54 questions. Try each one, then open the answer to check yourself and read the explanation.
Which of the following is not an external user of accounting information?
Answer: A (Management)
Management runs the business from inside; creditors, shareholders and government are outside users.
A trial balance is prepared to
Answer: D (test arithmetical accuracy of ledger entries)
A trial balance checks that total debits equal total credits, i.e. the arithmetical accuracy of the ledger.
Which of the following is the reason why a seller allows a customer cash discount?
Answer: C (Settlement of account within a stated period)
Cash discount rewards a customer for paying within the agreed time; a reduction for large orders is trade discount.
A ledger is a
Answer: A (principal book of accounts)
The ledger is the main (principal) book where all the accounts are kept.
Which of the following is not found in a trial balance?
Answer: B (Closing stock)
Closing stock is valued after the books are balanced, so it is usually given as a note below the trial balance.
Use the following information to answer questions 6 to 8.
1/1/08 Capital introduced by cash: ₦50,000
2/1/08 Bought goods for retail by cash: ₦10,000
3/1/08 Bought fixtures by cash: ₦5,000
4/1/08 Sold goods to Lagbaja on credit: ₦3,000
5/1/08 Bought goods on credit from Tamedu: ₦8,000
Cash balance at 5/1/08 is
Answer: C (₦35,000)
Cash in 50,000 − goods 10,000 − fixtures 5,000 = ₦35,000; the credit transactions do not affect cash.
Use the following information to answer questions 6 to 8.
1/1/08 Capital introduced by cash: ₦50,000
2/1/08 Bought goods for retail by cash: ₦10,000
3/1/08 Bought fixtures by cash: ₦5,000
4/1/08 Sold goods to Lagbaja on credit: ₦3,000
5/1/08 Bought goods on credit from Tamedu: ₦8,000
Balance in Purchases Account at 5/1/08 is
Answer: B (₦18,000)
Cash purchases ₦10,000 + credit purchases from Tamedu ₦8,000 = ₦18,000 (fixtures are not purchases).
Use the following information to answer questions 6 to 8.
1/1/08 Capital introduced by cash: ₦50,000
2/1/08 Bought goods for retail by cash: ₦10,000
3/1/08 Bought fixtures by cash: ₦5,000
4/1/08 Sold goods to Lagbaja on credit: ₦3,000
5/1/08 Bought goods on credit from Tamedu: ₦8,000
Balance in the Capital Account at 5/1/08 is
Answer: B (₦50,000)
Only the ₦50,000 introduced by the owner is credited to capital.
A Suspense Account is used to
Answer: B (record errors detected until corrected)
The suspense account holds the trial balance difference until the errors are found and corrected.
Which of the following is added to the proprietor's capital?
Answer: A (Net profit)
Net profit belongs to the owner and increases capital.
Where a wrong figure occurs in only one account with the second figure correctly stated, this is an error of
Answer: A (transposition)
Reversing digits (e.g. 54 written as 45) in one account while the other entry is right is a transposition error; it makes the trial balance disagree.
A temporary difference in the Trial Balance totals is kept in the
Answer: B (Suspense Account)
The difference is placed in a suspense account until the errors are found.
In the preparation of bank reconciliation statement uncredited cheques are
Answer: A (added to the balance as per bank statement)
The bank has not yet credited these lodgements, so they are added to the bank statement balance.
Use the following information to answer questions 15 and 16.
1/1/06 Debtors: D2,600
1/1/06 Provision for bad debts: D60
31/12/06 Bad debts: D60
31/12/06 New provision for bad debts: 5% on debtors
What is the amount of the new provision for bad debts?
Answer: B (D127)
Write off the bad debts first: 2,600 − 60 = 2,540; 5% × 2,540 = D127.
Use the following information to answer questions 15 and 16.
1/1/06 Debtors: D2,600
1/1/06 Provision for bad debts: D60
31/12/06 Bad debts: D60
31/12/06 New provision for bad debts: 5% on debtors
The provision for bad debts in the profit and loss account is
Answer: C (D67)
Only the increase in the provision is charged: new provision D127 − old provision D60 = D67.
The balance in a Sales Ledger Control Account indicates the
Answer: D (total debtors)
The sales ledger control account summarises all customers' accounts, so its balance is total debtors.
Sales was D12,500, total expenses was D2,500 and net profit is 10% of sales. What is the gross profit?
Answer: C (D3,750)
Net profit = 10% × 12,500 = 1,250; gross profit = net profit + expenses = 1,250 + 2,500 = D3,750.
Which of the following is the equivalent of the Receipts and Payments Account?
Answer: B (Cash Book)
A receipts and payments account is a summary of cash received and paid, like a cash book.
Subscriptions received in advance are
Answer: D (shown in the Balance Sheet as a current liability)
Subscriptions paid in advance are owed to members as next year's membership, so they are a current liability.
Where records maintained are inadequate to facilitate the preparation of a trading and profit and loss accounts, this is described as
Answer: C (incomplete records)
Books not kept fully on double entry are called incomplete records (single entry).
Use the following information to answer questions 22 to 24.
Opening stock of raw materials: ₦24,750
Purchases of raw materials: ₦123,640
Carriage on raw materials: ₦10,000
Closing stock of raw materials: ₦45,000
Factory supervisor's salary: ₦30,000
Wages of factory hands: ₦50,000
Royalties paid: ₦18,000
Insurance of factory: ₦62,000
Work-in-progress (opening): ₦23,000
Raw material returned: ₦12,200
The value of raw material consumed is
Answer: D (₦101,190)
24,750 + 123,640 + 10,000 − 12,200 − 45,000 = ₦101,190.
Use the following information to answer questions 22 to 24.
Opening stock of raw materials: ₦24,750
Purchases of raw materials: ₦123,640
Carriage on raw materials: ₦10,000
Closing stock of raw materials: ₦45,000
Factory supervisor's salary: ₦30,000
Wages of factory hands: ₦50,000
Royalties paid: ₦18,000
Insurance of factory: ₦62,000
Work-in-progress (opening): ₦23,000
Raw material returned: ₦12,200
The prime cost is
Answer: B (₦169,190)
Prime cost = raw materials 101,190 + direct wages 50,000 + royalties (a direct expense) 18,000 = ₦169,190.
Use the following information to answer questions 22 to 24.
Opening stock of raw materials: ₦24,750
Purchases of raw materials: ₦123,640
Carriage on raw materials: ₦10,000
Closing stock of raw materials: ₦45,000
Factory supervisor's salary: ₦30,000
Wages of factory hands: ₦50,000
Royalties paid: ₦18,000
Insurance of factory: ₦62,000
Work-in-progress (opening): ₦23,000
Raw material returned: ₦12,200
The total overhead expenses is
Answer: D (₦92,000)
Factory overheads are the indirect costs: supervisor's salary 30,000 + factory insurance 62,000 = ₦92,000.
Bad debts written off is shown as
Answer: C (credit in the sales ledger)
Writing off a bad debt reduces what the customer owes, so the customer's account in the sales ledger is credited.
The balance of the sales ledger control account represents
Answer: D (total debtors)
It equals the total of all the individual debtors' balances.
The accounting principle that states that insignificant expenditures are not to be taken into account is the
Answer: B (materiality convention)
Materiality says items too small to affect users' decisions need not be treated strictly (e.g. a stapler is expensed).
Which of the following transactions will increase the working capital of a business?
Answer: C (Sale of fixed asset in cash)
Selling a fixed asset for cash adds a current asset with no new current liability, so working capital rises; the other three only swap current items.
The realization concept states that
Answer: A (revenue is recognized as being earned when ownership of goods passes to the customer)
Realisation: revenue is earned when the goods (ownership) pass to the buyer, not when cash is received.
Where fixed capitals are maintained, partners' drawings are transferred to the
Answer: D (debit of Partners' Current Accounts)
With fixed capitals, drawings go to the debit of each partner's current account so the capital stays unchanged.
A partner whose liability goes beyond his capital is known as
Answer: C (general partner)
A general partner has unlimited liability: he can lose private assets as well as his capital.
Use the following information to answer questions 33 to 35.
Aba and Baba are partners who agreed to share profits and losses in the ratio 4 : 3 respectively. Extracts from their books for the year ended 31/12/08 are: (Aba / Baba / Total)
Capital: ¢20,000 / ¢15,000 / ¢35,000
Drawings: ¢2,520 / – / ¢2,520
Interest on drawings: ¢504 / – / ¢504
Interest on capital: ¢2,000 / ¢1,500 / ¢3,500
Net profit 31/12/08: total ¢34,636
Aba's share of profit is
Answer: D (¢18,080)
Residual profit = 34,636 + 504 − 3,500 = 31,640; Aba's 4/7 = ¢18,080.
Use the following information to answer questions 33 to 35.
Aba and Baba are partners who agreed to share profits and losses in the ratio 4 : 3 respectively. Extracts from their books for the year ended 31/12/08 are: (Aba / Baba / Total)
Capital: ¢20,000 / ¢15,000 / ¢35,000
Drawings: ¢2,520 / – / ¢2,520
Interest on drawings: ¢504 / – / ¢504
Interest on capital: ¢2,000 / ¢1,500 / ¢3,500
Net profit 31/12/08: total ¢34,636
Baba's share of profit is
Answer: D (¢13,560)
Residual profit 31,640 × 3/7 = ¢13,560.
Use the following information to answer questions 33 to 35.
Aba and Baba are partners who agreed to share profits and losses in the ratio 4 : 3 respectively. Extracts from their books for the year ended 31/12/08 are: (Aba / Baba / Total)
Capital: ¢20,000 / ¢15,000 / ¢35,000
Drawings: ¢2,520 / – / ¢2,520
Interest on drawings: ¢504 / – / ¢504
Interest on capital: ¢2,000 / ¢1,500 / ¢3,500
Net profit 31/12/08: total ¢34,636
The rate of interest on capital is
Answer: B (10%)
Aba: 2,000 ÷ 20,000 = 10% (Baba: 1,500 ÷ 15,000 = 10%).
An expense is termed an 'accrual' because it
Answer: A (is yet to be paid for)
An accrued expense has been used but not yet paid for.
The accounting treatment when goods are sent to branch at cost is, debit Branch Stock Account and credit
Answer: B (Goods Sent to Branch Account)
Goods sent to the branch: debit branch stock, credit goods sent to branch account.
The document prepared for the disbursement of government fund is
Answer: C (a payment voucher)
Government money is paid out only on an approved payment voucher.
The accounting concept which assumes that the business will continue to be in existence into the foreseeable future is
Answer: D (going-concern)
Going concern assumes the business will continue operating for the foreseeable future.
When shares are sold 'at par' it means they are issued at
Answer: B (the nominal value)
At par means at the face (nominal) value of the share.
Which of the following does not form part of shareholders fund?
Answer: D (Debenture)
Debentures are loans to the company (long-term liabilities), not owners' funds.
Use the following information to answer questions 45 and 46.
On 1/7/07, a trader owed wages of Le 2,000. During the year ended 30/6/08, wages of Le 2,400 were owed and Le 8,000 were paid.
The wages of the year ended 30/6/08 is
Answer: B (Le 8,400)
Paid 8,000 − owed at start 2,000 + owed at end 2,400 = Le 8,400.
Use the following information to answer questions 45 and 46.
On 1/7/07, a trader owed wages of Le 2,000. During the year ended 30/6/08, wages of Le 2,400 were owed and Le 8,000 were paid.
Wages recorded in the balance sheet as at 30/6/08 is
Answer: C (Le 2,400)
The wages still owed at the year end, Le 2,400, are shown as a current liability.
The collection and organization of data is
Answer: C (data processing)
Collecting data and organising it into useful information is data processing.
Money received from a customer is recorded in the customer's account and bank account; the accounting concept applied is
Answer: B (dual aspect)
Every transaction has two sides (debit bank, credit customer): the dual aspect concept.
The amount for which a business is sold is the
Answer: C (purchase considerations)
The price paid for a business is the purchase consideration.
Which of the following is a prime cost?
Answer: A (Royalty)
Royalties paid for using a patent in production are a direct expense, part of prime cost.
A business is considering the introduction of a computer accounting system
(a) State four (i) benefits of a computer accounting system; (ii) disadvantages of a computer accounting system
(b) List three areas of application of computer in accounting.
(a)(i) Any four benefits: fast processing of large volumes of data; accurate calculations; large storage in little space; easy updating, editing and retrieval of records; reports and statements produced quickly; reduces clerical labour and cost in the long run; integrates different records.
(ii) Any four disadvantages: high cost of buying and installing; high maintenance cost; needs trained staff; unreliable power supply disrupts work; risk of data loss, virus attack or fraud; equipment becomes obsolete quickly; may cause staff redundancy.
(b) Any three: payroll preparation; invoicing and billing; stock (inventory) control; sales and purchases ledgers (debtors and creditors); fixed asset register; cash management/bank reconciliation; preparing final accounts and budgets.
Each point needs only one short sentence; give exactly the number asked for.
Explain each of the following: (a) authorized share capital; (b) issued share capital; (c) called-up capital; (d) calls in arrears; (e) paid-up capital.
(a) Authorised (nominal/registered) capital: the maximum share capital a company may issue, stated in its Memorandum of Association.
(b) Issued capital: the part of authorised capital actually issued (allotted) to shareholders.
(c) Called-up capital: the part of the issued capital that shareholders have been asked to pay so far.
(d) Calls in arrears: amounts called up that shareholders have not yet paid.
(e) Paid-up capital: the part of called-up capital actually received (called-up capital less calls in arrears).
Show how each one is a part of the one before it.
(a) Explain three differences between a trial balance and a balance sheet.
(b) Explain the following (i) bank loan; (ii) bank overdraft; (iii) standing order; (iv) credit transfer.
(a) Any three: a trial balance lists all ledger balances (debits and credits), a balance sheet shows only assets, liabilities and capital; a trial balance checks arithmetical accuracy, a balance sheet shows financial position at a date; a trial balance is prepared before final accounts, a balance sheet after the trading and profit and loss account; a trial balance is an internal working paper, a balance sheet is a formal statement published to users; balance sheet items are classified (fixed/current, etc.), trial balance items only as debit or credit.
(b)(i) Bank loan: a fixed sum lent by a bank for an agreed period, with interest, repayable on set dates; credited to the customer's loan account.
(ii) Bank overdraft: permission for a current-account holder to draw more than the balance in the account up to a limit; interest is charged only on the amount overdrawn.
(iii) Standing order: the customer's instruction to the bank to pay a fixed amount to a named person at regular intervals.
(iv) Credit transfer: payment made directly through the bank into the account of the payee (e.g. salaries, payments to creditors) without using cheques.
In (a) state each difference as a contrast between the two.
State five differences between public sector accounting and commercial accounting.
Any five contrasts: aim – public sector shows how public funds were raised and spent (accountability), commercial measures profit; income – taxes, rates, fines, grants vs sales of goods and services; basis – mainly cash basis vs accrual basis; result – surplus or deficit vs profit or loss; fixed assets – expensed when bought and not depreciated vs capitalised and depreciated; legal basis – constitution, Finance Acts and financial regulations vs Companies Act/partnership agreement; users – the public and legislature vs owners/shareholders; control – through budgets/appropriation, votes and warrants vs management decisions; ownership – government vs private owners.
Set each difference out as 'public sector … while commercial …'.
The bookkeeper of Kamara Ltd. prepared a trial balance which failed to agree. The difference of Le 714 credit was transferred to a Suspense Account. The following errors were later discovered:
(i) A cash payment of Le 1,512 had been posted as a receipt in the cash book.
(ii) The Sales Account was overcast by Le 2,940
(iii) The Purchases Account was overcast by Le 2,940
(iv) Return inwards of Le 1,596 was not recorded in the books.
(v) Bank charges of Le 1,554 had been posted into the cash book. No entry was made elsewhere in the books.
(vi) The opening balance of a debtor's account had been brought down as Le 16,238 instead of Le 16,994
(vii) An item of fixed asset sold for Le 21,000 had been debited to cash and included in sales.
You are required to: (a) prepare journal entries to effect the necessary corrections, and (b) write up the Suspense Account.
(a) Journal (Dr / Cr, Le), each with a short narration:
(i) Dr Suspense 3,024; Cr Cash 3,024 (payment of 1,512 debited instead of credited: double the amount)
(ii) Dr Sales 2,940; Cr Suspense 2,940 (sales overcast)
(iii) Dr Suspense 2,940; Cr Purchases 2,940 (purchases overcast)
(iv) Dr Returns inwards 1,596; Cr Debtors 1,596 (omitted returns; no effect on suspense)
(v) Dr Bank charges 1,554; Cr Suspense 1,554 (charges entered in the cash book only)
(vi) Dr Debtor 756; Cr Suspense 756 (16,994 − 16,238)
(vii) Dr Sales 21,000; Cr Fixed asset disposal 21,000 (sale of fixed asset wrongly treated as sales; no effect on suspense)
(b) Suspense Account: Dr cash 3,024; purchases 2,940 = Le 5,964. Cr difference per trial balance 714; sales 2,940; bank charges 1,554; debtor 756 = Le 5,964 (account closes with no balance)
Ask for each error whether it made the trial balance disagree; only those go through the suspense account.
Ngozi Enterprises cash book showed a debit balance of ₦2,860 on 31st December, 2007. On the same day, the bank statement showed a credit balance of ₦442. On investigation, it was discovered that:
(i) The opening balance of the cash book of ₦1,840 had been brought down as ₦1,408
(ii) A dishonoured cheque of ₦300 was not recorded in the cash book
(iii) A cheque for ₦3,240 issued to a creditor had not been presented for payment
(iv) Standing order of ₦320 was paid by the bank
(v) A cheque of ₦1,200 lodged with the bank had not been credited.
(vi) A dividend of ₦640 was paid direct to the bank.
(vii) The bank had debited ₦130 for its charges.
(viii) A cash payment of ₦20 had been credited to the bank column of the cash book.
(ix) The bank had debited a cheque of ₦4,800 to Ngozi Enterprises account in error.
You are required to prepare: (a) an Adjusted Cash book; and (b) a Bank Reconciliation statement as at 31st December, 2007.
(a) Adjusted cash book: Dr balance b/d 2,860; error in opening balance (1,840 − 1,408) 432; dividend received 640; cash payment wrongly credited to bank 20 = ₦3,952. Cr dishonoured cheque 300; standing order 320; bank charges 130; balance c/d ₦3,202 = ₦3,952
(b) Bank reconciliation statement as at 31 Dec 2007: balance as per bank statement 442; add uncredited cheque 1,200; add cheque wrongly debited by bank 4,800 = 6,442; less unpresented cheque 3,240 = balance as per adjusted cash book ₦3,202
(or start from 3,202, add 3,240, less 1,200 and 4,800 = 442)
Items the business did not know about go into the cash book; unpresented, uncredited and bank errors go into the reconciliation.
Taiwo and Kehinde are in partnership sharing profits and losses equally. Their balance sheet as at 31st December, 2007 is as follows:
Capital: Taiwo ₦36,000; Kehinde ₦36,000 = ₦72,000
Current Accounts: Taiwo ₦2,400; Kehinde ₦1,400 = ₦3,800
Current Liabilities: Creditors ₦20,000; Bills payable ₦7,000; Accruals ₦840 = ₦27,840
Total ₦103,640
Fixed Assets: Goodwill ₦12,000; Freehold property ₦20,000; Motor vehicles ₦30,000; Furniture and fittings ₦6,000 = ₦68,000
Current Assets: Stock ₦12,880; Debtors ₦18,400; Bank ₦3,360; Cash ₦1,000 = ₦35,640
Total ₦103,640
Additional information: (i) On 31st December, 2007, Idowu was admitted into the partnership. (ii) Profits and losses would still be shared equally (iii) Idowu introduced capital of ₦36,000 (iv) The following assets were revalued: Goodwill ₦18,000; Freehold property ₦30,000; Motor vehicles ₦50,000; Stock ₦12,000 (v) A provision of 5% is to be made on debtors (vi) Goodwill is no longer to be retained in the books.
You are required to prepare: (a) Revaluation Account; (b) Goodwill Account; (c) Partners' Capital Accounts, and (d) Partners' Current Account.
(a) Revaluation Account: Cr gains – goodwill 6,000 (12,000 → 18,000); freehold property 10,000; motor vehicles 20,000 = ₦36,000. Dr losses – stock 880 (12,880 → 12,000); provision for bad debts 920 (5% × 18,400) = 1,800; profit on revaluation ₦34,200 shared equally: Taiwo 17,100, Kehinde 17,100
(b) Goodwill Account: Dr balance b/f 12,000; revaluation 6,000 = ₦18,000. Cr written off to capital accounts in the new ratio (1:1:1): Taiwo 6,000, Kehinde 6,000, Idowu 6,000 = ₦18,000
(c) Capital Accounts (Taiwo / Kehinde / Idowu): Cr balance b/f 36,000 / 36,000 / –; bank – / – / 36,000. Dr goodwill written off 6,000 / 6,000 / 6,000; balance c/d ₦30,000 / ₦30,000 / ₦30,000
(d) Current Accounts (Taiwo / Kehinde): Cr balance b/f 2,400 / 1,400; profit on revaluation 17,100 / 17,100; balance c/d ₦19,500 / ₦18,500
(If the revaluation profit is credited to the capital accounts instead, capitals become Taiwo 47,100, Kehinde 47,100, Idowu 30,000 and current accounts stay at 2,400 and 1,400; either treatment is acceptable if consistent.)
Revalue each asset, share the revaluation profit equally between the old partners, then write goodwill off among all three partners.
On 1st October, 2007, the debtors' ledger balances of Abubakar Ltd. were Le 80,240 debit and Le 570 credit. The creditors ledger balances were Le 62,350 credit and Le 1,050 debit.
For the year ended 30th September, 2008, the following information were available: (Le)
Credit sales: 637,280
Credit purchases: 399,740
Cash received from debtors: 552,120
Cash paid to creditors: 373,070
Discounts received: 14,750
Discount allowed: 23,280
Bills received: 40,570
Bills dishonoured: 2,630
Returns inwards: 10,020
Returns outwards: 5,350
Bad debts written off: 3,260
Cash received in respect of debit balances in creditors ledger: 1,050
Amount due from a customer in debtors ledger set off against amount due to him in creditors ledger: 4,340
Cash received in respect of debit previously written off as bad: 940
Allowances to customers on goods damaged in transit: 2,120
On 30th September, 2008, there were no credit balances in the debtors ledger except those outstanding on 1st October, 2007 and there were no debit balances in the creditors ledger.
You are required to prepare: (a) Debtors Control Account, and (b) Creditors Control Account.
(a) Debtors Control Account: Dr balance b/d 80,240; credit sales 637,280; bills dishonoured 2,630; bad debt recovered 940; balance c/d (credit balances) 570 = Le 721,660. Cr balance b/d 570; cash 552,120; discount allowed 23,280; bills receivable 40,570; returns inwards 10,020; bad debts 3,260; set-off to creditors control 4,340; cash for debt recovered 940; allowances 2,120; balance c/d Le 84,440 = Le 721,660
Balances b/d: Dr Le 84,440, Cr Le 570 (the 940 recovered may be left out of both sides; the closing debit balance is the same)
(b) Creditors Control Account: Dr balance b/d 1,050; cash paid 373,070; discount received 14,750; returns outwards 5,350; set-off from debtors control 4,340; balance c/d Le 64,580 = Le 398,560 + 64,580 = Le 463,140. Cr balance b/d 62,350; credit purchases 399,740; cash received 1,050 = Le 463,140
Balance b/d Cr Le 64,580
Set-offs (contra) appear in both control accounts; closing credit balances in the debtors ledger go on the debit side as balance c/d.
Abike is the proprietress of a shop which operates two departments A and B. The following balances were presented for the period ended 31st March, 2008. (D)
Sales: Department A Cr 150,000; Department B Cr 100,000
Stocks 1/4/07: Department A 2,500; Department B 2,000
Purchases: Department A 118,000; Department B 82,000
Wages of sales assistants: Department A 10,000; Department B 7,500
Sales commission: Department A 1,500
Office salaries 7,500
Rates 1,300
Insurance 500
Electricity 1,200
Repairs to premises 250
Telephone charges 250
Cleaning 300
Accountancy fees 1,200
Office expenses 600
Stock 31/3/08: Department A 3,000; Department B 1,500
Additional information:
(i) The portion of total floor area occupied by each department was: Department A 1/5; Department B 4/5
(ii) Apportionment of overhead is to be made as follows: Area: rates, insurance, electricity, repairs, telephone and cleaning; Turnover: office salaries, accountancy fees and office expenses.
You are required to prepare Departmental Trading, Profit and Loss Account for the year ended 31st March, 2008. Note: Total columns are not required.
Bases: area A 1/5, B 4/5; turnover 150,000 : 100,000 = 3 : 2
Trading (A / B): sales 150,000 / 100,000; opening stock 2,500 / 2,000 + purchases 118,000 / 82,000 − closing stock 3,000 / 1,500 = cost of sales 117,500 / 82,500; gross profit D32,500 / D17,500
Expenses (A / B): wages of sales assistants 10,000 / 7,500; sales commission 1,500 / –; office salaries 4,500 / 3,000; rates 260 / 1,040; insurance 100 / 400; electricity 240 / 960; repairs 50 / 200; telephone 50 / 200; cleaning 60 / 240; accountancy fees 720 / 480; office expenses 360 / 240
Total expenses D17,840 / D14,260
Net profit: A D14,660; B D3,260
Split area costs 1:4 and turnover costs 3:2; direct wages and commission go straight to their department.