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Question 1 Report
A commission of #5000 to a sales manager was debited to debtors account. This is an error of
Answer Details
This situation is an example of an error of principle. Let me explain:
An error of principle occurs when an entry is recorded in the wrong account but respects the double-entry rule of debit and credit. In this case, a commission, which should have been recorded as an expense and debited to a "Commission Expense" account, was incorrectly debited to the "Debtors Account", which is an asset account.
Because the nature of the accounts is different (expenses vs assets), recording it in the wrong type of account constitutes an error of principle. This type of error doesn't affect the balancing of the trial balance but reflects a misclassification in the financial statements.
Other types of errors like errors of original entry involve wrong amounts recorded, whereas errors of compensation involve two mistakes that offset each other. An error of commission refers to when a correct amount is posted to the wrong account of the correct type, unlike the principle error where the wrong type of account is used.
Question 2 Report
Purchase Ledger Control Account
| # | # | ||
Cash paid to debtors |
15000 | Balance c/d | 5000 |
Bills payable |
3000 | Purchase journal | 30000 |
Discount receive |
2500 |
|
|
Return outward |
1500 | ||
Sales ledger |
1200 | ||
Balance c/d |
11800 | ||
| 35000 | 35000 |
The amount #30,000 represents
Answer Details
The amount of #30,000 represents credit purchases. In accounting, the Purchase Ledger Control Account is used to track what a business owes to its suppliers. This account is part of the liabilities section of the balance sheet since it reflects amounts that need to be paid for goods or services received on credit.
Here's a breakdown of why the amount represents credit purchases:
This is significant because businesses often purchase items on credit to improve cash flow and benefit from any creditor terms like discounts for early payment. Hence, the #30,000 recorded in the Purchase Ledger Control Account is indicative of the total amount of purchases made on credit during the period.
Question 3 Report
When shares are over-subscribed, directors may decide to scale down the number of shareholding by alloting shares at ___
Answer Details
When shares are over-subscribed, directors may decide to scale down the number of shareholding by allotting shares at pro rata. This means that the available shares are distributed among the applicants in proportion to the number of shares they have applied for.
For example, if a company issues 1,000 shares and the demand is for 1,500 shares, each applicant will receive a percentage of the shares they applied for based on the total available. This method ensures fairness as it maintains the same ratio of allocation relative to each investor's demand.
Allotting at pro rata ensures that all investors get an opportunity to receive a share, albeit a reduced amount than initially requested, in proportion to their original application. This approach helps to manage the allocation efficiently and maintains balance among potential shareholders.
Question 4 Report
Which of the following is not required in preparing a statement of affairs?
Answer Details
A statement of affairs is a financial statement that provides a snapshot of an organization's financial position at specific point in time. It typically includes information about assets, liabilities, and capital.
Question 5 Report
The basic accounting equation is
Answer Details
Assets + Liabilities = Owner's Equity. This equation is the foundation of double-entry bookkeeping and ensures that a company's financial statements are balanced. Let's break down the equation:
Assets: These are the resources a company owns, such as cash, inventory, property, and equipment. Liabilities: These are the company's debts or financial obligations that need to be repaid.
Owner's Equity (also called Shareholders' Equity): This represents the owners' claim on the company's assets after all liabilities are settled. It's essentially the difference between the company's assets and liabilities.
Question 6 Report
Which of the following is a written acknowledgement of a loan to a company?
Answer Details
The written acknowledgement of a loan to a company is known as a debenture.
Let's explain further: A debenture is a type of long-term security issued by a company. It acts as a contract that specifies the details of the loan, including the amount borrowed, the interest rate, and the repayment schedule. Unlike some other forms of debt, debentures do not have any physical assets pledged as collateral. This means they are backed solely by the creditworthiness and reputation of the issuer.
In summary, a debenture serves as a formal and written promise from the company to pay back the borrowed money with interest at a future date. It is a common tool for companies to raise capital while providing investors an opportunity to earn interest on their investment.
Question 7 Report
A public limited liability company can get additional fund through the issue of
Answer Details
A public limited liability company can get additional funds through the issue of debentures.
Let's break this down in simple terms:
Hence, debentures are a common and effective way for public companies to generate additional funds by attracting investments from the public without diluting ownership. The company gets the capital it needs, while investors earn interest on their investment.
Question 8 Report
The following accounts have debit balances except
Answer Details
In accounting, a debit balance typically refers to an increase in asset or expense accounts. Here’s a breakdown of each account to determine which one does not usually have a debit balance:
Based on the above explanations, the account that does not have a debit balance is typically the Share Premium account.
Question 9 Report
The following balances was exgtracted from the books of Oluwalambe Ltd, manufacturer, on 31st December 2007
| Stock of raw materials 1 - 1 - 2007 | 8000 |
Purchase of raw materials |
450000 |
Stock of raw materials 31 - 12 - 2007 |
95000 |
Direct wages |
65000 |
Indirect wages |
28000 |
Depreciation on plants |
32000 |
Factory rent |
3500 |
Work in progress 1- 1- 2007 |
32500 |
Work in progress 31 - 12- 2007 |
37500 |
The prime cost is
Answer Details
Prime Cost = Direct Materials Cost + Direct Labor Cost
Direct Materials Cost (Cost of Raw Materials Consumed): We have already calculated this in the previous question and found it to be #435,000
Prime Cost = #435,000 (Direct Materials) + #65,000 (Direct Labor)
Prime Cost = #500,000
Question 10 Report
The return on debenture holding is
Answer Details
A debenture is a type of long-term debt instrument issued by a company to borrow money from investors. When you hold a debenture, you are effectively lending money to the company, and in return, you expect a regular return. The return received by debenture holders is in the form of interest.
Here's a simple explanation of why it's interest:
In contrast:
Therefore, the return on debenture holding is characterized by interest payments. These payments are made regardless of whether the company makes a profit, as long as it is solvent enough to meet its interest obligations.
Question 11 Report
The amount paid by the buyer of a business which is sold as going concern is
Answer Details
When a business is sold as a "going concern," it means that the business is being sold with the expectation that it will continue to operate in the same manner as before the sale. The amount paid by the buyer for such a business is commonly referred to as the purchase consideration.
The purchase consideration includes the total value that the buyer agrees to pay to acquire all the assets, liabilities, and operational components of the business. This value can be in the form of cash, shares, debt arrangements, or a combination of these.
Let's clarify why the other terms are not the correct answer in this context:
In summary, the correct term for the amount paid by the buyer of a business sold as a going concern is purchase consideration.
Question 12 Report
The amount by which assets exceeds liabilities is
Answer Details
The amount by which assets exceed liabilities is known as capital. This is a crucial concept in finance and accounting. Here's a simple explanation:
Assets are things of value that an individual or a company owns. They can include items like cash, property, equipment, and investments. They represent what the entity owns or is owed.
Liabilities are the obligations or debts that an individual or a company owes to others. They can include loans, mortgages, and other forms of debts or financial responsibilities. They represent what the entity owes to others.
The capital, also known as equity, is the net value that remains after all liabilities have been subtracted from all assets. In a simplified equation, it can be expressed as:
Capital = Assets - Liabilities
Therefore, if a company has more assets than liabilities, the excess amount is positive, indicating a strong capital position. This is an important measure of financial health, showing the remaining value available to the owners or shareholders after all debts have been paid.
Question 13 Report
The opening stock at the beginning of an accounting period represents
Answer Details
In accounting, the opening stock at the beginning of an accounting period represents the value of the inventory that a company has on hand at the start of that period. This includes all the goods available for sale at the beginning. It is essentially the remaining stock from the previous accounting period.
To clarify further:
Thus, in summary, the opening stock truly encapsulates the goods available for sale at the start of the new accounting period.
Question 14 Report
| # | # | |
Debtors |
2000 | 6000 |
Stock |
1000 | 1300 |
Discount allowed |
500 | |
Cash received from debtors |
10000 |
Sales for the year is
Answer Details
Sales for the year = 10,000 +60000 - 2000 = #14,000
Note that: the question is not asking to prepare a sales ledger but rather, the figure of sales only.
Question 15 Report
Depriciation is?
Answer Details
Depreciation refers to the gradual decrease in the value of a fixed asset over time due to factors such as wear an tear, obsolescence, or passage of time. It represents a decrease in the asset's value rather than an increase. As assets are used or become outdated, their value diminishes, which is reflected as depreciation in the financial statements.
Question 16 Report
An equipment costing #9,000 has an estimated residual value of #900, and is depreciated at 10% per annum. Using the straight-line method, what is the depreciation charge for the second year?
Answer Details
To calculate depreciation using the straight-line method, you can use the formula:
Depreciation Expense = (Cost of Asset - Residual Value) / Useful Life
Given:
Cost of the equipment = 9,000 Residual value = 900
Depreciation rate = 10%
Useful life = 10 years (since the depreciation rate is 10%)
First, calculate the annual depreciation:
Depreciation Expense = (9,000 - 900) / 10
= 8,100 / 10
= 810
Therefore, the depreciation charge for the second year would still be #810.
Question 17 Report
Pending the location of an error, the difference in the Trial Balance is posted to a __
Answer Details
When a difference is noticed in the Trial Balance due to errors that have not yet been located, it is temporarily posted to a suspense account.
Here's a simple explanation:
A **Trial Balance** is a bookkeeping worksheet in which the balances of all ledgers are compiled into debit and credit account column totals that are equal. If the totals do not match, it indicates an error. Sometimes, despite efforts to find the error, the exact location or cause is not immediately identified. When this happens, the difference is placed in a suspense account to temporarily hold and find where the error might be.
The suspense account acts as a placeholder. It's important because it allows the books to be balanced and further accounting and financial reporting processes to proceed normally while the error is being investigated and rectified. Once the error is located and corrected, the suspense account is cleared.
Question 18 Report
Goodwill is taken into account in partnership business when
Answer Details
When a new partner joins the existing partnership, they bring in capital or expertise. The existing goodwill of th business (positive reputation, customer base, etc.) might justify paying the existing partners a premium above the book value of their capital investment. This premium is recorded as goodwill.
Question 19 Report
| # | |
Stock 1/1/09 |
2200 |
Purchases |
18000 |
Sales |
27000 |
Salaries |
1500 |
Rejection in doubtful debts |
500 |
Office expenses |
1100 |
Other expenses |
1300 |
Stock 31/12/09 |
1000 |
The net profit is
Answer Details
To calculate the net profit, we need to determine the Gross Profit first and then subtract the expenses from it. Follow these steps:
COGS = 2200 + 18000 - 1000 = #19,200
Gross Profit = 27000 - 19200 = #7,800
Total Expenses = 1500 + 500 + 1100 + 1300 = #4,400
Net Profit = #3,400
Therefore, the net profit is #3,400.
Question 20 Report
Ifedapo Local Council has the following details for 2008
| # | |
| Fines | 5000 |
Allocation from state government |
20000 |
Tenement rates |
10000 |
Licences |
12000 |
Hospital beds |
8000 |
Ambulance |
13000 |
Salaries |
15000 |
Vehicles fueling |
7000 |
The council's expenditure was
Answer Details
Capital expenditure = Hospital beds (8000) + Ambulance (13000) = #21,000
Note that the question is only asking for the value of capital expenditure
Question 21 Report
Ifedapo Local Council has the following details for 2008
| # | |
| Fines | 5000 |
Allocation from state government |
20000 |
Tenement rates |
10000 |
Licences |
12000 |
Hospital beds |
8000 |
Ambulance |
13000 |
Salaries |
15000 |
Vehicles fueling |
7000 |
The council's expenditure for the year was
Answer Details
Expenditure:
#15,000 (Salaries) + #7,000 (Vehicles fueling)
= #22,000
Note that the question is only asking for expenditure and not capital or recurrent expenditure
Question 22 Report
Issue of prospectus is an invitation to the Public to
Answer Details
A prospectus is a formal legal document that provides detailed information about a company's financial condition, its plans for the future, and the risks involved in investing.
The primary purpose of issuing a prospectus is to attract potential investors to buy (subscribe for) shares of the company's stock.
Question 23 Report
An example of accounts in the nominal ledger is
Answer Details
The nominal ledger, also sometimes called the general ledger, is the main book of accounts used in a double- entry bookkeeping system. It records all the financial transactions of a business during an accounting period. These transactions are categorized into different types of accounts.
Question 24 Report
The following balances was exgtracted from the books of Oluwalambe Ltd, manufacturer, on 31st December 2007
| Stock of raw materials 1 - 1 - 2007 | 8000 |
Purchase of raw materials |
450000 |
Stock of raw materials 31 - 12 - 2007 |
95000 |
Direct wages |
65000 |
Indirect wages |
28000 |
Depreciation on plants |
32000 |
Factory rent |
3500 |
Work in progress 1- 1- 2007 |
32500 |
Work in progress 31 - 12- 2007 |
37500 |
Factory overhead cost is
Answer Details
To calculate the Factory Overhead Cost, we need to consider the expenses that are not directly tied to the production process but are essential for running the factory smoothly. These include indirect costs like lighting, heating, depreciation of machinery, and indirect labor. From the data given, we will identify the elements that contribute to the Factory Overhead Cost:
Other elements in the data such as stock of raw materials, purchase of raw materials, direct wages, and work in progress are part of the cost of production but do not contribute to the Factory Overhead Cost.
Therefore, the total Factory Overhead Cost is calculated by summing up all the overhead costs:
Factory Overhead Cost = Indirect Wages + Depreciation on Plants + Factory Rent
= #28,000 + #32,000 + #3,500
= #63,500
Thus, the Factory Overhead Cost is #63,500.
Question 25 Report
Which of the following is a subsidiary book as well as a ledger?
Answer Details
A cash book serves as both a subsidiary book and a ledger. It is a subsidiary book because it records all cash and bank transactions of a business in a chronological order. It includes details of cash receipts and cash payments, as well as bank deposits and withdrawals. The cash book acts as a primary record for cash and bank transaction before they are posted to the general ledger.
Question 26 Report
Ordinary shares are also known as
Answer Details
Ordinary shares, also known as common shares or equity shares, represent ownership in a company. When individuals or investors purchase ordinary shares, they become shareholders and have ownership rights in the company.
Equity refers to the ownership interest or residual claim on the assets of a company after deducting liabilities. Ordinary shares represent the equity portion of a company's capital structure, and shareholders who hold ordinary shares have voting rights and the potential to receive dividends.
Question 27 Report
Goods bought on credit are first entered in the
Answer Details
When goods are bought on credit, they are first recorded in the purchases day book. The purchases day book is a special journal used to record all credit purchases of goods meant for resale. This is crucial because it keeps track of the amounts owed to suppliers and helps manage the accounts payable for a business.
Here's a simple breakdown of why it is the purchases day book:
Therefore, by recording the credit purchases in the purchases day book, a business keeps an accurate and organized record of its obligations, facilitating better financial management.
Question 28 Report
The following balances were extracted from the books of Onuoha, a trader on 31st December 2005
| Audit fee | 12000 |
| General expenses | 30000 |
| Purchases | 70000 |
| Commission paid | 30000 |
| Stock (1 - 01 - 2005) | 10000 |
| Stock ( 31 - 12 - 2005) | 15000 |
| Sales | 120000 |
The gross profit is
Answer Details
To determine the gross profit, we need to calculate the difference between the sales and the cost of goods sold (COGS). The formula for gross profit is:
Gross Profit = Sales - Cost of Goods Sold (COGS)
The Cost of Goods Sold (COGS) is calculated as follows:
COGS = Opening Stock + Purchases - Closing Stock
Calculating the COGS:
COGS = 10,000 + 70,000 - 15,000
COGS = 80,000 - 15,000
COGS = 65,000
Now, calculate the Gross Profit:
Gross Profit = Sales - COGS
Gross Profit = 120,000 - 65,000
Gross Profit = 55,000
Therefore, the gross profit is #55,000.
Question 29 Report
The value of assets on dissolution of partnership is debited to realization account and credited to ___ account
Answer Details
The realization account is used to record the sale of assets and settlement of liabilities during the dissolution process.
When assets are sold, cash is received. This cash is credited to the cash account to reflect the increase in cash holdings.
Ultimately, the goal of dissolution is to convert all assets into cash, settle liabilities, and distribute any remainin cash among the partners according to their profit-sharing ratios
Question 30 Report
A list of all debit and credit balances from the ledger accounts are made in the
Answer Details
A trial balance is a worksheet that summarizes the ending balances of all ledger accounts after a specific accounting period. It lists each account title and its corresponding debit or credit balance.
Question 31 Report
Purchase Ledger Control Account
| # | # | ||
Cash paid to debtors |
15000 | Balance c/d | 5000 |
Bills payable |
3000 | Purchase journal | 30000 |
Discount receive |
2500 |
|
|
Return outward |
1500 | ||
Sales ledger |
1200 | ||
Balance c/d |
11800 | ||
| 35000 | 35000 |
The item sales ledger #1,200 represents
Answer Details
In the context of the Purchase Ledger Control Account, the item labeled as "sales ledger" amounting to #1,200 represents a situation where there is an interaction between the purchase ledger and the sales ledger.
Typically, this means that there has been a sales return or an offset transaction where the company might have paid a supplier for goods or services provided, but due to some reason like a return or an agreement, there is a balance due back to the company. This situation typically arises when there are inter-company transactions where the company is both a customer and a supplier to the same business entity.
In simpler terms, the #1,200 in the "sales ledger" represents an amount due from suppliers. This implies that a balance owed by the supplier is accounted for in the purchase ledger, indicating a receivable situation within the purchase ledger context.
Thus, it reflects an amount that is due back to the entity from their suppliers who are also their customers in some capacity.
Question 32 Report
The following extracts are made from the books of Agama Enterprises.
Motor van (cost) |
120000 |
Life span |
4 years |
rate of Depreciation |
40% |
Method of depreciation used is Diminishing Balance The scrap value of the asset at the end of year four is
Answer Details
Year 1:
Depreciation = (Book value at the beginning of the year) x (Depreciation rate) = (#120,000) x (40%)
= #48,000
Book value at the end of Year 1 = Cost - Depreciation
= #120,000 - #48,000
= #72,000
Year 2:
Depreciation = (Book value at the beginning of the year) x (Depreciation rate) = (#72,000) x (40%)
= #28,800
Book value at the end of Year 2 = Book value at the end of Year 1 - Depreciation = #72,000 - #28,800
= #43,200
Year 3:
Depreciation = (Book value at the beginning of the year) x (Depreciation rate) = (#43,200) x (40%)
= #17,280
Book value at the end of Year 3 = Book value at the end of Year 2 - Depreciation = #43,200 - #17,280
= #25,920
Year 4:
Depreciation = (Book value at the beginning of the vear) x (Depreciation rate)
Question 33 Report
Purchase Ledger Control Account
| # | # | ||
Cash paid to debtors |
15000 | Balance c/d | 5000 |
Bills payable |
3000 | Purchase journal | 30000 |
Discount receive |
2500 |
|
|
Return outward |
1500 | ||
Sales ledger |
1200 | ||
Balance c/d |
11800 | ||
| 35000 | 35000 |
The balance of #11,800 represents the amount
Answer Details
A Purchase Ledger Control Account is used to track and summarize the transactions related to purchases made from creditors. The balance on the credit side of the account represents the total purchases made from the creditors, while the balance on the debit side represents the payments made to the creditors.
Question 34 Report
Which of the following bodies regulates accounting practices in Nigeria?
Answer Details
The body that regulates accounting practices in Nigeria is ANAN, which stands for the Association of National Accountants of Nigeria.
Here is a simple explanation to help you understand:
Association of National Accountants of Nigeria (ANAN): This is a professional body responsible for regulating the practice of accountancy in Nigeria. It sets standards for accounting professionals, conducts examinations to certify accountants, and ensures that its members adhere to professional ethics and continue their professional development. This guarantees that accounting practices in the country meet both local and international standards.
Therefore, in the given options, ANAN is the correct one as it serves the primary function of regulating the accountancy profession in Nigeria.
Question 35 Report
Rent accrued at the end of an accounting period is a
Answer Details
Rent accrued: This refers to the expense incurred for using an asset (property, equipment, etc.) for a period, ever though the rent payment hasn't been made yet.
Current liability: A current liability is a short-term financial obligation that a company expects to settle within one year or the operating cycle (whichever is longer). Rent accrued falls under this category because it's a debt that needs to be paid to the landlord soon.
Question 36 Report
Which of the following is a subsidiary book as well as a ledger?
Answer Details
A cash book serves as both a subsidiary book and a ledger. It is a subsidiary book because it records all cash and bank transactions of a business in a chronological order. It includes details of cash receipts and cash payments, as well as bank deposits and withdrawals. The cash book acts as a primary record for cash and bank transaction before they are posted to the general ledger.
Question 37 Report
The following balances were extracted from the books of Adama Ltd on 31st August 2007
| # | |
Sales |
200000 |
Drawings |
10000 |
Land and building |
70000 |
Furniture |
10000 |
Debtors |
50000 |
Creditors |
35000 |
Capital |
85000 |
Bank |
10000 |
General expenses |
10000 |
Stock ( 31-08-2007) |
10000 |
Purchases |
140000 |
Stock (1-09- 2006) |
20000 |
Percentage of net profit to sale is
Answer Details
To find the percentage of net profit to sales, we need to calculate the net profit first.
Here's how you can find the net profit:
Step 1: Calculate Cost of Goods Sold (COGS)
COGS = Opening Stock + Purchases - Closing Stock
COGS = 20,000 + 140,000 - 10,000 = 150,000
Step 2: Calculate Gross Profit
Gross Profit = Sales - COGS
Gross Profit = 200,000 - 150,000 = 50,000
Step 3: Calculate Net Profit
Net Profit = Gross Profit - Expenses
In this case, the only expense given is General Expenses: 10,000
Net Profit = 50,000 - 10,000 = 40,000
Step 4: Calculate the Percentage of Net Profit to Sales
Percentage of Net Profit to Sales = (Net Profit / Sales) * 100%
Percentage of Net Profit to Sales = (40,000 / 200,000) * 100% = 20%
Therefore, the percentage of net profit to sales is 20%.
Question 38 Report
Which of the following bodies regulates accounting practices in Nigeria?
Answer Details
In Nigeria, the body that regulates accounting practices is the Association of National Accountants of Nigeria (ANAN). ANAN is a professional body chartered by Act 76 of 1993 and is responsible for setting standards, guiding, and supervising the practice of accountancy in the country.
Here's why ANAN is important for accounting practices:
By regulating accounting practices, ANAN helps maintain the integrity and accuracy of financial information, which is crucial for businesses, government agencies, and stakeholders.
Question 39 Report
The ledger containing the accounts of debtors and creditors is
Answer Details
The ledger that contains the accounts of debtors and creditors is called the personal ledger. This is an essential distinction in accounting because it helps categorize the accounts appropriately. Here is why:
Personal Accounts are accounts that relate specifically to individuals or entities with whom the business has direct dealings such as customers (debtors) and suppliers (creditors). These are entities that the business can identify by name, and they usually consist of accounts that show the amounts the business owes to others or the amounts others owe to the business.
The two primary classifications within personal accounts are:
In contrast:
Impersonal Accounts are divided into Real Accounts and Nominal Accounts.
In summary, any account representing a person or entity that can be identified by name, such as debtors or creditors, falls under personal accounts in the ledger.
Question 40 Report
The short term solvency of a company is determined with ___ ratio
Answer Details
The acid-test ratio assesses a company's ability to meet its short-term obligations (due within a year) using its most liquid assets. It goes beyond the current ratio by excluding inventory from the calculation, as inventory might take longer to convert into cash to pay off debts.
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