55 questions. Try each one, then open the answer to check yourself and read the explanation.
Which of the following is the least liquid?
Answer: E (Machinery.)
Machinery is a fixed asset kept for use, so it is the hardest to turn into cash.
Opening Stock + Purchases + Carriage inwards is equal to
Answer: C (cost of goods available for sale.)
Before closing stock is deducted, this total is the cost of goods available for sale.
Which of the following is a source of Local Government Revenue?
Answer: E (Market rates.)
Local governments collect market rates and fees; personal income tax goes to the state.
The Accountant General disburses government fund by the use of
Answer: B (a warrant)
A warrant is the authority used to release public funds for spending.
Carriage Inwards are incurred on goods
Answer: D (purchased)
Carriage inwards is the cost of bringing purchased goods into the business.
Debtors: N30,000
Creditors: N20,000
Opening Stock: N15,000
Closing Stock: N18,000
Wages: N3,000
Salaries: N10,000
Purchases: N30,000
Sales: N60,000
The gross profit percentage is
Answer: C (50%)
Cost of sales = 15,000 + 30,000 + wages 3,000 − 18,000 = 30,000; gross profit 30,000 ÷ 60,000 = 50%.
Debtors: N30,000
Creditors: N20,000
Opening Stock: N15,000
Closing Stock: N18,000
Wages: N3,000
Salaries: N10,000
Purchases: N30,000
Sales: N60,000
The net profit percentage is
Answer: D (33%)
Net profit = 30,000 − salaries 10,000 = 20,000; 20,000 ÷ 60,000 = 33%.
Debtors: N30,000
Creditors: N20,000
Opening Stock: N15,000
Closing Stock: N18,000
Wages: N3,000
Salaries: N10,000
Purchases: N30,000
Sales: N60,000
The working capital is
Answer: C (N28,000)
Working capital = current assets (debtors 30,000 + closing stock 18,000) − creditors 20,000 = N28,000.
Debtors: N30,000
Creditors: N20,000
Opening Stock: N15,000
Closing Stock: N18,000
Wages: N3,000
Salaries: N10,000
Purchases: N30,000
Sales: N60,000
The stock turnover is
Answer: E (1.8 times.)
Average stock = (15,000 + 18,000) ÷ 2 = 16,500; cost of sales 30,000 ÷ 16,500 ≈ 1.8 times.
Which of the following is an asset?
Answer: E (Insurance prepaid.)
Insurance paid in advance is a benefit still to be received, so it is a current asset.
A balance sheet is prepared
Answer: C (as at ……19 x 1.)
A balance sheet shows the position at one date, so it is headed 'as at'.
Partners' salary is shown in the
Answer: D (Profit and Loss Appropriation Account)
A partner's salary is a share of profit, so it goes in the appropriation account.
Which of the following is not a Nominal Account?
Answer: B (Furniture and Fittings Account)
Furniture and fittings is an asset (real account); the others are expenses (nominal).
Which of the following is an intangible asset?
Answer: A (Goodwill)
Goodwill has value but no physical form.
Which of the following has a debit balance? I. Calls-in arrears II. Calls-in-advance III. Share discount
Answer: D (I and III only)
Calls in arrears (money still owed by shareholders) and share discount are debit balances; calls in advance is a credit (liability).
Furniture and Fittings: N15,000
Land and Buildings: N40,000
Motor Vehicles: N25,000
Stock: N10,000
Debtors: N27,500
Cash in hand: N2,000
Bank overdraft: N17,500
Profit and Loss b/d: N28,000
Rent owing: N800
Sundry creditors: N22,000
The value of current assets is
Answer: D (N39,500)
Current assets = stock 10,000 + debtors 27,500 + cash 2,000 = N39,500.
Furniture and Fittings: N15,000
Land and Buildings: N40,000
Motor Vehicles: N25,000
Stock: N10,000
Debtors: N27,500
Cash in hand: N2,000
Bank overdraft: N17,500
Profit and Loss b/d: N28,000
Rent owing: N800
Sundry creditors: N22,000
The value of current liabilities is
Answer: B (N40,300)
Current liabilities = overdraft 17,500 + rent owing 800 + creditors 22,000 = N40,300.
Furniture and Fittings: N15,000
Land and Buildings: N40,000
Motor Vehicles: N25,000
Stock: N10,000
Debtors: N27,500
Cash in hand: N2,000
Bank overdraft: N17,500
Profit and Loss b/d: N28,000
Rent owing: N800
Sundry creditors: N22,000
The opening capital is
Answer: B (N51,200)
Net assets = 80,000 + 39,500 − 40,300 = 79,200; less profit 28,000 = opening capital N51,200.
Furniture and Fittings: N15,000
Land and Buildings: N40,000
Motor Vehicles: N25,000
Stock: N10,000
Debtors: N27,500
Cash in hand: N2,000
Bank overdraft: N17,500
Profit and Loss b/d: N28,000
Rent owing: N800
Sundry creditors: N22,000
The value of total fixed assets is
Answer: C (N80,000)
Fixed assets = 15,000 + 40,000 + 25,000 = N80,000.
Accounts payable is
Answer: C (a current liability)
Accounts payable (trade creditors) are amounts owed to suppliers within a year, a current liability.
Which of the following is/are true? I. Depreciation charges increase profits II. Reduction in provision for bad debt increases profits III. Undervalued stock increases profits
Answer: D (II only)
Reducing the bad debt provision is credited to profit and loss, raising profit; depreciation lowers profit and undervaluing (closing) stock lowers profit.
Uche returned goods worth N1,500 to Udo. Uche should receive
Answer: D (a credit note)
The seller (Udo) sends a credit note to the buyer to show the buyer's account has been credited for the returns.
To realize an asset means to
Answer: C (turn it to cash)
Realising an asset means selling it for cash.
When a fixed asset is fully depreciated, its net book value is
Answer: E (equal to zero.)
Fully depreciated means all its cost has been written off, leaving a book value of nil.
Goods worth N800 were stolen. The double entries are, debit
Answer: C (Profit and Loss Account, credit Purchases Account)
The loss is an expense (debit profit and loss) and the goods are removed from purchases (credit purchases).
Payment for shares in excess of amount demanded gives rise to
Answer: D (calls-in-advance)
Money received before a call is due is calls in advance.
Provision for discount on debtors is to be
Answer: A (debited to Profit and Loss Account)
Creating the provision is an expense: debit profit and loss, credit provision for discount.
Which of the following cannot be realized?
Answer: D (Goodwill)
Goodwill cannot be sold on its own apart from the business, so it is not realised like other assets.
The education department of Arimoro Local Government incurred the following expenses in 1995:
Construction of classrooms: N500,000
Purchase of tables and chairs: N50,000
Purchase of textbooks for library: N40,000
Annual inter-house sports competition: N20,000
Payment of teachers' salary: N80,000
Capital expenditure for the year was
Answer: B (N590,000)
Capital items = classrooms 500,000 + tables and chairs 50,000 + library books 40,000 = N590,000.
The education department of Arimoro Local Government incurred the following expenses in 1995:
Construction of classrooms: N500,000
Purchase of tables and chairs: N50,000
Purchase of textbooks for library: N40,000
Annual inter-house sports competition: N20,000
Payment of teachers' salary: N80,000
Recurrent expenditure of the year was
Answer: D (N100,000)
Recurrent items = sports 20,000 + salaries 80,000 = N100,000.
Which of the following is a recurrent expenditure to a Local Government Council?
Answer: C (Purchase of drugs)
Drugs are used up in the year, so they are recurrent spending; the others create lasting assets.
Which of the following is an example of production overhead?
Answer: C (Factory rent)
Factory rent is an indirect cost of production.
The double entries for refund of unsuccessful application monies are, debit
Answer: A (Application for shares Account, credit Bank Account)
Refunding money reduces the application account (debit) and the bank (credit).
Rent paid during 1995 was N2,000 while rent prepaid at 31st December, 1995 was N200. Rental expenses debited to Profit and Loss Account for 1995 was
Answer: D (N1,800)
Expense = 2,000 paid − 200 prepaid for next year = N1,800.
When a share is sold for less than its nominal value, the difference is debited to
Answer: B (Share Discount Account)
The shortfall below nominal value is debited to a share discount account.
The Accounting year of Fehintola Ltd. ends on 31st December every year.
Plant and Machinery purchased on 1st January, Year 1: N600,000
Depreciation rate per annum: 10%
Scrap value: N60,000
Using reducing balance method, what is the depreciation for Yr. 2?
Answer: D (N54,000)
Year 1: 10% × 600,000 = 60,000; Year 2: 10% × 540,000 = N54,000.
The Accounting year of Fehintola Ltd. ends on 31st December every year.
Plant and Machinery purchased on 1st January, Year 1: N600,000
Depreciation rate per annum: 10%
Scrap value: N60,000
Using reducing balance method, what is the net book value on 31st December of Yr. 2?
Answer: D (N486,000)
600,000 − 60,000 − 54,000 = N486,000.
The Accounting year of Fehintola Ltd. ends on 31st December every year.
Plant and Machinery purchased on 1st January, Year 1: N600,000
Depreciation rate per annum: 10%
Scrap value: N60,000
Using the straight line method, what is the cumulative depreciation at the end of Yr. 3?
Answer: E (N162,000.)
Yearly charge = 10% × (600,000 − 60,000 scrap) = 54,000; after 3 years 3 × 54,000 = N162,000.
The Accounting year of Fehintola Ltd. ends on 31st December every year.
Plant and Machinery purchased on 1st January, Year 1: N600,000
Depreciation rate per annum: 10%
Scrap value: N60,000
Using the straight line method, what is the net book value at the beginning of the year 3?
Answer: B (N492,000)
Two years at 54,000 = 108,000; 600,000 − 108,000 = N492,000.
Opening stock of Raw Materials: N5,800
Closing stock of Raw Materials: N4,500
Raw Materials Purchased: N19,000
Carriage outwards: N1,300
Direct labour: N4,000
Electricity (Factory): N2,500
Supervisor's salary: N5,500
Depreciation of Plant: N1,500
Sales: N58,000
Closing stock (Finished Goods): N4,500
Administrative Expenses: N5,500
Selling and Distribution Expenses: N3,000
The cost of raw materials used is
Answer: E (N20,300.)
5,800 + 19,000 − 4,500 = N20,300.
Opening stock of Raw Materials: N5,800
Closing stock of Raw Materials: N4,500
Raw Materials Purchased: N19,000
Carriage outwards: N1,300
Direct labour: N4,000
Electricity (Factory): N2,500
Supervisor's salary: N5,500
Depreciation of Plant: N1,500
Sales: N58,000
Closing stock (Finished Goods): N4,500
Administrative Expenses: N5,500
Selling and Distribution Expenses: N3,000
The prime cost is
Answer: C (N24,300)
Prime cost = materials 20,300 + direct labour 4,000 = N24,300.
Opening stock of Raw Materials: N5,800
Closing stock of Raw Materials: N4,500
Raw Materials Purchased: N19,000
Carriage outwards: N1,300
Direct labour: N4,000
Electricity (Factory): N2,500
Supervisor's salary: N5,500
Depreciation of Plant: N1,500
Sales: N58,000
Closing stock (Finished Goods): N4,500
Administrative Expenses: N5,500
Selling and Distribution Expenses: N3,000
What is the factory overhead?
Answer: C (N9,500)
Electricity 2,500 + supervisor 5,500 + depreciation 1,500 = N9,500.
Opening stock of Raw Materials: N5,800
Closing stock of Raw Materials: N4,500
Raw Materials Purchased: N19,000
Carriage outwards: N1,300
Direct labour: N4,000
Electricity (Factory): N2,500
Supervisor's salary: N5,500
Depreciation of Plant: N1,500
Sales: N58,000
Closing stock (Finished Goods): N4,500
Administrative Expenses: N5,500
Selling and Distribution Expenses: N3,000
What is the Production Cost?
Answer: A (N33,800)
Prime cost 24,300 + overheads 9,500 = N33,800.
Opening stock of Raw Materials: N5,800
Closing stock of Raw Materials: N4,500
Raw Materials Purchased: N19,000
Carriage outwards: N1,300
Direct labour: N4,000
Electricity (Factory): N2,500
Supervisor's salary: N5,500
Depreciation of Plant: N1,500
Sales: N58,000
Closing stock (Finished Goods): N4,500
Administrative Expenses: N5,500
Selling and Distribution Expenses: N3,000
The gross profit is
Answer: B (N28,700)
Cost of sales = 33,800 − closing finished goods 4,500 = 29,300; gross profit = 58,000 − 29,300 = N28,700.
Interest on Partner's drawing is credited to
Answer: E (Appropriation Account.)
Interest charged on drawings is income to the firm: debit the partner's current account, credit the appropriation account.
Carriage outwards is the amount spent on transporting
Answer: A (goods sold)
Carriage outwards is the cost of delivering goods to customers.
The loss made by a non-trading organization is called
Answer: C (deficit)
A non-profit body's excess of expenditure over income is a deficit.
Discounts Allowed is charged to
Answer: E (Profit and Loss Account.)
Discount allowed is an expense in the profit and loss account.
Which of the following is true in Public Sector Accounting? Cost of assets is
Answer: C (expensed in the year of purchase)
Government cash accounting treats the cost of an asset as spending in the year it is bought; no depreciation is charged.
Section A (compulsory)
1. Bola and Tanko are in trading business sharing profits and losses in the ratio 2: 1. The following balances were extracted from their books for the year ended 31st December, 1995.
Capital Accounts: Bola N62,000 (Cr); Tanko N31,000 (Cr)
Drawings: Bola N10,200 (Dr); Tanko N6,600 (Dr)
Motor van at cost: N42,040 (Dr)
Stock 1/1/95: N31,500 (Dr)
Sundry debtors/creditors: N24,492 (Dr); N19,125 (Cr)
Sales: N319,000 (Cr)
Purchases: N228,000 (Dr)
Freehold property: N27,750 (Dr)
Salaries: N38,181 (Dr)
Rates: N450 (Dr)
Electricity: N14,100 (Dr)
Cash at bank: N3,612 (Dr)
Discounts allowed/received: N6,231 (Dr); N2,445 (Cr)
Bank charges: N648 (Dr)
Rent received: N234 (Cr)
Totals: N433,804 / N433,804
Additional Information:
(a) Stock at 31st December, 1995 was N35,250 (b) Depreciation on motor van is to be provided at 10% per annum. (c) Accrued salaries was N600 (d) Rate prepaid was N75 (e) Interest on capital is to be credited at 5% per annum (f) Interest on drawings is to be charged as follows. Bola N225, Tanko N165 (g) Provision for doubtful debt is N240.
You are required to prepare (i) Trading and Profit and Loss Account for the year ended 31st December 1995; (ii) Profit and Loss Appropriation Account, (iii) The Partners' Current Accounts, and (iv) Balance Sheet as at 31st December, 1995.
(i) Trading: sales 319,000; opening stock 31,500 + purchases 228,000 − closing stock 35,250 = cost of sales 224,250; gross profit 94,750.
Profit and loss: add discount received 2,445 and rent received 234 = 97,429. Expenses: salaries 38,181 + 600 = 38,781; rates 450 − 75 = 375; electricity 14,100; bank charges 648; discount allowed 6,231; provision for doubtful debts 240; depreciation of motor van 10% × 42,040 = 4,204; total 64,579. Net profit 32,850.
(ii) Appropriation: net profit 32,850 + interest on drawings 225 + 165 = 33,240; less interest on capital Bola 3,100 (5% × 62,000), Tanko 1,550 (5% × 31,000); balance 28,590 shared 2:1: Bola 19,060, Tanko 9,530.
(iii) Current accounts: Bola Cr 3,100 + 19,060 = 22,160, Dr drawings 10,200 + interest on drawings 225; balance 11,735 Cr. Tanko Cr 1,550 + 9,530 = 11,080, Dr 6,600 + 165; balance 4,315 Cr.
(iv) Balance sheet: freehold property 27,750; motor van 42,040 − 4,204 = 37,836; fixed assets 65,586. Current assets: stock 35,250; debtors 24,492 − 240 = 24,252; rates prepaid 75; bank 3,612 = 63,189. Current liabilities: creditors 19,125; accrued salaries 600 = 19,725. Working capital 43,464; net assets 109,050.
Capital Bola 62,000 + Tanko 31,000 + current accounts 11,735 + 4,315 = 109,050.
Interest on drawings is income in the appropriation account and a debit in each partner's current account.
Section B (answer three questions only from this section)
2. The following balances were extracted from the books of Ima Enterprises on 31st December, 1995.
Sales ledger, debit balance, 1/1/95: N98,260
Sales ledger, credit balance, 1/1/95: N2,370
Bought ledger, credit balance, 1/1/95: N72,190
Bought ledger, debit balance, 1/1/95: N4,210
Credit purchases: N513,620
Credit Sales: N781,540
Accounts settled by contra: N6,220
Bills dishonoured: N7,500
Bad debts written off: N5,260
Bills of exchange drawn on customers: N34,730
Returns inward: N7,450
Returns outward: N8,920
Cash received from debtors: N689,230
Cash paid to suppliers: N495,140
Discounts received: N19,320
Discounts allowed: N24,750
Cash refunded to customers: N1,270
Sales ledger credit balance, 31/12/95: N2,010
Bought ledger debit balance, 31/12/95: N3,340
You are required to prepare: (a) Sales Ledger Control Account and (b) Purchases Ledger Control Account.
(a) Sales ledger control account
Dr: balance b/f 98,260; credit sales 781,540; bills dishonoured 7,500; cash refunded 1,270; balance c/d (credit balances) 2,010 = 890,580.
Cr: balance b/f (credit balances) 2,370; contra 6,220; bad debts 5,260; bills receivable 34,730; returns inwards 7,450; cash 689,230; discounts allowed 24,750; balance c/d (debit) 120,570 = 890,580.
(b) Purchases ledger control account
Dr: balance b/f (debit balances) 4,210; contra 6,220; returns outwards 8,920; cash 495,140; discounts received 19,320; balance c/d (credit) 55,340 = 589,150.
Cr: balance b/f 72,190; credit purchases 513,620; balance c/d (debit balances) 3,340 = 589,150.
Show opening and closing balances on both sides when the ledger has some balances the 'wrong' way round.
3. The following information was obtained from the books of Family Support Club for the year ended 30th September, 1995.
Receipts: Cash in hand 1/10/94 N450; Balance at bank 1/10/94 N4,800; Transfer from bank deposit A/C N13,050; Members' Subscription N3,960; Donations N20,400; Easter picnic N10,200; total N52,860
Payments: Staff salary N9,000; General repairs and maintenance N4,200; Transfer to bank Deposit Account N13,500; Purchase of Equipment N15,000; Other expenses N3,000; Insurance N600; Easter picnic expenses N5,400; Cash in hand c/d N660; Balance at Bank c/d N1,500; total N52,860
Additional Information:
(a) The net book value of fixed assets as at 30th September, 1994 was as follows: Leasehold premises N72,000; Equipment N24,000
(b) Provide for depreciation on fixed assets as follows: Leasehold premises N3,000; Equipment N1,800
(c) Bank deposit balance as at 30/9/94 was N24,360. Interest of N900 has been credited to the account during the year and was not included in the above receipts.
(d) A donor of N7,500 had specifically requested that his donation should be used only for the purchase of double-bunk beds for the Day Care Centre. This purchase is yet to be made.
(e) Other assets and liabilities were as follows (30/9/94; 30/9/95): Creditors (repairs) N600; –. Creditors (expenses) N450; N540. Subscriptions (outstanding) N1,200; N1,320. Insurance prepaid N150; N180.
You are required to prepare:
(i) Statement of affairs as at 30/9/94; (ii) Deposit Account as at 30/9/95; and (iii) Income and Expenditure Account for the year ended 30/9/95.
(i) Statement of affairs at 30/9/94: leasehold 72,000; equipment 24,000; bank deposit 24,360; subscriptions owing 1,200; insurance prepaid 150; cash 450; bank 4,800 = 126,960. Less creditors: repairs 600, expenses 450 = 1,050. Accumulated fund 125,910.
(ii) Deposit account: balance b/f 24,360 + transfer in 13,500 + interest 900 = 38,760; less transfer out 13,050; balance c/d 25,710.
(iii) Income and expenditure account for the year ended 30/9/95
Income: subscriptions 3,960 − 1,200 + 1,320 = 4,080; donations 20,400 − 7,500 (to a special bed fund) = 12,900; interest 900; Easter picnic 10,200 less expenses 5,400 = 4,800 surplus; total 22,680.
Expenditure: staff salary 9,000; repairs 4,200 − 600 = 3,600; other expenses 3,000 − 450 + 540 = 3,090; insurance 600 + 150 − 180 = 570; depreciation leasehold 3,000 and equipment 1,800; total 21,060.
Surplus 1,620 to the accumulated fund.
Adjust each cash figure for amounts owing or prepaid at both dates, and keep a donation given for a special purpose out of income.
4. As at 31st December, 1995, the Cash Book balance of Isobo Sub-Treasury was as follows: (a) Cash N903,825 (b) Bank N2,100,000.
On 1/1/96, the following transactions were carried out in the sub-treasury:
Receipts (TRV)
1001 Cash from Mr. Mohammed N15,000
1002 Cheque from Mrs. Akpan N52,500
1003 Cash from Alhaji Bello N4,650
1004 Cash from Miss Ngozi N3,390
1005 Cheque from Mr. Abiola N225,000
1006 Cheque from Mr. Mfon N3,750
1007 Cash from Mr. Adisa N6,615
1008 Cheque from Mrs. Ibinabo N105,045
1009 Cheque by remittance N300,000
Payments (TPV)
2001 Cheque to Mr. Chukwu N450,000
2002 Cheque to Miss Bola N184,290
2003 Cheque to Mr. Udofia N22,650
2004 Cash to Mr. Olumoran N15,000
2005 Cash to Alhaji Hamza N10,575
2006 Cheque to Mrs. Ekanem N285,045
2007 Cheque to Miss Baregha N234,225
2008 Cash to Mr. Dogo N36,000
2009 Cheque to Mr. Edet N186,030
You are required to post the above transactions into the Main Cash Book, showing the new cash and bank balances.
Main cash book (cash and bank columns), 1/1/96
Dr cash: balance b/f 903,825; TRV 1001 15,000; 1003 4,650; 1004 3,390; 1007 6,615 = 933,480.
Dr bank: balance b/f 2,100,000; TRV 1002 52,500; 1005 225,000; 1006 3,750; 1008 105,045; 1009 300,000 = 2,786,295.
Cr cash: TPV 2004 15,000; 2005 10,575; 2008 36,000 = 61,575; balance c/d 871,905.
Cr bank: TPV 2001 450,000; 2002 184,290; 2003 22,650; 2006 285,045; 2007 234,225; 2009 186,030 = 1,362,240; balance c/d 1,424,055.
New balances: cash 871,905; bank 1,424,055.
Receipt vouchers are debited and payment vouchers credited; cash items go in the cash column and cheques in the bank column.
5. The following balances were obtained from the books of Dudulabi Limited on June 30, 1995.
Ordinary share capital: N150,000
Retained profits: N28,383
6% Debentures: N45,000
Premium on ordinary shares: N37,500
Freehold premises at cost: N127,500
Plant and machinery at cost: N105,900
Provision for depreciation – plant and machinery: N38,100
Stock: N48,219
Debtors: N31,644
Bank and cash balances: N22,890
Sundry creditors: N34,730
Accrued rent: N2,440
You are required to: (a) prepare the Balance Sheet as at 30th June, 1995 and (b) calculate the following: (i) current ratio; (ii) working capital; (iii) liquid assets; (iv) ordinary shareholders' fund; (v) acid-test ratio
(a) Balance sheet as at 30th June 1995: freehold premises 127,500; plant 105,900 − 38,100 = 67,800; fixed assets 195,300.
Current assets: stock 48,219; debtors 31,644; bank and cash 22,890 = 102,753. Current liabilities: creditors 34,730; accrued rent 2,440 = 37,170. Working capital 65,583. Total 260,883.
Financed by: ordinary share capital 150,000; share premium 37,500; retained profits 28,383; shareholders' fund 215,883; 6% debentures 45,000; total 260,883.
(b) (i) Current ratio = 102,753 ÷ 37,170 = 2.76 : 1 (about 2.8 : 1).
(ii) Working capital = 102,753 − 37,170 = 65,583.
(iii) Liquid assets = debtors 31,644 + bank and cash 22,890 = 54,534.
(iv) Ordinary shareholders' fund = 150,000 + 37,500 + 28,383 = 215,883.
(v) Acid-test ratio = 54,534 ÷ 37,170 = 1.47 : 1.
Liquid assets are current assets without stock; the acid-test ratio compares them with current liabilities.
6. The following balances were extracted from the accounts of Backyard Candle Industry for the year ended 31st December, 1995.
Raw materials purchased: N100,000
Direct wages: N40,000
Salaries: N10,000
Carriage on raw materials: N2,600
Carriage on finished goods: N3,400
Sales: N250,000
Factory expenses: N12,000
Insurance: N8,000
Rent: N20,000
Printing and stationery: N900
Discount allowed: N2,160
Returns outwards (Raw material): N3,920
Returns inwards: N2,760
Provision for bad debts: N760
Bad debt written off: N1,570
Additional information
(a) Stock (1/1/95; 31/12/95): Raw materials N12,000; N8,000. Work in progress N15,000; N6,000. Finished goods N6,000; N4,700.
(b) 75% of rent and insurance expenses are chargeable to Manufacturing Account.
(c) Plant and machinery were valued at N80,000 on 1/1/95. N5,000 is to be provided for depreciation for the year.
You are required to prepare: (i) Manufacturing Account, and (ii) Trading and Profit and Loss Accounts for the year ended 31st December, 1995
(i) Manufacturing account: raw materials 12,000 + purchases 100,000 + carriage inwards 2,600 − returns outwards 3,920 − closing stock 8,000 = 102,680 used; direct wages 40,000; prime cost 142,680.
Factory overheads: factory expenses 12,000; rent 75% × 20,000 = 15,000; insurance 75% × 8,000 = 6,000; depreciation of plant 5,000; total 38,000. Add opening WIP 15,000, less closing WIP 6,000: cost of production 189,680.
(ii) Trading: sales 250,000 − returns inwards 2,760 = 247,240. Opening finished goods 6,000 + 189,680 − 4,700 = cost of sales 190,980. Gross profit 56,260.
Profit and loss: salaries 10,000; carriage outwards 3,400; rent 5,000; insurance 2,000; printing 900; discount allowed 2,160; provision for bad debts 760; bad debts 1,570; total 25,790. Net profit 30,470.
Charge only the factory share (75%) of rent and insurance to manufacturing; the office share goes to profit and loss.