54 questions. Try each one, then open the answer to check yourself and read the explanation.
External users of accounting information include
Answer: C (bankers.)
Bankers are outside the business but use its accounts to decide on loans; employees, management and directors are internal users.
Every asset should have
Answer: C (monetary cost and future benefit.)
An asset is a resource with a measurable money cost that is expected to bring future benefit to the business.
Which of the following are impersonal accounts? I. Investment II. Creditors III. Premises IV. Debtors V. Salaries
Answer: B (I, III and V.)
Impersonal accounts are real (investment, premises) and nominal (salaries) accounts; creditors and debtors are personal.
Nwoye buys stock and pays by cheque. The entries in the books of Nwoye is Debit
Answer: B (Purchases; Credit bank.)
Stock bought for resale is debited to purchases and the payment by cheque is credited to the bank account.
A bank statement shows an overdraft of GH¢ 190,000. Kofi, a debtor, paid GH¢400,000 into the account. The new bank balance is
Answer: C (GH¢210,000.)
The lodgement first clears the 190,000 overdraft, leaving 400,000 - 190,000 = GH¢210,000 in credit (in favour of the customer).
Which of the following errors are errors of commission? I. A cheque paid to Adom debited to Adam's account II. Credit sales to Eva credited to sales account but debited to Eve's account III. Furniture repairs debited to furniture account IV Credit purchases from Manu credited to Manu's account
Answer: A (I and II.)
An error of commission posts the right amount to the wrong personal account of the same class, as in I and II; III is an error of principle.
A petty cash account has an imprest of GH¢6,000. If GH¢2,000 were left, how much will be re-imbursed at the end of the period?
Answer: C (GH¢4,000)
Under the imprest system the amount spent is refunded: 6,000 - 2,000 = GH¢4,000.
Cash paid to Jake, N2,500, was entered on the credit side of his account and debited to cash account. This is an error of
Answer: C (Complete reversal of entries.)
The correct accounts and amount were used but each entry is on the wrong side: a complete reversal of entries.
One of the Purchases invoices of Mr. Dauda showed D96,240 less 12½% trade discount and cash discount of 20%. Since Mr. Dauda paid the amount due within the credit period, the amount paid is
Answer: C (D 67,368.)
Trade discount: 96,240 × 87.5% = 84,210. Cash discount: 84,210 × 80% = D67,368.
Bank reconciliation statement is prepared to reconcile the differences between
Answer: D (cash book and bank statement.)
It explains why the cash book bank balance differs from the bank statement balance.
Which of the following items of expense involves actual cash payment?
Answer: C (Carriage outwards)
Carriage outwards is paid in cash to transport goods to customers; the others are book entries with no cash paid.
In the preparation of the Trading Account of Omuya Ltd., the company included credit sales of ₦18,000 made during the year. The concept guiding this treatment is the
Answer: C (matching concept.)
Sales made in the year are counted in that year's revenue whether or not cash has been received, so revenue is matched to the period (accruals/matching).
In accounting context, purchases refer to
Answer: B (goods bought for resale only.)
'Purchases' means goods bought to be resold, whether for cash or on credit.
Which of the following items is a current liability?
Answer: C (Bills payable)
Bills payable are amounts the business must pay soon, so they are a current liability; the rest are current assets.
The balance sheet is prepared to reveal
Answer: B (the financial position of the business.)
The balance sheet shows assets, liabilities and capital at a date: the financial position.
The excess of cost of goods sold over net sales is
Answer: B (gross loss.)
If cost of goods sold is more than net sales, the trading account shows a gross loss.
Use the following information: Rent prepaid 1/01/2014 ₦600; Rent paid 31/12/2014 ₦3,000; Rent prepaid 31/12/2014 ₦400.
Rent for 2014 chargeable to the profit and loss account is
Answer: B (₦3,200.)
Charge = prepaid at start 600 + paid 3,000 - prepaid at end 400 = ₦3,200.
Use the following information: Rent prepaid 1/01/2014 ₦600; Rent paid 31/12/2014 ₦3,000; Rent prepaid 31/12/2014 ₦400.
The balance sheet as at 31st December, 2014 will show
Answer: B (current asset of ₦400.)
Rent paid in advance at the year end (₦400) is a prepayment, shown as a current asset.
Which of the following would result from an increase in the provision for doubtful debts?
Answer: B (A decrease in net profit)
An increase in the provision is charged to profit and loss, reducing net profit; gross profit is not affected.
Use the following information: Acquisition cost of computers Le 80,000; Installation cost Le 20,000; Estimated residual value Le 4,000; Estimated useful life 5 years.
The depreciable value of computers is
Answer: B (Le 96,000.)
Depreciable value = total cost (80,000 + 20,000) - residual value 4,000 = Le 96,000.
Use the following information: Acquisition cost of computers Le 80,000; Installation cost Le 20,000; Estimated residual value Le 4,000; Estimated useful life 5 years.
The total costs of the computers is
Answer: C (Le 100,000.)
Cost includes installation: 80,000 + 20,000 = Le 100,000.
Which of the following expenses constitutes prime cost? I. Direct labour cost II. Factory overheads III. Hiring of machine for production IV. Warehouse rent
Answer: B (I and III only)
Prime cost is direct costs only: direct labour and direct expenses such as hire of a machine for production.
Partly manufactured goods are treated in the balance sheet of a manufacturing company as
Answer: A (current assets.)
Work-in-progress is part of stock, a current asset.
Use the following information: Cash purchase D29,641; Creditors 1/1/14 D2,473; Creditors 31/12/14 D3,117; Cash paid to creditors D127,345; Discount received D4,211.
The credit purchases is
Answer: D (D 132,200.)
Credit purchases = cash paid 127,345 + discount 4,211 + closing creditors 3,117 - opening creditors 2,473 = D132,200.
Use the following information: Cash purchase D29,641; Creditors 1/1/14 D2,473; Creditors 31/12/14 D3,117; Cash paid to creditors D127,345; Discount received D4,211.
The total purchases is
Answer: A (D 161,841.)
Total purchases = credit purchases 132,200 + cash purchases 29,641 = D161,841.
Offei, a petty trader, sold goods for GH¢36,240. The gross profit being 33⅓% on cost. What was the cost price?
Answer: C (GH¢27,180)
Sales = cost × 4/3, so cost = 36,240 × 3/4 = GH¢27,180.
Which of the following is a credit item in an Income and Expenditure account?
Answer: B (Donations)
Donations received are income, credited in the income and expenditure account.
Purchases of fixtures and fittings by a club is recorded in the
Answer: C (Receipts and Payments Account and Balance sheet.)
The cash paid appears in the receipts and payments account and the fixtures appear as a fixed asset in the balance sheet.
The concept which states that the affairs of a business is to be treated as being separate from the private activities of the Owner is
Answer: B (business entity concept.)
The business entity concept separates the business from its owner.
Where fixed capitals are maintained in a partnership, share of profits are
Answer: B (credited to partners current accounts.)
With fixed capitals, all profit shares, salaries and interest go to the partners' current accounts (credit).
In the absence of a partnership agreement, additional capital contributions by partners attract interest of
Answer: A (5%.)
Without an agreement, the Partnership Act allows 5% interest on advances a partner makes beyond the agreed capital.
When allotments have been fully paid, subscribers are referred to as
Answer: D (shareholders.)
Once shares are allotted and paid for, the subscribers become members of the company: shareholders.
The entries for credit sales at branch where the Head office keeps all records are: Debit
Answer: B (Branch Debtors Account; Credit Branch Stock Account.)
Branch customers owe money (debit branch debtors) and goods leave branch stock (credit branch stock).
The cost of goods returned by branch to head office is debited to
Answer: B (Goods sent to Branch Account.)
Returns from the branch reduce goods sent to branch, so that account is debited and branch stock credited.
Which of the following is a source of local government revenue?
Answer: B (Market dues)
Market dues are collected by local councils; excise and import duties are federal revenue.
The transfer of money from one sub-head to another in the public sector is
Answer: C (virement.)
Moving money between sub-heads of a vote is called virement.
The total of the discounts received column in the three column cash book is
Answer: B (credited to Discounts Received Account.)
Discount received is income, so the column total is credited to the discounts received account.
Which of the following expenses is apportioned between departments based on sales?
Answer: D (Carriage outwards)
Carriage outwards varies with goods sold, so it is shared in the ratio of departmental sales.
In the purchase of a business, a buyer has paid more than the value of the net assets of the business. The excess payment is referred to as
Answer: B (goodwill.)
The amount paid above the value of net assets is goodwill.
Assets which are readily convertible into cash are termed as
Answer: A (liquid assets.)
Assets that can quickly be turned into cash are liquid assets.
A loan to a company under the company's seal is
Answer: D (debenture.)
A debenture is a written acknowledgement of a loan made to a company under its seal.
Debts that a firm is unable to recover are debited to Bad Debts Account and credited to
Answer: C (Customers Account.)
Writing off a bad debt clears the customer's (debtor's) account, so the customer's account is credited.
When a fixed asset is disposed off, the accounting entries to write off the asset are Debit
Answer: C (Asset Disposal Account, Credit Asset Account.)
The asset's cost is moved out of the asset account into the disposal account: debit disposal, credit asset.
The financial statement which is an expression of the accounting equation is the
Answer: C (Balance sheet.)
The balance sheet shows assets = capital + liabilities.
Which of the following errors will affect the agreement of the trial balance?
Answer: C (Error of transposition)
A transposed figure entered on one side only makes debits and credits unequal; the other errors keep the trial balance in agreement.
(a) What is a general journal?
(b) State six uses of the general journal.
(a) The general journal (journal proper) is a book of original entry used to record transactions that do not go into any other day book, with the accounts to be debited and credited and a short narration.
(b) Any six: opening entries; purchase of fixed assets on credit; sale of fixed assets on credit; correction of errors; transfers between accounts; year-end adjustments (depreciation, provisions, accruals); writing off bad debts; set-off/contra entries; closing entries; purchase or sale of a business; issue of shares.
Think of entries that are not routine sales, purchases, returns or cash.
(a) List four items each that are found on the: (i) credit side of the sales ledger control account; (ii) debit side of the purchases ledger control account.
(b) List seven types of errors a trial balance will not reveal.
(a)(i) Sales ledger control (credit), any four: cash and cheques received from customers; discount allowed; returns inwards; bad debts written off; bills receivable; set-off/contra with purchases ledger; opening credit balance; closing debit balance c/d.
(ii) Purchases ledger control (debit), any four: cash and cheques paid to suppliers; discount received; returns outwards; bills payable; set-off/contra; opening debit balance; closing credit balance c/d.
(b) Errors of omission; commission; principle; original entry; complete reversal of entries; compensating errors; duplication (entry made twice on both sides).
Credit side of debtors' control = things that reduce what customers owe.
(a) Outline three distinguishing features of public and private companies.
(b) State three rights available to an ordinary shareholder.
(a) Any three: a public company may invite the public to buy its shares and debentures; a private company may not. Public company shares are freely transferable and may be quoted on the stock exchange; a private company restricts transfer and is not quoted. A public company has no maximum number of members (minimum 7 or 2 depending on country); a private company has a maximum (about 50). A public company must publish its accounts; a private company need not. Name ends in 'Plc' for public, 'Ltd' for private.
(b) Any three: to vote at general meetings; to receive dividends declared; to share in surplus assets on liquidation; to transfer/sell shares; to attend the AGM and receive the annual report; to appoint a proxy.
Contrast the two types point by point.
(a) What is depreciation of an asset?
(b) List three causes of depreciation.
(c) Explain the following methods of depreciation: (i) straight line; (ii) reducing balance; (iii) revaluation.
(a) Depreciation is the fall in value of a fixed asset over its useful life, i.e. the part of its cost used up in a period, charged against profit.
(b) Any three: wear and tear through use; passage of time; obsolescence (out of date); depletion (e.g. mines); inadequacy; accidents, rust or decay.
(c)(i) Straight line: the same amount each year = (cost - residual value) ÷ useful life.
(ii) Reducing balance: a fixed percentage of the net book value each year, so the charge falls year by year.
(iii) Revaluation: the asset is valued at the start and end of the period; the fall in value is the depreciation (used for small items such as loose tools).
Give the formula for straight line.
Momoh enterprise cashbook showed a debit balance of Le 4,500 on December 31, 2014. Further examination revealed the following: (i) A direct debit of Le 350 for subscription had been paid by the bank. (ii) Bank charges of Le 500 had not been reflected in the cash book. (iii) Payment settled by standing orders were omitted from the cash book; electricity bill Le 70, insurance Le 100 and medical bill Le 120. (iv) A dividend of Le 320 paid directly into the bank had not been entered in the cash book. (v) It was discovered that the cash book balance brought down was undercast by Le 180. (vi) Cheques amounting to Le 4,800 issued had not been presented for payment. (vii) Cheques amounting to Le 1990 paid into the bank had not yet been credited.
You are required to prepare: (a) the revised cash book; (b) bank reconciliation statement as at December 31, 2014.
(a) Revised Cash Book (Le): Dr - balance b/d 4,500; undercast of opening balance 180; dividend 320 = 5,000.
Cr - subscription (direct debit) 350; bank charges 500; electricity 70; insurance 100; medical bill 120; balance c/d 3,860 = 5,000.
(b) Bank Reconciliation Statement at 31 December 2014 (Le): balance as per revised cash book 3,860; add unpresented cheques 4,800 = 8,660; less uncredited cheques 1,990; balance as per bank statement 6,670.
First correct the cash book, then reconcile only the timing differences.
The following is the Receipt and Payments Account of Kayode social Club for the year ended 31st December, 2014.
Receipts and Payments for the year ended 31st December, 2014 (₦)
Receipts: Cash in hand 1/1/2014 500; Cash at bank 1/1/2014 1,000; Subscriptions: 2013 1,200, 2014 4,000, 2015 2,300 (total 7,500); Donations 2,000; End of Year show 15,000; Transfer from deposit account 3,000; total 29,000
Payments: Purchase of sports equipment 1,800; Repairs 1,500; Salaries 1,700; Insurance 1,000; Show expenses 3,200; Transport expenses 500; Secretarial expenses 300; Purchase of furniture 3,000; Balance c/d 16,000; total 29,000
Additional information: (i) Equipment was valued at ₦3,250 and furniture ₦ 1,550 on 31st December, 2013. (ii) Depreciation to be provided as follows: Equipment ₦ 505; Furniture ₦55 (iii) The following expenses were outstanding: Salaries ₦300; Transport ₦100; Repairs ₦250 (iv) Subscriptions owing by members were as follows: 31st December, 2013 ₦ 1,200; 31st December, 2014 ₦2,100 (v) The balance in the bank deposit account at 31st December, 2013 was ₦3,000.
You are required to prepare: (a) Statement of affairs as at 31st December, 2013; (b) Subscriptions account for the year ended 31st December, 2014; (c) Income and Expenditure account for the year ended 31st December, 2014.
(a) Statement of affairs at 31 December 2013 (₦): equipment 3,250; furniture 1,550; subscriptions owing 1,200; bank deposit 3,000; cash in hand 500; cash at bank 1,000 = 10,500. No liabilities, so accumulated fund = ₦10,500.
(b) Subscriptions Account (₦): Dr - balance b/f (arrears) 1,200; income and expenditure 6,100; balance c/d (in advance) 2,300 = 9,600. Cr - receipts and payments 7,500; balance c/d (arrears) 2,100 = 9,600.
(c) Income and Expenditure Account for 2014 (₦): Income - subscriptions 6,100; donations 2,000; end of year show 15,000 = 23,100.
Expenditure - repairs (1,500 + 250) 1,750; salaries (1,700 + 300) 2,000; transport (500 + 100) 600; insurance 1,000; show expenses 3,200; secretarial 300; depreciation: equipment 505, furniture 55 = 9,410.
Surplus (excess of income over expenditure) ₦13,690.
The transfer from the deposit account is not income, and spending on equipment and furniture is capital.
The following balances were extracted from the books of Ogba Enterprise on December 31, 2014: Capital ₦ 315,200; Purchases ₦259,800; Sales ₦484,700; Carriage inwards ₦17,410; Premises at cost ₦ 215,000; Equipment at cost ₦ 198,000; Trade debtors ₦ 76,800; Bank overdraft ₦63,509; Trade creditors ₦64,820; Cash in hand ₦13,400; Stock (January 1, 2014) 27,680; Salaries and wages ₦56,700; Provision for doubtful debts ₦13,000; Discount allowed ₦11,450; Drawings ₦70,000; Discount received ₦22,800; Electricity ₦29,229; General expenses ₦37,060; Rent ₦43,000; 9% Debentures ₦100,000; Return Inwards ₦24,500; Return outwards: ₦16,000.
Additional information: (i) Stock in trade at December 31, 2014 was ₦29,400; (ii) Provision for doubtful debts to remain at 8% of debtors; (iii) General expenses owing totalled ₦12,860; (iv) Rent prepaid ₦19,500. (v) Depreciation is to be provided as follows: Premises 12½% on cost; Equipment 10% on cost.
You are required to prepare: (a) Trading, profit and loss Account for the year ended December 31, 2014; (b) Balance Sheet as at that date.
(a) Trading (₦): sales 484,700 - returns inwards 24,500 = 460,200. Cost of sales: opening stock 27,680 + purchases 259,800 + carriage inwards 17,410 - returns outwards 16,000 - closing stock 29,400 = 259,490. Gross profit 200,710.
Add discount received 22,800 and decrease in provision for doubtful debts (13,000 - 8% × 76,800 = 6,144) 6,856 = 230,366.
Less expenses: discount allowed 11,450; general expenses (37,060 + 12,860) 49,920; rent (43,000 - 19,500) 23,500; debenture interest (9% × 100,000) 9,000; electricity 29,229; salaries and wages 56,700; depreciation - premises 26,875, equipment 19,800 = 226,474. Net profit ₦3,892.
(b) Balance Sheet at 31 December 2014 (₦): Fixed assets (cost / depreciation / NBV) - premises 215,000 / 26,875 / 188,125; equipment 198,000 / 19,800 / 178,200; total 366,325.
Current assets - stock 29,400; debtors 76,800 - 6,144 = 70,656; rent prepaid 19,500; cash in hand 13,400 = 132,956.
Current liabilities - bank overdraft 63,509; trade creditors 64,820; debenture interest owing 9,000; general expenses owing 12,860 = 150,189. Working capital (17,233). Capital employed 349,092.
Financed by: capital 315,200 + net profit 3,892 - drawings 70,000 = 249,092; 9% debentures 100,000; total 349,092.
Remember to accrue the year's debenture interest even though it is not listed.
The following information relates to the books of accounts of Adom Ltd.
Trading and Profit and Loss Account for the Year Ended 31st December, 2014 (GH¢)
Sales 240,000
Opening Stock 20,000; Add Purchases 160,000 = 180,000; Less closing stock 36,000; Cost of goods sold 144,000; Gross profit c/d 96,000
Gross Profit b/d 96,000; Selling and distribution expenses 73,200; Administrative expenses 14,800; Net Profit 8,000
Balance sheet as at 31st December, 2014 (GH¢)
Share Capital: Ordinary Shares 100,000; Preference Shares 10,000; General reserve 24,000; Profit and Loss Account 8,000 (32,000); total 142,000
Current Liabilities: Trade creditors 28,000; Accruals 12,000 (40,000); total 182,000
Fixed assets at cost 125,000; Less: Depreciation 25,000 = 100,000
Current Assets: Stock 36,000; Debtors 39,000; Cash at bank 7,000 = 82,000; total 182,000
You are required to calculate any six of the following: (a) Gross profit percentage; (b) Net profit percentage; (c) Return on capital employed; (d) Current ratio; (e) Acid test ratio; (f) Rate of stock turnover; (g) Working capital; (h) Shareholders fund; (i) Liquid assets.
(a) Gross profit % = 96,000 ÷ 240,000 × 100 = 40%.
(b) Net profit % = 8,000 ÷ 240,000 × 100 = 3.33%.
(c) ROCE = net profit 8,000 ÷ capital employed 142,000 × 100 = 5.63%.
(d) Current ratio = 82,000 ÷ 40,000 = 2.05 : 1.
(e) Acid test ratio = (82,000 - 36,000) ÷ 40,000 = 1.15 : 1.
(f) Rate of stock turnover = cost of goods sold 144,000 ÷ average stock ((20,000 + 36,000) ÷ 2 = 28,000) = 5.14 times.
(g) Working capital = 82,000 - 40,000 = GH¢42,000.
(h) Shareholders' fund = 100,000 + 10,000 + 24,000 + 8,000 = GH¢142,000.
(i) Liquid assets = debtors 39,000 + cash 7,000 = GH¢46,000.
Show the formula, the figures and the answer for each ratio.
The following information was extracted from the books of Dauda Manufacturing Company for the year ended 31st December, 2012. (D)
Stock of goods - 1st January, 2012: Raw materials 8,000; Finished goods 28,000; Work-in-progress 2,000
Purchases of raw materials 40,000
Carriage inwards 1,000
Manufacturing wages 100,000
Sales 390,000
Rent 50,000
Factory expenses 60,000
Royalties 1,500
Stock of goods - 31st December, 2012: Raw materials 6,000; Finished goods 26,000; Work-in-progress 1,500
Depreciation: Machinery 7,500; Delivery van 1,280
Selling expenses 3,000
Discount allowed 1,500
Additional information: (i) Factory expenses prepaid amounted to D5,000; (ii) Selling expenses accrued was D2,500; (iii) Rent is apportioned between factory and selling department in the ratio 5:3 respectively.
You are required to prepare: Manufacturing, Trading and Profit and Loss Account for the year ended 31st December, 2012.
Manufacturing (D): raw materials - opening 8,000 + purchases 40,000 + carriage inwards 1,000 - closing 6,000 = 43,000; manufacturing wages 100,000; royalties 1,500; prime cost 144,500.
Factory overheads: depreciation of machinery 7,500; factory expenses (60,000 - 5,000) 55,000; factory rent (50,000 × 5/8) 31,250 = 93,750. Total 238,250; add opening WIP 2,000, less closing WIP 1,500; cost of production 238,750.
Trading: sales 390,000; cost of goods sold = 28,000 + 238,750 - 26,000 = 240,750; gross profit 149,250.
Profit and loss: rent (50,000 × 3/8) 18,750; selling expenses (3,000 + 2,500) 5,500; depreciation of delivery van 1,280; discount allowed 1,500 = 27,030. Net profit D122,220.
Delivery van depreciation is a selling cost, not a factory overhead.