53 questions. Try each one, then open the answer to check yourself and read the explanation.
The balance on the sales account is transferred to the trading account by
Answer: A (debiting the sales account.)
Sales has a credit balance, so it is closed by debiting the sales account and crediting the trading account.
Depletion method of depreciation is applicable to
Answer: A (quarries.)
Depletion charges depreciation by the quantity of a wasting asset used up, as with quarries and mines.
Use the following information to answer questions 4 and 5
1/2/2021 Balance as per bank statement ₦90,000 O/D: Cheques of ₦30,000 issued on 20/2/2021 and presented to bank for payment on 7/3/2021: Cheques of ₦40,000 issued on 22/2/2021 and credited by the bank on 8/3/2021.
The balance as per the adjusted cash book on 28/2/2021 is
Answer: D (₦80,000 CR.)
Bank overdraft 90,000, plus unpresented cheques 30,000, less uncredited cheques 40,000 = 80,000 overdrawn, which is a credit balance in the cash book.
Use the following information to answer questions 4 and 5
1/2/2021 Balance as per bank statement ₦90,000 O/D: Cheques of ₦30,000 issued on 20/2/2021 and presented to bank for payment on 7/3/2021: Cheques of ₦40,000 issued on 22/2/2021 and credited by the bank on 8/3/2021.
The balance as per the adjusted cash book on 28/2/2021 means that the
Answer: A (business is owing the bank.)
A credit balance in the bank column is an overdraft: the business owes the bank.
When there is provision for depreciation, fixed assets is shown in the balance sheet at
Answer: B (net book value)
The asset is shown at cost less accumulated depreciation, its net book value.
Use the following information to answer questions 7 to 9.
Opening stock: D 9,220
Sales: D 66,930
Returns outwards: D 1,740
Returns inwards: D 2,930
Gross profit: D 16,000
Purchases: D 60,540
The cost of goods sold is
Answer: D (D 48,000)
Net sales = 66,930 − 2,930 = 64,000; cost of goods sold = 64,000 − 16,000 gross profit = D 48,000.
Use the following information to answer questions 7 to 9.
Opening stock: D 9,220
Sales: D 66,930
Returns outwards: D 1,740
Returns inwards: D 2,930
Gross profit: D 16,000
Purchases: D 60,540
The average stock is
Answer: C (D 14,620)
Closing stock = 9,220 + (60,540 − 1,740) − 48,000 = 20,020; average = (9,220 + 20,020) ÷ 2 = D 14,620.
Use the following information to answer questions 7 to 9.
Opening stock: D 9,220
Sales: D 66,930
Returns outwards: D 1,740
Returns inwards: D 2,930
Gross profit: D 16,000
Purchases: D 60,540
The rate of stock turnover is
Answer: D (3.3 times)
48,000 ÷ 14,620 = 3.3 times.
Which of the following expenses forms part of cost of production?
Answer: C (Direct expenses)
Direct expenses are part of prime cost, so they are in the cost of production; selling, administrative and general expenses go to profit and loss.
Purchases ledger control account is a summary of sundry
Answer: A (creditors)
The purchases ledger holds suppliers' (creditors') accounts, and its control account summarises them.
The starting point for the preparation of accounts from incomplete records is to
Answer: A (prepare an opening statement of affairs)
The opening statement of affairs gives the opening capital, which the rest of the work builds on.
When the total of the debit side of income and expenditure account exceeds the total of the credit side, the difference is
Answer: A (deficit)
Expenditure greater than income gives a deficit.
Use the following information to answer questions 17 and 18.
Prime cost of production: $500,000
Factory overheads: $80,000
Opening work-in-progress: $35,000
Cost of production: $520,000
The closing work-in-progress is
Answer: B ($95,000)
500,000 + 80,000 + 35,000 = 615,000; 615,000 − 520,000 cost of production = $95,000 closing work-in-progress.
Use the following information to answer questions 17 and 18.
Prime cost of production: $500,000
Factory overheads: $80,000
Opening work-in-progress: $35,000
Cost of production: $520,000
The work-in-progress for the year shows
Answer: C (an increase of $60,000)
Work-in-progress rose from $35,000 to $95,000, an increase of $60,000.
In the absence of a partnership agreement, loan granted to the business by a partner would attract
Answer: C (interest at 5% per annum)
Under the Partnership Act 1890, a partner's loan earns 5% interest a year when there is no agreement.
The acquisition of furniture for office use for ₦290,000 should be debited to
Answer: C (assets account)
Furniture for use is a fixed asset, so the asset (furniture) account is debited.
The total of the discount column of $60,000 on the credit side of a cash book was credited to the discount allowed account. To correct this error: debit
Answer: A (Discount Allowed Account $60,000: credit Discount Received Account $60,000)
The credit-side discount is discount received; it should have been credited to discount received, so debit discount allowed and credit discount received with $60,000.
An item debited to the income and expenditure account is
Answer: A (rent paid)
The debit side shows expenses such as rent paid; the others are income or capital receipts.
Goods taken over by the owner of the business for personal use is treated as
Answer: D (drawings)
Anything the owner takes for private use is drawings.
Gross profit is computed as
Answer: C (sales less cost of sales)
Gross profit = sales − cost of sales.
A feature of the income and expenditure account is that
Answer: D (it is prepared on accrual basis)
Like a profit and loss account, it includes accruals and prepayments for the period.
A person who lends his name to be used as a partner without any contribution of capital is a
Answer: D (nominal partner.)
A nominal partner only lends his name and contributes no capital; a dormant partner contributes capital but takes no part in running the firm.
The concept which states that there are two sides to accounting entries is
Answer: C (dual aspect concept.)
The dual aspect concept says every transaction has a debit and a credit.
The trade debtors of a business are
Answer: A (customers who bought goods on credit.)
Trade debtors are credit customers who still owe the business.
When the buyer is undercharged, the seller forwards
Answer: B (a debit note.)
An undercharge means the buyer owes more, so the seller sends a debit note.
Use the following information to answer questions 30 to 32
Abu: Capital GH¢40,000; Drawings GH¢18,000
Ojo: Capital GH¢20,000; Drawings GH¢12,000
Profit for the year was GH¢54,000: 5% interest on capital and their profit or loss sharing ratio is 3:2 respectively.
Abu's share of profit is
Answer: B (GH¢30,600.)
Interest on capital = 2,000 + 1,000 = 3,000; residual 51,000 × 3/5 = GH¢30,600.
Use the following information to answer questions 30 to 32
Abu: Capital GH¢40,000; Drawings GH¢18,000
Ojo: Capital GH¢20,000; Drawings GH¢12,000
Profit for the year was GH¢54,000: 5% interest on capital and their profit or loss sharing ratio is 3:2 respectively.
Ojo's share of profit for the year is
Answer: D (GH¢20,400.)
Residual profit 51,000 × 2/5 = GH¢20,400.
Use the following information to answer questions 30 to 32
Abu: Capital GH¢40,000; Drawings GH¢18,000
Ojo: Capital GH¢20,000; Drawings GH¢12,000
Profit for the year was GH¢54,000: 5% interest on capital and their profit or loss sharing ratio is 3:2 respectively.
The balance on Abu's current account is
Answer: C (GH¢14,600.)
Interest 2,000 + share of profit 30,600 − drawings 18,000 = GH¢14,600.
Sales for the year 2021:
Credit: Le 70,000
Cash: Le 30,000
The accounting concept underlying the recording of Le 100,000 in the sales account is
Answer: B (realization concept.)
Credit sales count as sales when the goods are delivered, not when paid for: the realization concept.
Sales journal is used for recording
Answer: C (credit sales.)
The sales journal (day book) records credit sales of goods.
Which of the following circumstances will not lead to dissolution of a partnership? When a partner
Answer: D (is handicapped.)
Bankruptcy, retirement and death end the partnership; a partner becoming handicapped does not by itself.
A user of accounting information who would be more interested in the liquidity of the firm is the
Answer: B (supplier.)
Suppliers give credit, so they want to know whether the firm can pay its short-term debts.
An item that can be purchased from a petty cash float is
Answer: A (correction pen.)
Petty cash is for small items such as a correction pen.
An item recorded on the credit side of trading, profit and loss account is
Answer: B (discount received.)
Discount received is a gain, credited to profit and loss.
An item that would be apportioned in proportion to purchases of each department is
Answer: C (discount received.)
Discount received comes from paying suppliers, so it is shared by purchases.
The accounting entries in the books of the head office for goods returned by a customer to a branch are: debit
Answer: C (Branch Stock Account: credit Branch Debtors Account.)
The goods come back into the branch's stock and the customer owes less: debit Branch Stock, credit Branch Debtors.
In a company's balance sheet, rent prepaid is classified as a
Answer: C (current asset.)
A prepayment is a short-term benefit owed to the business, so it is a current asset.
The accounting concept which underlies providing for doubtful debt is
Answer: D (prudence concept.)
Prudence requires likely losses to be provided for.
The document which contains monies allocated in public sector is
Answer: A (budget.)
The budget (appropriation) sets out the money allocated to each head of government spending.
Which of the following items is an example of an intangible asset?
Answer: C (Copyright)
A copyright has value but no physical form.
The maximum number of shares that a company is allowed by the law to offer to the public for subscription is
Answer: A (authorized capital.)
Authorized capital is the most a company may issue under its memorandum.
One of the features of cash basis of accounting in public sector is that
Answer: D (capital expenditure items are written off within the accounting year.)
Under the cash basis, money spent on capital items is treated as spent in the year it is paid.
Use the following information to answer questions 48 to 50
Ordinary shares: GH¢130,000
Fixed assets: GH¢495,000
Current assets: GH¢210,000
Income surplus: GH¢225,000
Current liabilities: GH¢95,000
The working capital is
Answer: D (GH¢115,000.)
210,000 − 95,000 = GH¢115,000.
Use the following information to answer questions 48 to 50
Ordinary shares: GH¢130,000
Fixed assets: GH¢495,000
Current assets: GH¢210,000
Income surplus: GH¢225,000
Current liabilities: GH¢95,000
Total shareholders fund is
Answer: B (GH¢355,000.)
Ordinary shares 130,000 + income surplus 225,000 = GH¢355,000.
Use the following information to answer questions 48 to 50
Ordinary shares: GH¢130,000
Fixed assets: GH¢495,000
Current assets: GH¢210,000
Income surplus: GH¢225,000
Current liabilities: GH¢95,000
The net assets of the company is
Answer: B (GH¢610,000.)
Fixed assets 495,000 + working capital 115,000 = GH¢610,000.
(a) Match the following items in Young Stars Social Club's account with their equivalent in the account of a Profit Making Organization:
Young Stars Social Club: Surplus; Accumulated fund; Receipts and payments account; Deficit; Income and expenditure account
Profit Making Organization: Cash book; Net profit; Net loss; Capital; Profit and loss account
(b) State five differences between a social club's account and a limited liability company's account.
(a) Surplus – Net profit; Accumulated fund – Capital; Receipts and payments account – Cash book; Deficit – Net loss; Income and expenditure account – Profit and loss account.
(b) Any five: club aims at members' welfare, company at profit; club's result is surplus/deficit, company's is profit/loss; club's capital is accumulated fund, company's is share capital and reserves; club prepares receipts and payments and income and expenditure accounts, company prepares trading, profit and loss (and appropriation) accounts; club income comes from subscriptions, donations, entrance fees, company income from sales; surplus is added to the accumulated fund, company profit is shared as dividends; club is owned by members, company by shareholders; company accounts must follow the Companies Act and be audited/published, club accounts follow its constitution.
Pair each club term with its business equivalent, then contrast purpose, capital, statements and income.
(a) State three uses each of an invoice to the: (i) seller; (ii) buyer.
(b) State three advantages of dividing the ledger into different classes.
(a)(i) Seller: source document for the sales journal; evidence of the sale and the amount the buyer owes; used to follow up/collect the debt and check the customer's account; record for audit and tax (VAT).
(ii) Buyer: source document for the purchases journal; shows the amount owed to the supplier and the terms (discounts, due date); used to check goods received against what was ordered; evidence for audit.
(b) Any three: allows division of work among several clerks; errors are easier to locate; speeds up posting and reference; makes control accounts and internal check possible; reduces fraud; quicker access to information on debtors, creditors and nominal items.
Give uses from both sides of the transaction, then benefits of splitting the ledger.
Mr Obi, the former accountant in XYZ Ltd a private company is now the treasurer of PQ Local Government District Assembly. State five differences between the financial statement he was preparing in his previous organization and the one he would prepare in his present organization.
Any five:
- Purpose: private company reports profit/loss; local government reports how public funds were raised and spent (accountability, surplus/deficit).
- Statements: trading, profit and loss account and balance sheet vs statement of revenue and expenditure, statement of assets and liabilities, cash flow and budget statements.
- Basis: accrual basis vs mainly cash (or modified cash) basis.
- Sources of income: sales vs taxes, rates, grants, statutory allocations, fines and fees.
- Regulation: Companies Act and accounting standards vs constitution, Financial Regulations, Finance/Appropriation laws, IPSAS.
- Users: shareholders, creditors vs legislature/council, the public and government.
- Capital: share capital and reserves vs consolidated/general fund; no dividends.
- Budget comparison is central in government statements; capital expenditure is often written off in the year.
Compare purpose, statements, basis, income sources, regulation and users.
Alagba acquired the following motor vehicles in the respective dates.
Date — Description — Amount (GH¢)
1/1/2019 — LMN 232 AA — 1,200,000
30/6/2019 — ABC 151 BB — 620,000
1/3/2020 — BDK 202 LM — 1,350,000
The depreciation rate is 20% on straight line method. You are required to prepare the following account up to 31st December, 2022:
(a) Motor Vehicle Account;
(b) Provision for Depreciation Account;
(c) Profit and Loss Account (Extract);
(d) Balance Sheet (Extract).
Depreciation 20% of cost a year, by months owned in the year of purchase:
LMN 240,000 a year; ABC 124,000 a year (2019: 6 months = 62,000); BDK 270,000 a year (2020: 10 months = 225,000).
Annual charges: 2019 302,000; 2020 589,000; 2021 634,000; 2022 634,000.
(a) Motor Vehicle Account (GH¢): 1/1/2019 Bank 1,200,000; 30/6/2019 Bank 620,000; 31/12/2019 bal c/d 1,820,000. 2020 bal b/d 1,820,000; 1/3/2020 Bank 1,350,000; bal c/d 3,170,000 (same balance carried down 2021 and 2022: GH¢3,170,000).
(b) Provision for Depreciation Account (credits from P&L): 2019 302,000 (bal 302,000); 2020 589,000 (bal 891,000); 2021 634,000 (bal 1,525,000); 2022 634,000 (bal c/d 2,159,000).
(c) Profit and Loss Account (extract): depreciation of motor vehicles 2019 GH¢302,000; 2020 GH¢589,000; 2021 GH¢634,000; 2022 GH¢634,000.
(d) Balance Sheet (extract) at 31/12 — cost, accumulated depreciation, net book value: 2019 1,820,000 − 302,000 = 1,518,000; 2020 3,170,000 − 891,000 = 2,279,000; 2021 3,170,000 − 1,525,000 = 1,645,000; 2022 3,170,000 − 2,159,000 = 1,011,000.
Time-apportion depreciation in the year each vehicle is bought, then accumulate.
The following information were extracted from the books of Momoh for the year ended 31st December, 2022.
Stock of raw materials 1/1/2022: $55,680
Stock of raw materials 31/12/2022: $46,420
Purchases of raw materials: $197,520
Sales: $494,000
Stock of finished goods 1/1/2022: $65,740
Stock of finished goods 31/12/2022: $58,900
Factory power (Direct): $2,120
Factory light (Indirect): $680
Factory wages (Direct): $157,000
Factory rent and rates (indirect): $16,800
Sales expenses: $37,500
Capital: $170,000
General expenses: $35,720
You are required to:
(a) Prepare Manufacturing, Trading, Profit and loss Account for the year ended 31st December, 2022:
(b) Calculate the: (i) Net Profit Margin; (ii) Stock Turnover Ratio.
(a) Manufacturing Account ($): Opening raw materials 55,680 + purchases 197,520 = 253,200 − closing raw materials 46,420 = cost of raw materials consumed 206,780; factory wages (direct) 157,000; factory power (direct) 2,120; Prime cost 365,900. Factory overheads: light 680 + rent and rates 16,800 = 17,480. Cost of production 383,380.
Trading Account: Sales 494,000; opening finished goods 65,740 + cost of production 383,380 = 449,120 − closing finished goods 58,900 = cost of sales 390,220; Gross profit 103,780.
Profit and Loss Account: sales expenses 37,500 + general expenses 35,720 = 73,220; Net profit $30,560.
(b)(i) Net profit margin = 30,560 ÷ 494,000 × 100 = 6.19%.
(ii) Stock turnover = cost of sales ÷ average finished goods stock = 390,220 ÷ ((65,740 + 58,900) ÷ 2 = 62,320) = 6.26 times.
Direct costs make prime cost; indirect factory costs are overheads; capital is not an expense.
The cash book of Ayede for the month ended 31st March, 2023 is as follows:
Cash Book (Bank Column)
Dr: March 1 Balance b/f Le 70,240; March 4 Cash sales 14,230; March 20 Leke 12,120; March 25 Rent received 6,320 — total 102,910
Cr: March 6 Ayo Le 12,130; March 12 Chinyere 6,510; March 26 Bala 20,320; March 31 Balance c/d 63,950 — total 102,910
Bank Statement for the month of March 2023 (Dr / Cr / Balance, Le)
March 1 Balance b/f — — 70,240
March 4 Cash — 14,230 — 84,470
March 6 Ayo 12,130 — — 72,340
March 12 Chinyere 6,510 — — 65,830
March 20 Leke — 12,120 — 77,950
March 25 Direct transfer — 20,000 — 97,950
March 26 VAT charges 500 — — 97,450
You are required to prepare:
(a) Adjusted Cash Book for the month of March 2023:
(b) Bank Reconciliation Statement as at 31st March 2023.
(a) Adjusted Cash Book (Le): Dr Balance b/d 63,950; Direct transfer 20,000 = 83,950 | Cr VAT charges 500; Balance c/d 83,450.
(b) Bank Reconciliation Statement as at 31 March 2023 (Le):
Balance as per adjusted cash book 83,450
Add: unpresented cheque – Bala 20,320 = 103,770
Less: uncredited lodgement – rent received 6,320
Balance as per bank statement 97,450
Update the cash book with items only the bank knew about, then reconcile the timing differences.
PQ Limited took over the business of XY Enterprises on 30th June, 2023. The balance sheets as at 30th June, 2023 being the date of the takeover were as follows:
Balance Sheets as at 30th June, 2023 (₦) — PQ Limited | XY Enterprises
Fixed Assets: Premises 360,000 | 270,000; Equipment 75,000 | 330,000; Furniture 24,000 | 66,000; Total 459,000 | 666,000
Current Assets: Stock 180,000 | 240,000; Debtors 37,500 | 150,000; Prepayments 16,500 | –; Banks 1,131,000 | 22,500; Total 1,365,000 | 412,500
Current Liabilities: Creditors 97,500 | 22,500; Accruals 22,500 | 45,000; Total (120,000) | (67,500)
Working capital 1,245,000 | 345,000
Net Assets 1,704,000 | 1,011,000
Financed by: Share capital 1,500,000 | 900,000; Loan 204,000 | 111,000; Total 1,704,000 | 1,011,000
Additional information:
(i) The assets of XY Enterprises were valued at: Premises ₦375,000; Equipment ₦225,000; Furniture ₦45,000
(ii) Stock was valued at cost and the debtors were settled less 10%.
(iii) The agreed purchase consideration of ₦1,125,000 was settled by cheque and XY Enterprises was to take care of its loan.
You are required to prepare in the books of PQ Limited:
(a) The Purchase of Business Account;
(b) Balance Sheet as at 1st July, 2023.
Net assets taken over (₦): premises 375,000 + equipment 225,000 + furniture 45,000 + stock 240,000 + debtors (150,000 − 10%) 135,000 + bank 22,500 = 1,042,500, less creditors 22,500 and accruals 45,000 = 975,000. Goodwill = 1,125,000 − 975,000 = 150,000.
(a) Purchase of Business Account: Dr Premises 375,000; Equipment 225,000; Furniture 45,000; Stock 240,000; Debtors 135,000; Bank 22,500; Goodwill 150,000 = 1,192,500 | Cr Creditors 22,500; Accruals 45,000; Bank/Vendor (purchase consideration) 1,125,000 = 1,192,500.
(b) PQ Limited Balance Sheet as at 1 July 2023 (₦):
Goodwill 150,000
Fixed assets: Premises (360,000 + 375,000) 735,000; Equipment (75,000 + 225,000) 300,000; Furniture (24,000 + 45,000) 69,000 = 1,104,000 (with goodwill 1,254,000)
Current assets: Stock (180,000 + 240,000) 420,000; Debtors (37,500 + 135,000) 172,500; Prepayments 16,500; Bank (1,131,000 + 22,500 − 1,125,000) 28,500 = 637,500
Less current liabilities: Creditors (97,500 + 22,500) 120,000; Accruals (22,500 + 45,000) 67,500 = 187,500
Working capital 450,000; Net assets 1,704,000
Financed by: Share capital 1,500,000; Loan 204,000 = 1,704,000
Value the net assets taken over (XY's loan stays with XY); the excess of the price over them is goodwill.
Soy Ltd a company in Aba, has a branch in Owerri to which goods are supplied from the head office at cost plus 25% mark-up. The branch remits to the head office all cash received from customers.
The following transactions took place at the branch during the year ended 31st December, 2022.
Stock 1/1/2022: D 72,200
Goods received from head office: D 240,490
Cash sales: D 110,600
Goods returned from branch to head office at selling price: D 3,140
Cash discount allowed to debtors: D 1,120
Cash received from debtors: D 98,881
Debtors 1/1/2022: D 3,021
Credit sales: D 102,200
Stock 31/12/2022 at selling price: D 40,730
You are required to prepare:
(a) Branch Stock Account:
(b) Goods Sent to Branch Account;
(c) Branch Debtors Account;
(d) Branch Adjustment Account.
Selling price = cost + 25%, so cost = 80% and loading = 20% of selling price. Stock and goods sent taken at selling price.
(a) Branch Stock Account (D, selling price): Dr Balance b/d 72,200; Goods sent to branch 240,490 = 312,690 | Cr Returns to head office 3,140; Cash sales 110,600; Credit sales (branch debtors) 102,200; Stock deficiency 56,020 (balancing figure); Balance c/d 40,730 = 312,690.
(b) Goods Sent to Branch Account (cost): Dr Branch stock – returns (80% × 3,140) 2,512; Head office trading account 189,880 | Cr Branch stock (80% × 240,490) 192,392.
(c) Branch Debtors Account: Dr Balance b/d 3,021; Credit sales 102,200 = 105,221 | Cr Discount allowed 1,120; Cash received 98,881; Balance c/d 5,220.
(d) Branch Adjustment Account (loading 20%): Cr Opening stock loading (20% × 72,200) 14,440; Goods sent (20% × 240,490) 48,098 = 62,538 | Dr Returns (20% × 3,140) 628; Loading on stock deficiency (20% × 56,020) 11,204; Closing stock loading (20% × 40,730) 8,146; Gross profit to profit and loss 42,560 = 62,538.
(The deficiency at cost, 80% × 56,020 = 44,816, is charged to profit and loss.)
Keep the branch stock account at selling price; the adjustment account removes the 20% loading to leave gross profit.