Final Accounts of a Sole Trader Practice Questions — JAMB UTME

Question 1Question →

Tayo Enterprises earned a gross profit of $\text{N}150,000$ for the year ended 31st December 2025. The books of the business revealed the following additional items at the end of the accounting period:

- Rent paid: $\text{N}18,000$ (includes $\text{N}3,000$ prepaid for the next accounting period)
- Discount received: $\text{N}2,500$
- Commission received: $\text{N}4,000$ ( $\text{N}1,000$ is accrued and not yet received)
- Salaries paid: $\text{N}35,000$
- Reduction in provision for doubtful debts: $\text{N}1,500$

What is the net profit of Tayo Enterprises for the year?

Show answer & explanation

Answer: N109,000; ��109,000; 109,000; N109000; ₦109000; 109000; N 109,000; ₦ 109,000

Answer

The net profit of Tayo Enterprises for the year is

\text{N}109,000

.

To determine the net profit, add all income earned during the period (Gross Profit

\text{N}150,000

+ Discount received

\text{N}2,500

+ Total Commission earned

\text{N}5,000

+ Decrease in provision for doubtful debts

\text{N}1,500 = \text{N}159,000

) and subtract all operating expenses incurred (Adjusted Rent

\text{N}15,000

+ Salaries

\text{N}35,000 = \text{N}50,000

). This gives

\text{N}159,000 - \text{N}50,000 = \text{N}109,000

.

Step-by-Step Solution

1

Calculate total income to be added to Gross Profit.

Discount received:

\text{N}2,500

; Commission earned:

\text{N}4,000 + \text{N}1,000 = \text{N}5,000

; Reduction in provision for doubtful debts:

\text{N}1,500

. Total additional income =

\text{N}2,500 + \text{N}5,000 + \text{N}1,500 = \text{N}9,000

.

Accrued income is added to income received, and reductions in provision for doubtful debts represent gains credited to the Profit and Loss Account.

2

Calculate total adjusted operating expenses.

Adjusted Rent expense:

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

; Salaries:

\text{N}35,000

. Total expenses =

\text{N}15,000 + \text{N}35,000 = \text{N}50,000

.

Prepaid expenses must be deducted from the total paid to reflect only the expense incurred for the current accounting period.

3

Calculate Net Profit.

\text{Net Profit} = \text{Gross Profit} (\text{N}150,000) + \text{Total Additional Income} (\text{N}9,000) - \text{Total Expenses} (\text{N}50,000) = \text{N}109,000

.

Net profit is computed by adding non-operating/other revenue to gross profit and deducting total operating expenses for the period.

Key Concept

Determination of Net Profit in Profit and Loss Account with year-end adjustments

Estimated Time:2m 0s

Question 2Question →

Calculate the required depreciation adjustment values for the sole trader's final accounts based on the information provided below.

Fill in the blanks below

A sole trader purchased a delivery van for

\text{₦}2,000,000

on 1 July 2024. On 1 October 2025, an additional delivery van was purchased for

\text{₦}1,200,000

. Depreciation is charged at

20\%

per annum using the reducing balance method, calculated on a pro-rata basis for partial months of ownership. The accounting year ends on 31 December.

The total depreciation expense debited to the Profit and Loss Account for the year ended 31 December 2025 is , and the Net Book Value of Motor Vehicles presented in the Balance Sheet as at 31 December 2025 is .

Show answer & explanation

Answer

The total depreciation expense for the year ended 31 December 2025 is ₦420,000, and the Net Book Value of Motor Vehicles in the Balance Sheet as at 31 December 2025 is ₦2,580,000.

For the year ended 31 December 2025, depreciation on the first van is calculated at

20\%

on its opening Net Book Value of

\text{₦}1,800,000

(giving

\text{₦}360,000

), while depreciation on the second van purchased on 1 October 2025 is calculated pro-rata for 3 months on its cost of

\text{₦}1,200,000

(giving

\text{₦}60,000

). The total P&L charge for 2025 is

\text{₦}420,000

. The Balance Sheet Net Book Value is total cost (

\text{₦}3,200,000

) less total accumulated depreciation (

\text{₦}620,000

), resulting in

\text{₦}2,580,000

.

Step-by-Step Solution

1

Calculate depreciation for the first van for the financial year 2024

Depreciation for 2024 (6 months from 1 July to 31 December) =

\text{₦}2,000,000 \times 20\% \times \frac{6}{12} = \text{₦}200,000

. Net Book Value at 31 December 2024 =

\text{₦}2,000,000 - \text{₦}200,000 = \text{₦}1,800,000

.

Pro-rata depreciation must be calculated for partial year of purchase under the reducing balance method.

2

Calculate depreciation for the first van for the financial year 2025

Depreciation for 2025 =

20\% \times \text{₦}1,800,000 = \text{₦}360,000

.

Reducing balance method applies the rate to the Net Book Value at the beginning of the financial year (1 January 2025).

3

Calculate pro-rata depreciation for the second van acquired during 2025

Depreciation for 2025 (3 months from 1 October to 31 December) =

\text{₦}1,200,000 \times 20\% \times \frac{3}{12} = \text{₦}60,000

.

The second van was owned for only 3 months in 2025, requiring pro-rata computation on its cost.

4

Determine total P&L depreciation expense for 2025 and closing Net Book Value

Total 2025 Depreciation Charge =

\text{₦}360,000 + \text{₦}60,000 = \text{₦}420,000

. Total Cost of Vehicles =

\text{₦}2,000,000 + \text{₦}1,200,000 = \text{₦}3,200,000

. Total Accumulated Depreciation =

\text{₦}200,000 + \text{₦}420,000 = \text{₦}620,000

. Net Book Value as at 31 December 2025 =

\text{₦}3,200,000 - \text{₦}620,000 = \text{₦}2,580,000

.

P&L expense is the sum of depreciation charges for all assets for the current year, while Net Book Value reflects total cost less total accumulated depreciation up to the Balance Sheet date.

Key Concept

Reducing Balance Depreciation with Pro-Rata Adjustments for Additions

Estimated Time:3m 0s

Question 3Question →

The accounting records of Bako & Sons, a sole trading business, revealed the following balances at the end of the financial year on 31 December 2025:

- Gross Sales: $\text{₦}140,000$
- Purchases: $\text{₦}85,000$
- Opening Inventory: $\text{₦}15,000$
- Closing Inventory: $\text{₦}18,500$
- Carriage Inwards: $\text{₦}3,500$
- Carriage Outwards: $\text{₦}2,000$
- Returns Inwards: $\text{₦}4,000$
- Returns Outwards: $\text{₦}5,000$

What is the gross profit earned by Bako & Sons for the year?

\text{₦}56,000

\text{₦}54,000

\text{₦}60,000

\text{₦}63,000

Show answer & explanation

Answer: $\text{₦}56,000$

Answer

The gross profit earned by Bako & Sons for the year is

\text{₦}56,000

.

The gross profit of

\text{₦}56,000

is calculated by deducting the Cost of Goods Sold (

\text{₦}80,000

) from Net Sales (

\text{₦}136,000

). Net Sales is Gross Sales (

\text{₦}140,000

) minus Returns Inwards (

\text{₦}4,000

). Cost of Goods Sold is Opening Inventory (

\text{₦}15,000

) plus Purchases (

\text{₦}85,000

) minus Returns Outwards (

\text{₦}5,000

) plus Carriage Inwards (

\text{₦}3,500

) minus Closing Inventory (

\text{₦}18,500

). Carriage Outwards (

\text{₦}2,000

) is an operating expense and does not enter the Trading Account.

Step-by-Step Solution

1

Calculate Net Sales (Turnover)

\text{Net Sales} = \text{Gross Sales} - \text{Returns Inwards} = \text{₦}140,000 - \text{₦}4,000 = \text{₦}136,000

Returns inwards represent goods returned by customers and must be deducted from gross sales.

2

Calculate Net Purchases

\text{Net Purchases} = \text{Purchases} - \text{Returns Outwards} + \text{Carriage Inwards} = \text{₦}85,000 - \text{₦}5,000 + \text{₦}3,500 = \text{₦}83,500

Returns outwards reduce total purchases, while carriage inwards is a direct transport cost added to bring goods into the business.

3

Calculate Cost of Goods Sold (COGS)

\text{COGS} = \text{Opening Inventory} + \text{Net Purchases} - \text{Closing Inventory} = \text{₦}15,000 + \text{₦}83,500 - \text{₦}18,500 = \text{₦}80,000

Cost of goods sold measures the direct cost of inventory sold during the financial period.

4

Calculate Gross Profit

\text{Gross Profit} = \text{Net Sales} - \text{COGS} = \text{₦}136,000 - \text{���}80,000 = \text{₦}56,000

Gross profit is the difference between revenue from sales and the direct cost of those sales.

Key Concept

Trading Account and Gross Profit Calculation

Question 4Question →

A sole trader extracted the following ledger balances and adjustment details at the end of the accounting period:

Account / Information	Amount ( $\text{N}$ )
Gross Profit	$120,000$
Discount Received	$4,500$
Rent Paid	$18,000$
Salaries and Wages Paid	$32,000$
General Expenses	$15,000$
Trade Debtors	$50,000$

Additional information at year end:
1. Rent paid includes $\text{N}3,000$ prepaid for the next financial period.
2. Accrued salaries and wages at the end of the year amount to $\text{N}4,000$ .
3. A provision for doubtful debts is to be created at $5\%$ of trade debtors.

What is the net profit for the year in Naira ( $\text{N}$ )?

Show answer & explanation

Answer: 56000

Answer

The net profit for the year is N56,000.

To determine the net profit, add revenues (Gross profit of N120,000 + Discount received of N4,500 = N124,500) and subtract all adjusted operating expenses (Rent of N15,000 + Salaries of N36,000 + General expenses of N15,000 + Doubtful debts provision of N2,500 = N68,500). Net profit equals N124,500 - N68,500 = N56,000.

Step-by-Step Solution

1

Calculate Total Income

Total Income = N124,500

Discount received is revenue income and must be added to gross profit in the Profit and Loss Account.

2

Adjust Rent for prepayment

Adjusted Rent = N15,000

Prepayments relate to the next accounting period and must be deducted from rent paid during the current period.

3

Adjust Salaries and Wages for accrual

Adjusted Salaries = N36,000

Accrued expenses represent benefits consumed but not yet paid, so they must be added to wages paid under the matching concept.

4

Compute Provision for Doubtful Debts

Provision = N2,500

Creating a 5% provision on trade debtors of N50,000 creates an operating expense of 0.05 * 50,000 = N2,500.

5

Sum total adjusted operating expenses

Total Expenses = N68,500

Total operating expenses include rent (N15,000), salaries (N36,000), general expenses (N15,000), and provision for doubtful debts (N2,500).

6

Deduct total expenses from total income to find Net Profit

Net Profit = N56,000

Net Profit is computed as Total Income (N124,500) minus Total Operating Expenses (N68,500).

Key Concept

Net Profit Determination with Year-End Adjustments

Question 5Question →

The following financial information was extracted from the ledger of Highlife Stores as at 31 December 2025:

Account Item	Amount (₦)
Plant and Machinery	450,000
Trade Debtors	85,000
Bank Overdraft	30,000
Closing Inventory	65,000
Trade Creditors	45,000
Prepaid Insurance	10,000
Accrued Rent	15,000

What is the working capital of Highlife Stores as at 31 December 2025?

₦70,000

₦80,000

₦100,000

₦520,000

Show answer & explanation

Answer: ₦70,000

Answer

The working capital of Highlife Stores is ₦70,000.

Working capital is calculated as total current assets minus total current liabilities. Summing trade debtors (₦85,000), closing inventory (₦65,000), and prepaid insurance (₦10,000) gives total current assets of ₦160,000. Summing bank overdraft (₦30,000), trade creditors (₦45,000), and accrued rent (₦15,000) gives total current liabilities of ₦90,000. Deducting current liabilities from current assets produces ₦70,000.

Step-by-Step Solution

1

Identify and sum all Current Assets

Current Assets = Trade Debtors (₦85,000) + Closing Inventory (₦65,000) + Prepaid Insurance (₦10,000) = ₦160,000.

Current assets comprise short-term resources convertible to cash within one year. Plant and Machinery is a non-current asset and must be excluded.

2

Identify and sum all Current Liabilities

Current Liabilities = Bank Overdraft (₦30,000) + Trade Creditors (₦45,000) + Accrued Rent (₦15,000) = ₦90,000.

Current liabilities are short-term obligations payable within one year, including bank overdrafts, trade creditors, and accrued expenses.

3

Compute Working Capital (Net Current Assets)

Working Capital = Total Current Assets - Total Current Liabilities = ₦160,000 - ₦90,000 = ₦70,000.

Working capital measures short-term liquidity by finding the difference between current assets and current liabilities.

Key Concept

Working Capital Calculation (Current Assets minus Current Liabilities)

Estimated Time:1m 30s

Question 6Question →

Chidi operates a retail store and compiled the following financial items at the end of his trading period:

- Fixtures and Fittings: $\text{₦}150,000$
- Office Equipment: $\text{₦}90,000$
- Stock of Goods: $\text{₦}45,000$
- Trade Debtors: $\text{₦}30,000$
- Cash in Hand: $\text{₦}5,000$
- Trade Creditors: $\text{₦}25,000$
- Bank Overdraft: $\text{₦}10,000$
- 5-Year Bank Loan: $\text{₦}60,000$

What is the total value of Chidi's working capital in Naira?

Show answer & explanation

Answer: 45000

Answer

The total value of Chidi's working capital is 45,000 Naira.

Working capital is calculated as Total Current Assets minus Total Current Liabilities. Total Current Assets consist of Stock of Goods (₦45,000), Trade Debtors (₦30,000), and Cash in Hand (₦5,000), which equal ₦80,000. Total Current Liabilities consist of Trade Creditors (₦25,000) and Bank Overdraft (₦10,000), which equal ₦35,000. Subtracting liabilities from assets yields ₦80,000 - ₦35,000 = ₦45,000.

Step-by-Step Solution

1

Classify current assets from the given financial items

Current Assets = Stock of Goods (₦45,000) + Trade Debtors (₦30,000) + Cash in Hand (₦5,000) = ₦80,000

Current assets are items held for less than one accounting year that can be converted into cash within the normal operating cycle.

2

Classify current liabilities from the given financial items

Current Liabilities = Trade Creditors (₦25,000) + Bank Overdraft (₦10,000) = ₦35,000

Current liabilities are short-term debts due within one accounting period. Bank overdraft is classified as a current liability, while the 5-year loan is a non-current liability.

3

Subtract Total Current Liabilities from Total Current Assets to determine Working Capital

Working Capital = ₦80,000 - ₦35,000 = ₦45,000

Working capital (net current assets) measures operational liquidity by showing the excess of liquid assets over short-term obligations.

Key Concept

Working Capital Calculation and Balance Sheet Classification

Question 7Question →

A sole trader extracted a trial balance on 31st December 2025 showing Insurance Expense of $\text{N}48,000$ . Additional information reveals that this figure includes an annual insurance premium of $\text{N}24,000$ paid for the year ending 31st March 2026. What amount should be charged to the Profit and Loss Account for insurance for the year ended 31st December 2025?

₦42,000

₦54,000

₦48,000

₦24,000

Show answer & explanation

Answer: ₦42,000

Answer

The amount to be charged to the Profit and Loss Account for insurance for the year ended 31st December 2025 is ₦42,000.

The correct option is ₦42,000 because 3 months of the annual policy (January to March 2026) fall into the next financial year. Calculating

\frac{3}{12} \times \text{N}24,000

gives a prepayment of ₦6,000. Subtracting ₦6,000 from the total trial balance amount of ₦48,000 gives the net expense of ₦42,000 for the year ended 31st December 2025.

Step-by-Step Solution

1

Determine the unexpired prepaid period relating to the next accounting period.

The annual policy extends from 1st April 2025 to 31st March 2026. The period from 1st January 2026 to 31st March 2026 equals 3 months prepaid.

Accrual concept requires matching expenses to the period in which they are incurred.

2

Calculate the prepaid portion of the insurance premium.

\text{Prepaid Insurance} = \frac{3}{12} \times \text{N}24,000 = \text{N}6,000

.

Only 9 months of the annual premium relate to the current financial year.

3

Deduct the prepaid insurance from the total cash paid as shown in the trial balance.

\text{Insurance Charge} = \text{N}48,000 - \text{N}6,000 = \text{N}42,000

.

Prepaid expenses must be subtracted from total trial balance expense to determine the net profit and loss expense.

Key Concept

Matching concept and expense prepayment adjustment

Question 8Question →

Match each accounting adjustment scenario at the end of the financial year with its correct treatment in the Profit and Loss Account and Balance Sheet of a sole trader.

Click a left item, then click its matching right item

Show answer & explanation

Answer

Accrued Expense matches with 'Added to the relevant expense in the Profit and Loss Account and shown as a Current Liability in the Balance Sheet'. Prepaid Expense matches with 'Deducted from the relevant expense in the Profit and Loss Account and shown as a Current Asset in the Balance Sheet'. Accrued Income matches with 'Added to the relevant income in the Profit and Loss Account and shown as a Current Asset in the Balance Sheet'. Prepaid Income matches with 'Deducted from the relevant income in the Profit and Loss Account and shown as a Current Liability in the Balance Sheet'.

Each item is correctly classified by matching the P&L adjustment direction (adding for accruals, deducting for prepayments) with its proper position in the Balance Sheet (liability for expense accruals and income prepayments; asset for expense prepayments and income accruals).

Step-by-Step Solution

1

Apply the accrual accounting concept to expenses.

Expenses incurred during the period must be matched against revenues earned regardless of cash paid. Owing amounts (accruals) are added to expenses (increasing P&L charge) and recognized as current liabilities. Amounts paid in advance (prepayments) are deducted from expenses and recognized as current assets.

Accruals reflect obligations to pay; prepayments reflect future economic benefits.

2

Apply the accrual accounting concept to incomes.

Revenue earned but not yet received (accrued income) increases total income in P&L and is a receivable (current asset). Revenue received in advance (prepaid income) belongs to the subsequent period, so it is removed from current P&L income and treated as an obligation to deliver services/goods (current liability).

Revenue recognition depends on performance/earning, not cash collection timing.

Key Concept

Accounting Adjustments for Accruals and Prepayments under the Matching Principle

Question 9Question →

The trial balance of a sole trader as at 31st December 2025 showed Trade Debtors of $₦120,000$ and an existing Provision for Doubtful Debts of $₦4,000$ . At the year end, an additional bad debt of $₦5,000$ is to be written off, and the provision for doubtful debts is to be adjusted to $5\%$ of the remaining trade debtors. What amount will be charged to the Profit and Loss Account for the provision for doubtful debts for the year?

₦1,750

₦5,750

₦2,000

₦6,000

Show answer & explanation

Answer: ₦1,750

Answer

₦1,750

Writing off additional bad debts of

₦5,000

reduces trade debtors to

₦115,000

. Applying the

5\%

provision rate gives a required closing provision of

₦5,750

. Since an existing provision of

₦4,000

is already present, only the increase of

₦1,750

(

₦5,750 - ₦4,000

) is debited to the Profit and Loss Account.

Step-by-Step Solution

1

Deduct additional bad debts written off from gross trade debtors

₦120,000 - ₦5,000 = ₦115,000

Provision for doubtful debts must only be calculated on net recoverable debtors after writing off known bad debts.

2

Calculate the required closing provision for doubtful debts

5\% \times ₦115,000 = ₦5,750

The rate specified by the business policy must be applied to the revised trade debtors balance.

3

Determine the change in provision to be charged to the Profit and Loss Account

₦5,750 - ₦4,000 = ₦1,750

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

Key Concept

Adjustments for bad debts and provision for doubtful debts

Estimated Time:1m 30s

Question 10Question →

An extract from the books of a sole trader shows Trade Debtors of $₦150,000$ and an existing Provision for Doubtful Debts of $₦6,000$ . At the end of the financial year, an additional bad debt of $₦10,000$ is to be written off, and the provision for doubtful debts is to be adjusted to $5\%$ of the remaining trade debtors. What is the net amount of Trade Debtors to be presented in the Statement of Financial Position (Balance Sheet)?

Show answer & explanation

Answer: 133000

Answer

The net amount of Trade Debtors to be presented in the Statement of Financial Position is

₦133,000

.

To compute net trade debtors for the Statement of Financial Position, first subtract the additional bad debt (

₦10,000

) from gross debtors (

₦150,000

) to get remaining debtors of

₦140,000

. Next, calculate the

5\%

closing provision on

₦140,000

, which equals

₦7,000

. Deducting

₦7,000

from

₦140,000

yields

₦133,000

.

Step-by-Step Solution

1

Deduct additional bad debts written off from gross trade debtors

₦150,000 - ₦10,000 = ₦140,000

Bad debts identified at the end of the period must be written off from trade debtors before computing the new percentage provision.

2

Calculate the required new provision for doubtful debts

5\% \times ₦140,000 = ₦7,000

The required closing provision rate of

5\%

applies to the remaining collectible trade debtors.

3

Subtract the new provision for doubtful debts from the remaining trade debtors

₦140,000 - ₦7,000 = ₦133,000

Net Trade Debtors shown in current assets is calculated as adjusted gross debtors minus the closing provision balance.

Key Concept

Adjustment for bad debts written off prior to calculating closing provision for doubtful debts and net debtors presentation.

Question 11Question →

The following information was extracted from the books of a sole trader for the year ended 31st December 2025:

- Office Equipment (at cost): $\text{₦}500,000$
- Accumulated Depreciation on Office Equipment (1st January 2025): $\text{₦}100,000$

On 1st July 2025, additional office equipment costing $\text{₦}200,000$ was purchased. Depreciation is to be charged at $20\%$ per annum using the reducing balance method, calculated on a pro-rata basis for additions.

What amount will be debited to the Profit and Loss Account as depreciation expense on office equipment for the year ended 31st December 2025?

\text{₦}80,000

\text{₦}100,000

\text{₦}120,000

\text{₦}140,000

Show answer & explanation

Answer: $\text{₦}100,000$

Answer

The depreciation expense debited to the Profit and Loss Account is

\text{₦}100,000

.

The correct charge of

\text{₦}100,000

is determined by adding the full-year reducing balance depreciation on existing equipment (20% of

\text{₦}400,000

NBV =

\text{₦}80,000

) to the 6-month pro-rata depreciation on the new asset (20% of

\text{₦}200,000 \times 6/12 = \text{₦}20,000

).

Step-by-Step Solution

1

Calculate the net book value (NBV) of existing equipment at the beginning of the year.

\text{NBV} = \text{Cost} - \text{Accumulated Depreciation} = \text{₦}500,000 - \text{₦}100,000 = \text{₦}400,000

Under the reducing balance method, depreciation is calculated on the net book value rather than the original cost.

2

Compute full-year depreciation on the existing equipment.

\text{Depreciation} = 20\% \times \text{₦}400,000 = \text{₦}80,000

Existing equipment was used for the entire 12-month accounting period.

3

Compute pro-rata depreciation for the additional equipment acquired on 1st July 2025.

\text{Depreciation} = 20\% \times \text{₦}200,000 \times \frac{6}{12} = \text{₦}20,000

The new asset was owned for 6 months (1st July to 31st December).

4

Sum the depreciation amounts for total Profit and Loss Account debit.

\text{Total Depreciation Expense} = \text{₦}80,000 + \text{₦}20,000 = \text{₦}100,000

Total depreciation expense for the year combines existing assets and additions.

Key Concept

Reducing balance depreciation with pro-rata addition adjustment in final accounts

Question 12Question →

A sole trader extracted the following ledger balances as at 31 December 2025:

Account	Debit (₦)	Credit (₦)
Delivery Equipment (Cost)	3,000,000
Accumulated Depreciation (1 Jan 2025)	1,000,000

Additional Information:
- Depreciation is charged at $10\%$ per annum on cost using the straight-line method.
- On 1 April 2025, an additional delivery van costing $\text{₦}600,000$ was purchased and included in the Delivery Equipment balance.

Based on the information provided, what are the annual depreciation charge and the Net Book Value of Delivery Equipment for the financial statements? Fill in the blanks below.

Fill in the blanks below

1. The depreciation charge in the Profit and Loss Account for the year ended 31 December 2025 is ₦.
2. The Net Book Value of Delivery Equipment in the Balance Sheet as at 31 December 2025 is ₦.

Show answer & explanation

Answer

The depreciation charge for the year is ₦285,000 and the Net Book Value at year-end is ₦1,715,000.

The annual depreciation expense comprises

\text{₦}240,000

(

10\%

on

\text{₦}2,400,000

existing equipment) plus

\text{₦}45,000

(

10\%

pro-rated for 9 months on the new

\text{₦}600,000

addition), yielding a total charge of

\text{₦}285,000

. Subtracting total accumulated depreciation (

\text{₦}1,000,000 + \text{₦}285,000 = \text{₦}1,285,000

) from the total cost of

\text{₦}3,000,000

gives a Net Book Value of

\text{₦}1,715,000

.

Step-by-Step Solution

1

Separate the cost of existing equipment from the newly acquired asset

Cost of existing equipment =

\text{₦}3,000,000 - \text{₦}600,000 = \text{₦}2,400,000

The total cost of

\text{₦}3,000,000

includes the new van bought on 1 April 2025, so the equipment owned for the entire year equals

\text{₦}2,400,000

.

2

Calculate depreciation on existing equipment for the full year

Depreciation on existing equipment =

\text{₦}2,400,000 \times 10\% = \text{₦}240,000

Existing equipment was used for all 12 months.

3

Calculate pro-rata depreciation on the new delivery van

Depreciation on new van =

\text{₦}600,000 \times 10\% \times \frac{9}{12} = \text{₦}45,000

The new van was acquired on 1 April 2025 and used for 9 months (April to December).

4

Sum total annual depreciation charge for the Profit and Loss Account

Total annual depreciation =

\text{₦}240,000 + \text{₦}45,000 = \text{₦}285,000

The total depreciation expense charged against profit is the sum of full-year and part-year depreciation.

5

Calculate the closing accumulated depreciation and Net Book Value

Accumulated Depreciation at 31 Dec 2025 =

\text{₦}1,000,000 + \text{₦}285,000 = \text{₦}1,285,000

. Net Book Value =

\text{₦}3,000,000 - \text{₦}1,285,000 = \text{₦}1,715,000

Net Book Value in the Balance Sheet equals total asset cost minus total accumulated depreciation at the balance sheet date.

Key Concept

Pro-rata Straight-Line Depreciation in Sole Trader Final Accounts

Question 13Question →

A sole trader had Furniture and Fittings with an original cost of $\text{₦}500,000$ and accumulated depreciation of $\text{₦}100,000$ on 1st January 2025. On 1st July 2025, additional furniture costing $\text{₦}100,000$ was purchased. If depreciation is provided at $10\%$ per annum using the reducing balance method, what is the total depreciation expense to be charged to the Profit and Loss Account for the year ended 31st December 2025?

\text{₦}45,000

\text{₦}50,000

\text{₦}55,000

\text{₦}40,000

Show answer & explanation

Answer: $\text{₦}45,000$

Answer

\text{₦}45,000

Under the reducing balance method, depreciation for existing assets is calculated on the opening net book value (

\text{₦}500,000 - \text{₦}100,000 = \text{₦}400,000

), yielding

\text{₦}40,000

. For the new addition acquired on 1st July 2025, depreciation is calculated pro-rata for 6 months (

10\% \times \text{₦}100,000 \times \frac{6}{12} = \text{₦}5,000

). Summing these yields a total Profit and Loss charge of

\text{₦}45,000

.

Step-by-Step Solution

1

Calculate the Net Book Value (NBV) of existing furniture at the start of the year.

Opening NBV =

\text{₦}500,000 - \text{₦}100,000 = \text{₦}400,000

Under the reducing balance method, depreciation is computed on the net book value rather than original cost.

2

Calculate annual depreciation on existing furniture.

Depreciation =

10\% \times \text{₦}400,000 = \text{₦}40,000

The existing furniture was held for the full 12-month period.

3

Calculate pro-rata depreciation on the new furniture addition.

Depreciation =

10\% \times \text{₦}100,000 \times \frac{6}{12} = \text{₦}5,000

The addition was bought on 1st July 2025, so it was used for only 6 months of the financial year.

4

Sum the depreciation amounts for the total Profit and Loss Account expense.

Total Depreciation Charge =

\text{₦}40,000 + \text{₦}5,000 = \text{₦}45,000

The total operating expense includes charges for both existing and newly acquired fixed assets.

Key Concept

Adjustments for Depreciation of Fixed Assets using Reducing Balance Method with Mid-Year Additions

Question 14Question →

A sole trader evaluated three categories of unsold goods at the end of the accounting year as follows:

Inventory Category	Cost ($)	Estimated Selling Price ($)	Selling Expenses ($)
Category X	12,000	15,000	1,000
Category Y	18,000	16,000	1,500
Category Z	25,000	30,000	2,000

In accordance with the prudence concept, what is the total value of closing inventory to be credited to the Trading Account?

Show answer & explanation

Answer: 51500

Answer

The total value of closing inventory to be credited to the Trading Account is $51,500.

Closing inventory must be valued at the lower of cost and net realizable value (NRV) for each separate category. For Category X, cost (

12,000) is lower than NRV (

14,000). For Category Y, NRV (

14,500) is lower than cost (

18,000). For Category Z, cost (

25,000) is lower than NRV (

28,000). Summing these lower values (

12,000 +

14,500 +

25,000) yields

51,500.

Step-by-Step Solution

1

Calculate the Net Realizable Value (NRV) for each inventory category.

Category X NRV =

15,000 -

1,000 =

14,000; Category Y NRV =

16,000 -

1,500 =

14,500; Category Z NRV =

30,000 -

2,000 = $28,000.

Net Realizable Value represents the expected net cash receivable from selling the inventory after deducting estimated costs to complete and sell.

2

Determine the lower of Cost and NRV for each category individually.

Category X lower value =

12,000 (Cost); Category Y lower value =

14,500 (NRV); Category Z lower value = $25,000 (Cost).

According to the accounting principle of prudence (and IAS 2), inventory must be valued at the lower of cost and net realizable value evaluated line by line.

3

Sum the selected valuation amounts to obtain the total closing inventory value.

Total Closing Inventory =

12,000 +

14,500 +

25,000 =

51,500.

The total closing inventory reported in final accounts is the sum of the individual lower values.

Key Concept

Valuation of inventory at the lower of cost and net realizable value under the prudence concept

Question 15Question →

A sole trader extracted a trial balance showing total purchases of $₦450,000$ . During the financial year, the proprietor withdrew goods costing $₦25,000$ , which had a selling price of $₦32,000$ , for personal domestic use. If no adjustment has been made in the accounting records, what is the correct figure for purchases to be reported in the Trading Account?

₦418,000

₦425,000

₦475,000

₦482,000

Show answer & explanation

Answer: $₦425,000$

Answer

₦425,000

When an owner withdraws goods for personal use, the transaction reduces total business purchases. The reduction must be made at cost price (

₦25,000

) rather than selling price (

₦32,000

) to reflect the actual cost incurred by the business. Subtracting

₦25,000

from the unadjusted purchases figure of

₦450,000

gives the correct Trading Account purchases figure of

₦425,000

.

Step-by-Step Solution

1

Identify the accounting rule for goods withdrawn by the owner

Goods taken by the proprietor for private use must be debited to Drawings Account and credited to Purchases Account at cost price.

The goods were purchased for resale, but since they were consumed personally, they must be removed from the cost of goods available for sale at cost.

2

Select the correct valuation price

Use the cost price of

₦25,000

(ignore the retail selling price of

₦32,000

).

Drawings of goods are recorded at cost price to avoid recognizing unrealized profit on personal consumption.

3

Calculate adjusted purchases for the Trading Account

\text{Adjusted Purchases} = ₦450,000 - ₦25,000 = ₦425,000

Deducting cost of goods withdrawn gives the net purchases available for business sales.

Key Concept

Treatment of Goods Withdrawn by Proprietor at Cost Price

Estimated Time:1m 30s

Question 16Question →

In the balance sheet of a sole trader, under which section should accrued expenses at the end of the accounting period be classified?

Current liabilities

Current assets

Non-current liabilities

Additions to capital

Show answer & explanation

Answer: Current liabilities

Answer

Current liabilities

Accrued expenses are amounts owed by the firm for goods or services already received during the financial year. Since these obligations are short-term and payable within 12 months, they are classified under current liabilities in the balance sheet.

Step-by-Step Solution

1

Identify the nature of accrued expenses

Accrued expenses are expenses incurred during the accounting period but not yet paid for by the balance sheet date.

Understanding the definition of an accrual determines whether it is an asset, liability, or capital item.

2

Determine the time horizon for settlement

These expenses are expected to be paid within the next short-term operating cycle (less than 12 months).

Obligations due within one year are classified as current rather than non-current.

3

Classify the item under the appropriate balance sheet heading

Classify accrued expenses as current liabilities.

Current liabilities group together short-term debts and obligations owed by the entity.

Key Concept

Balance Sheet Classification of Current Liabilities

Question 17Question →

At 31st December 2025, a sole trader's trial balance showed Trade Debtors of ₦50,000. Additional bad debts of ₦2,000 are to be written off, and a provision for doubtful debts is to be created at 5% on the remaining trade debtors. What is the net trade debtors figure to be presented in the Statement of Financial Position?

Show answer & explanation

Answer: 45600

Answer

The net trade debtors figure to be presented in the Statement of Financial Position is ₦45,600.

To calculate net trade debtors for the Statement of Financial Position, first subtract the ₦2,000 additional bad debts from the gross debtors of ₦50,000 to get ₦48,000 adjusted debtors. Next, calculate 5% of ₦48,000, which gives a provision for doubtful debts of ₦2,400. Subtracting ₦2,400 from ₦48,000 yields the net debtors figure of ₦45,600.

Step-by-Step Solution

1

Deduct the additional bad debts from gross trade debtors

Adjusted Debtors = ₦50,000 - ₦2,000 = ₦48,000

Bad debts identified at year-end must be written off against gross debtors first before calculating the required percentage provision.

2

Calculate the 5% provision for doubtful debts on the adjusted debtors balance

Provision = 5% × ₦48,000 = ₦2,400

The provision for doubtful debts is estimated based on the net collectible debtors.

3

Deduct the provision for doubtful debts from the adjusted debtors balance

Net Debtors = ₦48,000 - ₦2,400 = ₦45,600

Net debtors are reported in the Statement of Financial Position after subtracting the provision for doubtful debts.

Key Concept

Adjustment for bad debts written off and provision for doubtful debts in final accounts

Question 18Question →

A sole trader's trial balance extracts show Motor Vehicles at a cost of $\text{₦}800,000$ . If depreciation is to be charged at $15\%$ per annum on cost, what is the depreciation expense to be debited to the Profit and Loss Account for the year?

₦120,000

₦680,000

₦800,000

₦12,000

Show answer & explanation

Answer: ₦120,000

Answer

₦120,000

Under the straight-line method, the annual depreciation expense is calculated by multiplying the specified depreciation rate by the asset's original cost:

15\% \times \text{₦}800,000 = \text{₦}120,000

. This amount is debited to the Profit and Loss Account as an expense.

Step-by-Step Solution

1

Identify the depreciation method and rates given in the problem statement.

Method: Straight-line (on cost), Cost =

\text{₦}800,000

, Rate =

15\%

.

The straight-line method calculates depreciation as a fixed percentage of the asset's original cost.

2

Compute the annual depreciation expense to be charged to the Profit and Loss Account.

\text{Depreciation} = 15\% \times \text{₦}800,000 = \text{₦}120,000

.

This is the annual charge reflecting the wear and tear of the fixed asset for the current period.

Key Concept

Straight-line method of depreciation adjustment in final accounts

Question 19Question →

The following trial balance extract was taken from the books of a sole proprietor as at 31st December 2025:

Ledger Account	Amount ( $\text{₦}$ )
Sales	200,000
Returns inwards	10,000
Purchases	130,000
Returns outwards	6,000
Opening inventory	30,000
Carriage inwards	4,000
Carriage outwards	8,000

Additional Information:
1. Goods costing $\text{₦}4,000$ were withdrawn by the proprietor for personal use during the financial year, but no entry has been made in the accounting records.
2. The business sells goods at a uniform mark-up of $25\%$ on cost of goods sold.

What is the value of closing inventory to be recorded in the trading account?

₦6,000

₦2,000

₦10,000

₦11,500

Show answer & explanation

Answer: ₦2,000

Answer

The value of closing inventory to be recorded in the trading account is ₦2,000.

Net sales equal ₦190,000 (Gross sales ₦200,000 less Returns inwards ₦10,000). Convert the 25% mark-up (

\frac{1}{4}

on cost) to margin (

\frac{1}{5}

or 20% on sales), yielding Gross Profit of ₦38,000 (

20\% \times \text{₦}190,000

) and Cost of Goods Sold (COGS) of ₦152,000 (

\text{₦}190,000 - \text{₦}38,000

). Cost of goods available for sale is ₦154,000 (Opening stock ₦30,000 + Purchases ₦130,000 - Returns outwards ₦6,000 - Goods withdrawn ₦4,000 + Carriage inwards ₦4,000). Subtracting COGS (₦152,000) from Cost of Goods Available for Sale (₦154,000) gives a closing inventory of ₦2,000.

Step-by-Step Solution

1

Calculate Net Sales

Net Sales = ₦200,000 - ₦10,000 = ₦190,000

Returns inwards must be deducted from gross sales to obtain net sales revenue.

2

Convert Mark-up to Margin and compute Gross Profit and Cost of Goods Sold (COGS)

Margin = 20%; Gross Profit = ₦38,000; COGS = ₦152,000

A mark-up of

25\%

(

\frac{1}{4}

) on cost corresponds to a margin of

\frac{1}{1 + 4} = \frac{1}{5} = 20\%

on net sales. Gross Profit =

20\% \times \text{₦}190,000 = \text{₦}38,000

. COGS = Net Sales - Gross Profit =

\text{₦}190,000 - \text{₦}38,000 = \text{₦}152,000

.

3

Calculate Adjusted Net Purchases

Adjusted Net Purchases = ₦130,000 - ₦6,000 - ₦4,000 = ₦120,000

Returns outwards and owner's inventory drawings must be deducted from gross purchases.

4

Calculate Cost of Goods Available for Sale

Goods Available = ₦30,000 + ₦120,000 + ₦4,000 = ₦154,000

Carriage inwards is added to opening inventory and net purchases as a direct cost of getting goods into the business. Carriage outwards is a selling expense and is excluded.

5

Determine Closing Inventory

Closing Inventory = ₦154,000 - ₦152,000 = ₦2,000

Closing Inventory = Cost of Goods Available for Sale - Cost of Goods Sold.

Key Concept

Trading Account, COGS Determination, and Mark-up/Margin Conversion

Estimated Time:3m 0s

Question 20Question →

The following financial information was extracted from the ledger of a sole trader at the end of the accounting year:

Account Title	Amount ( $\text{₦}$ )
Gross Profit	$85,000$
Rent paid	$12,000$
Salaries paid	$25,000$
Discount received	$1,800$
Discount allowed	$1,200$
Trade Debtors	$40,000$
Provision for doubtful debts (opening)	$1,500$

Additional Information:
1. Rent prepaid at year-end amounted to $\text{₦}2,000$ .
2. Salaries owing at year-end amounted to $\text{₦}3,000$ .
3. Provision for doubtful debts is to be adjusted to $5\%$ of trade debtors.

What is the net profit of the sole trader for the year?

Show answer & explanation

Answer: ₦47,100; 47,100; 47100; N47,100; N47100; 47,100 naira; 47100 naira; Naira 47,100; Naira 47100

Answer

The net profit for the year is

\text{₦}47,100

.

Net profit is calculated by taking Gross Profit (

\text{₦}85,000

) plus Discount Received (

\text{₦}1,800

), giving a total income of

\text{₦}86,800

. From this, total operating expenses of

\text{₦}39,700

are deducted: Rent (

\text{₦}12,000 - \text{₦}2,000 = \text{₦}10,000

), Salaries (

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

), Discount Allowed (

\text{₦}1,200

), and Increase in Provision for Doubtful Debts (

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

). This results in a Net Profit of

\text{₦}47,100

.

Step-by-Step Solution

1

Calculate total gross income by adding other income (discount received) to gross profit.

Total Income =

\text{₦}85,000 + \text{₦}1,800 = \text{₦}86,800

.

Discount received represents income and is credited to the Profit and Loss Account.

2

Adjust operating expenses for accruals, prepayments, and provision changes.

Adjusted Rent =

\text{₦}12,000 - \text{₦}2,000 = \text{₦}10,000

; Adjusted Salaries =

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

; New Provision required =

5\% \times \text{₦}40,000 = \text{₦}2,000

; Increase in Provision =

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

.

Prepayments are deducted from expenses paid, accruals are added to expenses paid, and only the increase in provision for doubtful debts is charged as an expense.

3

Sum all adjusted operating expenses and discount allowed.

Total Expenses =

\text{₦}10,000 + \text{₦}28,000 + \text{₦}1,200 + \text{₦}500 = \text{₦}39,700

.

Discount allowed is an operating expense debited to the Profit and Loss Account.

4

Deduct total expenses from total income to determine Net Profit.

Net Profit =

\text{₦}86,800 - \text{₦}39,700 = \text{₦}47,100

.

Net Profit is the excess of total revenues over total operating expenses.

Key Concept

Net Profit Determination with Year-End Adjustments

Estimated Time:2m 30s

Final Accounts of a Sole Trader

Answer

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