All practice questions

Question 12041Question →

Ade, Bala, and Chukwu are partners in a firm sharing profits and losses in the ratio $4:3:1$ respectively. Bala decides to retire from the partnership. At the date of his retirement, his Capital Account has a credit balance of $\text{₦}250,000$ , while his Current Account has a debit balance of $\text{₦}20,000$ . The firm's goodwill is valued at $\text{₦}160,000$ , and the revaluation of assets and liabilities yields a net profit of $\text{₦}40,000$ . What is the total amount payable to Bala upon his retirement?

Show answer & explanation

Answer: 305000

Answer

The total amount payable to Bala upon his retirement is ₦305,000.

The amount due to a retiring partner is computed by taking their capital credit balance (₦250,000), deducting any current account debit balance (₦20,000), and adding their share of goodwill (3/8 of ₦160,000 = ₦60,000) and share of revaluation profit (3/8 of ₦40,000 = ₦15,000). Thus, 250,000 - 20,000 + 60,000 + 15,000 = ₦305,000.

Step-by-Step Solution

1

Determine the retiring partner's profit-sharing ratio

Bala's ratio is 3 out of total parts (4 + 3 + 1 = 8), which equals 3/8.

Adjustments for goodwill and revaluation must be shared among partners according to their existing profit-sharing ratio.

2

Calculate Bala's share of Goodwill

3/8 × ₦160,000 = ₦60,000

The retiring partner is entitled to their proportional share of the firm's total goodwill.

3

Calculate Bala's share of Revaluation Profit

3/8 × ₦40,000 = ₦15,000

Net gains arising from the revaluation of assets and liabilities are credited to all partners in their profit-sharing ratio.

4

Sum all credits and subtract debits to find the final settlement figure

₦250,000 (Capital Cr) - ₦20,000 (Current Dr) + ₦60,000 (Goodwill share) + ₦15,000 (Revaluation share) = ₦305,000

A credit balance on capital increases settlement value, a debit balance on current account reduces it, and shares of goodwill and revaluation profit are added.

Key Concept

Partnership Capital Account Settlement on Retirement

Alternative Method

Prepare Bala's Capital/Settlement Account by posting credits (Capital: ₦250,000, Goodwill: ₦60,000, Revaluation Profit: ₦15,000) on the credit side and debiting Current Account (₦20,000) on the debit side; the balancing figure on the debit side represents the amount transferred to Bala's Loan/Executor/Cash Settlement Account (₦305,000).

Estimated Time:1m 30s

Question 12042Question →

Bisi Manufacturing Company provided the following balances extracted from its accounting records at the end of the year:

Financial Item	Amount (\text{N})
Opening inventory of finished goods	15,000
Cost of production	80,000
Closing inventory of finished goods	20,000
Carriage outwards	5,000

What is the cost of goods sold for the period?

\text{N}75,000

\text{N}80,000

\text{N}115,000

\text{N}85,000

Show answer & explanation

Answer: \text{N}75,000

Answer

\text{N}75,000

In the Trading Account of a manufacturing entity, Cost of Goods Sold is obtained by adding the cost of production to the opening inventory of finished goods and subtracting the closing inventory of finished goods: \text{N}15,000 + \text{N}80,000 - \text{N}20,000 = \text{N}75,000. Carriage outwards is a distribution expense placed in the Profit and Loss Account.

Step-by-Step Solution

1

Identify the components of Cost of Goods Sold in a manufacturing Trading Account

\text{Cost of Goods Sold} = \text{Opening Inventory of Finished Goods} + \text{Cost of Production} - \text{Closing Inventory of Finished Goods}

Cost of production is transferred from the Manufacturing Account to act as the primary cost of goods available for sale.

2

Calculate the Cost of Goods Sold using given figures

\text{N}15,000 + \text{N}80,000 - \text{N}20,000 = \text{N}75,000

Carriage outwards is ignored in this section because it is an administrative/selling expense reported in the Profit and Loss Account.

Key Concept

Calculation of Cost of Goods Sold for Manufacturing Entities

Estimated Time:45s

Question 12043Question →

At 31st March 2026, the trial balance of Okonkwo Stores showed Trade Receivables of $\text{₦}250,000$ and an existing Provision for Doubtful Debts of $\text{₦}8,000$ . An additional bad debt of $\text{₦}10,000$ is to be written off, and the provision for doubtful debts is to be adjusted to $5\%$ of the remaining trade receivables. What is the net amount (in $\text{₦}$ ) to be charged as an expense to the Profit and Loss Account for provision for doubtful debts?

Show answer & explanation

Answer: 4000

Answer

The net amount to be charged as an expense to the Profit and Loss Account for provision for doubtful debts is ₦4,000.

The net trade receivables after deducting the additional bad debt of ₦10,000 is ₦240,000. The required provision at 5% is ₦12,000. Comparing this with the existing provision balance of ₦8,000 gives an increase of ₦4,000, which is the amount charged as an expense to the Profit and Loss Account.

Step-by-Step Solution

1

Calculate remaining trade receivables after writing off additional bad debts

₦250,000 - ₦10,000 = ₦240,000

Additional bad debts written off must be deducted from gross trade receivables before calculating the new provision.

2

Calculate the new required provision for doubtful debts

5% of ₦240,000 = ₦12,000

The provision percentage is applied to the net remaining trade receivables figure.

3

Determine the net adjustment required in the Income Statement

₦12,000 - ₦8,000 = ₦4,000

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

Key Concept

Calculation of Increase in Provision for Doubtful Debts after deducting additional bad debts written off

Question 12044Question →

Match each inter-entity reconciliation transaction scenario between a Head Office and an Independent Branch on the left with its appropriate adjusting journal entry on the right.

Click a left item, then click its matching right item

Show answer & explanation

Answer

The correct pairs correspond as follows: (1) Cash sent by branch in transit is debited to Cash in Transit and credited to Branch Current in Head Office books; (2) Goods dispatched by head office in transit are debited to Goods in Transit and credited to Head Office Current in Branch books; (3) Direct insurance payment by head office is debited to Insurance Expense and credited to Head Office Current in Branch books; (4) Branch collection of head office customer debt is debited to Cash and credited to Head Office Current in Branch books.

Adjusting entries during Head Office and Independent Branch reconciliation ensure that timing differences (goods and cash in transit) and unrecorded third-party transactions are properly recognized to bring the Branch Current Account and Head Office Current Account into agreement.

Step-by-Step Solution

1

Identify missing ledger entries for cash in transit

Branch recorded cash payment (Debit Head Office / Credit Cash), but Head Office has not received funds. Head Office must record: Debit Cash in Transit, Credit Branch Current Account.

Reconciliation requires updating the books of the receiving entity that has not yet recorded the transaction.

2

Identify missing ledger entries for goods in transit

Head Office recorded dispatch (Debit Branch Current / Credit Goods Sent to Branch), but branch has not received goods. Branch must record: Debit Goods in Transit, Credit Head Office Current Account.

Unreceived goods belong to the enterprise inventory at year-end and must be recognized in branch records.

3

Determine entry for expenses paid by Head Office on behalf of Branch

Branch must record expense incurred and liability created to Head Office: Debit Insurance Expense Account, Credit Head Office Current Account.

Head Office expenditure for branch operations increases the inter-company balance owed by Branch to Head Office.

4

Determine entry for collection of Head Office receivables by Branch

Branch receives cash on behalf of Head Office: Debit Cash Account, Credit Head Office Current Account.

Receiving cash on behalf of Head Office increases cash asset and increases accountability owed to Head Office.

Key Concept

Independent Branch Accounts and Head Office Reconciliation Adjusting Entries

Question 12045Question →

A sole trader conducted a physical stock count at the end of the financial year and compiled the following information regarding three product lines of unsold goods:

Product Line	Total Cost (₦)	Estimated Selling Price (₦)	Selling / Modification Expenses (₦)
Product A	45,000	52,000	3,000
Product B	32,000	36,000	7,000
Product C	60,000	58,000	4,000

In accordance with the prudence concept, what is the total value of closing inventory (in ₦) to be presented in the final accounts?

Show answer & explanation

Answer: 128000

Answer

The total value of closing inventory to be presented in the final accounts is ₦128,000.

Inventory must be valued item by item at the lower of cost and Net Realizable Value (NRV). Product A is valued at its cost of ₦45,000 (lower than NRV of ₦49,000). Product B is written down to its NRV of ₦29,000 (lower than cost of ₦32,000). Product C is written down to its NRV of ₦54,000 (lower than cost of ₦60,000). Summing these lower values yields ₦128,000.

Step-by-Step Solution

1

Calculate Net Realizable Value (NRV) for each product line using NRV = Estimated Selling Price - Selling/Modification Expenses.

Product A NRV = ₦49,000; Product B NRV = ₦29,000; Product C NRV = ₦54,000.

Net Realizable Value reflects the net proceeds expected to be realized from the sale of inventory in the ordinary course of business.

2

Determine the lower of cost and NRV on an item-by-item basis.

Product A is valued at ₦45,000; Product B is valued at ₦29,000; Product C is valued at ₦54,000.

The prudence concept dictates that inventory should be valued at the lower of cost and net realizable value to avoid overstating assets and profits.

3

Sum the selected valuation amounts across all product lines.

Total inventory value = ₦45,000 + ₦29,000 + ₦54,000 = ₦128,000.

Summing the itemized values gives the overall figure to be credited to the Trading Account and shown under Current Assets in the Balance Sheet.

Key Concept

Valuation of inventory at the lower of cost and net realizable value (Prudence Concept)

Question 12046Question →

Abeokuta Head Office operates a dependent branch in Sagamu, supplying all goods at cost price. On 1 January 2025, the Branch Debtors Account had an opening balance of $\text{₦}15,000$ . During the year ended 31 December 2025, credit sales recorded by the branch were $\text{₦}68,000$ . Cash collected from debtors and remitted to the Head Office totaled $\text{��}54,000$ . Additional adjustments revealed discounts allowed to debtors of $\text{₦}2,000$ , bad debts written off of $\text{₦}1,000$ , and returns from debtors to the branch of $\text{₦}3,000$ . What is the closing balance of the Branch Debtors Account as of 31 December 2025 in Nigerian Naira ( $\text{₦}$ )?

Show answer & explanation

Answer: 23000

Answer

The closing balance of the Branch Debtors Account as of 31 December 2025 is

\text{₦}23,000

.

The Branch Debtors Account is debited with opening debtor balances and credit sales, making the total debit side

\text{₦}83,000

. It is credited with all items that reduce debts owed by customers, including cash received (

\text{₦}54,000

), discounts allowed (

\text{₦}2,000

), bad debts written off (

\text{₦}1,000

), and goods returned by debtors (

\text{₦}3,000

), totaling

\text{₦}60,000

in credits. Subtracting total credits from total debits leaves a closing balance of

\text{₦}23,000

.

Step-by-Step Solution

1

Calculate the total debits to the Branch Debtors Account

\text{Total Debits} = \text{₦}15,000 \text{ (Opening Balance)} + \text{₦}68,000 \text{ (Credit Sales)} = \text{₦}83,000

Debit entries increase the balance owed by branch trade debtors.

2

Calculate the total credits to the Branch Debtors Account

\text{Total Credits} = \text{₦}54,000 \text{ (Cash Received)} + \text{₦}2,000 \text{ (Discounts)} + \text{₦}1,000 \text{ (Bad Debts)} + \text{₦}3,000 \text{ (Returns)} = \text{₦}60,000

Credit entries reduce the balance owed by branch trade debtors through payments, allowances, irrecoverable amounts, and returned goods.

3

Determine the ending balance carried down

\text{Closing Balance} = \text{₦}83,000 - \text{₦}60,000 = \text{₦}23,000

The closing balance represents the net remaining amount due from branch debtors at the financial year end.

Key Concept

Branch Debtors Account Ledger Entry Rules for Dependent Branches

Question 12047Question →

Ade consigned 500 drums of vegetable oil costing ₦10,000 per drum to an agent in Kaduna. Ade paid carriage and insurance costs totaling ₦200,000. During transit, 50 drums were completely destroyed in an accident. The consignee subsequently paid ₦90,000 for clearing charges and ₦50,000 for warehouse rent. What is the value of the abnormal loss to be credited to the Consignment Account?

₦500,000

₦520,000

₦529,000

₦534,000

Show answer & explanation

Answer: ₦520,000

Answer

The value of the abnormal loss to be credited to the Consignment Account is ₦520,000.

The correct valuation of ₦520,000 represents the original purchase cost of the 50 lost drums (50 × ₦10,000 = ₦500,000) plus their proportionate share of the consignor's transit expenses ((50 / 500) × ₦200,000 = ₦20,000). Since the accident occurred in transit, no consignee expenses are attached.

Step-by-Step Solution

1

Calculate the total cost incurred by the consignor before transit.

Total consignor cost = Cost of goods + Consignor expenses = (500 × ₦10,000) + ₦200,000 = ₦5,000,000 + ₦200,000 = ₦5,200,000.

Abnormal loss in transit must absorb its proportionate share of expenses incurred prior to the point of loss.

2

Calculate the cost per drum before transit.

Cost per drum = ₦5,200,000 / 500 drums = ₦10,400 per drum.

This establishes the total unit cost including consignor's carriage and insurance.

3

Compute the value of the 50 destroyed drums.

Abnormal Loss Value = 50 drums × ₦10,400 = ₦520,000.

Consignee expenses paid after the transit accident cannot be attached to goods already lost in transit.

Key Concept

Valuation of Abnormal Loss in Transit

Question 12048Question →

Mrs. Adebayo, a boutique owner, prepared a draft Trading Account that reported a Gross Profit of ₦180,000. It was subsequently discovered that goods costing ₦35,000, with a retail selling price of ₦50,000, taken by the owner for personal use were erroneously recorded by crediting the Sales Account at selling price, while no entry was made in Purchases. What is the corrected Gross Profit?

₦165,000

₦215,000

₦180,000

₦195,000

Show answer & explanation

Answer: ₦165,000

Answer

The corrected Gross Profit is ₦165,000.

The correct answer of ₦165,000 accounts for both error corrections on the draft Trading Account. First, crediting Sales with ₦50,000 was incorrect because owner drawings are not revenue sales; reversing this decreases Gross Profit by ₦50,000. Second, goods withdrawn for personal use must be credited to Purchases at cost price (₦35,000), which reduces the Cost of Goods Sold and thereby increases Gross Profit by ₦35,000. Combining these gives ₦180,000 - ₦50,000 + ₦35,000 = ₦165,000.

Step-by-Step Solution

1

Reverse the erroneous entry in the Sales Account

Sales was overstated by ₦50,000. Reversing this decreases Gross Profit by ₦50,000.

Goods withdrawn for personal use are not business sales and must not be credited to Sales.

2

Record the correct adjustment for goods withdrawn in Purchases at cost price

Purchases (and thus Cost of Goods Sold) is reduced by ₦35,000, which increases Gross Profit by ₦35,000.

Goods taken by the owner reduce total stock available for sale and must be credited to Purchases at cost price.

3

Calculate the net corrected Gross Profit

₦180,000 - ₦50,000 + ₦35,000 = ₦165,000

Combine the original draft figure with the two individual adjustments.

Key Concept

Accounting adjustment for goods withdrawn by owner for personal use and error correction in Trading Account

Question 12049Question →

The bank column of Chukwuma Ltd's Cash Book showed a debit balance of $\text{NGN } 45,000$ on 31 October 2025. Upon receiving the bank statement, the accountant discovered that a standing order payment of $\text{NGN } 4,500$ for insurance and bank charges of $\text{NGN } 1,200$ were listed only on the bank statement. Additionally, uncredited lodgements of $\text{NGN } 8,000$ and unpresented cheques of $\text{NGN } 6,200$ were outstanding. What is the corrected Cash Book balance prior to preparing the bank reconciliation statement?

\text{NGN } 39,300

\text{NGN } 37,500

\text{NGN } 50,700

\text{NGN } 43,800

Show answer & explanation

Answer: $\text{NGN } 39,300$

Answer

\text{NGN } 39,300

To arrive at the corrected Cash Book balance, only unrecorded bank transactions reflected on the bank statement need to be posted into the Cash Book. Subtracting the standing order of

\text{NGN } 4,500

and bank charges of

\text{NGN } 1,200

from the unadjusted balance of

\text{NGN } 45,000

yields

\text{NGN } 39,300

. Timing differences such as uncredited lodgements and unpresented cheques are handled separately in the bank reconciliation statement.

Step-by-Step Solution

1

Identify items requiring Cash Book adjustment

Standing order (

\text{NGN } 4,500

) and bank charges (

\text{NGN } 1,200

) are unrecorded in the Cash Book.

Direct items on the bank statement not yet entered in the Cash Book must be adjusted in the Cash Book before reconciliation.

2

Identify timing items for the reconciliation statement

Uncredited lodgements (

\text{NGN } 8,000

) and unpresented cheques (

\text{NGN } 6,200

) are timing differences.

These items are already correctly recorded in the Cash Book and will appear on the Bank Reconciliation Statement rather than the adjusted Cash Book.

3

Calculate the corrected Cash Book balance

\text{NGN } 45,000 - \text{NGN } 4,500 - \text{NGN } 1,200 = \text{NGN } 39,300

Deduct unrecorded payments/charges from the initial debit balance.

Key Concept

Adjusted Cash Book Preparation

Estimated Time:1m 30s

Question 12050Question →

Under professional accounting guidelines (ICAN/IFAC), an accountant who discovers a material inadvertent error in a client's previously filed tax return is ethically obligated to notify the tax authorities directly without prior consultation with or authorization from the client.

True

False

Show answer & explanation

Answer: False

Answer

False. When an accountant uncovers a past tax error, confidentiality rules mandate that the accountant inform the client and advise corrective action rather than disclosing it directly to tax authorities without permission, unless legally compelled.

The statement is false because standard professional ethics require an accountant to inform the client of any identified tax filing errors and request authorization to correct them, rather than disclosing client information directly to tax authorities without consent.

Step-by-Step Solution

1

Identify the relevant professional duty

The scenario concerns the principle of confidentiality and professional conduct regarding tax error disclosures.

Professional codes govern how accountants handle client information and error corrections.

2

Analyze standard ICAN/IFAC procedures for tax errors

An accountant discovering an inadvertent tax error must inform the client promptly and advise disclosure to authorities.

The responsibility to correct filings lies primarily with the taxpayer (client).

3

Evaluate the obligation of direct disclosure

Directly informing the tax authority without client consent is a breach of confidentiality unless specifically mandated by law.

Confidentiality protects client communication while maintaining legal boundaries.

Key Concept

Confidentiality and Tax Error Disclosure

Question 12051Question →

Mrs. Adebayo, a sole trader, withdrew goods costing $\text{₦}15,000$ (with a retail selling price of $\text{₦}22,000$ ) from her inventory for personal family use. Which of the following is the correct double entry to record this transaction?

Debit Drawings account

\text{₦}15,000

; Credit Purchases account

\text{₦}15,000

Debit Drawings account

\text{₦}22,000

; Credit Sales account

\text{₦}22,000

Debit Purchases account

\text{₦}15,000

; Credit Capital account

\text{₦}15,000

Debit Drawings account

\text{₦}15,000

; Credit Capital account

\text{₦}15,000

Show answer & explanation

Answer: Debit Drawings account $\text{₦}15,000$ ; Credit Purchases account $\text{₦}15,000$

Answer

Debit Drawings account

\text{₦}15,000

and Credit Purchases account

\text{₦}15,000

When an owner withdraws goods for personal use, the business must reduce the cost of purchases available for resale at cost price. The correct entry is to debit Drawings (to track owner withdrawals) and credit Purchases (to reduce total cost of sales) by

\text{₦}15,000

.

Step-by-Step Solution

1

Determine the valuation price for owner drawings of inventory

The goods must be recorded at cost price (

\text{₦}15,000

), because an entity cannot record a profit on goods consumed by its owner.

According to accounting principles, withdrawals are valued at cost to eliminate unrealized profit.

2

Identify the account to debit

Debit Drawings account with

\text{₦}15,000

.

Drawings represent resources taken out by the owner, which reduces owner's equity.

3

Identify the account to credit

Credit Purchases account with

\text{₦}15,000

.

Crediting Purchases reduces total cost of goods purchased for resale during the trading period.

Key Concept

Goods Withdrawn by Owner for Personal Use

Estimated Time:45s

Question 12052Question →

Lagos Marine Services Ltd resolved to redeem $\text{₦}300,000$ nominal value of its $12\%$ debentures at a premium of $6\%$ . What is the total cash amount paid to debenture holders upon redemption?

Show answer & explanation

Answer: 318000

Answer

The total cash amount paid to debenture holders upon redemption is ₦318,000.

When debentures are redeemed at a premium, the company pays debenture holders the nominal face value plus the agreed redemption premium percentage. Premium amount = 6% of ₦300,000 = ₦18,000. Total payment = ₦300,000 + ₦18,000 = ₦318,000.

Step-by-Step Solution

1

Calculate the redemption premium amount

₦18,000

The premium on redemption is calculated as 6% of the nominal value (₦300,000).

2

Determine the total cash outflow for redemption

₦318,000

Total cash paid equals the nominal value plus the redemption premium.

Key Concept

Redemption of Debentures at a Premium

Question 12053Question →

A business owner maintaining incomplete accounting records extracted the following information relating to creditors and purchases for the financial year ended 31 December 2025:

Item	Amount ( $₦$ )
Trade creditors balance at 1 January 2025	$18,000$
Trade creditors balance at 31 December 2025	$24,500$
Total payments made to creditors by cheque	$65,000$
Discounts received from suppliers	$2,500$
Cash purchases paid directly	$12,000$

What is the total value of purchases for the year?

₦86,000

₦74,000

₦81,000

₦73,000

Show answer & explanation

Answer: $₦86,000$

Answer

The total value of purchases for the year is

₦86,000

.

To find credit purchases, prepare a Creditors Control Account: Credit Purchases = Payments (

₦65,000

) + Discounts Received (

₦2,500

) + Closing Creditors (

₦24,500

) - Opening Creditors (

₦18,000

) =

₦74,000

. Adding direct cash purchases (

₦12,000

) gives Total Purchases of

₦86,000

.

Step-by-Step Solution

1

Reconstruct Credit Purchases using the Creditors Control Account equation

Credit Purchases =

\text{Payments} + \text{Discounts Received} + \text{Closing Creditors} - \text{Opening Creditors} = 65,000 + 2,500 + 24,500 - 18,000 = 74,000

Debit items in creditors control (payments, discounts received, closing balance) must equal credit items (opening balance + credit purchases).

2

Calculate Total Purchases by adding Cash Purchases to Credit Purchases

Total Purchases =

\text{Credit Purchases} + \text{Cash Purchases} = 74,000 + 12,000 = 86,000

Total purchases comprise both cash and credit transactions during the period.

Key Concept

Reconstruction of Total Purchases from Incomplete Records via Purchases Ledger Control Account

Question 12054Question →

Vanguard Logistics PLC presents the following financial balances at the end of its financial year:

Financial Item	Amount ( $₦$ )
Authorized Share Capital ( $1,000,000$ Ordinary shares of $₦1.00$ each)	$1,000,000$
Issued and Fully Paid-up Capital ( $600,000$ Ordinary shares of $₦1.00$ each)	$600,000$
$10\%$ Preference Share Capital	$200,000$
Retained Profit brought forward	$45,000$
Net Profit for the year	$180,000$

During the year, the directors transferred $₦30,000$ to the General Reserve, paid an interim ordinary dividend of $5\%$ , and proposed a final ordinary dividend of $10\%$ . Preference share dividends were also fully provided for.

What is the retained profit to be carried forward to the next financial year?

₦25,000

₦85,000

₦40,000

₦105,000

Show answer & explanation

Answer: $₦85,000$

Answer

The retained profit carried forward to the next financial year is

₦85,000

.

Total profit available for distribution is

₦225,000

(

₦45,000

opening retained balance plus

₦180,000

net profit). The total appropriations equal

₦140,000

, consisting of preference dividend (

₦20,000

), transfer to reserve (

₦30,000

), interim ordinary dividend (

₦30,000

), and proposed final ordinary dividend (

₦60,000

). Subtracting

₦140,000

from

₦225,000

yields

₦85,000

as retained profit carried forward.

Step-by-Step Solution

1

Calculate total profit available for appropriation

Total Available Profit = Retained Profit b/f (

₦45,000

) + Net Profit for the year (

₦180,000

) =

₦225,000

.

Appropriations are made out of the aggregate of accumulated profits brought forward and current year profit.

2

Calculate individual appropriations and total dividends

Preference Dividend =

10\% \times ₦200,000 = ₦20,000

.
Transfer to General Reserve =

₦30,000

.
Interim Ordinary Dividend =

5\% \times ₦600,000 = ₦30,000

.
Proposed Final Ordinary Dividend =

10\% \times ₦600,000 = ₦60,000

.
Total Appropriations =

₦20,000 + ₦30,000 + ₦30,000 + ₦60,000 = ₦140,000

.

Dividends must be calculated on issued and paid-up capital, not on authorized share capital.

3

Deduct total appropriations from total profit available

Retained Profit carried forward =

₦225,000 - ₦140,000 = ₦85,000

.

The remaining unappropriated balance represents the balance carried forward to the balance sheet.

Key Concept

Profit and Loss Appropriation Account and Dividend Computation on Paid-up Capital

Question 12055Question →

Which ledger account types correctly complete the statement below regarding the classification of accounting records?

Fill in the blanks below

In double-entry bookkeeping, rent paid and interest received are classified as accounts, whereas office equipment and business premises are classified as accounts.

Show answer & explanation

Answer

Rent paid and interest received are nominal accounts, while office equipment and business premises are real accounts.

Nominal accounts record revenue, income, expenses, and losses (such as rent paid and interest received). Real accounts record physical assets and properties owned by the business (such as office equipment and premises).

Step-by-Step Solution

1

Classify rent paid and interest received based on accounting rules.

They are expenses and revenues, which fall under nominal accounts.

Nominal accounts deal with expenses, losses, gains, and revenues of a business enterprise.

2

Classify office equipment and business premises.

They are tangible property of the business, which fall under real accounts.

Real accounts represent assets and properties owned by the business entity.

Key Concept

Ledger Account Classification (Nominal vs. Real Accounts)

Estimated Time:1m 0s

Question 12056Question →

A firm has unsold inventory at the end of the accounting period with a total cost of $\text{N}95,000$ . The estimated selling price of this inventory is $\text{N}90,000$ , and the estimated expenses necessary to complete the sale are $\text{N}2,000$ . In accordance with the prudence concept, what is the value of closing stock (in Naira) to be credited to the Trading Account?

Show answer & explanation

Answer: 88000

Answer

The value of closing stock to be credited to the Trading Account is N88,000.

Closing stock is valued at the lower of cost (N95,000) and Net Realizable Value (NRV). The NRV is calculated by deducting estimated selling expenses (N2,000) from the estimated selling price (N90,000), yielding N88,000. Since N88,000 is lower than N95,000, N88,000 is used in the final accounts.

Step-by-Step Solution

1

Calculate the Net Realizable Value (NRV)

NRV = N90,000 - N2,000 = N88,000

Net Realizable Value is the estimated selling price minus any costs needed to bring the goods to a salable state and complete the sale.

2

Compare Cost Price and Net Realizable Value

Lower of N95,000 (Cost) and N88,000 (NRV) is N88,000

According to the accounting concept of prudence, inventory must be valued at the lower of cost and net realizable value to avoid overstating assets and profit.

Key Concept

Valuation of Closing Stock at Lower of Cost and Net Realizable Value

Question 12057Question →

Match each financial item of a public limited company to its appropriate section in the Statement of Financial Position.

Click a left item, then click its matching right item

Show answer & explanation

Answer

Share Premium Account matches Reserves and Surplus, 10% Debentures matches Non-Current Liabilities, Trade Receivables matches Current Assets, and Proposed Dividend Payable matches Current Liabilities.

In a company's Statement of Financial Position, Share Premium is presented under Reserves and Surplus (Equity), Debentures payable in 5 years fall under Non-Current Liabilities, Trade Receivables fall under Current Assets, and Proposed Dividend Payable is listed under Current Liabilities.

Step-by-Step Solution

1

Identify equity components and capital reserves.

Share Premium Account is matched to Reserves and Surplus.

Share premium is an equity reserve representing premiums received on share issues.

2

Distinguish between long-term obligations and short-term liabilities.

10% Debentures match Non-Current Liabilities, while Proposed Dividend Payable matches Current Liabilities.

Debentures maturing in 5 years are long-term liabilities, whereas proposed dividends must be settled within the upcoming accounting period.

3

Classify short-term operational assets.

Trade Receivables match Current Assets.

Amounts owed by trade debtors are realized as cash within a short operational cycle.

Key Concept

Classification of Company Balance Sheet Items

Question 12058Question →

Match each non-profit receipt transaction of Apex Health & Educational Foundation with its appropriate accounting treatment in the financial statements.

Click a left item, then click its matching right item

Show answer & explanation

Answer

Endowment legacy with permanent mandate matches Credited directly to Endowment Fund; Entrance fees with three-quarters capitalization policy matches 75% credited to Capital Fund and 25% to Income and Expenditure Account; Donation for medical laboratory matches Credited to Special Purpose Building Reserve; General un-earmarked legacy matches Credited in full as revenue income in Income and Expenditure Account.

Receipts in non-profit accounting are classified as capital receipts or revenue receipts depending on donor stipulations and organization policy. Endowment legacies and specific-purpose donations are capital receipts recorded in the Statement of Financial Position under dedicated funds. Entrance fees split according to policy must be apportioned between Capital Fund and Income and Expenditure Account. Unrestricted legacies are recognized as revenue income in the Income and Expenditure Account.

Step-by-Step Solution

1

Analyze the nature of each receipt regarding donor restrictions and constitutional rules.

Identified capital mandates for the endowment legacy and building donation, a fractional rule for entrance fees, and no restrictions for the general legacy.

Proper accounting treatment depends on whether a receipt is capital or revenue in nature.

2

Determine accounting treatment for Endowment Legacy and Specific Donation.

Endowment legacy goes to Endowment Fund in Statement of Financial Position; Specific laboratory donation goes to Special Purpose Building Reserve.

Capital receipts intended for long-term fund preservation or specific asset creation cannot be recognized as current operational revenue.

3

Apportion entrance fees according to the 75% capitalization rule.

75% is capitalized to Capital Fund in Statement of Financial Position and 25% is credited to Income and Expenditure Account.

Where non-profit bye-laws dictate explicit split percentages, entrance fees must be divided between capital reserves and revenue income.

4

Classify the general un-earmarked legacy.

Recognized in full as revenue income in the Income and Expenditure Account.

Unrestricted legacies without specific capital stipulations or policy constraints are treated as revenue income in the period received.

Key Concept

Accounting Treatment of Capital vs. Revenue Receipts in Non-Profit Organizations

Question 12059Question →

The following trial balance extract was taken from the books of Omolola Plc as at 31st December 2025:

Account Details	Amount (₦)
Retained profit (1st January 2025)	$45,000$
Net profit for the year ended 31st December 2025	$180,000$
$8\%$ Preference Share Capital (₦1 nominal value)	$200,000$
Issued Ordinary Share Capital (₦1 nominal value)	$500,000$

Additional Information:
1. Authorized share capital consists of $800,000$ ordinary shares of ₦1 each and $200,000$ preference shares of ₦1 each.
2. The directors recommended a transfer of $10\%$ of the current year's net profit to General Reserve.
3. An interim dividend of $5\%$ was paid on ordinary shares during the year.
4. Preference dividend for the year is to be fully provided for, and a final dividend of $8\%$ is proposed on ordinary shares.

What is the retained profit balance carried forward to the next accounting period?

Show answer & explanation

Answer: 126000

Answer

The retained profit balance carried forward to the next accounting period is ₦126,000.

The retained profit carried forward to the next period is determined by taking the total profit available (retained profit brought forward of ₦45,000 plus net profit for the year of ₦180,000 = ₦225,000) and deducting total appropriations: general reserve transfer (₦18,000), preference share dividend (₦16,000), interim ordinary dividend (₦25,000), and proposed final ordinary dividend (₦40,000), giving a final balance of ₦126,000.

Step-by-Step Solution

1

Calculate total profit available for appropriation

₦225,000

Total profit available is the sum of retained profit brought forward (₦45,000) and net profit earned during the year (₦180,000).

2

Calculate transfer to General Reserve

₦18,000

The transfer to General Reserve is computed as 10% of the current year's net profit of ₦180,000.

3

Calculate preference share dividend

₦16,000

Preference dividend is calculated at 8% on the paid-up preference share capital of ₦200,000.

4

Calculate ordinary share interim and final dividends

Interim: ₦25,000; Final: ₦40,000

Dividends are calculated on issued ordinary share capital (₦500,000). Interim dividend = 5% of ₦500,000 = ₦25,000; Proposed final dividend = 8% of ₦500,000 = ₦40,000.

5

Deduct total appropriations from total profit available

₦126,000

Retained profit carried forward = ₦225,000 - (₦18,000 + ₦16,000 + ₦25,000 + ₦40,000) = ₦225,000 - ₦99,000 = ₦126,000.

Key Concept

Profit and Loss Appropriation Account Balance Determination

Question 12060Question →

A retail enterprise integrates its accounting system with suppliers via Electronic Data Interchange (EDI) and processes payments through Electronic Funds Transfer (EFT). Which internal control procedure best ensures that duplicate disbursements are prevented when supplier invoices are electronically received?

Automated three-way matching of the electronic purchase order, receiving report, and vendor invoice prior to EFT authorization

Manual inspection of printed paper delivery receipts by the head accountant prior to monthly payment runs

Accumulating all incoming electronic invoices for periodic batch processing at the end of each accounting quarter

Restricting system access through encrypted user passwords at data entry terminals

Show answer & explanation

Answer: Automated three-way matching of the electronic purchase order, receiving report, and vendor invoice prior to EFT authorization

Answer

Automated three-way matching of the electronic purchase order, receiving report, and vendor invoice prior to EFT authorization

Automated three-way matching validates transaction details across the electronic purchase order, receiving report, and invoice before triggering an Electronic Funds Transfer (EFT). This ensures that payment is made only for goods actually ordered and received, preventing duplicate or fraudulent payouts.

Step-by-Step Solution

1

Identify the primary operational risk in electronic data interchange (EDI) invoice processing.

The primary risk is processing unverified, inaccurate, or duplicate vendor invoices automatically.

Because transactions are transmitted digitally without physical paper documents, automated control validation is essential.

2

Evaluate the effective computerized internal control mechanism for accounts payable.

Automated three-way matching cross-references the digital Purchase Order, receiving report (Goods Received Note), and electronic invoice.

If any document is missing or already flagged as paid, the system automatically blocks duplicate EFT disbursement.

Key Concept

Internal Controls and Automated Matching in Electronic Data Interchange (EDI)

Answer

Step-by-Step Solution

Key Concept

Common Mistakes

Alternative Method

Answer

Step-by-Step Solution

Key Concept

Common Mistakes

Answer

Step-by-Step Solution

Key Concept

Common Mistakes

Answer

Step-by-Step Solution

Key Concept

Common Mistakes

Answer

Step-by-Step Solution

Key Concept

Common Mistakes

Answer

Step-by-Step Solution

Key Concept

Common Mistakes

Answer

Step-by-Step Solution

Key Concept

Common Mistakes

Answer

Step-by-Step Solution

Key Concept

Common Mistakes

Answer

Step-by-Step Solution

Key Concept

Common Mistakes

Answer

Step-by-Step Solution

Key Concept

Common Mistakes

Answer

Step-by-Step Solution

Key Concept

Common Mistakes

Answer

Step-by-Step Solution

Key Concept

Common Mistakes

Answer

Step-by-Step Solution

Key Concept

Common Mistakes

Answer

Step-by-Step Solution

Key Concept

Common Mistakes

Answer

Step-by-Step Solution

Key Concept

Common Mistakes

Answer

Step-by-Step Solution

Key Concept

Common Mistakes

Answer

Step-by-Step Solution

Key Concept

Common Mistakes

Answer

Step-by-Step Solution

Key Concept

Common Mistakes

Answer

Step-by-Step Solution

Key Concept

Common Mistakes

Answer

Step-by-Step Solution