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Question 5921Question →

Mr. Babatunde, a sole trader who keeps incomplete accounting records, had an opening capital of ₦120,000 on 1st January 2023 and a closing capital of ₦180,000 on 31st December 2023. During the year, he introduced additional capital of ₦30,000 and withdrew ₦15,000 for personal use. What is the net profit of the business for the year ended 31st December 2023 in Naira?

Show answer & explanation

Answer: 45000

Answer

The net profit for the year ended 31st December 2023 is ₦45,000.

Under the Statement of Affairs method, net profit is calculated by taking closing capital, adding back drawings, subtracting additional capital introduced, and deducting opening capital. Here, (₦180,000 + ₦15,000 - ₦30,000) - ₦120,000 = ₦45,000.

Step-by-Step Solution

Apply the Statement of Affairs profit determination formula.

Net Profit = (Closing Capital + Drawings - Additional Capital) - Opening Capital

Drawings reduce ending capital so they must be added back, while additional capital increases ending capital so it must be deducted to determine profit generated purely from business operations.

Substitute the financial figures into the formula.

Net Profit = (₦180,000 + ₦15,000 - ₦30,000) - ₦120,000

Inserting the given values into the equation allows direct evaluation.

Perform arithmetic calculations to find the net profit.

₦45,000

₦165,000 - ₦120,000 = ₦45,000.

Key Concept

Statement of Affairs Method for Capital and Profit Determination

Question 5922Question →

Mr. Babatunde, a timber merchant, maintains incomplete accounting records. On 1 January 2024, his financial position showed Premises of ₦500,000, Equipment (cost) of ₦200,000, Inventory of ₦120,000, Trade Debtors of ₦80,000, Trade Creditors of ₦60,000, Bank Overdraft of ₦40,000, and Accrued Rent of ₦10,000.

On 31 December 2024, his assets and liabilities prior to end-of-year adjustments were: Premises ₦500,000, Equipment (cost) ₦200,000, Inventory ₦150,000, Trade Debtors ₦110,000, Cash at Bank ₦35,000, Trade Creditors ₦75,000, Prepaid Insurance ₦15,000, and Accrued Wages ₦20,000.

Additional information for the year ended 31 December 2024:
1. Equipment is to be depreciated at $10\%$ per annum on cost.
2. A provision for doubtful debts of $5\%$ is to be created on closing trade debtors.
3. He withdrew ₦6,000 cash monthly for personal use and took goods worth ₦8,000 for private consumption.
4. He introduced additional capital of ₦50,000 into the business during the year.

What is Mr. Babatunde's net profit for the year ended 31 December 2024?

Show answer & explanation

Answer: ₦129,500; 129,500; N129,500; 129500; ₦129500; N129500

Answer

The net profit for the year ended 31 December 2024 is ₦129,500.

The net profit is calculated by finding opening capital (₦790,000) and adjusted closing capital (₦889,500) from their respective Statements of Affairs. Applying the single-entry profit formula

\text{Net Profit} = (\text{Closing Capital} + \text{Drawings} - \text{Additional Capital}) - \text{Opening Capital}

gives

(₦889,500 + ₦80,000 - ₦50,000) - ₦790,000 = ₦129,500

Step-by-Step Solution

Calculate Opening Capital as at 1 January 2024 using the Statement of Affairs approach.

Total Opening Assets = ₦500,000 (Premises) + ₦200,000 (Equipment) + ₦120,000 (Inventory) + ₦80,000 (Trade Debtors) = ₦900,000.
Total Opening Liabilities = ₦60,000 (Trade Creditors) + ₦40,000 (Bank Overdraft) + ₦10,000 (Accrued Rent) = ₦110,000.
Opening Capital (

C_0

) = ₦900,000 - ₦110,000 = ₦790,000.

Capital is determined by subtracting total liabilities from total assets at the beginning of the accounting period.

Calculate Adjusted Closing Capital as at 31 December 2024 after incorporating year-end adjustments.

Net Equipment = ₦200,000 - (10% × ₦200,000) = ₦180,000.
Net Debtors = ₦110,000 - (5% × ₦110,000) = ��104,500.
Total Closing Assets = ₦500,000 (Premises) + ₦180,000 (Net Equipment) + ₦150,000 (Inventory) + ₦104,500 (Net Debtors) + ₦35,000 (Bank) + ₦15,000 (Prepaid Insurance) = ₦984,500.
Total Closing Liabilities = ₦75,000 (Trade Creditors) + ₦20,000 (Accrued Wages) = ₦95,000.
Closing Capital (

C_1

) = ₦984,500 - ₦95,000 = ₦889,500.

Depreciation and doubtful debt provisions reduce closing asset values before determining closing capital.

Calculate Total Drawings during the year.

Cash Drawings = ₦6,000 × 12 months = ₦72,000.
Goods Drawings = ₦8,000.
Total Drawings (

D

) = ₦72,000 + ₦8,000 = ₦80,000.

Drawings include both cash withdrawn periodically and goods taken for private use.

Calculate Net Profit using the capital comparison formula:

\text{Net Profit} = (\text{Closing Capital} + \text{Drawings} - \text{Capital Introduced}) - \text{Opening Capital}

Net Profit = (₦889,500 + ₦80,000 - ₦50,000) - ��790,000 = ₦919,500 - ₦790,000 = ₦129,500.

Adding drawings back and deducting introduced capital adjusts closing capital to reflect profit generated purely from business operations.

Key Concept

Statement of Affairs Method for Capital and Profit Determination

Estimated Time:3m 0s

Question 5923Question →

On 31st December 2025, the Cash Book of Folake Trading Enterprise showed an overdrawn bank balance of $\text{NGN } 14,800$ . Upon comparing the Cash Book with the Bank Statement, the accountant identified the following items:

1. Unpresented cheques totaling $\text{NGN } 6,200$
2. Uncredited lodgements amounting to $\text{NGN } 4,500$
3. A direct credit transfer from a customer, Mr. Audu, of $\text{NGN } 3,400$ recorded only on the bank statement
4. Bank charges debited by the bank amounting to $\text{NGN } 850$
5. A standing order payment for business insurance of $\text{NGN } 1,200$ paid by the bank but not entered in the Cash Book
6. A cheque of $\text{NGN } 2,100$ previously deposited and entered in the Cash Book was returned unpaid (dishonoured) by the bank

What is the adjusted Cash Book balance in $\text{NGN}$ ? (Express an overdrawn balance as a negative number, e.g., $-5000$ ).

Show answer & explanation

Answer: -15550

Answer

The adjusted Cash Book balance is an overdraft of

-\text{NGN } 15,550

To calculate the adjusted Cash Book balance, start with the unadjusted overdraft of

-\text{NGN } 14,800

. Add unrecorded receipts such as the direct credit of

\text{NGN } 3,400

. Deduct unrecorded payments and debits made by the bank, which include bank charges (

\text{NGN } 850

), standing order (

\text{NGN } 1,200

), and the dishonoured cheque (

\text{NGN } 2,100

). Unpresented cheques and uncredited lodgements are timing differences that are reconciled only in the Bank Reconciliation Statement, so they are not included in adjusting the Cash Book. Calculating

-\text{NGN } 14,800 + \text{NGN } 3,400 - \text{NGN } 850 - \text{NGN } 1,200 - \text{NGN } 2,100

gives

-\text{NGN } 15,550

Step-by-Step Solution

Identify the starting Cash Book balance

Initial balance =

-\text{NGN } 14,800

(overdraft)

An overdrawn Cash Book balance is treated as a negative cash position.

Add items that increase the Cash Book balance

Add Direct Credit =

+\text{NGN } 3,400

. Running total =

-\text{NGN } 11,400

Direct credits are receipts deposited straight into the bank account by third parties which must be added to the Cash Book.

Deduct items that reduce the Cash Book balance

Deduct Bank Charges (

-\text{NGN } 850

), Standing Order (

-\text{NGN } 1,200

), and Dishonoured Cheque (

-\text{NGN } 2,100

). Total deductions =

-\text{NGN } 4,150

Bank charges, standing orders, and dishonoured cheques represent payments or uncollectible deposits recorded by the bank that must be debited/subtracted in the Cash Book.

Filter out items that do not belong in the Adjusted Cash Book

Unpresented cheques (

\text{NGN } 6,200

) and uncredited lodgements (

\text{NGN } 4,500

) are excluded from the Cash Book adjustment.

Unpresented cheques and uncredited lodgements are timing differences already correctly entered in the Cash Book, so they are adjusted in the Bank Reconciliation Statement rather than the Cash Book.

Calculate the final adjusted balance

Adjusted Cash Book balance =

-\text{NGN } 11,400 - \text{NGN } 4,150 = -\text{NGN } 15,550

Combining the initial overdraft with net adjustments gives the corrected balance.

Key Concept

Distinction between Cash Book adjustments (omitted items, errors, bank charges, direct debits) and Bank Reconciliation Statement items (timing differences like unpresented cheques and uncredited lodgements).

Question 5924Question →

Tunde and Folake are partners in an architectural firm sharing profits and losses in the ratio of $3:2$ . They agree to admit Ibrahim as a new partner with a $\frac{1}{4}$ share in the profits of the firm. If the total goodwill of the firm is valued at $\text{₦}20,000$ , what is the amount of goodwill premium in Naira that Ibrahim must bring in for his share?

Show answer & explanation

Answer: 5000

Answer

The amount of goodwill premium that Ibrahim must bring in is 5,000 (or ₦5,000).

Upon admission, an incoming partner is required to bring in a goodwill premium equal to their fraction of the total goodwill valuation. Multiplying the total goodwill of ₦20,000 by Ibrahim's profit share of 1/4 yields ₦5,000.

Step-by-Step Solution

Determine the incoming partner's profit share

Ibrahim's share of profits is 1/4

The terms of admission grant Ibrahim a 1/4 share of total future profits.

Compute the incoming partner's share of goodwill premium

₦20,000 × (1/4) = ₦5,000

A new partner must contribute goodwill premium proportional to the share of profits acquired.

Key Concept

Calculation of Incoming Partner's Share of Goodwill Premium

Question 5925Question →

Which of the following represents the primary role of communication as an auxiliary to trade?

Enabling the continuous flow of information, inquiries, and transaction details between buyers and sellers across different locations.

Providing direct personal services such as healthcare and custom tailoring directly to individual consumers.

Purchasing goods in bulk from manufacturers and breaking bulk for resale to retail traders.

Issuing formal written notices to buyers to correct undercharges detected in commercial invoices.

Show answer & explanation

Answer: Enabling the continuous flow of information, inquiries, and transaction details between buyers and sellers across different locations.

Answer

Enabling the continuous flow of information, inquiries, and transaction details between buyers and sellers across different locations.

The primary role of communication as an auxiliary to trade is to connect traders by exchanging messages, place orders, and share market information across distances, thereby facilitating transaction agreements.

Step-by-Step Solution

Analyze the main function of communication in commercial activities.

Communication acts as an auxiliary to trade by transmitting market information, inquiries, orders, and feedback between business parties across distance.

Without communication, producers, wholesalers, retailers, and consumers could not exchange vital transactional information efficiently.

Key Concept

Primary Role of Communication in Commerce

Question 5926Question →

In public sector accounting, receipts derived from the privatization or disposal of government fixed assets are credited to the Consolidated Revenue Fund as recurrent non-tax revenue.

True

False

Show answer & explanation

Answer: False

Answer

The statement is False. Proceeds from the disposal of government capital assets are classified as capital receipts and paid into the Development Fund, not recurrent non-tax revenue in the Consolidated Revenue Fund.

The statement is false because revenue obtained from disposing of government capital assets represents a capital receipt. In public sector accounting, capital receipts are designated for the Development Fund to finance capital expenditure, whereas the Consolidated Revenue Fund is used to account for recurrent tax and non-tax revenues intended for ongoing administrative and operating costs.

Step-by-Step Solution

Classify the nature of revenue generated from asset disposal.

Money received from selling fixed assets is a capital receipt.

It represents a non-recurring transaction resulting from the liquidation of capital assets rather than regular operational activities.

Determine the statutory government fund destination for capital receipts.

Capital receipts are allocated to the Development Fund (Capital Development Fund).

The Consolidated Revenue Fund receives recurrent revenues (tax and non-tax) for recurrent expenditures, while the Development Fund receives capital receipts to fund capital development projects.

Key Concept

Classification of Government Revenue and Statutory Fund Allocation

Question 5927Question →

Kemi and Sule are partners sharing profits and losses in the ratio $3:2$ . On the admission of Audu into the firm, the assets and liabilities were revalued as follows:
- Building (Book Value $₦800,000$ ) revalued at $₦1,000,000$
- Furniture (Book Value $₦400,000$ ) revalued at $₦320,000$
- Provision for Doubtful Debts (Existing balance $₦15,000$ ) to be increased to $₦25,000$
- An unrecorded accrued liability of $₦10,000$ to be recognized

What is Kemi's share of the revaluation profit or loss?

₦40,000 profit

₦60,000 profit

₦51,000 profit

₦60,000 loss

Show answer & explanation

Answer: ₦60,000 profit

Answer

Kemi's share of the revaluation profit is ₦60,000 profit.

The net revaluation gain is

₦100,000

, calculated by adding the gain on building (

₦200,000

) and subtracting the losses on furniture (

₦80,000

), increase in doubtful debt provision (

₦10,000

), and unrecorded liability (

₦10,000

). Sharing this net gain in the old ratio (

3:2

) gives Kemi a

3/5

share, which equals

₦60,000

profit.

Step-by-Step Solution

Calculate individual gains and losses on revaluation

Building appreciation =

₦1,000,000 - ₦800,000 = +₦200,000

(Gain); Furniture depreciation =

₦400,000 - ₦320,000 = -₦80,000

(Loss); Increase in Provision for Doubtful Debts =

₦25,000 - ₦15,000 = -₦10,000

(Loss); Unrecorded Liability =

-₦10,000

(Loss).

Revaluation gain arises when assets appreciate or liabilities decrease; revaluation loss arises when assets depreciate or liabilities increase.

Determine the net profit or loss on revaluation

Net Profit =

₦200,000 - ₦80,000 - ₦10,000 - ₦10,000 = ₦100,000

Profit.

Summing all revaluation credits (gains) and debits (losses) yields the total revaluation surplus.

Apportion the net revaluation profit to Kemi using the old profit sharing ratio

Kemi's share =

\frac{3}{3+2} \times ₦100,000 = \frac{3}{5} \times ₦100,000 = ₦60,000

Profit.

Revaluation gains/losses must strictly be distributed to existing partners using their old profit-sharing ratio.

Key Concept

Apportionment of Net Revaluation Profit/Loss to Existing Partners in Old Ratio

Question 5928Question →

A cosmetics manufacturer distributes free sample sachets of a newly developed facial cream at shopping malls to encourage potential buyers to try the product. Which auxiliary to trade is the manufacturer utilizing?

Sales promotion

Public relations

Informative advertising

Personal selling

Show answer & explanation

Answer: Sales promotion

Answer

Sales promotion is the commercial activity being utilized.

Distributing free samples is a classic sales promotion technique designed to reduce customer risk and induce immediate trial of a new product.

Step-by-Step Solution

Analyze the commercial activity described in the scenario

The firm is distributing free sample sachets to potential consumers at malls to encourage immediate trial of a new product.

Identifying the specific action helps classify the commercial tool used.

Distinguish between promotional auxiliaries to trade

Sales promotion consists of short-term incentives (like free samples, coupons, premiums, and discounts) aimed at encouraging trial or purchase.

This matches the definition and purpose of sales promotion.

Key Concept

Sales Promotion vs. Other Marketing Auxiliaries

Estimated Time:1m 0s

Question 5929Question →

Bala consigned goods to Okon to be sold on commission. Okon sold goods worth ₦200,000 for cash and ₦300,000 on credit. Under the agreement, Okon is entitled to an ordinary commission of $5\%$ on total sales and a del-credere commission of $2\%$ on total sales. During the consignment period, a customer defaulted on credit sales, resulting in a bad debt of ₦15,000. Assuming Okon incurred no other expenses, what is the net amount payable by Okon to Bala?

₦465,000

₦450,000

₦469,000

₦475,000

Show answer & explanation

Answer: ₦465,000

Answer

The net amount payable by Okon to Bala is ₦465,000.

Total sales equal ₦500,000. Ordinary commission (

5\%

) is ₦25,000 and del-credere commission (

2\%

) is ₦10,000, bringing total commission to ₦35,000. Because the consignee receives a del-credere commission, credit losses (bad debts) are borne entirely by the consignee. Deducting the total commission of ₦35,000 from gross proceeds of ₦500,000 yields ₦465,000 payable to the consignor.

Step-by-Step Solution

Calculate Total Sales

Total Sales = ₦200,000 (Cash) + ₦300,000 (Credit) = ₦500,000

Commission percentages are applied to total sales as specified in the consignment agreement.

Calculate Ordinary and Del-Credere Commissions

Ordinary Commission = 5% of ₦500,000 = ₦25,000; Del-Credere Commission = 2% of ₦500,000 = ₦10,000; Total Commission = ₦35,000

Both commissions are computed based on total sales.

Determine Bad Debt Responsibility

Bad debt of ₦15,000 is absorbed by Okon (consignee).

The granting of a del-credere commission shifts the liability for credit losses from consignor to consignee.

Compute Net Amount Due to Consignor

Net Amount Due = ₦500,000 - ₦35,000 = ₦465,000

Consignee deducts only total commission from gross sales before remitting proceeds.

Key Concept

Del-Credere Commission and Bad Debt Treatment in Consignment Accounts

Question 5930Question →

In financial accounting practice, specific accounting concepts and conventions govern how business transactions and events are recorded and reported. Match each accounting scenario described below with the fundamental accounting concept or convention that dictates its accounting treatment.

Click a left item, then click its matching right item

Show answer & explanation

Answer

1. Recording office equipment at original cost matches the Historical Cost Concept. 2. Expensing small stationery purchases immediately matches the Materiality Convention. 3. Recognizing sales revenue upon delivery regardless of cash movement matches the Accrual (Matching) Concept. 4. Anticipating doubtful debt losses while ignoring unearned profits matches the Prudence (Conservatism) Convention.

Each transaction scenario corresponds directly to its governing rule: recording assets at initial purchase price preserves historical cost; expensing minor low-value items relies on materiality; timing revenue upon performance follows accrual accounting; and recognizing prospective losses while excluding unearned gains embodies prudence.

Step-by-Step Solution

Analyze the accounting treatment of recording assets at acquisition price.

Recording assets at original purchase cost reflects the Historical Cost Concept.

The historical cost concept mandates that transactions are recorded at cost price rather than revalued market price.

Analyze the treatment of low-value expenditures like stationery.

Charging minor purchases immediately to expenses reflects the Materiality Convention.

The materiality convention permits trivial financial items to bypass strict asset capitalization rules.

Analyze revenue recognition timing upon delivery.

Recognizing revenue when earned rather than when cash is received reflects the Accrual Concept.

The accrual concept matches income and expenses to the specific accounting period in which they arise.

Analyze asymmetric accounting treatment for anticipated losses versus gains.

Recognizing potential losses while ignoring anticipated gains reflects the Prudence Convention.

Prudence ensures financial statements do not overstate assets or income.

Key Concept

Accounting Concepts and Conventions

Estimated Time:1m 30s

Question 5931Question →

A trader pays a creditor $₦19,000$ in cash after receiving a cash discount of $₦1,000$ . How should the $₦1,000$ discount be entered in the trader's three-column cash book?

On the credit side in the discount column

On the debit side in the discount column

On the credit side in the cash column

On the debit side in the bank column

Show answer & explanation

Answer: On the credit side in the discount column

Answer

The discount of

₦1,000

should be entered on the credit side in the discount column.

In a three-column cash book, all payments made by a business are entered on the credit side. The discount column on the credit side is dedicated to discount received from suppliers. Therefore, the

₦1,000

cash discount must be recorded in the discount column on the credit side.

Step-by-Step Solution

Identify the nature of the transaction and discount

Payment to a creditor with a cash discount received of

₦1,000

A reduction given by a creditor for prompt payment is classified as discount received.

Determine column and side placement in the cash book

Enter

₦1,000

in the discount column on the credit side.

In a three-column cash book, payments are credited. The discount column on the credit side records discount received.

Key Concept

Treatment of Discount Received in a Three-Column Cash Book

Estimated Time:45s

Question 5932Question →

Folake Traders completed the following transactions during June 2026:

• June 4: Purchased goods for resale on credit from Balogun Enterprise valued at $\text{₦}150,000$ , subject to a $10\%$ trade discount.
• June 10: Purchased office furniture on credit from Kwara Furniture Mart for $\text{₦}80,000$ .
• June 18: Bought inventory for resale on credit from Danjuma & Sons for $\text{₦}200,000$ less a $5\%$ trade discount.
• June 22: Acquired computer equipment on credit from Tech Hub for $\text{₦}120,000$ .
• June 27: Bought goods for resale paying $\text{₦}50,000$ cash from Okafor Stores.

What is the total amount that should be entered into the Purchases Journal at the end of June 2026?

₦325,000

₦350,000

₦375,000

₦525,000

Show answer & explanation

Answer: ₦325,000

Answer

The total amount entered into the Purchases Journal is ₦325,000.

The Purchases Journal is used exclusively to record credit purchases of goods meant for resale. Trade discounts are subtracted before entering figures into the journal. Here, net credit purchases are

\text{₦}135,000

(June 4) plus

\text{₦}190,000

(June 18), giving

\text{₦}325,000

. Office furniture and computer equipment are capital items recorded in the General Journal, while cash purchases are entered in the Cash Book.

Step-by-Step Solution

Identify transactions eligible for the Purchases Journal

Only credit purchases of merchandise intended for resale (June 4 and June 18) are included.

The Purchases Journal strictly records credit purchases of goods for resale. Credit purchases of fixed assets (June 10 and June 22) go to the General Journal, and cash purchases (June 27) go to the Cash Book.

Calculate the net price for the June 4 transaction

\text{₦}150,000 - (10\% \times \text{₦}150,000) = \text{₦}135,000

Trade discounts are deducted immediately from the invoice price before recording in the day book.

Calculate the net price for the June 18 transaction

\text{₦}200,000 - (5\% \times \text{₦}200,000) = \text{₦}190,000

Trade discount must be subtracted to arrive at net credit purchases.

Sum the eligible net credit purchases

\text{₦}135,000 + \text{₦}190,000 = \text{₦}325,000

The Purchases Journal total reflects net credit purchases of inventory for the month.

Key Concept

Scope and Rules of the Purchases Journal

Estimated Time:2m 0s

Question 5933Question →

The following transactions took place in the business of Kalu Enterprises during March 2026:

- March 5: Purchased goods on credit from Tunde Traders for ₦450,000, less 10% trade discount.
- March 12: Purchased office equipment on credit from Woodworks Ltd for ₦200,000.
- March 18: Returned damaged goods (list price ₦50,000) purchased on March 5 to Tunde Traders.
- March 22: Purchased goods for cash from Okon & Sons for ₦120,000.
- March 28: Purchased goods on credit from Bola & Co. for ₦300,000.

What are the correct total amounts to be posted to the Purchases Account and Purchases Returns Account in the General Ledger at the end of March 2026?

Purchases Account: ₦705,000 (Debit); Purchases Returns Account: ₦45,000 (Credit)

Purchases Account: ₦905,000 (Debit); Purchases Returns Account: ₦50,000 (Credit)

Purchases Account: ₦825,000 (Debit); Purchases Returns Account: ₦45,000 (Credit)

Purchases Account: ₦750,000 (Debit); Purchases Returns Account: ₦50,000 (Credit)

Show answer & explanation

Answer: Purchases Account: ₦705,000 (Debit); Purchases Returns Account: ₦45,000 (Credit)

Answer

Purchases Account: ₦705,000 (Debit); Purchases Returns Account: ₦45,000 (Credit)

The Purchases Journal records only credit purchases of goods meant for resale, measured net of trade discount. The credit purchase from Tunde Traders amounts to ₦405,000 (₦450,000 less 10%) and Bola & Co. amounts to ₦300,000, giving a total of ₦705,000 which is debited to the Purchases Account. The Purchases Returns Journal records goods returned to credit suppliers net of the trade discount received at purchase, which equals ₦45,000 (₦50,000 less 10%) and is credited to the Purchases Returns Account.

Step-by-Step Solution

Identify transactions that belong in the Purchases Journal

Only credit purchases of goods intended for resale are included: March 5 (Tunde Traders) and March 28 (Bola & Co.). Office equipment is capital expenditure (General Journal), and cash purchases belong in the Cash Book.

The Purchases Journal strictly records credit purchases of trading inventory.

Calculate net credit purchases for the Purchases Journal total

Tunde Traders net amount: ₦450,000 - (10% of ₦450,000) = ₦405,000. Bola & Co. net amount: ₦300,000. Total Purchases Journal balance = ₦405,000 + ₦300,000 = ₦705,000.

Trade discounts must be deducted before entering transactions into subsidiary books.

Calculate net purchases returns for the Purchases Returns Journal total

Returned goods list price ₦50,000 less 10% trade discount (₦5,000) = ₦45,000 net returns balance.

Returned goods must be valued at the actual net cost price paid after deducting the original trade discount.

Determine General Ledger posting directions

Total Purchases Journal (₦705,000) is debited to Purchases Account; total Purchases Returns Journal (₦45,000) is credited to Purchases Returns Account.

Purchases represents an asset/expense increase (debit balance), whereas returns reduce purchases (credit balance).

Key Concept

Classification of transactions in subsidiary books and net valuation of credit purchases and returns after trade discounts.

Estimated Time:2m 0s

Question 5934Question →

A commercial enterprise utilizes an integrated computerized accounting system where sales transaction data captured by optical scanners is processed against customer credit thresholds, committed to a central database, managed by a database administrator, and governed by written backup policies. Which of the following correctly matches two of these operational elements with their fundamental computerized accounting system component categories?

The central database storing financial records is a Data component, while the written backup policies represent a Procedure component.

The database administrator overseeing system operation is a Procedure component, while the optical scanners represent a Software component.

The customer credit threshold rules are a Software component, while the optical scanning equipment is a Data component.

The optical scanner capturing sales transactions is a Data component, while the database administrator represents a Software component.

Show answer & explanation

Answer: The central database storing financial records is a Data component, while the written backup policies represent a Procedure component.

Answer

The central database storing financial records is a Data component, while the written backup policies represent a Procedure component.

In a Computerized Accounting System, Data consists of raw or processed financial records stored within databases, and Procedures consist of manual or automated rules, policies, and instructions that direct how data is collected, processed, and backed up. Therefore, matching the central database storing records to Data and written backup policies to Procedures is correct.

Step-by-Step Solution

Identify the five core components of a computerized accounting system (CAS)

The components are Hardware (physical devices), Software (programs/operating systems), Data (stored accounting information), Procedures (rules and operational guidelines), and Peopleware (system personnel and users).

Establishing standard component definitions allows accurate classification of operational elements.

Map each scenario element to its appropriate CAS component category

Optical scanners = Hardware; Customer credit thresholds and written backup policies = Procedures; Central database storing records = Data; Database administrator = Peopleware.

Classifying each element isolates the true pairing from misclassified options.

Evaluate the option pairings for accuracy

The pairing identifying stored financial records as Data and written backup policies as Procedures is completely accurate.

Data consists of the stored information processed by the system, and Procedures encompass documented rules and routines governing system execution.

Key Concept

Components of Computerized Accounting Systems

Estimated Time:1m 30s

Question 5935Question →

Kemi and Funmi are partners sharing profits and losses in the ratio 3:2. For the year ended 31 December 2025, the firm reported a net profit of ₦150,000 before adjusting for interest on Kemi's loan. The following information is also available:
- Interest on Kemi's loan to the firm: ₦10,000
- Interest on drawings: Kemi ₦2,000; Funmi ₦3,000
- Partner's salary: Funmi ₦15,000
- Interest on capital: Kemi ₦10,000; Funmi ₦10,000

What is the net divisible profit to be shared between the partners in the Profit and Loss Appropriation Account?

₦120,000

₦110,000

₦100,000

₦130,000

Show answer & explanation

Answer: ₦110,000

Answer

The net divisible profit to be shared between Kemi and Funmi is ₦110,000.

Interest on partner's loan (₦10,000) is an expense charged in the Profit and Loss Account, reducing the net profit to ₦140,000. In the Profit and Loss Appropriation Account, interest on drawings (₦5,000) is added to net profit to yield ₦145,000. Deducting partner appropriations—Funmi's salary (₦15,000) and total interest on capital (₦20,000)—leaves a net divisible profit of ₦110,000.

Step-by-Step Solution

Calculate net profit after interest on loan

₦150,000 - ₦10,000 = ₦140,000

Interest on a partner's loan is a charge against profit (debited to P&L Account), not an appropriation of profit.

Add total interest on drawings to net profit

₦140,000 + (₦2,000 + ₦3,000) = ₦145,000

Interest on drawings is income to the partnership firm credited in the Appropriation Account.

Deduct total appropriations (partner salary and interest on capital)

₦145,000 - ₦15,000 (Salary) - ₦20,000 (Interest on Capital) = ₦110,000

Partner salaries and interest on capital are appropriations of profit distributed to partners.

Key Concept

Profit and Loss Appropriation Account Distinctions

Question 5936Question →

Match each accounting transaction or balance related to depreciation on the left with its correct accounting treatment or entry on the right.

Click a left item, then click its matching right item

Show answer & explanation

Answer

Annual depreciation charge matches with 'Debit Profit and Loss Account, Credit Provision for Depreciation Account'; Transfer of accumulated depreciation upon sale matches with 'Debit Provision for Depreciation Account, Credit Asset Disposal Account'; Presentation of accumulated depreciation at year-end matches with 'Deducted from non-current asset cost in the Statement of Financial Position'; Purchase of a new non-current asset matches with 'Debit Asset Account, Credit Payable / Supplier Account'.

Each item correctly matches its double-entry posting rule or financial statement reporting format: annual depreciation expense is debited to Profit & Loss and credited to Provision for Depreciation; asset disposal requires transferring accumulated depreciation to Asset Disposal via debiting Provision for Depreciation; the accumulated provision balance is subtracted from asset cost in the Statement of Financial Position; and asset acquisition increases asset cost by debiting the asset account.

Step-by-Step Solution

Determine double entry for periodic depreciation expense

Debit Profit and Loss Account and Credit Provision for Depreciation Account

Depreciation is an expense reducing net profit for the period while building up the contra-asset provision account balance.

Determine double entry for eliminating accumulated depreciation on disposal

Debit Provision for Depreciation Account and Credit Asset Disposal Account

To close out accumulated depreciation corresponding specifically to the asset being disposed of, debit the provision account.

Determine balance sheet reporting for accumulated provision

Deducted from non-current asset cost in the Statement of Financial Position

Provision for depreciation is a contra-asset account presented as a deduction from historical cost to reflect the net book value.

Determine double entry for capital expenditure acquisition on credit

Debit Asset Account and Credit Payable / Supplier Account

Capital purchases increase the non-current asset balance and create a corresponding creditor/payable entry.

Key Concept

Accounting Treatment of Depreciation and Provision for Depreciation

Question 5937Question →

A topographical map has a statement scale of $1\text{ cm to } 2.5\text{ km}$ . What is the Representative Fraction (RF) of this map?

1 : 250,000

1 : 25,000

1 : 2,500

250,000 : 1

Show answer & explanation

Answer: $1 : 250,000$

Answer

1 : 250,000

To convert a statement scale of

1\text{ cm to } 2.5\text{ km}

to a Representative Fraction (RF), both measurements must be brought to the same unit (centimeters). Since

1\text{ km} = 100,000\text{ cm}

, multiplying

2.5\text{ km}

100,000

yields

250,000\text{ cm}

. Therefore,

1\text{ cm}

on the map represents

250,000\text{ cm}

on the ground, giving an RF of

1 : 250,000

Step-by-Step Solution

Identify the given statement scale

The statement scale is

1\text{ cm to } 2.5\text{ km}

Converting to a Representative Fraction requires expressing both map distance and ground distance in identical units.

Convert ground distance from kilometers to centimeters

2.5\text{ km} = 2.5 \times 100,000\text{ cm} = 250,000\text{ cm}

There are

100,000\text{ cm}

1\text{ km}

(

1,000\text{ m} \times 100\text{ cm/m}

Formulate the Representative Fraction

The ratio is

\frac{1\text{ cm}}{250,000\text{ cm}} = 1 : 250,000

Representative Fraction is expressed as a ratio

1 : n

without unit labels.

Key Concept

Statement Scale to Representative Fraction Conversion

Question 5938Question →

The following information was extracted from the incomplete records of a sole trader for the year ended 31st December 2025:

- Opening Debtors: ₦12,000
- Closing Debtors: ₦15,000
- Cash received from Debtors: ₦68,000
- Discount allowed: ₦2,000
- Bad debts written off: ₦1,000
- Opening Creditors: ₦9,000
- Closing Creditors: ₦11,000
- Cash paid to Creditors: ₦40,000
- Discount received: ₦1,500
- Opening Inventory: ₦8,000
- Closing Inventory: ₦10,000
- General operating expenses paid: ₦14,000
- Accrued operating expenses at 1st January 2025: ₦1,000
- Prepaid operating expenses at 31st December 2025: ₦2,000

What is the net profit of the business for the year ended 31st December 2025?

₦20,000

₦17,000

₦14,000

₦28,000

Show answer & explanation

Answer: ₦20,000

Answer

The net profit of the business for the year ended 31st December 2025 is ₦20,000.

The correct figure of ₦20,000 is derived by reconstructing control accounts to determine total sales (₦74,000) and purchases (₦43,500), calculating gross profit (₦32,500), adding discount received (₦1,500), and deducting net adjusted expenses (₦14,000 total).

Step-by-Step Solution

Calculate total credit sales using the Sales Ledger Control Account.

Total Sales = Cash Received (₦68,000) + Discount Allowed (₦2,000) + Bad Debts (₦1,000) + Closing Debtors (₦15,000) - Opening Debtors (₦12,000) = ₦74,000.

Credit sales equal total credits to debtors plus closing balance minus opening balance.

Calculate total credit purchases using the Purchases Ledger Control Account.

Total Purchases = Cash Paid (₦40,000) + Discount Received (₦1,500) + Closing Creditors (₦11,000) - Opening Creditors (₦9,000) = ₦43,500.

Credit purchases equal total debits to creditors plus closing balance minus opening balance.

Calculate Cost of Goods Sold and Gross Profit.

Cost of Goods Sold = Opening Inventory (₦8,000) + Purchases (₦43,500) - Closing Inventory (₦10,000) = ₦41,500. Gross Profit = Sales (₦74,000) - Cost of Goods Sold (₦41,500) = ₦32,500.

Gross profit is the difference between total sales revenue and the cost of inventory sold.

Adjust operating expenses and compute Net Profit.

Net Operating Expenses = Paid Expenses (₦14,000) - Opening Accrued (₦1,000) - Closing Prepaid (₦2,000) = ₦11,000. Total Expenses = Net Operating Expenses (₦11,000) + Discount Allowed (₦2,000) + Bad Debts (₦1,000) = ₦14,000. Net Profit = Gross Profit (₦32,500) + Discount Received (₦1,500) - Total Expenses (₦14,000) = ₦20,000.

Net profit accounts for non-trading revenue like discount received and deducts all accrued operating expenses and losses.

Key Concept

Conversion from Single Entry to Double Entry for Final Accounts Preparation

Estimated Time:2m 30s

Question 5939Question →

In what chronological order should the following steps and figures be derived when preparing a company's Statement of Profit or Loss (Income Statement) in accordance with standard accounting principles?

Drag items to arrange them in the correct order

Show answer & explanation

Answer

The correct presentation sequence is: 1) Gross Profit calculation, 2) Operating Profit calculation, 3) Profit Before Taxation calculation, 4) Profit After Tax calculation, and 5) Determination of Retained Profit for the year.

The Statement of Profit or Loss follows a standard vertical presentation sequence: Trading section (Turnover minus Cost of Sales gives Gross Profit), followed by the Profit or Loss section (Gross Profit minus Operating Expenses gives Operating Profit), deducting Finance Costs to yield Profit Before Tax, deducting Tax Provision to give Profit After Tax, and finally appropriating dividends and reserves to find Retained Earnings.

Step-by-Step Solution

Calculate Gross Profit

Gross Profit = Revenue - Cost of Sales

Trading performance is determined first by deducting direct costs from sales revenue.

Calculate Operating Profit (EBIT)

Operating Profit = Gross Profit + Other Income - Operating Expenses

Administrative and distribution overheads are deducted from gross profit to get operating profit.

Calculate Profit Before Taxation (PBT)

Profit Before Tax = Operating Profit - Finance Costs (Debenture Interest)

Finance expenses are non-operating costs that reduce operating profit to derive pre-tax earnings.

Calculate Profit After Tax (PAT)

Profit After Tax = Profit Before Tax - Corporate Income Tax Provision

Tax liabilities are calculated based on pre-tax earnings and deducted to show net income.

Calculate Retained Earnings carried forward

Retained Profit = Profit After Tax - Appropriations (Dividends & Reserves Transfers)

Distributions to shareholders and internal reserve allocations are deducted from net profit to obtain retained earnings.

Key Concept

Structure and Preparation Sequence of Company Final Accounts (Statement of Profit or Loss)

Estimated Time:2m 0s

Question 5940Question →

A head office transferred goods costing ₦80,000 to its dependent branch at an invoice price calculated using a mark-up of 25% on cost. What is the total invoice price of the goods sent to the branch?

₦20,000

₦64,000

₦100,000

₦60,000

Show answer & explanation

Answer: ₦100,000

Answer

The total invoice price of the goods sent to the branch is ₦100,000.

To find the invoice price when goods are billed at cost plus a percentage mark-up, compute the profit element by taking 25% of the cost (25% of ₦80,000 = ₦20,000) and add it to the cost price (₦80,000 + ₦20,000 = ₦100,000).

Step-by-Step Solution

Calculate the mark-up amount in Naira.

Mark-up = 25% of ₦80,000 = 0.25 × ₦80,000 = ₦20,000

Mark-up is the profit percentage added directly to the cost price.

Add the mark-up amount to the original cost price to find the invoice price.

Invoice Price = Cost Price + Mark-up = ₦80,000 + ₦20,000 = ₦100,000

The invoice price reflects the selling value billed to the branch.

Key Concept

Invoice Price Calculation for Goods Sent to Branch

Estimated Time:45s

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