53 questions. Try each one, then open the answer to check yourself and read the explanation.
A quality of accounting information is that it should be
Answer: B (verifiable.)
Accounting information should be checkable against evidence: verifiable.
When the letter "C" is written in front of an entry in the folio column of a cash book, it shows a
Answer: C (contra entry.)
'C' marks a contra entry, with both sides in the cash book.
The primary concern of shareholder in a business is the
Answer: B (dividend payable.)
Shareholders mainly want to know the return on their investment, i.e. dividends.
In a not-for-profit organization, accumulated fund is
Answer: A (current assets plus fixed assets less total liabilities.)
Accumulated fund = total assets − total liabilities.
Use the following information to answer questions 6 and 7.
(01/01/17 / 31/12/17)
Trade creditors: ₦630,000 / ₦780,000
Stock: ₦540,000 / ₦480,000
Cash paid to trade creditors in 2017 was ₦2,700,000.
Purchases for 2017 was
Answer: B (₦2,850,000.)
2,700,000 + 780,000 − 630,000 = ₦2,850,000.
Use the following information to answer questions 6 and 7.
(01/01/17 / 31/12/17)
Trade creditors: ₦630,000 / ₦780,000
Stock: ₦540,000 / ₦480,000
Cash paid to trade creditors in 2017 was ₦2,700,000.
The cost of goods sold was
Answer: B (₦2,910,000.)
540,000 + 2,850,000 − 480,000 = ₦2,910,000.
In public sector accounting, salaries of employees is classified as
Answer: C (recurrent expenditure.)
Salaries are paid every period: recurrent expenditure.
Kadiri paid his debt to Suleman by cheque. The accounting entries in Kadiri's books are: debit
Answer: C (Suleman's Account; credit Bank Account.)
Paying a creditor by cheque: debit the creditor (Suleman), credit bank.
The concept which seeks to prevent profits from being overstated is
Answer: C (prudence.)
Prudence avoids overstating profits and assets.
Use the following information to answer questions 11 and 12.
April 11: Sold goods for cash ₦50,000
April 20: Bought goods for cash ₦30,000
April 26: Bought postage stamp ₦5,000
April 28: Cash sales ₦49,000
April 29: Cash purchases ₦11,000
April 30: Paid salaries ₦18,000
Total cash receipts for the period is
Answer: A (₦99,000.)
50,000 + 49,000 = ₦99,000.
Use the following information to answer questions 11 and 12.
April 11: Sold goods for cash ₦50,000
April 20: Bought goods for cash ₦30,000
April 26: Bought postage stamp ₦5,000
April 28: Cash sales ₦49,000
April 29: Cash purchases ₦11,000
April 30: Paid salaries ₦18,000
The cash balance at the end of the period is
Answer: C (₦35,000.)
Receipts 99,000 − payments (30,000 + 5,000 + 11,000 + 18,000 = 64,000) = ₦35,000.
The directors of Olu Ltd. recommended a dividend of 10% on 1,000,000 ordinary share capital of GH¢2.00 each. The amount of dividend declared is
Answer: A (GH¢200,000.)
1,000,000 shares × GH¢2 = 2,000,000; 10% = GH¢200,000.
Goodwill is recognized in partnership when
Answer: D (a new partner is admitted.)
Goodwill is valued when the partnership changes, e.g. on admission of a partner.
The mark-up on a product is 2/3. The margin is
Answer: B (2/5.)
Cost 3, profit 2, sales 5: margin = 2/5.
Quick ratio is calculated as y - y : z, where
Answer: C (x = current assets; y = stock and z = current liabilities.)
Quick ratio = (current assets − stock) : current liabilities.
Use the following information to answer questions 17 and 18.
Opening capital: D 10,800
Drawings: D 2,500
Trade creditors: D 2,560
Trade debtors: D 2,880
Cash in hand: D 1,000
Net profit: D 6,000
The closing capital is
Answer: B (D 14,300.)
10,800 + 6,000 − 2,500 = D 14,300.
Use the following information to answer questions 17 and 18.
Opening capital: D 10,800
Drawings: D 2,500
Trade creditors: D 2,560
Trade debtors: D 2,880
Cash in hand: D 1,000
Net profit: D 6,000
The working capital is
Answer: D (D 1,320.)
(2,880 + 1,000) − 2,560 = D 1,320.
In a single-entry accounting, purchases are ascertained using a
Answer: D (creditors' control account.)
Purchases are the balancing figure in a creditors' (total creditors) account.
Goods bought from Samah for Le 1,600 was entered into Shamail's Account. This is an error of
Answer: B (commission.)
Right amount, wrong personal account of the same class: error of commission.
When closing stock is undervalued, the cost of goods sold would be
Answer: A (overstated and the gross profit understated.)
A lower closing stock raises cost of goods sold and lowers gross profit.
Where fixed capital account is maintained, partners' share of profit is transferred to the
Answer: C (credit side of partner's current account.)
With fixed capitals, profit shares are credited to current accounts.
When bank charges are deducted from a customer's account, the balance on the bank statement would be
Answer: B (less than the cash book balance.)
The bank has deducted charges the cash book has not, so the bank balance is lower.
Companies issue shares to the public in order to
Answer: C (raise capital.)
Issuing shares raises capital for the company.
Sulah took two textile materials worth GH¢500 from his business for his children's use. This would be treated as
Answer: C (drawings.)
Goods taken for private use are drawings.
Use the following information to answer questions 26 to 28.
Ajem and Ogah were in partnership sharing profits and losses in the ratio 2:3. Interest on capital and drawings were 5% and 3% respectively. The following details relate to the partnership for the year 2017. (Ajem / Ogah)
Capital Account: GH¢60,000 / GH¢65,000
Current Account: GH¢40,000 / GH¢50,000
Drawings: GH¢20,000 / GH¢30,000
Salary: GH¢10,000 / ---
Net profit was GH¢100,000.
Ogah's share of profit was
Answer: A (GH¢51,150.)
Residual = 100,000 − interest on capital 6,250 + interest on drawings 1,500 − salary 10,000 = 85,250; Ogah 3/5 = GH¢51,150.
Use the following information to answer questions 26 to 28.
Ajem and Ogah were in partnership sharing profits and losses in the ratio 2:3. Interest on capital and drawings were 5% and 3% respectively. The following details relate to the partnership for the year 2017. (Ajem / Ogah)
Capital Account: GH¢60,000 / GH¢65,000
Current Account: GH¢40,000 / GH¢50,000
Drawings: GH¢20,000 / GH¢30,000
Salary: GH¢10,000 / ---
Net profit was GH¢100,000.
Interest on drawings amounted to
Answer: B (GH¢1,500.)
3% × 20,000 = 600 plus 3% × 30,000 = 900: GH¢1,500.
An effect of increase in the provision for depreciation is
Answer: D (decrease in net profit.)
More depreciation is a bigger expense in profit and loss, so net profit falls.
Uncredited cheques refer to cheques not yet credited
Answer: B (by the bank.)
They have been paid in and entered in the cash book but not yet credited by the bank.
A feature of government accounting is that the
Answer: D (accounts are prepared on cash basis.)
Government accounts are traditionally kept on a cash basis.
Use the following information to answer questions 36 and 37.
Cost of raw materials available: $32,000
Manufacturing wages: $10,000
Factory expenses: $5,000
Royalty: $3,000
Factory rent: $2,000
Depreciation of plant and machinery: $5,000
Closing stock of raw materials: $3,000
The prime cost is
Answer: C ($42,000.)
Materials used (32,000 − 3,000 = 29,000) + wages 10,000 + royalty 3,000 = $42,000.
Use the following information to answer questions 36 and 37.
Cost of raw materials available: $32,000
Manufacturing wages: $10,000
Factory expenses: $5,000
Royalty: $3,000
Factory rent: $2,000
Depreciation of plant and machinery: $5,000
Closing stock of raw materials: $3,000
Factory overhead cost is
Answer: C ($12,000.)
Factory expenses 5,000 + rent 2,000 + depreciation 5,000 = $12,000.
Capital and drawings accounts are kept in the
Answer: D (private ledger.)
The owner's private accounts (capital, drawings) may be kept in a private ledger.
Set-off is carried out in the control account when
Answer: A (a business organization is both a customer and a supplier.)
When the same firm is both debtor and creditor, the balances can be offset.
Debtors balance (01/01/16) - Le 2,518; Cash received - Le 10,000; Discount allowed - Le 280; Interest charged to debtors Le 63; Debtors balance (30/06/16) - Le 1,450. The credit sales is
Answer: B (Le 9,149.)
10,000 + 280 + 1,450 − 2,518 − 63 = Le 9,149.
An example of nominal account is
Answer: C (Profit and Loss Account.)
Nominal accounts deal with income, expenses, profit and loss.
The concept that recognizes revenue at the time of sale and not only when cash is received is
Answer: B (realization concept.)
Revenue is realised when the sale takes place.
The accounting concept which stipulates that income and expenses should be matched to determine profit or loss is
Answer: B (accrual concept.)
The accruals (matching) concept sets expenses against the income of the same period.
The document used to correct an undercharge on an invoice is
Answer: B (debit note.)
The seller sends a debit note to charge the extra amount.
Use the following information to answer questions 45 to 47. (Dept. A / Dept. B)
Sales: D 16,000 / D 24,000
Purchases: D 9,000 / D 6,000
Opening stock: D 600 / D 500
Closing stock: D 900 / D 600
Discount allowed: D 800 / D 1,200
Carriage inwards (proportion to sales): D 1,600
Carriage inwards for Dept. B is
Answer: B (D 960.)
1,600 × 24,000/40,000 = D 960.
Use the following information to answer questions 45 to 47. (Dept. A / Dept. B)
Sales: D 16,000 / D 24,000
Purchases: D 9,000 / D 6,000
Opening stock: D 600 / D 500
Closing stock: D 900 / D 600
Discount allowed: D 800 / D 1,200
Carriage inwards (proportion to sales): D 1,600
Net profit for Dept. A is
Answer: B (D 5,860.)
Cost of sales = 600 + 9,000 + 640 − 900 = 9,340; gross profit 6,660 − discount 800 = D 5,860.
Use the following information to answer questions 45 to 47. (Dept. A / Dept. B)
Sales: D 16,000 / D 24,000
Purchases: D 9,000 / D 6,000
Opening stock: D 600 / D 500
Closing stock: D 900 / D 600
Discount allowed: D 800 / D 1,200
Carriage inwards (proportion to sales): D 1,600
Net profit for Dept. B is
Answer: D (D 15,940.)
Cost of sales = 500 + 6,000 + 960 − 600 = 6,860; gross profit 17,140 − discount 1,200 = D 15,940.
Use the following information to answer questions 48 and 49.
A firm bought lathe machine for Le 45,600 on 1st January, 2015. The life span was estimated to be 20 years while scrap at the end of the period was valued at Le 1,600. It was to be depreciated by fixed instalment method.
The depreciation per annum is
Answer: C (Le 2,200.)
(45,600 − 1,600) ÷ 20 = Le 2,200.
Use the following information to answer questions 48 and 49.
A firm bought lathe machine for Le 45,600 on 1st January, 2015. The life span was estimated to be 20 years while scrap at the end of the period was valued at Le 1,600. It was to be depreciated by fixed instalment method.
The net book value of the machine as at 31st December, 2017 was
Answer: C (Le 39,000.)
Three years × 2,200 = 6,600; 45,600 − 6,600 = Le 39,000.
Subscription owing $6,000 (31/12/2014); Subscription in advance $4,000 (31/12/2014); Cash received as subscription during the year was $80,000. The subscription for the year 2014 was
Answer: B ($82,000.)
Income = cash 80,000 + owing at year end 6,000 − received in advance for next year 4,000 = $82,000.
Explain the following items and outline how they are treated in the final accounts: (a) increase in provision for doubtful debts; (b) decrease in provision for doubtful debts; (c) provision for discount on debtors; (d) provision for discount on creditors; (e) provision for depreciation.
(a) Increase in provision for doubtful debts: the extra amount set aside because more debts are expected to go bad. Debit profit and loss; the full new provision is deducted from debtors in the balance sheet.
(b) Decrease: the provision needed is lower than last year. Credit profit and loss with the reduction; the new lower provision is deducted from debtors.
(c) Provision for discount on debtors: estimate of cash discounts debtors will take (on debtors after the doubtful debts provision). Debit profit and loss; deduct from debtors in the balance sheet.
(d) Provision for discount on creditors: estimate of discount the business will receive from suppliers. Credit profit and loss; deduct from creditors in the balance sheet.
(e) Provision for depreciation: the part of a fixed asset's cost used up through wear, use and time. The year's charge is debited to profit and loss; the accumulated provision is deducted from the asset's cost in the balance sheet.
For each: what it is, the profit and loss entry, and the balance sheet treatment.
(a) What are closing entries? (b) Distinguish between a branch and a department. (c) State four reasons for the preparation of branch accounts.
(a) Closing entries: journal entries made at the end of a period to transfer the balances of income and expense (nominal) accounts to the trading and profit and loss account, closing those accounts.
(b) A branch is a unit of the business located away from the head office (often in another town) and may carry out most activities of the business; a department is a section of the business under the same roof dealing in one line of goods or service.
(c) Any four: to find the profit or loss of each branch; to compare branches' performance; to decide which branch to expand or close; to control branch stock, cash and debtors (prevent fraud); to reward branch managers; to help management decisions and planning.
Define closing entries, contrast location/scope, then give reasons for branch accounts.
(a) State three effects of drawings on the business of a sole proprietor.
(b) Explain how the following items are treated in the balance sheet: (i) accrued expenses; (ii) prepaid expenses; (iii) accrued income.
(a) Any three: reduces the owner's capital; reduces cash/stock available to the business; reduces working capital and liquidity; slows growth/expansion; excessive drawings can lead to collapse of the business.
(b)(i) Accrued expenses: expenses owed at the year end – shown as a current liability (and added to the expense in profit and loss).
(ii) Prepaid expenses: expenses paid in advance for the next period – shown as a current asset.
(iii) Accrued income: income earned but not yet received – shown as a current asset.
Effects on capital and cash, then current assets vs current liabilities.
(a) Outline three reasons for which a cheque would be dishonoured.
(b) Explain the following terms: (i) petty cash float; (ii) contra entries; (iii) imprest system.
(c) State three advantages of keeping petty cash book using imprest system.
(a) Any three: insufficient funds in the drawer's account; signature missing or differs from specimen; cheque not dated, post-dated or stale; amount in words and figures differ; unendorsed alteration; payment stopped by the drawer; drawer's account closed, dead or bankrupt.
(b)(i) Petty cash float: the fixed sum given to the petty cashier at the start of a period for small payments.
(ii) Contra entries: transactions with both the debit and the credit in the cash book, e.g. cash paid into the bank or cash withdrawn for office use, marked 'C'.
(iii) Imprest system: the petty cashier starts each period with a fixed float and is refunded exactly what was spent, restoring the float.
(c) Any three: easy control of petty cash – balance can be checked at any time; reduces fraud and misuse; frees the chief cashier from small payments; trains junior staff; analysis columns give totals for posting; spending is limited to the float.
Reasons for dishonour, three definitions, then benefits of the imprest system.
The following transactions were extracted from the books of Adamu, a sole trader for the month of March 2016.
March 4: Sold 80 bags of maize on credit to Papuk at GH¢255 per bag subject to a trade discount of 5%.
March 10: Sold goods on credit to Abass for GH¢1,170.
March 15: Received a cheque from Papuk for the amount due less a discount of 10%.
March 20: Received cash of GH¢900 from Abass.
You are required to prepare: (a) Sales Journal; (b) Customers' Accounts in the Sales Ledger; (c) Sales Ledger Control Account.
(a) Sales Journal (GH¢): Mar 4 Papuk – 80 bags × 255 = 20,400 less 5% trade discount 1,020 = 19,380; Mar 10 Abass 1,170. Total credit sales 20,550 (posted to sales account).
(b) Papuk: Dr Mar 4 sales 19,380 | Cr Mar 15 bank 17,442; discount allowed (10% × 19,380) 1,938 – nil balance.
Abass: Dr Mar 10 sales 1,170 | Cr Mar 20 cash 900; Mar 31 balance c/d 270.
(c) Sales Ledger Control Account: Dr sales 20,550 | Cr bank 17,442; cash 900; discount allowed 1,938; balance c/d 270 = 20,550.
Trade discount is deducted before entry; only the cash discount is recorded as discount allowed.
Ubochi and Hassanah started a partnership business on 1st January, 2015. They contributed D 300,000 and D 250,000 respectively as capital. Their partnership deed stated that: (i) interest of 8% should be paid on capital per annum; (ii) Hassanah would be paid D 10,000 monthly as salary; (iii) interest on drawings is 5%; (iv) the profits are to be shared in the ratio 3:2 respectively. At the end of the year, the profit made was D 300,000. During the period, Ubochi and Hassanah made drawings of D 20,000 and D 15,000 respectively.
You are required to prepare: (a) Profit and Loss Appropriation Account for the year ended 31st December, 2015; (b) Partners' Current Accounts.
(a) Appropriation Account (D): net profit 300,000; add interest on drawings – Ubochi 1,000, Hassanah 750 = 301,750; less interest on capital – Ubochi 24,000, Hassanah 20,000; Hassanah's salary (10,000 × 12) 120,000; residual profit 137,750 shared Ubochi 3/5 82,650, Hassanah 2/5 55,100.
(b) Current Accounts (D) – Ubochi | Hassanah: Cr interest on capital 24,000 | 20,000; salary – | 120,000; share of profit 82,650 | 55,100 = 106,650 | 195,100. Dr drawings 20,000 | 15,000; interest on drawings 1,000 | 750; balance c/d 85,650 | 179,350.
Salary is monthly, so multiply by 12; interest on drawings is added back before sharing.
On 30th September, 2017, Adedeji's cash book showed a debit balance of GH¢7,600. However, his bank statement showed an overdraft balance of GH¢1,880. On investigation, the following details were discovered:
(i) A standing order of GH¢160 had not been entered in the cash-book; (ii) Bank charges of GH¢40 did not appear in the cash book; (iii) Cash paid into the bank for GH¢400 had been entered in the cash book as GH¢360; (iv) A cheque of GH¢200 received from a customer was dishonoured; (v) The bank received a credit transfer of GH¢400 from a customer; (vi) A cheque of GH¢1,360 paid to Dexteri Ltd had been entered in the cash book as GH¢1,720; (vii) A receipt of GH¢40 shown on the bank statement had not been entered in the cash book; (viii) A cheque drawn amounting to GH¢160 paid is still with the supplier; (ix) Receipts of GH¢3,600 paid into the bank on 30th September 2017 did not appear on the bank statement until October 2017; (x) A cheque of GH¢1,080 paid into the bank had been wrongly credited by bank as GH¢600; (xi) A transfer of GH¢6,000 to bank had not been recorded in the cash book.
You are required to prepare: (a) Adjusted Cash Book; (b) Bank Reconciliation Statement as at 30th September, 2017.
(a) Adjusted Cash Book (GH¢): Dr balance b/d 7,600; understated receipt (400 − 360) 40; credit transfer 400; payment overstated (1,720 − 1,360) 360; receipt omitted 40 = 8,440 | Cr standing order 160; bank charges 40; dishonoured cheque 200; amount transferred 6,000; balance c/d 2,040 = 8,440.
(b) Bank Reconciliation Statement at 30 September 2017: balance per adjusted cash book 2,040 Dr; add unpresented cheque 160 = 2,200; less uncredited receipts 3,600 and bank error (1,080 − 600) 480 = 4,080; balance per bank statement (1,880) overdrawn.
Cash-book items first; then unpresented, uncredited and the bank's own error in the reconciliation.
The following trial balance was extracted from the books of Dushimar Ventures on 31st December, 2015. (DR / CR, Le)
Fixed Assets 72,200
Stock 13,800
Debtors 6,300
Creditors / 2,456
Bank overdrafts / 528
Provision for depreciation / 10,200
Sales / 102,320
Capital / 106,440
Purchases 72,308
Drawings 29,960
Sundry expenses 26,616
Provision for doubtful debts / 360
Suspense Account 1,120
Totals 222,304 / 222,304
The following errors were discovered: (i) The total sales day book for December 2015 had been overstated by Le 480; (ii) In January 2015, new office furniture was purchased for Le 14,400, this was debited to Purchases Account; (iii) A cheque payment of Le 864 to a supplier was entered in the book as Le 1,044; (iv) A credit note of Le 148 sent to a customer for returns was overlooked; (v) Payment of sundry expenses of Le 640 had been omitted from the trial balance.
You are required to prepare the: (a) Journal entries to correct the errors; (b) Suspense Account.
(a) Journal (Le):
(i) Dr Sales 480; Cr Suspense 480.
(ii) Dr Office furniture (fixed assets) 14,400; Cr Purchases 14,400.
(iii) Dr Bank 180; Cr Creditor (supplier) 180 (payment overstated by 1,044 − 864 in both entries).
(iv) Dr Returns inwards 148; Cr Debtors (customer) 148.
(v) Dr Sundry expenses 640; Cr Suspense 640.
(b) Suspense Account: Dr balance per trial balance 1,120 | Cr sales 480; sundry expenses 640 = 1,120 (cleared).
Only errors that made the trial balance disagree pass through suspense.
The following information was extracted from the books of Abudabhi & Sons Ltd:
(A) Trading, Profit and Loss Account for the year ended 31st December, 2014 (₦)
Sales 360,000
Opening stock 30,000; Add: Purchases 210,000 = 240,000; Less: Closing stock 40,000 → (200,000); 160,000
Salaries 92,500; Directors' fees 5,000; Insurance 1,600; Travelling expenses 3,400; Utilities 4,000; General expenses 1,000; Depreciation 12,500 → (120,000); 40,000
Taxation (10,000); 30,000
Dividends (15,000); Retained profit for the year 15,000
Retained profit brought forward 35,000
Retained profit carried forward 50,000
All sales and purchases were on credit.
(B) Balance sheet as at 31st December, 2014 (₦)
400,000 Ordinary shares @ ₦0.25 each 100,000; Retained profits 50,000; Shareholders' funds 150,000
Represented by: Land and building 90,000; Motor vehicle 15,000 = 105,000
Current Assets: Stock 40,000; Debtors 30,000; Bank 17,000; Cash 3,000 = 90,000
Less: Current liabilities: Creditors 20,000; Dividend payable 15,000; Taxation 10,000 = (45,000)
Net Assets 150,000
You are required to calculate: (a) Stock turnover ratio; (b) Gross profit margin; (c) Net profit margin; (d) Current ratio; (e) Acid test ratio.
(a) Stock turnover = cost of sales ÷ average stock = 200,000 ÷ ((30,000 + 40,000) ÷ 2 = 35,000) = 5.71 times.
(b) Gross profit margin = 160,000 ÷ 360,000 × 100 = 44.44%.
(c) Net profit margin = 40,000 ÷ 360,000 × 100 = 11.11% (before tax).
(d) Current ratio = 90,000 ÷ 45,000 = 2:1.
(e) Acid test ratio = (90,000 − 40,000) ÷ 45,000 = 1.11:1.
Use cost of sales and average stock for turnover; use net profit before tax for the margin.