56 questions. Try each one, then open the answer to check yourself and read the explanation.
The art of collecting, recording, presenting and interpreting accounting data is
Answer: C (financial accounting)
Financial accounting records, summarises and interprets a business's financial data.
The depreciation method in which the number of years of the useful life of an asset is allocated in a reverse order is
Answer: C (sum of the years' digits)
Sum-of-the-years'-digits uses the years of life in reverse order as the weights.
A system where a separate cash book is maintained for small payments is
Answer: B (imprest)
The imprest system keeps a petty cash book for small payments.
Public sector accounting is practised in
Answer: B (government organizations)
Public sector accounting is the accounting of government bodies.
A book that contains the accounts for the financial transactions of an organization is the
Answer: B (ledger)
The ledger holds the accounts.
A sales ledger contains
Answer: D (debtors' accounts.)
The sales ledger holds customers' (debtors') accounts.
Books of account consists of
Answer: A (ledgers and subsidiary books)
The books of account are the ledgers and the subsidiary books of original entry.
The amount set aside out of profits earned by a company which are not meant for liability or contingency are
Answer: D (reserves)
Profits set aside not for a known liability are reserves.
The basis of accounting which eliminates debtors and creditors is
Answer: A (cash basis)
On a cash basis only cash received and paid is recorded, so there are no debtors or creditors.
Which of the following is not a revenue account?
Answer: B (Purchases)
Purchases is an expense; the others are income (revenue) accounts.
Ordinary shares of N1 each N500,000
8% preference shares of N1 each N200,000
Interim dividends paid: ordinary shares N40,000; preference shares N12,000
Profit for the year N100,000
If no profit is to be retained, proposed preference shares dividend is
Answer: D (N4,000)
The full preference dividend is 8% × 200,000 = 16,000; N12,000 has been paid as interim, so N4,000 is proposed.
Ordinary shares of N1 each N500,000
8% preference shares of N1 each N200,000
Interim dividends paid: ordinary shares N40,000; preference shares N12,000
Profit for the year N100,000
If no profit is to be retained, proposed ordinary shares dividend is
Answer: B (N44,000)
100,000 − preference 16,000 − ordinary interim 40,000 = N44,000 left for the proposed ordinary dividend.
Ordinary shares of N1 each N500,000
8% preference shares of N1 each N200,000
Interim dividends paid: ordinary shares N40,000; preference shares N12,000
Profit for the year N100,000
The dividend per ordinary share for the year is
Answer: D (N0.17 kobo)
Total ordinary dividend = 40,000 + 44,000 = 84,000 on 500,000 shares ≈ N0.17 per share.
A customer who returns goods to the supplier because they are defective is issued a
Answer: B (credit note)
The supplier sends a credit note for goods returned.
Cross referencing among different books of accounts is achieved with the use of
Answer: C (folio)
Folio columns cross-reference the books.
In company accounts, profit after tax is shared in the
Answer: A (appropriation account)
Profit after tax is distributed in the appropriation account.
Which of the following is not a source of revenue to a government?
Answer: B (Sale of goods)
Government does not normally earn its revenue by trading goods.
(Ebrima; Jaiteh)
Capital: D2,000; D10,000
Drawings: D4,000; D3,000
Salary: –; D900
Profit sharing ratio: 3/5; 2/5
Profit for the year before 5% interest on capital was D18,000
Ebrima's share of profit was
Answer: B (D9,900)
Interest 100 + 500 and salary 900 leave 16,500; Ebrima 3/5 = D9,900.
(Ebrima; Jaiteh)
Capital: D2,000; D10,000
Drawings: D4,000; D3,000
Salary: –; D900
Profit sharing ratio: 3/5; 2/5
Profit for the year before 5% interest on capital was D18,000
Jaiteh's share of profit was
Answer: D (D6,600)
2/5 × 16,500 = D6,600.
Whatever is fed into the computer is exactly what would be processed and produced as output. This is the concept of
Answer: D (garbage in, garbage out.)
Garbage in, garbage out: wrong input gives wrong output.
Bank reconciliation statement reconciles
Answer: B (bank balance in the cash book and bank statement balance)
It explains the difference between the cash book bank balance and the bank statement.
Cash in hand Le15,000
Balances as at 1st January, 2005: Subscriptions in arrears Le6,000; Subscriptions in advance Le2,500
Subscriptions received Le18,000
Expenses for the year Le6,500
Balances as at 31st December, 2005: Subscriptions in arrears Le3,000; Subscriptions in advance Le1,500
Accumulated fund at the beginning of the year was
Answer: B (Le 18,500)
Cash 15,000 + arrears 6,000 − advance 2,500 = Le18,500.
Cash in hand Le15,000
Balances as at 1st January, 2005: Subscriptions in arrears Le6,000; Subscriptions in advance Le2,500
Subscriptions received Le18,000
Expenses for the year Le6,500
Balances as at 31st December, 2005: Subscriptions in arrears Le3,000; Subscriptions in advance Le1,500
Subscriptions credited to the Income and Expenditure Account was
Answer: C (Le 16,000)
18,000 − 6,000 + 2,500 + 3,000 − 1,500 = Le16,000.
Cash in hand Le15,000
Balances as at 1st January, 2005: Subscriptions in arrears Le6,000; Subscriptions in advance Le2,500
Subscriptions received Le18,000
Expenses for the year Le6,500
Balances as at 31st December, 2005: Subscriptions in arrears Le3,000; Subscriptions in advance Le1,500
The excess of income over expenditure for the year was
Answer: C (Le 9,500)
16,000 − 6,500 = Le9,500.
Revenue is recognised in the profit and loss account as soon as a
Answer: C (sale of goods takes place whether or not money is received)
Under realisation, revenue is recognised when the sale is made, paid or not.
"A business unit is assumed to operate into foreseeable future and earn reasonable net income". This statement is emphasized by the concept of
Answer: B (going concern)
That is the going concern concept.
Which of the following is not used in solving problems of incomplete records?
Answer: D (Balance sheet)
The balance sheet is the end result, not a tool for finding missing figures.
In a system of incomplete records, the opening capital is determined by preparing
Answer: A (statement of affairs)
Opening capital comes from a statement of affairs.
Opening stock: raw materials D10,000; work-in-progress D16,000
Purchases of raw materials D95,500
Direct labour wages paid D13,500
Royalties paid D6,200
Accrued wages D2,800
Closing stock: raw materials D7,500; work-in-progress D8,500
Manufacturing overhead D10,000
Cost of raw materials consumed is
Answer: C (D98,000)
10,000 + 95,500 − 7,500 = D98,000.
Opening stock: raw materials D10,000; work-in-progress D16,000
Purchases of raw materials D95,500
Direct labour wages paid D13,500
Royalties paid D6,200
Accrued wages D2,800
Closing stock: raw materials D7,500; work-in-progress D8,500
Manufacturing overhead D10,000
Prime cost is
Answer: A (D120,500)
98,000 + wages (13,500 + 2,800 accrued) + royalties 6,200 = D120,500.
Opening stock: raw materials D10,000; work-in-progress D16,000
Purchases of raw materials D95,500
Direct labour wages paid D13,500
Royalties paid D6,200
Accrued wages D2,800
Closing stock: raw materials D7,500; work-in-progress D8,500
Manufacturing overhead D10,000
Cost of goods manufactured is
Answer: A (D138,000)
120,500 + overhead 10,000 + opening WIP 16,000 − closing WIP 8,500 = D138,000.
A set of instructions fed into a computer for accomplishing a given task is a/an
Answer: B (programme)
A program is a set of instructions.
Control accounts are also known as
Answer: B (total accounts)
Control accounts are also called total accounts.
Which of the following is charged to trading account?
Answer: D (Carriage inwards.)
Carriage inwards is part of the cost of goods.
Which of the following is not a debit item in a creditor's control account?
Answer: C (Purchases)
Credit purchases are credited to the creditors control account.
Motor vehicles (at cost) 1/1/2002 N1,000,000
Addition to motor vehicles 1/7/2003 N600,000
Depreciation rate 10%
Using the straight line method, the depreciation charged for year 2002 was
Answer: C (N100,000)
In 2002 only the original vehicles were owned: 10% × 1,000,000 = N100,000.
Motor vehicles (at cost) 1/1/2002 N1,000,000
Addition to motor vehicles 1/7/2003 N600,000
Depreciation rate 10%
Using the reducing balance method, the depreciation charged for year 2002 was
Answer: A (N100,000)
10% × 1,000,000 = N100,000 in the first year.
Which of the following is not a revenue expenditure?
Answer: C (Purchases of motor vehicle)
A motor vehicle is a fixed asset: capital expenditure.
The amount allowed off the cost price of an article to stimulate patronage is
Answer: B (trade discount)
Trade discount is a reduction in list price to encourage buying.
Which of the following is a Journal as well as an account?
Answer: B (Cash book)
The cash book is both a book of original entry (journal) and the cash and bank accounts.
Which of the following columns of a three column cash book are memoranda? I. Discount received II. Discount allowed III. Cash IV. Bank
Answer: A (I and II only)
The discount columns are memorandum columns totalled and posted to the discount accounts; cash and bank columns are real accounts.
Balance as per cash book D8,400
Bank charges D300
Standing order paid D2,500
Unpresented cheques D2,800
The adjusted cash book balance is
Answer: D (D5,600)
8,400 − 300 − 2,500 = D5,600.
Balance as per cash book D8,400
Bank charges D300
Standing order paid D2,500
Unpresented cheques D2,800
The balance as per bank statement is
Answer: B (D8,400)
5,600 + unpresented cheques 2,800 = D8,400.
Where the head office maintains all books of account, goods sent to branch is credited to
Answer: A (Goods Sent to Branch Account)
Debit branch stock, credit goods sent to branch.
Which of the following is not a purpose for preparing departmental accounts? To
Answer: B (employ staff into different departments)
Departmental accounts measure results; they are not for employing staff.
Rent accrued 1st January, 2005 D600
Rent paid in 2005 D11,300
Rent prepaid 31st December, 2005 D500
Rent expenses for the year 2005 is
Answer: D (N10,200)
11,300 − 600 (for 2004) − 500 (for 2006) = 10,200.
Which of the following is not classified as an overhead?
Answer: C (Factory building extension)
Extending the factory is capital expenditure, not an overhead.
Section A
1. (a) Explain the purpose of preparing each of the following: (i) trading account; (ii) profit and loss account; and (iii) balance sheet (b) List six items each found in the asset and liability sides of the balance sheet of a sole proprietor.
(a)(i) Trading account: to find the cost of goods sold and the gross profit or loss on trading.
(ii) Profit and loss account: to find net profit or loss by setting expenses against gross profit and other income.
(iii) Balance sheet: to show the financial position (assets, liabilities and capital) at a date.
(b) Assets (any six): land and buildings, plant and machinery, motor vehicles, furniture and fittings, investments, stock, debtors, prepayments, bank, cash. Liabilities/capital side (any six): capital, net profit (less drawings), long-term loans, bank overdraft, creditors, accrued expenses, bills payable, income received in advance.
One purpose for each statement; then two lists of six.
2. (a) Explain the two methods of accounting for goods sent to branch. (b) State three bases of apportioning expenses to departments. (c) State four reasons why organizations separate their operations into different departments.
(a) Cost price method: goods are sent and recorded at cost, and the branch account (or branch stock account) shows profit directly. Selling price (invoice price) method: goods are charged at selling price; the loading (mark-up) is held in a branch stock adjustment account and removed at the end to find gross profit, which also helps control stock losses. (Alternatively: debtors method vs stock and debtors method.)
(b) Any three: floor area; sales or turnover; purchases; number of employees; value of assets; meter readings; direct allocation.
(c) Any four: to measure the profit of each department; to compare departments and identify weak ones; to control costs; to reward or assess departmental managers; to help in pricing and policy decisions; specialisation and efficiency.
Know both branch methods and why a firm splits into departments.
3. (a) List the subsidiary books from which each of the following items are obtained: (i) payments in cash to creditors; (ii) credit sales; (iii) cash and cheques received; (iv) discount received; (v) discount allowed; (vi) credit purchases (vii) cash refund on account of overpayment by customers; (viii) bad debts written off; (ix) debtor's cheque dishonoured; (x) sales ledger balance set off against purchases ledger balance. (b) State two advantages of control accounts
(a)(i) Cash book; (ii) sales day book; (iii) cash book; (iv) cash book (discount column); (v) cash book (discount column); (vi) purchases day book; (vii) cash book; (viii) journal; (ix) cash book; (x) journal.
(b) Any two: they check the arithmetical accuracy of each ledger and locate errors quickly; they give total debtors and creditors quickly for final accounts; they help detect fraud; they help find missing figures in incomplete records.
Cash movements come from the cash book; non-cash adjustments come from the journal.
4. (a) What is goodwill? (b) State four instances in which goodwill is valued and recorded in the books of a partnership. (c) Describe the accounting entries made in partnership books when: (i) goodwill is created on admission of a new partner (ii) goodwill is written off from the books.
(a) Goodwill is the value of a business above its net assets, arising from reputation, customers, location and so on.
(b) Any four: admission of a new partner; retirement of a partner; death of a partner; change in profit-sharing ratio; sale of the business or conversion to a company; amalgamation.
(c)(i) Debit goodwill account; credit the old partners' capital accounts in their old profit-sharing ratio.
(ii) Debit the partners' capital accounts in the new profit-sharing ratio; credit goodwill account.
Goodwill created goes to the old partners; writing it off is borne by the new partnership.
Section B – Financial Accounting Practice
5. The bank columns in the cash book of Kamara for the month of April, 2005 and the bank statement are as follows (D'000):
Cash book – Dr: 1st April Balance b/f 106; 9th April Cheque from Jane 740; 15th April Cheque from Turay 978; 30th April Henry 393; total 2,217. Cr: 4th April Kaikai (cheque 101) 214; 4th April Hassan Plc (102) 416; 10th April Kadie (103) 370; 10th April City Council (104) 116; 21st April Brima (105) 336; 25th April Cesay (106) 183; 28th April Kargbo (107) 284; 30th April Balance c/f 298; total 2,217. 1st May Balance b/f 298.
Bank statement (Debit; Credit; Balance): 1st April Balance 106 CR; 4th April Standing order 140, 34 DR; 10th April Credit 740, 706 CR; 11th April Cheque No. 101 214, 492 CR; 16th April Cheque No. 103 307, 185 CR; 18th April Investment interest 772, 957 CR; 18th April Cheque No. 104 116, 841 CR; 24th April Cheque No. 105 336, 505 CR; 28th April Direct debit 250, 255 CR; 30th April Bank charges 54, 201 CR.
Additional information: (a) The correct figure for cheque number 103 is D307,000 instead of D370,000 (b) The direct debit of D250,000 was a monthly subscription payment made on behalf of Samara, another customer of the bank, but was debited in error to Kamara's account.
You are required to: (i) update the cash book to show the correct cash book balance as at 30th April, 2005; (ii) prepare a bank reconciliation statement as at 30th April, 2005.
(i) Updated cash book (D'000): balance b/f 298 + cheque 103 overstated 63 (370 − 307) + investment interest 772 = 1,133; less standing order 140 and bank charges 54; correct balance 939.
(ii) Bank reconciliation statement at 30th April 2005: balance per bank statement 201; add direct debit wrongly charged 250 and uncredited lodgements (Turay 978, Henry 393) 1,371 = 1,822; less unpresented cheques (102 Hassan 416, 106 Cesay 183, 107 Kargbo 284) 883; balance per cash book 939.
Correct the cash book for items only the bank knew; the bank's own error goes in the reconciliation.
6. Jomo, Ackun and Noye are in partnership under these terms: profit and losses are to be shared among Jomo, Ackun and Noye in the ratio 4:3:2 respectively; interest on capital is allowed at the rate of 5% per annum; Ackun is entitled to an annual salary of Le 1,600,000.
Balances (Capital 01/01/05; Current 01/01/05; Drawings 31/12/05; Interest on drawings 31/12/05):
Jomo: Le12,000,000; Le240,000 (cr); Le500,000; Le25,000
Ackun: Le8,000,000; Le160,000 (cr); Le600,000; Le30,000
Noye: Le6,000,000; Le140,000 (cr); Le700,000; Le35,000
Additional information: (a) By mutual agreement, Noye on 1st July, 2005 increased his capital by Le 2,000,000 while Jomo reduced his capital by Le 2,000,000. (b) The profit for the year ended 31st December, 2005 was Le 6,269,960.
You are required to prepare the: (i) profit and loss appropriation account; (ii) partners' capital accounts in columnar form; (iii) partners' current accounts in columnar form.
Interest on capital (5%, time-apportioned): Jomo 300,000 + 250,000 = 550,000; Ackun 400,000; Noye 150,000 + 200,000 = 350,000; total 1,300,000.
(i) Appropriation: net profit 6,269,960 + interest on drawings 90,000 = 6,359,960; less salary Ackun 1,600,000 and interest on capital 1,300,000; balance 3,459,960 shared 4:3:2: Jomo 1,537,760; Ackun 1,153,320; Noye 768,880.
(ii) Capital accounts: Jomo 12,000,000 − 2,000,000 withdrawn = 10,000,000; Ackun 8,000,000; Noye 6,000,000 + 2,000,000 = 8,000,000.
(iii) Current accounts: Jomo 240,000 + 550,000 + 1,537,760 − 500,000 − 25,000 = 1,802,760 Cr; Ackun 160,000 + 400,000 + 1,600,000 + 1,153,320 − 600,000 − 30,000 = 2,683,320 Cr; Noye 140,000 + 350,000 + 768,880 − 700,000 − 35,000 = 523,880 Cr.
Interest on capital is worked for each half-year because the capitals changed on 1st July.
7. S. Momoh commenced business on 1st April, 2005 with D 800,000 paid into the bank. During the month, he made the following transactions:
April 2 Bought goods by cheque D360,000
3 Withdrew cash of D200,000 for office use.
6 Received cash loan of D40,000 from S. Fowe.
10 Bought goods on credit for D80,000 from L. Maw.
13 Rent of D100,000 for business premises was paid by cheque.
16 Bought goods on credit from Lawrenco Ltd for D60,000.
18 Insurance premium of D30,000 was paid by cheque.
21 Sold goods for D120,000 receiving cheque in payment
25 Paid Lawrenco Ltd a cheque for D60,000
26 Bought an equipment for D40,000 from Nwoke and Co. on credit
27 Paid L. Maw a cheque of D80,000
28 Paid Nwoke and Co. a cheque for D40,000
29 Sold goods for D47,000 receiving a cheque in payment
30 Wages and salaries of D90,000 was paid in cash.
You are required to enter the above transactions in ledger accounts, balance the accounts, and extract a trial balance as at 30th April, 2005.
Bank: Dr capital 800,000, sales 120,000 + 47,000 = 967,000; Cr purchases 360,000, cash 200,000, rent 100,000, insurance 30,000, Lawrenco 60,000, L. Maw 80,000, Nwoke 40,000; balance 97,000.
Cash: Dr bank 200,000, loan 40,000; Cr wages 90,000; balance 150,000.
Purchases 360,000 + 80,000 + 60,000 = 500,000. Sales 167,000. Equipment 40,000. L. Maw, Lawrenco and Nwoke accounts all balance to nil.
Trial balance at 30th April 2005: Debit – bank 97,000; cash 150,000; purchases 500,000; rent 100,000; insurance 30,000; equipment 40,000; wages and salaries 90,000; total 1,007,000. Credit – capital 800,000; sales 167,000; loan (S. Fowe) 40,000; total 1,007,000.
Withdrawing cash for office use is a transfer from bank to cash, not drawings.
8. Ogyen Sports Club had a membership of 140 who pay annual subscription of N2,000 each. For the year 2005, the Receipts and Payments Account showed the following:
Receipts: Balance b/d N12,000; Subscriptions N290,000; Donations N50,000; Sale of games tickets N45,000; total N397,000
Payments: Cost of games N27,000; Rent N2,000; Groundman's wages N2,400; Cost of refreshment N4,900; Squash racquets N6,000; Hockey sticks N10,000; Games prizes N12,000; Annual awards N100,000; Balance c/d N232,700; total N397,000
Additional information: (a) (31/12/2004; 31/12/2005): Subscriptions (in arrears) N30,000; N25,000. Subscriptions in advance N10,000; N15,000. Sports equipment N40,000; ? (b) Sports equipment are to be depreciated at 50%.
You are required to prepare: (i) subscriptions account; (ii) income and expenditure account for the year ended 31st December, 2005, and (iii) a balance sheet as at 31st December, 2005.
(i) Subscriptions account: Dr arrears b/d 30,000; income and expenditure 280,000 (140 × 2,000); advance c/d 15,000 = 325,000. Cr advance b/d 10,000; cash 290,000; arrears c/d 25,000 = 325,000.
Equipment: 40,000 + squash racquets 6,000 + hockey sticks 10,000 = 56,000; depreciation 50% = 28,000; closing 28,000.
(ii) Income and expenditure 2005: Income – subscriptions 280,000; donations 50,000; games tickets 45,000; total 375,000. Expenditure – cost of games 27,000; rent 2,000; wages 2,400; refreshments 4,900; games prizes 12,000; annual awards 100,000; depreciation 28,000; total 176,300. Surplus 198,700.
(iii) Balance sheet 31/12/2005: equipment 28,000; subscriptions in arrears 25,000; cash 232,700 = 285,700; less subscriptions in advance 15,000 = 270,700. Accumulated fund 1/1/2005 (12,000 + 30,000 + 40,000 − 10,000) 72,000 + surplus 198,700 = 270,700.
Subscriptions for the year are simply members × fee; the subscriptions account checks it.
9. The following were extracted from the books of Mid-Land Company:
Trading and Profit and Loss Accounts for the year ended 31st December, 2005: Sales N500,000; less cost of goods sold: opening stock N30,000 + purchases N400,000 = N430,000 − closing stock N50,000 = N380,000; gross profit N120,000; less expenses N50,000; net profit N70,000.
Balance Sheet as at 31st December, 2005: Fixed assets N101,000; current assets: stock N50,000, debtors N15,000, cash N10,000 = N75,000; total N176,000; less current liabilities: creditors N20,000; N156,000. Financed by: capital N143,000; add net profit N70,000; less drawings N57,000 (N13,000); N156,000.
You are required to calculate: (a) stock turnover; (b) gross profit to sales; (c) current ratio; (d) acid-test ratio; (e) return-on-capital employed
(a) Stock turnover = cost of sales ÷ average stock = 380,000 ÷ ((30,000 + 50,000) ÷ 2) = 380,000 ÷ 40,000 = 9.5 times.
(b) Gross profit to sales = 120,000 ÷ 500,000 × 100 = 24%.
(c) Current ratio = 75,000 ÷ 20,000 = 3.75 : 1.
(d) Acid-test ratio = (75,000 − 50,000) ÷ 20,000 = 1.25 : 1.
(e) Return on capital employed = 70,000 ÷ 156,000 × 100 = 44.9% (on opening capital 143,000 it is 49%).
Write each formula, then substitute.