All practice questions

Question 11781Question →

On 1 March 2026, a business established a petty cash imprest float of $₦60,000$ . During the month of March, total cash disbursements paid out of the petty cash box amounted to $₦43,500$ . In addition, $₦5,000$ cash was received from the sale of old office newspapers and recorded on the receipts side of the petty cash book. Upon audit, it was discovered that a $₦3,500$ payment for office stationery had been entered twice in the analysis columns, though cash was paid out only once. Management decided to permanently increase the imprest float by $20\%$ effective 1 April 2026. Calculate the exact amount of cash required from the main cashier at the end of March to restore and set the petty cash float to its new level.

Show answer & explanation

Answer: 50500

Answer

The total cash required from the main cashier to restore and establish the new imprest float is

₦50,500

.

To restore and adjust the imprest float under the imprest system, the main cashier must provide enough cash to top up the remaining physical balance to the new float level. The new float is

120\%

of

₦60,000 = ₦72,000

. The actual cash remaining in the box equals the starting float (

₦60,000

) plus sundry cash received (

₦5,000

) minus actual cash paid out (

₦43,500

), which leaves

₦21,500

. Subtracting

₦21,500

from

₦72,000

gives the required reimbursement of

₦50,500

.

Step-by-Step Solution

1

Determine the new required imprest float for April.

New Float =

₦60,000 + (20\% \times ₦60,000) = ₦72,000

Management decided to permanently increase the float by 20% starting 1 April.

2

Calculate the actual cash remaining in the petty cash box at the end of March.

Cash Balance =

₦60,000 \text{ (Initial Float)} + ₦5,000 \text{ (Receipts)} - ₦43,500 \text{ (Actual Cash Spent)} = ₦21,500

The duplicate entry of

₦3,500

occurred only in the analysis columns and did not reduce the actual physical cash beyond the

₦43,500

spent.

3

Calculate the total cash reimbursement required from the main cashier.

Reimbursement =

₦72,000 \text{ (New Float)} - ₦21,500 \text{ (Remaining Cash)} = ₦50,500

Under the imprest system, the reimbursement must equal the amount needed to bring the physical cash balance up to the new imprest float.

Key Concept

Petty Cash Imprest Restoration and Float Adjustment

Question 11782Question →

A trading firm integrates an Electronic Data Interchange (EDI) system to automatically transmit purchase orders directly to vendor systems when inventory falls below reorder points. Which of the following best describes the main internal control requirement introduced by this electronic data interchange?

It reduces manual document handling errors but necessitates computerized audit trails and automated access controls.

It completely eliminates the possibility of fraudulent transactions, removing the necessity for internal financial audits.

It requires all purchase transactions to be accumulated and processed in periodic offline batches at the end of each month.

It shifts the accounting accounting system from double-entry ledger posting to single-entry recording because invoices are transmitted electronically.

Show answer & explanation

Answer: It reduces manual document handling errors but necessitates computerized audit trails and automated access controls.

Answer

Electronic Data Interchange reduces paper document handling errors but requires computerized audit trails and automated access controls to maintain transaction integrity.

Electronic Data Interchange (EDI) enables seamless computer-to-computer transmission of standard business documents. While it eliminates human data entry errors associated with paper forms, it transfers internal control responsibility to IT security mechanisms, including computerized audit trails, transaction logs, and digital authorization controls.

Step-by-Step Solution

1

Analyze the features of Electronic Data Interchange (EDI) in e-accounting.

EDI replaces paper purchase orders, invoices, and documents with direct computer-to-computer electronic data exchange.

Understanding EDI functionality clarifies its impact on document processing efficiency.

2

Evaluate the accounting internal control implications of automated computer-to-computer ordering.

Eliminating human entry reduces paper-handling errors, but removing physical signatures requires IT-based controls like user authentication, encryption, and digital audit trails.

Internal controls must evolve to monitor computer-generated events and maintain record integrity.

Key Concept

Electronic Data Interchange (EDI) and Computerized Internal Controls

Estimated Time:1m 0s

Question 11783Question →

Zainab, Chinedu, and Dele are partners in a firm sharing profits and losses in the ratio $5:3:2$ respectively. On 31st March 2026, they agreed to revalue the firm's assets and liabilities upon restructuring. The book values and revaluation terms are given below:

Asset / Liability	Book Value (₦)	Agreed Revaluation Term
Freehold Premises	450,000	Revalued at ₦620,000
Plant & Machinery	300,000	Reduced by 10% write-down
Motor Vehicles	180,000	Revalued downwards by 15%
Trade Debtors	120,000	Provision for doubtful debts created at 5%
Inventory	95,000	Revalued at ₦84,000
Accounts Payable & Accruals	80,000	Discount of ₦2,000 expected from creditors; unrecorded accrued expense of ₦14,000 discovered

What is the net amount, in Naira (₦), to be credited to Zainab's capital account as her share of the revaluation profit?

Show answer & explanation

Answer: 42000

Answer

The net amount to be credited to Zainab's capital account is ₦42,000.

Total revaluation gains equal ₦172,000 (Premises appreciation of ₦170,000 + Creditors discount of ₦2,000). Total revaluation losses equal ₦88,000 (Plant write-down ₦30,000 + Motor vehicles loss ₦27,000 + Doubtful debts provision ₦6,000 + Inventory reduction ₦11,000 + Unrecorded liability ₦14,000). The net profit on revaluation is ₦172,000 - ₦88,000 = ₦84,000. Allocating this to Zainab using her ratio fraction of 5/10 yields ₦42,000 credited to her capital account.

Step-by-Step Solution

1

Calculate Total Revaluation Gains

₦172,000

Revaluation gains arise from increase in asset values (Premises appreciation of ₦170,000) and decrease in liabilities (Creditors discount of ₦2,000).

2

Calculate Total Revaluation Losses

₦88,000

Revaluation losses arise from reductions in asset values (Plant ₦30,000, Vehicles ₦27,000, Inventory ₦11,000), creation of provisions (Doubtful debts ₦6,000), and increase in liabilities (Accrued expenses ₦14,000).

3

Compute Net Revaluation Profit

₦84,000

Subtracting total revaluation losses (₦88,000) from total revaluation gains (₦172,000) yields a net gain of ₦84,000.

4

Apportion Net Profit to Zainab's Capital Account

₦42,000

Revaluation profit must be shared among existing partners in their old profit-sharing ratio (5:3:2). Zainab's share is 5/10 of ₦84,000.

Key Concept

Partnership Revaluation Profit Distribution

Question 11784Question →

Mr. Chukwuma operates a retail business with incomplete accounting records. The following financial details were extracted regarding his cash transactions for the year ended 31 December 2025:

Transaction / Account Detail	Amount ( $\text{N}$ )
Cash balance as at 1 January 2025	$15,400$
Cash balance as at 31 December 2025	$22,100$
Cash banked from daily receipts	$385,000$
Operating expenses paid directly from cash receipts	$32,600$
Proprietor's cash drawings taken before banking	$24,000$
Cash paid to trade creditors	$48,500$
Cash received from sale of old equipment	$18,000$
Cash discounts allowed to trade debtors	$5,000$

Based on the cash summary analysis, what is the total cash receipts from sales for the year ended 31 December 2025?

Show answer & explanation

Answer: 478800

Answer

The total cash receipts from sales for the year ended 31 December 2025 is ₦478,800.

To find the missing cash receipts from sales, reconstruct the Cash Summary Account by balancing debit and credit entries. The total credit side comprises all cash payments (banked takings of ₦385,000, operating expenses of ₦32,600, drawings of ₦24,000, payments to creditors of ₦48,500) plus the closing cash balance (₦22,100), totaling ₦512,200. Subtracting the opening cash balance (₦15,400) and the non-sales cash receipt from selling old equipment (₦18,000) gives the missing cash sales of ₦478,800. Discounts allowed are non-cash items and must be omitted entirely.

Step-by-Step Solution

1

Summarize total cash payments and closing cash balance

Cash Banked (₦385,000) + Operating Expenses (₦32,600) + Cash Drawings (₦24,000) + Payments to Creditors (₦48,500) + Closing Cash Balance (₦22,100) = ₦512,200

All cash usages and ending cash on hand represent the total credit side of the cash summary account.

2

Identify non-cash items to exclude from the cash summary

Discount allowed of ₦5,000 is excluded.

Discounts allowed do not involve actual movement of cash and must not be posted into the cash account.

3

Summarize known cash receipts and opening cash balance

Opening Cash Balance (₦15,400) + Cash from Sale of Equipment (₦18,000) = ₦33,400

These items represent non-sales debit entries in the cash summary.

4

Calculate missing cash receipts from sales

₦512,200 - ₦33,400 = ₦478,800

By double-entry balance, total cash outflows and closing balance minus opening cash and non-trading cash receipts equals trading cash sales.

Key Concept

Cash Summary Analysis for Missing Figures in Incomplete Records

Question 11785Question →

Kofi Traders recovered a debt of $\text{₦}25,000$ that had previously been written off as irrecoverable in a prior financial period. What is the correct accounting entry required to reinstate the debtor's account before recording the receipt of cash?

Debit Debtor's Account and Credit Bad Debts Recovered Account

Credit Debtor's Account and Debit Bad Debts Recovered Account

Debit Cash Account and Credit Bad Debts Account

Debit Provision for Doubtful Debts Account and Credit Debtor's Account

Show answer & explanation

Answer: Debit Debtor's Account and Credit Bad Debts Recovered Account

Answer

Debit the Debtor's Account and Credit the Bad Debts Recovered Account

When a debt previously written off is recovered, standard double-entry bookkeeping requires reinstating the debtor's personal account first by debiting the Debtor's Account and crediting the Bad Debts Recovered Account. Afterwards, the settlement is recorded by debiting Cash/Bank and crediting the Debtor's Account.

Step-by-Step Solution

1

Identify the two stages of bad debts recovered.

Stage 1 reinstates the debtor's account; Stage 2 records the cash received.

Reinstating the account provides a complete historical record in the debtor's ledger.

2

Determine the debit and credit entry for reinstating the account.

Debit Debtor's Account, Credit Bad Debts Recovered Account.

Debiting the debtor restores their asset/receivable balance, while crediting bad debts recovered recognizes income.

Key Concept

Accounting Treatment of Bad Debts Recovered

Estimated Time:45s

Question 11786Question →

On 31st December 2025, the Cash Book of Folake Traders showed an overdraft balance of $\text{₦}14,200$ . On comparing the Cash Book with the Bank Statement, the following details were discovered:

- Direct credit transfer by a customer: $\text{₦}6,500$
- Standing order payment for insurance: $\text{₦}2,800$
- Bank charges debited by the bank: $\text{₦}1,500$
- Customer's cheque dishonoured by the bank: $\text{₦}4,000$
- Unpresented cheques: $\text{₦}8,200$
- Uncredited lodgements: $\text{₦}5,400$

What is the correct balance to be shown in the Adjusted Cash Book?

Overdraft of ₦16,000

Overdraft of ₦13,200

Overdraft of ₦21,000

Favourable balance of ��12,400

Show answer & explanation

Answer: Overdraft of ₦16,000

Answer

Overdraft of ₦16,000

The Adjusted Cash Book only incorporates items recorded by the bank but omitted from the cash book. Starting with an overdraft balance of

-\text{₦}14,200

, adding the direct customer deposit (

+\text{₦}6,500

) and deducting standing orders (

-\text{₦}2,800

), bank charges (

-\text{₦}1,500

), and dishonoured cheques (

-\text{₦}4,000

) results in an adjusted credit balance (overdraft) of

\text{₦}16,000

. Unpresented cheques and uncredited lodgements are timing differences and are excluded from the cash book adjustment.

Step-by-Step Solution

1

Identify starting balance condition

Cash Book Overdraft balance =

-\text{₦}14,200

(Credit balance)

An overdraft represents a credit (negative) balance in the cash book.

2

Classify items between Adjusted Cash Book and Bank Reconciliation Statement

Adjusted Cash Book items: Direct credit (

+\text{₦}6,500

), Standing order (

-\text{₦}2,800

), Bank charges (

-\text{₦}1,500

), Dishonoured cheque (

-\text{₦}4,000

). BRS items: Unpresented cheques and Uncredited lodgements.

Only items unrecorded in the cash book or actual cash book errors belong in the Adjusted Cash Book. Timing differences (unpresented/uncredited cheques) belong only in the BRS.

3

Calculate the updated cash book balance

-\text{₦}14,200 + \text{₦}6,500 - \text{₦}2,800 - \text{₦}1,500 - \text{₦}4,000 = -\text{₦}16,000

Receipts increase cash balance (reduce overdraft) while payments and dishonoured deposits increase overdraft.

Key Concept

Adjusted Cash Book preparation under Bank Overdraft conditions

Question 11787Question →

In public sector accounting, interest earned on public investments and dividends received from state-owned enterprises are classified as recurrent non-tax revenue credited to the Consolidated Revenue Fund.

True

False

Show answer & explanation

Answer: True

Answer

True

Interest earned on public financial holdings and dividends paid by state enterprises constitute regular operational income derived from government investments. In public sector accounting, these items are properly classified as recurrent non-tax revenue and are statutorily credited to the Consolidated Revenue Fund to fund recurring expenditure.

Step-by-Step Solution

1

Identify the nature of the government income sources (interest on investments and dividends from state enterprises).

Interest and dividends are regular, ongoing earnings generated from state assets.

Determining whether an income stream is recurring or capital-based is essential for proper classification in public sector accounts.

2

Classify the income sources into tax revenue, non-tax revenue, or capital receipts.

Since they are not compulsory levies on income or goods, they are non-tax revenues; since they recur periodically, they are recurrent non-tax revenues.

Non-tax revenue includes fees, fines, licenses, rents, interest, and dividends.

3

Determine the appropriate public fund into which recurrent non-tax revenue is deposited.

Recurrent non-tax revenues are credited to the Consolidated Revenue Fund (CRF).

The Consolidated Revenue Fund is the main statutory repository for all recurrent revenue of the government.

Key Concept

Classification of Recurrent Non-Tax Revenue and Fund Allocation

Question 11788Question →

When a limited liability company issues bonus shares to its existing ordinary shareholders by capitalizing reserves, what is the effect of this transaction on the company's total cash flow?

Total cash flow remains unchanged because bonus shares are issued free of charge to shareholders using existing capital reserves.

Total cash flow increases because share premium is converted into distributable revenue profit paid in cash.

Total cash flow decreases because owner drawings are debited directly to the capital reserve account.

Total cash flow increases because subscribers must make immediate cash payments for the newly issued shares.

Show answer & explanation

Answer: Total cash flow remains unchanged because bonus shares are issued free of charge to shareholders using existing capital reserves.

Answer

Total cash flow remains unchanged because bonus shares are issued free of charge to shareholders using existing capital reserves.

The correct answer highlights that a bonus issue is an internal capitalization of reserves. Reserves (like share premium or retained earnings) are transferred to ordinary share capital. No cash is received from shareholders, so cash flow is completely unaffected.

Step-by-Step Solution

1

Identify the nature of a bonus issue

A bonus issue (capitalization issue) represents the issuance of additional shares to existing shareholders without requiring any cash consideration.

It converts undistributed reserves (such as Share Premium or General Reserve) into issued share capital.

2

Analyze the financial impact on cash balances

Because no cash changes hands between the company and its shareholders, the total cash position and total cash flow remain zero/unchanged.

The transaction is purely a bookkeeping entry within the equity section of the balance sheet.

Key Concept

Bonus Issue and Capitalization of Reserves

Question 11789Question →

On 30th June 2026, the Cash Book of Adebayo Enterprise showed a bank overdraft balance of $\text{₦}28,400$ . Upon comparing the Cash Book with the Bank Statement, the following items were discovered:

- Bank charges of $\text{₦}1,850$ and interest on overdraft of $\text{₦}3,200$ appeared on the bank statement only.
- A customer's cheque for $\text{₦}4,600$ previously deposited was returned dishonoured by the bank, but no entry had been made in the cash book.
- Direct credit from a debtor of $\text{₦}12,500$ and dividend of $\text{₦}5,400$ collected by the bank were credited in the bank statement only.
- Cheques drawn amounting to $\text{₦}15,200$ had not been presented to the bank for payment.
- Cheques received and lodged into the bank amounting to $\text{₦}9,800$ had not been credited by the bank.

What is the adjusted Cash Book balance as at 30th June 2026?

Overdraft of

\text{₦}20,150

Overdraft of

\text{₦}25,550

Overdraft of

\text{₦}36,650

Favorable balance of

\text{₦}36,650

Show answer & explanation

Answer: Overdraft of $\text{₦}20,150$

Answer

An overdraft balance of

\text{₦}20,150

The correct answer is an overdraft balance of

\text{₦}20,150

. When preparing an Adjusted Cash Book, only unrecorded bank items (bank charges, interest, direct credits, dividends, and dishonoured cheques) are posted. Unpresented cheques and uncredited deposits are timing differences and are excluded. Starting with an overdraft balance of

-\text{₦}28,400

, adding direct credit (

\text{₦}12,500

) and dividend (

\text{₦}5,400

), and subtracting bank charges (

\text{₦}1,850

), overdraft interest (

\text{₦}3,200

), and dishonoured cheque (

\text{₦}4,600

) gives

-\text{₦}20,150

, which signifies an overdraft of

\text{₦}20,150

.

Step-by-Step Solution

1

Identify the unadjusted starting balance and its position.

Cash Book starting balance is an overdraft (Credit balance) of

-\text{₦}28,400

.

An overdraft is a credit balance in the cash book.

2

Sum all additions (Debit adjustments) to the Cash Book.

Direct credit (

\text{₦}12,500

) + Dividend collected (

\text{₦}5,400

) =

+\text{₦}17,900

.

Direct receipts increase the cash book balance and reduce overdraft.

3

Sum all deductions (Credit adjustments) to the Cash Book.

Bank charges (

\text{₦}1,850

) + Overdraft interest (

\text{₦}3,200

) + Dishonoured cheque (

\text{₦}4,600

) =

-\text{₦}9,650

.

Bank fees, charges, interest, and returned cheques decrease the cash book balance and increase overdraft.

4

Filter out timing differences.

Unpresented cheques (

\text{₦}15,200

) and uncredited cheques (

\text{₦}9,800

) are excluded from the Adjusted Cash Book.

Timing differences between the cash book and bank statement are adjusted in the Bank Reconciliation Statement, not the cash book itself.

5

Calculate the final adjusted balance.

-\text{₦}28,400 + \text{₦}17,900 - \text{₦}9,650 = -\text{₦}20,150

(Overdraft of

\text{₦}20,150

).

Combining initial balance with net debit and credit adjustments yields the true cash balance.

Key Concept

Preparation of Adjusted Cash Book

Question 11790Question →

Vanguard Nigeria Plc issued $\text{₦}400,000$ , $10\%$ debentures at a discount of $5\%$ . Which of the following journal entries correctly records this transaction?

Debit Bank Account

\text{₦}380,000

, Debit Discount on Issue of Debentures Account

\text{₦}20,000

; Credit

10\%

Debentures Account

\text{₦}400,000

Debit Bank Account

\text{₦}400,000

; Credit

10\%

Debentures Account

\text{₦}380,000

, Credit Discount on Issue of Debentures Account

\text{₦}20,000

Debit Bank Account

\text{₦}420,000

; Credit

10\%

Debentures Account

\text{₦}400,000

, Credit Premium on Issue of Debentures Account

\text{₦}20,000

Debit Purchases Account

\text{₦}380,000

, Debit Discount Account

\text{₦}20,000

; Credit

10\%

Debentures Account

\text{₦}400,000

Show answer & explanation

Answer: Debit Bank Account $\text{₦}380,000$ , Debit Discount on Issue of Debentures Account $\text{₦}20,000$ ; Credit $10\%$ Debentures Account $\text{₦}400,000$

Answer

Debit Bank Account

\text{₦}380,000

, Debit Discount on Issue of Debentures Account

\text{₦}20,000

; Credit

10\%

Debentures Account

\text{₦}400,000

When debentures are issued at a discount, the cash received equals Nominal Value minus Discount (

400,000 - 20,000 = 380,000

). The Bank Account is debited with

380,000

, Discount on Issue of Debentures is debited with

20,000

, and the

10\%

Debentures Account is credited with the nominal value of

400,000

.

Step-by-Step Solution

1

Calculate the amount of discount on issue

\text{Discount} = 5\% \times \text{₦}400,000 = \text{₦}20,000$

Discount is given as a percentage of the nominal value.

2

Calculate the net cash received in the bank

\text{Net Bank Proceeds} = \text{₦}400,000 - \text{₦}20,000 = \text{₦}380,000$

The company receives the nominal amount minus the discount allowed.

3

Formulate double entry postings

Debit Bank Account (

\text{₦}380,000

), Debit Discount on Issue of Debentures (

\text{₦}20,000

), Credit

10\%

Debentures Account (

\text{₦}400,000

)

Assets (Bank) increase on debit, losses/expenses (Discount) are debited, and liabilities (Debentures) increase on credit at full nominal value.

Key Concept

Accounting entries for the issue of debentures at a discount

Question 11791Question →

Danladi Commercial Enterprises operates two departments: Restaurant and Bakery. For the year ended 31 December 2025, the following financial details were extracted for the Restaurant department:

- Opening stock: $₦15,000$
- Purchases: $₦85,000$
- Sales: $₦150,000$
- Closing stock: $₦20,000$
- Direct departmental expenses: $₦8,000$

Total rent and rates for the entire business amounted to $₦24,000$ , which is to be apportioned between the Restaurant and Bakery departments in the ratio of floor space occupied ( $600\text{ m}^2$ and $400\text{ m}^2$ , respectively).

What is the net profit of the Restaurant department for the year ended 31 December 2025?

Show answer & explanation

Answer: 47600

Answer

The net profit of the Restaurant department is

₦47,600

.

To find the departmental net profit, first determine the gross profit by deducting Cost of Goods Sold (

₦15,000 + ₦85,000 - ₦20,000 = ₦80,000

) from Sales (

₦150,000

), yielding

₦70,000

. Next, apportion rent using floor space ratio (

600/1000 \times ₦24,000 = ₦14,400

) and add direct expenses (

₦8,000

) to get total expenses of

₦22,400

. Subtracting total expenses from gross profit yields a net profit of

₦47,600

.

Step-by-Step Solution

1

Calculate the Cost of Goods Sold (COGS) for the Restaurant department

\text{COGS} = ₦15,000 + ₦85,000 - ₦20,000 = ₦80,000

Cost of Goods Sold is determined by adding opening stock to purchases and subtracting closing stock.

2

Calculate the Gross Profit for the Restaurant department

\text{Gross Profit} = ₦150,000 - ₦80,000 = ₦70,000

Gross Profit is calculated by subtracting Cost of Goods Sold from total Sales.

3

Apportion the common rent expense to the Restaurant department based on floor area

\text{Apportioned Rent} = \frac{600}{1,000} \times ₦24,000 = ₦14,400

Rent expense is divided according to the proportion of total floor space used by the department.

4

Determine total departmental expenses for the Restaurant department

\text{Total Expenses} = ₦8,000 + ₦14,400 = ₦22,400

Total expenses equal direct departmental expenses plus allocated common overheads.

5

Deduct total expenses from gross profit to find the net profit

\text{Net Profit} = ₦70,000 - ₦22,400 = ₦47,600

Net Profit is the residual amount after deducting all departmental overheads and direct expenses from gross profit.

Key Concept

Preparation of Departmental Trading, Profit and Loss Accounts

Question 11792Question →

Zenith Engineering Ltd issued $5,000$ , $10\%$ debentures of $\text{₦}100$ each at a discount of $4\%$ . The terms of issue specify that the debentures are redeemable after five years at a premium of $5\%$ . What is the total loss on issue of debentures to be written off over the tenure of the debentures?

\text{₦}45,000

\text{₦}20,000

\text{₦}25,000

\text{₦}5,000

Show answer & explanation

Answer: \text{₦}45,000

Answer

\text{₦}45,000

The correct answer is \text{₦}45,000. When debentures are issued at a discount and redeemable at a premium, the total capital loss incurred by the issuing company equals the sum of the discount granted upon issue (\text{₦}20,000) and the premium promised upon redemption (\text{₦}25,000). Both components represent a cost of borrowing that must be recognized and written off over the tenure of the debentures.

Step-by-Step Solution

1

Calculate the total nominal value of the debentures issued.

\text{Nominal Value} = 5,000 \times \text{₦}100 = \text{₦}500,000

The nominal value forms the base for calculating both the issue discount and the redemption premium.

2

Calculate the discount allowed on the issue of debentures.

\text{Discount on Issue} = 4\% \times \text{₦}500,000 = \text{₦}20,000

Issuing debentures below face value represents an immediate capital loss.

3

Calculate the premium payable on the redemption of debentures.

\text{Premium on Redemption} = 5\% \times \text{₦}500,000 = \text{₦}25,000

Agreeing to redeem debentures above face value creates an additional capital liability/loss at the date of issue.

4

Sum the discount on issue and premium on redemption to find the total loss on issue.

\text{Total Loss on Issue} = \text{₦}20,000 + \text{₦}25,000 = \text{₦}45,000

Both items are capital losses arising from the issue contract and must be amortized over the debentures' life.

Key Concept

Accounting for Issue of Debentures Redeemable at a Premium

Question 11793Question →

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

- Servicing and routine maintenance of operational vehicles: ₦1,200,000
- Construction of a modern waste recycling plant: ₦45,000,000
- Payment of monthly salaries to environmental officers: ₦18,500,000
- Acquisition of specialized laboratory testing equipment: ₦12,000,000
- Purchase of office stationery and consumables: ₦800,000

What is the total recurrent expenditure of the Ministry for the financial year?

₦20,500,000

₦32,500,000

₦57,000,000

₦77,500,000

Show answer & explanation

Answer: ₦20,500,000

Answer

The total recurrent expenditure of the Ministry for the financial year is ₦20,500,000.

The sum of ₦20,500,000 is correct because recurrent expenditure includes ongoing administrative and maintenance costs such as vehicle servicing (₦1,200,000), officers' salaries (₦18,500,000), and office stationery (₦800,000). Construction of the plant and purchase of specialized laboratory equipment are capital expenditures.

Step-by-Step Solution

1

Identify recurrent expenditure items

Recurrent items are routine operational expenses: vehicle maintenance (₦1,200,000), monthly salaries (₦18,500,000), and office stationery (₦800,000).

Recurrent expenditures are day-to-day running costs incurred in maintaining government services within a financial year.

2

Identify capital expenditure items to exclude

Capital items are long-term asset acquisitions: waste recycling plant (₦45,000,000) and laboratory equipment (₦12,000,000).

Capital expenditures result in the creation or acquisition of non-current assets with benefits extending beyond one financial year.

3

Sum the recurrent expenditure items

₦1,200,000 + ₦18,500,000 + ₦800,000 = ₦20,500,000.

Adding all operational running costs gives the total recurrent expenditure.

Key Concept

Recurrent Expenditure Classification in Public Sector Accounting

Estimated Time:1m 30s

Question 11794Question →

Meridian Engineering Plc offered for public subscription $250,000$ ordinary shares of $\text{₦}2.50$ nominal value each at an issue price of $\text{₦}3.00$ per share. All the shares were fully subscribed and paid for in full. What is the total amount, in Naira ( $\text{₦}$ ), to be credited to the Share Premium Account?

Show answer & explanation

Answer: 125000

Answer

The total amount credited to the Share Premium Account is ₦125,000.

When shares are issued at a price above nominal value, the nominal value (250,000 × ₦2.50 = ₦625,000) is credited to Ordinary Share Capital, while the excess price of ₦0.50 per share (250,000 × ₦0.50 = ₦125,000) is credited to the Share Premium Account.

Step-by-Step Solution

1

Determine the share premium per share

Premium per share = ₦0.50

Share premium is the excess of the issue price over the nominal (par) value of a share (₦3.00 - ₦2.50).

2

Calculate total share premium

Total Share Premium = ₦125,000

Total premium equals number of shares issued multiplied by the premium per share (250,000 × ₦0.50).

Key Concept

Accounting for Share Issue at a Premium

Question 11795Question →

In the accounting period ended 31 May 2026, Okafor Enterprise reported a Gross Profit of $\text{N}185,000$ and discounts received of $\text{N}12,000$ . Operating expenses paid were: salaries $\text{N}55,000$ , carriage outwards $\text{N}7,000$ , rent $\text{N}24,000$ , and insurance $\text{N}18,000$ . At year-end, rent of $\text{N}4,000$ was accrued while insurance of $\text{N}3,000$ was prepaid. What is the Net Profit of Okafor Enterprise for the period?

Show answer & explanation

Answer: N92,000; 92,000; 92000; N92000; N 92,000; 92,000 Naira

Answer

The Net Profit of Okafor Enterprise for the period is

\text{N}92,000

.

Total revenue income is

\text{N}185,000 + \text{N}12,000 = \text{N}197,000

. Total operating expenses incurred are: Salaries (

\text{N}55,000

) + Carriage Outwards (

\text{N}7,000

) + Rent (

\text{N}24,000 + \text{N}4,000 = \text{N}28,000

) + Insurance (

\text{N}18,000 - \text{N}3,000 = \text{N}15,000

) =

\text{N}105,000

. Deducting total expenses from total income yields a Net Profit of

\text{N}92,000

.

Step-by-Step Solution

1

Calculate total gross income

Total Income = Gross Profit (

\text{N}185,000

) + Discounts Received (

\text{N}12,000

) =

\text{N}197,000

Discounts received are added to gross profit as an item of income in the profit and loss account.

2

Adjust individual expense accounts for accruals and prepayments

Adjusted Rent =

\text{N}24,000 + \text{N}4,000 = \text{N}28,000

; Adjusted Insurance =

\text{N}18,000 - \text{N}3,000 = \text{N}15,000

Accrued expenses must be added to expenses paid because they relate to the current period, while prepaid expenses must be deducted because they relate to the future period.

3

Calculate total operating expenses

Total Expenses = Salaries (

\text{N}55,000

) + Carriage Outwards (

\text{N}7,000

) + Adjusted Rent (

\text{N}28,000

) + Adjusted Insurance (

\text{N}15,000

) =

\text{N}105,000

Sum all adjusted operating expenses incurred during the accounting period.

4

Deduct total operating expenses from total gross income to determine Net Profit

Net Profit =

\text{N}197,000 - \text{N}105,000 = \text{N}92,000

Net profit is the excess of total revenues and gains over total expenses for the period.

Key Concept

Determination of Net Profit by adjusting operating income and expenses for accruals and prepayments.

Question 11796Question →

Which of the following statements correctly describes the legal status and relationship of participants in a joint venture arrangement?

They act as co-principals who directly share profits or losses arising from the specific project.

They operate under a principal and agent relationship where one participant acts strictly on behalf of the other for a commission.

They establish a separate legal entity distinct from the individual venturers that possesses perpetual succession.

They function in an employer and employee relationship where one participant receives a fixed salary for managing bookkeeping tasks.

Show answer & explanation

Answer: They act as co-principals who directly share profits or losses arising from the specific project.

Answer

Participants in a joint venture act as co-principals who directly share profits or losses arising from the specific project.

In a joint venture, participants are co-venturers who function as co-principals. They pool resources for a specific temporary business objective and share the resulting profits or losses directly in an agreed ratio.

Step-by-Step Solution

1

Identify the key defining characteristics of a joint venture.

A joint venture is a temporary association of two or more persons formed to carry out a specific enterprise or venture for profit without forming a permanent partnership or corporate body.

Understanding the nature of a joint venture helps distinguish it from other business structures.

2

Analyze the legal relationship between the participants (co-venturers).

Each co-venturer acts as a co-principal with authority to bind the venture within the scope of the agreed business activity, sharing final profits or losses.

Co-venturers share risks and returns directly as principals, unlike agents who earn commission or employees who receive wages.

Key Concept

Nature and Features of Joint Venture Accounts

Question 11797Question →

A sole trader is preparing the Statement of Financial Position at the end of the financial period. Match each accounting item on the left with its correct Balance Sheet classification heading on the right.

Click a left item, then click its matching right item

Show answer & explanation

Answer

Prepaid advertising expense matches Current Asset; Trade marks match Non-current Asset; Three-year bank loan matches Non-current Liability; Accrued electricity utility charges match Current Liability.

Each item is categorized according to its liquidity and settlement timeframe: prepaid expenses yield short-term benefit (Current Asset), trade marks provide long-term operations support (Non-current Asset), multi-year loans are settled past one year (Non-current Liability), and accrued bills are obligations payable immediately or within one year (Current Liability).

Step-by-Step Solution

1

Analyze 'Prepaid advertising expense for the upcoming quarter'

Classified as Current Asset

Benefits will be consumed within twelve months, representing a short-term asset.

2

Analyze 'Trade marks and registered brand names'

Classified as Non-current Asset

Trade marks are long-term intangible assets providing benefits over multiple accounting periods.

3

Analyze 'Three-year bank loan for capital expansion'

Classified as Non-current Liability

Debt maturity exceeds twelve months, placing it in long-term liabilities.

4

Analyze 'Accrued electricity utility charges owing at year-end'

Classified as Current Liability

Amounts owed for services already enjoyed must be settled in the short term.

Key Concept

Classification of balance sheet items into Non-current Assets, Current Assets, Non-current Liabilities, and Current Liabilities based on duration and nature.

Question 11798Question →

Match each transaction event relating to the forfeiture and re-issue of shares on the left with its correct double-entry accounting treatment on the right.

Click a left item, then click its matching right item

Show answer & explanation

Answer

Cancellation of share capital upon forfeiture matches Debit Share Capital Account with the called-up amount; Accounting for unpaid calls matches Credit Calls-in-Arrears Account with the unpaid call amount; Discount allowed on re-issue matches Debit Forfeited Shares Account with the discount granted; Transfer of surplus gain matches Credit Capital Reserve Account with the net balance remaining.

Each forfeiture and re-issue stage corresponds directly to standard accounting principles: cancelling capital requires debiting Share Capital by the called-up value, closing defaulted call balances requires crediting Calls-in-Arrears, absorbing discounts on re-issue requires debiting Forfeited Shares Account, and transferring realized profit requires crediting Capital Reserve.

Step-by-Step Solution

1

Analyze the entry for share forfeiture

Debit Share Capital with the called-up amount, credit Calls-in-Arrears with unpaid calls, and credit Forfeited Shares Account with money already received.

Share forfeiture requires reversing the called-up capital and eliminating the outstanding unpaid call balance.

2

Analyze the entry for re-issuing forfeited shares at a discount

Debit Bank with cash received, debit Forfeited Shares Account with the discount provided, and credit Share Capital Account with nominal paid-up value.

The discount granted on re-issue is absorbed by the forfeited funds already collected.

3

Analyze the transfer of the net profit on re-issued shares

Debit Forfeited Shares Account and credit Capital Reserve Account with the net profit.

Profit arising from the forfeiture and subsequent re-issue of shares is a capital profit and must be credited to Capital Reserve.

Key Concept

Accounting Entries for Forfeiture and Re-issue of Shares

Question 11799Question →

Palm Grove Recreation Society provided the following information regarding subscriptions for the financial year ended 31 December 2025:

- Subscriptions in arrears at 1 January 2025: $\text{N}12,500$
- Subscriptions in advance at 1 January 2025: $\text{N}8,400$
- Total subscription cash received during 2025: $\text{N}195,000$
- Subscriptions in advance at 31 December 2025: $\text{N}4,000$
- Subscriptions in arrears at 31 December 2025: $\text{N}11,200$

During the year, subscriptions amounting to $\text{N}3,000$ due from 2024 were declared irrecoverable and written off by the executive committee.

What is the amount to be credited to the Income and Expenditure Account as subscription income for the year ended 31 December 2025?

\text{N}201,100

\text{N}198,100

\text{N}194,900

\text{N}195,100

Show answer & explanation

Answer: $\text{N}201,100$

Answer

The subscription income to be credited to the Income and Expenditure Account for 2025 is

\text{N}201,100

.

To determine subscription income for the Income & Expenditure Account under the accrual concept:

\text{Income} = \text{Cash Received} + \text{Opening Advance} + \text{Closing Arrears} + \text{Subscriptions Written Off} - \text{Opening Arrears} - \text{Closing Advance}

\text{Income} = 195,000 + 8,400 + 11,200 + 3,000 - 12,500 - 4,000 = 201,100

Therefore,

\text{N}201,100

is credited to the Income and Expenditure Account.

Step-by-Step Solution

1

Identify the credit items in the Subscription Account

Subscriptions received in cash (

\text{N}195,000

), Subscriptions in advance on 1 Jan (

\text{N}8,400

), Subscriptions in arrears on 31 Dec (

\text{N}11,200

), and Subscriptions written off (

\text{N}3,000

). Total credits =

\text{N}217,600

.

Credit items represent cash collected, income earned prior but deferred to this period, accrued income for the period, and written-off debts reducing opening arrears.

2

Identify the debit items in the Subscription Account

Subscriptions in arrears on 1 Jan (

\text{N}12,500

) and Subscriptions in advance on 31 Dec (

\text{N}4,000

). Total debit adjustments =

\text{N}16,500

.

Opening arrears relate to prior year income, and closing advance relates to future year income, so both must be excluded from current year revenue.

3

Calculate the balancing figure for Income and Expenditure Account

\text{N}217,600 - \text{N}16,500 = \text{N}201,100

.

The difference between total credits and non-I&E debits is the actual subscription income earned for the current accounting period.

Key Concept

Accrual basis of accounting for subscriptions in non-profit organizations

Question 11800Question →

Oluwaseun Stores maintains incomplete records for its business operations. For the year ended 31 December 2025, the following details were available:
- Trade debtors at 1 January 2025: ₦40,000
- Trade debtors at 31 December 2025: ₦60,000
- Cash received from trade debtors during the year: ₦320,000
- Cash sales made during the year: ₦150,000

What is the value of total sales for the year ended 31 December 2025?

Show answer & explanation

Answer: 490000

Answer

The total sales for the year ended 31 December 2025 is ₦490,000.

Total sales is derived by adding cash sales (₦150,000) to credit sales (₦340,000). Credit sales are calculated using the Total Debtors Account formula: Cash Received (₦320,000) + Closing Debtors (₦60,000) - Opening Debtors (₦40,000) = ₦340,000. Adding cash sales of ₦150,000 gives ₦490,000.

Step-by-Step Solution

1

Determine the credit sales for the period using Total Debtors Control Account reconstruction

Credit Sales = ₦320,000 + ₦60,000 - ₦40,000 = ₦340,000

Closing debtors represent unpaid credit sales at year end, while opening debtors represent unpaid credit sales from the prior period.

2

Calculate Total Sales by summing cash sales and derived credit sales

Total Sales = ₦150,000 + ₦340,000 = ₦490,000

Total sales consists of both cash sales and credit sales during the accounting year.

Key Concept

Calculation of Total Sales from Incomplete Records

Answer

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