56 questions. Try each one, then open the answer to check yourself and read the explanation.
The manufacturing account is prepared to determine the cost of
Answer: B (production)
The manufacturing account finds the cost of goods produced.
Factory costs excluding prime cost is
Answer: A (overhead)
Factory costs other than direct costs are factory overheads.
An example of direct expense is
Answer: D (royalty.)
Royalties paid per unit made are a direct expense.
Which of the following is not shown in the trial balance?
Answer: B (Closing stock)
Closing stock is valued after the trial balance and given as a note.
Financial accounting information is for
Answer: D (internal and external use.)
Owners, managers, lenders, government and others all use it.
Which of the following statements is not true?
Answer: A (A trial balance is an account having debit and credit sides.)
A trial balance is a list, not an account.
Adobaw extracted a trial balance on 31st December 2005 and realised that the total of debit balances exceeded the total of credit balance. Pending investigation the difference should be
Answer: B (credited to suspense account)
The credit side is short, so the difference is credited to suspense.
A debit entry in the Cash Account and a corresponding credit entry in Alieu's Account indicate a
Answer: A (receipt of cash from Alieu)
Cash increases (debit) and Alieu gave the value (credit): cash received from him.
Opening stock N1,800
Closing stock N1,350
Creditors – 1/01/2004 N1,275
Creditors – 31/12/2004 N1,140
Cash paid to creditors N6,900
Debtors 1/01/2004 N465
Cash received from debtors N11,130
Debtors 31/12/2004 N300
Sales for the year was
Answer: D (N10,965.)
11,130 + 300 − 465 = N10,965.
Opening stock N1,800
Closing stock N1,350
Creditors – 1/01/2004 N1,275
Creditors – 31/12/2004 N1,140
Cash paid to creditors N6,900
Debtors 1/01/2004 N465
Cash received from debtors N11,130
Debtors 31/12/2004 N300
Cost of sales for the year was
Answer: C (N7,215)
Purchases = 6,900 + 1,140 − 1,275 = 6,765; cost of sales = 1,800 + 6,765 − 1,350 = N7,215.
Opening stock N1,800
Closing stock N1,350
Creditors – 1/01/2004 N1,275
Creditors – 31/12/2004 N1,140
Cash paid to creditors N6,900
Debtors 1/01/2004 N465
Cash received from debtors N11,130
Debtors 31/12/2004 N300
Gross profit for the year was
Answer: C (N3,750)
10,965 − 7,215 = N3,750.
The total of the sales journal is posted to the
Answer: B (credit side of sales account)
Total credit sales are credited to the sales account.
A rent of N12,000 was paid by Taiwo to his landlord by cheque. The double entry in Taiwo's books is
Answer: A (debit Rent Account, credit Bank Account)
Rent expense is debited and the bank, which paid, is credited.
The sum of money given to a petty cashier out of which small payments are made is a/an
Answer: D (float.)
It is the petty cash float.
The profit of a sole trader increases his
Answer: D (capital)
Profit belongs to the owner and increases his capital.
Balance as per cash book N8,000 Cr
Unpresented cheques N14,400
Uncredited cheques N2,600
A cheque for N2,000 paid to a creditor had been entered in error in the cash column.
Bank commission of N800 had not been entered in the cash book
The debit side of the cash book (bank column) had been undercast by N5,000
The adjusted balance as per cash book is
Answer: B (N5,800 Cr)
Overdraft 8,000 + cheque 2,000 + commission 800 − undercast 5,000 = N5,800 Cr.
Balance as per cash book N8,000 Cr
Unpresented cheques N14,400
Uncredited cheques N2,600
A cheque for N2,000 paid to a creditor had been entered in error in the cash column.
Bank commission of N800 had not been entered in the cash book
The debit side of the cash book (bank column) had been undercast by N5,000
The balance as per bank statement is
Answer: B (N6,000 Cr)
−5,800 + unpresented 14,400 − uncredited 2,600 = 6,000 in the customer's favour, a credit balance on the bank statement.
Rent receivable accrued 1/01/2005 D3,000
Rent received during the year 2005 D5,000
Rent receivable accrued 31/12/2005 D2,500
The entry for rent received in the profit and loss account for the year ended 31st December 2005 is
Answer: A (credit profit and loss account with D4,500)
Rent income = 5,000 − 3,000 + 2,500 = D4,500, and income is credited to profit and loss.
Rent receivable accrued 1/01/2005 D3,000
Rent received during the year 2005 D5,000
Rent receivable accrued 31/12/2005 D2,500
The rent receivable accrued as at 31st December 2005 is shown in the balance sheet as
Answer: A (current asset)
Rent still to be received is owed to the business, a current asset.
Which of the following is not a cause of depreciation?
Answer: A (Inflation)
Inflation changes prices, not the asset's use or life.
Items on the left-hand side of a total debtors account are debits in the
Answer: B (sales ledger)
Debits in the debtors control match debits in the sales ledger accounts.
Opening balance N1,894 Dr
Cheques received from customers N7,284
Cash received from customers N1,236
Returns from customers N296
Closing balance N3,368 Dr
Credit sales for the period is
Answer: B (N10,290)
3,368 + 7,284 + 1,236 + 296 − 1,894 = N10,290.
Opening balance N1,894 Dr
Cheques received from customers N7,284
Cash received from customers N1,236
Returns from customers N296
Closing balance N3,368 Dr
The closing balance of N3,368 Dr is classified in the balance sheet as a
Answer: B (current asset.)
Debtors are a current asset.
The cost price of a book is Le 9,000 and the selling price is Le 12,000. The mark up is
Answer: C (33⅓%)
3,000 ÷ 9,000 = 33⅓%.
In single entry and incomplete records, the net assets method used to ascertain profit is
Answer: A (net asset at the end of a period – net asset at the beginning of a period = profit + additional capital – drawings)
Increase in net assets = profit + new capital − drawings.
The assumption that a business has perpetual existence is recognised by
Answer: C (going-concern concept)
That is the going concern concept.
Youngsters Club has a membership of 115 persons. Each member pays an annual subscription of N50. During the year ended 31st December 2005, 8 members had not paid their subscriptions.
The subscriptions recorded in the Income and Expenditure Account for the year ended 31st December 2005 is
Answer: A (N5,750)
All 115 members owe for the year: 115 × 50 = N5,750.
Youngsters Club has a membership of 115 persons. Each member pays an annual subscription of N50. During the year ended 31st December 2005, 8 members had not paid their subscriptions.
The subscriptions shown in the Balance Sheet as at 31st December 2005 is
Answer: A (N400 (asset))
8 × 50 = N400 owed by members, an asset.
The accounting principle which states that for every debit entry, there is a corresponding credit entry is recognised by
Answer: D (dual aspect concept.)
That is the dual aspect concept.
In the absence of partnership agreement, profits and losses are shared
Answer: B (equally)
The Partnership Act says profits are shared equally.
Which of the following is credited to a partnership appropriation accounts?
Answer: B (Interest on drawings)
Interest charged on drawings is income credited to the appropriation account.
Which of the following formulae is used to calculate stock turnover rate?
Answer: B (Cost of sales ÷ Average stock)
Stock turnover = cost of sales ÷ average stock.
Which of the following bases of accounting does not make allowance for depreciation?
Answer: A (Cash basis)
Under the cash basis the full cost of an asset is spent when paid, so no depreciation is charged.
Premises N100,000
Plant N50,000
Fixtures N30,000
Stock N20,000
Debtors N10,000
Cash N10,000
Creditors N20,000
Total assets is
Answer: B (N220,000)
100,000 + 50,000 + 30,000 + 20,000 + 10,000 + 10,000 = N220,000.
Premises N100,000
Plant N50,000
Fixtures N30,000
Stock N20,000
Debtors N10,000
Cash N10,000
Creditors N20,000
Current ratio is
Answer: C (2:1)
40,000 ÷ 20,000 = 2 : 1.
Premises N100,000
Plant N50,000
Fixtures N30,000
Stock N20,000
Debtors N10,000
Cash N10,000
Creditors N20,000
Quick ratio is
Answer: D (1:1.)
(40,000 − 20,000) ÷ 20,000 = 1 : 1.
Which of the following is not used for determining working capital?
Answer: C (Motor vehicles)
Motor vehicles are fixed assets.
In the absence of partnership agreement, a loan by a partner attracts interest at
Answer: D (5%.)
The Partnership Act allows 5% a year on partners' loans.
Which of the following is not a data processing method?
Answer: D (Formatting.)
Data are processed manually, mechanically or electronically; formatting is not a processing method.
The correct sequence in data processing is
Answer: A (input → process → output.)
Data are input, processed, then output.
Profit: 2003 Le40,000; 2004 Le48,000; 2005 Le62,000.
The value of goodwill calculated at 3 years purchase of annual profit is
Answer: B (Le 150,000)
Average profit = 150,000 ÷ 3 = 50,000; three years' purchase = 3 × 50,000 = Le150,000.
The maximum amount which a company is allowed to raise through the sale of shares is
Answer: A (authorised capital)
Authorised capital is the maximum.
The double entry in the books to write off goodwill is
Answer: C (debit Profit and Loss Appropriation Account credit Goodwill Account.)
Writing off reduces goodwill (credit); the key debits the appropriation account.
Holders of ordinary shares do not have the right to
Answer: D (receive dividends at a predetermined rate)
A fixed dividend rate belongs to preference shares.
An example of capital gain is
Answer: A (premium)
Share premium is a capital gain kept as a capital reserve.
Which of the following attracts a fixed rate of dividend?
Answer: C (Preference shares)
Preference shares carry a fixed dividend rate.
Which of the following is a source of revenue to a local government authority?
Answer: A (Poll tax)
Poll (community) tax is collected by local governments.
Section A
1. (a) Explain the following terms: (i) members' subscriptions; (ii) accumulated fund (iii) bar stock; (iv) bar profit. (b) List five sources of income for a not-for-profit making organization.
(a)(i) Members' subscriptions: the regular (usually annual) fees members pay to belong to the club.
(ii) Accumulated fund: the capital of a non-profit organisation, i.e. its assets less liabilities.
(iii) Bar stock: drinks and other goods for sale in the club's bar that are unsold at a date.
(iv) Bar profit: the surplus from running the bar (bar takings less cost of bar sales and bar expenses), transferred to the income and expenditure account.
(b) Any five: subscriptions; entrance fees; donations and gifts; government grants or subventions; bar profit; proceeds from dances, concerts and other events; interest on investments; rent of club facilities; life membership fees.
Give short clear meanings, then list five income sources.
2. (a) Explain the following and give three examples of each: (i) capital reserves; (ii) revenue reserves. (b) Describe a company's appropriation accounts.
(a)(i) Capital reserves are reserves not available for paying cash dividends, usually arising from capital transactions. Examples: share premium; revaluation surplus; capital redemption reserve; profit on forfeited shares; pre-incorporation profit.
(ii) Revenue reserves are profits set aside that can be used for dividends. Examples: general reserve; retained profit (profit and loss balance); dividend equalisation reserve; reserve for replacement of assets.
(b) The profit and loss appropriation account shows how the year's profit after tax (plus any balance brought forward) is used: transfers to reserves, preliminary expenses or goodwill written off, interim dividends paid and final dividends proposed on preference and ordinary shares, leaving the retained profit carried forward.
Capital reserves cannot be paid out as cash dividends; revenue reserves can.
3. (a) State the purpose of departmental accounts (b) State a basis of apportioning each of the following expenses to departments: (i) rent; (ii) salesmen commission; (iii) supervisors' salary; (iv) carriage inwards. (c) List four accounts prepared by a head office to control branch transactions.
(a) To find the gross and net profit of each department so that results can be compared, weak departments identified, managers rewarded and policies (pricing, expansion, closure) decided.
(b)(i) Rent – floor area; (ii) salesmen commission – sales of each department; (iii) supervisors' salary – number of employees (or time spent); (iv) carriage inwards – purchases.
(c) Any four: branch stock account; branch debtors account; goods sent to branch account; branch stock adjustment account; branch expenses account; branch profit and loss account; branch cash account.
Match each expense to the factor that causes it.
4. (a) What is a ledger? (b) List and explain three classification of ledger accounts (c) List six accounts found in nominal ledger.
(a) The ledger is the main book of account in which all accounts are kept, each showing debit and credit entries.
(b) Personal accounts – accounts of people and firms (debtors, creditors, capital). Real accounts – accounts of assets and property (land, buildings, machinery, cash). Nominal accounts – accounts of incomes, expenses, gains and losses (rent, wages, commission received). (Alternatively by ledger: sales ledger, purchases ledger, general/nominal ledger, private ledger.)
(c) Any six: salaries; wages; rent; rates; insurance; electricity; carriage; discounts allowed; discounts received; commission received; interest; sales; purchases; returns.
Personal, real and nominal are the three classes of accounts.
Section B – Financial Accounting Practice
5. Noshud Limited is a manufacturing company. The following information were made available concerning its operations (D):
Stocks as at 1st March, 2004: Raw materials 50,000; Work-in-progress 18,000; Finished goods 25,000
Purchase of raw materials 650,000
Carriage inwards 15,000
Returns outwards 30,000
Direct factory wages 160,000
Depreciation of plant 20,000
Repairs to factory 12,000
Other factory wages 200,000
Factory power 60,000
Administrative salary 120,000
Sales 1,500,000
Office expenses 36,000
Stocks at 28th Feb., 2005: Raw materials 70,000; Work-in-progress 20,000; Finished goods 27,000
Additional information: (a) Finished goods are transferred to the trading section at cost plus 10%. (b) A third of office expenses and administrative salary is charged against production.
You are required to prepare: (i) Manufacturing Account for the year ended 28th February, 2005; and (ii) Trading Account for the year ended 28th February, 2005.
(i) Manufacturing account: raw materials 50,000 + purchases 650,000 + carriage inwards 15,000 − returns 30,000 − closing 70,000 = 615,000; direct wages 160,000; prime cost 775,000.
Overheads: depreciation 20,000; repairs 12,000; other factory wages 200,000; power 60,000; ⅓ office expenses 12,000; ⅓ administrative salary 40,000; total 344,000. Add opening WIP 18,000, less closing WIP 20,000: cost of production 1,117,000.
Manufacturing profit 10% = 111,700; transfer to trading 1,228,700.
(ii) Trading account: sales 1,500,000; opening finished goods 25,000 + 1,228,700 − closing 27,000 = cost of sales 1,226,700; gross profit 273,300.
Add the 10% factory profit to cost of production before transferring to trading.
6. The following transactions were extracted from the books of Mercyland Trading Company as at 31st January 2005. All payments were made by cheque and all receipts were paid to the bank. The company maintains a float of N21,000.
January 2: Cash at Eaglet Bank N20,000
January 2: Petty cash in hand N1,400
January 3: Drew cheque for petty cash N19,600
January 5: Received from Anthony, cheque in settlement of his debt N32,600 less 10% discount.
January 6: Settled Tunde's account of N25,900 less 10% discount
January 7: Sold for cash 20 MTN cards at N750 per card
January 8: Transferred to current account from deposit account N70,000
January 10: Paid Olu N4,800
January 16: Paid cheque for motor repairs N8,000
January 17: Paid Ade N3,800
January 24: Paid Kofi N4,050
January 27: Paid Kwame N4,200
January 29: Payments from petty cash during the month were: Salaries and wages N8,000; Trade expenses N2,000; Sundry purchases N9,200
You are required to prepare: (a) Two-column cash book (showing Discounts and Bank columns only) for the month ended 31st January, 2005. (b) Petty cash book for the same period.
(a) Cash book (discount and bank)
Dr: Jan 2 balance 20,000; Jan 5 Anthony 29,340 (discount allowed 3,260); Jan 7 sales 15,000 (20 × 750); Jan 8 deposit account 70,000; total bank 134,340; discount allowed 3,260.
Cr: Jan 3 petty cash 19,600; Jan 6 Tunde 23,310 (discount received 2,590); Jan 10 Olu 4,800; Jan 16 motor repairs 8,000; Jan 17 Ade 3,800; Jan 24 Kofi 4,050; Jan 27 Kwame 4,200; Jan 31 petty cash reimbursement 19,200; balance c/d 47,380; total 134,340; discount received 2,590.
(b) Petty cash book: receipts – Jan 2 balance 1,400; Jan 3 bank 19,600 (float 21,000). Payments (analysed) – salaries and wages 8,000; trade expenses 2,000; sundry purchases 9,200; total 19,200; balance 1,800. Jan 31 reimbursement from bank 19,200; balance c/d 21,000.
Discount columns are memoranda; the imprest is restored by a cheque equal to the month's petty payments.
7. The following is the Receipts and Payments Account of Egbejoda Social Club for the year ended 31st March, 2005.
Receipts: Balance b/f N13,470; Subscriptions N48,490; Donations N16,000; Bar takings N32,500; total N110,460
Payments: Stationery N375; Transportation N1,600; Sporting equipment N15,000; Bar supplies N20,800; Rent N6,400; General expenses N1,920; Barman's wages N5,500; Balance c/d N58,865; total N110,460
Additional information: (a) (1/4/2004; 31/3/2005): Bar stock N1,700; N2,250. Bar supplies (owing) N800; N1,600. Subscriptions in arrears N7,150; N5,220. Rent accrued N3,000; N2,000. (b) Provide for depreciation of equipment at 20% on cost.
You are required to prepare: (i) Bar Trading Account; (ii) Income and Expenditure Account; and (iii) Balance Sheet as at 31st March, 2005.
(i) Bar trading account: takings 32,500; opening stock 1,700 + purchases 21,600 (20,800 + 1,600 − 800) − closing stock 2,250 = cost 21,050; gross profit 11,450; less barman's wages 5,500; bar profit 5,950.
(ii) Income and expenditure: income – subscriptions 46,560 (48,490 − 7,150 + 5,220); donations 16,000; bar profit 5,950; total 68,510. Expenditure – stationery 375; transport 1,600; rent 5,400 (6,400 − 3,000 + 2,000); general expenses 1,920; depreciation 3,000 (20% × 15,000); total 12,295. Surplus 56,215.
(iii) Balance sheet 31/3/2005: equipment 15,000 − 3,000 = 12,000; bar stock 2,250; subscriptions in arrears 5,220; cash 58,865 = 78,335; less bar creditors 1,600 and rent accrued 2,000 = 74,735. Accumulated fund 1/4/2004 (13,470 + 1,700 + 7,150 − 800 − 3,000) 18,520 + surplus 56,215 = 74,735.
Work out the opening accumulated fund from the opening balances and cash.
8. Dayo and Kola are in partnership sharing profits and losses in the ratio of 3:2. The following balances were extracted from the books of the firm for the year ended 31st March, 2006 (Dr; Cr):
Capital: Dayo – ; N120,000. Kola – ; N100,000
Current Account: Dayo N10,000; –. Kola –; N45,000
Drawings: Dayo N20,000; Kola N30,000
Stock – 1st April, 2005 N12,000
Plant and machinery N150,000
Fixtures and fittings N40,000
Equipment N60,000
Provision for doubtful debts N1,000 (Cr)
Debtors N35,000
Creditors N25,000 (Cr)
Discount allowed N850
Discount received N1,200 (Cr)
Bad Debts N650
Sales N180,000 (Cr)
Purchases N114,000
Returns inwards N500
Returns outwards N800 (Cr)
Totals N473,000 / N473,000
Additional information: (a) Stock – 31st March, 2006 N18,000 (b) Interest on capital at 5% per annum (c) Interest on drawings at 10% per annum (d) Depreciate plant and machinery by 5% (e) Provision for doubtful debts should be at 5% on debtors (f) Dayo to receive a partnership salary of N5,000.
You are required to prepare: (i) Trading, Profit and Loss Account (ii) Appropriation Account for the year ended 31st March, 2006; and (iii) Partners' Current Accounts.
(i) Trading: sales 180,000 − returns 500 = 179,500; opening stock 12,000 + purchases 114,000 − returns 800 − closing 18,000 = 107,200; gross profit 72,300.
Profit and loss: add discount received 1,200 = 73,500. Expenses: discount allowed 850; bad debts 650; increase in provision 750 (5% × 35,000 = 1,750 − 1,000); depreciation of plant 7,500; total 9,750. Net profit 63,750.
(ii) Appropriation: 63,750 + interest on drawings (Dayo 2,000, Kola 3,000) = 68,750; less salary Dayo 5,000; interest on capital Dayo 6,000, Kola 5,000; balance 52,750 shared 3:2: Dayo 31,650, Kola 21,100.
(iii) Current accounts: Dayo – Dr balance 10,000, drawings 20,000, interest on drawings 2,000; Cr salary 5,000, interest 6,000, share 31,650; balance 10,650 Cr. Kola – Dr drawings 30,000, interest on drawings 3,000; Cr balance 45,000, interest 5,000, share 21,100; balance 38,100 Cr.
Interest on drawings is added to profit in the appropriation account and charged to each partner.
9. The following are the summarized balance sheets of Farouk Nig. Limited at 31st December, 2005 and 2006 (2006; 2005):
Fixed assets: Land and buildings N320,000; N320,000. Equipment (at cost) N100,000; N80,000 (N420,000; N400,000). Goodwill N80,000; N80,000. Total N500,000; N480,000.
Current assets: Stock N260,000; N240,000. Debtors N240,000; N200,000. Bank N48,000; N60,000. Cash in hand N112,000; N60,000. Total N660,000; N560,000.
Total assets N1,160,000; N1,040,000.
Share capital: Ordinary shares of N1.00 each N480,000; N400,000. Profit and Loss Account N320,000; N340,000.
Current liabilities: Creditors N344,000; N260,000. Accruals N16,000; N40,000. Total N360,000; N300,000.
Total N1,160,000; N1,040,000.
The net profit for the years were: 2005: N120,000; 2006: N88,000.
You are required to calculate for the years 2005 and 2006: (a) working capital; (b) current ratio; (c) acid test ratio; (d) return on capital employed; (e) stock to current assets ratio; and (f) capital employed.
(2006; 2005)
(a) Working capital = current assets − current liabilities: 660,000 − 360,000 = 300,000; 560,000 − 300,000 = 260,000.
(b) Current ratio: 660 ÷ 360 = 1.83 : 1; 560 ÷ 300 = 1.87 : 1.
(c) Acid test ratio = (current assets − stock) ÷ current liabilities: 400 ÷ 360 = 1.11 : 1; 320 ÷ 300 = 1.07 : 1.
(f) Capital employed = total assets − current liabilities (= shareholders' funds): 800,000; 740,000.
(d) Return on capital employed = net profit ÷ capital employed: 88,000 ÷ 800,000 = 11%; 120,000 ÷ 740,000 = 16.2%.
(e) Stock to current assets: 260 ÷ 660 = 39.4%; 240 ÷ 560 = 42.9%.
Work out capital employed first because ROCE uses it.