55 questions. Try each one, then open the answer to check yourself and read the explanation.
Which of the following is the book of original entry for all payments and receipts whether by cash or cheque?
Answer: C (Cash Book)
The cash book records every receipt and payment, in cash or through the bank, so it is both a book of original entry and a ledger account.
Which of the following is not a cause for the difference between bank statement balance and cash book balance?
Answer: B (Presented cheques)
A cheque that has already been presented appears in both the cash book and the bank statement, so it causes no difference.
A sales journal is used to record
Answer: C (Credit sales)
The sales journal (sales day book) lists credit sales only; cash sales go straight into the cash book.
Which of the following fixed assets is not depreciable?
Answer: C (Land)
Land does not wear out or get used up, so it is normally not depreciated.
Prepayment is shown in the Balance Sheet as
Answer: A (Current asset)
A prepayment is an expense paid in advance; the business is owed that service, so it is a current asset.
Mr. B sold goods worth N200 on credit to Mr. C.
Mr. B should debit this to
Answer: D (Mr. C's Account)
On a credit sale the seller debits the customer's (debtor's) account, here Mr. C, and credits sales.
Mr. B sold goods worth N200 on credit to Mr. C.
The credit sale should be entered into
Answer: A (Sales Day Book)
Credit sales are first recorded in the sales day book before posting to the ledger.
An equipment costing N60,000 was bought on 1st January 1991. Depreciation was provided at 20 percent annually on straight line method. It was sold on 30th June 1994 for N15,750.
Its accumulated depreciation provision at the time of sale was
Answer: B (N42,000)
Yearly depreciation = 20% × N60,000 = N12,000. From 1/1/91 to 30/6/94 is 3½ years, so 3.5 × N12,000 = N42,000.
An equipment costing N60,000 was bought on 1st January 1991. Depreciation was provided at 20 percent annually on straight line method. It was sold on 30th June 1994 for N15,750.
The net book value of the equipment at the time of sale was
Answer: D (N18,000)
Net book value = cost − accumulated depreciation = N60,000 − N42,000 = N18,000.
An equipment costing N60,000 was bought on 1st January 1991. Depreciation was provided at 20 percent annually on straight line method. It was sold on 30th June 1994 for N15,750.
In the year of sale, profit was
Answer: E (reduced by N2,250.)
The equipment was sold for N15,750 but its book value was N18,000, so there is a loss on disposal of N2,250 that reduces profit.
Debentures issued at a price above the nominal value are said to be issued
Answer: B (at premium)
Issuing above nominal (face) value is issuing at a premium.
A trial balance is
Answer: C (list of all balances extracted from the ledger)
A trial balance lists all the debit and credit balances taken from the ledger to check that they agree.
The balance sheet is a statement showing
Answer: A (all assets and liabilities)
A balance sheet shows the assets of the business and the claims against them (liabilities and capital) at a date.
Which of the following entries would be made for goods bought and paid for immediately?
Answer: B (Debit Purchases Account; credit Cash Account)
Goods bought increase purchases (debit) and paying cash reduces cash (credit).
The purpose of a Trading Account is to ascertain
Answer: B (gross profit or loss)
The trading account compares sales with the cost of goods sold to find gross profit or loss.
Factory wages are always entered into the
Answer: B (Manufacturing Account)
Factory wages are a production cost, so they go into the manufacturing account.
Fixed assets: N12,000
Current assets: N5,000
Current liabilities: N2,300
Capital: N10,000
Long term liabilities: N4,700
What is the total assets?
Answer: B (N17,000)
Total assets = fixed assets + current assets = N12,000 + N5,000 = N17,000.
Fixed assets: N12,000
Current assets: N5,000
Current liabilities: N2,300
Capital: N10,000
Long term liabilities: N4,700
What is the total net assets?
Answer: D (N14,700)
Net assets = total assets − current liabilities = N17,000 − N2,300 = N14,700 (equal to capital + long-term liabilities).
Fixed assets: N12,000
Current assets: N5,000
Current liabilities: N2,300
Capital: N10,000
Long term liabilities: N4,700
Total liabilities amount to
Answer: D (N7,000)
Total liabilities = current liabilities + long-term liabilities = N2,300 + N4,700 = N7,000.
Fixed assets: N12,000
Current assets: N5,000
Current liabilities: N2,300
Capital: N10,000
Long term liabilities: N4,700
The working capital is
Answer: E (N2,700.)
Working capital = current assets − current liabilities = N5,000 − N2,300 = N2,700.
The payee of a cheque is the
Answer: C (person named to receive the amount on the cheque)
The payee is the person the cheque is made payable to.
Which of the following is not part of prime cost of production?
Answer: E (Depreciation of factory equipment)
Prime cost is direct materials, direct labour and direct expenses; depreciation of factory equipment is a factory overhead.
The person who has applied for shares in a company is called
Answer: E (applicant.)
Someone who has applied but not yet been allotted shares is an applicant.
Which of the following is not an Appropriation Account item for a company?
Answer: A (Interest on drawings)
Interest on drawings belongs to partnership appropriation accounts; company shareholders do not have drawings.
The total debtors account of a trading concern is N13,000. Out of this 2 percent is irrecoverable; 5 percent of the balance is unlikely to be collected.
What is the provision for doubtful debts?
Answer: C (N637)
Bad debt = 2% × N13,000 = N260, leaving N12,740. Provision = 5% × N12,740 = N637.
The total debtors account of a trading concern is N13,000. Out of this 2 percent is irrecoverable; 5 percent of the balance is unlikely to be collected.
Bad debt is
Answer: E (N260.)
Bad debt = 2% × N13,000 = N260.
Which of the following are examples of Nominal Account?
Answer: E (Rent and Discount.)
Nominal accounts record incomes and expenses; rent and discount are both nominal.
A payment of N150 to a creditor is
Answer: C (a reduction in assets and liabilities)
Paying a creditor reduces cash (an asset) and reduces the amount owed (a liability).
Which of the following is not charged to Manufacturing Account?
Answer: C (Distribution expenses)
Distribution expenses are selling costs and go to the profit and loss account, not the manufacturing account.
Discount received is shown in the
Answer: B (debit side of bought ledger balances)
Discount received reduces what we owe suppliers, so it is debited in the bought (purchases) ledger.
Impersonal Accounts contain
Answer: C (Real and Nominal Accounts)
Accounts are personal or impersonal; impersonal accounts are divided into real and nominal accounts.
UCHENNA ENTERPRISES – Balance Sheet as at 31st December, 1993
Capital N84,000; add net profit N15,000 = N99,000; less drawings N9,000 = N90,000
Creditors N25,000
Accruals N15,000
Total N130,000
Land and Building N45,000
Furniture and Fittings N34,000
Stock N28,000
Debtors N22,000
Cash N1,000
Total N130,000
Capital employed is
Answer: D (N90,000)
Capital employed = total assets − current liabilities = N130,000 − N40,000 = N90,000 (the owner's closing capital).
UCHENNA ENTERPRISES – Balance Sheet as at 31st December, 1993
Capital N84,000; add net profit N15,000 = N99,000; less drawings N9,000 = N90,000
Creditors N25,000
Accruals N15,000
Total N130,000
Land and Building N45,000
Furniture and Fittings N34,000
Stock N28,000
Debtors N22,000
Cash N1,000
Total N130,000
Current assets amount to
Answer: A (N51,000)
Current assets = stock N28,000 + debtors N22,000 + cash N1,000 = N51,000.
UCHENNA ENTERPRISES – Balance Sheet as at 31st December, 1993
Capital N84,000; add net profit N15,000 = N99,000; less drawings N9,000 = N90,000
Creditors N25,000
Accruals N15,000
Total N130,000
Land and Building N45,000
Furniture and Fittings N34,000
Stock N28,000
Debtors N22,000
Cash N1,000
Total N130,000
Working capital amounts to
Answer: E (N11,000.)
Working capital = current assets N51,000 − current liabilities (N25,000 + N15,000) = N11,000.
Which of the following accounts does not have a debit balance?
Answer: B (Share Premium Account)
Share premium is part of shareholders' funds (a capital reserve), so it has a credit balance; the others are expenses or returns inwards.
Which of the following is a charge against profit?
Answer: D (Debenture interest)
Debenture interest is an expense charged in the profit and loss account; dividends and reserves are appropriations of profit.
The cash realised from the sale of assets on dissolution of partnership is
Answer: C (debited to Cash Account and credited to Realisation Account)
On dissolution the assets are first moved to the realisation account; cash received for them is debited to cash and credited to realisation.
Which of the following does not belong to the group?
Answer: E (General reserve.)
Furniture, plant, building and debtors are assets; general reserve is part of capital (a liability side item).
The portion of the authorized capital which has not been allotted to members is
Answer: E (unissued capital.)
Authorised capital not yet issued (allotted) to shareholders is unissued capital.
Stock 1/1/93: N4,500
Sales: N13,500
Purchases: N5,000
Carriage inwards: N500
Stock 31/12/93: N4,200
Returns inwards: N600
Cost of sales is
Answer: C (N5,800)
Cost of sales = 4,500 + 5,000 + 500 − 4,200 = N5,800.
Stock 1/1/93: N4,500
Sales: N13,500
Purchases: N5,000
Carriage inwards: N500
Stock 31/12/93: N4,200
Returns inwards: N600
Net Sales is
Answer: D (12,900)
Net sales = sales − returns inwards = 13,500 − 600 = N12,900.
Stock 1/1/93: N4,500
Sales: N13,500
Purchases: N5,000
Carriage inwards: N500
Stock 31/12/93: N4,200
Returns inwards: N600
Gross Profit is
Answer: E (N7,100.)
Gross profit = net sales − cost of sales = 12,900 − 5,800 = N7,100.
Discount allowed is a charge made against
Answer: B (Profit and Loss Account)
Discount allowed is an expense and is charged in the profit and loss account.
Which of the following is used before the appropriation bill is approved?
Answer: B (Provisional general warrant)
A provisional general warrant lets government spend for a limited period before the appropriation bill is passed.
Which of the following is used where virement is not possible and where an application for additional provision reveals a degree of urgency?
Answer: C (Contigencies warrant)
When money cannot be moved by virement and the need is urgent, a contingencies warrant releases funds from the contingencies fund.
A document which acknowledges that a company owes a named person a stated sum of money with the promise that a stated interest rate will be paid periodically is called
Answer: C (debenture certificate)
A debenture is a written acknowledgement of a loan to the company carrying a fixed rate of interest.
Which of the following is not a debit entry in the Bought Ledger?
Answer: C (Purchases)
In a supplier's account, credit purchases are credited; payments, discounts, returns and bills payable are debited.
Provision for bad debts: N1,000 Cr
Bad debts: N500 Dr
Debtors: N50,000 Dr
Additional bad debts to be written off: N500
New provision for bad debts to stand at 5% of debtors.
In the Balance Sheet, the net figure for debtors is
Answer: A (N47,025)
Debtors after writing off N500 = N49,500; provision 5% = N2,475; net debtors = 49,500 − 2,475 = N47,025.
Provision for bad debts: N1,000 Cr
Bad debts: N500 Dr
Debtors: N50,000 Dr
Additional bad debts to be written off: N500
New provision for bad debts to stand at 5% of debtors.
The total amount of bad debts to be charged as expense in the Profit and Loss Account is
Answer: E (N1,000.)
Bad debts = N500 already in the books + N500 additional = N1,000 (the change in provision is shown separately).
Section A (compulsory)
1. The following list of balances was extracted from the books of Zingarella (Nig.) Limited as at 31st December, 1994.
200,000 Ordinary shares of N1 each: N200,000 (Cr)
50,000 8% preference shares of each: N50,000 (Cr)
10% debentures: N50,000 (Cr)
Share premium: N8,000 (Cr)
General reserve: N10,000 (Cr)
Profit and Loss Account 1/1/94: N2,500 (Cr)
Freehold premises: N150,000 (Dr)
Plant and machinery (cost N300,000): N180,000 (Dr)
Stock 1st January, 1994: N23,800 (Dr)
Purchases and Sales: N281,600 (Dr); N409,641 (Cr)
Returns inwards and outwards: N10,300 (Dr); N17,350 (Cr)
Discounts allowed and received: N6,450 (Dr); N9,250 (Cr)
Debtors and creditors: N30,030 (Dr); N20,020 (Cr)
Provision for bad debt 1/1/94: N905 (Cr)
Wages and Salaries: N21,400
Postages and telephone: N5,800
Debenture interest: N3,000
Directors fees: N15,600
Insurance expenses: N2,000
Interim dividends: Preference N3,000; Ordinary N5,000
Cash and Bank balances: N39,686
Totals: N777,666 / N777,666
Additional information:
(a) The authorised share capital of the company is N400,000 ordinary shares of N1 each and 100,000 8% preference shares of N1 each.
(b) Stock on 31st December, 1994 was N27,280.
(c) During the year, goods worth N6,500 were lost to theft. No entry had been made in the books to reflect this.
(d) Insurance prepaid was N200.
(e) During the year, a plant originally costing N50,000 and on which N30,000 depreciation had been provided was sold for N22,000. This transaction had been included as sales.
(f) Depreciation has been and is to be provided on plant and machinery at 10% on cost.
(g) Provision for bad debt is to be maintained at N2,500
(h) The directors wish to provide for: (i) a final preference dividend; (ii) a final ordinary dividend of 5%
You are required to prepare:
(i) Trading, Profit and Loss and Appropriation Accounts for the year ended 31st December, 1994 and
(ii) Balance Sheet as at that date.
Trading account: Sales 409,641 − plant sale wrongly in sales 22,000 − returns inwards 10,300 = net sales 377,341.
Opening stock 23,800 + purchases 281,600 − returns outwards 17,350 − goods stolen 6,500 = 281,550; less closing stock 27,280 = cost of sales 254,270.
Gross profit = 123,071.
Profit and loss: add discount received 9,250 and profit on sale of plant 2,000 (22,000 − NBV 20,000) = 134,321.
Expenses: discount allowed 6,450; increase in provision 1,595 (2,500 − 905); wages 21,400; postage 5,800; debenture interest 5,000 (10% × 50,000, so 2,000 accrued); directors' fees 15,600; insurance 1,800 (2,000 − 200); goods lost to theft 6,500; depreciation 25,000 (10% × cost 250,000) = 89,145.
Net profit = 45,176.
Appropriation: net profit 45,176 + balance b/f 2,500 = 47,676; less preference dividend interim 3,000 + proposed 1,000 (8% × 50,000 = 4,000); ordinary interim 5,000 + proposed 10,000 (5% × 200,000); total 19,000; retained profit c/f 28,676.
Balance sheet: Freehold premises 150,000; plant cost 250,000 less depreciation 115,000 (120,000 − 30,000 + 25,000) = 135,000; fixed assets 285,000.
Current assets: stock 27,280; debtors 30,030 − 2,500 = 27,530; prepaid insurance 200; cash and bank 39,686 = 94,696.
Current liabilities: creditors 20,020; proposed dividends 1,000 + 10,000; accrued debenture interest 2,000 = 33,020. Working capital 61,676.
Net assets 346,676 less 10% debentures 50,000 = 296,676.
Financed by: authorised capital shown as a note (400,000 ordinary + 100,000 preference); issued ordinary 200,000 + preference 50,000 + share premium 8,000 + general reserve 10,000 + retained profit 28,676 = 296,676.
Correct the sales figure for the plant sale first, then work through each adjustment once in the accounts and once in the balance sheet.
Section B (answer three questions only from this section)
2. The following balances were extracted from the books of Goody Enterprises on 30th September, 1994.
Purchase Ledger balances Cr 1/10/93: N7,532
Sales ledger balances Dr 1/10/93: N7,948
Purchases day book: N90,454
Sales day book: N77,530
Returns outwards day book: N3,960
Returns inwards day book: N14,180
Cheques received from customers: N56,680
Cheques paid to suppliers: N61,860
Cash refund from a supplier who was overpaid: N240
Discounts allowed: N3,774
Discounts received: N2,678
Credit notes received: N280
Debit notes issued: N530
You are required to prepare: (a) Debtors Control Account; (b) Creditors Control Account.
(a) Debtors (sales ledger) control account
Dr: balance b/f 7,948; credit sales 77,530; debit notes issued (extra charges to customers) 530 = 86,008.
Cr: returns inwards 14,180; cheques received 56,680; discounts allowed 3,774; balance c/d 11,374.
Balance b/d 11,374 (Dr).
(b) Creditors (purchases ledger) control account
Cr: balance b/f 7,532; credit purchases 90,454; cash refund from supplier 240 = 98,226.
Dr: returns outwards 3,960; cheques paid 61,860; discounts received 2,678; credit notes received 280; balance c/d 29,448.
Balance b/d 29,448 (Cr).
Items that increase what customers owe go on the debit of the debtors control; items that reduce what we owe suppliers go on the debit of the creditors control.
3. Danladi is in business as a painter and decorator. He does not keep proper accounting records. The following information relates to his business.
Balances as at 1st January, 1994
Equipment and loose tools: N15,000
Debtors: N1,750
Stocks and Work in Progress: N6,450
Prepaid rent: N300
Creditors: N1,260
Accrued electricity bill: N120
Enquiries provided the following about the business for the year ended 31st December, 1994.
(a) He received N25,840 for decorating work while N960 was still owed to him;
(b) He draw cheques for: Suppliers N8,320; Rent and rates N180; New decorating Equipment N6,000; Sundry business expenses N170; Electricity N240
(c) He owed N560 for decorating materials and N20 for electricity.
(d) His equipment was valued at N18,000 and stock at N5,850 on 31st December, 1994
You are required to prepare his Trading, Profit and Loss Account for the year ended 31st December, 1994.
Workings: income from work = 25,840 + 960 owed at end − 1,750 owed at start = 25,050.
Purchases of materials = 8,320 + 560 − 1,260 = 7,620.
Rent and rates = 180 + 300 prepaid at start = 480.
Electricity = 240 + 20 owing − 120 accrued at start = 140.
Depreciation of equipment = 15,000 + 6,000 − 18,000 = 3,000.
Trading account: opening stock/WIP 6,450 + purchases 7,620 = 14,070 − closing stock 5,850 = cost of sales 8,220; sales/work done 25,050; gross profit 16,830.
Profit and loss: rent 480, electricity 140, sundry expenses 170, depreciation 3,000 = 3,790; net profit 13,040.
Turn cash paid and received into amounts earned and incurred by adjusting for opening and closing debtors, creditors, prepayments and accruals.
4. Kolade and Kehinde are in partnership sharing profits and losses equally. On 1st January 1994, they decided to admit Adeolu as a partner on which date their Balance Sheet was as follows:
Capital Accounts: Kolade N80,000; Kehinde N80,000
Current Accounts: Kolade N12,510; Kehinde N8,340
Creditors N19,650
Total N200,500
Premises N75,000
Plant and Machinery N60,000
Stock N38,500
Debtors N15,350
Cash at bank N11,650
Total N200,500
It was agreed as follows:
(a) Adeolu shall bring N40,000 as capital for one fifth share of profit.
(b) Goodwill shall be brought into the books at N10,000;
(c) Assets are revalued at: Premises N100,000; Plant and Machinery N45,000; Stock N32,500
(d) A provision of N1,800 is to be made for bad debts.
You are required to prepare:
(i) Revaluation Account; (ii) Partners Current Accounts; (iii) Revised Balance Sheet as at 1/1/94.
(i) Revaluation account: Dr plant 15,000 (60,000 − 45,000), stock 6,000 (38,500 − 32,500), provision for bad debts 1,800 = 22,800. Cr premises 25,000 (100,000 − 75,000), goodwill 10,000 = 35,000. Surplus 12,200 shared equally by the old partners: Kolade 6,100, Kehinde 6,100.
(ii) Current accounts: Kolade 12,510 + 6,100 = 18,610 (Cr); Kehinde 8,340 + 6,100 = 14,440 (Cr).
(iii) Balance sheet as at 1/1/94: Goodwill 10,000; premises 100,000; plant 45,000; stock 32,500; debtors 15,350 − 1,800 = 13,550; cash at bank 11,650 + 40,000 = 51,650; total 252,700.
Capital: Kolade 80,000, Kehinde 80,000, Adeolu 40,000 = 200,000; current accounts 18,610 + 14,440 = 33,050; creditors 19,650; total 252,700.
Gains and losses on revaluation (including the goodwill raised) belong to the old partners in their old ratio.
5. You are the Treasurer of IFIOKOBONG Local Government Area of MFOM State. Your book-keeper makes the following return in respect of the financial year ended 31st December, 1993.
Salaries and wages: Dr N204,300
Vehicle expenses: Dr N2,480
Vehicle purchased: Dr N50,200
Stationery and Printing: Dr N15,200
Road maintenance: Dr N20,140
Hospital drugs: Dr N40,000
Subvention from State government: Cr N20,000
Subvention from Federal government: Cr N30,000
Rates and fines: Cr N15,350
Bank charges: Dr N3,780
Sundry income: Cr N52,630
Tenement rate/Building plans: Cr N250,000
Licences: Cr N125,480
Subvention to schools: Dr N62,900
Bank balance: Dr N94,660
Totals: N493,460 / N493,460
Fixed assets are to be written off
You are required to prepare the Receipts and Payments Account for IFIOKOBONG Local Government for the year ended 31st December, 1993.
Receipts and Payments Account for the year ended 31st December, 1993
Receipts: subvention from State government 20,000; subvention from Federal government 30,000; rates and fines 15,350; sundry income 52,630; tenement rate/building plans 250,000; licences 125,480; total 493,460.
Payments: salaries and wages 204,300; vehicle expenses 2,480; vehicle purchased 50,200 (written off as spending, not shown as an asset); stationery and printing 15,200; road maintenance 20,140; hospital drugs 40,000; bank charges 3,780; subvention to schools 62,900; total payments 399,000.
Balance c/d (bank) 94,460 as the balancing figure; totals 493,460 = 493,460.
(The return's debit items add up to 493,660, N200 more than its stated total, so the bank balance of 94,660 cannot be reconciled; mention the difference.)
A receipts and payments account is a summary of cash: list every receipt on one side, every payment on the other, and close with the bank balance.
6. Dan Jumbo started business on 1/1/94 with the following:
Building N100,000
Stock of goods N40,000
Motor van N50,000
Cash N10,000
During the month, he undertook the following transactions:
5/1/94 Sold goods for cash N5,000
10/1/94 Sold goods on credit N20,000
12/1/94 Bought goods on credit N10,000
15/1/94 Cash Sales Banked N15,000
18/1/94 Paid cash for office stationery N2,000
20/1/94 Received cash from debtors for goods N5,000
22/1/94 Paid cash for office expenses N1,000
23/1/94 Paid salaries by cheque N4,000
24/1/94 Sold goods for cash N7,000
25/1/94 Sold goods on credit N5,000
26/1/94 Bought goods on credit N3,000
27/1/94 Bought goods for cash N2,500
28/1/94 Withdrew money from bank for owner's use N1,500
29/1/94 Office cash banked N5,000
31/1/94 Paid electricity by cheque N1,500
You are required to record the above transactions in the appropriate books of original entry.
(i) Journal (opening entry) 1/1/94: Dr Building 100,000; Stock 40,000; Motor van 50,000; Cash 10,000; Cr Capital 200,000 (being assets introduced).
(ii) Cash book (cash and bank columns)
Dr cash: 1/1 balance 10,000; 5/1 sales 5,000; 20/1 debtors 5,000; 24/1 sales 7,000 = 27,000.
Dr bank: 15/1 cash (contra) 15,000; 29/1 cash (contra) 5,000 = 20,000.
Cr cash: 15/1 bank (contra) 15,000; 18/1 stationery 2,000; 22/1 office expenses 1,000; 27/1 purchases 2,500; 29/1 bank (contra) 5,000; balance c/d 1,500.
Cr bank: 23/1 salaries 4,000; 28/1 drawings 1,500; 31/1 electricity 1,500; balance c/d 13,000.
(iii) Sales day book: 10/1 debtor 20,000; 25/1 debtor 5,000; total 25,000 to the sales account.
(iv) Purchases day book: 12/1 supplier 10,000; 26/1 supplier 3,000; total 13,000 to the purchases account.
Credit sales go to the sales day book, credit purchases to the purchases day book, all cash and bank movements to the cash book, and the opening assets to the journal.