All practice questions

Question 12021Question →

Kemi Merchants consigned $600$ cartons of goods to Musa. The terms of remuneration agreed upon were an ordinary commission of $5\%$ on total sales, a del-credere commission of $2.5\%$ on credit sales, and an overriding commission of $10\%$ on excess sales proceeds above the benchmark price of ₦ $4,000$ per carton. Musa sold $400$ cartons on credit at ₦ $4,500$ per carton and $200$ cartons for cash at ₦ $4,000$ per carton. During the period, a credit customer defaulted, giving rise to a bad debt of ₦ $30,000$ . What is the net amount payable by Musa to Kemi Merchants?

₦2,405,000

₦2,375,000

₦2,385,000

₦2,425,000

Show answer & explanation

Answer: ₦2,405,000

Answer

The net amount payable by Musa to Kemi Merchants is ₦2,405,000.

Total sales generated by the consignee amount to ₦2,600,000 (₦1,800,000 credit sales + ₦800,000 cash sales). The consignee earns ordinary commission of ₦130,000 (5% of ₦2,600,000), del-credere commission of ₦45,000 (2.5% of ₦1,800,000 credit sales), and overriding commission of ₦20,000 (10% of ₦200,000 surplus above benchmark price), totaling ₦195,000 in commission. Because del-credere commission is paid, the consignee bears the ₦30,000 bad debt. Thus, the net amount payable to the consignor is ₦2,600,000 minus ₦195,000, which equals ₦2,405,000.

Step-by-Step Solution

1

Calculate sales revenue

Credit sales =

400 \times ₦4,500 = ₦1,800,000

; Cash sales =

200 \times ₦4,000 = ₦800,000

; Total sales =

₦1,800,000 + ₦800,000 = ₦2,600,000

.

Determines total gross proceeds received by the consignee.

2

Compute total commission payable

Ordinary commission =

5\% \times ₦2,600,000 = ₦130,000

; Del-credere commission =

2.5\% \times ₦1,800,000 = ₦45,000

; Benchmark sales value =

600 \times ₦4,000 = ₦2,400,000

; Excess sales =

₦2,600,000 - ₦2,400,000 = ₦200,000

; Overriding commission =

10\% \times ₦200,000 = ₦20,000

; Total commission =

₦130,000 + ₦45,000 + ₦20,000 = ₦195,000

.

Calculates each type of commission earned by the consignee under the specified terms.

3

Determine net proceeds remittable to consignor

Net amount payable = Total sales - Total commission =

₦2,600,000 - ₦195,000 = ₦2,405,000

. The bad debt of ₦30,000 is borne by Musa because del-credere commission was charged.

Under a del-credere commission arrangement, bad debt losses are not chargeable to the consignor.

Key Concept

Consignee Commission Computation & Del-Credere Bad Debt Treatment

Question 12022Question →

A retail enterprise operating without full double-entry bookkeeping records provides the following financial details for the year ended 31 December 2025:

- Trade debtors balance on 1 January 2025: $\text{₦}45,000$
- Trade debtors balance on 31 December 2025: $\text{₦}58,000$
- Cash received from debtors deposited into bank: $\text{₦}420,000$
- Cash discounts granted to customers: $\text{₦}2,500$
- Irrecoverable debts written off: $\text{₦}3,500$
- Sales returns from credit customers: $\text{₦}4,000$
- Contra set-off settlement against creditors ledger: $\text{��}6,000$
- Dishonoured cheques from credit customers: $\text{₦}5,000$
- Cash sales paid directly into the bank account: $\text{₦}85,000$
- Cash sales withdrawn by the owner for personal use before banking: $\text{₦}12,000$

What is the total value of sales (in $\text{₦}$ ) for the enterprise during the year?

Show answer & explanation

Answer: 540500

Answer

The total value of sales for the business for the year is

\text{₦}540,500

.

To find total sales when converting incomplete records, a Debtors Control Account must be constructed to calculate credit sales, and total cash sales must be added. Summing all credit items (

\text{₦}420,000 + \text{₦}2,500 + \text{₦}3,500 + \text{₦}4,000 + \text{₦}6,000 + \text{₦}58,000 = \text{₦}493,500

) and subtracting the known debits (

\text{₦}45,000

opening balance

+ \text{₦}5,000

dishonoured cheques) yields credit sales of

\text{₦}443,500

. Adding total cash sales (

\text{₦}85,000

banked

+ \text{₦}12,000

drawings

= \text{₦}97,000

) gives the final total sales of

\text{₦}540,500

.

Step-by-Step Solution

1

Reconstruct the Sales Ledger Control Account (Debtors Account) to determine credit sales.

Credit items sum to

\text{₦}493,500

, while known debit items (opening debtors of

\text{₦}45,000

plus dishonoured cheques of

\text{₦}5,000

) sum to

\text{₦}50,000

.

Dishonoured cheques increase the debt owed by customers and must be debited to the control account, while discounts allowed, bad debts written off, sales returns, contra set-offs, cash received, and closing balances credit the account.

2

Calculate the derived Credit Sales figure.

\text{Credit Sales} = \text{₦}493,500 - \text{₦}50,000 = \text{₦}443,500

.

The missing debit balance in the control account represents total credit sales generated during the accounting period.

3

Compute the total Cash Sales.

\text{Total Cash Sales} = \text{₦}85,000 + \text{₦}12,000 = \text{₦}97,000

.

Cash sales include both the amount banked and cash takings appropriated by the owner prior to banking.

4

Calculate Total Sales.

\text{Total Sales} = \text{₦}443,500 + \text{₦}97,000 = \text{₦}540,500

.

Total turnover comprises all credit sales plus total cash sales.

Key Concept

Conversion from Single Entry to Double Entry - Determination of Total Sales via Debtors Control Account and Cash Summary

Estimated Time:2m 30s

Question 12023Question →

The following balances were extracted from the accounting records of Kene Manufacturing Enterprise for the year ended 31st December 2025:

Financial Item	Amount (₦)
Sales of finished goods	500,000
Opening inventory of finished goods	40,000
Cost of goods produced	280,000
Closing inventory of finished goods	50,000

What is the gross profit of the enterprise for the year?

₦230,000

₦220,000

₦210,000

₦130,000

Show answer & explanation

Answer: ₦230,000

Answer

The gross profit of Kene Manufacturing Enterprise for the year is ₦230,000.

The gross profit is calculated by subtracting the Cost of Goods Sold from Sales. The Cost of Goods Sold is ₦40,000 + ₦280,000 - ₦50,000 = ₦270,000. Subtracting this from Sales of ₦500,000 gives ₦230,000.

Step-by-Step Solution

1

Calculate the Cost of Goods Sold (COGS)

COGS = ₦40,000 (Opening Inventory of Finished Goods) + ₦280,000 (Cost of Goods Produced) - ₦50,000 (Closing Inventory of Finished Goods) = ₦270,000

In the Trading Account of a manufacturing entity, Cost of Goods Sold is calculated by adding the production cost transferred from the Manufacturing Account to opening finished goods inventory and deducting closing finished goods inventory.

2

Calculate the Gross Profit

Gross Profit = ₦500,000 (Sales) - ₦270,000 (COGS) = ₦230,000

Gross Profit is obtained by subtracting the Cost of Goods Sold from total sales revenue.

Key Concept

Calculation of Gross Profit in the Trading Account of a Manufacturing Entity

Estimated Time:1m 0s

Question 12024Question →

Harmony Cultural Association recorded the following receipts during the financial year ended 31 December 2025:

- General donations received: ₦120,000
- Legacy for auditorium building fund: ₦450,000
- Entrance fees received: ₦200,000

According to the association's constitution, 75% of entrance fees are to be capitalized. What is the total amount to be credited to the Income and Expenditure Account for the year?

₦170,000

₦320,000

₦620,000

₦770,000

Show answer & explanation

Answer: ₦170,000

Answer

₦170,000 should be credited to the Income and Expenditure Account.

General donations of ₦120,000 are unrestricted revenue receipts credited directly to the Income and Expenditure Account. The specific legacy of ₦450,000 is a capital receipt designated for an auditorium building fund, so it is credited to the building fund in the Statement of Financial Position. Entrance fees total ₦200,000; since 75% (₦150,000) is capitalized, the remaining 25% (₦50,000) is treated as revenue income. Therefore, the total credited to the Income and Expenditure Account is ₦120,000 + ₦50,000 = ₦170,000.

Step-by-Step Solution

1

Identify the accounting treatment for general donations

General donations of ₦120,000 are treated as revenue income and credited to the Income and Expenditure Account.

Unrestricted/general donations support regular operating activities.

2

Identify the accounting treatment for the specific legacy

The legacy of ₦450,000 is for a specific capital project (auditorium building fund) and must be capitalized in the Statement of Financial Position.

Donations or legacies tied to specific capital assets are capital receipts.

3

Calculate the revenue portion of entrance fees

Revenue portion = 25% of ₦200,000 = ₦50,000.

Since 75% is capitalized, the remaining 25% (100% - 75%) is recognized as revenue income.

4

Sum up all revenue items credited to Income and Expenditure Account

Total credited = ₦120,000 + ₦50,000 = ₦170,000.

Only revenue items are included in the Income and Expenditure Account.

Key Concept

Distinction between revenue receipts and capital receipts in non-profit organization accounting

Estimated Time:1m 30s

Question 12025Question →

Read the scenario below regarding the fixed assets of a sole trader and calculate the required financial values to complete the statement.

Fill in the blanks below

On 1 January 2025, a sole trader held Delivery Vans with a total cost of

\text{₦}2,000,000

and accumulated depreciation of

\text{₦}600,000

. On 1 April 2025, an additional delivery van was purchased for

\text{₦}800,000

. Depreciation is provided at

20\%

per annum on cost using the straight-line method, calculated on a pro-rata basis for additions during the year.

The total depreciation charge to be debited to the Profit and Loss Account for the year ended 31 December 2025 is

\text{₦}

, while the Net Book Value of Delivery Vans presented in the Balance Sheet as at 31 December 2025 is

\text{₦}

.

Show answer & explanation

Answer

The depreciation charge to be debited to the Profit and Loss Account is ₦520,000, and the Net Book Value to be presented in the Balance Sheet is ₦1,680,000.

For the financial year ended 31 December 2025, the existing delivery vans generate ₦400,000 in depreciation (20% of ₦2,000,000) and the new van acquired on 1 April generates ₦120,000 (20% of ₦800,000 × 9/12). Combining these gives a total P&L depreciation charge of ₦520,000. In the Balance Sheet, total cost (₦2,800,000) minus total accumulated depreciation (₦600,000 prior + ₦520,000 current = ₦1,120,000) results in a Net Book Value of ₦1,680,000.

Step-by-Step Solution

1

Calculate full-year depreciation on the existing delivery vans held from the start of the year.

Depreciation on existing vans =

20\% \times \text{₦}2,000,000 = \text{₦}400,000

.

Existing assets were in use for the full 12-month period.

2

Calculate pro-rata depreciation on the new delivery van acquired on 1 April 2025.

Depreciation on new van =

20\% \times \text{₦}800,000 \times \frac{9}{12} = \text{₦}120,000

.

The new van was owned and used for 9 months during the financial year (1 April to 31 December).

3

Calculate total annual depreciation charge for the Profit and Loss Account (blank_1).

Total Depreciation Expense =

\text{₦}400,000 + \text{₦}120,000 = \text{₦}520,000

.

The total P&L adjustment is the sum of depreciation on existing assets and additions during the year.

4

Calculate total cost and accumulated depreciation as at 31 December 2025.

Total Cost =

\text{₦}2,000,000 + \text{₦}800,000 = \text{₦}2,800,000

. Total Accumulated Depreciation =

\text{₦}600,000 + \text{₦}520,000 = \text{₦}1,120,000

.

Total cost includes initial asset cost plus new purchases, and accumulated depreciation combines opening balance with current year expense.

5

Determine the Net Book Value (NBV) for the Balance Sheet (blank_2).

Net Book Value =

\text{₦}2,800,000 - \text{₦}1,120,000 = \text{₦}1,680,000

.

Net Book Value is calculated as Total Cost minus Accumulated Depreciation.

Key Concept

Adjustments for Depreciation of Fixed Assets

Estimated Time:1m 30s

Question 12026Question →

Chief Okon withdrew goods costing ₦18,000 from his supermarket for private family consumption. The retail selling price of these goods was ₦24,000. Which of the following correctly describes the double-entry adjustment required to record this transaction in the final accounts?

Debit Drawings account with ₦18,000 and credit Purchases account with ₦18,000

Debit Drawings account with ₦24,000 and credit Sales account with ₦24,000

Debit Purchases account with ₦18,000 and credit Drawings account with ₦18,000

Debit Capital account with ₦24,000 and credit Purchases account with ₦24,000

Show answer & explanation

Answer: Debit Drawings account with ₦18,000 and credit Purchases account with ₦18,000

Answer

Debit Drawings account with ₦18,000 and credit Purchases account with ₦18,000

The correct option correctly applies the cost principle to drawings of stock: goods withdrawn by the proprietor for personal consumption are always valued at cost price (₦18,000). The transaction is posted by debiting the Drawings account to record the owner's personal withdrawal and crediting the Purchases account to deduct the cost of these goods from total purchases in the Trading Account.

Step-by-Step Solution

1

Identify the relevant valuation rule for goods taken by the owner.

Goods taken by the owner for personal use must always be recorded at cost price (₦18,000), not at selling price (₦24,000).

Accounting rules dictate that a proprietor cannot make a profit out of themselves; therefore, profit cannot be recognized on goods taken for private use.

2

Determine the dual effect on ledger accounts.

The personal withdrawal increases the owner's Drawings (debit) and reduces total available goods purchased for resale in Purchases (credit).

Debiting Drawings records the withdrawal of business assets, while crediting Purchases reduces the cost of goods available for sale in the Trading Account.

Key Concept

Goods Withdrawn by Owner for Personal Use

Question 12027Question →

The bookkeeper of Danjuma Commercial Enterprise extracted a trial balance that failed to agree. Upon detailed auditing, the following extraction and posting errors were identified:

1. A Discount Received balance of $₦14,500$ was omitted entirely from the trial balance.
2. The Motor Vehicles account balance of $₦280,000$ was mistakenly listed on the credit column of the trial balance.
3. An amount of $₦65,000$ spent on purchasing Office Equipment was correctly recorded in the cash book but wrongly posted to the Purchases Account in the ledger.

If the unadjusted trial balance showed a total debit column of $₦1,420,000$ , what is the correct Trial Balance total after all errors are properly rectified?

₦1,635,000

₦1,700,000

₦1,765,000

₦1,420,000

Show answer & explanation

Answer: ₦1,700,000

Answer

The correct Trial Balance total after rectifying all errors is ₦1,700,000.

Motor Vehicles is an asset account with a debit balance. Having been extracted to the credit side, the debit column of ₦1,420,000 omitted this ₦280,000 balance. Adding ₦280,000 to ₦1,420,000 gives ₦1,700,000. Discount Received is a credit item so it does not affect the debit column, while the misclassification of Office Equipment as Purchases is an Error of Principle between two debit accounts that leaves the total debit sum unaffected.

Step-by-Step Solution

1

Analyze the impact of Error 1 (Omission of Discount Received of ₦14,500).

Discount Received is a revenue item with a credit balance. Omitting it affects only the credit side of the trial balance, so no adjustment is needed for the debit total.

Credit omissions do not alter the debit side calculation.

2

Analyze the impact of Error 2 (Misplacement of Motor Vehicles balance of ₦280,000 on the credit side).

Motor Vehicles is a non-current asset with a debit balance. Since it was listed on the credit side, the debit column was understated by ₦280,000.

Restoring the asset balance to the debit column requires adding ₦280,000 to the initial debit total.

3

Analyze the impact of Error 3 (Office Equipment of ₦65,000 posted to Purchases Account).

This is an Error of Principle. Both Purchases and Office Equipment carry debit balances. The amount of ₦65,000 was already included in the debit total under Purchases.

Reclassifying between two debit accounts does not change the overall debit column sum.

4

Calculate the corrected Trial Balance total.

₦1,420,000 + ₦280,000 = ₦1,700,000

.

Summing the initial debit total and the required debit adjustment yields the correct total.

Key Concept

Impact of Ledger Extraction and Posting Errors on Trial Balance Totals

Question 12028Question →

A head office invoices goods to its dependent branch at a selling price that includes a profit margin of $25\%$ on invoice price. At the end of the accounting year, the branch stock count shows closing inventory valued at $\text{₦}60,000$ at invoice price. What is the amount of stock reserve (unrealized profit) required to reduce the branch closing inventory to its cost price?

Show answer & explanation

Answer: 15000

Answer

The amount of stock reserve required to reduce the closing stock to cost price is

\text{₦}15,000

.

When goods are invoiced at selling price with a known profit margin percentage on invoice price, the unrealized profit (stock reserve) contained in closing stock is computed by multiplying the margin percentage directly by the closing inventory at invoice price (

25\% \times \text{₦}60,000 = \text{₦}15,000

).

Step-by-Step Solution

1

Determine the proportion of unrealized profit included in the invoice price.

Profit margin is

25\%

on invoice price, which equals

\frac{25}{100} = \frac{1}{4}

of the invoice price.

Since the rate is given as a margin on invoice price (selling price), the profit fraction is applied directly to the invoice value.

2

Calculate the stock reserve on the branch closing inventory.

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

.

The stock reserve represents the unrealized profit portion included in the unsold inventory at the end of the financial period.

Key Concept

Calculation of Stock Reserve on Branch Closing Stock at Invoice Price using Margin

Question 12029Question →

Highland Community Club received a legacy of $��300,000$ from a deceased member with explicit instructions that the money must be used solely to construct a new sports pavilion. How should this legacy be recorded in the club's financial statements?

Credited as a capital receipt to a special pavilion fund in the Statement of Financial Position

Credited as revenue income in the Income and Expenditure Account

Debited as an operational expense in the Income and Expenditure Account

Deducted directly from the Accumulated Fund in the Statement of Financial Position

Show answer & explanation

Answer: Credited as a capital receipt to a special pavilion fund in the Statement of Financial Position

Answer

The legacy should be credited as a capital receipt to a special pavilion fund in the Statement of Financial Position.

When a non-profit organization receives a legacy or donation with a specific restriction (such as erecting a building), it is classified as a capital receipt. It is credited directly to a special purpose fund account presented under liabilities/capital funds in the Statement of Financial Position.

Step-by-Step Solution

1

Identify the nature of the receipt

The legacy of

₦300,000

has a specific condition attached (construction of a sports pavilion).

Legacies with specific stipulations are restricted capital receipts rather than general revenue income.

2

Determine the appropriate accounting entry

Debit Cash/Bank with

₦300,000

and credit Special Pavilion Fund with

₦300,000

.

Specific capital receipts are held in special fund accounts in the Statement of Financial Position until utilized for the designated project.

Key Concept

Accounting treatment of specific legacies and donations in non-profit organizations

Question 12030Question →

Harmony Social Officers Club provided the following asset and liability balances at the start of the accounting period on 1st January 2026:

Item	Amount (₦)
Sports Equipment	600,000
Bar Inventory	45,000
Bank Balance	120,000
Subscriptions in Arrears	15,000
Subscriptions Received in Advance	25,000
Accrued Refreshment Expenses	35,000

What is the accumulated fund of the club as of 1st January 2026?

₦720,000

₦740,000

₦790,000

₦840,000

Show answer & explanation

Answer: ₦720,000

Answer

The accumulated fund of the club as of 1st January 2026 is ₦720,000.

The accumulated fund of a non-profit organization is determined by taking the total value of its assets and subtracting its total liabilities at a given date. Adding the assets (Sports Equipment ₦600,000, Bar Inventory ₦45,000, Bank Balance ₦120,000, and Subscriptions in Arrears ₦15,000) yields ₦780,000. Subtracting the liabilities (Subscriptions Received in Advance ₦25,000 and Accrued Refreshment Expenses ₦35,000, totaling ₦60,000) gives the correct accumulated fund of ₦720,000.

Step-by-Step Solution

1

Identify and sum all assets on 1st January 2026.

Total Assets = Sports Equipment (₦600,000) + Bar Inventory (₦45,000) + Bank Balance (₦120,000) + Subscriptions in Arrears (₦15,000) = ₦780,000.

Subscriptions in arrears represent income due to the club but not yet received, which is a current asset.

2

Identify and sum all liabilities on 1st January 2026.

Total Liabilities = Subscriptions Received in Advance (₦25,000) + Accrued Refreshment Expenses (₦35,000) = ₦60,000.

Subscriptions received in advance represent income collected for future periods (current liability) and accrued expenses are unpaid obligations (current liability).

3

Calculate the accumulated fund using the Statement of Affairs equation.

Accumulated Fund = Total Assets - Total Liabilities = ₦780,000 - ₦60,000 = ₦720,000.

The accumulated fund in non-profit accounting serves the same purpose as capital in profit-oriented businesses.

Key Concept

Calculation of Accumulated Fund (Statement of Affairs for Non-Profit Organizations)

Estimated Time:1m 30s

Question 12031Question →

On 31st December 2025, the Head Office Current Account in the books of an independent branch showed a credit balance of ₦133,000, while the Branch Current Account in the Head Office ledger showed a debit balance of ₦189,000. Upon investigation, the following reconciliation items were discovered:

1. Goods in transit sent by the Head Office to the Branch valued at ₦24,000 were not yet recorded in the Branch books.
2. A cash remittance of ₦18,000 sent by the Branch on 28th December 2025 was received by the Head Office on 4th January 2026.
3. A management fee of ₦7,000 charged by the Head Office was mistakenly debited to the Head Office Current Account in the Branch ledger.

What is the correct reconciled balance of the inter-company current account at 31st December 2025?

₦147,000

₦164,000

₦171,000

₦207,000

Show answer & explanation

Answer: ₦171,000

Answer

The correct reconciled balance is ₦171,000.

Reconciling from either ledger yields a balance of ₦171,000. In the Head Office books, deducting ₦18,000 cash in transit from ₦189,000 debit gives ₦171,000 debit. In the Branch books, adding ₦24,000 goods in transit and ₦14,000 for the corrected management fee entry to ₦133,000 credit gives ₦171,000 credit.

Step-by-Step Solution

1

Adjust the Branch Current Account balance in the Head Office ledger for items in transit.

Unadjusted Debit Balance = ₦189,000. Deduct cash in transit of ₦18,000: ₦189,000 - ₦18,000 = ₦171,000 (Debit).

Cash remitted by the Branch before year-end but received by Head Office after year-end must be credited to the Branch Current Account in the Head Office books to reflect actual funds in transit.

2

Adjust the Head Office Current Account balance in the Branch ledger for unrecorded goods in transit.

Add unrecorded goods in transit of ₦24,000 to the Branch's credit balance of ₦133,000: ₦133,000 + ₦24,000 = ₦157,000 (Credit).

Goods dispatched by Head Office before year-end must be credited to the Head Office Current Account in Branch books upon reconciliation.

3

Correct the posting error regarding the management fee in the Branch ledger.

Add ₦14,000 (₦7,000 to reverse the wrong debit + ₦7,000 for the correct credit) to ₦157,000: ₦157,000 + ₦14,000 = ₦171,000 (Credit).

Because the management fee was mistakenly debited to the Head Office Current Account instead of credited, a credit entry of double the amount (₦14,000) is required to eliminate the error and record the charge correctly.

Key Concept

Independent Branch Head Office Reconciliation

Question 12032Question →

Kovaro Manufacturing Enterprise transfers finished goods from its factory to its trading department at a price that includes a mark-up of $33\frac{1}{3}\%$ on manufacturing cost.

Extracts from the enterprise's books for the year ended 31st December 2025 show the following balances:

Item	Value
Opening inventory of finished goods (at transfer price)	$\text{₦}48,000$
Closing inventory of finished goods (at transfer price)	$\text{₦}72,000$

What amount should be charged to the Profit and Loss Account as an adjustment for the provision for unrealized profit for the year ended 31st December 2025?

\text{₦}6,000

\text{₦}8,000

\text{��}18,000

\text{₦}24,000

Show answer & explanation

Answer: $\text{₦}6,000$

Answer

The amount to be charged to the Profit and Loss Account as an adjustment for provision for unrealized profit is

\text{₦}6,000

.

Transfer price includes a mark-up of

33\frac{1}{3}\%

(or

\frac{1}{3}

) on manufacturing cost. To extract the profit element from the transfer price, convert mark-up to margin:

\text{Margin} = \frac{1/3}{1 + 1/3} = 25\%

. The opening provision is

25\% \times \text{₦}48,000 = \text{₦}12,000

and the required closing provision is

25\% \times \text{₦}72,000 = \text{₦}18,000

. The increase in provision charged to the Profit and Loss Account is

\text{₦}18,000 - \text{₦}12,000 = \text{₦}6,000

.

Step-by-Step Solution

1

Convert the mark-up on cost to margin on transfer price

Mark-up =

33\frac{1}{3}\% = \frac{1}{3}

. Margin on transfer price =

\frac{1/3}{1 + 1/3} = \frac{1}{4} = 25\%

.

Inventories are stated at transfer price, so the profit element contained within the transfer price is calculated using the profit margin.

2

Calculate the opening provision for unrealized profit contained in opening inventory

Opening Provision =

25\% \times \text{₦}48,000 = \text{₦}12,000

.

To determine the existing provision brought forward from the previous accounting period.

3

Calculate the closing provision for unrealized profit required for closing inventory

Closing Provision Required =

25\% \times \text{₦}72,000 = \text{₦}18,000

.

To determine the total provision needed at the end of the current accounting period.

4

Determine the net adjustment (increase) to be charged to the Profit and Loss Account

Adjustment = Closing Provision - Opening Provision =

\text{₦}18,000 - \text{₦}12,000 = \text{₦}6,000

.

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

Key Concept

Provision for Unrealized Profit on Closing Inventory

Estimated Time:2m 0s

Question 12033Question →

Under statutory company accounting rules, which of the following is a legally permitted application of the Share Premium account balance?

Issuing fully paid bonus shares to existing shareholders

Paying cash dividends directly to ordinary shareholders

Writing off routine operating losses incurred during normal trading

Funding annual cash bonus payments to company directors

Show answer & explanation

Answer: Issuing fully paid bonus shares to existing shareholders

Answer

Issuing fully paid bonus shares to existing shareholders

The Share Premium account is a non-distributable capital reserve. Under company law and statutory accounting rules, its balance can legally be applied to issue fully paid bonus shares to existing shareholders, write off preliminary formation expenses, or write off expenses/commissions on share issues.

Step-by-Step Solution

1

Identify the nature and classification of the Share Premium account

Share Premium is classified as a capital reserve because it represents funds paid by subscribers in excess of the nominal value of shares.

Capital reserves arise from capital transactions and are legally restricted from being treated as distributable profits.

2

Evaluate statutory regulations governing the utilization of capital reserves

Company regulations strictly permit capital reserves like Share Premium to be used for capital purposes—such as issuing fully paid bonus shares, writing off preliminary expenses, or writing off share issue commission.

Using capital reserves for cash dividends or operational losses violates statutory principles protecting company capital.

Key Concept

Statutory Utilization of Share Premium

Estimated Time:45s

Question 12034Question →

Kwara Merchants prepared its ledger accounts and extracted a trial balance that initially balanced. During an audit, the following errors in extraction and placement were discovered:

1. Discount Allowed of $\text{₦}8,000$ was entered on the credit side of the trial balance instead of the debit side.
2. Discount Received total of $\text{₦}12,000$ was completely omitted from the trial balance.
3. Returns Inwards of $\text{₦}15,000$ was posted to the credit side of the trial balance instead of the debit side.

What is the net discrepancy in the trial balance, and which column will have the higher total?

Credit total exceeds Debit total by

\text{₦}34,000

Credit total exceeds Debit total by

\text{₦}11,000

Debit total exceeds Credit total by

\text{₦}26,000

Credit total exceeds Debit total by

\text{₦}58,000

Show answer & explanation

Answer: Credit total exceeds Debit total by $\text{₦}34,000$

Answer

Credit total exceeds Debit total by

\text{₦}34,000

The correct answer accounts for both the double effect of side-placement errors and the single effect of an omission. Placing Discount Allowed (debit

\text{₦}8,000

) on the credit side causes a

\text{₦}16,000

credit excess. Omitting Discount Received (credit

\text{₦}12,000

) decreases credit total by

\text{₦}12,000

. Placing Returns Inwards (debit

\text{₦}15,000

) on the credit side causes a

\text{₦}30,000

credit excess. Combining these gives a net credit excess of

\text{₦}34,000

.

Step-by-Step Solution

1

Calculate the effect of posting Discount Allowed (debit item of

\text{₦}8,000

) to the credit side.

Debit total is understated by

\text{₦}8,000

and Credit total is overstated by

\text{₦}8,000

, resulting in a net credit excess of

2 \times \text{₦}8,000 = \text{₦}16,000

.

Placing a debit item on the credit side creates a double error magnitude on the trial balance discrepancy.

2

Calculate the effect of omitting Discount Received (credit item of

\text{₦}12,000

).

Credit total is understated by

\text{₦}12,000

, which reduces the credit excess by

\text{₦}12,000

.

Complete omission of a credit item reduces the credit side total by its face value.

3

Calculate the effect of posting Returns Inwards (debit item of

\text{₦}15,000

) to the credit side.

Debit total is understated by

\text{₦}15,000

and Credit total is overstated by

\text{₦}15,000

, resulting in a net credit excess of

2 \times \text{₦}15,000 = \text{₦}30,000

.

Returns Inwards is a debit balance item; misplacing it on the credit side doubles the discrepancy effect.

4

Sum up the net effects to determine the overall trial balance discrepancy.

Net Credit Excess =

\text{₦}16,000 - \text{₦}12,000 + \text{₦}30,000 = \text{₦}34,000

.

Combining all individual error effects gives the overall imbalance between debit and credit totals.

Key Concept

Impact of Trial Balance Extraction Errors on Debit and Credit Discrepancies

Question 12035Question →

Zenith Manufacturing Enterprise extracted the following closing inventory figures and adjustment details at the end of its financial year:

- Raw materials inventory: ₦45,000
- Work-in-progress inventory: ₦28,000
- Finished goods inventory (at market transfer value): ₦75,000
- Provision for unrealized profit on closing finished goods: ₦15,000

What is the total value of manufacturing inventories (in Naira) to be presented under current assets in the Statement of Financial Position?

Show answer & explanation

Answer: 133000

Answer

The total value of manufacturing inventories to be presented under current assets in the Statement of Financial Position is ₦133,000.

In the Statement of Financial Position of a manufacturing business, inventories are disclosed under current assets. Raw materials (₦45,000), work-in-progress (₦28,000), and finished goods are summed together. Finished goods transferred at market value must be stated at original prime/production cost by subtracting the provision for unrealized profit (₦75,000 - ₦15,000 = ₦60,000). Thus, total manufacturing inventories equal ₦45,000 + ₦28,000 + ₦60,000 = ₦133,000.

Step-by-Step Solution

1

Deduct the provision for unrealized profit from finished goods inventory at transfer value.

Net finished goods inventory = ₦75,000 - ₦15,000 = ₦60,000.

Finished goods transferred at a market value above cost include an internal profit element, which must be eliminated via a provision for unrealized profit so that inventory is reported at original cost in the financial statements.

2

Sum all three categories of manufacturing inventory (Raw Materials, Work-in-Progress, and Net Finished Goods).

Total manufacturing inventories = ₦45,000 + ₦28,000 + ₦60,000 = ₦133,000.

All three forms of inventory are current assets and must be aggregated for total inventory presentation under current assets in the Statement of Financial Position.

Key Concept

Balance Sheet Presentation of Manufacturing Inventories and Provision for Unrealized Profit

Question 12036Question →

Match each transaction occurring during the dissolution of a partnership firm to its correct double-entry ledger accounting treatment.

Click a left item, then click its matching right item

Show answer & explanation

Answer

The correct pairings match each dissolution event to its respective double-entry rule: paying realization expenses via a partner debits Realization Account and credits Partner's Capital Account; taking over an asset debits Partner's Capital Account and credits Realization Account; transferring inventory to close it debits Realization Account and credits Inventory Account; and recording discount received debits Creditors Account and credits Realization Account.

Each matching pair accurately reflects standard double-entry principles on partnership dissolution. Asset closing entries debit Realization and credit the asset account. Asset takeovers by partners debit the Partner's Capital Account and credit Realization. Realization expenses paid by a partner debit Realization and credit the Partner's Capital Account. Discounts received on settling creditors debit Creditors Account and credit Realization.

Step-by-Step Solution

1

Analyze the closing of asset accounts at book value

Assets are closed by transferring their book values to the debit side of the Realization Account. Thus, inventory requires a debit to Realization Account and a credit to Inventory Account.

This establishes the total book value of assets being realized.

2

Analyze asset takeover by a partner

The agreed value of an asset taken over by a partner is treated as a realization proceeds. The partner's capital account is debited to reduce their equity claim, and Realization Account is credited.

The partner absorbs the asset in lieu of receiving cash settlement.

3

Analyze realization expenses borne by the firm but paid by a partner

Realization expenses are costs of winding up (debit Realization Account). Since the partner paid from personal funds, the firm credits the Partner's Capital Account to reimburse them.

This records the expense while recognizing the firm's liability to the partner.

4

Analyze discounts gained when settling liabilities

A discount allowed by creditors reduces the cash needed to discharge the debt. The full book value of creditors is debited, cash paid is credited, and the discount benefit is credited to Realization Account.

Gains on discharging liabilities increase realization profit.

Key Concept

Accounting entries for partnership dissolution and realization account

Estimated Time:2m 0s

Question 12037Question →

Chidi Trading Co. maintains incomplete accounting records. For the financial year ended 31 December 2025, the following information was extracted:

- Debtors balance (1 January 2025): ₦42,000
- Debtors balance (31 December 2025): ₦58,000
- Cheques received from debtors: ₦210,000
- Discount allowed to credit customers: ₦6,000
- Returns inwards from debtors: ₦4,000
- Bad debts written off during the year: ₦3,000
- Cash sales banked: ₦145,000
- Cash sales retained by the proprietor for personal use before banking: ₦15,000

What is the total sales figure for Chidi Trading Co. for the year ended 31 December 2025?

₦399,000

₦384,000

₦373,000

₦239,000

Show answer & explanation

Answer: ₦399,000

Answer

₦399,000

The correct answer of ₦399,000 is obtained by adding total cash sales (₦145,000 banked + ₦15,000 drawings = ₦160,000) to credit sales derived from the Debtors Control Account (₦58,000 + ₦210,000 + ₦6,000 + ₦4,000 + ₦3,000 - ₦42,000 = ₦239,000).

Step-by-Step Solution

1

Calculate Total Cash Sales

Total Cash Sales = ₦145,000 (banked) + ₦15,000 (drawings from sales) = ₦160,000

Cash sales taken by the proprietor prior to banking must be included in total cash receipts from sales under the business entity principle.

2

Reconstruct Total Debtors Account to derive Credit Sales

Credit Sales = Closing Debtors + Cheques Received + Discount Allowed + Returns Inwards + Bad Debts - Opening Debtors = ₦58,000 + ₦210,000 + ₦6,000 + ₦4,000 + ₦3,000 - ₦42,000 = ₦239,000

In incomplete records, credit sales are found by crediting the debtors account with payments, discounts, returns, bad debts, and closing balance, then deducting opening debtors.

3

Calculate Total Sales

Total Sales = Cash Sales + Credit Sales = ₦160,000 + ₦239,000 = ₦399,000

Total sales comprises both cash sales and credit sales generated during the accounting period.

Key Concept

Reconstruction of Debtors Control Account and Cash Sales for Total Sales Determination

Question 12038Question →

Match each company reserve item in Column A with its correct classification and characteristic in Column B.

Click a left item, then click its matching right item

Show answer & explanation

Answer

Share Premium Account matches with statutory capital reserve from issuing shares above par; General Reserve matches with revenue reserve created out of distributable profits; Revaluation Reserve matches with capital reserve from upward asset revaluation; Retained Earnings matches with revenue reserve of accumulated undistributed net profits.

Share Premium and Revaluation Reserve are capital reserves created from non-trading or statutory sources and asset revaluations. General Reserve and Retained Earnings are revenue reserves created out of operational net profits.

Step-by-Step Solution

1

Distinguish between Capital Reserves and Revenue Reserves.

Capital reserves (Share Premium, Revaluation Reserve) arise from non-trading activities or statutory requirements and cannot be distributed as cash dividends. Revenue reserves (General Reserve, Retained Earnings) are created out of trading profits.

Correct classification requires understanding the source of funds and dividend availability.

2

Identify specific characteristics of each reserve item.

Share Premium represents excess price over par value. Revaluation Reserve records unrealized asset appreciations. General Reserve is allocated for general contingencies. Retained Earnings carries forward undistributed profit.

Each reserve serves a distinct accounting function within equity.

3

Match each item in Column A to its description in Column B.

Share Premium -> Capital reserve from share issue above par. General Reserve -> Revenue reserve from distributable profits. Revaluation Reserve -> Capital reserve from asset revaluation. Retained Earnings -> Revenue reserve of undistributed net profit.

Verifies precise definitions.

Key Concept

Classification of Capital Reserves and Revenue Reserves in Company Equity

Question 12039Question →

A head office supplies merchandise to its dependent branch at cost plus $50\%$ . At the end of the accounting period, the branch holds closing inventory valued at $\text{₦}18,000$ at invoice price. What is the amount of unrealized profit to be removed via the Stock Reserve account?

\text{₦}6,000

\text{₦}9,000

\text{₦}12,000

\text{₦}4,500

Show answer & explanation

Answer: $\text{₦}6,000$

Answer

\text{₦}6,000

The correct answer is

\text{₦}6,000

. A mark-up of

50\%

on cost translates to a profit margin of

\frac{50}{150} = \frac{1}{3}

of the invoice price. Applying this margin to the branch closing stock of

\text{₦}18,000

yields

\text{₦}6,000

as the unrealized profit to be credited to the Stock Reserve account.

Step-by-Step Solution

1

Convert mark-up on cost to margin on invoice price.

Margin

= \frac{\text{Mark-up}}{100 + \text{Mark-up}} = \frac{50}{150} = \frac{1}{3}

Branch inventory is stated at invoice price, so the loading fraction must be expressed relative to invoice price.

2

Calculate unrealized profit (stock reserve) in closing stock.

Unrealized Profit

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

Multiplying the margin fraction by the invoice price of closing stock isolates the profit element.

Key Concept

Stock Reserve / Unrealized Profit on Branch Closing Inventory

Question 12040Question →

Kano Processing Company transfers all finished items from the factory to its sales unit at a price that includes a $20\%$ mark-up on factory cost. On 31st December 2025, the trading section held finished inventory valued at a transfer price of $\text{₦}48,000$ . What is the amount of provision for unrealized profit required for this closing inventory in Naira?

Show answer & explanation

Answer: 8000

Answer

The provision for unrealized profit on the closing inventory is ₦8,000.

Converting the 20% mark-up on cost to a profit margin yields 1/6 of the transfer price. Applying 1/6 to the ₦48,000 closing inventory at transfer price gives ₦8,000.

Step-by-Step Solution

1

Determine the profit fraction relative to the transfer price

Mark-up of 20% on cost equals a margin of 1/6 on transfer price

Since the closing inventory is recorded at transfer price, the profit element must be calculated as a proportion of the transfer price: Profit Margin = Markup / (1 + Markup) = 0.20 / 1.20 = 1/6.

2

Calculate the unrealized profit provision amount

₦8,000

Multiply the finished goods closing inventory at transfer price by the profit margin fraction: 1/6 * ₦48,000 = ₦8,000.

Key Concept

Calculation of Provision for Unrealized Profit on Closing Inventory using Mark-up to Margin conversion

Answer

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