59 questions. Try each one, then open the answer to check yourself and read the explanation.
The two fundamental books of accounts are
Answer: B (journal and ledger)
Transactions are first entered in a journal (book of original entry) and then posted to the ledger.
Which of the following is a capital expenditure?
Answer: A (Extension of building)
Extending a building increases a fixed asset for many years; the others are day-to-day revenue expenses.
Expenses accrued at the end of the accounting year is treated in the balance sheet as
Answer: B (current liability)
Accrued expenses are owed and will be paid soon, so they are a current liability.
Another name for owner's equity is
Answer: C (capital)
Owner's equity is the owner's interest in the business, i.e. capital.
The reduction in value of goodwill is
Answer: A (amortization)
Goodwill is an intangible asset; writing it off over time is amortisation.
Use the following information to answer questions 6 to 8.
Opening stock: GH¢4,000
Purchases: GH¢12,000
Carriage inwards: GH¢300
Returns outwards: GH¢322
Sales: GH¢20,000
Closing stock: GH¢6,000
The cost of goods sold is
Answer: D (GH¢ 9,978)
Goods available 4,000 + 12,000 + 300 − 322 = 15,978; less closing stock 6,000 = GH¢9,978.
Use the following information to answer questions 6 to 8.
Opening stock: GH¢4,000
Purchases: GH¢12,000
Carriage inwards: GH¢300
Returns outwards: GH¢322
Sales: GH¢20,000
Closing stock: GH¢6,000
The cost of goods available for sale is
Answer: B (GH¢15,978)
Opening stock 4,000 + purchases 12,000 + carriage inwards 300 − returns outwards 322 = GH¢15,978.
Use the following information to answer questions 6 to 8.
Opening stock: GH¢4,000
Purchases: GH¢12,000
Carriage inwards: GH¢300
Returns outwards: GH¢322
Sales: GH¢20,000
Closing stock: GH¢6,000
The gross profit is
Answer: C (GH¢10,022)
Sales 20,000 − cost of goods sold 9,978 = GH¢10,022.
Which of the following is not recorded in a Partnership Appropriation Account?
Answer: B (Partners drawings)
Drawings go to the partners' current (or capital) accounts; only interest on drawings appears in the appropriation account.
When a transaction is completely left out from the books, it is an error of
Answer: B (omission)
A transaction not recorded at all is an error of omission.
Which of the following is not a subsidiary book?
Answer: D (Trial Balance)
A trial balance is a list of ledger balances, not a book of original entry.
In departmental accounts, rent is apportioned on the basis of
Answer: B (floor area occupied)
Rent is paid for space, so it is shared by floor area.
The document used in government accounting to show evidence of cash receipts and payments is the
Answer: D (voucher)
Receipt and payment vouchers are the documents that support government cash transactions.
Which of the following errors will affect the totals of a trial balance?
Answer: C (Error in addition)
An addition (casting) error changes one side only, so the totals disagree; the other errors leave the trial balance in agreement.
Use the following information to answer questions 15 to 17.
Okoro and Osula are in partnership sharing profits and losses in the ratio 3:2 respectively. Their respective capital were ₦40,000 and ₦15,000 and their drawings were ₦7,000 and ₦5,000. Interest on capital was 5% and interest on drawings was 10%. The net profit was ₦30,000.
Okoro's share of the profit is
Answer: A (₦17,070)
Residual profit = 30,000 + interest on drawings 1,200 − interest on capital 2,750 = 28,450; Okoro's 3/5 = ₦17,070.
Use the following information to answer questions 15 to 17.
Okoro and Osula are in partnership sharing profits and losses in the ratio 3:2 respectively. Their respective capital were ₦40,000 and ₦15,000 and their drawings were ₦7,000 and ₦5,000. Interest on capital was 5% and interest on drawings was 10%. The net profit was ₦30,000.
Osula's interest on drawings is
Answer: D (₦500)
10% × ₦5,000 = ₦500.
Use the following information to answer questions 15 to 17.
Okoro and Osula are in partnership sharing profits and losses in the ratio 3:2 respectively. Their respective capital were ₦40,000 and ₦15,000 and their drawings were ₦7,000 and ₦5,000. Interest on capital was 5% and interest on drawings was 10%. The net profit was ₦30,000.
The total interest on capital is
Answer: B (₦2,750)
5% × 40,000 = 2,000 plus 5% × 15,000 = 750, total ₦2,750.
Which of the following is an example of a subsidiary book?
Answer: A (Cash book)
The cash book is a book of original (subsidiary) entry.
Goods returned by the buyer is recorded in the seller's books as
Answer: D (returns inwards)
Goods coming back to the seller from a customer are returns inwards (sales returns).
The method of ascertaining capital from incomplete records is by preparing the
Answer: B (statement of affairs)
A statement of affairs lists assets and liabilities to find capital (assets − liabilities).
A petty cashier operates with an imprest of D1,000 per week. At the end of the week he had disbursed D920. How much is needed to restore the imprest?
Answer: C (D920)
Under the imprest system the cashier is reimbursed exactly what was spent: D920.
Accumulated fund is also referred to as
Answer: D (capital)
The accumulated fund of a club plays the role of capital.
Subscriptions owed by members of a club is a/an
Answer: A (asset)
Subscriptions in arrears are money due to the club, so they are a current asset.
Prime cost is derived by adding I. cost of raw materials consumed; II. indirect expenses; III. direct labour; IV. factory expenses; V. work-in-progress; VI. direct expenses.
Answer: B (I, III and VI only)
Prime cost = direct materials + direct labour + direct expenses.
The document from which entries are transferred to the purchases day book is the
Answer: D (invoice)
Credit purchases are entered from the suppliers' invoices.
A bookkeeper debited Motor Vehicle Account instead of Motor Expenses Account. This is an error of
Answer: D (principle)
Posting a revenue expense to a fixed asset account puts it in the wrong class of account: an error of principle.
John received a cheque from Dawda, a debtor, in payment for goods purchased by Dawda on credit. The transaction will be recorded in John's
Answer: A (cash book and sales ledger)
The cheque is debited in the cash book (bank) and credited to Dawda's account in the sales ledger.
Use the following information to answer questions 28 and 29.
Prime cost: ₦4,000
Factory overheads: ₦6,000
Stock on 1/1/09 work-in-progress: ₦1,000
Stock on 31/12/09 work-in-progress: ₦2,000
Returns inwards: ₦800
Sales: ₦20,000
Cost of production is
Answer: B (₦9,000)
Prime cost 4,000 + overheads 6,000 + opening WIP 1,000 − closing WIP 2,000 = ₦9,000.
Use the following information to answer questions 28 and 29.
Prime cost: ₦4,000
Factory overheads: ₦6,000
Stock on 1/1/09 work-in-progress: ₦1,000
Stock on 31/12/09 work-in-progress: ₦2,000
Returns inwards: ₦800
Sales: ₦20,000
Net sales for the period is
Answer: C (₦19,200)
Sales 20,000 − returns inwards 800 = ₦19,200.
The total value received by a company as consideration for shares issued constitutes
Answer: A (paid-up capital)
Money actually received for shares issued is the paid-up capital.
The first calculating machine in data processing was
Answer: A (Abacus)
The abacus, a frame of beads, was the earliest calculating device.
The going concern concept assumes that
Answer: D (the business will continue to operate indefinitely)
Going concern assumes the business will keep operating for the foreseeable future.
Which of the following is not a purpose for which share premium may be utilized?
Answer: C (Settling salesmen commission)
Share premium is a capital reserve; it cannot be used for ordinary running expenses like salesmen's commission.
A debenture is
Answer: A (a loan capital raised by a company)
A debenture is a long-term loan to a company, usually at a fixed rate of interest.
The concept which deals with the exclusion of trivial items in the accounting records is
Answer: C (materiality)
Materiality allows insignificant items to be treated simply rather than recorded in detail.
Which of the following is not an example of capital reserve?
Answer: B (Retained profits)
Retained profits come from normal trading and can be paid as dividends, so they are a revenue reserve; the other three are capital reserves.
Goods sent to branch are recorded in the head office's books at I. selling price. II. cost price plus markup percentage. III. cost price.
Answer: D (I, II and III)
Head office may invoice goods to a branch at cost, at cost plus a mark-up, or at selling price; all three methods are used.
Computer memory sizes are measured in
Answer: C (kilobytes)
Memory is measured in bytes: kilobytes, megabytes, gigabytes.
Rent owed by a department is treated in the Balance Sheet as
Answer: C (liability of the business)
Departments are not separate entities; any rent owed is a liability of the business as a whole.
When shares are issued to the public and the issuing company has not requested for payments, it is referred to as
Answer: C (uncalled capital)
The part of issued capital not yet called up is uncalled capital.
Use the following information to answer questions 41 and 42.
Ogogo's Sales Ledger Control Account
Dr: Balance b/d D25,180; Sales D43,220; Dishonoured cheque D542; total D68,942
Cr: Discounts allowed D1,936; Sales returns D1,884; Cash received from customers xxx; Balance c/d D5,122; total D68,942
Net sales is
Answer: B (D41,336)
Sales 43,220 − sales returns 1,884 = D41,336.
Use the following information to answer questions 41 and 42.
Ogogo's Sales Ledger Control Account
Dr: Balance b/d D25,180; Sales D43,220; Dishonoured cheque D542; total D68,942
Cr: Discounts allowed D1,936; Sales returns D1,884; Cash received from customers xxx; Balance c/d D5,122; total D68,942
The total cash received from customers is
Answer: B (D60,000)
68,942 − 1,936 − 1,884 − 5,122 = D60,000.
The diagrammatic representation of the workings of the computer program is
Answer: A (flow chart)
A flow chart shows the steps of a program in diagram form.
The process of recording financial transactions of government is
Answer: D (public sector accounting)
Recording government transactions is public sector (government) accounting.
A bank statement shows a debit balance of Le 475. After the entry of an uncredited cheque of Le 800, the new balance is
Answer: B (Le 325)
A debit balance is an overdraft of 475; lodging 800 turns it into a favourable (credit) balance of 800 − 475 = Le 325.
The business entity concept
Answer: A (separates the owner's transactions from the business transactions)
The business is treated as separate from its owner, so only business transactions are recorded.
Which of the following is not used in Public Sector Accounting?
Answer: C (Profit and Loss Account)
Government does not trade for profit, so it prepares no profit and loss account.
The concept which states that assets are not to be recorded at their current market value is
Answer: C (cost)
The cost (historical cost) concept records assets at what they cost.
Provision for depreciation on delivery van is charged to
Answer: B (profit and loss account)
A delivery van is used in selling and distribution, so its depreciation is a profit and loss expense.
Which of the following date lines is correct for a profit and loss account?
Answer: A (For the year ended 31st December 2009)
A profit and loss account covers a period, so it is headed 'for the year ended…'; 'as at' is for a balance sheet.
Explain any three of the following: (a) computer error, (b) "garbage in garbage out", (c) downtime, (d) debugging, (e) computer service bureau/cyber-cafe.
Any three:
(a) Computer error: a wrong or unexpected result produced by a computer, caused by faulty hardware, faulty software or wrong input/operation.
(b) Garbage in, garbage out (GIGO): the computer only processes what it is given, so wrong input data or instructions produce wrong output.
(c) Downtime: the period during which a computer system is not working (breakdown, repair or power failure) and cannot be used.
(d) Debugging: finding and removing errors (bugs) in a computer program.
(e) Computer service bureau/cyber-café: a business that has computers and sells data-processing, internet or computer services to firms and members of the public for a fee.
Choose the three you can explain best; one clear definition each.
In the context of company accounts, explain the following: (a) promoter; (b) prospectus; (c) underwriting; (d) bonus issue; (e) dividend.
(a) Promoter: the person who takes the steps to form a company – prepares and files the documents for registration and obtains the certificate of incorporation.
(b) Prospectus: a document issued by a public company inviting the public to buy its shares or debentures, giving details of the company.
(c) Underwriting: an agreement in which an underwriter, for a commission, promises to buy any shares offered to the public that are not taken up.
(d) Bonus issue: free shares given to existing shareholders in proportion to their holdings, by capitalising reserves.
(e) Dividend: the part of a company's profit shared among shareholders, usually as a percentage of the nominal value of shares or an amount per share.
Keep each explanation to one or two sentences.
(a) Explain three reasons why an accountant will consider end-of-year adjustments.
(b) Explain how the following items are treated in the Profit and Loss Account and Balance Sheet: (i) provision for doubtful debts; (ii) depreciation on fixed assets; (iii) accrued income; (iv) prepaid expenses.
(a) Any three: to match income and expenses with the period they belong to (accruals/matching); to arrive at the true profit or loss; to show assets and liabilities at fair values in the balance sheet; to apply prudence (e.g. provisions for doubtful debts, depreciation); to separate capital from revenue items; to bring closing stock into account.
(b)(i) Provision for doubtful debts: the provision (or increase in it) is debited to profit and loss (a decrease is credited); in the balance sheet the provision is deducted from debtors.
(ii) Depreciation: the year's charge is debited to profit and loss; in the balance sheet accumulated depreciation is deducted from the cost of the fixed asset to give net book value.
(iii) Accrued income: added to the income in profit and loss (credit side); shown as a current asset in the balance sheet.
(iv) Prepaid expenses: deducted from the expense in profit and loss; shown as a current asset in the balance sheet.
For each item in (b), give both the profit and loss entry and the balance sheet entry.
(a) What is single entry accounting system?
(b) State two characteristics of single entry accounting system.
(c) State three disadvantages of single entry accounting system.
(a) Single entry is an incomplete system in which only one side of transactions is recorded – usually only cash and personal accounts are kept, not the full double entry.
(b) Any two: usually only a cash book and personal accounts of debtors and creditors are kept; real and nominal accounts are not kept; profit is found by comparing opening and closing capital; a statement of affairs is needed to find capital.
(c) Any three: a trial balance cannot be prepared, so arithmetical accuracy cannot be checked; accurate profit and a detailed trading and profit and loss account are difficult to prepare; fraud and errors are easily hidden; records are incomplete and may not be accepted by tax authorities or banks; asset and liability values are not reliable.
Contrast single entry with double entry in (a).
The following information was extracted from the books of Osula Enterprises:
June 1: Cash balance brought forward ₦40,000.
June 2: Bank balance brought forward ₦112,000.
June 3: Paid rent by cash ₦20,000.
June 4: Received loan from Osaro ₦10,000 by cheque.
June 5: Paid general expenses in cash ₦600.
June 6: Bought goods by cheque ₦60,000.
June 7: Deposited cash at bank ₦30,000.
June 8: Sold goods ₦185,000 for cash.
June 9: Sold goods and received cheque ₦194,000.
June 10: Bought goods from Ali ₦82,000 on credit.
June 11: Commission received by cheque ₦520.
June 12: Bought stationery by cash ₦150.
June 13: Sold goods ₦200,000 for cash.
June 14: Withdrew cash from bank ₦43,000.
June 15: Sold goods and paid proceeds to bank ₦200,000.
June 16: Bought motor van by cheque ₦60,000.
June 18: Paid Odion for goods bought ₦5,000 by cash.
June 20: Paid part of Osaro's loan ₦5,000 by cash.
June 23: Withdrew cash from the bank ₦48,500.
June 25: Paid James for goods bought ₦25,000; ₦20,000 in cash; ₦5,000 by cheque.
June 28: Paid wages in cash ₦75,000.
June 29: Rent received by cash ₦2,500.
June 30: Cash sales ₦120,000.
You are required to write up a two-column cash book for the month.
Two-column cash book (Cash / Bank), June:
Dr: Jun 1 balance b/f cash 40,000; Jun 2 balance b/f bank 112,000; Jun 4 loan – Osaro bank 10,000; Jun 7 cash (C) bank 30,000; Jun 8 sales cash 185,000; Jun 9 sales bank 194,000; Jun 11 commission bank 520; Jun 13 sales cash 200,000; Jun 14 bank (C) cash 43,000; Jun 15 sales bank 200,000; Jun 23 bank (C) cash 48,500; Jun 29 rent received cash 2,500; Jun 30 sales cash 120,000
Cr: Jun 3 rent cash 20,000; Jun 5 general expenses cash 600; Jun 6 purchases bank 60,000; Jun 7 bank (C) cash 30,000; Jun 12 stationery cash 150; Jun 14 cash (C) bank 43,000; Jun 16 motor van bank 60,000; Jun 18 Odion cash 5,000; Jun 20 Osaro loan cash 5,000; Jun 23 cash (C) bank 48,500; Jun 25 James cash 20,000, bank 5,000; Jun 28 wages cash 75,000
Totals: cash ₦639,000; bank ₦546,520
Balances c/d 30 June (b/d 1 July): cash ₦483,250; bank ₦330,020
June 10 (credit purchase from Ali) is not entered in the cash book.
Contra entries (cash paid into or drawn from the bank) appear on both sides; credit purchases are left out.
The following information were taken from the books of Adebola Trading Company which has three departments: (Books / Electricals / Clothing, D)
Stock (01/01/2010): 120,000 / 180,000 / 240,000
Purchases: 3,720,000 / 4,380,000 / 3,240,000
Stock (31/12/2010): 240,000 / 360,000 / 480,000
Sales: 4,800,000 / 5,400,000 / 4,200,000
Wages and salaries: 120,000 / 60,000 / 180,000
Furniture: 360,000 / 180,000 / 240,000
Motor van: 300,000 / 360,000 / 240,000
Additional information: (i) The following expenses cannot be traced to any particular department: Insurance D180,000; Rent D120,000; Advertising D60,000; General expenses D900,000
(ii) The company decided to apportion the insurance and rent in proportion to sales. Advertising and general expenses are to be apportioned in the ratio 2: 1: 1 respectively.
You are required to prepare a Departmental Trading and Profit and Loss Account for the year ended 31st December, 2010. Note: Total columns are not required.
Sales ratio 4,800,000 : 5,400,000 : 4,200,000 = 8 : 9 : 7
Trading (Books / Electricals / Clothing): opening stock 120,000 / 180,000 / 240,000 + purchases 3,720,000 / 4,380,000 / 3,240,000 − closing stock 240,000 / 360,000 / 480,000 = cost of sales 3,600,000 / 4,200,000 / 3,000,000; gross profit D1,200,000 each
Expenses: insurance 60,000 / 67,500 / 52,500; rent 40,000 / 45,000 / 35,000; advertising 30,000 / 15,000 / 15,000; wages and salaries 120,000 / 60,000 / 180,000; general expenses 450,000 / 225,000 / 225,000
Total expenses D700,000 / D412,500 / D507,500
Net profit: Books D500,000; Electricals D787,500; Clothing D692,500
Furniture and motor vans are fixed assets, not expenses, so they do not enter the account.
Share insurance and rent 8:9:7 by sales and advertising and general expenses 2:1:1.
The following balances were extracted from the books of Haruna Enterprises for the month of February 2008: (D)
Balances – 1st February 2008: Sales ledger 320 Dr, 165 Cr; Purchases Ledger 275 Cr, 150 Dr
Transactions during February 2008:
Cheques received from debtors 1,850
Discounts allowed 75
Credit purchases 3,400
Credit sales 5,200
Discounts received 128
Cash paid to suppliers 1,400
Cheques paid to creditors 1,156
Cheques from credit customers dishonoured 250
Bills receivable 690
Bills payable 480
Returns outwards 115
Interest charged on outstanding debtors balance 120
Bad debts 360
Cash from credit customers 2,200
Refunds to customers for overpayments 100
Debit balances in respect of some suppliers set-off against their balances in the sales ledger 400
Balances on 28th February, 2008: Purchases ledger 142 Dr; Sales ledger 167 Cr
You are required to prepare: (a) Sales Ledger Control Account; (b) Purchases Ledger Control Account.
(a) Sales Ledger Control Account: Dr balance b/f 320; credit sales 5,200; dishonoured cheques 250; interest charged 120; set-off (purchases ledger) 400; refunds to customers 100; balance c/d (credit balances) 167 = D6,557. Cr balance b/f 165; cheques from debtors 1,850; discounts allowed 75; bills receivable 690; bad debts 360; cash 2,200; balance c/d D1,217 = D6,557
Balances b/d: Dr D1,217; Cr D167
(b) Purchases Ledger Control Account: Dr balance b/f 150; discounts received 128; cash 1,400; cheques 1,156; bills payable 480; returns outwards 115; balance c/d D788 = D4,217. Cr balance b/f 275; credit purchases 3,400; set-off (sales ledger) 400; balance c/d (debit balances) 142 = D4,217
Balances b/d: Cr D788; Dr D142
The set-off clears suppliers' debit balances in the purchases ledger (credit purchases ledger control) against their credit balances in the sales ledger (debit sales ledger control).
Here suppliers have debit balances in the purchases ledger, so the set-off debits the sales ledger control and credits the purchases ledger control.
Romeo and Juliet were in partnership and shared profits and losses equally. They decided to dissolve the partnership on 30th April, 2008. As at that date, the partnership balance sheet was as follows:
Romeo and Juliet – Balance Sheet as at 30th April, 2008
Capital: Romeo ₦600,000; Juliet ₦550,000
Current Account: Romeo ₦150,000
Current Liabilities: Trade Creditors ₦100,000
Total ₦1,400,000
Fixed Assets: Plant and Machinery ₦650,000; Delivery van ₦280,000; Fixtures and Fittings ₦170,000 = ₦1,100,000
Current Assets: Stock ₦90,000; Debtors ₦55,000; Cash ₦45,000 = ₦190,000
Current Account: Juliet ₦110,000
Total ₦1,400,000
Additional information:
(i) The following were realised from the assets: Plant and Machinery ₦580,000; Delivery Van ₦225,000; Stock ₦110,000; Debtors ₦50,000
(ii) Creditors were paid in full (iii) Dissolution expenses amounted to ₦50,000 (iv) Fixtures and fittings were taken over by Romeo for ₦100,000
You are required to prepare: (a) Realisation Account; (b) Partners Capital Account in columnar form; and (c) Cash Accounts.
(a) Realisation Account: Dr plant and machinery 650,000; delivery van 280,000; fixtures 170,000; stock 90,000; debtors 55,000; dissolution expenses 50,000 = ₦1,295,000. Cr cash – plant 580,000, van 225,000, stock 110,000, debtors 50,000; Romeo (fixtures taken over) 100,000; loss on realisation 230,000 shared equally: Romeo 115,000, Juliet 115,000 = ₦1,295,000
(b) Capital Accounts (Romeo / Juliet): Cr balance b/f 600,000 / 550,000; current account 150,000 / – = 750,000 / 550,000. Dr current account – / 110,000; fixtures taken over 100,000 / –; loss on realisation 115,000 / 115,000; cash paid to close ₦535,000 / ₦325,000
(c) Cash Account: Dr balance b/f 45,000; plant 580,000; van 225,000; stock 110,000; debtors 50,000 = ₦1,010,000. Cr trade creditors 100,000; dissolution expenses 50,000; Romeo 535,000; Juliet 325,000 = ₦1,010,000
Close the asset accounts to realisation, share the loss equally, then pay out what is left in each capital account.
The following balances have been extracted from the books of Agbo State as at 31st December, 2010 (Le):
Cash Account: Dr 50,000
Consolidated Revenue Fund – 01/01/2010: Cr 90,000
Allocation from Central Government Account: Cr 200,000
Other revenue: Cr 20,000
Personnel costs: Dr 100,000
Investment: Dr 100,000
Deposit: Cr 50,000
Advances: Dr 60,000
Loans from Central Government: Cr 50,000
Loans to Local Government: Dr 60,000
Fixed deposit: Dr 40,000
Totals (as printed): 400,000 / 400,000
Additional information: (i) Le 20,000 should be transferred to Development Fund for capital projects. (ii) Other charges approved by the Funds Management Committee and paid during the year but which were omitted from the books amounted to Le 25,000. (iii) Total grants of Le 80,000 collected from Central Government for capital projects to be embarked upon during the year had not been recorded in the books.
You are required to prepare: (a) Consolidated Revenue Fund Account; (b) a Statement showing the Development Fund for the year.
(a) Consolidated Revenue Fund Account for the year ended 31 Dec 2010: balance b/f 90,000 + allocation from Central Government 200,000 + other revenue 20,000 = Le 310,000; less personnel costs 100,000, transfer to Development Fund 20,000, other charges 25,000 = 145,000; balance c/f Le 165,000
(b) Statement of Development Fund for the year ended 31 Dec 2010: transfer from Consolidated Revenue Fund 20,000 + grants from Central Government 80,000 = Le 100,000
Add the omitted other charges and the transfer to the Development Fund to the CRF expenditure; the grants for capital projects go to the Development Fund.