58 questions. Try each one, then open the answer to check yourself and read the explanation.
The original record containing the details of a transaction which serves as a basis for posting is
Answer: B (source document.)
A source document (invoice, receipt, voucher) is the original evidence of a transaction from which entries are made.
In the preparation of financial statements, full disclosure of minor events are ignored in line with
Answer: D (materiality concept)
Materiality allows insignificant items to be left out or grouped.
A limitation of the money measurement concept is that
Answer: C (important non-monetary activities are not reported.)
Only items measured in money are recorded, so non-money facts like staff morale are left out.
Where partners maintain a fluctuating capital account, partners' share of profit is credited to
Answer: A (capital account.)
With fluctuating capitals there are no current accounts, so profit shares go straight to the capital accounts.
The difference between the market value of goods produced and the cost of production is
Answer: B (gross profit on manufacturing.)
Transferring goods at market value above their cost gives a manufacturing (gross) profit.
Use the following information to answer questions 6 and 7.
Attama and Wawa were in partnership sharing profits and losses in the ratio 4:3. Attama was entitled to a salary of D 13,000 per annum. A net profit of D 34,000 was made for the year.
The residual profit of the business for the year is
Answer: D (D 21,000.)
Residual profit = 34,000 − Attama's salary 13,000 = D 21,000.
Use the following information to answer questions 6 and 7.
Attama and Wawa were in partnership sharing profits and losses in the ratio 4:3. Attama was entitled to a salary of D 13,000 per annum. A net profit of D 34,000 was made for the year.
Attama's share of profit is
Answer: C (D 12,000)
4/7 × residual 21,000 = D 12,000.
Reducing balance method charges depreciating as fixed percentage of the
Answer: A (net book value of asset.)
Each year's charge is a fixed percentage of the asset's reduced (net book) value.
Goods returned to the supplier is recorded in the accounts as: debit
Answer: C (Supplier's Account; credit Purchases Returns Account.)
The supplier is owed less (debit supplier) and returns outwards are credited.
Net profit of a sole proprietor is transferred to the
Answer: C (capital account.)
A sole trader's profit belongs to him, so it is added to his capital.
Sales account was undercast by GH¢1,000. When this is corrected, both the gross profit and the net profit would
Answer: B (increase by GH¢1,000)
Adding the missing 1,000 of sales raises gross profit and net profit by GH¢1,000.
Use the following information to answer questions 13 and 14.
Sales for the year: Le 450,000
Purchases for the year: Le 230,000
Opening stock: Le 60,000
Closing stock: Le 40,000
The stock turnover period is
Answer: B (73 days.)
Cost of sales = 60,000 + 230,000 − 40,000 = 250,000; average stock 50,000; 50,000 ÷ 250,000 × 365 = 73 days.
Use the following information to answer questions 13 and 14.
Sales for the year: Le 450,000
Purchases for the year: Le 230,000
Opening stock: Le 60,000
Closing stock: Le 40,000
The mark-up is
Answer: B (80%.)
Gross profit = 450,000 − 250,000 = 200,000; mark-up = 200,000 ÷ 250,000 × 100 = 80%.
Company as a legal entity means that it
Answer: B (can sue and be sued)
A company is a separate legal person, so it can sue and be sued in its own name.
The type of stock recorded in the trading account of a manufacturing business is
Answer: D (finished goods.)
Raw materials and work-in-progress go in the manufacturing account; the trading account holds finished goods.
Accounts of fixed assets are kept in the
Answer: D (general ledger.)
Real (asset) accounts are kept in the general ledger.
Recurrent expenditure of a local government include
Answer: D (purchase of office stationery.)
Stationery is used up in the year, so it is recurrent spending.
The accounting principle of double entry states that
Answer: C (every debit entry must have a corresponding credit entry.)
Each debit has an equal credit.
Lima paid off debt of D 2,500 owed to Dongo by cash. The entries in Lima's books are: debit
Answer: B (Dongo D 2,500; credit cash D 2,500)
Paying a creditor reduces the liability (debit Dongo) and cash (credit cash).
The petty cash account has an imprest of GH¢36,000 and a debit balance of GH¢10,000 at the end of the month. The reimbursement required would be.
Answer: C (GH¢26,000)
36,000 − 10,000 left = GH¢26,000 spent, which is refunded.
Commercial activities undertaken by a social club to raise funds include
Answer: B (bar.)
Running a bar is a trading (commercial) activity; the others are not trading.
The final stage of accounting process is
Answer: C (reporting.)
Transactions are recorded, classified and summarised, then reported (communicated) to users.
The value of goods sent to a branch is debited to the
Answer: D (Branch Stock Account)
Goods sent are debited to Branch Stock Account and credited to Goods Sent to Branch Account.
The major source of revenue for central/federal government is
Answer: B (excise duty.)
Excise duty is a central government tax; rates and tolls go to local councils.
A business includes 50% mark-up on all its products. This would mean margin of
Answer: D (33⅓%.)
Cost 100, profit 50, sales 150: margin = 50 ÷ 150 = 33⅓%.
Use the following information to answer questions 27 and 28.
Gross profit: GH¢50,400
Discounts received: GH¢3,300
Discounts allowed: GH¢2,500
Net profit: GH¢26,500
Cost of goods sold: GH¢184,000
Sales for the period is
Answer: A (GH¢234,400.)
Sales = cost of goods sold + gross profit = 184,000 + 50,400 = GH¢234,400.
Use the following information to answer questions 27 and 28.
Gross profit: GH¢50,400
Discounts received: GH¢3,300
Discounts allowed: GH¢2,500
Net profit: GH¢26,500
Cost of goods sold: GH¢184,000
Other operating expenses for the period is
Answer: C (GH¢24,700)
50,400 + 3,300 − 2,500 − other expenses = 26,500, so other expenses = GH¢24,700.
All cash transactions of a not-for-profit making organization are recorded in
Answer: D (receipts and payments account.)
The receipts and payments account summarises all the club's cash and bank transactions.
Subsidiary books of account are used to record transactions,
Answer: B (of a similar nature.)
Each subsidiary book collects one kind of transaction, e.g. credit sales or credit purchases.
Members of a not-for-profit making organization
Answer: B (do not receive surplus at the end of the year.)
Surpluses stay in the club's accumulated fund; members are not paid dividends or profit shares.
Accounting information that is useful for the intended purpose and would make a difference in decision making is
Answer: C (relevant.)
Information that can make a difference to users' decisions is relevant.
Manufacturing account is prepared to determine the
Answer: B (cost of goods produced.)
It works out the cost of production of the goods made.
The concept that enables a business to determine the actual profit or loss for a particular period is
Answer: A (accrual concept.)
Accruals match income and expenses of the period, giving the true profit for that period.
An amount set aside out of profit for a specific purpose is a
Answer: A (reserve.)
Profit kept back for a purpose is a reserve.
Use the following information to answer questions 36 and 37.
Creditors (01/01/19): ₦223,000
Creditors (31/12/19): ₦316,000
Credit purchases: ₦1,426,000
Discount received: ₦64,000
Company's cheque dishonoured: ₦90,000
Payment to creditors is
Answer: B (₦1,359,000)
Payments = 223,000 + 1,426,000 + 90,000 (dishonoured cheque restores the debt) − 64,000 − 316,000 = ₦1,359,000.
Use the following information to answer questions 36 and 37.
Creditors (01/01/19): ₦223,000
Creditors (31/12/19): ₦316,000
Credit purchases: ₦1,426,000
Discount received: ₦64,000
Company's cheque dishonoured: ₦90,000
Amount owed to creditors on 31/12/19 is
Answer: C (₦316,000.)
The closing creditors balance is given: ₦316,000.
The objective of preparing departmental accounts is to determine the
Answer: D (profitability of each department.)
Departmental accounts show the profit of each department.
The partner who partakes in the management of the firm and assumes personal responsibility for the firm's debts is a
Answer: A (general partner)
A general partner takes part in management and has unlimited liability.
Acid test ratio of a firm measures the
Answer: C (liquidity of a firm.)
The acid test shows whether quick assets can meet current liabilities: liquidity.
Use the following information to answer questions 41 and 42.
Cost of assets (01/01/18) ₦600,000. Annual Depreciation charge is 15% on reducing balance basis.
Depreciation for the year 2019 is
Answer: D (₦76,500)
2018: 90,000; NBV 510,000; 2019: 15% × 510,000 = ₦76,500.
Use the following information to answer questions 41 and 42.
Cost of assets (01/01/18) ₦600,000. Annual Depreciation charge is 15% on reducing balance basis.
The net book value of the asset at 31/12/19 is
Answer: C (₦433,500)
510,000 − 76,500 = ₦433,500.
Wages accrued is shown in the balance sheet as
Answer: D (a liability.)
Wages owed are a current liability.
Provision is made in the accounts when the amount involved in the anticipated loss is
Answer: C (not certain)
A provision covers a likely loss whose exact amount is uncertain.
Accounting concepts are rules of accounting which are to be
Answer: C (followed in the preparation of financial statements.)
Concepts are the basic rules followed when preparing financial statements.
Use the following information to answer questions 46 and 47.
Monthly Rent payable: GH¢3,000
Rent paid on 01/01/2018: GH¢48,000
Rent expense for 2018 was
Answer: C (GH¢36,000)
12 months × 3,000 = GH¢36,000.
Use the following information to answer questions 46 and 47.
Monthly Rent payable: GH¢3,000
Rent paid on 01/01/2018: GH¢48,000
The balance of rent in the balance sheet would be
Answer: B (current asset of GH¢12,000.)
Paid 48,000 against 36,000 due: GH¢12,000 prepaid, a current asset.
Suspense account is used in the correction of
Answer: B (errors that affect the agreement of a trial balance.)
A suspense account holds the difference caused by errors that stop the trial balance agreeing.
A transaction that would cause the cash book balance to be less than the bank statement balance is
Answer: D (unpresented cheques.)
Unpresented cheques are already deducted in the cash book but not yet by the bank, so the bank shows more.
The cost of goods sold for the year is Le 200,000 and the mark-up is 30%. The sale for the year is
Answer: A (Le 260,000)
200,000 × 1.30 = Le 260,000.
(a) What is Accounting concept?
(b) Explain the following accounting concepts: (i) Business Entity Concept (ii) Accrual Concept (iii) Going Concern Concept (iv) Consistency Concept (v) Periodicity Concept (vi) Historical Cost Concept
(a) Accounting concepts are the basic assumptions and rules on which financial statements are prepared.
(b)(i) Business entity: the business is separate from its owner; only business transactions are recorded.
(ii) Accrual: income and expenses are recognised when earned or incurred, not when cash is received or paid.
(iii) Going concern: the business is assumed to continue in operation for the foreseeable future.
(iv) Consistency: the same methods are used from period to period so results are comparable.
(v) Periodicity: the life of the business is divided into equal accounting periods (usually a year) for reporting.
(vi) Historical cost: assets are recorded at their original cost, not current market value.
Define, then one sentence per concept.
(a) Explain the Operation of Petty Cash Book using imprest system.
(b) Outline two disadvantages of the imprest system of book keeping in petty cash book.
(c) State four uses of Petty Cash Voucher.
(a) The chief cashier gives the petty cashier a fixed float (imprest) for small payments. Each payment is supported by a voucher and recorded in the analysed petty cash book. At the end of the period the book is totalled and the chief cashier refunds exactly the amount spent, restoring the float to the imprest.
(b) Any two: the float may be too small for unexpected needs; risk of misuse or fraud by the petty cashier; extra work in analysis and vouchers; small payments may be split to avoid authorisation limits.
(c) Any four: evidence of payment; authorisation of the payment; source document for the petty cash book; helps classify expenses; supports audit and checking; helps calculate the reimbursement.
Explain the float and its restoration, then weaknesses and uses of vouchers.
(a) Explain the following terms as used in account of not-for-profit making organization. (i) entrance fees (ii) subscription
(b) State five features of income and expenditure account
(a)(i) Entrance fees: a once-only payment made by a new member on joining the club; treated as income or capitalised as the club's policy states.
(ii) Subscription: the regular (usually yearly) fee members pay to remain members; income of the period it relates to.
(b) Any five: it is a nominal account like profit and loss; prepared on an accruals basis; records only revenue items; income on the credit side and expenditure on the debit side; balance is a surplus or deficit transferred to the accumulated fund; has no opening balance; prepared periodically (at year end).
Define both receipts, then list features of the income and expenditure account.
(a) What is a Bank Reconciliation Statement?
(b) Explain the following terms: (i) Bank Charges (ii) Standing order (iii) Credit Transfer (iv) Dishonoured Cheque (v) Unpresented cheque (v) Uncredited Cheques
(a) A statement prepared by an account holder at a date to explain the differences between the cash book (bank column) balance and the bank statement balance and bring them into agreement.
(b)(i) Bank charges: fees deducted by the bank for its services, often not yet in the cash book.
(ii) Standing order: a customer's instruction to the bank to pay a fixed amount to someone at regular intervals.
(iii) Credit transfer: money paid directly into the account by a third party (e.g. a debtor), shown on the statement before the cash book.
(iv) Dishonoured cheque: a cheque paid in but refused by the drawer's bank (e.g. insufficient funds) and debited back.
(v) Unpresented cheque: a cheque issued and entered in the cash book but not yet presented to the bank for payment.
(vi) Uncredited cheque: a cheque paid in and entered in the cash book but not yet credited by the bank.
Define the statement and give one clear line per term.
OLUCHI is a trader who does not keep a complete set of accounting records but is able to produce the following information (1st January 2019 / 31st December 2019, ₦):
Debtors 190,000 / 230,000
Creditors 120,000 / 90,000
Bank 68,000 / 124,000
Fittings 150,000 / 135,000
Stock 124,000 / 140,000
Expenses accrued 22,000 / 18,000
Rent prepaid 200,000 / 100,000
Cash sales were deposited to the bank after payment for expenses of ₦66,000 and drawing of ₦30,000. The bank account showed the following:
Bank account as at 31st December 2019 (₦)
Dr: Balance b/f (1/1/19) 68,000; Receipt from customers 236,000; Cash deposits from sales 198,000 = 502,000
Cr: Payment to suppliers 320,000; Expenses 58,000; Balance c/d 124,000 = 502,000
You are required to prepare: (a) Total Debtors Account (b) Sales Account (c) Total Creditors Account (d) Trading, Profit and Loss Account for the year ended 31st December, 2019
(a) Total Debtors Account (₦): Dr Balance b/d 190,000; Credit sales (balancing) 276,000 = 466,000 | Cr Bank 236,000; Balance c/d 230,000.
(b) Sales Account: Cr cash sales (198,000 banked + 66,000 expenses + 30,000 drawings) 294,000; credit sales 276,000 | Dr Trading account 570,000.
(c) Total Creditors Account: Dr Bank 320,000; Balance c/d 90,000 = 410,000 | Cr Balance b/d 120,000; Purchases (balancing) 290,000.
(d) Trading, Profit and Loss Account: Sales 570,000; opening stock 124,000 + purchases 290,000 − closing stock 140,000 = cost of sales 274,000; gross profit 296,000.
Expenses: general expenses (58,000 + 66,000 − 22,000 + 18,000) 120,000; rent (prepayment used 200,000 − 100,000) 100,000; depreciation of fittings (150,000 − 135,000) 15,000 = 235,000. Net profit ₦61,000.
Find credit sales and purchases as balancing figures; cash sales include what was spent before banking.
SESSAY operates shop with two departments A and B. The following balances were extracted from his book on 31st December 2019. (DR / CR, GH¢)
Sales Department A / 30,000; Department B / 20,000
Stock: Department A (01/01/19) 500; Department B (01/01/19) 400
Purchases: Department A 23,600; Department B 16,400
Wages of sales Assistants: Department A 2,000; Department B 1,500
Delivery Expenses (Department A) 300
Common Expenses: General office salaries 1,500; Rates 260; Fire insurance 100; Electricity 240; Repairs to premises 500; Telephone 500; Cleaning 600; Auditing charges 2,400; Stationery 1,200
Additional Information: (a) Stock at 31st December, 2019 were valued at Department A GH¢600, Department B GH¢300 (b) General office salaries, Telephone, audit charges and stationery are to be apportioned on the bases of sales (c) All other common expenses are to be apportioned as follows: Department A one-fifth; Department B four-fifth
You are required to prepare: Departmental, Trading, Profit and Loss Account for the year ended 31st December, 2019.
Sales ratio A:B = 30,000:20,000 = 3:2; other common expenses 1/5 : 4/5.
Trading (GH¢) – A | B: Sales 30,000 | 20,000; opening stock 500 | 400 + purchases 23,600 | 16,400 − closing stock 600 | 300 = cost of sales 23,500 | 16,500; Gross profit 6,500 | 3,500.
Expenses – A | B: wages 2,000 | 1,500; delivery 300 | –; general office salaries 900 | 600; telephone 300 | 200; audit 1,440 | 960; stationery 720 | 480; rates 52 | 208; fire insurance 20 | 80; electricity 48 | 192; repairs 100 | 400; cleaning 120 | 480. Totals 6,000 | 5,100.
Net profit A GH¢500; net loss B GH¢1,600 (overall net loss GH¢1,100).
Apportion each common expense in a working first; department B ends with a loss.
Ologun Trading Enterprises supplies goods to its Enugu Branch. The following transactions were recorded with the branch in December 2019 (i) On 1st December 2019, goods costing D 24,000 were invoiced to the branch at cost plus 33⅓% (ii) At the end of the month, the branch returns shows that sales were D 20,000 (iii) Goods invoiced at D 320 were returned to the head office (iv) Closing stock at the branch was D 11,520 at selling price
You are required to prepare in the head office books, the following Account: (a) Goods sent to Branch Account (b) Branch Stock Account (c) Branch Adjustment Account
Invoice price = cost × 4/3, so goods sent = 32,000 and the loading is 1/4 of invoice price.
(a) Goods Sent to Branch Account (D): Dr Branch stock – returns 320; Branch adjustment – loading (8,000 − 80) 7,920; Head office trading account (cost, 24,000 − 240) 23,760 = 32,000 | Cr Branch stock 32,000.
(b) Branch Stock Account (invoice price): Dr Goods sent to branch 32,000 | Cr Goods sent – returns 320; Sales (cash/debtors) 20,000; Stock deficiency (balancing) 160; Balance c/d 11,520 = 32,000.
(c) Branch Adjustment Account: Cr Goods sent – loading 8,000 | Dr Goods sent – loading on returns 80; Loading on deficiency (1/4 × 160) 40; Closing stock loading (1/4 × 11,520) 2,880; Gross profit to profit and loss 5,000 = 8,000.
(Deficiency at cost, 120, is charged to profit and loss; gross profit check: sales 20,000 − cost 15,000 = 5,000.)
Keep branch stock at invoice price; the adjustment account strips out the 25% loading.
Lolly and Willy were in partnership sharing profits and losses in the ratio of 3:2 respectively. The balances were shown as follows:
Balance Sheet as at 31st December, 2019 (Le)
Capital: Lolly 200,000; Willy 150,000 = 350,000
Loan 100,000
Current Liabilities: Creditors 90,000
Total 540,000
Fixed Assets: Plant & machinery 240,000; Furniture & Fittings 80,000; Motor Vehicles 30,000 = 350,000
Current Assets: Stock 50,000; Debtors 60,000 less Provision for Doubtful debts 5,000 = 55,000; Cash 85,000 = 190,000
Total 540,000
Additional Information: (a) Plant and Machinery were revalued at Le 300,000 (b) Furniture and Fittings were revalued at Le 60,000 (c) Stock was revalued by Le 10,000 (d) Provision for doubtful debts was increased to Le 7000 (e) Lolly take over motor vehicle for Le 10,000 (f) Joe paid Le 100,000 as capital and paid Le 75,000 for goodwill which was shared among the partners.
You are required to prepare: (a) Revaluation Account (b) Partner's Capital Account (c) Partner's Balance Sheet on the admission of Joe.
(a) Revaluation Account (Le): Dr Furniture (80,000 − 60,000) 20,000; Provision for doubtful debts (7,000 − 5,000) 2,000; Motor vehicle 30,000; Profit on revaluation – Lolly 3/5 16,800, Willy 2/5 11,200 = 80,000 | Cr Plant (300,000 − 240,000) 60,000; Stock 10,000; Lolly's capital (motor vehicle taken over) 10,000 = 80,000.
(b) Capital Accounts (Le) – Lolly | Willy | Joe: Cr balance b/d 200,000 | 150,000 | –; revaluation profit 16,800 | 11,200 | –; goodwill (75,000 shared 3:2) 45,000 | 30,000 | –; cash – capital – | – | 100,000. Dr motor vehicle 10,000 | – | –. Balances c/d 251,800 | 191,200 | 100,000.
(c) Balance Sheet after Joe's admission (Le): Fixed assets – plant 300,000; furniture 60,000 = 360,000. Current assets – stock 60,000; debtors 60,000 less provision 7,000 = 53,000; cash (85,000 + 100,000 + 75,000) 260,000 = 373,000. Total 733,000.
Capital: Lolly 251,800; Willy 191,200; Joe 100,000 = 543,000; loan 100,000; creditors 90,000 = 733,000.
Revalue first and share the gain 3:2; Joe's goodwill payment goes to the old partners in their ratio.
The authorized capital of Babs Company Limited is 200,000 ordinary shares. The company decided to issue 180,000 of the Share at $2 on the following terms. $0.40 on application. $0.70 on allotment. $0.90 on first and final call. Applications were received for 200,000 shares on June 20, 2019 and allotments made on June 30, 2019 on which date, excess application monies were returned to unsuccessful applicants. First and Final call was made on July 26, 2019. All installments were received on due dates.
You are required to prepare: (a) Bank Account (b) Ordinary Share Application Account (c) Allotment Account (d) First and Final Call Account (e) Ordinary Share Capital Account
Application money 200,000 × 0.40 = 80,000; refund 20,000 × 0.40 = 8,000; kept 72,000. Allotment 180,000 × 0.70 = 126,000. Call 180,000 × 0.90 = 162,000.
(a) Bank Account ($): Dr June 20 Application 80,000; June 30 Allotment 126,000; July 26 First and final call 162,000 = 368,000 | Cr June 30 Application (refund) 8,000; Balance c/d 360,000.
(b) Ordinary Share Application Account: Dr Bank (refund) 8,000; Ordinary share capital 72,000 = 80,000 | Cr Bank 80,000.
(c) Allotment Account: Dr Ordinary share capital 126,000 | Cr Bank 126,000.
(d) First and Final Call Account: Dr Ordinary share capital 162,000 | Cr Bank 162,000.
(e) Ordinary Share Capital Account: Cr Application 72,000; Allotment 126,000; First and final call 162,000 = 360,000 | Dr Balance c/d 360,000 (180,000 shares × $2).
Refund the 20,000 shares' application money; share capital ends at 180,000 × $2.