All practice questions

Question 11901Question →

Match each non-profit organization financial item listed on the left with its appropriate accounting treatment in relation to the Income and Expenditure Account on the right.

Click a left item, then click its matching right item

Show answer & explanation

Answer

Subscriptions received in advance match with being excluded from the Income and Expenditure Account and recognized as a current liability. Depreciation charge matches with being debited as an operating expenditure item. Specific legacy for construction matches with being excluded from the Income and Expenditure Account and credited directly to a capital fund. Net profit from fundraising matches with being credited as a revenue income item.

Under accrual accounting principles governing non-profit organizations, the Income and Expenditure Account records only revenue expenses (debited) and revenue income (credited) attributable to the current financial year. Depreciation is an operational revenue expense, and fundraising profit is revenue income. Subscriptions paid in advance are unearned revenues carried forward as current liabilities, while specific legacies are capital receipts credited directly to specialized capital funds on the Statement of Financial Position.

Step-by-Step Solution

1

Distinguish between revenue and capital nature items for non-profit organizations.

Regular operational expenses (depreciation) and net earnings from events (fundraising profit) are revenue items. Specific capital gifts (building legacy) are capital items.

The Income and Expenditure Account strictly accounts for revenue income and expenditure on an accrual basis.

2

Apply accrual concept to advance subscription receipts.

Unearned income must be deferred to future periods.

Subscriptions paid in advance belong to the next period and represent an obligation/liability at year-end.

3

Map each item to its correct financial statement treatment.

Advance subscriptions → Current Liability; Depreciation → Expenditure Debit; Specific Legacy → Capital Fund Credit; Event Profit → Income Credit.

Ensures compliance with non-profit accounting standards and JAMB UTME syllabus requirements.

Key Concept

Classification of Revenue vs Capital items and Accrual Adjustments in Income and Expenditure Accounts

Question 11902Question →

Oasis Beverages Plc issued $5,000$ units of $12\%$ debentures of $\text{₦}100$ each at a discount of $6\%$ , redeemable at a premium of $4\%$ . What is the total loss on issue of debentures (in naira) to be recognized in the books of the company?

Show answer & explanation

Answer: 50000

Answer

The total loss on issue of debentures to be recognized is ₦50,000.

When debentures are issued at a discount and redeemable at a premium, the overall loss on issue consists of both the issue discount (₦30,000) and the redemption premium (₦20,000). Adding these two components together gives a total loss of ₦50,000.

Step-by-Step Solution

1

Calculate the nominal (face) value of the debentures issued

Nominal Value =

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

The nominal value represents the aggregate principal amount of the debentures.

2

Calculate the discount allowed on issue

Discount on Issue =

6\% \times \text{₦}500,000 = \text{₦}30,000

Issuing debentures at a

6\%

discount means receiving

\text{₦}30,000

less than nominal value.

3

Calculate the premium payable on redemption

Premium on Redemption =

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

Redeeming at a

4\%

premium requires paying

\text{₦}20,000

above nominal value at maturity.

4

Calculate the total loss on issue of debentures

Total Loss = Discount on Issue + Premium on Redemption =

\text{₦}30,000 + \text{₦}20,000 = \text{₦}50,000

Both the discount granted at issue and the obligation to pay a premium on redemption constitute total capital losses arising from the debenture issue.

Key Concept

Accounting for loss on issue of debentures issued at a discount and redeemable at a premium.

Estimated Time:1m 30s

Question 11903Question →

An accounting firm wishes to restrict access to confidential ledger records so that staff members can only view data necessary for their specific job roles. Which of the following internal control measures best achieves this objective?

Implementing role-based user access permissions and authentication

Installing automated antivirus scanning software on all network workstations

Switching transaction entry from real-time processing to periodic batch processing

Performing routine off-site data backups at the end of each financial period

Show answer & explanation

Answer: Implementing role-based user access permissions and authentication

Answer

Implementing role-based user access permissions and authentication

Implementing role-based user access permissions ensures logical access security by restricting user accounts to only the specific accounting files, functions, and reports required for their assigned duties.

Step-by-Step Solution

1

Identify the primary threat or vulnerability described in the scenario.

The requirement is to prevent unauthorized internal access to confidential accounting ledgers by restricting employees to job-relevant data.

Internal security controls in computerized accounting require restricting system access according to authorization levels.

2

Evaluate the listed security controls to match the specific requirement.

Role-based access control directly enforces authorization limits by assigning specific viewing and editing permissions to user profiles.

Other security controls, such as antivirus software or backups, address external malware and data loss rather than internal access authorization.

Key Concept

Logical Access Controls and User Authorization in Accounting Systems

Question 11904Question →

At the end of the financial year, Kalu Traders has Trade Debtors of $\text{₦}75,000$ and an existing Provision for Doubtful Debts of $\text{₦}1,500$ . If bad debts of $\text{₦}5,000$ are written off and the provision for doubtful debts is to be adjusted to $5\%$ of the remaining debtors, what amount (in $\text{₦}$ ) will be charged to the Profit and Loss Account for provision for doubtful debts?

Show answer & explanation

Answer: 2000

Answer

The amount to be charged to the Profit and Loss Account for provision for doubtful debts is

\text{₦}2,000

.

The net trade debtors figure after writing off bad debts is

\text{₦}70,000

(

\text{₦}75,000 - \text{₦}5,000

). The new provision required is

5\%

of

\text{₦}70,000 = \text{₦}3,500

. Subtracting the existing provision balance of

\text{₦}1,500

gives an increase of

\text{₦}2,000

, which is debited as an expense in the Profit and Loss Account.

Step-by-Step Solution

1

Deduct bad debts written off from total trade debtors

Net Trade Debtors =

\text{₦}75,000 - \text{₦}5,000 = \text{₦}70,000

Provision for doubtful debts is calculated on net trade debtors after deducting bad debts written off.

2

Calculate the new required provision for doubtful debts

New Provision =

5\% \times \text{₦}70,000 = \text{₦}3,500

The required percentage is applied to the remaining trade debtors figure.

3

Calculate the adjustment amount for the Profit and Loss Account

Profit and Loss Charge =

\text{₦}3,500 - \text{₦}1,500 = \text{₦}2,000

Only the net increase in provision is charged as an expense to the Profit and Loss Account.

Key Concept

Adjustment of Provision for Doubtful Debts

Question 11905Question →

A financial controller deliberately omits significant details regarding a pending legal liability from the annual financial statements to present a more favorable financial position to prospective investors. Which qualitative characteristic of accounting information is primarily violated by this action?

Faithful representation

Understandability

Verifiability

Comparability

Show answer & explanation

Answer: Faithful representation

Answer

Faithful representation is the primary qualitative characteristic violated when material liabilities are intentionally omitted to distort financial statements.

Faithful representation is a fundamental qualitative characteristic that requires financial information to be complete, neutral, and free from error. By intentionally concealing a pending lawsuit to alter user perception, the entity destroys neutrality and completeness, breaching faithful representation.

Step-by-Step Solution

1

Identify the core accounting issue described in the scenario.

The scenario describes deliberate omission of a material pending liability to mislead investors.

Intentionally leaving out material information compromises financial neutrality and completeness.

2

Map the issue to fundamental accounting qualitative characteristics.

Faithful representation demands that financial statements are complete, neutral (free from bias), and free from material error.

Selecting and presenting financial data without bias is essential to achieve a true and fair view.

Key Concept

Faithful Representation and Neutrality in Accounting Information

Estimated Time:1m 0s

Question 11906Question →

Match each practical accounting treatment described on the left with its corresponding governing accounting concept or convention on the right.

Click a left item, then click its matching right item

Show answer & explanation

Answer

The correct matches are: 1. Recording motor vehicles at acquisition cost matches the Historical Cost Concept; 2. Recording personal expenses as drawings matches the Business Entity Concept; 3. Recognizing sales revenue upon delivery matches the Realization Concept; 4. Valuing inventory at the lower of cost and net realizable value matches the Prudence Convention.

Each accounting scenario corresponds directly to a specific concept: recording assets at purchase cost complies with Historical Cost; separating personal and business transactions via drawings enforces Business Entity; recognizing income when earned upon delivery follows Realization; and preventing overstatement of inventory assets obeys Prudence.

Step-by-Step Solution

1

Analyze each scenario on the left to identify its governing financial reporting objective.

Item 1 relates to asset valuation; Item 2 relates to business/personal boundary; Item 3 relates to revenue recognition timing; Item 4 relates to conservative stock valuation.

Matching items requires isolating the fundamental accounting rule operationalized by each accounting practice.

2

Pair each practical treatment with its corresponding theoretical concept or convention.

Original acquisition cost valuation maps to Historical Cost; owner personal transaction isolation maps to Business Entity; point-of-sale revenue recording maps to Realization; avoiding asset overstatement maps to Prudence.

Each practical accounting treatment directly implements one of the recognized accounting concepts or conventions.

Key Concept

Accounting Concepts and Conventions

Question 11907Question →

On 1st January, Chief Chukwuma commenced business by incorporating the following assets and liabilities into his accounting records via the General Journal: Premises worth $\text{₦}1,800,000$ , Motor Vehicles valued at $\text{₦}750,000$ , Trading Stock of $\text{₦}320,000$ , Trade Debtors of $\text{₦}140,000$ , Prepaid Rent of $\text{₦}30,000$ , Trade Creditors of $\text{₦}210,000$ , Bank Overdraft of $\text{₦}85,000$ , Accrued Electricity Bill of $\text{₦}15,000$ , and a 10% Bank Loan of $\text{₦}400,000$ . What is the exact amount of Capital to be credited in the opening journal entry?

Show answer & explanation

Answer: 2330000

Answer

The amount of Capital to be credited in the opening journal entry is

\text{₦}2,330,000

.

The correct calculation evaluates total assets as

\text{₦}3,040,000

(including Prepaid Rent as an asset) and total liabilities as

\text{₦}710,000

(including Bank Overdraft and Accrued Electricity as liabilities). Subtracting total liabilities from total assets yields a capital balance of

\text{₦}2,330,000

, which balances the debit and credit sides of the opening journal entry.

Step-by-Step Solution

1

Classify and total all assets to be debited in the opening journal entry

Premises (

\text{₦}1,800,000

) + Motor Vehicles (

\text{₦}750,000

) + Stock (

\text{₦}320,000

) + Debtors (

\text{₦}140,000

) + Prepaid Rent (

\text{₦}30,000

) =

\text{₦}3,040,000

Assets represent economic resources owned or prepaid expenses brought forward, which carry debit balances.

2

Classify and total all liabilities to be credited in the opening journal entry

Trade Creditors (

\text{₦}210,000

) + Bank Overdraft (

\text{₦}85,000

) + Accrued Electricity (

\text{₦}15,000

) + 10% Bank Loan (

\text{₦}400,000

) =

\text{₦}710,000

Liabilities represent obligations owed to outside parties including bank overdrafts and accrued expenses, which carry credit balances.

3

Apply the basic accounting equation to determine opening capital

Capital = Total Assets - Total Liabilities =

\text{₦}3,040,000 - \text{₦}710,000 = \text{₦}2,330,000

In an opening journal entry, the excess of debited assets over credited liabilities represents the owner's capital account balance.

Key Concept

Opening Journal Entry and Capital Determination

Question 11908Question →

Kemi, Lola, and Musa are in partnership sharing profits and losses in the ratio $3:2:1$ respectively. Lola retires from the firm on December 31, 2025. On that date, Lola's capital account balance stands at $\text{₦}50,000$ (credit) and her current account balance is $\text{₦}4,000$ (credit). Revaluation of partnership assets yields a net profit of $\text{₦}18,000$ , and the firm's goodwill is valued at $\text{₦}36,000$ . During the accounting period, Lola made drawings amounting to $\text{₦}6,000$ . What is the total final amount payable to Lola upon her retirement?

₦66,000

₦78,000

₦54,000

₦60,000

Show answer & explanation

Answer: ₦66,000

Answer

The total final amount payable to Lola upon her retirement is ₦66,000.

The total amount due to a retiring partner is determined by accumulating all credit adjustments (capital balance, current account credit balance, share of revaluation profit, and share of goodwill) and deducting any debit adjustments such as personal drawings. Adding the capital balance (₦50,000), current account balance (₦4,000), revaluation profit share (₦6,000), and goodwill share (₦12,000), then subtracting drawings (₦6,000) yields exactly ₦66,000.

Step-by-Step Solution

1

Calculate Lola's profit-sharing fraction

Lola's share is

\frac{2}{3 + 2 + 1} = \frac{2}{6} = \frac{1}{3}

Profit sharing ratio is 3:2:1 for Kemi, Lola, and Musa respectively.

2

Determine Lola's share of revaluation profit and goodwill

Revaluation share =

\frac{1}{3} \times \text{₦}18,000 = \text{₦}6,000

; Goodwill share =

\frac{1}{3} \times \text{₦}36,000 = \text{₦}12,000

Retiring partner is entitled to her proportion of revaluation gains and goodwill credited to her capital account.

3

Calculate total settlement amount

Total payable =

\text{₦}50,000 \text{ (Capital)} + \text{₦}4,000 \text{ (Current Cr)} + \text{₦}6,000 \text{ (Revaluation)} + \text{₦}12,000 \text{ (Goodwill)} - \text{₦}6,000 \text{ (Drawings)} = \text{₦}66,000

Credit balances, profits, and goodwill entitlements increase the amount due, while drawings reduce the amount due.

Key Concept

Settlement of Retiring Partner's Capital Account

Question 11909Question →

Highland Social Club operates a bar to generate additional revenue for its social activities. For the financial year ended 31 December 2025, the following information was extracted from its records:

- Bar inventory on 1 January 2025: ₦45,000
- Bar inventory on 31 December 2025: ₦58,000
- Total cash paid to bar suppliers: ₦320,000
- Bar creditors on 1 January 2025: ₦28,000
- Bar creditors on 31 December 2025: ₦34,000
- Bar wages paid: ₦65,000
- Accrued bar wages as at 31 December 2025: ₦12,000
- Bar takings (sales): ₦540,000

Calculate the net profit from bar operations to be transferred to the Income and Expenditure Account for the year ended 31 December 2025.

Show answer & explanation

Answer: 150000

Answer

The net profit from bar operations to be transferred to the Income and Expenditure Account is ₦150,000.

To find the net profit transferred to the Income and Expenditure account, first compute credit purchases as ₦320,000 + ₦34,000 - ₦28,000 = ₦326,000. Next, calculate the Cost of Bar Goods Sold as ₦45,000 + ₦326,000 - ₦58,000 = ₦313,000. Deducting COGS from total bar takings of ₦540,000 gives a bar gross profit of ₦227,000. Finally, deduct total bar wages of ₦77,000 (₦65,000 paid + ₦12,000 accrued) to obtain the net profit of ₦150,000.

Step-by-Step Solution

1

Calculate total bar purchases for the year

Total Purchases = ₦320,000 + ₦34,000 - ₦28,000 = ₦326,000

Adjusting cash payments to suppliers for opening creditors (subtracted) and closing creditors (added) yields the total credit purchases for the period.

2

Calculate Cost of Bar Goods Sold (COGS)

COGS = ₦45,000 + ₦326,000 - ₦58,000 = ₦313,000

Cost of goods sold represents the opening stock plus total purchases minus closing stock.

3

Calculate Bar Gross Profit

Bar Gross Profit = ₦540,000 - ₦313,000 = ₦227,000

Gross profit is determined by deducting the cost of goods sold from total bar takings.

4

Deduct total bar wages to find Net Bar Profit

Total Bar Wages = ₦65,000 + ₦12,000 = ₦77,000. Net Bar Profit = ₦227,000 - ₦77,000 = ₦150,000

Bar expenses, including paid and accrued bar wages, are deducted from bar gross profit to arrive at the net profit transferred to the Income and Expenditure Account.

Key Concept

Bar Trading Account Net Profit Determination

Question 11910Question →

Crestline Ventures Plc has an issued share capital of $800,000$ ordinary shares of $\text{₦}0.50$ nominal value each. The company's reserves stand at: Share Premium $\text{₦}85,000$ , General Reserve $\text{₦}120,000$ , and Retained Earnings $\text{₦}95,000$ . The board of directors resolves to make a bonus issue of $1$ new ordinary share for every $4$ ordinary shares held, fully capitalizing the Share Premium account first and using the General Reserve for any remaining balance. What is the remaining balance in the General Reserve account after the capitalization for the bonus issue?

Show answer & explanation

Answer: 105000

Answer

The remaining balance in the General Reserve account after the capitalization for the bonus issue is

\text{₦}105,000

.

The bonus issue requires

200,000

new shares (

\frac{1}{4} \times 800,000

), which amounts to a total nominal value of

\text{₦}100,000

(

200,000 \times \text{₦}0.50

). Utilizing the entire Share Premium balance of

\text{₦}85,000

leaves

\text{₦}15,000

to be funded from the General Reserve. Subtracting

\text{₦}15,000

from the original General Reserve of

\text{₦}120,000

leaves a remaining balance of

\text{₦}105,000

.

Step-by-Step Solution

1

Calculate the total number of bonus shares issued

200,000 ordinary shares

The bonus issue ratio is

1

new share for every

4

existing shares:

\frac{800,000}{4} = 200,000

shares.

2

Calculate the total nominal value of the bonus shares

₦100,000

Each share has a nominal value of

\text{��}0.50

, so

200,000 \times \text{₦}0.50 = \text{₦}100,000

.

3

Determine the amount required from the General Reserve after utilizing Share Premium

₦15,000

The Share Premium account of

\text{₦}85,000

is fully utilized first, leaving

\text{₦}100,000 - \text{₦}85,000 = \text{₦}15,000

to be taken from the General Reserve.

4

Calculate the final remaining balance in the General Reserve

₦105,000

Subtracting the

\text{₦}15,000

capitalized from the initial

\text{₦}120,000

General Reserve yields

\text{₦}120,000 - \text{₦}15,000 = \text{₦}105,000

.

Key Concept

Capitalization of Reserves for Bonus Issue

Estimated Time:1m 30s

Question 11911Question →

In the financial administration of public sector entities, statutory roles are divided to ensure strict separation between executive treasury operations and independent legislative oversight. Which key public financial officer is tasked with maintaining the Treasury, managing the Consolidated Revenue Fund, issuing Treasury Circulars to enforce operational compliance, and preparing the annual consolidated financial statements of the government?

The Accountant-General of the Federation

The Auditor-General for the Federation

The Permanent Secretary of a ministry

The Minister of Finance

Show answer & explanation

Answer: The Accountant-General of the Federation

Answer

The Accountant-General of the Federation

The Accountant-General of the Federation acts as the administrative head of the Treasury and chief accounting officer of the government. This role entails managing public funds such as the Consolidated Revenue Fund, issuing Treasury Circulars for accounting standards, and preparing consolidated accounts, distinct from the post-payment audit role of the Auditor-General.

Step-by-Step Solution

1

Analyze the core responsibilities described in the question stem.

Identified responsibilities include Treasury administration, management of the Consolidated Revenue Fund, issuance of operational guidelines (Treasury Circulars), and compilation of consolidated financial statements.

These duties represent executive financial management and operational accounting across public sector entities.

2

Differentiate between executive treasury roles and audit or policy roles.

The Accountant-General of the Federation is the chief accounting officer of the government accountable for overall fund custody and financial reporting.

Auditing is reserved for the Auditor-General, vote control at the ministry level belongs to the Accounting Officer (Permanent Secretary), and macro-fiscal policy is directed by the Minister of Finance.

Key Concept

Statutory functions of key public financial officers in public sector accounting

Question 11912Question →

Fill in the blanks with the correct accounting term and numerical figure regarding the retirement of a partner.

Fill in the blanks below

In partnership accounting, upon the retirement of a partner, any net gain arising from the revaluation of assets and liabilities is distributed to all partners using their ratio. For example, if partner Tarik retires from a firm where he holds a

\frac{1}{4}

share, and the total revaluation gain is

\text{₦}60,000

with his initial capital account balance standing at

\text{₦}140,000

, his updated capital balance prior to settling goodwill will be

\text{₦}

.

Show answer & explanation

Answer

The revaluation profit is distributed according to the old profit sharing ratio, and Tarik's updated capital balance is ₦155,000.

Upon the retirement of a partner, all existing assets and liabilities are revalued, and the resulting gain or loss is shared among all partners in their old profit-sharing ratio. Tarik's 1/4 share of the ₦60,000 revaluation gain equals ₦15,000. Adding this ₦15,000 gain to his existing capital account balance of ₦140,000 yields an updated capital balance of ₦155,000.

Step-by-Step Solution

1

Identify the ratio used for distributing revaluation profit upon retirement.

Revaluation gains or losses accumulated prior to retirement belong to existing partners in their old profit-sharing ratio.

The assets and liabilities were accumulated while all existing partners were active under the previous agreement.

2

Calculate Tarik's share of the revaluation gain.

\frac{1}{4} \times \text{₦}60,000 = \text{₦}15,000

Tarik owns a one-quarter share in the partnership.

3

Compute Tarik's updated capital balance by adding his revaluation share to his initial balance.

$\text{₦}140,000 + \text{₦}15,000 = \text{₦}155,000$

Revaluation gains increase the retiring partner's capital entitlement.

Key Concept

Accounting for Revaluation Gain on Partner Retirement

Estimated Time:1m 30s

Question 11913Question →

The trial balance of OLUWA & Sons Trading Enterprise as at 31st December 2025 shows Trade Debtors of $\text{₦}250,000$ and an existing Provision for Discount on Debtors of $\text{₦}3,500$ . Additional information reveals that bad debts of $\text{₦}10,000$ are to be written off, a provision for doubtful debts is to be maintained at $5\%$ on net debtors, and a provision for discount on debtors is to be created at $2\%$ . What is the amount to be charged to the Profit and Loss Account as provision for discount on debtors for the year?

\text{₦}1,060

\text{₦}1,300

\text{₦}1,500

\text{₦}4,560

Show answer & explanation

Answer: $\text{₦}1,060$

Answer

\text{₦}1,060

To calculate the provision for discount on debtors correctly, bad debts must first be subtracted from gross trade debtors (

\text{₦}250,000 - \text{₦}10,000 = \text{₦}240,000

). Next, the provision for doubtful debts (

5\%

of

\text{₦}240,000 = \text{₦}12,000

) must be deducted, giving

\text{₦}228,000

. The

2\%

provision for discount on debtors is then calculated on

\text{₦}228,000

, which equals

\text{₦}4,560

. Deducting the existing provision balance of

\text{₦}3,500

gives an increase of

\text{₦}1,060

, which is the net amount charged to the Profit and Loss Account.

Step-by-Step Solution

1

Deduct bad debts written off from gross debtors

Net Debtors after Bad Debts =

\text{₦}250,000 - \text{₦}10,000 = \text{₦}240,000

Bad debts identified at year-end must be written off from gross debtors before calculating any provisions.

2

Calculate and deduct provision for doubtful debts

Provision for Doubtful Debts =

5\% \times \text{₦}240,000 = \text{₦}12,000

. Debtors subject to discount =

\text{₦}240,000 - \text{₦}12,000 = \text{₦}228,000

Provision for discount on debtors is strictly calculated on debtors expected to pay (good debts), which is net of doubtful debts.

3

Calculate required provision for discount on debtors

New Provision for Discount on Debtors =

2\% \times \text{₦}228,000 = \text{₦}4,560

Apply the discount rate to the net eligible debtors balance.

4

Determine net charge to Profit and Loss Account

Profit & Loss Charge =

\text{₦}4,560 - \text{₦}3,500 = \text{₦}1,060

Only the increase in provision is debited to the Profit and Loss Account.

Key Concept

Calculation of Provision for Discount on Debtors after accounting for Bad Debts and Provision for Doubtful Debts

Question 11914Question →

Match each accounting transaction or statement item regarding depreciation with its corresponding ledger entry or financial statement treatment.

Click a left item, then click its matching right item

Show answer & explanation

Answer

Annual depreciation charge matches Debit Profit and Loss Account and Credit Provision for Depreciation Account; Reduction in required provision matches Debit Provision for Depreciation Account and Credit Profit and Loss Account; Transfer of accumulated depreciation on asset disposed matches Debit Provision for Depreciation Account and Credit Asset Disposal Account; Presentation of accumulated depreciation matches Deduction from historical cost of non-current assets under Fixed Assets.

Each depreciation item is correctly paired with its accounting treatment: charging annual depreciation requires debiting Profit and Loss and crediting Provision for Depreciation; reducing provision requires debiting Provision for Depreciation and crediting Profit and Loss; removing accumulated depreciation on asset disposal requires debiting Provision for Depreciation and crediting Asset Disposal; and presenting accumulated depreciation requires deducting it from historical cost on the Statement of Financial Position.

Step-by-Step Solution

1

Determine double entry for annual depreciation expense

Debit Profit and Loss Account, Credit Provision for Depreciation Account

Depreciation is an expense reduced from profits for the period while building up the accumulated provision.

2

Determine double entry for a reduction in provision for depreciation

Debit Provision for Depreciation Account, Credit Profit and Loss Account

Excess provision no longer required is credited back to the Profit and Loss Account as gains/income.

3

Determine double entry to remove accumulated depreciation on asset disposal

Debit Provision for Depreciation Account, Credit Asset Disposal Account

Accumulated depreciation on the sold asset must be transferred out of the provision account into the disposal account.

4

Identify financial statement presentation of total accumulated depreciation

Deduction from historical cost under non-current assets

Net book value is calculated by subtracting total accumulated depreciation from the original asset cost.

Key Concept

Accounting Treatment of Depreciation and Provision for Depreciation

Question 11915Question →

A sole trader purchased plant machinery on 1st January 2023 for $\text{₦}1,200,000$ . On 1st July 2025, routine repairs to the machinery costing $\text{₦}200,000$ were erroneously debited to the Plant Machinery Account. Depreciation is provided at $20\%$ per annum using the reducing balance method. What is the correct depreciation expense to be charged to the Profit and Loss Account for the year ended 31st December 2025?

\text{₦}153,600

\text{₦}173,600

\text{₦}193,600

\text{₦}240,000

Show answer & explanation

Answer: $\text{₦}153,600$

Answer

The correct depreciation charge to the Profit and Loss Account for the year ended 31st December 2025 is

\text{₦}153,600

.

The correct answer is

\text{₦}153,600

. Routine repairs are revenue expenditure and should be debited directly to the Profit and Loss Account, not capitalized into the Plant Machinery Account. Therefore, the asset's opening carrying value for 2025 remains

\text{₦}768,000

(

\text{₦}1,200,000 - \text{₦}240,000 - \text{₦}192,000

). Applying the

20\%

reducing balance depreciation rate yields

\text{₦}153,600

.

Step-by-Step Solution

1

Calculate Net Book Value (NBV) at the end of 2023

Depreciation for 2023 =

20\% \times \text{₦}1,200,000 = \text{₦}240,000

. NBV at 31/12/2023 =

\text{₦}1,200,000 - \text{₦}240,000 = \text{₦}960,000

.

Reducing balance method requires applying the percentage rate to the carrying value at the beginning of each period.

2

Calculate Net Book Value (NBV) at the end of 2024

Depreciation for 2024 =

20\% \times \text{₦}960,000 = \text{₦}192,000

. NBV at 31/12/2024 =

\text{₦}960,000 - \text{₦}192,000 = \text{₦}768,000

.

This establishes the correct opening carrying value for the 2025 financial year.

3

Adjust asset account for revenue expenditure misclassification

The

\text{₦}200,000

spent on routine repairs is a revenue expense (credited to Cash/Bank, debited to Repairs Account) and must NOT be added to the Plant Machinery Account.

Capitalizing revenue expenditure violates accounting concepts and inflates asset values.

4

Compute correct 2025 depreciation charge

Depreciation for 2025 =

20\% \times \text{₦}768,000 = \text{₦}153,600

.

The rate is applied strictly to the corrected carrying value of the asset.

Key Concept

Depreciation under Reducing Balance Method with Adjustment for Misclassified Revenue Expenditure

Question 11916Question →

An accounting clerk routinely records daily cash transactions and credit sales in the journals and ledgers, whereas the finance manager uses these records to prepare financial statements and evaluate business performance. Which of the following statements correctly distinguishes bookkeeping from accounting based on this scenario?

Bookkeeping involves the primary recording of daily financial transactions, whereas accounting encompasses the summarizing, analysis, and interpretation of financial records.

Bookkeeping commences only after accounting has completed the preparation and reporting of final statements.

Bookkeeping includes designing internal audit systems and making management decisions, whereas accounting is restricted to routine manual entry.

Bookkeeping combines the personal financial transactions of business owners with entity records, whereas accounting separates them.

Show answer & explanation

Answer: Bookkeeping involves the primary recording of daily financial transactions, whereas accounting encompasses the summarizing, analysis, and interpretation of financial records.

Answer

Bookkeeping involves the primary recording of daily financial transactions, whereas accounting encompasses the summarizing, analysis, and interpretation of financial records.

The distinction relies on scope and primary function: bookkeeping is the routine, foundational task of recording day-to-day transactions in books of original entry, while accounting involves the secondary phase of summarizing, analyzing, interpreting, and communicating those records for decision-making.

Step-by-Step Solution

1

Identify the core function of bookkeeping in the given context.

The clerk's action of recording daily receipts and credit sales represents bookkeeping.

Bookkeeping is routine, mechanical, and concerned with keeping systematic chronological records of financial data.

2

Identify the core function of accounting in the given context.

The finance manager's evaluation, summary, and reporting represent accounting.

Accounting takes bookkeeping records to extract trial balances, prepare final accounts, analyze ratios, and interpret financial health.

3

Compare the scope and sequence of both functions.

Bookkeeping is the primary recording phase, while accounting is the secondary interpretive phase.

Bookkeeping serves as the foundational data collection phase for the accounting process.

Key Concept

Distinction between Bookkeeping and Accounting

Estimated Time:1m 0s

Question 11917Question →

A coastal lagoon covers a rectangular section measuring $12\text{ cm}$ by $15\text{ cm}$ on Map A, which is drawn to a scale of $1 : 20,000$ . If Map A is reduced to create Map B with a scale of $1 : 60,000$ , what is the area of the lagoon on Map B in square centimeters?

Show answer & explanation

Answer: 20

Answer

The area of the lagoon on Map B is

20\text{ cm}^2

.

Reducing the scale from

1 : 20,000

to

1 : 60,000

reduces all linear dimensions to

\frac{1}{3}

of their original length. Consequently, the area changes by

\left(\frac{1}{3}\right)^2 = \frac{1}{9}

. Taking the original map area of

180\text{ cm}^2

(

12\text{ cm} \times 15\text{ cm}

) and multiplying by

\frac{1}{9}

gives

20\text{ cm}^2

.

Step-by-Step Solution

1

Calculate the surface area of the lagoon on the original map (Map A)

Area on Map A =

12\text{ cm} \times 15\text{ cm} = 180\text{ cm}^2

Determining the initial area on paper establishes the base value before scale reduction.

2

Determine the linear scale reduction ratio

Linear scale factor =

\frac{\text{Original Scale Denominator}}{\text{New Scale Denominator}} = \frac{20,000}{60,000} = \frac{1}{3}

Increasing the scale denominator from 20,000 to 60,000 means linear distances shrink to one-third of their original length.

3

Compute the area scale conversion factor

Area scale factor =

\left(\frac{1}{3}\right)^2 = \frac{1}{9}

Map area varies as the square of the linear scale ratio.

4

Calculate the final reduced area on Map B

New area on Map B =

180\text{ cm}^2 \times \frac{1}{9} = 20\text{ cm}^2

Multiplying the original map area by the area scale factor gives the resulting map area.

Key Concept

When a map scale is reduced, linear dimensions change by the factor

k = \frac{\text{Old Denominator}}{\text{New Denominator}}

, while the map area changes by the factor

k^2

.

Question 11918Question →

Metro Recreation Club extracted the following financial information regarding its bar operations for the year ended 31 December 2025:

Item	Amount (₦)
Bar takings	240,000
Bar inventory (1 Jan 2025)	35,000
Bar inventory (31 Dec 2025)	42,000
Payments to bar suppliers	130,000
Bar creditors (1 Jan 2025)	18,000
Bar creditors (31 Dec 2025)	22,000
Bar steward's wages paid	25,000
Bar steward's wages accrued (31 Dec 2025)	3,000

What is the net profit from the bar operations to be transferred to the Income and Expenditure Account?

₦85,000

₦89,000

₦91,000

₦113,000

Show answer & explanation

Answer: ₦85,000

Answer

The net profit from bar operations to be transferred to the Income and Expenditure Account is ₦85,000.

The correct answer of ₦85,000 is arrived at by calculating total purchases (₦134,000), subtracting closing inventory from opening inventory plus purchases to get COGS (₦127,000), finding gross profit (₦113,000), and deducting total wages expense including accruals (₦28,000).

Step-by-Step Solution

1

Calculate total credit purchases of bar inventory

Total Purchases = Payments to Bar Suppliers + Closing Bar Creditors - Opening Bar Creditors =

\text{₦}130,000 + \text{₦}22,000 - \text{₦}18,000 = \text{₦}134,000

Cash payments must be adjusted for unpaid supplier balances at the beginning and end of the period to determine true purchases.

2

Calculate the Cost of Goods Sold (COGS)

COGS = Opening Bar Inventory + Purchases - Closing Bar Inventory =

\text{₦}35,000 + \text{₦}134,000 - \text{₦}42,000 = \text{₦}127,000

Cost of goods sold measures the actual cost of bar inventory consumed during the trading period.

3

Calculate Bar Gross Profit

Bar Gross Profit = Bar Takings - COGS =

\text{₦}240,000 - \text{₦}127,000 = \text{₦}113,000

Gross profit represents revenue generated from sales over the direct cost of inventory sold.

4

Calculate total Bar Wages expense and Bar Net Profit

Total Bar Wages = Wages Paid + Wages Accrued =

\text{₦}25,000 + \text{₦}3,000 = \text{₦}28,000

Bar Net Profit = Bar Gross Profit - Total Bar Wages =

\text{₦}113,000 - \text{₦}28,000 = \text{₦}85,000

Accrued expenses must be added to amounts paid, and net profit from bar trading is transferred as income to the Income and Expenditure Account.

Key Concept

Bar Trading Account Profit Determination and Accrual Adjustments

Question 11919Question →

Prior to reconciliation, the Sales Ledger Control Account of Zainab Enterprises showed a debit balance of $\text{₦}420,000$ . It was later discovered that a sales return of $\text{₦}18,000$ was erroneously posted to the debit side of the control account, and the discount allowed total of $\text{₦}14,000$ from the cash book was omitted from the control account. What is the correct adjusted balance of the Sales Ledger Control Account?

\text{₦}370,000

\text{₦}388,000

\text{₦}398,000

\text{₦}424,000

Show answer & explanation

Answer: $\text{₦}370,000$

Answer

The correct adjusted balance of the Sales Ledger Control Account is

\text{₦}370,000

.

The unadjusted debit balance is

\text{₦}420,000

. A sales return posted to the debit side requires a double adjustment of

\text{₦}36,000

(

2 \times \text{₦}18,000

) on the credit side to cancel the error and record the return. Additionally, discount allowed reduces debtors, so the omitted total of

\text{₦}14,000

must also be credited. Subtracting

\text{₦}36,000

and

\text{₦}14,000

from

\text{₦}420,000

gives the corrected debit balance of

\text{₦}370,000

.

Step-by-Step Solution

1

Calculate the adjustment for the sales return posted to the wrong side

Deduct

\text{₦}36,000

(

2 \times \text{₦}18,000

)

Posting a sales return to the debit side increases debtors instead of reducing them. To correct this, we must remove the incorrect debit of

\text{₦}18,000

and record the correct credit of

\text{₦}18,000

, resulting in a net deduction of

\text{₦}36,000

.

2

Calculate the adjustment for the omitted discount allowed

Deduct

\text{₦}14,000

Discount allowed reduces the total amount owed by debtors and must be credited to the Sales Ledger Control Account.

3

Compute the adjusted balance

\text{₦}420,000 - \text{₦}36,000 - \text{₦}14,000 = \text{₦}370,000

Apply both adjustments to the initial debit balance to obtain the corrected figure.

Key Concept

Correcting errors of commission and omission in the Sales Ledger Control Account

Question 11920Question →

Under conceptual accounting frameworks, the exercise of prudence permits accountants to deliberately understate assets and income to ensure financial statements are conservative.

True

False

Show answer & explanation

Answer: False

Answer

False. Under conceptual accounting frameworks, prudence means exercising caution when making judgments under uncertainty, but it does not permit deliberate bias or understatement of assets and income, as financial information must be neutral to achieve faithful representation.

The statement is false because modern accounting frameworks define prudence as exercising caution under uncertain conditions without introducing bias. Deliberately understating assets or income distorts neutrality, thereby compromising the fundamental qualitative characteristic of faithful representation.

Step-by-Step Solution

1

Define faithful representation and its core components.

Faithful representation requires accounting information to be complete, neutral, and free from error.

Neutrality ensures financial reports are presented without bias towards a particular outcome.

2

Analyze the role of prudence within modern accounting standards.

Prudence supports neutrality by advocating caution under uncertainty, prohibiting both deliberate overstatement and deliberate understatement.

Deliberate understatement creates hidden reserves and distorts financial reporting accuracy across accounting periods.

Key Concept

Neutrality and Prudence in Faithful Representation

Answer

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