56 questions. Try each one, then open the answer to check yourself and read the explanation.
Errors in the ledger can only be corrected through
Answer: A (Journal proper)
Corrections of errors are first recorded in the journal proper, then posted to the ledger.
Items in the bank statement of a business but not in the Cash Book before preparation of bank reconciliation statement do not include
Answer: C (presented cheque)
A presented cheque is already in the cash book; bank charges, standing orders and overdraft interest usually first appear on the statement.
Discounts received is
Answer: C (credited to the Profit and Loss Account)
Discount received is income, so it is credited to profit and loss.
Carriage outwards is charged to
Answer: D (Profit and Loss Account.)
Carriage outwards is a selling (distribution) expense charged in the profit and loss account.
Debtors (1/1/98): N2,000
Debtors (31/12/98): N1,250
Cash received from Debtors: N6,000
Bad debts written off: N750
Discount allowed: N500
Discount received: N125
What was the amount of sales for the year?
Answer: C (N6,500)
Sales = closing debtors 1,250 + cash 6,000 + bad debts 750 + discount 500 − opening debtors 2,000 = N6,500.
Debtors (1/1/98): N2,000
Debtors (31/12/98): N1,250
Cash received from Debtors: N6,000
Bad debts written off: N750
Discount allowed: N500
Discount received: N125
Assuming a gross profit of N3,000, what was the net profit?
Answer: D (N1,875)
3,000 − bad debts 750 − discount allowed 500 + discount received 125 = N1,875.
Debtors (1/1/98): N2,000
Debtors (31/12/98): N1,250
Cash received from Debtors: N6,000
Bad debts written off: N750
Discount allowed: N500
Discount received: N125
The debtors balance to be shown in the Balance Sheet at 31st December, 1998 is
Answer: D (N1,250.)
The closing debtors figure, N1,250, is shown in the balance sheet.
Which of the following is a contra entry?
Answer: B (Lodgement of cash in hand into bank account)
Paying office cash into the bank affects both the cash and bank columns of the cash book: a contra entry.
Which of the following will not make a trial balance total to agree?
Answer: A (Incomplete posting in the ledger accounts)
If only one side of a transaction is posted, debits no longer equal credits and the trial balance fails to agree.
Deferred charges are also known as
Answer: A (prepayments)
A deferred charge is an expense paid now for a later period, i.e. a prepayment.
The vote book in governmental accounting is used to
Answer: B (control expenditure)
The vote book records commitments against each vote so that spending does not exceed the approved amount.
July 1 Cash in hand, N420, Cash at Bank N6,500
2 Paid Asaolu T. by cheque N1,500
5 Paid transport by Cash N42
9 Received cheque from Olawoyin N3,600
15 Cash sales to date N1,800
17 Paid Haruna by cheque N1,200
19 Paid Umana by cash N100
31 Paid wages by cash N1,500
The cash in hand on 31st July is
Answer: D (N578.)
Cash = 420 + 1,800 − 42 − 100 − 1,500 = N578.
July 1 Cash in hand, N420, Cash at Bank N6,500
2 Paid Asaolu T. by cheque N1,500
5 Paid transport by Cash N42
9 Received cheque from Olawoyin N3,600
15 Cash sales to date N1,800
17 Paid Haruna by cheque N1,200
19 Paid Umana by cash N100
31 Paid wages by cash N1,500
The cash at bank on 31st July is
Answer: C (N7,400)
Bank = 6,500 − 1,500 + 3,600 − 1,200 = N7,400.
July 1 Cash in hand, N420, Cash at Bank N6,500
2 Paid Asaolu T. by cheque N1,500
5 Paid transport by Cash N42
9 Received cheque from Olawoyin N3,600
15 Cash sales to date N1,800
17 Paid Haruna by cheque N1,200
19 Paid Umana by cash N100
31 Paid wages by cash N1,500
The total cash payments during the month is
Answer: C (N1,642)
Cash payments = transport 42 + Umana 100 + wages 1,500 = N1,642.
How many bits make a byte?
Answer: A (8 bits)
A byte is made up of 8 bits.
Which of the following does not relate to a not-for-profit-making organisation?
Answer: D (Profit and Loss Account.)
Clubs prepare an income and expenditure account instead of a profit and loss account.
Which of the following is the memory part that is available for use by the computer user?
Answer: B (RAM)
RAM (random access memory) is the working memory users' programs and data use; ROM is fixed.
In not-for-profit-making organisations, accumulated fund is the name for
Answer: C (capital)
The accumulated fund is the club's capital.
Current Accounts balance (1/4/98): J. Chike N4,000; B. Balla N6,000
Current Accounts balance (1/4/99): J. Chike N7,000; B. Balla ?
Drawings: J. Chike N1,500; B. Balla N1,500
Share of net profit: J. Chike ?; B. Balla N2,500
What is Chike's share of profit from the partnership for the year ended 31/3/99?
Answer: D (N4,500.)
7,000 = 4,000 + share − 1,500, so share = N4,500.
Current Accounts balance (1/4/98): J. Chike N4,000; B. Balla N6,000
Current Accounts balance (1/4/99): J. Chike N7,000; B. Balla ?
Drawings: J. Chike N1,500; B. Balla N1,500
Share of net profit: J. Chike ?; B. Balla N2,500
What is Balla's Current Account balance as at 31/3/99?
Answer: B (N7,000)
6,000 + 2,500 − 1,500 = N7,000.
Current Accounts balance (1/4/98): J. Chike N4,000; B. Balla N6,000
Current Accounts balance (1/4/99): J. Chike N7,000; B. Balla ?
Drawings: J. Chike N1,500; B. Balla N1,500
Share of net profit: J. Chike ?; B. Balla N2,500
Their profit sharing ratio is
Answer: A (1.8:1)
Chike 4,500 : Balla 2,500 = 1.8 : 1.
Company tax paid is debited to
Answer: A (Profit and Loss Appropriation Account)
In this syllabus company tax is treated as an appropriation of the year's profit.
Which of the following is not a revenue expenditure?
Answer: C (Extension of building)
Extending a building adds to a fixed asset, so it is capital expenditure.
Dividend proposed by a company is shown in its Balance Sheet as
Answer: B (current liability)
A proposed dividend will be paid to shareholders soon, so it is a current liability.
The main classes of shares are
Answer: C (Ordinary Shares and Preference Shares)
The two main classes of shares are ordinary and preference shares.
Hopewell Limited – Balance Sheet as at 31st December, 1998
Ordinary Share Capital N140,000; 8% Preference share N63,000; Retained earnings N40,000; 10% Debentures N60,000; Creditors N10,000; Accrued wages N12,000; total N325,000
Plant and Machinery N100,000; Furniture N62,000; Motor Van N75,000; Stock N22,000; Debtors N26,000; Bank N40,000; total N325,000
What is the current ratio?
Answer: A (4:1)
Current assets 22,000 + 26,000 + 40,000 = 88,000; current liabilities 10,000 + 12,000 = 22,000; ratio 4 : 1.
Hopewell Limited – Balance Sheet as at 31st December, 1998
Ordinary Share Capital N140,000; 8% Preference share N63,000; Retained earnings N40,000; 10% Debentures N60,000; Creditors N10,000; Accrued wages N12,000; total N325,000
Plant and Machinery N100,000; Furniture N62,000; Motor Van N75,000; Stock N22,000; Debtors N26,000; Bank N40,000; total N325,000
The debt to equity ratio is
Answer: C (1:3)
Debt (debentures) 60,000 : equity (ordinary capital 140,000 + retained earnings 40,000 = 180,000) = 1 : 3.
Hopewell Limited – Balance Sheet as at 31st December, 1998
Ordinary Share Capital N140,000; 8% Preference share N63,000; Retained earnings N40,000; 10% Debentures N60,000; Creditors N10,000; Accrued wages N12,000; total N325,000
Plant and Machinery N100,000; Furniture N62,000; Motor Van N75,000; Stock N22,000; Debtors N26,000; Bank N40,000; total N325,000
What is the working capital?
Answer: D (N66,000)
88,000 − 22,000 = N66,000.
Hopewell Limited – Balance Sheet as at 31st December, 1998
Ordinary Share Capital N140,000; 8% Preference share N63,000; Retained earnings N40,000; 10% Debentures N60,000; Creditors N10,000; Accrued wages N12,000; total N325,000
Plant and Machinery N100,000; Furniture N62,000; Motor Van N75,000; Stock N22,000; Debtors N26,000; Bank N40,000; total N325,000
The equity capital is
Answer: B (N180,000)
Equity = ordinary shares 140,000 + retained earnings 40,000 = N180,000.
Hopewell Limited – Balance Sheet as at 31st December, 1998
Ordinary Share Capital N140,000; 8% Preference share N63,000; Retained earnings N40,000; 10% Debentures N60,000; Creditors N10,000; Accrued wages N12,000; total N325,000
Plant and Machinery N100,000; Furniture N62,000; Motor Van N75,000; Stock N22,000; Debtors N26,000; Bank N40,000; total N325,000
What is the quick ratio?
Answer: B (3:1)
Quick assets = 88,000 − stock 22,000 = 66,000; 66,000 ÷ 22,000 = 3 : 1.
A Suspense Account is used to
Answer: A (record differences in the books until errors are located)
The suspense account holds the trial balance difference until the errors are found and corrected.
The purpose of the Trading Account is to ascertain
Answer: B (gross profit)
The trading account works out gross profit.
A Trial Balance is the
Answer: C (list of all balances extracted from the ledger)
It lists every ledger balance, debit and credit, to check arithmetical accuracy.
Which of the following entries is made when damaged goods are returned to the supplier?
Answer: D (Supplier's Account is debited and the Returns Outwards Account credited.)
Returning goods reduces what we owe (debit supplier) and is recorded as returns outwards (credit).
A Balance Sheet is a
Answer: D (statement showing assets and liabilities at a certain date.)
A balance sheet lists assets, liabilities and capital at a particular date.
Yinka bought goods worth N800.00 and sold at a margin of 20% on selling price. How much did she sell the goods?
Answer: A (N1,000)
If margin is 20% of selling price, cost is 80% of it: 800 ÷ 0.8 = N1,000.
A bond acknowledging a loan to a company under the company's seal, bearing a fixed rate of interest is known as
Answer: D (debenture.)
A debenture is a sealed document acknowledging a loan at a fixed rate of interest.
One mega byte is equal to
Answer: B (1 million bytes)
Mega means million, so a megabyte is about one million bytes.
Purchases of goods from Obi had been entered in Obika's Account. This is an error of
Answer: C (commission)
Posting to the wrong person's account of the right class is an error of commission.
Umana Ltd., issued 200,000 shares at N1 each out of its Authorised Share capital of N300,000 at N1 each. At the end of the first call, all shareholders paid in full, except for one Shareholder who owes N10,000.
The company's paid-up capital is
Answer: D (N190,000.)
Called up 200,000 − calls in arrears 10,000 = N190,000 paid up.
Umana Ltd., issued 200,000 shares at N1 each out of its Authorised Share capital of N300,000 at N1 each. At the end of the first call, all shareholders paid in full, except for one Shareholder who owes N10,000.
The unissued capital of the company is
Answer: D (N100,000)
Authorised 300,000 − issued 200,000 = N100,000.
The total share capital which a company would be allowed to issue is known as
Answer: B (authorised share capital)
Authorised capital is the maximum the company may issue.
Creditors at start was N4,650 and at close N2,480, cash paid to suppliers during the year amounted to N12,000. Credit purchases for the year is valued at
Answer: C (N9,830)
Purchases = 12,000 + 2,480 − 4,650 = N9,830.
A sale of goods to Audu was not posted. This is an error of
Answer: A (omission)
A transaction left out of the books completely is an error of omission.
Into how many major types can general purpose computers be classified?
Answer: D (Three.)
Computers are usually grouped into three types: analogue, digital and hybrid.
which of the following is not a petty cash book item? Purchase of
Answer: A (machinery)
Machinery is a large capital item, not a small expense paid from petty cash.
When a shareholder fails to pay the calls requested from him, this situation leads to
Answer: A (forfeiture of shares)
Shares on which calls remain unpaid may be forfeited.
Section A (answer two questions only from this section)
1. (a) What is a (i) bank statement? (ii) bank reconciliation statement? (b) State four reasons for the need for a bank reconciliation.
(a)(i) A bank statement is a copy of the customer's account as kept by the bank, sent regularly, showing deposits, withdrawals, charges and the balance.
(ii) A bank reconciliation statement is a statement prepared by the customer to explain the difference between the cash book (bank column) balance and the bank statement balance on a date.
(b) Any four reasons/causes it is needed: unpresented cheques (issued but not yet paid by the bank); uncredited lodgements (paid in but not yet credited); bank charges and interest not yet in the cash book; standing orders and direct debits; direct credits/transfers by customers and dividends received; dishonoured cheques; errors in the cash book or by the bank. It also helps detect fraud and confirms the correct bank balance for the balance sheet.
Define each statement in one sentence, then give four clear causes of difference.
2. (a) What are control accounts? (b) Explain three purposes for preparing control accounts.
(a) Control accounts (total accounts) are summary accounts in the general ledger that record in total the transactions posted individually to a subsidiary ledger, e.g. the sales ledger control and purchases ledger control accounts. Their balance should equal the total of the individual balances in that ledger.
(b) Any three purposes: they check the arithmetical accuracy of a ledger and help locate errors quickly; they give total debtors and creditors quickly for final accounts; they help prevent and detect fraud, especially when kept by a person other than the ledger clerk; they allow a trial balance to be drawn up without listing every personal account; they help in incomplete records to find credit sales and purchases.
Remember that the control account balance must agree with the list of balances in the ledger it controls.
3. (a) What is a preference share? (b) Differentiate between the following classes of preference shares: (i) Participative and non-participative (ii) Cumulative and non-cumulative (iii) Redeemable and irredeemable.
(a) A preference share is a share that carries a fixed rate of dividend paid before any ordinary dividend, and usually has priority over ordinary shares for repayment of capital on winding up.
(b)(i) Participating preference shares receive their fixed dividend and also share in remaining profits with ordinary shareholders; non-participating shares receive only the fixed dividend.
(ii) Cumulative preference shares carry forward any unpaid dividend to be paid in later years before ordinary dividends; with non-cumulative shares a dividend missed in a year is lost.
(iii) Redeemable preference shares can be bought back (repaid) by the company at a stated time or option; irredeemable shares are repaid only when the company is wound up.
For each pair, say what the holder gets in one case and does not get in the other.
4. (a) What is goodwill? (b) Mention six items which must be contained in a Partnership Agreement.
(a) Goodwill is the value of a business over and above the value of its net assets, arising from its reputation, location, loyal customers, skilled staff and so on, which enables it to earn more than normal profits.
(b) Any six: names of the partners and the firm; nature and place of the business; capital to be contributed by each partner; profit and loss sharing ratio; interest on capital (rate); interest on drawings; partners' salaries; limits on drawings; how goodwill is valued on admission, retirement or death; duration of the partnership and how it may be dissolved; how disputes are settled (arbitration); preparation and audit of accounts; duties and powers of each partner.
Goodwill is an intangible asset; list items of the agreement that settle money matters between partners.
Section B (Financial Accounting Practice; answer three questions only from this section)
5. Mary Oluwa operates the Lagos Departmental Store selling provisions, clothing and hardware. The following details relate to the business for the year ended 31st December, 1998.
Stock at 1st January, 1998: Provisions N10,000; Clothing N30,000; Hardware N45,000
Sales for 1998: Provisions N2,800,000; Clothing N4,800,000; Hardware N4,400,000
Purchases for 1998: Provisions N480,000; Clothing N790,000; Hardware N950,000
Rent and Rates N635,000
Lighting and cooling N1,200,000
Insurance N450,000
Carriage inwards N300,000
Carriage outwards N45,000
Administration expenses N105,000
Wages and Salaries N206,000
Fixed Assets N4,500,000
Additional information
(a) Closing stock was 20% more than the closing stock of 1997
(b) Carriage outwards expenses are to be apportioned ½ to hardware, the remainder equally between provision and clothing (c) Rent and rates, administration expenses and wages and salaries are to be apportioned on the basis of sales (d) All other expenses are to be apportioned equally (e) Fixed assets are depreciated at 10% per annum. You are required to prepare Departmental Trading and Profit and Loss Account to show departmental and total profit.
Closing stocks (opening × 1.2): provisions 12,000; clothing 36,000; hardware 54,000. Sales ratio 28 : 48 : 44 (7 : 12 : 11).
Trading (provisions / clothing / hardware / total): opening stock 10,000 / 30,000 / 45,000; purchases 480,000 / 790,000 / 950,000; carriage inwards (equal) 100,000 each; less closing stock; cost of sales 578,000 / 884,000 / 1,041,000 / 2,503,000.
Gross profit 2,222,000 / 3,916,000 / 3,359,000 / 9,497,000.
Expenses: rent and rates 148,167 / 254,000 / 232,833; administration 24,500 / 42,000 / 38,500; wages and salaries 48,067 / 82,400 / 75,533 (all by sales); lighting and cooling 400,000 each; insurance 150,000 each; depreciation 10% × 4,500,000 = 450,000, i.e. 150,000 each; carriage outwards 11,250 / 11,250 / 22,500.
Total expenses 931,983 / 1,089,650 / 1,069,367 / 3,091,000.
Net profit 1,290,017 / 2,826,350 / 2,289,633; total 6,406,000.
Apportion each expense on the stated basis, then check that the departmental figures add up to the totals.
6. An inexperienced Book-keeper prepared a Trial Balance which failed to agree. The difference of N85 credit was kept in a Suspense Account. The following errors were later discovered: (a) A cash payment of N180 had been posted as a receipt in the bank column of the cash book (b) The Sales Account was overcast by N350 and the Purchases Account was also overcast by N350 (c) A return inwards of N190 was not recorded in the books. (d) Bank charges of N185 had been posted into the cash book. No entry was made elsewhere in the books. (e) The opening balance of a debtor's account had been brought down as N1,785 instead of N1,875 (f) An item of fixed asset sold for N2,500 had been debited to cash and included in sales. You are required to (i) prepare journal entries to effect the necessary corrections. (ii) write-up the Suspense Account.
(i) Journal
(a) Dr Suspense 360; Cr Bank 360 – a payment of 180 entered as a receipt overstates the bank by twice 180.
(b) Dr Sales 350; Cr Purchases 350 – compensating errors, no effect on suspense.
(c) Dr Returns inwards 190; Cr Debtor 190 – omission, no effect on suspense.
(d) Dr Bank charges 185; Cr Suspense 185 – the ledger entry was missing.
(e) Dr Debtor 90; Cr Suspense 90 – balance understated by 1,875 − 1,785.
(f) Dr Sales 2,500; Cr Fixed asset disposal 2,500 – proceeds of a fixed asset are not sales.
(ii) Suspense account: Dr bank (a) 360. Cr balance b/d 85; bank charges (d) 185; debtor (e) 90. Totals 360 = 360, so the suspense account is closed.
Only errors that made one side of the trial balance bigger than the other go through the suspense account.
7. Michael and Mary had been in partnership for several years sharing profits and losses equally. They decided to dissolve the partnership on 31st December, 1998 on which date their Balance Sheet was as follows:
Balance Sheet as at 31st December, 1998
Capital Accounts: Michael N40,000; Mary N30,000 = N70,000
Current Accounts: Michael N7,935; Mary (N1,345) = N6,590
Creditors N13,110
Bank Overdraft N6,800
Total N96,500
Goodwill N10,000; Equipment N50,000 = N60,000
Stock N17,140
Debtors N18,960
Prepaid Expenses N400
Total N96,500
Additional information.
(a) Assets realised as follows: Equipment N62,000; Stock N14,500; Debtors N16,800
(b) Creditors were settled for N12,900 (c) Dissolution expenses amounted to N1,300. You are required to prepare: (i) Realisation Account (ii) Partners Capital Accounts; and (iii) Bank Account (showing how final settlement was made).
(i) Realisation account: Dr goodwill 10,000; equipment 50,000; stock 17,140; debtors 18,960; prepaid expenses 400; bank (dissolution expenses) 1,300 = 97,800. Cr bank: equipment 62,000, stock 14,500, debtors 16,800 (93,300); discount on creditors 210 (13,110 − 12,900); loss 4,290 shared Michael 2,145, Mary 2,145.
(ii) Capital accounts: Michael 40,000 + current account 7,935 − loss 2,145 = 45,790 paid out. Mary 30,000 − current account debit 1,345 − loss 2,145 = 26,510 paid out.
(iii) Bank account: Dr realisation 93,300. Cr balance b/d (overdraft) 6,800; creditors 12,900; dissolution expenses 1,300; Michael 45,790; Mary 26,510. Totals 93,300 = 93,300.
Transfer all assets (except bank) to realisation, share the loss equally, and the bank account must close at nil after paying the partners.
8. Joana Bonnah operates an imprest system with analysed petty cash book. There are columns for Stationery, Transport, Postage and Medical Expenses. A float of N200,000 is maintained by the petty cashier who is reimbursed as and when necessary.
The following transactions were recorded in the month of September, 1998:
2 balance on hand N200,000
6 bought postage stamps N28,000
7 paid medical expenses N48,000
12 bought stationery N28,500
16 paid transport expenses N68,000
20 paid medical expenses N40,800
22 paid for postage stamps N6,200
22 paid transport expenses N18,800
24 bought stationery N6,800
24 paid transport expenses N32,600
28 bought postage stamps N8,500
30 paid medical expenses N26,500
You are required to enter the details above in a columnar petty cash book.
Columns: receipts | date | details | total | stationery | transport | postage | medical.
Sept 2 balance 200,000. Payments: 6th postage 28,000; 7th medical 48,000; 12th stationery 28,500; 16th transport 68,000 (spent 172,500, cash left 27,500).
The next payment (40,800) is more than the cash left, so on 16th the cashier is reimbursed 172,500 from the bank, restoring the float to 200,000.
20th medical 40,800; 22nd postage 6,200; 22nd transport 18,800; 24th stationery 6,800; 24th transport 32,600; 28th postage 8,500; 30th medical 26,500 (spent 140,200, cash left 59,800).
Column totals for the month: stationery 35,300; transport 119,400; postage 42,700; medical 115,300; total 312,700.
30th reimbursement from bank 140,200; balance c/d 200,000 (receipts 200,000 + 172,500 + 140,200 = 512,700 = payments 312,700 + balance 200,000).
Under the imprest system the cashier is given back exactly what was spent, so the float returns to its fixed amount.
9. The following balances were extracted from the books of Bolly – J Enterprises on 31st December, 1998.
Freehold property: N50,000
Capital: N81,445
Trade debtors: N28,750
Trade creditors: N26,150
Furniture and fittings (cost N22,500): N16,250
Rent: N950
Electricity: N675
Provision for bad debts (1/1/98): N288
Office equipment (cost N20,000): N15,500
Stock (1/1/98): N7,750
General expenses: N2,350
Rates: N625
Cash in hand: N137
Bank overdraft: N4,475
Bank charges: N373
Purchases: N60,750
Sales: N74,000
Carriage inwards: N395
Salaries: N1,700
Discount allowed: N485
Discount received: N332
Additional information:
(a) Closing stock N6,635 (b) Salaries in arrears N875 (c) Prepaid expenses: rent N150; rates N138 (d) Provision for bad debts to be reduced to N225 (e) All fixed assets are to be depreciated at 5% on cost.
You are required to prepare a: (i) Trial Balance as at 31st December, 1998, and (ii) Trading, Profit and Loss Account for the year ended 31st December, 1998.
(i) Trial balance: Debit – freehold 50,000; debtors 28,750; furniture 16,250; rent 950; electricity 675; office equipment 15,500; stock 7,750; general expenses 2,350; rates 625; cash 137; bank charges 373; purchases 60,750; carriage inwards 395; salaries 1,700; discount allowed 485; total 186,690. Credit – capital 81,445; creditors 26,150; provision for bad debts 288; bank overdraft 4,475; sales 74,000; discount received 332; total 186,690.
(ii) Trading: opening stock 7,750 + purchases 60,750 + carriage inwards 395 − closing stock 6,635 = cost of sales 62,260; sales 74,000; gross profit 11,740.
Profit and loss: add discount received 332 and decrease in provision 63 (288 − 225) = 12,135. Expenses: rent 800 (950 − 150); electricity 675; general expenses 2,350; rates 487 (625 − 138); bank charges 373; salaries 2,575 (1,700 + 875); discount allowed 485; depreciation 5% on cost: freehold 2,500, furniture 1,125, office equipment 1,000; total 12,370.
Net loss = 12,370 − 12,135 = 235.
Assets, expenses and drawings are debits; capital, liabilities, income and provisions are credits.