All practice questions

Question 11701Question →

The Sales Ledger Control Account of Tari Traders showed a debit balance of $\text{₦}145,000$ . It was subsequently discovered that a sales returns figure of $\text{₦}3,500$ had been posted to the debit side of the control account instead of the credit side. What is the corrected balance of the Sales Ledger Control Account?

\text{₦}138,000

\text{₦}141,500

\text{₦}148,500

\text{₦}152,000

Show answer & explanation

Answer: $\text{₦}138,000$

Answer

The corrected balance of the Sales Ledger Control Account is

\text{₦}138,000

.

Sales returns belong on the credit side of the Sales Ledger Control Account because they reduce total debtors. When an item of

\text{₦}3,500

is incorrectly debited instead of credited, the debit balance is inflated by

\text{₦}7,000

(

\text{₦}3,500

to neutralize the debit plus

\text{₦}3,500

for the actual credit). Thus, deducting

\text{₦}7,000

from

\text{₦}145,000

gives the corrected balance of

\text{₦}138,000

.

Step-by-Step Solution

1

Identify the nature of the error and its impact on the control account

Sales returns reduce trade receivables and belong on the credit side. Being wrongly posted to the debit side means the debit balance was overstated by double the transaction value (

2 \times \text{₦}3,500 = \text{₦}7,000

).

Correcting a reverse side placement requires canceling the wrong debit entry (

\text{₦}3,500

) and making the proper credit entry (

\text{₦}3,500

).

2

Calculate the corrected debit balance

\text{₦}145,000 - \text{₦}7,000 = \text{₦}138,000

.

Deducting the total correction of

\text{₦}7,000

restores the control account to its true balance.

Key Concept

Correcting complete reversal errors in control accounts requires adjusting by double the amount of the error.

Question 11702Question →

Zainab and Babatunde entered into a joint venture to trade in office equipment, maintaining a separate set of books. They opened a Joint Bank Account, contributing $₦4,000,000$ and $₦2,000,000$ respectively, and agreed to share profits and losses in the ratio of $2:1$ .

The transactions during the venture were as follows:
- Materials purchased via Joint Bank: $₦3,200,000$
- Carriage inwards paid by Zainab from personal funds: $₦150,000$
- Operating expenses paid via Joint Bank: $₦250,000$
- Total sales revenue deposited into Joint Bank: $₦4,800,000$
- Unsold stock taken over by Babatunde at an agreed value: $₦300,000$

What is the final cash amount payable to Zainab upon closure of the Joint Bank Account?

₦5,150,000

₦5,000,000

₦4,750,000

₦4,900,000

Show answer & explanation

Answer: ₦5,150,000

Answer

The final cash amount payable to Zainab is ₦5,150,000.

Under the Separate Set of Books method, the Joint Venture Account is prepared like a trading and profit & loss account to find the net profit of ₦1,500,000 (Credits of ₦5,100,000 minus Debits of ₦3,600,000). Zainab's share of this profit is 2/3 of ₦1,500,000, which equals ₦1,000,000. Her personal account is credited with her initial capital deposit (₦4,000,000), personal expenditure on carriage inwards (₦150,000), and her profit share (₦1,000,000), yielding a final settlement payable to her of ₦5,150,000.

Step-by-Step Solution

1

Calculate the total debits (expenses/purchases) to the Joint Venture Account

Total Debits = ₦3,200,000 (materials) + ₦150,000 (carriage inwards) + ₦250,000 (operating expenses) = ₦3,600,000

All costs directly related to the venture must be debited to determine total expenditure.

2

Calculate the total credits (income/asset transfers) to the Joint Venture Account

Total Credits = ₦4,800,000 (sales revenue) + ₦300,000 (stock taken over) = ₦5,100,000

Sales revenue and the agreed valuation of inventory taken over by a venturer are credited to the Joint Venture Account.

3

Determine the net profit of the Joint Venture

Net Profit = Total Credits - Total Debits = ₦5,100,000 - ₦3,600,000 = ₦1,500,000

Net venture profit is the excess of total revenue and stock value over total venture expenditure.

4

Calculate Zainab's share of the net profit

Zainab's Profit Share = (2 / 3) × ₦1,500,000 = ₦1,000,000

Profits are distributed according to the agreed ratio of 2:1.

5

Calculate Zainab's final ledger account balance for cash settlement

Zainab's Final Settlement = ₦4,000,000 (capital contribution) + ₦150,000 (expenses paid) + ₦1,000,000 (profit share) = ₦5,150,000

Zainab's personal account is credited for her initial contribution, expenses borne personally, and her share of venture profit.

Key Concept

Separate Set of Books Method in Joint Venture Accounting

Estimated Time:1m 30s

Question 11703Question →

A sole trader extracted a trial balance as at 31st December 2025 which included Rent Expense of $\text{N}450,000$ and Commission Received of $\text{N}240,000$ . At year end, the following adjustment details were provided:
- Rent paid in advance for 2026 amounted to $\text{N}50,000$ , while rent for December 2025 of $\text{N}40,000$ remained unpaid.
- Commission received included $\text{N}30,000$ paid in advance for 2026, while commission earned but not yet received amounted to $\text{N}45,000$ .

What are the correct net amounts to be credited to the Profit and Loss Account for Commission Received and debited as Rent Expense respectively for the year ended 31st December 2025?

\text{N}255,000

and

\text{N}440,000

\text{N}225,000

and

\text{N}460,000

\text{N}315,000

and

\text{N}540,000

\text{N}165,000

and

\text{N}360,000

Show answer & explanation

Answer: $\text{N}255,000$ and $\text{N}440,000$

Answer

Commission Received credited to Profit and Loss Account =

\text{N}255,000

; Rent Expense debited to Profit and Loss Account =

\text{N}440,000

Under the accrual concept, income and expenses relate strictly to the current period regardless of when cash is received or paid. Deducting the prepaid rent of

\text{N}50,000

and adding the accrued rent of

\text{N}40,000

gives a net rent charge of

\text{N}440,000

. Deducting prepaid commission of

\text{N}30,000

and adding accrued commission of

\text{N}45,000

gives net commission income of

\text{N}255,000

.

Step-by-Step Solution

1

Calculate the net Rent Expense for the current financial year

Rent Expense =

\text{N}450,000 - \text{N}50,000 + \text{N}40,000 = \text{N}440,000

Prepaid expense relating to the next year must be deducted, and accrued expense owing for the current year must be added to match expenses to the current period.

2

Calculate the net Commission Received income for the current financial year

Commission Income =

\text{N}240,000 - \text{N}30,000 + \text{N}45,000 = \text{N}255,000

Prepaid income received for the next period must be deducted, and accrued income earned but not yet received must be added under the accrual concept.

Key Concept

Accruals and Prepayments Matching Principle

Question 11704Question →

Bisi and Femi entered into a joint venture to trade in timber, agreeing to share profits and losses in the ratio $3:2$ respectively. Under the Memorandum Joint Venture method, Bisi supplied goods valued at $\text{N}120,000$ and paid transport expenses of $\text{N}10,000$ . Femi paid storage expenses of $\text{N}5,000$ and sold all the timber for $\text{N}180,000$ . Femi was entitled to a selling commission of $5\%$ on total sales. What amount is payable by Femi to Bisi on final settlement?

\text{N}151,600

\text{N}157,000

\text{N}144,400

\text{N}31,600

Show answer & explanation

Answer: $\text{N}151,600$

Answer

The amount payable by Femi to Bisi on final settlement is

\text{N}151,600

.

Under the Memorandum Joint Venture method, total joint venture profit is determined by deducting all venture costs, expenses, and commissions from total sales proceeds. Total sales of

\text{N}180,000

less Bisi's goods (

\text{N}120,000

), Bisi's transport (

\text{N}10,000

), Femi's storage (

\text{N}5,000

), and Femi's commission (

\text{N}9,000

) leaves a net profit of

\text{N}36,000

. Bisi's

3/5

share of profit is

\text{N}21,600

. Adding Bisi's direct outlays of

\text{N}130,000

gives

\text{N}151,600

as the final cash settlement due from Femi.

Step-by-Step Solution

1

Calculate Femi's commission

Commission =

5\% \times \text{N}180,000 = \text{N}9,000

The selling venturer is entitled to commission as part of joint venture expenses.

2

Calculate the net profit of the Memorandum Joint Venture Account

Total Revenue =

\text{N}180,000

; Total Expenses =

\text{N}120,000 + \text{N}10,000 + \text{N}5,000 + \text{N}9,000 = \text{N}144,000

; Net Profit =

\text{N}180,000 - \text{N}144,000 = \text{N}36,000

Net profit is the excess of total joint venture revenue over all venturers' combined costs and commissions.

3

Share the net profit according to the agreed ratio (

3:2

)

Bisi's share of profit =

\frac{3}{5} \times \text{N}36,000 = \text{N}21,600

Bisi receives three-fifths of the total profit.

4

Determine the final settlement balance owed by Femi to Bisi

Settlement amount = Bisi's cost of goods (

\text{N}120,000

) + Bisi's transport (

\text{N}10,000

) + Bisi's share of profit (

\text{N}21,600

) =

\text{N}151,600

Femi collected all sales proceeds and must reimburse Bisi's total outlays plus Bisi's share of profit.

Key Concept

Memorandum Joint Venture Account Profit Determination and Final Settlement Calculation

Question 11705Question →

Mrs. Folake operates a hardware enterprise in Ibadan and keeps single-entry accounting records. For the financial year ended 31 December 2025, the following ledger details regarding her trade debtors were extracted:

- Debtors balance at 1 January 2025: $\text{₦}45,000$
- Cash and cheques received from debtors: $\text{₦}198,000$
- Discount allowed: $\text{₦}4,500$
- Bad debts written off: $\text{₦}2,500$
- Returns inwards: $\text{₦}3,000$
- Dishonoured cheques: $\text{₦}6,000$
- Debtors balance at 31 December 2025: $\text{₦}52,000$

What was the total amount of credit sales for the year?

₦209,000

₦221,000

��204,500

₦205,000

Show answer & explanation

Answer: ₦209,000

Answer

The total amount of credit sales for the year is ₦209,000.

To find missing credit sales, construct the Sales Ledger (Debtors) Control Account. The total on the credit side comprises cash received (₦198,000), discount allowed (₦4,500), bad debts (₦2,500), returns inwards (₦3,000), and closing debtors balance (₦52,000), totaling ₦260,000. Deducting the debit side components—opening balance (₦45,000) and dishonoured cheques (₦6,000), totaling ₦51,000—leaves ₦209,000 as credit sales.

Step-by-Step Solution

1

Identify the items that belong on the credit side of the Sales Ledger (Debtors) Control Account

Credit side items: Cash/Cheques received (₦198,000) + Discount allowed (₦4,500) + Bad debts written off (₦2,500) + Returns inwards (₦3,000) + Closing balance (₦52,000) = ₦260,000.

The credit side records reductions in trade debtors outstanding plus the remaining year-end balance.

2

Identify the existing debit side items of the Sales Ledger Control Account

Debit side items (excluding credit sales): Opening balance (₦45,000) + Dishonoured cheques (₦6,000) = ₦51,000.

Dishonoured cheques increase debtors' liability and must be posted to the debit side alongside the opening balance.

3

Calculate the missing figure for Credit Sales

Credit Sales = ₦260,000 - ₦51,000 = ₦209,000.

Balancing the control account gives total credit sales as the balancing figure on the debit side.

Key Concept

Debtors Control Account for Missing Credit Sales

Question 11706Question →

The Receipts and Payments Account of a non-profit organization is prepared on an accrual basis to incorporate outstanding expenses and accrued income at the end of the accounting period.

True

False

Show answer & explanation

Answer: False

Answer

False. The Receipts and Payments Account is prepared strictly on a cash basis, recording actual cash receipts and disbursements without adjusting for accruals or prepayments.

The Receipts and Payments Account serves as a summary of cash and bank entries during the period and is prepared strictly on a cash basis. Items such as accrued income, outstanding expenses, and depreciation are not recognized in this account; they are adjusted only when preparing the Income and Expenditure Account.

Step-by-Step Solution

1

Identify the fundamental accounting basis governing the Receipts and Payments Account.

The Receipts and Payments Account functions as a summarized Cash Book, operating strictly on a cash basis of accounting.

Only transactions involving actual movement of cash or bank funds are recorded.

2

Evaluate the treatment of accruals, prepayments, and non-cash items in this account.

Outstanding expenses, accrued income, and non-cash adjustments (e.g., depreciation) are excluded from the Receipts and Payments Account.

Accrual adjustments are made exclusively in the Income and Expenditure Account to determine the surplus or deficit for the period.

Key Concept

Cash Basis of Receipts and Payments Account in Non-Profit Organizations

Question 11707Question →

The Purchases Ledger Control Account of Mensah Trading Enterprise showed a credit balance of $\text{₦}145,000$ at the end of the financial year. Upon audit and reconciliation of the control account, the following errors were discovered:

1. A payment of $\text{₦}8,500$ to a supplier was recorded in the cash book but completely omitted from the Purchases Ledger Control Account.
2. Discount received of $\text{₦}1,200$ was mistakenly entered on the credit side of the Purchases Ledger Control Account.
3. Credit purchases of $\text{₦}4,600$ were incorrectly entered in the purchases day book as $\text{₦}6,400$ and posted to the control account.

What is the adjusted credit balance of the Purchases Ledger Control Account?

\text{₦}132,300

\text{₦}133,500

\text{₦}135,900

\text{₦}137,100

Show answer & explanation

Answer: $\text{₦}132,300$

Answer

The adjusted credit balance of the Purchases Ledger Control Account is

\text{₦}132,300

.

The correct adjusted balance of

\text{₦}132,300

is determined by deducting all debit corrections from the initial credit balance of

\text{₦}145,000

. The omitted payment reduces the liability by

\text{₦}8,500

. The discount received credited in error requires a debit entry of

\text{₦}2,400

(doubled to undo the credit and post to debit). The overstatement of purchases in the day book requires a debit entry of

\text{₦}1,800

(

6,400 - 4,600

). Total debit adjustments equal

\text{₦}12,700

, giving

\text{₦}145,000 - \text{₦}12,700 = \text{₦}132,300

.

Step-by-Step Solution

1

Identify the unadjusted balance

Unadjusted Credit Balance =

\text{₦}145,000

This is the starting point prior to applying error corrections.

2

Correct the omitted payment to supplier

Debit Purchases Ledger Control Account by

\text{₦}8,500

Payments to suppliers reduce the liability owed to creditors.

3

Correct the misplaced discount received

Debit Purchases Ledger Control Account by

\text{₦}2,400

Discount received should be on the debit side. Since

\text{₦}1,200

was credited mistakenly, double the amount (

\text{₦}1,200 \times 2 = \text{₦}2,400

) must be debited to cancel the wrong credit entry and record the correct debit.

4

Correct the overstated credit purchases entry

Debit Purchases Ledger Control Account by

\text{₦}1,800

Purchases were recorded as

\text{₦}6,400

instead of

\text{₦}4,600

, overstating creditors on the credit side by

\text{₦}6,400 - \text{₦}4,600 = \text{₦}1,800

.

5

Compute the final adjusted balance

Adjusted Balance =

\text{₦}145,000 - \text{₦}8,500 - \text{₦}2,400 - \text{₦}1,800 = \text{₦}132,300

(Credit)

Subtract total debit corrections (

\text{₦}12,700

) from the unadjusted credit balance.

Key Concept

Purchases Ledger Control Account Error Correction

Question 11708Question →

A firm purchased office paper clips, staplers, and wastebaskets for $\text{N}4,500$ . Although these items will be used for several accounting periods, the accountant immediately charged the entire amount as an expense in the profit and loss account instead of capitalizing them as non-current assets. Which accounting convention justifies this accounting treatment?

Materiality

Business Entity

Going Concern

Consistency

Show answer & explanation

Answer: Materiality

Answer

Materiality

The materiality convention states that accounting rules need not be strictly enforced for items whose monetary value is so small that treating them strictly (capitalizing and depreciating them) would be impractical and useless to decision-makers. Charging the

\text{N}4,500

stationeries directly to the profit and loss account is therefore fully justified under materiality.

Step-by-Step Solution

1

Analyze the nature of the transaction and the asset's relative monetary value.

The purchase consists of low-value administrative items totaling

\text{N}4,500

.

Although these items last beyond one accounting period, tracking and depreciating small items over several years incurs administrative costs that outweigh the accounting benefit.

2

Identify the governing accounting rule for handling low-value items.

The materiality convention states that financial statements need only reflect information that is significant enough to affect user decisions.

Expensing low-value items immediately simplifies financial record-keeping without distorting the true financial position of the enterprise.

Key Concept

Materiality Convention

Question 11709Question →

The Ministry of Agriculture of a state government recorded the following disbursements during the financial year:

- Payment of monthly salaries to agricultural extension officers: ₦3,500,000
- Construction of a modern irrigation dam: ₦25,000,000
- Purchase of fuel for daily official vehicle operations: ₦800,000
- Installation of a new solar-powered cold storage unit: ₦12,000,000

What is the total recurrent expenditure incurred by the ministry during the year?

₦4,300,000

₦16,300,000

₦37,000,000

₦41,300,000

Show answer & explanation

Answer: ₦4,300,000

Answer

The total recurrent expenditure incurred by the ministry is ₦4,300,000.

Recurrent expenditures in public sector accounting represent operational and administrative expenses incurred in the day-to-day running of government organs. In this scenario, staff salaries (₦3,500,000) and vehicle fuel (₦800,000) are regular operational costs. Adding these yields ₦4,300,000.

Step-by-Step Solution

1

Identify recurrent expenditure items

Monthly salaries (₦3,500,000) and fuel for daily operations (₦800,000) are operational running expenses.

Recurrent expenditures are routine, ongoing operational expenses that do not result in the creation of permanent fixed assets.

2

Identify and exclude capital expenditure items

Construction of an irrigation dam (₦25,000,000) and installation of a cold storage unit (₦12,000,000) are capital expenditures.

Capital expenditures are non-recurring outlays that acquire, construct, or enhance long-term assets of significant value.

3

Calculate total recurrent expenditure

₦3,500,000 + ₦800,000 = ₦4,300,000

Summing the identified operational items gives the final recurrent total.

Key Concept

Classification of Public Sector Recurrent and Capital Expenditures

Estimated Time:1m 15s

Question 11710Question →

In accounting for non-profit organizations, life membership fees collected from members are treated as revenue receipts and credited in full to the Income and Expenditure Account for the year in which they are received.

True

False

Show answer & explanation

Answer: False

Answer

The statement is False. Life membership fees represent non-recurring lump-sum receipts that provide long-term benefits across multiple periods. Consequently, they are treated as capital receipts and credited to the Accumulated Fund (or capitalized), rather than being recognized in full as revenue income in the Income and Expenditure Account during the year of receipt.

Life membership fees grant membership rights over a member's lifetime and do not recur annually. In non-profit accounting, non-recurring receipts of a capital nature must be credited to the Accumulated Fund or capitalized, rather than treated as regular revenue in the Income and Expenditure Account.

Step-by-Step Solution

1

Identify the nature of the transaction

Life membership fees are paid once by a member to secure lifetime membership rights in a non-profit organization.

Understanding the frequency and duration of benefit helps distinguish between capital and revenue receipts.

2

Determine the proper accounting classification

Because the benefit extends over many years and the payment is non-recurring, it is classified as a capital receipt.

Revenue receipts are recurring items meant for regular operations, whereas capital receipts provide enduring benefits.

3

Evaluate the statement against standard NPO accounting treatment

Capital receipts are added to the Accumulated Fund or deferred on the balance sheet, not credited in full to the Income and Expenditure Account.

Crediting the full lump-sum payment to a single period's Income and Expenditure Account would distort the surplus or deficit for that year.

Key Concept

Classification of Capital vs Revenue Receipts in Non-Profit Organizations

Estimated Time:1m 0s

Question 11711Question →

Delta Enterprises operates two departments: Department P and Department Q. Department P transfers goods to Department Q at cost plus a mark-up of $25\%$ . At the end of the financial year, Department Q's total closing stock was valued at $\text{N}90,000$ , of which $\text{N}60,000$ represents goods transferred from Department P. The provision for unrealized profit brought forward from the previous year was $\text{N}7,000$ . What amount should be charged to the General Profit and Loss Account as the net provision for unrealized profit?

\text{N}5,000

\text{N}8,000

\text{N}11,000

\text{N}12,000

Show answer & explanation

Answer: $\text{N}5,000$

Answer

The net amount to be charged to the General Profit and Loss Account is

\text{N}5,000

.

To eliminate internal unrealized profit, we first convert the

25\%

mark-up on cost to a

20\%

margin on transfer price using

\frac{25}{100 + 25} = 20\%

. We then calculate the unrealized profit in the transferred portion of closing inventory:

20\% \times \text{N}60,000 = \text{N}12,000

. Finally, subtracting the existing opening provision of

\text{N}7,000

yields a net increase of

\text{N}5,000

to be debited to the General Profit and Loss Account.

Step-by-Step Solution

1

Convert mark-up percentage on cost to profit margin percentage on transfer price.

\text{Margin} = \frac{\text{Mark-up}}{100 + \text{Mark-up}} = \frac{25}{125} = \frac{1}{5} = 20\%

.

Inter-departmental transfers are recorded at transfer price, so the profit proportion must be calculated relative to transfer price (margin).

2

Calculate the closing provision required on the transferred portion of inventory.

\text{Closing Provision} = 20\% \times \text{N}60,000 = \text{N}12,000

.

Only the transferred portion (

\text{N}60,000

) contains unrealized inter-departmental profit.

3

Determine the net adjustment to the General Profit and Loss Account.

\text{Net Increase} = \text{Required Closing Provision} - \text{Opening Provision} = \text{N}12,000 - \text{N}7,000 = \text{N}5,000

.

The General Profit and Loss Account is debited with the increase in provision required for the year.

Key Concept

Provision for Unrealized Profit on Inter-departmental Inventory

Estimated Time:2m 0s

Question 11712Question →

A manufacturing firm accumulates all employee job time-sheets throughout the week and computes the total payroll expenses in a single execution run at the end of every Friday. Which accounting data processing method is described in this scenario?

Batch processing

Real-time processing

Online processing

Manual bookkeeping

Show answer & explanation

Answer: Batch processing

Answer

Batch processing

Batch processing is the data processing method where transactions are collected into groups over a given period and processed together as a single batch. Payroll calculation at the end of a weekly or monthly period is a classic application of batch data processing.

Step-by-Step Solution

1

Identify the key operational characteristic in the scenario

Transaction data (time-sheets) is collected over time and processed together in a single run at periodic intervals (weekly).

Analyzing how and when data enters the processing stage determines the processing method.

2

Match the characteristic with accounting data processing methods

Accumulating transactions into groups (batches) for periodic execution defines batch processing.

Batch processing is cost-effective for non-urgent tasks like payroll, where immediate ledger updates are not required for every single hour logged.

Key Concept

Batch Processing vs Real-time Processing in Accounting

Estimated Time:45s

Question 11713Question →

Chidi and Musa operate a partnership business under a fixed capital account system. For the year ended 31st December 2025, the following ledger details relate to Musa:

Transaction Details	Amount (₦)
Opening Current Account balance (1st January 2025)	120,000 (Credit)
Share of profit for the year	350,000
Interest on capital	40,000
Partner's annual salary	80,000
Cash drawings made during the year	150,000
Interest on drawings	10,000

What is the closing balance of Musa's Current Account as at 31st December 2025?

₦430,000 credit balance

₦750,000 credit balance

₦450,000 credit balance

₦350,000 credit balance

Show answer & explanation

Answer: ₦430,000 credit balance

Answer

Musa's Current Account has a closing credit balance of ₦430,000.

Under the fixed capital account method, the initial capital remains unchanged unless additional capital is introduced or permanent capital is withdrawn. All operational appropriations—including share of profit, interest on capital, and salary—are credited to the partner's Current Account, while drawings and interest on drawings are debited. Adding total credits (₦590,000) and subtracting total debits (₦160,000) results in a closing credit balance of ₦430,000.

Step-by-Step Solution

1

Calculate the total credit entries to Musa's Current Account.

₦120,000 (Opening Credit Balance) + ₦350,000 (Share of Profit) + ₦40,000 (Interest on Capital) + ₦80,000 (Salary) = ₦590,000 Credit.

Under a fixed capital system, all partner entitlements and profit allocations are credited to the partner's Current Account.

2

Calculate the total debit entries to Musa's Current Account.

₦150,000 (Drawings) + ₦10,000 (Interest on Drawings) = ₦160,000 Debit.

Drawings and charges imposed on the partner reduce their equity share and are debited to the Current Account.

3

Determine the net closing balance of the Current Account.

₦590,000 (Credit) - ₦160,000 (Debit) = ₦430,000 Credit balance.

The excess of total credits over total debits yields a credit closing balance.

Key Concept

Partnership Current Account Preparation under Fixed Capital System

Question 11714Question →

Match each accounting treatment or transaction scenario on the left with the governing accounting concept or convention on the right.

Click a left item, then click its matching right item

Show answer & explanation

Answer

Valuing inventory at lower of cost and net realizable value matches Prudence Concept; recognizing accrued expenses incurred matches Accrual Concept; maintaining consistent depreciation methods year-to-year matches Consistency Convention; omitting non-quantifiable workforce skills matches Money Measurement Concept.

Each accounting transaction scenario aligns directly with its underlying principle: Prudence avoids overstating profit/assets; Accrual records expenses incurred regardless of cash flow; Consistency requires uniform accounting policies over time; Money Measurement restricts recordkeeping to monetary units.

Step-by-Step Solution

1

Analyze the inventory valuation treatment.

Choosing the lower of cost and net realizable value prevents anticipation of profit and overstatement of assets.

This is a direct application of the Prudence (Conservatism) Concept.

2

Analyze the treatment of unpaid electricity charges.

Expenses are matched against revenue earned during the period regardless of when cash is settled.

This demonstrates the Accrual Concept.

3

Analyze the depreciation method choice across consecutive years.

Accounting policies must remain constant from period to period to facilitate meaningful comparison.

This complies with the Consistency Convention.

4

Analyze the exclusion of workforce skills from financial statements.

Only facts and events capable of being measured objectively in money terms are recorded in accounting.

This illustrates the Money Measurement Concept.

Key Concept

Accounting Concepts and Conventions

Question 11715Question →

In a three-column cash book, on which side and in which column is a cash discount granted to a customer recorded?

Debit side in the discount column

Credit side in the discount column

Debit side in the cash column

Credit side in the bank column

Show answer & explanation

Answer: Debit side in the discount column

Answer

Debit side in the discount column

In accounting, discounts granted to customers for prompt payment are known as discounts allowed. In a three-column cash book, the debit side contains three columns: Discount, Cash, and Bank. Discount allowed is recorded directly in the discount column on the debit side, adjacent to the cash or bank receipt entry.

Step-by-Step Solution

1

Identify the nature of cash discount granted to a customer.

Cash discount allowed to a customer is an expense (Discount Allowed) granted for prompt settlement of an account.

When customers settle their accounts early, the discount allowed reduces the amount of cash or cheque collected.

2

Determine the correct column and side in the three-column cash book.

The debit side of the three-column cash book records receipts and contains a dedicated 'Discount Allowed' column alongside Cash and Bank columns.

Discounts allowed are entered on the debit side in the discount column adjacent to the receipt entries.

Key Concept

Placement of Discount Allowed in the Three-Column Cash Book

Question 11716Question →

Match each financial item of a non-profit organization listed in Column A with its appropriate accounting treatment regarding the Income and Expenditure Account listed in Column B.

Click a left item, then click its matching right item

Show answer & explanation

Answer

Honorarium paid is debited to Income & Expenditure as a revenue expense; gain on sale of equipment is credited to Income & Expenditure as revenue income; special donation for building is capitalized directly to a specific fund on the Balance Sheet; subscriptions collected in advance are recorded as a current liability on the Balance Sheet.

Each item is matched according to standard double-entry principles for non-profit entities: recurring operational payments (honorarium) are debited to Income & Expenditure; net gain on fixed asset disposal is credited to Income & Expenditure; purpose-specific capital receipts (building donation) are capitalized to specific funds on the Balance Sheet; and unearned subscription income is carried forward as a current liability on the Balance Sheet.

Step-by-Step Solution

1

Analyze operational vs. capital nature of cash transactions for non-profit entities.

Categorize honorarium as revenue expense, profit on asset sale as revenue gain, building donation as specific capital receipt, and advance subscriptions as unearned revenue.

The Income and Expenditure Account only includes operational (revenue) items belonging strictly to the current accounting period on an accrual basis.

2

Determine accounting entries for revenue items affecting operational performance.

Debiting the honorarium payment to Income & Expenditure and crediting the gain on equipment sale to Income & Expenditure.

Operational expenses reduce net surplus, whereas net gains on equipment disposal enhance income for the period.

3

Determine accounting entries for capital receipts and deferred revenues.

Adding the special building donation directly to a Capital/Building Fund on the Balance Sheet, and recognizing subscriptions in advance as a current liability.

Capital receipts earmarked for specific assets are non-revenue, while prepaid subscriptions represent an obligation to provide benefits in future periods.

Key Concept

Distinction between Revenue and Capital Items in Non-Profit Organization Accounts

Question 11717Question →

Highland Beverages Plc offered for public subscription $70,000$ ordinary shares of nominal value $\text{₦}3.00$ each at an issue price of $\text{₦}3.50$ per share. If all the shares were fully subscribed and paid for, what is the total amount, in Naira ( $\text{₦}$ ), credited to the Share Premium Account?

Show answer & explanation

Answer: 35000

Answer

The total amount credited to the Share Premium Account is

\text{₦}35,000

.

The share premium per share is the difference between the issue price (

\text{₦}3.50

) and the nominal value (

\text{₦}3.00

), which is

\text{₦}0.50

. Multiplying this premium per share by

70,000

shares gives a total Share Premium Account balance of

\text{₦}35,000

.

Step-by-Step Solution

1

Calculate the share premium per share

\text{₦}3.50 - \text{₦}3.00 = \text{₦}0.50

Share premium represents the excess amount paid per share over its nominal (par) value.

2

Compute total Share Premium Account balance

70,000 \times \text{₦}0.50 = \text{₦}35,000

The total amount credited to the Share Premium Account is obtained by multiplying the premium per share by the total number of issued and fully subscribed shares.

Key Concept

Calculation of Share Premium Balance on Issue of Shares

Question 11718Question →

A commercial ceramics craft firm in Abeokuta extracted the following financial figures for the year ended 31st December 2025:

Account Details	Amount (₦)
Purchases of raw clay and glazes	450,000
Carriage inwards on raw clay	30,000
Wages of potters and kiln operators	320,000
Royalties paid per ceramic unit design	80,000
Salary of factory supervisor	150,000
Factory power and maintenance	200,000

What is the total Prime Cost for the year?

Show answer & explanation

Answer: 880000

Answer

The total Prime Cost for the year is ₦880,000.

Prime Cost represents the aggregate of all direct costs incurred in manufacturing. It includes direct raw materials (purchases of

₦450,000

plus carriage inwards of

₦30,000 = ₦480,000

), direct wages (

₦320,000

), and direct expenses (

₦80,000

for royalties). Summing these direct components yields

₦480,000 + ₦320,000 + ₦80,000 = ₦880,000

. Factory supervisor salaries (

₦150,000

) and factory power/maintenance (

₦200,000

) are indirect expenses (factory overheads) and are excluded from Prime Cost.

Step-by-Step Solution

1

Calculate Direct Materials Consumed

₦480,000

Carriage inwards on raw materials is a direct cost incurred to bring raw clay into the factory and must be added to raw material purchases.

2

Identify Direct Labour and Direct Expenses

Direct Labour = ₦320,000; Direct Expenses = ₦80,000

Wages of potters directly creating products are direct labour, and royalties on designs are direct expenses.

3

Compute Prime Cost

₦880,000

Prime Cost is the sum of all direct production costs: Direct Materials (₦480,000) + Direct Labour (₦320,000) + Direct Expenses (₦80,000).

Key Concept

Calculation of Prime Cost in Manufacturing Accounts

Estimated Time:1m 30s

Question 11719Question →

During a financial period, Zenith Crafts Manufacturing incurred a total of $\text{₦}95,000$ in manufacturing costs before work-in-progress adjustments. If the opening work-in-progress was valued at $\text{₦}14,000$ and the closing work-in-progress was valued at $\text{₦}9,000$ , what is the total cost of production in Naira ( $\text{₦}$ )?

Show answer & explanation

Answer: 100000

Answer

The total cost of production is ₦100,000.

The cost of production is calculated by taking total manufacturing costs incurred, adding the opening work-in-progress (work started in the prior period and finished in the current period), and subtracting closing work-in-progress (work started but not yet finished by period end). Performing ₦95,000 + ₦14,000 - ₦9,000 yields ₦100,000.

Step-by-Step Solution

1

Add opening work-in-progress to the total manufacturing costs before adjustments.

₦95,000 + ₦14,000 = ₦109,000

Opening work-in-progress represents uncompleted goods from the previous period that are finished in the current period, so their valuation must be added.

2

Deduct closing work-in-progress from the sum.

₦109,000 - ₦9,000 = ₦100,000

Closing work-in-progress represents goods still undergoing production at year-end, which must be excluded from completed production costs.

Key Concept

Valuation and Adjustment for Work-in-Progress (WIP)

Question 11720Question →

Tunde and Femi are partners in a firm sharing profits and losses equally. During a partnership revaluation, the value of Premises increased by $\text{₦}30,000$ , Plant and Machinery decreased by $\text{₦}8,000$ , and a Provision for Doubtful Debts of $\text{₦}3,000$ was created. What is Tunde's share of the revaluation profit in naira?

Show answer & explanation

Answer: 9500

Answer

Tunde's share of the revaluation profit is 9,500 naira.

The revaluation of assets and liabilities yields a total gain of

\text{₦}30,000

(from Premises) and total losses of

\text{₦}11,000

(

\text{₦}8,000

from Plant and Machinery plus

\text{₦}3,000

for Provision for Doubtful Debts). Subtracting losses from gains gives a net revaluation profit of

\text{₦}19,000

. Sharing this equally between Tunde and Femi gives Tunde a

\text{₦}9,500

share.

Step-by-Step Solution

1

Determine total revaluation gains and losses

Total Gain =

\text{₦}30,000

; Total Loss =

\text{₦}8,000 + \text{₦}3,000 = \text{₦}11,000

.

An increase in an asset value is credited to the Revaluation Account as a gain, while decreases in assets and creation of provisions are debited as losses.

2

Calculate net profit on revaluation

Net Revaluation Profit =

\text{₦}30,000 - \text{₦}11,000 = \text{₦}19,000

.

Net revaluation profit represents the excess of total revaluation gains over total revaluation losses.

3

Calculate Tunde's share of revaluation profit

Tunde's Share =

\text{₦}19,000 \times \frac{1}{2} = \text{₦}9,500

.

The net revaluation profit must be distributed between existing partners according to their agreed profit-sharing ratio (1:1).

Key Concept

Calculation and Apportionment of Revaluation Profit in Partnership Accounts

Answer

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