56 questions. Try each one, then open the answer to check yourself and read the explanation.
The distinguishing feature between a two-column and three-column cash book is
Answer: A (discount column.)
A two-column cash book has cash and bank columns; the three-column cash book adds a discount column on each side.
The lodgement of business cash into the business bank account is an example of
Answer: A (contra entry.)
Both sides of the entry are in the cash book (credit cash column, debit bank column), so it is a contra entry.
A credit balance is
Answer: B (a liability or an income.)
Liabilities, capital and incomes have credit balances; assets and expenses have debit balances.
Which of the following is not a characteristic of a Trial Balance?
Answer: D (It is an account)
A trial balance is a list (statement) of ledger balances drawn up to check arithmetic. It is not itself a ledger account.
The capital of a sole trader changes as a result of
Answer: C (drawings by cheque.)
Drawings reduce the owner's capital directly. Buying equipment or goods only swaps one asset for another or adds a liability.
The order of financial accounting process involves: (i) recording; (ii) presenting; (iii) collecting; (iv) analyzing
Answer: C (III, I, II and IV)
Data is first collected, then recorded in the books, then presented as financial statements, and finally analysed and interpreted.
A dishonoured cheque is
Answer: B (credited in the cash book.)
When a customer's cheque that was banked is dishonoured, the bank takes the money back, so the business credits the bank column of its cash book and debits the customer.
A petty cashier received a float of GH¢ 120 and spent GH¢ 84. The imprest is
Answer: B (GH¢ 120)
The imprest is the fixed float given to the petty cashier, GH¢120. GH¢84 is the amount reimbursed to restore it and GH¢36 is the cash left.
Which of the following is not a book of original entry?
Answer: B (Purchases ledger)
The purchases ledger is a ledger to which entries are posted, not a book where transactions are first recorded.
Use the following information to answer questions 10 to 12.
Net profit: ₦60,000
Total assets: ₦520,000
Current liabilities: ₦150,000
Current assets: ₦280,000
The current ratio is
Answer: A (1.87 : 1.)
Current ratio = current assets ÷ current liabilities = 280,000 ÷ 150,000 = 1.87, i.e. 1.87 : 1.
Use the following information to answer questions 10 to 12.
Net profit: ₦60,000
Total assets: ₦520,000
Current liabilities: ₦150,000
Current assets: ₦280,000
The capital employed is
Answer: C (₦370,000.)
Capital employed = total assets − current liabilities = 520,000 − 150,000 = ₦370,000.
Use the following information to answer questions 10 to 12.
Net profit: ₦60,000
Total assets: ₦520,000
Current liabilities: ₦150,000
Current assets: ₦280,000
The returns on capital employed is
Answer: B (16.2%.)
ROCE = net profit ÷ capital employed × 100 = 60,000 ÷ 370,000 × 100 = 16.2%.
The double entry principle states that
Answer: A (every debit entry must have a corresponding credit entry.)
Every transaction has two sides: for each debit there must be an equal credit.
Which of the following is a nominal account?
Answer: D (Wages Account)
Nominal accounts record expenses and incomes, such as wages. Machinery is a real account; drawings and debtors relate to persons.
Reserves account is kept in the
Answer: A (private ledger.)
Accounts that concern the owners' interest, such as capital and reserves, are kept in the private ledger.
An advantage of control account is
Answer: D (locating errors.)
A control account shows whether a particular ledger balances, which helps to locate errors quickly.
The accumulated fund of a not-for-profit making organization is
Answer: D (capital.)
The accumulated fund (assets minus liabilities) is the club's equivalent of capital.
A business is treated as being separate from owners. This statement is emphasized by
Answer: D (business entity concept.)
The business entity concept treats the business and its owner as separate, so only business transactions are recorded.
Which of the following is recorded on the debit side of the Trial Balance?
Answer: C (Purchases)
Purchases is an expense-type account with a debit balance. Overdraft, returns outwards and capital are credit balances.
Use the following information to answer questions 20 and 21.
Creditors: 1/6/2011 D2,495; 30/5/2012 D2,285
Debtors: 1/6/2011 D1,215; 30/5/2012 D2,145
Cash paid to creditors: D32,170
Cash received from customers: D40,650
Goods returned to suppliers: D500
Purchases for the year is
Answer: C (D32,460)
Purchases = cash paid + returns + closing creditors − opening creditors = 32,170 + 500 + 2,285 − 2,495 = D32,460.
Use the following information to answer questions 20 and 21.
Creditors: 1/6/2011 D2,495; 30/5/2012 D2,285
Debtors: 1/6/2011 D1,215; 30/5/2012 D2,145
Cash paid to creditors: D32,170
Cash received from customers: D40,650
Goods returned to suppliers: D500
Sales for the year is
Answer: C (D41,580)
Sales = cash received + closing debtors − opening debtors = 40,650 + 2,145 − 1,215 = D41,580.
Which of the following is determined in the Trading Account?
Answer: B (Cost of goods sold)
The trading account sets cost of goods sold against sales to find gross profit. Prime cost and overheads are in the manufacturing account; net profit is in profit and loss.
Cash receipts and payments involving discounts are entered in
Answer: A (three-column cash book.)
The three-column cash book has discount columns beside the cash and bank columns.
The minimum number of persons required to form a partnership business is
Answer: A (2.)
A partnership needs at least two people.
Which of the following accounts has a credit balance?
Answer: C (sales account)
Sales is an income, so its account has a credit balance. The others are assets or expense-type accounts with debit balances.
The accounting principle that states that, in the preparation of accounting statement, revenue are recognized as soon as goods are passed on to the customer is the
Answer: D (realization concept.)
Under the realisation concept revenue is earned when goods pass to the customer, not when cash is received.
Agreement between partners is contained in the partnership
Answer: B (Deed.)
The written agreement between partners is the partnership deed.
A low current ratio in a business indicates that the business is
Answer: C (unable to pay its bills on time.)
A low current ratio means current assets are small compared with short-term debts, so the business may struggle to pay its bills.
Which of the following is a recurrent expenditure in public sector accounting?
Answer: B (Purchase of drugs)
Drugs are used up in day-to-day running, so they are recurrent. Vehicles, boreholes and buildings are capital items.
In departmental accounts, administrative expenses are recorded in the
Answer: C (Profit and loss account.)
Administrative expenses are charged in the profit and loss account (shared among departments on a fair basis).
The Public Accounts Committee is an organ of
Answer: B (parliament.)
The Public Accounts Committee is a committee of the legislature (parliament) that examines the Auditor-General's report on government accounts.
Use the following information to answer questions 32 and 33.
Aminn Local Government prepared its receipts and payments account from the following:
Fines: Le 20,000
Market rates: Le 120,000
Salaries: Le 60,000
Maintenance of vehicles: Le 49,000
Park collections: Le 100,000
The balance at the end of the period is
Answer: C (Le 131,000)
Receipts = 20,000 + 120,000 + 100,000 = 240,000. Payments = 60,000 + 49,000 = 109,000. Balance = 240,000 − 109,000 = Le 131,000.
Use the following information to answer questions 32 and 33.
Aminn Local Government prepared its receipts and payments account from the following:
Fines: Le 20,000
Market rates: Le 120,000
Salaries: Le 60,000
Maintenance of vehicles: Le 49,000
Park collections: Le 100,000
The total expenditure for the period is
Answer: D (Le 109,000)
Expenditure = salaries 60,000 + vehicle maintenance 49,000 = Le 109,000.
When a business is purchased from a sole trader, the excess of the purchase price over the net assets is
Answer: B (goodwill.)
Paying more than the value of the net assets taken over means paying for goodwill.
A set of instructions or programs which controls the operation of a computer is
Answer: A (software.)
Programs and instructions are software; hardware is the physical equipment such as the monitor and keyboard.
The process of detecting, tracing and eliminating errors in a computer program is
Answer: B (debugging.)
Finding and removing errors (bugs) from a program is called debugging.
In a not-for-profit making organization, the cash book is referred to as
Answer: B (receipts and payments account.)
A club's receipts and payments account is a summary of its cash book.
When the going concern concept is no longer applicable, the fixed assets are recorded at their
Answer: B (realizable value.)
If the business is expected to close, its assets are valued at what they would fetch if sold (realisable or break-up value), not at book value.
Use the following information to answer questions 40 and 41.
Stock of raw materials 1/1/09: GH¢5,000
Stock of raw materials 31/12/09: GH¢5,500
Purchase of raw materials: GH¢50,000
Carriage inwards: GH¢3,000
Direct labour: GH¢12,000
Factory overhead: GH¢17,500
The cost of raw materials consumed is
Answer: B (GH¢52,500)
Raw materials consumed = 5,000 + 50,000 + 3,000 − 5,500 = GH¢52,500.
Use the following information to answer questions 40 and 41.
Stock of raw materials 1/1/09: GH¢5,000
Stock of raw materials 31/12/09: GH¢5,500
Purchase of raw materials: GH¢50,000
Carriage inwards: GH¢3,000
Direct labour: GH¢12,000
Factory overhead: GH¢17,500
The prime cost is
Answer: A (GH¢64,500.)
Prime cost = materials consumed + direct labour = 52,500 + 12,000 = GH¢64,500. Factory overhead is not part of prime cost.
Which of the following relates to the essence of partnership? To
Answer: C (form a business for profit.)
A partnership is two or more people carrying on business together with a view to profit.
The basic assumption which underlines the preparation of periodic financial statement is known as accounting
Answer: C (concepts.)
The basic assumptions behind financial statements (entity, going concern, accruals etc.) are called accounting concepts.
Stock account is a type of
Answer: C (real account.)
Stock is a tangible thing the business owns, so its account is a real account.
At the end of trading period, cost of goods sold is debited to the trading account while cost of services is debited to the
Answer: D (profit and loss account.)
Expenses for services such as rent, wages of office staff and electricity are charged to the profit and loss account.
Excess of current assets over current liabilities is
Answer: C (working capital.)
Working capital = current assets − current liabilities.
A statement showing a trader's financial position as at a particular date is a/an
Answer: C (balance sheet.)
The balance sheet shows assets, liabilities and capital at a particular date.
A trading account is prepared to disclose the
Answer: B (gross profit or loss for the year.)
The trading account compares sales with cost of goods sold to show the gross profit or gross loss.
Explain the following: (a) imprest system; (b) petty cash book; (c) memorandum entries; (d) three-column cash book; (e) journal proper.
(a) Imprest system: the petty cashier is given a fixed float; at the end of each period he is reimbursed exactly what he spent, so the float is restored to the same amount.
(b) Petty cash book: a book of original entry (also a ledger account) used to record small cash payments, usually with analysis columns for each type of expense.
(c) Memorandum entries: records kept for information only that are not part of the double entry, e.g. discount columns in the cash book or a control account kept outside the ledger.
(d) Three-column cash book: a cash book with discount, cash and bank columns on both the debit and credit sides.
(e) Journal proper (general journal): book of original entry for transactions not recorded in any other subsidiary book, e.g. opening entries, correction of errors, purchase/sale of fixed assets on credit, transfers.
One clear sentence of meaning for each term is enough.
(a) Explain control accounts.
(b) State seven items that will appear on the debit side of purchases ledger control account.
(c) State four sources for compiling purchases ledger control account.
(a) A control (total) account is an account that records in total the transactions entered in the individual accounts of a ledger (sales or purchases ledger); its balance should equal the total of the balances in that ledger.
(b) Any seven: cash paid to creditors; cheques paid to creditors; discounts received; returns outwards; bills payable issued; set-offs/contra with sales ledger; opening debit balances (b/d); closing credit balance (c/d).
(c) Any four: purchases day book; purchases returns (returns outwards) book; cash book; journal proper; bills payable book.
The debit side of the purchases ledger control account lists everything that reduces what is owed to suppliers.
(a)(i) What is depreciation? (ii) State three characteristics of a depreciable asset.
(b) Explain the following methods of calculating depreciation: (i) straight line; (ii) reducing balance; (iii) sum of the years digit.
(a)(i) Depreciation is the permanent fall in the value of a fixed asset through use, wear and tear, passage of time or obsolescence; in accounts, the cost (less residual value) is spread over the asset's useful life.
(ii) Any three: expected to be used for more than one accounting period; has a limited useful life; held for use in producing goods/services, not for resale; has a cost (or valuation) that can be measured; may have a residual (scrap) value.
(b)(i) Straight line: the same amount is charged every year = (cost − residual value) ÷ useful life.
(ii) Reducing balance: a fixed percentage is applied each year to the net book value (cost less accumulated depreciation), so the charge falls each year.
(iii) Sum of the years' digits: the years of life are added (e.g. 5 years: 1+2+3+4+5 = 15); each year's charge = (cost − residual value) × remaining years ÷ sum (5/15, 4/15, …), so charges fall each year.
Give a short formula or example for each method.
(a) What is data processing?
(b) Identify three stages of data processing.
(c) State three advantages and two disadvantages of a computer.
(a) Data processing is the collection and handling of raw data (facts and figures) to turn it into meaningful information for decision making.
(b) Input stage; processing stage; output stage (storage may also be mentioned).
(c) Advantages (any three): very fast; accurate; stores large volumes of data; can work for long hours without tiring; reduces repetitive manual work; quick retrieval of information.
Disadvantages (any two): high cost of purchase and maintenance; may cause unemployment; depends on stable power supply; wrong input gives wrong output (garbage in, garbage out); needs trained staff; risk of fraud, viruses and data loss.
Stages follow the order input → process → output.
Grape Enterprises makes fruit juice. The following information relates to the year ended 31st December, 2009:
Stock – 1st January, 2009: Raw materials ₦336,500; Work-in-progress ₦60,000; Finished goods ₦350,000
Purchases of raw materials: ₦950,000
Sales: ₦6,000,000
Office salaries: ₦315,000
Carriage inwards: ₦78,500
Royalties: ₦450,000
Direct factory wages: ₦925,000
Discounts allowed: ₦20,000
Indirect wages: ₦225,000
Insurance of factory: ₦250,000
General expenses: ₦300,000
Depreciation of plant: ₦310,000
Delivery van expenses: ₦62,000
Office expenses: ₦300,000
Advertisement: ₦65,000
Stock – 31st December, 2009: Raw materials ₦245,000; Work-in-progress ₦47,500; Finished goods ₦285,000
Additional information: (i) Half of general expenses relates to the factory; (ii) One third of the office expenses should be treated as factory cost.
You are required to prepare the Manufacturing, Trading and Profit and Loss Account for the year ended 31st December, 2009.
Manufacturing Account
Raw materials: opening 336,500 + purchases 950,000 + carriage inwards 78,500 = 1,365,000 − closing 245,000 = 1,120,000 consumed
Direct factory wages 925,000; royalties 450,000
Prime cost ₦2,495,000
Factory overheads: indirect wages 225,000; insurance 250,000; general expenses (½) 150,000; depreciation of plant 310,000; office expenses (⅓) 100,000 = 1,035,000
3,530,000 + opening WIP 60,000 − closing WIP 47,500
Cost of production ₦3,542,500
Trading Account
Sales 6,000,000
Cost of sales: opening finished goods 350,000 + 3,542,500 − closing 285,000 = 3,607,500
Gross profit ₦2,392,500
Profit and Loss Account
Expenses: office salaries 315,000; general expenses (½) 150,000; office expenses (⅔) 200,000; discounts allowed 20,000; delivery van expenses 62,000; advertisement 65,000 = 812,000
Net profit ₦1,580,500
Split general and office expenses between factory and office before you start.
A company based in Accra has a branch in Kumasi to which goods are supplied from the head office. All goods are charged out to this branch at cost plus 50% mark-up. The branch remits to the head office all cash received from customers. The following transactions took place at Kumasi branch during the year ended 31st December, 2009:
Stock – 1st January, 2009: GH¢41,400
Goods received from head office at selling price: GH¢171,840
Cash sales: GH¢154,140
Goods returned from branch to head office at selling price: GH¢2,640
Cash received from debtors: GH¢6,120
Goods returned from credit customers to branch: GH¢1,060
Debtors – 1st January, 2009: GH¢2,130
Debtors – 31st December, 2009: GH¢2,100
Stock – 31st December, 2009 at selling price: GH¢50,370
You are required to prepare: (a) Branch Stock Account; (b) Goods sent to Branch Account; (c) Branch Debtors Account; (d) Branch Adjustment Account.
Loading: mark-up 50% on cost = ⅓ of selling price.
Credit sales (from debtors): 2,100 + 6,120 + 1,060 − 2,130 = 7,150
(a) Branch Stock Account (selling price)
Dr: balance b/d 41,400; goods sent 171,840; returns from customers 1,060 = 214,300
Cr: cash sales 154,140; credit sales 7,150; returns to head office 2,640; balance c/d 50,370 = 214,300
(b) Goods Sent to Branch Account (cost)
Cr: branch stock (171,840 × ⅔) 114,560
Dr: returns from branch (2,640 × ⅔) 1,760; transfer to head office trading account 112,800 = 114,560
(c) Branch Debtors Account
Dr: balance b/d 2,130; credit sales 7,150 = 9,280
Cr: cash 6,120; returns 1,060; balance c/d 2,100 = 9,280
(d) Branch Adjustment Account
Cr: loading on opening stock (41,400 ÷ 3) 13,800; loading on goods sent (171,840 ÷ 3) 57,280 = 71,080
Dr: loading on returns to head office (2,640 ÷ 3) 880; loading on closing stock c/d (50,370 ÷ 3) 16,790; gross profit 53,410 = 71,080
Check: net sales 154,140 + 7,150 − 1,060 = 160,230 × ⅓ = 53,410
Find credit sales from the debtors figures first; it is the missing figure in both the stock and debtors accounts.
Ade and Bola are in partnership sharing profits and losses in the ratio 3 : 2 respectively. Their balance sheet as at 30th June, 2010 is as follows:
Balance sheet as at 30th June, 2010
Capital: Ade Le 120,000; Bola Le 80,000
Current Account: Ade Le 5,000; Bola Le 9,000
Loan: Bola Le 20,000; Interest accrued Le 4,000 (Le 24,000)
Trade creditors Le 7,000
Total Le 245,000
Equipment Le 100,000; Fixtures Le 40,000; Stock Le 23,000; Debtors Le 48,000; Cash Le 34,000
Total Le 245,000
They decided to admit Caro into the partnership on the following terms:
(i) Caro shall contribute Le 50,000 as capital and be entitled to one-fifth of future profits.
(ii) Ade and Bola shall henceforth share profits and losses equally.
(iii) Bola shall have her loan converted to capital but the accrued interest must be paid immediately.
(iv) Assets are to be revalued as follows: Equipment Le 90,000; Fixtures Le 52,000; Stock Le 21,000; Debtors Le 46,400.
You are required to prepare: (a) Revaluation Account; (b) Partners Current Accounts in columnar form; (c) Opening Balance Sheet for Ade, Bola and Caro partnership.
(a) Revaluation Account
Dr: equipment (100,000 − 90,000) 10,000; stock (23,000 − 21,000) 2,000; debtors/provision (48,000 − 46,400) 1,600 = 13,600
Cr: fixtures (52,000 − 40,000) 12,000; loss on revaluation: Ade (3/5) 960, Bola (2/5) 640 = 13,600
(b) Current Accounts (Ade | Bola)
Cr: balance b/d 5,000 | 9,000; interest on loan – | 4,000
Dr: cash paid (interest) – | 4,000; revaluation loss 960 | 640; balance c/d 4,040 | 8,360
Totals 5,000 | 13,000
(c) Balance Sheet of Ade, Bola and Caro as at 1st July, 2010
Capital: Ade 120,000; Bola (80,000 + 20,000 loan) 100,000; Caro 50,000 = 270,000
Current accounts: Ade 4,040; Bola 8,360 = 12,400
Trade creditors 7,000
Total Le 289,400
Equipment 90,000; fixtures 52,000; stock 21,000; debtors 46,400; cash (34,000 + 50,000 − 4,000) 80,000
Total Le 289,400
The revaluation loss is shared in the OLD ratio (3 : 2), before Caro joins.
The following Trial Balance was extracted from the books of Bamitolu on 31st December, 2009.
Stock – 1st January, 2009: Dr ₦80,500
Motor vehicles: Dr ₦58,000
Buildings: Dr ₦176,000
Furniture and fittings: Dr ₦26,000
Debtors and creditors: Dr ₦98,300; Cr ₦72,000
Purchases and sales: Dr ₦395,700; Cr ₦589,200
Returns: Dr ₦10,500; Cr ₦9,700
Discounts: Dr ₦12,500; Cr ₦14,000
Wages and salaries: Dr ₦49,200
Drawings: Dr ₦16,400
Loan from Thomas: Cr ₦60,000
Bad debts: Dr ₦3,500
Loan interest: Dr ₦3,000
General expenses: Dr ₦16,800
Stationery: Dr ₦1,800
Rent and rate: Dr ₦12,400
Petty cash: Dr ₦400
Cash in hand: Dr ₦1,300
Cash at bank: Dr ₦32,600
Capital: Cr ₦250,000
Totals: Dr ₦994,900; Cr ₦994,900
Additional information:
(i) Stock — 31st December, 2009: ₦91,200
(ii) Depreciation: Motor vehicles 25%; Buildings 5%; Furniture and fittings 10%
(iii) Make a 5% provision for doubtful debts.
(iv) ₦2,300 paid by a doctor during the year was mistakenly credited to Sales Account.
(v) Goods worth ₦1,600 withdrawn by Bamitolu was not accounted for.
You are required to prepare: (a) Trading, Profit and Loss Account for the year ended 31st December, 2009. (b) A Balance Sheet as at that date.
(a) Trading, Profit and Loss Account
Sales 589,200 − 2,300 (debtor's payment wrongly credited to sales) = 586,900 − returns inwards 10,500 = 576,400
Purchases 395,700 − returns outwards 9,700 − goods taken by owner 1,600 = 384,400
Cost of sales: 80,500 + 384,400 − 91,200 = 373,700
Gross profit ₦202,700; add discounts received 14,000 = 216,700
Expenses: loan interest 3,000; discounts allowed 12,500; wages and salaries 49,200; bad debts 3,500; rent and rates 12,400; general expenses 16,800; stationery 1,800; provision for doubtful debts (5% × 96,000) 4,800; depreciation: motor vehicles (25% × 58,000) 14,500, buildings (5% × 176,000) 8,800, furniture (10% × 26,000) 2,600 = 129,900
Net profit ₦86,800
(b) Balance Sheet as at 31/12/2009
Fixed assets (cost − depreciation = NBV): motor vehicles 58,000 − 14,500 = 43,500; buildings 176,000 − 8,800 = 167,200; furniture 26,000 − 2,600 = 23,400; total 234,100
Current assets: stock 91,200; debtors (98,300 − 2,300) 96,000 − provision 4,800 = 91,200; cash at bank 32,600; cash in hand 1,300; petty cash 400 = 216,700
Less current liabilities: creditors 72,000 → working capital 144,700
Total 378,800; less loan from Thomas 60,000 = 318,800
Capital 250,000 + net profit 86,800 − drawings (16,400 + 1,600) 18,000 = ₦318,800
Make the two corrections (sales/debtors and goods taken by the owner) before preparing the accounts.
Academy Limited operates an imprest system with D20,000 paid out of bank. The following expenses were settled out of petty cash during the month of March, 2010:
March 1. Wages D1,500
2. Rates D1,000
4. Postage stamps D100
5. Transport expenses D4,100
Postage stamps D150
6. Wages D500
10. Rates D500
13. Frank Musa (creditor) D1,000
18. Wages D1,200
Brima (creditor) D2,000
20. Rates D1,500
22. Wages D700
24. Registered letters D500
26. Rates D900
28. Wages D1,000
31. Wages D800
31. Float restored ?
You are required to write up the petty cash book for the month of March 2010 having analysis columns for Rates, Postage, Transport, Wages and Ledger.
Petty Cash Book (analysis columns: Rates | Postage | Transport | Wages | Ledger)
Receipts: 1 Mar balance/cash from bank D20,000
Each payment entered in the total column and in its analysis column:
Wages: 1,500 + 500 + 1,200 + 700 + 1,000 + 800 = 5,700
Rates: 1,000 + 500 + 1,500 + 900 = 3,900
Postage: 100 + 150 + 500 (registered letters) = 750
Transport: 4,100
Ledger: Frank Musa 1,000 + Brima 2,000 = 3,000
Total payments D17,450 (= 5,700 + 3,900 + 750 + 4,100 + 3,000)
Balance before restoring: 20,000 − 17,450 = D2,550
31 Mar: cash received from bank to restore float D17,450
Balance c/d D20,000 (b/d on 1 April)
Under the imprest system the amount restored equals the total spent in the month.