice for ₦500 has been included in stock and Purchases but not posted to the Personal Account. (h) A sales Returns of ₦200 has been debited to Adewale's Account.
You are required to prepare: (i) Suspense Account and (ii) A Revised Balance Sheet as at 31st December 1993.
(i) Suspense Account: Dr balance b/d 2,930; purchases overcast (8,420 − 8,240) 180; cash overstated (700 − 110) 590; creditor not posted 500; Adewale (200 × 2) 400; total 4,600 / Cr fixtures and fittings omitted 4,600
Profit adjustment: 18,400 + 180 − stock overcast 2,000 − half-year loan interest (12% × 20,000 × ½) 1,200 = ₦15,380
(ii) Revised Balance Sheet as at 31 December 1993: fixed assets 72,208 + 4,600 = 76,808; stock 16,826; debtors (26,016 − 400) 25,616; prepayments 600; cash 110; total ₦119,960
Capital 50,224 + 15,380 − drawings 8,260 = 57,344; 12% loan 20,000; trade creditors 26,500; accruals 282 + loan interest 1,200; bank overdraft 14,634; total ₦119,960
Errors (c) and (f) change profit but not the suspense account; drawings are deducted from capital, not shown as an asset.
Audu, Bisi and Sam are in partnership sharing profits and losses in the ratio 2:2:1 respectively. The partnership agreement provides: Payment of interest at 15% per annum on the credit balance of each partner's capital and 15% on Current Account (Credit balance) at the beginning of each year. That no interest on drawings be charged. For the payment of a salary of ₦2,500 per annum to Sam together with a 2% commission on the trading profit after charging current account interest, salary and the commission, but before charging interest, on capital.
The partners' balances as at 1st July, 1993 were as follows (Current Account | Capital Account): Audu ₦2,000 Cr | ₦16,000; Bisi ₦200 Dr | ₦12,000; Sam ₦400 Dr | ₦4,000
Drawings for the year were: Audu ₦5,200; Bisi ₦3,700; Sam ₦4,800
The trading profit for the year ended 30th June, 1994 was ₦22,282
You are required to prepare: (i) The Profit and Loss Appropriation Account for the year ended 30th June, 1994 (ii) The Current Account for each partner in columnar form and (iii) The Capital Account for each partner in columnar form
Workings: interest on current account (Audu only, credit balance) 15% × 2,000 = 300; salary to Sam 2,500; commission = 2% of profit after itself: (22,282 − 300 − 2,500) × 2/102 = ₦382
(i) Appropriation Account for the year ended 30 June 1994: trading profit 22,282; less interest on current account 300; Sam's salary 2,500; Sam's commission 382; interest on capital (15%): Audu 2,400, Bisi 1,800, Sam 600 = 4,800; residue 14,300 shared 2:2:1: Audu 5,720, Bisi 5,720, Sam 2,860
(ii) Current Accounts (Audu | Bisi | Sam): opening 2,000 Cr | 200 Dr | 400 Dr; add interest on current account 300 | – | –; salary – | – | 2,500; commission – | – | 382; interest on capital 2,400 | 1,800 | 600; share of profit 5,720 | 5,720 | 2,860; less drawings 5,200 | 3,700 | 4,800; closing balances ₦5,220 Cr | ₦3,620 Cr | ₦1,142 Cr
(iii) Capital Accounts: no change: Audu ₦16,000; Bisi ₦12,000; Sam ₦4,000
The commission is 2% of the profit after the commission itself, so divide by 102, not 100.
Gadzama Trading Company Limited supplies goods to its Calabar branch. The following are the details of transactions with the branch for December 1993: On 1st December, 1993 goods costing ₦6,000 were invoiced to the branch at cost plus 331/1 percent. At the end of the month the Branch returns showed that the sales were ₦5,000. Goods invoiced at ₦80 were returned to Head Office and the Closing Stock was ₦2,880 at selling price.
You are required to prepare in the Head Office books (a) Goods send to Branch Account (b) Branch Stock Account, and (c) Branch Adjustment Account.
Mark-up 33⅓% on cost = 25% of selling price; goods sent at invoice price 6,000 + 2,000 = 8,000
(a) Goods Sent to Branch Account: Cr branch stock 6,000 (cost) / Dr returns from branch at cost 60; transfer to head office trading (purchases) 5,940
(b) Branch Stock Account (at selling price): Dr goods sent 6,000 + branch adjustment (mark-up) 2,000 = 8,000 / Cr returns to head office 80; sales 5,000; stock shortage 40; balance c/d 2,880; total 8,000
(c) Branch Adjustment Account: Cr mark-up on goods sent 2,000 / Dr mark-up on returns 20; mark-up on shortage 10; unrealised profit on closing stock (25% × 2,880) 720; gross profit to profit and loss 1,250; total 2,000
(The shortage at cost, ₦30, is charged to profit and loss; gross profit = 25% × sales 5,000 = ₦1,250.)
Work out the stock account first: goods in less returns and sales should equal closing stock; any gap is a shortage.