51 questions. Try each one, then open the answer to check yourself and read the explanation.
As a basis for assessing future usage, fixed assets are shown at
Answer: B (cost price)
Fixed assets are kept for use, not for sale, so the going-concern and historical cost ideas record them at what they cost, not at what they could be sold for.
In the absence of an agreement, partners share profits
Answer: D (on equal basis)
Where there is no partnership agreement, the Partnership Act rule applies: profits and losses are shared equally.
Subscriptions prepaid by members is recorded in the Balance Sheet of a club as a
Answer: A (current liability)
Subscriptions paid in advance belong to next year; the club owes members that service, so it is a current liability.
The reduction in value of an intangible asset is
Answer: C (amortization)
Writing off the cost of an intangible asset such as goodwill or a patent is called amortisation; depletion is for wasting assets like mines.
Which of the following is not part of cost of production.
Answer: C (Advertising)
Advertising is a selling and distribution expense; the others are incurred in the factory.
Rent is apportioned to each department on the basis of
Answer: A (area or space occupied)
Rent is paid for space, so each department bears rent in proportion to the floor area it uses.
A document which acknowledges that a company owes a person a stated sum of money with an agreement to pay a fixed rate of interest periodically is
Answer: D (debenture certificate)
A debenture is a written acknowledgement of a loan to the company carrying a fixed rate of interest.
Use the following information to answer questions 9 to 11.
Purchase of raw materials: D236,500
Returns of raw materials: D4,750
Carriage on raw materials: D34,000
Stock of raw materials at close: D39,500
Factory fuel: D150,000
Direct wages: D205,000
Indirect wages: D31,250
Factory power: D105,000
Work-in-progress at start: D32,500
The total factory overhead is
Answer: B (286,250)
Factory overhead is the indirect factory costs: fuel D150,000 + indirect wages D31,250 + power D105,000 = D286,250.
"Financial statements do not disclose all information users need to know about a firm." This is the concept of
Answer: B (money measurement)
Under money measurement only items that can be valued in money are recorded, so things like staff skill or morale never appear in the accounts.
Which of the following is not a source of revenue for local government?
Answer: A (Mining royalties)
Mining royalties go to the federal (central) government; licences, rates and permit fees are local government revenue.
A difference between the debit and credit totals in a Trial Balance is placed in
Answer: C (suspense account)
When a trial balance does not agree, the difference is put in a suspense account until the errors are found.
A three column Cash Book contains columns for
Answer: D (Discount, Cash and Bank)
A three-column cash book has discount, cash and bank columns on each side.
The total debtors account of a trading concern is ₦13,000. Out of this 2% is irrecoverable, 5% of the balance is not likely to be collected. What is the provision for doubtful debts?
Answer: C (₦637)
Bad debts = 2% × ₦13,000 = ₦260, leaving ₦12,740; provision = 5% × ₦12,740 = ₦637.
Which of the following is not part of factory overhead?
Answer: D (Depreciation of fixtures and fittings)
Fixtures and fittings are usually office assets, so their depreciation is an administrative expense; the others are factory costs.
Cost of extension to a factory building is classified as
Answer: C (capital expenditure)
Extending a building adds to a fixed asset that lasts many years, so it is capital expenditure.
Which of the following does not appear in a bank statement?
Answer: C (Uncredited cheques)
Uncredited cheques are in the cash book but the bank has not yet credited them, so they are not on the statement.
The purchase of a typewriter for office use for ¢2,000 is debited to
Answer: D (equipment account)
A typewriter for office use is a fixed asset, so it is debited to the equipment account, not purchases (which is for goods for resale).
The document making a public offer for the sale of a company's share is
Answer: C (Prospectus)
A prospectus invites the public to buy a company's shares.
Programs installed in computers to facilitate processing of data are
Answer: B (software)
Programs are software; hardware is the physical equipment.
In a not for profit making organization, the excess of income over expenditure is
Answer: B (added to accumulated fund)
A club has an accumulated fund instead of capital, and a surplus is added to it.
Use the following information to answer questions 24 to 26.
The authorized capital of City Entertainment Company is made up of 200,000 2½% preference shares of Le 60 each and 300,000 ordinary shares of Le 20. 80% of the ordinary shares have been issued at Le 30 each and fully paid. All the preference shares have been issued at par and fully paid. The directors decided to pay the preference dividend and recommended ordinary dividend of Le 0.10 per share.
What is the amount of preference dividend payable for the year?
Answer: C (Le 300,000)
Preference capital = 200,000 × Le 60 = Le 12,000,000; 2½% of that = Le 300,000.
Use the following information to answer questions 24 to 26.
The authorized capital of City Entertainment Company is made up of 200,000 2½% preference shares of Le 60 each and 300,000 ordinary shares of Le 20. 80% of the ordinary shares have been issued at Le 30 each and fully paid. All the preference shares have been issued at par and fully paid. The directors decided to pay the preference dividend and recommended ordinary dividend of Le 0.10 per share.
What is the amount of the share premium?
Answer: D (Le 2,400,000)
80% of 300,000 = 240,000 shares issued at Le 10 above the Le 20 par value: 240,000 × Le 10 = Le 2,400,000.
Use the following information to answer questions 24 to 26.
The authorized capital of City Entertainment Company is made up of 200,000 2½% preference shares of Le 60 each and 300,000 ordinary shares of Le 20. 80% of the ordinary shares have been issued at Le 30 each and fully paid. All the preference shares have been issued at par and fully paid. The directors decided to pay the preference dividend and recommended ordinary dividend of Le 0.10 per share.
The value of the ordinary share capital to be stated in the balance sheet is
Answer: C (Le 4,800,000)
Share capital is shown at par value: 240,000 shares × Le 20 = Le 4,800,000 (the premium goes to share premium).
Use the following information to answer questions 29 and 30.
A motor car costing D100,000 was depreciated at 20% per annum by the diminishing balance method. Two years later, it was sold for D60,000.
The net profit or loss on the sale was
Answer: C (D 4,000 loss)
Book value after 2 years: 100,000 × 0.8 × 0.8 = D64,000; sold for D60,000, so a loss of D4,000.
Use the following information to answer questions 29 and 30.
A motor car costing D100,000 was depreciated at 20% per annum by the diminishing balance method. Two years later, it was sold for D60,000.
The net book value at the time of sales is
Answer: A (D 64,000)
Year 1: 100,000 − 20,000 = 80,000; Year 2: 80,000 − 16,000 = D64,000.
A service which a firm has enjoyed, but which has not yet been paid for is
Answer: A (accrued expense)
An expense used but still unpaid at the year end is an accrued expense.
Which of the following is not part of the double entry system?
Answer: D (Balance Sheet)
The balance sheet is a statement listing balances, not an account, so it is outside the double entry system.
In the balance sheet, the balance on the Provision for Depreciation Account is shown as
Answer: B (deduction from fixed assets)
Accumulated depreciation is deducted from the cost of the fixed asset to give its net book value.
S. Sule sets aside from his private funds ₦20,000 for business purposes. The ₦20,000 is referred to as
Answer: B (capital)
Money the owner puts into the business is capital.
An article costs ₦1,800 and is sold at a gross profit of 20% on selling price. What is the selling price?
Answer: A (₦2,250)
A 20% margin means cost is 80% of selling price: ₦1,800 ÷ 0.8 = ₦2,250.
Which of the following are Personal Accounts? I Wages II Debtors III Creditors IV Buildings
Answer: B (II and III only)
Personal accounts are for people or firms: debtors and creditors. Wages is nominal and buildings is real.
Prepayment is treated in the balance sheet of a firm as a
Answer: C (current asset)
A prepayment is a benefit still to be received within the year, so it is a current asset.
Which of the following is found in a Sales Ledger Account?
Answer: D (Discount allowed)
Discount allowed to customers reduces what debtors owe, so it appears in the sales ledger.
Use the following information to answer question 40.
Bank Statement (Date / Details / Dr ¢ / Cr ¢ / Balance ¢)
2/1/06 Balance b/d: balance 2,000
3/1/06 '23456': Dr 500, balance 1,500
4/1/06 Deposit: Cr 1,000, balance 2,500
5/1/06 Deposit: Cr 1,500, balance 4,000
6/1/06 '23457': Dr 3,000, balance 1,000
Total withdrawal is
Answer: A (¢3,500)
Withdrawals are the debit entries: ¢500 + ¢3,000 = ¢3,500.
The depreciation on plant acquired by a manufacturing company is treated as
Answer: C (factory overhead)
Plant is used in the factory, so its depreciation is an indirect factory cost (factory overhead).
Hardware in data processing refers to
Answer: D (mechanical components of the computer)
Hardware is the physical parts of the computer; programs and operating systems are software.
Which of the following is a self-balancing account?
Answer: D (Control Account)
A control account summarises a whole ledger, which makes that ledger self-balancing.
A medium of inputting data into the computer is through the use of the
Answer: A (keyboard)
The keyboard is an input device; the monitor is an output device.
Which of the following is debited to partner's current account?
Answer: C (Drawings)
Drawings reduce what the partner is owed, so they are debited; interest on capital and share of profit are credited.
Use this information to answer questions 47 and 48.
Abu, a debtor to Dania, owed ¢10,500 at the start of the month. He paid cash of ¢40,005 during the month and received additional credit sales of ¢20,000.
Abu's balance at the end of the month is
Answer: B (¢9,505 cr.)
10,500 + 20,000 − 40,005 = −9,505: Abu has paid more than he owes, so his account has a credit balance of ¢9,505.
Use this information to answer questions 47 and 48.
Abu, a debtor to Dania, owed ¢10,500 at the start of the month. He paid cash of ¢40,005 during the month and received additional credit sales of ¢20,000.
In Dania's books, to record the payment of ¢40,005 by Abu
Answer: A (debit Cash Account, credit Abu's Account)
Cash received increases cash (debit) and reduces what Abu owes (credit Abu).
A debenture holder is a
Answer: A (creditor)
A debenture holder has lent money to the company, so he is a creditor, not an owner.
A stock as a form of capital of a company comprises
Answer: C (units of shares)
Stock is fully paid shares grouped together, so it is made up of units of shares.
(a) Describe the following: (i) Bank statement; (ii) Bank reconciliation statement.
(b) State four reasons for disagreement between a bank statement balance and cash book balance.
(a)(i) Bank statement: a copy of the customer's account sent by the bank at intervals, showing date, details, debits (payments/withdrawals), credits (lodgements) and the running balance.
(ii) Bank reconciliation statement: a statement prepared by the account holder to explain the difference between the cash book (bank column) balance and the bank statement balance on a given date, starting from one balance and adjusting for the items that cause the difference.
(b) Any four: unpresented cheques; uncredited cheques (lodgements not yet credited); bank charges/commission; standing orders or direct debits paid by the bank; credit transfers or direct credits (e.g. dividends) received by the bank; dishonoured cheques; interest charged or allowed by the bank; errors in the cash book or by the bank.
Give one clear sentence for each item in (b).
Explain the following: (a) Partner's current accounts; (b) Partnership appropriation accounts; (c) Limited partners.
(a) Current account: kept for each partner when capital accounts are fixed; credited with interest on capital, salary and share of profit; debited with drawings, interest on drawings and share of loss; its balance is what the firm owes the partner (or the partner owes the firm).
(b) Appropriation account: prepared after the profit and loss account to share the net profit as the partnership agreement says; it is credited with net profit and interest on drawings, and debited with partners' salaries, interest on capital and each partner's share of the remaining profit.
(c) Limited partners: partners whose liability for the firm's debts is limited to the capital they contributed; they may not take part in managing the business; there must be at least one general partner with unlimited liability.
Say what is debited and credited in (a) and (b).
(a) State two differences between hardware and software in electronic data processing.
(b) Outline four functions of the Central Processing Unit (CPU) of a computer.
(a) Any two: hardware is the physical parts that can be seen and touched, software is the programs/instructions that cannot be touched; hardware carries out the work, software tells the hardware what to do; examples: hardware – keyboard, monitor, CPU, printer; software – operating system, accounting package.
(b) Any four: performs arithmetic operations (ALU); performs logical comparisons; controls and coordinates all parts of the computer (control unit); fetches, decodes and carries out program instructions; holds data and instructions being processed in main memory; controls the flow of data between input, storage and output devices.
Give contrasting pairs in (a), not two separate lists.
(a) Explain the term depreciation.
(b) List three methods of providing for depreciation.
(c) State three reasons for making provision for depreciation.
(a) Depreciation is the part of the cost of a tangible fixed asset that is used up in a period through wear and tear, passage of time or obsolescence, charged against profit over the asset's useful life.
(b) Any three: straight line (fixed instalment); reducing (diminishing) balance; revaluation; sum of the years' digits; units of production (machine hour); depletion; sinking fund/annuity.
(c) Any three: to match the cost of the asset against the revenue it helps earn (correct profit); to show the asset at a fair value in the balance sheet; to retain funds in the business towards replacing the asset; to comply with accounting concepts (prudence, matching); to help decide when to replace or dispose of an asset and compute profit or loss on disposal.
Name the methods exactly; three correct points earn full marks in each part.
The following trial balance was extracted from the books of Alajobi Enterprises for the year ended 30th June, 2007.
Capital: Cr ₦120,000
Stock 1/7/06: Dr ₦18,200
Purchases and Sales: Dr ₦178,000; Cr ₦280,000
Returns: Dr ₦3,400; Cr ₦1,700
Discounts: Dr ₦1,320; Cr ₦1,560
Debtors and Creditors: Dr ₦32,000; Cr ₦24,600
Carriage outwards: Dr ₦4,250
Rent and rates: Dr ₦7,480
Wages and Salaries: Dr ₦17,740
Machinery at cost: Dr ₦150,000
Provision for depreciation (machinery): Cr ₦30,000
Provision for bad debt: Cr ₦7,200
Bad debts: Dr ₦1,060
General office expenses: Dr ₦3,890
Cash at bank: Dr ₦47,720
Totals: ₦465,060 ₦465,060
Additional information:
(a) Stock as at 30/6/07 was valued at ₦16,700.
(b) The proprietor had withdrawn goods worth ₦5,600. This has not been reflected in the books.
(c) Wages of ₦2,260 is owed while rent of ₦1,400 had been prepaid.
(d) Provision for bad debt is to be reduced to ₦6,000.
(e) Provide for depreciation of machinery at 20% reducing balance.
You are required to prepare: (i) Trading, Profit and Loss Account for the year ended 30th June, 2007; and (ii) a Balance Sheet as at that date.
(i) Trading, Profit and Loss Account for the year ended 30 June 2007:
Sales 280,000 − returns inwards 3,400 = ₦276,600
Opening stock 18,200 + purchases 178,000 − returns outwards 1,700 − goods taken by owner 5,600 = 188,900; − closing stock 16,700 = cost of sales ₦172,200
Gross profit ₦104,400
Add: discount received 1,560; reduction in provision for bad debts (7,200 − 6,000) 1,200 → ₦107,160
Less expenses: discount allowed 1,320; carriage outwards 4,250; rent and rates (7,480 − 1,400) 6,080; wages and salaries (17,740 + 2,260) 20,000; bad debts 1,060; general office expenses 3,890; depreciation 20% × (150,000 − 30,000) 24,000 = ₦60,600
Net profit ₦46,560
(ii) Balance Sheet as at 30 June 2007:
Fixed asset: machinery cost 150,000 − accumulated depreciation 54,000 = ₦96,000
Current assets: stock 16,700; debtors 32,000 − provision 6,000 = 26,000; prepaid rent 1,400; cash at bank 47,720 = ₦91,820
Current liabilities: creditors 24,600; accrued wages 2,260 = ₦26,860
Working capital 64,960; net assets ₦160,960
Financed by: capital 120,000 + net profit 46,560 = 166,560 − drawings 5,600 = ₦160,960
Take the goods withdrawn out of purchases and add them to drawings; adjust wages, rent, provision and depreciation before finding net profit.
The following information were extracted from the books of Adjuah Enterprises for the month of January, 2007.
January 1: Cash in hand ¢500,000; cash at bank ¢59,500.
3: Bought goods for cash ¢2,500.
4: Withdrew ¢6,700 from bank for private use.
9: Received from the following, cheques in full settlement of their accounts, in each case deducting cash discount of 5% – Nana ¢5,000 – Ngiah ¢7,000 – Prince ¢13,000
15: Paid ¢8,500 to Sarah by cheque in full settlement of a debt of ¢9,000.
17: Received ¢15,000 cheque from Johnson stores in full settlement of a debt of ¢16,000.
19: Paid ¢45,000 cash into bank.
21: Bought 200 shares in Mawudeka Ltd. for ¢241,500. Payment made in cash.
22: Cash sales paid direct into bank ¢9,000.
24: Paid the following by cheque in each case deducting 2½% cash discount. – Yayra ¢22,000 – Kekeli ¢37,000 – Klenam ¢40,000
25: Withdrew ¢5,000 from bank for office use.
29: Paid salaries in cash ¢115,000
31: Cash drawings ¢4,000
You are required to prepare a three-column cash book for the month of January, 2007.
Three-column cash book (Discount / Cash / Bank on each side), January 2007:
Debit side: Jan 1 balances b/f cash 500,000, bank 59,500; Jan 9 Nana bank 4,750 (disc 250), Ngiah bank 6,650 (disc 350), Prince bank 12,350 (disc 650); Jan 17 Johnson stores bank 15,000 (disc 1,000); Jan 19 cash (contra) bank 45,000; Jan 22 sales bank 9,000; Jan 25 bank (contra) cash 5,000
Credit side: Jan 3 purchases cash 2,500; Jan 4 drawings bank 6,700; Jan 15 Sarah bank 8,500 (disc 500); Jan 19 bank (contra) cash 45,000; Jan 21 investment in Mawudeka Ltd shares cash 241,500; Jan 24 Yayra bank 21,450 (disc 550), Kekeli bank 36,075 (disc 925), Klenam bank 39,000 (disc 1,000); Jan 25 cash (contra) bank 5,000; Jan 29 salaries cash 115,000; Jan 31 drawings cash 4,000
Totals: discount allowed ¢2,250; discount received ¢2,975; cash ¢505,000 each side; bank ¢152,250 each side
Balances c/d at 31 Jan (b/d 1 Feb): cash ¢97,000; bank ¢35,525
Mark contra entries 'C' in the folio column.
Discounts are 5% and 2½% of the debts; payments into the bank and withdrawals for office use are contra entries.
The following balances were extracted from the books of Nationwide Enterprises in respect of its branch at Kenema for the year ended 30th June, 2007.
Branch stock account 1/7/06: Le 60,000
Branch debtors account 1/7/06: Le 132,500
During the year:
Goods sent to branch at selling price: Le 540,000
Cash sales by branch: Le 144,000
Credit sales by branch: Le 360,000
Goods returned by branch debtors: Le 18,000
Cash paid by branch debtors: Le 274,000
Branch expenses paid by Head office: Le 33,200
Additional information:
(a) Closing stock at the end of the year at the branch, was valued at Le 111,600, at selling price.
(b) Goods are invoiced to branch at cost plus 20%.
You are required to prepare: (i) Branch Stock Account; (ii) Branch Profit Adjustment Account; (iii) Branch Debtors Account; (iv) Branch Profit and Loss Account.
Mark-up of 20% on cost = 20/120 = 1/6 of selling price.
(i) Branch Stock Account (at selling price): Dr balance b/f 60,000; goods sent to branch 540,000; returns from branch debtors 18,000 = Le 618,000. Cr cash sales 144,000; credit sales 360,000; stock deficiency 2,400 (balancing figure); balance c/d 111,600 = Le 618,000
(ii) Branch Profit Adjustment Account: Cr mark-up on opening stock 10,000; mark-up on goods sent 90,000 = Le 100,000. Dr mark-up on stock deficiency 400; mark-up on closing stock c/d 18,600; gross profit to branch P&L 81,000 = Le 100,000
(check: net sales 486,000 × 1/6 = 81,000)
(iii) Branch Debtors Account: Dr balance b/f 132,500; credit sales 360,000 = Le 492,500. Cr returns 18,000; cash 274,000; balance c/d 200,500
(iv) Branch Profit and Loss Account: gross profit 81,000 less branch expenses 33,200 and stock deficiency at cost 2,000 (2,400 − 400) = net profit Le 45,800
With goods invoiced at cost plus 20%, the mark-up is one-sixth of the invoice price.
The following balances have been extracted from the books of Amansie East Local Government for the year ended 31st December, 2006.
Head / Particulars / ₦
1001 Taxes: 7,000,000
1002 Rates: 4,500,000
1003 Local licences: 500,000
1004 Earnings from commercial undertakings: 200,000
1005 Rent on local government properties: 1,000,000
2001 Renovation of chairman's office: 2,000,000
2002 Construction of market stalls: 1,500,000
2003 Office of the secretary: 1,500,000
2004 Department of personnel management: 2,000,000
2005 Department of finance and supplies: 2,000,000
2006 Agriculture and community development: 1,500,000
3001 External loans: 2,000,000
3002 Grants: 2,500,000
3003 Miscellaneous receipts: 1,500,000
You are required to prepare a Statement of Revenue and Expenditure for the year ended 31st December, 2006.
Amansie East Local Government: Statement of Revenue and Expenditure for the year ended 31 December 2006
Revenue (heads 1001–1005 and 3001–3003): taxes 7,000,000; rates 4,500,000; local licences 500,000; earnings from commercial undertakings 200,000; rent on properties 1,000,000; external loans 2,000,000; grants 2,500,000; miscellaneous receipts 1,500,000 = ₦19,200,000
Less expenditure (heads 2001–2006): renovation of chairman's office 2,000,000; market stalls 1,500,000; office of the secretary 1,500,000; personnel management 2,000,000; finance and supplies 2,000,000; agriculture and community development 1,500,000 = ₦10,500,000
Surplus ₦8,700,000
Group the 1000 and 3000 heads as revenue and the 2000 heads as expenditure; the difference is the surplus.