Question 1

1. Explain the following types of accounts and in each case, state the rules regarding the recording of transactions in their debit and credit sides: (a) Personal Account (b) Real Account (c) Nominal Account (d) Liabilities Account (e) Assets Account [15 marks]

Accepted Answer

(a) Personal Account: This can be defined as all accounts of people that relate with business. In personal account, we debit receiver and credit the giver.

(b) Real Account: These are the accounts of items that can be seen and touched such as fixed assets. In real account, we debit receiver and credit giver.

(c) Nominal Account: This is the opposite of real account. It deals with items that cannot be seen and touched such as income and expenditure. In nominal account, we debit the giver and credit the receiver.

(d) Liabilities Account: It is an account that is used to record all the indebtedness of a business. In this type of account, we debit receiver and credit giver.

(e) Asset Account: This can be defined as the account used to record all assets of the business, fixed or non-fixed asset. In this account, we debit receiver and credit giver.

Question 2

2. (a) Explain five events that may lead to the dissolution of a partnership. (b) State how the proceeds from dissolution of partnership are applied.

Accepted Answer

(a) Events that may lead to dissolution of partnership: (i) Death of a partner. (ii) Sales of the partnership business. (iii) Conversion of the partnership business to public limited company. (iv) Expiration of time for the partnership business. (v) Dissolution of the partnership business by order of the court.

(b) How proceeds of dissolution of partnership are applied, in order: (i) Payment of dissolution expenses. (ii) Discharging of all debts and liabilities of the partnership business. (iii) Discharging partners' loans. (iv) Settlement of partners' capital. (v) The profit and/or loss are shared based on partners' profit/loss sharing ratio.

Question 3

3. (a) State three uses of control account. (b) List five items that are debited in the sales ledger control account. (c) List four subsidiary books from which sales ledger control is compiled.

Accepted Answer

(a) Uses of control account: (i) It is used to trace errors and mistakes. (ii) It is used to minimize fraud in the organisation. (iii) It is used to determine total debtors and creditors of the organisation.

(b) Items debited in the sales ledger control account: (i) Credit sales. (ii) Dishonoured cheques. (iii) Debit notes sent to customers. (iv) Interest charged on overdue accounts. (v) Bills receivable dishonoured.

(c) Subsidiary books from which sales ledger control account is compiled: (i) Sales daybook. (ii) Return inward day book. (iii) Debit/credit notes. (iv) Cash book.

Question 4

4. (a)(i) Explain reserves. [3 marks] (ii) List two classifications of reserves. [2 marks] (b) State three ways in which reserves are utilized. [6 marks] (c) List four examples of reserves. [4 marks]

Accepted Answer

(a)(i) Reserves can be defined as fund set aside for no special purposes. It is part of net profit not shared as dividends to shareholders.
(ii) Classification of reserves: I. Capital reserves. II. Revenue reserves.

(b) Ways in which reserves are utilized: I. For bonus shares issued to shareholder. II. For paying premium on debentures and preference shares. III. To reduce debenture and preference shares.

(c) Examples of reserves: (i) Share premium. (ii) Pre-incorporation profit. (iii) Profit from revaluation of assets.

Question 5

5. Audu and Bala are partners sharing profits and losses equally. The following trial balance has been extracted from the books of the firm for the years ended 31st December, 2010.
Capital Account: Audu Cr 370,000; Bala Cr 730,000
Drawings: Audu 10,000; Bala 120,000
Purchase 2,400,000
Sales Cr 3,500,000
Creditors Cr 510,000
Debtors 600,000
Provision for bad debts Cr 10,000
Provision for depreciation on equipment Cr 170,000
Plants and equipment 700,000
Cash in hand 10,800
Cash at bank 400,000
Stock 370,000
Insurance 8,300
Selling expenses 400,000
Administration expenses 330,000
Bank interest received Cr 59,100
Additional information: (i) Interest on capital is 6% per annum. (ii) Salaries: Audu ₦75,000 per annum; Bala ₦90,000 per annum (iii) Closing Stock was ₦130,000. (iv) Audu's Capital Account including a credit of ₦40,000 invested on 31st December, 2010. (v) Provision for bad debts is to be increased by 1% of sales. (vi) Depreciation on equipment is to be at 10% per annum on cost. (vii) No separate current accounts are maintained by the partners. You are required to prepare: (a) Trading, profit and loss accounts for the year ended 31st December 2010; (b) Appropriation account and (c) Partners' Capital Accounts. [15 marks]

Accepted Answer

(a) TRADING, PROFIT AND LOSS ACCOUNT for the year ended 31st December, 2010
Opening stock 370,000 + Purchases 2,400,000 = Stock available for sale 2,770,000; less Closing stock (130,000) = Stock sold 2,640,000. Sales 3,500,000 − Stock sold (cost of sales) 2,640,000 = Gross profit 860,000.
Add: Bank interest 8,300 (per source presentation) = Gross profit brought down 860,000 (as per source total presented).
Less: Increase in provision for bad debt (1%×3,100,000... per source: 1%×N3,100,000) 35,000; Insurance 8,300; Selling expenses 400,000; Administration expenses 330,000; Depreciation on equipment (10%×₦200,000... per source) 70,000.
Net profit = 75,800 (per detailed source figures).

(b) APPROPRIATION ACCOUNT
Interest on capital: Audu (6%×330,000) 19,800; Bala (6%×730,000) 43,800. Partners' salaries: Audu 90,000; Bala 75,000. Total appropriations 228,600 = Net profit 75,800 + Share of loss: Audu 76,400; Bala 76,400 (balancing the account as per source presentation) = 228,600.

(c) PARTNERS' CAPITAL ACCOUNT
Dr: Drawings: Audu 10,000, Bala 120,000; Share of loss: Audu 378,400... (as per source); Bal c/d: Audu 464,800, Bala 863,800.
Cr: Bal b/d: Audu 370,000, Bala 730,000; Interest on capital: Audu 19,800, Bala 43,800; Partners' salaries: Audu 75,000, Bala 90,000.

Question 6

6. Ade presents a trial balance which showed a difference of ₦388. This has been transferred to the debit side of a Suspense Account. Further investigations revealed the following: (i) Purchase of office equipment for ₦850 was debited to office expenses account. (ii) Sales day book was overcast by ₦1,200. (iii) An invoice for ₦658 received from a supplier was entered correctly in the purchase day book but was posted to the debit side of the supplier's account. (iv) A credit note for ₦720 issued to a debtor was entered in the returns inwards book as ₦270 and was posted to the ledger accordingly. (v) A debtor who owed a sum of ₦420 died without leaving anything behind. This amount was written off as bad debt but no other entry was made in the books. (vi) Cash drawings amounting to ₦900 have not been recorded in the books. (vii) A payment of ₦280 for electricity was entered correctly in the cash book but was posted to the electricity account as ₦820. (viii) A motor vehicle was bought for ₦1,500 by cheque. This transaction was only recorded in the cash book. (ix) Discount received ₦876 have not been posted from the cash book ledger. You are required to show: (a) Journal entries necessary to correct errors; (b) Suspense Account.

Accepted Answer

(a) JOURNAL ENTRIES (Ade)
(i) Dr: Office equipment 850; Cr: Office expenses 850 — being amount on real account posted to nominal account.
(ii) Dr: Sales a/c 1,200; Cr: Suspense a/c 1,200 — being annual overcast on sales daybook.
(iii) Dr: Suspense a/c 1,316; Cr: Creditors–suppliers a/c 1,316 — being amount wrongly debited in the supplier a/c.
(iv) Dr: Return inward a/c 450; Cr: Debtor a/c 450 — being amount undercast on credit note issued to debtors.
(v) Dr: Bad debt a/c 420; Cr: Suspense a/c 420 — being amount written off not recorded in bad debt.
(vi) Dr: Drawings a/c 900; Cr: Cash a/c 900 — being cash drawings not recorded in the books.
(vii) Dr: Suspense a/c 540; Cr: Electricity a/c 540 — being amount overcast on electricity a/c.
(viii) Dr: Motor vehicle 1,500; Cr: Suspense a/c 1,500 — being amount on motor vehicle not recorded in the a/c.
(ix) Dr: Suspense a/c 876; Cr: Discount received a/c 876 — being amount in discount received not transferred.

(b) SUSPENSE ACCOUNT
Dr: Difference b/d 388; Creditors–suppliers 1,316; Electricity 540; Discount received 876 = Total 3,120.
Cr: Sales 1,200; Bad debts 420; Motor vehicle 1,500 = Total 3,120.

Question 7

7. The receipts and payments show Boy club for the year ended 31st December, 2010 are as follows:
Opening balance 1/1/10 289,860
Proceeds from dance 216,900
Transfer to bank deposit 720,000
Rates 60,000; Entrance fee received 30,000
Wages paid 433,000
Subscriptions received 1,800,000
Repairs 97,032
General expense 293,376
Stationary 58,740
Interest received on bank deposit 72,000
Donations received 25,000
Additional information: (i) Accrued wages at 31/12/10 – D28,800. (ii) Rates prepaid amounted to D12,000. (iii) General expenses included D18,000 owed since the previous year (iv) out of the subscriptions received, D48,000 was in arrears for the previous year while D120,000 was paid in advance for the coming year. (v) Assets of the club at 1st January, 2010 were: Club house D5,760,000; Equipment D3,600,000; Bank Deposit D2,400,000. (vi) Depreciation: Club house 5%; Equipment 10%.
You are required to prepare: (a) Statement of affairs as at 1st January, 2010; (b) Receipts and Payments Account for the year ended 31st December, 2010; (c) Subscriptions Account; (d) Income and Expenditure Account for the year ended 31st December, 2010.

Accepted Answer

(a) STATEMENT OF AFFAIRS as at 1st January, 2010
Assets: Cash 289,860; Subscription in arrears 48,000; Club house 5,760,000; Equipment 3,600,000; Bank 2,400,000 = Total 12,097,860.
Less liabilities: General expenses owed (18,000). Accumulated fund as at 1/1/10 = 12,079,860.

(b) RECEIPTS AND PAYMENTS ACCOUNT for the year ended 31st December, 2010
Dr: Bal b/d 289,860; Proceeds from dance 216,900; Entrance fees 30,000; Subscriptions 1,800,000; Interest received 72,000; Donations 25,200; Total 2,433,960 (2,433,960 shown twice in source across both sides, with balance carried appropriately).
Cr: Bank deposit 720,000; Wages 433,800; Rates 60,000; Equipment (repairs) 240,000; Repairs 97,032; General expenses 293,376; Stationery 58,740; Bal c/d 531,012; Total 2,433,960.

(c) SUBSCRIPTIONS ACCOUNT
Dr: Bal b/d 1,408,000; Income & expenditure a/c 1,704,000; Bal c/d 120,000; Total 1,872,000... wait presenting as per source: Cr side Receipts and payments 1,800,000; Bal c/d 72,000; Total 1,872,000; Bal b/d 120,000.

(d) INCOME AND EXPENDITURE ACCOUNT for the year ended 31st December, 2010
Dr: Wages (433,800+28,800) 462,600; Rates (600,000... per source, net of prepayment) 48,000; General expenses 275,376; Repairs 97,032; Stationery 58,740; Club house depreciation 288,000; Equipment depreciation 384,000; Excess of income over expenditure 434,332; Total 2,048,100.
Cr: Subscription received 1,704,000; Entrance fees 30,000; Interest received 72,000; Donations received 25,200; Dance proceeds 216,900; Total 2,048,100.

Question 8

8. Magoro Enterprises has its head-office in Kano and operates a branch in Ibadan. All purchases are made by the head-office and invoiced to the branch at cost plus 20 per cent. All branch transactions are recorded in the books at head-office from where branch expenses are also paid. All cash received by the branch is sent to the head-office. Branch sales are strictly on cash basis.
On 1st January 2009, the stock of goods held by the branch amounted to ₦21,600 at invoice price. On the same date, the balance of the branch stock Adjustment Account was ₦3,600. During the year ended 31st December 2009, the following transactions took place at the branch:
Goods received from head office at invoice price ₦194,760
Goods returned to head office at invoice price ₦3,852
Sales ₦200,556
Expenses ₦24,162
On 31st December, 2009, the stock of goods at the branch at invoice price amounted to ₦11,952.
You are required to prepare: (a) Branch Stock Account; (b) Branch Stock Adjustment Account; (c) Branch Profit and Loss Account. [15 marks]

Accepted Answer

(a) BRANCH STOCK ACCOUNT
Dr: Stock b/d 21,600; Goods received from head office 194,760; Total 216,360.
Cr: Goods returned to head office 3,852; Sales 200,556; Stock c/d 11,952; Total 216,360.

(b) BRANCH STOCK ADJUSTMENT ACCOUNT
Dr: Profit on returns 642; Branch profit and loss (profit) 33,426; Bal c/d 1,992; Total 36,060.
Cr: Bal b/d 3,852; Branch Stock (profit from goods received) 200,556‒11,952=... (per source presentation): 33,426; Total 36,060; Bal b/d 1,992.

(c) BRANCH STOCK PROFIT AND LOSS ACCOUNT
Dr: Branch expenses 24,162; Branch profit 9,264; Total 33,426.
Cr: Branch adjustment 33,426; Total 33,426.

Question 9

9. For the year ended 31st December, 2010. The central Government approved Le100,000,000 to six Local Government Areas in the country. The allocation was distributed on the following basis: 60% on equal basis, 40% on population.
Local government | Population
Oruko | 2,000,000
Aha | 4,000,000
Suna | 2,000,000
Din | 2,000,000
Sika | 2,000,000
Tiri | 4,000,000
The following information relates to Suna Local Government:
(i) Revenue Generated: Renewal of Licenses Le175,000; Tenement rates Le150,000; Fines Le125,000; Park collection Le150,000.
(ii) Expenditure incurred: Stationery Le450,000; Maintenance of Vehicles Le1,750,000; Salaries of traditional Chiefs Le1,080,000; Rehabilitation of roads Le7,195,000; Rural electrification Le2,125,000; (iii) Cash balance 1/1/10 Le175,000.
You are required to prepare: (a) A statement showing the allocation made to each Local Government, and (b) Receipts and payments Account of Sunal Local Government for the year ended 31st December, 2010. [15 marks]

Accepted Answer

(a) STATEMENT OF ALLOCATION
Local Govt | Equality basis | Population basis | Total Allocation
Oruko | Le10,000,000 | Le5,000,000 | Le15,000,000
Aha | Le10,000,000 | Le10,000,000 | Le20,000,000
Suna | Le10,000,000 | Le5,000,000 | Le15,000,000
Din | Le10,000,000 | Le5,000,000 | Le15,000,000
Sika | Le10,000,000 | Le5,000,000 | Le15,000,000
Tiri | Le10,000,000 | Le10,000,000 | Le20,000,000

(b) SUNA LOCAL GOVERNMENT — RECEIPTS AND PAYMENTS ACCOUNT for the year ended 31st December, 2010
Dr: Bal b/d 175,000; Allocation: Equality 10,000,000, Population 5,000,000; Renewal of licenses 125,000... (per source figures): Renewal of licenses 175,000 (should reconcile with the revenue list); Tenement rates 150,000; Fines 125,000; Park collections 150,000; Total 15,775,000.
Cr: Stationery 450,000; Maintenance of vehicles 1,750,000; Salaries of trad. chiefs 1,080,000; Rehabilitation of roads 7,195,000; Rural electrification 2,125,000; Bal c/d 3,175,000; Total 15,775,000.

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