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Question 81Question →

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

Account DetailsAmount (₦)
Retained profit (1st January 2025)45,00045,000
Net profit for the year ended 31st December 2025180,000180,000
8%8\% Preference Share Capital (₦1 nominal value)200,000200,000
Issued Ordinary Share Capital (₦1 nominal value)500,000500,000

Additional Information:
1. Authorized share capital consists of 800,000800,000 ordinary shares of ₦1 each and 200,000200,000 preference shares of ₦1 each.
2. The directors recommended a transfer of 10%10\% of the current year's net profit to General Reserve.
3. An interim dividend of 5%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%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 82Question →

Highridge Capital Plc presents the following capital structure and financial information for the year ended 31st December 2025:

Financial ItemDetails / Amount
Issued 6%6\% Preference Shares of ₦1.00₦1.00 each₦500,000₦500,000
Issued Ordinary Shares of ₦0.50₦0.50 each800,000800,000 shares
Net profit for the year ended 31st December 2025₦185,000₦185,000
Retained profit brought forward (1st1\text{st} January 2025)₦35,000₦35,000

The board of directors approved the following appropriations:
- Transfer to General Reserve: ₦40,000₦40,000
- Interim ordinary dividend paid: ₦15,000₦15,000
- Preference share dividend: Fully provided for
- Proposed final ordinary dividend: 5%5\% on paid-up ordinary share capital

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

Show answer & explanation

Answer: ₦115,000

Answer

The retained profit carried forward to the next financial year is ₦115,000.
The total profit available for appropriation is ₦220,000 (₦185,000 current net profit + ₦35,000 opening retained profit). The total appropriations consist of the preference dividend of ₦30,000 (6%×₦500,0006\% \times ₦500,000), general reserve transfer of ₦40,000, interim ordinary dividend of ₦15,000, and proposed final ordinary dividend of ₦20,000 (5% of [800,000×₦0.50=₦400,000]5\% \text{ of } [800,000 \times ₦0.50 = ₦400,000]). Subtracting the total appropriations of ₦105,000 from ₦220,000 leaves a retained profit carried forward of ₦115,000.

Step-by-Step Solution

1
Calculate the total profit available for appropriation
Total Available Profit = ₦185,000 (Net Profit for year) + ₦35,000 (Retained Profit b/f) = ₦220,000
Retained profits brought forward from previous periods must be added to the current period's net profit to determine distributable profits.
2
Calculate preference share dividend
Preference Dividend = 6% × ₦500,000 = ₦30,000
Fixed preference dividends are calculated as a percentage of paid-up preference share capital.
3
Calculate ordinary share capital and proposed final ordinary dividend
Paid-up Ordinary Share Capital = 800,000 shares × ₦0.50 = ₦400,000. Proposed Final Ordinary Dividend = 5% × ₦400,000 = ₦20,000
Dividends are computed on the total nominal paid-up monetary value of capital, not simply on the number of issued shares.
4
Sum all appropriations and calculate retained profit carried forward
Total Appropriations = ₦30,000 (Pref. Div) + ₦40,000 (General Reserve) + ₦15,000 (Interim Div) + ₦20,000 (Final Ord. Div) = ₦105,000. Retained Profit c/f = ₦220,000 - ₦105,000 = ₦115,000
Subtracting total appropriations from total available profit gives the retained balance carried forward.

Key Concept

Profit and Loss Appropriation Account and Dividend Calculation
Estimated Time:2m 0s
Question 83Question →

Apex Nigeria Plc has an authorized share capital of 1,000,000 ordinary shares of ₦1 each. The company had previously issued 600,000 ordinary shares at a premium of ₦0.20 per share, all fully paid. Prior to year-end adjustments, the General Reserve account held a balance of ₦50,000. The directors subsequently wrote off preliminary expenses of ₦10,000 from the Share Premium account and then issued bonus shares to existing shareholders on the basis of one new share for every four shares held, utilizing the Share Premium account to its maximum statutory limit before drawing on revenue reserves. What is the remaining balance in the General Reserve account after the bonus issue?

Show answer & explanation

Answer: ₦10,000

Answer

The remaining balance in the General Reserve account is ₦10,000.
The correct option correctly accounts for the statutory reduction of the Share Premium balance by ₦10,000 for preliminary expenses prior to capitalizing the remaining ₦110,000 for the ₦150,000 bonus issue. This leaves ₦40,000 to be transferred from the General Reserve, leaving ₦10,000 in the General Reserve.

Step-by-Step Solution

1
Calculate the initial Share Premium balance
600,000 shares × ₦0.20 = ₦120,000
Share Premium is calculated as the premium per share multiplied by the number of issued shares.
2
Deduct preliminary expenses written off from Share Premium
₦120,000 - ₦10,000 = ₦110,000 available Share Premium
Writing off preliminary expenses is a statutory permitted use of the Share Premium account.
3
Determine the nominal value of the bonus shares issued
(600,000 shares ÷ 4) × ₦1 = 150,000 shares = ₦150,000
A 1-for-4 bonus issue on 600,000 shares yields 150,000 new ordinary shares at ₦1 nominal value.
4
Apply available Share Premium and compute General Reserve utilization
General Reserve required = ₦150,000 total bonus - ₦110,000 Share Premium = ₦40,000
Share Premium must be utilized to its maximum available balance before absorbing the remaining deficit from revenue reserves.
5
Compute the ending balance of the General Reserve
₦50,000 initial balance - ₦40,000 utilized = ₦10,000 remaining
Subtracting the amount drawn for the bonus issue from the opening General Reserve balance gives the final balance.

Key Concept

Statutory Utilization of Share Premium and Capitalization of Reserves for Bonus Issues
Estimated Time:3m 0s
Question 84Question →

The following financial balances were extracted from the ledger of Prime Crest Plc as at 31st December 2025:

- Issued Share Capital: ₦600,000
- Share Premium: ₦120,000
- Retained Earnings: ₦180,000
- 8% Debentures (2032): ₦250,000

What is the total amount of Equity and Reserves to be presented in the Statement of Financial Position?

Show answer & explanation

Answer: ₦900,000

Answer

The total amount of Equity and Reserves is ₦900,000.
Total Equity and Reserves equals the sum of Issued Share Capital (₦600,000), Share Premium (₦120,000), and Retained Earnings (₦180,000), giving ₦900,000. Debentures are long-term liabilities and are excluded.

Step-by-Step Solution

1
Identify equity components
Issued Share Capital = ₦600,000, Share Premium = ₦120,000, Retained Earnings = ₦180,000.
Equity and Reserves comprises issued share capital, capital reserves (such as share premium), and revenue reserves (such as retained earnings).
2
Distinguish non-current liabilities
8% Debentures = ₦250,000 (Non-Current Liability).
Debentures represent long-term borrowed funds and must be classified under non-current liabilities, not equity.
3
Calculate Total Equity and Reserves
₦600,000 + ₦120,000 + ₦180,000 = ₦900,000
Summing all equity items yields total equity attributable to shareholders.

Key Concept

Classification of Equity and Reserves in Company Financial Statements
Question 85Question →

The following financial information was extracted from the books of Zaria Foods Plc for the year ended 31st December 2025:

Financial ItemAmount (₦)
Authorized Share Capital (1,000,000 Ordinary shares of ₦1.00 each)1,000,000
Issued and Paid-up Ordinary Share Capital (600,000 shares of ₦1.00 each)600,000
10% Preference Share Capital (200,000 shares of ₦1.00 each)200,000
Retained Profit brought forward (1st January 2025)45,000
Net Profit for the year ended 31st December 2025250,000

The directors resolved to transfer ₦30,000 to the General Reserve, pay the preference dividend in full, and declare a 12% dividend on ordinary shares.

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

Show answer & explanation

Answer: ₦173,000

Answer

The retained profit carried forward to the next financial year is ₦173,000.
The total profit available for appropriation is ₦295,000 (current net profit of ₦250,000 plus retained profit brought forward of ₦45,000). Total appropriations comprise the preference dividend of ₦20,000 (10% of ₦200,000), ordinary share dividend of ₦72,000 (12% of ₦600,000 paid-up capital), and general reserve transfer of ₦30,000, totaling ₦122,000. Subtracting ₦122,000 from ₦295,000 leaves a retained profit carried forward of ₦173,000.

Step-by-Step Solution

1
Calculate the total profit available for appropriation
Total Available Profit = ₦250,000 (Net Profit) + ₦45,000 (Retained Profit b/f) = ₦295,000
Retained earnings from previous periods are combined with current year net profits to determine total distributable profit.
2
Calculate the 10% Preference Share Dividend
Preference Dividend = 10% × ₦200,000 = ₦20,000
Preference shareholders are entitled to a fixed dividend rate based on paid-up preference share capital.
3
Calculate the Ordinary Share Dividend on paid-up ordinary capital
Ordinary Dividend = 12% × ₦600,000 = ₦72,000
Dividends are declared and paid exclusively on issued and paid-up capital, never on authorized capital.
4
Sum total appropriations and compute retained profit carried forward
Total Appropriations = ₦20,000 + ₦72,000 + ₦30,000 = ₦122,000
Retained Profit c/f = ₦295,000 - ₦122,000 = ₦173,000
Deducting total appropriations (reserve transfers plus dividends) from available profit gives the balance remaining in retained earnings.

Key Concept

Profit and Loss Appropriation Account and Dividend Distribution
Question 86Question →

As at 1st January 2025, Crestwood Marine Plc had an issued share capital of 800,000 Ordinary Shares of ₦1.00 each fully paid, and a Share Premium Account balance of ₦220,000. During the year, the directors declared a 1-for-5 bonus issue of ordinary shares using the Share Premium account. Subsequently, the company wrote off preliminary expenses of ₦25,000 and share issue costs of ₦15,000 against the remaining Share Premium balance as legally permitted. Calculate the remaining balance in the Share Premium Account in Naira (₦) at the end of the year.

Show answer & explanation

Answer: 20000

Answer

The remaining balance in the Share Premium Account is ₦20,000.
The Share Premium account initially had ₦220,000. Issuing 160,000 bonus shares (800,000 ÷ 5) at ₦1.00 nominal value absorbs ₦160,000 of the reserve, reducing it to ₦60,000. Statutory regulations allow companies to write off preliminary formation expenses (₦25,000) and share issue costs (₦15,000) against Share Premium, leaving a net final balance of ₦20,000 (₦60,000 - ₦40,000).

Step-by-Step Solution

1
Calculate the total nominal value of the bonus share issue.
₦160,000
A 1-for-5 bonus issue on 800,000 shares yields 160,000 new shares at ₦1.00 nominal value each.
2
Determine the Share Premium balance after funding the bonus issue.
₦60,000
Utilizing ₦160,000 from the initial ₦220,000 Share Premium leaves an intermediate balance of ₦60,000.
3
Deduct statutory write-offs for preliminary expenses and share issue expenses.
₦20,000
Under statutory company laws, writing off preliminary formation expenses (₦25,000) and share issuance costs (₦15,000) directly against the Share Premium account is permitted, leaving ₦60,000 - ₦40,000 = ₦20,000.

Key Concept

Statutory utilization of Share Premium account for bonus issues and expense write-offs
Question 87Question →

Apex Maritime Services Plc extracted the following balances from its financial records at 31st December 2025:

Ledger AccountAmount (₦)
Ordinary Share Capital800,000800,000
Share Premium120,000120,000
Retained Earnings250,000250,000
Proposed Dividends50,00050,000
8% Debentures (2032)300,000300,000

What is the correct total value of Shareholders' Funds (Equity and Reserves) to be reported in the Statement of Financial Position?

Show answer & explanation

Answer: ₦1,170,000

Answer

The correct total value of Shareholders' Funds to be presented in the Statement of Financial Position is ₦1,170,000.
Shareholders' Funds (Equity and Reserves) in a company Statement of Financial Position consists of paid-up share capital plus capital and revenue reserves. Here, Ordinary Share Capital (₦800,000₦800,000), Share Premium (₦120,000₦120,000), and Retained Earnings (₦250,000₦250,000) sum up to ₦1,170,000₦1,170,000. Proposed dividends are current liabilities, and debentures are non-current liabilities.

Step-by-Step Solution

1
Identify the components of Shareholders' Funds (Equity and Reserves).
Components are Ordinary Share Capital (₦800,000₦800,000), Share Premium (₦120,000₦120,000), and Retained Earnings (₦250,000₦250,000).
Shareholders' funds represent the owners' equity interest in the company, comprising paid-up share capital along with capital and revenue reserves.
2
Sum the equity and reserve items.
₦800,000+₦120,000+₦250,000=₦1,170,000₦800,000 + ₦120,000 + ₦250,000 = ₦1,170,000.
Share Premium is a non-distributable capital reserve and Retained Earnings is a revenue reserve, both of which belong under Shareholders' Funds.
3
Exclude items belonging to liabilities.
Proposed Dividends (₦50,000₦50,000) are current liabilities and 8% Debentures (₦300,000₦300,000) are non-current liabilities.
Debentures represent borrowed loan capital, while proposed dividends represent short-term payables.

Key Concept

Classification of Equity and Reserves in Company Statement of Financial Position
Question 88Question →

Kano Logistics Plc has an authorized capital of 5,000,0005,000,000 ordinary shares of ₦0.50\text{₦}0.50 each. The company issued 3,000,0003,000,000 ordinary shares, with ₦0.40\text{₦}0.40 per share called up by the directors. If the total calls in arrears amount to ₦50,000\text{₦}50,000, what is the value of the paid-up share capital in Naira?

Show answer & explanation

Answer: 1150000

Answer

The paid-up share capital is ₦1,150,000.
To determine paid-up capital, first calculate called-up capital by multiplying the issued shares (3,000,000) by the called-up price per share (₦0.40), giving ₦1,200,000. Then subtract calls in arrears (₦50,000), which represents unpaid amounts requested from shareholders. This gives a final paid-up share capital of ₦1,150,000.

Step-by-Step Solution

1
Calculate the total called-up share capital
₦1,200,000
Called-up capital is determined by multiplying the number of issued shares (3,000,000) by the called-up amount per share (₦0.40).
2
Deduct calls in arrears from called-up capital to find paid-up capital
₦1,150,000
Paid-up capital represents the actual amount received by the company from shareholders, calculated as called-up capital minus calls in arrears (₦1,200,000 - ₦50,000).

Key Concept

Paid-Up Share Capital Calculation
Question 89Question →

Enugu Global Ventures Plc extracted the following financial details for the year ended 31 December 2025:

- Gross profit: ₦3,200,000
- Rent and rates paid: ₦400,000
- Salaries and wages paid: ₦800,000
- Carriage outwards: ₦100,000
- Existing provision for doubtful debts: ₦30,000

Additional information at year-end:
1. Rent paid includes ₦40,000 prepaid for the next accounting period.
2. Salaries and wages of ₦60,000 remain accrued and unpaid.
3. The provision for doubtful debts is to be adjusted to a total of ₦80,000.

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

Show answer & explanation

Answer: ₦1,830,000

Answer

The net profit for the year ended 31 December 2025 is ₦1,830,000.
The correct answer of ₦1,830,000 is derived by deducting total operating expenses of ₦1,370,000 from the gross profit of ₦3,200,000. Total operating expenses comprise Rent of ₦360,000 (₦400,000 paid less ₦40,000 prepayment), Salaries of ₦860,000 (₦800,000 paid plus ₦60,000 accrued), Carriage Outwards of ₦100,000, and an increase in Provision for Doubtful Debts of ₦50,000 (₦80,000 required less ₦30,000 existing).

Step-by-Step Solution

1
Calculate adjusted Rent and Rates expense
₦400,000 - ₦40,000 (prepayment) = ₦360,000
Prepaid expenses must be deducted because they relate to the future accounting period.
2
Calculate adjusted Salaries and Wages expense
₦800,000 + ₦60,000 (accrual) = ₦860,000
Accrued expenses must be added because they relate to the current accounting period.
3
Calculate increase in Provision for Doubtful Debts
₦80,000 (new provision) - ₦30,000 (existing provision) = ₦50,000
Only the net increase in provision is charged as an expense to the Statement of Profit or Loss.
4
Sum total operating expenses
₦360,000 (Rent) + ₦860,000 (Salaries) + ₦100,000 (Carriage Outwards) + ₦50,000 (Increase in Provision) = ₦1,370,000
Carriage outwards is a selling and distribution expense and must be included in operating expenses.
5
Calculate Net Profit
₦3,200,000 (Gross Profit) - ₦1,370,000 (Total Expenses) = ₦1,830,000
Net profit is determined by subtracting total operating expenses from gross profit.

Key Concept

Preparation of Company Statement of Profit or Loss with End-of-Year Adjustments
Question 90Question →

Kano Industrial Alliance Plc provided the following extracts from its financial records for the year ended 31 December 2025:

• Gross profit: ₦2,500,000
• Salaries and wages: ₦600,000
• Rent paid: ₦240,000
• Carriage outwards: ₦50,000
• 10% Debentures: ₦1,000,000
• Debenture interest paid: ₦60,000

Additional information:
1. Rent prepaid at 31 December 2025 amounted to ₦40,000.
2. Provision for doubtful debts is to be increased by ₦10,000.

What is the net profit before taxation for the year ended 31 December 2025?

Show answer & explanation

Answer: ₦1,540,000

Answer

The net profit before taxation for the year ended 31 December 2025 is ₦1,540,000.
To arrive at the correct net profit before taxation, all expenses for the year must be correctly adjusted according to accrual accounting concepts. Rent expense is adjusted for prepayment (₦240,000 paid - ₦40,000 prepaid = ₦200,000). Total debenture interest payable for the year must be charged in full (10% of ₦1,000,000 = ₦100,000), even though only ₦60,000 was paid. Adding salaries (₦600,000), carriage outwards (₦50,000), and the increase in provision for doubtful debts (₦10,000) gives total expenses of ₦960,000. Subtracting total expenses from gross profit (₦2,500,000 - ₦960,000) gives a net profit before taxation of ₦1,540,000.

Step-by-Step Solution

1
Calculate the rent expense for the current period
Rent expense = ₦240,000 (paid) - ₦40,000 (prepaid) = ₦200,000
Prepaid expenses relate to the next financial year and must be deducted from cash paid.
2
Calculate the total annual debenture interest expense
Debenture interest = 10% × ₦1,000,000 = ₦100,000
Under the accrual basis, the full interest charge for the accounting period must be recognized, regardless of the amount paid.
3
Sum all administrative, selling, and financial expenses
Total expenses = ₦600,000 (Salaries) + ₦200,000 (Rent) + ₦50,000 (Carriage outwards) + ₦100,000 (Debenture interest) + ₦10,000 (Increase in provision for doubtful debts) = ₦960,000
All operational expenses and accrued financing charges must be aggregated to determine total overhead expenses.
4
Deduct total expenses from gross profit to find net profit before taxation
Net profit before taxation = ₦2,500,000 - ₦960,000 = ₦1,540,000
Net profit before taxation is derived by subtracting all allowable administrative, selling, distribution, and finance expenses from gross profit.

Key Concept

Preparation of Company Statement of Profit or Loss with End-of-Year Adjustments
Estimated Time:2m 0s
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