56 questions. Try each one, then open the answer to check yourself and read the explanation.
The transformation of pieces of information into a more useful format is
Answer: A (data processing)
Data processing turns raw data into useful information.
The document which advertises the sale of shares of a company is a/an
Answer: A (prospectus)
A prospectus invites the public to buy a company's shares.
Which of the following is not an externally visible part of a computer?
Answer: B (Microchip)
Microchips are inside the computer; the monitor, keyboard and system unit can be seen.
Which of the following is the responsibility of a local government?
Answer: A (Constructing market stalls)
Markets are a local government function; income tax, highways and ports belong to higher governments.
The procedure for utilising the savings from one sub-head of expenditure to pay for another under the same head is
Answer: B (virement)
Virement moves savings from one sub-head to another within the same head.
Net profit for the year N75,000
Ordinary share capital of 50 kobo each N65,000
10% Preference shares of 50 kobo each N100,000
The amount available as dividend to ordinary shareholders is
Answer: B (N65,000)
Preference dividend 10% × 100,000 = 10,000; 75,000 − 10,000 = N65,000.
Net profit for the year N75,000
Ordinary share capital of 50 kobo each N65,000
10% Preference shares of 50 kobo each N100,000
Preference dividend for the year is
Answer: C (N10,000)
10% × N100,000 = N10,000.
Net profit for the year N75,000
Ordinary share capital of 50 kobo each N65,000
10% Preference shares of 50 kobo each N100,000
Dividend per ordinary share is
Answer: B (N0.50)
N65,000 ÷ 50 kobo = 130,000 shares; 65,000 ÷ 130,000 = N0.50 per share.
The transfer of goods between departments is recorded by debiting
Answer: A (the receiving department and crediting the giving department)
The department receiving the goods is debited; the one giving them is credited.
Which of the following is the basis for apportioning rent among departments?
Answer: B (Floor area)
Rent relates to space used, so it is shared by floor area.
Which of the following brings a company into legal existence?
Answer: A (Certificate of Incorporation)
The certificate of incorporation is the company's 'birth certificate'.
Which of the following documents sets out the internal regulations of a partnership?
Answer: B (Deed)
The partnership deed sets out the partners' agreed rules.
Capital Accounts: Ojo N40,000; Aina N20,000
Drawings: Ojo N10,000; Aina N6,000
Interest on capital 5%
Interest on drawings 10%
Net profit for the year N30,000
Profit sharing ratio: Ojo 2/3, Aina 1/3
The divisible profit for the year is
Answer: D (N28,600)
30,000 − interest on capital 3,000 + interest on drawings 1,600 = N28,600.
Capital Accounts: Ojo N40,000; Aina N20,000
Drawings: Ojo N10,000; Aina N6,000
Interest on capital 5%
Interest on drawings 10%
Net profit for the year N30,000
Profit sharing ratio: Ojo 2/3, Aina 1/3
Ojo's share of profit is
Answer: D (N19,067)
2/3 × N28,600 = N19,067.
Capital Accounts: Ojo N40,000; Aina N20,000
Drawings: Ojo N10,000; Aina N6,000
Interest on capital 5%
Interest on drawings 10%
Net profit for the year N30,000
Profit sharing ratio: Ojo 2/3, Aina 1/3
Aina's Current Account balance is
Answer: D (N3,933)
Interest 1,000 + share 9,533 − drawings 6,000 − interest on drawings 600 = N3,933.
The accounting concept that supports the application of double entry book-keeping is the
Answer: B (dual aspect concept)
Every transaction has two aspects, which is the basis of double entry.
The account that shows both the cash and bank transactions of an enterprise is
Answer: D (Cash Book)
A two-column cash book records both cash and bank.
A control account is
Answer: D (a self balancing ledger system)
Control accounts make each ledger self-balancing.
In a not-for-profit making organization, the cash book is summarised in the form of
Answer: D (Receipts and Payments Account)
The receipts and payments account is a summary of the cash book.
Which of the following is found in a Receipts and Payments Account?
Answer: D (Purchase of fixed assets.)
It records actual cash paid, including for fixed assets; accruals, prepayments and depreciation are not cash.
Club house N375,000
Furniture N250,000
Sports kit N400,000
Subscriptions prepaid N10,000
Bar creditors N156,000
Subscriptions owing N45,000
What is the club's Accumulated Fund?
Answer: C (N904,000)
Assets 375,000 + 250,000 + 400,000 + 45,000 = 1,070,000 less subscriptions prepaid 10,000 and bar creditors 156,000 = N904,000.
Which of the following items is found on the credit side of a Sales Ledger Control Account?
Answer: D (Bad debts written off.)
Bad debts reduce what customers owe, so they are credited.
Which of the following is not a credit item in the Sales Ledger Control Account?
Answer: C (Dishonoured cheque)
A dishonoured cheque increases the debt again, so it is debited.
Creditors: 1st Jan N4,200; 31st Dec N5,200
Stocks: 1st Jan N3,600; 31st Dec N3,200
Cash paid to creditors during the year was N18,000.
Purchases for the year was
Answer: B (N19,000)
18,000 + 5,200 − 4,200 = N19,000.
Creditors: 1st Jan N4,200; 31st Dec N5,200
Stocks: 1st Jan N3,600; 31st Dec N3,200
Cash paid to creditors during the year was N18,000.
Cost of Sales for the year was
Answer: B (N19,400)
3,600 + 19,000 − 3,200 = N19,400.
The cost of raw materials consumed is determined in the Manufacturing Account as
Answer: A (opening stock plus purchases less closing stock.)
Raw materials used = opening stock + purchases − closing stock.
Which of the following is an item of prime cost?
Answer: A (Royalties payable)
Royalties are a direct expense, part of prime cost; the others are overheads.
Opening creditors was N65,000, closing creditors was N41,000. Credit purchases was N200,000 and discount received N3,000. How much was paid to creditors?
Answer: C (N221,000)
65,000 + 200,000 − 3,000 − 41,000 = N221,000.
The opening balance of debtors is N100,000 and that of provision for doubtful debts is N1,000. If provision is to be at 2½% of debtors, how much would be charged in the Profit and Loss Account?
Answer: C (N1,500)
New provision 2½% × 100,000 = 2,500; increase = 2,500 − 1,000 = N1,500.
Rent owing by a business is shown in the
Answer: C (Balance Sheet)
Rent owing is a current liability in the balance sheet.
Opening Stock N40,000
Purchases N130,000
Closing Stocks N32,000
Sales N180,000
What was the cost of goods sold?
Answer: B (N138,000)
40,000 + 130,000 − 32,000 = N138,000.
Opening Stock N40,000
Purchases N130,000
Closing Stocks N32,000
Sales N180,000
What was the gross profit?
Answer: C (N42,000)
180,000 − 138,000 = N42,000.
Which of the following source documents is used for recording goods returned to suppliers?
Answer: C (Debit note)
The buyer sends a debit note when returning goods to a supplier.
In which of the following is purchase of fixed assets on credit first recorded?
Answer: B (Journal Proper)
Credit purchases of fixed assets are first entered in the journal proper.
In which ledger is the account of Yao, a debtor found?
Answer: D (Sales Ledger.)
Debtors' accounts are in the sales ledger.
A fixed asset was bought for N60,000 on 1st January, 1997. Depreciation was provided at 10% on cost. It was sold for N16,000 on 30th June, 2001.
The profit or loss on sale was
Answer: B (N17,000 loss)
4½ years × 6,000 = 27,000; NBV 33,000; 16,000 − 33,000 = N17,000 loss.
A fixed asset was bought for N60,000 on 1st January, 1997. Depreciation was provided at 10% on cost. It was sold for N16,000 on 30th June, 2001.
The net book value at the time of sale was
Answer: A (N33,000)
60,000 − 27,000 = N33,000.
Which of the following errors would affect the agreement of the trial balance totals?
Answer: C (Single entry)
With a single entry, debits no longer equal credits.
Debtors value as at 1st January 2000 was N40,000. Bad debts written off during the year was N5,000. Provision for bad debt was 5%.
The amount debited to Profit and Loss Account as provision for the year was
Answer: D (N1,750.)
5% × (40,000 − 5,000) = N1,750.
Which of the following items is found in the credit column of the trial balance?
Answer: A (Provision for doubtful debts)
Provisions are credit balances; the others are expenses (debits).
Which of the following is not a source document?
Answer: C (Cash book)
The cash book is a book of original entry; the others are source documents.
Balance as per Cash book N18,000
Dishonoured cheques N1,200
Bank charges N300
Unpresented cheques N2,400
The Adjusted Cash Book balance is
Answer: D (N16,500.)
18,000 − 1,200 − 300 = N16,500.
Balance as per Cash book N18,000
Dishonoured cheques N1,200
Bank charges N300
Unpresented cheques N2,400
The balance as per the bank statement is
Answer: B (N18,900)
16,500 + unpresented cheques 2,400 = N18,900.
Which of the following transactions is posted to the nominal ledger?
Answer: A (Discounts allowed to customers)
Discount allowed is an expense, posted to the nominal ledger.
Which of the following is a real account item?
Answer: B (Fixtures)
Fixtures are a tangible asset recorded in a real account.
Which of the following has multiple uses?
Answer: C (General Journal)
The general journal records many kinds of transactions (opening entries, corrections, transfers).
The art of recording transactions in books of account is known as
Answer: B (book-keeping)
Book-keeping is the recording of transactions.
Section A – Theory of Financial Accounting (answer two questions only from this section)
1. (a) What are books of prime entry? (b) List any four books of prime entry? (c) State four uses of the General Journal.
(a) Books of prime (original) entry are the books in which transactions are first recorded from source documents before being posted to the ledger.
(b) Any four: sales day book; purchases day book; returns inwards book; returns outwards book; cash book; petty cash book; journal proper.
(c) Any four: opening entries; purchase or sale of fixed assets on credit; correction of errors; transfers between accounts; closing entries; writing off bad debts; adjustments such as depreciation; purchase or sale of a business.
Prime entry comes before the ledger.
2. (a) What is a share premium? (b) List three purposes for which a share premium is utilized.
(a) Share premium is the amount by which the issue price of a share exceeds its nominal value; it is a capital reserve not available for cash dividends and is kept in a share premium account.
(b) Any three: issuing fully paid bonus shares; writing off preliminary expenses; writing off expenses, commission or discount on issue of shares or debentures; providing the premium payable on redemption of redeemable preference shares or debentures.
Premium is a capital reserve, so it can only be used for capital purposes.
3. State five steps of converting incomplete records and single entry accounts to double entry accounts.
Any five steps: prepare an opening statement of affairs to find opening capital; prepare a cash and bank account summary to find missing figures (e.g. drawings); prepare total debtors and creditors accounts to find credit sales and purchases; prepare expense accounts adjusting for accruals and prepayments; prepare the trading and profit and loss account; prepare the closing balance sheet (capital + profit − drawings).
Follow the order: statement of affairs, cash/bank, control accounts, expenses, final accounts.
4. (a) State four advantages that an accounting system can derive from the application of the computer. (b) List two outputs of the accounting information system.
(a) Any four: speed in processing and producing reports; accuracy of calculations; large volumes of data stored in little space; easy retrieval and updating of records; better information for decision-making (e.g. exception reports); reduces boring repetitive work and labour cost; improved security with passwords and backups.
(b) Any two: profit and loss accounts/income statements; balance sheets; cash flow statements; payroll; stock records; management reports; customers' statements.
Advantages: speed, accuracy, storage, reports.
Section B – Financial Accounting Practice (answer three questions only from this section)
5. The following balances have been extracted from the books of Durodoluwa Local Government for the year ended 31st December, 2001.
General revenue balance (1/1/2001) N2,407,000
4001 Postages and stationery N123,450
4002 Maintenance of vehicles N365,845
4003 Purchase of drugs N606,435
4004 Personnel costs N4,366,155
3001 Subvention from Federal Government N7,000,000
3002 Subvention from State Government N2,500,000
4005 Grant to schools N1,500,000
3003 Rates and fines N300,100
3004 Licence renewal fees N176,400
4006 Disposal of refuse N203,440
4007 Salaries of traditional chiefs N105,000
4008 Provision of street lights N850,000
3005 Sale of grounded vehicles N74,500
You are required to prepare a statement of revenue and expenditure for the local government for the year ended 31st December, 2001.
Statement of revenue and expenditure for the year ended 31st December 2001
Revenue: Federal subvention 7,000,000; State subvention 2,500,000; rates and fines 300,100; licence renewal fees 176,400; sale of grounded vehicles 74,500; total 10,051,000.
Expenditure: postages and stationery 123,450; maintenance of vehicles 365,845; drugs 606,435; personnel costs 4,366,155; grant to schools 1,500,000; refuse disposal 203,440; traditional chiefs' salaries 105,000; street lights 850,000; total 8,120,325.
Surplus for the year 1,930,675; add general revenue balance b/f 2,407,000; general revenue balance c/f 4,337,675.
3000 heads are revenue and 4000 heads are expenditure; add the surplus to the opening general revenue balance.
6. Mr. Ekpeyong is a petty trader dealing in electronic gadgets. He has not been keeping his books of accounts but has been taking notes of his transactions. The following information is made available for the year ended 31st December, 2001.
Sales N200,000
Cash banked N130,000
Cheques issued to creditors N105,000
Cash purchases N30,000
Wages and salaries paid by cash N4,000
Rent paid by cash N2,000
Transportation paid by cash N5,400
Telephone charges paid by cash N800
Additional information:
(a) The assets and liabilities at the beginning and end of the period are estimated as follows (1/1/2001; 31/12/2001): Stock N20,000; N40,000. Bank balance N10,000; N20,000. Cash balance N2,000; N12,000. Trade debtors N7,000; N10,000. Trade creditors N3,500; N27,000.
(b) All differences in the reconciliation of takings, banking, disbursements and balances in hand and at bank are to be regarded as Mr. Ekpeyong's personal drawings.
You are required to prepare: (i) Opening Statement of Affairs as at 1st January, 2001; (ii) Trading, Profit and Loss Account for the year ended 31st December, 2001; and (iii) Balance Sheet as at that date.
(i) Statement of affairs 1/1/2001: stock 20,000; debtors 7,000; bank 10,000; cash 2,000 = 39,000; less creditors 3,500; capital 35,500.
Workings: credit purchases = 105,000 + 27,000 − 3,500 = 128,500; total purchases 128,500 + 30,000 = 158,500. Cash from sales = 200,000 + 7,000 − 10,000 = 197,000.
Cash: 2,000 + 197,000 − banked 130,000 − payments 42,200 (30,000 + 4,000 + 2,000 + 5,400 + 800) − closing 12,000 = drawings 14,800. Bank: 10,000 + 130,000 − 105,000 − closing 20,000 = drawings 15,000. Total drawings 29,800.
(ii) Trading: sales 200,000; opening stock 20,000 + purchases 158,500 − closing stock 40,000 = cost of sales 138,500; gross profit 61,500. Profit and loss: wages 4,000; rent 2,000; transport 5,400; telephone 800 = 12,200; net profit 49,300.
(iii) Balance sheet 31/12/2001: stock 40,000; debtors 10,000; bank 20,000; cash 12,000 = 82,000; less creditors 27,000 = 55,000. Capital 35,500 + net profit 49,300 − drawings 29,800 = 55,000.
Use the cash and bank summaries to find the missing drawings.
7. James was examining his bank statement for the month of December, 2001. He discovered that the balance on the statement disagreed with the Cash Book balance which was N18,440. On investigation, the following were revealed: (a) The opening balance in the Cash Book for the month had been wrongly brought down as N3,705 instead of N3,750. (b) Two cheques for N16,300 and N4,650 which were issued to creditors had not been presented for payment. (c) The bank returned a cheque for N3,800 deposited on 5th December. (d) A cheque for N7,600 deposited on 24th December was not credited until 2nd January, 2002. (e) Cost of cheque book and other charges by bank totalling N385 was yet to be entered in the Cash Book. (f) The bank had paid N850 on standing order to Premier Insurance Company.
You are required to prepare: (i) Adjusted Cash Book; and (ii) Bank Reconciliation Statement for December, 2001.
(i) Adjusted cash book: balance 18,440 + opening balance understated 45 = 18,485; less dishonoured cheque 3,800, bank charges 385, standing order 850 (total 5,035); adjusted balance 13,450.
(ii) Bank reconciliation statement, 31st December 2001: balance as per adjusted cash book 13,450; add unpresented cheques 16,300 + 4,650 = 20,950 → 34,400; less uncredited lodgement 7,600; balance as per bank statement 26,800.
Update the cash book first, then reconcile only the timing differences.
8. The following is a summary of the Cash Book of Agubiko Country Club:
Receipts: Balance 1/4/2001 N23,700; Members subscriptions N178,600; Entrance fees N16,000; Bar takings N284,000; Competition receipts N38,200; Sundry receipts N400; total N540,900
Payments: Staff wages N66,900; Bar supplies N252,000; Rent for 18 months to 30/6/2002 N36,000; Rates N14,000; Secretary's salary N15,600; Electricity and telephone N68,500; Competition prizes N18,500; Deposit with Onyi Community Bank N40,000; Balance – 31/3/2002 N29,400; total N540,900
Additional information:
(a) The assets of the club as at 1st April, 2001, were: Furniture and equipment N240,000; Bar stocks N13,000; Prizes at hand N4,000; Owing for bar supplies N26,000
(b) The assets of the club as at 31st March, 2002, were: Bar stocks N15,000; Prizes N2,500; Owing for bar supplies N28,000
(c) Subscriptions outstanding as at 31st March, 2002, totalled N5,000. Subscriptions received during the year under review included N3,500 in respect of the previous year and N2,000 in respect of the year beginning 1st April, 2002. (d) Interest on the deposit with Onyi Community Bank for the year 31st March, 2002, amounting to N2,400 had not been received. (e) Provide for depreciation on furniture and equipment at 10%. You are required to prepare: (i) Statement showing the Accumulated Fund as at 1st April, 2001; (ii) Income and Expenditure Account for the year ended 31st March, 2002; and (iii) Balance Sheet as at that date.
Rent is 2,000 a month: the 18 months to 30/6/2002 include 3 months before 1/4/2001 (owing at the start, 6,000), 12 months of this year (24,000) and 3 months prepaid (6,000).
(i) Accumulated fund 1/4/2001: furniture 240,000 + bar stock 13,000 + prizes 4,000 + subscriptions owing 3,500 + cash 23,700 = 284,200; less bar creditors 26,000 and rent owing 6,000; accumulated fund 252,200.
(ii) Income and expenditure for the year ended 31/3/2002
Income: subscriptions 178,600 − 3,500 − 2,000 + 5,000 = 178,100; entrance fees 16,000; bar profit 32,000 (takings 284,000 − cost 252,000, where purchases = 252,000 + 28,000 − 26,000 = 254,000 and cost = 13,000 + 254,000 − 15,000); competition surplus 18,200 (38,200 − prizes used 4,000 + 18,500 − 2,500 = 20,000); sundry receipts 400; interest receivable 2,400; total 247,100.
Expenditure: staff wages 66,900; rent 24,000; rates 14,000; secretary's salary 15,600; electricity and telephone 68,500; depreciation 24,000; total 213,000. Surplus 34,100.
(iii) Balance sheet 31/3/2002: furniture 240,000 − 24,000 = 216,000; deposit 40,000; bar stock 15,000; prizes 2,500; subscriptions owing 5,000; interest receivable 2,400; rent prepaid 6,000; cash 29,400 = 316,300. Less bar creditors 28,000 and subscriptions in advance 2,000 = 286,300. Accumulated fund 252,200 + surplus 34,100 = 286,300.
Treat the bar and competitions as trading sections and bring only their net results into income and expenditure.
9. Idowu has been in business for several years as a sole-proprietor of a hotel business. The balance sheet of his business on 31st December, 2001, was as follows:
Capital N200,000; Profit N26,000 (N226,000); Drawings N12,000 (N214,000); Creditors N47,000; Accruals N13,000; total N274,000
Leasehold premises N100,000; Fixtures and Fittings N120,000 (N220,000); Current Assets: Stock N38,000; Debtors N7,000; Bank N9,000 (N54,000); total N274,000
On 1st January 2002, he decided to admit Alaba into the business to form a partnership on the following terms: (a) Alaba is to contribute N250,000 as capital (b) Profits and losses are to be shared equally. (c) The partnership is to take over the assets and liabilities at their book values except for those revalued as follows: Leasehold premises N150,000; Fixtures and Fittings N100,000; Stock N35,000
(d) Idowu is to maintain a capital of N250,000 by credit from revaluation or private resources. Any balance shall be kept in his current account.
You are required to prepare: (i) Revaluation Account; (ii) Partners' Capital Account; and (iii) Opening Balance Sheet for the partnership on 1st January, 2002.
(i) Revaluation account: Dr fixtures 20,000 (120,000 − 100,000); stock 3,000 (38,000 − 35,000); profit on revaluation to Idowu's capital 27,000. Cr leasehold premises 50,000.
(ii) Capital accounts: Idowu – balance 214,000 + revaluation 27,000 = 241,000; he pays in 9,000 from private resources to bring it to 250,000. Alaba – bank 250,000.
(iii) Opening balance sheet 1/1/2002: leasehold 150,000; fixtures 100,000; stock 35,000; debtors 7,000; bank 9,000 + 250,000 + 9,000 = 268,000; total 560,000. Capital Idowu 250,000, Alaba 250,000; creditors 47,000; accruals 13,000; total 560,000.
Revaluation gains before admission belong to the old owner.