HIDDEN FACTS

IN
NEW SSCE
FINANCIAL ACCOUNTING

i
© OTUMUDIA PUBLISHERS LIMITED 2023
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CONTENT
Preface ix

1. INTRODUCTION TO ACCOUNTING AND BOOK-KEEPING

• Meaning of Book-Keeping and Financial al Account __________________________________________ 1
• History of Book-Keeping ________________________________________________________________ 1
• History of Accounting in Nigeria __________________________________________________________ 2
• Branches of Accounting __________________________________________________________________ 2
• Users of Accounting Information ___________________________________________________________ 2
• Importance of Book-keeping and Accounting _______________________________________________ 3
• Limitations of Accounting Information _____________________________________________________ 3
• The Need for Book-Keeping and Accounting _______________________________________________ 3
• Professional Accounting Careers _________________________________________________________ 4
• Ethics of Accounting ___________________________________________________________________ 4
• Unethical Behaviour in Accounting Profession ______________________________________________ 5
• Penalties for Unethical Practices _________________________________________________________ 5
• Importance/Benefits of Accounting Ethics _________________________________________________ 5

2. PRINCIPLES AND PRACTICE OF LEDGER 10

• Double Entry Principle _________________________________________________________________ 10
• The Ledger __________________________________________________________________________ 10
• Types of ledger _______________________________________________________________________ 10
• Types of Account in the ledger ___________________________________________________________ 10

3. THE JOURNAL 33
• Definition of Journal ____________________________________________________________________ 33
• Features of a Journal ____________________________________________________________________ 33
• Uses of different parts of journal __________________________________________________________ 33
• Classes of Journal Entries _______________________________________________________________ 33
• Uses of Journal _______________________________________________________________________ 33
• Benefits of Journal _____________________________________________________________________ 33
• 33
Sub-divisions of Journal ___________________________________________________________________
• Journalizing __________________________________________________________________________ 34

4. ACCOUNTING CONCEPTS, PRINCIPLES, CONVENTIONS AND ACCOUNTING EQUATIONS 46

• Accounting Principles __________________________________________________________________ 46
• Accounting concepts ___________________________________________________________________ 46
• Accounting conventions ________________________________________________________________ 46
• Accounting equations __________________________________________________________________ 47

5. SOURCE (BUSINESS) DOCUMENTS 55

• Examples of Source document and their uses ________________________________________________ 55

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6. SUBSIDIARY BOOKS ___________________________________________________________________ 59
• Uses of books of prime entry _____________________________________________________________ 59
• Types of Subsidiary books _______________________________________________________________ 59
• Purchase Day book _____________________________________________________________________ 59
• Sales Day Book _______________________________________________________________________ 60
• Return Outward Day Book _______________________________________________________________ 61
• Return Inward Journal ___________________________________________________________________62
• The Cash Book ________________________________________________________________________ 68
• Contra Entries _________________________________________________________________________ 68
• Forms of Cash Book ___________________________________________________________________ 68
• The Imprest System _____________________________________________________________________80

7. TRIAL BALANCE 101

• Definition of Trial Balance _______________________________________________________________ 101
• Objective/Importance of Trial Balance ______________________________________________________ 101
• Features of Trial Balance ________________________________________________________________ 101
• Preparation of Trial Balance ______________________________________________________________ 101
• How to Prepare a Trial Balance ___________________________________________________________ 101
• Limitations of Trial Balance ______________________________________________________________ 114

8. RECTIFICATION OF ERRORS 121

• Definition of Errors _____________________________________________________________________ 121
• Types of Errors ________________________________________________________________________ 121
• Rectification of Errors ___________________________________________________________________121
• Suspense Account ______________________________________________________________________ 121

9. BANK RECONCILIATION 142

• Definition of Bank Reconciliation _________________________________________________________ 142
• Causes/Reasons for Difference in Two Balances ______________________________________________ 142
• Objectives of Bank Reconciliation Statement ________________________________________________ 143
• Preparation of the Reconciliation Statement __________________________________________________143

10. ACCOUNTING FOR DEPRECIATION 167

• Definition of Depreciation ______________________________________________________________ 167
• Terms Related to Depreciation ____________________________________________________________ 167
• Causes of Depreciation __________________________________________________________________ 167
• Reasons for Provision of Depreciation ______________________________________________________ 167
• Computation of Depreciation ______________________________________________________________168
• Accounting for Depreciation in the Books ___________________________________________________ 175

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11. TRADING, PROFIT OR LOSS ACCOUNT 184
• Component of Final Accounts ____________________________________________________________ 184
• Trading account ______________________________________________________________________ 184
• Profit or loss account ___________________________________________________________________ 184
• Appropriation account ___________________________________________________________________184
• Balance Sheet _________________________________________________________________________ 184
• Notes to the Account ___________________________________________________________________ 184
• Preparation of Final Accounts ____________________________________________________________ 185
12. CONTROL ACCOUNT 226
• Meaning of Control Account _____________________________________________________________ 226
• Types/Forms of Control Account __________________________________________________________ 226
• Contra Entry __________________________________________________________________________ 229
• Function/Uses of Control Account _________________________________________________________ 229
• Difference Between Control Account and Trial Balance ________________________________________ 229
• Sources of Information for Preparation of Control Account _____________________________________ 230

13. MANUFACTURING ACCOUNT 252

• Meaning and Purpose of Manufacturing Account _____________________________________________ 252
• Elements of Manufacturing Account _______________________________________________________ 252
• Manufacturing Account Related Terms _____________________________________________________ 252
• Apportionment of Overheads _____________________________________________________________ 252
14. INCOMPLETE RECORDS AND SINGLE ENTRY 295
• Incomplete Records _____________________________________________________________________295
• Reasons for Incomplete Records ___________________________________________________________295
• Limitations of Incomplete Records _________________________________________________________ 295
• Determination of Profit or Loss ___________________________________________________________ 295
• Single Entry __________________________________________________________________________ 295
• Advantages of Single Entry ______________________________________________________________ 295
• Disadvantages of Single Entry ____________________________________________________________ 296
• Preparation of Statement of Affairs ________________________________________________________ 296
15. ACCOUNT OF NOT-FOR-PROFIT MAKING ORGANISATION 325
• Account of Not-For-Profit Making Organisation _____________________________________________ 325
• Characteristics of Not-For-Profit Organisation ________________________________________________325
• Source of Income for Not-For-Profit Making Organisations _____________________________________ 325
• Receipt and Payment Account ____________________________________________________________ 325
• Features of Receipt and Payment Account ___________________________________________________ 326
• Income and Expenditure Account __________________________________________________________ 326
• Features of Income and Expenditure Account ________________________________________________ 326
• Difference Between R & P Accounts and I & E Accounts _______________________________________326
• Accumulated Fund ____________________________________________________________________ 327

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16. ACCOUNT OF PARTNERSHIP 363
• Definition of Partnership _________________________________________________________________363
• Types of Partnership ___________________________________________________________________ 363
• Types of Partners _____________________________________________________________________ 363
• Rights of Partners in Partnership _________________________________________________________ 364
• Duties and Responsibility of Partners ______________________________________________________ 364
• Partner’s Duty of Utmost Good Faith _______________________________________________________ 364
• Laws Governing Partnership _____________________________________________________________ 364
• Partnership Agreement (Deed of Partnership) ________________________________________________ 365
• Importance of a Partnership Agreement (Deed of Partnership) ____________________________________365
• Where Agreement is Absent _____________________________________________________________ 365
• Advantages of Partnership _______________________________________________________________ 365
• Disadvantages of Partnership _____________________________________________________________ 365
• Source of Income for Partnership __________________________________________________________ 366
• Admission of a Partner __________________________________________________________________ 367
• Circumstances in which Partnership will be Illegal _____________________________________________367
• Revaluation of Assets in Partnership _______________________________________________________ 367
• Dissolution of Partnership _______________________________________________________________ 1367
• Capital Accounts______________________________________________________________________ 1 367
• Partner’s Loan ________________________________________________________________________ 368
• Partner’s Salaries ______________________________________________________________________ 1368
• Interest on Capital ____________________________________________________________________ 368
• Drawings _____________________________________________________________________________ 368
• Interest on Drawings ___________________________________________________________________ 1368
• Final Accounts of Partnership ____________________________________________________________ 368

17. DEPARTMENTAL ACCOUNTS 417

• Reasons for Departmental Account _______________________________________________________ 417
• Allocation of Expenses _________________________________________________________________ 417
• Inter-Departmental Transfers ______________________________________________________________417
• Final Account _________________________________________________________________________ 417

18. ACCOUNTING FOR LIMITED COMPANIES 444

• Limited Liability Company ______________________________________________________________ 444
• Types of Companies ____________________________________________________________________ 444
• Characteristics of a Limited Liability Company ______________________________________________ 444
• Classification of Companies Based on Shares _________________________________________________444
• Essentials in the Formation of a Company ____________________________________________________445
• The Constitution of Companies ____________________________________________________________445
• Formation of Companies ________________________________________________________________ 445

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• Memorandum of Association _____________________________________________________________ 445
• Articles of Association __________________________________________________________________ 446
• Prospectus ___________________________________________________________________________ 446
• Certificate of Incorporation ______________________________________________________________ 446
• Share Certificate ________________________________________________________________________446
• Capital (Share Capital) ___________________________________________________________________446
• Types of Shares _______________________________________________________________________ 447
• Final Account of a Company _____________________________________________________________ 447

19. CONSIGNMENT ACCOUNTS 481

• Definition of Consignment of goods _______________________________________________________ 481
• Related Terms Used in Consignment of Goods ______________________________________________ 481
• Difference Between Consignment and Sales _________________________________________________ 482
• Expenses on Consignment _______________________________________________________________ 482
• Account Sales _________________________________________________________________________ 482
• Format of Account Sales ________________________________________________________________ 482
• Books of the Consignor _________________________________________________________________ 482
• Books of the Consignee _________________________________________________________________ 483

20. ACCOUNT OF JOINT VENTURE 498

• Meaning of Joint Venture ________________________________________________________________ 498
• Nature of Joint Venture _________________________________________________________________ 498
• Similarities between Joint Venture and Partnership ___________________________________________ 498
• Difference between Joint Venture and Partnership ___________________________________________ 498
• Accounting Entries in Joint Venture _______________________________________________________ 498
• Books to be Open in Joint Venture ________________________________________________________ 498

21. BRANCH ACCOUNTS 515

• Definition of Branch Accounting _________________________________________________________ _515
• Motives for Operating Branches __________________________________________________________ 515
• Classes of Branches ____________________________________________________________________ 515
• Pricing Methods for Branches ____________________________________________________________ 515
• Divisions of Branch Accounting __________________________________________________________ 515
• Accounting Entries ____________________________________________________________________ 515

22. PUBLIC SECTOR ACCOUNTING 543

• Definition of Public Sector Accounting _____________________________________________________ 543
• Reasons for Public Sector Accounting ______________________________________________________ 543
• Users of Government Accounting _________________________________________________________ 543
• Public Sector Accounting Related Terms ___________________________________________________ 543
• Basis of Government Accounting _________________________________________________________ 543
• Differences between Public Sector Accounting and Private Sector Accounting ______________________ 544

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• Various Finance Officers of Government ___________________________________________________ 544
• Sources of Finance Available to Government ________________________________________________ 544
• Various Accounts Operated by the Federal Government ________________________________________ 545
• Authorities to Incur Expenditure __________________________________________________________ 545
23. ACCOUNTING FINANCIAL RATIO AND ANALYSIS 577
• Accounting Ratio Defined _______________________________________________________________ 577
• Definition/Meaning of Financial Analysis ____________________________________________________577
• Tools used for Financial Analysis _________________________________________________________ 577
• Account Ratios ________________________________________________________________________ 577

24. ACCOUNTING AND INFORMATION AND TELECOMMUNICATION TECHNOLOGY (ICT) 602

• Meaning of Information and Communication Technology (ICT) _________________________________ 602
• Computer ____________________________________________________________________________ 602
• Parts of a Computer ____________________________________________________________________ 602
• Types of Computer _____________________________________________________________________ 603
• Categories of a Computer ________________________________________________________________ 603
• Characteristics of a Computer ____________________________________________________________ 603
• Components of a Computer System _______________________________________________________ 603
• Computer Input Devices ________________________________________________________________ 603
• Computer Output Devices _______________________________________________________________ 603
• Computer Virus and Antivirus _____________________________________________________________603
• Application of Computer in Accounting ____________________________________________________ 603
• Importance of Computer ________________________________________________________________ 604
• Disadvantages of Computer ______________________________________________________________ 604
• Computer Terms and Acronyms __________________________________________________________ 604

25. ACCOUNT FOR STOCK VALUATION 613

• Stock Valuation _______________________________________________________________________ 613
• Stock Taking _________________________________________________________________________ 613
• Stock Control _________________________________________________________________________ 613
• Stock Control Levels ___________________________________________________________________ 613
• Stock Valuation Methods _______________________________________________________________ 614
• Factors to Consider when Selecting a Method _______________________________________________ 616

ANSWERS 626

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Hidden Facts in NEW SSCE Bookkeeping and Financial Accounting is a new
scholarly text version which covers the entire syllabus of this course.

Key facts to this NEW SSCE Bookeeping and Financial Accounting:

- More elaborate research work
- More accounting information
- Additional chapters added and calculations
- More examples
- More exercises
- Standard accounting structure and interface.

This is to ensure all learners irrespective of the intelligence quotient are adequately
carried along, as Hidden Facts in NEW SSCE Bookkeeping and Financial
Accounting is a “teach yourself masterpiece textbook”.

ix
Chapter one
INTRODUCTION TO ACCOUNTING AND BOOK-KEEPING
MEANING OF BOOK-KEEPING AND FINANCIAL ACCOUNTING
Book-keeping can be defined as the act of recording financial transactions in a systematic way or manner so that the
financial position of the business can be known at a given period of time. The financial position of a business can be:
profit, loss or break-even.
Financial accounting is defined by the American Accounting Association (AAA) as the process of identifying,
measuring, and communicating economic information to permit informed judgments and decisions by users of the
information.
American Institute of Certified Public Accountant (AICPA) defined Accounting as the art of recording, classifying,
summarizing, and interpreting in significant manner and in terms of money, transactions and events that are in part at
least of a financial character and interpreting the result thereof.
In a nutshell, financial accounting is a process of gathering, recording, classifying, sorting, measuring, crucializing,
interpreting and communicating financial data to enable users make decisions and assessment. The “users” of accounting
information include: investors, employees, owners/shareholders, creditors, analyst, managers, government agencies, and
the public.
HISTORY OF ACCOUNTING
The evolution of accounting would be examined from four (4) stages of development. According to Edwards (1989:9)
the evolution of accounting is divided into four (4) stages:
1. Pre-Capitalist Period (Non-Economic Period): The pre-capitalist period was between the period of 4000 B.C. –
1000A.D. It coincided with the era between the Mesopotamican civilizations through the Greek and Roman times
to the end of the Dark Ages. Before this period, book-keeping was not possible because the preconditions for a
systematic book-keeping were not in existent. During the pre-capitalist period, records were kept using various
primitive methods like knotted cords, inscription on wet clay tablets, using animal blood to make marking on stores
and marking sticks with sharp objects.
2. Commercial Capitalism Stage: The commercial capitalism was between 1000 to 1750 A.D. The period was
referred to as the period of “mercantile capitalism”. Buying and selling was the major economic activity and the
period coincided with the development of Mediterranean commerce and usher in the 18 th Century industrial
revolution. The discovery of new lands and colonization resulted to the growth and advancement of commerce with
international trade becoming more prominent and popular.
The increased commercial activities resulted to a more complex organisation of business and this call for the need
for a more suitable method of keeping records. By the 11th century, the single entry book-keeping was introduced
which is suited for one man business but not suitable for large complex businesses. Then came the introduction of
double entry system of book–keeping popularized by Lucas Pacioli in 1494. Lucas Pacioli was an Italian monk and
a mathematician born in Sa Sepolcro (1445). His book “Summa de Arithmetic, Geometrica, Proportion et
Proportionalita (Everything about Arithmetic, Geometry, and Proportion) was used to expound the double entry
principle and he was regarded as “Father of Modern Day Accounting”.
3. Industrial Capitalism Stage: Industrial capitalism period was between 1750 A.D. to 1830. It is a period
characterised by the shifting of economic activity from buying and selling to pure manufacturing. The period witness
the use of machines and the evolution of the factory across the globe. This period give room for choice to be made
between the single entry system and the double entry system of book-keeping. Due to the large complex organisation
of business the double entry system was adopted because it proved to be better for control purposes as it facilitated
the preparation of trial balance and final accounts for performance and stewardship evaluation.
4. Financial Capitalism Stage: Financial capitalism stage is from 1830 till date. The need for huge capital outlay for
development purpose gave rise to stock exchanges for the sale of both public and private securities. This led to the
formation and establishment of limited liability companies with a clear distinction between the business and the
owners (i.e. the shareholders). Unfortunately, this development trigger fresh accounting problems like: the valuation
of fixed assets, classification of transactions, determination of periodic profit and content of published accounts for
public consumption; within this period, financial reporting was developed. The period also witness the enactment
of various laws by the governments to ensure fair play in economic activities and also to protect the shareholders
against fraudulent promoters and directors.
This era is also bedeviled by inflation, globalization, compacterisation, and information technology. This calls for
book-keeping movement from paper to paperless recording transaction which has resulted to the development of a
number of account softwares, e.g. Excel. This era can be regarded as electronic book-keeping.

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HISTORY OF ACCOUNTING IN NIGERIA
Categorically, there is no accurate record to when Book-keeping and Accounting started in Nigeria before the advent of
the Europeans. It is evident that some forms of traditional book-keeping were used to record financial transactions in the
ancient kingdoms of Oyo, Benin Empires and Borno Emirates. In the ancient days, financial transactions such as credit
sales, loan and periodic contributions known or called as Esusu, Asusu or Ajo in Nigeria local dialects were usually
recorded by making marks on walls, stones using native chalks, charcoal and animal blood. Another thing worth noting in
the historical development of accounting and book-keeping in Nigeria is the granting of royal charter to Royal Niger
Company in 1986 (now United Africa Company – UAC) prompt the preparation of proper records by the company.
The Nigerian Parliament established the Institute of Chartered Account of Nigeria (ICAN) by an Act of Parliament in
1965 and with this Act, professional status and recognition was given to the practice of accounting in Nigeria, and this
was followed by the establishment of another body called the Association of National Accountants of Nigeria (ANAN)
in 1979.
There is no way one will discuss the history of account in Nigeria without giving kudos to Mr. Akintola William and
Mr. Frank Curthbert Oladipupo Coker. Akintola William popularly and proudly called the ‘Doyen’ of accounting
profession in Nigeria was the first qualified Chartered Accountant in Nigeria. The Association of Accountants of Nigeria
which was established in 1960 later metamorphosed to the Institute of Chartered Accountants of Nigeria (ICAN). The
first president of ICAN is Mr. Frank Curthbert Oladipupo Coker.
Institute of Chartered Accountants of Nigeria set-up the Nigerian Accounting Standard Board (NASB), which is
responsible for standardizing account practices in Nigeria.
BRANCHES OF ACCOUNTING
Apart from financial accounting, we have other areas covered by accounting. These include:
(A) Cost Accounting: According to Chartered Institute of Management Accountant (CIMA) “Cost accounting is that
part of accounting that established budget, and standard cost of processes, operation, departments or products and
the analysis of variance or social use of funds”.
(B) Management Accounting: Management accounting, also known as internal accounting, is accounting that takes
care of management’s needs for information, planning and control. It is a method of accounting that creates
statements, reports and documents that help management in making better decisions related to their business
performance.
(C) Taxation (Tax Accounting): This is a branch of accounting that deals with the preparation of tax returns and tax
payments. Tax accounting is used by individuals, businesses, corporate bodies, etc.
(D) Auditing: Auditing is an examination of accounting records undertaken with a view to establish whether they
correctly and completely reflect the transactions to which they relate.
(E) Public Sector Accounting: Public sector accounting is the system of accounting that involves recording and
maintenance of books of accounts by the government authorities on their financial performance. Public sector
accounting also called Government accounting takes care of transaction involving the receipt, transfer and
disbursement of government funds and properties.
(F) Fiduciary Accounting: This is the branch of accounting that handles the accounts entrusted to the person
responsible for custody or management of property. It tracks and reports receipts and disbursements from accounts
to ensure proper fund allocations and is frequently used by guardians or custodians.
(G) Forensic Accounting (Legal Accounting): Forensic accounting handles legal matters related to bankruptcy, fraud
or mismanagement. This branch of accounting conducts investigations for court and litigation cases, calculates
damages and overseas dispute resolutions.
(H) Project Accounting: This accounting analyses costs and prepares report at regular intervals to track a project’s
financial progress. It provides historical data to inform future project decisions including cost-saving measures.
(I) Fund Accounting: Fund accounting works with Non-Profit Organisations (NPO) to ensure correct and accurate
allocation of funds. Fund accountants ensure NPO funds go where intended through the separation and distribution
of funds according to the company’s policies.
(J) Accounting Information System (AIS): This is a computer-based method, tracks accounting activities that has
been combined with information technology resources. AIS is a structured business used to collect, store, manage,
process, retrieve, and report their financial data so it can be used by accountants, consultants, business analysts,
chief financial officers, auditors, and tax authorities.
Users of Accounting Information
According to the American Accounting Association (AAA), financial accounting refers to the process of identifying,
measuring and communicating economic information to permit informed judgments and decisions by “users” of the
information.
The end product of financial accounting is economic information been used by the users for better managerial
decisions. Then, who are the users of accounting information?

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The following are the major users of accounting or financial information.
(i) Shareholders/Owners.
(ii) Management.
(iii) Creditors/Suppliers.
(iv) Competitors.
(v) Employees/Workers.
(vi) Public/Investors.
(vii) Tax/Government Agencies.
(viii) Financial Experts.
(ix) Customers.
(x) Corporate Affairs Commission – C.A.C.
(xi) Labour Unions.
(xii) Federal Office of Statics.
(xiii) Central Bank of Nigeria – CBN.

IMPORTANCE OF BOOK-KEEPING AND ACCOUNTING

1. Accounting and book-keeping provides a permanent records for all financial transactions.
2. Information provided by accounting can be used for decision making.
3. Accounting assist in the determination of a business concern profit or loss.
4. Accounting records are useful for tax assessment.
5. Accounting records help to prevent fraudulent practices.
6. The records provides a means by which the fund of a business are controlled.
7. Accounting and book-keeping enables businesses to determine their income and expenditures.
8. Accounting assist in the determination of a company assets and liabilities, debtors and creditors.
9. It helps in valuation of a company stock and conservation of assets.
10. Accounting provide a means for monitoring the progress of a business and also provides a means for economic
comparison.

LIMITATIONS OF ACCOUNTING INFORMATION

The following factors are limitations to the effective use of accounting information:
1. Accounting is historical in nature: This means all transactions are recorded at cost, i.e. the transaction must have
taken place (or occurred) before record or entry will be made.
2. Accounting is expressed in monetary terms only: This means all transactions are recorded in monetary terms.
Every transaction must be expressed in monetary term. For example 5 oranges amounted to N50.
3. No standard method for taking care of inflation: In our financial statement there is no method of calculating or
determining the effect or impact of inflation or the effect of increase in price.
4. Rigid unrealistic concepts and conversions: All financial reports are prepared in line with the laid down concepts
and conversions (rules and regulations) which sometimes may be unrealistic and obsolete.
5. Influenced by personal judgment: The treatment of some items in accounting may be influenced by an accountant
personal or private judgment. For example, provision of discount, provision of doubtful debts and valuation of
inventory.
6. Annual publication of financial reports: It is a known fact that company financial statement are published once
in a year which might not be too proper.
7. Failure to sanction violators of accounting principles: No sanction or punishment have been meted out to those
groups or individuals who have violated the accounting principles and practice despite various penalties put into
place.

THE NEED FOR BOOK-KEEPING AND ACCOUNTING

As a result of set of stringent procedures and ignorant of the importance of book-keeping and accounting in business by
many people, they have considered and see accounting and book-keeping as unnecessary paper work and resources
wastage. For the benefit of such persons, the need for accounting and book-keeping in an organisation can be viewed
from the following perspective:
1. Business Decision Making: Accounting helps in analyzing complex decision problems using specialized
mathematical and or quantitative techniques adopted to suit the business environment.
2. Statutory Compliance: It is a requirement of the law that accounts are kept in a specified manner.
3. Requirement for Lending: For banks and other financial institutions of lending, it is usual to demand for the
financial statement of the borrower on applying for loan.
4. Tax Purposes: Government tax agencies relies on audited financial statements for determining the amount to be
paid as tax on the profit of a company or income of an individual.
5. Performance Review: Accounting assist in making correct analysis which facilitates meaningful comparison of the
results of one period with another for the same company.
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6. Stewardship Reporting: Accounting is used to report to the owners of the business, the manager’s activities and
results during the period under review.
7. Stock Valuation: Accounting is needed to determine the value of goods in stock at a particular period.
8. Assets Valuation and Conservation: Accounting helps in asset valuation and conservation of resources in an
organisation.
9. Determination of Debtors and Creditors: Accounting is useful for the determination of debtors and creditors
balance at a particular period.

Professional Accounting Careers

The following are the various job options and opportunities in accounting:
1. Chartered Accountant.
2. Chartered management accountant.
3. Chartered public finance accountant.
4. Company secretary.
5. External auditor.
6. Internal auditor.
7. Forensic accountant.
8. Stock broker.
9. Accounting manager.
10. Accounting specialist.
11. Accounting supervisor.
12. Accounts payable and receivable manager.
13. Budget analyst.
14. Chief financial officer.
15. Accounting clerk.
16. Auditor.
17. Book – keeper.
18. Payroll manager.
19. Public/Government Accountant.
20. Financial accountant.
21. Tax accountant.
22. Credit analyst.
23. Financial compliance officer.

ETHICS OF ACCOUNTING
Ethics means the basic concepts and fundamental principles of human conduct which involves differentiating between
bad and good or right and wrong.

Ethics of accounting can be defined as a set of beliefs and practices that professional accountant hold about their jobs.
Accounting ethics refers to the guidelines consisting of judgment and moral values that professional accountants need
to obey and follow strictly while discharging their professional duties. The code of ethics for professional accountants
establishes ethical requirements for professional accountants. The essence of accounting ethics is in the maintenance of
professional objectivity and integrity. Ethics of accounting include the following as issued by the International
Federation of Accountants (IFA):
1. Accountability: This ethic hold that a professional accountant should be accountable for its jobs or actions i.e.
should be able to render account of its stewardship whenever called upon to do so.
2. Trustworthiness: This ethic hold that a professional accountant should be trustworthy and reliable i.e. should be a
man of a high virtue.
3. Integrity: This ethic hold that a professional accountant should be straightforward and honest or of a high integrity,
i.e. he should be wholesome, unimpaired, and of high moral standard (uprightness).
4. Honesty: This ethic requires that a professional accountant should be truthful in all its dealings with every group.
5. Transparency: This ethic demand of a professional accountant openness and to exhibit some degree of accessibility
in the process of carrying out its job. A professional accountant should also endeavour to present fact to the public
based on accurate accounting information in his domain.
6. Fairness: A professional accountant is expected to always be fair in dealing with the society. He should be truthful
in all its dealings with every group.
7. Objectivity: This ethic connotes independence of judgment on the part of the accountant preparing the financial
statement. He should be bias or be allowed to be influenced by others to override professional judgment.

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Unethical Behaviours in Accounting Profession
Below are some unethical behaviours in accounting practice:
1. Manipulation of financial statement.
2. Exaggeration business revenue/profit.
3. Mismanagement of business finance.
4. Provision of erroneous information regarding expenses incurred.
5. Provision of inaccurate data to tax officials or agencies.
6. Using confidential information for personal gain.
7. Being bias in dealing with groups.
Penalties for Unethical Practices
The following are some of the penalties and sanctions that can be meted out to any professional accountant found
wanting:
1. Fines and perjury charges.
2. Suspension of licenses.
3. Termination of right of practice.
4. Expulsion from membership.

Importance/Benefits of Accounting Ethics

The following benefits can be derived by keeping or maintaining accounting ethics:
1. It helps to create positive image and goodwill for the organisation.
2. It promote public trust in financial reporting.
3. It advance complete, accurate and reliation information.
4. It serve as a tool for improving efficiency and effectiveness in business.
5. It brings about improved survival and sustainable business which result to higher prosperity for growth and
development.
6. It builds people confidence in accounting and services provided.
7. It helps professional accountants to maintain professional knowledge and skills.

2003/50
The art of recording transactions in books of account is known as
A. debiting B. book-keeping C. auditing D. crediting
Answer: Book-keeping (B)

2005/1
The systematic recording of business transactions in monetary term is
A. auditing B. book-keeping C. debiting D. crediting
Answer: Book-keeping (B)

2006/1
The art of collecting, recording, presenting and interpreting accounting data is
A. cost accounting B. management accounting C. financial accounting D. data processing
Answer: Financial accounting (C)
2007/5
Financial accounting information is for
A. internal use only B. external use only C. business use only D. internal & external use
Answer: Internal and external use (D)
2007/35
Which of the following bases of accounting does not make allowance for depreciation?
A. cash basis B. accrual basis C. matching basis D. commitment basis
Answer: Commitment basis (D)
2010/1
Which of the following is not an external user of accounting information?
A. management B. creditors C. shareholders D. government
Answer: Management (A)
2022/1
The user of accounting information who is responsible for overall performance of the business is the
A. director B. customer C. shareholder D. employee
Answer: Director (A)
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2012/1
The objective of accounting information is to enable users to
A. prepare the financial statements B. value stock C. make decisions D. prepare budgets
Answer: Make decisions (C)

2013/6
The order of financial accounting process involves:
(I) recording; (II) presenting; (III) collecting (IV) analyzing
A. I, II, III and IV B. II, III, I and IV C. III, I, II and IV D. IV, III, II and I
Answer: III, I, II and IV (C)

2014/1b
State 7 benefits of keeping accounting records in a business.
Answer:
1. It helps users to make decisions and assessment.
2. It helps to ascertain the financial position of a business concern.
3. It helps in performance comparison of one organisation with another.
4. It provides a permanent record for accounting information.
5. It helps the management account.
6. It helps to plan on how to meet up with the financial commitment and obligations of a business enterprise.
7. It helps in reporting managers financial stewardship in an organisation.

2015/2
Which of the following is not a feature of accounting information?
A. affordability B. timeliness C. accuracy D. completeness
Answer: Affordability (A)

2016/1
External users of accounting information include
A. employees B. management C. bankers D. directors
Answer: Bankers (C)

2016/13
In accounting context, purchases refers to
A. goods bought and paid for only B. goods bought for resale only C. goods bought on credit only
D. goods bought to be used in the firm only
Answer: Goods bought for resale only (B)

2017/1
Customers uses the financial statement of a company to
A. assess the financial position of the business B. regulates their activities
C. ascertain the taxable profit of the business D. be sure of extent of job security
Answer: Ascertain the financial position of the business (A)
2018/1
Investors in business are mainly interested in the firm’s
A. liquidity B. debt C. management D. profitability
Answer: Profitability (D)
2018/2
One of the characteristics of useful accounting information is
A. profitability B. comparability C. efficiency D. liquidity
Answer: Comparability (B)

2018/1 Theory
(a) Mention 3 disadvantages to a business that does not keep proper accounting records.
(b) Explain the following characteristics of accounting information:
(i) Relevance; (ii) comparability (iii) consistency (iv) reliability
(c) State two limitations in the use of accounting information.

6
Answer
(a)
(i) It could lead to loss of vital business records and information.
(ii) It makes it difficult to prepare accurate financial statement.
(iii) Inability to ascertain or determine the profit or loss.
(iv) It will be difficult to easily detect fraud and dishonesty.
(v) It could lead to inaccurate decisions.
(vi) It makes it difficult to locate errors.
(vii) It may deny business opportunity to obtain credit facilities.
(b)
(i) Relevance: If use for intended purpose and reasons, accounting information is relevant.
(ii) Comparability: Accounting information gives room for comparison in the performance of two different
organisations.
(iii) Consistency: Accounting information should be consistent in similar procedures and methods being used
while preparing financial statement.
(iv) Reliability: Accounting information should be verifiable and factual.
(c)
(i) Accounting information is historical in nature i.e. it does not reflect current decisions.
(ii) Information that cannot be measured in monetary terms is not treated or recorded in accounting and this
usually makes accounting information incomplete.
(iii) Businesses most of the time uses different accounting policies which makes comparison difficult and
misleading.
(iv) In some cases where precise information is not readily available, accountants rely on estimates which
usually may be inaccurate for decisions.
(v) Some businesses and organisations window dress (overstate or understate) their financial statements thereby
misleading the users.
2019/1
A quality of accounting information is that it should be
A. profitable B. verifiable C. appreciable D. depreciable
Answer: Verifiable (B)

2019/4
The primary concern of shareholder in a business is the
A. ascertainment of taxable profit B. dividend payable C. ability to pay interest
D. welfare of employees
Answer: Dividend payable (B)

2020/40
The internal users of accounting information is to enable users to
A. value stock B. make decisions C. prepare budgets D. prepare the financial statement
Answer: Make decisions (B)

2011/2(a) NABTEB
List six users of accounting information.
Answer
(i) Shareholders (Owners).
(ii) Employees.
(iii) Creditors.
(iv) Competitors.
(v) Management (Directors).
(vi) Tax authorities (Government).
(vii) Public.
(viii) Analysts.

2022/25 NABTEB
The systematic recording of business transactions in monetary terms is called
A. auditing B. book-keeping C. debiting D. crediting
Answer: Book-keeping (B)

7
2003/2 Neco
(a) What is financial accounting?
(b) List five advantages of financial accounting.
(c) Mention five uses of financial records.
Answer
(a) Financial accounting is the process of collecting, recording, presenting, analyzing and communicating financial data
of an organisation to the users to enable them take decisions and make assessment.
(b) Advantages of financial accounting:
(i) Financial accounting assist in determining the financial position of a business concern.
(ii) It helps to determine the tax liability of an organisation.
(iii) It provide permanent records of all business transactions.
(iv) It assists in taking qualitative decisions on the finances of a business organisations.
(v) Financial accounting records help to check or prevent fraud in an organisation.
(vi) Financial accounting assists in ascertaining the liquidity position of a business enterprise to ascertain its
income and expenditure.
(c) Users of accounting information:
(i) Shareholders.
(ii) Management.
(iii) Creditors.
(iv) Competitors.
(v) Employee.
(vi) Government agencies.
(vii) Financial analysis and experts.
(viii) Investors.

2006/12 Neco
All the following are government agencies that make use of Accounting Information EXCEPT
A. board of inland revenue B. court of law C. development bank D. social club
E. tax authority
Answer: Social club (D)

2006/14 Neco
The art of recording, classifying and summarizing financial transactions in a systematic manner is called
A. accounting B. auditing C. book-keeping D. costing
E. data processing
Answer: Book-keeping (C)
2008/1 Neco
Which of the following is NOT a user of accounting information?
A. accountant B. accounts teacher C. banker D. investor E. management
Answer: Accounts teacher (B)
2009/1 Neco
The full meaning of ANAN is
A. Accountants National of Nigeria B. Accounting Nationals Academy of Nigeria
C. Associate National Accountants of Nigeria D. Association of National Accountants of Nigeria
Answer: Association of National Accountants of Nigeria (D)
2009/17 Neco
Who among the following needs the financial statements of a business to know his job security and wages negotiations?
A. Auditors B. banker C. creditor D. debtor E. employees
Answer: Employees (E)
2012/43 Neco
The two legally recognised professional accounting bodies in Nigeria are:
A. ICPA and AAN B. ICMA and NIB C. ANAN and ICAN D. AAN and ECMA
E. ICAN and NABTEB
Answer: ANAN and ICAN (C)
2016/58 Neco
In what year was Association of National Accountants of Nigeria (ANAN) founded?
A. 1969 B. 1973 C. 1979 D. 1981 E. 1982
Answer: 1979 (C)
8
2022/1 Neco
Institute of Chartered Accountants of Nigeria was established in
A. 1965 B. 1964 C. 1963 D. 1962 E. 1961
Answer: 1965 (A)

2022/1 Neco (Internal)

Which of the following is the first stage in accounting?
A. analysis of financial statement B. drawing up of trading account
C. preparation of trial balance D. writing of cash book E. writing of source document
Answer: Writing of source documents (E)

2022/2 Neco (Internal)

The full meaning of ICAN is
A. Institute of Chartered Accountants of Nigeria B. Institute of Chartered Administrators of Nigeria
C. Institute of Chartered Auditors of Nigeria D. Institute of Chartered Auxiliaries of Nigeria
E. institute of Chartered Aviation of Nigeria
Answer: Institute of Chartered Accountants of Nigeria (A)

9
Chapter Two
PRINCIPLES AND PRACTICE OF DOUBLE ENTRY
DOUBLE ENTRY PRINCIPLE
This principle was propounded by Luca Pacioli and it entails having a giver and a receiver i.e. when one gives out money
for its worth, somebody receives it in an exchange for a service and/or obligations. The term used in this regard is
referred to as (Dr) debit and (Cr) credit. This principle requires that the dual (i.e.) debit effect of every transaction should
be recorded by posting a debit entry to one account and a corresponding credit entry to another account. This is why, it
is sometimes said that: “For every debit entry, there is a corresponding credit entry and vice versa”.

THE LEDGER
The principal book of account is the ledger. It is defined as the book that contains the account for the transaction of a
business organization, which is usually written up periodically and is the final destination of all entries recorded in the
subsidiary books. An account is a page (or folio) in the ledger divided into two equal halves with a vertical line and with
a horizontal line on top. The left hand side of an account is the debit (Dr) side while the right hand side is the credit (Cr)
side.

Types of Ledger
1. General Ledger: This contains account of real account, nominal account and the private ledger. It is otherwise
known as impersonal ledger. Examples of ledger are capital account, drawing account, loan account, trading
account, profit and loss account.
2. Creditor’s ledger: It contains the account of the creditor or suppliers. It is also known as “Bought ledger or purchase
ledger”.
3. Debtor’s ledger: This contains the account of customers or debtors. It is also known as sales ledger.
DR CR
Date Particulars Folio Amount Date Particulars Folio Amount

A specimen of ledger

TYPES OF ACCOUNTS IN THE LEDGER

There are two (2) broad classifications of accounts:
i. Personal accounts: These are the accounts of persons (natural or corporate) who have business dealings with the
organizations, e.g. debtors’ accounts, creditor’s accounts, capital account and bank account.
ii. Impersonal accounts: These are the accounts of non–humans/persons and is further subdivided into real accounts
and nominal accounts. Real accounts are tangible assets such as furniture, fittings, buildings, motor vehicle, plant
and machineries, e.t.c. Nominal accounts relate to income/revenue, expenses and intangible assets, examples are
sales account, rent account, salaries and wages account, goodwill account, etc.

Illustration I
Using the principles of double entry, enter the transactions in the necessary ledger accounts:
1. Rent N180,000 was paid by Mr. Anthony to his landlord on 1st January, 2015 by cheque.
2. Goods worth N100,000 were sold on credit to Akpan Enterprises on 1st July, 2015.
3. Saka paid electricity bill to BEDC N7,000 cash on 25th March, 2015.
Solution
1. Rent N180,000 was paid by Mr. Anthony to his landlord on 1st January, 2015.
DR Rent Account CR
2015 N N
01 – 01 Bank 180,000

DR Bank Account CR
2015 N
01 – 01 Rent 180,000

10
2. Goods worth N100,000 were sold on credit to Akpan Enterprise on 1st July, 2015.
Solution
DR Akpan Enterprise Account CR
2015 N N
01 – 07 Sales 100,000

DR Sales Account CR
2015 N
01 – 07 Akpan Ent. 100,000

3. Saka paid electricity bill to BEDC N7,000 cash on 25th March, 2015.
Solution
DR BEDC Account CR
2015 N N
25 – 03 Cash 7,000

DR Cash Account (Saka) CR

2015 N
25 – 03 Electricity bill 7,000
Illustration 2 2006/7 (Theory)
S. Momoh commenced business on 1st April, 2005 with N800,000 paid into the bank.
During the month, he made the following transactions:
April 2 Bought goods by cheque N360,000.
April 3 Withdrew cash of N200,000 for office use.
April 6 Received cash loan of N40,000 from S. Fowe.
April 10 Bought goods on credit for N80,000 from L. Maw.
April 13 Rent of N100,000 for business premises was paid by cheque.
April 16 Bought goods on credit from Lawrence ltd. for N60,000.
April 18 Insurance premium of N30,000 was paid by cheque.
April 21 Sold goods for N120,000 receiving cheque in payment.
April 25 Paid Lawrence Ltd. a cheque for N60,000.
April 26 Bought an equipment for N40,000 from Nwoke and Co. credit.
April 27 Paid L. Mawa a cheque of N80,000.
April 28 Paid Nwoke and Co. a cheque of N40,000.
April 29 Sold goods for N47,000 receiving a cheque in payment.
April 30 Wages and salaries of N90,000 was paid in cash.
You are required to enter the above transactions in ledger account and balance it off.
Solution
Notes:
(i) The first ledger to be prepared is the cash book (i.e. two column cash book) and do not record credit transactions
(sales or purchases) into the cash book.
(ii) Items not for resale should not be treated as purchases in the cash book, e.g. assets (equipment).
(iii) April 3rd transaction is a contra entry and such the double entry must be completed in the cash book meaning it
cannot be posted to the ledger.
(iv) The balance c/d is the difference between the total figure on the debit side and the total figure on the credit side.
Debit balance: This is a situation in which the debit (Dr.) side of our account is more than or greater than the
Credit (Cr.) side of our account hence, we call it debit balance
Credit balance: This is a situation in which the credit (cr.) side of our account is more than or greater than the
debit (Dr.) side of our account hence, we call it credit balance.
(v) At the end, when posting entries from the cash book to various ledger account, transfer all the items on the debit
side (Dr.) of the cash book to the credit side (Cr.) of their various ledger accounts and transfer all the items on
the credit side of the cash book to the debit side of their various ledger accounts. The ledger complete the double
entry principle, i.e. “For every debit entry there is a corresponding credit entry, vice versa”.

(vi) While preparing the accounts always apply the first rule of book-keeping.
Debit: The receiving account.
Credit: The giving account.

11
(a)
S. MOMOH
Dr. Two Column Cash Book for the month of April 2005 Cr.
Date Particulars Folio Bank Cash Date Particulars Folio Bank Cash

April N N April N N
1 Capital CB 800,000 2 Purchases PL 360,000
3 Bank C 200,000 3 Cash C 200,000
6 Loan – Fowe PL 40,000 13 Rent GL 100,000
21 Sales SL 120,000 18 Insurance GL 30,000
29 Sales SL 47,000 25 Lawrence PL 60,000
27 L. Maw PL 80,000
28 Nwoke & PL 40,000
Co.
30 Wages GL 90,000
967,000 240,000 30 Balance c/d 97,000 150,000
967,000 240,000 967,000 240,000
May 1 Balance b/d 97,000 150,000

(b)
S. MOMOH PURCHASES DAY BOOK FOR THE MONTH
Date Details Folio Amount Total
April N N
10 M. Maw PL 80,000
16 Lawrence Ltd. PL 60,000 140,000
30 Total credit purchase 140,000

(c)
GENERAL LEDGER
Note: Remember point (v) above
Dr Capital Account Cr
April N April N
30 Balance c/d 800,000 1 Bank 800,000
May 1 Balance b/d 800,000

Dr Loan Account Cr
April N April N
30 Balance c/d 40,000 6 Cash 40,000
May 1 Balance b/d 40,000

Dr Sales Account Cr
April N April N
30 Balance c/d 167,000 21 Bank 120,000
29 Bank 47,000
167,000 167,000
May
1 Balance b/d 167,000

Dr Purchases Account Cr
N April N
2 Bank 360,000 30 Balance c/d 500,000
10 L. Maw 80,000
16 Lawrence 60,000
500,000 500,000
May
1 Balance b/d 500,000

12
Dr Rent Account Cr
April N April N
13 Bank 100,000 30 Balance c/d 100,000

May
1 Balance b/d 100,000

Dr Insurance Account Cr
April N April N
18 Bank 30,000 30 Balance c/d 30,000

May
1 Balance b/d 30,000

Dr Lawrence Account Cr
April N April N
25 Bank 60,000 16 Purchases 60,000

Dr L. Maw Account Cr
April N April N
27 Bank 80,000 10 Purchases 80,000

Dr Nwoke & Co. Account Cr

April N April N
28 Bank 40,000 26 Equipment 40,000

Dr Wages Account Cr
April N April N
30 Cash 90,000 30 Balance c/d 90,000

May
1 Balance b/d 90,000

Illustration 3:
State the fundamental rules of Book – keeping and Accounting.
Answer
The fundamental rules of Book-keeping and Accounting are stated below:
1. Debit : All Assets.
2. Credit : All liabilities
3. Debit : The receiving accounts (i.e. the receiver of value) – Debtors.
4. Credit : The giving accounts (i.e. the giver of value) – creditors.
5. Debit : All expenses/payments/expenditure.
6. Credit : All incomes/gains/revenues.

Note:
Debit (Dr) is the left hand side of the account so it is debited with all receipts while, the credit (Cr) is the right hand side
of the account so it is credited with all payments.
Illustration 4
From the transaction below show which accounts to be debited and which is to be credited:
(i) Introduction of capital in cash.
(ii) Bought office equipment on credit from Bingo.
(iii) Sold furniture for cash.
(iv) Ewomazino lends us money through cheque.
(v) Paid a creditor Trump in cash.
(vi) A debtor Alamu pays us by cheque.
(vii) Received cash from sales.

13
Solution
Transactions Account to be debited Account to be credited
i. Cash account Capital account
ii. Office equipment a/c Bingo account.
iii. Cash account Sales account
iv. Bank account Ewomazino account
v. Trump Account Cash Account
vi. Bank Account Alamu Account
vii. Cash account Sales account

Illustration 5
Classify the following into personal, real and nominal accounts:
(i) Wages.
(ii) Fittings.
(iii) Jacob (supplier).
(iv) Insurance.
(v) Commission received.
(vi) Ribadu (debtor).
(vii) Land and building.
(viii) Premises.
(ix) Machinery.
(x) Motor expenses.

Answer
Personal account Real Account Nominal Account
Jacob Fittings Wages
Ribadu/debtors Land and building Insurance
Premises Commission received
Machinery Motor expenses

Illustration 6
Take a look at the transaction below and state categorically the account to be debited and the account to be credited.
i. Paid rent by cash N45,000.
ii. Received N3,000 from cash sales.
iii. Withdrew N2500 cash for private use.
iv. Sold furniture N37,000 cash.
v. Bought stationeries N700 by cheque.
vi. Paid rates N170 by cash.
vii. Introduce a fresh capital of N10,000 into the business due to expansion.
viii. Paid insurance premium N3,050 by cheque.
ix. Adamu returned goods worth N205.
Solution
Item Account to be debited Account to be credited
(i) Rent account Cash account
(ii) Cash account Sales account
(iii) Drawings account Cash account
(iv) Cash account Furniture’s account
(v) Stationeries account Bank account
(vi) Rates account Cash account
(vii) Cash account Capital account
(viii) Insurance account Bank account
(ix) Returns inward account Adamu Account

14
Illustration 7
Complete the following table by indicating the account to be debited and account to be credited:

(i) Good returned to Mudiaga N1,000.

(ii) Sold goods for cash N700.
(iii) Office equipment purchased by cash N30,000.
(iv) Paid salaries by cash N15,000.
(v) Cash loan from Adewale N3,000.
(vi) Paid insurance premium by cheque N12,000.
(vii) Paid BEDC electricity bill by cheque N7,500.
(viii) Received rent by cheque from Abasi N10,000.
(ix) Commenced business with cash N100,000.

Solution
Note: Apply the first rule of Book – keeping and Accounting:
Debit: The receiving account (IN)
Credit: The giving account (OUT)
S/N Transaction Account to be debited Account to be credited
(i) Goods returned to Mudiaga Mudiaga A/C Returns outward A/C
(ii) Sold goods for cash. Cash A/C Sales A/C
(iii) Office equipment purchased by cash. Office equipment A/C Cash A/C
(iv) Paid salaries by cash. Salaries A/C Cash A/C
(v) Cash loan from Adewale Cash A/C Adewale A/C
(vi) Paid insurance premium by cheque Insurance Bank A/C
(vii) Paid BEDC electricity bill by cheque BEDC A/C Bank A/C
(viii) Received rent by cheque from rent A/C Rent A/C Bank A/C
Abasi
(ix) Commenced business with cash Cash A/C Capital A/C

LEDGERS
(i)
Dr Mudiaga Account Cr
N N
Returns 1,000

Dr Returns Outward Account Cr

N N
Mudiaga 1,000

Note: Mudiaga ⎯⎯ is the receiver.

Returns outward ⎯
⎯→ is the giver.
(ii)
Dr Sales Account Cr
N N
Cash 700

Dr Cash Account Cr
N N
Sales 700

Note: Sales account ⎯

⎯→ is the giver.
Cash account ⎯⎯ is the receiver.
(iii)
Dr Office Equipment Account Cr
N N
Cash 30,000

15
Dr Cash Account Cr
N N
Office equipment 30,000

(iv)
Dr Salary Account Cr
N N
Cash 15,000

Dr Cash Account Cr
N N
Salary 15,000

Note: salary account 

⎯⎯ is the receiver.
Cash account ⎯ ⎯→ is the giver.

(v)
Dr Cash Account Cr
N N
Loan 3,000

Dr Loan Account (Adewale) Cr

N N
Cash 3,000

Note: Cash account 

⎯⎯ is the receiver.
Loan Account ⎯ ⎯→ is the giver.

(vi)
Dr Insurance Account Cr
N N
Bank 12,000

Dr Bank Account Cr
N N
Insurance 12,000
Note: Insurance Account 
⎯⎯ is the receiver.
Bank account ⎯⎯→ is the giver.
(vii)
Dr BEDC Account Cr
N N
Bank 7,500

Dr Bank Account Cr
N N
BEDC Bill 7,500

Note: Bank Account ⎯

⎯→ is the giver.
BEDC account ⎯⎯ is the receiver.

(viii)
Dr Rent Account Cr
N N
Bank (Abasi) 10,000

16
Dr Bank Account Cr
N N
Rent 10,000
Note: Rent Account 
⎯⎯ is the receiver.
Bank Account ⎯⎯→ is the giver.
(ix)
Dr Cash Account Cr
N N
Capital 100,000

Dr Capital Account Cr
N N
Cash 100,000
Note: Capital Account ⎯
⎯→ is the giver.
Cash account ⎯⎯ is the receiver.

Illustration 8:
July 1 Started a business with cash 1,000,000
July 4 Sold goods for cash 400,000
July 10 Purchased goods by cash 100,000
July 14 Iue loaned Aboki cash 700,000
July 20 Received cheque from Otedola 2,000,000
July 22 We paid Wilson by Cash 82,000
July 23 Sold goods by cash 73,000
July 24 Paid cash into bank 100,000
July 25 Paid wages by cheque 36,000
July 26 Olu paid us cheque 14,000
July 28 Received loan from Jimoh cash 60,000
July 30 Paid salaries by cheque 50,000

Required:
Open the necessary ledgers to record the transaction above.
Solution
Step I: Identify the two accounts affected in the transaction.
Step II: Determine the receiving account and the giving account (i.e. the receiver and the giver of value).
Step III: Prepare or open two ledgers for the two identified accounts.
Step IV: Apply the first rule of book-keeping and accounting, i.e.
Debit: The receiver
Credit: The giver

In the books, the transactions would appear thus:

Date Accounts to be Debited Accounts to be Credited
July 1 Cash A/C  the receiver Capital A/C
the giver
July 4 Cash A/C  the receiver Sales A/C → the giver
July 10 Purchases A/C  the receiver Cash A/C → the giver
July 14 Aboki A/C  the receiver Cash A/C → the giver
July 20 Bank A/C  the receiver Otedola A/C → the giver
July 22 Wilson A/C  the receiver Cash A/C → the giver
July 23 Cash A/C  the receiver Sales A/C → the giver
July 24 Bank A/C  the receiver Cash A/C → the giver
July 25 Wages A/C  the receiver Bank A/C → the giver
July 26 Bank A/C  the receiver Olu A/C → the giver
July 28 Loan A/C  the receiver Jimoh A/C → the giver
July 30 Salaries A/C  the receiver Bank A/C → the giver

Note: The arrow (  ): IN

The arrow ( → ): OUT

17
Dr CASH BOOK Cr
Date Particulars Folio Bank Cash Date Particulars Folio Bank Cash
July July 100,000
1 Capital CB 1,000,000 10 Purchases PL 70,000
4 Sales SL 400,000 14 Aboki – CB 82,000
loan
20 Otedola CB 2,000,000 22 Wilson CB 100,000
23 Sales SL 73,000 24 Bank C
24 Cash C 100,000 25 Wages GL 36,000
26 Olu CB 14,000 30 Salaries GL 50,000
28 Loan – QL 60,000 31 Balance c/d 2,028,000 1,181,000
Jimoh
2,114,000 1,533,000 2,114,000 1,533,000

Aug
1 Balance b/d 2,028,000 1,181,000

LEDGERS
Dr Capital Account Cr
July N July N
31 Balance c/d 1,000,000 1 Cash 1,000,000

Aug
1 Bal. b/d 1,000,000

Dr Sales Account Cr
July N July N
31 Balance c/d 473,000 4 Cash 400,000
23 Cash 73,000
473,000 473,000
Aug
1 Bal. b/d 473,000

Dr Otedola’s Account Cr
July N July N
31 Balance c/d 2,000,000 20 Bank 2,000,000
Aug
1 Bal. b/d 2,000,000

Dr Olu’s Account Cr
July N July N
31 Balance c/d 14,000 26 Bank 14,000
Aug
1 Bal. b/d 14,000

Dr Loan (Jimoh’s) Account Cr

July N July N
31 Balance c/d 60,000 28 Cash 60,000
Aug
1 Bal. b/d 60,000

Dr Purchases Account Cr
July N July N
10 Cash 100,000 31 Balance c/d 100,000
Aug
1 Balance b/d 100,000

18
Dr Aboki Account Cr
July N July N
14 Cash 70,000 31 Balance c/d 70,000
Aug
1 Balance b/d 70,000

Dr Wilson Account Cr
July N July N
22 Cash 82,000 31 Balance c/d 82,000
Aug
1 Balance b/d 82,000

Dr Wages Account Cr
July N July N
25 Bank 36,000 31 Balance c/d 36,000
Aug
1 Balance b/d 36,000

Dr Salaries Account Cr
July N July N
25 Bank 50,000 31 Balance c/d 50,000
Aug
1 Balance b/d 50,000

Note: The transaction on July 24th is a contra entry (c) which its double entry have already been completed in the cash
book. Hence, it would not be posted to ledger.
2022/7 Neco
The value of goods sold on credit to a customer is debited to ____ account
A. cash B. creditors C. debtors D. purchases E. sales
Answer: Debtors account (C)
2022/39 Neco
Which of the following accounts lacks principle of double entry?
A. ledger B. profit and loss C. single entry D. trading account E. trial balance
Answer: Single entry (C)

2022/3b Neco Theory

Complete the following table showing which accounts are to be credited and which is to be debited.
S/N Account to be debited Account to be credited
(i) Bought motor van for cash
(ii) Bought office machinery on credit from Yuguda
(iii) Introduced capital in cash
(iv) A debtor Ade pays his account by cheque
(v) Paid a creditor, Niyi in cash

Answer
S/N Transaction Account to be debited Account to be credited
(i) Bought motor van for cash Motor van A/C Cash A/C
(ii) Bought office machinery on credit from Yuguda Office machine A/C Yuguda A/C
(iii) Introduced capital in cash Cash A/C Capital A/C
(iv) A debtor Ade pays his account by cheque Cash A/C Bank A/C
(v) Paid a creditor, Niyi in cash Niyi A/C Cash A/C
2022/4 Neco/P
The following are examples of impersonal account except
A. debtor B. discount allowed C. discount received D. rent E. wages
Answer: Debtor (A)

19
2022/45 Neco/P
Which of the following books contains a permanent record of all transactions?
A. cashbook B. journal C. ledger D. purchase daybook E. sales daybook
Answer: Ledger (C)

2019/59 Neco
Which of the following is a real account?
A. advertising B. motor vehicle C. rent D. repairs E. selling expenses
Answer: Motor vehicle (Asset) (B)

2018/54 Neco
In which ledger can the account of Dodo a debtor be found?
A. General B. Nominal C. Personal D. Purchases E. Sales
Answer: Personal (Account of person)(B)

2006/1c Neco
Classify the following items into personal, real and nominal accounts.
i. Plant and machinery iv. Insurance. vii. Debtors. x. B. Chima Onusha Ltd.
ii. Motor vehicle. v. Speed post delivery viii. Creditors.
iii. Rent and rates. vi. MTN calls. ix. Land and building.
Solution
Personal accounts Real accounts Nominal accounts
Debtors Plant and machinery Rent and rate
Creditors Motor vehicles MTN calls
B. Chima O. Ltd Land and building Speed post delivery

2001/13
Suppliers personal accounts are found in the
A. purchase ledger B. sales account C. purchases account D. sales ledger
Answer: Purchases ledger (A)

2012/1
Explain the following types of accounts and in each case, state the rulings regarding the recording of transactions in
their debit and credit sides:
(a) Personal account; (b) Real account; (c) Nominal account.

Solution
(a) Personal account: It records transactions that are personal in nature and it comprises of debtors and creditors.
The rule for personal account is:
- Debit the receiver
- Credit the giver
(b) Real account: It records transactions relating to properties or assets.
The rule for real account is:
- Debit what comes in
- Credit what goes out
(c) Nominal account: These are accounts dealing with income and expenditure of a business such as wages, rent etc
The rule for Nominal account is:
- Debit all expenses and losses.
- Credit all incomes and gains.
2008/1 Neco
(a) State the principle of double entry book keeping.
(b) State the double entry rule for making entries in each of the following cases:
(i) personal account; (iii) real account;
(ii) nominal account; (iv) when capital is invested in a business in form of cash.

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Solution
(a) The principle of double entry book keeping states that: “For every debit entry, there must be a corresponding
credit entry, vice versa” (Golden rule of Book keeping).

(bi) Personal account: (ii) Nominal account:

- Debit the receiver. - Debit all expenses and losses.
- Credit the giver. - Credit all incomes and gains.
(iii) Real account: (iv) Capital invested in business as cash:
- Debit what comes in. - Debit cash account.
- Credit what goes out. - Credit capital account

2006/1 Neco
Double entry system in book keeping states that:
A. every giver must have a corresponding credit entry
B. for every debit entry there must be a corresponding credit entry
C. giver is a debtor D. receiver is a creditor E. receiver must have a corresponding debit entry

Answer: for every debit entry there must be a corresponding credit entry (Principle of double entry) (B)

2005/1a Neco
State the accounts to be debited (DR) and the ones to be credited (CR) in each of the following cases:

Description of items Accounts to be Debited and Credited

DR CR
(a) Commenced business with cash.
(b) Cash purchases of goods.
(c) Paid cash into bank.
(d) Purchased asset on credit from UAC Ltd.
(e) Cash withdraw from bank for proprietor’s use.
(f) Repaid John Inyang’s loan.
(g) Received cheque from debtors.
(h) Paid cheque to creditors.
(i) Received cash from debtors.
(j) Bought goods on credit from Eze Martins, Lagos.
Note: Debit – the receiving account.
Credit – the giving account.
Solution
Description of items DR CR
(a) Commenced business with cash. Capital Cash
(b) Cash purchases of goods. Purchases cash
(c) Paid cash into bank. Bank Cash
(d) Purchased asset on credit from UAC. Asset UAC Ltd
(e) Cash withdraw from bank for proprietor’s use. Cash Bank
(f) Repaid John Inyang’s loan. John I. Loan
(g) Received cheque from debtors. Bank Debtors
(h) Paid cheque to creditors. Creditors Bank
(i) Received cash from debtors. Cash Debtors
(j) Brought goods on credit from Eze Martins, Lagos. Purchases Eze Martins
2001/3 (Nov)
(a) What is a ledger?
(b) Explain the following types of ledger accounts, giving two examples of
(i) Real accounts, (ii) Personal accounts, (iii) Nominal accounts, (iv) Impersonal accounts.
Solution
a. A ledger is the most important (principal) book of account in which every other entries or transactions in all the
other books of account are recorded.
b. (i) Real accounts: Real accounts relate to tangible assets such as: Furniture and fittings, Motor vehicle, Land and
building, Plant and machinery, Stock, e.t.c.
(ii)Personal accounts: Are the accounts of persons, natural or corporate, who have business dealings with the
organization. Examples are: Debtor’s account, Creditor’s account, Capital account, Bank account.
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(iii)Nominal accounts: Nominal accounts relates to revenue/income, expenses and intangible assets.
Examples are: Sales account, Rent account, Discount received account, Salaries and wages account,
Insurance account, etc.
(iv) Impersonal accounts: Impersonal accounts are the accounts of non – persons which is further sub – divided
into real accounts and nominal accounts.
1990/34 (Nov)
Which of the following belongs to the Nominal Ledger?
A. creditor’s accounts B. debtor’s account C. salaries account
D. fixtures account E. stock account
Answer: Salaries account (C)
1999/4 (Nov)
(a) Explain the term double entry system of book keeping.
(b) Write short notes on the following:
(i) The journal; (ii) The ledger; (iii) The cash book.
Solution
(a) The double entry system of book keeping is one whereby two (2) entries are made for every transaction. It states
that “Every debit entry must have a corresponding credit entry and every credit entry must have a corresponding
debit entry”. Thus, in the ledger every transaction affects two ledger accounts.
(bi) The journal: It is a book of original or prime entry kept for any transaction that cannot conveniently pass through
any of the books of prime entry.
(ii) The ledger: Ledger is the principal book of account. It can be defined as a book which contains in a classified and
summarized form, a permanent record of all transaction of a business organization.
(iii) The cash book: The cashbook is a book of prime entry and a ledger account for cash and bank transactions
involving receipts and payments whether in cash or by cheque.
1990/28 (Nov)
The purchase of a typewriter for office use for N2,500 should be debited to
A. bank account B. sales account C. cash account D. purchases account E. assets account
Answer
Assets account (E)
1990/29 (Nov)
Which of these entries is wrong?
Purchases Account
N
A. Balance b/f 130
B. Furniture 300
C. Cash 200
D. T. Ramoni 400
E. Balance c/f 1,030
Answer
Furniture N300 (B)
2011/4a Neco
(a) Mention TEN users of financial records.
Solution
i. Customers ii. Shareholders iii. Competitors
iv. Employers v. Management vi. Government agency
vii. Public viii. Research scholars ix. Creditors x. Investors
2000/4 (Nov)
(a) What is book keeping? (b) Give three (3) reasons why accounting records are kept.
(c) List five (5) users of accounting information.
Solution
(a) Book keeping is the act of recording financial transactions in a systematical way so that the financial position of
the business can be known or ascertained at a given date.
(b) i. To provide information about the conduct and position of the business.
ii. To provide a permanent and systematic record of financial transaction.
iii. To ensure the arithmetical accuracy of financial records.
iv. To ascertain the financial worth of a business. v. To provide a basis for taxation. vi. To provide aid to planning and control.
(c) i. Owners/shareholders. ii. Management. iii. Employees. iv. Competitors. v. Government agencies.

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2022/17 NABTEB
Impersonal accounts contains which of the following?
A. real and cash account B. capital and nominal accounts
C. real and nominal account D. investment and real account
Answer: Real and nominal account (C)

2022/27 NABTEB PC
The accounting entries for recording cash withdrawn by the proprietor for personal use are debit
A. cash and credit purchase B. purchase and credit drawing
C. purchase and credit cash D. drawings and credit cash
Answer: Debit drawings and credit cash (D)

2022/30 NABTEB PC
Which of the following is related to debtors account?
A. purchase ledger B. general ledger C. nominal ledger D. sales ledger
Answer: Sales ledger (D)

2022/31 NABTEB PC
Impersonal accounts include
I. expenditure on telephone II. Motor vehicles III. Telegram expenses IV. Land and building
A. I and II only B. III and IV only C. II and IV only D. I and III only
Answer: I and III only (D)

2019/1a NABTEB
Classify the following into liabilities and assets:
(i) Motor vehicles. (ii) Premises. (iii) Creditors for goods. (iv) Stock of goods.
(v) Debenture. (vi) Owing to bank. (vii) Cash on hand. (viii) Loan from A. Jibril
(ix) Machinery. (x) Fixtures.
Solution
Liabilities Assets
Creditors for goods Motor vehicles
Debenture Premises
Owing to bank Stock of goods
Loan from Jibril Cash on hand
Machinery
Fixtures
Note: Assets are tangible, can be seen, touched, felt and moveable.
Liabilities are simply claims and debts.

2022/23
The bookkeeping entries involved when goods are withdrawn by the owner of the business for personal use are: debit
A. purchases account; credit drawings account B. drawings account; credit purchases account
C. goods account; credit owners account D. owners account; credit goods account
Answer: Debit drawings account; credit purchases account (B)
2022/8
The entries for cash drawn from the bank by a proprietor for private use is: debit
A. cash account; credit bank account B. bank account; credit cash account
C. drawings account; credit bank account D. cash account; credit drawings account
Answer: Debit: drawings A/C, credit: Bank A/C
2022/7 The principal book of account opened by the use of
A. general journal B. general ledger C. balance sheet D. bank charges
Answer: Ledger (B)

2021/23
The final stage of accounting process is
A. interpretation B. recording C. reporting D. interpolation
Answer: Interpretation (A)

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2021/20
Lima paid off debts of D2,500 owed to Dango by cash. The entries in Lima’s books are: debit
A. cash D2,500; credit Dongo D2,500 B. Dongo 2,500; credit cash D2,500
C. bad debt D2,500; credit Dongo D2,500 D. Dongo D2,500; credit bad debt D2,500
Answer: Dongo D2,500; credit cash D2,500 (B)

2021/19
The accounting principle of double entry states that
A. debit the giver and credit the receiver B. assets must be equal to capital plus liabilities
C. every debit entry must have a correspobnding credit entry
D. debit entries increases liabilities while credit entries increases assets
Answer: Every debit entry must have a corresponding credit entry (C)

2021/17
Accounts of fixed assets are kept in the
A. purchases ledger B. private ledger C. sales ledger D. general ledger
Answer: General ledger (D)

2021/9
Goods returned to the supplier is recorded in the account as: debit
A. sales return account; credit supplier’s account B. purchases returns account; credit supplier’s account
C. supplier’s account; credit purchases return’s account D. supplier’s account; credit purchases account
Answer: supplier’s account; credit purchases return’s account (C)

2020/3
The double entry for interest on drawings by a partner is: debt
A. partner’s current account; credit appropriation account B. profit and loss account; credit interest account
C. appropriation account; credit partner’s current account D. interest account; credit partner’s current account
Answer: (A)

2020/1
A debit entry in a fixed asset account represent
A. an increase in the fixed asset account B. a decrease in the fixed asset account
C. a profit on disposal of the fixed asset D. a loss on disposal of the fixed asset
Answer: an increase in the fixed assets account (A)

2018/27
A credit entry is made in the plant and machinery account for the
A. purchase of an additional plant and machinery B. sale of plant and machinery
C. maintenance of plant and machinery D. appreciation of the plant and machinery
Answer: Sales of plant and machinery (B)

2016/4
Nwoye buys stock and pays by cheque. The entries in the books of Nwoye is debit
A. purchases: credit cheque B. purchases: credit bank
C. bank: credit cheque D. cheque: credit purchases
Answer: Debit: purchases, Credit: bank (B)

2016/3
Which of the following are impersonal accounts?
I. Investment II. Creditors III. Premises IV. Debtors V. Salaries
Answer: I, III and V (B)

2015/5
Assets acquired is recorded by debiting
A. asset account, crediting cash account
B. cash account, crediting asset account
C. purchase of business account, crediting sale of business account
D. asset account, crediting sale of business account
Answer: Asset account, crediting cash account (A)

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2015/8
The accounting ledger for goods sold on credit are debit
A. debtors account, credit sales account B. creditors account, credit sales account
C. sales account, credit debtors account D. sales account, credit creditors account
Answer: debit debtors A/C, credit sales A/C (A)
2015/38
The double entry to record the goodwill in the books is debit
A. cash account and credit goodwill account B. goodwill account and credit purchase business account
C. goodwill account and credit cash account D. purchase of business account and credit cash account
Answer: goodwill account and credit purchase business account (B)
2014/2
A book that contains individual accounts of suppliers is the
A. purchases ledger B. general ledger C. nominal ledger D. sales ledger
Answer: purchases ledger (A)
2014/14
Which of the following is entered in the general journal?
A. purchase of goods B. sale of goods C. returns inwards D. acquisition of fixed assets
Answer: Acquisition of fixed assets (D)
2013/13
The double entry principle states that
A. every debit entry must have a corresponding credit entry
B. every debit entry must have a corresponding double entry
C. every debit entry must have a corresponding double entry
D. every asset must have a corresponding liability
Answer: every debit entry must have a corresponding credit entry (A)
2012/42
The double entry to record the proceeds on disposal of assets debit
A. bank account; credit asset disposal account B. asset disposal account; credit bank
C. provision for depreciation account; credit asset disposal account
D. asset disposal account; credit provision for depreciation account
Answer: bank account; credit asset disposal account (A)
2011/27
John received a cheque from Dawda, a debtor, in payment for goods purchased by Dawda on credit. The transaction
will be recorded in Johh’s
A. cash book and sales ledger B. nominal ledger and sales ledger
C. cash book and purchase ledger D. nominal ledger and purchases ledger
Answer: cash book and sales ledger (A)

2010/14
Which of the following is found in the general ledger?
A. capital accounts B. sales accounts C. loan accounts D. drawings account
Answer: sales accounts (B)

2007/4 Theory
(a) What is a ledger?
(b) List and explain three classification of ledger accounts.
(c) List six accounts found in nominal ledger.
Answer
(a) A ledger is a collection of accounts. It summarizes the transactions in the various accounts. A ledger has a credit
and a debit side and hence entries or postings into a ledger are based on the double entry principle. Below is a
specimen of a ledger.
Dr Cr
Date Particulars Folio Amount Date Particulars Folio Amount
N N

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(b) Classification of ledger accounts:
(i) Sales of debtor’s ledger: This is a collection of accounts of debtors.
(ii) Purchases of creditor’s ledger: This is a collection of creditors accounts.
(iii) General ledger: This is a collection of accounts of assets, liabilities, income, gains, losses, and expenses.
(iv) Private ledger: This is a collection of accounts representing owner’s equity.

(c) Six accounts found in nominal ledger

(i) Sales account.
(ii) Purchases account.
(iii) Electricity account.
(iv) Salaries and wages account.
(v) Rent account.
(vi) Insurance account.
(vii) Bad debt account.
(viii) Discount allowed and received account.
(ix) Provision for depreciation account.
(x) Provision for bad debt account.
(xi) Profit or loss account.
(xii) Telephone expenses account.
(xiii) Transport expenses account.

2005/4
Which of the following is found in the private ledger?
A. rent account B. sales account C. drawings account D. bank account
Answer: Drawings account (C)
2004/5
Rent recievable account is an example of
A. nominal account B. real account C. personal account D. private account
Answer: Nominal account (A)
2004/23
When discount is allowed, the accounting entry is debit discount allowed account and credit
A. suspense account B. expenses account C. debtors account D. creditors account
Answer: expenses account (B)
2003/37
In which ledger is the account of Yao, a debtor found?
A. nominal ledger B. purchases ledger C. general ledger D. sales ledger
Answer: Sales ledger (D)
2003/48
Which of the following is a real account item?
A. goodwill B. fixtures C. debtors D. interest
Answer: Fixtures (B)
2002/7
Which of the following belongs to the nominal ledger?
A. salaries account B. fixtures account C. stock account D. debtor’s account
Answer: Salaries account (A)
2002/16
The double entry for refund of unsuccessful application monies is debit
A. application for shares account, credit bank account B. bank account, credit application for shares account
C. allotment account, credit bank account D. cash account, credit bank account
Answer: Application for shares account, credit bank account (A)
2002/2a Theory
What is account?
Answer: An account is a record or statement of financial transactions with the resulting balance. Account can be
classified into: personal account and impersonal accounts.

26
2002/2b Theory
Explain the principle of double entry system.
Answer: The principle of double entry is a system of book-keeping which believed that in every financial transaction
two parties are usually involved, i.e. a buyer and a seller or a debtor and a creditor or a giver and a receiver. The principle
simply states that “for every debit entry there must be a corresponding credit entry, vice-versa. The account that received
the monetary value will be debited while the account that gives out the monetary value is credited.
Receiving account (↙): debit
Giving account (↗): credit

2000/13
When goods are purchased on account, the accounting entries are
A. debit purchases account, credit supplier’s account B. credit purchases account, debit supplier’s account
C. credit bank account, credit purchases account D. debit bank account, credit purchases account
Answer: Debit purchases A/C, credit suppliers A/C (A)
1994/44
John bought in an additional plant into his business. What are the accounting entries necessary to reflect the transaction?
A. debit plant account, credit current account B. debit current account, credit plant account
C. credit plant account, credit profit and loss accout D. debit profit and loss account, credit plant account
Answer: Debit plant A/C, credit capital A/C

1991/9
The principle of double entry accounting says that
A. for every credit purchase, double the entry B. for every transaction, record two entries
C. for every transaction, record two entries D. every debit entry must have a corresponding credit entry
E. each party to a transaction gives value
Answer: Every debit entry must have a corresponding credit entry (D)
2014/7 UTME
A ledger is classified into
A. private, sales and purchases B. personal, general and private
C. general, private and sales D. sales, purchases and general
Answer: personal, general and private (B)

2013/4 UTME
The double entry for July 1 would be
A. debit capital and credit cash B. credit cash and debit bank
C. debit cash and credit capital D. debit purchases and credit cash
Answer: debit cash and credit capital (C)
Dr Cash Account Cr
July N N
1 Capital 10,500

Dr Capital account Cr
N July N
1 Cash 10,500
2013/5 UTME
The double entry for July 31 would
A. debit agromachinex and credit cash B. debit equipment and credit agromachinex
C. credit capital and debit cash D. credit cash and debit purchases
Answer: credit cash and debit purchases (D)

Dr Cash account Cr
N July N
31 Purchases 6,000

27
Dr Purchases Account (Agromachineries) Cr
July N N
31 Cash 6,000
2013/3 UTME
When the debit side total of an account exceeds the credit side total while balancing an account, it means that the account
has
A. been overdrawn B. been understated C. debit balance D. credit balance
Answer: debit balance (C)

2012/4 UTME
The correct posting in the double entry system of account where there is an increase in assets expenses, capital or
liabilities is to debit
A. capital and credit liabilities B. liabilities and credit assets
C. assets and credit capital D. capital and credit assets
Answer: debit assets and credit capital (C)

2011/4 UTME
The principle of double entry system ensures
A. balances at the bank B. mathematical accuracy in trial balance
C. increase in the assets and liabilities D. balance of cash account
Answer: Mathematical accuracy in trial balance (B)

2010/6 UTME
The account which refers to the tangible assets of a company that is of permanent nature is the
A. personal account B. real account C. nominal account D. cash account
Answer: real account (B)

2010/3 UTME
Ledger account is mainly classified into
A. nominal, real and personal account B. fixed and current accounts
C. management, financial and public sector accounting D. bank and cash account
Answer: nominal, real and personal account (A)
2009/6 UME
If Odukya takes money out of the business bank account for his own private use, the effect of the transaction is
A. increase in assets and increase in capital B. increase in assets and decrease in capital
C. decrease in capital and increase in assets D. decrease in capital and decrease in assets
Answer: decrease in capital and decrease in assets (D)
2008/4 UME
One basis assumption of the double entry theory is that it allows
A. two credit entries at the same time B. two debit entries at the same time
C. debit and credit entries in the same account D. debit and credit entries in corresponding accounts
Answer: debit and credit entries in corresponding accounts (D)
2006/1 UME
Fatima withdraws goods from the business for personal use. The accounting treatment is to debit
A. stock account and credit profit and loss account B. drawings account and credit stock account
C. profit and loss account and credit drawings account D. stock account and credit drawings account
Answer: debit drawings A/C, credit stock A/C (B)
2005/1 UME
The double entry principle of accounting was developed by
A. Frank Wood B. Luca Pacioli C. Akintola Williams D. William Pickles
Answer: Luca Pacioli (B)
2003/9 UME
The transaction that completes its double entry in the same ledger account appears in
A. cash account and personal account B. bank account and general ledger
C. discount received and discount allowed D. cash account and bank account
Answer: cash account and bank account (D)

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1999/5 UME
When a proprietor withdraws cash from the business for private use, he
A. debits cash account and credits drawing account B. credit cash account and debit bank account
C. debits bank account and credits drawings account D. credits cash account and debits drawings account
Answer: credit cash A/C and debit drawings A/C (D)
1994/9 UME
The use of the folio in the ledger is
A. referencing purposes B. particulars of the transaction C. the account titles D. only credit items
Answer: Referencing purposes (A)

1994/7 UME
What is the cardinal rule of the double entry system?
A. debit the increasing account and credit the decreasing account
B. debit the receiving account and credit the giving account
C. debit the asset account and credit the liability account
D. debit the revenue account and credit the expenditure account
Answer: Debit the receiving account, and credit the giving account (B)

2012/1 Exercise 2.1

Explain the following types of accounts and in each case, state the rule regarding the recording of transactions in their debit
and credit sides.
(a) Personal account; (b) Real account; (c)Nominal account; (d) Liability account; (e) Assets account.

2011/41 NABTEB Exercise 2.2

Bamidele sold goods on credit for N4,000. The accounting entries will be:
A. Dr. Bamidele’s account and Cr. Purchases account B. Dr. Purchases account and Cr. Bamidele’s account
C. Dr. Cash account and Cr. Bamidele’s account D. Dr. Personal account and Cr. Nominal account

2008/4 Exercise 2.3

Complete the following table showing which account to be debited and which to be credit.
Jan 1: Started business with N8,000 cash.
Jan 2: Paid insurance by cheque N150
Jan 3: Bought furniture by cheque N500.
Jan 4: Took N300 from cash till and paid into the bank.
Jan 5: Purchase goods cash N50.
Jan 6: Cash sales N10
2009/36 Exercise 2.4.
Which of the following are personal accounts?
I. Wages. II. Debtors. III. Creditors. IV. Buildings.
A. I, II and III only B. II and III only C. II and IV only D. III and IV only

2006/5 Exercise 2.5.

A book that contains the accounts for the financial transactions of an organization is the
A. journal B. ledger C. folio D. register
Exercise 1.6.
Apply the double entry system of book keeping in recording the following transactions:
Oct. 1: Mr. Fosudo started business with N100,000 cash.
Oct. 2: Bought fixtures N60,000 by cheque.
Oct. 5: Paid N1,500 cash for telephone.
Oct. 10:The proprietor put a further N50,000 into the bank account.
Oct. 16: Cash sales N3,000.
Oct. 18: Purchase goods N10,000 on credit from Tom Enterprise Ltd.
Oct. 20: Sold goods N3,000 on credit to Ajasco and Sons.
Oct. 21: Cash drawings N5,000.
Oct. 23: Received loan N10,000 cash from Yakubu.
Oct. 24: WithdrawN15,000 from the bank for office use.
Oct. 28: Goods worth N20,000 returned to us by Igho ltd.
Oct. 30: Goods worth N30,000 were returned to a supplier – Jide.
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1994/5 UTME Exercise 2.7
Antics Electronics Company recently bought six generators. Which of the following is the correct method of recording this
transaction?
A. debit generator account; credit cash account B. debit purchases account; credit cash account
C. debit cash account; credit purchases account D. debit cash account; credit generator account
1994/9 UTME Exercise 2.8
The use of the folio in the ledger is for
A. referencing purposes B. particulars of the transaction C. the account title D. only credit items
1995/8 UTME Exercise 2.9
One major advantage of a ledger is that it
A. is a book of original entry B. is only accessible to shareholders during liquidation
C. removes the need for preparing balance sheet D. can be used by any type of business
1993/23 Exercise 2.10
Which of the following is not a nominal account?
A. rent B. wages C. discount D. land E. interest

1994/3 Exercise 2.11

Where proprietors withdraws cash from bank for office use, the entries would be
A. credit cash account, debit bank account B. debit cash account, credit bank account
C. debit office account, credit bank account D. debit drawings account, credit bank account

1996/32 Exercise 2.12

Impersonal account contains
A. real and cash accounts B. capital and nominal account C. real and nominal accounts
D. investment and real accounts E. interest received and real accounts

1998/13 Exercise 2.13

Which of the following is not a nominal account?
A. electricity account B. furniture and fittings account C. postages and telephone account
D. insurance account E. discount allowed account

2001/18 Exercise 2.14

Which of the following is an impersonal nominal account?
A. salaries and wages B. machinery accounts C. debtors account D. creditors account

2004/2 Exercise 2.15

The principle of double entry book keeping state that every:
A. debit entry must have a corresponding credit entry B. debtors must have a creditor
C. double debit entry must have a double credit entry D. account debited should also be credited

2006/7 Exercise 2.16

Books of account consists of
A. ledgers and subsidiary books B. ledgers and principal books
C. folios and subsidiary books D. ledgers and cashbooks

2009/20 Exercise 2.17

The purchase of a typewriter for office use for 𝜑2,000 is debited to
A. creditors B. bank account C. purchases account D. equipment account

2015/6 Exercise 2.18

Goods returned to a supplier is
A. debited to returns outwards account B. credited to returns outwards account
C. debited to returns inwards account D. credited to returns inwards account
2015/7 Exercise 2.19
Which of the following is a real account?
A. plant account B. salaries account C. creditors account D. trading account
2015/11 Exercise 2.20
Discount received is a
A. real account B. personal account C. nominal account D. profit and loss account

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2019/1 NABTEB Exercise 2.21
The fundamental books of accounts are
A. return inward and outward B. discount allowed and received
C. journal and ledger D. credit note and debit note
2019/6 NABTEB Exercise 2.22
Impersonal account include
(i) Expenditure on sim cards.
(ii) Motor expenses.
(iii) Expenses on telegram.
(iv) Land and building.
A. i and ii only B. iii and iv only C. ii and iv only D. I, ii and iii only

2018/6 NABTEB Exercise 2.23

Which of the following belongs to the nominal ledger?
A. creditors account B. debtors account C. salaries account D. stock account
2014/7 NABTEB Exercise 2.24
When goods are sold for cash, the cash account is debited while the corresponding credit entry goes to
A. purchases account B sales account C. personal account D. petty cash account
2006/5 NABTEB Exercise 2.25
Rent relievable is an example of
A. real account B. personal account C. nominal account D. impersonal account
2019/59 Neco Exercise 2.26
Which of the following is a real account?
A. advertising B. motor vehicle C. rent D. repairs E. selling expenses
2000/4a Neco Exercise 2.27
Explain the following classes of account
(i) Real; (ii) Personal; (iii) Nominal
2008/30 Neco Exercise 2.28
Salaries and wages account is an example of _____ account.
A. creditors B. debtors C. nominal D. personal E. real
2010/14 Neco Exercise 2.29
In classifying ledger accounts, plants and machinery is an item in _____ ledger.
A. nominal B. personal C. private D. real E. sales
1998/29 Nov Exercise 2.30
Which of the following is found in the bought ledger?
A. purchases account B. supplier’s account C. sales account D. shares account
E. expenses account
Exercise 2.31
Prepare the double entry for the following transactions:
Feb 1 Started business with N500,00 with cash
Feb 2 Bought table fan by cheque N17,000
Feb 6 sold goods for cash N3,000
Feb 10 Bought goods on credit from Dauda N6,000
Feb 14 Paid insurance N2,000
Feb 16 Bought governor set from Ifeanyi on credit N110,000
Feb 20 Paid wages by cash N30,000
Feb 24 Sold goods on credit to Akin N1,050
Feb 26 Received cheque from Oreva N10,000
Feb 28 Returned goods to Alex N4,000

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Exercise 2.32
Classify the following under the heading of personal, real and account and state on which side of the ledger
you would expect to find the balances.
(i) Robot (supplier).
(ii) Rates.
(iii) Insurance.
(iv) Bank overdraft.
(v) Stock.
(vi) Plant.

Exercise 2.33
Record the transactions below in the ledger accounts and balance it off.
Jan 1 Commenced venture with N20,000 cash
Jan 2 Purchase goods N5000 cash
Jan 6 Paid cash into bank N3000
Jan 8 Bought on credit from Vasco goods worth N4,000 Bought on credit
Jan 10 Sold goods N2000 on cash.
Jan 12 Returned goods worth N1200 to VASCO.
Jan 14 Bought goods worth N400 by cheque.
Jan 20 Sold goods worth N14,500 on credit to Ajiri.
Jan 24 Paid Vasco N2,000 on account by cheque
Jan 26 Received cash payment of N12,000 from Ajiri.
Jan 29 Paid rent by cheque N2,500.
Jan 30 Paid rent by cash N50.
Jan 31 Bought equipment by cash N25,000.

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Chapter Three
THE JOURNAL
DEFINITION OF JOURNAL
Journal is a historical record of business transaction or events. The word journal comes from the French word “Jour”
meaning “day”. It is a book of original or prime entry. Journal is a primary book for recording the day to day
transactions in a chronological order i.e. the order in which they occur. The journal is used to record any other
transaction that cannot conveniently be passed through any of the other subsidiary books.
FEATURES OF A JOURNAL
i. The journal is a subsidiary book, which is used in addition to the ledger.
ii. It has five columns: Date, Particulars, Folio, Dr and Cr.
iii. Journal shows the account to be debited and credit as well as the amounts.
iv. It also shows the narration. v. Entries will be posted to the ledgers.
The specimen of journal is as follows:
Date Particulars Folio DR CR
N N

USES OF DIFFERENT PARTS OF JOURNAL

1. Date: This is used to record the date in which the transaction took place.
2. Particulars: This shows the details of transactions which had taken place.
3. Folio: It shows the page of a ledger to which a transaction is posted.
4. Amount: The value of transactions will be shown in this column.

CLASSES OF JOURNAL ENTRIES

There are two classes of Journal entries namely: Simple Journal Entry and Compound Journal Entry:
i. Simple Journal Entry: This is an accounting entry in which just one account is debited and one is credited. The
use of simple journal entry is encouraged as a best practice, since it is easier to understand these entries. The best
possible approach to their use is to thoroughly document the reasons for each entry, and store this backup
information along with a copy of the entry. Simply journal entries are commonly used for minor transactions,
such as to record a purchase, a sale, or a refund.
ii. Compound Journal Entries: This is an entry involving more than two accounts. In a compound journal entry, there
are two or more debits, credits or both. Rather than making separate journals entries for the same transaction, you
can combine the debits and credits under one entry. Keep in mind that your debits and credits must be equal in a
compound journal entry. If you have more than one debit and only one credit, the sum of your debits must equal the
credit. Likewise, if you have more than one credit and only one debit, the sum of your credits must equal the debit.

USES OF JOURNAL
The journal proper is used to record transactions – such as the following for which the other books are inappropriate,
before they are posted to the ledger.
i. Correction of errors. vi. Double entry transactions.
ii. For recording opening transactions vii. Recording of disposal of fixed assets.
iii. Transfer of items between accounts. viii. For recording transactions that do not occur regularly.
iv. For recording acquisition of a new business. ix. Purchases of assets on credit.
v. For recording closing balances of entries. x. For recording the writing off of bad debts

BENEFITS OF JOURNAL
The following benefits are derivable from the use of the journal proper:
i. The journal book is a kind of diary of transaction.
ii. It gives the explanation for each entry through the narration attached to each journal entry.
iii. It serves as a book of instruction.
iv. The journal provides a complete chronological history of all business transactions.
v. A journal contains a permanent record of all transactions.

SUB-DIVISIONS OF JOURNAL
There are many types of journals and the following are the important ones:
1. Sales day book. 2. Purchases day book. 3. Cash book. 4. Sales returns day book.
5. Bills receivable book. 6. Bills payable book. 7. Journal proper

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JOURNALIZING
Journalizing is the process of recording journal entries in the journal. It is a systematic act of entering the transaction in
a day book in order of their occurrence i.e., date – wise or event – wise.
Illustration 1 Prepare journal in the books of PRAMEOVIC & SONS Ltd from the following transactions:
DR CR
Date Particulars Amount Date Particulars Amount
Nov N Nov N
1 Capital 50,000 13 Goods purchased 8,000
6 Paid into bank 10,000 15 Paid wages 6,000
10 Purchases 6,000 21 Discount received from Mabel 50
11 Paid to Joy 600 21 Received from Mabel 900
11 Discount allowed 60 25 Withdrawn from bank 7,000
12 Sold to KC – cash 5,000 26 Paid Wale by cheque 3,000
12 Sold to KC – cash 3,000 30 Withdrawn for use 2,000
Solution
Journal entries in the book of PRAMEOVIC
Date Particulars Folio DR CR
Nov N N
1 Cash A/C 50,000
Capital A/C 50,000
(Being business started with capital)
6 Bank A/C 10,000
Cash A/C 10,000
(Being cash paid into bank)
10 Purchases A/C 6,000
Cash A/C 6,000
(Being goods purchased for cash)
11 Joy A/C 660
Cash A/C 600
Discount received A/C 60
(Being cash paid Joy and discount received N60
12 Cash A/C 5,000
Sales A/C 5,000
(Being goods sold for cash)
13 Cash A/C 3,000
Sales A/C 3,000
(Being goods sold for cash
13 Purchases A/C 8,000
Cash A/C 8,000
(Being goods purchased on cash)
15 Wages A/C 6,000
Cash A/C 6,000
(being wages paid)
21 Cash A/C 900
Discount allowed A/C 50
Mabel A/C 950
(Being cash received from Mabel and allowed her N50 discount)
25 Cash A/C 7,000
Bank A/C 7,000
(Being cash withdrawn from bank)
26 Wale’s A/C 3,000
Bank A/C 3,000
(Being cheque paid Wale)
30 Drawings A/C 2,000
Cash A/C 2,000
(Being withdrawn for personal use)

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Illustration 2. Journalize the following transactions:
June 6: Sold motor car N400,000 to Mumu & Sons on credit.
June 10: Purchase of freehold premises N300,000 from Ogoro Ltd on credit.
June 12: Paid wages N5,000 cash.
June 14: Cash sales N2,000.
June 15: Cash sales N20,000 was omitted completely from the books.
June 25: Chinedu a debtor, could not pay N100,000 owned to us but he brought machinery for full settlement of his debt.
Solution
JOURNAL ENTRY
Date Particulars Folio DR CR
June N N
6 Mumu & Sons A/C 400,000
Motor Car A/C 400,000
(Being sales of motor car on credit to Mumu & Sons)
10 Freehold premises A/C 300,000
Ogoro Ltd A/C 300,000
(Being purchased of freehold premises on credit from Ogoro (Nig.) Ltd.
12 Wages A/C 5,000
Cash A/C 5,000
(Being wages paid with cash)
14 Cash A/C 2,000
Sales A/C 2,000
(Being sale of goods for cash)
15 Cash A/C 20,000
Sales A/C 20,000
(Being correction of cash sales omitted from the books, now corrected)
25 Chinedu 100,000
Machinery 100,000
(Being settlement of debt with machinery)

Illustration 3
Sales of motor van N500,000 to Shettima.
Journal Entry
Dr. Cr.
N N
Shettima A/C 500,000
Motor vehicle A/C 500,000

Illustration 4:
Sales of goods to Oseni N2,000 posted in error to Osefu account.
Journal Entry
Dr. Cr.
N N
Oseni Account 2,000
Osefu account 2,000
Being correction sales of goods to Oseni
wrongly posted to Osefu account.

Illustration 5:
Show the journal entries necessary to correct the following errors when found:
(i) Sales and returns inwards account were both overcast by N600.
(ii) Returns outwards N80 to Zaki was entered in Saki account.
(iii) Sales to Amadi N9,000 were entered in the book as N900.
(iv) Purchases of goods N310 from Rufus was completely omitted from the accounts.

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Solution
JOURNAL ENTRIES
Dr. Cr.
N N
(i) Sales A/C 600
Returns inwards A/C 600
Being correction of both sales and returns inwards overcast.
(ii) Zaki A/C 80
Saki A/C 80
Being correction of returns outward to Zaki wrongly posted to Saki account
(iii) Sales A/C 8100
Amadi Account 8100
Being correction of sales account understated.
(iv) Purchases A/C 310
Rufus A/C 310
Being correction of purchases omitted from the book of account

Illustration 6:
From the following assets and liabilities, prepare the journal entry to open the books Gregory as at 31st January, 2022.
N
Assets: Motor Vehicle 4,000,000
Premises 10,000,000
Machinery 500,000
Land and building 7,000,000
Furniture and fittings 1,000,000
Stock 50,000
Debtors 40,000
Cash till 10,000
Liabilities: Creditors 3,000,000
Bank loans 6,500,000
Bills payable 2,600,000
Overdrafts 400,000
Accruals 2,100,000
Required: Construct the journal entry required to open the books.
Solution
GREGORY
GENERAL JOURNAL ENTRY OPENING ENTRIES
Dr. Cr.
Assets: N N
Motor van 4,000,000
Premises 10,000,000
Machinery 500,000
Land and building 7,000,000
Furniture and fittings 1,000,000
Stock 50,000
Debtors 40,000
Cash 10,000
Liabilities:
Creditor 3,000,000
Bank loans 6,500,000
Bills payable 2,600,000
Overdraft 400,000
Accruals 2,100,000
Capital 8,000,000
22,600,000 22,600,000

Note: Capital = Assets – Liabilities

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Illustration 6:
Journalise the following transactions in the books of Asiwaju.
(i) Bought goods on credit from Obi N6000.
(ii) Goods returned from Dati N1,000.
(iii) Paid carriage N200 cheque.
(iv) Paid insurance cash N500.
(v) N9000 owing by Nunu was written off as a bad debt.
(vi) Sold goods N100 to Oti on credit.

Solution
ASIWAJU JOURNAL ENTRIES
Dr Cr.
N N
(i) Purchases A/C 6,000
Obi’s A/C 6,000
Being goods bought on credit from Obi.
(ii) Returns inwards A/C 1,000
Dati’s A/C 1,000
Being goods returned from Dati
(iii) Carriage inward A/C 200
Bank A/C 200
Being carriage inward expenses paid by cheque.
(iv) Insurance A/C 500
Cash A/C 500
Being insurance premium paid with cash.
(v) Bad debt A/C 9000
Nuhu A/C 9000
Being amount owed by Nuhu now written off as bad debt.
(vi) Oti’s A/C 100
Sales A/C 100
Being goods sold to Oti on credit

Illustration 7:
Arsenal started business with the following Assets: cash in hand N50,000, cash at bank N90,000, inventory N11,000, land and
building N70,000, furniture and fittings N25,000, plant and machinery N20,000, Debtors N12,000, Liabilities were: trade creditors
N36,000, bank loan N40,000, Bills payable N19,000, bank overdraft N26,000.

The following transactions took place for the month:

(i) Purchase goods on credit from choice N1,500.
(ii) Owolabi returned goods worth N600.
(iii) Paid light and rent N1000 cash.
(iv) Paid wages and salaries N3000 cheque.
(v) Sold goods N115 cash. Solution
(a)
ARSENAL
GENERAL JOURNAL (OPENING ENTRIES)
Dr Cr.
N N
ASSETS:
Cash 50,000
Bank 90,000
Inventory (stock) 11,000
Land and building 70,000
Furniture and fittings 25,000
Plant and machinery 20,000
Debtors 12,000

LIABILITIES:
Trade creditors 36,000
Bank loan 40,000
Bills payable 19,000
Bank overdraft 26,000
Capital (A – L) 157,000
278,000 278,000

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(b)
ARSENAL
GENERAL JOURNAL ENTRIES
Date Particulars Dr. Cr.
N N
(i) Purchases A/C 1,500
Choice A/C 1,500
Being the purchase of goods on credit from choice
(ii) Returns inwards A/C 600
Owolabi A/C 600
Being goods returned from Owolabi
(iii) Light and heat A/C 1,000
Cash A/C 1,000
Being cash paid for light and heat
(iv) Wages and salaries A/C 3000
Bank A/C 3000
Being cash paid for wages and salaries
(v) Cash A/C 115
Sales A/C 115
Being goods sold on cash.
2022/1b NABTEB Theory
State six uses of the general ledger.
Answer
Six uses of the general journal
(i) For recording disposal of assets on credit.
(ii) Correction of errors.
(iii) For recording of double entry transactions.
(iv) For recording opening entries.
(v) For recording transfer of items between accounts.
(vi) Recording purchases of assets on credit.

2019/12 NABTEB
Which of the following is used to record the sale of fixed assets on credit?
A. sales day book B. journal proper C. purchases journal D. cash book
Answer: journal proper (B)
2018/7 NABTEB
The books of account are opened by means of a
A. sales journal B. principal journal C. purchases journal D. sales return journal
Answer: principal journal (B)
2014/8 NABTEB
Errors in the ledger can only be corrected through the use of
A. purchases journal B. suspense account C. sales account D. general journal
Answer: General journal (D)
2003/36
Which of the following is purchase of fixed assets on credit first recorded?
A. purchases journal B. journal proper C. cash book D. general ledger
Answer: Journal proper (B)
2022/11 Neco
The book where day to day business transactions are recorded in a chronological order is
A. cashbook B. journal C. ledger D. purchase day book
Answer: Journal (B)
2022/2 Neco (Theory)
(a) What is journal?
(b) List five types of journal.

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Answer
(a) A journal is a book where day to day business transactions are recorded in a chronological order.
(b) Types of journal
(i) Sales day journal.
(ii) Purchases day journal.
(iii) Returns inwards journal.
(iv) Returns outward journal.
(v) General journal.

2010/50 Neco
Which of the following is a special journal?
A. general journal B. purchases journal C. return inward D. return outward
E. sales journal
Answer: General ledger (A)
2008/60 Neco
Items which cannot conveniently pass through any subsidiary book would be entered in
A. cash book B. journal proper C. petty cash book D. purchases journal E. sales journal
Answer: Journal proper (B)
2019/5a (Theory)
The following transactions were extracted from the book of Adamu, a sole trader for the month of March, 2016.
March 4: Sold 80 bags of maize on credit to Papuk at GHc225 per bag subject to a trade discount of 5%.
March 10: Sold goods on credit to Abass for GHc1,170.
March 15: Received a cheque from Papuk for the amount due less a discount of 10%.
March 20: Received cash of GHc900 from Abass.
You are required to prepare:
(a) Sales journal;
(b) Customers’ accounts in the sale ledger;
(c) Sales ledger control accounts.
Solution
ADAMU SALES JOURNAL FOR THE MONTH OF MARCH 2016
Date Details Folio Details Total
March GHc GHc
4 Papuk: 80 bags of rice @ GHc255 per bag SL 20,400
Less: 5% discount 1,020 19,380

10 Abass: Goods 1,170

Total credit sales transferred to sales account SL 20,550
2016/1 (Theory)
(a) What is a general journal?
(b) State six uses of the general journal.
Answer
(a) General journal is a book of original entry used for the posting of business transactions that cannot be recorded in
any of the books of original entry. It is also defined as a record book where accounting data from the source
documents are first entered.
(b) Uses of the general journal
(i) For the rectification of errors.
(ii) To record fixed assets purchased or sold on credit.
(iii) To transfer data from one account to another.
(iv) It is used for recording opening entries and closing entries.
(v) It is used for recording depreciation of assets.
(vi) It is used for recording bad debts.
(vii) It is used to answer question on double entry principles of book keeping.

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2014/8 (Theory)
The trial balance of Asibi as at December 31, 2010 failed to agree. A suspense account was opened for the difference.
Draft final accounts were prepared which showed a net profit of GHc4,000 for the year to December 31, 2010.

The following errors were subsequently discovered:

(i) The Purchases Daybook total of GHc8,000 had been posted to the ledger as GHc16,0000.
(ii) The sales account had been undercast by GHc12,000.
(iii) Discounts received of GHc700 had been debited to discounts allowed account.
(iv) An accrued telephone charge of GHc600 was omitted.
(v) Loose tools bought for GHc400 had been debited to purchases account.
(vi) Purchases of stock for GHc7,000 had not been posted to the ledger.
(vii) Bad debts of GHc950 written off in the debtor’s account had not been treated in the expense account.
(viii) Asibi had withdrawn goods to the value of GHc300 for her personal use. No entries had been bade in the books.
You are required to prepare a statement showing the effect of the errors in the draft net profit and the corrected net
profit for the year.
Solution
ASIBI
Statement of Adjusted Net-profit for the year ended 31st
December, 2010
GHc GHc
Net profit b/d 4,000

Add back:
Purchases overcast (16,000 – 8,000) 8,000
Sales undercast 12,000
Discount received 700
Loose tools 400
Drawings – stock 300 21,400
25,400
Less:
Accrued telephone charges 600
Stock omitted – purchases 7,000
Bad debt written off 950 (8,550)
True/correct net – profit 16,850

2012/6 (Theory)
Ade presents a trial balance which showed a difference of N388. This has been transferred to the debit side of a suspense
account.
Further investigations revealed the following:
(i) Purchase of office equipment was N850 was debited to office expenses account.
(ii) Sales daybook was overcast by N1,200.
(iii) An invoice for N658 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 N720 issued to a debtor was entered in the returns inwards book as N270 and was posted to the
ledger accordingly.
(v) A debtor who owed a sum of N420 died without leaving anything behind. This amount was written off in his
account as bad debt but no other entry was made in the books.
(vi) Cash drawings amounting to N900 have not been recorded in the books.
(vii) A payment of N280 for electricity was entered correctly in the cash book but as N820 in the electricity account.
(viii) A motor vehicle was bought for N1,500 by cheque. This transaction was only recorded in the cashbook.
(ix) Discounts received N876 have not been posted from the cashbook to ledger.
You are required to show the:
(a) Journal entries necessary to correct the errors;
(b) Suspense account.

40
Answer
(a)
ADE GENERAL JOURNAL
Details Dr. Cr.
N N
(i) Office Equipment Account 850
Office Expenses Account 850
Being correction of error of principle committed
(ii) Sales account 1,200
Suspense account 1,200
Being correction of sales account overcast
(iii) Suspense account 1,316
Creditors account 1,316
Being correction of suppliers account wrongly posted to the debit side
(iv) Sales Returns Account (720-270) 450
Debtors account 450
Being correction of debtors account understated
(v) Bad debt account 420
Suspense account 420
Being correction of error of partial omission to the book of account
(vi) Drawings account 900
Cash account 900
Being correction cash drawing omitted from the book of account
(vii) Electricity account (820 – 280) 540
Suspense account 540
Being corre3ction of electricity overcast
(viii) Motor vehicle account 1,500
Suspense account 1,500
Being correction of partial omission of motor vehicle account
(ix) Suspense account 876
Discount received account 876
Being correct of partial omission of discount received

(b)
ADE SUSPENSE ACCOUNT
N N
Creditors 1,316 Sales 1,200
Electricity 540 Bad debts 420
Discount received 876 Motor vehicle 1,500
Balance c/d (Diff.) 388
3,120 3,120
Note: Difference in trial balance = 3,120 – 2,732 = N388

2010/5 Theory
The book-keeper of Kamara Ltd. prepared a trial balance which failed to agree. The difference of Le714 credit was
transferred to a suspense account. The following errors were later discovered.
(i) A cash payment of Le1,512 had been posted as a receipt in the cash book.
(ii) The sales account was overcast by Le2,940.
(iii) The purchase account was overcast by Le2,940.
(iv) Returns inwards of Le1,596 was recorded in the books.
(v) Bank charges of Le1,554 had been posted into the cashbook. No entry was made elsewhere in the cashbooks.
(vi) The opening balance of a debtor’s account had been brought down as Le16,238 instead of Le16,994.
(vii) An item of fixed asset sold for L21,000 had been debited to cash and excluded in sales.

You are required to:

(a) Prepare journal entries to effect the necessary corrections and
(b) Write up the suspense account.

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Answer
(a)
KAMARA LIMITED
Journal Proper/General Journal
Particulars Dr. Cr.
Le Le
(i) Cash account 3,024
Suspense account 3,024
Being correction of cash payment wrongly posted as receipt to cash
account
(ii) Sales account 2,940
Suspense account 2,940
Being correction of overcast in sales account.
(iii) Purchases account 2,940
Suspense account 2,940
Being correction of overcast in purchases account
(iv) Returns inwards account 1,596
Debtors account 1,596
Being correction of returns inwards omitted from the books of account.
(v) Bank charges account 1,554
Suspense account 1,554
Being correction of bank charges credited but no corresponding debit entry
in the ledger
(vi) Debtors account 750
Suspense account 750
Being correction of undercast of opening debtors account.
(vii) Sales account 21,000
Disposal of asset account 21,000
Being correction of disposal of fixed asset wrongly treated as sales.
(b)
KAMARA LIMITED SUSPENSE ACCOUNT
Le Le
Cash 3,024 Sales 2,940
Purchases 2,940 Bank charges 1,554
Debtors 759
Balance c/d (Diff.) 714
5,964 5,964

Difference in trial balance: N5,964 – N5,250 = N714

Note:
(i) Errors not affecting the trial balance will not reflect in the suspense account.
(ii) Only errors affecting the trial balance will reflect or posted to the suspense account.

2005/5
Which of the following is not one of the uses of a journal proper? To record
A. small and repetitive cash disbursements B. purchase and sales of fixed assets on credit
C. writing off bad debts D. correction of errors
Answer: Small and repetitive cash disbursement (A)

2003/1c Theory
State four uses of the general journal
Answer
(i) For transfer of entries from one account to another.
(ii) For rectification of errors.
(iii) For the recording of purchases and sale of fixed assets on credit.
(iv) For recording, opening and closing balances in the ledger.

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2005/34
Books of account are opened by means of a
A. purchases journal B. principal journal C. sales journal D. returns inwards journal
Answer: Principal journal (B)

2004/3
Which of the following is used to record the purchase of fixed asset on credit?
A. sales journal B. journal proper C. purchase journal D. cash book
Answer: Journal proper (B)

2001/3b
State four uses of the general journal.
Solution
The general journal is used for the following:
i. Opening entries at the start of the business. ii. The purchase and sales of assets on credit.
iii. The correction of errors. iv. The writing off of the bad debts.
v. The arrangement of loans and mortgages. vii.The payment of interest due.

1999/1
Errors in the ledger can only be corrected through
A. journal proper B. sales Day book C. purchases day book D. control account
Answer: Journal proper (A)

1996/3
A sales journal is used to record
A. sales expenses B. cash sales C. credit sales D. sales returns
Answer: credit sales (C)

1993/1
The books of accounts are opened by means of a
A. sales journal B. principal journal C. purchases journal D. returns inwards journal
E. returns outwards journal
Answer: Principal journal (B)

2004/1 (Nov)
(a) What is a journal? (b) List four examples of a journal. (c) State the use of each column of a journal.
Solution
(a) A journal is a prime book which is used to record any transaction that cannot be conveniently accommodated by
any other subsidiary books.
(b) Examples of a journal are:
- Sales day book journal. - Returns inward journal - Bill day book journal.
- Purchases day book journal. - Return outward journal - Journal proper

(c)
Date Particulars Folio Debit Credit
N N

The journal has five columns viz:

1. Date: In each page of the journal at the top of the date column, the year is written and in the next line month and
date of the first entry are written. This indicates the date when the transaction took place.
2. Particulars: The particulars column reveals the details regarding account titles and description of the event.
3. Folio: This column is meant to record the reference of the main book.
4. Amount (debit): This column is used to record the amount to be debited.
5. Amount (credit): This column is used to record the amount to be credited.

2001/1 Nov
(a) List five types of journals.
(b) Enumerate five uses of the principal journal.

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Solution
(a) i. Sales day journal. ii. Purchases day journal. iii. Returns inward day journal.
iv. Returns outward day journal. v. Journal proper.
(b) i. Used for the correction of errors. ii. For recording opening entries. iii. For recording closing entries.
iv. For recording bad debts. v. Used to record transfer of account to another account.
vi. The purchase and sales of assets on credit.

Exercise 3.1
Journalize the following transactions for the month of July, 2017.
July 1: Invested in sales of GSM Ltd and paid for the same in cash N200,000.
July 2: Placed an order with Mallam Sule for goods to be received a month later N15,000.
July 3: Invoiced goods to Mr. Deputy worth N10,000 and allowed a trade discount of 2 percent.
July 4: Carriage N2,500 and freight N700 were paid by the proprietor for the above goods, but which are to be charged to
Mr. Deputy Account.
July 5: Paid rent to Landlord for office premises N1,500, which he spent on purchase of goods.
July 6: Goods valued at N7,000 were delivered to Aboki merchants under instructions from Mr. Johnson. They were to be
charged to the latter’s account.
July 7: Mr Deputy paid N5,000 due to him, and the same was spent on purchasing goods from Adamu.
July 8: Sold one old motor car belonging to the proprietor for N50,000 and the amount was invested in the business.
July 14: The proprietor paid N1,800 in full settlement of Mallam Dogoyaro for goods worth N2,000 purchased by him for
personal use.
July 15: Mr. Dada was declared insolvent and paid N4,500 in full settlement. The balance N2,500 was written off as bad debt.
July 20: Amaka our debtor, on our advice, directly paid Adamu, our creditor N20,000.

Exercise 3.2
Journalize the following transactions:
Jan 1: A motor vehicle was purchased by T. Ventures Ltd on credit at a cost of N4,000,000 from SCOA Motors Ltd.
Jan 4: Goods worth N1,000,000 were sold to MERIT Enterprise on credit to Fashola. The book keeper, in error, debited
this amount to the account of Fashola.
Jan 6: A debtor Agofure, who was owing PRAMTOVIC Enterprises N5,000,000 was declared bankrupt. He however
convinced his friend Edesiri, who is also a customer of PRAMTOVIC Enterprises to pay the debt on his behalf.
Thereafter, Edesiri wrote a letter to PRAMTOVIC directing that Agofure’s debt be transferred to his own account.

Exercise 3.3
Show the journal entries necessary to record the following items:
Aug 1 Machinery bought on credit from Sanusi for N200,000
Aug 4 A debt being owed us by Adex Ltd N5,000 is written off as bad debt.
Aug 10 Bought plant N1,000,000 with cheque.
Aug 18 Sold goods on credit to Nneka N500.
Aug 20 We took goods worth N7,000 from stocks for private use.
Aug 30 Abubakar is owing us N9000. We agreed to take delivery van from him in settlement of the debt

Exercise 3.4
Show the journal entries necessary to correct the following errors when foundlom.
(i) Sold goods on credit to Obaro N200.
(ii) Purchases from Kehinde N100 cash.
(iii) Goods returned to Taiwo N170.
(iv) Purchases of goods amounting to N4000 from Ikutegbe was completely omitted from the books.

Exercise 3.5
Show the general journal entries to record the following transactions:
(a) Bought motor van on credit from Ebitemi Motors N1,000,000.
(b) Machinery bought from Loveth Ltd N40,000 with cheque.
(c) A debt owing to us Goodluck of N30,000 was written off as irrecoverable debt.
(d) Goods returned to Ebitemi Motors amounted to N200,000.
(e) Paid rent N40,000 cash.
(f) Received cheque N15,000 from Saka.

44
Exercise 3.6 Nov 24
Which of the following is true of the uses of the journal proper?
I. Correction of errors
II. Opening and closing books of accounts.
III. Recording cash purchases
A. I only B. II only C. I and II only C. III only D. I and II only
1996/3 Nov Exercise 3.7
If a fixed asset is purchased on credit, the transaction is recorded in the
A. cash book B. purchases day book C. journal D. sales day book
E. purchases returns book
2001/1 Nov Theory Exercise 3.8
(a) List five types of journals.
(b) Enumerate five uses of the principal journal.
2001/34 Nov Exercise 3.9
Which of the following is true of the general journal? It is
A. a chronological record of accounting transactions B. used for recording sale of goods on credit
C. used for recording purchases of merchandise for cash D. used for recoding sale of goods through post
2004/6 Nov Exercise 3.10
A company dealing in cosmetic purchase a delivery van on credit. The transaction will be recorded in the
A. journal proper B. purchases day book C. sales day book D. motor vehicle account
Exercise 3.11
On 1st March, 2021 Audu started business with:
N
Cash at bank 500,000
Inventory 200,000
Plant and machinery 110,000
Furniture and fittings 90,000
Cash at hand 150,000
Creditors 270,000
The following transactions took place for the month:
March 1 Took N300,000 from his bank account for petty cash expenses.
March 4 Bought goods on credit from Chukwuma at N120,000.
March 7 Bought office equipment by cheque N65,000
March 10 Paid BEDC bill N3000 by cash.
March 12 Received cheque N9000 from Ciroma in settlement of his account.
March 20 Cheque previously received from Ciroma was later dishonoured by the bank.
March 26 Bought a second hand Toyota Camery Car N400,000 payment by cheque.
March 30 Paid insurance N6,000 cash.
March 31 Paid staff salaries N60,000 cash
Required:
Write up the journal entries.
Exercise 3.12
You are required to journalise the following
(i) Commenced business with N50,000 in the bank.
(ii) Azuka lent us N10,000 by cheque.
(iii) Bought goods worth N3,000 on credit from Sule.
(iv) Bought plant by cheque N280,000.
(v) Cash sales paid directly into bank N110,000.
(vi) Paid general expenses in cash N2000.
(vii) Received cash N3,200 from Ebuka.
(viii) Paid wages in cash N18,000.
(ix) Bought goods on credit from Dimka N9,230.
(x) Received dividend in cash N15,000.
(xi) Paid insurance N5500 cash.
(xii) Paid Ochuko account by cheque N1,320.
(xiii) Returned goods worth N505 to Abimbola.
(xiv) Write off as a bad debt an amount of N106 owing by Testimony.
(xv) Purchased a brand new Lexus car valued at N4,400,000 from Prameovic motors with cheque.

45
Chapter Four
ACCOUNTING CONCEPTS, PRINCIPLES CONVENTIONS AND
ACCOUNTING EQUATIONS

ACCOUNTING PRINCIPLES
Over the centuries during which the financial accounting profession has developed, a body of principles has evolved to
regulate the practice of the profession so that the preparation of financial statement are guided by consistent and
objective principles. Accounting principles means the rules and regulations, concepts, circumventions, axiom, postulate
which anybody practicing accounting must always comply with in performing his accounting duties.

ACCOUNTING CONCEPTS
The basis of account theory and practice is laid on its principles, concepts and conventions. Accounting concept is a
phenomenon or a universally accepted ways of doing things. Concept forms what all organizations must comply with
for the preparation of their accounting reports.

Accounting principles, concepts, conventions, postulates, axioms, etc. are often used to mean the same thing. It has not
been any universal agreement as to hold to distinguish between them. However, the following can be classified under
concepts and conventions.
1) Business entity concept: Every economic unit, regardless of its legal form of existence, is treated as a separate
entity from parties having proprietary or economic interest in it.
2) Going concern concept: The assumption is that the business unit will operate in perpetuity.
3) Periodically concept: This stipulates that the business be divided into accounting period (usually one year).
4) Realization concept: This requires that profit on any given transactions is included in the accounts of the period
when the profit is realized.
5) Matching concept: The concept holds that for any accounting period, the earned revenue and all incurred cost that
generated that revenue must be matched and reported for that period.
6) Consistency convention: It holds that when a company selects a method, it should continue to use that method in
subsequent periods so that a comparison of accounting figures over time is meaningful.
7) Historical cost concept: This concept says that transactions (assets and expenses) are entered into the books at
their actual cost to the business.
8) Substance over form convention: It states that transaction should be recorded the way it occurred.
9) Objectivity principle: This principle connotes independence of judgment on the part of the accountant preparing
the financial statement.
10) Fairness principle: The principle requires that accounting reports should be prepared not to favour any group or
segment of society.
11) Materiality principle: It holds that only items of material value are accorded their strict accounting treatment.
12) Prudency/conservation: This principle demands exercising great care in recognition of profit whilst all known
losses are adequately provided for.
13) Money measurement convention: This stipulates that only transactions that can be measured in monetary terms
should be expressed in financial statement.
14) Accrual concept: As a corollary to the expenses incurred for the period paid or not paid for should be charged
against the income earned to determine the profit or loss for the firm.
15) Dual aspect convention: The convention requires that all transactions have two entries, that is, for every debit
entry there must be a corresponding credit entry, or vice – versa.

ACCOUNTING CONVENTIONS
Accounting convention means the way in which any individual practice must be carried out. This individual practices
are those that have no special rule guiding them for which the convention have been stipulated to guide the way in which
they should be carried out

46
ACCOUNTING EQUATIONS
The accounting equation or balance sheet equation simply reflects the fact that the assets of a business must be equal to
the claims over the assets at any point in time. The equation is based on the principle that accounting deals with property
and rights to property and the sum of the rights to properties. The properties owned by a business are called ASSETS
and the rights of properties are known as LIABILITIES or EQUITIES of the business. The accounting is given as:
Assets = Capital + Liabilities
Or
Assets – Liabilities = Capital
Or
Liabilities = Assets – Capital
The equation is fundamental in the sense that it gives a foundation to the double entry book keeping system. This
equation holds good for all transaction and events and all periods of time since every transaction and events has two
aspects.

2022/11
The accounting concept which states that expenditure involving insignificant amounts should be regarded as expenses
and not assets is
A. business entity concept B. materiality concept C. dual aspect concept D. realization concept
Answer: materiality concept (B)

2021/1
The original record containing the details of a transaction which serves as a basis for positing is
A. general ledger B. source document C. subsidiary book D. trial balance
Answer: source document (B)
2021/1
(a) What are accounting concepts?
(b) Explain the following accounting concepts:
(i) business entity; (ii) accrual; (iii) going concern;
(iv) consistency; (v) periodicity; (vi) historical cost
Answer
(a) Accounting concepts are universally accepted ways of doing things in accounting.
(b) (i) Business entity: This concept states that ownership should be separated from management.
(ii) Accrual: This concept enables a business to determine the actual profit or loss for a particular period.
(iii)Going concern: The concept assume that a business unit will continue to operate till perpetuity.
(iv) Consistency: It holds that when a company choose a particular accounting method, it should stick to it in
subsequent period for easy comparison of results.
(v) Periodicity: This hold that business should be divided into accounting period.
(vi) Historical cost: It holds that transactions should be entered into the books at their actual cost.

2021/2
In the preparation of financial statements, full disclosure of minor events are ignored in line with
A. accrual concept B. money measurement concept C. business entity concept D. materiality concept
Answer Materiality concept (D)
2021/3
A limitation of the money measurement concept is that
A. it results in inaccurate financial statements B. financial statements is not easily understood
C. important non-monetary activities are not reported
D. the reports are not comparable to that of other business
Answer: Important non-monetary activities are not reported (C)
2021/11
Accounting evolved out of the need of business for
A. profit making B. record keeping C. increasing sales D. obtaining finance
Answer Record keeping (B)
2021/34
The concept that enables a business to determine the actual profit or loss for a particular period is
A. accrual concept B. business entity concept C. consistency concept D. going concern concept
Answer: Accrual concept (A)

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2021/45
Accounting concepts are rules of accounting which are to be
A. taught in all accounting classes B. implemented by all professional bodies
C. followed in the preparation of financial statements D. applied in correction of business errors
Answer
Followed in the preparation of financial statements (C)

2020/15
Recognition of profit when goods are sold and the buyer takes ownership of them is in line with
A. realization concept B. matching concept C. business entity concept D. going concern concept
Answer: Realization concept (A)

2020/18
The accounting concept which distinguishes an enterprise from its owners is
A. money measurement concept B. dual aspect concept
C. going concern concept D. business entity concept
Answer: Business entity concept (D)

2020/34
The concept that guides a firm to adopt a regular method of recording transactions in its books over a period is
A. periodicity concept B. consistency concept C. going concern concept D. historical cost concept
Answer: Consistency concept (B)

2019/42
The concept that recognizes revenues at the time of sale and not only when cash is received is
A. cost concept B. realization concept C. accrual concept D. duality concept
Answer: realization concept (B)

2019/43
The accounting concept which stipulates that income and expenses should be matched to determine profit or loss is
A. cost concept B. accrual concept C. objectivity concept D. realization concept
Answer: accrual concept (B)

2018/18
The concept that implies that a business will operate for an indefinitely long period of time is
A. accrual concept B. going concern concept C. business entity concept D. periodicity concept
Answer: going concern concept (B)

2018/19
The consistency concept aims at
A. ensuring that all expenses are matched against revenue B. reducing cost
C. comparability of accounting records D. suppressing profits to be declared
Answer: comparability of accounting records (C)

2018/20
The concept which states that revenue is recognised when goods are sold is
A. realization concept B. matching concept C. periodicity concept D. going concern concept
Answer: matching concept (B)

2016/29
The concept which states that the affairs of a business is to be treated as being separate from the private activities of the
owner is
A. realization concept B. business entity concept C. cost concept D. dual aspect concept
Answer: business entity concept (B)

2015/31
The accounting concept that allows the cost of cutlery to be expensive, though it will be used for more than one year is
A. materiality B. accrual C. going concern D. business entity
Answer: Accrual (B)

48
2015/32
The accounting concept that assumes that a business will continue operating for an indefinite period is
A. business entity B. going concern C. consistency D. duality
Answer: Going concern (B)
2014/27
The accounting concept underlying the treatment of personal expenses of the business owner as drawing is
A. periodicity B. accrual C. entity D. materiality
Answer: entity (C)
2013/18
A business is treated as being separate from the owners. This statement is emphasized by
A. consistency concept B. realization concept C. going concern concept
D. business entity concept
Answer: business entity concept – Once a business is incorporated it becomes an artificial person in law, so therefore
ownership is separated from management.
2013/26
The accounting principles that states that, in the preparation of accounting statement, revenue are recognised as soon as
goods are passed on to the customer is the
A. materiality concept B. matching concept C. consistency concept D. realization
Answer: (D)
2013/43
The basic assumption which underlines the preparation of periodic financial statement is known as accounting
A. bases B. techniques C. concepts D. method
Answer: bases (A)
2012/24
The concept which establishes the rule for the periodic recognition of revenue as soon as it is capital of objective
measurement is
A. going concern B. entity C. consistency D. realization
Answer: Realization (D)
2012/24
The concept which establishes the rule for the periodic recognition of revenue as soon as it is capable of objective
measurement is
A. going concern B. entity C. consistency D. realization
Answer: realization (D)
2011/48
The concept which states that assets are not to be recorded at their current market value is
A. money measurement B. materiality C. cost D. entity
Answer: cost (C)
2010/42
The accounting concept which assumes that the business will continue to be in existence into the foreseeable future is
A. dual aspect B. business entity C. accrual D. going-concern
Answer: going – concern – Business will operate till perpetuity (D)

2010/27
The accounting principles that states that insignificant expenditures are not to be taken into account is the
A. realization concept B. materiality convention
C. marching concept D. consistency convention
Answer: materiality convention (B)

2010/29
The realization concept states that
A. revenue is recognised as being earned when ownership of goods passes to the customer
B. revenue and profit should not be anticipated
C. similar items should be accounted for in a similar way from one accounting period to another
D. transactions must be expressed in monetary terms
Answer: revenue is recognised as being earned when ownership of goods passes to the customer (A)

49
2008/1
Which of the following is the basic accounting equation?
A. Assets = Capital + Liabilities B. Capital = Assets + Liabilities
C. Liabilities = Assets + Capital D. Assets = Liabilities – Equity
Answer: Assets = Capital + liabilities (A)

2007/30
The accounting principle which states that for every debit entry, there is a corresponding credit entry is, recognised by
A. realization concept B. entity concept C. going concern concept D. dual aspect concept
Answer: dual aspect concept (D)

2007/31
Which of the following is not an accounting convention?
A. materiality B. consistency C. business entity D. periodicity
Answer: materiality (A) – This is a convention.

2005/30
Which of the following is not an accounting concept?
A. periodicity B. accuracy C. consistency D. objectively
Answer: Objectivity (D)

2005/31
‘Transactions are governed by legal principles, but are nevertheless accounted for and presented in accordance with the
substance and financial reality’. This is in compliance with the principle of
A. substance over form B. prudence C. objectivity D. materiality
Answer: Materiality (D)
2000/4
(a) What are accounting concepts?
(b) State the accounting concepts or convention which best explains each of the following statements:
i. Unless there is evidence to the contrary, accounting assumes that a business operates into the foreseeable future.
ii. Revenues and expenses are recognized as they are entered or incurred and not when money is received or paid.
iii. The accounting treatment of like items should be continuously applied from one accounting period to the next.
iv. A business should not lay claim to any profits before they have been earned with reasonable certainty but should
anticipate future losses.
v. An accounting statement should not be influenced by the personal bias of the person preparing it.
vi. The assumptions that for reporting the life of an enterprise can be divided into discrete time period.
Solution
(a) Accounting concepts is a phenomenon or a universally accepted ways of doing things. They are what all
organization must comply with for the preparation of their accounting reports.
(b) (i) Going concern concept. (ii) Accrual concept. (iii) Consistency concept.
(iv) Realization concept. (v) Objectivity concept. (vi) Periodicity concept

2003/17
The accounting concept that supports the application of double entry book – keeping is the
A. going concern concept B. dual aspect concept C. historical cost concept D. consistency concept
Answer: Dual aspect concept (B)

2001/35
Profits are recognized when goods are sold. What concept is this?
A. realization B. matching C. periodicity D. going concern
Answer: Realization (A)

2001/37
Profits are recognised when goods are sold. What concept is this?
A. realization B. matching C. periodicity D. going concern
Answer: Realization (A)
2006/28 (Nov)
The accounting concept which separates the business from the owner is
A. realization B. business entity C. dual aspect D. going concern
Answer: Business entity (B)
50
2006/48 (Nov)
Which of the following are the correct account equations?
A. asset + liabilities = capital B. capital + liabilities = assets
C. capital + assets = liabilities D. assets – liabilities = capital
Answer: Assets – liabilities = capital

2022/3 Neco
The accounting rule which allows the use of a particular method for treating a transaction for a reasonable number of
years is ______ concept/convention.
A. accrual B. conservation C. consistency D. cost E. materiality
Answer: (C)

2022/4 Neco
The principle that says all income and expenses must be brought into the accounting period is known as _____
A. accrual B. historical C. matching D. monetary D. realization
Answer: (C)

2022/5 Neco
The following are accounting concepts and conventions except
A. accrual B. conservation C. matching D. monetary E. prepayment
Answer: (E)

2022/40 Neco
The statement of affairs in an incomplete record is
A. a balance sheet B. an appropriation account C. profit and loss account D. trading account
E. trial balance
Answer: (D)

2022/54 Neco
Which of the following is a characteristic of joint venture?
A. business activities are short-lived B. business becomes one C. limitation to membership
D. partners maintain one account E. there is perpetual succession
Answer: (D)

2011/7 Neco
The following are accounting concept and conventions except
A. accuracy B. conservation C. historical D. matching E. monetary
Answer: Conservation (B)

2019/15 Neco
Which of the following is not an asset?
A. accrual B. debtor C. land D. motor van E. prepayment
Answer: Accrual (A)

2016/3b Neco
Explain the following accounting concepts:
i. Business entity. ii. Going concern iii. Matching concept
Solution
(i) Business entity: This concept holds that ownership should be separated from management. So the business is
treated as a legal entity.
(ii) Going concern: The concept assume that the business unit will operate in perpetuity, i.e. forever.
(iii) Matching concept: The concept holds that for any accounting period, the revenue earned and all incurred cost that
generated the revenue must be matched and reported for that period.

2016/45 Neco
The convention which requires that transactions are recorded in monetary terms is known as
A. consistency B. depreciation C. going concern D. monetary measurement E. prudence
Answer: Monetary measurement (D)

51
2004/1 Nov
Which accounting concept requires that profit must not be anticipated?
A. materiality B. periodicity C. prudence D. consistency
Answer: Prudence (C)

2004/2 Nov
The consistency concept implies that:
A. asset value must be comparable B. policies must never change C. asset value must never change
D. policies must be stable
Answer: Policies must be stable (D)

2018/20 NABTEB
Which of the following is not an accounting convention?
A. materiality B. going concern C. objectivity D. periodicity
Answer: objectivity (C)

2022/7 NABTEB
Which of the following is not an accounting concept?
A. entity B. going concern C. consistency D. historical
Answer: consistency - this is a convention (C)

1994/2 UME
Assigning revenues to the accounting period in which goods were sold or services rendered and expenses incurred is
known as
A. passing of entries B. consistency convention C. matching concept D. adjusting for revenue
Answer: Matching concept (C)

1994/3 UME
The accounting convention which states that ‘profit must not be recognised until realized while all losses should be
adequately provide for’ is termed
A. materiality B. objectivity C. consistency D. conservatism
Answe: Conservatism (D)

1995/2 UME
Which of the following concepts stipulates that accounting profit is the difference between revenue and expenses?
A. accrual concept B. conservatism concept C. prudence concept D. materiality concept
Answer: Accrual concept (A)

1999/1 UME
Accrual concept stipulates that
A. revenue should be recognised when it is earned B. costs should be recognised when the expenditure is paid
C. revenue should be recognised only when cash is paid D. costs should be recognised when they are incurred
Answer: (A)

2000/14 UME
The accounting convention which stipulates that money or goods taken from the business by the owner for personal use
should be treated as deductions from capital is
A. cost B. prudence C. consistency D. entity
Answer: Entity (D)

2003/8 UME
Which accounting concept supports the assertion that economic reality takes precedence over legal issues?
A. realization concept B. substance over form C. conservatism D. measurement concept
Answer: substance overform (B)

52
2003/10 UME
Given:
N
Capital 1000
Liabilities 500
Assets 1500

The accounting equation can be expressed as

A. N1,000 + N500 + N1500 = N3000 B. N1000 – N500 + N1500 = N200
C. N1000 + N500 = N1500 D. N1500 + N500 = N2000
Answer
N1000 + 500 = N1500 i.e. Assets = Capital + Liabilities (C)

2004/1 UME
The accounting principle that is applied to check arbitrary actions on the part of accountants is
A. consistency B. materiality C. objectivity D. realization
Answer: consistency (A)

2008/2 UME
Which of the following accounting conventions suggests that accountants should use a method of valuation that
understates rather than over-state results?
A. conservatism B. historical C. monetary D. cost
Answer: Conservation (A)

2009/2 UME
The accounting convention which states that the performance of a business should be determined by matching all
expenses against all revenues is
A. accruals B. materiality C. objectivity D. periodicity
Answer: Accruals (A)
2012/2 UTME
The basis upon which assets of an organisation is valued is the
A. historical concept B. business entity concept C. periodicity concept D. materiality
concept
Answer: (A)
2018/28 UTME
The concept which states that the affairs of a business is to be treated as being separate from the private activities of the
owner is
A. business entity concept B. realization concept C. dual aspect concept D. cost concept
Answer: (A)
NABTEB 2019 Exercise 4.1
Classify the following into liabilities and assets.
(i) Motor vehicle (ii) Premises. (iii) Creditors for goods.
(iv) Stock of goods. (v) Debentures. (vi) Owing to bank.
(vii) Cash on hand. (viii) Loan from A. Jibril (ix) Machinery
(x) Fixtures
Exercise 4.2
Complete the gap in the following table using the accounting equation:
Assets Liabilities Capital
N N N
1. 3,000 ? 1,200
2. ? 400 600
3. 5,000 3,000 ?
4. 3,000 6,000 ?
5. 4,000 ? 5,000

2003/8 UME Exercise 4.3

Which accounting concept supports the assertion that economic reality takes precedence over legal issues?
A. realization concept B. substance over form C. conservation D. measurement concept

53
Exercise 4.4
State whether the following statement are true or false.
(i) The materiality concept refers to the state of ignoring small items and values from accounts.
(ii) Accounting principles are rules of action or conduct which are adopted by the accountant universally while recording
accounting transactions.
(iii) The ‘business entity concept’ of account is not applicable to sole trading concern and partnership concerns.
(iv) The ‘dual aspect’ concept result in the accounting equation: capital + liabilities = assets.
(v) Accounting concepts are broad assumptions.
(vi) Accounting statements are statement prescribed by professional accounting bodies.
(vii) Accounting standards are statement prescribed by government regulatory bodies.

2003/10 Exercise 4.5

Given:
N
Capital 1,000
Liabilities 500
Assets 1,500
The accounting equation can be expressed as
A. N1,000 + N500 + N1500 = N3000 B. N1000 – N500 + N1500 = N2000 C. N1000 + N500 = N1500
D. N1500 + N500 = N2000

2004/1 UME Exercise 4.6

The accounting principle that is applied to check arbitrary actions on the part of account is
A. consistency B. materiality C. objectivity D. realization

1996/14 Nov Exercise 4.7

The accounting concept that looks at an organisation as separate from the owner is called
A. business entity B. periodicity C. materiality D. accrual E. going concern

1998/25 Exercise 4.8

Which of the following is correct?
A. liabilities – capital = Assets B. long term liabilities + Assets = capital C. capital – drawings = Assets
D. Assets + Liabilities = capital E. capital + liabilities = Assets

1999/5 Exercise 4.9

Goods originally costing N5,000 were valued for balance sheet purposes at N4,000. This is an application of
A. consistency concept B. cost concept C. prudence concept D. money measurement concept

2001/12 Nov Exercise 4.10

“The net – profits declared by two clerks were N400,000 and N280,000 for the same year using the same information” This
is a violation of
A. consistency concept B. objectivity concept C. conservation concept D. money measurement concept

2001/31 Nov Exercise 4.11

Revenues are related with associated costs and expenses. What concept is this?
A. realization B. matching C. going concern D. cost

2003/29 Nov Exercise 4.12

An accountant made adjusting entries in the books of account. Which of the accounting concepts did he apply? ____
A. accrual B. prudence C. materiality D. historical cost

2003/30 Nov Exercise 4.13

A motor assembly plant bought a calculator and debited office expenses account. This is an application of
A. money measurement concept B. objectivity concept C. materiality concept D. consistency concept

2003/33 Nov Exercise 4.14

A business bought properties worth N100,000 in the open market for N30,000. The asset account was debited with N30,000.
This is an application of
A. cost concept B. money measurement C. consistency concept D. business entity concept
2006/28 Nov Exercise 4.15
The accounting concept which separates the business from the owners is
A. realization B. business entity C. dual aspect D. going concern

54
Chapter five

SOURCE (BUSINESS) DOCUMENTS

A Source document is a document that shows an evidence of a financial transaction. They are usually prepared in
duplicate, a copy each for each party to the transaction. It gives the details of a transaction including the date of
transaction, the amount involved in words and figures, the parties to the transaction and their signatures, the items
exchanged and the nature of the transaction whether cash or credit.

Examples of Source Documents and their uses

The following are examples of source documents and their uses:
1. Letter of enquiry: This is a letter written by a prospective buyer to a seller finding out the list of goods in the seller
store or warehouse as well as their current price.
2. Quotation: Quotation is a reply to the letter of enquiry. It is written by the seller to the buyer to supply information
on the nature and price of the goods as well as the terms at which the goods will get to the buyer.
3. Price list: A document which contains the price of available goods in the seller’s store.
4. Catalogue: A catalogue contains illustration of the goods available in picture form.
5. Order: An order is a source document from the buyer to the seller instructing the seller to send specified kind of
goods to the buyer. It shows the quantity, description, catalogue number and price of the goods requested.
6. Delivery note: This is a document which is used to check the corrections of the goods delivered to the buyer.
7. Invoice: An invoice is a document used in buying and selling which is sent by the seller to the buyer showing in
summary the details of goods ordered and their price. This is an evidence of a credit sale or purchase.
8. Cash receipts: This is an evidence of cash transaction. It shows that the cash has been received. The receiver of
cash issues it to the person from where he received the cash.
9. Credit note: This is evidence that goods have been returned by the customer to supplier, probably because the
goods were delivered in transit or because they were not according to specification. It is sent by the seller to the
buyer informing him that the account stated in the original invoice has been overcharged.
10. Debit note: This is evidence that goods has been returned to the supplier by the customer. It is issued by the seller
to the buyer informing him that the amount stated in original invoice has been undercharged.
11. Statement of Account: It shows the total amount the buyer has to pay, the amount he has paid and the balance due (if any).
12. Cheque counterfeit: This is the state of the cheque book which remains undetached after a cheque has been
detached. The cheque counterfeit serves as the duplicate copy of the cheque. It serves as evidence of withdrawal
of the cash from the bank.
13. Bank teller: This is evidence that money has been deposited into the bank account.
2005/6 NABTEB
The source documents sent by the seller to the buyer when goods are sold on credit is
A. credit note B. debit note C. sales invoice D. advice note
Answer: Sales invoice (C)
2019/8 NABTEB
The following are source document except
A. credit note B. invoice C. debit note D. bank note
Answer: Bank note (D)
2019/7 NABTEB
When a buyer is undercharged, the seller forwards
A. undercast note B. consignment note C. purchase invoice D. debit note
Answer: Debit note (D)
2011/4c Neco
Identify SEVEN source documents
Solution
Examples of source documents are:
i. Letter of enquiry ii. Quotation iii. Order iv. Receipt v. Invoice
vi. Credit note vii. Cheque counterfeit viii. Debit note ix. Statement of account

55
2018/56 Neco
Damaged goods returned by a customer is usually accompanied by
A. credit note B. debit note C. proforma invoice D. return note E. voucher
Answer: debit note (B)
2022/51 Neco
The document sent to the customer before goods are delivered to him is
A. proforma invoice B. receipt C. credit note D. debit note E. promissory note
Answer: proforma invoice (A)

1989/26
When a buyer returns damaged goods to the seller, the buyer receives a
A. proforma invoice B. credit note C. debit note D. consignment note
E. goods return note
Answer: Credit note (B)

1990/27
A credit note from a supplier for damaged goods would first be entered in the
A. purchases day book B. sales day book C. cash book D. returns inwards book
E. returns outwards book
Answer: returns inward book (D)
1992/1
Which of the following will a supplier send to a customer whose invoice was undercast?
A. invoice B. debit note C. credit note D. cheque E. payment voucher
Answer: Debit note (B)
1994/9
When a buyer is underchanged, the seller forwards
A. undercast note B. consignment invoice C. purchases invoice
D. debit note E. credit note
Answer: Debit note (D)

2002/4
The source document sent by the seller to the buyer when goods are returned is
A. credit note B. purchase invoice C. sales invoice D. debit note
Answer: credit note (A)

2004/4
Which of the following is both a subsidiary book and a ledger?
A. sales journal B. journal proper C. purchases journal D. cash book
Answer: Cash book (D)

2004/6 Which of the following is not a source document?

A. credit note B. invoice C. debit note D. bank note
Answer: Invoice (B)

2011/26
The document from which entries are transferred to the purchases day book is the
A. way bill B. credit note C. receipt D. invoice
Answer: Invoice (D)

2015/15
When the invoice of a customer is overcast, the supplier will send to him a
A. cheque B. payment voucher C. debit note D. credit note
Answer: credit note (D)
2017/1 Theory
(a) What is a source document?
(b) List six types of source documents.

56
Answer
(a) Source document is a document that shows an evidence of a financial transaction; usually prepared in duplicate, a
copy each for each party to the transaction.
(b) Six types of source documents:
- Cash receipts.
- Invoice.
- Credit note.
- Debit note.
- Cheque counterfoil.
- Bank teller.
2018/5
Credit notes received are source documents for
A. returns inward journal B. returns outward journal C. purchase journal D. sales journal
Answer: Returns Inwards Journal (A)
2018/6
A document forwarded to a supplier showing amount due for unsatisfactory goods is
A. debit note B. credit note C. invoice D. waybill
Answer: Debit note (A)

2020/1b & c
b. List one source document used for each of the following transactions:
(i) sales; (ii) purchases; (iii) cash deposit; (iv) salary; (v) returns outwards.
c. State 3 purposes of source documents.
Answer
1b.
Transactions Source document used
(i) Sales Sales invoice, sales order, receipts, bank statement, goods
dispatched note.
(ii) Purchases Purchase order, receipts, purchase invoice, deposit slip, goods
received note.
(iii) Cash deposit Bank statement, deposit slip, teller, receipt.
(iv) Salary Job sheet, time sheet, pay slip, cheque and payroll register.
(v) Returns outwards Debit note, credit note, good dispatched note.
1c. 3 purposes of source documents are:
• They help in the location of errors.
• They serve as proof of financial transactions.
• They help to reduce/minimize fraud.
- They serve as evidence in legal matters.
- They help to reduce the input of wrong figures into accounts.
- They provide detailed information used in the preparation of books of account.
2021/1
The original record containing the details of a transaction which serves as a basis for posting is
A. general ledger B. source document C. subsidiary books D. trial balance
Answer: Source document (B)
2022/4
The document prepared by the buyer and sent to the seller listing the items to be supplied is
A. sales order B. proforma invoice C. credit note D. purchase order
Answer: Purchases order (D)
1995/4 (UME)
Which of the following accounting records are source document?
A. journals and ledgers B. sales invoice and cash book C. cash book and debit note D. sales invoice and debit note
Answer: Sales invoice and debit note (D)
2013/7 UTME
The major source document which enables an employer to calculate the employment wage is the
A. nominal roll of employees B. record of numbers of hours worked
C. effort of the employee D. record of number of dependents per employee
Answer: Record of numbers of hours worked (B)
57
2014/8 UTME
The book of account in which information from the source documents are recorded consist of
A. debit and credit notes B. ledger and subsidiary books C. prepayments and accruals
D. profit and loss and balance sheet
Answer : Ledger and subsidiary books (B)

2000/8 UTME Exercise 5.1

A source document that aids the ascertainment of amount paid out of current account is the
A. teller B. cheque stub C. cheque D. teller stub

2006/4 Exercise 5.2

Which of the following is not a source document?
A. journal proper B. sales invoice C. debit note D. credit note

2006/15 Exercise 5.3

When goods are returned to suppliers the customer is issued a/an
A. debit note B. credit note C. invoice D. delivery note
2014/6 NABTEB Exercise 5.4
A customer who returns goods to the supplier because they are defective is issued a
A. debit note B. bank note C. credit note D. delivery note

2003/43 Exercise 5.5

Which of the following is not a source document?
A. cheque stub B. cash receipt C. cash book D. sales invoice

2018/2a Neco Exercise 5.6

Mention any five (5) source documents.

58
Chapter Six

SUBSIDIARY BOOKS
Subsidiary books are books of original entry. Transactions are not normally posted from the source documents directly
to the ledger. They are normally posted first in subsidiary books before they are posted to the ledger. Subsidiary books
can be defined as the books on a daily basis from the source documents and from which transfers are made at suitable
periodic intervals to the relevant accounts in the ledger. The subsidiary books are also called or known as books of prime
entry in accounting.

USES OF BOOKS OF PRIME ENTRY

i. Aids to memory: The subsidiary books provide aids to memory.
ii. Ascertainment of sales and purchases: The total amount of sales and purchases can be readily ascertained.
iii. Helps in control account preparation: It provides an avenue for the control accounts to be easily prepared.
iv. Ascertainment of debtors and creditors: The total money owed to suppliers and money owed by customers can
be readily ascertained.
v. Provides opportunity for monthly totals: The book of original entry provides opportunity for totals to be
calculated every month.

TYPES OF SUBSIDIARY BOOKS

The subsidiary books include the followings:
1. Sales day book: for recording or posting credit sales.
2. Purchases day book: for recording or posting credit purchases.
3. Returns inward day book: for recording returns from customers.
4. Returns outwards day book: for recording returns to suppliers.
5. Cash book: for recording the receipt and payment of money.
6. Journal proper: for recording other transactions that cannot be accommodated by other books of original entries.
7. Bills receivable book: for recording bills of exchange received from customers.
8. Bills payable book: for recording bills of exchange payable to customers.

Specimen of subsidiary book.

NAME OF SUBSIDIARY BOOK
DATE INVOICE NAME AND PARTICULARS FOLIO DETAILS N AMOUNT N
NUMBER

PURCHASE DAY BOOK

These are the book of prime entry used to record all credit purchases. At the end of the period, the total sum will be
transferred to the ledger account known as PURCHASES ACCOUNT.

Illustration 6.1
T. O. Ofunaba, a sole trader has the following transactions during the month of July, 2015:
July 8: Purchased on credit from J. Audu Woven goods N3,000, linen goods N2,000. All less 20% trade discount.
July 16: Purchased on credit from L. Lawal cotton goods N3,800, linen goods N2,700, no trade discount.
July 31: Purchased on credit from M. Okono cotton goods N4,100, linen goods N3,900. All less 5% discount.
Prepare: i. Purchase journal. ii. Personal account. iii. Purchase account.

59
Solution
T. O Ofunaba purchases journal for the month of July, 2015.
Date Particulars Folio Amount Total
July N N
8 F. Audu:
Wollen goods PL 3,000
Linen goods PL 2,000
5,000
Less: 20% trade discount (1,000) 4,000

16 L. Lawal:
Cotton goods PL 3,800
Linen goods PL 2,700 6,500
No trade discount

31 M. Okoro:
Cotton goods PL 4,100
Linen goods PL 3,900
8,000
Less 5% trade discount (400) 7,600
Purchase account DR 18,100

(ii)
DR F. Audu Account CR
N
8/7/15 Purchases 4,000

DR L. Lawal Account CR
N
16/7/15 Purchases 6,500

DR M. Okoro Account CR
N
31/7/15 Purchases 7,600
(iii)

DR Purchases Account CR
N
31/7/15 Sundries 18,100

SALES DAY BOOK

Sales day book is also known as sales book, sales journal, sold book etc. It is a subsidiary book, i.e. a book of original
entry. It is a manually maintained account, with the purpose of recording all credit sales of the business in one place.
This means all the sales of a firm done on credit are recorded in the sales day book. No cash sales will be recorded here.

60
Illustration 6.2
Akpojotor, a sole trader, has the following transactions during the month of January, 2001.
June 6: Sold on credit to O. Matthew 4 radio recorder at N5,000 each, 2 television set at N15,000 each. Less 20% trade discount.
June 10: Sold on credit to I. Chika 2 television sets at N15,500 each, 3 video recorder at N10,000 each. No discount.
July 28: Sold on credit to Y. Ibrahim 6 radio recorder at N5,500 each, 4 television sets at N16,000 each, 2 cassette
recorder at N4,000 each. Less 25% trade discount.
Prepare: (i) Sales day book. (ii) Post to personal account. (iii) Transfer the total to sales account.
Solution
(i) AKPOJOTOR SALES DAY BOOK FOR THE MONTH OF JANUARY, 2001
Date Particulars Folio Amount Total
Jan. N N
6 O. Matthew:
4 radio recorder @ N5,000/ SL 20,000
2 T.V set @ N15000 each SL 30,000
50,000
Less: 25% trade discount (10,000) 40,000

10 I. Chika:
2 T.V. sets @ N15,500 each SL 31,000
3 Video recorder @ N10,000/ SL 30,000 61,000
No trade discount

28 Y. Ibrahim
6 radio recorder @ N5,500 each SL 33,000
4 TV sets @ N16,000 each SL 64,000
2 cassette recorder N4,000/ SL 8,000
105,000
Less: 25% trade discount (26,250) 78,750
Sales account CR 179,750

(ii)
DR O. Matthew Account CR
Jan N N
6 Sales 40,000

DR I. Chika Account CR
Jan N N
10 Sales 61,000

DR Y. Ibrahim Account CR
Jan N N
28 Sales 78,750
(iii)
DR Sales Account CR
N Jan N
31 Sundries 179,750

RETURN OUTWARD DAY BOOK

Returns Outward Day Book is also known as purchase returns journal. It is a prime entry book or day book which is
used to record purchase returns. In other words, it is the journal which is used to record the goods which are returned to
the suppliers. At times, when a customer receives goods ordered, he may discover that some of the goods are
unsatisfactory due to damages.In this case, the customer has no alternative than to return the defective goods to the seller
or ask for allowance, then the seller will send a credit note to the buyer. All the returns and allowances are entered in
the returns outward journal or day book.

61
Illustration 6.3
A. Akim receives a credit note from the supplier of goods in March, 2010 for goods returned to them.
Mar. 16: J. Onos returned 10 cartons of Gulder at N1500 each and 5 crates of Minerals at N1200 each.
Mar. 24: A. Johnson returned 5 crates Maltina at N1,600 each, and 4 crates 7 – up at N1,200 each
Required:
(i) Prepare the returns outward journal.
(ii) Post to the personal account.
(iii) Returns outward account
Solution
S. AKIN RETURN OUTWARD JOURNAL
Date Particulars Folio Amount Total
March N N
16 J. Onos:
10 cartons of Gulder @ N1500 each 15,000
5 crates of minerals @ N1200 each 6,000 21,000

24 A. Johnson:
5 crates of Maltina @ N1600 each 8000
4 crates of 7-up @ N12,000 each 4,800 12,800
Returns outward account CR 33,800

(ii)
DR J. Ono’s Account CR
Mar N N
4 Returns Outward 21,000

DR A. Johnson’s Account CR
Mar N N
24 Returns Outward 12,800

(iii)
DR Return outward Account CR
N Mar N
31 Returns for the month 33,800

RETURNS INWARD JOURNAL

This occurs when goods are returned by a customer to the supplier for various reasons as stated earlier. For some reasons
goods sold by a businessman may also be returned to him by his customers. Such returns like purchase returns are
entered in the sales returns or returns inward journal.

Illustration 6.4
Kiwily stores issues the following credit notes in August, 2013 to his customers. Enter the information into the returns
inward journal and post to the sales returns account.
Aug. 4: O. David
4 bundles of cotton materials at N10,000 each.
5 bundles of linen materials at N15,000 each.
Aug 24:A. Patience
10 bundles of silk materials at N12,000 each.
8 bundles of cotton materials at N10,100 each.
4 bundles of linen materials at N15,000 each.

62
Solution
(i)
KIWILY STORES RETURNS INWARD JOURNAL
Date Particulars Folio Amount Total
Aug N N
4 O. David
4 bundles of cotton materials atN10,000 each 40,000
5 bundles of linen materials atN15,000 75,000 115,000

24 A. Patience:
10 bundles of silk materials atN12,000 each 120,000
8 bundles of cotton materials atN10,000 each 80,000
4 bundles of linen materials atN15,000 each 60,000 260,000
Returns Inward Account DR 375,000
(ii)
DR O. David Account CR
N Aug N
4 Returns Inward 115,000

DR A. Patience Account CR
N Aug N
24 Returns Inward 260,000
(iii)
DR Returns Inward Account CR
Aug N N
31 Returns Inward 375,000
Illustration 6.5
The sales invoices of OLUSESI and SONS for the month of January, 2006, containing the following information, are
given below:
DATE CUSTOMERS AMOUNT SALES INVOICE NO
01–01–06 Y. Alex 40,000 00131
06–01–06 F. Hakeem 23,000 00132
20–01–06 Y. Alex 50,000 00133
26–01–06 C. Izu 22,000 00134
31–01–06 S. Odiete 18,000 00135
12–01–06 H. Odeku 11,000 00136
10–01–06 E. Ogunde 14,000 00137
18–01–06 U. Akinsaya 2,000 00138

Required: i. Draw up the sales journal of OLUSESI and SONS for January, 2006.
ii. Post the transaction to the relevant ledger.
Solution
OLUSESI AND SONS SALES DAY BOOK
DATE INVOICE NAMES AND PARTICULARS FOLIO AMOUNT
NUMBER
2006 N
Jan.1 00131 Y. Alex D001 40,000
6 00132 F. Hakeem D002 23,000
10 00137 E. Ogunde D003 14,000
12 00136 H. Odeku D004 11,000
18 00138 U. Akinsaya D005 2,000
20 00133 Y. Alex D006 50,000
26 00134 C. Izu D007 22,000
31 00135 S. Odiete D008 18,000
31 Sales account Cr. G001 180,000

63
Sales Ledger (Debtors’ Ledger)
DR Y. Alex CR
Jan N N
1 Sales 40,000
20 Sales 50,000

DR F. Hakeem CR
Jan N N
6 Sales 23,000

DR E. Ogunde CR
Jan N N
10 Sales 14,000

DR H. Odeku CR
Jan N N
12 Sales 11,000

DR U. Akinsaya CR
Jan N N
18 Sales 2,000

DR C. Izu CR
Jan N N
26 Sales 22,000
DR S. Odiete CR
Jan N N
31 Sales 18,000

General ledger
DR Sales Account CR
N Jan N
31 Sundries 180,000

Illustration 6.6
Record the following transactions in the purchases journal and
Nov. 20: Bought of Mudiaga S. S:
transfer to the relevant ledgers.
5 bags of rice at N26,000 per bag,
Nov. 4: Bought goods of Mandela & Sons:
4 bags of brown beans at N42,000 per bag
25kg of Semolina at N350 per kg,
Per invoice number 7024,
10 dozens of Gino tin tomatoes at N300 per dozen
2% trade discount.
Per invoice No. 1234
Subject to 5% trade discount. Nov. 26: Bought of Fineface T. O.
20 litres of groundnut oil at N500 per litre,
Nov. 6: Bought of Chibuzor C. C. goods worth N30,000
25 litres of Okunmu palm oil at N400 per
Per invoice number 4289,
litre,
Subject to 5% trade discount.
25kg of Dangote sugar at N200 per kg
Per invoice numbers 2701
Subject to 2% trade discount.

64
Solution
ABUBAKAR ENTERPRISE PURCHASES JOURNAL
Date Invoice Name and Particulars Folio Details Amount
Number
Nov N N
4 1234 Mandela & Sons:
25kg of Semolina at N350 8,750
10 dozens of Gino tin tomatoes atN300 per dozen 3,000
11,750
Less 5% trade discount PL1 (587.5) 11,162.5

20 7024 Mudiaga S. S:
5 bags of rice at N26,000 per bag 130,000
4 bags of brown beans at N42,000 per bag 168,000
298,000
Less 2% trade discount PL3 (5,960) 292,040

6 4289 Chibuzor C. C. 30,000

Less: 5% trade discount PL2 (1,500) 28,500

26 2701 Fineface, T.O:

20 litres of groundnut oil atN500 per litre 10,000
25 litres of Olemmu red palm oil at N400 per litre 10,000
25kg of Dangote sugar atN200 per kg 5,000
25,000
Less: 2% trade discount PL4 (500) 24,500
Purchases Account 356,202.5

Purchase ledger:
DR Mandela & Sons CR
N Nov N
4 Purchases 1,162.50

DR Chibuzor C. C. CR
N Nov N
6 Purchases 28,500

DR Mudiaga, S.S CR
N Nov N
20 Purchases 292,040

DR Fineface, T.O CR
N Nov N
26 Purchases 24,500

General ledger
DR Purchase Account CR
Nov N N
26 Sundries 356,202.5

2004/1 Neco
State clearly the books of original entry. You would enter the following documents and transactions.
(a) A debit note issued to a customer to effect correction of an undercharge.
(b) Goods bought on credit from JOESTAN ENTERPRISES LIMITED for N50,000 less 10% trade discount.
(c) Copies of sales invoice issued to customers.
(d) Copies of credit notes issued to customers.
(e) Credit notes received from suppliers.
(f) Invoices received from suppliers.
(g) Paid N2,000 electricity bill for Yerima’s house by cheque.
(h) Returned goods worth N5,000 which were damaged as a result of scorching heat.
(i) Sold goods on credit to Messrs Hussaina Wakili for N25,000 less 20% trade discount.
(j) Settled account of JOESTAN ENTERPRISES LIMITED in full by cheque and was allowed 5% cash discount.
65
Solution
(a) Proper journal. (b) Purchases day book. (c) Sales day book. (d) Returns Inward Journal.
(e) Returns Outward Journal (f) Purchases day book. (g) Cash account/book. (h) Return Outward Journal.
(i) Sales day book (j) Cash book.
Note: Books of original entry is also called or known as subsidiary books or books of prime entry.

2011/1c Neco
Write short notes on these terms:
(i) Sales day book. (ii) Purchases day book. (iii) Returns outward journal.
Solution
(i) Sales day book: This is a subsidiary books used for recording goods sold on credit.
(ii) Purchases day book: This is a book of original entry used for the recording of goods bought on credit.
(iii) Returns Outward Journal: This is a subsidiary book used for recording returns to suppliers.

2006/2 NABTEB
The book where all credit transactions are recorded is referred to as:
A. purchases day book B. returns outwards book C. returns inwards book D. sales day book
Answer: Purchases day book (A)
2019/1 Neco
Which of the following books of original entry is used to record all payments and receipts by cash or cheque?
A. cash book B. general journal C. invoice D. purchases day book E. sales day book
Answer: Cash book (A)

2016/1 Neco
The following are books of prime entry except
A. cash book B. journal proper C. purchases day book D. purchases ledger E. sales day book
Answer: Purchases ledger (D)

2012/3c
List four (4) subsidiary books from which sales ledger control account is compiled.
Answer: (i)Sales journal (ii) Cash book. (iii) Sales returns journal. (iv)General journal.

2006/3a
List the subsidiary books from each of the following items are obtained:
(i) payments in cash to creditors; (ii) credit sales, (iii) cash and cheques received;
(iv) discount received; (v) discount allowed; (vi) credit purchases;
(vii) cash refund to account of over payment by customers; (viii) bad debts written off;
(ix) debtor’s cheque dishonoured; (x) Sales ledger balance set off against purchases ledger balance.
Solution
(i) Cash book. (ii) Sales day book. (iii) Cash book. (iv) Purchases day book.
(v) Sales day book. (vi) Purchases day book. (vii) Returns inward journal.
(viii) General journal. (ix) Cash book. (x) General journal.

2003/1
(a) What are books of prime entry? (b) List any 4 books of prime entry.
(c) State 4 uses of general journal.
Solution
(a) Books of prime entry are set of books which every financial transaction are first posted to before they are finally
transferred to the ledger. These books are used to record the day to day activities of an organization.
(b) Books of prime entry are:
(i) Sales day book. (ii) Purchases day book. (iii) Returns inward journal. (iv) Returns outward journal
(v) Cash. (vi) Proper journal.
(c) Uses of general journal are:
(i) To correct errors. (ii) To record opening and closing entries. (iii) To record transfer of accounts.
(iv) To record the sales and purchases of fixed assets on credit. (v) To record bad debt.

66
2014/2 NABTEB
The only book of account which serves as a subsidiary and a principal book of account is
A. cash book B. purchases day book C. sales day book D. returns inward book
Answer: Cash book (A)

2011/25
The document from which entries are transferred to the purchases day book is the
A. waybill B. credit note C. receipt D. invoice
Answer: Invoice (D)

2011/6 Neco
The book into which all daily credit purchases are recorded is called
A. credit book B. purchases day book C. sales book D. special journal E. subsidiary journal
Answer: Purchases day book (B)

2000/6 Neco
Alchema enterprises started business on 1/1999 with the following:
N
Land and buildings 20,000
Stock of goods 8,000
Motor van 10,000
Cash 2,000
During the month the company undertook the following transactions:
N
5/4/99 Sold goods for cash 1,000
10/4/99 Sold goods on credit 4,000
12/4/99 Bought goods on credit 2,000
15/4/99 Cash sales banked 3,000
18/4/99 Paid cash for office stationery 400
20/4/99 Received cash from debtors for goods 1,000
22/4/99 Paid cash for office expenses 200
23/4/99 Sold goods for cash 1,800
24/4/99 Paid salaries by cheque 1,400
25/4/99 Sold goods on credit 1,000
26/4/99 Bought goods on credit 600
27/4/99 Bought goods for cash 500
28/4/99 Withdraw money from bank for director’s use 300
29/4/99 Office cash banked 1,000
30/4/99 Paid rent by cheque 300
You are required to record the above transactions in the appropriate books of original entry
Solution
Note: The relevant books original entries to prepare are:
(i) Cash book (ii) Sales day book (iii) Purchased day book (iv) Journal

Dr. ALCHEMA ENTERPRISES CASH BOOK FOR THE MONTH OF APRIL, 1999 Cr.
Date Particulars Folio Bank Cash Date Particulars Folio Bank Cash
April N N April N N
5 Sales SL 1,000 18 Office stationery GL 400
15 Sales SL 3,000 22 Office expenses GL 200
20 Sales SL 1,000 24 Salaries GL 1,400
23 Sales SL 1,800 27 Purchases PL 500
29 Cash C 1,000 28 Drawings GL 300
29 Bank C 1,000
30 Rent GL 300
30 Balance c/d 2000 1,700
4,000 3,800 4,000 3,800

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SALES DAY BOOK
Date Particulars Folio Amount Total
April N N
10 Sundries 4,000
25 Sundries 1,000 5,000
30 Sales account CR 5,000

PURCHASE DAY BOOK

Date Particulars Folio Amount Total
April N N
12 Sundries 2,000
26 Sundries 600 2,600
30 Purchase account DR 2,600

THE CASH BOOK

The cash book is both a book of original entry and a ledger account for cash and bank transactions involving receipts
and payments whether in cash or by cheque. In other words, it is to cash transactions while purchases and sales day
books are to credit purchases and credit sales respectively.
The objective of decongesting the ledger is carried one step further by taking the bank and cash account out of the ledger
and combining them in one subsidiary book called the cash book. The cash book is also known as a ledger account
because it has debit and credit sides and any entry in one of the sides is one-half of the double entry involved in the
transaction. A debit entry in the cash book, for example calls for a corresponding entry to be made in another account.

CONTRA ENTRIES
When the double entry for a transaction appears on both sides of the cash book, this is called a “contra-entry”. Contra-
entries in the cash book are made when cash is deposited into the bank account of the cash in hand or when cash is
withdrawn from bank account for office use. The contra entry is denoted by ‘C’ in the folio column.

FORMS OF CASH BOOKS

(A) SINGLE COLUMN CASH BOOK
The single column cash book record either cash transactions onlyor the one that records bank transactions only.
Specimen of single column cash book
Dr Cr
Date Particulars Folio Amount Date Particulars Folio Amount

Illustration 5.6
Enter the following transactions in the books of A. Yaro and Sons Ltd for the month of July, 2004.
July N
1 Introduced capital into the business 50,000
2 Bought goods worth (cash) 15,000
3 Bought furniture cash 5,000
4 Cash sales 20,000
10 Purchase goods on cash 2,000
15 Sales to date – cash 18,000
18 Paid insurance cash 10,000
25 Paid wages cash 4,000
27 Cash sales to date 1,500
29 Paid for rent cash 3,000
30 Cash purchase worth 20,000
30 Cash sales 5,000

68
Solution
A. YARO AND SONS LIMITED
Dr Cash book for the month of July, 2004 Cr
Date Particulars Folio Amount Date Particulars Folio Amount
July N July N
1 Capital CB 50,000 2 Purchases PL 15,000
4 Sales SL 20,000 3 Furniture GL 5,000
15 Sales SL 18,000 10 Purchases PL 2,000
27 Sales SL 1,500 18 Insurance GL 10,000
30 Sales SL 5,000 25 Wages GL 4,000
29 Rent GL 3,000
30 Purchases PL 20,000
30 Balance c/d 35,500
94,500 94,500
Aug.
1 Balance b/d 35,500

Note: If the total of the debit side (receipts) is greater or more than the total of the credit side (payment), it is called debit balance.
While, if the credit side total is more than or greater than the total of the debit side it is called credit balance.

Ledger:
DR Capital Account CR
N July N
1 Cash 50,000

DR Sales Account CR
July N July N
30 Balance c/d 44,500 4 Cash 20,000
15 Cash 18,000
27 Cash 1,500
30 Cash 5,000
44,500 44,500
Aug
1 Balance b/d 44,500

DR Purchase Account CR
July N July N
2 Cash 15,000 30 Balance c/d 37,000
10 Cash 2,000
30 Cash 20,000
37,000 37,000
Aug
1 Balance b/d 37,000

DR Furniture Account CR
July N N
3 Cash 5,000
DR Insurance Account CR
July N N
18 Cash 10,000

DR Wages Account CR
July N N
25 Cash 4,000
DR Rent Account CR
July N N
25 Cash 3,000

69
2005/9 Neco (Theory)
Hajia Kudirat Omobayo commenced business on 1 st November, 2004 with cash of N20,000 and a bank account balance of N80,000. The
following is a summary of other cash transaction for the month.
November 5 Bought by cheque, furniture costing N17,200
November 8 Paid the following accounts by cheque deducting 5% cash discount in each case:
Ridman 25,000
Olaoti 12,000
Abidemi 4,000
November 17 Cash withdrawn from Bank N28,000
November 20 Cash sales to date banked N36,000
November 25 Received the following sums in cash from debtors who have each deducted 5% cash discounts.
Olawumi 7,600
Faizah 3,800
November 26 Paid for insurance in cash N1,700
November 29 Paid for salaries in cash N26,000
November 30 Banked all cash in the till except N20,000

You are required to prepare her cash book for the month of November, 2004.
Solution
HAJIA KUDIRAT OMOBAYO
Cashbook for the month of November, 2004.
Date Purchases Folio Disc Bank Cash Date Particulars Folio Disc. Bank Cash
all. Rec.
Nov N N N Nov N N N
1 Capital CB 80,000 20,000 5 Furniture GL 17,200
17 Bank C 28,000 8 Ridman PL 1,250 23,750
20 Sales SL 36,000 8 Olaoti PL 600 11,400
25 Olawunmi SL 380 7,220 8 Abidemi PL 200 3,800
25 Faizau SL 190 3,610 17 Cash C 28,000
26 Insurance GL 1,700
29 Salaries GL 26,000

Illustration 6.7
Enter the following transactions in the cash book of Sapele.
N
Jan 1 Started business with cash 40,000
Jan 1 Purchase goods for cash 10,000
Jan 2 Paid rent for the month 2,000
Jan 3 Cash sales 1,600
Jan 4 Received cash from Asaba 900
Jan 10 Paid Ughelli 370
Jan 12 Bought goods for cash 1,100
Jan 17 Paid Oleh cash 1,500
Jan 20 Cash sale to date 3,200
Jan 24 Received cash from Kano 4,010
Jan 28 Bought water tank cash 4,750
Jan 29 Paid rates 1,305
Jan 30 Cash sales 902
Solution
SAPELE
Dr Cashbook for the month of January Cr
Date Particulars Folio Amount Date Particulars Folio Amount
Jan. N Jan. N
1 Capital CB 40,000 2 Purchases PL 10,000
3 Sales SL 1,600 2 Rent GL 2,000
4 Asaba SL 900 10 Ughelli PL 370
20 Sales SL 3,200 12 Purchases PL 1,100
24 Kano SL 4,010 17 Oleh PL 1,500
30 Sales SL 902 28 Water tank GL 4,750
29 Rate GL 1,305
31 Balance c/d 29,587
50,612 50,612
Feb
1 Balance b/d 29,612

Note: The cashbook above is called single column cashbook.

- Balance c/d : Debit side – credit side
= N50,612 – N21,025
= N29,587

70
2021/7 Neco
Bola Enterprise started a business with N5,000 cash as his capital on 11th of January, 2017.
On 11th January, 2017, he purchased 15 bags of rice at N300 each.
On 12th January, 2017, sold 10 bags for N350 each in cash.
15th January, 2017, bought 12 bags at N350 each.
17th January, 2017 sold 10 bags in cash for N4,000.
19th January, 2017 paid N1,000 in cash as transport.
On 21st January, 2017 sold 6 bags at N350 each in cash.
23rd January, 2017 sold the remaining 7 bags in cash N2,800.
25th January, 2017 paid N500 in cash as delivery charges of rice to customers.
28th January, 2018, paid N1,500 on rent.
You are required to record these transactions in the appropriate cash book of Bola Enterprises.
Solution
BOLA ALABI ENTERPRISES

Dr Cash book for the month of January, 2017 Cr

Date Particulars Folio Amount Date Particulars Folio Amount
January N January N
11 Capital CB 5,000 11 Purchases PL 4,500
12 Sales SL 3,500 15 Purchases PL 4,200
17 Sales SL 4,000 19 Transport GL 1,000
21 Sales SL 2,100 25 Delivery charges GL 500
23 Sales SL 2,800 28 Rent GL 1,500
31 Balance c/d 5,700
17,400 17,400
February
1 Balance b/d 5,700

Note: Debit side = 17,400

Credit side = 11,700
Balance = 5,700 (Dr.)

(B) TWO (DOUBLE) COLUMN CASH BOOK

This cash book is so called because it has two columns, one for bank and the other for cash transactions. The two columns on the
debit side record the receipt of money. When money is received in cash it is debited to cash column in the debit side. When cheque
is received or cash lodgement directly to the bank account of business, the bank column on the debit side of the two column cash
book is debited conversely, when cash payment is made the cash column of the credit side of the cash book is credit to the tune of
the cash payment. When payment is made by means of cheque the bank column on the credit side of the two – columns cash book
is credited.
Specimen of two column cash book.

Dr Cr
Date Particulars Folio Bank Cash Date Particulars Folio Bank Cash
N N N N

Illustration 6.8
Enter the following transaction of DE-GRACE Enterprises in a double column cash book for the month of March, 2014.
N
March 1 Cash in hand 27,000
March 1 Cash at bank 58,600
2 Cash sales 28,000
3 Paid cash into bank 40,000
5 Purchases goods by cheque 24,000
8 Paid rent by cash 2,000
10 Paid rate by cash 500
12 Bought office equipment cash 1,240
14 Bought LG television by cheque 44,000
15 Cash sales 37,000
19 Paid cash into bank 40,000
22 Bought goods by cheque 28,000
27 Cash sales paid directly to bank 42,000
28 Draw cheque for private use 4,000
29 Paid BEDC bill by cash 1,920
30 Paid insurance by cheque 8,000
71
Solution
Dr Double columns cashbook for the month of March 2014 Cr
Date Particulars Folio Bank Cash Date Particulars Folio Bank Cash
March N N March N N
1 Balance b/d 58,600 27,000 3 Bank C 40,000
2 Sales SL 28,000 5 Purchases PL 24,000
3 Cash C 40,000 8 Rent GL 2,000
15 Sales SL 37,000 10 Rate GL 500
19 Cash C 40,000 12 Office equipment GL 1,240
27 Sales SL 42,000 14 LG television GL 44,000
19 Bank C 40,000
22 Purchases PL 28,000
28 Drawing GL 4,000
29 BEDC bill GL 1,920
30 Insurance GL 8,000
31 Balance c/d 72,600 6,340
180,600 92,000 180,600 92,000
April
1 Balance b/d 72,600 6,340

2019/7 NABTEB(Nov)
From the following details, write up a two column cash book of N. Kamara and balance off at the end of the month.

July 1st 1997 balance brought from last month

Cash at hand N480
Cash at bank N8,060
July 2: We paid each of the following by cheque S. Foku N490, S. Olisa N1060, D. Bello N590.
July 3: D. Musanya paid us cash N720
July 5: We paid rent in cash N490
July 7: J. Oyeakuu paid us by cheque N2,040
July 8: Cash sales N1900
July 10: Paid wages in cash N1880
July 12: We paid O. Groma in cash N190
July 18: Drawings by cheque N1,000
July 21: Cash sales paid directly into bank N2,100
July 24: Withdraw N2,000 from the bank for business use
July 27: Paid carriage inwards by cheque N120
July 28: Paid carriage outwards in cash N150
July 30: Paid rent in cash N490
July 31: J. Sanusi paid us by cheque N1240
Solution
N. KAMARA
Date Details Folio Bank Cash Date Details Folio Bank Cash
July N N July N N
1 Balance b/d 8060 480 2 S. Foku 490
3 D. Musunya 720 2 S. Olisa 1,060
7 J. Onyeakuu 2040 2 D. Bello 590
8 Sales 1900 5 Rent 490
21 Sales 2100 10 Wages 1880
24 Bank C 2000 12 O. Groma 190
31 J. Sanusi 1240 18 Drawings 1000
24 Cash C 2000
27 Carriage inward 120
28 Carriage outward 150
30 Rent 490
31 Balance c/d 8030 2,050
13440 5100 13440 5100
Aug
1 Balance b/d 8030 2,050

72
1999/5 (Nov)
Bernice Ackum started a photographic business under the business name Berekun photos in the month of February,
1999. The following transactions relate to the first month of operation.
February 1 : Paid N200,000 into bank.
,, 2 : Withdrew cash N90,000 from bank.
,, 2 : Bought 2 brand new cameras for N30,000 cash.
,, 5 : Paid cash for supplies N45,000.
,, 6 : Purchased office equipment with cheque N25,000.
,, 8 : Received cash for work done N56,000.
,, 10 : Bought supplies with cash N10,000.
,, 11 : Paid cash for repair of equipment N15,000.
,, 12 : Withdrew cash for personal use N12,000.
,, 14 : Paid telephone bills for the month N6,600 by cheque.
,, 16 : Delivered 100 pieces of pictures at N200 each on credit to customers.
,, 18 : Received N18,000 cash from customers.
,, 23 : Paid sundry expenses for the month N2,950 cash.
,, 25 :Bought supplies with cash N5,000.
You are required to prepare ledger accounts to record the above transactions.
Solution
BEREKUN PHOTOS
Dr Two column cashbook for the month of Feb. 1999 Cr
Date Details F Bank Cash Date Details F Bank Cash
Feb. N NFeb N N
1 Capital CB 200,000 2 Cash C 90,000
2 Bank C 90,000 2 Cameras 30,000
8 Wages received 56,000 5 Purchases 45,000
18 Sales 18,000 6 Office equipment 25,000
10 Purchases 10,000
11 Repairs 15,000
12 Drawings 12,000
14 Telephone 6,600
23 Sundry 2,950
25 Purchases 5,000
28 Balance c/d 78,400 44,050
200,000 164,000 200,000 164,000
Mar 1 Balance b/d 78,400 44,050

BEREKUN PHOTOS SALES DAY BOOK

Date Particulars Folio Amount Total
Feb N N
16 100pcs of picture at N200/ 20,000 20,000
Sales account CR 20,000

DR Capital Account CR
N Feb N
1 Bank 200,000

DR Wages Received Account CR

N Feb N
8 Cash 56,000

73
DR Sales Account CR
Feb N Feb N
28 Balance c/d 38,000 18 Cash 18,000
16 Sundry 20,000
38,000 38,000

DR Cameras Account CR
Feb N N
2 Cash 30,000

DR Purchases Account CR
Feb N Feb N
5 Cash 45,000 28 Balance c/d 60,000
10 Cash 10,000
25 Cash 5,000
60,000 60,000
Mar
1 Balance b/d 60,000

DR Office Equipment Account CR

Feb N N
6 Bank 25,000

DR Repairs Account CR
Feb N N
11 Cash 15,000

DR Telephone Account CR
Feb N N
14 Bank 6,600

DR Sundry Expenses Account CR

Feb N N
23 Cash 2,950

DR Drawing Account CR
Feb N N
12 Cash 12,000

74
1992/5 adjusted
April 1 : Adamu started a supermarket by introducing N25,000 cash as capital.
,, 2 : Purchased stock N11,000 cash.
,, 3 : Cash sales N3,500
,, 9 : Paid N2,400 cash into bank.
,, 12 : Cash sales N200.
,, 15 : Purchased stockN1,300 by cheque.
,, 19 : Cash sales N4,600.
,, 21 : Lodged N3,500 cash into bank.
,, 24 : Withdraw N1,400 cash from bank for office petty cash book expenses.
,, 28 : Paid wages by cheque N250.
,, 29 : Paid electricity by cheque N600
,, 30 : Lodged N7,000 cash into the bank.
,, 31 : Sold goods by cheque N1,000.
You are required to prepare a two – column cash book from the above transactions.
Solution
ADAMU SUPERMARKET
Dr Two column cash book for the month of April Cr
Date Details Folio Bank Cash Date Details Folio Bank Cash
April N N April N N
1 Capital 25,000 2 Purchases 11,000
3 Sales 3,500 9 Bank C 2,400
9 Cash C 2,400 15 Purchases 1,300
12 sales 200 21 Bank C 3,500
19 Sales 4600 24 Cash C 1,400
21 Cash C 3,500 28 Wages 250
24 Bank C 1400 29 Electricity 600
30 Cash C 7,000 30 Bank C 7,000
31 Sales 1,000 _____ 30 Balance c/d 10,350 10,800
13,900 34,700 13,900 34,700
May
1 Balance b/d 10,350 10,800

Note:
Debit side: Bank 13,900 – 3,500 (Credit side) = 10,350
Cash 34,700 – 23,900 (Crebit side) = 10,800
OR
Debit side Credit side Balance
N N N
Bank 13,900 3,550 = 10,350
Cash 34,700 23,900 = 10,800

(C) THREE – COLUMN CASHBOOK

A three column cashbook has a third column (in addition to the two columns for bank and cash) for recording the cash
discounts allowed to debtors and cash discounts received from creditors. Cash discount is an allowance made in
consideration of prompt payment.
Specimen of 3 – column cash book
Dr Cr
Date Details F Disc Bank Cash Date Details F Disc Bank Cash
N N N N N N

75
Illustration 6.9
Enter the following transactions in Omamuyovwi Agadagba three column cashbook for the month of August 2021.
N
Aug 1 Cash in hand 50,300
1 Cash at bank 89,350
Debtors Account (SL):
1 M. Oghale 90,000
1 F. Dogoyaro 44,500
1 Y. Fatoke 140,000
1 S. Chibuzor 190,000
Creditors account (PL):
1 J. Kosoko 105,000
1 Z. Preye 70,000
1 N. Akatugba 86,000
1 T. Ovedje 94,000
Aug 2 M. Oghale paid his account by cheque after deducting 3% cash discount.
6 Paid J. Kosoko by cheque less 7% discount. 90,000
9 Drew cheque for office use
11 Paid Z. Preye balance of account less 3 1% cash discount by cash.
2
13 F. Dogoyaro paid us N42,250 in full settlement of account by cash.
14 Paid BEDC bill by cheque 23,600
17 Received cheque from Y. Fatoke in full settlement. 136,500
20 Paid N. Akatugba’s account less 2 1% cash discount by cash.
2
22 Paid T. Ovedje’s account by cheque less 3% cash discount.
25 Received cheque from S. Chibuzo in full settlement of account. 182,000
29 Bought office equipment of N45,000, granted 15% trade discount, paid cash
1
after deducting 7 2% cash discount.
30 Paid insurance by cheque 93,000
30 Cash sales 26,000
Solution
OMAMUYOVWI AGADAGBA
Dr Three Column Cashbook for the month of August 2021 Cr
Date Particulars F Disc. Bank Cash Date Particulars F Disc. Bank Cash
Aug N N N Aug. N N N
1 Balance b/d 89,350 50,300
2 M. Oghale 2,700 87,300

9 Bank C 90,000 6 J. Kosoko 7,350 97,650

13 F. Dogoyaro 2,250 42,250 9 Cash C 90,000
17 Y. Fatoke 3,500 136,500 11 Z. Preye 2,450 67,550
25 S. Chibuzor 8,000 182,500 14 BEDC bill 23,600
30 Sales 26,000 20 N. Akatagba 2,150 83,850
22 T. Ovedje 2,820 91,180
29 Office eqpt. 2,868.75 35,381.25
30 Insurance 93,000
31 Balance c/d 99,720 21,768.75
16,450 495,150 208,550 17,638.75 495,150 208,550
Sept
1 Balance b/d 99,720 21,768.75

Dr Discount Allowed Account Cr

Aug N N
31 Totals 16,450

Dr Discount Received Account Cr

N Aug N
31 Totals 17,638.75

76
Workings (Discounts Allowed):
3
(i) M. Oguale (Aug 2): × 90,000 = N2,700
100
(ii) F. Dogoyaro (Aug. 13): N44,500 – 42,250 = N2,250
(iii) Y. Fatoke (Aug. 17): N140,000 – 136,500 = 3,500
(iv) S. Chibuzor (Aug 25): N190,000 – 182,000 = 8,000

Discount Received
7
(v) J. Kosoko (Aug. 6): × 105,000 = 7,350
100
3.5
(vi) Z. Preye (Aug. 11): × 70,000 = 2,450
100
2.5
(vii) N. Akatugba (Aug. 20): × 80,000 = 2,150
100
3
(viii) T. Ovedje (Aug. 22): × 94,000 = 2,820
100

(ix) Office equipment (Aug. 30):

15
- Trade discount: × 45,000 = 6,750
100
45,000 – 6750 = 38,250
7.5
- Cash discount: × 38,250 = 2,868.75
100
Cash paid = 38,250 – 2,868.75 = 35,381.25

2022/9 Neco
A three column cash book contains columns for
A. date, particulars and discounts B. date, particulars and folio C. date, particulars, folio, discounts and bank
D. date, particulars, folio, discounts and cash E. date, particulars, folio, discounts, cash and bank
Answer: Date, particulars, folio, discounts, cash and bank (E)

2016/7 Neco (Theory)

The following transactions were extracted from the books of Ade for the month of April, 2011.
April
1 Cash in hand N1280
Bank overdraft N4,935
2 Received from Benson a loan of N5000 by cheque
5 Withdrew cash from bank for use in the business N15
6 Paid cash to Juliet N335, discount 2%
8 Paid electricity by cheque N933
9 Sold for cash, articles N350
14 Sent a cheque for N4388 to Juliet in full settlement of his account for N4500
16 Sold for cash, articles N250
19 Sent a cheque to Ayo N425, discount 5%
21 Bank charges with cheque N275
22 1
Sold an office typewriter for N1250 cash, discount 2 2%
25 Paid rent by cheque N35
27 Withdrew N1,500 from bank for private use
28 Purchase of goods from John and paid him N100 by cheque.
29 1
Received from Felix cheque in settlement of his account N1630, less 2 % discount.
2

You are required to prepare three-column cash book from the above details and balance off as at the end of the month.

77
Answer
ADE
Dr Three column Cashbook for the month of April, 2011 Cr
Date Particulars F Disc. Bank Cash Date Particulars F Disc. Bank Cash
All. All.
April N N N April N N N
1 Balance b/d 1,280 1 Overdraft CB 4,935
2 Loan GL 5,000 5 Cash C 15
(Benson)
5 Bank C 15 6 Juliet PL 6.70
9 Sales SL 350 8 Electricity GL 933
16 Sales SL 350 14 Juliet PL 112 4338
22 Sales SL 31.25 1218.75 19 Ayo PL 21.25 403.75
29 Felix SL 40.75 1589.25 21 Bank GL 275
charges
30 Balance c/d 5,995.50 - 25 Rent GL 35
27 Drawing GL 1,500
28 John PL 100
30 Balance c/d – 2,785.45
72 12,584.75 3,11.75 139.95 12,587.75 3,113.75

May May
1 Balance c/d 2,785.45 1 5,995.50

Workings (Discounts):
2
(i) April 6 (Juliet) : × 335 = N6.70
100
(ii) April 14 (Juliet) : 4500 – 4388 = N112
5
(iii) April 19 (Ayo) : × 425 = N21.25
100
2.5
(iv) April 22 (sales) : × 1250 = N31.25
100
2.5
(v) April 29 (Felix) : × 1630 = N40.75
100

2012/9 Neco(adjusted)
On 31st October, 2009 Ndubisi, a trader, had N48,750 in his bank account. The following are the transactions of Ndubisi
for the month of October, 2009.
Oct. 3rd : Received the sum of N159,750 from A. Bose.
,, 6th : Sum of N30,000 was received in cash from O. Kola.
,, 6th: Settled the account of Poki and Co. N108,000 by cheque after deducting 5% cash discount.
,, 7th: Deposited N75,000 into the bank.
,, 8th: Paid wages of N112,400 by cash.
,, 13th: Paid BB Brothers account of N33,000 less 2½% discount.
,, 15th : Labake settled her account of N112,500 less 5% discount.
,, 19th: Received cheque of N64,125 from Bodunde after allowing a discount of N6,750. The cheque was
deposited into the bank immediately.
th
,, 20 : Paid tax office the sum of N10,130 by cash.
,, 21st: Received cash of N99,000 less 2½ discount from John Paul; paid wages of N112,500 in cash.
,, 26th: Chima’s account of N82,500 was settled by cheque after deducting 5%.
,, 27th: Received from Ade Sodimu the sum of N213,750 after allowing a cash discount of N11,250.
,, 28th: Paid wages by cheque N112,500 and withdrew N7,500 by cheque for private use.
You are required to prepare 3–column cash book of Ndubisi for the month of October.

78
Solution
Dr Ndubisi three column cash book for the month of Oct. Cr
Date Particulars Disc Alld. Bank Cash Date Particulars Disc rec. Bank Cash
Oct Oct N N N
3 A. Bose 159,750 6 Poki & Co. 5,400 102,600
6 O. Kola 30,000 7 Bank 75,000
7 Cash 75,000 8 Wages 112,400
15 Labake 5,625 106,875 13 BB Brothers 825 32,175
19 Bodunde 6,750 64,125 20 Tax 10,130
21 John Paul 2,475 96,525 21 Wages 112,500
27 Ade Sodimu 11,250 213,750 26 Chima 4,125 78,375
31 Balance b/f 48,750 -- 28 wages 112,500
28 Drawings 7,500
31 Balance c/d 100,650 50,945
26,100 401,625 393,150 10,350 401,625 393,150

Workings of discounts
5 N112,500
(i) Labake: 100 × 1
= N5,625 Note: Balance of Account (A – B = C)
2.5 N99,000
(ii) John: 100 × 1
= N2,475 (A) (B) (C)
5 N108,000 Debit side Credit side Balance
(iii) Poki: 100 × 1
= N5,400
N N N
2.5 N33,000
(iv) BB Brothers: 100 × 1 = N825 Bank - 401,625 300,975 100,650
Cash - 393,150 342,205 50,945
5 N82,500
(v) Chima: 100 × = N4,125
1

2000/8
The following information has been extracted from the books of C. Bintu.
January 1: Balance at bank N683.
January 1: Drew and cashed cheque for N500
January 1: Bought for cash 14 model coats for N282.
January 3: B Aluko paid by cheque N100 on account paid into bank.
January 5: Sold for cash two costumes at N36 and N33 respectively.
January 5: Paid in cash, wages N72 and office expenses N10.
January 9: Paid by cheque, H. Abba account N258 less 5% discount.
January 10: Cash sales to date, N76.
January 12: Paid by cheque M. Harrison account N300.
January 14: Paid in cash carriage N33.
January 18: Paid by cheque B. Banjo account N82.
January 18: Gave H. Abba a cheque on account N100.
January 18: Cash sales for the week N190.
January 18: B. Daodu paid N250 by cheque. Paid cheque into bank.
January 21: Purchased for cash 7 packets office pins at N1.17 per packet.
January 22: Paid cash into bank N100.

You are required to prepare 3 – column cash book to record the above transaction.

79
Solution
Dr C. Bintu three column cash book for the month of Jan. Cr
Date Particulars Disc Alld Bank Cash Date Particulars Disc Rec Bank Cash
Jan. N N N Jan. N N N
1 Balance b/d 683 1 Drawing 500
3 B. Aluko 100 1 Coat 282
5 Sales 69 5 Wages 72
10 Sales 76 5 Office expenses 10
18 Sales 190 9 H. Abba 12.90 245.10
18 B. Daodu 250 12 M. Morrison 300
22 Cash 100 14 Carriage 33
31 Balance c/d 94.1 170.19 18 B. Banjo 82
18 H. Abba 100
21 Office pins 8.19
22 Bank 100

-- 1,227.1 505.19 12.9 1,227.1 505.19

01 Balance b/d 94.1 170.19

Workings of Discount
5 N258
H. Abba: 100 × 1 = N12.90

(D). THE PETTY CASH BOOK

The petty cash book is a subsidiary book where minor expenses are recorded. In all large business there are numerous
small expenses to be made by cash payments. If all these are entered in details in the main cashbook, which is usually
written up by a senior official, much valuable time would be wasted. To reduce time wasting, a separate cashbook,
termed “petty cash book” is utilized in which all these expenses are recorded. Petty cash is the money kept in the office
to meet these minor requirements. All monies paid out of petty cash are entered on the credit side of the petty cash book
and extended into analysis columns, the total of which are used for posting a suitable periods to the debit side of the
appropriate accounts from the general cash book. In addition, the initial advance to the petty cashier is debited to petty
cash account.

The Imprest System

To set up the imprest system, the main cashier gives to the petty cashier an amount adequate to meet needs for an
ensuring period. This amount is known as the petty cash float. The petty cashier then begins to make disbursement from
the float, each disbursement being supported with dully authorized and approved petty cash voucher (PCV) signed by
the recipient. At the end of the period or when the float is almost exhausted, the petty cashier shall apply for
reimbursement of an equal amount to the total amount disbursed.

Illustration 6.10
The following is a summary of the petty cash transactions of Okagbare Ltd. for June 2019:
N
June 1 Petty cash float received 16,000
2 Petrol 700
3 Postages 900
4 Travelling 600
5 Postages 250
6 Petrol 1100
8 Travelling 850
9 Cleaning 900
10 Stationery 450
12 Postage 650
14 Cleaning 1650
15 Petrol 900
17 Postages 250
18 Motor expenses 2150
20 Cleaning 1050
22 Travelling 450
24 Stationery 950
30 Cleaning 650
30 Yanaya (ledger) 750

80
You are required to:
(i) Rule up a suitable petty cash book with analysis columns for cleaning, motor expenses, postage, stationery,
travelling and ledger.
(ii) Post the entries into the corresponding ledger accounts.
Solution
(i)
OKAGBARE LTD.
Dr PETTY CASH BOOK FOR THE MONTH OF JUNE, 2019 Cr
RECEIPTS F DATE PARTICULARS TOTAL PV PAYMENTS
NO.
Cleaning Motor Postage Stationery Travelling Ledger
Exps.
N June N N N N N N
1 Balance b/d
16,000 CB 2 Petrol 700 01 700
3 Postages 900 02 900
4 Travelling 600 03 600
5 Postages 250 04 250
6 Petrol 1100 05 1100
8 Travelling 850 06 850
9 Cleaning 900 07 900
10 Stationery 450 08 450
12 Postage 650 09 650
14 Cleaning 1650 10 1650
15 Petrol 900 11 900
17 Postages 250 12 250
18 Motor expenses 2150 13 2150
20 Cleaning 1050 14 1,050
22 Travelling 450 15 450
24 Stationery 950 16 950
30 Cleaning 650 17 650
30 Yanaya (ledger) 750 18 750
15,200 CB 30 15,200 4,250 4,850 2,050 1,400 1,900 750
30 Balance c/d 16,000
31,200 31,200
July
16,000 1 Balance b/d

(ii)
LEDGERS
Dr Cleaning Account Cr
June N N
30 Petty cash 4,250

Dr Motor Expenses Account Cr

June N N
30 Petty cash 4,850

Dr Postage Account Cr
June N N
30 Petty cash 2,050

Dr Stationery Account Cr
June N N
30 Petty cash 1,400

Dr Travelling Account Cr
June N N
30 Petty cash 1,900

Dr Yahaya’s Account Cr
June N June N
30 Petty cash 750 30 Balance b/d 750
81
Dr Cash book Cr
N June N
1 Petty cash 16,000
30 Petty cash 15,200
1992/3 Nov
X limited operates a petty cash book on the imprest system with a cash float of N300. The following transactions took place
in July, 1990
1990 N
July 2 Envelopes 4
2 Petrol 16
4 Postage stamps 7
5 Petrol 18
7 Office cleaning 20
9 Stationery 21
10 Alice Chucks – ledger account 19
12 Petrol 10
13 Adio – ledger account 15
14 Office cleaning 20
14 Travelling expenses 18
16 Postage stamps 12
17 Hamzat – ledger account 15
17 Postage stamps 3
18 Stationery 46
19 Petrol 12
21 Office cleaning 20
23 Reimbursed the account
24 Travelling expenses 10
26 Petrol 12
28 Office cleaning 20
You are required to enter the transactions into the petty cash book; under the following headings:
Stationary, Postage, Transport and Travelling, Office cleaning and Ledger.
Solution
Dr X LIMITED PETTY CASH BOOK FOR JULY, 1990 Cr
Date Details F Amount Date Details PV Total Stationery Postages T&T Office Ledger
No. cleaning
July N July N N N N N N N
1 Cash C 300 2 Envelopes 1 4 4
B
2 Petrol 2 16 16
28 Cash C 318 4 Postage stp 3 7 7
B
5 Petrol 4 18 18
7 Office clean 5 20 20
9 Stationery 6 21 21
10 A. Chuks 7 19 19
12 Petrol 8 10 10
13 Audio 9 15 15
14 Office clean 10 20 20
14 Travelling 11 18 18
16 Postage stp 12 12 12
17 Hamzat 13 15 15
17 Postage 14 3 3
18 Stationery 15 46 46
19 Petrol 16 12 12 20
21 Office clea 17 20
24 Travelling 18 10 10
26 Petrol 19 12 12
28 Office clean 20 20 20
318 67 26 96 80 49
28 Balance c/d 300
618 618
29 Balance b/d 300

82
2014/3 NABTEB (Dec)
Enter the following in the petty cash book showing analysis columns for postages and telegrams, travelling expenses,
printing and stationery and personal account.
N
July 1 Handed to the petty cashier as imprest allowance 20,000
,, 1 Bought postage stamps 1,550
,, 1 Paid travelling expenses 1,080
,, 2 Paid for stationery 2,250
,, 2 Paid for printing 2,500
,, 13 Paid K. Agu 3,000
,, 13 Bought postage stamps 1,750
,, 15 Paid bus fares 350
,, 15 Paid for telegram 410
,, 25 Bought stationery 280
,, 27 Paid N. Dele 2,750
,, 27 Travelling expenses paid 2,300

Balance the petty cash book and bring down the balance as at 27th July, 2010.
Solution
Dr PETTY CASH BOOK FOR THE MONTH OF JULY, 2010 Cr
RECEIPTS DATE DETAILS PAYMENTS
Total P&T Travelling P&S Personal Account
N July N N N N N
20,000 1 Cash float
1 Postage stamps 1,550 1,550
1 Travelling 1,080 1,080
2 Stationery 2,250 2,250
2 Printing 2,500 2,500
13 K. Agu 3,000 3,000
13 Postage stamps 1,750 1,750
15 Bus fare 350 350
15 Telegram 410 410
25 Stationery 280 280
27 N. Dele 2,750 2,750
27 Travelling 2,300 2,300
18,220 3,710 3,730 5,030 5,750
18,220 27 Reimbursement –
27 Balance c/d 20,000
38,220 38,220
Aug
20,000 1 Balance b/d

2021/21
The petty cash account has an imprest of GH₵36,000 and a debit balance of GH₵10,000 at the end of the month. The
reimbursement required would be
A. GH₵46,000 B. GH₵36,000 C. GH₵26,000 D. GH₵10,000
Anwer: GH₵26,000 (C)

1999/8 Theory
Joana Bonnah operates an imprest system with analysed petty cash book. There are columns for Stationery, Transport,
Postage and Medical Expenses. A float of N200,000 is maintained by the petty cashier who is reimbursed as and when
necessary.

83
The following transactions were recorded in the month of September, 1998:
N
September 2 Balance on hand 200,000
September 6 Bought postage stamp 28,000
September 7 Paid medical expenses 48,000
September 12 Bought stationery 28,500
September 16 Paid transport expenses 68,000
September 20 Paid medical expenses 40,800
September 22 Paid for postage stamps 6,200
Paid transport expenses 18,800
September 24 Bought stationery 6,800
Paid transport expenses 32,600
September 28 Bought postage stamps 8,500
September 30 Paid medical expenses 26,500

You are required to enter the details above in a column petty cash book.
Solution
JOANA BONNAH:
Dr. PETTY CASH BOOK FOR THE MONTH OF SEPTEMBER, 1998 Cr.
RECEIPTS DATE PARTICULARS TOTAL PAYMENTS
Stationery Transport Postage Medical
Expenses
N September
200,000 2 Float 28,000 28,000
6 Postage stamps 48,000 48,000
7 Medical expenses 28,500 28,500
12 Stationery 68,000 68,000
16 Transport expenses 40,000 40,800
20 Medical expenses 6,200 6,200
22 Postage stamps 18,800 18,800
22 Transport expenses 6,800 6,800
24 Stationery expenses 32,600 32,600
28 Postage stamps 8,500 8,500
30 Medical expenses 26,500 26,500
312,700 35,300 119,400 42,700 115,300
312,700 30
30 Balance c/d 200,000
512,700 512,700
Oct.
200,000 1 Balance b/d

2000/27
Which of the following is not a petty cash book item? Purchase of
A. stationery B. postage stamps C. cutlass for gardeners D. machinery
Answer: (D)

Use the following information to answer questions 39 to 41

Bola, a grocer, keeps petty cash on the imprest system, the float being GHc8,000. These transactions took place in
January, 2018.
GHc
January 1 Petty cash in hand 1,034
January 1 Petty cash to restore float 6,966
January 6 Bought note books 656
January 7 Paid wages 1,828
January 14 Bought postage stamps 750
January 16 Paid to Biodun, a creditor 1,072
January 18 Paid wages 1,856
January 23 Purchased envelopes 874
January 28 Purchased postage stamps 420

84
2022/39
Amount posted to the personal ledger was
A. GHc6,966 B. GHc3,684 C. GHc1,072 D. GHc1,034
Answer: GHc1,072 ⎯ ⎯→ Biodun, a creditor (C)

2022/40
Amount spent on stationery was
A. GHc1,530 B. GHc1,170 C. GHc1,076 D. GHc874
Answer: GHc1,350 ⎯ ⎯→ Notebook (656) + envelope (874) (A)

2022/41
Amount reimbursed at the end of the month was
A. GHc8,000 B. GHc7,456 C. GHc6,966 D. GHc6,928
Answer: GHc7,456 ⎯ ⎯→ Stationery (1,530) + ledger account (1,072) + wages (3684) + postage (1,170).

Workings:
Bola Grocery Petty Cashbook for the Month of January
RECEIPTS DATE DETAILS TOTA L PAYMENTS
AMOUNT
Stationery Ledger Wages Postages
GHc Jan GHc GHc GHc GHc GHc
1,034 1 Petty cash
6,966 1 Cash
6 Note book 650 656
7 Wages 1825 1828
14 Postage stamps 750 750
16 Biodun 1072 1072
18 Wages 1850 1856
23 Envelopes 874 874
28 Postage stamps 420 420
7456 1,530 1072 3684 1170
30 544
8,000 8,000
544 31 Balance b/d
7,456 Feb. 1 Cash

2021/2
(a) Explain the operation of petty cash book using the imprest system.
(b) Outline two disadvantages of the imprest system of keeping petty cash book.
(c) State four uses of a petty cash voucher.
Answer
(a) Petty cash book is a book of original entry for recording of minor expenses. The petty cashier is given an amount known
as the petty cash float to set up the imprest system from which the petty cashier then begins to make disbursement. At the
end of the period, the petty cashier is reimbursed by the main cashier.
(b) Disadvantages of imprest system:
(i) It is an outdated and inefficient system.
(ii) It is not a realistic solution for large expenses.
(iii) Prone to abuse or fraud.
(iv) It does not support spending above or over the petty cash float.
(v) It does not eliminate fraud.
(c) Uses of a petty cash voucher
(i) It is used to control the disbursement of cash from the petty cash fund.
(ii) It provides evidence for cash payment.
(iii) Petty cash voucher serve as a source document.

2022/8 Neco
In the imprest system of a petty cash book, a fixed amount handed over to the petty cashier at the beginning of a period
is called
A. cash float B. cash received C. cash reimbursed D. cash spent E. petty expenses
Answer: Cash float (A)
85
2019/15 NABTEB Nov
A petty cash book is used to
A. pay salaries and wages B. settle insurance expenses
C. pay small cash payment D. settle electricity bill only
Answer: pay small cash payment (C)

2019/16 NABTEB Nov

The officer who handles the payment of petty expenses is called
A. cashier B. chief cashier C. petty cashier D. imprest cashier
Answer: petty cashier (C)

2022/6 NABTEB Nov

A fixed amount of money set aside for petty expenses is called
A. imprest B. float C. receipt D. fund
Answer: float (B)

2021/30
Subsidiary books of account are used to record transactions
A. made in the same period B. of a similar nature C. involving minor amounts D. without source documents
Answer: of a similar nature (B)

2003/36
In which of the following is purchase of fixed assets on credit first recorded?
A. purchase journal B. journal proper C. cash book D. general ledger
Answer
Journal proper (B)

2003/49
Which of the following has multiple uses?
A. sales journal B. purchases journal C. general journal D. returns outward journal
Answer: General journal (C)

2004/1
The sales Day book is used to record
A. cash and credit sales B. credit sales C. cash sales D. sales to middlemen
Answer: Credit sales (B)
2008/33
Which of the following is not a subsidiary book?
A. sales journal B. cash book C. purchases ledger D. general journal
Answer: cash book (B)
2009/1
Which of the following books of original entry is used to record all payments and receipts by cash or cheque?
A. sales day book B. cash book C. purchases day book D. general journal
Answer: Cash book (B)
2019/9 NABTEB Nov
The distinguishing feature between a two column and three column cash book is
A. cash column B. discount column C. bank column D. ledger folio
Answer: discount column (B)
2019/10 NABTEB Nov
The bank column in the cash book shows a credit balance of N180. This means a/an
A. total payment of N180 B. gross receipt of N180
C. left over of N180 in the bank D. overdraft of N180
Answer: Overdraft of N180 (D)
2022/8 Neco
In the imprest system of a petty cash book, a fixed amount handed over to the petty cashier at the beginning of a period
is called
A. cash float B. cash received C. cash reimbursed D. cash spent E. petty expenses
Answer: Cash float (A)
86
2022/10 Neco
In accounting, all transactions involving actual transfer of money from cash till to bank or vice versa are called ____
entry.
A. contra B. double C. real D. single E. triple
Answer: Contra (A)

2022/11 Neco
A subsidiary book is a book of
A. contra entry B. final account C. final entry D. ledger account E. original entry
Answer: Original entry (E)

2022/1 Neco (Theory)

(a) Differentiate between discount allowed and discount received.
(b) Identify five subsidiary books of account.
Answer
(a) Discount Allowed is the discount (rebate) given to the customers (i.e. debtors) for prompt payment of cash. It is a
selling expenses to the seller and it is usually entered in the discount column on the debit side of the cash book.

While

Discount Received is the discount the business received from the suppliers (or sellers) for prompt settlement of
account. It is an income or revenue to the business. Discount received is usually found or entered in the discount
column on the credit side of the cashbook.
(b) Five (5) subsidiary books of account:
(i) Purchases day book.
(ii) Sales day book.
(iii) Returns inwards day book.
(iv) Returns outwards day book.
(v) Cash book.
(vi) General journal/journal proper.
(vii) Petty cashbook.
(viii) Bills books.

2002/6 (Theory)
Akua Amoah Enterprises
During the three months ended 31st March 2000; business transactions were as follows:
January 1st Commenced business by introducing N500,000 into a bank account.
January 5th Bought N100,000 of fixtures and fittings from Adom Supplies Limited on credit.
January 15th Bought office stationery for N2000 paying by cheque.
January 28th Bought goods for resale for N50,000 paying by cheque
February 2nd Paid Adom Supplies Limited a cheque for N100,000.
February 3rd Rent of N60,000 for business premises was paid by cheque.
February 10th Sold some of the goods on credit for N40,000 to K. Danso
February 25th Bought goods on credit from Continental Traders Limited for N70,000
March 1st Bought N15,000 of fixtures and fittings from Adom Supplies Limited on credit.
March 8th Received cheque payment of N40,000 form K. Danso.
March 12th Bought stationery for N1,000 paying by cheque.
March 31st Sold goods for N30,000 receiving cheque in payment.

You are required to enter the above transactions in the relevant ledger accounts, balance off and extract a trial balance as at March,
31st, 2000.
Solution
Akua Amoah Enterprises Journal Proper
Date Particulars Folio Amount Total
Jan N N
5 Adom Supplies Ltd.
Fixtures and fittings PL 100,000

Mar
1 Adom Supplies Ltd:
Fixtures and fittings PL 15,000 115,000
Total credit purchase DR 115,000

87
Akua Amoah Enterprises Sales Journal
Date Particulars Folio Amount Total
Feb N N
10 Sold to K. Danso SL 40,000 40,000
Total credit sales CR 40,000

Akua Amoah Enterprises:

Bank Account, 31st March, 2000
Date Particulars Amount Date Particulars Amount
N N
Jan 1 Capital 500,000 Jan. 15 Office stationery 2,000
Mar. 8 K. Danso 40,000 Jan 28 Purchases 50,000
Mar. 31 Sales 30,000 Feb 2 Adom Ltd 100,000
Feb 3 Rent 60,000
Mar. 12 Office stationery 1,000
Mar. 31 Balance c/d 357,000
570,000 570,000
April 1 Balance b/d 357,000

LEDGERS
Dr Capital Account Cr
March N Jan N
31 Balance c/d 500,000 1 Bank 500,000

April
1 Bal. b/d 500,000

Dr K. Danso’s Account Cr
Feb N March N
10 Sundries 40,000 8 Bank 40,000

Dr Sales Account Cr
March N N
31 Balance c/d 70,000 Feb 10 Sundries 40,000
March 31 Bank 30,000
70,000 70,000
March 31 Balance b/d 70,000

Dr Office Stationery Account Cr

N N
Jan 15 Bank 2,000 March 31 Balance c/d 3,000
March 12 Bank 1,000
3,000 3,000
March 31 Balance b/d 3,000

Dr Purchases Account Cr
N N
Jan 28 Bank 50,000 March 31 Balance c/d 120,000
Feb. 25 Sundry 70,000
120,000 120,000
April 1 Balance b/d 120,000

Dr Adom Suppliers Ltd. Account Cr

N N
Feb. 2 Bank 100,000 Jan 5 Fixtures 100,000
March 31 Sundry 15,000 Mar. 1 Fixtures 15,000
115,000 115,000
April 1 Balance b/d 15,000

88
Dr Rent Account Cr
N N
Feb 3 Bank 60,000 March 31 Balance c/d 60,000
April 1 Balance b/d 60,000
Dr Fixtures and Fittings Account Cr
N N
Jan 5 Sundry 100,000 March 31 Balance c/d 115,000
March 1 Sundry 15,000
115,000 115,000
April 1 Balance b/d 115,000
Dr Continental Traders Ltd. Account Cr
N N
March 31 Balance c/d 70,000 Feb. 25 Sundry 70,000
April 1 Balance b/d 70,000
Akua Amoah Enterprises:
Trial Balance as at 31st March, 2000
Date Particulars Folio Debit Credit
March N N
31 Capital 500,000
Sales 70,000
Adom supplies Ltd. 15,000
Continental traders Ltd. 70,000
Purchases 120,000
Office stationery 3,000
Plant 60,000
Fixtures and fittings 115,000
Bank 357,000
655,000 655,000

2004/7 Theory
The following information relates to the business of Tunde, a petty trader for the month of May, 2002:
May N
1 Started business with capital in cash 25,0000
2 Bought goods on credit from: Dotun 5,400
Mebude 8,700
Kola 2,500
Bobo 7,600
Olowe 6,400
4 Sold goods on credit to: Bimbo 4,300
Hakeem 6,200
Sumbo 17,600
6 Paid rent by cash 1,200
9 Bimbo paid his account by cheque 4,300
10 Sumbo paid by cheque 15,000
12 Paid the following by cheque: Kola 2,500
Dotun 5,400
15 Paid for carriage on goods by cash 2,300
18 Bought goods on credit: Mebude 4,300
Bobo 11,000
21 Sold goods on credit to Hakeem 6,700
31 Paid rent by cheque 1,800
You are required to prepare the ledger accounts and extract a trial balance.
Solution
Books to be prepared:
- Subsidiary books;
- Ledgers;
- Trial balance;

89
(i)
Subsidiary Books
TUNDE:
Two column cash book for the month of May, 2002
Date Particulars Folio Bank Cash Date Particulars Folio Bank Cash
May N N May N N
1 Capital CB 25,000 6 Rent GL 1,200
9 Bimbo SL 4,300
10 Sumbo SL 15,000
12 Kola PL 2,500
12 Dotun PL 5,400
15 Carriage GL 2,300
31 Paid rent GL 1,800
31 Balance c/d 9,600 21,500
19,300 25,000 19,300 25,000
Balance b/d 9,600 21,500

TUNDE:
Purchases Daybook for the month of May, 2002.
Date Particulars Folio Amount Total
May N N
2 Bought goods from:
Dotun PL 5,400
Mebude PL 8,700
Kola PL 2,500
Bobo PL 7,600
Olowe PL 6,400 30,600

18 Bought goods from:

Mebude 4,300
Bobo 11,000 15,300
Purchases account Dr . 45,900

TUNDE:
Sales Daybook for the month of May, 2002.
Date Particulars Folio Amount Total
May N N
4 Sold goods to
Bimbo SL 4,300
Hakeem SL 6,200
Sumbo SL 17,600 28,100

21 Sold goods to:

Hakeem SL 6,700 6,700
Sales account CR 34,800

(ii)
LEDGERS
Dr Capital Account Cr
May N May N
31 Balance c/d 25,000 1 Cash 25,000
June
1 Balance b/d 25,000

Dr Bimbo’s Account Cr
May N May N
4 Sundry 4,300 9 Bank 4,300

90
Dr Sumbo’s Account Cr
May N May N
4 Sundry 17,600 10 Bank 15,500
31 Balance c/d 2,600
June 17,600 17,600
1 Balance b/d 2,600

Dr Rent Accuont Cr
May N May N
6 Cash 1,200 31 Balance c/d 3,000
31 Bank 1,800
3,000 3,000
June
1 Balance b/d 3,000

Dr Kola’s Account Cr
May N May N
12 Bank 2,500 2 Sundry 2,500

Dr Dotun’s Account Cr
May N May N
12 Bank 5,400 2 Sundry 5,400

Dr Carriage Account Cr
May N May N
15 Cash 2,300 31 Balance c/d 2,300
June
1 Balance b/d 2,300

Dr Mebude’s Account Cr
May N May N
31 Balance c/d 13,000 2 Purchases 8,700
18 Purchases 4,300
13,000 13,000
Jan
1 Balance b/d 13,000

Dr Bimbo’s Account Cr
May N May N
31 Balance c/d 18,600 2 Purchases 7,600
18 Purchases 11,000
18,600 18,600
June
1 Balance b/d 18,600

Dr Olowe’s Account Cr
May N May N
31 Balance c/d 6,400 2 Purchases 6,400
June
1 Balance b/d 6,400

Dr Bimbo’s Account Cr
May N May N
4 Sales 6,200 31 Balance c/d 12,900
21 Sales 6,700
12,900 12,900
June
1 Balance b/d 12,900
91
Dr Sales Account Cr
May N May N
31 Balance c/d 34,800 31 Sundries 34,800
June
1 Balance b/d 34,800

Dr Purchases Account Cr
May N May N
31 Sundries 45,900 31 Balance c/d 45,900
June
1 Balance b/d 45,900

TUNDE’S:
Trial Balance as at 31st May, 2002.
Date Particulars Folio Debit Credit
May N N
31 Capital 25,000
Sumbo’s Account 2,600
Rent 3,000
Carriage 2,300
Mebude’s account 13,000
Bobo’s Account 18,600
Olowe’s Account 6,400
Hakeem’s Account 12,900
Sales 34,800
Purchases 45,900
Cash at bank 9,600
Cash at hand 21,500
97,800 97,800

Note: Accounts without balance c/d cannot be taken/posted into the trial balance.
- c/d – carried down.
- b/d – bought forward/down.

2021/9
The following information were extracted from the books of Kola Enterprise on 31 st July, 2016.
July :
1 : Opening balance: cash N80,000; bank N680,000
1 : Purchased furniture and fittings by cheque N520,000
3 : Office cash paid into bank N300,000
4 : Bought goods on credit from Zuma ltd N350,000
6 : Additional capital; cash N500,000; bank N500,000.
6 : Billy paid the amount he owed by cash less 5% discount
(N50,000).
7 : Sold goods for cash N100,000.
7 : Cash sales N200,000.
8 : Bank lodgement N500,500.
9 : Cash purchases N100,500.
11 : Bought goods from Sadat paying by cheque N200,000.
12 : Sold goods to John on credit N250,000.
12 : Paid Banji the amount he owed by cash less 2% discount
N400,000.
13 : Bought plant and machinery by cash N200,000.
14 : Received a cheque of N150,000 from Ngozi being full
payment for the amount he owed N200,000.
20 : Sold goods for cash N150,000.
26 : Sold goods are received by cheque N220,000.
29 : Salaries and wages paid by cheque N100,000

You are required to prepare a three column cash book for the month of July, 2016.

92
Solution
KOLA ENTERPRISES:
Three Column Cashbook for the month of 31 st July, 2016.
Dr Cr
Date Details F Disc. Bank Cash Date Details F Disc. Bank Cash
July N N N July N N N
1 Balance CB 680,000 80,000 1 Furniture GL 520,000
3 Cash ‘C’ 300,000 3 Bank ‘C’ 300,000
6 Capital CB 500,000 500,000 8 Bank ‘C’ 500,500
6 Billy SL 7,500 42,500 9 Purchase PL 100,500
7 Sales SL 100,000 11 Purchase PL 200,000
7 Sales SL 200,000 12 Banji PL 8,000 392,000
8 Cash ‘C’ 500,500 13 Plant GL 200,000
14 Ngozi SL 50,000 150,000 20 Stationery GL 162,000
20 Sales SL 150,000 29 Salaries GL 100,000
26 Sales SL 220,000 31 Balance c/d 1,530,500 -
31 Balance c/d - 582,500
57,500 2,350,500 1,655,000 8,000 2,350,500 1,655,000

Note:
Debit side Credit side Balance
N N N
Bank 2,350,500 820,000 1,530,500
Cash 1,172,500 1,655,000 (582,500)
2007/6 (Theory)
The following transactions were extracted from the books of Mercyland Trading Company as at 31 st January, 2005. All payments
were made by cheque and all receipts were paid to the bank. The company maintains a float of N21,000.
N
January 2 Cash at Eaglet Bank 20,000
January 2 Petty cash in hand 1,400
January 3 Drew cheque for petty cash 19,600
January 5 Received from Anthony, cheque in settlement of his debt
N32,600 less 10% discount.
January 6 Settled Tunde’s account of N25,900 less 10% discount.
January 7 Sold for cash 20 MTN cards at N750 per card
January 8 Transferred to current account from deposit account 70,000
January 10 Paid Olu 4,800
January 16 Paid cheque for motor repairs 8,000
January 17 Paid Ade 3,800
January 24 Paid Kofi 4,050
January 27 Paid Kwame 4,200
January 29 Payments from petty cash during the month were:
Salaries and wages 8,000
Trade expenses 2,0000
Sundry purchases 9,200
You are required to prepare:
(a) Two-column cash book (showing Discounts and Bank columns only) for the month ended 31 st January, 2005.
(b) Petty cash book for the same period.
Solution
(a)
MERCYLAND TRADING COMPANY
DR Two Column Cashbook for the month of January, 2005 CR
Date Particulars Discount Bank Date Particulars Discount Bank
allowed received
Jan N N Jan. N N
2 Balance c/d 20,000 3 Drawing 19,600
5 Anthony 3,260 29,340 6 Tunde 2,590 23,310
7 Sales 15,000 10 Olu 4,800
8 Deposit 70,000 16 Motor repairs 8,000
17 Ade 3,800
24 Kofi 4,050
27 Kwame 4,200
31 Balance c/d 66,580
3,260 134,340 2,590 134,340
Feb.
1 Balance b/d 66,580
93
Note:
- Balance : Debit side – 134,340
Credit side – 67,760
66,580

- Discount allowed (Anthony) = 10% of N32,600

= 0.1 × 32,600
= N3,260

- Sales : 20 MTN cards @ N750 per card

20 × 750 = N15,000

- Discount received (Tunde) = 10% of N25,900

= 0.1 × 25,900
= N2,590

(b)
MERCYLAND TRADING COMPANY
PETTY CASH BOOK FOR THE MONTH OF JANUARY, 2015
RECEIPTS DATE PARTICULARS P.V. NO. TOTAL PAYMENTS
AMOUNT
Salaries Trade Expenses Sundry
Jan. N N N N
1,400 2 Balance b/d CB
19,600 3 CB
29 01 8,000 8,000
29 02 2,000 2,000
29 03 9,200 9,200
19,200 8,000 2,000 9,200
30 Balance c/d CB 1,800
21,000 21,000
1,800 31 Balance b/d
19,200 Feb. 1 Bank

2008/7 (Theory)
Kofi is a dealer in general merchandise. The following are his transactions for the month of June, 2002.

June 1: Sold goods to Mensah Le20,000 less 10% trade discount

June 4: Purchased from Kwesi the following:
20 iron rods at Le20 each
100 fillers at Le30 each
Invoice subject to 10% trade discount
June 6: Purchased from Asante Ltd., 10 bottles of gin at Le30 each.
June 7: Returned 60 iron rods purchased on 4 th June, to Kwesi.
June 9: Sold the following to Kojo:
300 bags of cement at Le15 each, less 15% trade discount, 150 tins of target at Le10 per tin.
June 18: Kojo returned 10 bags of cement bought on the 9 th of June.
June 20: Sold to Jones.
80 iron rods at Le50 each
110 bags of cement at Le16 each
250 fillers at Le35 each
Invoice subject to 15% trade discount.
June 21: Jones was allowed 50% reduction on the total invoice price for goods damaged on transit.
June 30: Purchased from Femi:
100 bags of cement at Le15 each.
5 gallons of oil paint at Le20 each.
300 metal sheets at Le18 each.

You are required to write up the following:

(a) Sales day book.
(b) Sales returns book.
(c) Purchases day book.
(d) Purchases returns book.

94
Solution
(a)
Kofi Sales Day Book for the Month of June, 2002
Date Details Folio Amount Total
June Le Le
1 Sold to Mensah:
Goods 20,000
10 SL (2,000) 18,000
Less: Discount ( × 20,00) 10%
100
9 Sold to Kojo:
300 bags of cement @ Le15 per bag SL 4,500
15 (675)
Less: discount ( × 4,500) 15,%
100
3,825
150 tins of target @ Le10 per tin SL 1,500 5,325
20 Sold to Jones:
80 iron rods @ Le50 per rod SL 4,000
110 bags of cement @ Le16 per bag SL 1,760
250 fillers @ Le35 each SL 8,750
14,510
15 (2,176.5)
Less: discount ( × 14,510) 15%
100
12,333.5
50 (6,166.75) 6,166.75
Less: Rebak for damages ( × 12,333.5)
100
30 Sales Account CR 29,491.75

(b)
Kofi Sales Returns Book for the Month of June, 2002
Date Particulars Folio Amount Total
June Le Le
18 From Kojo:
10 bags of cement @ Le15/bag. 150
15 22.50 127.50
Less: Discount ( × 150) 15%
100
30 Returns Inwards Account DR 127.50

(c)
Kofi Purchases Day Book for the month of June 2002.
Date Particulars Folio Amount Total
June Le Le
4 Kwesi:
200 iron rods @Le20 each. PL 4,000
100 fillers @Le30 each PL 3,000
7,000
10 (700) 6,300
Less Discount ( × 7000) 10%
100
6 Asante Ltd:
10 bottles of gin @ Le30 each PL 300 300
30 Femi:
100 bags of cement @Le15 each PL 1,500
50 gallons of oil paint @Le20 each PL 1,000
300 metal sheet @Le18 each PL 5,400 7,900
Purchases account DR. 14,500

(d)
Kofi Purchases Returns Book for the month of June, 2002.
Date Particulars Folio Amount Total
June Le Le
7 To:
Kwesi
60 iron rods @ Le20 PL 1,200
10 (120) 1,080
Less Discount ( × 1200) 10%
100
30 Returns Outwards Account CR 1,080

95
2014/2 NABTEB Exercise 6.1
The only book of account which serves as a subsidiary and principal book of account is
A. cash book B. purchases day book C. sales day book D. returns inward book
2005/22 Neco Exercise 6.2.
Minor expenses for office entertainment is recorded in the _____ book
A. cash B. petty cash C. purchases day D. returns inwards
2005/20 Neco Exercise 6.3.
In the imprest system of a petty cash book, a fixed amount handed over to the petty cashier at the beginning of the period
is called
A. cash float B. cash received C. cash reimbursed D. cash spent E. petty expenses
2019/3 Neco Exercise 6.4.
A. assets, cash and liabilities B. assets, cash and returns C. banks, cash and assets D. discount, cash and bank
2005/4 Exercise 6.5.
Which of the following books of original entry serves dual purpose?
A. cash book B. sales day book C. purchases day book D. returns inward book
2000/27 Exercise 6.6.
Which of the following is not a petty cash book item? Purchase of
A. stationeries B. postage stamps C. cutlass for gardeners D. machinery
2016/8 Neco Exercise 6.7.
Which of the following is not a petty cash book item?
A. milk B. office pins C. pencils D. stamps E. typewriter
2019/4b & C Exercise 6.8
(4b) Explain the following terms:
i. Petty cash float; ii. Contra entries iii. Imprest system
(4c) State three (3) advantages of keeping petty cash book using imprest system.
2005/2 Exercise 6.9
Describe the following:
A. cash book B. contra entry C. two column cash book D. three column cash book
Exercise 6.10
From the following transactions of Koko Ltd. Write up the sales journal for the first week of March, 2000 and post to
the ledger. Note that subsidiary books are posted to the ledger weekly.
March 2: Sold to S. Binta.
2 cartons of Capri-son fruit drink at N1,000 March 4: Sold to S. Binta.
per carton 10 loaves of bread at N60 each
4 crates of 7 – up at N300 a crate Per invoice No. 02020.
Per invoice No 02017.
March 5: Sold to Y. Ayustede; N200, S. Binta N4050.
March 2: Sold to M. Muhammed. Per invoice No. 02021 and 02022 respectively.
8 cartons of Indomie Noodles at N440 a carton,
2 dozens of dano milk at N40 a tin, March 6: Sold to D. Taiwo:
8½ crates of eggs at N300 a crate, 10 crate of coca – cola at N240 a crate,
Per invoice no. 02018. 2 cartons of pure heaven wine at N1,400 a
March 3: Sold to K. Nkechi: carton
12 dozens of Exercise books at N20 each, Per invoice no. 02023
2 packets of Bic pen at N800 a packet,
10 rulers at N10 each
Per invoice No. 02019.

96
Exercise 6.11
Record the following transaction in the book of Alex Ltd. and post to the ledger. Transactions are posted to the ledger
on the 15th of every month. Sept 8: Bought of Aloma J. O:
2 measures of rice at N1,500 a measure,
Sept 1: Bought of Obi & Sons:
4 measures of beans at N900 a measure.
2½kg of turkey at N250 for ½kg,
Per invoice No. 980
10kg of beef at N30 per kg
Per invoice No. 9010 Sept. 14: Bought of Aghogho A. S:
Subject to 10% trade discount. 4 litres of groundnut oil at N400 a litre,
3 litres of palm oil at N350 a litre,
Sept 4: Bought of Aloma J. O. goods worth N240
2kg of butter at N500 a kg
Per invoice number, 4182,
Per invoice No. 3774
Subject to 8% discount.
Subject to 4½ trade discount.
2009/5 Exercise 6.12
The following information was extracted from the books of Adjuah Enterprises for the month of January, 2007.
January 1: Cash in hand ȼ500,000; cash at bank ȼ59,500.
3: Bought goods for cash ȼ2,500.
5: Withdraw ȼ6,700 from bank for private use.
9: Received from the following, cheques in full settlement of their accounts, in each case deducting cash
discount of 5%.
- Nana ȼ5,000.
- Ngian ȼ7,000
- Prince ȼ13,000
15: Paid ȼ8,500 to Sarah by cheque in full settlement of a debt of ȼ9,000.
17: Received ȼ15,000 cheque from Johnson stores in full settlement of a debt of ȼ16,000.
19: Paid ȼ45,000 cash into bank.
21: Bought 200 shares in Mawudeka Ltd for ȼ241,500. Payment made in cash.
22: Cash sales paid direct into bank ȼ9,000.
24: Paid the following by cash in each case deducting 2½% cash discount.
- Yayra ȼ22,000.
- Kekeli ȼ37,000
- Kunam ȼ40,000
25: Withdrew ȼ5,000 from bank for office use.
29: Paid salaries in cash ȼ115,000.
31: Cash drawings ȼ4,000.
You are required to prepare a three – column cash book for the month of January, 2007.
2011/5 Exercise 6.13
The following information was extracted from the books of Osula Enterprises:
June 1: Cash balance bought forward N40,000.
June 2: Bank balance brought forward N112,000
June 3: Paid rent by cash N20,000.
June 4: Received loan from Osaro N10,000 by cheque.
June 5: Paid general expenses in cash N600.
June 6: Bought goods by cheque N60,000.
June 7: Deposited cash at bank N30,000.
June 8: Sold goods N185,000 for cash.
June 9: Sold goods and received cheque N194,000.
June 10: Bought goods from Ali N82,000 on credit.
June 11: Commission received by cheque N520.
June 12: Bought stationery by cash N150.
June 13: Sold goods N200,000 for cash.
June 14: Withdrew cash from bank N43,000.
June 15: Sold goods and paid proceeds to bank N200,000.
June 16: Bought motor van by cheque N60,000.
June 18: Paid Odion for goods bought N5,000 by cheque.
June 20: Paid part of Osaro’s loan N5,000 by cash.
June 23: Withdrew cash from the bank N48,500.
June 25: Paid James for goods bought N25,000: N20,000 in cash; N5,000 by cheque
June 28: Paid wages in cash N75,000.
June 29: Rent received by cash N2,500.
June 30: Cash sales N120,000.
You are required to write up a two – column cash book for the month.

97
2018/5 NABTEB Exercise 6.14
Bonfry Joe operates an imprest system with analysed petty cash book. There are columns for stationery, transport,
postages and medical expenses. A float of N200,000 is maintained by the petty cashier who is reimbursed as and when
necessary.
The following transactions were recorded in the month of October, 2008.
October N
,, 2 Balance on hand 200,000
,, 6 Bought medical expenses 28,000
,, 7 Paid medical expenses 48,000
,, 12 Bought stationery 28,800
,, 16 Paid transport expenses 68,000
,, 20 Paid medical expenses 40,800
,, 22 Paid for postage stamps 6,200
Paid transport expenses 18,800
,, 24 Bought stationery 6,800
Paid transport expenses 32,600
,, 28 Bought postage stamps 8,500
,, 30 Paid medical expenses 26,500

You are required to state the details above in a columina petty cash book.

2003/11 Nov Exercise 6.15

The amount shown on a Returns Outward Journal represents the value of goods
A. bought for sale B. sent out on sale C. returned by customers D. returned to suppliers

2003/12 Nov Exercise 6.16

The credit balance on an account represents the
A. value by which the credit side exceeds the debit side B. balance placed on credit side to make the total agree
C. value by which the debit side exceeds the credit side D. balance placed on the debit side to begin the next period

2003/13 Nov Exercise 6.17

A petty cashier spent N30,000 in a period and was left with N20,000. How much is the cash float?
A. N50,000 B. N30,000 C. N20,000 D. N10,000

2004/8 Nov Exercise 6.18

The total of items recorded in the Returns Inward Journal is
A. debited to Sales Returns Account B. credited to Sales Returns Account
C. debited to Purchases Returns Account D. credited to Purchases Returns Account

2004/12 Nov Exercise 6.19

An amount of money held by a cashier for meeting duly authorized small expenses is
A. petty cash B. discount received C. discounts allowed D. cash in transit

2006/6 Nov Exercise 6.20

Which of the following is both a subsidiary book and a ledger account?
A. sales day book B. purchases day book C. cash book D. sales returns book

2006/10 Nov Exercise 6.21

Discount allowed is found on the
A. debit side of a three-column cashbook B. debit side of a two-column cashbook
C. credit side of a two-column cash book D. credit side of a three-column cashbook

98
Exercise 6.22
Kasali operates a petty cash book on the imprest system with a cash float of N80,000. The following transactions took
place in March 2021:
N
March 2 Cleaning 2,000
3 Stationery 1,000
4 Petrol 500
5 Envelopes 600
7 Postage 700
9 Cleaning 300
10 Onoriode: ledger account 250
12 Postage 280
13 Stationery 420
14 Udoh: ledger account 600
15 Cleaning 300
17 Petrol 1100
18 Reimbursement of account
20 Travelling expenses 1000
22 Postage 1200
23 Envelopes 1100
25 Cleaning 1050
28 Olamide: ledger account 1000
29 Petrol 1020
30 Travelling expenses 1600
31 Disinfectant for cleaning 450
You are required to enter the transactions into the petty cash book under the following headings: cleaning, transport,
postage, stationery, travelling and ledger.
Exercise 6.23
Rule a petty cash book containing columns headed as follows: postage, fares, stationery, and telegrams. Enter the
following transactions and balance the account.
Feb 1 Received from cashier for petty cash N5,000
2 Bought stamps N500
3 Paid bus fares N800
3 Paid for telegram N420
4 Paid for telegram N300
6 Stationery N750
12 Paid for postage stamps N250
14 Received from cashier cheque to make up the amount of the imprest N5000
18 Bought stamps N250
24 Paid railway fares N150
25 Paid for telegrams N200
26 Paid for postage stamps N500
27 Paid for envelope N400
28 Taxi fares N500
Exercise 6.24
Write up the two – column cashbook from the following:
Jan 1 Balance b/d: cash in hand N56,000
Cash at bank N23,560
2 Paid rent by cheque N4,000
3 Paid for insurance in cash N5000
5 Bought furniture for N19500 cash.
9 Paid rent by cheque N15,000
12 Cash sales N7,400
14 Cash drawings by proprietor N2,000
16 Cash paid into bank N6,000
20 We paid Jumoke by cheque N7,500
22 Withdrew N20,000 from bank for business use.
26 Cash sales paid directly into bank N11,100.
29 Bola paid us N15,000 cash.
30 Taiwo paid us by cheque N7,900
99
Exercise 6.25
From the following details, write up a two columns cashbook for Ewomazino Enteprises and balance off at the end of
the month.
Sept 1 Balance brought forward from last month: cash in hand N48,000
Cash at bank N80,600
2 We paid each of the following by cheque: H. Johnson N4,900, A. Omu N10,600, U.
Ighoyota N5,900.
3 F. Ogoro paid us in cash N7,200.
5 Paid rent in cash N4,900
7 Y. Efe paid us by cheque N20,400
9 Cash sales N9,000
11 Paid wages in cash N8,800.
14 We paid D. Fasasi in cash N1,900.
17 Drawings by cheque N10,000.
20 Cash sales paid directly into the bank N21,000
26 Withdraw N20,000 from the bank for business use.
27 Paid transport by cheque N12,000.
28 Paid insurance in cash N1,500.
30 Paid rates in cash N4,900.
30 M. Sani paid us by cheque N12,400.

Exercise 6.26
Enter the following transactions in a three-column cash book of M. Kasala for the month of May, balance the cash book
on 31st May and bring down the balances.
N
May 1 Cash in hand 7,000
1 Cash at bank 8,150
2 N. Sule paid cheque 1,010
4 Paid cash into bank 3,500
5 Ash sales 900
9 Settled Avengers Ltd. account of N2,000 by cheque less 3% cash discount.
12 P. merit settled her account of N1,200 by cheque deducted 2% cash discount.
14 Withdraw cash from bank for personal use. 1,800
15 Bought office furniture by cheque 12,000
18 Paid motor expenses in cash 200
19 Cash sales 4,050
24 Paid maintenance expenses in cash. 1,000
25 Paid in cash BEDC bill 2,500
26 Paid salaries 3,500
27 O. Tobore paid cheque 2,100
28 Bought equipment by cheque 4,230
30 Cash sales paid into bank 650
31 O. Tobore cheque was returned by the bank marked R/D

Exercise 6.27
Write up the three-column cash book from the following details and balance off as at the end of the month.
Nov 1 Balance brought forward: cash N59,260, bank N72,050
2 The following debtors paid their accounts by cheque, in each case deducting
1.5% cash discount: Amina N9,000, Komolafe N3,000 and Uche N6,200.
4 Paid electricity bill by cheque N1,500 and cash N300.
6 Paid wages by cheque N12,000.
10 Paid for waste disposal N2,000
13 We paid the following accounts by cheque in each case deducting a 3% ash
discount: Wike N6,800, Dino N4,000, Atiku N21,000.
16 Paid miscellaneous expenses in cash N400
20 Achoja paid his account of N19,000 by cheque deducting N900 discounts.
26 1
The following paid their accounts by cheque, in each case deducting 2 2 %
cash discounts; Oboyano N11,000; Muniratu N9000; Frankressa N15,000 and
Igho N6,000.
30 Cash drawing N4,210
31 Cash sales paid directly into the bank N7,500.
31 Bought goods for cash N1,750.

100
Chapter seven

TRIAL BALANCE
DEFINITION OF TRIAL BALANCE
If the double – entry principle have been completely and correctly applied, it is obvious that total of all credit entries
will be equal to the total of all debit entries. By extension, the total of the debit balances should be equal to the total of
the credit balance. The trial balance is therefore defined as a schedule or list that shows the debit and credit balances
extracted from the ledgers to show the arithmetical accuracy of the ledgers. The objective is to prove the accuracy of
the book keeping. The trial balance is a statement summarizing the closing balance of all the ledgers (accounts), prepared
with the view to verify the arithmetical accuracy of the ledger posting.

OBJECTIVE/IMPORTANCE OF TRIAL BALANCE

1. To ascertain the arithmetical accuracy of ledger accounts: As a summary of all the ledger accounts closing
balance, trial balance helps in determining the accuracy of journal and ledger posting. The trial balance is assumed
to be accurate only when the total debit is equal to the credit.
2. Helps to locate errors: If there is any difference in the trial balance, it signals that journal or ledger posting is not
carried out efficiently. It clearly implies that there are errors and it is high time for accountants to find and correct
it. The error may have occurred at any of the following stages of accounting:
i. Posting journal entries to the ledger account. ii. Totaling of subsidiary books.
iii. Calculation errors. iv. Posting of balance from ledger account to trial balance.
v. Error in totaling trial balance.
3. Helps to prepare financial statement: Trial balance is a bridge between accounting records and financial
statements. Trial balance is the stepping stone for preparing all the financial statements such as trading and profit
& loss account, balance etc. Using the trial balance, all the income and expenses related ledger accounts are
compiled to create Profit and loss account and the rest are used for preparing a balance sheet.

FEATURES OF TRIAL BALANCE

1. It is a summary of debit and credit balances which are extracted from various ledger accounts.
2. The motive behind the preparation of trial balance is to establish arithmetical accuracy of the transactions recorded
in the Books of Accounts.
3. Trial balance does not prove any arithmetical accuracy of accounts which can only be determined by the audit.
4. It is not an account. It is only a statement of account.
5. It is not a part of the final statements.
6. A trial balance is usually prepared at the end of the account year but it can also be prepared anytime as and when
required like weekly, monthly, quarterly or half-yearly.
7. It acts as a bridge between books of accounts and the Profit and Loss Account and Balance sheet.

PREPARATION OF TRIAL BALANCE

There are two methods of preparing the trial balance:
a) The Account Balance Method: In this method, the closing balances of ledger accounts are tabulated in a separate
statement. The brought down balances are brought to this statement.
b) The Total Method: Under this method, ledgers accounts are not balanced, they are totaled. These totals are entered
in debit and credit columns.

HOW TO PREPARE A TRIAL BALANCE

Preparing trial balance is one of the first steps towards preparing final accounts and other financial statements. The
following are the steps to prepare trial balance:
i. Preparing ledger accounts to determine the closing balance of each account.
ii. Post the ledger accounts into trial balance and place the balance in the debit or credit column. The format of the
trial balance is explained in the next section.
iii. All the assets and expenses should have debit balance while liabilities and income should have a credit balance.
iv. Calculate the total of the debit balance.
v. Similarly, compute the total of the credit column.
vi. Finally, the sum of debit balance should match the sum of credit balance.
vii. If there is any difference, the process of error rectification should be stated. Errors could be of commission errors,
errors of omissions, errors of principle, compensating error.

101
Illustration 1
The following balances were extracted from the books of Adamawa super stores as at 31st December, 2020:
Drawings N17,700, Bad debts N3,800, capital N237,900, purchases N262,000, building N15,000, sales N450,000, motor
vehicles N30,000, wages and salaries N67,500, loan N5,000, returns inwards N600, opening stock N98,000, sundry expenses
N20,000, rent N1,900, premises N90,000, debtors N128,700, carriage inwards N2,900, Returns outwards N11,700, creditors
N52,000, furniture and fittings N13,200, plant and machinery N85,400, lighting N3,980, insurance N1,800, discount allowed
N1,900, travelling expenses N8,700, cash in hand N2,800, motor expenses N3,000, discount received N2,200, and bank
overdraft N60,000.
You are required to prepare a trial balance as at that date.
Solution
ADAMAWA SUPER STORES:
Trial Balance as at 31st December, 2020.
Date Particulars Folio Debit Credit
Dec. 31 N N
Drawings 17,700
Bad debts 3,800
Capital 237,900
Purchases 262,000
Building 15,000
Sales 450,000
Motor vehicles 30,000
Wages and salaries 67,500
Loan 45,000
Return inwards 600
Opening stock 98,000
Bank overdraft 60,000
Sundry expenses 20,000
Rent 1,900
Premises 90,000
Debtors 128,700
Carriage inwards 2,900
Returns outwards 11,700
Creditors 52,000
Furniture and fittings 13,200
Plant and machinery 85,400
Lighting 3,900
Discount allowed 1,800
Travelling expenses 1,900
Cash in hand 8,700
Motor expenses 2,800
Discount received 3,000 22,000
858,800 858,800

Note:
(i) Debit : all assets
(ii) Credit : all liabilities
(iii) Debit : all expenses/losses.
(iv) Credit : all income/gains.

Illustration 2
Enter the following transactions and extract ABC trial balance as at 31st December, 2009.
N
Cash in hand 15,000
Cash at bank 7,500
F. Musa (creditor) 6,000
Y. Testimony (debtor) 3,000
Purchases 92,000
Sales 210,000
Returns outwards 7,500
Returns inwards 4,200
Capital 31,000
General expenses 44,000
Rent 66,000
Wages and salaries 18,000
Sundry expenses 3,000
Drawings 1,800

102
Solution
ABC
Trial Balance As At 31st December, 2009.
Date Particulars Folio Debit Credit
Dec. N N
31 Cash in hand 15,000
Cash at bank 7,500
F. Musa – creditor 6,000
Y. Testimony – Debtor 3,000
Purchases 92,000
Sales 210,000
Returns outwards 7,500
Returns inwards 4,200
Capital 31,000
General expenses 44,000
Rent 66,000
Wages sand salaries 18,000
Sundry expenses 3,000
Drawings 1,800
254,500 254,500

Illustration 3:
Enter the following transactions into the books of Jagaban Ltd. for the month of July, 2022 and extract a trial as at 31 st
July, 2022.
July 1 Started business with cash, N80,000.
2 Paid cash into bank, N35,000
3 Bought goods on credit from Kay Ltd N10,000; Jay Ltd. N8,000; Zee Ltd N7,500.
4 Cash sales N47,000.
6 Paid wages N4,000 cash.
7 Sold on credit to O. Oyewole N3,500, Rufai N8,000
8 Cash purchases N5,000
9 Bought goods on credit from Kay Ltd N4,000, T. Wesin N3,000.
12 Paid wages N1,500 cash.
13 Sold on credit to O. Oyewole N1,500; Rufai N2,000
14 Bought furniture on credit from P. Obi N4,000
17 Paid Jay Ltd by cheque N14,000.
18 Returned to T. Wesin, N1,000
21 Paid Rafai N3,000 by cheque.
24 Paid P. Obi by cheque N4,000.
27 Returned to Kay Ltd. N1,000
30 E. Seyi lent us N1,000 cash.
30 Bought Motor vehicle by cash N8,000
Solution
JAGABAN LTD:
Dr Cashbook for the month of July 31st 2022 Cr
Date Particulars F Bank Cash Date Particulars F Bank Cash
July N N July N N
1 Capital CB 80,000 2 Bank “C” 35,000
2 Cash “C” 35,000 6 Wages GL 4,000
4 Sales SL 47,000 8 Purchases PL 5,000
30 Loan – E. Seyi GL 1,000 12 Wages GL 1,500
17 Jay Ltd. GL 14,000
21 Rufai GL 3,000
24 P. Obi GL 4,000
30 Motor GL 8,000
vehicle
31 Balance c/d 14,000 74,500
35,000 128,000 35,000 128,000

Aug 1 Balance b/d 14,000 74,500

JAGABAN LTD

103
PURCHASES DAY BOOK
Date Particulars Folio Amount Total
July N N
3 From:
Kay Ltd. PL 10,000
Jay Ltd. PL 8,000
Zee Ltd. PL 7,500 25,500
9 From:
Kay Ltd. PL 4,000
T. Wesin PL 3,000 7,000
32,000

JAGABAN LTD:
SALES DAY BOOK
Date Particulars Folio Amount Total
July N N
7 To:
O. Oyewole SL 3,500
Rufai SL 8,000 11,500

13 To:
O. Oyewole SL 1,500
Rufai SL 2,000 3,500
Sales account CR 15,000

JAGABAN LTD:
RETURNS OUTWARD BOOK
Date Particulars Folio Amount Total
July N N
18 T. Wesin ROJ 1,000
27 Kay Ltd. ROJ 1,000 2,000
Returns Outward account CR 2,000 2,000

LEDGERS
Dr Capital Account Cr
July N July N
31 Balance c/d 80,000 31 Cash 80,000
Aug 1 Balance b/d 80,000

Dr Sales Account Cr
July N July N
31 Balance c/d 62,000 4 Cash 47,000
31 Sundries 15,000
62,000 62,000
Aug
1 Balance b/d 62,000

Dr Loan (E. Seyi) Account Cr

July N July N
31 Balance c/d 1,000 30 Cash 1,000
Aug
1 Balance b/d 1,000

104
Dr Wages Account Cr
July N July N
6 Cash 4,000 31 Balance c/d 5,500
12 Cash 1,500
5,500 5,500
Aug
1 Balance b/d 5,500

Dr Purchases Account Cr
July N July N
8 Cash 5,000 31 Balance c/d 37,500
31 Sundries 32,500
37,500 37,500
Aug
1 Balance b/d 37,500

Dr Jay Ltd. Account Cr

July N July N
17 Bank 14,000 3 Purchases 8,000
31 Balance c/d 6,000
14,000 14,000
Aug
1 Balance b/d 6,000

Dr Rufai Account Cr
July N July N
7 Sales 8,000 31 Balance c/d 13,000
13 Sales 2,000
21 Cash 3,000
13,000 13,000
Aug
1 Balance b/d 13,000

Dr P. Obi’s (Furniture) Account Cr

July N July N
24 Bank 4,000 14 Furniture 4,000
Aug
1 Balance b/d 4,000

Dr Motor Vehicle Account Cr

July N July N
30 Cash 8,000 31 Balance c/d 8,000
Aug
1 Balance b/d 8,000

Dr Furniture Account Cr
July N July N
14 Bank 4,000 24 Balance c/d 4,000
Aug
1 Balance b/d 4,000

105
Dr Kay Ltd Account Cr
July N July N
27 Returns 1,000 3 Purchases 10,000
31 Balance c/d 13,000 9 Purchases 4,000
14,000 14,000
Aug
1 Balance b/d 13,000

Dr Zee Ltd Account Cr

July N July N
31 Balance c/d 7,500 3 Purchases 7,500
Aug
1 Balance b/d 7,500

Dr T. Wesin Account Cr
July N July N
18 Returns 1,000 9 Purchases 3,000
31 Balance c/d 2,000
3,000 3,000
Aug
1 Balance b/d 3,000

Dr O. Oyewole’s Account Cr
July N July N
7 Sales 3,500 31 Balance c/d 5,000
13 Sales 1,500
5,000 5,000
Aug
1 Balance b/d 5,000

JAGABAN LTD
Trial Balance As At 31st July 202
Date Particulars F Debit Credit
July N N
31 Capital 80,000
31 Sales 62,000
31 Loan – E. Seyi 1,000
31 Wages 5,500
31 Purchases 37,500
31 Jay Ltd. 6,000
31 Rufai 13,000
31 Motor Vehicle 8,000
31 Kay Ltd. 13,000
31 Zee Ltd. 7,500
31 T. Wesin 2,000
31 O. Oyewole 5,000
31 Cash at bank 14,000
31 Cash at hand 74,500
31 Returns outwards 2,000
31 Furniture 4,000
167,500 167,500

106
Illustration 4:
Apochi started his fish business on 1st July, 2020 with an initial investment of N1,500,000. The following is a summary of his
business transactions during the first quarter of trading.
(i) An electric oven was bought on 18th July 2020 at a cost of N720,000 for cash.
(ii) Cash sales amounted N1,800,000.
(iii) Rent of N540,000 was paid on the commencement of the venture.
(iv) During the period Apochi withdraw goods worth N180,000 and cash of N210,000.
(v) Credit sales amounted to N1,200,000 and N360,000 out of this amount as outstanding as at 30 th December, 2020.
(vi) An amount of N255,000 was paid for general expenses.
(vii) During the period suppliers were paid N1,350,000 for feeds and invoice to taking N240,000 remained unpaid at 30 th
December, 2020.
You are required to:
(a) Write up the ledger accounts.
(b) Extract a trial balance.
Solution
(a)
LEDGERS
Dr Electric Oven Account Cr
July N July N
18 Cash 720,000 30 Balance c/d 720,000

30 Balance b/d 720,000

Dr Sales Account Cr
July N July N
30 Balance c/d 3,000,000 30 Cash 1,800,000
30 Sundries 1,200,000
3,000,000 3,000,000
Aug
30 Balance b/d 3,000,000

Dr Rent Account Cr
July N July N
30 Cash 540,000 30 Balance c/d 540,000

30 Balance b/d 540,000

Dr Drawings Account Cr
July N July N
30 Stock 180,000 30 Balance c/d 390,000
30 Cash 210,000
390,000 390,000

30 Balance b/d 390,000

Dr General Expenses Account Cr

July N July N
30 Cash 255,000 30 Balance c/d 225,000

30 Balance b/d 255,000

Dr Purchases Account Cr
July N July N
30 Stock 1,350,000 30 Drawing 180,000
30 Accrued 240,000 30 Balance c/d 1,410,000
1,590,000 1,590,000
30 Balance b/d 1,410,000

107
Note: (Purchases)
Cash paid to suppliers + outstanding purchase/accrued purchase – stock drawing)
= N1,350,000 + 240,000 – 180,000
= N1,590,000 – 180,000
= N1,410,000

Dr Capital Account Cr
July N July N
30 Balance c/d 1,500,000 30 Cash 1,500,000

30 Balance b/d 1,500,000

Dr Cashbook C
r
N N
Sales 1,800,000 Electric oven 720,000
Balance c/d 1,065,000 Rent 540,000
General expenses 255,000
Purchases 1,350,000
2,865,000 2,865,000

Balance b/d 1,065,000

(b)
APOCHI:
Trial Balance As At 31st July, 2020
Date Particulars Folio Debit Credit
July N N
30 Capital 1,500,000
Sales 3,000,000
Creditors 240,000
Electric oven 720,000
Rent 540,000
Drawings 390,000
General expenses 255,000
Purchases 1,410,000
Cash 1,065,000
Debtors 360,000
4,740,000 4,740,000

Illustration 5:
Record the following transactions for the month of March, balance off all the accounts and then extract a trial balance as at 31st
March, 2020:
March 1 Commenced business with N14,000 cash.
2 Bought goods for cash N600.
3 Paid N11,200 cash into bank.
4 Bought goods on credit from: Lulu N1,440; Bassey N1,960; Audu N440; Salako N1,360.
5 Bought office equipment on credit from Sekibo N680.
6 Sold goods on credit to: Woma N360; Babatunde N19,60, Precious N6,400.
8 Cash sales N3,600.
9 Paid rent by cheque N220.
10 Paid salaries N480 in cash.
11 Bought furniture on credit from Madaki N1,920.
12 Returned goods to Bassey N360, Audu N200, Salako N160.
15 Bought plant by cheque N2,800.
16 Received loan from Goodluck by cheque N2,400.
18 Received N2,000 cash from Precious.
20 Paid the following by cheque: Bassey N1,600, Audu N240
24 Cash sales N360.
25 Banked cash N800.
26 Goods returned to us: Woma N120; Babatunde N240.
29 Received cheque from: Woma N240, Babatunde N1,600.
30 Paid General Expenses in cash N40.

108
Solution
(i) Cashbook
Dr Cashbook for the month of March 31st 2020 Cr
Date Particulars F Bank Cash Date Particulars F Bank Cash
March N N March N N
1 Capital CB 14,000 2 Purchases 600
3 Cash C 11,200 3 Bank C 11,200
8 Sales 3,600 9 Rent 220
16 Goodluck (loan) 2,400 10 Salaries 480
18 Precious 2,000 15 Plant 2,800
24 Sales 360 20 Bassey 1,600
25 Cash C 800 20 Audu 240
29 Woma 240 25 Bank C 800
29 Babatunde 1,600 30 General expenses 40
31 Balance c/d 11,380 6,840
16,240 19,960 16,240 19,960
April
1 Balance b/d 11,380 6,840

(ii) Day Books/Journals

Purchases Day Book
Date Details Folio Amount Total
March N N
4 From:
Lulu PL 1,440
Bassey PL 1,960
Audu PL 440
Salako PL 1,360 5,200
Purchases account Dr. 5,200

Sales Day Book

Date Details Folio Amount Total
March N N
6 To:
Woma SL 360
Babatunde SL 1,960
Precious SL 6,400 8,720
Sales Account Cr. 8,720

Returns Inwards Day Book

Date Details Folio Amount Total
March N N
26 From:
Woma RIJ 120
Babatunde RIJ 240 360
Returns Inwards Account Dr 360

Returns Outwards Day Book

Date Details Folio Amount Total
March N N
12 From:
Bassey ROJ 360
Audu ROJ 200
Salako ROJ 160 720
Returns Outwards Account Cr 720

109
(iii)
LEDGERS
Dr Capital Account Cr
March N March N
31 Balance c/d 14,000 1 Cash 14,000
April
1 Balance b/d 14,000

Dr Sales Account Cr
March N March N
31 Balance c/d 12,680 8 Cash 3,600
24 Cash 360
30 Sundries 8,270
12,680 12,680
April
1 Balance b/d 12,680

Dr Goodluck (loan) Account Cr

March N March N
30 Balance c/d 2,400 16 Bank 2,400
April
1 Balance b/d 2,400

Dr Precious Account Cr
March N March N
6 Sales 6,400 18 Cash 2,000
30 Balance c/d 4,400
6,400 6,400
April
1 Balance b/d 4,400

Dr Woma’s Account Cr
March N March N
6 Sales 360 26 Returns inwards 120
29 Bank 240
360 360

Dr Babatunde’s Account Cr
March N March N
6 Sales 1,960 26 Returns inwards 240
29 Bank 1,600
30 Balance c/d 120
1,960 1,960
April
1 Balance b/d 120

Dr Purchases Account Cr
March N March N
2 Cash 600 30 Balance c/d 5,800
30 Sundries 5,200
5,800 5,800
April
1 Balance b/d 5,800

110
Dr Rent Account Cr
March N March N
9 Bank 220 30 Balance c/d 220
April
1 Balance b/d 220

Dr Salaries Account Cr
March N March N
10 Cash 480 30 Balance c/d 480
April
1 Balance b/d 480

Dr Plant Account Cr
March N March N
15 Bank 2,800 30 Balance c/d 2,800
April
1 Balance b/d 2,800

Dr Bassey’s Account Cr
March N March N
12 Returns outwards 360 4 Purchases 1,960
20 Bank 1,600
1,960 1,960

Dr Audu’s Account Cr
March N March N
12 Returns outwards 200 4 Purchases 440
20 Bank 240
440 440

Dr Luku’s Account Cr
March N March N
30 Balance c/d 1,440 4 Purchases 1,440
April
1 Balance b/d 1,440

Dr Salako’s Account Cr
March N March N
12 Returns outwards 160 4 Purchases 1,360
30 Balance c/d 1,200
1,360 1,360
April
1 Balance b/d 1,200

Dr General Expenses Account Cr

March N March N
30 Cash 40 30 Balance c/d 40
40 40
April
1 Balance b/d 40

111
Dr Furniture’s Account Cr
March N March N
11 Madaki 1,920 30 Balance c/d 1,920
1,920 1,920
April
1 Balance b/d 1,920

Dr Madaki’s Account Cr
March N March N
30 Balance c/d 1,920 11 Furniture 1,920
April
1 Balance b/d 1,920

Dr Office Equipment Account Cr

March N March N
5 Sekibo 680 30 Balance c/d 680
April
1 Balance b/d 680

Dr Sekibo’s Account Cr
March N March N
30 Balance c/d 680 30 Sundries 680
April
1 Balance b/d 680

Dr Returns Outwards Account Cr

March N March N
30 Balance c/d 720 30 Balance c/d 720
April
1 Balance b/d 720

Dr Returns Inwards Account Cr

March N March N
30 Sundries 360 30 Balance c/d 360
April
1 Balance b/d 360

112
(iv)
Trial Balance As At 31st March, 2020
Date Particulars Folio Debit Credit
March N N
30 Capital 14,000
Sales 12,680
Goodluck 2,400
Precious 4,400
Babatunde 120
Purchases 5,800
Rent 220
Salaries 480
Plant 2,800
Lulu 1,440
Salako 1,200
General expenses 40
Furniture 1,920
Madaki 1,920
Office equipment 680
Sekibo 680
Returns outwards 720
Returns inwards 360
Cash in hand 6,840
Cash at bank 11,380
35,040 35,040

Illustration 6:
The following balances were extracted from the books of Opia Nig. Enterprises on 31st January, 2019. Prepare a trial
balance.
N
Purchases 150,375
Capital 61,500
Returns outwards 510
Land and building 21,000
Loan 48,000
Stationery 1,890
Drawings 270
Insurance 1,410
Advertisement 630
Debtors 15,000
Carriage outwards 330
Motor vehicle 3,075
Plant and machinery 36,420
Creditors 21,000
Fixtures and fittings 59,745
Returns inwards 1,095
Discounts allowed 240
Rent 390
Commission received 2,100
General expenses 3,390
Sales 211,500
Discount received 900
Salaries and wages 2,250
Premises 48,000

113
Solution
- Debit – All assets and all expenses.
- Credit – All liabilities and all incomes.

OPIA (NIG.) ENTERPRISES

Trial Balance As At 31st January, 2019
Date Particulars Folio Debit Credit
March N N
30 Purchases 150,375
Capital 61,500
Returns outwards 510
Land and building 21,000
Loan 48,000
Stationery 1,890
Drawings 270
Insurance 1,410
Advertisement 630
Debtors 15,000
Carriage outwards 330
Motor vehicle 3,075
Plant and machinery 36,420
Creditors 21,000
Fixtures and fittings 59,745
Returns inwards 1,095
Discounts allowed 240
Rent 390
Commission 2,100
received
General expenses 3,390
Sales 211,500
Discount received 900
Salaries and wages 2,250
Premises 48,000
345,510 345,510

LIMITATIONS OF TRIAL BALANCE

Limitations of trial balance are the restrictions that prevent the trial balance from detecting errors that result from the
journal entry.
Below is the summary of trial balance limitations:
1. Missing transactions: It cannot detect errors of not recording the whole transactions at all.
2. Duplicate posting: It cannot detect errors of duplicate posting or not more than one time posting on the same
transaction.
3. Offset errors: It cannot detect offset errors in which accounting transactions were incorrect but offset each other.
4. Reverse posting: It cannot detect the errors of reverse posting in which a debit transaction was entered in an account
as a credit or vice versa.
5. Wrong amount equally on both sides: It cannot detect errors of posting journal entry with incorrect amount on
both debits and credits.
6. Error of principles: It cannot detect errors of principles, e.g. inventory purchase of N5,000 was recorded as “Dr.
expenses N5,000 and Cr. Cash N5,000” instead.
2018/18 NABTEB Nov
A trial balance is a list of
A. current assets B. current liabilities C. debit and credit balances D. debtors and creditors
Answer: Debit and credit balances (C)

2008/27 Neco
A summary of a list of balances extracted from the ledger is called
A. balance sheet B. journal C. trading account D. profit or loss account E. trial balance
Answer: Trial balance (E)

114
2019/8 Neco, 2019/19 NABTEB
Where a trial balance fails to agree, the difference is posted to _____ account.
A. cash B. control C. profit and loss D. suspense E. trading
Answer: Suspense (D)
1995/46 Nov
Which of the following is NOT a trial balance item?
A. carriage inwards B. carriage outwards C. discount received D. opening stock E. closing stock
Answer: Closing stock (E)
2006/8 Nov
A schedule of ledger balances drawn up at a given date where debit appears in a debit column, and the credits in a credit
column is a
A. closing statement B. balance sheet C. cash book D. trial balance
Answer: Trial balance (D)
2003/1 Nov
(a) What is a trial balance? (b) Give the format of a trial balance with ten items.
Solution
(a) Trial balance is a statement summarizing the closing balances of the entire account ledger, prepared with the view to verify
the arithmetical accuracy of the ledger posting.
(b) Format of a trial balance.
DATE PARTICULARS FOLIO DEBIT CREDIT
19XX N N
31 Purchases X
Motor vehicle X
Rent and rate X
Bad debt X
Carriage inwards X
Sales X
Creditors X
Provision for bad debts X
Discount received X
Capital X
X X

2000/53 Neco
The purpose of trial balance in accounting is a proof of accuracy of
A. balance sheet B. double entry principle in the ledger C. final accounts D. trading account
Answer: double entry principle in the ledger (B)

2009/19 Neco
A list of balances extracted from the ledger to test its arithmetic accuracy is called
A. balance sheet B. control account C. journal D. ledger E. trial balance
Answer: trial balance (E)
2010/27 Neco
A list of all credit and debit balances from the ledger accounts is called ______
A. balance sheet B. cash account C. profit and loss statement D. statement of affairs
E. trial balance
Answer: trial balance (E)
2022/14 Neco
The purpose of a trial balance in accounting is to test the arithmetic accuracy of the
A. balance sheet B. final accounts C. general journal D. ledger E. trading account
Answer: ledger (D)
2004/9 Neco
The following account balances are outstanding in Adewale Ogunsuji’s ledger as at December 31st 2002. You are required to
draw up the trial balance as at that date.
Returns inwards N175.50; returns outwards N195.90; cash in hand N50.00; cash at bank N150.00; machinery N1,640.00;
salaries N1,520.00; Audit fee N30.50; sales N5,130.90; stock N900.00; telephone expenses N45.20; E-mail services N50.00;
bank overdraft N506.00; mortgage N2,000.00; Loan N1,000.00; factory wages N4,676.00; discount received N20.50;
discount allowed N30.50; creditors N4,726.30; rent and rates paid N240.00; purchases N2,535.00; commission received
N1,500.00; furniture and fittings N300.00; premises N3,500; rent received N150.00; light and heat N165.30; Goodwill
N500.00, debtors N3,870.60, carriage outward N45.40, bad debt N165.50, capital N5,000.
115
Solution
ADEWALE OGUNSUJI
Trial balance as at 31st December, 2002.
Date Particulars Folio Debit Credit
31/12/02 N N
,, Returns inward 175.50
,, Returns outwards 195.90
,, Cash in hand 50.00
,, Cash at bank 150.00
,, Machinery 1,640.00
,, Salaries 1,570.00
,, Audit fee 30.50
,, Sales 5,130.90
,, Stock 900
,, Telephone expenses 45.20
,, E – mail services 50.00
,, Bank overdraft 506.00
,, Mortgage 2,000.00
,, Loan 1,000.00
,, Factory wages 4,676.00
,, Discount received 20.50
,, Discount allowed 30.50
,, Creditor 4,726.30
,, Debtors 3,870.60
,, Carriage outward 45.40
,, Bad debts 165.50
,, Capital 5,000.00
,, Rent and rates 240.00
,, Purchases 2,535.00
,, Commission received 1,860.00
,, Furniture and fittings 300.00
,, Premises 3,500.00
,, Rent received 150.00
,, Light and heat 165.30
,, Goodwill 500.00
22,639.50 18,589.60

Note: Error of (N22,589.50 – 18,589.60) = 4,049.90.

1999/34
A trial balance is the
A. narration of all transactions and accounts B. debit balances of all transactions and accounts
C. list of all balances extracted from the ledger D. list of all credit balances in the ledger
Answer: list of all balances extracted from the ledger (C)

2004/3 (Theory)
(a) What is a trial balance?
(b) State four reasons why a trial balance may not balance.
Answer
(a) Trial balance can simply be defined as a statement used to check the arithmetical accuracy of ledger entries. It can
also be referred to as a list of all the balances (b/d) appearing in the ledger accounts and the cashbook at any given
period to confirm if the principle of double entry is duly complied with.
(b) Four (4) reasons why a trial balance may not balance.
(i) Wrong balance extracted.
(ii) Wrong figures in the ledger.
(iii) Errors in posting.
(iv) Wrong entry in the ledger.
(v) Errors in addition.
(vi) Unextracted figure/balance from ledger.
(vii) Incomplete double entry of items.

116
2005/6
A trial balance is a list of
A. current assets B. current liabilities C. debit and credit balances D. debtors and creditors
Answer: debit and credit balances (C)

2007/4
Which of the following is not show in the trial balance?
A. opening stock B. closing stock C. discount allowed D. discounts received
Answer: opening stock (A)

2007/6
Which of the following statement is not true?
A. a trial balance is an account having debit and credit sides
B. expenses, losses and assets have debit balances
C. revenues, gains and liabilities have credit balances
D. a trial balance is a list of balances extracted from the ledger accounts
Answer: a trial balance is an account having debit and credit sides (A)

2010/2
A trial balance is prepared to
A. detect fraud B. ascertain losses in a trading period
C. determine opening capital D. test arithmetic accuracy of ledger entries
Answer: test arithmetic accuracy of ledger entries (D)
2013/4
Which of the following is not a characteristic of a trial balance?
A. it has columns for debit and credit balances B. total of debit balance equals total of credit balance
C. it is a statement D. it is an account
Answer: it is an account (D)
2015/1
Which of the following describes a trial balance?
A. it is a special account B. it is a list of balances in the books
C. it reveals the financial position of the business D. it shows all the entries in the books of business
Answer: it is a list of balances in the books (B)
2018/3
Which of the following items is found on the debit side of a trial balance?
A. provision for doubtful debts B. discounts allowed C. discount received D. returns outwards
Answer: discounts allowed (B)

2011/4a(a) NABTEB Theory

The following balances were extracted from the books of Biola & Sons as at 31/12/06.
N
Sales 23,000
Capital 16,000
Creditors 1,805
Discount received 25
Bank overdraft 2,620
Discount allowed 63
Bad debt 55
Sundry expenses 1,050
Debtors 1,200
Purchases 7,200
Wages 850
Stock 1/1/06 2,000
Stock 31/12/06 1,650
Motor van 18,000
Drawings 2,500
Building 7,000
Furniture 2,500
Returns outwards 400
Returns inwards 32

117
You are required to prepare:
(a) Trial balance from the above balances.
(b) Trading, profit and loss account for Biola & Sons for the year ended 31st December, 2006.
Answer
Date Particulars Folio Debit Credit
Dec N N
31 Sales 23,000
31 Capital 16,000
31 Creditors 1,805
31 Discount received 25
31 Bank overdraft 2,620
31 Discount allowed 63
31 Bad debt 55
31 Sundry expenses 1050
31 Debtors 1200
31 Purchases 7200
31 Wages 850
31 Stock: 1 – 1 – 2006 2000
31 Stock: 31 – 12 – 2006 1650
31 Motor van 18,000
31 Drawings 2,500
31 Furniture 2,500
31 Building 7,000
31 Returns outwards 400
31 Returns inwards 32
44,100 43,850

Error of N250 (44,100 – 43,850) – Pending the location of error, the difference should be posted to suspense account.

2014/13 NABTEB Nov

A trial balance is a test of the
A. financial transactions B. accurate narration of the journal entries
C. arithmetical accuracy of the debit entries D. arithmetical accuracy of the ledger posting
Answer: arithmetic accuracy of the ledger posting (D)

2018/18 NABTEB Nov

A trial balance is a list of
A. current assets B. current liabilities C. debit and credit balances D. debtors and creditors
Answer: debit and credit balances (C)

2019/17 NABTEB Nov

Which of the following is recorded on the debit side of a trial balance?
A. bank overdraft B. return outward C. purchase D. capital
Answer: purchase (C)

2022/13 NABTEB Nov

A trial balance is prepared to
A. detect fraud B. determine opening capital
C. test arithmetical accuracy of ledger accounts D. ascertain losses in a trading account
Answer: test arithmetical accuracy of ledger accounts (C)

2004/19 Exercise 7.1

A list of account titles and their balances in the books, on a specific date, shown in debit and credit column is a
A. trial balance B. balance sheet C. statement of affairs D. trading accounts

2015/1 Exercise 7.2

Which of the following describes a trial balance?
A. it is a specific account B. it is a list of balances in the books
C. it reveals the financial position of a business D. it shows all the entries in the books of a firm

118
Exercise 7.3
The following balances were extracted from the books of Biola & Sons as at 31–12–2006:
N
Sales 23,000
Capital 16,000
Creditors 1,805
Discount received 25
Bank overdraft 2,620
Discount allowed 63
Bad debt 55
Sundry expenses 1,050
Debtors 1,200
Purchases 7,200
Wages 850
Stock 1–1–06 2,000
Stock 31–12–06 1,650
Motor van 18,000
Drawings 2,500
Buildings 7,000
Furniture 2,500
Returns outwards 400
Returns inwards 32

You are required to prepare a trial balance from the above balances.

Exercise 7.4
A trial balance is a proof of
A. arithmetical accuracy of postings only B. accurate narration of the journal entries
C. accuracy of the debit entries D. accuracy of the credit entries
E. accuracy of ledger entries

Exercise 7.5
The trial balance will show returns outwards account N60, discount allowed N100, respectively as
A. N60 credit, N100 credit B. N60 credit, N100 debit C. N60 debit, N100 debit
D. N60 debit, N100 credit E. N160 debit, N160 credit

Exercise 7.6 Theory

(a) What is a trial balance?
(b) Give the format of a trial balance with ten (10) items.

Exercise 7.7
State five reasons why a trial balance may not balance.

Exercise 7.8
Which of the item below is not shown when the trial balance is drawn up at period end?
A. closing stock value B. closing profit C. closing assets value
D. closing debtors E. closing creditors

Exercise 7.9
Where is the arithmetic accuracy of ledger balances tested?
A. profit and loss account B. trial balance C. balance sheet D. trading accounts
E. ledger balances

Exercise 7.10
A list of balances extracted from the ledger is known as
A. trading account B. balance sheet C. trial balance D. statement of affairs
E. profit and loss account

119
Exercise 7.11
The following balances were extracted from the book of Ighorodje Enterprises on 31st December, 2018:
N
Land and building 250,000
Capital 417,225
Debtor 143,750
Creditors 130,750
Fixtures and fittings 81,250
Rent 9,750
Stationery 8,375
Provision for bad debts 1,440
Office equipment 77,500
Stock 38,750
General expenses 11,750
Rates 3,125
Cash in hand 5,685
Bank overdraft 22,375
Bank charges 11,865
Purchases 303,750
Sales 370,000
Carriage inwards 1,975
Salaries and wages 8,500
Discount allowed 2,425
Discount received 16,660
Extract a trial balance as at 31st December, 2018.
Exercise 7.12
Feb 1 Started business with N15,000 cash.
3 Paid electricity by cheque N510.
6 Bought goods on credit from the following: Nasiru N750, Oluchi N450.
8 Cash sales N9,000.
11 Paid carriage by cash N150.
12 Received cheque from Amadi N3,150.
14 Purchase goods N1,500 cash.
18 Bought equipment by cheque N315.
22 Cash taken for private use N240.
26 Sold goods on credit to Loveth N210, David N486
27 Goods returned to Nasiru N150, Oluchi N45
You are required to post the transactions in the ledgers and extract a trial balance as at February 28th 2014.
Exercise 7.13
Sept 1 Started a business with capital in cash N62,500.
2 Bought goods on credit from the following: Atiku N1,350, Mojisola N2,175, Jonathan N625, Sophia
N1,900 and Lateef N1,350.
5 Sold goods on credit to Lawal N1,125, Adogor N1,550 and Uriri N4,400.
7 Paid electricity by cash N300.
9 Lawal paid us his account by cheque.
10 Uriri paid us his account by cheque N3,750.
14 We paid the following by cheque: Jonathan N625 and Atiku N1,350.
17 Paid insurance by cash N575.
24 Bought goods on credit from the following: Mojisola N1,075 and Sophia N2,750.
28 Sold goods on credit to Adogor N1,675.
30 Paid electricity by cheque N450.
Required:
Enter the transactions above into the books of Oghenekaro for the month of September, 2009, balance off the account and
extract a trial balance.
Exercise 7.14
From the following balances of Namadi Enterprises, extract a trial balance as at 31st October, 2013.
Freehold premises N48,000, creditors N48,000, cash in hand N45,000, outstanding rent N24,000, wages N54,000, Equipment
N57,000, insurance premium N60,000, stock N84,000, debtors N54,000, discount allowed N27,000, discount received
N18,000, rent received N1,800, carriage outward N3,000, carriage inwards N2,700, provision for bad debt N9,000, provision
for depreciation on equipment N900, returns outwards N3,900, returns inwards N5,400, furniture and fittings N204,000,
motor expenses N15,000, bad debt N900, plant N270,000, sales N540,000 and capital N254,400.

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Chapter Eight

RECTIFICATION OF ERRORS
DEFINITION OF ERRORS
To err is human. An accounting error is an error in an accounting entry that was not intentional. Accounting error can
include duplicating the same entry, or an account is recorded correctly but to the wrong customer or vendor. Since book
keeping is a human activity, errors are expected. An error is a mistake made in the book-keeping entries, balancing of
accounts or extraction of trial balance.

TYPES OF ERRORS
Errors are classified or grouped into two (2) main categories, they are:
(A) ERRORS NOT AFFECTING THE TRIAL BALANCE
These are errors which do not prevent the trial from balancing. This class of errors includes:
Examples for each
i. Error of omission: This error occurs when a transaction is either wholly or partially omitted from the books of
accounts.
ii. Error of commission: This error takes place when some transactions are incorrectly recorded in the books of
accounts.
iii. Error of principle: This occurs when a transaction is recorded against the fundamental principles of accounting,
i.e. entered in the wrong class of account.
iv. Error of original entry: This error takes place when the original amount of a transaction is transposed and
passed through the double entry system, the wrong amount being debited and credited to the appropriate
accounts.
v. Error of complete reversal of entry: This occurs when the double entry for a transaction is reversed, i.e. account
ought to be debited is credited and, account ought to be credited is debited.
vi. Error of compensation: This error takes place when an error on one account is cancelled out by another error
in another account.
(B) ERRORS AFFECTING THE TRIAL BALANCE
These are errors which will affect the agreement of the trial balance, i.e. these errors prevent the trial balance totals from
agreement. They include the following:
i. Partial reversal of entry.
ii. Casting error.
iii. Omission or mis-statement of the balance on an account when extracting the trial balance.
iv. Posting the debit or credit entry for a transaction without the corresponding opposite entry.
v. Under/over – statement of opening or closing balances.

RECTIFICATION OF ERRORS
From the point of view of rectification of errors these can be divided into two groups:
(A) Errors affecting one account only
These errors should first of all be located and rectified. These are rectified either with the help of journal entry or
by giving an explanatory notes in the account concerned. Examples of errors affecting one account only include:
errors of posting, carry forward, balancing 196, omission from trial balance and casting error.
(B) Errors affecting two or more accounts
The following errors affect two or more accounts: errors of omission, posting to wrong account, principles. The
rectification of such errors is done with the help of a journal entry.
All types of errors can be rectified either before the preparation of final accounts or after the preparations of final
accounts.

SUSPENSE ACCOUNT
In case, the accountant is not in position to locate the difference in the totals of the trial balance and he is in a hurry to
close the books of accounts, he may transfer the difference to an account known as “SUSPENSE ACCOUNT”. The
suspense account is the temporary account into which the difference between the credit and debit totals is entered before
investigation and correction of the resulting errors. Once there is difference in the total of trial balance, suspense account
is raised on the lesser of the two sides. After transferring the difference, the trial balance is totaled and balanced. On
locating the errors in the beginning or during the course of next year, suitable accounting entries are passed and the
suspense account is closed. However, the suspense account should be opened only when the accountant has failed to
locate the errors in spite of his best efforts. It should not be the way of a normal practice, because the very existence of
the suspense account creates doubt about the authenticity of the books of accounts.
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To solve problems relating to suspense account, the following steps should be observed:
(i) Identify the two affected accounts in the business transactions given in the question.
(ii) Identify the account(s) that has been understated or overstated.
(iii) Determine the class of account and the normal balance for the account understated or overstated. Note that assets
will have debit balance, expenses debit balance, liabilities credit balance and income credit balance.
(iv) Determine the group that the problematic account(s) belong to i.e. errors that do not affect the agreement of trial
balance and errors that affect the agreement of trial balance.
(a) If it belongs to group of errors that do not affect trial agreement, suspense account will not be involved.
(b) If it belongs to the group that affects the trial balance agreement, suspense account will be affected, i.e., the
problematic account and suspense account.
(v) If the account is understated in a group that does not affect the agreement, such understatement should be put at
that side where the normal balance should be put if the overstated figure should be taken to the other side to cancel
out the one previously recorded at the right side.
(vi) If the account is understated in the group of errors that affect the agreement of trial balance, the understated
amount should be put at the normal side of the problematic account and should be described as suspense. Suspense
account will subsequently be opened to complete the double entry principle. But if overstated, the overstated
figure should be put at the other side to cancel out the one previously recorded at the right side.
(vii) The general journal will then be opened to correct the errors and will subsequently prepare a suspense account.
(viii) Note that if the figure is recorded at the wrong side, the figure will be multiplied by two and recorded at the right
or normal side.

Illustration 1:
Show the journal entries necessary to correct the following errors:
(i) Sales of furniture N2,400 had been entered in the sales account.
(ii) Purchases of goods from Akpan N2,160 was completely omitted from the account.
(iii) Goods of N690 returned by Ovotu has been entered in Ofotu account.
(iv) Sales were overcast by N2,850 as also were motor vehicle.
(v) Cash paid to Abu N4,500 was entered on the credit side of his account and debited to cash account.
(vi) Purchases of goods from Omokaro N870 has been entered in the account as N780.
(vii) Payment of cash N640 to Wuraola has been entered twice in the two accounts.

Note: 1: Steps to be followed when correcting errors:

1. Identify the types of errors committed.
2. Identify the two accounts involved.
3. Interpret the errors in the ledger.
4. Prepare a journal.
5. Preparation of suspense account.

Note 2: Commit these to memory if possible:

1. In the ledger, asset account has a debit balance.
2. In the ledger, liability account has a credit balance.
3. In the ledger, expenses account has a debit balance.
4. In the ledger, revenue account has a credit balance.
5. In the ledger, debtor account has a debit balance.
6. In the ledger, creditor account has a credit balance.
7. In the ledger, loss account has a debit balance.
8. In the ledger, gain account has a credit balance.
9. In the ledger, capital account has a credit balance.
10. In the ledger, drawing account has a debit balance.
Solution
(i) Sales of furniture N2,400 has been entered in the sales account.
Note: The type of error committed is the error of principle (i.e. asset been posted into sales account instead of asset
account).

The two accounts involved are: furniture and sales accounts. The sales account was wrongly credited with N2,400
and there was no entry in the furniture account.
Correct of errors : Debit – sales account
: Credit – Furniture account

122
Ledger:
Dr Sales Account Cr
N
Furniture 2,400

Dr Furniture Account Cr
N N
Sales 2,400

(ii) Purchases of goods from Akpan N2,160 was completely was completely omitted from the account
Note: The type of error committed is the error of omission.
The two accounts involved are:
Purchases account and Akpan account. There were no entry for the transaction in both accounts.

Correct of errors: debit – purchases account

Credit – Akpan account

Ledger:
Dr Purchases account Cr
N
Akpan 2,160

Dr Akpan Account Cr
N N
Purchases 2,160

(iii) Goods of N690 returned by Ovotu has been entered in Ofotu account.
Note: The type of error committed is error of commission (this was due to similarity in the account names).

The two accounts involved are: Ovotu and Ofotu account. Ofotu account was wrongly credited with N690
for goods returned inwards but no entry in Ovotu account.

Correction of errors: Debit – Ofotu account

Credit – Ovotu account.
Ledger:
Dr Ofotu Account Cr
N
Returns inwards 690

Dr Ovotu Account Cr
N N
Returns inwards 690

(iv) Sales were overcast by N2,850 as also were motor vehicle

Note: The type of error committed is error of compensation (compensating error).

The two accounts involved are: sales and motor vehicle account. Sales account was overcast or
overstated likewise also motor vehicle account was overcast.

Correction of errors: Debit: Sales Account

Credit: Motor vehicle account
Ledger:
Dr Sales Account Cr
N
Motor Vehicle 2,850

Dr Motor Vehicle Account Cr

N N
Sales 2,850
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(v) Cash paid to Abu N4,500 was entered on the credit side of his account and debited to cash account.
Note: The type of error committed is known as error of complete reversal of entry.

The two accounts involved are:

Cash and Abu account. Abu account was wrongly credited with N4,500 and cash account debited with
N4,500.

Ledger:
Dr Abu’s Account Cr
N
Cash (4,500 × 2) 9,000

Dr Cash Account Cr
N N
Abu (4,500 × 2) 9,000

(vi) Purchase of goods from Omokaro N870 has been entered in the account as N780.
Note: The type of error committed is error of original entry.

The two accounts involved are: purchases and Omokaro account. Purchases and Omokaro accounts
were wrongly debited and credited respectively with N780.

Correction of errors: Debit – Omokaro account with the difference between the two figures i.e. (870–780
= 90)

Credit – Purchases account with the difference between the two figures i.e. (870–780 = 90)

Ledger:
Dr Omokaro’s Account Cr
N
Purchases 90

Dr Purchases Account Cr
N N
Omokaro 90

(vii) Payment of cash N640 to Wuraola has been entered twice in the two accounts.
Note: The type of error committed here is error of duplication.

The two accounts involved are: Wuraola and cash account. Both Wuraola’s account and cash accounts
were debited and credited twice respectively with N640.

Correction of error: Credit: Wuraola account

Debit: cash account.
Ledger:
Dr Wuraola’s Account Cr
N
Cash 640

Dr Cash Account Cr
N N
Wuraola 640

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Preparation of Journal
JOURNAL
Date Particulars Folio Debit Credit
N N
(a) Sales account 2,400
Furniture account 2,400
Being correction of sales of furniture wrongly posted to sales
account.
(b) Purchases account 2,160
Akpan account. 2,160
Being correction of purchases of goods from Akpan completely
omitted from the accounts
(c) Ofotu account 690
Ovotu account 690
Being correction of goods returned by Ovotu wrongly posted to
Ofotu account
(d) Sales account 2,850
Motor vehicle account 2,850
Being correction of sales and motor vehicle overdraft
(e) Abu Account 9,000
Cash account 9,000
Being correction of cash payment to Abu wrongly reversed in the
accounts.
(f) Omokaro’s account 90
Purchases account 90
Being correction of purchase of goods from Omokaro N870
wrongly posted in the books as N780
(g) Wuraola’s account 640
Cash account 640
Being correction of recording of a transaction twice in the books of
account.

Illustration 2:
Show the journal entries necessary to correct the following errors;
(a) Sales to Ogonah N2,500 was completely omitted from the books.
(b) Goods purchased from Salisu N150 was entered in Saliu account.
(c) Sales account is undercast by N1,140 as also is salaries account.
(d) Commission received N453 was entered in sales account.
(e) Discount allowed of N2,510 was entered in error on the debit of discounts received.
Solution
JOURNAL
Date Particulars Folio Debit Credit
N N
(i) Ogonah’s Account 2,500
Sales account 2,500
Being correction of sales to Ogonah omitted from the books
(ii) Saliu Account 150
Salisu Account 150
Being correction of purchases of goods wrongly credited to Saliu’s
account.
(iii) Salaries account 140
Sales account 140
Being correction of sales and salaries account undercast.
(iv) Commission received account 453
Sales account 453
Being commission received wrongly posted to sales account
(v) Discount allowed account 2,510
Discount received account 2,510
Being correction of discount allowed account wrongly debited to
discount received amount

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Note:
(a) Error committed : Omission
Correction of error : Debit – Ogonah’s Account
Credit – Sales Account.
(b) Error committed : Commission
Correction of error : Debit – Saliu Account
Credit – Salisu Account.
(c) Error committed : Compensation
Correction of error : Debit – Salaries Account
Credit – Sales Account
(d) Error committed : Complete reversal of entry
Correction of error : Debit – Commission received account
Credit – Sales Account
(e) Error committed : Principle of Entry
Correction of error : Debit – Discount Allowed
Credit – Discount Received.
Illustration 3:
The following errors were discovered from the books of Okadigbo:
(i) Returns inwards from job N400 was entered in Joy account.
(ii) Cash payment for stationery N350 was omitted from the books.
(iii) The sales account was overcast by N315 and the purchases account was also overcast by N315.
(iv) A motor vehicle was purchased for N5,000 and debited to the purchasers account.
(v) A receipt of cash from Odunfa N1,540 has been entered on the credit side of the cash book and the debit side of Odunfa
account.
You are required to journalise the errors above.
Date Particulars Folio Debit Credit
N N
(i) Joy’s Account 400
Job Account 400
Being correction of returns inwards from job wrongly credited to Joy’s account
(ii) Stationery account 350
Cash account 350
Being correction of cash payment for stationery omitted from the books.
(iii) Sales account 315
Purchases account 315
Being correction of sales and purchases overcast.
(iv) Motor vehicle account 5,000
Purchases account 5,000
Being correction of purchase of motor vehicle wrongly debited to purchases
account
(v) Cash account 1,540
Odunfa’s account 1,540
Being correction of cash receipt from Odunfa wrongly posted to the credit side
of cash book and debit side of Odunfa account.

Notes:
(i) Error committed : Error of commission
Correction : Debit – Joy account.
Credit – Job account
(ii) Error committed : Error of omission
Correction : Debit – stationery account
Credit – cash account
(iii) Error committed : Error of Compensation
Correction : Debit – sales account
Credit – purchase account
(iv) Error committed : Error of Principle
Correction : Debit – motor vehicle
Credit – purchases
(v) Error committed : Error of complete reversal of entry
Correction : Debit – Cash account
Credit –Odunfa account.

126
Illustration 4:
(i) Purchases from N1,000 was entered in his account but omitted from the purchases account.
(ii) Purchases day book was overcast by N500.
(iii) Sales day book was undercast with N200.
(iv) A balance in the sales account N700 was carried forward to the trial balance as N900.
(v) Payment of rent N2,100 cash was entered on the credit side in the trial balance.
(vi) The balance of insurance account N3,000 cash was omitted from the trial balance.
(vii) Payment of light and heat by cash for N600, the light and heat account was debited correctly with N600, but the
cashbook was credited with N3,950.
You are required to show the:
(a) Journal entries needed to correct the errors.
(b) Suspense account.
Solution
(a)
Journal Proper
Date Particulars Folio Debit Credit
N N
(i) Purchases account 1,000
Suspense account 1,000
Being correction of partial omission in purchases account
(ii) Suspense account 500
Purchases account 500
Being correction of purchase day book overcast.
(iii) Suspense account 200
Sales account 200
Being correction sales day book undercast
(iv) Sales account 200
Suspense account 200
Being correction of sales amount wrongly entered in the trial balance.
(v) Rent account 4,200
Suspense account 4,200
Being correction of rent amount wrongly entered in the credit side of the
trial balance.
(vi) Insurance account 300
Suspense account 300
Being correction of Insurance amount omitted from the trial balance
(vii) Cash book 3,350
Suspense account 3,350

(b)
Dr Suspense Account Cr
N N
Purchases 500 Purchases 1,000
Sales 200 Sales 200
Difference 8,300 Rent 4,200
Insurance 300
Cashbook 3,300
9,000 9,000

Difference: 9,000 – 700 = 8,300

Notes:
(i) Error Committed: Partial omission or one – sided omission.

Illustration of errors in the ledgers:

Dr Emilokan Account Cr
N N
Purchases 1,000

127
Dr Purchases Account Cr
N N
No entry -

Correction of errors:
Dr Purchases Account Cr
N N
Suspense 1,000

Dr Suspense Account Cr
N N
Purchases 1,000

(ii) Error committed: overcast of subsidiary book

Illustration of errors in the ledger:
Dr Purchases Account Cr
N N
Creditor 1,000
Excess 500
1,500 1,500

Dr Purchases Account Cr
N N
Purchase 500

Correction of errors:
Dr Purchases Account Cr
N N
Suspense 500

Dr Suspense Account Cr
N N
Purchase 500

(iii) Error committed: Undercast of subsidiary book

Illustration of errors in the ledger:
Dr Sales Account Cr
N N
Debtor 400

Dr Debtor Account Cr
N N
Sales 600

Correction of errors:
Dr Sales Account Cr
N N
Suspense 200

Dr Suspense Account Cr
N N
Sales 200

128
(iv) Errors committed: Erraction of wrong amount in the trial balance.
Illustration of errors in the ledgers:
Dr Sales Account Cr
N N
Sales 700

Trial Balance
Debit Credit
N N
Sales 900

Correction of errors:
Dr Sales Account Cr
N N
Suspense (900 – 700) 200

Dr Suspense Account Cr
N N
Sales (900 – 700) 200

(v) Error committed: Extraction of figure in the wrong side in the trial balance.

Illustration of errors in the ledgers:

Dr Sales Account Cr
N N
Cash 2,100

Trial Balance
Debit Credit
N N
Rent 2,100

Correction of errors:
Dr Rent Account Cr
N N
Suspense (2 × 2,100) 4,200

Dr Suspense Account Cr
N N
Rent (2 × 2,100) 4,200

(vi) Error committed: Omission of balance from the trial balance.

Illustration of errors in the ledgers:
Dr Sales Account Cr
N N
Cash 3,000

Trial Balance
Debit Credit
N N
Insurance (No Entry) -

Correction of errors:
Dr Insurance account Cr
N N
Suspense 3,000

Dr Suspense Account Cr
N N
Insurance 3,000
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(vii) Error committed: Mixed figure or blunder.
Illustration of errors in the ledgers:
Dr Light and Heat Account Cr
N N
Cash 600

Dr Cashbook Cr
N N
Light and heat

Correction of errors:
Dr Cashbook Cr
N N
Suspense (3,950–600) 3,350

Dr Suspense Account Cr
N N
Cash book 3,350

Illustration 5:
(a) The sales day book balance of N980 was carried forward as N890.
(b) Purchases of N30 was wrongly debited to the supplier’s account.
(c) A debit balance of N45 in debtors account was brought down as N54.
(d) N80 received from Ukah was credited to Uwah’s account.
(e) Payment of N148 for salaries was credited to salaries account.
(f) Repairs of motor vehicle of N30 was debited to plant and machinery accounting.
(g) Purchases of stationery for N18 was entered in the cash book only.
(h) Returns inwards of N35 was entered on the debit side of customers’ account.

You are required to prepare:

(i) The journal entry to effect necessary transactions.
(j) The suspense account.
Solution:
(i)
Journal Entry
Date Particulars Folio Debit Credit
N N
(i) Suspense Account (980 – 890) 90
Sales account 90
Being correction of sales account undercast by N90.
(ii) Suspense account (30 × 2) 60
Supplier account 60
Being correction of account wrongly debited to supplier’s account
(iii) Uwah’s Account 80
Ukah’s account 80
Being correction of an amount wrongly credited to Uwah account
(iv) Suspense account (54 – 45) 9
Debtors account 9
Being correction of a debit balance of N45 in debtors account brought down as
N54.
(v) Salaries account (148 × 2) 296
Suspense account 296
Being correction of salaries account wrongly credited to salaries account
(vi) Motor repairs account 300
Plant and machinery account 300
Being correction of plant and machinery account wrongly debited instead motor
repairs account
(vii) Stationery 18
Suspense account 18
Being correction of N18 for stationery omitted from account
(viii) Suspense account (35 × 2) 70
Customers account 70
Being correction of returns inwards wrongly debited to a customer account.

130
(ii)
Dr Suspense Account Cr
N N
Sales 90 Salary 296
Suppliers 60 Stationery 18
Debtor 9
Customer 70
Difference 85
314 314
Difference: 314 – 229 = N85

Illustration 6:
The trial balance of Obidient a sole trader, failed to agree on 25/02/2023. A suspense account was opened for the discrepancies. The
year’s draft account showed:
N
Gross – profit 20,250
Net-profit 9,460

The following errors were later discovered:

(i) Purchases day book was overcast by N2,000.
(ii) N1,100 cheque issued to a creditor was entered in the cash book as N1,001.
(iii) A credit note for N350 issued to a customer was correctly entered into the subsidiary book but was posted to the personal
account as N305.
(iv) An invoice for N860 issued to a customer was entered in the sales day book as N1,060.
(v) A cheque for N550 issued on carriage inwards was debited to carriage inwards account.
(vi) Fixture purchased on credit for N9,650 was journalized through purchases Day book.
(vii) The total of N955 of the discount received column of the cash book had been completely omitted from the ledger posting.
(viii) Sales account was overstated by N480.

You are required to show:

(a) The journal entries to correct these errors.
(b) The suspense account showing the difference in the trial balance before the correction of errors.
(c) Statement of adjusted net-profit.
Solution
(a)
JOURNAL ENTRIES
Date Particulars Folio Debit Credit
N N
(i) Suspense account 2,000
Purchases account 2,000
Being correction of purchases day book overcast
(ii) Suspense account (1100 – 1001) 99
Cash account 99
Being correction of cheque of N1,100 issued to a creditor wrongly entered in the
book as N1,001.
(iii) Suspense account (350 – 305) 45
Debtors account 45
Being correction of trade account undercast by N45
(iv) Suspense account (1,060 × 2) 2,120
Debtors account 2,120
Being correction of N1,060 wrongly debited to customer’s account.
(v) Carriage outwards account 550
Carriage inwards account 550
Being correction of N550 carriage outward wrongly posted into carriage inward
account.
(vi) Fixture account 9,650
Purchases account 9,650
Being correction of purchases account wrongly debited instead of fixture account.
(vii) Suspense account 955
Discount received account 955
Being correction of discount received completely omitted from the account.
(viii) Sales account 480
Debtors account 480
Being correction of sales account overstated by N480

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(b)
Dr Suspense Account Cr
N N
Purchases 2,000 Balance c/d 5,219
Cash 99
Debtors 45
Debtors 2,120
Discount received 955
5,219 5,219

Note: Only errors affecting the total of the trial balance will be posted into the suspense account.

(c)
Statement of Adjusted Profit
N N
Net profit before adjustment 9,460
Add: Purchases overcast 2,000
Furniture wrongly treated as purchases 9,650
Discount received omitted 955 12,605
22,065
Less: Sales overcast (480)
Adjusted net-profit for the year 21,585

2011/46 Nov
To correct an error, the purchase account was debited while the suspense account was cre-dited. Which of the following
was the cause of the error?
A. overcastting of purchases B. undercasting of purchases C. original entry D. omission of creditor’s balance
Answer: Undercasting of purchases (B)
2006/2 Nov
Which of the following errors does NOT affect the agreement of a trial balance?
A. error of principle B. error of overcast C. error of undercast D. error of single entry
Answer: Error of principle (A)

2006/9 Nov
Which of the following errors would affect the agreement of a trial balance?
A. omission B. principle C. commission D. single entry
Answer: Single entry (These are errors are affecting one side of the account) (D)

2003/47
The purchase of a typewriter for office use was debited to purchases account. This is an error of
A. original entry B. commission C. principle D. omission
Answer: Principle (C)

1993/27 Nov
Gabon Ltd. failed to record N2,000 wages. The error is that of
A. omission B. commission C. principle D. compensation E. original entry
Answer: Omission (A)
1990/17 Nov
A suspense account is used for errors of
A. addition corrected in the ledger B. items that have not yet been located for lack of sufficient data
C. double posting verified in the ledger D. omission detected in the ledger E. miscasting in the trial balance
Answer: Items that have not yet been located for lack of sufficient data (B)

2022/28 NABTEB
The error that would affect the agreement of a trial balance is error of
A. omission B. principle C. commission D. single entry
Answer: single entry (D)

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2019/19 Nov NABTEB
Where a trial balance fails to agree, the difference is transferred to
A. profit or loss account B. control account C. suspense account D. balance sheet
Answer: Suspense account (C)

2016/23 Neco
A sale of goods worth N240 to Joan is entered into the account of Johnny. Which type of error is committed?
A. compensating error B. error of commission C. errors of omission D. error of original entry E. error of principle
Answer: Error of commission (B)

2006/9 Nov NABTEB

Before detecting an error, the difference disclosed in a trial balance is temporarily treated in
A. trading account B. profit or loss account C. suspense account D. control account
Answer: Suspense account (C)

2014/6 UTME
Which of the following affects the accuracy and authenticity of the trial balance?
A. error of omission B. error of commission C. error of transposition D. error of original entry
Answer: Error of transposition (C)

2015/2a & b
(a) What is a suspense account? (b) Explain five (5) errors that would not affect the agreement of the trial balance.
Solution
(a) A suspense account is the temporary account into which the difference between the credit and debit
totals is entered before investigation and correction.
(b) i. Error of omission. ii. Error of commission. iii. Error of original entry.
iv. Error of complete reversal of entry. v. Error of compensation.

2016/4(a) Neco
State the errors involved in each of these transactions:
i. A voucher for N2,500 in respect of general expenses was not recorded in the ledger.
ii. Salaries of N6,030 was entered in the account as N6,300.
iii. An electricity bill for N8,000 paid was entered as N8,100 in both accounts in the ledger.
iv. A computer system bought for N50,000 and paid by cheque was recorded as N5,000 in the account.
v. Goods sold to Ronke on credit, was posted to account of Funke, another debtor.
vi. A returned inward was treated as return outward.
vii. A credit sale was treated as a cash sale.
viii. Proprietor’s drawing was left out completely from the account.
ix. Cash paid for the purchase of motor van was debited to motor expenses.
x. A cheque of N20,000 paid to Yusuf, was debited in the bank account.
Solution
i. Errors of omission.
ii. Error of original entry.
iii. Casting error.
iv Error of original entry.
v Error of commission
vi Error of omission
vii Error of principle.
viii Error of complete reversal of entry.

1992/2
The total balance of PQR Company Limited failed to agree and the difference was posted to a suspense account. An
investigation into the books revealed the following:
(a) A balance of N156 on Sales Day Book was carried forward as N516.
(b) A sum of N140 paid for wages was recorded only in the cashbook.
(c) A payment of N840 made by Mallam Mohammed was credited to Mallam Ahmed’s account.
(d) An amount of N800 posted to furniture account included N60 for furniture repairs.
(e) Purchases Day Book was overcasted by N440.
(f) A payment of N31.50 for postage was posted to the credit side of the account.
(g) A balance of N118 due from a debtor was brought down as N181.

133
You are required to prepare: (i) Journal entries to correct the errors and (ii) A suspense account.
Solution
(i) PQR COMPANY LIMI TED JOURNAL ENTRIES
S/N DETAILS DR CR
N N
(a) Sales account – Dr. 360
Suspense Account – Cr. 360
Being sales account overcastted now corrected.
(b) Wages Account – Dr 140
Suspense account – Cr. 140
Being wages paid not posted to the wages account now corrected.
(c) Mallam Ahmed’s Account 840
Mallam Mohammed Account 840
Being errors of commission now corrected.
(d) Furniture repairs Account 60
Furniture Account 60
Being error of principle committed now corrected.
(e) Suspense Account – Dr 440
Purchases Account – Cr 440
Being purchases Account overcasted, now corrected
(f) Postage Account – Dr 31.50
Suspense Account – Cr 31.50
Being the reversal of postage account, now corrected
(g) Suspense account 63
Debtors account 63
Being debtors account overcast, now corrected

(ii)
Dr PQR Suspense Account Cr
N N
Purchases 440 Sales 360
Debtors 63 Wages 140
Difference in books 60 Postage 63
563 563

1999/6 (Theory)
An inexperienced book-keeper prepared a Trial Balance which failed to agree. The difference of N85 credit was kept in
a Suspense Account. The following errors were later discovered;
(a) A cash payment of N180 had been posted as a receipt in the bank column of the cash book.
(b) The Sales Account was overcast by N350 and the Purchases Account was also overcast by N350.
(c) A return inwards of N190 was not recorded in the books.
(d) Bank charges of N185 had been posted into the cash book. No entry was made elsewhere in the books.
(e) The opening balance of a debtor’s account had been brought down as N1,785 instead of N1,875.
(f) An item of fixed asset sold for N2,500 had been debited to cash and included in sales.

You are required to

(i) Prepare journal entries to effect the necessary corrections.
(ii) Write up the Suspense Account.

134
Solution
(i)
Journal Entry
Date Particulars Folio Debit Credit
N N
a) Suspense account (180 × 2) 360
Cash account 360
Being correction of cash payment posted as receipt in the bank column of
cashbook
b) (i) Sales account. 350
Suspense account. 350

(ii) Suspense account 350

Purchases account 350
Being correction of sales and purchases account overcast
c) Returns inwards account 190
Debtors account 190
Being correction of returns inwards omitted from the boom
d) Bank charges account 185
Suspense account 185
Being correction of bank charge posted to the cashbook but omitted from
other books.
e) Debtors account (1875 – 1785) 90
Suspense account 90
Being correction of debtors account N1,875 wrongly posted as N1,785
f) Sales account 2,500
Fixed asset account 2,500
Being correction of sales of fixed asset wrongly posted to cash and included
in sales account

(ii)
Dr Suspense Account Cr
N N
Cash 360 Balance c/d 85
Purchases 250 Sales 350
Difference 100 Debtors 90
710 710
Note:
(a) Error committed : Partial reversal of entry
Correction of errors : Debit – suspense account
Credit – cash account
(b) Error committed : Casting error (overcast)
Correction of errors : (i) Debit – Sales account
Credit – suspense account
(ii) Debit – Suspense Account
Credit – Purchases account
(c) Error committed : Omission
Correction of errors : Debit – Returns inward account
Credit – Debtors account
(d) Error committed : One-sided omission
Correction of errors : Debit – Bank charges account
Credit – suspense account
(e) Error committed : Casting error (undercast)
Correction of errors : Debit – Debtor’s account
Credit – suspense account
(f) Error committed : Principle
Correction of errors : Debit – Sales account
Credit – Fixed Asset account
135
2012/6 Theory
Ade presents a trial balance which showed a difference of N388. This has been transferred to the debit side of a suspense
account.

Further investigations revealed the following:

(i) Purchase of office equipment for N850 was debited to office expenses account.
(ii) Sales day book was overcast by N1,200.
(iii) An invoice for N658 received from a supplier was entered correct in the purchase day book, but was posted to the
debit side of the supplier’s account.
(iv) A credit note for N720 issued to a debtor was entered in the returns inwards book as N270 and was posted to the
ledger accordingly.
(v) A debtor who owed a sum of N420 died without leaving anything behind. This amount was written off his account
as bad debt but no other entry was made in the books.
(vi) Cash drawings amounting to N900 have not been recorded in the books.
(vii) A payment of N280 for electricity was entered correctly in the cashbook but as N820 in the electricity account.
(viii) A motor vehicle was bought for N1,500 by cheque. This transaction was not only recorded in the cash book.
(ix) Discounts received N876 have not been posted from the cash book to ledger.

You are required to show the:

(a) Journal entries necessary to correct the errors;
(b) Suspense Account.
Solution
(a)
Date Particulars Folio Debit Credit
N N
(i) Office equipment account 850
Office expenses account 850
Being correction of purchase of office equipment wrongly debited
to office expenses account
(ii) Sales account 1,200
Suspense account 1,200
Being correction of sales account overcast
(iii) Suspense account (658 × 2) 1,316
Creditor account 1,316
Being correction of an invoice received from a customer wrongly
debited to the debit side of the suppliers account.
(iv) Returns inwards account 450
Debtors account (720 – 270) 450
Being correction of returns inwards account undercast
(v) Bad debt account 420
Suspense account 420
Being correction of one-sided omission.
(vi) Drawings account 900
Cash account 900
Being correction of drawing of N900 omitted from the books of
account.
(vii) Suspense account (820 – 280) 540
Electricity account 540
Being correction of electricity account overcast
(viii) Motor vehicle account 1,500
Suspense account 1,500
Being correction of motor vehicle bought omitted partially from
the cashbook.
(ix) Suspense account 876
Discount received account 876
Being correction of discount received partially omitted

136
(b)
Dr Suspense Account Cr
N N
Balance b/d 388 Sales 1,200
Creditors 1,316 Bad debts 420
Electricity 540 Motor vehicle 1,500
Discount received 876
3,120 3,120

Notes:
(i) Error committed : Principle
Correction : Debit – Office equipment account
Credit – Office expenses account

(ii) Error committed : Casting Error (overcast)

Correction : Debit – Sales account
Credit – Suspense account

(iii) Error committed : Partial Reversal

Correction : Debit – Suspense account
Credit – Creditor account

(iv) Error committed : Original Entry

Correction : Debit – Returns inwards account
Credit – Debtor’s account

(v) Error committed : One – Sided omission

Correction : Debit – Bad debt account
Credit – Suspense account

(vi) Error committed : Omission

Correction : Debit – Drawings account
Credit – Cash account

(vii) Error committed : Casting Error (overcast)

Correction : Debit – Suspense account
Credit – Electricity account

(viii) Error committed : partial Omission

Correction : Debit – Motor vehicle account
Credit – Suspense account

(ix) Error committed : partial Omission

Correction : Debit – Suspense account
Credit – Discount received account

2014/8
The trial balance of Asibi as at December 31, 2010 failed to agree. A suspense account was opened for the differences.
Draft final accounts were prepared which showed a net profit of GH¢4,000 for the year to December 31, 2010. The
following errors were subsequently discovered;
(i) The purchases Day Book total of GH¢8,000 had been posted to the ledger as GH¢16,000.
(ii) The sales account had been under cast by GH¢12,000.
(iii) Discount received of GH¢700 had been debited to discounts allowed account.
(iv) An accrued telephone charge of GH¢600 was omitted.
(v) Loose tools bought for GH¢400 had been debited to purchases account.
(vi) Purchases of stock for GH¢7,000 had not been posted to the ledger.
(vii) Bad debts of GH¢950 written off in the debtor’s account had not been treated in the expenses account.
(viii) Asibi had withdrawn goods to the value of GH¢300 for her personal use. No entries had been made in the books.

You are required to prepare a statement showing the effect of the errors on the draft net profit and the correct net profit
for the year.
137
Solution
ASIBI STATEMENT OF ADJUSTED NET PROFIT FOR THE YEAR ENDED 31 ST DECEMBER, 2010
GH¢ GH¢
Net profit b/d 4,000

Add: Sales undercast 12,000

Purchases overcast 8,000
Discount received wrongly treated 1,400
Loose tools wrongly posted to Purchases account 400
Stock drawings 300 22,100
26,100

Less: Accrued telephone charge 600

Purchases stock omitted 7,000
Bad debts written 950 (8,550)
Correct Net – profit 17,550

2014/13
An error of principle is made in the wrong class of account
A. an entry has been made in the wrong class of account B. a transaction has been completely omitted
C. an entry has been made on the wrong side of the two accounts concerned
D. a transaction is entered in the general journal
Answer: an entry has been made in the wrong class of account (A)

2017/5
The trial balance of Deba Duwa Enterprises failed to agree. The difference was entered in the suspense account. The following
errors – were detected.
(i) The Sales Day Book was undercast by $560.
(ii) A sum of $1000 received from Salako has not been posted to his account;
(iii) Return outwards books was overcast by $140;
(iv) Discount received, $410 from Damilola has been correctly entered in the cash book but not posted to
Damilola’s account;
(v) Goods worth $750 returned to a supplier was recorded in his personal account as $570;
(vi) Discount allowed was overcast by $310;
(vii) Discount received column in the cash book has been overcast by $400.

You are required to prepare. (a) Journal entries to correct the errors, (b) Suspense account.
`

Solution
(a) DEBA DUWE ENTERPRISES JOURNAL ENTRIES
S/N DETAILS DR CR
$ $
(i) Dr. suspense Account 560
Cr. Sales Account 560
Being sales account undercast, now corrected.
(ii) Dr. suspense Account 1,000
Cr. Sales account 1,000
Being omission of amount from Salako’s account, now corrected
(iii) Dr. Returns outwards Account 140
Cr. Suspense Account 140
Being returns outward overcast, now corrected.
(iv) Dr. Damilola’s Account 410
Cr. Suspense Account 140
Being discount received from Damilola not posted, now corrected
(v) Dr. Trade Creditor’s Account 150
Cr. Suspense Account 150
Being goods supplied returned undercast, now corrected
(vi) Dr. Suspense Account 310
Cr. Discount Allowed Account 310
Being discount allowed over cast, now corrected
(vii) Dr. Discount received account 400
Cr. Suspense Account 400
Being discount received overcast, now corrected

138
(b)
DEBA DUWE ENTERPRISES SUSPENSE ACCOUNT
$ $
Sales 560 Returns outward 140
Salako 1,000 Damilola 410
Discount allowed 310 Trade Creditors 180
Discount received 400
Difference in books 740
1,870 1,870

2021/12
Sales account was undercast by GH₵1,000. When this is corrected, both the gross profit and the net profit would
A. increase by GH₵2,000 B. increase by GH₵1,000 C. decrease by GH₵1,000 D. decrease by GH₵2,000
Answer Decrease by GH₵1,000 (C)
2021/48
Suspense account is used in the correction of
A. all errors in the trial balance B. errors that affect the agreement of a trial balance
C. errors that do not affect the agreement of a trial balance
D. errors that affect the accuracy of the net profit
Answer Errors that affect the agreement of a trial balance (B)
2021/4
Explain the following errors that do not affect the agreement of the trial balance totals:
A. errors of omission B. errors of original entry C. errors of principle D. errors of commission
E. compensating error
Answer
(a) Errors of omission: This error is committed when a transaction is partially or totally omitted from the books of accounts
(b) Errors of original entry: This error is committed when the original amount of a transaction is transposed.
(c) Errors of principle: This error occurs when a transaction is entered in the wrong class of account.
(d) Errors of commission: This is committed when transactions are incorrectly recorded in the books of accounts.
(e) Compensating error: This error takes place when an error on one account is cancelled out by another error in another account.

2021/5 Neco
On 31st December, 2005, the trial balance of Chief Robinson failed to agree by N660, a shortage on the credit side of
the trial balance. A suspense account was opened for the difference and on investigation, the following errors were
discovered.
(i) Sales day book had been undercast by N200.
(ii) Purchase of N500 from Barrister Fashola had been credited in error to Barrister Bala’s account.
(iii) Salaries account had been undercast by N140.
(iv) Discount received account had been undercast by N600.
(v) The amount N720 from the sales of motor vehicle at book value had been credited in error to sales account.
You are required to:
(a) Prepare the journal entries necessary to correct the errors and
(b) Suspense account.
Solution
(a) CHIEF ROBINSON JOURNAL ENTRIES
S/N DETAILS DR CR
N N
(i) Suspense Account - Dr. 200
Sales Account - Cr. 200
Being sales day book undercast now corrected.
(ii) Barrister Bala Account – Dr 500
Barrsiter Fashola Account - Cr 500
Being error of commission now corrected.
(iii) Salaries Account – Dr. 140
Suspense Account – Cr 140
Being salaries account undercast, now corrected.
(iv) Suspense Account – Dr. 600
Discount received account – Cr. 600
Being discount received undercast, now corrected.
(v) Motor Vehicle Account – Dr. 720
Sales Account – Cr. 720
Being motor vehicle amount wrongly credited to sales account, now
corrected.

139
(b)
CHIEF ROBINSON SUSPENSE ACCOUNT
N N
Sales 200 Salaries 140
Discount received 600 Difference in book 660
800 800
Balance b/d 660

2008/4 Exercise 8.1

The following trial balance was extracted from the books of Dushimar Ventures on 31 st December, 2015.
Trial balance Dr Cr
Le Le
Fixed Assets 72,200
Stock 13,800
Debtors 6,300
Creditors 2,456
Bank overdrafts 528
Provision for depreciation 10,200
Sales 102,320
Capital 106,440
Purchases 72,308
Drawings 29,960
Sundry expenses 26,616
Provision for doubtful debts 360
Expense account 1,120 ________
222,304 222,304
The following errors were discovered:
(i) The total sales Day Book in December, 2015 had been overstated by Le480;
(ii) In January 2015, new office furniture was purchased for Le14,400, this was debited to purchases account.
(iii) A cheque payment of Le864 to a supplier was entered in the book as Le1,044;
(iv) A credit note of Le148 sent to a customer for returns was overlooked;
(v) Payment of sundry expenses of Le640 had been omitted from the trial balance.
You are required to prepare the: (a) Journal entries to correct the errors; (b) Suspense account.

2018/4 NABTEB (Nov) Exercise 8.2

An inexperienced book – keeper prepared a trial balance which failed to agree. The difference of N85 credit was kept in a suspense
account. The following errors were later discovered.
(a) A cash payment of N180 had been posted on a receipt in the bank column of the cash book.
(b) The sales account was overcast by N350 and the purchases account also overcast by N350.
(c) A returns inward of N190 were not recorded in the books.
(d) Bank charges of N185 had been posted into the cash book. No entry was made elsewhere in the books.
(e) The opening balance of a debtor’s account had been brought down as N1,785 instead of N1,875.
(f) An item of fixed assets sold for N2,500 had been debited to cash and included in sales.
You are required to: (i) Prepare journal entries to effect the necessary corrections. (ii) Write up the suspense account.

2001/7 (Nov) Exercise 8.3

A book – keeper could not agree his trial balance. The difference was posted to a suspense account. Thereafter, the following errors
were discovered.
(a) Returns outwards of N2,400 was entered on the credit side of the supplier’s account.
(b) The sales Day Book amount of N15,400 was carried forward as N14,500
(c) A debit balance of N750 in debtor’s account was brought down as N570.
(d) Purchase of stationery for N620 was entered in the cash book only.
(e) Purchases of N5,200 were debited to the suppliers account.
(f) N1,000 received from Udoh was credited to Udom’s account.
(g) Repair of fan for N540 was debited to furniture account.
(h) Payment of N4,800 for rent was credited to rent account.
You are required to prepare: (i) Journal entries to effect necessary corrections and (ii) Suspense account

140
2022/3 (Theory) NABTEB Exercise 8.4
The book-keeper of Jendol Ltd. prepared a trial balance which failed to agree. The difference of N714 credit was
transferred to a suspense account. The following errors were later discovered:
(a) A cash payment of N1,512 had been posted as receipt in the cash book.
(b) The sales account was overcast by N2,940.
(c) The purchase account was overcast by N2,940.
(d) Returns inward of N1,596 was not recorded in the books.
(e) Bank charges of N1,554 had been posted to the cashbook. No entry was made in the books.
(f) The opening balance of a debtor’s account had been brought down as N16,238 instead of N16,994.
(g) An item of fixed assets sold for N21,000 had been debited to cash and included in sales account.

You are required to:

(i) Prepare the journal entries to effect the corrections.
(ii) Write up the suspense accounts.

2010/5 (Theory) Neco Exercise 8.5

On 30th June 2007, the trial balance of Adeola Audu failed to agree. A suspense account was opened and the final
accounts were prepared.

The following errors were discovered to be responsible for the disagreement.

(i) Returns outwards had been entered in trial balance as N570 instead of N1,570.
(ii) The sales day book had been overcast by N4,000.
(iii) Petty cash expenses of N350 for travelling expenses had not been posted to the ledger.
(iv) Fixtures bought by cheque for N700 had been correctly entered in the cashbook but not posted to the ledger.
(v) Goods valued at N1,300 withdrawn by the proprietor was not recorded in the books.

You are required to prepare the suspense account showing the difference in books.

2004/17 Nov Exercise 8.6

A credit sale to Owusu – Abubio was debited to Owusu – Adabo, this is an error of
A. compensation B. omission C. principle D. commission

1999/2 Nov Exercise 8.7

Expenses on repairs of building was posted to building account. This is an error of
A. omission B. compensation C. principle D. commission

1999/41 Nov Exercise 8.8

Which of the following errors will affect the agreement of a trial balance?
A. commission B. omission C. principle D. casting

2001/35 Nov Exercise 8.9

Musa’s account was undercast by N2,000 while those of Bello and Audu were overcast by N1,500 and N500
respectively. This resulted in the trial totals agreeing. This is an error of
A. compensation B. complete reversal of entries C. omission D. commission

2001/46 Nov Exercise 8.10

To correct an error, the purchases account was debited while the suspense account as credited. Which of the following
was the cause of the error?
A. overcasting of purchases B. undercasting of purchases
C. original entry D. omission of creditor’s balance

141
Chapter Nine
BANK RECONCILIATION
DEFINITION OF BANK RECONCILIATION
Bank reconciliation is defined as a process of reconciling the differences between the balance of the cash book and the
balance of the bank statement. A bank statement is a monthly report detailing the activities that have taken place in the
depositor’s account.
Bank Reconciliation Statement (BRS) is a document prepared to reconcile the difference between the balances of cash
at bank as disclosed by the bank statement on one hand and by the cash book on the other hand. When a man looks into
a mirror, he sees his reflection but his right hand appears to be his left hand in the reflection and his left hand as his right
hand. Such is the relationship between the bank statement and the cash book (bank column). The cash book is kept by
the cashier, while the bank statement is kept by the banker. The two are the same account viewed from different
perspectives, so that credit entries in the cash book (bank column) are debit entries in bank statement and vice – versa.
There is a great need for us to compare the bank account in the cash book with the company’s account in the books.
Most often there are differences between the two balances, reason being that the time and treatment accorded
transactions are not the same. The balance in the bank is reconciled to the cash book balance highlighting the areas of
differences. The reconciliation statement helped in detecting errors in both banks and company’s books.

CAUSES/REASONS FOR DIFFERENCE IN TWO BALANCES

The relationship between the customer and the banker is that of a creditor and a debtor. So, if the bank column of the
cash book shows a debit balance as on a specific date, the bank statement should show an equal amount of credit balance
as on that date and vice versa. However, the balances shown by the two independent records may not agree due to the
following:
i. Unpresented cheques: Is a cheque that has been written and accounted for but it has not yet been paid out by the
bank from which the money is being drawn. Unpresented cheques are also referred to as outstanding cheques
because the funds in question, has the name suggests outstanding.
ii. Uncredited cheques: These are cheques on the other hand received from customers regarding an instant sales debited to
cash account for receiving values, given to the cashier at the bank but of which the banker or casher had failed to credit the
account of the business organization. Whenever the cheque is received, the customer will debit the bank column of the two
cash book with the amount written on the cheque but the corresponding credit entry will not be found on the bank statement
causing discrepancy. Uncredited cheques are usually found at the debit side of the cash book.
iii. Bank charges: The term bank charges refers to any charge imposed by financial institutions on their personal and
business customers for account setup, maintenance and minor transactional services. This fees may be charged on
a one time or ongoing basis. Examples of bank fees or charges range from account maintenance charges,
withdrawal and transfer fees, automated teller machine (ATM) fees, non-sufficient fund (NSF) fees, late payment
charges and others.
iv. Standing order: A standing order is a recurring authorization to purchase or pay. Standing order can increase the
efficiency of a business by replicating purchases and payments, rather than requiring that individual transaction be
initiated each time the purchase or the payment must be made. Doing so, greatly reduces the associated amount of
paper work.
v. Direct debit: This is an instruction to the bank to transfer funds to another account on a recurring basis. The
payment is initiated by the payee himself. Direct debit are useful where regular payments are to be made to certain
parties such as in payment of credit card bills, lease/interest on bank loan, etc. This saves the company the hassle
of issuing cheques every month.
vi. Credit transfer: This is referred to as the transfer of money from one account to another, it is called wire transfer.
The procedure of granting credit to a student for studies completed at another school also called transfer credit or
advance standing.
vii. Dishonoured cheques: Dishonoured cheque is a condition in which bank refuses to pay the amount of cheque to
the payee. Whenever a cheque is dishonoured, the drawee bank instantly issues a “cheque return memo” to the
payee bank specifying the reason for dishonor. The payee has an option to resubmit the cheque within 3 months of
the date specified on the cheque of fulfilling the reason for the dishonoured cheque.
viii. Dividend received: In some cases, the organization may invest in the shares of a limited liability company, and
whenever the dividend is paid, the money may be paid to the bank account of the company without the prior
knowledge of the account holder. This will cause discrepancy as the income side of the bank statement will increase
(credit) without corresponding increase in the income side of the cash books (debit).
ix. Errors: Book keeping errors made by both the account holder and the bank which could be either overstatement
or understatement will cause discrepancy between the cashbook and bank statement.

142
OBJECTIVES OF BANK RECONCILIATION STATEMENT
i. Detection of errors and fraud.
ii. Location of wrong posting in the bank statement and cash book.
iii. Detection of omissions in either the bank or cash book.
iv. Agreeing the difference between the bank statement and the cash book.
The treatment of items in both the cashbook and bank statement may be summarized as follows:
ITEMS CASH BOOK (BANK COLUMN) BANK STATEMENT
Receipts Debit Credit
Payments Credit Debit
Cash at bank Debit balance Credit balance
Bank overdraft Credit balance Debit balance

PREPARATION OF THE RECONCILIATION STATEMENT

Starting with the cashbook balance then, the unpresented cheques will be added and the uncredited cheques deducted to
arrive at the balance per Bank Statement. Where the balance per bank statement is used, the uncredited cheques or
lodgements are added and unpresented cheques deducted to arrive at the balance as per cashbook. However, there are
two methods of preparing Bank Reconciliation statements:
i. Preparation without adjusting the cashbook.
ii. Preparing adjusted cash book before the reconciliation statement.

Illustration 1
2016/1 UTME
N
Balance as per cash book 2,970
Bank charges 1,220
Unpresented cheques 3,950
Uncredited cheques 4,178
Direct debit 1,000
Determine the balance as per bank statement.
A. N1,978 B. N1,962 C. N1,522 D. N2,522
Solution
Bank reconciliation statement
N N
Balance as per cash book 2,970
Add: Unpresented cheques 3,950
Direct debit 1,000
7,920
Less: Uncredited cheques 4,178
Bank charges 1,220 5,398
2,522
Answer: N2,522 (D)

Illustration 2
Rome was examining his Bank Statement for the month of December. He discovered that the balance of the Bank
statement did not agree with the cash book balance which was N1,040. On investigation, the following were discovered:
(i) The opening balance in the cash book for the month had been wrongly brought down as N307, instead of N703.
(ii) Two cheques for N163 and N465 which were issued to creditors had not been presented for payment.
(iii) The bank returned a cheque of N380 deposited on 6th December.
(iv) A cheque of N760 deposited on 21st December was not credited until 4th January the following month.
(v) Bank charges amounting to N58 was yet to be entered in the cash book.
(vi) The bank had paid N85 on standing order to Rainbow Insurance Company.

You are required to prepare:

(a) Adjusted Cash Book.
(b) Bank Reconciliation Statement for December.

143
Solution
(a)
ROME:
Dr Adjusted Cash Book Cr
N N
Balance b/d 1,040 Dishonoured cheque 380
Opening balance (undercast 703- 396 Bank charges 58
307)
Standing order 85
Balance c/d 913
1,436 1,436
Balance b/d 913

(b)
Bank Reconciliation Statement
N
Balance as per adjusted cashbook 913
Add: unpresented cheques 630
1,543

Less: Uncredited cheque 760

Balance as per bank statement 783

Illustration 2
On 31st December, 2004, Jay’s cash book showed a debit balance of N29,520. His bank statement showed a credit
balance of N26,500. The reasons for the differences were as follows:
(a) A cheque for N1,960 was received and entered in the cash book but not recorded in the bank statement.
(b) Unpresented cheques totalled N3,720.
(c) Standing order for N1,260 appearing in the bank statement is yet to be posted in the cash book.
(d) The payment side of the cash book had been undercast by N2,000.
(e) A bill of exchange of N1,340 had matured and bank had paid on Jay’s behalf but had not been recorded in the cash
book.
(f) Dividend credited to his account by the bank for N1,240 had not been recorded into the cash book.
(g) A withdrawal of N1,440 by Jaye (another customer) had been charged in error to Jay’s account.

You are required to prepare:

(a) Updated Cash Book.
(b) A bank Reconciliation Statement as at 31st, December, 2004. (ICAN ADAPTED)
Solution
JAY’S
Dr Adjusted (updated) Cash Book Cr
N N
Balance b/f 29,520 Payment undercast 2,000
Dividend 1,240 Standing order 1,260
Bill of exchange 1,340
Balance c/d 26,160
30,760 30,760
Balance b/d 26,160

(b)
Bank Reconciliation Statement as at 31st December, 2004
N N
Balance as per adjusted cashbook 26,160
Add: Unpresented cheques 3,740
29,900

Less: uncredited cheques: 1,960

Bank error 1,440 3,400
Balance as per bank statement 26,500

144
Illustration 3
According to the Cash Book of Mallam Dogoyaro, the position of his financial affairs on 30th June, 2018 was as follows:
Balance as per bank statement (DR) N240,000
Balance as per cash book (CR) N420,000
Unpresented cheques N488,000
Uncredited cheques N52,000

Further investigation reveals that:

(a) Cheque of N40,000 paid by Mr. Bature has been entered in error in the cash column of the cash book.
(b) The cashier forgot to record Bank commission of N12,000.
(c) The Kugbua branch paid N216,000 into the bank but the advice has not reached the head office; and
(d) A cheque of N20,000 received from Emeka has been returned dishonoured.

You are required to:

(a) Make appropriate Adjustment to the Cash Book.
(b) Prepare a Bank Reconciliation Statement using the updated cash book balance.
(c) Prepare a Bank Reconciliation without first updating the cash book and starting with the cash balance.
Solution
(a)
MALLAM DOGOYARO
Dr Adjusted Cash Book Cr
N N
Cash book error 40,000 Balance b/f – OD 420,000
Kugbua branch 216,000 Bank commission 12,000
Balance c/d – OD 196,000 Dishonoured cheque 20,000
452,000 452,000
Balance b/d – OD 196,000

(b)
Bank Reconciliation Statement, 30th June, 2018
N
Balance as per adjusted cash book (OD) 196,000
Add: uncredited cheques 52,000
248,000
Less: Unpresented cheques (488,000)
Balance as per bank statement (OD) (240,000)

ALTERNATIVELY
(Using Bank Statement Balance)
MALLAM DOGOYARO
Bank Reconciliation Statement, 30th June, 2018
N
Balance as per adjusted cashbook (OD) 240,000
Add: unpresented cheques (488,000)
(248,000)
Less: Uncredited cheques 52,000
Balance as per adjusted cashbook 196,000

(c)
Bank Reconciliation Statement without Adjusted Cash Book

MALLAM DOGOYARO:
Bank Reconciliation Statement, 30th June, 2018
N N
Balance as per adjusted cash book (OD) (420,000)
Add: Unpresented cheques 488,000
Cashbook error 40,000
Receipt from Kubua branch 216,000 744,000
324,000
Less: uncredited cheques: 52,000
Bank commission 121,000
Cheque dishonoured 20,000 84,000
Balance as per bank statement 240,000
145
2006/21-22 UTME
Use the information below to answer questions 21 and 22.
Date Particulars Debit Credit Balance
N N N
Jan. 1 Opening balance 10,000
Jan. 3 Bashir, A. K 1,000 9,000
Jan. 10 Usman A. D. 1,500 7,500
Jan. 12 Sule A. S. 500 7,000
Jan. 20 Aliyu A. K. 3,000 10,000
Jan. 30 X 1,500 Y

21. The value of Y is

A. N11,500 B. N8,500 C. N13,000 D. N10,000
Answer : N8,500 (N10,000 – N1,500) = N8500 [B]
22. X represents
A. bank charges B. an unpresented cheque C. dividends D. an uncredited cheque
Answer: Bank charges (A)

2011/11 UTME
In bank reconciliation process, discrepancies caused by timing arises as a result of
A. bank statement only B. cash book and bank statement
C. cash book, bank statement and other records D. cash book only
Answer: Bank statement (A)

2019/21 NABTEB (Nov)

In the preparation of bank reconciliation statement, uncredited cheques are:
A. added to the balance as per bank statement B. deducted from the balance as per bank statement
C. added to the balance as per cash book D. ignored totally
Answer: Deducted from the balance as per bank statement (B)

2014/5 NABTEB (Theory)

On 30th April, 2009, the cash book of U. Kama showed a balance in bank of N12,409.44 and on the same day his bank
statement showed a favourable balance of N11,482.44. on cross checking the details in the bank statement with the cash
book, it was discovered that the discrepancy was due to the following:
(a) The credit side of the cash book was undercast to the tune of N120.
(b) Cheque dishonoured: P. Ugo N156.
(c) Cheques drawn and recorded in the cashbook (bank column) but not shown in the bank statement: T. Abel N132
Amufu Limited N246.84
(d) Items debited by the Bank: Bank charges N30
Cost of cheque book N18.36.
(e) Items duly debited in the cash book but not yet cleared by the bank.
Cheque received from D. Okeke N243.96.
Cheque received from P. Ojimekwe N174.
Cheque received from R. Owale N562.92.

Required:
Show the amended cash book and the bank reconciliation statement for U. Kama on 30th April, 2009.
Solution:
U. Kama
Adjusted Cashbook
N N
Balance b/d 12,409.44 Undercast 120
Dishonoured cheque 156
Bank charges 30
Cheque book 18.96
Balance c/d 12,984.48
12,409.44 12,409.44
Balance b/d 12,084.48

146
U. KAMA
Bank Reconciliation Statement as at 31st December, 2004
N N
Balance as per adjusted cash book 12,084.48
Add: Unpresented cheques: Abel 132,00
Amufu 248.84 378.84
12,463.32
Less: uncredited cheques: D. Okeke 243.96
P. Ojimekwe 174.00
R. Owale 502.92 (980.88)
Balance as per bank statement – OD 11,482.44
2011/34 Neco
Which of the following will NOT cause cash book balance and bank statement?
A. bank charges B. cash payment C. standing order D. uncredited cheques E. unpresented cheques
Answer: Cash payment (B)
2006/28 Neco
A statement that is prepared to reconcile the disagreement of the cash book and that of the bank statement is referred
to as _____ statement
A. bank B. bank reconciliation C. bank charges D. cash E. cash reconciliation
Answer: Bank reconciliation (C)
2014/17 NABTEB (Nov)
A periodic information sent by the bank to the customer showing the financial position as at a given date is called
A. bank statement B. bank reconciliation statement C. balance sheet D. customer cheque book
Answer: Bank statement (A)
2003/19 (Nov)
Which of the following is NOT a cause of the disagreement between the balances of the cash book and the bank
statement?
A. bank loan granted the customer B. standing order payments by the bank C. errors committed by the bank
D. overstatement of the cashbook
Answer: Bank loan granted the customer (A)
2003/7 (Nov)
The bank columns in the cash book for January 2002 and the bank statement for the month for Obanikoro & Co. are as
follows:
Dr Cash book Cr
N N
1-1-02 Balance b/d 8,700 8-1-02 Dayo 1,745
7-1-02 Moyosere 440 15-1-02 Malaolu 165
22-1-02 Enitan 365 28-1-02 Siyanbola 575
31-1-02 Wale 1,245 31-1-02 Balance c/d 9,155
31-1-02 Bayonle 890
11,640 11,640
1-2-02 Balance b/d 9,155
Bank statement
Date Particulars DR. CR. Balance
N N N
1-1-02 Balance b/d 8,700
7-1-02 Moyosore 440 9,140
11-1-02 Dayo 1,745 7,395
20-1-02 Malaolu 165 7,230
22-1-02 Enitan 365 7,595
31-1-02 Credit transfers 270 7,865
31-1-02 Bank charges 110 7,755
2-2-02 Siyanbola 575 7,180

You are required to prepare: (i) An adjusted cash book. (ii) Bank Reconciliation Statement.

147
Solution
(i) OBANIKORO & CO.
Dr Adjusted for the month of Jan. 2002 Cr
N N
Balance b/d 9,155 Bank charges 110
Credit transfer 270 Balance c/d 9,315
9,425 9,425
Balance b/d 9,315

(ii)
OBANIKORO & Co
Bank Reconciliation Statement 31st January, 2002
N
Balance as per adjusted cash book 9,315

Add:Unpresented cheques --
9,315
Less:Uncredited cheques (1,245 + 890) 2,135
Balance as per bank statement 7,180

2005/6 Neco
On 31st December, 2004 the cash book of J. B. C. Okoli, a retailer in Babies’ wears showed an over draft of N500
whereas the bank statement showed a balance of N1,000 (Dr).
On investigation, the following items were discovered to have caused the discrepancy:
(a) A cheque for N499 received by J. B. C. Okoli and entered in his cash book on 31 stDecember, 2004 was not
credited by the bank until 10th January, 2005.
(b) A credit transfer of N2,160 in settlement of a debt by a customer has not been entered in the cash book.
(c) Cheques drawn by J.B.C Okoli on 24th December, 2004 amounting to N405 were not paid by the bank until
after 31st December, 2004.
(d) In December, 2004 the bank debited J.B.C. Okoli’s account with N150 for bank charges. No entry has been
made in J.B.C Okoli’s book.
(e) A dividend of N104 was paid directly to bank.
(f) Standing order on insurance for N168 was paid by the bank.
(g) A cash payment of N160 was recorded in the bank column of the cash book.
(h) A cheque of N400 lodged by J.B.C Okoli was credited in error to J.J.C Okoro’s account.
(i) A dishonoured cheque of N180 was not recorded in the cashbook.
(j) A cheque for rent and rates of N79 on 23rd December, 2004 had been entered in the cash book as N97.
You are required to prepare: (i) An adjusted cash book and (ii) Bank reconciliation statement as at 31st December, 2004.
Solution
(i)
J.B.C. Okoli
Dr Adjusted cash book as at 31st December, 2004 Cr
N N
Credit transfer 2,160 Balance b/d 500
Dividend 104 Bank charges 150
Cash book error 160 Standing order 168
Payment overcast 18 Dishonoured cheque 180
Balance c/d 1444
2,442 2,442
Balance b/d 1,444

148
(ii)
J.B.C Okoli Bank Reconciliation statement 31-12-04
N
Balance as per adjusted cashbook 1,444
Add: unpresented cheques 405
1,849
Less: uncredited cheques (N449 + 400) (849)
Balance as per bank statement 1,000

2019/6 Neco
The cash book of Samuel Osheku for the month ending 31st March, 2016 is as follows:
Cash book (bank column)
N N
March 1 Balance b/f 169,950 March 8 Emeka A. 18,630
March 4 Cash 11,400 March 18 Udom K. 5,814
March 15 Chukwu O. 13,100 March 28 Adamu A. 2,420
March 18 Salamatu M. 18,800 March 31 Balance c/d 182,932
March 30 Ade H. 5,546
209,796 209,796

The following bank statement was sent to Samuel Osheku for the same period.
Date Particulars Dr Cr Balance
N N N
March 1 Balance b/f 160,950
March 4 Cash 11,400 172,350
March 8 Emeka A. 18,630 153,720
March 15 Chukwu O. 13,100 166,820
March 18 Salamatu M. 18,800 185,620
March 19 Udom K. 5,814 179,806
March 26 IFCKS Ltd (Dividend) 1,050 180,856
March 30 Bank charges 420 180,436
You are required to:
(a) Prepare an adjusted cashbook (b) Draw up a bank reconciliation statement as at 31st March, 2016.
Solution
(a)
Dr Adjusted cash book for the month of March, 2016 Cr
N N
Balance b/d 182,932 Bank charges 420
Dividend 1,050 Balance c/d 183,562
183,982 183,982

(b)
Samuel Osheku
Bank reconciliation statement as at 31st March, 2016
N
Balance as per adjusted cashbook 183,562
Add: Unpresented cheques – Adamu 2,420
185,982
Less: Uncredited cheques – Ade H. (5,546)
Balance as per bank statement 180,436

149
2019/7
On 30thSeptember, 2017, Adedeji’s cashbook showed a debit balance ofGHȼ7,600. However, his bank statement
showed an overdraft balance of GHȼ1,880. On investigation, the following details were discovered:
i. A standing order of GHȼ560 had not been entered in the cashbook.
ii. Bank charges of GHȼ40 did not appear in the cashbook.
iii. Cash paid into the bank for GHȼ400 had been entered in the cashbook as GHȼ360.
iv. A cheque of GHȼ200 received from a customer was dishonoured.
v. The bank received a credit transfer of GHȼ400 from a customer.
vi. A cheque of GHȼ1,360 paid to Dexteri Ltd had not been entered in the cash book as GHȼ1,720.
vii. A receipt of GHȼ40 shown on the bank statement had not been entered in the cash book.
viii. A cheque drawn amounting to GHȼ160 paid is still with the supplier.
ix. Receipts of GHȼ3,600 paid into the bank on 30th September, 2017 did not appear on the bank statement
until October, 2017.
x. A cheque of GHȼ1,080 paid into the bank had been wrongly credited by the bank as GHȼ600.
xi. A transfer of GHȼ6,000 to bank had not been recorded in the cashbook.
You are required to prepare: (a) Adjusted cashbook. (b) Bank reconciliation statement as at 30th September, 2017

Solution
(a)
Dr Adedeji adjusted cashbook as at 30th Sept. 2017 Cr
GHȼ GHȼ
Balance b/d 7,600 Standing order 560
Credit transfer 400 Bank charges 40
Payment overcast 360 Payment undercast 40
Cash receipt 40 Dishonoured cheque 200
Transfer to bank 6,000
Balance c/d 1,560
8,400 8,400
Balance b/d 1,560

(b)
Adedeji Bank reconciliation statement as at 31st March, 2016
GHȼ
Balance as per adjusted cashbook 1,560
Add: unpresented cheques 160
1,720
Less: uncredited cheques (3,600)
Balance as per bank statement (OD) 1,880

1992/5 (Nov)
Adedayo Adeniran’s cashbook showed a debit balance of N922 on 31st December, 1990. However, his bank statement
showed a credit balance of N1,564.
You are given the following additional information:
(a) A cheque of N1,260 issued to creditors has not been presented.
(b) A cheque of N500 lodged with the bank was not credited.
(c) A dishonoured cheque of N146 was not recorded in the cashbook.
(d) A dividend of N76 was paid directly to the bank.
(e) Bank charges amounted to N84.
(f) Standing order of N20 was paid.
(g) A cash payment of N2 was recorded in bank column of the cashbook.
(h) A cheque of N54 lodged by Adedayo Adeniyi was credited to Adedayo Adeniran’s account.
You are required to prepare:
(i) an adjusted cashbook;
(ii) bank reconciliation statement as at 31st December, 1990.

150
Solution
(i)
ADEDAYO ADENIRAN’S
Dr Adjusted cashbook as at 31st December, 1990 Cr
N N
Balance b/d 922 Dishonoured cheque 146
Dividend 76 Bank charges 84
Cash book error 2 Standing order 20
_____ Balance c/d 750
1,000 1,000
Balance b/f 750

(ii) ADEDAYO ADENIRAN’S

Bank reconciliation statement as at 31st March, 1990
N N
Balance as per adjusted cashbook 750
Add: Unpresented cheque 1,260
Bank error 54 1,314
2,064
Less: uncredited cheque (500)
Balance as per bank statement 1,564

2008/6 Neco
The following is an extract from the bank column of the cashbook of ADEBIM Ltd, for the month of June, 2004.
Dr Cash book Cr
N N
June 4 Bello 1,220 June 1 Balance b/f 2,216
,, 18 Tatama 1,396 ,, 8 Adeolu 1,132
,, 28 Nneji 1,242 ,, 17 Peace 1,312
,, 30 Balance c/d 1,960 ,, 27 Inyang 1,158

5,818 5,818
July 1 Balance b/d 1,960

The bank sent the following Statements for the same period.
Bank Statements as at 30th June 2004
Dr Cr Balance
N N N
June 1 Balance 2,216 OD
,, 11 Bello 1,220 996 OD
,, 10 Adeolu 1,132 2,128 OD
,, 19 Tatama 1,396 732 OD
,, 22 Peace 1,312 2,044 OD
,, 28 Dividend 400 1,644 OD
,, 28 Bank charges 200 1,844 OD
,, 29 Standing order 100 1,944 OD

You are required to:(i) Write the cash book up to date: (ii) Draw up a bank reconciliation statement as at 30th June,
2004.
Solution

(i) ADEBIM LIMITED:

Dr Adjusted cashbook as at 30th June, 2004 Cr
N N
Dividend 400 Balance b/d (OD) 1,960
Balance c/d 1,860 Bank charges 200
Standing order 100
2,260 2,260
Balance b/d (OD) 1,860
151
(ii) ADEBIM LIMITED:
Bank reconciliation statement as at 30th June, 2004
N
Balance as per adjusted cashbook (OD) 1,860
Add: Uncredited cheques 1,242
3,102

Less: Unpresented cheque (1,158)

Balance as per bank statement 1,944

2016/6 Neco
Adamu’s cashbook showed a debit balance of N14,415 on 31st March, 1990. His bank statement showed a credit balance
of N16,825 on the same date. A careful comparison of the two revealed the following differences.
(i) Bank charges amounted to N145.
(ii) Bank paid N4,525 to Adamu’s insurance company as standing order.
(iii) Chinwe paid N3,500 direct into Adamu’s bank account.
(iv) A cheque for N3,650 deposited by Adamu on 29th March was returned.
(v) Cheques totaling N4,160 deposited on 31st March were credited by the bank on 2nd April.
(vi) Cheques totaling N11,390 issued by Adamu to his creditors did not appear in the bank statement.

You are required to: (i) Adjust the cash book balance. (ii) Prepare a bank reconciliation statement.

Solution
(i)
Dr Adamu Adjusted cashbook as at 31st March, 1990 Cr
N N
Balance b/d 14,415 Bank charges 145
Direct payment 3,500 Standing order 4,525
Cheque returned 3,650
Balance c/d 9,595
17,915 17,915
Balance b/d 9,595

(ii)
Adamu Bank reconciliation statement as at 31st March, 1990
N
Balance as per adjusted cashbook 9,595
Add: unpresented cheques 11,390
20,985

Less: uncredited cheque (4,160)

Balance as per bank statement 16,825

2017/6 UTME
N
Balance as per cash book 5,467
Uncredited cheque 4,410
Unpresented cheque 19,404
Cheques wrongly debited by bank 1,440

The balance as per bank statement is

A. N21,601 B. N19,021 C. N21,109 C. N21,091

152
Solution

Bank Reconciliation Statement

N
Balance as per cash book 5,467
Add: Unpresented cheque 19,404
Cheques wrongly debited 1,440
26,011
Less: Uncredited cheque (4,410)
Balance as per B.S 21,601

Answer: N21,601 (A)

2005/6 Neco Theory

On 31st December, 2004 the Cash Book of J.B.C. Okoli, a retailer in Babies’ Wears showed an overdraft of N500
whereas the Bank Statement showed a balance of N1,000 (Dr).

On investigation, the following items were discovered to have caused the discrepancy.
(a) A cheque for N449 received by J.B.C Okoli and entered in his Cash Book on 31st December, 2004 was not credited
by the Bank until 10th January, 2005.
(b) A credit transfer of N2,160 in settlement of a debt by a customer has not been entered in the Cash Book.
(c) Cheuqes drawn by J.B.C. Okoli on 24th December, 2004 amounting to N405 were not paid by the Bank until after
31st December, 2004.
(d) In December, 2004 the bank debited J.B.C Okoli’s account with N150 for bank charges. No entry has been made in
J.B.C Okoli’s book.
(e) A dividend of N104 was paid directly to Bank.
(f) Standing order on insurance for N168 was paid by the Bank.
(g) A cash payment of N160 was recorded in the Bank Column of the Cash Book.
(h) A cheque of N400 lodged by J.B.C Okoli was credited in error to J.J.C. Okoro’s account.
(i) A dishonoured cheque of N180 was not recorded in the Cash Book.
(j) A cheque for Rent and Rates of N79 on 23rd December, 2004 had been entered in the Cash Book as N97.

You are required to prepare:

(i) An adjusted Cash Book and
(ii) Bank Reconciliation Statement as at 31st December, 2004.
Solution
(i)
J. B. C OKOLI:
Dr Adjusted Cash Book Cr
N N
Credit transfer 2,100 Balance b/d – OD 500
Dividend 104 Bank charges 150
Cash payment 160 Standing order 168
Overcast (97 – 79) 18 Dishonoured cheque 180
Balance c/d 1,444
2,442 2,442
Balance b/d 1,444

(b)
Bank Reconciliation Statement as at 31st December, 2004
N N
Balance as per adjusted cash book 1,444
Add: Unpresented cheque 405
1,849
Less: uncredited cheques 449
Bank error 400 (849)
Balance as per bank statement – OD 1,000

153
2021/6 Neco
The following were from the bank column of the cash book of Mr. Lawanson

Dr Cr
2016 N 2016 N
Jan 4 Tade 1,080 Jan 1 Balance b/f 6,060
,, 21 Adigun 1,960 ,, 8 Okechukwu 640
,, 31 Balotito 1,190 ,, 17 Bisola 1,540
,, 31 Balance c/d 4,780 ,, 29 Fisayo 770
9,010 9,010

The details of the bank statement are as follows:

Date Details Dr Cr Balances
2016 N N N
Jan. 1 Balance 6,060.OD
“ 4 Cheque 1,080 4,980.OD
“ 11 Okechukwu 640 5,620.OD
“ 21 Cheque 1,960 3,660.OD
“ 23 Bisola 1,540 5,200.OD
“ 28 Credit transfer – Ade 2,050 3,150.OD
“ 30 Standing order 570 3,720.OD
“ 31 Bank charges 300 4,020.OD

You are required to:

(i) Draw up an up-to-date cash book and
(ii) Prepare a bank reconciliation statement.
Solution
(i)
Mr. Lawanson
Dr Adjusted cashbook for the month of Jan. 2016 Cr
N N
Credit transfer 2,050 Balance b/f (OD) 4,780
Balance c/d (OD) 3,600 Standing order 570
Bank charges 300
5,650 5,650
Balance b/d 3,600

Note : OD refers to Overdraft

(ii) Mr. Lawanson
Bank reconciliation statement as at 31st January 2016
N
Balance as per adjusted cashbook 3,600
Add: unpresented cheques 1,190
4,790

Less: uncredited cheque 770

Balance as per bank statement 4,020

2021/49
A transaction that would cause the cash book balance to be less than the bank statement balance is
A. direct debit B. standing order C. bank charges D. unpresented cheques
Answer: Unpresented cheques (D)

154
2021/4
(a) What is bank reconciliation statement?
(b) Explain the following terms:
(i) bank charges;
(ii) standing order;
(iii) credit transfer;
(iv) dishonoured cheques;
(v) unpresented cheques;
(vi) uncredited cheques;
Answer
(a) Bank reconciliation statement is a document prepared to reconcile the differences between the cash book balance
and bank statement balance.
(b) (i) Bank Charges: This is the amount debited to the customer’s account by the bank for rendering services on its
behalf.
(ii) Standing order: This is an instruction given to the bank by the customer to receive or pay an amount on its
behalf.
(iii) Credit transfer: This is the transfer of money from one account to another.
(iv) Dishonoured cheques: This is a situation in which bank decline to pay the amount of cheque to the bearer for
one reason or another.
(v) Unpresented cheques: These are cheques that has been written and accounted for but it has not yet been
presented for payment.
(vi) Uncredited cheques: These are cheques received by the bank but which the banker or cashier had failed to
credit the account of the business organization.

1989/6
Which of the following may have been recorded in the cash book and fail to appear in the Bank Statement?
A. bank charges and commission B. cheuqes issued, presented and cashed C. bank lodgments
D. payments made by the bank on a standing order E. opening bank overdraft
Answer: bank lodgements (C)

1990/33
Which of the following should be included in the adjusted cash book?
A. ban charges and commission B. cheques issued, presented and cashed C. bank deposits
D. cash payments made by the firm E. opening bank overdraft
Answer: bank charges and commission (A)
2000/9 Theory
T. Emeka maintains a business tank account with 2nd Bank (Nigeria) Ltd. The bank statement received for the month of
March, 1999 showed a balance of N14,265 to his credit while according to his Cash Book, he should be having N13,380.
Subsequent investigation revealed the following:
a) Two cheques A000111 for N3,400 and X222419 for N6,000 deposited to the bank on 28th March, 1999 were not
credited by the bank until 2nd April, 1999.
b) A cheque for N6,500 issued to Jango Ltd, had not been presented for payment.
c) A cheque for N3,000 received from a customer in full settlement of a debt of N3,300 had been entered in the Cash
Book at the full value of the debt.
d) Dividend of N650 from PZ Ltd had been paid directly to the bank.
e) The bank deducted a total of N125 as its charges.
f) The bank had credited a cheque of N3,560 of V. Amaka in error to T. Emeka account.
You are required to prepare:
(a) Adjusted Cash Book; and
(b) A bank Reconciliation Statement for the month of March, 1999.
Solution
(i)
T. EMEKA
Dr Adjusted Cash Book Cr
N N
Balance b/d 13,380 Bank charges 125
Dividend 650 Receipt overcast 300
Balance c/d 13,605
14,030 14,030
Balance b/d 13,605
155
(ii)
Bank Reconciliation Statement as at 31st March, 1999
N N
Balance as per adjusted cashbook 13,605
Add: Unpresented cheques 6,500
Bank error (V. Amaka) 3,560 10,060
23,665
Less: uncredited cheques:
Cheque A000111 3,400
Cheque X222419 6,000 9,400
Balance as per bank statement 14,265

1990/2 (Theory)
Below is an extract of the Bank Statement of Messers Jackson & Co for April, 1987
Statement of Messers Jackson & Co, for April, 1987
Date Details Debit Credit Balance
N N N
1/4/87 Balance 176,000 Cr
4/4/87 Dasco Engineering 40,000 216,000 Cr
5/4/87 Adeboya Builders 60,000 276,000 Cr
7/4/87 Bisi Motors Cheque 01 1201 32,000 244,000 Cr
9/4/87 Jide Foods – Cheque 011202 57,000 187,000 Cr
13/4/87 Okin Oloja & Co. Cheque 011204 32,800 154,200 Cr
14/4/87 Bank Charges 7,280 146,920 Cr
15/4/87 Interest on Fixed Deposit 4,000 150,920 Cr
16/4/87 Tolu Adeola & Co. cheque 01120 8,000 142,920 Cr
30/4/87 Kingsway Stores Cheque 01 1206 19,200 123,720 Cr

You are given the following additional information:

(a) Cheque No. 011203 issued in favour of Tayo Ajao and Associates for N24,000 was presented to the Bank on 2nd
May, 1987.
(b) Advice in respect of Bank charges was received by Messers Jackson & Co. on 6th May, 1987.
(c) Cheque issued in favour of Jide Foods is for supplies to the Directors.

You are required to prepare:

(i) The Cash Book of Messers Jackson & Co, for April, 1987 and
(ii) A Bank Reconciliation Statement as at 30th April, 1987.
Solution
MESSERS JACKSON & CO.
Bank Cash Book
N N
Balance b/f 176,000 Bisi Motors 32,000
Dasco Engineering 40,000 Drawings (Jide Foods) 57,000
Adeboya Builders 60,000 Tayo Ajao & Asset 24,000
Okin Oloja & Co. 32,800
Tolu Adeola & Co. 8,000
Kingsway stores 19,200
Balance c/d 103,000
276,000 276,000
Balance b/d 103,000

MESSERS JACKSON & CO.

Adjusted Cash Book as at 30th April, 1987
N N
Balance b/d 103,000 Bank charges 7,280
Bank interest received 4,000 Balance c/d 99,720
107,000 107,000
Balance b/d 99,700

156
MESSERS JACKSON & CO.
Bank Reconciliation Statement as at 31st December, 2007
N
Balance as per adjusted cashbook 99,720
Add: unpresented cheques 24,000
Balance as per bank statement 123,720

Note:
In order to adjust the cashbook, we need to first prepare Messers Jackson Bank cashbook to arrive or determine his
cashbook balance.

1994/6 (Theory)
On 31st December, 1991 the cash book of A. Begun, a retailer showed an overdraft of N20. The bank balance was N193
credit.

You are given the following additional information:

(a) A cheque for N28 received by Begun and entered in his Cash Book on 31st December, 1991was not credited by
bank until 2nd January, 1992.
(b) A credit transfer of N114 in settlement of a debt by a customer has not been entered in the Cash Book.
(c) Cheques drawn by Begun on 26th December, 1991 amounting to N268 were not paid by the bank until after 31st
December, 1991.
(d) In December, 1991 the bank debited Begun’s account with N14 for bank charges. No entry has been made in
Begun’s book.
(e) A dividend of N58 was paid directly to bank.
(f) Standing order on insurance for N20 was paid by the bank.
(g) A cash payment of N12 was recorded in the bank column of the Cash Book.
(h) A cheque of N63 lodged by A Begun was credited to A. Degun’s account.
(i) A dishonoured cheque of N123 was not recorded in the Cash Book.
(j) A cheque for rates of N67 on 10th December, 1991 had been entered in the Cash Book as N76.

You are required to

(i) Prepare an Adjusted Cash Book.
(ii) Bank Reconciliation Statement as at 31st December.
Solution
A. BEGUN
Adjusted Cash Book
N N
Credit transfer 114 Balance b/f – OD 20
Dividend 58 Bank charges 14
Cash book error 12 Standing order 20
Payment overcast 9 Dishonoured cheque 123
Balance c/d 16
193 193
Balance b/d 16

Note:
Payment overcast (rate): N76 – 67 = N9

(ii)
Bank Reconciliation Statement as at 31st December, 1991
N N
Balance as per adjusted cash book 16
Add: Unpresented cheques 268
284
Less: uncredited cheques 28
Bank error 63 91
Balance as per bank statement 193

157
1997/5 (Theory)
Okoro’s Cash Book showed a debit balance of N3,344 on 31st January, 1995. His bank statement for January, 1995
however, showed a credit balance of N3,424. On investigation, it was discovered that
(a) The opening balance in the Cash Book for the month had been wrongly brought down as N1,505 instead of N1,550.
(b) Payment for rent N250 had been debited in the Cash Book.
(c) A customer had paid N600 direct into the bank.
(d) The bank had paid, on a standing order, N300 to an insurance company.
(e) A cheque for N870 deposited in the bank on 25th January was not credited until 3rd February, 1995.
(f) Cheque paid to suppliers totalling N1,875 had not been presented for payment.
(g) Cost of cheque book and other charges by bank totalling N90 had not been entered in the Cash Book.
(h) The bank had paid a cheque of N680 in error from Okoro’s Account.

You are required to prepare:

(i) Adjusted Cash Book;
(ii) Bank Reconciliation Statement as at 31st January, 1995.
Solution:
(i)
OKORO
Dr Adjusted Cash Book Cr
N N
Balance b/d 3,344 Rent (250 × 2) 500
Opening balance (undercast) 45 Standing order 300
Direct payment 600 Bank charges 90
Balance c/d 3,099
3,989 3,989
Balance b/d 3,099

(ii)
Bank Reconciliation Statement as at 31st January, 1995
N N
Balance as per adjusted cashbook 3,099
Add: Unpresented cheques 1,875
4,974
Less: uncredited cheques 870
Bank error 680 1,550
Balance as per bank statement 3,424

Note:
Opening balance undercast: N1,550 – 1505
N45

2003/44 – 45
Use the following information to answer questions 44 and 45.
N
Balance as per cash book 18,000
Dishonoured cheques 1,200
Bank charges 300
Unpresented cheques 2,400

2003/44
The Adjusted Cash Book balance is
A. N18,900 B. N18,000 C. N17,700 D. N16,500
Answer
N16,500
= Balance as per cash book – (Dishonoured cheque + Bank charges)
= N18,000 – N(1,200 + 300)
= N18,000 – N1,500 = N16,500.

158
2003/45
The balance as per the bank statement is
A. N21,000 B. N18,900 C. N16,500 D. N14,100
Answer: N18,900
Adjusted cashbook balance + unpresented cheque
= N16,500 + N2,400 = N18,900. (B)

2005/8 – 10
Use the following information to answer questions 8 to 10.

Dr Cash book Cr
N N
Jan 5 Hassan 3,080 Jan 31 Balance b/d 7,090
Jan 24 Malik 1,200 Jan 9 Dauda 1,400
Jan 29 Rasaq 1,240 Jan 31 Hussein 630
Jan 31 Lukman 1,060
Jan 31 Balance c/d 2,540
9,120 9,120
Feb 1 Balance b/d 2,540

Bank Statement
Dr. Cr. Balance
N N N
Jan 1 Balance b/d 7,090 O/D
Jan 5 Hassan 3,080 40,100 O/D
Jan 9 Dauda 1,400 5,410 O/D
Jan 24 Malik 1,200 4,210 O/D
Jan 29 Rasaq 1,240 2,940 O/D
Jan 30 Standing order 770 3,740 O/D
Jan 31 Bank charges 490 4,230 O/D

2008/8
Uncredited cheque(s) totalled
A. N3,600 B. N2,540 C. N1,060 D. N630
Answer: N1,060 – Lukman (C)

2005/9
Adjusted cash book balance is
A. N3,800 O/D B. N3,310 O/D C. N3,030 O/D D. N2,540 O/D
Answer: N3,800 – O/D (A)

Note:
Workings:
N N
Balance c/d (OD) 3,800 Balance b/f (OD) 2,540
Bank charges 490
Standing order 770
3,800 3,800

2005/10
Unpresented cheque(s) totalled
A. N9,120 B. N7,090 C. N1,400 D. N630
Answer: N630 – Hussein (D)

159
2010/6 Theory
Ngozi Enterprises cash book showed a debit balance of N2,860 on 31st December, 2007. On the same day, the bank
statement showed a credit balance of N442.

On investigation, it was discovered that:

(i) The opening balance of the cash book of N1,840 had been brought down as N1,408.
(ii) A dishonoured cheque of N300 was not recorded in the cash book.
(iii) A cheque for N3,240 issued to a creditor had not been presented for payment.
(iv) Standing order of N320 was paid by the bank.
(v) A cheque of N1,200 lodged with the bank had not been credited.
(vi) A dividend of N640 was paid direct to the bank.
(vii) The bank had debited N130 for its charges.
(viii) A cash payment of N20 had been credited to the bank column of the cash book.
(ix) The bank had debited a cheque of N4,800 to Ngozi Enterprises account in error.

You are required to prepare:

(a) An Adjusted Cash book; and
(b) A Bank Reconciliation statement as at 31st December, 2007.
Solution
(a)
NGOZI ENTERPRISES:
Adjusted Cash Book As At 31st December, 2007
N N
Balance b/d 2,860 Dishonoured cheque 300
Error in cashbook 432 Standing order 320
Dividend 640 Bank charges 130
Cash payment – mistake 20 Balance c/d 3,202
3,952 3,952
Note: Error in cashbook: (1840 – 1,408 = 432)

(b)
Bank Reconciliation Statement as at 31st December, 2007
N
Balance as per adjusted cashbook 3,202
Add: unpresented cheques 3,240
6,442
Less: uncredited cheques (1,200)
5,242
Less: cheque debited in error (4,800)
Balance as per bank statement 442

2014/6 (Theory)
Johnson’s cash book showed an overthrown balance of N3,000 on 31st December, 2012 on his current account. The
balance as per the bank state was an overthrown balance of N800.

Further investigation showed the following:

(i) Cheques drawn amounting to N5,000 had not been presented for payment.
(ii) Cheques amounting to N2,500 entered in the cash book as paid into the bank had not yet been cleared by the bank.
(iii) A cheque book costing N400 had been charged in the bank statement but not entered in the cash book.
(iv) A dividend of N400 paid direct to the bank had not been recorded in the cashbook.
(v) A cheque for N1,200 drawn on his current account had not been charged by the bank to his deposit account.
(vi) A cheque for N500 paid into the bank had been dishonoured and shown as such by the bank, but no entry had
been made in the cash book.
(vii) The payment side of the cash book had been undercast by N700.
(viii) Bank charges of N300 entered in the bank statement had not been entered in the cash book.

You are required to prepare:

(a) Adjusted Cash Book;
(b) Bank Reconciliation Statement.

160
Solution
(a)
JOHNSON:
Dr Adjusted Cash Book As At 31 st December, 2012 Cr
N N
Dividend 400 Balance b/d (OD) 3,000
Balance c/d – OD 4,500 Bank charges 400
Dishonoured cheque 500
Bank charges (C.O.T) 300
Undercast 700
4,900 4,900
Balance b/d 4,500

(b)
Bank Reconciliation Statement as at 31 st December, 2012
N N
Balance as per adjusted cashbook (4,500)
Add: uncredited cheques 2,500
7,000
Less: unpresented cheques 5,000 (1,200)
Cheque wrongly posted 1,200 (6,200)
Balance as per bank statement (800)

2015/16
Unpresented cheques are cheque
A. that have been recorded in the cash book, but not by the bank
B. that have been received by the bank, but recorded in the cash book
C. returned by the bank D. written, but not handed over to customers
Answer: that have been recorded in the cash book, but not by the bank (A)

2016/5
A bank statement shows an overdraft of GHc190,000. Kofi, a debtor, paid GHc400,000 into the account. The new bank
balance is
A. GHc590,000 B. GHc590,000 overdrawn C. GHc210,000 D. GHc210,000 overdrawn
Answer
GHc210,000 ⎯ ⎯→ GHc400,000 – 190,000 (C)

2018/6 (Theory)
On 31st December, 2016 the bank column of the cash book of Aminata Enterprise showed a debit balance of D48,500.
However, the bank statement showed a credit balance of D54,900 as on the same date. A detailed comparison of entries
revealed the following:
(i) Customers’ cheques amounting to D8,450 had not been credited by the bank as at 31/12/2016.
(ii) Cheques amounting to D8,850 had not been presented for payment as at 31/12/2016.
(iii) Bank charges of D1,000 and interest on investments of D2,500 collected by the banker appeared only in the bank
statement.
(iv) On the 30/12/2016, there was a wrong credit of D3,500 in the bank statement.
(v) Kesse Enterprise, a customer, had paid into the bank directly a sum of D3,000 on 29th December, 2016. This had not been
returned in the cash book.
(vi) A cheque for D2,000 received from Jallo Enterprise, a customer, which was deposited had been returned unpaid. This
had not been entered in the cash book.

You are required to:

(a) Write up the Adjusted Cash Book.
(b) Prepare a Bank Reconciliation Statement as at 31/12/2016.
Solution
Aminta Enterprises
Dr Adjusted Cash Book As At 31st December, 2016 Cr
N N
Balance b/d 48,500 Bank charges 1,000
Interest on investment 2,500 Unpaid cheque 2,000
Kesse enterprises 3,000 Balance c/d 51,000
54,000 54,000
Balance b/d 51,000

161
(b)
‘Bank Reconciliation Statement as at 31st December, 2016
D D
Balance as per adjusted cashbook 51,000
Add: Unpresented cheques 8,850 2,500
Wrong bank credit 3,500 12,350
63,350
Less: uncredited cheques (8,450)
Balance as per bank statement 54,900

2022/5 (Theory)
The cash book of Dupe Enterprises showed an overdrawn balance of N216,126 and her bank statement also showed
N905,625 overdrawn. On 31/12/2016, a detailed examination of the records showed the following differences.
(i) A cheque drawn for N697,550 had been entered in the cashbook as N365,050.
(ii) A standing order of N420,000 and bank charges of N8,750 entered in the bank statement had not been recorded in
the cash book.
(iii) Bank lodgement of N1,922,375 on 27th December, 2016 has not been credited by the bank.
(iv) Dividend received of N315,000 had been recorded in the bank but not entered in the cash book.
(v) Cheques paid to suppliers totalling N1,165,500 has not been presented for payment.
(vi) A cheque for N700,000 received from Tunde was dishonoured by the bank but no entry had been made in the cash
book.
(vii) A cheque of N256,813 received from a customer was entered as a payment in the cash book.
(viii) A cheque for N350,000 recorded in Dupe enterprises cash book had been credited by the bank to Dudu Enteprises’
account.
(ix) An amount of N1,050,000 received from a customer was paid directly to Dupe Enteprises account but no entry was
made in the cash book.

You are required to prepare:

(a) Dupe Enterprises Adjusted Cashbook.
(b) Bank Reconciliation Statement as at 31st December, 2016.
Solution
(a)
Dupe Enterprises Adjusted Cashbook
N N
Dividend received 315,000 Balance b/d – OD 216,126
Direct credit 1,050,000 Standing order 420,000
Wrong entry 513,626 Bank charges 8,750
(258,813 × 2)
Dishonoured cheque 700,000
Cheque undercast 332,500
Balance c/d 201,250
1,878,626 1,878,626

(b)
Bank Reconciliation Statement as at 31st December, 2012
N N
Balance as per adjusted cashbook 201,250
Add: Unpresented cheque 1,165,500
1,366,750
Less: uncredited cheques 1,922,375
Bank error 350,000 (2,272,375)
Balance as per bank statement – OD (905,625)

2009/1 Exercise 9.1.

(a) Describe the following: (i) Bank statement. (ii) Bank Reconciliation Statement.
(b) State four (4) reasons for disagreement between a bank statement balance and cash book balance.

2018/1 NABTEB (Nov) Exercise 9.2.

(a) What is a: (i) Bank statement. (ii) Cash book. (iii) Bank Reconciliation Statement?
(b) State 4 reasons for the need for bank reconciliation.
162
2011/6 Neco Exercise 9.3
Below is an extract from the bank column of the cash book of Mr. Okafor.
Cash book (extract)
N N
Aug 1. Balance b/f 510 Aug 4. Kyauta 600
3. Omolawal 1,200 19. Happy 750
9. Ebun Ola 540 24. Williams 850
18. Cash 1,880 27. Awube J. 650
30. Kanu Agbo 1,100 29. Okata A. 710
31. Okpe Horn 950 31. Balance c/d 2,620
6,180 6,180
Sept 1. Balance c/d 2,620

The bank statement received from his bankers appeared as follows:

August Dr (N) Cr (N) Balances
1 Balance ─ ─ 510
3 Deposit ─ 2,100 2,610
6 Cheque 600 ─ 2,010
9 Deposit ─ 540 2,550
16 Credit transfer from Bello ─ 950 3,500
19 Cash deposit ─ 1,880 5,380
22 Standing order: Insurance 1,200 ─ 4,180
23 Cheque 750 ─ 3,430
29 Cheque 650 ─ 2,780
31 Standing order:Rent 1,000 ─ 1,780
31 Bank charges 150 ─ 1,630
31 Kanu Agbo ─ 1,100 2,730

(a) It was discovered that the cheque received from Omo Lawal on the 3rd was N2,100 but was wrongly recorded in
the cashbook as N1,200.
(b) He gave order to the bank to pay his monthly insurance installment of N1,200 and house rent of N1,000 per month.
You are required to update the cashbook and prepare the bank reconciliation statement of Mr. Okafor for the month of
August, 2005.

1998/4 (Nov) Adjusted Exercise 9.4.

Below is a summary from the cashbook of Morolari Enterprises Limited for the month of January, 1995.
N N
Balance b/f 15,070 Total payments 156,530
Total receipts 150,730 Balance c/d 9,270
165,800 165,800

Additional information:
(a) The bank statement as at 31/1/95 showed a credit balance of N2,920.
(b) A cheque for N720 was credited in error to the company’s account.
(c) Cheque numbers Hw123456 for N320 and Hw123458 for N294 had not yet been debited to the Bank Account.
(d) A cheque for N5,496 lodged into the company’s account on 28th January was not yet cleared.
(e) A cheque drawn for N1,180 was posted in error as a receipt.
(f) Bank charges and commission for the month was stated as N138 on the bank statement.
(g) The balance bought forward on the cashbook was understated by N930.
(h) A cheque issued for N1,800 was returned by the bank marked ‘signature irregularities’. This was yet to
be written back in the cashbook.

You are required to prepare: (i) Adjusted cashbook. (ii) Bank Reconciliation Statement as at 31st January, 1995.

163
2019/4 NABTEB (Nov) Exercise 9.5.
The bank column in the cashbook for January, 2009 and the bank statement in respect of Omosco and Co are as follows:
Dr Cash book Cr
Jan N Jan N
1 Balance c/d 8,700 8 Dayo 1,745
7 Moyosore 446 15 Mala 165
22 Wale 365 28 Bola 575
31 Festus 1,245 31 Balance c/d 9,155
31 Buka 890
11,640 11,640

Bank statement
Dr Cr Balances
N N N
1/1/2009 Balance b/d 8,700
7/1/2009 Moyosore 440 9,140
11/1/2009 Dayo 1,745 7,395
20/1/2009 Mala 165 7,230
22/1/2009 Festus 365 7,595
31/1/2009 Credit transfer 270 7,865
31/1/2009 Bank charges 110 7,755
2/2/2009 Bola 575 7,180

You are required to prepare: (a) An adjusted cashbook. (b) A bank reconciliation statement as at January 31st 2009.

2003/7 Exercise 9.6

James was examining his bank statement for the month of December, 2001. He discovered that the balance on the statement
disagreed with the Cash Book balance which was N18,440. On investigation, the following were revealed:
(a) The opening balance in the cashbook for the month had been wrongly brought down as N3,705 instead of N3,750.
(b) Two cheques for N16,300 and N4,650 which were issued to creditors had not been presented for payment.
(c) The bank returned a cheque for N3,800 deposited on 5th December.
(d) A cheque for N7,600 deposited on 24th December was not credited until 2nd January, 2002.
(e) Cost of cheque book and other charges by the bank totaling N385 was yet to be entered in the cashbook.
(f) The bank had paid N850 on standing order to Premium Insurance Company.
You are required to prepare: (i) Adjusted cash book; and (ii) Bank Reconciliation Statement for December, 2001.

2005/9 Exercise 9.7

The following transactions appeared in the bank column of Edo Enterprises cashbook for the month of December, 2003.
CASH BOOK (Bank Column)
Dr Cr
N N
Dec 1 Balance b/f 301.08 Dec 3 Ayisat 50.00
,, 5 Biola 48.96 ,, 10 Funbi 36.50
,, 9 Cash 109.09 ,, 15 Azuko 46.78
,, 11 Serifat 81.27 ,, 25 Kingsley 39.25
,, 17 Cash 240.00 ,, 26 Lotto Ltd 110.00
,, 25 Kareem 150.28 ,, 28 Okonkwo 30.94
,, 31 Cash 194.00 ,, 31 Iyanda 54.35
,, 31 Balance c/d 750.81
1,124.63 1,124.63
Jan 1 Balance b/d 756.81

164
BANK STATEMENT
Date Details Dr Cr Balances
N N N
Dec. 1 Balance 301.08
Dec. 3 Ayisat 50.00 251.08
Dec. 5 Biola 48.96 300.04
Dec. 7 Standing order 10.00 290.04
Dec. 9 Cash 109.09 399.13
Dec. 11 Serifat 81.27 480.40
Dec. 18 Cash 240.00 720.40
Dec. 19 Funbi 36.50 683.90
Dec. 24 Azuko 46.78 637.12
Dec. 25 Kareem 150.23 787.35
Dec. 30 Lotto Ltd 110.00 677.35
Dec. 30 Kareem (dishonoured cheque) 150.23 527.12
Dec. 31 Bank charges 2.50 524.62

You are required to prepare:

(i) Adjusted Cash Book; and (ii) The Bank Reconciliation Statement for the month of December, 2003

1999/1 Theory Exercise 9.7

(a) What is
(i) Bank Statement? (ii) Bank Reconciliation Statement?
(b) State 4 reasons for the need for a Bank Reconciliation.

2000/1 Exercise 9.8

(a) List 5 items that will cause the cash book balance not to agree with the bank statement balance.
(b) Explain how items listed in (a) above may cause a difference between the cash book balance and bank statement
balance.

2017/3 Exercise 9.9

A document sent by a bank to its current account customers detailing their transactions over a given period is
A. bank reconciliation statement B. bank statement C. credit transfer D. banker’s advice

2020/2 Exercise 9.10

When bank charges are discovered in a bank statement, the adjustment is effected in
A. bank reconciliation statement B. cash book C. suspense account D. bank loan account

2021/4 Exercise 9.11

(a) What is Bank Reconciliation Statement?
(b) Explain the following terms:
(i) Bank charges; (ii) Standing order; (iii) Credit transfer; (iv) Dishonoured cheques;
(v) Unpresented cheques; (vi) Uncredited cheques.

2001/39 Nov Exercise 9.12

In preparing a Bank Reconciliation Statement, which of the following will appear on the credit side of an adjusted cash
book?
A. dividends received B. unpresented cheques C. dishonoured cheques D. overstated payments

1998/14 Nov Exercise 9.13

Which of the following is not necessary for preparing a bank reconciliation statement?
A. bank tellers B. used cheque stubs C. fixed assets register
D. issued receipt book E. cash book

1998/21 Nov Exercise 9.14

In bank reconciliation, cash book is agreed with
A. statement of affairs B. bank debit note C. bank statement D. statement of income
E. bank credit note

165
1996/12 Nov Exercise 9.15
In bank reconciliation, dishonoured cheques are
A. debited to the cash book B. credited to the cash book C. debited to the bank statement
D. credited to the bank statement E. credited to the customer’s account

Exercise 9.16
The cashbook and bank statement of Mele Abolade Enterprises for the month of June, 2021 are shown below:
Dr Cashbook (bank column) Cr
June N June N
1 Balance b/f 15,000 3 Cheque – Issi 55,000
2 Matthew 20,000 10 Cheque – Okoro 69,000
16 Ufuoma 40,000 21 Cheque – Stella 47,000
20 Dotun Enterprises 120,000 24 Cheque – Rosa 80,000
29 Dele 90,000 29 Cheque – Afor 10,000
29 Steven 25,000 30 Balance c/d 49,000
310,000 310,000

Bank statement for the month of June, 20021

Date Details Dr Cr Balance
June N N N
1 Balance 15,000 Cr
2 Matthew 20,000 35,000 Cr
3 Issi 55,000 20,000 Cr
16 Ufuoma 40,000 20,000 Cr
20 Dotun Enterprises 120,000 140,000 Cr
23 Deposit – cheque 26,000 166,000 Cr
24 Rosa 80,000 86,000 Cr
25 Standing order 14,000 72,000 Cr
26 Dividend received 95,000 167,000 Cr
29 Afor 10,000 157,000 Cr
30 Dishonoured cheque 90,000 67,000 Cr

You are required to prepare:

(i) Adjusted Cash Book.
(ii) Bank Reconciliation Sltatement as at 30th June, 2021.

166
Chapter Ten

ACCOUNTING FOR DEPRECIATION

DEFINITION OF DEPRECIATION
Depreciation can be defined as the gradual fall or decrease in the economic service potential of an asset as a result of
wear, tear, usage, obsolescence and inadequacy. Depreciation account is the systematic procedure of allocating the cost
of a fixed asset over its estimated useful life. It must be charged to the final accounts as expense.
The Nigerian SAS No. 9 states that depreciation represents an estimate of the portion of the historical cost or re-valued
amount of a non-current asset chargeable against operations during an accounting period”.
Fixed assets are long lived resources which are used in the production of goods or services.Examples are: land and
building, plant and machinery, furniture and fittings, motor vehicles, e.t.c.

TERMS RELATED TO DEPRECIATION

1. Original cost: This is the cost incurred in purchasing, installation and cost of carriage.
2. Depreciation asset: A depreciable asset is assets that are capable of being depreciated.
3. Depreciable value: This refers to that part of the net book value of a depreciable asset that an organization can
allocate to future operations through depreciation.
4. Non-depreciable assets: This refers to the estimates amount recoverable from the disposal of a fixed asset after its
expected useful economic life.
5. Useful life: This is the expected number of years through which an asset can last.
6. Obsolescence: This is the factor which renders a fixed asset economically useless.

CAUSES OF DEPRECIATION
There are several factors which can cause the depreciation of a fixed asset. Some of these factors are:
1. Physical deterioration: This is simply an effect of depreciation on an asset caused by physical means, not including
economic or functional obsolescence. In order to find the physical deterioration, take the assets anticipated physical
life (how long it is supposed to last) and divide it by the effective age.
2. Obsolescence: Appearance of new and improved machines results in discarding of old machines. Thus new
inventions changes in fashions and taste, market condition, government policies etc are the causes to discard the
value of an asset. But this is not the cause of depreciation and not depreciation in real sense.
3. Exhaustion: Some assets are wasting nature. For instance, quarries, mines, oil – well etc. It is the reduction in the
value of natural deposits as resources have been extracted year after year. As such assets are known as wasting
assets. The coalmine or oil well gets physically exhausted by the removal of its contents.
4. Non-use: Machines which are idly lying become less and less useful with the passage of time. Certain types of
machines exposed to weather conditions, may have more depreciation from not using it than from its use.
5. Maintenance: A good maintenance of machine will naturally increase its life. When there is no maintenance, there
is more depreciated value. When there is good maintenance, there is longer life to the machine. The long life of
machine depends upon good and skilled maintenance.
6. Market trend: The market price may fluctuate in case of certain assets, for instance, investments in gilt-edged
securities. When the prices go down, the concerned asset may depreciate its value. In certain cases diminution in
the value of assets
7. Passage of time: There are certain assets like leasehold property patents, copyright, etc that are acquired for a
particular period. After the expiry of the period, they are rendered useless i.e. their value ceases to exist. Thus, their
cost is written off over their legal life.
8. Wear and tear due to usage: An asset will gradually breakdown over a certain usage period, as parts wear out and
need to be replaced. Eventually, the asset can no longer be repaired, and must be disposed of.

REASONS FOR PROVISION OF DEPRECIATION

The following are some of the reasons why enterprise will make or set–aside provision for depreciation.
1. To provide money for the replacement of the asset in the future.
2. To provide money for the repair or reconstruction of the asset if the need arises.
3. It serves as a measure for determining the book value of the assets.
4. Depreciation serves as a guide for estimating the sales value of the assets when necessary.
5. It is a way of conforming to the matching concept.
6. It is a vital component of calculating the cost of production of goods and services.

167
COMPUTATION OF DEPRECIATION
It becomes needful to cross–check that the assets are not overvalued. To ascertain how best to apportion the capital
expenditure and taken to the profit or loss account.

To be able to measure depreciation one need to mention the following: cost of asset, useful life, expected residual value
and choosing the adequate method for the assets. The following are the depreciation methods:
i. Straight – line method. vi. Machine hour x. Insurance policy method.
ii. Reducing balance method. vii. Revaluation. xi. Combined methods.
iii. Sum of the year digit method. viii. Annuity system. xii. Depletion unit method
iv. Production unit. ix. Depreciation fund method. xiii. The sinking fund.
v. Machine unit.
.

STRAIGHT LINE METHOD

Straight line method charges equal amount for depreciation based on the estimated useful life of the asset. The
depreciation charge based on this method is computed using the formula:
Cost − savage value
Annual depreciation =
Estimated useful life

Illustration 10.1
SALEH LTD acquired a plant for N1,000,000 on 1st January, 2015. It is estimated that the asset would have a salvage
value of N100,000 after 5 years. Depreciation is been charged on straight line basis for each year ended 31st December.
You are required to:
(a) Determine the annual depreciation expenses. (b) What is depreciation rate?
(c) Show in tabular form the annual depreciation expense, accumulated depreciation and the net book value for each
year to the end of the useful life of asset.
Solution
N1,000,000−100,000 N900,000
(a) Annual depreciation = = =N180,000
5 5
180,000 100
(b) Depreciation rate = × = 18% on cost
1,000,000 1

(c) SALEH LTD. DEPRECIATION SCHEDULE

Year Cost Depreciation expenses Accumulated Net book value
depreciation
1 N1,000,000 N180,000 N180,000 N820,000
2 1,000,000 180,000 360,000 640,000
3 1,000,000 180,000 540,000 450,000
4 1,000,000 180,000 720,000 280,000
5 1,000,000 180,000 900,000 100,000

REDUCING BALANCE METHOD

This is also called diminishing balance method. In this method, a larger amount of money is allocated in early years
while large amount of money is allocated in the latter years of the asset. It applies constant rate on the Net book values
of the asset. The formula is:
 s  100
r = 1 − n 

 c  1
where: r = depreciation rate in %.
n = number of years of the useful life.
s = salvage value of the asset.
c = cost of the asset.

168
Illustration 10.2.
On 1st January Kasali Enterprise acquired a photocopy machine at a cost of N800,000. The machine is expected to have
a useful life of 4 years at the end of which it is expected to have a residual value of N120,000. It is the policy of the
company to depreciate machine on reducing method.
You are required to calculate the amount to be set – aside as annual depreciation and prepare a depreciation schedule.
Solution
S 100
Depreciation rate = (1 − 𝑛√C × )
1
Where n = useful years
S = scrap value
C = cost of assets

 120 ,000  100

Depreciation rate = 1 − 4 
 800 ,000  1
 
4 100 100
= (1 − √0.15) ×
1
= (1 – 1.623)× = 37.7 = 38%
1

Year Cost Depreciation expenses Accumulated depreciation Net book value

N N N N
1 800,000 304,000 304,000 496,000
2 496,000 188,480 492,480 307,520
3 162,000 61,560 554,040 100,440
4 72,900 27,702 581,742 45,198

SUM – OF – THE– DIGITS METHOD

Under this method, the number of years of the useful life of the asset is allocated, in reverse order; as digits to each year.

Illustration 10.3
A machinery was bought at N450,000, with a useful life of 5 years and Scrap value of N50,000. Using the sum-of-the-
digits method, determine the amount to be set aside as annual depreciation for each year.
Solution
Depreciation value = N450,000 – N50,000
= N400,000
Sum of the year digits (5years) = 1 + 2 + 3 + 4 + 5 = 15

Year No Digit Workings Annual

depreciation
2000 1 5 5 N133,333
× 400,000
15

2001 2 4 4 106,667
15
× 400,000

2002 3 3 3 80,000
15
× 400,000

2003 4 2 2 53,333
15
× 400,000

2004 5 1 1 26,667
15
× 400,000

15 400,000

ANNUITY METHOD
An annuity is an investment that results in a constant stream of income. The annuity method uses the formula for the
present value of an annuity to determine depreciation. Annuity is the constant return that would be realized annually by
investing a given amount now at a specified rate of interest. This formula applies:
1 − (1+r)−n S
PV = R [ ] +
r (1+r)n

Where PV = present value of annuity. R = constant stream of income. S = salvage value of investment.
r = interest rate.
169
SINKING FUND METHOD
A sinking fund is a fund that yields a known future sum by investing a fixed annual amount. The sinking fund method
involves investing cash equal to the annual depreciation charge in a fixed interest yielding investment/stock. Interest
that accrues on the investment is reinvested and together with the further annual investments over the life of the asset
should produce fund which is sufficient to replace the asset being depreciated. The formula is:
(1+r)n − 1
A=R[ ]
r
But preferably we adopt:
r(c − s)
D=
(1−r)n − 1
Where D = depreciation
r = interest rate
c = cost of asset.
n = number of useful life

REVALUATION METHOD
Under this method, the value of the asset at the beginning of the year is added to the cost of assets purchased during the
year. The method consists of revaluing the asset at the end of the accounting period. Any diminution in the value of the
asset is treated as depreciation.

Illustration 10.4
On 1st January, 2005, stock of loose tools N90,000. Purchases during the year amounted to N25,000. On 31st December,
stock of tools is N90,800.

Show the following amounts using revaluation method for deprecation:

(a) Loose tools account.
(b) Depreciation account.
(c) Profit and loss account.
(d) Balance sheet.
Solution
Determination of Depreciation.
N N
Opening stock X 90,000
Add: purchases X 25,000
XX 115,000
Less: closing stock X 90,800
Depreciation X 24,200

(a)
Dr Loose Tools Account Cr
2005: N 2005: N
Jan 1: Balance b/d 90,000 Dec 31 Depreciation 24,200
Dec 31: Cash 25,000 Dec 31 Balance c/d 90,800
115,000 115,000

(b)
Dr Depreciation Account Cr
2005: N 2005: N
Jan 1: Loose tools 24,200 Dec 31 Profit & loss 24,200

(c)
Balance Sheet (Extract)
2005: Cost Depr. NBV
Dec 31 N N N
Loose tools 115,000 24,200 90,800

170
INSURANCE POLICY METHOD
This method involves taking an endowment policy to produce the sum required to replace the asset at the end of its useful
life. The surrender value of the policy is usually greater than the total paid premium.

r(c − s)
P=
(1+r)[(1+r)n − 1]
Where P = premium
c = cost of asset.
s = salvage value.
r = interest on premium.

DEPLETION METHOD
This method is useful to depreciate a mine or quarry. The rule is that the cost of the asset is depreciated in the same proportion
as the annual amount extracted bears to the total raw materials estimated at the outset.

Illustration 10.5
The right to work at a quary site cost N10,000 and the estimated quantity is 100,000 tons output for the period of five years
are as follows:
Year 1: 2,000 tons
Year 2: 3,500 tons
Year 3: 4,000 tons
Year 4: 5,500 tons
Year 5: 7,500 tons

You are required to prepare:

(a) Quary Account.
(b) Profit and Loss Account, using Depletion Method.
Solution
Note:
2,000 3,500
Year 1: × 10,000 = N200; Year 2: × 10,000 = N350
100,000 100,000
4,000 5,500
Year 3: × 10,000 = N400; Year 4: × 10,000 = N550
100,000 100,000
7,500
Year 5: × 10,000 = N750
100,000

(a)
Dr Quary Account Cr
N N
Year 1 Cash 10,000 Year 1 Profit & loss 200
Balance c/d 9,800
10,000 10,000

Year 2 Balance b/d 9,800 Year 2 Profit & loss 350

Balance c/d 9,450
9,800 9,800

Year 3 Balance b/d 9,450 Year 3 Profit & loss 400

Balance c/d 9,050
9,450 9,450

Year 4 Balance b/d 9,050 Year 4 Profit & loss 550

Balance c/d 8,500
9,050 9,050

Year 5 Balance b/d 8,500 Year 5 Profit & loss 750

Balance c/d 7,750
8,500 8,500

Balance b/d 7,750

171
(b)
Dr Profit and Loss Account Cr
N N
Year 1 Depreciation 200
Year 2 Depreciation 350
Year 3 Depreciation 400
Year 4 Depreciation 550
Year 5 Depreciation 750
2006/2
The depreciation method in which the number of years of the useful life of an asset is allocated in a reverse order is
A. straight line B. reducing balance C. sum of the year’s digit D. revaluation
Answer: Sum of the years’ digit (C)
2019/17 Neco
The formula for the computation of the periodic charges of depreciation under straight line method is
Original cost+residual value Original cost−residual value Residual value−Original cost
A. B. C.
Useful life Useful life Useful life
Residual value+useful life Useful life+Original cost
D. E.
Original cost Residual value

Original cost−residual value

Answer: (B)
Useful life

2019/18 Neco
The following are examples of depreciation method except
A. diminishing balance B. fixed installment C. residual D. revaluation E. sum of year digit
Answer: Residual (C)
2019/19 & 20 Neco
Use the following information to answer questions 19 and 20.
Cost of motor van N150,000.00
Useful life 3 years
Scrap value N90,000
19. How much is the balance down in the 2nd year?
A. N150,000.00 B. N140,000.00 C. N130,000.00 D. N120,000.00 E. N110,000.00
Answer:
Cost 150,000
Year 1 depreciation (20,000)
Bal. b/d year 1 130,000
Year 2 depreciation (20,000)
110,000
N110,000.00 (E)

20. How much is the balance carried down in the 3nd year?
A. N580,000 B. N560,000 C. N470,000 D. N450,000 E. N90,000
Answer: N90,000 (E)

Workings
Year Cost Depreciation rate Accum. Depreciation NBV
1 N150,000 N20,000 N20,000 N130,000
2 150,000 20,000 40,000 110,000
3 150,000 20,000 60,000 90,000
150,000−90,000 Cost –scrap value
Depreciation = i.e.
3 Estimated useful life
60,000
= = N20,000
3

172
N
Cost of asset 150,000
Depreciation year 1 (20,000)
Bal. b/d year 1 130,000
Depreciation year 2 (20,000)
Balance b/d year 2 110,000
Depreciation year 3 (20,000)
Balance b/d year 3 90,000

2003/8 - 10 (Nov)
Use the following information to answer questions 8 to 10.
A fixed asset was brought for N50,000 on 1st January 2,000.Accountswere made up to 31st December
while provision for depreciation was made at 10% reducing balance.
8. Provision for depreciation for the year ended 31st December, 2001 was
A. N10,000 B. N9,500 C. N5,000 D. N4,500
Answer:
10
(100 × 50,000) = N5,000 (C)

9. Accumulated depreciation at the end of 2001 was

A. N10,000 B. N9,500 C. N9,000 D. N5,000
Answer:
10
( × 45,000) + 5,000 = 4,500 + 5,000) = N9,500 (B)
100

10. The net book value of the asset at the end of 2001 was
A. N45,000 B. N41,000 C. N40,500 D. N40,000
Answer:
(N45,000 − 4,500 = N40,500) = N40,500 (C)
Workings:
10
Depreciation rate: 10%×N50,000 =100 50,000 = N5,000
Year Cost Depreciation rate Accum. Depreciation NBV
1 N50,000 N5,000 N5,000 N45,000
2 45,000 4,500 9,500 40,500
3 40,500 4,050 13,550 36,450

1995/41 – 43 (Nov)
Use the following information to answer questions 41 to 43.
A machine costs N10,000 and is recorded in the books at that figure. Depreciation is charged at 20% per annum
using the reducing balance method.
41. The net book value at the end of the second year is
A. N10,000 B. N8,000 C. N6,400 D. N6,000 E. N5,120
Answer: (N8,000 − 1,600 =N6,400) (C)

42. Depreciation charged for the third year is

A. N3,600 B. N2,800 C. N2,000 D. N1,600 E. N1,280
20
Answer: × 6,400 = N1,280 (E)
100

43. The net book value at the end of the third year is
A. N10,000 B. N8,000 C. N6,400 D. N6,000 E. N5,120
Answer: (6,400 − 1,280 = N5,120) (E)

173
Workings:
20
Depreciation rate = 20% × N10,000 =  10,000 = N2,000
100
Year Cost Depreciation rate Accum. Depreciation NBV
1 N10,000 N2,000 N2,000 N8,000
2 8,000 1,600 3,600 6,400
3 6,400 1,280 4,880 5,120

1995/7 (Nov)
Which of the following is true of the straight line method of depreciation?
A. accurate depreciation charges are made yearly B. the scrap value is zero C. yearly depreciation charges
increases D. yearly depreciation charges decreases E. yearly depreciation charges are constant
Answer: Yearly depreciation charges are constant (E)

2018/26
A fall in value of a fixed asset due to technological changes is described as
A. superfluity B. wear and tear C. obsolescence D. depletion
Answer: Obsolescence (C)

2011/10 NABTEB
The method of depreciation in which a fixed amount of depreciation is charged to profit and loss account annually is
referred to as
A. annuity method B. straight line curve C. reducing balance D. cost estimate method
Answer: Straight line method (B)

1993/23 (Nov)
The net book value of a fixed asset is cost less
A. depreciation for the year B. depreciation for last year C. accumulated depreciation to date
D. accumulated depreciation for the last 2 years E. depreciation for the last 3 years
Answer: Accumulated depreciation to date (C)

2012/55 – 57 Neco
Use the following information to answer questions 55 – 57.
A motor vehicle bought for N32,000 was estimated to have a useful life of 4 years and a scrap value of N4,000.
55. What is the net book value of the motor vehicle at the end of the third year using the straight line method?
A. N4,000 B. N7,000 C. N11,000 D. N18,000 E. N21,000
Answer:(N32,000 − 21,000 =N11,000) (C)

56. Using the straight line method, what is the amount of depreciation charged per year?
A. N18,000 B. N11,000 C. N8,000 D. N7,000 E. N5,000
N32,000 − 4,000
Answer:( ) = N7,000 (D)
4

57. If the vehicle is sold for N12,000 at the end of the 3rd year, what is the profit or loss on sale?
A. N2,000 loss B. N2,000 profit C. N1,000 profit D. N1,000 loss E. N3,000 profit
Answer:(N12,000 − N11,000) = N1,000 profit (C)

Workings
N32,000−N4,000 28,000
Annual Depreciation = = = N7,000
4 4

Year Cost of Asset Depreciation rate Acc Depreciation NBV

0 N N N N
1 32,000 7,000 7,000 25,000
2 32,000 7,000 14,000 18,000
3 32,000 7,000 21,000 11,000
4 32,000 7,000 28,000 4,000

174
2001/36 – 37 (Nov)
Use the following information to answer questions 36and 37.
Asset cost ─ N12,000
Depreciation rate ─ 40%
Useful life ─ 4 years
Depreciation method ─ Reducing balance
36. Depreciation charge for year 2 is
A. N4,800 B. N2,880 C. N1,728 D. N1,037
Answer: N2,880 (B)
37. The scrap value at the end of year 4 is
A. N4,320 B. 2,592 C. N1,555 D. N1,037
Answer: N1,555 (C)

Workings:
40
Depreciation rate (year 1) = 40% × N12,000 = 100 12,000 = N4,800
Year Cost Depreciation rate Accum. Depreciation NBV
1 N12,000 N4,800 N4,800 N7,200
2 7,200 2,880 7,680 4,320
3 4,320 1,728 9,408 2,592
4 2,592 1,037 10,445 1,555

Depreciation rate (Year 2) = 40% × 7,200

ACCOUNTING FOR DEPRECIATION IN THE BOOKS

Managers are at liberty to choose the depreciation method that they want but they must be consistent with it. After ascertaining
the depreciation, it is debited to profit and loss account and credited to the asset account in the balance sheet.
There are two ways of accounting for depreciation:
(i) Where the asset is shown at cost and a separate account kept for depreciation and this is the current method in use by
firms.
(ii) Where depreciation and asset use the same account this method is not readily in use.
Illustration 10.6
On 1st January, 2016, TALENT LTD bought a machine costing N256,000, the life span of the machine was estimated at 5
years and the residual value was estimated as N19,500, machine to be depreciated using straight line method. Show the book
entries for the 5 years necessary to record the transaction
Solution
Cost − Scrap value 256,000 − 19,500 236,500
Annual depreciation =
Useful life
= 5
= 5
= N47,300
Dr Machine Account Cr
N N
01-01-2016 Cost 256,000 01-01-2016 Depreciation 47,300
31-12-2016 Balance c/d 208,700
256,000 256,000

01-01-2017 Balance b/d 208,700 01-01-2017 Depreciation 47,300

31-12-2017 Balance c/d 161,400
208,700 208,700

01-01-2018 Balance b/d 161,400 01-01-2018 Depreciation 47,300

31-12-2018 Balance c/d 114,100
161,400 161,400

01-01-2019 Balance b/d 114,100 01-01-2019 Depreciation 47,300

31-12-2019 Balance c/d 66,800
114,100 114,100

01-01-2020 Balance b/d 66,800 01-01-2020 Depreciation 47,300

31-12-2020 Balance c/d 19,500
66,800 66,800

175
Dr Provision for Depreciation Account Cr
N N
2016 Balance b/d 47,300 2016 Profit & loss 47,300
Balance b/d 47,300
2017 Balance c/d 94,600 2017 Profit & Loss 47,300
94,600 Balance b/d 94,600

2018 Balance c/d 141,900 2018 Profit & loss 47,300

141,900 141,900

2019 Balance c/d 189,200 Balance b/d 141,900

2019 Profit & loss 47,300
189,200 189,200

2020 Balance c/d 236,500 Balance b/d 189,200

2020 Profit & loss 47,300
236,000 236,500

Dr Profit and Loss Account Cr

N N
2016 Depreciation 47,300

2017 Depreciation 47,300

2018 Depreciation 47,300

2019 Depreciation 47,300

2020 Depreciation 47,300

2008/4 Neco
(a) What is depreciation? (b) Mention 4 factors to be considered in calculating depreciation of assets.
(c) Outline any 4 causes of depreciation of assets. (d) List any 4 depreciable assets.
Solution
(a) Depreciation can be defined as the gradual fall in the economic value of fixed assets due to wear and tear,
obsolescence and passage of time.
(b) 4 factors to be considered are:
- Type of asset. - Repairs and maintenance. - External factors
- Use of asset. - Size of asset. - Type of business

(c) 4 Causes of depreciation of asset are:

-Physical factors (rust, dents and floods). - Suitability. -Inadequacy. - Wear and tear
- Obsolescence. - Change in price. - Passage of time.
(d) Depreciable assets include:
- Motor vehicle. - Equipment.
- Furniture and fittings. - Plant and machinery.

2016/9 Neco
Philips Nigeria Limited bought Mikano generating set for N1,000,000. The residual value is expected to be N400,000
at the end of 4 years and the depreciation rate is 20.5%.

You are required to prepare the depreciation on schedule using:

(i) Straight line method; (ii) Reducing balance method.

176
Solution
(i) Using straight line method:
N1,000,000−400,000 60,000
Annual depreciation = = = N150,00/p.a
4 4

DEPRECIATION SCHEDULE
Year Cost Depreciation rate Accum. Depreciation NBV
1 N1,000,000 N150,000 N150,000 N850,000
2 1,000,000 150,000 300,000 700,000
3 1,000,000 150,000 450,000 550,000
4 1,000,000 150,000 600,000 400,000

(ii) Using reducing balance method:

Depreciation rate r is given to be 20.5%

DEPRECIATION SCHEDULE
Year Cost Depreciation rate Accum. NBV
Depreciation
1 1,000,000 205,000 205,000 795,000
2 795,000 162,975 367,975 632,025
3 632,025 129,565 497,540 502,460
4 502,460 103,004 600,544 399,456

Workings:
20.5
Depreciation rate year 1 = × N1,000,000 = N205,000
100
20.5
Depreciation rate year 2 = 100
× N795,000 = N162,975
20.5
Depreciation rate year 3 = × N632,025 = N129,565
100
20.5
Depreciation rate year 4 = × N502,460 = N103,004
100

2007/27 – 28 UME
Use the information below to answer questions 27 – 28.
An asset was purchased for N343m in 2003. The estimated life of the asset was 3 years with a residual value of N28m.

2007/27
Using the straight line method, the depreciation of the asset in the first year was
A. N210m B. N343m C. N105m D. N28m
Answer
N343m − N28m N315
N105m ( = = N105)
3 3
2007/28
What was the asset value at the beginning of the third year?
A. N63m B. N133m C. N36m D. N28m
Answer
N28m (D) (343𝑚 − 315𝑚) = 𝑁28𝑚)
 
Cost accumulated depreciation
2010/28
The depreciation on a motor vehicle that is being used for manufacturing and administration is charged to the
A. debit side of manufacturing and profit or loss account B. debit side of profit and loss account only
C. credit side of profit or loss account only D. debit side of manufacturing and balance sheet
Answer Debit side of manufacturing profit or loss account (A)

177
2013/12 – 13 UTME
A machine bought for N35,000 was estimated to have a lifespan of 5 years with a scrap value of N9,000.

2013/12
The yearly depreciation using the straight line method would be
A. N8,800 B. N6,500 C. N5,200 D. N4,400
N35,000 −9000
Answer: N5,200 (C) ( ) = N5,200
5
2013/13
If the scrap value is presently N15,000, what will be the yearly depreciation using straight-line method?
A. N4,000 B. N7,000 C. N11,000 D. N24,000
N35,000 −15,000
Answer: N4,000 (A) ( ) = N4,000
5
2021/8
Reducing balance method charges depreciation as fixed percentage of the
A. net book value of asset B. cost of asset C. market value of asset D. accumulated depreciation on asset
Answer: Net book value of asset (A)
2021/41 – 42
Cost of assets (01–01–2018) N600,000.
Annual depreciation charge is 15% on reducing balance basis.
2021/41
Depreciation for the year 2019 is
A. N180,000 B. N165,500 C. N90,000 D. N76,500
15
Answer: N90,000 ⎯ ⎯→ × 600,000 (C)
100

2021/42
The net book value of the asset at 31 – 12 – 19 is
A. N523,000 B. N510,000 C. N433,500 D. N420,000
Answer: N510,000 ⎯ ⎯→ N600,000 – N90,000 (B)
1997/44
Depreciation in the value of asset is caused by
A. replacement of worn out assets B. purchase of brand new assets
C. wear and tear of assets D. repairs of aging asset
Answer: Wear and tear of assets (C)

1997/50
Where there is a loss on disposal of a fixed asset, it means that
A. depreciation has been underestimated B. depreciation has been overestimated
C. scrap value has not been estimated D. depreciation method used was inappropriate
Answer: Depreciation has been underestimated (A)

2021/4
A disadvantage of a straight line method of depreciation is that it
A. is difficult to calculate and understand B. is complicated when there are additions of assets
C. provides information on aggregate depreciation charges
D. charges same amount of depreciation over the useful life of an asset
Answer: charges same amount of depreciation over the useful life of an asset (D)

2022/5 NABTEB (Theory)

A machine cost N95,000. It is kept for 4 years after which it will be sold as a scrap for N35,000. Using the straight line
method;
(a) Cash the annual depreciation.
(b) Prepare the depreciation schedule.
(c) Prepare ledger entries for:
(i) Cash account.
(ii) Machine account.
(iii) Provision for depreciation account.
(iv) Profit and loss account.
(v) Balance sheet extract.
178
Solution
Cost− scrap value
(a) Annual depreciation:
Estimated useful life
Where: cost = N95,000
Scrap value = N35,000
Useful life = 4 years
N(95,000−35,000) N60,000
∴ Annual depreciation = = = N15,000
4 4

DEPRECIATION SCHEDULE
YEARS COST DEPRECIATION ACCUM. NET BOOK
RATE DEPR. VALUE
0 N N N N
1 95,000 15,000 15,000 80,000
2 95,000 15,000 30,000 65,000
3 95,000 15,000 45,000 50,000
4 95,000 15,000 60,000 35,000

(i)
Dr Cash Account Cr
N N
Machine 95,000

(ii)
Dr Machine Account Cr
N N
Cash 95,000

(iii)
Dr Provision for Depreciation Account Cr
N N
Year 1 Balance c/d 15,000 Year 1 Profit & loss 15,000
15,000 15,000

Year 2 Balance b/d 30,000 Year 2 Balance b/d 15,000

Profit & loss 15,000
30,000 30,000

Year 3 Balance c/d 45,000 Year 3 Balance b/d 30,000

Profit & loss 15,000
45,000 45,000

Year 4 Balance c/d 60,000 Year 4 Balance b/d 45,000

Profit & loss 15,000
60,000 60,000

Year 5 Balance b/d 60,000

(iv)
Dr Profit and Loss Account Cr
N N
Year 1 Depreciation 15,000
Year 2 Depreciation 15,000
Year 3 Depreciation 15,000
Year 4 Depreciation 15,000

179
(v)
Balance Sheet (Extract)
Cost Depr. NBV
N N N
Year 1 machine 95,000 15,000 80,000
Year 2 machine 95,000 30,500 65,000
Year 3 machine 95,000 45,000 50,000
Year 4 machine 95,000 60,000 35,000

2000/9 Neco
Philips Nigeria Limited bought Mikano generating set for N1,000,000. The residual value is expected to be N400,000
at the end of 4 years and the depreciation is 20.5%.

You are required to prepare the depreciation schedule using:

(a) Straight line method.
(b) Reducing balance method.
Solution
Cost of asset – N1,000,000
Residual value – 400,000
Useful life – 4 years

(i) Using the straight line method:

N(1,000,000−400,000) 600,000
Annual depreciation: = = N150,000
4 4

DEPRECIATION SCHEDULE:
Years Cost of Asset Depreciation Rate Accumulated Depreciation Net Book Value
0 N N N N
1 1,000,000 150,000 150,000 850,000
2 1,000,000 150,000 300,000 700,000
3 1,000,000 150,000 450,000 550,000
4 1,000,000 150,000 600,000 400,000

Note: Under the straight-line method, the cost of asset remain fixed all through the years.
(ii) Using the reducing balance method
DEPRECIATION SCHEDULE:
Years Cost of Asset Depreciation Rate Accumulated Depreciation Net Book Value
0 N N N N
1 1,000,000 205,000 205,000 795,000
2 795,000 162,975 367,975 632,025
3 632,025 129,565 497,540 502,460
4 502,460 103,004 600,544 399,456

Workings:
Cost N
1,000,000
Provision for depreciation year 1 (20.5% × 1,000,000) 205,000
Net-book value at the end of year 1 795,000
Provision for depreciation year 2 (20.5% × 795,000) 162,975
Net – book value at the end of year 2 632,025
Provision for depreciation year 3 (20.5% × 632,025) 129,565
Net-book value at the end of year 3 502,460
Provision for depreciation year 4 (20.5% × 502,460) 103,004
399,456
⇓
400,000
Note:
Under the reducing balance method, the cost of asset at beginning will be declining or diminishing progressively every
year as a result of a decline in the depreciation rate.

180
2022/31 – 33 Neco
Use the following information to answer questions 31 to 33.
A plant which cost N10,000 has a residual value of N1,250 and the useful life span is 5 years.

Using the straight line method of depreciation,

2022/31
What is the amount of depreciation for the first year?
A. N2,000 B. N1,750 C. N1,600 D. N1,400 E. N1,280
Answer
10,000 − 1,250
(N1,750) ⎯
⎯→ = 1,750 (B)
5

2022/32
What is the depreciation charged for the second year?
A. N3,500 B. N1,750 C. N1,600 D. N1,400 E. N1,280
Answer:
N1,750 – Under the straight line method an equal amount is provided or charged as provision for depreciation all
through the years (B)

2022/33
What is the net book value of the assets at second year?
A. N8,000 B. N7,000 C. N6,500 D. N5,250 D. N5,120
Answer: N6,500 ⎯ ⎯→ (N10,000 – N1,750 + N1,750) = N6,500 (C)

2022/22 – 23 Neco
Use the following information to answer questions 22 and 23.
The right to work in a quarry cost N100,000 and the estimated quantity is 1,000,000 tons output for three years as
follows:
1st year 2,500 tons
2nd year 4,800 tons
rd
3 year 8,500 tons

The quarry management adopted depletion method of depreciation.

2022/22 Neco
What is the depreciation for year one?
A. N1,000 B. N850 C. N480 D. N250 E. N100
2,500
Answer: N250 ⎯
⎯→ × 100,000 = 250 (D)
1,000,000

2022/23 Neco
How much is the depreciation for the last year?
A. N1,000 B. N480 C. N850 D. N250 E. N100
8,500
Answer: N850 ⎯
⎯→ × 100,000 = 850 (C)
1,000,000

2019/56 - 57 Neco Exercise 10.1

Use the following information to answer questions 56 and 57.
A machinery that cost N25,000.00 has a useful life span of 5 years with an expected disposable value of N5,000.
56. Using straight line method, what is the depreciation to be charged annually?
A. N5,000 B. N4,000 C. N3,000 D. 2,000 E. N1,000

57. What is the accumulated depreciation at the end of the 3rd year using the same method?
A. N17,400 B. N16,000 C. N15,800 D. N14,000 E. N12,000

2011/1 Neco Exercise 10.2

These are causes of depreciation except
A. fluctuation in price B. materiality C. obsolescence D. physical factors E. wear and tear

181
2010/37-39 Neco Exercise 10.3
Use the following information to answer questions 37to 40.
A motor van that costs N48,000 has a useful life span of 8 years with an expected disposal value of N1,600.
37. Using straight line method, what is the depreciation to be charged annually?
A. N12,400 B. N12,000 C. N11,600 D. N9,200 E. N5,800
rd
38. What is the accumulated depreciation at the end of 3 year using the straight line method?
A. N17,400 B. N24,000 C. N27,600 D. N34,800 E. N37,200
39. What is the depreciation charged for 2nd year at 20% per annum using reducing balance method?
A. N17,280 B. N12,000 C. N11,600 D. N9,600 E. N7,680

40. What is the NOT a Book value of the asset after 2nd year using diminishing balance method?
A. N41,920 B. N40,320 C. N38,720 D. N38,400 E. N30,720

2004/4 Exercise 10.4

(a) Explain the term depreciation. (b) Explain 3 methods of depreciation and give an example in each case.

2009/4 Exercise 10.5

(a) Explain the term depreciation. (b) List 3 methods of providing for depreciation.
(c) State 3 reasons for making provision for depreciation.

Exercise 10.6
Arsenal Enterprises Ltd acquired a machine for N1,000,000. The expected salvage value after 5 years is N100,000.
Determine the amount to be set – aside as depreciation using the following methods and also prepare a depreciation
schedule in each case:
(i) Straight line method; (ii) Reducing balance method; (iii) Sum –of–the-year digital method.

2018/26 NABTEB Exercise 10.8

Which of the following does not belong to the group?
A. straight line B. insurance policy C. diminishing balance D. reducing balance

2018/27 NABTEB Exercise 10.9

The straight – line method of depreciation is a/an
A. fixed sum set aside for the replacement of the asset
B. fixed percentage of the balance of the asset at the end of each year
C. estimated amount each year
D. fixed percentage of the cost of the asset written off each year

2022/49 NABTEB Exercise 10.10

The reduction in the value of a tangible asset is
A. depletion B. depreciation C. amortization D. appreciation

2019/26 NABTEB Exercise 10.11

The depreciation method that allocates higher value to the use of an asset in its earlier year is
A. diminishing balance method B. revaluation method
C. straight line method D. sum of the year digit method

2019/27 NABTEB Exercise 10.12

Which of the following does NOT lead to depreciation of asset?
A. wear and tear B. passage of time C. devaluation of naira D. obsolescence

2010/3b & c Neco Exercise 10.13

b. Explain any two of the following:
(i) Obsolescence (ii) scrap value (iii) amortization

c (i) Define the term Depreciation.

(ii) Mention any three methods of providing for depreciation.

182
2001/2 SSCE Nov Theory Exercise 10.14
(a) Explain the term depreciation.
(b) Explain the following methods of depreciation on:
(i) Straight line.
(ii) Reducing balance.
(iii) Revaluation.

1996/1 SSCE Nov Exercise 10.15

A permanent decrease in the value of fixed assets is known as
A. amortisation B. degradation C. depreciation D. dimunition E. provision

1996/36 – 38 Nov
Cost of plant N12,000
Estimated residual value 3,000
Number of expected use 6 years
Depreciation 20% per annum

1996/36 Exercise 10.16

Depreciation at the end of the first year using straight line method is
A. N3,000 B. N2,500 C. N2,000 D. N1,800 E. N1,500

1996/37 Exercise 10.17

Netbook value at the end of second year using straight line method is
A. N10,500 B. N9,600 C. N9,000 D. N7,600 E. N7,500

1996/38 Exercise 10.18

Depreciation at the end of the second year using the reducing balance method is
A. N2,400 B. N2,000 C. N1,920 D. N1,800 E. N1,500

2006/8 SSCE Nov Exercise 10.19

Go Yea Express Ltd. acquired a fleet of buses with the following details:
Vehicle Registration No. Date of purchase Cost
N
AA 1433 SHK 1/4/2003 250,000
BB 7931 LES 1/7/2004 300,000
CC 9394 DGB 1/1/2005 400,000

The company’s accounting year ends on 31st December.

Depreciation is provided on all buses at 20% reducing balance.

You are required to prepare for the year ended 31st December, 2003, 2004 and 2005:
(a) Provision for depreciation on motor vehicle account.
(b) Profit and loss account (extracts).
(c) Balance sheet (extracts).

Exercise 10.20
A machine cost N90,000. It would be kept for 3 years and then sold at estimated figure of N15,000. Show the calculations
for depreciation for each year using:
(a) Straight line method.
(b) Producing balance method – use 20%.

183
Chapter Eleven

TRADING, PROFIT OR LOSS ACCOUNT

The next stage or phase in the book keeping process after the trial balance adjustment is the preparation of financial
statements (also called final accounts). A new idea introduced here is called “one-touch posting”. One touch posting
requires an in-depth knowledge of classification of accounts. The items on the debit side of the trial balance are usually
posted to the debit side of trading or profit or loss account while the assets, either current or fixed, are posted to the right
side of the balance sheet.
The items on the credit side of the trial balance represent liabilities, income, provisions and capital. The incomes are
posted to the credit side of the trading or profit or loss account, liabilities and capital to the left side (liability side) of
the balance sheet; while provisions are deducted against assets in the balance sheet.

COMPONENTS OF FINAL ACCOUNTS

The final accounts of a company are made up of the following:
(i) Trading account. (ii) Profit or loss account. (iii) Appropriation account.
(iv) Balance sheet. (v) Notes to the accounts.

TRADING ACCOUNT
Trading account is a statement which is prepared by a business firm to determine the business profit called “Gross profit”
or Gross loss” for the accounting period. It contains direct expenses and direct income of the business. In other words,
it gives details of total sales, total purchases and direct expenses relating to purchase and sales.

PROFIT OR LOSS ACCOUNT

The profit or loss account is a financial statement that summarizes the revenues, costs and expenses incurred during a
specified period usually a fiscal quarter or year. The account is prepared to ascertain the business “NET PROFIT” or
“NET LOSS” for the period.

APPROPRIATION ACCOUNT
Appropriation is the act of setting aside money for a specific purpose. In accounting, it refers to a breakdown of how a
firm’s profits are divided up, or for the government, an account that shows the funds a government department has been
credited with. A company appropriate funds in order to delegate cash for the necessities of its business operations. This
account shows the profit available to the owners of business. The profit is further reduced by dividends, transfers to
reserves, and capital expenses written off excluding depreciation.

BALANCE SHEET
This is a statement showing the summary of the assets and liabilities of an enterprise. It contains the following:
1. Assets: These are resources with economic value that an individual, corporation, or country owns or control with
the expectation that it will provide a future benefit.

- Fixed assets: These are assets that have physical existence i.e. Tangible in nature, examples are land, building,
motor vehicle, plant and machinery, furniture and fittings, e.t.c.
- Current assets: These are assets that can be easily converted to cash within a short period of time, i.e.
constantly arranging e.g. stock, cash in hand or at bank, debtors, prepaid expenses e.t.c.
- Wasting assets: These are assets which reduces in physical size as they are used, e.g. mines, oil fills, quarry, e.t.c.
- Fictitious assets: These are merely debit balances which are not trading expenses nor infact true assets e.g.
debit balance of profit or loss account, discount on issue of shares and preliminary expenses.
- Non – fictitious assets: These are intangible which are real even though they cannot be physically seen or hold
or felt, e.g. Goodwill, patents and copyrights.

2. Investment: These are interests of the company in other concerns. The investment should be shown at cost or the
revolved accounts as the case may be.
3. Capital: This represents the amount the owner/owners contributed to fund the business, i.e. owners equity or fund.
4. Liabilities: This is the indebtedness of the business to outsiders. It represents the claim on the assets of the company.
- Long term liabilities: These are liabilities which fall due after more than one year, e.g. debentures, bank loans, e.t.c.
Current liabilities: These are liabilities which fall due within one year, e.g. sundry creditors, bank overdraft,
-
accrued expenses, e.t.c.
NOTES TO THE ACCOUNT
These are additional information or other details disclosed by way of notes, such as contingent liabilities, contracts, capital
commitment and market value of quoted investment.

184
PREPARATION OF FINAL ACCOUNTS
The preparation of trading profit or loss account and balance sheet can be carried out through what we called “one –
touch posting” adopting any of the two formats below:
A. HORIZON TRIAL (“T”) FORMATS
XYZ LTD.
Dr Trading and profit or loss account Cr
N N N N
Opening stock X Sales X
Purchases X Returns inwards (X) X
Carriage inwards X
Returns outwards (X) X
C.G.A.S X
Closing stock (X)
Cost of goods sold X
Wages X
Cost of sales X
Gross profit c/d X
X X
Rent and rates X
Add: accrues
Salaries X
Less: prepayment X
Electricity X
Insurance X
Add: owing X
Bad debts X
Carried outward X
Discount allowed X
Depreciation X
Increase in X
P.F.B.D
Net profit c/d X
X X

XYZ LIMITED
Balance sheet as at 31st December, 19XX
N N Cost Depr NBV
Fixed assets N N N
Capital X Land and buildings X (X) X
Net profit X Motor vehicle X (X) X
Drawings (X) X Plant and machinery X (X) X
Furniture and fittings X (X) X
Long-term liabilities X (X) X
Bank loan X Goodwill X
X
Current liabilities Current assets
Creditors X Stocks X
Bank overdraft X Debtors X
Accrued expenses X Prepayment X
Bills payable X X Bills payable X X
X X

185
B. VERTICAL FORMAT:
KYZ TRADING AND PROFIT OR LOSS ACCOUNT
N
Sales X
Less: sales returns (X)
X
Less: Cost of sales
N
Opening stock X
Purchases (X)
Purchases returns X
Carriage inwards X
Cost of goods available for sale (X)
Closing stock X
Cost of goods sold X
Wages
Cost of sales (X)
Gross profit X

Add: Other incomes

N
Interest received X
Rent received X
Commission received X
Discount received X
Decrease in provision for bad/doubtful debt X X
X

Less Expenses:
Salaries X
Rent and rates X
Electricity X
Carriage outwards X
Bad debts X
Discount allowed X
Depreciation X
Increase in provision for bad/doubtful debt X (X)
Net profit X

186
XYZ LTD balance sheet as at 31st December, 19XX
Cost Depreciation NBV
Fixed assets N N N
Land and buildings X (X) X
Motor vehicle X (X) X
Plant and machinery X (X) X
Premises X (X) X
Furniture and fittings X (X) X
X (X) X
Goodwill X

Current assets:
Stock X
Debtors X
Less: provision for bad debt (X) X
Prepayments X
Cash in hand X
Cash at bank X
Accrued income X
Investments X
Less: current – liabilities
Creditors X
Bank overdraft X
Bills payable X
Accrued expenses X
Income received in advance X (X)
X
Working capital X
Long – term liabilities
Bank loans (X)
Net assets X

FINANCED BY:
Capital X
Add: Net – assets profit X
X
Less: drawings (X)
X

187
Illustration 11.1
The following trial balance of ZINOWISE ENTERPRISE Ltd was extracted from his books on 30 th of April, 2016.
From it prepare the trading, profit or loss account for the year ended 30th April, 2016 and a balance sheet as at that date.
Dr Cr
N N
Sales 186,000
Purchases 115,560
st
Stock 1 May, 2015 37,760
Carriage outwards 3,260
Carriage inwards 2,340
Returns inwards 4,400
Returns outwards 3,550
Salaries and wages 24,470
Motor expenses 6,640
Rent 5,760
Sundry expenses 12,020
Motor vehicles 24,000
Fixtures and fittings 6,000
Debtors 45,770
Creditors 30,450
Cash 38,760
Bank 1,200
Drawings 20,500
Capital 128,440
348,440 348,440
Stock at 30th April, 2016 was N49,980.
Solution: (Using the horizontal format)

ZINOWISE ENTERPRISES LIMITED

Dr Trading profit or loss account for the year ended 30th April, 2016 Cr
N N N N
Opening stock 37,760 Sales 186,000
Purchases 115,560 Returns inwards (4,400) 181,600
Carriage inward 2,340
Returns outwards (3,550)
114,350
C.G.A.S 152,110
Closing stock (49,980)
Cost of goods sold 102,130
Gross profit c/d 79,470
181,600 181,600

Carriage outwards 3,260 Gross profit b/d 79,470

Salaries & wages 24,470
Motor expenses 6,640
Rent 5,760
Sundry expenses 12,020
Net profit c/d 27,320
79,470 79,470

188
ZINOWISE ENTERPRISE LTD
Balance sheet as at 30th April, 2016
N N Fixed assets: N N
Capital 128,440 Motor vehicles 24,000
Add: net profit 27,320 Fixtures & fittings 6,000
Less: drawings (20,500) 135,260 30,000

Current–Liability: Current – Assets:

Creditors 30,450 Stock 49,980
Debtors 45,770
Cash in hand 38,760
Capital at bank 1,200 135,710
165,710 165,710

Illustration 11.2
The following was the trial balance of TRIUMPH (NIG) LTD as at 31st of March, 2018. Draw up a set of final accounts
for the year ended 31st March 2018
Dr Cr
N N
Stock 1stApril, 2017 181,600
Sales 923,400
Purchases 691,850
Carriage inwards 4,200
Carriage outwards 15,700
Returns outwards 6,400
Salaries and wages 102,400
Rent and Rates 30,150
Communications expenses 6,240
Communications payable 2,160
Insurance 4,050
Sundry expenses 3,180
Buildings 200,000
Debtors 143,200
Creditors 81,600
Fixtures 28,500
Cash 29,700
Bank 1,150
Loan from Excel 100,000
Drawings 76,200
Capital 408,880
1,520,280 1,520,280
Stock at 31stMarch, 2018 was N223,900.

189
Solution: (Using the Vertical format)

TRIUMPH (NIG) LTD:

Trading and profit or loss account for the year ended 31 st March, 2018
N N
Sales 923,400
Less: cost of sales:
Opening stock 181,600
Purchases 691,850
Carriage inwards 4,200
Return outwards (6,400)
871,250
Less: Closing stock (223,900) (647,350)
Gross profit 276,050
Less: Expenses:
Carriage outwards 15,700
Wages and salaries 102,400
Rent and rates 30,150
Communication expenses 6,240
Commission payable 2,160
Insurance 4,050
Sundry expenses 3,180
(163,880)
Net profit 112,170

TRIUMPH (NIG) LIMITED:

Balance sheet as at 31st March, 2018
Fixed Assets: N N N
Building 200,000
Fixtures 28,500
228,500

Current Assets:
Stock 223,900
Debtors 143,200
Cash in hand 29,700
Cash at bank 1,150 397,950

Long–Term Liability:
Loan (from excel) (100,000)

Less: current liabilities:

Creditors (81,600) 216,350
Working capital 444,850

FINANCED BY:
Capital 408,880
Add: net – profit 112,170
521,050
Less: drawings (76,200)
444,850

190
2018/19 Neco
Use the following information to answer question 19

Opening stock N25,000

Purchases 100,000
125,000
Less: closing stock (15,000)
Cost of goods sold 110,000

What is the value of Average Stock?

A. N30,000 B. N25,000 C. N20,000 D. N15,000 E. N10,000
Solution
Opening stock + closing stock 25,000 + 15,000
( )= = N20,000. (C)
2 2

2018/57 Neco
The excess of current assets over current liabilities is _____ capital.
A. authorized B. issued C. nominal D. owner’s E. working
Answer: Working (E)

2018/60 Neco
An example of non-fictitious asset is
A. cash at bank B. debtors C. goodwill D. prepayment E. stock
Answer: Goodwill is a non-fictitious asset (C)

2010/11-12 Neco
Use the following information to answer questions 11 and 12
Opening stock N200,000
Sales 900,000
Closing stock 160,000
Purchases 650,000

11. What is the cost of goods sold?

A. N850,000 B. N690,000 C. N650,000 D. N610,000 E. N600,000
Answer: N690,000 (B)

12. What is the gross profit?

A. N290,000 B. N250,000 C. N210,000 D. N150,000 E. N110,000
Answer: N210,000 (C) [N900,000 – N690,000 ]
Workings:
N N
Sales 900,000
Less: cost of sales
Opening stock 200,000
Purchases 650,000
C.G.A.S 850,000
Less: closing stock 160,000
Cost of goods sold 690,000
Gross profit 210,000

2010/a & b Neco

(a) List any eight components of trading account. (b) Distinguish between mark-up and margin.
Answer
(a) (i) Sales (iii) Carriage inward (v) Sales returns (vii) Wages.
(ii) Purchases (iv) Closing stock. (vi) Purchases return (viii) Opening stock
(b) Mark-up is profit expressed as a percentage of sale while margin is the amount derived by subtracting the cost
of goods sold.

191
2006/20 NABTEB
Carriage outwards expenses of a balance is treated in
A. balance sheet B. trading account C. profit and loss account D. appropriation account
Answer: Profit and loss account (C)

2019/15
The mark-up on a product is 2/3. The margin is
3 2 1 2
A. B. C. D.
5 5 3 9
Solution
2 2 2
⎯→ (
⎯ ) = (B)
5 3+2 5

Note: Margin is when profit is expressed as a percentage of sales.

2006/15 Neco
Profit expressed in relation to sales is
A. gross profit percentage B. margin C. mark up D. net profit percentage E. profit ratio
Answer: Margin (B)

2011/20-22 Neco
Use the following information to answer questions20 to 22

Trading account for the year ended 31st Dec. 2010

N N N N
Opening stock 3,000 Sales 7,200
Purchases 3,500 Less “Y” 200 7,000
Less “X” 400 3,100
6,100
Less: closing stock 1,100
Cost of goods sold 5,000
Gross profit ?
7,000 7,000

20. The gross profit is

A. N400 B. N2,000 C. N5,000 D. N6,100 E. N7,000
Answer: (N7,000 – 5,000 = N2,000) B.

21. The symbol ‘X’ represents

A. carriage inwards B. goods available for sales C. net purchases D. returns inward E. returns outward
Answer: Returns outwards (E)

22. The net sales is

A. N200 B. N2,000 C. N5,000 D. N7,000 E. N7,200
Answer: N7,200(D) [sales – returns inward] = [7,200 – 200]

2019/10-13 Neco
Use the following information to answer questions 10 to 13
N
Opening stock 12,000.00
Purchases 36,000.00
Returns outwards 1,800.00
Sales 54,000.00
Carriage inward 1,200.00
Discount allowed 105.00
Closing stock 8,400.00

10. The gross profit is

A. N15,000.00 B. N14,965.00 C. N14,800.00 D. N14,765.00E. N14,565.00
Answer: N15,000.00 (A)

192
11. The net profit is
A. N16,000.00B. N15,065.00 C. N14,895.00D. N14,565.00 E. N13,565.00
Answer: N14,895.00 (C)

12. What is the value of cost of goods sold?

A. N54,000.00B. N51,000.00C. N48,000.00 D. N42,000.00 E. N39,000.00
Answer: N39,000.00 (E)

Workings:
Trading, Profit and Loss Account
N N
Opening stock 12,000 Sales 54,000
Purchases 36,000
Carriage inward 1,200
Returns outward (1,800)
C.G.A.S 47,400
Less: closing stock 8,400
Cost of goods sold 39,000
Gross profit 15,000 ______
54,000 54,000

Discount allowed 105 Gross profit b/d 15,000

Net profit 14,895 ______
15,000 15,000

13. What is the net profit percentage?

A. 27.55 B. 27.56 C. 27.58 D. 27.59 E. 27.68
Solution
Net Profit 14,895 100
× 100% = ( × ) = 27.58 (C)
Sales 54,000 1

2011/6 NABTEB (Theory)

The Trial Balance below was extracted from Bolatito Enterprises on 31st December, 2006.
Dr Cr
N N
Freehold premises 50,000
Capital 1/12006 81,445
Debtors and creditors 28,750 26,150
Furniture and fittings at cost N22,500 16,250
Rent 950
Electricity 675
Provision for bad debts 1/1/06 288
Office equipment at cost N20,000 15,000
Stock 1/1/06 7,750
General expenses 2,350
Rates 625

Cash in hand 137

Bank overdraft 4,475
Bank charges 373
Purchases and sales 60,750 74,000
Carriage inwards 395
Salaries 1,700
Discounts 485 332
186,690 186,690

You are required to prepare:

(a) Trading, Profit and Loss Account for the year ended 31st December, 2006.
(b) Balance Sheet as at 31st December, 2006.

193
Solution
(a)
BOLATITO ENTERPRISES
Dr Trading, profit and Loss Account for the year ended 31st December, 2006. Cr
N N N N
Opening stock 7,750 Sales 74,000
Purchases 60,750
Carriage inwards 395 61,145
Cost of goods available for sale 68,895
Closing stock -
Cost of goods sold 68,895
Gross – profit c/d 5,105
74,000 74,000

Rent 950 Gross – profit b/d 5,105

Electricity 675 Discount received 332
General expenses 2350 Net–loss 12,471
Rates 625
Bank Charges 373
Salaries 1,700
Discount allowed 485
Depreciation: Furniture 6,250
Equipment 4,500
17,908 17,908

(b)
BOLATITO ENTERPRISES
Balance Sheet As At 31st December, 2006
Cost Depr. NBV
N N Fixed Assets: N N N
Capital 81,445 Freehold Premises 50,000 - 50,000
Less: net-loss (12,471) 68,974 Furniture & Fittings 22,500 (6,250) 16,250
Office Equipment 20,000 (4,500) 15,550
81,750
Current liabilities: Current Assets:
Bank overdraft 4,475 Debtors 28,750
Creditors 26,150 30,625 Less: P.F.B.D (288)
28,462
Cash in hand 137 28,599
99,599 110,349

2022/10 NABTEB (Obj)

Use the following information to answer question 10.
N
Stock on hand 4,000
Purchase for re-sale 5,000
Sale 3,500
Closing stock 20% of total stock
What is the cost of goods available for sale?
A. N1,800 B. N7,200 C. N9,000 D. N10,000
Answer
N9,000 – Opening stock + purchases = N4,000 + N5,000 = N9,000 (C)

194
2022/4 NABTEB Theory
The following balances were extracted from the books of Aibuki Enterprises on 31st December, 2020.
N
Freehold property 200,000
Capital 180,000
Trade debtors 28,000
Furniture and fittings 20,000
Rent 950
Electricity 600
Provision for bad debts 280
Trade creditors 76,000
Office equipment 12,050
Stock (01/01/2020) 7,000
General expenses 2,000
Rates 600
Cash in hand 130
Bank overdraft 4,000
Bank charges 300
Purchases 148,000
Sales 162,000
Carriage inwards 300
Discount received 600
Sundry expenses 800
Salaries 1,700
Discount allowed 450

Additional information:
(a) Closing stock N4,600
(b) Salaries in arrears N800
(c) Prepaid expenses rent N400, rates N250
(d) Provision for bad debts is to be reduced to N220
(e) Depreciate furniture and fittings and office equipment by 5% on cost.

You are required to prepare the following:

(i) trial balance as at 31st December, 2020.
(ii) trading, profit and loss account for the year ended 31st December, 2020.
Solution
AIBUKI ENTERPRISES
Trial Balance As At 31st December, 2020
Date Particulars Folio Debit Credit
Dec N N
31 Freehold property 200,000
31 Capital 180,000
31 Trade debtors 28,000
31 Furniture and fittings 20,000
31 Rent 950
31 Electricity 600
31 Provision for bad debts 280
31 Trade creditors 76,000
31 Office equipment 12,050
31 Stock (01–01–2020) 7,000
31 General expenses 2,000
31 Rates 600
31 Cash in hand 130
31 Bank overdraft 4,000
31 Bank charges 300
31 Purchases 148,000
31 Sales 162,000
31 Carriage inwards 300
31 Discount received 600
31 Sundry expenses 800
31 Salaries 1,700
31 Discount allowed 450
422,880 422,880

195
Note:
Debit: All assets and expenses and loss
Credit: All liabilities, income and gains.
(ii)
AIBUKI ENTERPRISES
Dr Trading, Profit and Loss Account for the year ended 31 st December, 2020. Cr
N N N N
Opening stock 7,000 Sales 162,000
Purchases 148,000
Carriage inwards 300
148,300
Cost of goods available for sale 155,300
Closing stock (4,600)
Cost of goods sold 150,700
Gross – profit c/d 11,300
162,000 162,000

Rent 950 Gross – profit b/d 11,300

Less: Prepaid (400) 550 Over provision (250–220) 60
Rates 600 Discount received 600
Less: Prepaid (250) 350
Electricity 600
General expenses 2,000
Bank Charges 300
Sundry expenses 800
Salaries 800
Add: Arrears 800 1,600
Discount allowed 450
Depreciation: Furniture 1,000
Equipment 602.5
Net profit c/d 3,707.5
11,960 11,960

Note:
(i) Over provision for bad debts: N280 – 220
= N60
5
(ii) Depreciation: Furniture & fittings: × 20,000 = N1,000
100
5
Office Equipment: 100 × 12,050 = N602.5
2000/7 Theory
Audu Bako is a trader. The following balances were extracted from his books on 31st July, 1998.
N
Sales 307,442
Sales ledger control 28,860
Stock in trade 1/8/97 21,488
Trade subscriptions 104
Telephone and postages 884
Travelers commission 14,968
Salaries 10,432
Rent paid 2,280
Purchases 253,066
Purchases ledger control 12,358
Printing expenses 1,578
Petty cash in hand 32
Equipment and office furniture 3,240
Electricity 812
Insurance 504
Miscellaneous expenses 3,046
Drawings – Audu Bako 7,054
Discount allowed 770
Discount received 1,452
Cash at bank 8,464
Capital account – Balance 1/8/97 36,814
Bad debts written off 484

196
Additional Information:
(a) Amounts owing by Audu Bako on 31st July, 1998 were Rent N760, Travellers commission and expenses N1,230,
Electricity N112.
(b) Stock at 31st July, 1998 was N19,112.
(c) Provision: Accountancy charges N462. Doubtful debts N580.
(d) Office furniture and equipment is to be depreciated by 10 percent.

You are required to prepare:

(i) Trading and Profit and Loss Account for the year ended 31st July, 1998 and
(ii) A Balance Sheet as at that date.
Solution
(i)
AUDU BAKO
Dr Trading, profit and Loss Account for the year ended 31st December, 1998. Cr
N N N N
Opening stock 21,488 Sales 307,442
Add Purchases 253,066
Cost of goods available for sale 274,554
Less: Closing stock 19,112
Cost of goods sold 255,442
Gross – profit c/d 52,000
307,442 307,442

Trade Subscriptions 104 Gross – profit b/d 52,000

Telephone & Postages 884 Discount received 1,452
Travelling expenses 14,968
Add: owing 1,230 16,198
Salaries 10,432
Rent 2,280
Add: owing 760 3,040
Printing expenses 1,578
Electricity 812
Add: owing 112 924
Insurance 504
Miscellaneous expenses 3,046
Discount allowed 770
Bad debt 484
Provision: Accountancy
Charges 462
Doubtful debts 580
Depreciation: Furniture
Fittings 324
Total Operating expenses 39,330
Net profit c/d 14,122
53,452 53,452

(ii)
AUDU BAKO
Balance Sheet As At 31st December, 1998
N N Fixed Assets: N N
Capital 36,814 Furniture & Equipment 3,240
Add: Net-profit 14,122 Less: Depreciation (324) 2,916
Less: Drawings (7,054) 43,882

Current liabilities: Current Assets:

Creditors 12,358 Stock 19,112
Accruals: Rent 760 Debtors (28,860 – 580) 28,280
Travelling exp. 1,230 Cash at bank 8,464
Electricity 112 Petty cash 32 55,888
Provision: Accountancy 462 14,922
58,804 58,804

197
2018/9 Neco Theory
Olayinka is a sole trader. The business trial balance as at 31st December, 2013 is given below:
Dr Cr
N N
Stock 1/1/2013 6,812
Capital account 44,000
Motor vehicles 6,000
Purchases 72,734
Sales 92,006
Provision for bad debts 162
Debtors 10,556
Drawings 3,000
Creditors 11,600
Freehold premises 16,500
Cash 9,526
Insurance 1,422
Returns inwards 628
Returns outwards 1,022
Discount allowed 684
Discount received 1,018
Interest on deposit account 1,074
Carriage inwards 236
Salesmen salaries and commission 2,444
Wages 3,202
Transport expenses 260
General expenses 3,012
Office salaries 5,000
Furniture and fittings 5,000
Tenement rate 424
Advertisement 2,842
Bank deposit 3,600
150,882 150,882

You are given the following additional information:

(a) The stock in hand on 31st December, 2013 was N8,636.
(b) Insurance of N260 was outstanding.
(c) An employee took salary advance of N220.
(d) The provision for bad debts should be increased to N510.
(e) Depreciation:
(i) Motor vehicle N900.
(ii) Furniture and fittings 10% per annum.
You are required to prepare:
(i) Trading, profit and loss account for the year ended 31st December, 2013.
(ii) The balance sheet as at that date.

198
Solution
(i)
OLAYINKA:
Dr Trading, Profit and Loss Account for the year ended 31st December, 2013. Cr
N N N N
Opening stock 6,812 Sales 92,006
Purchases 72,734 Less: Returns inwards (628)
Carriage inwards 236 91,378
72,970
Less: Returns outwards (1,022) 71,948
Goods available for sale 78,760
Closing stock 18,636
Cost of goods sold 70,124
Gross – profit c/d 21,254
91,378 91,378

Increase in prov. For bad debts 348 Gross – profit b/d 21,254
Insurance 1,422 Discount received 1,018
Add: Outstanding 260 1,682 Interest on deposit 1,074
Discount allowed 684
Salesman salaries & Comm. 2,444
Less: Advance (-) 2,444
Wages 3,202
Transport expenses 260
General Expenses 3,012
Office Salaries 5,500
Less: Advance (220) 4,780
Tenament rate 424
Advertisement 2,842
Depreciation: Motor Vehicle 900
F&F 200
Net profit c/d 2,568
23,346 23,346

(ii)
OLAYINKA
Balance Sheet As At 31st December, 2013
Cost Depr. NBV
N N Fixed Assets: N N N
Capital 44,000 Motor Vehicles 6,000 (900) 5,100
Add: Net – Profit 2,568 Freehold premises 16,500 - 16,500
Less: Drawings (3,000) 43,568 Furniture & Fittings 2,000 (200) 1,800
23,400
Current liabilities: Current Assets:
Creditors 11,600 Stock 8,636
Insurance outstanding 260 11,860 Debtors 10,556
Less: P.F.B.D (510)
Cash 10,046
Bank deposit 3,600
Salary advance 220
32,028
55,428 55,428

Note:
(i) Depreciation: Furniture and fittings
10
× 2,000 = N200
100
(ii) Provision for bad debts: 510 – 162 = 348

199
2022/8 Neco (Theory)
The following Trial Balance were extracted from the books of James Enterprises as at 31st December, 2019.
N N
Land and building 120,000
Motor vehicles 10,000
Bank 21,622
Cash in hand 824
Sundry debtors 60,824
Purchases 131,824
Heating and lighting 3,960
Office expenses 8,034
Carriage outwards 7826
Stationery 634
Wages and salaries 60,168
Telephone 914
Discounts allowed 6,000
Insurance 224
Rates 500
Stock 64,000
Capital 220,000
Sundry creditors 16,630
Discounts received 1,430
Bank interest received 50
Sales 259,244
497,354 497,354

Additional information: (d) Repayments: Insurance N54 and rates N190.

(a) Stock at 31st December, 2019 was N78,000. (e) Make a provision of 5% for doubtful debts.
(b) Bad debt of N1,624 has been written off. (f) Depreciation has to be written off:
(c) Accrued accounts: Audit fees N500, rent N1,074 and Land and building at 2% per annum.
legal expenses N50. Motor vehicle at 20% per annum.
You are required to prepare:
(i) Trading profit or loss account for the year ended 31 st December, 2019.
(ii) Balance sheet as at 31st December, 2019.
Solution
JAMES ENTERPRISES:
Dr Trading, profit and Loss Account for the year ended 31 st December, 2019. Cr
N N N N
Opening stock 64,000 Sales 259,244
Purchases 131,824
Goods available for sale 195,824
Closing stock (78,000)
Cost of goods sold 117,824
Gross – profit c/d 141,420
259,244 259,244

Heating & lighting 3,960 Gross – profit b/d 141,420

Office expenses 8,034 Discount received 1,430
Carriage outward 7,826 Bank interest received 50
Wages and salaries 60,168
Telephone 914
Discount allowed 6,000
Insurance 224
Less: Repayment (54) 170
Rates 500
Less: Repayment (190) 310
Stationery 634
Bad debt 1,624
Provision for doubtful debt 3,041.2
Accrued Audit fees 500
Accrued rent 1,074
Accrued legal expenses 50
Depreciation: Land & Building 2,400
Motor vehicle 2,000
Net profit c/d 50,194.8
142,900 142,900

200
(ii)
JAMES ENTERPRISES:
Balance Sheet As At 31st December, 2019
Cost Depr. NBV
N N Fixed Assets: N N N
Capital 220,000 Land & Building 120,000 (2,400) 117,600
Add: Net – Profit 50,194.8 270,194.8 Motor vehicle 10,000 (2,000) 8,000
125,600

Current liabilities: Current Assets:

Creditors 16,630 Stock 78,000
Accrued Audit Fees 500 Debtors 60,824
Accrued Rent 1,074 Less: Bad Debt (1,624)
Accrued Legal Expenses 50 18,254 58,376
Less: P.F.D.D. (3,041.2) 55,334.8
Bank 21,622
Cash in hand 824
Insurance repaid 54
Rates paid 190
156,024.8 156,024.8

2022/9 Neco (Theory)

The following balances were extracted from the books of BENITA Enterprises for the year ended 31st December, 2014.
N
Purchases 104,020
Sales 242,320
Warehouse wages 32,000
Office salaries 18,000
Returns inward 3,620
Returns outward 3,020
Stock – 1st January, 2014 63,320
Furniture and equipment 16,400
Motor vehicles 14,000
Debtors 55,000
Creditors 34,000
Bad debts 750
Stationery 1,660
Advertising 3,770
Lighting and heating 5,720
Rates 2,480
Commission paid 1,200
Delivery expenses 1,000
Postage and telephone 1,300
Insurance 600
Discount allowed 2,460
Discount received 4,180
Motor vehicle expenses 3,940
Sundry expenses 540
Provision for bad debts 1,250

The following additional information also relate to the account.

(a) The stock at 31st December, 2014 was valued at N44,290.
(b) ¾ of the expenses for rates, light and heating is to be charged to the warehouse and the remainder to the office.
(c) Furniture and equipment is to be depreciated by 10% and the motor vehicles by 20%.
(d) Insurance paid in advance amounted to N100.
(e) The provision for bad debts as at 31 st December, 2015 was to stand at 2% of the trade debtors.

You are required to prepare Trading, Profit and Loss account for the year ended 31 st December, 2014.

201
Solution:
BENITA ENTERPRISES:
Dr Trading, Profit and Loss Account for the year ended 31 st December, 2014. Cr
N N N N
Opening stock 63,320 Sales 242,320
Purchases 104,020 Less: Returns inwards (3,620) 238,700
Less: Returns outwards (3,020)
101,000
Goods Available for sale 164,320
Less: Closing stock (44,290)
120,030
Warehouse wages 32,000
Warehouse rate 1,860
Warehouse light & heating 4,290
Cost of goods sold 158,180
Gross – profit c/d 80,520
238,700 238,700

Office rates 620 Gross – profit b/d 80,520

Office light & heating 1,430 Discount received 4,180
Office salaries 18,000 Reduction in provision for bad debt 150
Bad debts 750
Stationery 1,660
Advertising 3,770
Commission paid 1,200
Delivery expenses 1,000
Postage & telephone 1,300
Insurance 600
Less: Advance (100) 500
Discount allowed 2,460
Motor vehicle expenses 3,940
Sundry expenses 540
Depreciation: Furniture 1,640
Motor vehicle 2,800
Total Operating Expenses 41,610
Net profit c/d 43,240
84,850 84,850

Workings:
3
(i) Warehouse rates: 4 × 2,480 = N1,860
1
(ii) Office rates N2,480 – 1,860 = N620, or × 2,480 = N620
4
3
(iii) Warehouse lighting & heating = × 5,720 = N4,290
4
(iv) Office lighting and heating: 5,720 – 4,290 = N1,430, or
1
× 5,720 = N1,430
4
2
(v) Provision for bad debt (to stand at 2% of total debtors): 100 × 55,000 = N1,100
∴ Reduction in provision = 1,250 – 1,100 = N150
(vi) Insurance: Cash 600
Less: Advance (100)
Profit & Loss 500
(vii) Depreciation:
10
Furniture and Equipment: × 16,400
100
20
Motor vehicle: × 14,000 = N2,800
100

202
2009/5 (Theory)
The following trial balance was extracted from the books of Alajobi Enterprises for the year ended 30 th June, 2007.
N N
Debit Credit
Capital 120,000
Stock 1/7/06 18,200
Purchases and sales 178,000 280,000
Returns 3,400 1,700
Discounts 1,320 1,560
Debtors and creditors 32,000 24,600
Carriage outwards 4,250
Rent and rates 7,480
Wages and salaries 17,740
Machinery at cost 150,000
Provision for depreciation (machinery) 30,000
Provision for bad debt 7200
Bad debts 1,060
General office expenses 3,890
Cash at bank 47,720
465,060 465,060
Additional information:
(a) Stock as at 30/6/07 was valued at N16,700.
(b) The proprietor had withdrawn goods worth N5,600. This has not been reflected in the books.
(c) Wages of N2,260 is owed while rent of N1,400 had been paid.
(d) Provision for bad debt is to be reduced to N6,000.
(e) Provision for depreciation of machinery at 20% reducing balance.

You are required to prepare:

(i) Trading, Profit and Loss Account for the year ended 30th June, 2007.
(ii) A Balance Sheet as at that date.
Solution
(i)
ALAJOBI ENTERPRISES
Dr Trading, Profit and Loss Account for the year ended 31st June, 2007. Cr
N N N N
Opening stock 18,200 Sales 280,000
Add: Purchases 172,400 Less: Returns inwards (3,400)
Less: Returns outwards (1,700) 170,700 276,000
Cost of goods available for sale 188,900
Less: Closing stock (16,700)
Cost of goods sold 172,200
Gross – profit c/d 104,400
276,600 276,600

Carriage outwards 4,250 Gross – profit b/d 104,400

Discount allowed 1,320 Discount received 1,560
Bad debts 1,060 Reduction in provision for bad debt 1,200
General office expenses 3,890
Rent and rates 7,480
Less: Prepaid (1,400) 6,080
Wages and Salaries 17,740
Add: owing 2,260 20,000
Depreciation: Machinery 24,000
Total Operating Expenses 60,600
Net profit c/d 46,560
107,160 107,160

203
(ii)
Balance Sheet As At 31st December, 2013
Cost Depr. NBV
N N Fixed Assets: N N N
Capital 120,000 Machinery 150,000 (54,000) 96,000
Add: Net – Profit 46,560 Total assets 96,000
Less: Drawings (5,600) 160,960

Current liabilities: Current Assets:

Creditors 24,600 Stock 16,700
Accrued wages 2,260 26,860 Debtors 32,000
Less: Prov. For bad debts (6,000) 26,000
Cash at bank 47,720
Rent prepaid 1,400 91,820
187,820 187,820

Workings:
(i) Provision for bad debt (reduction in provision for bad debt) : N7,200 – 6,000 = N1,200
20
(ii) Depreciation (machinery): 100 × (150,000 – 30,000)
Profit & Loss A/c = 0.2 × 120,000 = N24,000
Accumulated depreciation (machinery) = N30,000 + N24,000
Balance sheet = N54,000

2013/8 (Theory)
The following Trial Balance was extracted from the books of Bamitolu on 31st December, 2009.
N N
Stock – 1st January, 2009 80,500
Motor vechiles 58,000
Buildings 176,000
Furniture and fittings 26,000
Debtors and creditors 98,300 72,000
Purchase and sales 395,700 589,200
Returns 10,500 9,700
Discounts 12,500 14,000
Wages and salaries 49,200
Drawings 16,400
Loan from Thoman 60,000
Bad debts 3,500
Loan interest 3,000
General expenses 16,800
Stationery 1,800
Rent and rate 12,400
Petty cash 400
Cash in hand 1,300
Cash at bank 32,600
Capital 250,000
994,900 994,900

Additional information:
(i) Stock – 31st December, 2009 N91,200 (ii) Depreciation: Motor vehicles 25%
Building 5%
Furniture and fittings 10%
(iii) Make a 5% provision for doubtful debts.
(iv) N2,300 paid by a debtor during the year was mistakenly credited to Sales Account.
(v) Goods worth N1,600 withdrawn by Bamitolu was not accounted for.

You are required to prepare:

(a) Trading, Profit and Loss Account for the year ended 31st December, 2009, and (b) A Balance Sheet as at that date.

204
Solution
(a)
BAMITOLU
Dr Trading, Profit and Loss Account for the year ended 31 st December, 2009. Cr
N N N N
Opening stock 80,500 Sales 589,200
Add: Purchases 395,700 Less: Debtors (2,300) 586,900
Less: Returns outwards (9,700) 386,000 Less: Returns inwards (10,500)
Cost of goods available for sale 466,500 576,400
Less: stock drawings (1,600)
464,900
Less: Closing stock (91,200)
Cost of goods sold 373,700
Gross – profit c/d 202,700
576,400 576,400

Discount allowed 12,500 Gross – profit b/d 202,700

Wages and salaries 49,200 Discount received 14,000
Bad debts 3,500
General expenses 16,800
Loan interest 3,000
Stationery 1,800
Rent and rates 12,400
Provision for doubtful debt 4,800
Depreciation: Motor Vehicle 14,500
Buildings 8,800
Furniture 2,600
Total Operating Expenses 129,900
Net profit c/d 86,800
216,700 216,700

(b)
Balance Sheet As At 31st December, 2009
Cost Depr. NBV
N N Fixed Assets: N N N
Capital 250,000 Motor vehicle 58,000 (14,500) 43,500
Add Net-profit 86,800 Buildings 176,000 (8,800) 167,200
336,800 Furniture & fittings 26,000 (2,600) 23,400
Less: Drawings (18,000) 318,800 Total fixed assets 234,100
Current Liabilities: Current Assets:
Creditors 72,000 Stocks 91,200
Loan (Thoman) 60,000 132,000 Debtors 98,300
Less: cash from customer (2,300)
96,000
Less: Prov. For D. D. (4,800) 91,200
Bank 32,600
Cash 1,300
Petty cash 400 216,700
450,800 450,800
Workings:
25
(i) Depreciation: Motor vehicles = × 58,000 = N14,500
100
5
Buildings = × 176,000 = N8,800
100
10
Furniture & Fittings = × 26,000 = N2,600
100
5
(ii) Provision for doubtful debts = × (98,300 – 2,300)
100
5
= × 96,500 = N4,800
100
(iii) Drawings: N16,400 + 1,600 (stock drawing + cash drawing) = N18,500

205
2016/7 (Theory)
The following balances were extracted from the books of Ogba Enterprises on December 31, 2014.
N
Capital 315,200
Purchases 259,800
Sales 484,700
Carriage inwards 17,410
Premises at cost 215,000
Equipment at cost 198,000
Trade debtors 76,800
Bank overdraft 63,509
Trade creditors 64,820
Cash in hand 13,400
Stock (January 1, 2014) 27,680
Salaries and wages 56,700
Provision for doubtful debts 13,000
Discount allowed 11,450
Drawings 70,000
Discount received 22,800
Electricity 29,229
General expenses 37,060
Rent 43,000
9% debentures 100,000
Return inwards 24,500
Return outwards 16,000

Additional information:
(i) Stock in trade at December 21, 2014 was N29,400;
(ii) Provision for doubtful debts to remains at 8% of debtors;
(iii) General expenses owing totall09ed N12,860;
(iv) Rent prepaid N19,500.
(v) Depreciation is to be provided as follows:
1
Premises 12 % on cost
2
Equipment 10% on cost

You are required to prepare:

(a) Trading, Profit and Loss Account for the year ended December 31, 2014:
(b) Balance Sheet as at that date

206
Solution
(a)
OGBA ENTERPRISES
Dr Trading, Profit and Loss Account for the year ended 31st December, 2014. Cr
N N N N
Opening stock 27,680 Sales 484,700
Purchases 259,800 Less: Returns inwards (24,500) 460,200
Add: Carriage inwards 17,410
Less: Returns outwards (16,000) 261,210
Cost of goods available for sale 288,890
Less: closing stock (29,400)
Cost of goods sold 259,490
Gross – profit c/d 200,710
460,200 460,200

General expenses 37,060 Gross – profit b/d 200,710

Add: owing 12,860 Discount received 22,800
Rent 43,000 Net-Loss c/d 108
Less: Prepaid (19,500) 73,420
Provision for doubtful debt 6,144
Discount Allowed 11,450
Salaries & Wages 56,700
Electricity 29,229
Depreciation: Equipment 19,800
Premises 26,875
223,618 223,618

(b)
OGBA ENTERPRISES
Balance Sheet As At 31st December, 2014
Cost Depr. NBV
N N Fixed Assets: N N N
Capital 315,200 Equipment 198,000 (19,800) 178,200
Less: Net-loss (108) Premises 215,000 (26,875) 188,125
315,092
Less: Drawings 70,000 245,092 Total fixed assets 366,325

Long–Term Liabilities Current Assets:

Debenture 100,000 Stock 29,400
Debtors 76,800
Current Liabilities: Less: Provision for D.D. (19,144) 57,656
Creditors 64,820 Cash in hand 13,400
Bank overdraft 63,509 Rent prepaid 19,500 119,956
General expenses owed 12,860 141,189
486,281 486,281

Workings:
8
(i) Provision for doubtful debts: × 76,800 = N6,144
100
10
(ii) Depreciation: Equipment = × 198,000 = N19,800
100
12.5
Premises = × 215,000 = N26,875
100
(iii) Provision for doubtful debt (in the balance sheet will be): N13,000 + 6,144 = N19,144

207
2018/9 (Theory)
The trial balance of Obinah for year ended 31 st December, 2016 was provided as follows:
Capital 630,000
Drawings 69,000
Opening stock 300,000
Purchase and sales 1,050,000 1,200,000
Returns 15,000 18,600
Debtors and creditors 29,400 21,000
Provision for doubtful debts 2,400
Salaries 90,000
Rates 18,000
Insurance 93,000
Telephone 3,000
Furniture at cost 120,000
Machinery at cost 90,000
Provision for depreciation
Furniture 30,000
Machinery 15,000
Bad debts 600
Bank balance 39,000
1,917,000 1,917,000

Additional information N
(i) Closing stock 31/12/16 360,000
(ii) Rates prepaid 1,500
(iii) Telephone outstanding 660
(iv) Accrued salaries 150,000
(v) Provision for doubtful debt is to be increased to 10% of debtors.
(vi) Depreciation on furniture at 10% on book value.
(vii) Depreciation on machinery at 20% on cost.
You are required to prepare for Obinah
The Trading, Profit and Loss Account for the year ended 31 st December, 2016 and a Balance Sheet as at that date.
Solution
OBINAH
Dr Trading, Profit and Loss Account for the year ended 31 st December, 2016. Cr
N N N N
Opening stock 300,000 Sales 1,200,000
Add: Purchases 1,050,000 Less: Returns inwards (15,000) 1,185,000
Less: Returns outwards (18,600) 1,031,400 Net – sales 1,185,000
Cost of goods available for sale 1,331,400
Less: Closing stock (360,000)
Cost of goods sold 971,400
Gross profit c/d 213,600
1,185,000 1,185,000

Bad debts 600 Gross – profit b/d 213,600

Provision for doubtful debts 540 Net – loss c/d 32,700
Insurance 93,000
Rates 18,000
Less: Prepaid (1,500) 16,500
Telephone 3,000
Add: Outstanding 660 3,660
Salaries 90,000
Add: Accruals 15,000 105,000
Depreciation: Furniture 9,000
Machinery 18,000
246,300 246,300

208
OBINAH
Balance Sheet As At 31st December, 2009
Cost Depr. NBV
N N Fixed Assets: N N N
Capital 630,000 Machinery 90,000 (33,000) 57,000
Less: Net-loss (32,700) Furniture 120,000 (39,000) 81,000
597,300 Total fixed assets 138,000
Less: Drawings (69,000) 528,300

Current Liabilities: Current Assets:

Creditors 21,000 Stocks 360,000
Salaries accrued 15,000 Debtors 29,400
Telephone outstanding 660 36,660 Less: Prov. For D.D. (2,940) 26,460
Bank Balance 39,000
Rate prepaid 1,500 426,960
564,960 564,960

Workings:
10
(i) Provision for doubtful debt: × 29,400 – 2,400 = N540 ⎯
⎯→ P & L A/C.
100
10
Balance sheet × 29,400 = N2,940
100
(ii) Depreciation: Machinery = N15,000 + N18,000 = N33,000
Furniture = N30,000 + N9,000 = N39,000
2018/23-24
Use the following information to answer questions23 and 24
Le
Sales 120,000
Purchases 100,000
Opening stock 10,000
Closing stock 20,000
23. The cost of goods sold is
A. Le 120,000 B. Le 110,000 C. Le 90,000 D. Le 30,000
Answer: (Opening stock + Purchases – Closing stock)
= (Le 10,000 + 100,000 – 20,000)
= Le 90,000 C.
24. The gross profit or loss is
A. Le 30,000 gross profit B. Le 20,000 gross profit C. Le10,000 gross loss D. Le 30,000 gross loss
Answer: Gross profit = Sales – Cost of goods sold
= 120,000 – 90,000 = Le 30,000 A.
2018/29-30 NABTEB (Nov)
Use the following information to answer questions29 and 30
N
Stock at start 200
Stock at close 320
Purchases 2,055
Sales 3,186
29. The cost of goods sold is
A. N3,186 B. N2,866 C. N2,255 D. N1,935
Answer: N1,935 (D)
Workings
= Opening stock + purchases – closing stock
= 200 + 2,055 – 320 = N1,935
30. The value of goods available for sale will be
A. N3,186 B. N2,255 C. N2,175 D. N2,055
Answer
(Opening stock + purchases)
Stock at start 200 + Purchases 2,055 = N2,255 (B)

209
2015/9
The following balances were extracted from the books of Bonjuri, a retailer as at 31st March, 2014.
Dr Cr
Le Le
Capital 100,000
Drawings 50,000
Cash in hand 1,000
Cash at bank 18,500
Debtors and creditors 70,000 4,000
Insurance 2,500
Purchases and sales 535,000 700,000
st
Stock: 1 April, 2013 50,000
Electricity 2,000
General expenses 13,000
Equipment at cost 15,000
Provision for depreciation of equipment 1st April, 2013 3,000
Wages and salaries 30,000
Rent 20,000
807,000 807,000

Additional information:
(i) Stock on 31st March, 2014 was valued at Le 60,000.
(ii) At 31st March, 2014; Le1,500 was outstanding on insurance; electricity was prepaid by Le500 and there was a
doubtful debt Le1,000.
(iii) Depreciation is to be provided on equipment at 10% on cost.
You are required to prepare: (a) Trading, profit and loss account for the year ended 31st March, 2014:
(b) Balance sheet as at that date.
Solution
(a)
BONJURI:
Dr Trading, Profit and Loss Account for the year ended 31st March, 2014 Cr
Le Le Le Le
Opening stock 50,000 Sales 700,000
Purchases 535,000
C.G.A.S 585,000
Less: closing stock (60,000)
Cost of goods sold 525,000
Gross profit c/d 175,00
700,000 700,000

Insurance 2,500 Gross profit b/d 175,000

Add: outstanding 1,500 4,000
Electricity 2,000
Less: Prepaid (500) 1,500
General expenses 13,000
Wages & salaries 30,000
Rent 20,000
Depreciation – equipment 1,500
Provision for doubtful debt 1,000
Net profit c/d 104,000
175,000 175,000

210
Bonjuri Balance Sheet as at 31st March, 2014
Le Le Fixed assets: Le Le
Capital 100,000 Equipment 15,000
Add: Net profit 104,000 Less: Acc. Depreciation (4,500) 10,500
204,000
Less: drawings (50,000) 154,000 Current assets:
Stock 60,000
Current liabilities Debtors (70,0000 – 1,000) 69,000
Creditors 4,000 Cash in hand 1,000
Outstanding – Insurance 1,500 5,500 Bank 18,500
Prepaid – Electricity 500 149,000
159,500 159,500

Note:
10 15,000
(a) Depreciation of equipment = × = N1,500
100 1
(b) Accumulated Depreciation = N3,000 + N1,500
= N4,500

2019/9 Neco (Adjusted)

The following Trial balance was extracted from the books of Zino Enterprises on 31st December, 2015.
DR CR
N N
Stock – 1st January, 2015 18,000
Purchases and sales 31,500 61,500
Returns 900 600
Discounts 600 1,800
Land and building at cost 78,000
Provision for depreciation (land and building) 15,000
Loan – Bisi 24,000
Interest on loan 2,400
Debtors and creditors 6,000 1,800
Bad debts 300
Provision for doubtful debts 1st January 750
Rent 7,500
Wages and salaries 4,500
Electricity 3,900
Drawings 6,000
Cash at bank 22,800
Capital 76,950
182,400 182,400
Additional information:
(i) Stock as at 31st December, 2015 was N6,000.
(ii) Accrued wages amounted to N900.
(iii) Electricity paid in advance was N2,400.
(iv) Provision for doubtful debt is to increase by N150.
(v) Depreciation of land and building to provide at the rate of 5% on cost.
(vi) Additional cost of the building N6,000 was paid by cheque, half of which was on legal cost of acquiring the
building while the other half was on repairs of general damages to the building.
You are required to prepare: (a) Trading, profit and loss accounts for the year ended 31st December, 2015.
(b) Balance sheet as at that date.

211
Solution
(a) ZINO ENTERPRISES
Dr Trading, profit and loss account for the year ended 31 stDecember, 2015 Cr
N N N N
Opening stock 18,000 Sales 61,500
Purchases 31,500 Returns inwards (900) 60,600
Returns outwards (600) 30,900
C.G.A.S 48,900
Less: closing stock (12,000)
Cost of goods sold 36,900
Gross – profit c/d 23,700
60,600 60,600

Discount allowed 600 Gross profit b/d 23,700

Repairs of buildings 3,000 Discount received 1,800
Interest on loan 2,400
Bad debts 300
Wages & salaries 4,500
Add: accrued 900 5,400
Electricity 3,900
Less: Advance (2,400) 1,500
Rent 7,500
Increase in provision 150
Depreciation. (land & buildings) 4,050
Net profit c/d 600
25,500 25,500

(b) ZINO ENTERPRISES BALANCE SHEET AS AT 31ST DECEMBER, 2015

N N Fixed assets: N N
Capital 76,950 Land and buildings 81,000
Add: Net profit 600 Less: Accumulated. Depreciation 19,050
Less: drawings (6,000) 71,550 61,950
Current assets:
Current liabilities: Stock 6,000
Creditors 1,800 Debtors (6,000 – 900) 5,100
Accrued 900 Cash at bank 22,800
Loan 24,000 26,700 Electricity prepaid 2,400 36,300
98,250 98,250

Note
5 81,000
(i) Depreciation on land and building =
100
× = N4,050
1
(ii) Accumulated depreciation = N15,000 + 4,050
= N19,050

212
2018/11 NABTEB (ADVANCED Nov)
The following trial balance has been extracted from the ledgers of Mr. Jerry as at 31st December, 2015.
Dr Cr
N N
Purchases and sales 1,424,480 2,331,200
Returns 50,000 30,000
Discounts 24,120 13,680
Accounts receivables/payables 386,000 232,800
Furniture and fittings 50,000
Carriage inwards 25,000
Carriage outwards 51,760
Drawings 8,620
5% loan from Oga cooperative ─ 150,000
Land and building 400,000
Rent, rates and insurance 119,460
Postage and stationery 24,260
Motor vehicle 200,000
Advertising 37,040
Provision for doubtful debts 5,000
Salaries and wages 261,520
Bad debts 24,680
Cash in hand 6,240
Stock at 1/1/2015 143,080
Equipment at cost 974,000
Cash at bank 61,080
Accumulated depreciation on equipment 433,000
Capital 1,075,660
4,271,340 4,271,340

Additional information:
Stock at 31/12/2015 N164,420.
Expenses in arrears: Advertising N3,540
Salaries and wages N8,480
Interest on loan N7,500
Prepayments – rent, rates and insurance N4,260
Depreciation: Equipment 10% on cost
Furniture and fittings 5% ,,
Land and building 10% ,,
Motor vehicles 25% ,,
(i) Salaries and wages includes N36,000 paid to Mr. Jerry.
(ii) Record of typewriter purchased on credit worth N100,000 on 31st December, 2015 have not been reflected in the books.
(iii) Mr. Jerry decides to write off a further debt of N20,000.
(iv) His children Ede and Ego consumed goods worth of N55,000 during the year (stock withdrawn).
(v) Provision for doubtful debts 5%, discount allowable 10%.

You are required to prepare: (a) Trading, profit and loss account for the year ended 31st December, 2015.
(b) A balance sheet as at that rate.

213
Solution
(a) MR JERRY:
Dr Trading, Profit and Loss Account for the year ended 31stDecember, 2015 Cr
N N N N
Opening stock 143,080 Sales 2,331,200
Purchases 1,424,480 Less: Returns (50,000)
Carriage inwards 25,000 2,281,200
Less: Returns outwards (30,000) 1,419,480
1,562,560
Less: Personal consumption (55,000)
Cost of Goods Available 1,507,560
Less: Closing Stock (164,420)
Cost of Goods Sold 1,343,140
Gross-profit c/d 938,060
2,281,200 2,281,200

Discount allowed 60,720 Gross – profit b/d 938,060

Carriage outwards 51,760 Discount received 13,680
Postages & stationery 24,260
Advertising 37,040
Add: Arrears 3,540 40,580
Salaries and wages 261,520
Add: Arrears 8,480
Less: Advance (36,000) 234,000
Interest on loan 7,500
Rent, Rates & Ins. 119,460
Less: Prepayment (4,250) 115,200
Bad debts 24,680
Add: Addition 20,000 48,680
Provision for doubtful debts 16,470
Less: Cash (5,000) 11,470
Depreciation – Equipment 107,400
– Furniture 2,500
– Land & Building 40,500
– Motor vehicle 50,000
Net profit c/d 161,670
951,740 951,740

Note: Purchases: N1,424,480 + 100,000 – 65,000

= N1,524,480 – 65,000 = N1,459,480

(b)
Mr. Jerry Balance sheet as at 31st December, 2015
N N Fixed assets: N N N
Capital 1,075,660 Furniture 50,000 (2,500) 47,500
Add: Net-profit 161,670 Land & Building 400,000 (40,000) 360,000
1,237,330 Motor vehicle 200,000 (50,000) 150,000
Less: Drawings (99,620) 1,137,710 Equipment 1,074,000 (54,000) 533,600
1,091,100
Long-term liability: Current – Assets:
5% loan 150,000 Stock 164,420
Debtors 312,930
Current liabilities: Cash in hand 6,240
Creditors 332,800 Cash at bank 61,080
Accrued loan 7,500 Prepayment (Ins.) 4,260 548,930
Accruals 12,020 352,320
1,640,030 1,640,030

214
Notes:
(i) Drawings: N8,620 + N36,000 + N55,000 = N99,620
(ii) Accruals: N3,540 + 8,480 = N12,020
(iii) Debtors: Cash N386,000
Less: Bad Debt 20,000
366,000
Less: P.F.D.A (36,600) (10% × 366,000)
329,400
∴ Provision for bad debt = 5% of N329,400 = N16,470
Therefore, Debtor = N329,400 – N16,470 = N312,930
P.F.D.A ⎯ ⎯→ Provision for discount allowed.

Workings of depreciation
10 1,074,000
(iv) Depreciation on equipment: × = 𝑁107,400
100 1
5 50,000
(v) Depreciation on furniture: × = 𝑁2,500
100 1
10 400,000
(vi) Depreciation on land and building:
100
× = 𝑁40,000
1
25 200,000
(vii) Depreciation on motor vehicles: × = 𝑁50,000
100 1
(viii) Accumulated depreciation on equipment = N433,000 + 107,400 = N540,400
(ix) Debtors (N386,000 – 19,300 + 36,670) = N330,030
2019/15 – 16 UME
Dr Adodo Enterprise Profit and Loss Account (Extract) Cr
N N
Opening stock 5,000 Sales 100,000
Purchases ?
?
Less: closing stock 5,600
Cost of goods sold ?
Gross profit ?
100,000 100,000

15 . If the gross profit margin is 10%, what is the value of the cost of goods sold?
A. N10,000 B. N90,000 C. N105,000 D. N110,000
Answer N90,000 (N100,000 – 10% × 100,000 = N90,000)

16. If the opening stock is 5% of sales, calculate the Purchases

A. N95,600 B. N95,000 C. N90,600 D. N85,000
Answer : N90,600 (C)
Workings
Dr Adodo Enterprise Profit and Loss Account (Extract) Cr
N N
Opening stock 5,000 Sales 100,000
Purchases 90,600
C.G.A.S 95,600
Less: closing stock (5,600)
Cost of goods sold 90,000
Gross profit 10,000
100,000 100,000

10
Gross – profit = 10% of sales = × 100,000 = N10,000
100
C.G.A.S = Cost of goods available for sale
= opening stock + purchases
= N5,000 + 90,600 = N95,600

215
2021/27 – 28
GH₵
Gross–profit 50,400
Discounts received 3,300
Discounts allowed 2,500
Net – profit 26,500
Cost of goods sold 184,000

2021/27
Sales for the period is
A. GH₵234,400 B. GH₵210,500 C. GH₵133,600 D. GH₵76,900
Answer: (GH₵234,400) ⎯ ⎯→ GH₵184,000 + GH₵50,400 (A)

2021/28
Other operating expenses for the period is
A. GH₵27,300 B. GH₵25,700 C. GH₵24,700 D. GH₵23,900
Answer: (GH₵24,700) ⎯ ⎯→ (50,400 + 3,300) - (2,500 + 26,500)
= GH₵53,700 – GH₵29,000
= GH₵24,700

2021/46 – 47
GH₵
Monthly rent payable 3,000
Rent paid on 01–01–2018 48,000

2021/46
Rent expenses for 2018 was
A. GH₵84,000 B. GH₵48,000 C. GH₵48,000 D. GH₵36,000
Answer: (GH₵36,000) ⎯ ⎯→ 3,000 × 12 = GH₵36,000 (C)

2021/47
The balance of rent in the balance sheet would be
A. current asset of GH₵36,000 B. current asset of GH₵12,000
C. current liability of GH₵12,000 D. current liability of GH₵48,000
Answer: (current asset of GH₵12,000) (B)
Workings:
GH₵
Rent paid on 01/01/2018 = 48,000
Yearly rent payable (3,000 × 12) = 36,000
Rent paid in advance 12,000
Note: Rent paid in advance shall be treated as a current asset in the balance sheet.

2021/26 – 27
N
Sales 326,000
Returns outwards 15,000
Stock (01–01–2017) 21,000
Stock (31 – 12 – 2017) 19,800
Cost of goods sold 236,200
Returns inwards 18,500
2021/26
Turnover for the year is
A. N307,500 B. N311,000 C. N 326,000 D. N344,500
Answer: (N307,500) ⎯ ⎯→ N326,000 – N18,500 (A)
2021/27
The cost of goods available for sale is
A. N241,000 B. N250,000 C. N256,000 D. N271,000
Answer: (N256,000) ⎯ ⎯→ N236,200 + N19,800 (C)
216
2021/5
Ajayi Chukwumah is a sole trader. His business trial balance as at 31st December, 2019 is as follows:
DR CR
N N
Opening stock 6,812
Motor vehicle 6,000
Purchases and sales 92,234 147,606
Provision for doubtful debts 162
Debtors 10,556
Cash 9,526
Insurance 1,422
Returns 628 1,022
Discounts 684 1,018
Interest on deposit 1,074
Carriage inwards 236
Salesmen’s salaries & commission 2,444
General expenses 13,340
Office salaries 5,000
Furniture and fittings 2,000
150,882 150,882

Additional information:
(i) Closing stock N8,636.
(ii) Insurance of N260 was yet to be settled.
(iii) Salary advance to staff N220.
(iv) Provision for doubtful debt should be increased to N510.
(v) Depreciation:
- Motor vehicle N900
- Furniture and fittings is 10% per annum.

You are required to prepare trading, profit and loss account for the year ended 31st December, 2019.
Solution
AJAYI CHUKWUMAH:
Trading, Profit and Loss Account for the Year ended 31st December, 2019.
Dr Cr
N N N N
Opening stock 6,812 Sales 147,606
Purchases 92,234 Returns inwards (628)
Carriage inwards 236 Net – sales 146,978
Returns outwards (1,022) 91,448
C.G.A.S 98,260
Closing stock (8,636)
Cost of goods sold 89,624
Gross profit c/d 57,354
146,978 146,978

Discount allowed 684 Gross–profit b/d 57,354

Insurance 1,422 Discount received 1,018
Add: Accrued 260 1,682 Interest received 1,074
Salesmen salaries 2,444
Less: Advance (220) 2,224
General expenses 13,340
Office salaries 5,000
Depreciation: M.V 900
F&F 200
Increase in provision 348
Net-profit c/d 35,068
59,446 59,446

217
Notes:
(i) Increase in provision: N510 – N162 = N348
10
(ii) Depreciation: furniture & fittings (F & F): 100 × 2,000 = N200
(iii) Gross profit: Net sales – Cost of goods sold
= N146,978 – N89,624 = N57,354.
(iv) Net profit: Net income – Expenses
= N59,446 – N24,378 = N35,068

2021/43
Wages accrued is shown in the balance sheet as
A. an asset B. an income C. an expenses D. a liability
Answer: A liability (D)

2021/24
Goods that are yet to be sold at the end of a financial year are classified in the balance sheet under
A. current liabilities B. current assets C. long-term liabilities D. fixed assets
Answer: Current assets (B)

2021/38
A reduction in the provision for doubtful debts would
A. increase gross profit B. increase net-profit C. reduce gross profit D. reduce net-profit
Answer: Increase net-profit (B)

2021/39
The account in which the balance of bad debt would be transferred to is
A. cash book B. trading account C. profit and loss account D. receipts and payments account
Answer: Profit and loss account (C)

2019/29 – 30 NABTEB (Nov) Exercise 11.1

Use the following information to answer questions 29 – 30
N
Sales 14,600
Purchases 5,500
Return inwards 150
Rent 2,000
Salaries 1,000
Discount received 400
Closing stock 250
Opening stock 100

29. The cost of goods sold is

A. N5,350 B. N5,150 C. N4,250 D. N450

30. Gross profit is

A. N10,350 B. N10,200 C. N9,500 D. N9,100

2003/33 – 34 Exercise 11.2

Use the following information to answer questions 29 – 30
N
Opening stock 40,000
Purchases 130,000
Closing Stock 32,000
Sales 180,000
33. What is the cost of goods sold?
A. N170,000 B. N138,000 C. N130,000 D. N122,000
34. What is the gross profit?
A. N58,000 B. N50,000 C. N42,000 D. N10,000

218
2003/41 Exercise 11.3
Use the following information to answer questions 41.
Debtors value as at 1st January, 2000 was N40,000. Bad debts written off during the year was N5,000. Provision for bad
debt was 5%.
41. The amount debited to profit and loss account as provision for the year was:
A. N5,000 B. N2,250 C. N2,000 D. N1,750

1998/6 – 10 (Nov) Exercise 11.4

Use the following information to answer questions 6 - 10
Adeoti Enterprise
Trading Account for the year ended 31stMarch, 1995
N N N N
Opening stock XX Sales 30,000
Purchases 15,000 Less: Returns XX
Less:Returns XX 14,500
16,000
Less: Closing stock XX
15,200
Gross profit c/d XX ______
29,300 29,300

6. What is the value of returns inwards?

A. N1,200 B. N1,150 C. N800 D. N700 E. N500

7. What is the value of returns outwards?

A. N1,500 B. N1,000 C. N800 D. N700 E. N500

8. What is the average stock?

A. N2,300 B. N1,500 C. N1,150 D. N800 E. N700

9. What is the value of goods available for sale?

A.N30,000 B. N16,000 C. N15,200 D. N15,000 E. N14,500
10. What is the cost of goods sold?
A. N30,000 B. N29,300 C. N16,000 D. N15,200 E. N14,500

2003/24-25 (Nov) Exercise 11.5

Use the following information to answer questions 24 and 25
N
Opening stock 4,000
Purchases 12,000
Returns outward 600
Sales 18,000
Carriage inwards 400
Discount allowed 35
Closing stock 2,800
24. The gross profit is
A. N5,000 B. N4,965 C. N4,800 D. N4,765

25. The net profit is

A. N5,000 B. N4,965 C. N4,800 D.N4,765

2001/4 (Nov) Exercise 11.6

(a) What is the objective of preparing the following?
(i) Trading profit and loss accounts. (ii) Balance sheet.
(b) State five adjustments necessary in the preparation of financial statement.

219
Exercise 11.7
The trial balance below was extracted from Bolatito Enterprises on 31st December, 2006.
Dr Cr
N N
Freehold premises 50,000
Capital 1 – 1 – 2006 81,445
Debtors and creditors 28,750 26,150
Furniture & fittings at cost N22,500 16,250
Rent 950
Electricity 675
Provision for bad debts 1 – 1 – 2006 288
Office equipment at cost N20,000 15,500
Stock 1 – 1 – 2006 7,750
General expenses 2,350
Rates 625
Cash in hand 137
Bank overdraft 4,475
Purchases and sales 60,750 74,000
Carriage inwards 395
Salaries 1,700
Discounts 485 332
186,317 186,317

You are required to prepare: (a) Trading, Profit and Loss Account for the year ended 31st December, 2006.
(b) Balance sheet as at 31st December, 2006.
2017/11 NABTEB (ADVANCED Nov) Exercise 11.8
Below is the trial balance of AIBUKI as at 31st December, 1990.
Dr Cr
N N
Capital 16,000
Purchases 7,805
Drawings 2,000
Rates and Taxes 194
Salaries 806
Lighting and Heating 82
Electrical power 192
Travellers Commission 207
Insurance 103
Advertising 107
Sales 17,040
Bad debts 31
Discounts 48
General expenses 302
Postages 111
Carriage inwards 377
Stock 3,080
Wages 3,981
Land and building 7,920
Plant and Machinery 2,017
Furniture and fittings 189
Debtors 3,040
Creditors 2,091
Cash in hand 2,635
35,179 35,179
Additional information:
(a) Provide 2½% for discount on debtors and creditors, a bad debt provision of 10%.
(b) Depreciation of 10% is to be written off on plant and machinery, furniture 5%.
(c) Stock at close N4,380. (d) Wages owing N250. (e) Insurance paid in advance amounted to N10.
(f) Included in debtors is N300 owing by Joy and included in the creditors is N100 owing to Joy.
(g) Plant which stood at N500 in the books on 1st January was disposed off for N190 in part exchange for a new
machine costing N420. A net invoice of N230 was passed through purchases Day book.
(h) Purchase invoice amounting to N120 had been omitted from the books.
(i) Private purchase amounting to N120 had been included in the Purchase Day Book.
You are required to prepare, Trading, Profit and Loss Account and Balance Sheet as at 31 st December, 1990.
220
1999/6 (Nov) Exercise 11.9
The following Trial Balance was extracted from the books of P. Ajibola on 31 st December, 1997
Dr Cr
N N
Capital Account 27,000
Sales 44,952
Purchases 15,663
Returns 546 1,272
Opening stock 3,438
Drawings account 2,100
Salaries 1,884
Manufacturing wages 11,568
Leasehold Factory 8,057
Rents, Rates and Insurance 2,082
Carriage Inwards 693
Carriage Outwards 972
Office expenses 2,856
Plant and Machinery 7,200
Provision for bad debt 972
Discount received 354
Debtors and Creditors 12,691 5,094
Cash at bank 663
Cash in hand 3,720
Salesmen Commission 3,261
Office Furniture 1,050
Bad debts 1,200
79,644 79,644
Additional information
(a) Depreciation is to provide on cost as follows:
Leasehold Premises 20%, Plant and Machinery 25%, Office Furniture 10%.
(b) The provision for bad debts is to be made up to N1,500. (c) The value of the stock as at 31st December was N1,678.
(d) Unexpired insurance premium amounting to N250 is to be carried forward to next year.
You are required to prepare:
(i) Trading, Profit and Loss Accounts for the year, and
(ii) A Balance Sheet as at that date.

2011/7 Neco Exercise 11.10

A. Ugbe has been in business for several years. He presented the following trial balance as at 31 st May, 2000.
Description Dr (N) Cr (N)
Purchases 110,622
Sales 143,810
Debtors 36,100
Creditors 19,406
Cash at bank 21,711
Premises 61,790
Office expenses 5,690
Motor vehicles 14,300
Distribution expenses 7,960
Bank loan 20,000
Advertisement 986
Stock at 31st May, 2000 5,205
Interest on loan 1,200
Bad debts 906
Provision for doubtful debts 2,912
Capital 1st June 1999 80,000
266,470 266,128

You are required to prepare the business Trading, Profit and Loss Account for the year ended 31 stMay, 2000 and a Balance Sheet
as at that date after taking the following additional facts into consideration.
(a) Stock figure at 31st May, 2000 was under estimated by N480.
(b) A motor vehicle costing 3,660 had been included in the distribution expenses.
(c) A repayment of N4,000 of the loan had been included in office expenses.
(d) An invoice for an advertisement amounting to N132 was due for payment but had not been settled.
(e) Provision for doubtful debts is to be increased to 10% of the debtors.
(f) Motor vehicles are to be depreciated by 30%. (g) Purchases amounting to N863 in the bought ledger were omitted.

221
Exercise 11.11
The following final balance was extracted from the books of Ahmed Danbaba as at 31 st December, 1996.
Dr Cr
N N
Capital 740,330
Purchases and sales 731,300 1,054,800
Returns 6,180 4,350
Debtors and creditors 126,420 157,400
Stock (1 – 1 – 96) 216,000
Carriage inwards 2,900
Motor van at cost 270,000
Freehold property at cost 520,000
Office equipment at cost 105,000
Salaries 97,500
Electricity 3,800
Provision for Depreciation: Motor Vehicle 103,000
Office equipment 26,500
Provision for bad debt 7,000
Insurance 4,000
Rates 9,250
Motor vehicle expenses 3,200
Advertising 2,900
Rental income 8,200
Bad debt 2,470
Discounts 1,940 1,280
2,102,860 2,102,860

Additional Information:
(a) Closing stock N250,000
(b) Rental income owed by tenant N3,800
(c) Accrued salaries N5,640.
(d) Provision for bad debt is to be adjusted to N8,300.
(e) Prepaid expenses are: Insurance N540 and rates N960.
(f) Provision for depreciation: Motor vehicle
10% on cost and office equipment at 10% reducing balance.
(g) Goods worth N600 was stolen.

You are required to prepare trading, profit and loss account for the year ended 31 st December, 1996 and balance sheet as at that
date (WAEC Adjusted).

Exercise 11.12
Abike Sanusi is a sole trader. The business trial balance as at 31 st December, 2016 is given below:
Dr Cr
N N
Stock 34,060
Capital 220,000
Motor vehicles 30,000
Purchases and sales 363,670 460,030
Provision for bad debts 810
Debtors and creditors 52,780 58,000
Freehold premises 82,500
Cash 47,630
Insurance 7,110
Returns 3,140 5,110
Discounts 3,420 5,090
Interest on disposal account 5,370
Carriages 1,180
Salesmen salaries and commission 12,280
Wages 16,010
Transport expenses 1,300
General expenses 15,060
Office salaries 25,000
Furniture and fittings 10,000
Tenement rate 2,120
Advertising 14,210
Bank 17,940
754,410 754,410

222
Additional information:
(a) The stock in hand on 31st December, 2016 was N42,180.
(b) Insurance of N1,490 was outstanding.
(c) An employee took a salary in advance of N1,100.
(d) The provision for bad debt should be increased to N2,550.
(e) Depreciation: Motor vehicle N4,500 and furniture and fittings at 10% per annum.

You are required to prepare a set of financial statement for 2016. (WAEC Adjusted)

Exercise 11.13
The following balances were extracted from the books of Tafa Abudu Enterprises on 31st December, 2003.
N
Machinery 20,000
Capital 18,000
Debtors 2,800
Furniture and fittings 2,000
Rent 95
Electricity 60
Provision for bad debts 28
Creditors 7,600
Office equipment 1,205
Stock (1 – 1 – 2003) 700
General expenses 200
Rates 60
Cash in hand 13
Bank overdraft 400
Bank charges 30
Purchases 14,800
Sales 16,200
Carriage inwards 30
Discount received 60
Sundry expenses 80
Salaries 170
Discount allowed 45

Additional Information:
(a) Closing stock N460.
(b) Salaries in arrears N80.
(c) Prepaid expenses: rent N40, Rates N25.
(d) Provision for bad debts to be reduced to N22.
(e) Depreciate furniture and fittings and office equipment by 5% on cost.

You are required to prepare the following:

(i) Trial balance as at 31st December, 2004.
(ii) Trading, profit and loss account for the year ended 31st December, 2004.
(iii) Balance sheet as at 31st December, 2004. (Neco Adjusted)

2006/1 SSCE Exercise 11.14

1(a) Explain the purpose of preparing each of the following:
(i) Trading account.
(ii) Profit and loss account.
(iii) Balance sheet.

1(b) List six items each found in the assets and liability side of the balance sheet of a sole proprietor.

223
1981/1 (Nov) Exercise 11.15
The following trial balance was extracted from the books of Ben Ojo, a sole proprietor as at 31st December, 1987.
Dr Cr
N N
Capital 50,000
Cash at bank 10,820
Leasehold premises 13,000
Plant and equipment 11,000
Furniture and fittings 6,000
Motor van 7,000
Stock (1 – 1 – 1987) 3,700
Wages and salaries 1,800
Debtors and creditors 850 770
6% loan 2,000
Purchases and sales 7,600 10,300
Office expenses 80
Rent 200
Insurance 40
Discount allowed and received 20 40
Drawings 1,000
63,110 63,110

You are given the following additional information:

(a) Stock at 31st December, 1987 was valued N8,000.
(b) The leasehold premises is for a term of 10 years.
(c) Depreciation is to be charged as follows:
1
Plant and equipment 5%, motor van 10%, furniture and fittings 2 2%.
(d) A debt of N10 is irrevocable.
(e) Provide for the interest due on the loan.
(f) N80 was owed for office expenses.

You are required to prepare:

(a) Trading, profit and loss account for the year ended 31st December, 1987.
(b) Balance sheet as at 31st Dec. 1987.

1993/1 Exercise 11.16

The following trial balance had been extracted from the ledgers of Mr. Fred Onakpoya at 31st December, 1990.
Dr Cr
N N
Purchases and sales 142,448 233,120
Returns 5,000 3,000
Discounts 2,412 1,368
Debtors and creditors 38,600 23,280
Furniture and fittings 5,000
Carriage inwards 2,500
Carriage outwards 5,176
5% loan from cooperative society 15,000
Drawings 862
Land and building 40,000
Rent, rates and insurance 11,946
Postage and stationery 2,426
Motor vehicles 20,000
Advertising 3,704
Provision for doubtful debts 500
Salaries and wages 26,152
Bad debts 2,468
Cash in hand 624
Cash at bank 6,108
Stock as at 1st January, 1990 14,308
Equipment at cost 97,400
Accumulate deprecation on equipment 43,300
Capital 107,566
427,134 427,134
224
Additional information:
(a) Stocks at closing N16,442.
(b) Outstanding expenses:
Advertising N354.
Salaries and wages N848.
Interest on loan N750.
(c) Rent, rates and insurance paid in advance N426.
(d) Depreciation: Equipment 10% on cost
Furniture and fittings 5%
Land and building 10%
Motor vehicles 25%
(e) Salaries and wages included N3,600 paid to Mr. Fred Onakpoya.
(f) Records of typewriter bought on credit on 31st December, 1990 for N10,000 have not been made in books.
(g) Mr. Onokpoya decided on 31st December, 1990 to write off a further amount of N2,000 as bad debts.
(h) Mr. Onokpoya’s children consumed goods worth N5,500 during the year.
(i) Provision for doubtful debt at 5%.
(j) Discount allowed 10%.

Prepare:
(i) Trading, profit and loss account for the year ended 31st December, 1990.

225
Chapter Twelve

CONTROL ACCOUNT
MEANING OF CONTROL ACCOUNT
Control is the process of ensuring that a firm’s activities conform to its plans, and that organizational objectives or goals
are achieved. When a trial balance does not agree, this is evidence that errors have been made in the accounting process
or entries.
Control account is an account showing the summary of all transactions that have been debited and credited to the debtors
and creditors account. It is also an account that reflects the total balances of many subsidiary accounts which are part of
the double entry system. A control account is a summary account in the general ledger.

TYPES/FORMS OF CONTROL ACCOUNT

A. Sales ledger (debtor’s ledger) control account
The sales ledger control account is an account which records in total all transactions that have been entered in the
individual debtor’s account. This simply means that any transaction that is entered in the control account is a
summation of all transactions entered into individual debtor’s account. Below is a format of sales ledger control
account.
Dr Sales ledger (debtors) control account Cr
N N
Balance b/d X Balance b/d X
Credit sales X Discount allowed X
Dishonoured cheques X Bad debts X
Interest charged X Bills receivable X
Bills dishonoured X Cheque received X
Discount written back X Cash received X
Cash refund X Returns inwards X
Balance c/d X Purchases ledger contra X
___ Balance c/d X
XX XX

Note: Debit the sales ledger control account with all transactions and items that will increase the debtor’s balance
and with all truncations and items that decrease the debtor’s balance.

Illustration 1:
From the details below you are required to prepare the sales ledger control account of
N
Opening balance on the sales ledger 50,000
Sales day book 900,000
Sales returns 60,000
Discount allowed 5,000
Cash received from debtors 150,000
Cheque received from debtors 50,000
Cheque dishonoured 30,000
Bad debts written off 4,000
Provision for bad debt 30,000
Interest on overdue debt 7,000
Credit note issued 2,000
Debit note issued 24,000
Bill receivable 4,500
Carriage outwards 50,000
Discount allowed disallowed 1,000

226
Solution
Dr Sales Ledger Control Account Cr
N N
Balance b/ 50,000 Sales Returns 60,000
Sales (credit) 900,000 Discount Allowed 5,000
Cheque dishonoured 30,000 Cash received 150,000
Interest 7,000 Cheque received 50,000
Debit note issued 24,000 Bad debts 4,000
Carriage outwards 50,000 Credit note issued 2,000
Disallowed discount 1,000 Bills receivable 4,500
Balance c/d 786,500
1,062,000 1,062,000

Notes:
(i) Opening balance on sales ledger N50,000: Do not forget that debtor is an asset and must have debit balance
hence, it is debited in the sales ledger control account.
(ii) Sales Day Book of N900,000: The Sales Day Book is a source document which contains/shows the value of
goods sold on credit for a particular period of day. The value of goods sold on credit will increase the indebtedness
of the debtor hence increasing the balance at the debit side (i.e. the right hand-side) of the sales ledger control
account.
(iii) Cheque dishonoured: This is to say that part of the cheque previously received have been dishonoured. This will
reduce or decrease the N50,000 credited to the sales ledger control account, hence making N30,000 to be posted
at the debit side of the sales ledger account to increase the indebtedness of the clients again.
(iv) Interest on overdue debt – N7,000: Due to the inability of debtors to pay at the agreed period or time, interest
may imposed on the amount due from him or her. This will definitely increase the amount at the debit side of the
sales ledger control account by N7,000 and this amount will be debited to the account.
(v) Debit note issued N24,000: Debit note is a source document issued by the seller to inform the buyer that his
account have been undercharged and need to be corrected. This will increase the indebtedness of the debtors and
this will be debited to the debit side of the sales ledger control account and will lead to an increase of the balance
at the debit side.
(vi) Carriage outwards N50,000: Carriage outwards is the transportation expenses or cost incurred by the seller when
goods are sold to a customer. This amount N50,000 represent the money spent by the seller in conveying the
goods to buyers destination (shop or warehouse). The amount will be debited to the account to increase his
indebtedness.
(vii) Discount disallowed N1,000: Discounts are rebates (i.e. reductions) given to stimulate demand, it usually reduces
the debit balance at the debit side of the sales ledger control account and will be credited to the credit side of the
sales ledger account. But when discount is disallowed it will then be debited to debtors account in order to cancel
out the one previously posted to the credit side. This simply means that the debtor have been denied the discount
previously allowed.
(viii) Sales returns of N60,000: This is a part of the goods previously sold to a customers which are now returned to
the seller due to one reason or the other. The effect is that the amount of goods returned inwards will reduce the
indebtedness of the debtors which may call for a refund of money to the debtors. Therefore, the debtor account
will be credited with the value of goods returned.
(ix) Discount allowed of N5,000: The discount allowed of N5,000 will reduce the total amount to be paid by the
debtor and as a result of this we credit the debtors account which reduces his indebtedness.
(x) Cash received from debtors of N150,000: The cash collected from trade debtors will be credited to the debtors
account, i.e. the right hand-side of the sales ledger account. The cash received from debtors will reduce the
indebtedness of the debtors, i.e. a reduction at the debit side of the sales ledger control account.
(xi) Cheque received from debtors N50,000: Like cash received from debtors, cheque received from the debtors will
also reduce the balance at the debit side of the debtors account thereby leading to a reduction in the indebtedness
of the debtors. the sales ledger account is credited with the value of cheque received from debtors.
(xii) Bad debts written off of N4,000: This represent the amount of money that is irrevocable from debtors which is
usually written off in the profit and loss account as expenses. The value of irrevocable debt will reduce the amount
the debtor is owing and it will be credited to the right – hand side of the debtors account which is an indication of
reduction on the debit side of the sales ledger control account.
(xiii) Credit note issued N2,000: Credit note is a source document issued by the seller informing the buyer that the
original invoice has been overstated hence the need for correction. Credit note issued indicates a reduction in the
indebtedness of the customer, the customer account will be credited with the value and this will reduce the balance
at the debit side of the sales ledger account.

227
(xiv) Bills receivable of N4,500: Bills receivable will reduce the amount owed by the debtor. It would be credited to
the debtors account thereby reducing the balance at the debit side of the sales ledger control account.
(xv) Balance c/d of N786,500: This is the difference between what the debtor is owing and what the debtor have paid,
i.e. the difference between the debit side and credit side of sales ledger account:
Debit side : N1,062,000
Credit side : 275,500
Balance : 786,500
(xvi) Provision for Bad Debts – N30,000: Provision for bad debt should be excluded from sales ledger control account.

B. Purchases ledger (Creditor) control account

The purchases ledger (creditor’s ledger) control account is an account that records in total all the transactions that
have been recorded in the individual creditor’s account. This also means that any transactions entered in the control
account are a summation of all transactions entered into individual creditor’s account. Below is a format of
purchases ledger control account:
Dr Purchases ledger (creditors) control account Cr
N N
Balance b/d X Balance b/d X
Discount received X Credit purchases X
Bills payable X Dishonoured cheques X
Cheques paid X Interest charged by suppliers X
Cash paid suppliers X Suppliers X
Returns outwards X Bills payable dishonoured X
Sales ledger contra (set – off) X Balance c/d X
Balance c/d X
XX XX

Balance b/d X Balance b/d X

Note: Debit the purchases ledger control account with any transaction or items that will decrease the creditor’s
balance, and credit it with any transaction or items that will increase the creditor’s balance.

Illustration 2:
The following balances relate to the accounts of MELE Enterprises:
N
Opening balance on the purchases ledger 39,000
Purchases journal 276,000
Purchase returns 12,000
Cash paid to suppliers 126,000
Cheque paid to creditors 45,000
Bill payable 3,000
Cash purchases 57,000
Discount received 9,000
Cash refunded suppliers 2,400
Credit note received 3,000
Debit note received 4,500
Discount received 27,000
You are required to prepare Mele Eionterprises. Purchases ledger account.
Solution
Dr Purchases Ledger Control Account Cr
N N
Returns outward 12,000 Opening (Cr.) balance 39,000
Cash paid 126,000 Purchases (credit) 276,000
Cheque paid 45,000 Cash refunded 2,400
Bill payable 3,000 Debit note received 4,500
Discount received 9,000
Credit note received 3,000
Balance c/d 123,900
321,900 321,900

228
Notes:
(i) Opening balance of N39,000: In accounting a creditor is treated as a liability, hence we will credit the
purchases ledger account.
(ii) Purchases journal N276,000: The purchases journal is a book of prime entry or a subsidiary book used for the
recording of goods bought on credit. This amount will increase the amount due to the creditors’ account. This is
credited to the creditors’ account.
(iii) Cash refunded suppliers of N2,400: Since the supplier is overpaid, it is necessary that the supplier refund such
money to the buyer and this will reduce the amount initially debited to the creditors’ account. The amount
refunded will be posted to the credit side of the purchases ledger account.
(iv) Debit note received N4,500: This will increase the indebtedness of the creditor by N4,500, this will be credited
to the creditors account.
(v) Returns outward journal N12,000: Returns outward journal is a book of original entry used for recording the
value of purchases returned to suppliers. The amount of purchases returned will reduce the indebtedness of the
creditors’ by debiting the creditors’ by debiting the creditors’ account.
(vi) Cash paid to suppliers N126,000: The amount of cash paid to suppliers will reduce the indebtedness of the
creditors. This amount will be debited to the debit side of the purchases ledger control account.
(vii) Cheque paid to suppliers N45,000: Cheque paid to suppliers shall be treated in likewise manner by debiting
the creditors’ account by N45,000. This amount will reduce the indebtedness of the creditor on the credit side of
the account.
(viii) Bill payable of N3,000: This will also reduce the indebtedness of the creditors’. The amount will be debited to
the creditors’ account.
(ix) Discount received N9,000: Due to prompt settlement of dues, the creditors’ his/her will be debited with N9,000
been discount enjoyed for prompt payment of accounts. This will reduce the indebtedness of the creditors’.
(x) Credit note received of N3,000: Credit note received will reduce the indebtedness of the creditors’. This
amount is debited to the creditor’s account.
(xi) Cash purchases of N57,000: This transaction or item cannot be accommodated or recorded into the purchases
ledger control account.
(xii) Balance c/d (i.e. closing credit balance N123,000): This amount is the difference between the credit side of the
purchases ledger account and the debit side of the account.
Credit side : N321,900
Debit side : 198,000
Balance c/d : 123,900

CONTRA ENTRY
In control account contra entry is when a suppliers is also a customer, i.e. the organization sells to another business
organization and the same organization buys on credit from same organization. The amount involved will be set off
against one another. For instance, if N20,000 worth of goods was sold on credit to Chinedu Ventures by Tony and Co.
and at the same time, Tony & Co. also purchased goods worth N40,000 from Chinedu Ventures, Chinedu Ventures is
both a customer and a supplier and this is called contra. To effect this in a Control account, the smaller amount will be
set off against the other with N20,000 on the total debtors’ Control account or total creditors control account. Sales
ledger control account will be credited with N20,000 while purchases ledger will be debited for receiving value from
total debtors’ control account.

FUNCTIONS/USES OF CONTROL ACCOUNT

Control account can be used for the following:
(i) Localization of errors. (ii) It provides a check on the accuracy of balances of the ledgers.
(i) Detection of fraud. (iv) The balances of the total debtors and creditors can easily be calculated.
(v) They can be used to detect missing figures. (vi) It saves time.
(vii) They allow homogenous accounts to be grouped together.

Difference between control account and trial balance

Control account is a summary of all balances relating to debtors and creditors while trial balance is a list of all balances
appearing in all eh books of accounts. Control account is an account while a trial balance is not an account but a list of
all balances. Although, control account and trial balance are similar in the sense that both list the summary of the account
that must have been debited and credited to the ledger account.

229
Sources of information for preparation of control account
Sales ledger control Account
Transaction Source of information
Dr Total credit sales Sales Day Book
Dishonoured cheques Cashbook
Interest charged to customers Journal
Bills receivable dishonoured Journal
Cr Cheques & cash received Cash book
Discount allowed Cash book (3 – column)
Bad debt Journal
Bills receivable Journal
Returns inward Returns inward journal
Purchases ledger contra (set – off) Journal
Discount written back Journal

Purchase ledger (creditors) control account

Transaction Source of information
Dr Cheques and cash paid to suppliers Cash book
Discount received Cashbook (3 – column)
Bills payable accepted Journal
Returns outwards Returns outward journal
Sales ledger contras (set – off) Journal
Cr Total credit purchases Purchases Day Book
Dishonoured cheque Cash book
Interest charged by suppliers Journal
Bills payable dishonoured Journal

Illustration 3:
From the following details, show how the purchases ledger control account and sales ledger control account will
appear.
N
Dr. balances: sales ledger 13,500
Dr. balances: purchases ledger 415
Cr. Balances: sales ledger 300
Cr. Balances: purchases ledger 12,000
Credit purchases 17,500
Credit sales 20,000
Sales returns 360
Purchases returns 200
Cash received from debtors 7,500
Cheques received from creditors 15,000
Discount received from creditors 120
Payment made to creditors 16,400
Discounts allowed to debtors 360
Bad debts written – off 50
Provision for doubtful debts 200
Bills receivable 4,300
Bills payable 6,600
Sales ledger credit balances transferred to purchases ledger 80
Cash purchases 3,000
Dishonoured: Bills payable 130
Bills receivable 150
Cr. Balances in the sales ledger 195
Dr. Balances in the purchases ledger 180
ICAN (Adapted)

230
Solution
Dr Sales Ledger Control Account Cr
N N
Opening (Dr.) Balance 13,500 Opening (Cr.) balance 300
Sales (credit) 20,000 Sales returns 360
Transfer (purchases) 80 Cash received 7,500
Bills receivable dishonoured 150 Cheques received 15,000
Balance c/d 195 Discount allowed 360
Bad debts 50
Bills receivable 4,300
Balance c/d 6,055
33,925 33,925

Dr Purchases Ledger Control Account Cr

N N
Opening (Dr.) Balance 415 Opening (Cr.) balance 12,000
Purchases returns 200 Purchases (credit) 17,500
Discount received 120 Transfer (sales) 80
Payments made 16,400 Bills payable dishonoured 130
Bills payable 6,600 Balance c/d 180
Balance c/d 6,155 Bad debts 50
29,890 29,890

Note: Provisions for doubtful debts and cash purchases cannot be accommodated by total control account hence, their
omission.
Illustration 4:
From the following information, extract the Total Debtors Account for the month June, 2017

N
Debit balance in sales ledger on 1st June 34,500
Credit balance in sales ledger on 1st June 250
Sales during the month 95,000
Cash received from debtors 77,500
Discount allowed to debtors 3,500
Bad debts written off 1,000
Returns inwards 2,500
Debit balances transferred to P.L. 500
Sales ledger balance at 30th June (credit) 300
Solution
Dr Total Debtors Control Account Cr
N N
Balance b/ 34,500 Balance b/d 250
Sales 95,000 Cash received 77,500
Balance c/d 300 Bad debts 1,000
Return inward 2,500
Set – off 500
Balance c/d 48,050
129,800 129,800
Balance b/d 48,050 Balance b/d 300

2019/14 NABTEB (Nov)

In a sales ledger control account, bad debt written off should
A. be shown on the credit side B. be shown on the debit side C. be shown on both side
D. not be shown at all
Answer: Be shown on the credit side (A)
231
2022/1 (Theory)
(a) Identify three books of account from which entries are made into control accounts.
(b) State two uses of control accounts.
(c) List four items each which would be recorded on the debit side of:
(i) Purchases Ledger Control Account;
(ii) Sales Ledger Control Account.
Solution
(a) (i) Cash book
(ii) Petty cash book;
(iii) Sales day book;
(iv) Purchases day book;
(v) Bills payable book;
(vi) Returns inward book and returns outward book;
(vii) General journal.
(b) (i) To ascertain total credit sale.
(ii) To ascertain total cost purchases.
(iii) To locate errors.
(iv) Show the arithmetical accuracy of ledgers.
(v) To detect missing figures.
(vi) To enhance and boost internal control.
(vii) To ascertain total creditors balance.
(viii) To ascertain total debtors balance.

(c) (i) Cheque paid to suppliers.

(ii) Bills payable.
(iii) Discount received.
(iv) Credit notes received.
(v) Returns outwards.
(vi) Credit transfer to suppliers.
(vii) Closing credit balance.

Note: All these items on the debit side of the purchases ledger control account are items that will reduce what the firm
(i.e. the creditor) is owing the suppliers.

(i) Items found or recorded on the debit side of sales ledger account.
(i) Opening debit balance.
(ii) Credit sales.
(iii) Dishonoured cheques.
(iv) Discount disallowed.
(v) Bad debts recovered.
(vi) Bills receivable dishonoured.
(vii) Debit notes issued.
(viii) Refunds to customers.
(ix) Interest charged on overdue account.
(x) Closing credit balance.

Note: All these items on the debit side of the sales ledger control account are items that will increase the debtors balance.

232
2011/7 (Theory)
The following balances were extracted from the books of Haruna Enterprises for the month of February, 2008:
Balances – 1st February, 2008s D
Sales ledger 320 Dr
165 Cr
Purchases ledger 275 Cr
150 Dr
Transactions during February, 2008:
Cheques received from debtors 1,850
Discounts allowed 75
Credit purchases 3,400
Credit sales 5,200
Discounts received 128
Cash paid to suppliers 1,400
Cheques paid to creditors 1,156
Cheques from credit customers dishonoured 250
Bills receivable 690
Bills payable 480
Returns outwards 115
Interest charged on outstanding debtors balance 120
Bad debts 360
Cash from credit customers 2,200
Refunds to customers for overpayments 100
Debit balances in respect of some suppliers set off 400
against their balances in the sales ledger
Balances on 28th February, 2008:
Purchases ledger 142 Dr
Sales ledger 167 Cr

You are required to prepare:

(a) Sales Ledger Control Account;
(b) Purchases Ledger Control Account.
Solution
(a)
HARUNA ENTERPRISES
Dr Sales Ledger Control Account Cr
N N
Opening (Dr) Balance 320 Opening (Cr.) balance 185
Sales 5,200 Cheques received 1,850
Interest 120 Bad debts 360
Dishonoured cheques 250 Bills receivable 690
Set – off 400 Cash received 2,200
Refunds to customers 100 Discount allowed 75
Closing (Cr.) balance 167 Closing (Dr.) balance 1,217
6,557 6,557
Balance b/d 1,217 Balance b/d 167

Note:
Dr. side total Credit side total

Closing (Dr) Balance : N6,557 – 5,340 = N1,217

233
(b)
HARUNA ENTERPRISES
Dr Purchases Ledger Control Account Cr
N N
Opening (Dr) Balance 150 Opening (Cr.) balance 275
Cash paid 1,400 Purchases 3,400
Cheque paid 1,156 Set-off 400
Discount received 128 Closing (Dr.) Balance 142
Bills payable 480
Returns outwards 115
Closing (Cr.) balance 788
4,217 4,217
Balance b/d 142 Balance b/d 788

Note:
Dr. side total Credit side total

Closing (Dr) Balance : D64,217 – 3,429 = D788

2011/1 Neco (Theory)

(a) Mention 5 advantages of control accounts.
(b) List and explain the 2 types of control accounts.
Answer
(a) Advantages of control accounts:
(i) They help to check fraud.
(ii) They are used to check the accuracy of the ledger balances.
(iii) They save time.
(iv) They help to detect missing figures.
(v) They help in identifying errors.
(vi) They help in ascertaining the total of credit sales and purchases.
(b) (i) Sales Ledger control account: The sales ledger control account also known as total debtor control account is an
account which record total transactions that have been entered in the debtors account.
(ii) Purchases ledger control account: The purchases ledger control account also called total creditor control account
is an account which records total transactions that have been entered in the creditor’s account.

2011/9 Neco (Theory)

The following balances were extracted from the books of Owoicho, Ene, a sole trader
N
Opening balances
Sales ledger (Dr) 44,400
Sales Ledger (Cr) 260
Purchases Ledger (Dr) 300
Purchases ledger (Cr) 36,000

Closing balances 31/12/09

Purchases 184,700
Sales 221,600
Cash from debtors 200,644
Cash paid to suppliers 172,400
Returns inwards 2,500
Returns outwards 4,260
Discount received 3,000
Discount allowed 2,400
Bad debt 400
Credit balance in creditors ledger transferred to debtors ledger 20
Interest charged on account 1,920
Debit balance on debtors ledger 270
Credit balance on creditors ledger 120
You are required to prepare:
(a) Sales Ledger Control Account.
(b) Purchases Ledger Control Account.

234
Solution
OWOICHO ENE
Dr Sales Ledger Control Account Cr
N N
Balance b/f 44,400 Balance b/f 260
Sales 221,600 Cash received 200,644
Interest charged 1,920 Returns inward 2,500
Balance c/d 270 Discount allowed 2,400
Bad debt 400
Set – off 20
Balance c/d 61,966
268,190 268,190
Balance b/d 61,966 Balance b/d 61,966

OWOICHO ENE
Dr Purchases Ledger Control Account Cr
N N
Balance b/f 300 Balance b/f 36,000
Cash paid 172,700 Purchases 184,700
Returns outwards 4,260 Balance c/d 120
Discount received 3,000
Set – off 20
Balance c/d 40,540
220,820 220,820
Balance b/d 120 Balance b/d 40,540

2000/9 Neco (Theory)

The following balances were extracted from the books of Ajasin & Company on 31st December, 1999.
N
Debit balance (1/12/99) 350,000
Credit balance (1/12/99) 2,000
Credit sales for the month 600,000
Cash received from customers 400,000
Discount allowed 19,000
Returns inwards 20,000
Dishonoured cheque 50,000
Bills receivable from customers 100,000
Bad debts written off 15,000
Bills receivable (dishonoured) 20,000
Credit balance (31/12/99) 3,000

You are required to prepare sales (debtors) control account from the above data.
Solution:
AJASIN & COMPANY
Dr Sales Ledger Control Account Cr
N N
Opening (Dr.) Balance 350,000 Opening (Cr.) Balance 2,000
Sales (credit) 600,000 Cash received 400,000
Dishonoured cheques 50,000 Discount allowed 19,000
Bills dishonoured 20,000 Returns inwards 20,000
Closing (Cr.) balance 3000 Bills receivable 100,000
Bad debts 15,000
Closing (Dr.) balance 467,000
1,023,000 1,023,000
Balance b/d 467,000 Balance b/d 3,000
235
2009/36 – 39 Neco
Use the following information to answer questions 36 – 39

Dr Sales Ledger Control Account Cr

N N
Balance b/f XXX Bad debts 3,000
Sales 50,000 Sales returns 846
Acceptance Cash received XXX
Dishonoured 1,064 Balance c/d 23,640
76,253 76,253

2009/36
What is the total debtors at the end of the year?
A. N76,253 B. N50,000 C. N23,640 D. N20,000 E. N3,000
Answer: N23,640 – Closing (Dr.) balance (balance c/d). (C)
2009/37
What is the net sales for the yea
A. N51,664 B. N50,000 C. N49,154 D. N23,640
Answer: N49,150 (C)
Net-sales = Sales – Sales Returns
= 50,000 – N846 = N49,154
2009/38
What is the total cash received from the customers?
A. N48,767 B. N40,463 C. N36,402 D. N23,640 E. N23,214
Answer: N48,767 – N76,253 – (3,000 + 846 + 23,640)
= 76,253 – N27,486 = N48,767
2009/7 Neco (Theory)
The following balances were extracted from the books of JAMNEC enteprises on 30th November, 2003.
N
Purchases ledger (Cr) 1/1/2003 37,660
Sales ledger (Dr) 1/1/2003 39,740
Purchases day book 452,270
Sales day book 387,650
Returns outwards day book 19,800
Returns inwards day book 70,900
Cheques received from the customers 283,400
Cheques paid to suppliers 309,300
Cash refunds from a supplier who was overpaid 1,200
Discounts allowed 18,870
Discounts received 13,390
Credit notes received 1,400
Debit notes issued 2,650

You are required to prepare:

(i) Debtors Control Account;
(ii) Creditors Control Account.
Solution
(i)
JAMNEC ENTERPRISES
Dr Debtors Control Account Cr
N N
Balance b/f 39,740 Returns inwards 70,900
Sales (credit) 387,650 Cheque received 283,400
Debit notes issued 2,650 Discount allowed 18,870
Balance c/d 50,870
430,000 430,000
Balance b/d 56,870

236
(ii)
JAMNEC ENTERPRISES
Dr Creditors Control Account Cr
N N
Returns outwards 19,800 Balance b/f 37,660
Cheques paid 309,300 Purchases (credit) 452,270
Discount received 13,390 Cash refunds
Credit notes received 1,400
Balance c/d 147,240
491,130 491,130
Balance b/d 147,240

2022/18 to 20 Neco
Use the following information to answer questions 18 to 20.
Dr Sales Ledger Control Account Cr
N N
Balance b/f 15,100 Returns inwards 12,000
Sales 260,000 Bank 230,000
Bad debts 16,500
Balance c/d 16,600
275,100 275,100

2022/18
Total debtors at the beginning of the period is
A. N275,0000 B. N260,000 C. N230,000 D. N16,600 E. N15,100
Answer: N15,100 (E) – Balance b/f

2022/19
The net turnover for the period amount to
A. N260,000 B. N248,000 C. N243,000 D. N231,000 E. N230,000
Answer: Sales – Returns inwards
N260,000 – N12,000 = N248,000 (B)

2022/20
The net debtors at the end of period is
A. N275,000 B. N230,000 C. N16,600 D. N16,500 E. N100
Answer: N275,100 – N(12,000 + 230,000 + 16,500)
= N275,100 – N258,500 = N16,600 (C)

1995/6 (Nov)
Which of the following is not in creditors control account?
A. provision for bad debts B. credit purchases C. cash D. bank
E. returns outwards
Answer: Provision for bad debts (A)

1995/19 (Nov)
Which of the following is not in debtors control account?
A. credit sales B. cash C. returns inwards D. bank E. cash sales
Answer: Cash sales (E)

237
1997/6 (Nov) Theory
The following information were extracted from the books of Ade and Buba Enterprises for the year ended 31st
December, 1994.
N
Debtors control account balance 1 – 1 – 94 23,230
Creditors control account balance 1 – 1 94 18,180
Sales 93,290
Purchases 78,470
Discount allowed 547
Discount received 735
Sales returns 1,955
Debit notes received 284
Credit notes issued 345
Bad debts written off 183
Payments to suppliers 83,000
Cheques received from debtors 85,700
Customer’s cheque dishonoured 350

You are required to prepare:

(a) Total Debtors account and
(b) Total creditors account as at 31st December, 1994.
Solution
(a)
ADE AND BUBA ENTERPRISES
Dr Total Debtors Control Account Cr
N N
Balance b/f 23,230 Sales returns 1,955
Sales 93,290 Discount allowed 547
Dishonoured cheque 350 Credit notes issued 345
Bad debts 183
Cheques received 85,700
Balance c/d 28,140
116,870 116,870
Balance b/d 28,140

(b)
Dr Total Creditors Control Account Cr
N N
Discount received 735 Balance b/f 18,180
Payments to suppliers 83,000 Purchases 78,470
Balance c/d 13,199 Debit note received 284
96,934 96,934
Balance b/d 13,199
2006/5 (Theory)
The following balances were extracted from the books of Temidayo Enterprises for the year ended 31st March, 2005:
N
Sales Ledger balances 1/4/04 33,445
Purchases ledger balances 1/4/04 19,936
Credit sales 39,630
Credit purchases 48,416
Cash paid to suppliers 27,500
Cheques from debtors 41,241
Bad debt recovered 765
Interest charged on customers overdue accounts 240
Returns inwards 860
Returns outwards 410
Discounts allowed 1,310
Discounts received 980
Sales Ledger balances set – off against Purchases Ledger 3,700

238
You are required to prepare:
(a) Sales Ledger Control Account;
(b) Purchases Ledger Control Account.
Solution
(a)
TEMIDAYO ENTERPRISES
Dr Total Creditors Control Account Cr
N N
Balance b/ 33,445 Cheques received 41,241
Sales (credit) 59,630 Returns inwards 860
Bad debt recovered 765 Discount allowed 1,310
Interest charged 240 Set – off 3,700
Balance c/d 46,969
94,080 94,080
Balance b/d 46,969

(b)
TEMIDAYO ENTERPRISES
Dr Purchases Ledger Control Account Cr
N N
Cash paid 27,500 Balance b/f 19,936
Returns outwards 410 Purchases (credit) 48,416
Discount received 980
Set-off 3,700
Balance c/d 35,762
68,352 68,352
Balance b/d 35,762

2003/20
A control account is
A. an imprest system B. a statement of affair C. a bank reconciliation statement
D. a self-balance ledger system
Answer: A self-balancing ledger system (D)

2003/24
Which of the following is found on the credit side of a sales ledger control account?
A. credit sales B. debtors cheques dishonoured C. interest on overdue account D. bad debts written off
Answer: Bad debts written off (D)

2008/56 Neco
One of the advantages of control account is that it shows at a glance the total value of
A. cash and bank balance B. current liabilities C. debtors and creditors D. fixed assets
E. stock in trade
Answer: Debtors and creditors (C)

2000/20-23 (Nov)
Use the following information to answer questions 20 to 23
Debtors Control Account
N N
Balance b/d 2,400 Bank Y
X 3,600 Discount 60
Creditors Control 1,200
Balance c/d 840

20. How much is Y?

A. N6,000 B. N3,900 C. N2,400 D. N2,100
Answer: Y = N6,000 – (840 + 1,200 + 60) = N3,900 (B)
239
21. X represents
A. purchases B. sales C. returns inwards D. returns outward
Answer: Sales (B)

22. The effect of the N1,200 in the account is to

A. reduce liability to creditors B. increase liability to creditors
C. increase the amount of debtors D. reduce profit from sales
Answer: Reduce liability to creditors (A)

23. A balance of N840 in the above account represents a

A. bad debt B. provision for bad debt C. current assets D. current liability
Answer: Current assets (C)
2009/44
Which of the following is a self – balancing account?
A. trading account B. appropriation account C. assets account D. control account
Answer: Control account (D)

2012/33
The sales ledger control account is also referred to as
A. bought ledger control account B. purchases account C. total debtors account D. total creditors account
Answer: Total debtors account (C)
2018/13 NABTEB (Nov)
The balance of the sales ledger control account represents
A. total sales B. total credit sales C. total creditors D. total debtors
Answer: Total debtors (D)

1995/21 UME
Sales ledger control account contains the total amount in respect of
A. creditors B. debtors C. investors D. shareholders
Answer: Debtors (B)

2001/19 – 20 UME
Use the following information to answer questions 19and 20
N
Purchases ledger – opening balance 4,000
Sales ledger – opening balance 6,000
Credit purchases during the year 25,000
Discount allowed 1,000
Returns inwards 2,000
Credit sales during the year 10,000
Returns outwards 6,000

19. Calculate the sales ledger balance

A. N3,000 B. N6,000 C. N10,000 D. N13,000
Working:
Dr. Sales Ledger Cr
N N
Opening balance 6,000 Returns inwards 2,000
Credit sales 10,000 Discount allowed 1,000
Balance c/d 13,000
16,000 16,000

N6,000 + 10,000) – [2,000 + 1,000] = 16,000 – 3,000 = N13,000 (D)

20. What is the purchases ledger balance?

A. N4,000 B. N23,000 C. N24,000 D. N29,000

240
Working:
Dr. Purchase Ledger Cr
N N
Returns 6,000 Opening balance 4,000
Balance 23,000 Credit purchases 25,000
29,000 29,000

Answer: N23,000 (B) N4,000 + 25,000 – N6,000 = N29,000 – 6,000 = N23,000

2012/3
(a) State 3 uses of control account. (b) List 5 items that are debited in the sales ledger control account.
(c) List 4 subsidiary books from which sales ledger control account is compiled.
Solution
(a) i. It is used for location of errors. (c) i. Sales day book
ii. Used to detect fraud. ii. Cash book.
iii. Determination of credit sales & purchases. iii. Journal book.
(b) i. Credit sales. iv. Returns inward day book.
ii. Dishonoured cheque.
iii. Cash refund.
iv. Bills dishonoured.
v. Discount written back.

2003/5 (Nov)
Delta Company maintains self–balancing ledgers. The following information were extracted from the books for the
period January to March, 2001.
N
Opening balances:
Debit balance on Sales Ledger 7,700
Credit balance on Sales Ledger 100
Debit balance on Purchases Ledger 97
Credit balance on Purchase Ledger 5,300
Credit sales 25,000
Credit purchases 15,000
Discount allowed 125
Discount received 100
Cheque from debtors 18,000
Cash paid to creditors 4,500
Cheques paid to creditors 10,800
Cash received from debtors 9,000
Bad debts written off 102
Debtors cheque dishonoured 2,000
Returns outwards 500
Return inwards 1,000
Set off 120
Closing balances:
Credit balances on Sales Ledger 131
Debit balances on Purchases Ledger 103

You are required to prepare: (a) Sales ledger control account; and (b) Purchases ledger control account.
Solution
(a) DELTA COMPANY
Dr Sales ledger (debtors) Control Account Cr
N N
Opening debit balance 7,700 Opening credit balance 100
Credit sales 25,000 Discount allowed 125
Dishonoured cheque 2,000 Cheque from debtors 18,000
Balance c/d 131 Cash from debtors 9,000
Bad debts 102
Returns inwards 1,000
Set – off 120
Balance c/d 6,384
34,831 34,831
Balance b/d 6,384

241
(b)
DELTA COMPANY
Dr Purchase ledger (creditors) control account Cr
N N
Opening debit balance 97 Opening credit balance 5,300
Discount received 100 Credit purchases 15,000
Cash paid to Customers 4,500 Balance b/d 103
Cheques paid to Customers 10,800
Returns outwards 500
Set – off 120
Balance c/d 4,286
20,403 20,403
Balance b/d 4,286

2019/5 Neco
The following balances were extracted from the books of Kume Ltd.
N
January 2015 sales ledger balance 24,000
January 2015 purchases ledger balance 40,000
Totals for the year 2015:
Purchases journal 400,000
Sales journal 1,000,000
Cheques and cash from customers 580,000
Cheques paid to suppliers 300,000
Returns outwards journal 6,000
Returns inwards journal 10,000
Discount allowed 11,000
Discount received 400
Bad debts written off 300
Customers cheque dishonoured 120
Balance on sales ledger set off against balance in purchases ledger 2,000
Petty cash to suppliers 4,000
Bill receivable 320
Bill payable 630
Discount allowed now disallowed 60
Services charges added to unpaid account 208
Credit notes issued to customers 9,860
Balances at close: Dr. Cr.
N N
Purchases ledger 6,000 132,970
Sales ledger 510,908 100,000
You are required to prepare: (a) Total debtors control account. (b) Total creditors control account.
Solution
(a) KUME LIMITED
Dr Total Debtors Control Account Cr
N N
Opening debit balance 24,000 Cheques and cash from customers 580,000
Sales journal 1,000,000 Returns inward 10,000
Discount disallowed 60 Discount allowed 11,000
Dishonoured 120 Bad debt 300
Services charges 208 Set – off 2,000
Balance c/d 100,000 Bills receivable 320
Credit note issued 9,860
Balance c/d 510,908

1,124,388 1,124,388

242
(b)
KUME LIMITED
Dr Total Creditors Control Account Cr
N N
Cheques paid 300,000 Opening balance 40,000
Returns outwards 6,000 Purchases journal 400,000
Discount received 400 Balance c/d 6,000
Set – off 2,000
Petty cash to Suppliers 4,000
Bills payable 630
Balance c/d 132,970
446,000 446,000

2004/5 (Nov)
The following information was extracted from the ledgers of Sakay Limited for the month of August, 2002.
N
1/8/2002 Debit balance in the sales 10,005
Debit balance in the bought ledger 195
31/12/2002 Sales of goods 25,000
Returns inwards 2,000
Bad debts written-off 300
Discounts allowed 275
Purchases 16,950
Cash received 12,475
Cash paid 8,100
Returns outwards 500
Customers cheque dishonoured 1,000
Discounts received 550
Interest charged to customers on account 50

You are required to prepare for the month of August, 2002: (a) Sales Ledger Control Account;
(b) Purchases Ledger Control Account.

Solution
(a) SAKAY LIMITED
Dr Sales Ledger Control Account Cr
N N
Opening balance 10,005 Returns inwards 2,000
Sales 25,000 Bad debts 300
Dishonoured cheque 1,000 Discount allowed 275
Interest charged to customers account 50 Cash received 12,475
Balance c/d 21,005
36,055 36,005

Balance b/d 21,005

(b) SAKAY LIMITED

Dr Purchases Ledger Control Account Cr
N N
Cash paid 8,100 Opening balance 195
Returns outwards 500 Purchases 16,950
Discount received 550
Balance c/d 7995
17,145 17,145
Balance b/d 7,995

243
2021/4 Neco
(a) What is control account? (b) State two types of control account. (c) Outline four advantages of control account.
Solution
(a) Control account is an account showing the summary of all transactions that have been debited and credited to the
debtors and creditors account.
(b) (i) Total debtors control/sales ledger control account. (ii) Total creditors control /purchases ledger control account.
(c) (i) It helps in location of errors. (ii) It assists in detection of fraud. (iii) It saves time.
(iv) It helps to detect missing figures.

2019/5
The following transactions were extracted from the books of Adamu, a sole trader for the month of March 2016.
March 4: Sold 80 bags of maize on credit to Papuk at GH¢255 per bag subject to trade discount of 5%
March 10: Sold goods on credit to Abass for GH¢1,170.
March 15: Received a cheque from Papuk for the amount due less a discount of 10%.
March 20: Received cash of GH¢900 from Abass
You are required to prepare:
(a) Sales journal. (b) Customer’s account in the sales ledger. (c) Sales ledger control
account
Solution
(a) ADAMU JOURNAL
Date Particulars Details Total
2016 March GH¢ GH¢
4 Sold to: Papuk
80 bags of maize @ GH¢255/bag 20,400
Deduct: 5% trade discount (1,020) 19,380
10 Sold to: Abass
Goods on credit 1,170
31 Transferred to sales account (Dr.) 20,550

(b)
Dr Sales Ledger Account Cr
2016 March GH¢ GH¢
4 Sales 19,380 15 Bank 17,442
Discount allowed 1,938
19,380 19,380
10
Note: Discount allowed = ×19,380 = 1,938.
100

Dr Abass Account Cr
2016 March GH¢ GH¢
10 Sales 1,170 20 Cash 900
31 Balance c/d 270
1,170 1,170
April
1 Balance b/d 270

(c)
Dr Sales Ledger Control Account Cr
2016 March GH¢ 2016 March GH¢
31 Sales 20,550 31 Bank 17,442
Cash 900
Discount allowed 1,938
Balance c/d 270
20,550 20,550
April
1 Balance b/d 270

244
1997/8
The following balances and transactions relate to the sales ledger and purchases ledger of Varo Enterprises for the year
ended 31st December, 2009.
Le
Balance on 1st January, 2009:
Sales ledger 1,200
Purchase ledger 720
Transactions during the year:
Cash paid to suppliers 250
Cheques from customers 9,200
Cheques to suppliers 4,200
Returns outward 220
Returns inwards 240
Purchases journal 9,600
Sales journal 8,200
Interest charged to overdue debts 140
Interest payable on overdue suppliers’ account. 100
Bad debts. 800
Customer’s cheque dishonoured. 1,400
Carriage outwards refundable by customers. 110
Cheque to a supplier dishonoured. 1,200
Credit balances in bought ledger transferred to sales ledger 400
Balance on 31st December, 2009:
Sales ledger 400 (Cr)
Purchases ledger 440 (Dr)

You are required to prepare:

(a) Total Debtors Account;

(b) Total Creditors Account.

Solution
(a)
YARO ENTERPRISES:
Dr Total Debtors Control Account Cr
Le Le
Opening balance 1,200 Cheques from customers 9,200
Sales journal 8,200 Returns inwarrds 240
Interest charged 140 Bad debts 800
Dishonoured cheque 1,400 Transfer 400
Balance c/d 400 Closing balance 700
11,340 11,340
Balance b/d 700

(b)

YARO ENTERPRISES:
Dr Total Creditors Control Account Cr
Le Le
Cash paid to suppliers 250 Opening balance 720
Cheques to suppliers 4,200 Purchases journal 9,600
Returns outwards 220 Interest payable 100
Transfer 400 Dishonoured cheque 1,200
Closing balance 7,100 Carriage outward refund 110
Balance c/d 440
12,170 12,170
Balance b/d 7,100

245
2013/6
The following information was extracted from the books of Ade and Babs enterprises for the year ended 31st December,
1994.
N
Debtors Control Account balance 1/1/94 23,230
Creditors Control Account balance 1/1/94 18,180
Sales 93,290
Purchases 78,470
Sales returns 1,955
Discount allowed 547
Discount received 735
Debit notes received 284
Credit notes issued 345
Bad debts written off 183
Payment to suppliers 83,000
Cheques received from debtors 85,700
Customer’s cheque dishonoured 350

You are required to prepare:

(a) Total Debtors Account and
(b) Total Creditors Account as at 31st December, 1994.
Solution
(a)
ADE AND BABS ENTERPRISES
Dr Total Debtors Control Account as at 31st December, 1994 Cr
N N
Opening debit balance 23,230 Sales returns 1,955
Sales 93,290 Discount allowed 547
Dishonoured cheque 350 Credit notes issued 345
Bad debts 183
Cheques received 85,700
Balance c/d 28,140
116,870 116,870

(b)
ADE AND BABS ENTERPRISES
Dr Total Creditors Control Account as at 31st December, 1994 Cr
N N
Discount received 735 Opening credit balance 18,180
Debit notes received 284 Purchases 78,470
Payments to suppliers 83,000
balance c/d 12,631
96,650 96,650
Balance b/d 12,631

2021/6
The following balances were extracted from the books of Adeyemi Enterprises for 2019.
N
Purchases ledger balance 73,350
Sales ledger balance 52,210
Discounts received 3,760
Discounts allowed 7,220
Credit note received 3,420
Sales journal 601,110
Purchases journal 451,230
Returns outward journal 1,450
Returns inward journal 1,880
Cheques received from customers 500,000
Cash refunds from suppliers overpaid 1,170
Cheque paid to supplier 301,270
Debit note issued 3,700
Contra settlement 7,000
Credit note issued 3,000
Debit note received 650
246
You are required to prepare:
(a) Total Debtors Control Account;
(b) Total Creditors Control Account.
Solution
(a)
ADEYEMI ENTERPRISES
Dr Total Debtors Control Account Cr
N N
Opening balance 52,210 Discount allowed 7,220
Sales journal 601,110 Returns inward 1,880
Debit note issued 3,700 Cheques received 500,000
Contra settlement 7,000
Credit note issued 3,000
Balance c/d 137,920
657,020 657,020
Balance b/d 137,920
(b)
ADEYEMI ENTERPRISES
Dr Total Creditors Control Account Cr
N N
Discount received 3,760 Opening balance 73,350
Credit note received 3,420 Purchases journal 451,230
Returns outward 1,450 Debit note received 650
Cheque paid 301,720
Contra settlement 7,000
Cash refund 1,170
Balance c/d 206,710
525,230 525,230
Balance b/d 206,710
2021/36 – 37
Use the following information to answer questions 36 and 37
N
Creditors (01 – 01 – 2019) 223,000
Creditors (31 – 01 – 2019) 316,000
Credit purchases 1,426,000
Discount received 64,000
Company’s cheque dishonoured 90,000

2021/36
Payment to creditors is
A. N1,423,000 B. N1,359,000 C. N1,333,000 D. N1,295,000 Answer (N1,359,000) (B)

2021/37
Amount owed to creditors on 31–12–19 is
A. N456,000 B. N342,000 C. N316,000 D. N226,000
Answer: (N316,000)

Workings:
Dr Total Creditors Control Account Cr
N N
Discount received 64,000 Opening balance 223,000
Balance c/d 316,000 Credit purchases 1,426,000
Closing balance 1,359,000 Dishonoured cheque 90,000
1,739,000 1,739,000

247
2012/23 Neco Exercise 12.1
Control account is prepared in the ____ ledger.
A. general B. nominal C. private D. purchases

2012/24-25 Neco Exercise 12.2

Use the following information to answer questions 24 and 25
Dr Purchases Ledger Control Account Cr
N N
Purchase returns 1,600 Balance b/f 5,100
Bills payable 4,600 Purchases 10,600
Bank 6,200 Cheque dishonoured 400
Discount allowed 300
Balance c/f X
16,100 16,100

24. Creditors at the end of the year amounted to:

A. N10,600 B. N9,100 C. N5,100 D. N4,600 E. N3,400
25. Net credit purchases for the year amounted to
A. N16,100 B. N15,800 C. N9,000 D. N6,200 E. N4,600

2005/15 Neco Exercise 12.3

Control amount is used to
A. account for the control of entries B. check the accuracy of entries C. check the availability of goods
D. check the frequency of customers E. control the recording of entries
2019/40 Exercise 12.4
Debtors balance (01/01/16) – Le 2,518; Cash received – Le10,000; Discount allowed – Le280;
Interest charged to debtors – Le63; Debtors balance (30/06/16) – Le1,450
The credit sales is
A. Le11,730 B. Le9,149 C. Le2,581 D. Le2,518

2006/6 Exercise 12.5

A sales ledger contains
A. creditor’s accounts B. nominal accounts C. real account D. debtor’s accounts

2005/23 Exercise 12.6

Control accounts are also called
A. total accounts B. miscellaneous accounts C. nominal accounts D. intermediate accounts
1999/19 UME Exercise 12.7
The principal function of a sales ledger control account is to
A. serve as internal check and provide quick information for the preparation of interim financial statement
B. serve as external check and provide quick information for the preparation of interim financial statement
C. provide quick information for the preparation of customers statement
D. provide information for the control of salesmen’s activities

2005/22 Exercise 12.8 UME

Given:
N
Purchases ledger balance 4,000
Purchases for the period 50,000
Cash refunded by suppliers 290
Cheques paid to suppliers 42,300
Returns outwards 2,000
Discount received from suppliers 400
The balance of the purchases ledger control account is
A. N10,390 B. N9,990 C. N9,590 D. N9,010

248
2005/23 UME Exercise 12.9
Which of the following items is found on the credit side of the sales ledger control account?
A. discount received B. dishonoured cheques C. credit sales D. bills receivable
2009/24 UME Exercise 12.10
Which of the following is a debit item in the purchases ledger control account?
A. balance b/d B. cheques dishonoured C. purchases D. balance c/d
2001/7 Exercise 12.11
Inter – Regional Trading Company operates self – balancing ledgers. Extracts for the year ended 31st January, 2000
show the following:
N
Sales ledger balances – 1/2/99 Dr. 2,450
Cr. 390
Purchases ledger balances – 1-2-99 Dr. 217
Cr. 1,847
Credit purchase 15,800
Cash sales 20,000
Credit sales 37,600
Bad debts 188
Provision for doubtful debts 245
Discount received 683
Discount allowed 168
Returns inward 207
Returns outward 175
Cheques from debtors 22,150
Cash from debtors 14,000
Cheques drawn for creditors 15,500
Sales ledger balances – 31/1/2000 Cr. 470
Purchases ledger balances – 31/1/2000 Dr. 240
You are required to prepare: (a) Sales Ledger Control Account; (b) Purchases Ledger Control Account.
2005/4 Nov Exercise 12.12
(a) What is a control account?
(b) State 2 advantages of control accounts.
(c) State the sources of information for the following control account items:
i. Credit sales; ii. Credit purchases; iii. Returns inwards; iv. Returns outwards.
2010/6 Neco Exercise 12.13
The following balances were extracted from the book of Bidemi Amoke on 31st August, 2010.

1st September, 2008: N

Sales ledger – Dr. Balances 600,000
– Cr. Balances 15,000
Purchases ledger – Dr. Balances 10,000
– Cr. Balances 1,030,000
31st August, 2009:
Credit sales 7,150,000
Credit purchases 4,800,000
Returns inwards 36,000
Returns outwards 20,000
Discount received 140,000
Discount allowed 85,000
Purchases ledger balances transferred to sales ledger 12,000
Bad debts written off 10,000
Cheques dishonoured by bank 6,000
Cash paid to creditors 4,700,000
Cash received from debtors 7,000,000
Sales ledger Cr. balance 10,000
Purchases ledger Dr. balance 7,500
You are required to prepare the sales ledger control accounts and purchases ledger control account as they would appear
in the nominal ledger of Bidemi Amoke on 31st August, 2009.
249
2000/3 Nov Exercise 12.14
(a) What is a control account?
(b) Mention 2 types of control account.
(c) Outline 3 advantages of control account.
2000/9 Nov Exercise 12.15
The following information was extracted from the books of Easy Way Enterprises for the month January, 1999.
N
Sales ledger balances 1/1//99 34,869
Purchases ledger balances 1/1/99 43,986
Sales Day Book 103,435
Purchases Day Book 87,665
Returns Inward Day Book 1,350
Credit notes received 3,475
Debit notes issued 975
Cheques received from customers 114,230
Cheques paid to suppliers 75,250
Bad debts written off 3,200
Discount allowed 1,345
Discount received 2,330

You are required to prepare for the month (a) Debtors Control Account; (b) Creditors Control Account.

1999/2 Exercise 12.16

(a) What are control accounts?
(b) Explain 3 purposes for preparing control accounts.

2004/1 Exercise 12.17

List 3 items and the source from which they are transferred into each of the following accounts.
(a) Sales ledger control.
(b) Purchases ledger control.

2005/16 – 17 Neco
Sales ledger Dr. Balances N15,000
Sales ledger Cr. Balances 250
Purchases ledger Dr. balances 310
Purchases ledger Cr. Balances 14,450

20051/16 Exercise 12.18

What is the total creditor for the period?
A. N28,200 B. N15,310 C. N15,000 D. N14,700 E. N14,450

2005/17 Exercise 12.19

What is the total debtors for the period?
A. N15,310 B. N15,000 C. N14,700 D. N14,450 E. N14,140

2022/7 to 8 Neco PC
Use the following information to answer questions 7 and 8.
Dr Purchases Ledger Control Account Cr
N N
Purchases returns 10,500 Balance b/f 35,000
Bills payable 31,500 Purchases 73,500
Discount allowed 1,400 Charges dishonoured 2,100
Bank 42,700
Balance c/f ?
110,600 11,600

2022/7 Neco PC Exercise 12.20

Creditors at the end of the year amounted to
A. N30,500 B. N24,000 C. N22,500 D. N20,000 E. N18,500

250
2022/8 Neco PC Exercise 12.21
Net credit purchases for the year is
A. N65,000 B. N64,000 C. N63,000 D. N62,000 E. N61,000

1993/28 (Nov) Exercise 12.22

Which of the following should not be recorded in the sales ledger?
A. dishonoured bills B. bad debt C. discounts allowed D. bills payable
E. returns inwards

Exercise 12.23
From the following figures of Olamide a retailer, prepare sales ledger for the month of February 2020:
N
Debtors balance 10,000
Cash received from customers 60,000
Sales day book 140,340
Sales returns 12,000
Bad debts written off 1,000
Bills receivable 18,000
Discount allowed 140
Balance of debtors ?
Exercise 12.24
From the following details of Ayomide a retailer, prepare purchases ledger for the month of May, 2018:
N
Sundry creditors balance 46,000
Cash paid to creditors 160,000
Purchases 180,000
Discounts received 4,000
Returns outwards 6,000
Bills payable 16,000
Cheque paid to creditors 4,000
Balance of creditors ?
Exercise 12.25
The following total were taken from the books of Akpomedie Ltd. as at 31st January, 2018:
N
Debtors balance 6,360
Creditors balance 6,138
Purchases: on credit 210,426
Cash 105,548
Bills payable 16,548
Cheque dishonoured 2,193
Sales : Credit 270,435
Cash 69,399
Cash discount received 3,339
Contra settlement 4,590
Payments to creditors 162,336
Returns inwards 666
Provision for bad debts 4,311
Bad debts written off 249
Total discounts allowed 2,349
Cheque received from customers 240,000
Cash discounts allowed 2,025
Bills receivable 15,936
Returns outwards 1,332
You are required to prepare:
(i) Total creditors control account;
(ii) Total debtors control account.
251
Chapter thirteen
MANUFACTURING ACCOUNT
MEANING AND PURPOSE OF MANUFACTURING ACCOUNT
Manufacturing account is also called production account. Manufacturing can be defined as the conversion of raw
materials into finished goods. An account prepared in addition to the trading, profit and loss account by an organization
dealing in the conversion of raw materials into finished goods is called manufacturing account. The manufacturing
account helps the manufactureror producer to determine or ascertain the total cost of production.
A manufacturing organization will acquire raw materials, engage labour and other inputs necessary to change the raw
materials into finished goods. Manufacturing accounts are prepared to ascertain the cost of goods manufactured during
the financial year. It is an extension of the trading account.

Manufacturing is prepared to determine:

(i) Cost of raw materials consumed;
(ii) Prime account;
(iii) Factory overhead cost; and
(iv) Cost of production.

ELEMENTS OF MANUFACTURING ACCOUNT

There are 3 major elements of manufacturing cost:
(i) Materials;
(ii) Labour; and
(iii) Expenses
Each of these elements of cost can either be direct or indirect. Therefore, we have direct materials, indirect materials,
indirect labour, direct expenses and indirect expenses.
MANUFACTURING ACCOUNT RELATED TERMS
The following terms are commonly used or mentioned while treating manufacturing account:
(i) Cost of raw materials consumed: This is the cost of raw materials used in the production of other goods.
(ii) Direct cost: A direct cost is a cost that can be traceable to a particular cost unit or centre. A direct cost is one that
increases as units of output increases and vice versa.
(iii) Indirect cost: An indirect cost is costs that are either not traceable to finished product in an economic way or that
are not traceable at all.
(iv) Direct labour: This is the wages of the workers whole labour/effort which can be directly traced to the unit being
produced.
(v) Direct expenses: Direct expenses are made up of other expenses that are specifically incurred on the units being
produced.
(vi) Direct materials: This is the cost incurred on raw materials that can be traced to the units being produced.
(vii) Prime cost: This is the sum or total of the 3 elements of cost, i.e. direct materials + direct labour + direct expenses.
(viii) Factory overhead expenses: This is the sum of all other expenses incurred in the factory which cannot be directly
traced to any of the units being produced.
(ix) Work–in–progress (W.I.P): Work-in-progress or process refers to partly processed or finished goods.
(x) Finished goods: These are items that have been manufactured or produced and are ready for distribution and sale.
(xi) Production cost: This is the total cost of goods produced for a period.
(xii) Market value: This is the worth of the goods manufactured in the open market; i.e. the market value of goods
manufactured by a manufacturer.
APPORTIONMENT OF OVERHEADS
Overheads are indirect cost which cannot be traced to a definite cost unit. Apportionment of overheads becomes
necessary where a business organization produces more than one product or where the business is divided up into
different departments, divisions or sections. In such cases, overheads may be jointly incurred by the products or
departments. Therefore, the basis of apportionment should be equitable and reasonable.
Below is a table showing examples of overheads and basis of apportionment:
S/N OVERHEADS BASIS OF APPORTIONMENT
1. Insurance, depreciation Book value
2. Rent, rates, heating, lighting, depreciation of building. Floor area.
3. Canteen, welfare, safety, administration, industrial Numbers of employees in each cost centre.
regulations & personnel
4. Store keeping Store requisition/order.
5. Store – keeping and materials handling Weight of materials.
6. Heating, lighting & building depreciation Volume or space occupied.
252
MANUFACTURING ACCOUNT FORMAT (HORIZONTAL)
Raw materials: N N N N
Opening stock X Market value of goods produced c/d X
Purchases X
Purchases returns (X)
Carriage on R.M. X
C.R.M.A.U X
Closing stock (X)
C.R.M.U X
Manufacturing wages X
Royalties X
Prime – cost X

Factory overheads:
Depreciation of plants and machinery X
Factory light & heat X
Foreman’s salary X
Factory rent X
Factory insurance X
General factory expenses X X
X
Opening W.I.P X
Closing W.I.P (X) X
Cost of goods produced X
Manufacturing profit (mark – up)
H any X
X X

MANUFACTURING ACCOUNT FORMAT (VERTICAL)

Raw materials: N N
Opening stock of raw materials X
Purchases of raw materials X
Purchases returns (X)
Carriage inwards on raw materials X
Cost of raw – materials available for use X
Closing stock of raw materials (X)
Cost of raw materials used X
Direct wages (manufacturing wages) X
Direct expenses (royalties) X
Prime cost X
Add: production/factory overheads:
Depreciation of plant and machinery X
Factory light & power X
Foreman’s salaries X
Factory rent X
Factory insurance X
General factory expenses X X
Opening work – in – progress X
Closing work – in – progress (X) X
Cost of goods produced X
Add: manufacturing profit (mark – up) X
Market value of goods produced X

Note:
(i) C.R.M.A.U – Cost of Raw Materials Available for use.
(ii) R.M.U – Cost of Raw Materials Used.
(iii) W.I.P – Work – IN – Progress.
253
1998/41 – 45
Use the following information to answer questions 41 – 45.
N
Opening stock of raw materials 5,800
Closing stock of raw materials 4,500
Raw materials purchased 19,000
Carriage outwards 1,300
Direct labour 4,000
Electricity (factory) 2,500
Supervisors salary 5,500
Depreciation of plant 1,500
Sales 58,000
Closing stock (finished goods) 4,500
Administrative expenses 5,500
Selling and distribution expenses 3,000
1998/41
The cost of raw materials used is
A. N26,100 B. N24,800 C. N24,300 D. N21,600 E. N20,300
Answer: N20,300 ⎯ ⎯→ 5,000 + 19,000 – 4,500 = 20,300

1998/4
The prime cost is
A. N26,800 B. N25,600 C. N24,300 D. N20,300 E. N19,000
Answer: N24,300 ⎯ ⎯→ N20,000 + 4,000 = N24,300

1998/43
What is the factory overhead?
A. N10,800 B. N9,800 C. N9,500 D. N8,500 E. N5,300
Answer: N9,500 ⎯ ⎯→ N2,500 + 5,500 + 1,500 = N9,500

1998/44
What is the production cost?
A. N33,800 B. N33,200 C. N28,700 D. N28,300 E N18,900
Answer: N33,800 ⎯ ⎯→ N24,300 + N9,500 = N33,800

1998/45
The gross-profit is
A. N33,800 B. N28,700 C. N25,600 D. N19,000 E. N18,900
Answer: (28,700) – 58,000 – (33,800 – 4,500)
= 58,000 – 29,300
= N28,000

254
Workings:
Manufacturing, Trading and Profit and Loss Account
Raw – materials N N N N
Opening stock 5,800 Production cost 33,800
Purchases 19,000
24,800
Less: closing stock (4,500)
Cost of raw material used 20,300 (E)
Direct labour 4,000
Prime cost 24,300 (C)

Factory Overheads:
Electricity 2,500
Supervisors salary 5,500
Depreciation of plant 1,500 9,500 (C)
Cost of production 33,800 (A) 33,800

Finished Goods
Opening stock - Sales 58,000
Add: Production cost 33,800
33,800
Less: Closing stock (4,500)
Cost of goods sold 29,300
Gross-profit c/d 28,700 (B)
58,000 58,000
Expenses: Gross profit b/d 28,700
Carriage outwards 1,300
Administrative expenses 5,500
Selling and distribution expenses 3,000
Net-profit c/d 18,900
28,700 28,700

2000/28 – 30
Use the following information to answer questions 28 to 30.
N
Opening stock: Raw materials 6,500
Work-in-progress 2,500

Closing stock: Raw materials 4,000

Work-in-progress 1,000
Purchases of raw-materials 12,500
Manufacturing wages 2,000
Factory rent 500

2000/28
What is the cost of raw-materials consumed?
A. N18,500 B. N16,000 C. N15,000 D. N12,500
Answer: N15,000 ⎯ ⎯→ N6,500 + 12,500 – 4,000
N19,000 – 4,000 = 15,000

2000/29
What is the cost of production?
A. N19,000 B. N18,000 C. N15,000 D. N12,000
Answer: N19,000 ⎯ ⎯→ N17,000 + 500 (2,500 – 1,000)
= 17,500 + 1,500 = N19,000

255
2000/30
What is the prime cost?
A. N19,000 B. N18,000 C. N17,500 D. N17,000
Answer: N17,000 ⎯ ⎯→ N15,000 + 2,000 = N17,000
2004/30 – 32
Use the following information to answer questions 30 to 32
N
Stock of raw materials (01 – 01 – 2002) 460,000
Purchases of raw materials 1,000,000
Carriage inwards 100,000
Stock of raw materials (31 – 12 – 2002) 500,000
Royalty paid 35,000
Manufacturing wages 80,000
Supervisor’s salary 15,000

2004/30
Total overhead cost is
A. N105,000 B. N95,000 C. N50,000 D. N15,000
Answer: N15,000 ⎯ ⎯→ supervisor’s salary (D)

2004/31
The prime cost is
A. N1,175,000 B. N1,140,000 C. N1,075,000 D. N1,060,000
Answer: N1,175,000 ⎯ ⎯→ 460,00 + 1,000,000 + N100,000 – N(500,000) + N35,000 + N80,000
N
Opening stock of R.M. 460,000
Add: Purchases of R. M. 1,000,000
Add: Carriage inwards 100,000
Add: C.R.M.A 1,560,000
Less: Closing Stock of R.M. (500,000)
C.R.M.C 1,060,000
Add: Royalty 35,000
Manufacturing wages 80,000
Supervisory 15,000
2004/32
Cost of raw materials used is
A. N1,175,000 B. N1,140,000 C. N1,075,000 D. N1,060,000
Answer: N1,060,000 (D)

2004/8 Theory
The following information relates to Soya-Ogi Manufacturing Company Limited for the six month ended 30th June,
2002.
N
Purchases – raw materials 120,000
Direct wages 100,000
Rent and rates 40,000
Carriage inwards 1,440
Opening stock: 1st January, 2002:
Raw Materials 20,000
Finished goods 16,000
th
Closing stock: 30 June, 2002:
Raw Materials 22,240
Finished goods 32,000
Work in progress:
Opening 1st January, 2002 4,800
Closing 30th June, 2002 16,800
Cost of factory supervision 8,000
Sales of finished goods 300,000
Distribution expenses 15,000

256
You are required to prepare:
(a) Manufacturing Account;
(b) Trading and Profit and Loss Account for the six month’s ended 30th June, 2002.
Solution
(a)
SOYA-OGI MANUFACTURING COMPANY LTD.
Manufacturing Account for the six month, 30-06-2002
N N
Opening stock 20,000 Cost of production
Add: Purchases 120,000 Completed transfer
Carriage inwards 1,440 To trading account 216,000
Cost of raw materials available 141,440
Less: Closing stock (22,240)
Cost of raw-materials consumed 119,200
Add: direct wages 100,000
Prime cost 219,200
Add: factory overheads:
Factory supervision 8,000
227,200
Add: Opening W.I.P 4,800
232,000
Less: closing W.I.P (16,000)
Closing of Production 216,000 216,000

(b)
SOYA-OGI MANUFACTURING COMPANY LTD.

Dr Trading, Profit and Loss Account for the Six Months ended 30th Cr
June, 2002
N N
Opening stock 16,000 Sales 300,000
Add: Production cost 216,000
Cost of goods available for sale 232,000
Less: Closing stock (32,000)
Cost of goods sold 200,000
Gross-profit c/d 100,000
300,000 300,000

Distribution expenses 15,000 Gross-profit c/d 100,000

Rent and rates 40,000
55,000
Net-profit c/d 45,000
100,000 100,000
Note:
Net-profit = Gross – profit – total operating expenses
= N100,000 – 55,000
= N45,000

2007/1
The manufacturing account is prepared to determine the cost of
A. trading B. production C. factory overhead D. raw materials used
Answer: Production (B)

2007/2
Factory costs excluding prime cost is
A. overhead B. material cost C. fixed cost D. administration cost
Answer: Material cost (B)

257
2007/3
An example of direct expenses is
A. insurance B. carriage inwards C. purchases of raw materials D. royalty
Answer: royalty (D)

2007/5
Noshud Limited is a manufacturing company. The following information were made available concerning its
operation:
Stock as at 1st march, 2004: D
Raw materials 50,000
Work – in – progress 18,000
Finished goods 25,000
Purchase of raw materials 650,000
Carriage inwards 15,000
Returns outwards 30,000
Direct factory wages 160,000
Depreciation of plant 20,000
Repairs to factory 12,000
Other factory wages 200,000
Factory power 60,000
Administrative salary 120,000
Sales 1,500,000
Office expenses 36,000
Stocks at 28th February, 2005:
Raw materials 70,000
Work-in-progress 20,000
Finished goods 27,000
Additional information:
(a) Finished goods are transferred to the trading section at cost plus 10%.
(b) A third of office expenses and administrative salary is charged against production.
You are required to prepare:
(i) Manufacturing Account for the year ended 28th February, 2005; and
(ii) Trading Account for the year ended 28th February, 2005.
Solution
(a)
NOSHUD LTD.
Manufacturing Account for the year ended 28th February, 2005
Raw Materials: D D
Opening Stock 50,000
Purchases 650,000
Add: Carriage inwards 15,000
Less: Returns outwards (30,000) 635,000
Cost of raw materials available 685,000
Less: Closing stock (70,000)
Cost of raw materials consumed 615,000
Add: Direct wages 160,000
Prime cost 775,000

Add: Factory Overhead Expenses

Depreciation of plant 20,000
Repairs of Factory 12,000
Other factory wages 200,000
Factory power 60,000
Administrative salary 40,000
Office expenses 12,000 344,000
1,119,000
Add: work-in-progress (start) 18,000
1,137,000
Less: work-in-progress (close) (20,000)
Cost of finished goods 1,117,000
Manufacturing profit 111,700
Cost of finished goods transferred 1,228,700

258
(b)
Trading Account for the year ended 28th February, 2005
D D
Sales 1,500,000

Less: Cost of goods

Opening stock 25,000
Add: Cost of finished goods transfer 1,228,700
Cost of goods available for sale 1,253,700
Less: closing tock 27,000
Cost of goods sold (1,226,700)
Gross profit 273,300
Workings:
1
(i) Administrative salary: × 120,000 = N40,000
3
1
(ii) Office expenses: × 36,000 = N12,000
3
10
(iii) Manufacturing profit: 10% of cost of finished goods = × 1,117,000 = N111,700
100
(iv) Cost of finished goods transferred: Cost of finished goods + manufacturing profit = N117,000 + 111,700
= N1,228,700

2008/5 (Theory)
The following balances were extracted from the books of A. Ade and Sons Ltd. a manufacturer of laundry soaps as at
31st December, 2002.
Stock 1/1/02: N
Raw materials 18,900
Work – in – progress 23,000
Finished goods 17,000
Purchases of raw materials 72,000
Carriage on raw materials 840
Manufacturing wages 60,000
Rent 3,200
Rates 4,800
Selling expenses 5,100
Stock 31/12/02:
Raw materials 15,240
Work-in-progress 36,178
Finished goods 16,000
Depreciation of plant and equipment 7,200
Fuel 3,200
Office salaries 6,200
Discount allowed 2,800
Discount received 1,200
Returns inwards 2,120
Returns outwards 1,800
Factory salaries 4,540
Insurance 1,260
General expenses 4,260
Sales 228,200
Advertising 6,124
Carriage outwards 1,200
Bad debts 680

Additional information:
(a) Rent, rates and insurance should be shared between factory and the office in the ratio of 4:1 respectively.
(b) The goods are transferred to the sales department at cost plus 20%.
(c) Salaries due are N1,200; general expenses paid in advance are N146 and insurance paid in advance is N400.

You are required to prepare Manufacturing, Trading and Profit and Loss Account for the year ended 31st
December, 2002.

259
Solution
A. ADE AND SONS LTD
Dr Manufacturing, Trading and Profit and Loss Account for the year ended 31st December, Cr
2002.
RAW MATERIALS: N N N N
Opening stock 18,900 Market value of goods 173,700
produced
Add: Purchases 72,000
Carriage inwards 840
Less: Returns outwards (1,800) 71,040
Cost of R. M. available 89,940
Less: closing stock (15,240)
Cost of R. M. consumed 74,700
Add: Manufacturing wages 60,000
Prime cost 134,700

Add factory overhead Exps.

Appreciation of plant & Equpt. 7,200
Fuel 3,200
Factory salaries 5,740
Rent 2,560
Rates 3,840
Insurance 688 23,228
157,928
Add: work-in-progress (start) 23,000
180,928
Less: Work-in-progress (close) (36,178)
Cost of production 144,750
Manufacturing profit 28,950
Market value of goods produced 173,700 173,000

FINISHED GOODS:
Opening stock 17,000 Sales 228,200
Add: market value of goods 173,700 Less: Returns inwards (2,120)
Cost of goods available for sale 190,700 Net-sales 226,080
Less: closing stock (16,000)
Cost of goods sold 174,700
Gross-profit c/d 51,380
226,080 226,080

EXPENSES:
Bad debts 680 Gross – Profit b/d 51,380
Discount allowed 2,800 Profit on production 28,950
Advertising 6,124 Discount received 1,200
Selling expenses 5,100
Office salaries 6,200
Carriage outwards 1,200
Rent 640
Rates 960
Insurance 172
General expenses 4,114
Net-profit c/d 53,540
81,530 81,530

260
Notes:
(i) Factory subsidies: N4,540 + 1,200 (owing) = N5,740
4
(ii) Rent: factory ⎯
⎯→ 5 × 3,200 = N2,560
1
Office ⎯
⎯→ 5 × 3,200 = N640
4
(iii) Rates: Factory ⎯
⎯→ × 4,800 = N3,840
5
1
Office ⎯
⎯→ × 4,800 = N960
5
4
(iv) ⎯→ 5 × (1,260 – 400) = N688
Rates: Factory ⎯
1
Office ⎯⎯→ × (1,260 – 400) = N172
5
(v) General Expenses: N4,260 – N146 (Advance) = N4,114
(vi) Factory salaries: N4,540 + N1200 = N5,740
20
(vii) Manufacturing profit (20%): 100 × 144,750 = N28,950
(viii) Market value of goods produced = N144,750 + N28,950
= N173,700
(ix) Gross-profit: Net sales – cost of goods sold = N226,080 – N174,700
= N51,380
(x) Net-profit: Net – income – Total operating expenses
= N81,530 – 27,990 = N53,540

2010/22 – 24
Use the following information to answer questions 22 to 24
N
Opening stock of raw materials 24,750
Purchases of raw materials 123,640
Carriage on raw materials 10,000
Closing stock of raw materials 45,000
Factory supervisor’s salary 30,000
Wages of factory hands 50,000
Royalties paid 18,000
Insurance of factory 62,000
Work-in-progress (opening) 23,000
Raw materials returned 12,200

2010/22
The value of raw materials consumed is
A. N121,440 B. N113,340 C. N111,190 D. N101,190
Answer: N101,190 ⎯ ⎯→ N24,750 + N123,640 + N10,000 – N12,200 – N(45,000) (D)

2010/23
The prime cost is
A. N199,190 B. N169,190 C. N151,190 D. N146,190
Answer: N169,190 ⎯⎯→ N101,190 + N18,000 + N50,000 (B)

2010/24
The total overhead expenses is
A. N142,000 B. N115,000 C. N110,000 D. N92,000
Answer: N92,000 ⎯ ⎯→ N30,000 + N62,000

261
Workings:
Dr. Manufacturing Account Cr
N N N N
Opening stock 24,750 Cost of production completed c/d 284,190
Add: Purchases 123,640
Carriage 10,000
133,640
Less: Returns outwards (12,200) 121,440
Cost of R.M. available 146,190
Less: closing stock (45,000)
Cost of R.M. consumed 101,190 (D)
Add: Direct wages 50,000
Royalties 18,000
Prime cost 169,190 (B)

Add: Factory overheads

Expenses
Factory supervisors salary 30,000
Factory insurance 62,000 92,000 (D)
Add: W.I.P (Opening) 261,190
Cost of production 23,000
284,190 284,190

2022/21 – 22
Use the following information to answer questions 21 and 22.
Le
Raw materials:
Stock (01/01/2017) 822,200
Stock (31/12/2017) 560,000
Purchases 125,000
Returns of raw materials 15,000

2022/21
The cost of raw materials available for production is
A. Le947,000 B. Le932,000 C. Le402,000 D. Le372,000
Answer: Le932,000 ⎯ ⎯→ Le822,200 + Le125,000 – Le15,000 (B)

2022/22
The cost of raw materials consumed is
A. Le947,000 B. Le932,000 C. Le402,000 D. Le372,000
Answer: Le372,000 ⎯ ⎯→ Le932,000 – Le500,000 (D)

Workings:
Manufacturing Account
Le Le
Opening stock 822,200
Add: Purchases 125,000
947,200
Less: Returns outwards 15,000
Cost of Raw Materials available 932,200
Less: Closing stock 560,000
Cost of Raw Materials consumed 372,000

262
2013/5 (Theory)
Grape Enterprises makes fruit juice. The following information relates to the year ended 31st December, 2009.
N
Stock – 1 January, 2009:
st

Raw materials 336,500

Work-in-progress 60,000
Finished goods 350,000
Purchases of raw materials 950,000
Sales 6,000,000
Office salaries 315,000
Carriage inwards 78,500
Royalties 450,000
Direct factory wages 925,000
Discount allowed 20,000
Indirect wages 225,000
Insurance of factory 250,000
General expenses 300,000
Depreciation of plant 310,000
Delivery van expenses 62,000
Office expenses 300,000
Advertisement 65,000
Stock – 31st December, 2009:
Raw materials 245,000
Work-in-Progress 47,500
Finished goods 285,000

Additional information:
(i) Half of general expenses relates to the factory;
(ii) One third of the office expenses should be treated as factory cost.

You are required to prepare the Manufacturing, Trading and Profit and Loss Account for the year ended 31st
December, 2009.

263
Solution
GRAPE ENTERPRISES
Manufacturing, Trading and Profit and Loss Account for the year ended 31st December, 2009
Raw Materials: N N N N
Opening stock 336,500 Cost of goods produced 3,542,500
completed c/d
Add: Purchases 950,000
Carriage inwards 78,500 1,028,500
Cost of Raw Materials available 1,365,000
for use
Less: Closing stock (245,000)
Cost of Raw Materials 1,120,000
Consumed

Add: Direct – Cost:

Royalties 450,000
Direct Factory wages 925,000 1,375,000
2,495,000

Factory Overhead Expenses:

General expenses 150,000
Office expenses 100,000
Indirect wages 225,000
Factory insurance 250,000
Depreciation of plant 310,000 1,035,000
3,530,000
Add: Opening W.I.P 60,000
3,590,000
Less: Closing W.I.P (47,500)
Cost of goods produced 3,542,500 3,542,500

FINISHED GOODS:
Opening Stock 350,000 Sales 6,000,000
Add: Cost of production 3,542,500
Cost of goods available for use 3,892,500
Less: Closing stock (285,000)
Cost of goods sold 3,607,500
Gross-profit c/d 2,392,500
6,000,000 6,000,000

EXPENSES:
Discount allowed 20,000 Gross – profit b/d 2,392,500
General expenses 150,000
Office salaries 315,000
Office expenses 200,000
Advertisement 65,000
Delivery van expenses 62,000
812,000
Net-profit c/d 1,580,500
2,392,500 2,392,500

Workings:
1
(i) General Expenses: Factory ⎯
⎯→ × 300,000 = 150,000
2
1
Office ⎯⎯→ × 300,000 = 150,000
2
1
(ii) Office Expenses: Factory ⎯
⎯→ × 300,000 = 100,000
3
2
Office ⎯
⎯→ × 300,000 = 200,000
3
(iii) Net-profit: Gross – profit – operating expenses
= N2,392,500 – 812,000 = N1,580,500

264
2014/5 (Theory)
Alex Co. Limited is a manufacturing company. The following balances were extracted from its books on 30th
September, 2012.
N
Stock – 30/10/2011:
Raw materials 9,600
Work-in-progress 13,000
Finished goods 11,200
Sales 190,000
Carriage on raw materials 490
General expenses 8,400
Selling expenses 17,280
Discount allowed 480
Discount received 640
Carriage outwards 760
Production wages 42,000
Office salaries 1,620
Purchase of raw materials 56,000
Returns inwards 3,000
Factory rent 13,600
Office insurance 9,600
Depreciation of plant and machinery 1,640
Stock – 31/09/2012:
Raw materials 11,800
Work-in-Progress 13,040
Finished goods 14,400

Additional information:
Goods manufactured during the year are to be transferred to the Trading Account at Le130,000.

You are required to prepare the necessary accounts to show the following:
(a) Cost of raw materials used; (b) Prime cost; (c) Cost of production; (d) Gross Manufacturing
profit
(e) Gross profit on sales; (f) Net profit.

265
Solution
Manufacturing, Trading and Profit and Loss Account for the year ended 30th September, 2012
Raw Materials: Le Le Le Le
Opening stock 9,600 Market value of goods produced 130,000
Add: Purchases 56,000
Carriage inwards 490 56,490
Cost of Raw Materials available 66,090
Less: Closing stock (11,800)
Cost of Raw Materials Consumed 54,290
Add: Product cost 42,000
Prime Cost 96,290

Factory Overhead Expenses:

Factory rent 13,600
Depr. Of plant and machinery 1,640 15,240
111,530
Add: W.I.P (Opening) 13,000
124,530
Less: W.I.P (closing) (13,040)
Cost of production 111,490
Manufacturing profit 18,510
Market value of goods produced 130,000 130,000

FINISHED GOODS:
Opening Stock 11,200 Sales 190,000
Add: Market value 130,000 Less: Returns inwards (3,000)
Cost of goods available for use 141,200 187,000
Less: Closing stock (14,400)
Cost of goods sold 126,800
Gross-profit c/d 60,000
187,000 187,000

EXPENSES:
General expenses 8,400
Discount allowed 480 Gross – profit b/d 60,200
Office salaries 1,620 Manufacturing profit 18,510
Selling expenses 17,280 Discount received 640
Office insurance 9,600
Carriage outwards 760
38,140
Net-profit c/d 41,210
79,350 79,350

266
2017/6 (Theory)
Idayah Limited is a manufacturing company. The following balances were extracted from its records on 31st December,
2014.
Stock – 01/01/2014: Le
Raw materials 56,000
Work-in-progress 60,000
Finished goods 80,000
Purchases of raw materials 150,000
Carriage of raw materials 7,500
Manufacturing wages paid 16,500
Factory wages accrued 4,000
Direct factory expenses 11,400
Fuel for factory equipment 15,000
Depreciation of factory equipment 12,000
Sales of finished goods 500,000
Carriage outwards 7,600
General office expenses 3,800
Office salaries 19,200
Stock – 31/12/2014:
Raw materials 40,000
Work-in-Progress 64,000
Finished goods 72,000

Additional information:
Goods manufactured were transferred to sales department at cost plus 10%. You are required to prepare the
Manufacturing, Trading and Profit and Loss Account for the year ended 31st December, 2014.

267
Solution
IDAYAH LIMITED:
Manufacturing, Trading and Profit and Loss Account for the year ended
30th September, 2012
Raw Materials: Le Le
Opening stock 56,000
Add: Purchases 150,000
Carriage on raw materials 7,500 157,500
Cost of Raw Materials available 213,500
Less: Closing stock (40,000)
Cost of Raw Materials Consumed 173,500
Add: Manufacturing wages 20,500
Direct factory expenses 11,400 31,900
Prime Cost 205,400

Factory Overhead Expenses:

Fuel for factory equipment 15,000
Depreciation for factory equipment 12,000 27,000
232,400
Add: Work in progress 60,000
292,400
Less: Closing work–in–progress 64,000
Factory Cost of production 228,400
Manufacturing profit 22,840
Market value of goods transferred 251,240

Finished Goods:
Sales 500,000

Less: Cost of Sales:

Opening Stock 80,000
Add: Market value of goods transferred 251,240
Cost of goods available for sale 331,240
Less: Closing stock 72,000
Cost of goods sold 259,240
Gross-profit c/d 240,760
Manufacturing profit b/d 22,840
263,600

Less: Expenses
Office salaries 19,200
Carriage outwards 7,600
General office expenses 3,800 (30,600)
Net-profit c/d 233,000

Notes:
(i) Manufacturing wages: N16,500 + 4,000 (accrued) = N20,500
(ii) Manufacturing profit: 10% of cost of production
= 0.1 × 228,400 = N22,840
(iii) Market value: Production cost + manufacturing profit
= N228,400 + 22,840 = N251,240

268
2022/6 NABTEB (Theory)
The following is an extract from WAMCO Plc trial balance as at 31st December, 1992.
N
Stock – 1 January, 1992:
st

Raw materials 21,250

Work-in-progress 12,500
Finished goods 15,000
Office rent 1,000
Office rates 1,275
Manufacturing wages 52,000
Sales 245,000
Carriage on raw materials 700
General expenses 11,250
Carriage outwards 1,125
Discount allowed 1,125
Depreciation of factory machinery 2,250
Purchase of raw materials 75,000
Sales returns 5,000
Factory expenses 20,000
Selling expenses 22,500
Office salaries 13,250

Additional information:
(i) Closing stock as at 31st December, 1992.
Raw materials N16,250
Work in progress N17,450
Finished goods N20,000
(ii) Depreciation of machinery is to be charged to the manufacturing account.
(iii) Goods manufactured are to be charged to sales department at the current market value of N162,500.

You are required to prepare a manufacturing trading, profit and loss account for the year ended 31st December, 1992.

269
Solution
WAMCO LTD
Manufacturing, Trading and Profit and Loss Account for the year ended 31st December, 1992
Raw Materials: N N N N
Opening stock 21,250 Market value transferred 162,500
Add: Purchases 75,000
Carriage 700 75,700
Cost of Raw Materials available 96,950
Less: Closing stock (16,250)
Cost of Raw Materials used 80,700
Add: Manufacturing wages 52,000
Prime Cost 132,700

Add: Factory Overhead:

Depreciation of P & M 2,250
Factory expenses 20,000 22,250
154,950
Add: Opening W.I.P 12,500
167,450
Less: Closing W.I.P (17,450)
Cost of production 150,000
Manufacturing profit 12,500
Market value transfer 162,500 162,500

Finished Goods:
Opening Stock 15,000 Sales 245,000
Add: Market value 162,500 Less: Returns (5,000)
Goods available 177,500 Net-sales 240,000
Less: Closing stock (20,000)
Cost of goods sold 157,500
Gross-profit c/d 82,500
240,000 240,000

Expenses:
Office rent 1,000 Gross – profit b/d 82,500
Office rates 1,275 Manufacturing profit b/d 12,500
General expenses 11,250
Carriage outwards 1,125
Discount allowed 1,125
Selling expenses 22,500
Office salaries 13,250
51,525
Net-profit c/d 43,475
95,000 95,000

2019/36 NABTEB
In a manufacturing company, which of the following expenses does not relate to cost of production?
A. materials consumed B. direct labour C. administrative expenses D. direct overhead
Answer: Administrative expenses (C)

270
2011/5 NABTEB (Theory)
The following trial balance was extracted from the books of D. Bala as at 31st December, 2006.
Dr Cr
N N
Delivery van expenses 2,500
Lighting: Factory 2,859
Office 1,110
Manufacturing wages 45,470
General expenses: Office 3,816
Factory 5,640
Salesman’s commission 7,860
Purchases of raw materials 39,054
Rent: Factory 4800
Office 2,200
Machinery (Cost N50,000) 32,500
Office equipment (Cost N15,000) 11,000
Office salaries 6,285
Debtors and Creditors 28,370 19,450
Bank 13,337
Sales 136,500
Premises at Cost 40,000
Stock 1/1/06: Raw Materials 8,565
Finished Goods 29,480
Capital 137,456
293,406 293,406

Additional information:
(a) Stocks at 31/12/06 were as follows:
Raw materials 9,050
Finished goods 31,200
(b) Depreciate (i) Machinery at 5% on cost
(ii) Office equipment at 10% on cost
(c) Manufacturing wages due but unpaid at 31/12/06 was N305.
(d) Office rent prepaid at 31/12/06 was N108.
You are required to prepare the Manufacturing, Trading, Profit and Loss Account for the year ended 31st December,
2006.

271
Solution
D. BALA
Manufacturing, Trading and Profit and Loss Account for the year ended 31st December, 2006
Raw Materials: N N N N
Opening stock 8,565 Cost of production completed c/d 100,143
Add: Purchases 39,054
47,619
Less: Closing stock 9,050
Cost of Raw Materials used 38,569
Manufacturing wages 45,775
Prime Cost 84,344

Add: Factory Overhead:

Lighting 2,859
General expenses 5,640
Rent 4,800
Depreciation: Machinery 2,500 15,799
Cost of production 100,143 100,143

Finished Goods:
Opening Stock 29,480 Sales 136,500
Add: Cost of Production 100,143
Cost of goods available for sale 129,623
Less: Closing stock (31,200)
Cost of goods sold 98,423
Gross-profit c/d 38,077
136,500 136,500

Expenses:
Lighting 1,110 Gross – profit b/d 38,077
General expenses 3,816
Salesman’s commission 7,860
Rent 2,092
Office salaries 6,285
Delivery van expenses 2,500
Depreciation: office equipment 1,500
25,163
Net-profit c/d 12,914
38,077 38,077

Notes:
(i) Manufacturing wages: N45,470 + 305 (unpaid) = N45,775
(ii) Office rent: N2,200 – 108 (prepaid) = N2,092
5
(iii) Depreciation: Machinery = × 50,000 = N2,500
100
10
Office equipment = × 15,000 = N1,500
400

272
2022/5 Neco (Theory) PC
The following information were extracted from the books of Olive Enterprise for the year ended 31 st December, 2018.
N
Stock of raw material 01/01/2018 16,080
31/12/2018 14,320
Stock of finished goods 01/01/2018 25,320
31/12/2018 35,690
Sales 928,000
Office rent 5,250
Office rates 2,000
Purchase of raw materials 190,000
Carriage inward on raw materials 4,710
Manufacturing wages 264,300
Factory expenses 18,280
Van running expenses 23,150
Salesmen’s commission 7,130
Stock of work in progress 01/01/2018 8,740
31/12/2018 9,470
Depreciation:
Plant and machinery 32,500
Delivery 6,250
Advertising 5,170
Factory fuel 18,350
Salaries (factory 15,000) 50,000
Insurance (factory 32,000) 44,800
3 2 80,000
Lighting ( factory, office)
5 5

You are required to prepare manufacturing trading, profit or loss account for the year ended 31st December, 2018.

273
Solution
OLIVE ENTERPRISES
Dr. Manufacturing, Trading and Profit and Loss Account for the year ended 31st December, 2006 Cr
Raw Materials: N N N N
Opening stock 16,080 Production cost of goods 732,140
completed c/d
Add: Purchases 190,000
Carriage inwards 4,710 194,710
210,790
Less: Closing stock (14,320)
Cost of Raw Materials used 196,470
Add: Manufacturing wages 264,300
Prime Cost 460,770

Add: Factory Overhead:

Factory expenses 18,280
Factory maintenance 108,000
Depreciation: Plant & Machinery 32,500
Factory fuel 18,350
Factory salaries 15,000
Factory insurance 32,000
Factory lighting 48,000 272,130
732,900
Add: W.I.P (opening) 8,740
741,640
Less: W.I.P (closing) (9,470)
Cost of production c/d 732,170 732,170

Finished goods:
Opening Stock 25,320 Sales 928,000
Add: Cost of Production b/d 732,170
Cost of goods available for sale 757,490
Less: Closing stock (35,690)
Cost of goods sold 721,800
Gross-profit c/d 206,200
928,000 928,000

Expenses:
Office Rent 5,250 Gross – profit b/d 206,200
Office Rates 2,000
Van running expenses 23,150
Salesmen’s commission 7,130
Advertising 5,170
Salaries 35,000
Insurance 12,800
Lighting 32,000
Depreciation: Delivery van 6,250
128,750
Net-profit c/d 77,450
206,200 206,200

Workings:
(i) Salaries: factory = 15,000
Office = 50,000 – 15,000 = N35,000
(ii) Insurance: Factory = 32,000
Office = 44,800 – 32,000 = N12,800
3
(iii) Lighting: Factory ⎯
⎯→ × 80,000 = N48,000
5
Office ⎯→ 25
⎯ × 80,000 = N32,000

274
2022/5 Neco (Internal) Theory
The following balances were extracted from the books of Joseph K. B. a manufacturer for the year ended 31st
December, 2012.
Dr Cr
st
Stock at 1 January, 2012: N N
Raw materials 10,000
Work-in-progress 5,000
Finished goods 8,500
Manufacturing wages – Direct 8,350
Indirect 4,440
Capital 40,500
Drawings 1,450
Insurance 520
Travelling expenses 4,300
Rent and rates – Factory 1,800
Freehold premises 13,000
Plant and machinery – factory 20,000
Sales 100,800
Cash 8,000
Bank 3,000
Salaries and wages 4,000
Debtors and creditors 5,000 10,120
Purchase of raw materials 50,500
Discount received 490
Discount allowed 400
Selling and administration expenses 3,650
151,910 151,910

Additional information:
(a) Stock at 31st December 2012:
Raw materials N12,600
Work-in-progress N6,850
Finished goods N8,120
(b) Provision for depreciation to be made on plant and machinery at 10% per annum.
(c) Rent and rates paid in advance N650.
(d) A provision for bad debts of N450 is to be made.

You are required to prepare Manufacturing, Trading, Profit and Loss Account for the year ended 31st December,
2012.

275
Solution
Dr. Manufacturing, Trading and Profit and Loss Account for the year ended 31st December, 2012 Cr
Raw Materials: N N N N
Opening stock 10,000 Production cost of goods completed 61,990
Add: Purchases 50,500
60,500
Less: Closing stock (12,600)
Cost of Raw Materials used 47,900
Add: Manufacturing wages 8,350
Prime Cost 56,250

Add: Factory Overhead:

Manufacturing wages 4,440
Rent and Rates 1,150
Depreciation: Plant & Machinery 2,000 7,590
63,840
Add: W.I.P (opening) 5,000
68,840
Less: W.I.P (closing) (6,850)
Cost of goods produced c/d 61,990 61,990

Finished goods:
Opening Stock 8,500 Sales 100,800
Add: Production cost 61,990
Cost of goods available for sale 70,490
Less: Closing stock 8,120
Cost of goods sold 62,370
Gross-profit c/d 38,430
100,800 100,800

Expenses:
Discount allowed 400 Gross – profit b/d 38,430
Selling & administrative 3,650 Discount received 490
expenses
Salaries and wages 4,000
Travelling expenses 4,300
Insurance 520
Provision for bad debts 450
Total expenses 13,320
Net-profit c/d 25,600
38,920 38,920

Notes:
(i) Rent and Rates: N1,800 – 650 = N1,150
10
(ii) Depreciation: Plant and machinery: × 20,000 = N2,000
100
2022/26 to 28 Neco (Internal)
Use the following information to answer questions 26 to 28
N
Opening stock 42,000
Purchases of raw materials 265,000
Returns outwards on raw materials 13,000
Depreciation of plant and machinery 10,000
Wages – direct 52,000
Closing stock of raw materials 72,000
Direct expenses 11,000
Factory salaries 18,000
Factory rent 15,000

276
2022/26
The total production is
A. N400,000 B. N341,000 C. N328,000 D. N286,000 E. N232,000
Answer: N328,000 (C)

2022/27
The total overhead cost is
A. N44,000 B. N43,000 C. N34,000 D. N33,000 E. N23,000
Answer: N43,000 (B)

2022/28
What is the prime cost?
A. N342,000 B. N324,000 C. N285,000 D. N234,000 E. N203,000
Answer: N285,000 (C)

Workings
Manufacturing Account
Raw Materials: N N N N
Opening stock 42,000 Cost of production completed c/d 328,000
Add: Purchases 265,000
Less: Returns Outwards (13,000) 252,000
Cost of Raw Materials available 294,000
Less: Closing stock (72,000)
Cost of Raw materials used 222,000

Add: Direct Expenses:

Wages 52,000
Expenses 11,000 63,000
Prime – cost 285,000 (C)

Add: Factory Overhead:

Depreciation: Plant and 10,000
machinery
Factory salary 18,000
Factory rent 15,000
43,000 (B)
Cost of production 328,000 (C) 328,000

277
2022/38 and 39 Neco PC
Use the following information to answer questions
Manufacturing Account for 31st August, 2018
N N
Opening raw material 46,000 Cost of production 480,000
Add: Purchases of raw materials 272,000
318,000
Less: Closing stock of R.M. (35,200)
282,800
Direct labour 90,000
Direct expenses 60,000
432,800
Factory overhead 67,200
500,000
Add: Work-in-progress (1–9–17) 40,000
540,000
Less: work-in-progress (01–08–18) (60,000)
480,000 480,000

2022/38
What is the cost of raw materials consumed during the year?
A. N500,000 B. N432,000 C. N318,000 D. N282,800 E. N272,000
Answer: 282,800 ⎯ ⎯→ 46,000 + N272,000 – N35,200 = N282,800 (D)

2022/39
What is the amount of prime cost?
A. N500,000 B. N432,800 C. N318,000 D. N282,000 E. N272,000
Answer: N432,800 ⎯ ⎯→ N282,800 + 90,000 + 60,000 = N432,800 (B)

2009/9 – 11
Use the following information to answer questions 9 to 11.
D
Purchases of raw materials 236,500
Returns of raw materials 4,750
Carriage on raw materials 34,000
Stock of raw materials at close 39,500
Factory fuel 150,000
Direct wages 205,000
Indirect wages 31,250
Factory power 105,000
Work – in – progress at start 32,500

278
2011/28-29
Use the following information to answer questions 28 and 29
N
Prime cost 4,000
Factory overheads 6,000
Stock on 1-1-09 W.I.P 1,000
Stock on 31-12-09 W.I.P 2,000
Returns inwards 800
Sales 20,000

28. Cost of production is

A. N10,000 B. N9,000 C. N8,000 D. N6,000
Answer:
= (Prime cost + factory overhead) – (opening stock – closing stock)
= [4,000 + N6,000 – (2,000 – 1,000)]
= N9,000
29. Net sales for the period is
A. N20,000 B. N20,800 C. N19,200 D. N10,000
Answer:
Sales – Returns inwards = (N20,000 – 800 )
= N19,200

2000/36 (Nov)
Which of the following does not form part of factory overheads?
A. royalties on goods produced B. factory supervisor’s wages
C. closing work–in–progress D. depreciation of machinery
Answer: Royalties on goods produced (A)

2010/32 Neco
Which of the following item is not found in manufacturing account?
A. creditors B. direct expenses C. prime cost D. direct materials E. work in progress
Answer: Creditors (A)
2001/5
Prime cost consists of
A. direct materials and direct labour cost B. direct materials, direct labour and direct expenses
C. direct materials, direct labour, direct expenses and overhead D. direct material and direct expenses
Answer: Direct materials, direct labour & direct expenses (B)

2001/26 – 29
Use the following information to answer questions 26to 29
N
Opening stock of raw materials 8,000
Purchases 45,000
Closing stock of raw materials 9,500
Direct wages 6,450
Indirect wages 2,800
Depreciation: plant and machinery 3,200
Factory rents and rates 350
Opening work – in – progress 3,250
Closing work – in – progress 3,750

26. Cost of raw materials consumed is 28. Factory cost of production is

A. N53,000 B. N45,500 C. N45,000 D. N43,500 A. N56,300 B. N53,000 C. N52,750 D. N45,500
Answer : N43,500 (D) Answer: N56,300 (A)

27. Prime cost is 29 . Production cost is

A. N53,000 B. N52,750 C. N49,950 D. N46,300 A. N57,300 B. N56,300 C. N55,800 D. N53,000
Answer: N49,950 (C) Answer: N55,800 (C)

279
Workings:
N N
Opening stock of raw materials 8,000
Purchases 45,000
Cost of raw materials available for use 53,000
Closing stock of raw materials (9,500)
Cost of raw materials used 43,500
Direct wages 6,450
Prime cost 49,950

Factory overheads:
Indirect wages 2,800
Depreciation: plant & machinery 3,200
Factory rents and rates 350 6,350
56,300
Opening work – in – progress 3,250
Closing work – in – progress (3,750) (500)
Production cost 55,800

2019/36-37
Use the following information to answer questions 36and 37
$
Cost of raw materials available 32,000
Manufacturing wages 10,000
Factory expenses 5,000
Royalty 3,000
Factory rent 2,000
Depreciation of plant & machinery 5,000
Closing stock of raw materials 3,000

36. The prime cost is Working:

A. $57,000 B. $45,000 C. $42,000 D. $39,000 Cost of raw materials available 32,000
Answer: $45,000 ⎯ ⎯→ ($32,000 + 10,000 + 3,000) Manufacturing wages
10,000
Royalty 3,000
Prime cost 45,000
37. Factory overhead cost is
A. $25,000 B. $15,000 C. $12,000 D. $7,000
Answer: $12,000 = ($5,000 + 2,000 + 5,000) (C)

2014/34-36 NABTEB (Nov)

Use the following information to answer questions 34 to 36
N
Opening stock of raw materials 10,000
Royalties 20,000
Closing stock of raw materials 8,000
Purchases of raw materials 60,000
Direct wages 10,000
Factory overheads 40,000

34. What is the value of raw materials consumed?

A. N62,000 B. N70,000 C. N78,000 D. N92,000
Answer: Opening stock + purchases – closing stock
= (N10,000 + 60,000 – 8,000) = N62,000
35. The prime cost value is
A. N72,000 B. N80,000 C. N88,000 D. N92,000
Answer: Raw materials consumed + Direct wages + Royalties
= (N62,000 + 10,000 + 20,000) = N92,000
36. What is the production cost?
A. N120,000 B. N128,000 C. N132,000 D. N142,000
Answer: Prime cost + factory overhead
= (N92,000 + 40,000) = N132,000

280
2016/8 Neco
The following figures were extracted from the books of Jamy, a manufacturer for the year ended 31st December, 2001.
N
Stock of raw materials:
January 1st 5,064
December 31st 7,138
Stock of finished goods:
January 1st 8,216
December 31st 9,864
Sales 185,600
Office rent 1,050
Purchases of raw materials 38,000
Carriage inward on raw materials 520
Manufacturing wages 33,850
Factory expenses 2,180
Depreciation:
Plant & machinery 2,800
Motor van 800
Work in progress:
January 1st 630
December 31st 750
Factory fuel 2,100
Advertisement 410
Motor running expenses 1,350
Salesmen’s commission 690
Maintenance of factory equipment 9,450
Lighting(3/5 Factory)
(2/5 Office) 7,500
Salaries (Factory N3,700) 6,000
Insurance (office N1,500) 4,500

You are required to prepare Manufacturing, Trading and Profit and Loss Account for the year ended 31 st December,
2001

281
Solution
JAMY LIMITED
Manufacturing, Trading and Profit and Loss Account for the year ended 31st December, 2001.
RAW MATERIALS: N N N N
Opening stock 5,064 Cost of production c/d 97,906
Purchases 38,000
Carriage 520
C.R.M.A.U 43,584
Closing stock (7,138)
C.R.M.C. 36,446
Manufacturing Wages 33,850
Prime - cost 70,296

FACTORY OVERHEAD:
Factory expenses 2,180
Factory fuel 2,100
Factory equipment maintenance 9,450
Lighting (3/5 × 7500) 4,500
Salaries 3,700
Insurance 3,000
Depreciation: Plant &machinery 2,800 27,730
98,026
Add: W.I.P (Start) 630
Less: W.I.P (Close) (750)
97,906 97,906

FINISHED GOODS:
Opening stock 8,216 Sales 185,600
Production cost b/d 97,906
C.G.A.S 106,122
Closing stock (9,864)
Cost of goods sold 96,258
Gross profit c/d 89,342
185,600 185,600

EXPENSES:
Office rent 1,050 Gross profit b/d 89,342
Advertisement 410
Motor running expenses 1,350
Salesmen’s commission 690
Lighting (2/5 × 7500) 3,000
Salaries 2,300
Insurance 1,500
Depreciation: Motor van 800
Net profit c/d 78,242
89,342 89,342

Note:
3
Lightening (factory overhead) = × 7,500 = N4,500
5
2
Lightening (office/expenses) =
5
× 7,500 = N3,000
N7,500

282
2018/12 NABTEB (ADVANCED) (Nov)
The following balances were extracted from the books of Plastic Business for the year ended 31st December, 2015.
Stock at 1/1/2015 N
Raw materials 10,500
Work – in – progress 2,500
Finished goods 13,500
Sales 70,000
Purchases of raw materials 21,000
Manufacturing wages 6,900
Manufacturing expenses 5,600
Royalties 5,000
Administrative expenses 4,000
Selling and distribution expenses 4,500
General expenses 3,300
Indirect labour 2,000
Factory building 12,000
Factory equipment 10,000
Motor van 9,000

Additional information:
(i) Stock at 31/12/2015
Raw materials N9,000
Work–in–progress 3,500
Finished goods 8,000
(ii) Assets are depreciated at 5% per annum.
1 2
(iii) General expenses are to be apportioned: Factory 3, Office 3.
(iv) Manufactured goods are transferred to trading department at N51,000.
(v) Returns inwards (finished goods) was N1,000.

You are required to prepare: A manufacturing, Trading, profit and loss account for the year ended 31st December, 2015.

283
Solution
PLASTIC BUSINESS LTD:
Manufacturing, Trading and Profit and Loss Account for the year ended 31st December, 2015.
RAW MATERIALS: N N N N
Opening stock 10,500 Market value 51,000
Purchases 21,000
C.R.M.A.U 31,500
Closing stock (9,000)
C.R.M.U. 22,500
Manufacturing wages 6,900
Manufacturing expenses 5,600
Royalties 5,000
Prime cost 40,000

FACTORY OVERHEADS:
Indirect labour 2,000
Depreciation: Factory building 600
Factory equipment 500
General expenses (1/3 ) 1,100 4,200
44,200
Add: W.I.P (Begin) 2,500
Less: W.I.P (Close) (3,500)
Production cost 43,200
Manufacturing profit 7,800
Market value 51,000 51,000

FINISHED GOODS:
Opening stock 13,500 Sales 70,000
Goods produced 51,000 Less: returns (1,000) 69,000
C.G.A.S 64,500
Closing stock (8,000)
Cost of goods sold 56,500
Gross profit 12,500
69,000 69,000

EXPENSES:
Administrative Expenses 4,000 Gross profit b/d 12,500
Selling & distribution Expenses 4,500 Manufacturing profit 7,800
General expenses (2/3 ) 2,200
Depreciation: Motor van 450
Net profit c/d 9,150
20,300 20,300

Note: Apportionment of general Expenses

1
▪ General expenses (factory) = 3 × 3,300 = N1,100
2
▪ General expenses (office expenses) = × 3,300 = N2,200
3

▪ Depreciation of assets:
5
- Factory building =
100
× 12,000 = N600
5
- Factory equipment = × 10,000 = N500
100
5
- Motor van = × 9,000 = N450
100

284
2005/5 Neco
Obodoechina P.Y.Z is a Manufacturer of plastic materials with its base at Mangu in Plateau State. The following
balances have been extracted from the books of the business for the year ended 31st December, 2004.
DR CR
Stock at January, 2004: N N

Raw materials 10,000

Work–in–progress 5,000
Finished goods 8,500
Manufacturing wages– Direct 8,350
Indirect 4,440

Capital 40,500
Drawings 1,450
Insurance 520
Travelling expenses 1,300
Rent and rates – factory 1,800
Freehold premises 13,000
Plant and machinery – factory 20,000
Sales 100,860
Cash 8,000
Bank 3,000
Salaries and Wages 4,000
Debtors and Creditors 5,000 10,120
Purchases of Raw materials 50,500
Discount received 430
Discount allowed 400
Selling and administration expenses 3,650 ______
151,910 151,910

Additional information:
(i) Stock at 31st December, 2004:
Raw materials N12,600
Work – in – progress 6,850
Finished goods 8,120
(ii) Depreciation provision is to be provided on plant and machinery at 10% per annum.
(iii) Rent and rates paid in advance N650.
(iv) A provision for bad debts of N450 is to be made.

You are required to prepare Manufacturing, Trading and Profit and Loss Account for the year ended 31 st December,
2004.

285
Solution
OBODOECHINA P.Y.Z LTD:
Manufacturing, Trading ,Profit and Loss Account for the year ended 31st December, 2015.
RAW MATERIALS: N N N N
Opening stock 10,000 Cost of production 61,990
Purchases 50,500
C.R.M.A.U 60,500
Closing stock (12,600)
C.R.M.C. 47,900
Manufacturing wages 8,350
Prime cost 56,250

FACTORY OVERHEAD:
Manufacturing wages 4,440
Rent and rates 1,150
Depreciation: Plant and Machinery 2,000 7,590
63,840
Add: W.I.P (Beginning) 5,000
Less: W.I.P (End) (6,850)
Production cost 61,990 61,990

FINISHED GOODS:
Opening stock 8,500 Sales 100,860
Production cost 61,990
C.G.A.S 70,490
Closing stock (8,120)
Cost of goods sold 62,370
Gross profit c/d 38,490
100,860 100,860
Insurance 520 Gross profit b/d 38,490
Travelling expenses 1,300 Discount 430
Salaries and wages 4,000
Discount allowed 400
Selling &Admin. Expenses 3,650
Provision for bad debts 450
Net profit c/d 28,600
38,920 38,920

Note:
10
- Depreciation on plant and machinery = × 20,000 = N2,000
100

2020/9
The following information was extracted from the books of Okere manufacturing company for the year ended 31 st
December, 2016.

$
Stock (01 – 01 – 16): Raw materials 61,450
Finished goods 84,650
Work-in-progress 3,140
Wages 14,150
Carriage inwards of raw materials 650
Purchase of raw materials 42,360
Royalties 1,040
Plant and machinery ($50,000) 40,000
Factory expenses 11,430
Factory power 6,050
Rent 2,400
Insurance 3,000
Discount allowed 1,430
Carriage outwards 610
Sales 292,400
Salesmen salaries 41,200
Office stationary 4,300
286
Additional information:
(j) Closing stock as at 31 – 12 – 16 $
- Raw materials 30,420
- Finished goods 7,200
- Work-in-progress 1,680
(ii) Rent paid in advance 550
(iii) Insurance outstanding 600
(iv) Office stationary accrued 700
(v) Depreciation on plant and machinery at
10% per annum cost.

You are required to prepare a manufacturing, trading profit and loss account for the year ended 31st December, 2016.
Solution
OKERE MANUFACTURING COMPANY
Manufacturing, Trading, Profit and Loss Account for the year ended 31st December, 2016.
RAW MATERIALS $ $
Opening stock of raw materials 61,450
Add: purchases of raw materials 42,360
Carriage inwards on R.M 650 43,010
104,460
Less: Closing stock of raw materials (30,420)
Cost of raw materials used 74,040
Add: Direct wages 14,150
Royalties 1,040
Prime cost of production 89,230

Add: FACTORY OVERHEADS

Factory expenses 11,430
Factory power 6,050
Depreciation of plant and machinery 5,000 22,480
111,710
Add: Work-in-progress (start) 3,140
Less: Work-in-progress (close) (1,680)
Cost of production 113,170

Sales 292,400
Less: COST OF GOODS:
Opening stock of finished goods 84,650
Add: Production cost 113,170
Cost of goods available 197,820
Less: Closing stock (7,200) (190,620)
Gross - profit 190,620 101,780

Less: OTHER EXPENSES

Rent 1,850
Discount allowed 1,430
Insurance 3,600
Office stationary 5,000
Carriage outwards 610
Salesman salaries 41,200 (53,690)
Net profit 48,090

Note:
10
(i) Depreciation of plant & machinery: = × 50,000 = N5,000
100
(ii) Rent: N2,400 – 550 = N1,850
(iii) Insurance: N3,000 + 600 = N3,600
Office stationery: N4,300 + 700 = N5,000
2021/5
The difference between the market value of goods produced and the cost of production is
A. net profit on goods sold B. gross profit on manufacturing
C. closing stock of work – in – progress D. prime cost of manufacturing
Answer: Gross profit on manufacturing (B)
287
2021/16
The type of stock recorded in the trading account of a manufacturing business is
A. raw materials B. work – in – progress C. consumables D. finished goods
Answer: Finished goods (D)

2021/33
Manufacturing account is prepared to determine the
A. cost of goods sold B. cost of goods produced C. profit on goods produced D. value of work – in – progress
Answer: Cost of goods produced (B)

1997/3
(a) What is prime cost?
(b) Explain the components of prime cost.
Answer
(a) Prime cost is the total sum of direct cost, i.e. direct materials + direct labour + direct expenses.
(b) Components of prime cost:
(i) Direct materials: Is the cost incurred on raw materials that can be traced to the unit being produced.
(ii) Direct labour: is the wage of the workers which can be traced to the unit being produced.
(iii) Direct expenses: Are other expenses that are specifically incurred on the unit being produced.

2000/7 (Nov) Exercise 13.1

B. Akwe is a manufacturer of kitchen furniture. His list of balances as at 31st December, 1988 is as follows:
N
Plant and machinery 72,000
Motor vehicles 36,000
Loose tools at cost 10,800
Sales 204,000
Purchases of raw materials 51,000
Factory wages 46,800
Light and power 6,000
Machinery repairs 9,120
Motor vehicle running expenses 14,400
Rent and insurance 13,920
Administrative staff salaries 37,200
Administrative expenses 10,800
Sales/distribution staff salaries 15,600
Capital at 1st January, 1998 146,400
Sundry debtors 19,800
Sundry creditors 13,440
Cash in hand 10,200
Drawings 7,200
Stock of raw materials 1/1/98 600

Additional information:
(a) Light and power charged accrued at 31st December, 1998 amounted to N1,000 and insurance prepaid at the
same date totaled N960
(b) Stocks were valued at cost on 31st December, 1998 as follows:
- Raw materialsN8,400.
- Finished goodsN12,000.
(c) Goods manufactured during the year are to be transferred to the trading account at N114,000.
(d) Motor vehicle expenses are to be allocated equally to factory expenses and general administrative expenses.
(e) Loose tools on hand on 31st December, 1998 were valued at N6,000.
(f) Plant and machinery and motor vehicle are to be depreciated at the rate of 10% and 25%.
You are required to prepare a manufacturing, trading and profit and loss account for the year ended 31 st December,
1998.

288
2011/5 Neco Exercise 13.2
The following information is taken from the books of Lauratu manufacturer at the close of their trading period.
N
Stock of raw materials Jan. 1st 20,000
raw materials Dec. 31st 11,500
manufactured goods Jan. 1st 40,500
st
manufactured goods Dec. 31 30,000
Work in progress Jan. 1st 3,000
Work in progress Dec.31st 4,000
Purchases of raw materials 150,000
Factory wages 120,000
Direct expenses – carriage 5,000
Factory rent 11,600
Factory repairs 20,100
Plant repairs 30,900
Indirect wages – supervisors 50,000
Work managers salary 11,400
Insurance for factory 20,000
Sales 605,000
Sales returns 5,000
Administrative overhead:
Office salaries 20,000
General expenses 30,000
Selling expenses:
Salaries (salesmen) 50,000
Sales commission 5,000
Advertising expenses 20,500
Public relation expenses 10,000

Distribution expenses:
Wages 5,000
Van expenses 9,000

You are required to prepare manufacturing, trading, profit and loss account for the year ended 31st December, 2006.

1997/5 ( Nov) Exercise 13.3

The following balances were extracted from the books of Ayelabowo Manufacturing Company Limited as at 30 th April, 1995.

Stock 1st May, 1994: N

Raw materials 15,500
Work - in - progress 18,000
Finished goods 23,000
Purchases of raw materials 46,500
Carriage: raw materials 1,360
Finished goods 840
Factory wages 4,760
Office salaries 2,370
Repairs to plant 3,820
Deprecation of plant 5,000
Factory expenses 2,900
Rent and rates 3,000
Sales 84,000
Additional information:
(a) Stocks at 30th April, 1995 were:
Raw materials N16,050
Work – in – progress N17,900
Finished goods N19,500
(b) Common expenses are to be apportioned between factory and office at ratio 2:1.
You are required to prepare a manufacturing, trading, profit and loss account for the year ended 30thApril, 1995.

289
2000/5 Neco Exercise 13.4
Givari Company is a manufacturing concern. The following data, relating to the year 1998, were obtained from their books.
N
Work in progress (1/1/98) 2,000.00
Raw materials purchases 40,000.00
Carriage on purchases 1,000.00
Manufacturing wages 100.00
Stock of raw materials (31/12/98) 3,000.00
Work in progress (31/12/98) 1,500.00
Depreciation: Plant and machinery 3,000.00
Delivery vans 1,000.00
Office furniture 500.00
Stock of finished goods (1/1/98) 3,200.00
Sales 210,000.00
Factory expenses 21,000.00
Factory power 3,000.00
Carriage outwards 200.00
Commission paid 400.00
Stock of finished goods (31/12/98) 2,100.00
Cash discount received 500.00
Cash discount allowed 300.00

You are required to prepare:(a)a manufacturing account,

(b) a trading account,
(c) a profit/loss account for the year ended 31st December, 1998.

2018/44-46 Neco Exercise 13.5

Use the following information to answer questions 44 to 46
Opening Closing
entries entries
N N
Stock of raw materials 5,000 6,000
Work – in – progress 8,000 9,000
Stock of finished goods 7,600 8,100
Other information are:
Factory rent N4,000, machinery repair N1,340, work manager’s salary N10,600, factory wages N2,600 and
purchases of raw materials is N34,000.

44. The cost of raw materials used is

A. N40,000 B. N39,000 C. N33,000 D. N28,000 E. N24,000

45. The cost of goods manufactured is

A. N74,940 B. N60,000 C. N50,500 D. N23,100 E. N20,000

46. The total of factory overhead is

A. N15,940 B. N14,600 C. N11,940 D. N9,340 E. N5,340

2011/21-24 Exercise 13.6

Use the information to answer questions 21 to 2
N
Opening of raw materials 10,000
Purchase of raw materials 20,000
Direct wages 3,000
Carriage on raw materials 500
Factory rent and rates 500
Work-in-progress at start 2,000
Work-in-progress at close 1,200
Royalties 1,000
Closing stock of raw materials 2,000

290
21. Calculate the cost of raw materials consumed
A. N35,500 B. N30,000 C. N28,500 D. N20,000

22. The value of prime cost is

A. N32,500 B. N30,000 C. N27,500 D. N20,000

23.Manufacturing cost is
A. N34,000 B. N33,800 C. N32,100 D. N31,500

24.The factory overhead is

A. N1,500 B. N1,200 C. N1,000 D. N500

2006/31-33 Exercise 13.7

Use the following information to answer questions 31 to 33.
D
Opening stock: raw materials 10,000
work – in – progress 16,000
Purchases of raw materials 95,500
Direct labour wages paid 13,500
Royalties paid 6,200
Accrued wages 2,800
Closing stock: raw materials 7,500
work – in – progress 8,500
Manufacturing overhead 10,000

31. Cost of raw materials consumed is

A. D113,000 B. D105,500 C. D98,000 D. D95,000
32. Prime cost is
A. D120,500 B. D117,700 C. D114,900 D. D114,300

33. Cost of goods manufactured is

A. D138,000 B. D131,800 C. D130,500 D. D123,000

2006/1 Nov Exercise 13.8

Explain the following: (a) Work – in – progress; (b) Cost of goods produced; (c) Market value of goods produced.

2008/29 Neco Exercise 13.9

Which of the following is a direct expenses?
A. carriage outwards B. depreciation of machine C. gratuity to retired salesman D. office salaries
E. royalties

2003/29 Exercise 13.10

Which of the following is an item of prime cost?
A. royalties payable B. factory salaries C. depreciation of plant D. rent of factory buildings

2009/9 Exercise 13.11

What is the value of raw materials used?
A. D270,500 B. D265,750 C. D236,000 D. D226,250

2009/10 Exercise 13.12

What is the prime cost?
A. D717,500 B. D431,250 C. D286,250 D. D270,500

2009/11 Exercise 13.13

The total factory overhead is
A. D318,750 B. D286,250 C. D255,000 D. D236,250

2022/20 Exercise 13.14

Manufacturing account is prepared to ascertain
A. profit on goods produced B. cost of goods produced C. cost of goods sold
D. profit on goods sold
291
2013/40 – 41
Use the following information to answer questions 40 and 41
GHe
Stock or raw materials 1/1/09 5,000
Stock of raw materials 31/12/09 5,500
Purchases of raw materials 50,000
Carriage inwards 3,000
Direct labour 12,000
Factory overhead 17,500

2013/40 Exercise 13.15

The cost of raw materials consumed is
A. GHe58,000 B. GHe52,500 C. GHe52,000 D. GHe52,500

2013/41 NABTEB Exercise 13.16

The prime cost is
A. GHe64,500 B. GHe64,000 C. GHe58,500 E. GHe52,500

2022/19 NABTEB Exercise 13.17

The following are the elements of prime cost except
A. direct materials B. manufacturing wages C. royalty D. factory expenses
Answer

1995/34 – 38
Use the following information to answer questions 34 – 48

Stock of raw materials at start 1,000

Stock of raw materials at close 1,400
Purchases of raw materials 10,000
Manufacturing wages 42,000
Royalties 300
Indirect wages 18,000
Rent of factory 880
Depreciation of factory plant 800
General indirect expenses 620

1995/34 Exercise 13.18

The cost of raw materials available for use is
A. N18,400 B. N17,000 C. N16,000 D. N15,600 E. N15,000

1995/35 Exercise 13.19

The cost of raw materials consumed is
A. N18,400 B. N17,000 C. N16,000 D. N15,600 E. N15,000

1995/36 Exercise 13.20

Prime cost is
A. N78,200 B. N60,200 C. N57,900 D. N57,600 E. N33,900

1995/37 Exercise 13.21

Factory overhead amounts to
A. N20,600 B. N20,300 C. N19,680 D. N18,880 E. N18,000

1995/38 Exercise 13.22

Cost of production amounts to
A. N78,200 B. N60,200 C. N59,900 D. N57,600 E. N33,900

292
Exercise 13.23
Mr. Adaka is a manufacturer. From the following prepare the Manufacturing, Trading, Profit and Loss account for the
year ended 31st December, 2014.
N
st
Stock of goods 1 January, 2014:
Raw materials 250,000
Finished goods 350,000
Work – in – progress 150,000
Purchases of raw materials 2,500,000
Manufacturing wages 750,000
Royalties 15,000
Fuel and power 8,500
Lubricants 30,000
Factory insurance 10,500
Factory rates 2,000
Carriage on raw materials 50,000
Delivery van expenses 6,000
Depreciation: Plant and machinery 87,500
Delivery van 12,500
Office equipment 15,000
Advertising 52,500
Salesman commission 3,000
Sales 12,500,000
Stock at 31st December, 2014:
Raw – materials 225,000
Work – in – progress 101,000
Finished goods 230,000
1999/ Nov Exercise 13.24
Batwum Industries Ltd. are manufacturers of Filling cabinets. The following information relates to the operation of the
company for the period of January 1st, 1997 to December 31st, 1997.
N
Insurance of office 20,000
Printing expenses 30,000
Stock of raw materials:
01 – 01 – 1997 425,000
31 – 12 – 1997 450,000
Purchases of raw materials 600,000
Wages of factory workers 200,000
Carriage on raw materials 20,000
Factory supervisors salaries 120,000
Selling and distribution expenses 180,000
Sales 1,600,000
Discount received 60,000
Electricity expenses on factory 200,000
Carriage on sales 90,000
Damaged raw materials returned 80,000
Work – in – progress: 01–01–1997 300,000
31–12–1997 250,000
Office wages and salaries 110,000
Discounts allowed 40,000
Stock of finished goods: 01–01–1997 100,000
31–12–1997 250,000
Additional information:
(a) Goods are to be transferred at cost plus 20%
(b) Electricity owing N20,000.

You are required to prepare Manufacturing, Trading, Profit and Loss Account for the year ended 31st December, 1997.
293
Exercise 13.25
(a) List 3 categories of inventories to a manufacturing concern.
(b) The following balances were extracted from the books of Imodje Manufacturing Ltd. for the year ended 31 st
December, 2016.
N
st
Stock 1 January, 2016:
Raw – materials 70,000
Work – in – progress 40,000
Finished goods 50,000
Sales of finished goods 2,000,000
Purchases of raw materials 800,000
Carriage inwards 56,000
Carriage outwards 31,400
Factory power 72,000
Manufacturing wages 150,000
Direct expenses 21,400
General expenses 17,000
Lubricants 60,000
Factory salaries 52,000
Factory lighting 13,300
Salesmen’s salaries 14,500
Office rent 15,900
Office insurance 16,000
Factory rent and rates 13,000
Depreciation of machinery 30,000
Depreciation of motor vehicle 20,000
Discount allowed 10,300
Discount received 2,200
Stock 1st December, 2016:
Raw materials 80,000
Work – in – progress 32,000
Finished goods 44,200

You are required to prepare Manufacturing, Trading and Profit and Loss Accounts for the year ended 31 st December,
2016.

294
Chapter Fourteen
INCOMPLETE RECORDS AND SINGLE ENTRY
INCOMPLETE RECORDS
A business is supposed to maintain a complete set of double entry record leading to the preparation of the trial balance
and final accounts. These records include the journals and the day books, the ledger and the cashbook. Incomplete record
refers to a situation where the accounting records falls short of the complete double entry system in one or more material
ways.

REASONS FOR INCOMPLETE RECORDS

Incomplete records may be due to the following reasons:
(i) Loss of records due to theft, fire or natural disasters.
(ii) Inability to maintain or keep business transactions due to time and cost involved.
(iii) Deliberate omission to maintain records to take advantage of taxation.
(iv) Lack of knowledge about double entry system.

LIMITATIONS OF INCOMPLETE RECORDS

The following are some of the limitations of incomplete records:
(i) Internal checks cannot be enforced.
(ii) Inability to check the arithmetical accuracy of transactions.
(iii) Correct ascertainment and evaluation of the financial results of business operations cannot be made.
(iv) There is absence of books of original entry which make it impossible to trace transactions to their roots.

DETERMINATION OF PROFIT OR LOSS

To ascertain the profit or loss for the period under incomplete records, the format below is adopted:
N
Closing capital X
Less: opening capital (X)
Apparent profit X
Add: drawings X
X
Less: capital introduce (X)
True business profit/loss X

SINGLE ENTRY
The term single entry refers to a situation where only the personal aspects of the transactions are recorded. This means
that the real and nominal accounts are completely left out. Thus, normal set of final accounts cannot be prepared. Also
the profit or loss of the business cannot be ascertained without additional information from the owner of the business.

In order to determine the financial position of the business, an accountant must use his/her professional skills to prepare
the necessary ledger accounts and opening statement of affairs that will facilitate the determination of such financial
performance and position.

ADVANTAGES OF SINGLE ENTRY

1. Simple and easy: Single entry system is simple to understand and easy to maintain as it has fixed set of principles
to follow while recording financial transactions.
2. Economy: Single entry system is an economical system of recording financial transactions. It does not require hiring
skilled accounting personnel to record financial transaction of the business. Further, it does not require large
numbers of books to record the limited number of financial transactions.
3. Easy to calculate profit: Under single entry system, the amount of profit can be determined easily. The amount of
profit or loss of the period can be determined by making comparison between the amount of closing capital and
opening capital.
4. Suitable for small business: The single entry system is simply, easy and economical system. It is suitable for small
business because they cannot afford the cost of double entry system. Besides, small businesses are not required to
maintain their books of account under double entry system.

295
DISADVANTAGES OF SINGLE ENTRY SYSTEM
1. Unscientific and unsystematic: The single entry system is unsystematic and unscientific system of recording
financial transactions. It does not have any set of fixed rules and principle for recording and reporting the financial
transactions.
2. Incomplete system: It is an incomplete system because it does not record the two aspect or account of all the
financial transactions of the business. It does not maintain any record of the transactions relating to the nominal
account and real account except cash account.
3. Lack of arithmetical accuracy: It is not based on the principle of debit and credit. It fails to provide the arithmetical
accuracy of the books of account. Trial balance cannot be prepared under this system to check the arithmetical
accuracy of books of account.
4. Frauds and errors: It is incomplete, inaccurate and unscientific. It does not help to check the arithmetic accuracy
of the book of account. Therefore, there is always a possibility of committing frauds and errors in the book of
account.
5. It does not reflect true profit or loss: Under this system, the true amount of profit or loss cannot be ascertained
because it does not maintain the nominal account.

PREPARATION OF STATEMENT OF AFFAIRS

The basic approach to ascertaining the operating result of a business where very scanty records have been kept is by
preparing statement of affairs. This entails preparing a form of balance sheet and ascertaining the differences between
assets and liabilities which is known as net worth or capital. The difference between the net worth at the beginning and
at the end of the period represents profit or loss. Below is a format of a typical statement of affair:

N N
Assets:
Land and building X
Furniture and fittings X
Motor vehicles X
Plant and machinery X
Debtors X
Stock X
Cash X
Bank X
Prepaid expenses X
X
Less: liabilities
Creditors X
Accrued expenses X
Bank overdraft X
Bills payable X (X)
Capital X

Illustration 14.1
Arodowe, a Sole Proprietor did not keep complete records. However, he was able to ascertain the following for the year
ended 31st August, 2015.
2014 2015
Motor vehicles 10,000 8,000
Premises 7,000 6,000
Plant and machinery 20,000 20,000
Stock 7,500 9,000
Debtors 9,000 12,000
Cash 1,000 3,000
Creditors 3,000 2,000
Loan – First Bank Ltd 7,000 5,000
Bank 10,000 15,000

You are required to determine the profit for year ended 31st August, 2015.

296
Solution
ARODOWE
Statement of profit for the year 31st December, 2015
N N N
Capital at end:
Assets at end:
Bank 15,000
Motor vehicles 8,000
Premises 6,000
Plant and machinery 20,000
Stock 9,000
Debtors 12,000
Cash 3,000 73,000

Less: liabilities at end:

Creditors 2,000
Loan 5,000 (7,000)
66,000
Less: capital at beginning:
Assets at beginning:
Motor vehicle 10,000
Premises 7,000
Plant and machinery 20,000
Stock 7,500
Debtors 9,000
Cash 1,000
Bank 10,000
64,500
Less: liabilities at beginning:
Creditors 3,000
Loan 7,000 (10,000) (54,500)
Net profit 11,500

Alternatively:
Step 1: Prepare a statement of affairs to determine opening capital and closing capital.
Statement of affairs as at:
2014 2015
Add: Assets: N N N N
Motor vehicles 10,000 8,000
Premises 7,000 6,000
Plant and machinery 20,000 20,000
Stock 7,500 9,000
Debtors 9,000 12,000
Cash 1,000 3,000
Bank 10,000 15,000
64,500 73,000
Less: Liabilities:
Creditors 3,000 2,000
Loan 7,000 (10,000) 5,000 (7,000)
Capital 54,500 66,000

Note: Capital = Asset – liabilities

Step II: Prepare statement of profit.

ARODOWE:
Statement of profit as at 31st August, 2015
N
Closing capital 66,000
Less: opening capital (54,500)
Net profit 11,500
297
2019/39 Neco
Another name for incomplete records is
A. balance sheet B. double entry C. general ledgers D. single entry E. trial balance
Answer: Single entry (D)

2019/40 Neco
A statement of affair is equivalent to a/an
A. appropriation account B. balance sheet C. profit and loss account D. trading account E. trial balance
Answer: Balance sheet (B)

2003/1 (Nov)
Capital is determined under a single entry system by preparing
A. a statement of affairs B. an expenses control account C. an income statement D. a receipt and payment account
Answer: A statement of affairs (A)

2016/10 Neco
Below is an extract from the books of Folashade and company:
N
Capital 1/1/2013 12,000
Capital 31/12/2013 16,400
Drawings were made at the rate of N400 per month. New capital introduced by the proprietor was N2,000 in the year.
Find the profit of the business for the period.
A. N2,000 B. N3,600 C. N4,800 D. N7,200 E. N12,000 Answer: N7,200 (D)
Workings:
Statement of profit as at 31st December, 2013
N
Closing capital 16,400
Less: Opening capital (12,000) 4,400

Add: Drawings (N400 × 12) 4,800

9,200
Less: New Capital (2,000)
Net - Profit 7,200
2016/14-16 Neco
Use the information below to answer questions 14 to 16
31/12/2010 31/12/2011
N N
Furniture and fittings 15,000 20,000
Office equipment 10,000 12,000
Debtors 1,500 1,800
Creditors 1,200 1,300
Cash at bank 3,000 5,000
Accrued rent - 500
Monthly drawings are N500.

14. Determine the opening capital

A. N19,300 B. N19,800 C. N28,300 D. N29,100 E. N29,500
Answer: (N29,500 – 1,200) = N28,300 (C)

15. What is the closing capital?

A. N36,000 B. N37,000 C. N39,300 D. N40,100 E. N40,600
Answer: (N38,800 – 1,800) = N37,000 (B)

16. What is the net - profit?

A. N6,700 B. N8,700 C. N9,200 D. N10,500 E. N14,700
Answer: (N37,000 – 28,300) = N8,700 (B)

298
Workings:
Step I: Prepare a statement of affairs to determine opening and closing capital.
Statement of affairs as at:
31/12/2010 31/12/2011
Assets: N N
Furniture and fittings 15,000 20,000
Office equipment 10,000 12,000
Debtors 1,500 1,800
Cash at bank 3,000 5,000
29,500 38,800

Less: liabilities:
Creditors (1,200) (1,300)
Accrued rent - (500)
28,300 37,000

Step II: Prepare statement of profit to determine profit or loss.

Statement of profit as at 31st December, 2011
N
Closing capital 37,000
Less: opening capital (28,300)
Net profit 8,700
2006/2a
Which of the following is not used in solving problems of incomplete records?
A. control accounts B. statement of affairs C. cash book D. trial balance
Answer: Trial balance (D)
2005/26 (Nov)
A system where records maintained are inadequate to facilitate the preparation of a trading, profit and loss account is
referred to as
A. single entry B. double entry C. control accounts D. company dissolution
Answer: Single entry (A)

2015/7
Odum Ltd keeps his books on single entry basis and the following information relates to his business for the year 2014.
1st January, 2014 31st December,2014
Assets and liabilities: GH¢ GH¢
Investments - 1,000
Bills payable - 300
Creditors 1,750 1,900
Debtors 2,100 3,400
Cash 150 200
Stock 1,000 1,250
Motor car 2,000 2,000
Loan from Nyadu - 500
In addition, Odum withdrew an amount of GH¢500 and introduced GH¢200 additional capital
(a) You are required to ascertain: i. Opening capital; ii. Closing capital; iii. Net profit.
(b) Prepare the balance sheet as at 31st December, 2014.
Solution
a (i) Determination of opening capital:
Statement of Affairs as at 1st January, 2014
Add: Assets: GH¢ GH¢
Investments -
Debtors 2,100
Cash 150
Stock 1,000
Motor car 2,000
5,250
Less: liabilities:
Creditors 1,750
Loan -
Bills payable - (1,750)
Opening capital 3,500

299
(ii) Determination of Closing capital:
Statement of Affairs as at 31st December, 2014 (iii) Determination of Net profit
Add: assets: GH¢ GH¢
Statement of profit as at 31st December, 2014
Investment 1,000
Debtors 3,400 GH¢
Cash 200 Closing capital 5,150
Stock 1,250 Less: opening capital (3,500)
Motor car 2,000 1,650
7,850 Add: Drawings 500
Less: liabilities: 2,150
Bills payable 300 Less: Additional capital (200)
Creditors 1,900 Net profit 1,950
Loan – Nyadu 500 (2,700)
Closing capital 5,150

(b) ODUM LIMITED:

Balance sheet as at 31st December, 2014
GHC GHC Fixed assets: GH¢ GH¢
Capital (3,500 + 200) 3,700 Motor car 2,000
Add: Net – profit 1,950 5,650 Investment 1,000
Less: Drawings (500) 3,000
5,150
Current liabilities: Current assets:
Creditors 1,900 Stock 1,250
Bills payable 300 Debtors 3,400
Loan 500 2,700 Cash 200 4,850
7,850 7,850

2018/6 Neco
The following is the summarized cashbook of Anu Usman for the year ended 31st March, 2013.
Dr Cash book Cr
N N
Opening balance 2,343 Cash paid to creditors 11,056
Cash from debtors 18,235 Salaries 1,080
Additional capital 6,000 Postage and stationery 240
General expenses 1,234
Drawings 2,500
Rent and rates 570
Balance c/d 9,898
26,578 26,578

Additional information:
1st April, 2012 31st March, 2013
N N
Stock 560 340
Debtors 1,202 988
Creditors 980 1,051
Accrued salaries 320 75
Prepaid rent 44 67
Motor van 1,000 1,000

You are required to prepare:

(i) Statement of affairs as at 1st April, 2012. (ii) Debtors and Creditors Control Account.
(iii) Trading, profit and loss account. (iv) Balance sheet as at 31st March, 2013.

300
Solution
(i)
Statement of affairs as at 1st April, 2012
Assets: N N
Cash 2,343
Stock 560
Debtors 1,202
Motor van 1,000
Prepaid rent 44
5,149
Less: liabilities:
Creditors 980
Accrued salaries 320 (1,300)
Opening capital 3,849

Note: Capital = Assets – liabilities.

(ii)
Dr Debtors control account Cr
N N
Opening balance 1,202 Closing balance 988
Sales 18,021 Cash from debtors 18,235
19,223 19,223
Note: Debit – opening balance
Credit – closing balance

Dr Creditors control account Cr

N N
Closing balance 1,051 Opening balance 980
Cash paid 11,056 Purchases 11,127
12,107 12,107
Note: Credit– opening balance
Debit – closing balance

(iii) ANU USMAN

Dr. Trading, Profit and Loss Account for the year ended 31st March, 2014 Cr.
N N N N
Opening stock 560 Sales 18,021
Purchases 11,127
C.G.A.S 11,687
Closing stock (340)
Cost of goods sold 11,347
Gross profit c/d 6,674
18,021 18,021

Salaries 835 Gross profit b/d 6,674

Rent 547
Postages and Stationery 240
General expenses 1,234
2,856
Net- profit c/d 3,818
6,674 6,674

301
(iv) ANU USMAN:
Balance sheet as at 31st March, 2013
N N Fixed asset: N N
Capital 3,849 Motor van 1,000
Add: additional capital 6,000
9,849 Current assets:
Add: Net profit 3,818 Stock 340
13,667
Less drawings (2,500) 11,167 Debtors 988
Prepaid rent 67
Current liabilities: Cash 9,898 11,293
Creditors 1,051
Accrued Salary 75 1,126
12,293 12,293

2019/6 NABTEB (Nov) Adjusted

J. Esisi have kept records of his business transaction in a single entry form but he did not realize that he had to record cash
drawings. His bank account for the year 2004 is as follows:
N N
Balance 1/1/2004 1,890 Cash withdrawn from bank 5,400
Receipt from debtors 44,656 Trade creditors 31,695
Loan from T. Ufot 2,000 Rent 2,750
Rates 1,316
Drawings 3,095
Sundry expenses 1,642
Balance c/d 2,648
48,546 48,546

Records of cash paid were: sundry expenses N1,220.50, cash sales amounted to N698, trade creditors N642.
The following information is also available.
31/12/2003 31/12/2004
N N
Cash at hand 48 93
Trade creditors 4,896 5,091
Debtors 6,013 7,132
Rent owing ─ 250
Rates in advance 282 312
Motor van 2,800 2,400
Stock 11,163 13,021
You are required to prepare: (a) Trading, Profit and Loss Account for the year ended 31/12/04
(b) Balance sheet as at 31/12/2004

302
Solution
(a) Before a complete set of final account can be prepared, we need to prepare the following account to ascertain the missing
figures: sales, purchases, opening capital, rent and rates.
(i) Statement of affairs as at 31st December, 2003.
(ii) Debtors and creditors control account.
(iii) Rents and rates control account.
(iv) Cash book (two column)
Statement of affairs as at 31st December, 2003.
Assets: N N
Cash in hand 48
Cash at bank 1,890
Debtors 6,013
Rates in advance 282
Motor van 2,800
Stock 11,163
22,196
Less: liabilities
Creditors 4,896
Rent owing ─ (4,896)
Opening capital as at 31-12-2003 17,300
Dr Debtors Control Account Cr
N N
Opening balance 6,013 Closing balance 7,132
Credit sales 45,775 Cheque received 44,656
51,788 51,788

Dr Creditors Control Account Cr

N N
Closing balance 5,091 Opening balance 4,896
Cash paid 642 Purchases 32,532
Cheque paid 31,695
37,428 37,428

Dr Rent Control Account Cr

N N
Closing balance 250 Opening balance ─
Bank 2,750 Profit and Loss 3,000
3,000 3,000

Dr Rates Control Account Cr

N N
Opening balance 282 Closing balance 312
Bank 1,316 Profit and loss 1,286
1,598 1,598

Dr. Cash book summary Cr.

Date Particulars F Bank Cash Date Particulars F Bank Cash
1-1-04 N N 1-1-04 N N
,, Balance b/d 1,890 48 ,, Cash ‘c’ 5,400
Debtors a/c 44,656 Creditors 31,695 642
Loan a/c 2,000 Rent 2,750
Bank ‘c’ 5,400 Rates 1,316
Cash sales 698 Drawings 3,095 4,190.5
Sundry 1,642 1,220.5
Balance c/d 2,648 93
48,546 6,146 48,546 6,146
31-1-04 Balance b/d 2,648 93

303
Note:
(i) Total sales = N45,775 + 698 = N46,473
(ii) Cash drawings = N6,146 – (N642 + 1,220.5 + 93)
= N4,190.5
(iii) Total drawing = N4,190.5 + 3,095
= N7,285.5
= N7,286

(a) J. ESISI
Dr Trading, Profit and Loss Account for the year ended 31stDecember, 2004 Cr
N N N N
Opening stock 11,163 Sales 46,473 46,473
Purchases 32,532
C.G.A.S 43,695
Closing stock (13,021)
Cost of goods sold 30,674
Gross profit c/d 15,799
46,473 46,473

Rent 3,000 Gross profit b/d 15,799

Rates 1,286
Sundry expenses 2,862.5
Depreciation (2,800-2,400) 400
Net profitc/d 8,250.5
15,799 15,799

(b) J. ESISI
Balance Sheet as at 31st December 2004
N N Fixed asset: N N
Capital 17,300 Motor van 2,400
Add: Net profit 8,250.5
25,550.5
Less drawings (7,285.5) 18,265
Current assets:
Loan 2,000 Stock 13,021
Debtors 7,132
Current liabilities: Cash 93
Creditors 5,091 Bank 2,648
Accrued rent 250 5,341 Rate in advance 312 23,206
25,606 25,606

2006/6 Neco
Iyabo keeps a cash book as her only major book keeping record. The following is a summary of her transactions for the
year ended 30th June, 2003.
Cash book Summary
N N
Opening balance 1,642 Cash paid to creditors 37,284
Cash received from debtors 48,528 Salaries 4,498
Closing balance 2,060 Rent and rates 1,648
Lighting and heating 336
General expenses 3,562
_____ Drawings 4,938
52,230 52,230

304
Her assets and liabilities on 30th of June, 2002 and 2003 were as follows:
30/6/02 30/6/03
N N
Fixed assets at cost 4,400 4,400
Stock 4,242 5,296
Debtors 6,438 6,772
Rent and Rates prepaid 200 240
Creditors 3,684 3,782
Lighting and heating accrued 62 84
Fixed assets should be depreciated at 10% on cost.
You are required to prepare the trading, profit and loss account of Iyabo for the year ended 30th June, 2003 and a balance
sheet as that date.
Solution
Workings:
Iyabo statement of affairs as at 30th June, 2002
Add: Assets N N
Fixed - assets 4,400
Stock 4,242
Debtors 6,438
Rent and Rates prepaid 200
Cash 1,642
16,922
Less: liabilities:
Creditors 3,684
Lighting and heating accrued 62 (3,746)
Opening capital 13,176

Dr Debtors Control Account Cr

N N
Opening balance 6,438 Closing balance 6,772
Sales 48,862 Cheque received 48,528
55,300 55,300

Dr Creditors Control Account Cr

N N
Closing balance 3,782 Opening balance 3,684
Cash paid to creditors 37,284 Purchases 37,382
41,066 41,066

Dr Rent and Rates Control Account Cr

N N
Opening balance 200 Closing balance 240
Cash paid 1,648 Profit and loss a/c 1,608
1,848 1,848

Dr Lighting and Heating Control Account Cr

N N
Closing balance 84 Opening balance 62
Cash paid 336 Profit and loss a/c 358
420 420

305
IYABO
Dr Trading, Profit and Loss Account for the year ended 31stDecember, 2004 Cr
N N N N
Opening stock 4,242 Sales 48,862
Purchases 37,382
C.G.A.S 41,624
Closing stock (5,296)
Cost of goods sold 36,328
Gross profit c/d 12,534
48,862 48,862

Salaries 4,498 Gross profit b/d 12,534

General expenses 3,562
Rent and rates 1,608
Lighting and heating 358
Depreciation 440
Net profit c/d 2,068
12,534 12,534

Iyabo Balance Sheet as at 31st March, 2003

N N N N
Capital 13,176 Fixed assets 4,400
Add: Net profit 2,068 Less: Depreciation (440) 3,960
15,244
Less: drawings (4,938) 10,306
Current liabilities: Current assets:
Creditors 3,782 Stock 5,296
Overdraft 2,060 Debtors 6,772
Accrued: L & H 84 5,926 Prepaid: R & R 240 12,308
16,232 16,268

2020/5
The following transactions were extracted from the books of Odis Enterprise for the year ended 31st December, 2018:
(i) Cash received from trade debtors GH¢100,000.
(ii) Cash paid to suppliers GH¢72,000.
(iii) Expenses paid during the year were: rent GH¢2,500, general expenses GH¢1,800.
(iv) A cash of GH¢5,200 was withdrawn by the proprietor for personal use.
(v) Fixed assets valued at GH¢8,000 on 31st December, 2017 were to be depreciated at 10% per annum.

Additional information:
31st Dec. 2017 31st Dec. 2018
GH¢ GH¢
Trade debtors 11,000 13,200
Trade creditors 4,000 6,500
Rent owing - 500
Cash 12,100 30,600
Stock 15,900 17,000

You are required to prepare:

(a) Statement of affairs at 1st January, 2018;
(b) Cash book;
(c) Trading profit and loss account 31st December, 2018.

306
Solution
(a)
ODIS ENTERPRISES
Statement of Affairs as at 1st January, 2018
Assets: GH¢
Fixed assets 8,000
Stock 15,900
Debtors 11,000
Cash 12,100
47,000
Less: Liabilities
Creditors 4,000
Capital 43,000

Note: Capital = Assets – Liabilities

= 47,000 – 4,300
= GH¢43,000

(b)
ODIS ENTERPRISE CASH BOOK
GH¢ GH¢
Balance b/f 12,100 Cash paid to suppliers 72,000
Cash received from debtors 100,000 Rent 2,500
General expenses 1,800
Drawings 5,200
______ Balance c/d 30,600
112,100 112,100
Balance b/d 30,600

(c)
ODIS ENTERPRISE
Dr Trading, Profit and Loss Account for the year ended 31stDecember, 2018 Cr
GH¢ GH¢ GH¢ GH¢
Opening stock 5,900 Sales 102,200
Add: Purchases 74,500
C.G.A.S 80,400
Less: Closing stock (17,000)
Cost of goods sold 63,400
Gross profit c/d 38,800
102,200 102,200

Rent 2,500 Gross profit b/d 38,800

Add: owing 500 3,000
General expenses 1,800
Depreciation of fixed assets 800
Net profit c/d 33,200
38,800 38,800

Workings:
(i)

Dr Total Debtors Account Cr

GH¢ GH¢
Bal. b/d 11,000 Cash 100,000
Sales 102,200 Bal/ b/d 13,200
113,200 113,200
Bal. b/d 13,200

307
(ii)

Dr Total Creditors Account Cr

GH¢ GH¢
Cash 72,000 Bal. b/d 4,000
Bal c/d 6,500 Purchases 74,500
78,500 78,500
Bal. b/d 6,500
10
(iii) Depreciation of fixed assets:
100
× 8,000 = GH¢800.

2021/5 (Adjusted)
Oluchi is a trader who does not keep a complete set of accounting records but is able to provide the follwiong information
about her business.
01–01–2019 31–12–2019
N N
Debtors 190,000 230,000
Creditors 120,000 90,000
Bank 68,000 124,000
Fittings 150,000 135,000
Expenses accrued 22,000 18,000
Stock 124,000 140,000
Rent prepaid 200,000 100,000

Cash sales were deposited to the bank after payment for expenses of N66,000 and drawings of N30,000.

Her bank account showed the following:

Bank Account as at 31st December, 2019.
N N
Balance b/f (1–1–19) 68,000 Payment to suppliers 320,000
Receipts from customers 236,000 Expenses (Rent) 58,000
Cash deposits from sales 198,000 Balance c/d 124,000
502,000 502,000

You are required to prepare:

(a) Total Debtors Account;
(b) Sales Account;
(c) Total Creditors Account;
(d) Trading, Profit and Loss Account for the year ended 31st December, 2019.
Solution
(a)
Total Debtors Account
N N
Opening balance 190,000 Closing balance 230,000
Sales (credit) 276,000 Receipts from customers 236,000
466,000 466,000
Balance b/d 276,000

(b)
Sales Account
N N
Balance c/d 474,000 Cash 198,000
Sundries 276,000
474,000 474,000
Balance b/d 474,000

308
(c)
Total Creditors Account
N N
Closing balance 90,000 Opening balance 120,000
Payment to suppliers 320,000 Purchases 290,000
410,000 410,000
Balance b/d 290,000

(d)
OLUCHI
Trading, Profit and loss Account for the year ended 31st December, 2019.
N N N N
Opening stock 124,000 Sales 474,000
Purchases 290,000
C.G.A.S 414,000
Closing stock (140,000)
Goods sold 274,000
Gross profit c/d 474,000 474,000

Expenses 62,000 Gross-profit b/d 200,000

Rent 158,000 Net – loss 20,000
220,000 220,000

Notes:
(i) Expenses: N66,000 + 18,000 – (22,000)
= N62,000

(ii) Rent: N58,000 + 200,000 – (100,000)

= N158,000
2021/7
The following is the summarized cash book of James for the year ended 31st March, 2015.
Cash Book
N N
Opening balance 4,686 Purchases 22,254
Additional capital 12,000 Salaries 2,160
Sales 36,042 Postage & stationery 480
General expenses 2,468
Drawings 5,000
Rent and rates 1,140
Balance c/d 19,226
52,728 52,728

Additional information:
Balances April 1st 2014 31st March, 2015
N N
Capital 14,448 -
Stock 1,120 680
Debtors - 1,976
Creditors - 2,102
Accrued salaries 840 150
Prepaid rent 88 134
Prepaid postage 120 98
General expenses – accrued 600 420
Accrued fixed assets 10,000 9,000

You are required to prepare:

(a) Trading, Profit and Loss Account;

309
Solution
(a)
JAMES:
Dr Trading, Profit and loss Account for the year ended 31st March, 2015. Cr
N N N N
Opening stock 1,120 Sales 38,018
Purchases 24,356
C.G.A.S 25,476
Closing stock (680)
Cost of goods sold 24,796
Gross profit c/d 13,222
38,018 38,018

Salaries 1,470 Gross-profit b/d 13,222

Rent 1,094
Postage & Stationery 502
General expenses 2,288
Net – profit 7,868
13,222 13,222

Workings:
(i) Purchases: N22,254 + 2,102 = N24,356
(ii) Sales: N36,042 + N1,976 = N38,018
(iii) Salaries: N2,160 + N150 – N840 = N1,470
(iv) Rent: N1,140 + N88 – N134 = N1,094
(v) Postages: N480 + N120 – N98 = N502
(vi) General Expenses: N2,468 + N420 – N600 = N2,288

1999/5 to 7
Use the following information to answer questions 5 to 7.
N
Debtors (1/1/98) 2,000
Debtors (31/12/98) 1,250
Cash received from debtors 6,000
Bad debts written off 750
Discount allowed 500
Discount received 125

1999/5
What was the amount of sales for the year?
A. N8,500 B. N6,625 C. N6,500 D. N6,000
Answer
N6,500 ⎯⎯→ N1,250 + 6,000 + 750 + 500 – 2,000
N8,500 – 2,000 = 6,500 (C)

1999/6
Assuming a gross profit of N3,000, what was the net profit?
A. N3,375 B. N2,625 C. N2,000 D. N1,875
Answer
N1,875 ⎯⎯→ N3,000 + 125 – (500 + 750)
3,125 – 1,250 = N1,875

1999/7
The debtors balance to be shown in the balance sheet at 31st December, 1988 is
A. N6,000 B. N3,250 C. N2,000 D. N1,250
Answer
N1,250 ⎯ ⎯→ debtors balance as at 31st December, 19998 (D)

310
Workings:
(i) Sales for the year
Dr Total Debtors Control Account Cr
N N
Opening debtors balance 2,000 Closing debtors 1,250
Credit sales 6,500 Cash from debtors 6,000
Bad debts 750
Discount allowed 500
8,500 8,500
Balance b/d 6,500

(ii) Calculation of net – profit:

N N
Assumed Gross – profit 3,000
Add: Discount Received 125
3,125

Less: Expenses:
Bad debts 750
Discount allowed 500 (1,250)
Net – profit 1,875

2017/7 (Theory)
Dauda, a retailer, does not keep proper books of account. The following were balances in his books on January 1,
2013.
Premises 70,000
Equipment 8,200
Vehicles 5,100
Inventory 9,500
Accounts receivable 150
Bank 1,400

The summary of his bank statement for the twelve months period from 1st January, 2013 to 31st December, 2013 is as
follows:
Money paid to the bank D
Shop takings 96,500
Received from debtors 1,400
Additional capital 8,000
Payments made by cheque:
Inventory purchased 70,500
Delivery van 6,200
Maintenance of vehicle 1,020
Electricity and water 940
Store boys’ wages 5,260
Miscellaneous expenses 962

Additional information:
(i) Dauda paid all shop takings for the year into the bank apart from month drawings of D500 and miscellaneous
expenses of D408.
(ii) He was owing D7,600 to supplies for inventory bought.
(iii) The accounts receivable is to be treated as bad debts.
(iv) Inventory was valued at D13,620.
(v) Depreciation for the year was calculated as D720 for equipment and D1,000 for vehicles.

You are required to prepare:

(a) Statement of Affairs as at 01/01/13.
(b) Income Statement for the year ended 31st December, 2013 and
(c) Bank Account.
311
Solution
(a)
DAUDA
Statements of Affairs as at 31st January, 2013
Add: Assets: D D
Premises 70,000
Equipment 8,200
Vehicles 5,100
Inventory 9,500
Account Receivable 150
Bank 1,400
94,350

Less: Liabilities –
Opening capital 94,350

(b)
DAUDA
Income Statement for the year ended 31st December, 2013
D D D D
Opening inventory (stock) 9,500 Sales 104,308
Add: Purchases 78,100
Cost of Goods available for sale 87,600
Less: Closing inventory (13,620)
Cost of goods sold 73,980
Gross – profit c/d 30,328
104,308 104,308

Bad debts 150 Gross profit b/d 30,328

Maintenance of vehicle 1,020
Store boy’s wages 5,260
Electricity and water 940
Miscellaneous expenses 1,370
Depreciation: Equipment 720
Vehicles 1,000
Total operating expenses 10,460
Net – profit c/d 19,863
30,328 30,328

(c)
Dr Bank Account Cr
N N
Balance b/d 1,400 Purchases 70,500
Shop takings 96,500 Delivery van 6,200
Receipt from debtors 1,400 Maintenance of vehicles 1,020
Additional capital 8,000 Electricity and water 940
Store boy’s wages 5,260
Balance c/d 22,418
107,300 107,300
Balance b/d 22,418
Notes:
(i) Purchases: N70,500 + 7,600 (owing = N78,100
(ii) Sales: N96,500 + 408 + 1,400 + 6,000 = N104,308
(iii) Miscellaneous expenses: N962 + 408 = N1,370
(iv) Net-profit: N30,328 – 10,460 = N19,863
(v) Bank balance (Bal c/d): N107,300 – 84,882 = N22,418

312
2018/7 (Theory)
Olu a sole trader has the following financial details for the year ended 31st December, 2016.
Cash Account
N N
Balance b/d 6,000 Creditors 12,000
Sales 10,000 Salaries 5,000
Debtors 20,000 Rent and rates 4,000
Insurance 1,000
Balance c/d 14,000
36,000 36,000

Additional information:
1st January, 2016 31st December, 2016
N N
Stock 4,000 2,000
Land and building 15,000 15,000
Motor vehicle 6,000 4,000
Debtors 2,000 3,000
Creditors 1,000 500
Insurance owing 2,000 6,000
You are required to prepare:
(a) Statement of affairs as at 1st January, 2016.
(b) Trading and Profit and Loss Account for the year ended 31st December, 2016.
(c) Balance Sheet as at 31st December, 2016.
Solution
(a)
OLU:
Statements of Affairs as at 1st January, 2016
Add: Assets: N N
Stock 4,000
Land and building 15,000
Motor vehicle 6,000
Debtors 2,000
Cash 6,000
33,000

Less: Liabilities 1,000

Creditors 2,000 (3,000)
Opening capital 30,000

(b)
OLU:
Dr Trading Profit and Loss Account for the year ended 31st December, 2016 Cr
N N N N
Opening stock 4,000 Sales 31,000
Add: Purchases 11,500
Cost of goods available for sale 15,500
Less: Closing stock 2,000
Cost of goods sold 13,500
Gross – profit c/d 17,500
31,000 31,000

Salaries 5,000 Gross – profit b/d 17,500

Rent and rates 4,000
Insurance 5,000
Depreciation: Motor vehicle 2,000
Total operating expenses 16,000
Net-profit c/d 1,500
17,500 17,500

313
(c)
OLU:
Balance sheet as at 31st December, 2016
N N Cost Depr. NBV
Fixed Assets N N N
Capital 30,000 Land and building 15,000 - 15,000
Add: Net-profit 1,500 Motor vehicle 6,000 (2,000) 4,000
31,500 Total fixed assets 19,000

Current Liabilities: Current Assets:

Creditors 500 Stock 2,000
Insurance owing 6,000 Debtors 3,000
Cash 14,000
6,500 19,000
38,000 38,000

Notes:
(i) Determination of sales ⎯
⎯→ Prepare a total debtors control account.
Dr Total Debtors Control Account Cr
N N
Opening balance 2,000 Closing balance 3,000
Sales – credit 21,000 Cash from debtors 20,000
23,000 23,000
Balance b/d 3,000

(ii) Determination of purchases ⎯

⎯→ Prepare a total creditors control account.
Dr Total Debtors Control Account Cr
N N
Closing balance 500 Opening balance 1,000
Cash paid to suppliers 12,000 Purchases – credit 11,500
12,500 12,500
Balance b/d 500

(iii) Insurance paid ⎯

⎯→ Prepare insurance control account
Dr Insurance Control Account Cr
N N
Closing balance 6,000 Opening balance 2,000
Cash 1,000 Profit and loss account 5,000
7,000 7,000

(iv) Depreciation (motor vehicle): Cost – net book value

6,000 – 4,000 = N2,000

1990/3
The following is the statement of affairs of Chukwuemeka’s Enterprises as at 1st January, 1986.

N N
Creditors 2,000 Plant and machinery 3,000
Bills payable 600 Stock 1,000
Capital 3,000 Debtors 500
Bills receivable 1,000
Cash 100
5,600 5,600

314
On 31st December, 1986, the following were the ledger balances:
N
Creditors 1,500
Bills payable 800
Plant and equipment 2,500
Stock 500
Debtors 1,000
Bills receivable 700
Cash 10

His drawing during the period amounted to N800

Prepare statement to show the closing capital and net–profit

Solution
(i)
CHUKWUEMEKA
Statements of Affairs as at 31ST December, 1986
Add: Assets: N N
Plant and Equipment 2,500
Stock 500
Debtors 1,000
Bills receivable 700
Cash 10
4,710

Less: Liabilities 1,500

Bills Payable 800 2,300
Closing capital 2,410

(ii)
Statement of Profit and Loss for the year ended 31st December, 1986
N
Closing capital 2,410
Add: Drawings 800
Apparent profit 3,210
Less: Opening capital (3,000)
True business profit for the year 210

1993/4 (Theory)
Amanabo could not keep proper books of his business transactions during the year 1991. The following were extracted
from his books:
N
Purchases - Cash 15,000
- Credit 25,000
Cash received from debtors 65,000
Purchase of furniture 2,400
Cash sales 25,000
Expenses paid:
Salaries of office assistants 7,200
Electricity 1,200
Rent 2,400
Insurance 4,000
Rate 600
Advertisement 1,200

315
Additional information:
(a)
1st January, 1991 31st December, 1991
N N
Stock 5,000 7,000
Electricity 80 120
Rent owing 200 180
Insurance prepaid 180 200
Debtors 2,500 3,200
Creditors 1,500 2,220
Rates paid in advance 150 120

(b) Fixed Assets on 1st January, 1991 are:

N
Furniture 3,600
Motor Vehicles 25,000
Buildings 35,000

(c) Cash at Bank on 1st January, 1991 was N10,000.

(d) Fixed Assets should be depreciated as follows:
Furniture and Building 5%
Motor Vehicle 20%

Prepare:
(i) Cash book;
(ii) Trading, Profit and Loss Account for the year ended 31st December, 1991.
Solution
(i)
AMANABO
Dr. Cash book Cr.
N N
Balance b/f 10,000 Purchases 15,000
Cash from debtors 65,000 Furniture 2,400
Cash sales 25,000 Salaries of Office Assistant 7,200
Electricity 1,200
Rent 2,400
Rate 600
Insurance 4,000
Advertisement 1,200
Balance c/d 66,000
100,000 100,000
Balance b/d 66,000

316
(ii)
AMANABO
Dr Trading, Profit and Loss Account for the year ended 31st December, 1991 Cr
N N N N
Opening stock 5,000 Sales 90,700
Add: Purchases 40,000
Cost of Goods available 45,000
Less: Closing stock (7,000)
Cost of goods sold 38,000
Gross-profit c/d 52,700
90,700 90,700

Salaries 7,200 Gross – profit b/d 52,700

Advertising 1,200
Electricity 1,240
Rent 2,380
Insurance 3,980
Rate 630
Depreciation: Building 1,750
Furniture 300
Motor Vehicles 5,000
Total operating expenses 23,680
Net – profit c/d 29,020
52,700 52,700

Notes:
(i) Sales ⎯
⎯→ Prepare total debtor control account to ascertain total amount to credit sales
Dr Total Debtors Control Account Cr
N N
Opening balance 2,500 Closing balance 3,200
Sales – credit 65,700 Cash 65,000
68,200 68,200
Balance b/d 3,200
Total sales: Cash sales + credit sales
= N25,000 + 65,700
= N90,700
(ii) Purchases: Cash purchases + Credit purchases
= N15,000 + 25,000
= N40,000
(iii) Insurance:
Dr Insurance Control Account Cr
N N
Opening (prepaid) balance 180 Closing (prepaid) balance 200
Cash paid 4,000 Profit & Loss account 3,980
4,180 4,180
Balance b/d 200

(iv) Electricity:
Dr Electricity Control Account Cr
N N
Closing (owing) Balance 120 Opening (owing) balance 80
Cash paid 1,200 Profit & Loss account 1,240
1,320 1,320
Balance b/d 120

317
(v) Rent:
Dr Rent Control Account Cr
N N
Closing (owing) Balance 180 Opening (owing) balance 200
Cash paid 2,400 Profit & Loss account 2,380
2,580 2,580
Balance b/d 180

(vi) Rates:
Dr Rate Control Account Cr
N N
Opening (Advance) Balance 150 Closing (Advance) Balance 120
Cash paid 600 Profit & Loss account 630
750 750
Balance b/d 120

(vii) Furniture: N2,400 + 3,600 = N6,000.

(viii) Depreciation: Furniture: 6,000 = N300
20
Motor vehicles: × 25,000 = N5,000
100
5
Buildings: 100 × 35,000 = N1,750

2022/26 NABTEB
Incomplete record capital is ascertained by preparing the
A. statement of affairs B. cashbook C. trading account D. control account
Answer
Statement of affairs (A)
2010/9 Neco
Adeola Enterprises keeps her books on single entry basis, the following information relates to her business for the year ended 2008
and 2009.
01–02–2008 31–01–2009
Motor car 8,000 8,000
Investment - 4,000
Loan from Femi - 2,000
Bill payable - 12,000
Creditors 7,000 7,600
Cash 600 800
Debtors 8,400 13,600
Stock 4,000 5,000

In addition, Adeola has drawings of N2,000 on account and also introduced N800 additional capital.
You are required to:
(i) Ascertain the opening capital,
(ii) Prepare the net profit and,
(iii) Prepare a balance sheet as at 31st January, 2009.
Solution
(i)
ADEBOLA
Statement of Affairs as at 1st February, 2008
Add: Assets N N
Motor car 8,000
Cash 600
Debtors 8,400
Stock 4,000
21,000
Less: Liabilities
Creditors 7,000
Opening Capital 14,000

318
(ii)
ADEBOLA
Statement of Profit and Loss (31st January, 2009
N N
Closing Capital 9,800
Add: Drawings 2,000
11,800
Less: Opening capital (14,000)
(2,200)

Less: Additional capital (800)

Net-loss (3,000)
Note:
Closing capital: N8,000 + 4,000 + 800 + 800 + 13,600 + 5,000 – (2,000 + 12,000 + 7,600)
= N31,400 – 21,600 = N9,800

(iii)
Adebola Balance Sheet As At 31st January, 2009
N N Fixed – Assets: N N
Capital 9,800 Motor car 8,000

Current liabilities: Current Assets:

Creditors 7,600 Stock 5,000
Bills payable 12,000 Debtors 13,600
Loan 2,000 Cash 800
21,600 Investment 4,000 23,400
31,400 31,400

2022/47 Neco (PC)

Use the following information to answer question 47
N
Closing capital 16,470
Drawings 5,400
Opening capital 12,570
Sales 10,000

2022/47
What is the net profit?
A. N21,870 B. N12,570 C. N11,070 D. N10,000
Answer
N9,300 ⎯ ⎯→ N16,470 – 12,570 + 5,400 (E)

2022/49 Neco (PV)

Statement of affairs is prepared to determine
A. opening capital B. opening stock C. profit or loss D. total creditors
E. total debtors
Answer: Opening capital (A)

2022/55 Neco (PC)

In a single entry system, closing capital is determined through
A. appropriation account B. balance sheet C. cash flow statement D. statement of affairs
E. statement of financial operation
Answer: Statement of affairs (D)

319
20222/12 – 13 Neco (Internal)
Use the following information to answer questions 12 and 13.
Mr. Johnson kept incomplete records and had the following information.

1/1/2019: N
Fixed assets 12,000
Current assets 6,000
Current liabilities 1,500
31/1/2019:
Fixed assets 12,860
Current liabilities 1,400
Current assets 8,260

2022/12
What is the value of net-profit?
A. N4,620 B. N3,220 C. N2530 D. N1,920 E. N1,820
Answer
N3,220 ⎯ ⎯→ (12,800 + 8,260 – 1,400) – N12,000 + 6,000 – 1,500
= N19,720 – 16,500 = N3,220 (B)
2022/13
What is the value of Mr. Johnson’s opening capital?
A. N16,500 B. N9,400 C. N7,900 D. N7,800 E. N4,400
Answer: N16,500 ⎯ ⎯→ TA – TL (18,000 – 1,500) (A)
2022/38 Neco (Internal)
Which of the following is not used to prepare a statement of affairs?
A. creditors B. debtors C. rent owing D. salaries E. stock
Answer: Salaries (D)
2022/40 Neco (Internal)
The statement of affairs in an incomplete record is
A. a balance sheet B. an appropriation account C. profit and loss account
D. trading account E. trial balance
Answer: a balance sheet (A)
2003/26 – 27 Exercises 14.1
Use the following information to answer questions 26 and 27
1st Jan. 31st Dec.
N N
Creditors 4,200 5,200
Stocks 3,600 3,200
Cash paid to creditors during the year way N18,000

26. Purchases for the year was 27. Cost of sales for the year was
A. N19,400 B. N19,000 C. N18,000 D. N17,000 A. N19,800 B. N19,400 C. N18,400 D. N17,400
1999/22 (Nov) Exercise 14.2
A statement of affairs is used to ascertain
A. opening capital B. cash balance C. bank balance D. net profit
2008/40 – 41 Neco Exercise 14.3
Use the following information to answer questions 40 – 41
Statement of Affairs of M. Ugochi Enterprises as at 1st January, 2004.
N N
Creditors 3,000 Plant & equipment 2,000
Bills payable 500 Stock 1,500
Capital 2,800 Debtor 1,000
Bills receivable 800
Cash 1,000
6,300 6,300

320
On 31st December, 2004, the following were the ledger balances shown in her books:
Creditors N2,000, bills payable N1,000, plant and equipment N3,000, stock N1,000, debtors N1,500,
Bills receivable N1,000, cash N800. Her drawings during the period amounted to N500.
40. What is the closing capital?
A. N7300 B. N6300 C. N4300 D. N3000 E. N1500

41. Net profit for the year 2004 is

A. N7300 B. N6300 C. N4300 D. N3000 E. N2000

1992/4 Exercise 14.4

Francis Egbobi operates a restaurant on cash basis. All cash received are banked after deducting the following expenses.
N
Staff wages 2,000
Cash purchases 500
Sundry expenses 100
Drawing (weekly) 30
The following is the bank statement:
N N
Balance b/d (1–1–90) 2,000 Rent 500
Restaurant takings 26,000 Rates 400
Investment income 2,000 Electricity 220
Telephone 50
Advertising 200
New Equipment 400
Insurance 50
Repairs 300
Cash paid to Creditors 20,000
Deposit on private house 750
Income tax 200
Balance c/d 6,930
30,000 30,000

Additional information:
(a) The balances extracted from the books are as follows:
1–1–90 31–12–90
N N
Accrued electricity 30 40
Trade creditors 1500 2000
Rate prepaid 100 150
Stock 400 300
(b) Equipment at cost 1–1–90 was N600; depreciation is to be provided at 10% per annum.
(c) Francis Egbobi occupies an apartment in the restaurant which attracts a rent of N120.
You are required to prepare:
(i) Trading, profit and loss account for the year ended 31st December, 1990 and
(ii) A balance sheet as at that date.

2009/9 Neco Exercise 14.5

Alhaji Tatama, a sole trader, keeps only a rough record of his business transactions. He pays all his cash receipts into
the bank. The following is a summary of his bank account for 2003.
Bank Summary
N N
Balance b/f 9,000 Payments to creditors 78,600
Receipts from customers 102,600 General expenses dishonoured 11,400
Cheques 900
Drawings 6,000
Balance c/d 14,700
111,600 111,600

321
You are able to obtain the following additional information:
1st January, 2003 31st December, 2003
N N
Debtors 3,120 2,940
Creditors 5,010 5,460
Accruals 630 720
Stock in trade 6,720 6,540
The dishonoured cheque is to be considered as bad debt.
You are required to prepare:
(i) Trading, profit and loss account for the year ended 31st December, 2003.
(ii) Balance sheet as at that date.

2003/6 (Nov) Exercise 14.6

Eniayefa is a trader who does not keep proper books of accounts. The following information has been obtained about
the business.
1st January, 2001 31st December, 2001
N N
Debtors 20,930 26,595
Creditors 14,590 10,920
Stock 18,750 20,500
5% loan from John 15,000 15,000
Cash in hand 875 625
Bank balance 6,365 ─
Bank overdraft ─ 3,140
Plant and Machinery 22,500 25,000
Land and Buildings 75,000 75,000
Fixtures and Fittings 4,000 3,500
During the year, Eniayefe had withdrawn a total of N12,500 on account of profit.
You are required to prepare:
(a) A statement showing Eniayeta’s capital as at 1st January, 2001;
(b) A statement showing the profit or loss for the year.
(c) A statement of affairs as at 31st December, 2001.

2018/17 NABTEB (ADVANCED) Nov Exercise 14.7

Mr. Ejoo has not maintained full set of books. From the following, submit a trading, profit and loss accounts for the year
ended December, 31st, 2009 and a balance sheet as at that date.
1/1/2009 31/12/2009
N N
Fixtures and fittings 30,000 ─
Office furniture 24,000 ─
Trade debtors 8,000 12,000
Trade creditors 4,000 3,000
Rent prepaid 400 300
General expenses owing 200 500
Stock in trade 4,000 7,000

Bank summary for 2009

N N
Balance b/d 16,000 Trade creditors 36,000
Trade debtors 52,000 Rates 400
Salaries 800
Rent 800
Drawings 4,000
Equipment 30/6/09 8,000
General expenses 1,000
Balance c/d 17,000
68,000 68,000

322
Additional information:
N
(i) Discount received 800
(ii) Discount allowed 600
(iii) Depreciate office furniture and fittings 5% on cost per annum.
(iv) Equipment to be depreciated by 10% per annum on cost.

2022/38 NABTEB Exercise 14.8

Where there are no proper books of accounts; the capital at the commencement of a period is ascertained by preparing:
A. total debtors and creditors B. bank reconciliation statement C. statement of affairs
D. balance sheet

1999/7 Nov Exercise 14.9

Atobam, proprietor of Abaabta Metal works keeps records of his business in a notebook. He has approached you to
prepare his accounts for him for the year ended 31st December, 1997.
N
Balances as at 1st January, 1997:
Welding machine 900,000
Stock of metal sheets 600,000
Cash in hand 500,000
Electricity owed 90,000
Rent prepaid 50,000
Owing to suppliers 200,000
Advance from customers 100,000

Additional information:
(a) Paid N270,000 for electricity up to September 30, 1997. Included in the amount owing at the beginning of the
year.
(b) Payment to suppliers amounted to N80,000.
(c) Purchased metal sheets on credit N1,400,000.
(d) Stock of metal sheets at 31/12/98 was valued at N500,000.
(e) Paid rent by cash N40,000.
(f) Total work done and delivered on credit to customers was valued at N2,000,000.
(g) Owing by customers at the year end was N300,000.

You are required to prepare:

(i) a cash book;
(ii) a profit and loss account; and
(iii) a balance sheet as at that date.
2004/43 – 45 (Nov)
Adebolu does not keep proper accounts. The following information were extracted from his books.
Opening balance Closing balance
N N
Fixed assets 50,000 50,000
Stocks 20,600 22,000
Debtors 32,500 23,000
Creditors 18,000 17,500
Accrued rent 1,500 2,750

The payments to creditors for the year was N25,000 while receipts from debtors totaled N35,000, rent paid was N3,700
and sundry expenses was N5,000.

2004/43 Exercise 14.10

What is the credit sales?
A. N58,000 B. N44,500 C. N30,000 D. N25,500

2004/44 Exercise 14.11

What is the credit purchase?
A. N43,000 B. N42,500 C. N25,000 D. N24,500

323
2004/45 Exercise 14.12
The opening capital is
A. N86,600 B. N83,600 C. N70,600 D. N54,600

Exercise 14.13
Okoro Matthew keeps his books on single entry. He supplied you with the following information and asked you to
prepare a statement of profit or loss for the year ended 31st December, 2019.
01 – 01 – 19 31 – 12 – 19
N N
Cash 720 410
Bank 5,210 8,320
Loan 8,000 6,000
Creditors 4,900 5,120
Debtors 9,240 12,960
Stock 19,320 19,830
Fixtures 3,400 3,400
Equipment 9,620 12,600

(a) During the year to 31st December, 2019, Okoro Matthew withdrew N12,150 from the business for his private use.
He also realised from private investment N300 which he paid into the business bank account.
(b) You are required to provide for depreciation of fixtures at 5% and on equipment at 10% and make a bad debt
provision of N2,000 on his debtors.
2005/25 Nov Exercise 14.14
A balance sheet drawn up from incomplete records is a
A. statement of affairs B. statement of assets C. statement of liabilities
D. statement of account
2005/26 Exercise 14.15
A system where records maintained are inadequate to facilitate the preparation of a trading, profit and loss account is
referred to as
A. single entry B. double entry C. control account D. company dissolution
Exercise 13.16
The following were extracted from the books MELE ABOLADE Enterprises for the year ended 31st December, 2021.
Dr Cashbook Cr
N N
Balance b/f 18,000 Cash paid to creditors 216,000
Receipts from debtors 324,000 Salaries 9,000
Additional capital 90,000 Sundry expenses 1,350
Rent received 13,050 General expenses 15,750
Drawings 36,000
Rates 18,000
Postage 12,825
Balance c/d 136,125
445,050 445,050

Additional information:
31–12–2020 31–12–2021
Stock 10,800 6,300
Debtors 10,980 9,990
Creditors 7,020 7,308
Postage owing 2,700 1,800
Sundry expenses accrued 1,350 1,170
Rate prepaid 1,440 1,350
You are required to prepare:
(i) Statement of affairs as at 31 – 12 – 2020.
(ii) Total debtor and creditors control account.
(iii) Trading, Profit and Loss Account.
(iv) Balance Sheet as at 31st December, 2021.

324
Chapter Fifteen
ACCOUNTS OF NOT-FOR-PROFIT MAKING ORGANIZATION
Not–for–profit making organizations such as social and athletic clubs, societies, voluntary associations, and hospitals, benevolent
and similar institutions do not prepare trading and profit or loss accounts because they are not formed or established with the
motive of profit making or trading motive. They are run to further the promotion of humanitarian activities and promote the
interest of their members. Their humanitarian activities are in area such as sporting, cultural and social activities. But
notwithstanding their not–for–profit postulate, the need for accountability demands that some form of accounting books must be
maintained. Therefore, the not–for–profit making organizations are expected to maintain this two major accounts;
(a) Receipts and payments accounts
Receipts and payments accounts are a summary of the cash book for the period. It shows all cash receipts and cash
payments made during the accounting period. The balance of the account represents cash in hand or at bank or an
overdraft. All receipts are debited (cash or cheque) and all payments (cash or cheque) are credited.
(b) Income and expenditure accounts
When assets are owned and/or there are liabilities, the receipts and payments accounts are not a good way of
drawing up financial statement. The accounts overcome the shortcomings of the receipts and payments accounts
because it takes into consideration the whole income and expenditure for the period i.e. whether the income has
actually been received or expenditure actually paid for.
Characteristics of Not-For-Profit Organization
1. Service Motive: These organizations have a motive to provide service to its members or a specific group or to the
general public. They provide services free cost or at a bare minimum price as their aim is not to earn the profit. They
do not discriminate among people on the basis of their caste, creed or colour. Examples of services provided by
them are education, food, healthcare, recreation, sports facility, clothing, shelter, etc.
2. Members: These organizations are formed as charitable trusts or societies. The subscribers to these organizations
are their members.
3. Management: The managing committee or the executive committee manages these organizations. The managers
elect the committee.
4. Source of income: The major sources of income of not-for-profit organization are subscriptions, donations,
government grants, legacies, income from investments, etc.
5. Surplus: The surplus generated in the due course is distributed among its members.
6. Reputation: These organizations earn their reputation or goodwill on the basis of the good work done for the welfare
of the public.
7. Users of accounting information: The users of the accounting information of these organizations are present and
potential contributors as well as the statutory bodies.
Sources of income for not–for–profit making organizations
The major sources of income for a not–for–profit making organizations are:
i. Member’s subscriptions.
ii. Donations, legacies & endowment.
iii. Fines on erring members.
iv. Special events (e.g. annual dinner, dance, raffle draw, annual fete, e.t.c.), life membership fees.
v. Entrance fees.
vi. Trading/fund raising.

RECEIPT AND PAYMENT ACCOUNT

Receipt and payment account functions as a summary of cash payments and receipts of an organization during an
accounting period. It provides a picture of the cash position of a not-for-profit organization. It does not differentiate
between the receipts and payments, whether they are of capital or revenue in nature and records all cash and bank
transactions of both capital and revenue nature.
Below is the format for receipt and payment account
Dr Receipts and payments account Cr
N N
Balance b/f x Rent x
Donations x Wages x
Subscription x Postage x
Dance receipt x Stationery x
Annual dinner x Honorarium x
Meeting expenses x
xx xx
325
Illustration 1:
Dr Receipts and payments account Cr
N N
Balance b/f 1,800 Rent 5,000
Donations 6,000 Transport 4,000
Subscription (1998) 2,000 Wages 6,800
,, (1999) 18,000 Supplies 8,200
Refreshment 12,500 Printing 3,500
Tickets 1,000 Stationery 1,000
Salaries 10,000
Balance c/d 2,800
41,300 41,300

Features of receipt and payment account

1. It does not include any transactions that are not cash or bank items.
2. It shows all cash payments and receipts without making any difference between capital and revenue.
3. Receipt and payment account starts with the opening balance of cash and bank and ends with ending balance of cash
and bank.
4. It is prepared on the last day of the accounting period of the business organization.
5. All cash and cheque receipts are recorded in the debit side while all cash and cheque payments are recorded on the
credit side.

INCOME AND EXPENDITURE ACCOUNT

The income and expenditure account is prepared by the non – trading entities to determine surplus or deficit of income
over expenditures or a particular time frame. The accumulated or accrual concept of accounting is rigidly pursued while
preparing income and expenditure account of non – trading concerns. It is prepared as a portion of final accounts of
non–trading entities and is equal to the profit and loss account outlined by for–profit business entities.

Income and expenditure account for the year ended 31st December, 1991
Expenditures N Incomes N
Wages x Subscription x
General expenses x Receipts from dance x
Printing & stationery x Sundry receipts x
Repairs x Profit from bar x
Excess of income over expenditure x
x x

FEATURES OF INCOME AND EXPENDITURE ACCOUNT

1. Income and expenditure account presented by non trading entities are much the profit and loss account presented
by trading entities.
2. It is prepared by stringently following the fundamentals of the double entry system of book keeping or accounting.
3. It is always prepared during the end of the period which normally comprises of 1 year.
4. It decides the surplus or deficit of income over expends of the non trading entities for the particular year.
5. The income and expenditure account of only revenue nature are incorporated in this account. Any income and
expenditure of capital nature are not comprehended.
6. It is prepared by accountants chosen by the enterprise’s management and is audited by an independent auditor.
7. The accumulated or accrual concept of accounting is rigidly pursued when it is prepared.

DIFFERENCES BETWEEN R & P ACCOUNTS AND I & E ACCOUNTS

Below are the major differences between the receipts and payments accounts and income and expenditure accounts.
(a) Receipts and payments accounts are maintained on cash basis, while income and expenditure accounts are
maintained on accrual basis.
(b) Receipts and payments accounts do not accommodate notional charges (e.g. depreciation); income and expenditure
accounts accommodate notional charges.
(c) Receipts and payments account includes payments for capital. Expenditure and receipts of capital incomes; income
and expenditure does not include capital expenditure and capital incomes.
(d) Receipts and payments account is prepared to determine the balance of cash in hand and/or at bank at the year end,
while the objective of preparing income and expenditure accounts is to determine the surplus or deficit for the year.

326
ACCUMULATED FUND
Accumulated fund is also called capital fund, takes the place of capital account found in trading organizations.
Accumulated fund represents the difference between the assets and liabilities of the association. Accumulated fund is
determined by preparing a statement of affairs.

It should be noted clearly that accumulated fund is usually gotten with the use of accounting equation which says:
Assets equals capital plus liabilities.
In the case of non-profit making:
Assets = Accumulated fund + liabilities.
When Accumulated fund is unknown,
Accumulated fund equals assets minus liabilities.

2003/31 – 32 (Nov)
Receipts and payments accounts 31st December, 2001
N N
Balance b/f 80 Rent 780
Subscriptions 2,440 Postages and printing 750
Affiliation fees 450
Typewriter 250
Balance c/f 290
2,520 2,520

31. Expenses for the year amounted to

A. N2,520 B. N2,270 C. N2,230 D. N1,980
Answer: (N780 + 750 + 450 + 250) = N2,230 (C)

32. Capital expenditure for the year is

A. N2,440 B. N1,530 C. N450 D. N250
Answer: N250 (typewriter)

2003/6 (Nov)
Which of the following is NOT a source of income to clubs or society?
A. bar takings B. tax receivable C. membership subscription D. donations from the public
Answer: Tax receivable (B)

2019/30 Neco
An income and expenditure account is prepared based on the principle as
A. balance sheet B. incomplete records C. profit and loss account D. trading account E. trial balance
Answer: Profit and loss account (C)

2019/31 Neco
The annual summary of cash records of a club or society is called
A. cash book B. profit and loss account C. receipt and payment D. single entry E. statement of affairs
Answer: Receipts and payments (C)

2019/32 Neco
Which of the following is an example of non-profit making organization?
A. civil society organization B. cooperative societies C. joint venture D. partnership
Answer: Civil society organization (A)

1999/32 Nov
A not-for-profit making organisation’s accumulated fund is obtained by preparing the
A. receipts and payments account B. statements of affairs C. bank reconciliation statement
D. income and expenditure account
Answer: Statement of affairs (B)

2003/22
Which of the following is found in a receipt and payment account?
A. accruals B. prepayments C. depreciation of fixed assets D. purchases of fixed assets
Answer: Purchase of fixed assets (D)
327
2006/14 Neco
In a non – profit making organization, the excess of assets over liabilities is
A. accumulated fund B. capital C. deficit D. net assets E. net profit
Answer: Accumulated fund (A)
2005/27 Nov
Receipts and payments account of a club shows the
A. profit or loss made B. assets and liabilities C. opening and closing cash balance
D. excess of income over expenditure
Answer: Opening and closing cash balance (C)
2011/22
Accumulated fund is also referred to as
A. surplus B. profit C. deficit D. capital
Answer: Capital (D)
1996/7 (Nov)
The account kept by not–for–profit making organizations is
A. income and expenditure account B. profit and loss account C. manufacturing and trading account
D. sales and purchases account E. realization account
Answer: Income and expenditure account (A)
2019/5
In a not–for–profit organization, accumulated fund is
A. current assets plus fixed assets less liabilities B. long term liabilities plus current liabilities
C. fixed assets plus current assets plus long term liabilities D. fixed assets less long – term liabilities less current assets
Answer: Current assets plus fixed assets less total liabilities (A)
2008/31 UTME
Receipts and payments account discloses
A. debtors B. creditors C. prepayments D. depreciations Answer: Prepayments (C)
2009/31 UTME
Receipts and payments account is a summary of the
A. budget B. trading account C. cash book D. profit and loss account Answer: cash book (C)
2010/30 UTME
In the not – for – profit making organization, the excess of income over expenditure is
A. deducted from the capital B. added to the accumulated fund
C. added to the capital D. deducted from the accumulated fund
Answer: Added to the accumulated fund (B)
2011/31 UTME
The subscription paid in advance in treated in the balance sheet of a club as
A. a liability B. a surplus C. a deficit D. an asset Answer: Liability (A)
1994/3
The receipts payments accounts of Under 21 Youth club for the year ended 31st December, 1991 is as follows:
Receipts and payments accounts 31st December, 1991
N N
Balance: 1 Jan. 1991, 200 Bar supplies 2,850
Subscriptions received: Wages 350
For 1991 3,600 General expenses 400
For 1992 250 Printing & stationery 120
Receipts from bar 4,500 Equipment 350
Receipts from dance 500 Furniture 300
Sundry receipts 400 Repairs 200
Balance 31st December 4,880
9,450 9,450
You are given the following additional information:
1st January, 1991 31st December, 1991
Equipment 2,500 2,850
Furniture & Fittings 2,000 2,300
Stock – Bar 1,200 3,200
Bar supplies 2,400 5,600
328
You are require ed to prepare:
(a) Statement of affairs as at 1st January, 1991.
(b) Bar trading accounts and
(c) Income and expenditure account for the year ended 31st December, 1991.
(d) A balance sheet as at 31st December, 1991.
Solution
(a) UNDER 21 YOUTH CLUB
Statement of affairs as at 1 – 1 – 1991
Assets: N N
Equipment 2,500
Furniture and fittings 2,000
Stock – Bar 1,200
Cash/bank 200
5,900
Less: liabilities
Bar supplies - creditors (2,400)
Accumulated fund 3,500

(b) UNDER 21 YOUTH CLUB

Dr Bar Trading Account for the year 31 – 12 – 91 Cr
N N
Opening stock 1,200 Sales 4,500
Purchases 6,050
C.G.A.S 7,250
Closing stock (3,200)
Cost of goods sold 4,050
Bar profit 450
4,500 4,500

(c) UNDER 21 YOUTH CLUB

Income and Expenditure Account for the year ended 31st December, 1991
Expenditures: N Incomes N
Wages 350 Subscription 3,600
General expenses 400 Receipts from dance 500
Printing & stationery 120 Sundry receipts 400
Repairs 200 Profit from bar 450
Excess of income over expenditure 3,880
4,950 4,950
Note: Subscription (1991) = N3,600 + 250 – (250)
= N3,850 – 250 = N3,600
(d) UNDER 21 YOUTH CLUB
Balance Sheet as at 31st December, 1991
N N Fixed assets: N N
Accumulated fund 3,500 Equipments 2,850
Add: excess of I / E 3,880 Furniture & fittings 2,300
7,380 5,150

Current liabilities: Current assets:

Creditors 5,600 Stock 3,200
Subscription in advance 250 5,850 Cash/bank 4,880 8,080
13,230 13,230

Workings:
(i)
Bar Supplies Account
N N
Closing balance 5,600 Opening balance 2,400
Bar supplies 2,850 Bar trading a/c 6,050
8,450 8,450

329
(ii)
Dr Equipment Account Cr
N N
Opening balance 2,500 Closing balance 2,850
Cash 350
2,850 2,850

(iii)
Dr Furniture and Fittings Account Cr
N N
Opening balance 2,000 Closing balance 2,300
Cash 300
2,300 2,300
Balance b/d 2,300
1993/3 (Nov)
The following is the Receipts and Payments Accounts of Progressive Social Club for the year ended 31 st December, 1991:
Receipts and Payments Account
N N
Balance b/f (1:1:19) 1,390 Rent 900
Subscription 2,310 Printing and stationery 180
Dance 340 Wages 790
Annual socials 3,500 Refreshments 240
Donations 100 Games equipment 1,300
Postages 104
Electricity 336
Rates 150
Balance c/f (31:12:91) 3,640
7,640 7,640
Additional information:
The following were the balances of assets and liabilities as at:
1:1:91 31:12:91
N N
Games equipment 4,480 5,180
Wages accrued 300 360
Subscriptions in arrears 500 200
Subscriptions in advance 280 320
Rent in arrears 180 240
Rate in advance 30 48
Prepare: (a) Statement of affairs as at 1 : 1 : 91. (b) Income and Expenditure Account for the year.
(c) Balance Sheet as at 31st December, 1991.
Solution
(a) PROGRESSIVE SOCIAL CLUB
Statement of affairs as at 1st January, 1991
Assets: N N
Games equipment 4,480
Subscription in arrears 500
Rate in advance 30
Cash/bank 1,390
6,400
Less: liabilities 300
Wages accrued 280
Subscription in advance 180 (760)
Accumulated fund 5,640

330
(b) PROGRESSIVE SOCIAL CLUB
Income and expenditure account for the year ended 31 st December, 1991.
N N
Rent 960 Subscription 1,970
Printing & stationery 180 Receipts from dance 340
Wages 850 Annual socials 3,500
Refreshments 240 Donations 100
Postages 104
Electricity 336
Rates 132
Depreciation of games equipment 600
Excess of income over expenditure 2,508 ____
5,910 5,910

(c) PROGRESSIVE SOCIAL CLUB

Balance Sheet as at 31st December, 1991
N N Fixed Assets: N N
Accumulated fund 5,640 Games equipment 5,780
Add: Excess of I/E 2,508 Less: Depreciation (600) 5,180
8,148 Current assets:
Current liabilities Sub in arrears 200
Sub. in advance 320 Rate in advance 48
Wages accrued 360 Cash/bank 3,640 3,888
Rent in arrears 240 920
9,068 9,068

Workings:
(i)
Dr Subscription Account Cr
N N
Subscription in arrears Subscription in arrears
(opening balance) 500 (closing balance) 200
Closing subscription in advance 320 Subscription received in advance 280
Income & expenditure 1,970 Cash received 2,310
2,790 2,790

(ii)
Dr Wages Account Cr
N N
Closing balance 360 Opening balance 300
Cash 790 Income & expenditure 850
1,150 1,150

(iii)
Dr Rent Account Cr
N N
Closing balance 240 Opening balance 180
Cash 900 Income & expenditure 960
1,140 1,140

(iv)
Dr Rates Account Cr
N N
Opening balance 30 Closing balance 48
Cash 150 Income &Expenditure 132
180 180

(v)
Dr Games Equipment Account Cr
N N
Opening balance 4,480 Closing balance 5,180
Cash 1,300 Depreciation 600

5,780 5,780

331
2018/5 Neco
You were the Treasurer of Locogi Local Government In Kundi State. Your revenue officer made the following returns
in respect of 2007 financial year as at 31st December, 2007.
Dr Cr
N N
Salaries and wages 20,430
Vehicle expenses 248
Vehicle purchased 5,020
Stationery 1,520
Maintenance of building 2,014
Hospital drugs 4,000
Subvention from state government 2,000
Subvention from federal government 3,000
Rates and fines 1,535
Bank charges 378
Sundry income 5,263
Licenses 12,548
Tenement rate 25,000
Subvention for UBE scheme 6,290
Bank balance 9,466
49,366 49,346
You are required to prepare:
A receipts and payments accounts for the Local Government as at 31st December, 2007.
Solution
LOCOGI LOCAL GOVERNMENT
Receipts and payments account as at 31st December, 2007
RECEIPTS: N PAYMENTS: N
Subvention – State government 2,000 Salaries and wages 20,430
Subvention – federal government 3,000 Vehicle expenses 248
Rates and fines 1,535 Vehicle purchased 5,020
Sundry income 5,263 Stationery 1,520
Licenses 12,548 Maintenance of building 2,014
Tenement rate 25,000 Hospital drugs 4,000
Bank charges 378
Subvention for UBE scheme 6,290
Bank balance 9,446
49,346 49,366

2019/3 NABTEB (Nov)

Below is the receipt and payment account of Ogbe Hard Court Tennis Club for the year ended 31 st March, 2005.
Dr Cr
N N
Bal b/f 13,470 Stationery 375
Subscriptions 48,490 Transportation 1,600
Donations 16,000 Sporting equipment 15,000
Bar takings 32,500 Bar – supplies 20,800
Rent 6,400
General expenses 1,920
Barmen’s wages 5,500
Bal c/d 58,865

110,460 110,460

Additional information:
1/4/2004 31/3/2005
N N
(a) Bar stock 1,700 2,250
(b) Bar supplies 800 1,600
(c) Subscription in arrears 7,150 5,220
(d) Rent accrued 3,000 2,000
(e) Provision for depreciation on equipment at 20% on cost.
332
You are required to prepare:
(i) Bar trading account;
(ii) Income and Expenditure account;
(iii) Balance sheet as at 31/3/2005.

Solution
(i) OGBE HARD COURT TENNIS CLUB:
Bar Trading Account for the year 31–3–2005
N N
Bar opening stock 1,700 Bar sales 32,500
Purchases 21,600
C.G.A.S 23,300
Bar closing stock (2,250)
Cost of bar sold 21,050
Bar – profit 11,450
32,500 32,500

(ii) OGBE HARD COURT TENNIS CLUB:

Income and Expenditure as at 31st March, 2005
EXPENDITURE: N INCOME: N
Stationery 375 Bar-profit 11,450
Transportation 1,600 Subscriptions 46,560
Rent 5,400 Donations 16,000
General expenses 1,920
Barmen’s wages 5,500
Depreciation: Transport equipment 3,000
Excess of I/E 56,215
74,010 74,010

(iii) OGBE HARD COURT TENNIS CLUB:

Balance sheet as at 31stMarch, 2005
N N Fixed Assets: N N
Accumulated fund 18,520 Equipment 15,000
Add: Surplus 56,215 74,735 Less: Depreciation (3,000) 12,000

Current liabilities: Current assets:

Creditors 1,600 Stock 2,250
Rent accrued 2,000 Cash/bank 58,865
3,600 Sub. in arrears 5,220 66,335
78,335 78,335

Workings:
(i)
Dr Subscription Account Cr
N N
Opening balance 7,150 Closing balance 5,220
Income and expenditure 46,560 Subscription received 48,490
53,710 53,710

(ii)
Dr Purchases Account Cr
N N
Closing balance 1,600 Opening balance 800
Bar supplies 20,800 Trading account 21,600
22,400 22,400

333
(iii)
Dr Rent Account Cr
N N
Closing balance 2,000 Opening balance 3,000
Cash 6,400 Income & expenditure a/c 5,400
8,400 8,400

20
(iv) Depreciation on equipment:
100
× 15,000 = N3,000

1997/3 Nov
Below is the Receipts and Payments Account of ATIALA Progressive Club

ATIALA Progressive Club

Receipts and Payments Account as at 31st December, 1995
Receipts: N Payments: N
Balance b/d 1/1/94 2,240 Electricity 780
Subscriptions 16,450 Extension to hall 18,000
Sale of magazines 3,800 Salaries 1,600
Annual dinner 2,550 Purchase of chairs 3,500
Rental of hall and chairs 6,840 Printing of magazines 2,650
Wages – cleaners 600
Stationery 350
Insurance 480
Annual dinner expenses 1,360
Rates 550
Balance c/d 31/1/94 2,010
31,880 31,880
Additional information:
(a) The following assets and liabilities of the club during the year:
1/1/95 31/12/95
N N
Land and building 64,000 ─
Furniture (cost N13,500) 9,500 ─
Insurance prepaid 100 ─
Rate owing 120 150
Stock of stationery 50 80
Subscription in arrears 900 1,200
Subscription in advance 400 600
(b) Depreciate furniture at 10% per annum on cost.
You are required to prepare:
(i) Statement of Affairs on 1st January, 1995.
(ii) Income and Expenditure Account for the year ended 31st December, 1995, and
(iii) Balance Sheet as at that date.
Solution
(i) ATIALA Progressive Club
Statement of affairs as at 1st January, 1995
N N
Land and building 64,000
Furniture 9,500
Insurance prepaid 100
Subscription in arrears 900
Cash/bank 2,240
76,740
Less: liabilities:
Rent owing 120
Subscription in advance 400 (520)
76,220
334
(ii)
* Add subscription account
ATIALA Progressive Club
Income and Expenditure as at 31st December, 1995
EXPENDITURE: N INCOME: N
Electricity 780 Subscriptions 16,550
Hall extension 18,000 Sales of magazines 3,800
Salaries 1,600 Annual dinner 2,550
Purchase of chairs 3,500 Rental of hall & chairs 6,840
Rates 580 Deficit of I/E 1,580
Printing of magazines 2,650
Wages 600
Stationery 320
Insurance (480 + 100) 580
Annual dinner expenses 1,360
Depreciation (Furniture) 1,350
31,320 31,320

Note: Enter the payments as expenditure and receipts as income in the income and expenditure account.
2006/8 Neco
The following information is extracted from the books of Akpim Youth Club.
(a)
Balance Sheet of Akpim Youth Club as at 31st December, 2004
N Fixed - Assets: N
Accumulated fund 18,000 Furniture and fittings 7,500
Games & Equipment 3,200
Motor Van 5,000
15,700
Current assets:
Cash at bank 2,300
18,000 18,000

(b) The following transactions took place between 1st January, and 31st December, 2004.
Receipts: N
Subscription 4,000
Donations received 400
Sale of tickets for dance 2,700
Payments:
Electricity expenses 1,025
Expenses of dance 1,550
New games equipment 800
Cleaner’s wages 520
Repair’s and renewals 415
Motor van repairs 630
An electricity bill of N225 was being owed on 31st December, 2004.
You are required to prepare:
(i) A receipts and payments Account.
(ii) An income and expenditure account for the year ended 31st December, 2004.
(iii) A balance sheet as at 31st December, 2004.
Solution
(i) AKPIM YOUTH CLUB
Receipts and Payments Account as at 31st December, 2004
RECEIPTS: N PAYMENTS: N
Subscription 4,000 Electricity 1,025
Donations 400 Dance expenses 1,550
Sale of tickets 2,700 New games equipment 800
Cleaner’s wages 520
Repairs & renewals 415
Motor vans repairs 630
Balance c/d 2,160
7,100 7,100

335
(ii) AKPIM YOUTH CLUB
Income and Expenditure Account for the year ended 31st December, 2004
EXPENDITURES: N INCOMES: N
Electricity (1,025 + 225) 1,250 Subscription 4,000
Expenses of Dance 1,550 Donations 400
Cleaner’s wages 520 Sales of tickets 2,700
Repairs and renewals 415
Motor vans repairs 630
Excess of I/E 2,735
7,100 7,100

(iii) AKPIM YOUTH CLUB

Balance Sheet as at 31st December, 2004
N Fixed Assets: N
Accumulated fund 18,000 Furniture & fittings 7,500
Add: Excess of I/E 2,735 Games & Equipment 4,000
20,735 Motor van 5,000
16,500

Current liabilities Current Assets:

Accrued electricity 225 Cash at bank 2,300
Cash in hand 2,160
20,960 20,960

2020/6
The books of Omiye social club show the following information for the year ended 31st December, 2015.
RECEIPTS AND PAYMENTS ACCOUNT
N N
Balance (01 – 01 – 2015) 3,000 Salaries 10,600
Subscriptions 130,000 Stationery 1,200
Proceeds from concert 9,000 Maintenance 13,000
Interest on deposit 2,400 Postage 600
Income from dance 7,200 Dance expenses 4,000
General expenses 5,400
Balance c/d 116,800
151,600 151,600

Balance as at 1st January 2015 were as follows:

N
Accumulated fund 266,000
Bank deposit 80,000
Club house 160,000
Furniture and fittings 24,000

Additional information:
(i) Outstanding as at 31st December, 2015:
- Stationary N400
- General expenses N1,200.
(ii) Salaries of N10,600 paid including N1,000 owed since 2014.
(iii) Depreciate clubhouse by 10% and furniture and fittings by 15%.

You are required to prepare:

(a) Income and Expenditure Account for the year ended 31st December, 2015:
(b) Balance sheet as at that date.

336
Solution
(a)

OMIYE SOCIAL CLUB:

Dr Income and Expenditure Account for the year ended 31st December, 2015 Cr
EXPENDITURE: N N INCOME: N N
Maintenance 13,000 Subscription 130,000
Salaries 10,600 Proceeds from concert 9,000
Less: Owing (1,000) 9,600 Interest on deposit 2,400
General expenses 5,400 Income from dance 7,200
Add: Outstanding 1,200 6,600
Stationery 1,200
Add: Outstanding 400 1,600
Postages 600
Dance expenses 4,000
Depreciation: Club House 16,000
F&F 3,600
Surplus of I/E 93,600
148,600 148,600

(b)
OMIYE SOCIAL CLUB
Balance Sheet as at 31st December, 2015
N N Fixed Assets: N N
Accumulated fund 266,000 Club house 160,000
Add: Surplus 93,600 Less: Depreciation (16,000) 144,000
359,600
Furniture & fittings 24,000
Less: Depreciation (3,600) 20,400
164,400

Current Liabilities: Current Assets:

Outstandings: Bank 80,000
- Stationery 400 Cash 116,800
- Gen. Expenses 1,200 1,600 196,800
361,200 361,200

Note:
10
(i) Depreciation: - Club house = × 160,000 = 16,000
100
15
- Furniture and fittings = × 24,000 = 3,600
100

2018/8
Boyson Social Club presented the following statements for the year ended 31st December, 2016.
Receipts and Payments Account
Le Le
Balance b/f 5,700 Maintenance of building 12,600
Subscriptions 54,500 Maintenance of grounds 6,400
Bar sales 13,040 Prize for fanfair 8,400
Funfair proceeds 4,300 Bar purchases 8,000
Donations 2,000 Bar expenses 2,000
Life membership - Funeral expenses 10,200
Dues 5,400 Staff salaries 30,000
Sales of magazines 12,560 General expenses 3,600
Donation to hospital 12,500
Printing of magazines 5,300
______ Balance c/d 11,000
97,500 97,500

337
Additional information:
01–01–2016 31–12–2016
Le Le
Subscription – in – advance 8,400 6,300
Subscription – in – arrears 3,900 7,400
Bar debtors 2,630 3,930
Bar stock 1,500 2,200
Bar expenses 540 370
Five new members had not paid membership dues of Le 300 each for the year.
You are required to prepare for Boyson Club for the year ended 31st December, 2016.
(a) Subscriptions account.
(b) Bar trading account.
(c) Income and expenditure account for the year ended 31st December, 2016.
Solution
(a)
BOYSON SOCIAL CLUB
Dr Subscription Account Cr
Le Le
Opening balance (subscription in arrears) 3,900 Opening balance (subscription in advance) 8,400
Income & expenditure account 60,100 Bank 54,500
Closing balance (subscription in advance) 6,300 Closing balance (subscription in arrears) 7,400
70,300 70,300

(b)
BOYSON SOCIAL CLUB
Bar Trading Account for the year 31st December, 2016
Le Le Le Le
Opening stock 1,500 Sales 13,040
Add: Purchases 8,000 Add: Bar creditor 1,300 14,340
9,500
Less: Closing stock (2,200)
Cost of goods sold 7,300
Gross profit c/d 7,040
14,430 14,340

Bar expenses 1,830 Gross profit b/d 7,040

Bar profit 5,210
7,040 7,040

Workings:

Dr Bars Debtors Account Cr

Le Le
Opening balance 2,630 Closing balance 3,930
Bar creditor 1,300
3,930 3,930

(c)
BOYSON SOCIAL CLUB
Income and Expenditure Account for the year ended 31 st December, 2016
EXPENDITURE Le INCOME Le
Maintenance of building 12,600 Subscription 60,100
Maintenance of grounds 6,400 Bar profit 5,210
Prizes for funfair 8,400 Funfair 4,300
Funeral expenses 10,200 Donations 2,000
Printing of magazines 5,300 Life membership Dues 6,900
Salary of staff 30,000 Sales of magazine 12,560
General expenses 3,600
Donation to hospitals 12,500
89,000
Surplus of I/E 2,070
91,070 91,070

338
Note:
(i) Sales = Le13,040 + Le1,300 = Le14,340
(ii) Life membership dues = Le5,400 + (5 × 300)
= Le5,400 + Le1,500 = Le6,900

2021/22
Commercial activities undertaken by a social club to raise funds include
A. donation B. bar C. grant D. subscription
Answer: Bar (B)

2021/31
Members of a not–for–profit making organization
A. earn dividend on their contributions B. do not receive surplus at the end of the year
C. are paid interest on their contributions D. share profits according to their contributions
Answer: Earn dividend on their contributions (A)

2021/12 – 14
Pacesetters club has the following details for 2018.
01–01 – 2018 31–12–2018
N N
Subscriptions owing 3,000 400
Subscriptions prepaid 1,000 1,500
Cash received for subscriptions during year was N9,500

2021/12
The subscriptions for 2018 was
A. N6,400 B. N8,000 C. N9,500 D. N12,600
Answer: N6,400 (A)

Workings:
Subscription Account
N N
Opening subs. (owing) 3,000 Closing subs. (owing) 400
Closing subs. (prepaid) 1,500 Opening subs. (prepaid) 1,000
Income and expenditure account 6,400 Cash received 9,500
10,900 10,900

OR
Subscription for 2018 is
= N400 + 1,000 + 9,500 – (3,000 + 1,500)
= N10,900 – 4,500 = N6,400

2013/13
The closing debt balance was
A. N400 B. N1,000 C. N1,100 D. N1,500
Answer: N400 (A)

2021/14
The opening balance of N1,000 represents
A. an asset B. a surplus C. a liability D. a deficit
Answer: A liability (C)

2021/3
(a) Explain the following terms as used in accounts of not-for-profit making organisations.
(i) entrance fees;
(ii) subscriptions.
(b) State five features of income and expenditure account.

339
Answer
(a) (i) Entrance fee: This is the amount of money paid once by a member of the organization at the point of admission
as membership of the organization.
(ii) Subscription: This is the major source of income of a not–for–profit making organization. It represents the
amount of money contributed by each member periodicaly.
(b) Features of income and expenditure Account:
(i) The accrual concept of accounting is rigidly upheld when it is prepared.
(ii) The income and expenditure of only revenue nature are incorporated in this account.
(iii) It is prepared by accountant chosen by the enterprise’s management.
(iv) Its book are audited by an independent auditor.
(v) It decides the surplus or deficit of income over expenditure of the non-trading organization for the particular
year.
(vi) It is usually prepared at the year end.
(vii) It is prepared by strictly adhering to the double entry system of book keeping.

1990/6 Theory
The following information was extracted from the books of Egbeyemi club of Aiyetoro, for the ended 31 st December,
1986.
Receipts Payments
N N
Subscription 6,900
Donations 9,600
Interest received 240
Salaries 2,250
Scholarship 2,220
Drugs for handicapped 2,070
Printing and stationery 510
Office furniture 3,090
Investments 4,500
Cash/bank balance 2,100
16,740 16,740

You are also informed as follows:

(a) Subscriptions outstanding with members N300.
(b) Accrued expenses:
N
(i) Salaries 300
(ii) Scholarship 960
(iii)Drugs 180
(iv) Printing and stationery 240

You are required to prepare for the

(a) Income and expenditure accounts,
(b) Balance sheet as at 31st December, 1986.
Solution
(a)
EGBEYEMI CLUB OF AIYETORO
Income and Expenditure Account for the year Ended 31st December, 1986
Expenditure: N Income: N
Salaries 2,550 Donations 9,600
Drugs for handicapped 2,250 Interest received 240
Scholarship 3,180 Subscriptions 7,200
Printing and stationery 750
Excess of I/E 8,310
17,040 17,040

340
(b)
EGBEYEMI CLUB OF AIYETORO
Balance Sheet As at 31st December, 1985
Financed by: N N Fixed – Assets: N N
Net – surplus 8,310 Office equipment 3,090

Current liabilities: Current Assets:

Accrued: Salaries 300 Accrued subscription 300
Scholarship 960 Cash/Bank 2,100 2,400
Drugs 180
Printing and stationery 240 1,680 Investment 4,550
9,990 9,990
Workings:
(i) Subscriptions: N6,900 + 300 (outstanding) = N7,200
(ii) Salaries: N2,250 + 300 (accrued) = N2,550.
(iii) Drugs: N2,070 + 180 (accrued) = N2,250.
(iv) Scholarship: N2,220 + 960 (accrued) = N3,180.
(v) Printing and stationery: N510 + 240 (accrued) = N750
1995/7
Subscription in advance is an example of
A. prepayment B. accrual C. debtors D. provisions
Answer: Accrual – Subscription in advance shall be treated as a liability (undercurrent liability) in the balance. This
simply means that the club is owing members for subscriptions paid in advance.

1995/1 (Theory)
The treasurer of Annang Football Club presents to you the following information relating to the Financial transactions
of the Club for the year ended 31st December, 1993.
Receipts and Payment Account for the year ended 31st December, 1993
Receipts: N Payments: N
Bank balance 1/1/93 1,048 Payments for bar supplies 7,924
Subscription received for: Wages:
1992 110 Groundsman and Assistant 1,878
1993 2,472 Barmen 1,248
1994 80 Bar expenses 468
Bar sales 11,256 Repairs of stands 238
Donations received 240 Ground unkept 458
Secretarial expenses 276
Transport costs 610
Bank balance 31/12/93 2,106
15,206 15,206

Additional information:
(a)
31/12/92 31/12/92
Stock in bar at cost 992 1,116
Owing for bar supplies 588 680
Bar expenses owing 50 72
Transport cost owing - 130
(b) The value of fixed assets as at 31st December, 1992 was:
Land N8,000
Football stands N4,000
Equipment N1,100
(c) Depreciation is to be charged on straight line method as follows: Football stands 10% per annum.
Equipment 20% per annum.
(d) Subscription owing by members were as follows:
N
31st December, 1992 110
31st December, 1993 132

341
You are required to:
(i) Calculate the Accumulated fund as at 31st December, 1992.
(ii) Prepare the Bar Trading and Expenditure Account for the year ended 31st December, 1992.
(iii) Prepare the Balance Sheet as at the date.
Solution
(i)
Determination of Accumulated fund: 31st December, 1992
Add: Assets: N N
Land and building 800
Football stands 4,000
Equipment 1,100
Stock 992
Subscription owing 110
Bank balance 1,048
15,250
Less: Liabilities
Bar expenses owing 50
Owing for bar supplies 588 638
Accumulated fund 14,612

(ii)
ANNAG FOOTBALL CLUB
Bar Trading Account for the year Ended 31st December, 1993
N N
Opening bar stock 992 Bar sales 11,256
Add: Bar purchases 8,016
Cost of bar available for sale 9,008
Less: bar closing stock 1,116
7,892
Add: Bar wages 1,248
Cost of bar sold 9,140
Gross – profit c/d 2,116
11,256 11,256

Bar expenses 490 Gross – profit c/d 2,116

Net-profit c/d 1,626
2,116 2,116

ANNAG FOOTBALL CLUB

Income and Expenditure Account for the year Ended 31st December, 1993 0-ol
Expenditure: N Income N
Wages of Groundsman and Assistant 1,878 Subscription 2,604
Repairs to stands 238 Donation 240
Secretarial expenses 276 Bar trading profit 1,626
Ground upkeep 458
Transport cost 740
Depreciation:
- Football stands 400
- Equipment 4,210
Total expenditure 4,210
4,470 4,470

342
(iii)
ANNAG FOOTBALL CLUB
Balance sheet as at 31st December, 1993
Financed by: N N Fixed Assets: N N
Accumulated fund 14,612 Land 8,000
Add: Net-surplus 260 Football stands 4,000
14,872 Less: Depreciation (400) 3,600
Equipment 1,100
Current Liabilities: Less: Depreciation (220) 880
Bar Creditors 680 Total Fixed Assets 12,480
Bar Expenses Owing 72
Transport Cost owing 130 Current Assets:
Subscription advance 80 962 Bar stock 1,16
Subscription accrued 132
Cash/Bank 2,106 3,354
15,834 15,834

Workings:
(i) Bar purchases: (Prepare Bar supplies creditors)
Dr Bar Supplies Creditors Account Cr
N N
Payment for bar supplies 7,924 Balance c/d 588
Balance c/d 680 Bar purchases 8,016
8,604 8,604
Balance b/d 680

8,604 – 588 = 8,016

(ii) Bar Expenses:

Dr Bar Expenses Account Cr
N N
Bar expenses paid 468 Balance b/d 50
Balance c/d 72 Bar trading a/c 490
540 540
Balance b/d 72

(iii) Subscription:
Dr Subscription Account Cr
N N
I/E Account 2,604 Bank (1993) 2,472
Subscription owing 132
2,604 2,604
Balance b/d 132

(iv) Bar Transport Cost:

Dr Bar Transport Cost Account Cr
N N
Bank 610 740
Balance c/d 130
740 740
Balance b/d 130

(v) Depreciation: Football stands = 10% × 4,000 = N400

Equipment = 20% × 1,100 = N220

343
2005/24 – 26
Le
Cash in hand 15,000
Balances as at 1st January, 2005:
Subscriptions in arrears 6,000
Subscriptions in advance 2,500
Subscriptions received 18,000
Expenses for the year 6,500
Balances as at 31st December, 2005:
Subscriptions in arrears 3,000
Subscriptions in advance 1,500

2005/24
Accumulated fund at the beginning of the year was
A. Le23,500 B. Le18,500 C. Le11,500 D. Le8,500
Answer: Le18,500 ⎯ ⎯→ Le15,000 + Le6,000 – Le2,500 (B)

2005/25
Subscriptions credited to the income and expenditure for the year was
A. Le23,000 B. Le18,000 C. Le16,000 D. Le13,000
Answer: Le16,000 ⎯ ⎯→ Le18,000 + Le3,000 + Le2,500 – Le(6,000 + 1,500)
= Le23,500 – Le7,500 = Le16,000 (C)

2005/26
The excess of income over expenditure for the year was
A. le16,500 B. Le11,500 C. Le9,500 D. Le6,500
Answer: Le9,500 ⎯ ⎯→ Le16,000 – Le6,500 (C)

2007/7 (Theory)
The following is the Receipts and Payments Account of Egbejoda Social Club for the year ended 31st December, 2005.
Receipts and Payments Account
N N
Balance b/f 13,470 Stationery 375
Subscriptions 48,490 Transportation 1,600
Donations 16,000 Sporting equipment 15,000
Bar takings 32,500 Bar supplies 20,800
Rent 6,400
General expenses 1,920
Barman’s wages 5,500
Balance c/d 58,865
110,460 110,460

Additional information:
1/4/2004 31/3/2005
N N
(a) Bar stock 1,700 2,250
Bar supplies 800 1,600
Subscriptions in arrears 7,150 5,220
Rent accrued 3,000 2,000
(b) Provide for depreciation of equipment at 20% on cost.
You are required to prepare:
(i) Bar Trading Account;
(ii) Income and Expenditure Account; and
(iii) Balance Sheet as at 31st March, 2005.

344
Solution:
(i)
EGBEJODA SOCIAL CLUB
Bar Trading Account for the year ended 31st March, 2005
N N
Opening stock 1,700 Bar takings 32,500
Add: Purchases 21,600
23,300
Less: Closing stock 2,250
21,050
Barman wages 5,500
Cost of bar sold 26,550
Gross-profit from bar 5,950
32,500 32,500

Workings:
(i) Purchases:
Bar Supplies Account
N N
Cash 20,800 Balance b/d 800
Balance c/d 1,600 Purchases 21,600
22,400 22,400

Purchases: 22,400 – 800 = N21,600

(ii)
Income And Expenditure Account for the year 31st March, 2005
EXPENDITURE: N INCOME: N
Transportation 1,600 Bar profit 5,950
Stationery 373 Subscriptions 46,560
Rent (6,400 + 2,000 – 3,000) 5,400 Donations 16,000
General expenses 1,920
Depreciation:
- Sporting equipment 13,000
- Total Expenditure 12,295
Excess of I/E 56,215
68,510 68,510
Workings:
Subscriptions:
Dr Subscriptions Account Cr
N N
Balance b/d 7,150 Cash received 48,490
Income and expenditure a/c 46,560 Balance c/d 5,220
53,710 53,710

Subscription (income and expenditure a/c) = 53,710 – 7,150 = 46,560

Rent
Dr Rent Control Account Cr
N N
Balance c/d 2,000 Balance b/d 3,000
Cash 6,400 Income and expenditure a/c 5,400
8,400 8,400

Rent (Income and expenditure account = N8,400 – 3,000 = 5,400

345
(iii)
EGBEJODA SOCIAL CLUB
Balance Sheet as at 31st March, 2005
N N Fixed Assets: N N
Accumulated fund 18,520 Sporting equipment 15,000
Add: Excess of I/E 56,215 Less: Depreciation (3,000) 12,000
74,735
Current liabilities: Current assets:
Bar supplies 1,600 Bar stock 2,250
Accrued Rent 2,000 3,600 Subs in arrears 5220
Cash balance 58,865 66,335
78,335 78,335

Workings:
20
Depreciation of sporting equipment: 100 × 15,000 = N3,000

Accumulated fund:
Statement of Affairs as at 1st April, 2004
Add: Assets N N
Cash 13,470
Stock 1,700
Subscription in arrears 7,150
22,320
Less: Liabilities
Bar Supplies 800
Rent Accrued 3,000 3,800
Accumulated fund 18,520

2022/6 Theory
The summary of the Receipts and Payments of the Adamfo Social Club for the year ended December, 2019 is as follows:
Receipts: $
Subscriptions 4,000
Sale of competition tickets 800
Donations 300
Refund of rent 1,000

Payments:
Rent 3,000
Honorarium to speaker 2,200
Secretariat expenses 200
Donations to charity 60
Competition prizes 600
Stationery and printing 320
Additional information:
01/01/19 31/12/10
$ $
Equipment at valuation 1,950 1,500
Subscriptions:
Arrears 120 170
Advance 30 60
Owing to suppliers of competition prizes 90 120
Stock of competition prizes 70 80
You are required to prepare for the club and for the year ended 31st December, 2019:
(a) Subscriptions Account;
(b) Competition Prizes Suppliers Account;
(c) Competition Trading Account;
(d) Income and Expenditure Account.
346
Solution
(a)
ADAMFO SOCIAL CLUB:
Dr Subscriptions Account Cr
$ $
OP Subscription in arrears 120 Cl subscription in arrears 170
Income and Expenditure A/C 4,020 Cash received 4,000
Cl Subscription in advance 60 Op. Subscription in advance 30
4,200 4,200
Balance b/d 170 Balance c/d 120

Subscription (income and expenditure account): N4,200 – 180 = N4,020

(b)
Dr Competition Prizes Suppliers Account Cr
$ $
Payment 600 Balance b/d (01 – 01 – 19) 90
Balance (31 – 12 – 19) 120 Purchases 630
720 720
Balance b/d 120

(c)
Dr Competition Trading Account for the year Ended 31st December, 2019 Cr
$ $
Opening Stock 70 Sales of competition tickets 800
Add: Purchases 630
700
Less: Closing stock (80)
Cost of competition prizes sold 620
Profit on competition prizes 180
800 800

(d)
Income and Expenditure Account for the year ended 31st December, 2019
EXPENDITURE: $ INCOME $
Rent (3,000 – 1,000) 2,000 Subscriptions 4,020
Stationery and printing 320 Profit from competition prizes 180
Secretarial expenses 200 Donations 300
Speaker honorarium 2,200 Excess of E/I 730
Donations to charity 60
Total expenditure 5,230 5,230

Depreciation of equipment: Cost – NBV = 1,950 – 1,500 = 450

347
2012/7 (Theory)
The receipts and payments of Show Boy Club for the year ended 31st December, 2010 are as follows:
D
Opening balance 1/1/10 289,860
Proceeds from dance 216,900
Transfer to bank deposit 720,000
Rates 60,000
Entrance fees received 30,000
Wages paid 433,800
Subscriptions received 1,800,000
Equipment bought 240,000
Repairs 97,032
General expenses 293,376
Stationery 58,740
Interest received on bank deposit 72,000
Donations received 25,200

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 the previous year while D120,000 was paid in advance
for the coming year. In addition, D72,000 was still owing as at 31st December, 2010.
(v) Assets of the club at 1st January, 2010 were:
D
Club house 5,760,000
Equipment 3,600,000
Bank deposit 2,400,000

(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.
Solution
(a)
SHOW BOY CLUB
Statement of Affairs As at 01 – 01 – 2010
N N
Add: Assets
Club house 5,760,000
Equipment 3,600,000
Bank deposit 2,400,000
Subscriptions in arrears 48,000
Cash balance 289,860
12,097,860
Less: Liabilities:
General expenses owing 18,000 (18,000)
Accumulated capital 12,079,860

348
(b)
SHOW BOY CLUB
Receipt and Payments Account for the year ended 31st December, 2010
D D
Balance b/f 289,860 Rates 60,000
Proceeds from dance 216,900 Wages 433,800
Subscription received 1,800,000 Equipment bought 240,000
Entrance fees received 30,000 Stationery 58,740
Interest Received 72,000 Repairs 97,032
Donations 25,210 General Expenses 293,376
Bank deposit 720,000
Balance c/d 531,012
2,433,960 2,433,960
Balance b/d 531,012
Note:
Balance c/d ⎯ ⎯→ This is the difference between total receipts and total payments
= D2,433,960 – D1,902,948 = D531,012
(c)
Dr Subscriptions Account Cr
D D
Subscription in arrears (2009) 48,000 Cash received 1,800,000
Income and Expenditure Account 1,704,000 Subscription owing (31–12–2010) 72,000
Subscription in advance (2010) 120,000
1,872,000 1,872,000
Balance b/d 120,000

Note:
Subscription (income and expenditure account): D1,800,000 + 72,000 – (D48,000 + 120,000)
= D1872,000 – 168,000 = D1,704,000

(d)
SHOW BOY CLUB
Income and Expenditure Account for the year ended 31st December, 2010
EXPENDITURE: D INCOME: D
Wages 462,600 Subscription 1,704,000
Rate 48,000 Proceed from dance 216,900
Stationery 58,740 Donations received 25,200
General expenses 275,376 Entrance fees 30,000
Depreciation: Interest received 72,000
- Club house 288,000
- Equipment 384,000
Repairs 97,032
Excess of I/E 434,352
2,048,100 2,048,100

Notes:
(i) Wages: D433,800 + 28,800 = D462,600.
(ii) Rent: D60,000 – 12,000 = D48,000.
(iii) General expenses: D293,376 – 18,000 = D275,376
5
(iv) Depreciation: Club house = × 5,760,000 = D288,000
100
10
Equipment = × 3,600,000 + 240,000
100
10
= × 3,840,000 = D384,000
100
(v) Excess of income over expenditure (I/E): Total Income – Total Expenditure
= D2,048,100 – D1,613,648 = D434,352

349
2013/17
The accumulated fund of a not-for-profit making organisation is
A. a fixed asset B. a current asset C. a liability D. capital
Answer: Capital ⎯ ⎯→ Capital = Assets – Liabilities (D)

2015/27
Which of the following is a credit item in an income and expenditure account?
A. electricity B. donations C. stationery D. bar supplies
Answer: donations (B)

2016/28
Purchases of fixtures and fittings by a club is recorded in the
A. receipts and payments account only B. income and expenditure only
C. receipts and payments account and balance sheet D. income and expenditure account and balance sheet
Answer: Receipts and payments only (A)

2016/6 (Theory)
The following is the Receipt and Payments Account of Kayode Social Club for the year ended 31st December, 2014:
Receipts and Payments Account for the year ended 31st December, 2014
N N N N
Cash in hand 1/1/2014 500 Purchase of sport equipment 1,800
Cash in bank 1/1/2014 1,000 Repairs 1,500
Subscriptions: Salaries 1,700
2013 1,200 Insurance 1,000
2014 4,000 Show expenses 3,200
2015 2,300 7,500 Transport expenses 500
Donations 2,000 Secretariat expenses 300
End of year show 15,000 Purchase of furniture 3,000
Transfer from deposit account 3,000 Balance c/d 16,000
29,000 29,000
Additional information:
(i) Equipment was valued at N3,250 and furniture N1,550 on 31st December, 2013:
(ii) Depreciation to be provided as follows:
Equipment N505
Furniture N55
(iii) The following expenses were outstanding
Salaries N300
Transport N100
Repairs N250
(iv) Subscriptions owing by members were as follows:
31st December, 2013 N1,200
31st December, 2014 N2,100
(v) The balance in the bank deposit account at 31st December, 2013 was N3,000.
You are required to prepare:
(a) Statement of Affairs as at 31st December, 2013:
(b) Subscriptions Account for the year ended 31st December, 2014;
(c) Income and Expenditure Account for the year ended 31st December, 2014;
Solution
(a)
Statement of Affairs as at 31st December, 2013
Add: Assets N N
Equipment 3,250
Furniture 1,550
Bank 3,000
Cash 500
Subscription 1,200
9,500
Less: Liabilities: –
Accumulated fund 9,500

350
(b)
Dr Subscriptions Account 31st December, 2014 Cr
N N
Subscription owing (2013) 1,200 Subscription received 7,500
Income and Expenditure 6,100 Subscription owing (2014) 2,100
Account
Subscription in advance (2015) 2,300
9,600 9,600
(c)
KAYODE SOCIAL CLUB
Income and Expenditure Account for the year ended 31st December, 2014
EXPENDITURE: N INCOME: N
Insurance 1,000 Subscription 6,100
Secretariat expenses 300 Donations 2,000
Show expenses 3,200 End of year show 15,000
Repairs 1,750
Salaries 2,000
Transport expenses 600
Depreciation: Furniture 55
Equipment 505
Total expenditure 9,410
Excess of I/E (surplus) 13,690
23,100 23,100

Notes:
(i) Repairs: N1,500 + 250 = N1,750.
(ii) Salaries: N1,700 + 300 = N2,000
(iii) Transport expenses: N500 + 100 = N600.
(iv) Depreciation: Furniture N55
Equipment N505

2017/3
Explain the following terms used in not-for-profit making organisations.
(i) Accumulated funds.
(ii) Subscription in arrears.
(iii) Receipts and payment accounts.
(iv) Income and expenditure accounts;
(v) Entrance fees.
Answer
(i) Accumulated Fund: This is the capital of a not-for-profit making organisation. It is a term used to describe the
capital of not – for – profit making organisations such as clubs, associations, churches, mosques, etc. It is
determined by preparing a statement of affairs at the beginning of the financial year.
(ii) Subscription in Arrears: This represent the amount of subscriptions yet to be paid members as at the time of
preparing the account of the club. Subscription in arrears is usually treated as a current asset in the balance sheet
of the club.
(iii) Receipts and Payments Account: This is the book of account of a not-for-profit making organisations used for
recording of all cash transactions carried out by the club. The debit side contains all cash receipts by the club
while the credit side contains all cash payments by the club. Receipts and payment account is an equivalent of the
cash book of a profit making organisations.
(iv) Income and Expenditure Account: This is the second book of a not-for-profit making organisation. It is used for
recording revenue expenditure and revenue receipts of the club or association or societies. All revenue
expenditures are recorded in the left hand side while all revenue receipts are recorded on the right hand side. The
excess of income over expenditure (I/E) is called “surplus”, while the excess of expenditure over income (E/I) is
called “Deficit”. Income and expenditure account is an equivalent of profit and loss account of a profit making
organisation.
(v) Entrance Fees: This represent the amount of money payable by a member who newly joined the club or society.
This amount is treated as income received during the year.

351
2019/50
Subscription owing $6,000 (31–12–2014); subscriptions in advance $4,000 (31–12–2014); cash received as subscription
during the year was $80,000.

The subscription for the year 2014 was

A. $90,000 B. $82,000 C. $78,000 D. $70,000
Answer: $82,000 ⎯ ⎯→ $80,000 + 6,000 – 4,000

2022/23 NABTEB
Receipts and payments account is similar to
A. receipt book B. profit and loss account C. trading account D. cash book
Answer: Cash book (D)

2005/5 – 7 Neco
Use the following information to answer questions 5 – 7.
EGBEDI SOCIAL CLUB
Statement of affairs as at 31st December, 2003
N N
Accumulated fund XX Land 40,000
Owing to suppliers 2,940 Equipment 25,500
Tea bar expenses 250 Stock of tea bar 4,960
Owing for subscription 550
Cash at bank 5,240
76,250 76.250

2005/5
What is the value of the accumulated fund?
A. N31,900 B. N40,000 C. N52,000 D. N73,000 E. N76,000
Answer: N73,000 ⎯ ⎯→ 76,250 – (2,40 + 250) (D)

2005/6
Current liabilities of the club amounted to
A. N10,750 B. N5,500 C. N3,190 D. N294 E. N25
Answer: N2,940 + 250 = N3,190 (C)

2005/7
What is the total fixed assets of the club?
A. N76,250 B. N73,060 C. N65,500 D. N10,750 E. N3,190
Answer: N65,500 ⎯ ⎯→ 40,000 + 25,500 = 65,500 (C)

2008/9 – 12 Neco
Use the following information to answer questions 9 – 12
Subscription Account
N N
Balance b/f 12,000 Balance b/f 3,000
Income and expenditure 145,000 Cash 210,000
Balance c/d 62,000 Balance c/d 6,000
219,000 219,000

2008/9
How much is the subscription outstanding at the beginning of the period?
A. N62,000 B. N12,000 C. N9,000 D. N6,000 E. N3,000
Answer: N12,000 ⎯ ⎯→ balance b/f (B)
2008/10
The amount received as subscription during the period is
A. N219,000 B. N213,000 C. N210,000 D. N145,000
Answer: N145,000 ⎯ ⎯→ 3,000 + 210,000 + 6,000 – (12,000 + 62,000)
= 219,000 – 74,000 = N145,000 (D)
352
2008/11
Subscription credited to income and expenditure account for the period is
A. N219,000 B. N213,000 C. N210,000 D. N203,000 E. N145,000
Answer: N145,000 (E)

2008/12
The closing balance of N62,000 will be classified in the balance sheet as
A. capital B. current asset C. current liability D. fixed asset
E. long term liability
Answer: Current liability (C)

2004/8 Neco Theory

The following is the Trial Balance of UFEDO WRESTLERS CLUB on 31st December, 2002.
Dr Cr
N N
Accumulated fund at Jan. 1st, 2002 2,136
Club house 2,000
Club Equipment 420
Sports equipment 270
Sale of refreshments 243
Purchase of refreshments 185
Interest free loan from a member 500
Subscriptions received for current year 370
Subscriptions outstanding for previous year 5
Receipts from club-room games 182
Maintenance of games & sports equipment 60
Postages 76
Printing and stationery 132
Wages 208
Cash at Bank 62
Cash in hand 13
3,431 3,431

The following additional details are to be taken into consideration:

(i) Sports equipment to be depreciated at 20% per annum and club equipment at 10% per annum.
(ii) Subscriptions due for current year and not yet paid is N15.
(iii) There is an unpaid account for provisions (refreshments purchased) amounting to N12.
(iv) The stock of provisions (refreshments) on hand at December 31st, 2002 was N16.
(v) The subscriptions still outstanding from the previous year are to be written off as bad debt.
You are required to prepare:
(a) an account to show the profit or loss on sales of refreshments;
(b) the Income and Expenditure Account for the year ended, December 31st, 2002 and;
(c) a Balance sheet as at that date.
Solution
(a)
UFEDO WRESTLERS CLUB
Refreshment Trading, Profit and Loss Account
N N
Opening stock - Sales of refreshment 243
Add: Purchases (185 + 12) 197
197
Less: Closing stock (16)
Cost of goods sold 181
Gross-profit c/d 62
243 243

353
(b)
Income and Expenditure Account for the Year ended 31st December, 2002
EXPENDITURE N INCOME: N
Maintenance of games and sports equipment 60 Subscription 385
Postages 76 Receipts from club games 182
Printing and stationery 132 Profit on refreshment 62
Wages 208
Bad debts 5
Depreciation:
- Sports equipment 54
- Club equipment 42
Excess of I/E (surplus) 52
629 629

(c)
Balance Sheet as at 31st December, 2002
N N Fixed Assets: N N
Accumulated fund 2,136 Club house 2,000
Add: Surplus 52 2,188 Sports equipment 270
Less: Depreciation (54) 216
Long – term liability: Club equipment 420
Free loan from member 500 Less: Depreciation (42) 378
2,594

Current liabilities: Current assets:

Creditors for 12 Stock 16
refreshment
Sub in arrears 15
Cash at bank 62
Cash in hand 13 106
2,700 2,700
Workings:
(i) Subscription
Subscription Account
N N
Subscription outstanding (2001) 5 Subscription received 370

Income and expenditure 385 Subscription outstanding (2002) 15

Bad debt (2001 outstanding) 5
390 390
Balance c/d 15

2008/9 Neco (Theory)

Below is the summary of receipts and payments of the Ikot Tunga Golf Club for the year ended 31st December, 2003.
N
Cash balance 240,000
Entrance fees received 25,000
Subscriptions received 1,500,000
Donations received 21,000
Proceeds from dance 180,000
Interest received on bank deposit 60,000
Wages paid 360,000
Stationeries bought 48,000
Equipment bought 200,000
Repairs 80,000
General expenses 244,000
Rates 50,000
Transfer to bank deposit 600,000

354
Additional information:
(a) The subscriptions received N40,000 was in arrears for the previous year while N100,000 was paid in advance for
the coming year. In addition N60,000 was still owing at 31st December, 2003.
(b) Rates prepaid amounted to N40,000.
(c) General expenses included N50,000 paid in advance for the coming year.
(d) Wages N24,000 were due and unpaid as at 31st December, 2003.
(e) The club had the following properties on 1st January, 2003.
(i) Club house N400,000.
(ii) Equipment N300,000.
(iii) Bank deposits N200,000.
(f) Depreciation of the club house is 5% and equipment 10%.

You are required to prepare for IKOT TUNGA GOLF CLUB;

(i) Receipts and Payment Account;
(ii) Income and Expenditure Account for the year ended 31st December, 2003.
Solution
(i)
IKOT TUNGA GOLF CLUB
Receipt and Payment Account for the year ended 31st December, 2003
N N
Balance b/f 240,000 Wages paid 360,000
Entrance fees received 25,000 Stationeries bought 48,000
Subscription received 1,500,000 Equipment brought 200,000
Donations received 21,000 Repairs 80,000
Proceeds from dance 180,000 General expenses 244,000
Interest received 60,000 Rates 50,000
Bank deposit 600,000
Balance c/d 444,000
2,026,000 2,026,000
(ii)
IKOT TUNGA GOLF CLUB
Income and Expenditure Account for the Year ended 31st December, 2003
EXPENDITURE N INCOME: N
Stationery 48,000 Entrance fees 25,000
Wages (360,000 + 24,000) 384,000 Subscription 1,420,000
Repairs 80,000 Donations 21,000
General expenses (244,000 – 50,000) 194,000 Proceeds from dance 180,000
Rate (50,000 – 40,000) 10,000 Interest received 60,000
Depreciation:
- Club house 20,000
- Equipment 30,000
Excess of I/E (surplus) 940,000
1,706,000 1,706,000

Subscription Account
N N
Sub in arrears (2002) 40,000 Cash received 1,500,000
Income and expenditure 1,420,000
Subscription in advance (2004) 100,000 Subscription in arrears (2003) 60,000
1,560,000 1,560,000
Balance b/d

2022/14 Neco (PC)

In a non-profit making organisation, accumulated fund is the same as capital while surplus is known as
A. deficit B. gross-profit C. gross loss D. net loss E. net profit
Answer: Net profit (E)

355
2022/34 Neco (PC)
Subscriptions in arrears are treated as _______ in the balance sheet
A. accumulated fund B. current asset C. current liability D. long-term liability
Answer: current asset (B)
2022/52 Neco (PC)
The income and expenditure account of a club is equivalent to _____ in a trading concern
A. balance sheet B. cashbook C. profit and loss account D. trading account
E. trial balance
Answer: Profit and loss account (C)
2022/6 Neco (Internal)
The following information were extracted from the books of Obasitu Youth Club.
(a)
Statement of Affairs as at 1st January, 2016
N N
Accumulated fund 18,000 Fixed Assets:
Furniture and Fittings 7,500
Games and Equipment 3,200
Motor Van 5,000
15,700
Current Assets:
Cash at bank 2,300
18,000 18,000

(b) The following transactions took place between 1st January and 31st December, 2016.
Receipts: N
Subscription received 4,000
Donations received 400
Sales of tickets for dance 2,700
Payments:
Electricity 1,025
Expense on dance 1,550
New games equipment 800
Cleaner’s wages 520
Repairs and renewals 415
Motor vans repairs 630
An electricity bill of N225 was been owed as at 31st December, 2016.
You are required to prepare:
(i) Receipts and Payments Account.
(ii) Income and expenditure Account for the year ended 31st December, 2016.
(iii) Balance Sheet as at 31st December, 2016.
Solution
(i)
OBASITU YOUTH CLUB
Receipt and Payment Account for the year ended 31st December, 2016
N N
Subscription received 4,000 Electricity 1,025
Donations received 400 Expenses on dance 1,550
Sales of tickets 2,700 New games equipment 800
Cleaner’s wages 520
Repairs and renewals 415
Motor vans repairs 630
Balance c/d 2,160
7,100 7,100

356
(ii)
OBASITU YOUTH CLUB
Income and Expenditure Account for the year ended 31st December, 2016
EXPENDITURE: N INCOME: N
Electricity (1,025 + 225) 1,250 Subscription 4,000
Dance expenses 1,550 Donation 400
Cleaners wages 520 Proceeds from sales of tickets 2,700
Repairs and renewals 415
Motor van repairs 630
Excess of I/E (surplus) 2,735
7,100 7,100

(iii)
OBASITU YOUTH CLUB
Balance Sheet as at 31st December, 2016.
N N Fixed Assets: N N
Accumulated fund 18,000 Furniture and fittings 7,500
Add: surplus 2,735 Games and equipment 3,200
20,735 New games equipment 800 4,000
Motor van 5,000
16,500

Current liabilities: Current Assets:

Electricity accrued 225 Cash at ban k 2,300
Cash in hand 2,160
20,960 20,960
2019/30 Neco
An income and expenditure account is prepared based on the same principles
A. balance sheet B. incomplete records C. profit and loss account D. trading account
E. trial balance
Answer: profit and loss account (C)

2019/31 Neco
The annual summary of cash records of a club or society is called
A. cash book B. profit and loss account C. receipt and payment D. single entry
E. statement of affairs
Answer: Receipts and payment (C)

2019/32 Neco
Which of the following is an example of non-profit making organisation?
A. civil society organisation B. cooperative societies C. joint venture D. partnership
E. sole proprietorship
Answer: civil society organisation (A)

2016/20 to 22 Neco
The income and expenditure account of Ajidara brother club for the year ended 31st December, 2009 as prepared by its
treasurer is as follows:

N N
Wages and salaries 4,800 Excess of income – over 9,030
expenditure bf
Rent and rate 1,200 Subscriptions 18,660
Kitchen equipment 8,000 Anniversary dance – tickets 3,000
Travelling expenses 280 Donation received 1,600
Anniversary dance – expenses 1,910
Excess of excess over expenditure 16,100
32,290 32,290

357
2016/20 Neco
The total income credited to income and expenditure account is
A. N23,260 B. N12,900 C. N9,030 D. N8,190 E. N8,000
Answer: N9,030 (C)
2016/21 Neco
The revenue expenditure of the club for the year is
A. N32,290 B. N16,190 C. N16,100 D. N9,030 E. N8,190
Answer: N16,190 ⎯ ⎯→ N32,290 – 16,100 (B)
2016/22 Neco
The capital expenditure of the club for the year is
A. N32,290 B. N16,190 C. N16,100 D. N8,190 E. N8,000
Answer: N8,000 ⎯ ⎯→ kitchen equipment (E)
2011/15 Neco
When a club engages in a trading activity the club will prepare _____ account to reflect it
A. cash B. income and expenditure C. profit and loss D. receipt and payment
E. trading
Answer: Income and expenditure (B)
2011/31 Neco
Non-profit making organisation usually receive their income from the following sources except
A. annual levy B. sales of shares C. financial institutions D. registration fees
E. subscription
Answer: Financial institutions (C)

2004/26 (Nov)
Surplus is the excess of
A. sales over expenses B. income over expenditure C. assets over liabilities
D. receipts over payments
Answer: Income and expenditure (B)

1997/7
The treasurer of Rokel Cricket Club prepared the following receipts and payments account for the year ended 31 st
December, 2010:
N N
Balance: 1–1–2010 8,184 Expenses on dance 3,660
Subscriptions 35,160 Repairs 1,752
Income from dance 23,604 Extension of club house 8,820
Bank interest 720 Wages & salaries 26,976
Donations 3,612 Sundry expenses 1,248
Cash at bank 28,824
71,280 71,280
Additional information:
(i) Subscriptions received included N420 for the year commencing 1st January, 2011.
(ii) Accrued wages and salaries at 01–01–2010 amounted to N696 and 31–12–2010 N768.
(iii) Depreciation is charged on club house at 10% per annum on cost.
(iv) The following were balances as at 310–12–2009.
N
Land at cost 48,000
Club house at cost 48,600
Depreciation on club house 17,928
Subscriptions in arrears 960
Subscriptions in advance 360
Accrued sundry expenses 696
Accumulated fund 86,064
You are required to prepare:
(a) Subscription account;
(b) Income and expenditure account for the year ended 31st December, 2010.

358
Solution
(a)
ROKEL CRICKET CLUB:
Subscription Account
N N
Subscriptions in arrears 960 Subscriptions in advance 360
Subscriptions in advance (2011) 420 Cash received 35,160
Income and expenditure 34,140 ______
35,520 35,520

(b)
ROCKEL CRICKET CLUB:
Income and Expenditure Account, 31st December, 2010
EXPENDITURE: N INCOME: N
Expenses on dance 3,660 Subscription 34,140
Repairs 1,752 Income from dance 23,604
Wages and salaries 27,048 Bank interest 720
Sundry expenses 1,944 Donations 3,612
Depreciation – club house 4,860
Extension of clubhouse 8,820
Surplus of I/E 13,992
62,076 62,076
Workings:
(i)
Dr Wages and Salaries Account Cr
N N
Closing balance 768 Opening balance 696
Cash 26,976 Income & Expenditure Account 27,048
27,744 27,744
Balance b/d 27,048

(ii)
Dr Sundry Expenses Account Cr
N N
Cash 1,248 Income & Expenditure Account 1,944
Accrued 696
1,944 1,944
Balance b/d 1,944
(iii) Depreciation of clubhouse: 10% × 48,600 = 4,860

2011/30 UTME Exercise 15.1.

The capital of not – profit making organization is referred to as
A. capital owned B. entity fund C. accumulated fund D. capital employed
2013/30 UTME Exercise 15.2.
Which of the following is accounted for in receipts and payments account?
A. subscriptions received in advance B. subscriptions due not yet received C. accrued expenses on annual dances
D. depreciation of the club house
2009/2 Neco Exercise 15.3.
(a) What is subscription?
(b) State any THREE business activities that may be embarked upon by non – trading organizations.
(c) Distinguish between “creditors for goods” and “creditors for expenses”.
(d) Explain each of the following terms: i. Bar takings. ii. Accumulated fund. iii. Net deficit.
2003/3 Exercise 15.4.
(a) List the components of the financial statements of a not – for – profit making organization.
(b) State any limitations of the receipt and payments account.
(c) List four items of income found in not – for – profit making organizations.
2004/3 Exercise 15.5.
(a) What is a “not – for – profit making organization?
(b) State the purpose of the income and expenditure account.
359
2014/1 NABTEB Exercise 15.5.
(a) Give two differences each between receipts and payments account and income and expenditure account.
(b) Briefly explain the following terms:
i. Entrance fee. ii. Subscription in advance. iii. Subscription in arrears. iv. Donations.

2000/7 Neco Exercise 15.6

As the Revenue Accountant of Igah Ocheba Local Government Area of Zampex State, your cashier makes the following
returns in respect of the financial year ending 31–12–97.
N
Salaries and wages 300,000.00
Vehicle expenses 5,000.00
Vehicle purchased 60,000.00
Stationery and printing 16,000.00
Repairs and maintenance 20,000.00
Hospital drugs purchased 4,000.00
Subvention from State government 35,000.00
Subvention from Federal government 45,000.00
Rates and fines received 15,000.00
Bank charges 3,000.00
Income from investments 50,000
Tenement rates/royalties received 270,000.00
Licences issued 130,000.00
Donations to schools 60,000

You are required to prepare receipts and payments account of Igah Ocheba Local Government for the year ended
31st December, 1997.
(Note: Fixed assets are to be depreciated at 10% on cost).

2000/6 (Nov) Exercise 15.7

The following is the receipts and payments account of HENIK sisters club for the year ended 31st December, 1998.
Receipts Payments
N N
Balance b/f 3,747 Rent 1,800
Subscriptions: 1997 150 Postages and stationery 1,364
1998 14,450 Tables and chairs 15,000
1999 4,365 Anniversary dance 3,430
Donations 4,050 Raffle draw tickets 1,700
Raffle draw 11,500 Bank charges 180
General expenses 2,645
Balance c/d 12,143
38,262 38,262

Additional information:
(a) Balance as at: 1/1/98 31/12/98
N N
Rent payable 60 90
Prepaid expenses 380 140
Stock of stationery 600 550
(b) Tables and chairs are expected to test for five years without residual value.

You are required to prepare:

(i) Statement of Affairs as at 1st January, 1998.
(ii) Income and Expenditure Account for the year ended 31st December, 1998, and
(iii) a balance sheet as at that date.

360
2019/7 Neco Exercise 15.8
The receipts and payments accounts of AMONO UNIQUE CLUB for the year ended 31st December, 2017 is as follows:

N N
Balance 1st January, 2017 2,000 Bar suppliers 28,500
Subscriptions received Wages of bar man 3,500
Year 2017 36,000 General expenses 4,000
Year 2018 2,500 Bar expenses 800
Receipts from bar 45,000 Printing and stationery 1,200
Receipt from annual dinner 5,000 Equipment 3,500
Furniture and Fittings 3,000
Sundry receipts 4,000 Repairs 2,000
Amono day celebration 30,000
Balance 31st December 18,000
94,500 94,500

You are given the following additional information:

1st January 2017 31st December 2017
N N
Equipment 25,000 28,500
Furniture and fittings 20,000 22,500
Stock – bar 1,200 3,200
Bar suppliers 2,400 5,600
Wages – owing - 500

You are required to prepare:

(a) Statement of affairs as at 1st January, 2017.
(b) Bar trading account.
(c) Income and expenditure account for the year ended 31st December, 2017.

2018/13 NABTEB (ADVANCED) Nov Exercise 15.9

The following are the summary of the receipts and payments of Bimbo Club for the year ended 31st December, 2010.
N
Balance 1/1/2010 48,300
Proceed from dance 36,200
Transfer to bank deposit 130,000
Rates 10,000
Entrance fees received 5,000
Wages paid 75,300
Subscriptions received 300,000
Equipment bought 40,000
Repairs 16,500
General expenses 48,850
Stationery bought 9,700
Interest received on bank deposit 12,000
Donation received 4,000
Additional information:
(i) Wages N4,600 were due and unpaid at 31st December, 2010.
(ii) Rates prepaid amounted to N1,500.
(iii) General expenses include N2,280 owing since the previous year.
(iv) Of the subscriptions received N9,000 was in arrears the previous year.
(v) N30,000 was paid in advance for the coming year, in addition N12,000 was still owing at 31st December,
2010.
(vi) The club had the following assets on 1st January, 2010.
N
Club building 980,000
Equipment 120,000
Bank deposit 400,000
(vii) Depreciation is charged by 5% on club building and 10% on equipment including additions within the year.

361
You are required to prepare:
i. Receipts and payments account.
ii. Income and Expenditure account.
iii. Balance sheet as at that date.

2015/6 Exercise 15.10

Babou Social Club was formed on April 1, 2013 with 50 members, each paying an annual subscription of D12.
The following were extracted from the books of the club on 31st March, 2014:
(i) Amount realized during inauguration – D3,000, expenses on inauguration D1,000.
(ii) All members paid their subscriptions with the exception of five members who werestill owing by 31st March,
2014
(iii) Gate fees from organized football match were D500 and expenses incurred D300.
(iv) Proceeds from end of year dance amounted to D4,000 and expenses on dance D2,000.
(v) Honorarium to officers amounted to D520 and sundry expenses D1,120.
(vi) Amount paid for damages to furniture during dance D300.
You are required to prepare for the year ended 31st March, 2014:
(a) Receipts and Payments Account;
(b) Income and Expenditure Account.
2004/4 Exercise 15.11
(a) List and explain 4 sources of income to not-for-profit making organisations.
(b) State 3 limitations of the receipts and payments account.
2007/28-29
Young stars club has a membership of 115 persons. Each member pays an annual subscription of N50. During the year
ended 31st December, 2005, 8 members had not paid their subscriptions.
2007/28 Exercise 15.12
The subscriptions recorded in the income and expenditure account for the year ended 31st December, 2005 is
A. N5,750 B. N5,350 C. N400 D. N115
2007/29 Exercise 15.13
The subscriptions shown in the balance sheet as at 31st December, 2005 is
A. N400 (asset) B. N150 (asset) C. N150 (liability) D. N400 (liability)
2010/19 Exercise 15.14
Which of the following is the equivalent of the receipts and payments account?
A. income and expenditure accounts B. cash book C. subscriptions account
D. profit and loss account

2010/20 Exercise 15.15

Subscriptions received in advance are
A. included in the income and expenditure account B. not included in the receipts and payment account
C. shown as a current asset in the balance sheet D. shown as a current liability in the balance
2014/26 Exercise 15.16
In a not-for-profit making organisation, when the total income is less than the total expenditure, the difference is
A. surplus B. shortfall C. loss D. deficit
2014/28 Exercise 15.17
Which of the following items is not contained in the receipts and payments account?
A. subscription paid in advance B. stock paid for in advance C. outstanding wages and salaries
D. donations
2014/3 Exercise 15.18
Describe 3 features of each of the following financial statements:
(a) Receipts and payments account;
(b) Income and expenditure account;

Exercise 15.19
2021/3
(a) Explain the following terms as used in accounts of not-for-profit making organisations:
(i) entrance fees; (ii) subscriptions
(b) State 5 features of income and expenditure account.
362
Chapter Sixteen
ACCOUNTS OF PARTNERSHIP
DEFINITION OF PARTNERSHIP
According to section 4 of the partnership Act 1932 a partnership is “the relation between persons who have agreed to
share the profits of a business carried on by all or any one of them acting for all”. Partnership Act 1890 defined
partnership as a relation which subsists between persons carrying on a business in common with a view to profit.
Furthermore, as per Black Law Dictionary, a partner is a member of a firm or co-partnership; who has united with others
in order to form a partnership in business. It should be noted that there is no limit as to the membership of accountants,
solicitors or other professional bodies which receive the approval of the Board of Trade. Partnership accounting is the
same as accounting for a proprietorship except there are separate capital and drawing accounts for each partner.

TYPES OF PARTNERSHIP
Partnership business can be:
(i) General Partnership: This is a partnership business in which the liabilities (risks) of the partners is not limited to
the amount of capital contributed to the partnership business. Each general partner must actively participate in
managing the business and any partner may sign a contract on behalf of the partnership. The partners must agree
to major decisions, acting as a corporate board of contractors.
(ii) Limited Partnership: This is a partnership business in which the liabilities of the partners are limited to the amount
of capital contributed to the partnership business. In most cases, there is one general partner who manages the
business and a number of limited partners. A limited partner does not participate in the day-to-day management of
the partnership and their liability is limited to their investment in the business.
(iii) Limited Liability Partnership (LLP): This is different from a limited partnership or a general partnership but is closer
to a Limited Liability Company (LLC). In this partnership, all partners have limited liability. The type of partnership is
often formed by groups of professionals who want to pool their resources and save money by sharing space.

TYPES OF PARTNERS
Partnership business is made up of the following types of partners
(i) General Partners: A general partner is a partner whose liability to respect of the liabilities of the partnership is
unlimited. It is a partner who is entitled to take full share in the administration and management of the firm. He has
power to participate in the conduct and management of the business.
(ii) Active partner: An active partner mainly takes part in the day-to-day running of the business and also takes active
participation in the conduct and management of the business firm. He carries the daily business activities on behalf
of other partners. With regards to his role in the partnership, his role is of utmost importance. Therefore, if at all
he wishes to retire from the partnership firm he must give a public notice about his decision. He gives a public
notice in order to absolve himself from liability and acts done by the other partner. If he doesn’t issue a public
notice declaring his retirement he would be held liable for the acts done by other partners post-retirement also.
(iii) Dormant or sleeping partner: This is a partner who only contributes his name to the formation of the business and
nothing more. This partner has sufficient money or interest in the firm, but cannot devote his time to the business.
A sleeping partner like any other partner brings share capital to the firm. He also continues to share the profits and
losses of the firm. As a dormant partner, he does not participate in daily operations of the business, he is not allowed
to withdraw remunerations from the firm. If at all the partnership deed is providing remuneration to dormant
partners, it is not deductible under the Income Tax Act, 1961.
(iv) Secret partner: This is a partner who identify is not known to the public as a partner in a partnership business.
Other than this distinct feature, in all other aspects he is like the rest of the partners. He contributes to the capital
of the firm, takes part in the management, shares its profits and losses, and has unlimited liability towards the
creditors, he can even take part in working for the business. The position of a secret partner lies between the active
and sleeping partner.
(v) Nominal (Quasi) partner: A nominal partner does not have any real or significant interest in the partnership firm.
In simple words, he is only lending his name to the firm and does not have a voice in the management of the firm.
On the strength of his name, the firm can promote its sales in the market or can get more credit from the market.
This partner does not share any profit and losses in the firm because he does not contribute any capital to the firm.
However, it is pertinent to note that a nominal partner is liable to the outsiders and third parties for the acts done
by other partners.
(vi) Limited Partner: A limited partner is a partner whose liability is only up to the extent of his contributions for the
capital of the partnership firm. The limited partner has limited liability because the liability of the partner is limited
to the total amount he has contributed to the firm and will not extend to his private properties.

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RIGHTS OF PARTNERS IN PARTNERSHIP:
1. Right to express views and ideas: All the partners have a right to give their ideas, knowledge, and experience by
making any business decision. Such suggestion is discussed and decided with mutual consent of all partners.
2. Right to share profit: Each partner is authorized to claim over a profit of a business. Profit is shared on the basis
of a ratio of investment.
3. Right to use property: All the partners have a right to use a property of business for growth and promotion of
business. A partner does not have the right to use the property of the business for personal assistance.
4. Right to get retirement: A partner has right to get retire from business in the consent of other existing partners.
5. Rights to be indemnified: All partners are authorized to get compensation for the loss and expenses made
personally by partners for business.
6. Right to manage business: All the partners have an equal right to be involved in the management and operation of
the partnership business. A partner can involve in planning, decision making, organizing and controlling activities
of the business.
7. Right to inspect books account: Every partner has right to inspect and take a copy of accounts and financial
statements like trial balance, profit and loss account and balance sheet of business in a timely manner.
8. Right to join the ownership: All the partners have the right to claim joint ownership of the property of the business
firms. All the partners have joint ownership of the property. So that one partner can’t sell the property of the firm
without consent of other partners.
9. Right to bind other partners: A partner has a right to demand loss (compensation) for the loss or damage that
occurs to the business due to the negligence of other partners.
10. Right to dissolve the business: A partner can propose the dissolve of business if he does not see any future prospect.

DUTIES AND RESPONSIBILITY OF PARTNERS

1. To indemnify the business: The partner is required to compensate loss that has occurred in business because of
his/her negligent.
2. Not to use the property of the business: The property of business must be used for business purpose only. It is the
duty of partner that he must not use for personal benefits.
3. To maintain up to date account: An active partner must maintain up to date financial state like profit and loss
account, balance sheet etc. they must be provided on time as demanded by partners.
4. Not to transfer interest: It is the duty of partner not to transfer his/her ownership in business without the agreement
of other partners.
5. To share losses: All the partners are required to share loss from business in the proportion (ratio) of their investment.
6. Mutual confidence and understanding: As the partnership starts with an agreement between the partners, it is the
duty of the partners not to break confidence, agreement and understanding between the partners.
7. To act within the scope of authority: No partner is allowed to work beyond his/her authority. It is the responsibility
of the partner to perform within his authority.
8. Not to demand remuneration: Even the active partner is not authorized to demand remuneration if it is not
mentioned in partnership deed.
9. Not to run a competitive business: It is the most important responsibility of partner that he shouldn’t run similar
nature of business by himself.

PARTNER’S DUTY OF UTMOST GOOD FAITH

1. Giving accounts to other partners: Partner must give accounts to other partners for any profit made by him through
the use of the firm’s name and property.
2. Giving account for profit made in a competing business: Partners must give account for any profit made in a
business of the same kind that is competing with the partnership.
3. Rendering true accounts: The partners must render true accounts and give full details to one another on all
partnership issues.

LAWS GOVERNING PARTNERSHIP

The laws governing partnership firm are contained in the partnership Act of 1890. The important points of this act are as follows:
(i) Partners share equally and contribute equally to the profits and losses of the partnership except where stated
otherwise in the agreement between the partners to that effect.
(ii) Partnership must indemnify every partner against the consequences of acting prudently on behalf of the firm.
(iii) No interest is allowed on capital except where the partners agreed otherwise.
(iv) Interest not exceeding 5% per annum is allowed on advances made by partners over and above their agreed capital.
(v) Every partner has a right to share in management of the business (except limited partner).
(vi) Partners are not entitled to remuneration except otherwise agreed by the partners.
(vii) No new partners are to be introduced without the consent of all the existing partners.
(viii) Differences are to be settled by a majority vote of the powers.
(ix) Partnership books of account are to be kept at the place of business, and are open to access by any partner.

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PARTNERSHIP AGREEMENT (DEED OF PARTNERSHIP)
This is a formal agreement drawn up by partners to regulate the conduct of a partnership business. A document that clarify
the respective positions and duties of the partners in a businesses. A partnership may be established without any formality but
it is advised to have an agreement documented. The partnership deed shall, inter alia, cover the following points:
(i) The amount of capital to be contributed by each partner.
(ii) Whether the capital accounts are to be fixed (drawings and profits being adjusted on current accounts) or whether
the capital accounts are to be fluctuating (drawings and profits being adjusted on capital accounts).
(iii) The ratio in which profits/losses are to be shared among the partners.
(iv) The rate at which interest is to be allowed on partner’s capital.
(v) The rate at which interest is to be charged on partner’s drawings.
(vi) The amount of salary receivable by partners.
(vii) The rate of interest to be allowed on partner’s loan.
(viii) Whether current accounts, if any, are to bear interest and, if so, at what rate.
(ix) The method of calculating goodwill in the event of death, retirement or admission of partners.
(x) The method of treating the premium on life insurance policies, if any, and how the proceeds of the policies are to
be shared among the partners.

IMPORTANCE OF A PARTNERSHIP AGREEMENT (DEED OF PARTNERSHIP)

1. Settling of dispute: If there is any dispute, the deed of partnership will serve as a reference point. It will be used in
settling dispute among the partners.
2. Takes care of dependants of a deceased partner: If death of either of the partner occurs, the deed of partnership
will stand as a basis for settling the accounts.
3. Record of terms and conditions: It provides permanent records of terms and conditions of the deed of partnership.
4. Rules and regulations: The Deed of Partnership entails the rules and regulations governing the firm.

WHERE AGREEMENT IS ABSENT

In the absence of express or implied agreement to the contrary, the partnership Act 1890 stipulates that the following
rules apply, inter alia:
(i) Profits and losses shall be shared equally.
(ii) Interest shall not be allowed on partner’s capital.
(iii) Interest shall not be charged on partner’s drawings.
(iv) Interests shall be allowed on partner’s loans at 5% per annum.
(v) No partner shall be entitled to salary.

ADVANTAGES OF PARTNERSHIP
1. Less formal with fewer legal obligations: One of the main advantages of a partnership is the lack of formality
compared with managing a limited company. The account process is generally simpler for the partnerships than that
of limited companies. A business partnership does not need to maintain a set of statutory books like a limited
company has to. Unless a formal partnership agreement has been drawn up, a partnership business can easily be
dissolved at any time: this gives each partner the freedom to choose to leave if they wish to.
2. Easy to get started: the partners can agree to create the partnership verbally or in writing. There’s no need to
register with Companies House and registering the business partnership for taxation.
3. Sharing the burden: Compared to operating on your own in a business, by working in a business partnership, you
can benefit from companionship and mutual support. When there is loss, it will be shared among the partners and
this will lighten their burden. Starting and managing a business alone can feel stressful and daunting, particularly if
you’ve not done it before. In partnership, you’re in it together.
4. Access to knowledge, skills, experience and contacts: Each partner will bring their own knowledge, skills,
experience and contacts to the business, potentially giving it a better chance of success than any of the partners
trading individually. Partners can share out tasks, with each specializing in areas they’re best at and enjoy most.
5. Better decision making: Compared with operating on your own, in a partnership the business benefits from the
unique perspective brought by each partner. In business, very often two heads really are better than one, with the
combined conclusion of debating a situation far better than what each partner could have achieved individually.
6. Privacy: Compared to a limited company, the affairs of a partnership business can be kept confidential by the
partners. By contrast, in a limited company, certain documents are available for public inspection. Partnership
business is not mandated by law to publish its annual accounts, the accounts are confidential.
7. Ownership and control are combined: In a limited company, ownership and day to day management of the
business is split between shareholders and directors, which can mean that directors are constrained by shareholder
preference in pursuing what they see as the best interest of the business. In the business partnership, the partners
both own and control the business. As long as the partners can agree how to operate and drive forward the
partnership, they’re free to pursue that without interference from any shareholders. It makes a partnership business
more flexible than that of a limited company, with the ability to adapt more quickly to changing circumstances.

365
8. More partners, more capital: The more partners there are, the more money there may be available from their
combined resources to invest into the business, which can help to fuel growth. Together, their borrowing capacity
is also likely to be greater.
9. Continuity in business: Partnership business will continue even when one of the partners is not around. Other
partners will be able to continue with the firm.
10. Easy access to profits: In a business partnership, the profits of the business are shared between the partners. They
flow directly through to the partner’s personal tax returns rather than initially being retained within the partnership.
But in a limited company, profits are retained by the company until paid out either as salaries or with the approval
of shareholders as dividends.

DISADVANTAGES OF PARTNERSHIP
1. The business has no independent legal status: A business partnership has no independent legal existence distinct
from the partners. This possibility can cause insecurity and instability, divert attention from developing the business
and will often not be the preferred outcome of the remaining partners. Even if a partnership agreement exists, the
remaining partners may not be in a position to purchase the outgoing partner’s share of the business. In that case,
the business will likely still need to be dissolved.
2. Unlimited liability: Because the business does not have a separate legal personality, the partners are personally
liable for debts and losses incurred. So if the business runs into trouble, your personal assets may be at risk of being
seized by creditors, which would generally not be the case if the business was a limited company. The partners are
jointly and severally liable.
3. Perceived lack of prestige: The partnership business model often appears to lack the sense of prestige more
associated with a limited company. The appearance of impermanence, and the fact that the partnership’s financials
cannot be independently checked at Companies House, can appear to present more risk. Because of this, some clients
will prefer to deal with a limited company and even refuse to transact with a partnership business.
4. Limited access to capital: A partnership business will often find it more difficult to raise money than a limited
company. Banks may prefer the greater accounting transparency, separate legal personality and set of permanence
that a limited company provides. The partnership business is seen as higher risk, a bank will either be unwilling to
lend or will only do so on less generous terms. More mostly, they cannot issue shares or other securities in exchange
for investment in the way a limited company can.
5. Potential for differences and conflict: Going into business as a general partnership rather than a sole trader, you
lose your autonomy, you probably won’t always get your own way, and each partner will need to demonstrate
flexibility and the ability to compromise. There will be the potential for differences, large or small with other
partners. Differences might not be evident immediately. Over time partner’s preferences, personal situations and
expectations may change so the fact they are aligned at the start is far from a guarantee that cracks won’t appear
later.
6. Risk of dissolution: Retirement of an influential partner may end the business. This can occur if he has the largest
proportion of interest in the business.
7. Slower, more difficult decision making: Compared to running a business as a sole trader, decision-making can be
slower as you’ll need to consult and discuss matters with your partners. Where you disagree, time will be spent
negotiating to build agreement or consensus. Sometimes this might mean opportunities are missed. More often, it
will frustrate a partner who has been used to making all the decision for their business.
8. Profits must be shared: At a basic level, while a sole trader retains all the profits of their business, those of a
partnership are shared amongst the partners. Under the Partnerships Act 1890, profits are shared equally, although
that position can be amended by a partnership agreement. It is easy for resentment to occur if there does not appear
to be a fair balance between effort and reward.
9. Restrictions on transfer of ownership: Transferring of ownership to another partner is not most time easy, as other
partners may not agree.
10. Personally demanding: Although there’s at least one other person to share the worry and workload with, in a
partnership business, the partners still essentially are the business it can absorb a lot of time and energy and disrupt
your work/life balance, particularly where you end up covering for other partners who don’t have such a strong
work ethic.

SOURCE OF INCOME FOR PARTNERSHIP

1. Contribution of each partner.
2. Loan of overdraft from the bank and other financial institutions.
3. Ploughing back of profit.
4. Trade creditors: Obtaining goods on credit from the sellers.
5. Admission of new partners.

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ADMISSION OF A PARTNER
Admission of a partner is a process of bringing new partner or partners to join an existing partnership business. It is a
common practice to see an interested individual coming to be part of an existing partnership. When a partner is to be
admitted, the in–coming partner is expected to pay goodwill in addition to capital contributed. The goodwill is either
shared among the existing partners or retained in the books of the partnership.

CIRCUMSTANCES IN WHICH PARTNERSHIP WILL BE ILLEGAL

1. Where it is formed for an immoral purpose.
2. Where it is formed for an illegal purpose.
3. Where the members are more than twenty partners.
4. Where the purpose is contrary to public policy.

REVALUATION OF ASSETS IN PARTNERSHIP

Assets are the properties of the partnership business. Revaluation of assets is upwards or downward review of the book
value of assets. The surplus or loss arising from the revaluation of assets will be shared among the partners in their
agreed sharing ratio of profits/losses.

DISSOLUTION OF PARTNERSHIP
This is the process of bringing to an ultimate end the business activities or the existence of a partnership business.
Dissolution of partnership business maybe caused by way of the following factors;
(i) Expiration of life span agreed upon by the partners.
(ii) Attainment of the goals upon which the partnership was set – up.
(iii) Bankruptcy of a partner.
(iv) Death of a partner.
(v) Retirement of a partner.
(vi) Occurrence of an event which causes the partnership to become illegal in the face of law.

CAPITAL ACCOUNTS
This is the crediting of the amount contributed by each partner into a business. It can either by fixed capital or fluctuating
capital.
(i) Fluctuating capital account: The profit, interest on capital and salaries are credited to the capital account while
drawings and interest on drawings are debited. The balance of this account change each year.
Dr Capital account Cr
A B C A B C
N N N N N N
Drawings x x x Balance b/f x x x
Interest on drawings x x x Current balance x x x
Bal c/d x x x Share of profit x x x
Interest on capital x x x
x x x x x x
Balance b/d x x x
(ii) Fixed capital account and current account: The balance of capital will remain at the same figure during the
partnership. The profit, interest on capital and salaries will be credited to a separate account. Drawings and interest
on drawings are debited.
Dr Capital account Cr
A B C A B C
N N N N N N
Balance b/f x x x

Dr Current accounts Cr
A B C A B C
N N N N N N
Drawings x x x Balance b/f x x x
Interest on drawings x x x Interest on capital x x x
Balance c/d x x x Interest on loan x x x
Salary x x x
Share of profit x x x
x x x x x x

367
PARTNERS’ LOAN
A personal loan taken out on behalf of the partnership is essentially the same as a loan that a partner makes to the
business. Either way, the business is responsible for paying back the money to the partner or that partner incurs a personal
loss of the business is unable to pay.

PARTNERS’ SALARIES
A partner who owns a portion of a company and thus is entitled to part of its profits, but who also receives a regular
salary in exchange for his/her services for the company. The salaried partners usually work for the companies
exclusively while an unsalaried partner have another job or other investments.

INTEREST ON CAPITAL
This is the interest paid to owners for providing a firm with the required capital to start a business. It is similar to
obtaining a loan from any financial institution. The partners are paid interest on the capital that remains outstanding

DRAWINGS
A partnership draw is money or property taken out of a business by one of its partners. The money or asset the partner
withdraws is recorded in the company’s accounting record in what is referred to as a drawing or draw account.

INTEREST ON DRAWINGS
This is an income for the firm and is payable by the partners to the firm hence, is deducted/debited. Interest is charged
on the money/goods taken by the partners for their personal use during the year. This is introduced to prevent the partners
from withdrawing cash unnecessary from the business.

FINAL ACCOUNTS OF PARTNERSHIP

The final accounts of a partnership business comprises of:
(a) Profit and loss appropriation account.
(b) Current accounts.
(c) Balance sheet

Illustration 16.1
Ayomide, Olamide and Ewamide are in partnership, they share profits and losses in the ratio 5:3:2 respectively. The
partnership deed contains the following:
(i) The partners capital are: Ayomide N800,000.
Olamide N600,000
Ewamide N250,000
(ii) Ayomide to receive a salary of N120,000 per annum being responsible for the day – to – day running of the
firm.
(iii) Interest on capital is fixed at 5% per annum.
(iv) Interest on drawings is at the rate of 10%.
In the year to 31st December, 2017, the net profit was N600,000.
The partners drawings were as follows: Ayomide N140,000; Olamide N100,000; Ewamide N60,000.
The current accounts shows the following balances:
N
Ayomide 10,000 (Cr)
Olamide 2,000 (Cr)
Ewamide 1,000 (Dr)
Prepare:
(i) Appropriation account for the year ended 31st December, 2017;
(ii) Current account for the year ended 31st December, 2017.

368
Solution
Dr. Partners Profit and Loss Appropriation for the year ended 31st December, 2017 Cr
Interest on capital N N N N
Ayomide: (5% ×N800,000) 40,000 Net profit b/d 600,000
Olamide: (5% ×N600,000) 30,000
Ewamide (5% ×N250,000) 12,500 82,500 Interest on drawings:
Ayomide (0.1 × 40,000) 14,000
Salary: Ayomide 120,000 Olamide: (0.1 × 100,000) 10,000
Ewamide (0.1 × 60,000) 6,000 30,000
Share of profit:
5 213,750
Ayomide: (10 × 427,500)
3 128,250
Olamide: ( × 427,500)
10
2 85,500 427,500 _______
Ewamide: (10 × 427,500)
630,000 630,000
(ii)
Dr Partners Current Account as at 31st December, 2017 Cr
Ayomide Olamide Ewamide Ayomide Olamide Ewamide
N N N N N N
Balance b/f - - 1,000 Balance b/f 10,000 2,000 -
Drawings 140,000 100,000 60,000 Int. on capital 40,000 30,000 12,500
Int. on drawings 14,000 10,000 6,000 Salary 120,000 - -
Balance c/d 229,750 50,250 31,000 Share of profit 213,750 128,250 85,500
383,750 160,250 98,000 383,750 160,250 98,000

Illustration 16.2
Amusa and Salawa are partners sharing Profits and Losses in the ratio 2:1. The following balances were extracted from
the books of the firm for the year ended 31st December, 1991.
Dr Cr
N N
Capital accounts: Amusa 50,000
Salawa 40,000
Drawings: Amusa 4,000
Salawa 3,000
Purchases 400,000
Sales 500,000
Salaries 50,000
General expenses 20,000
Rates 1,000
Discounts received 4,000
Bank balance 10,000
Freehold premises at cost 50,000
Trade creditors 26,000
Discount allowed 5,000
Furniture and equipment: cost (30,000) 24,000
Trade debtors 30,000
Stock – in – trade 1st January 23,000 _______
620,000 620,000

You are given the following additional information:

(i) Stock – in – trade 31st December, 1991 was N25,000.
(ii) Rates paid in advance at 31st December, 1991 were N200.
(iii) Bad debts to be written off N600.
(iv) Depreciation on furniture and office equipment is to be provided at the rate of 5% per annum on cost.
(v) Interest on capital is 10% per annum.
(vi) Interest on drawings: Amusa N250, Salawa N300.
You are required to prepare:
(a) Trading and Profit and Loss Accounts for the year ended 31st December, 1991.
(b) Profit and Loss, Appropriation Accounts;
(c) Partner’s current account, and (d) Balance Sheet as at 31st December, 1991.
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Solution
(a) AMUSA AND SALAWA
Dr Trading and Profit and Loss Account for the year ended 31st December, 1991 Cr
N N N N
Opening stock 23,000 Sales 500,000
Purchases 400,000
C.G.A.S 423,000
Closing stock (25,000)
Cost of goods sold 398,000
Gross profit c/d 102,000
500,000 500,000

Discount allowed 5,000 Gross – profit b/d 102,000

Rates (1,000 – 200) 800 Discount Received 4,000
Bad debts 600
Salaries 50,000
General expenses 20,000
Depreciation: F & E 1,500
Net – profit c/d 28,100
106,000 106,000
5
Note: Depreciation on furniture & equipment = × 30,000 = N1,500
100

(b) AMUSA AND SALAWA:

Dr Appropriation account for the year ended 31st December, 1991 Cr
Interest on capital N N N N
Amusa (0.1 × 50,000) 5,000 Net – profit b/d 28,100
Salawa (0.1 × 40,000) 4,000 Interest on drawings:
9,000 Amusa 250
Share of profits Salawa 300 550
2 13,100
Amusa (3 × 19,650)
1 6,550 19,650
Salawa (3 × 19,650)
28,650 28,650

(c) AMUSA AND SALAWA:

Dr Current Account for the year ended 31st December, 1991 Cr
Amusa Salawa Amusa Salawa
N N N N
Interest on drawings 250 300 Interest on capital 5,000 4,000
Drawings 4,000 3,000 Share of profit 13,100 6,550
Balance c/d 13,850 7,250
18,100 10,550 18,100 10,550
Balance b/d 13,850 7,250

(d) AMUSA AND SALAWA:

Balance Sheet as at 31st December, 1991
N N Fixed assets: N N
Capital a/c Furniture & equipment 30,000
Amusa 50,000 Less: Accumulated depreciation (7,500) 22,500
Salawa 40,000 90,000 Freehold 50,000
72,500
Current a/c Current assets:
Amusa 13,850 Stock 25,000
Salawa 7,250 21,100 Debtors (30,000 – 600) 29,400
Bank 10,000
Current liabilities Rates prepaid 200 64,600
Creditors 26,000
137,100 137,100

370
Illustration 16.3
Robinson and Merit are in partnership, sharing profit and losses in the ratio 3:2 respectively. The balance sheet as at 31st
August 2017 show:

Capital: N Assets: N
Robinson 550,000 Fixtures & fittings 105,000
Merit 350,000 Premises 65,000
Creditors 165,000 Equipment 100,000
Debtors 90,000
Bank 705,000
1,065,000 1,065,000

The following assets were realized:

N
Furniture and fittings 150,000
Premises 70,000
Equipment 190,000
Debtors 85,000
Dissolution expenses 25,000
The creditors were settled with 150,000

You are required to prepare:

(i) Realization Account;
(ii) Capital Account;
Solution
(i)
Robinson Merit
Realization Account
Net Book value of assets: N Realization value N
Furniture and fittin gs 105,000 Furniture and fittings 150,000
Premises 65,000 Premises 70,000
Equipment 100,000 Equipment 190,000
Debtors 90,000 Debtors 85,000
Dissolution expenses 25,000 Discount on creditors 15,000

Share of Profit:
3 75,0000
Robinson: (5 × 125,000)
2 50,000
Merit: (5 × 125,000)
510,000 510,000

Profit on realization: N510,000 – 385,000 = N125,000

Discount on creditor: N165,000 – 150,000 = N15,000

(ii)
Robinson and Merit
Capital Account
N N N N
Cash 625,000 400,000 Balance b/f 550,000 350,000
Share of profit 75,000 50,000
625,000 400,000 625,000 400,000

371
Illustration 16.4
Triumph, Treasure and Trinity are in partnership, sharing profit and losses in the ratio 3:2:1 respectively. The balance
sheet as at the date of dissolution is as follows:

Capital: N N
Triumph 56,000 Furniture and fittings 23,500
Treasure 34,000 Motor vehicle 47,000
Debtors 14,500
Stock 17,500
Creditors 45,000 Bank 17,300
Trinity capital (DR.) 15,200
135,000 135,000

The following assets were sold:

Fixtures and fittings N21,000
Motor vehicle 25,000
Debtors 5,000
Stock 12,500

The creditors were settled in full and the expenses on dissolution were N3,500.

You are required to prepare the necessary accounts. Apply the rules of Garner Vs. Murray.
Solution
(a)
Realization Account
Book value of assets: N Realization value N
Fixtures and fittings 23,500 Fixtures and fittings 21,000
Motor vehicle 47,000 Motor vehicle 25,000
Debtors 14,500 Debtors 5,000
Stock 17,500 Stock 12,500
Cost of dissolution 3,500

Share of Profit:
3 21,250
Triumph: (6 × 42,500)
2 14,167
Treasure: ( × 42,500)
6
1 7,083
Trinity: ( × 42,500)
6
106,000 106,000

(b)
Capital Account
Triumph Treasure Trinity Triumph Treasure Trinity
N N N N N N
Balance b/f - - 15,200 56,000 34,000 -
Share of loss 21,250 14,167 7,083 Transfer to Triumph - - 13,865
Transfer from Trinity 13,865 8,418 - Transfer to Treasure - - 8,418
Cash book 20,885 11,415 -
56,000 34,000 22,283 56,000 34,000 22,283

(a) Cash balance: Triumph – N56,000 – 35,115 = N20,885

Treasure – N34,000 – 22,585 = N11,415

372
Workings: (Applying the rules of Garner Vs. Murray)
Trinity deficiency = N22,283
56,000 × 22,283
Transfer to Triumph = = N13,864.9 ≃ N13,865
90,000
34,000 × 22,283
Transfer to Treasure = = N8,418
90,000

Note:
Rules of Garner vs. Murray.
The rules state that, “where upon dissolution, a partner’s capital account is in debit and he is unable to contribute the
full deficiency, the loss must be divided amongst the solvent parties in the ratio of their last agreed capital and not in the
proportion ordinary losses are to be borne.

(c)
Cash Account
N N
Balance b/f 17,300 Creditors 45,000
Fixtures & fittings 21,000 Cost of dissolution 3,500
Motor vehicle 25,000 Capital:
Debtors 5,000 Triumph 20,885
Stock 12,500 Treasure 11,415
80,800 80,800

2003/14 – 16
Use the following information to answer questions 14 to 16
N
Capital Accounts: Ojo 40,000
Aina 20,000
Drawings: Ojo 10,000
Aina 6,000

Interest on capital – 5%
Interest on drawings – 10%
Net profit for the year – N30,000
2 1
Profit sharing ratio – Ojo 3, Aina 3.

14. The divisible profit for the year is 16. Aina’s Current Account balance is
A. N31,600 B. N31,400 C. N30,000 D. N28,600 A. N9,933 B. N4,533 C. N6,600 D. N3,933
Answer: N28,600 (D) Answer: N4,533 (B)

15. Ojo’s share of profit is

A. N21,067 B. N20,933 C. N20,000 D. N19,067
Answer: N19,067 (D)
Workings:
(i)
Ojo and Aina Appropriation Account
Interest on Capital N N N N
5
Ojo(100 × 40,000) 2,000 Net – profit b/d 30,000
5 1,000 3,000
Aina (100 × 20,000)
Interest on Drawings:
Share of Profit: Ojo (0.1 × 10,000) 1,000
2 19,067 Aina (0.1 × 6,000) 600 1,600
Ojo( × 28,600)
3
1 9,533 28,600
Aina (3 × 28,600)
31,600 31,600

373
(ii)
Ojo and Aina Current Account
Ojo Aina Ojo Aina
N N N N
Drawings 10,000 6,000 Interest on Capital 2,000 1,000
Balance c/d 11,067 4,533 Share of Profit 19,067 9,533
21,067 10,533 21,067 10,533

2012/30
Partners whose liabilities are restricted to their financial contribution to the partnership in the event of winding up are:
A. ordinary partners B. limited partners C. dormant partners D. sleeping partners
Answer: Limited partners (B)

2003/13
Which of the following documents set out the internal regulations of a partnership?
A. law B. deed C. regulation D. code
Answer: Deed (B)

2018/31 NABTEB (Nov)

Where partnership deed does not exist, profits and losses are shared
A. based on capital B. on equal basis C. based on interest D. based on drawings
Answer: On equal basis (B)

2015/34
Goodwill is recognized in partnership accounts when
A. the business makes a huge profit B. the business has good customer relationship C. a partner is dormant
D. a new partner is admitted
Answer: A new partner is admitted (D)

2015/35
In which of the following accounts is interest on partner’s capital is found
A. profit and loss B. trading C. income surplus D. profit and loss appropriation
Answer: Profit and loss appropriation (D)

2019/27 Neco
Termination of the activities of a partnership is called
A. appropriation B. dissolution C. liquidation D. realization E. rejection
Answer: Dissolution (B)

2019/34 Neco
Where there is no partnership agreement, a partner who lends money to the partnership business shall get interest rate
at the rate of ____ percent per annum.
A. 8 B. 7 C. 6 D. 5 E. 4
Answer: 5 (D)

2019/46 Neco
Which of the following is debited to partner’s current account?
A. capital B. drawings C. interest on capital D. salaries E. share of profit
Answer: Drawings (B)
2019/60 Neco
The following are types of partners except
A. active B. dormant C. general D. illegal E. limited
Answer: Illegal (D)

2000/1 Neco
(a) What is ‘dissolution of partnership’? Give THREE reasons that could give rise to ‘dissolution of partnership’.
(b) Explain the terms ‘revaluation’ and ‘realization’ in partnership.
(c) What is ‘goodwill?

374
Solution
(a) Dissolution of partnership is defined as the termination of the activities of a partnership business.
Reasons are:
- Death of a partner.
- Retirement of a partner.
- Bankruptcy of a partner.
- Completion of a specific goal.
- Expiration of life span.
(b) Revaluation in partnership means the upward or downward review of the book value of assets.
Realization in partnership means the evaluation of profit or loss incurred at the time of dissoliution of a firm
(c) Goodwill can be said to be the commercial advantage which a business organization enjoys over its competitors or
rivalry.

2003/47 – 48 (Nov)
Use the following information to answer questions 47 and 48
N
Net profit 780,000
Drawings:
Alex 20,000
Barry 15,000
Capital:
Alex 200,000
Barry 250,000
Interest on capital – 15%

47. If interest on drawings is at 5%, how much would be charged against Barry?
A. N12,500 B. N10,000 C. N1,000 D. N700
Solution
5
Interest on drawings (Barry) = × 15,000 = N750
100

48. What is the interest on capital of Alex?

A. N117,000 B. N79,500 C. N37,500 D. N30,000
Solution
15
Interest on capital (Alex) == 100 × 200,000 = N30,000

375
1993/3
Abass and Okafor are in partnership sharing Profits and Losses in the ratio 2:3 respectively. The following balances
were extracted from the partnership books on 31st December, 1991.
N
Capital accounts:
Abass 15,500
Okafor 18,070
Current accounts:
Abass 29,800
Okafor 9,500
Drawings:
Abass 1,100
Okafor 1,760
Motor vehicle 54,000
Office furniture 23,800
Advertisement 5,900
Sales 149,500
Returns inwards 3,000
Purchases 70,600
Returns outwards 5,500
Opening stock 24,600
Carriage inwards 3,300
Discounts allowed 3,400
Discount received 2,300
Rent and rates 3,950
Salaries and wages 16,000
Carriage outwards 5,600
Electricity 2,300
Provision for depreciation:
Motor vehicles 13,500
Office furniture 7,140
Bills payable 7,500
Creditors 28,000
Bills receivable 6,600
Debtors 48,000
Cash 12,400
Additional information:
(a) Closing stock N18,000.
(b) Salaries and wages N60 accrued.
(c) Interest on capital is N2,425 for Abass, and N1,475 for Okafor.
(d) The Partners maintain fixed accounts.
(e) Salaries payable to partners:
Abass N1,400
Okafor N1,600
(f) Provision for depreciation:
Motor vehicle 25% on cost.
Office equipment 15% on cost.

Prepare:
(i) The Trading, Profit and Loss Appropriation Account for the year ended 31st December, 1991 and
(ii) A Balance Sheet as at that date.

376
Solution
(i) ABASS AND OKAFOR
Trading, profit and loss and appropriation account for the year ended 31st December, 1991
N N N N
Opening stock 24,600 Sales 149,500
Purchases 70,600 Less: Returns inwards (3,000)
Carriage inwards 3,300
73,900
Less: Returns outwards (5,500) 68,400
C.G.A.S 93,000
Less: closing stock (18,000)
Cost of goods sold 75,000
Gross – profit c/d 71,500
146,500 146,500

Advertisement 5,900 Gross – profit c/d 71,500

Discount allowed 3,400 Discount received 2,300
Rent and rates 3,950
Salaries and wages 16,000
Add: accrued 60 16,060
Carriage outwards 5,600
Electricity 2,300
Depreciation:
Motor vehicle 13,500
Office equipment 3,570 17,070
Net profit c/d 19,520
73,800 73,800

Interest on capital: Net profit b/d 19,520

Abass 2,425
Okafor 1,475 3,900

Salaries:
Abass 1,400
Okafor 1,600 3,000

Share of profit:
Abass 5,048
Okafor 7,572 12,620
19,520 19,520

377
(ii) ABASS AND OKAFOR
Balance Sheet as at 31st December, 1991
N N Fixed Assets: N N
Capital a/c: Motor vehicle 54,000
Abass 15,500 Less: Depreciation (27,000) 27,000
Okafor 18,070 33,570
Office furniture 23,800
Current a/c Less: Depreciation (10,710) 13,090
Abass 37,573 40,090
Okafor 18,387 55,960

Current liabilities: Current Assets:

Creditors 28,000 Stock 18,000
Bills payable 7,500 Debtors 48,000
Accrued salaries 60 35,560 Bills receivable 6,600
Cash 12,400 85,000
125,090 125,090
Workings:
(i) Share of profit N
Net – profit b/d 19,520
Less: Deductions:
Interest on capital (3,900)
Salaries (3,000)
12,620
Share of profit:
2
Abass ( × 12,620) (5,048)
5
3
Okafor ( × 12,620) (7,572)
5
NIL
(ii)
Partners Current Account
Abass Okafor Abass Okafor
N N N N
Drawings 1,100 1,760 Balance c/d 29,800 9,500
Balance c/d 37,573 18,387 Interest on Capital 2,425 1,475
Salaries 1,400 1,600
Share of profit 5,048 7,572
38,673 20,147 38,673 20,147

(iii) Provision for depreciation:

25
- Motor vehicle:
100
× 54,000 = N13,500
Accum. Depreciation = 13,500 + 13,500 = 27,000

15
- Office equipment =
100
× 23,800 = N3,570
Accum. Depreciation = N3,570 + 7,140 = N10,710
2019/6
Ubochi and Hassanah started a partnership business on 1st January, 2015. They contributed D300,0000 and D250,000
respectively as capital. Their partnership deed stated that:
(i) Interest of 8% should be paid on capital per annum.
(ii) Hassanah would be paid D10,000 monthly as salary.
(iii) Interest on drawing is 5%.
(iv) The profits are to be shared in ratio 3:2 respectively.
At the end of the year, the profit made was D300,000. During the period, Ubochi and Hassanah made drawings of
D20,000 and D15,000 respectively.
You are required to prepare:
(a) Profit and Loss Appropriation Account for the year ended 31st December, 2015;
(b) Partner’s Current Accounts.
378
Solution
(a) UBOCHI AND HASSANAH
Profit and loss appropriation account for the year ended 31st December, 2015
D D D D
Interest on capital: Net – profit b/d 300,000
8 24,000
Ubochi ( × 300,000)
100
8 20,000 44,000 Interest on drawings:
Hassanah (100 × 250,000)
5 1,000
Ubochi( × 20,000)
100
Partner salary: 5 750 1,750
Hassanah (100 × 15,000)
Hassanah (10,000 × 12) 120,000
164,000
Share of profit:
3 82,650
Ubochi(5 × 137,750)
2 55,100 137,750
Hassanah (5 × 137,750)
301,750 301,750

(b) UBOCHI AND HASSANAH

Current Account for the year ended 31st December, 2015
D D D D
Drawings 20,000 15,000 Interest on Capital 24,000 20,000
Interest on drawings 1,000 750 Salary - 120,000
Balance c/d 85,650 179,350 Share of Profit 82,650 55,100
106,650 195,100 106,650 195,100

2018/7 Neco
Ojo, Ifeoma and Nelson were partners sharing profits and losses in the ratio 2:2:1. Their assets and liabilities as at July
31st, 2013 were as follows:
N
Machinery 40,000
Motor vehicle 10,000
Creditors 24,000
Accruals (Rent) 1,800
Debtors 15,000
Prepayment 3,000
Bank balance 10,000
Other information relating to the business were:
(i) Drawings: Ojo 1,200
Ifeoma 2,000
Nelson 1,600
(ii) Capital: Ojo 10,000
Ifeoma 10,000
Nelson 12,000
(iii) The partnership agreement provides as follows:
(a) Ifeoma was to receive N1,000 as salary.
(b) Partners to receive 10% per annum as interest on capital.
(c) 5% per annum was payable as interest on drawings.
(d) Nelson to receive 5% per annum as extra interest on his excess capital contribution.
(e) The business net – profit for the year was N25,000.

You are required to prepare:

(a) The profit and loss appropriation account for the year ended 31st July, 2013.
(b) Partner’s capital account and
(c) Balance sheet as at 31st July, 2013.

379
Solution
(a)
OJO, IFEOMA AND NELSON
Profit and Loss Appropriation Account for the year ended 31st July, 2013
N N N N
Interest on capital: Net – profit b/d 25,000
Ojo (0.1 × 10,000) 1,000
Ifeoma (0.1 × 10,000) 1,000 Interest on drawings:
Nelson (0.1 × 12,000) 1,200 3,200 5 60
Ojo ( × 1,200)
100
5 100
Ifeoma (100 × 2,000)
Extra – interest on capital – Nelson 100 Nelson 5
(100 × 1,600) 80 240

Salary – Ifeoma 1,000

4,300
Share of profit:
2 8,376
Ojo: ( × 20,940)
5
2 8,376
Ifeoma (5 × 20,940)
1 4,188 20,940
Nelson (5 × 20,940)
25,240 25,240

(b) OJO, IFEOMA AND NELSON

Current Account for the year ended 31st July, 2013
Ojo Ifeoma Nelson Ojo Ifeoma Nelson
N N N N N N
Drawings 1,200 2,000 1,600 Interest on capital 1,000 1,000 1,200
Int. on drawings 60 100 80 Extra – interest - - 100
Balance c/d 8,116 8,276 3,808 Salary - 1,000 -
Share of profit 8,376 8,376 4,188
9,376 10,376 5,488 9,376 10,376 5,488

(c) OJO, IFEOMA AND NELSON

Balance Sheet as at 31st July, 2013
N N Fixed Assets: N N
Capital a/c: Machinery 40,000
Ojo 10,000 Motor vehicle 10,000
Ifeoma 10,000 50,000
Nelson 12,000 32,000

Current a/c:
Ojo 8,116
Ifeoma 8,276
Nelson 3,808 20,200 Current Assets:
Debtors 15,000
Current liabilities: Prepayments 3,000
Creditors 24,000 Bank 10,000 28,000
Accruals – Rent 1,800 25,800
78,000 78,000

380
2004/6 (Nov)
Bade and Dayo, trading in partnership, agreed to dissolve the partnership on the 31st December, 2001 and on which date
the balance sheet was as follows:
N N
Capital Account:
Bade 748,827 Plant and fixtures 142,165
Dayo 51,025 Goodwill 100,000
799,852 Stock 491,642
Sundry debtors 361,524
Loan – Bade 200,000 Cash 176,450
Sundry Creditors 271,929
1,271,781 1,271,781

Additional information:
(a) Profits and losses are shared in the ratio 3:2 respectively.
(b) The assets were realized as follows:
N
Sundry debtors 320,425
Stock 411,552
Plant and fixtures 171,653
Goodwill 35,000
(c) Realization expenses amounted to N4,728.
You are required to prepare: (i) Realization Account; (ii) Partners Capital Account; and (iii) Cash Account.

Solution
(i) BADE AND DAYO
Realisation Account as at 31st December, 2001
Assets decreased: N Assets increased: N
Goodwill 65,000 Plant and Fixtures 29,488
Stock 80,090
Debtors 41,099 Capital a/c:
Realization expenses 4,728 Bade (3 × 161,429) 96,857
5
2 64,572
Dayo (5 × 161,429)
190,917 190,917

(ii) BADE AND DAYO:

Partners Capital Account as at 31st December, 2001
BADE DAYO BADE DAYO
N N N N
Realization a/c 96,857 64,572 Balance b/d 748,827 51,025
Loan 200,000 ─
Balance c/d 451,970 ─ Balance c/d ─ 13,547
748,827 64,572 748,827 64,572

(iii) BADE AND DAYO:

Cash Account as at 31st December, 2001
N N
Balance b/d 176,450 Creditors 271,929
Debtors 320,425 Realization expenses 4,728
Stock 411,552 Capital a/c:
Plant and fixtures 171,653 Bade 451,970
Goodwill 35,000
Balance c/d 386,451
1,115,080 1,115,080

381
2003/9
Idowu has been in business for several years as a sole – proprietor of a hotel business. The balance sheet of his business
on 31st December, 2001, was as follows:
N N N
Capital 200,000 Leasehold premises 100,000
Profit 26,000 Fixtures and fittings 120,000
226,000 220,000
Drawings (12,000) Current assets:
214,000 Stock 38,000
Creditors 47,000 Debtors 7,000
Accruals 13,000 Bank 9,000 54,000
274,000 274,000

On 1st January, 2002, he decided to admit Alaba into the business to form a partnership on the following terms:
(a) Alaba is to contributes N250,000 as capital.
(b) Profits and losses are to be shared equally.
(c) The partnership is to take over the assets and liabilities at their book values except for those revalued as follows:
Leasehold premises N150,000
Fixtures and fittings N100,000
Stock N35,000
(d) Idowu is to maintain a capital of N250,000 by credit from revaluation or private resources.
Any balance shall be kept in his current account.
You are required to prepare: (i) Revaluation account; (ii) Partner’s capital account; and
(iii) Opening balance sheet for the partnership on 1st January, 2002.
Solution
Revaluation Account
N N
Assets decreased Assets increased:
Fixtures & fittings 20,000 Leasehold premises 50,000
Stock 3,000
23,000
Share of surplus:
Idowu: (27,000) 27,000
50,000 50,000

(ii)
Alaba and Idowu Capital Account
Alaba Idowu Alaba Idowu
N N N N
Balance c/d 250,000 250,000 Balance b/d - 214,000
Revaluation profit - 27,000
Bank 250,000 9,000
250,000 250,000 250,000 250,000

(iii) ALABA AND IDOWU

Balance Sheet as at 1st January, 2002
N N N N
Fixed Assets:
Capital a/c: Idowu 250,000 Freehold premises 150,000
Alaba 250,000 500,000 Furniture & fittings 100,000
250,000
Current liabilities Current Assets:
Creditors 47,000 Stock 35,000
Accruals 13,000 60,000 Debtors 7,000
Bank 268,000 310,000
560,000 560,000

382
2009/6 Neco
Audu and Segun are in partnership sharing profits and losses in the ratio of 2:1. Their capitals on 1st January, 2004 were
Audu N90,000 and Segun N45,000. On this date, they agreed to admit Okoro on the condition that he contributes
N50,000 as his capital and pays a further sum of N6,000 as premium for one fifth of their goodwill which is to be
retained in the business. Their deeds provided for 5% interest on each of their capital and drawings. Also, Segun to
receive an annual salary of N25,000. For the year ended 31st December, 2004, a profit of N25,000 was made, and
drawings were Audu N1,200, Segun N800 and Okoro N1,000.
You are required to prepare:
(i) Profit and loss appropriation account for the year ended 31st December, 2004.
(ii) Capital and current accounts of the partners.
Solution
(i) AUDU & SEGUN
Appropriation Account for the year ended 31st December, 2004
N N N N
Interest on capital: Net profit b/d 25,000
5 4,500
Audu:(100 × 90,000)
5 2,250 6,750 Interest on drawings:
Segun: (100 × 45,000)
5 60
Audu: ( × 1,200)
100
Salary – Segun 25,000 Segun: 5
(100 × 800) 40 100

Share of loss:
2 4,333
Audu: (3 × 6,650)
1 2,317 6,650
Segun: (3 × 6,650)
31,750 31,750

(ii) AUDU, SEGUN AND OKORO

Capital Account for the year ended 31st December, 2004
Audu Segun Okoro Audu Segun Okoro
N N N N N N
Bal. b/d 90,000 45,000 50,000

AUDU, SEGUN AND OKORO

Current Account for the year ended 31st December, 2004
Audu Segun Okoro Audu Segun Okoro
N N N N N N
Drawings 1,200 800 1,000 Salary - 25,000 -
Int. on drawings 60 40 - Capital – cash - - 50,000
Share of loss 4,333 2,317 - Interest on capital 4,500 2,250 -
Balance c/d 2,907 26,093 49,000 Goodwill 4,000 2,000 -
8,500 29,250 50,000 8,500 29,250 50,050
Balance b/d 2,907 26,093 49,000

383
2005/7
Taiwo and Kehinde had been in partnership for several years sharing profits and losses in the ratio of 3:2 of capital.
On 31st December, 2003, they decided to dissolve their partnership on which date their balance sheet was as follows:

TAIWO AND KEHINDE

Balance sheet as at 31st December, 2003
N N N
Capital: Fixtures and fittings 40,000
Taiwo 60,000
Kehinde 40,000

Current:
Taiwo 8,000 Stock 58,000
Kehinde (3,000) Debtors 45,000
Trade creditors 15,000 Cash 7,000
Bank overdraft 30,000 110,000
150,000 150,000
Additional information:
(a) Fixtures and fittings were sold for N36,000.
(b) Taiwo took over part of the stock at an agreed value of N25,000 while the rest was sold for N32,000.
(c) Debtors realized N43,600.
(d) Trade creditors were settled for N12,800.
(e) Cash and proceeds from realization were banked to liquidate the overdraft.
(f) Dissolution expenses amounted to N1,800.
You are required to prepare:
(i) Realization account.
(ii) Bank account; and
(iii) Partner’s capital account.
Solution
(i)
TAIWO AND KEHINDE
Dr Realisation Account Cr
N N N N
Fixture & fittings 40,000 Fixtures & fittings 36,000
Stock 58,000 Stock 32,000
Debtors 45,000 Debtors 43,600
Dissolution expenses 1,800
Capital – Taiwo 25,000
Creditors discount 2,200

Share of loss:
3 3,960
Taiwo ( × 6,600)
5
2 2,640
Kehinde (5 × 6,600)
6,600
144,800 148,800
Note:
i. Creditors (discount): N15,000 – 12,800 = N2,200
ii. Loss: N138,200 – N144,800 = (N6,600)
3 2
iii. Sharing ratio: Taiwo (5), Kehinde (5)
(ii)
Bank Account
N N
Cash 7,000 Balance b/f (overdraft) 30,000
Realization: Creditors 12,800
Fixtures & fittings 36,000 Dissolution expenses 1,800
Stock 32,000 Capital: Taiwo 39,400
Debtors 43,600 Kehinde 34,360
118,600 118,600

384
(iii)
Capital account
Taiwo Kehinde Taiwo Kehinde
N N N N
Stock taken over 25,000 - Balance b/f 60,000 40,000
Current A/C - 5,640 Current A/C 4,040 -
Balance c/d (Bank) 39,040 34,360
64,040 40,000 64,040 40,000

Workings:
(i) Current account (Taiwo) = N8,000 [Cr. Balance] – N3,960 [Loss]
= N4,040
(ii) Current account (Kehinde) = N3,000 [Dr. Balance] + N2,640 [Loss]
= N5,640
2017/8
Govu, Tuga and Kano are partners engaged in retain business, sharing profit and losses in the ratio 2:1:2 respectively.
The following are the details of the extracts from their books as at 31st January, 2013.
Govu Tuga Kano
GH¢ GH¢ GH¢
Capital 50,000 45,000 60,000
Current account 20,800 (5,000) 8,500
Additional information:
(i) The firm’s sundry assets were valued at GH¢431,000.
(ii) The firm was cash strapped and on 01 – 07 2013, Tuga advanced a loan of GH¢100,000 to the partnership at
the rate of 5% per annum. Interest was payable six monthly and was to be credited to his account.
(iii) Govu and Kano were to receive salaries GH¢25,000 per annum each.
(iv) The profit for the partnership before charging loan interest was GH¢158,000 for the year ended
31st December, 2013. The loan was not repayable until after the year 2016.
You are required to prepare:
(a) Profit and loss and appropriation account for the year ended 31st December, 2013.
(b) Partners’ current accounts in a columnar form.
Solution
(a)
GOVU, TUGA AND KANO
Profit and Loss Appropriation Account for the year ended 31st December, 2013.
GH¢ GH¢ GH¢ GH¢
Partners salaries Net profit b/f 158,000
Govu 25,000
Tuga 25,000 50,000

Loan interest:
Tuga 2,500
Govu - 2,500

Share of profit:
2 42,200
Govu ( × 165,500)
5
1 21,100
Tuga: ( × 105,500)
5
2 42,200 105,500
Kano: ( × 105,000)
5
158,000 158,000
Note:
(i) Residual profit: GH¢58,000 – (50,000 + 2,500) = 158,000 – 52,500 = 105,500
(ii) Partners sharing ratio: 2:1:2
2
- Govu: 5 × 105,500 = 42,200
1
- Tuga: 5 × 105,500 = 21,100
2
- Kano: 5 × 105,500 = 42,200
5 6
(iii) Loan interest (Tuga): × 100,000 × (half yearly) = GH¢2,500
100 12
385
(b)
Govu, Tuga and Kano current account
Govu Tuga Kano Govu Tuga Kano
GH¢ GH¢ GH¢ GH¢ GH¢ GH¢
Balance b/f - 5,000 - Balance b/f 20,800 - 8,500
Balance c/d 88,000 18,600 75,700 Salaries 25,000 - 25,000
Loan interest - 2,500 -
Share of profit 42,200 21,100 42,200
88,000 23,600 75,700 88,000 23,600 75,700
Balance b/d 88,000 18,600 75,700
1998/12
Partner’s salary is shown in the
A. trading account B. profit and loss account C. income and expenditure
D. profit & loss appropriation account E. partner’s capital account
Answer: Profit and loss appropriation account (D)

1999/20 to 22
J. Chike B. Balla
N N
Current accounts balance (1–4–98) 4,000 6,000
Current accounts balance (1–4–99) 7,000 ?
Drawings 1,500 1,500
Share of net profit ? 2,500

1999/20
What is Chike’s share of profit from the partnership for the year ended 31/3/99?
A. N8,500 B. N7,000 C. N5,500 D. N4,500
Answer: N4,500 ⎯ ⎯→ N1,500 + 7,000 – 4,000 = N4,500 (D)

1999/21
What is Balla’s current account balance as at 31/3/99?
A. N11,000 B. N7,000 C. N5,500 D. N4,500
Answer: N7,000 ⎯ ⎯→ N6,000 + 2,500 – 1,500
= N7,000

1999/22
Their profit sharing ratio is
A. 1.8:1 B. 1.5:1 C. 1.25:1 D. 1:1
Answer: 1.8:1 ⎯ ⎯→ 4,500:2,500 = 1.8:1

2001/38 to 40
Ali and Baba are in partnership sharing profits and losses in the ratio of 3:2 respectively. Net profit for the year was
N4,000,000. The extract from the provision of the partnership agreements and other information relating to 1999 are as
follows:
Ali Baba
Interest on capital 5% 5%
Capital account b/d N5,000,000 N4,000,000
Current account b/d 400,000 500,000
Partner’s salary 500,000 300,000
Partner’s drawings 2,300,000 500,000

2001/38
What is Baba’s share of profit?
A. N1,650,000 B. N1,600,000 C. N1,280,000 D. N1,100,000
2
Answer: N1,100,000 ⎯
⎯→ × 2,750,000 = N1,100,000
5

386
2001/39
What is Ali’s share of profit?
A. N1,650,000 B. N1,600,000 C. N1,250,000 D. N1,100,000
3
Answer: N1,650,000 ⎯ ⎯→ 5 × 2,750,000 = N1,650,000

2001/40
What is the closing balance in Ali’s current account?
A. N1,600 (Cr) B. N500,000 (Cr) C. N500,000 (Dr) D. N1,600,000 (Dr)
Answer: N500,000 (Cr) ⎯ ⎯→ N2,800,000 – 2,300,000 = N500,000 (CR) (B)

Workings:
(i)
Partners’ Profit and Loss Appropriation Account
Partner’s Salaries N N N
Ali 500,000 Net – profit b/d 4,000,000
Baba 300,000 800,000

Interest on capital:
5 250,000
Ali (100 × 5,000,000)
5 200,000 450,000
Baba (100 × 4,000,000)
1,250,000
Share of profit:
3 1,650,000
Ali ( × 2,750,000)
5
2 1,100,000 2,750,000
Baba ( × 2,750,000)
5
4,000,000 4,000,000
Note:
Partner’s total profit = Net Profit – Partners Expenses
= N4,000,000 – 1,250,000 = N2,750,000

(ii)
Partner’s Current Account
Ali Baba Ali Baba
N N N N
Drawings 2,300,000 500,000 Balance b/d 400,000 500,000
Balance c/d 500,000 1,600,000 Salary 500,000 300,000
Interest on capital 250,000 300,000
Share of profit 1,650,000 1,100,000
2,800,000 2,100,000 2,800,000 2,100,000
Balance b/d 500,000 1,600,000

2002/36 to 39
Baba and Tunde are partners sharing profits and losses equally. Extracts from their books showed:
Baba Tunde
N N
Capital accounts 1st January, 2000 40,000 50,000
Current accounts 1st January, 2000 20,000 (CR) 15,000 (CR)
Drawings during the year 4,000 5,000
Salaries 5,000 5,000
Interest on capital is 10%. The net-profit for the year is N40,000.

2002/36
The interest on Tunde’s capital is
A. N10,000 B. N5,000 C. N4,000 D. N1,500
10
Answer: N5,000 ⎯
⎯→ × 50,000 = N5,000 (B)
100

387
2022/37
The share of profit of each partner is
A. N20,000 B. N10,500 C. N5,000 D. N4,000
1
Answer: N10,500 × 21,000 = N10,500 (B)
2

2022/38
Tunde’s current account balance on 31st December, 2000 is
A. N30,000 B. N25,500 C. N25,000 D. N10,000
Answer: N25,500 N30,500 – 5,000 = 25,500 (B)

2002/39
Baba’s current account balance on 31st December, 2000 is
A. N30,500 B. N25,000 C. N21,000 D. N20,000
Answer: N30,500 ⎯ ⎯→ N34,500 – 4,000 = N30,500 (A)

2002/5 Theory
Trouser and Shirt are partners sharing profits and losses in the ratio 2:1. The following balances were extracted from
the books of the firm for the year ended 31st December, 2000.
Dr Cr
N N
Capital Accounts:
Trouser 12,500
Shirt 10,000
Drawings:
Trouser 1,000
Shirt 750
Purchases and sales 100,000 125,000
Salaries 12,500
General expenses 5,000
Discounts 1,250
Rates 250
Freehold property at cost 12,500
Bank balance 2,500
Debtors and creditors 7,500 6,500
Furniture and equipment at cost 6,000
(N7,500)
Stock – 1st January 5,750
155,000 155,000

Additional information:
(a) Stock at 31st December, 2000 was N6,250.
(b) Rates paid in advance at 31st December, 2000 was N50.
(c) Bad debt to be written off N150.
(d) Depreciation on furniture and equipment is to be provided at the rate of 5% per annum on cost.
(e) Interest on capital is 10% per annum.
(f) Interest on drawings: Trouser N50, shirt N75.

You are required to prepare:

(i) Trading and Profit and Loss Account for the year ended 31st December, 2000;
(ii) Profit and Loss Appropriation Account;
(iii) Partners Current Accounts; and
(iv) Balance Sheet as at 31st December, 2000.

388
Solution
(i)
TROUSER AND SHIRT
Trading and Profit and Loss Account for the year ended 31st December, 2000
N N N N
Opening stock 5,750 Sales 125,000
Add: purchases 100,000
Cost of goods available for sale 105,750
Less: closing stock (6,250)
Cost of goods sold 99,500
Gross – profit c/d 25,500
125,000 125,000

Salaries 12,500 Gross-profit b/d 25,500

General expenses 5,000 Discount received 1,000
Discounts allowed 1,250
Rates 250
Less: advance (50) 200
Bad debt 150
Depreciation:
- Furniture & equipment 375
Total operating expenses 19,475
Net profit c/d 7,025
26,500 26,500

Note:
5
(a) Depreciation: Furniture and Equipment = 100 × 7,500 = N375
(b) Gross – profit = Sales – cost of goods sold
= 125,000 – 99,500 = N25,500
(c) Net-profit = Gross income – Total operating expenses
= 25,500 – 19,475 = N7,025

(ii)
TROUSER AND SHIRT
Profit and Loss Appropriation Account for the year ended 31st
Interest on capital: N N N N
10
Trouser (100 × 12,500) 1,250 Net – profit b/f 7,025
10 1,000 2,250 Interest on drawings:
Shirt ( 100
× 10,000)
Trouser 50
Share of profit: Shirt 75 125
2 3,267
Trouser (3 × 4,900)
1 1,633 4,900
Shirt (3 × 4,900)
7,150 7,150

Note: Profit = N7,150 – 2,250 = N4,900

389
(iii)
TROUSER AND SHIRT
Current Account
Trouser Shirt
N N N N
Drawings 1,000 750 Interest on capital 1,250 1,000
Interest on drawings 50 75 Share of profit 3,267 1,633
Balance c/d 3,467 1,808
4,517 2,633 4,517 2,633
Balance b/d 3,467 1,808

(iv)
TROUSER AND SHIRT
Balance Sheet as at 31st December, 2000
Capital accounts: N N Fixed Assets: N N
Trouser 12,500 Freehold property 12,500
Shirt 10,000 22,500 Furniture & Equipment 7,500
Less: Acc. Depreciation (1,875) 5,625
Current accounts: Total fixed assets 18,125
Trouser 3,467
Shirt 1,808 5,275

Current liabilities: Current Assets:

Creditors 6,500 Stock 6,250
Debtors 7,350
Rate prepaid 50
Bank 2,500 16,150
34,275 34,275

Note:
(a) Accumulated Depreciation: N1,500 (i.e. 7,500 – 6,000) + 375 (provision for depreciation) = N1,875
(b) Debtors: 7,500 – 150 (Bad debts) = N7,350

2003/14 to 16
N
Capital accounts: Ojo 40,000
Aina 20,000
Drawings: Ojo 10,000
Aina 6,000

Interest on capital 5%
Interest on drawings 10%
Net – profit for the year N30,000
2 1
Profit sharing ratio: Ojo ; Aina
3 3

2003/14
The divisible profit for the year is
A. N31,600 B. N31,400 C. N904,000 D. N28,600
Answer: N28,600 ⎯ ⎯→ N31,600 – N3,000 = N28,600 (D)

2003/15
Ojo’s share of profit is
A. N21,067 B. N20,933 C. N20,000 D. N19,067
2
Answer: N19,067 ⎯
⎯→ × 28,600 = N19,067 (D)
3

390
2003/16
Aina’s current account balance is
A. N9,933 B. N9,533 C. N6,600 D. N3,933
Answer: N3,933 ⎯ ⎯→ N10,533 – 6,600 = N3,933 (D)

Workings:
(i)
OJO AND AINA
Profit and Loss Appropriation Account for the year ended
Interest on capital: N N N N
Ojo: (
5
× 40,000) 2,000 Net – profit b/d 30,000
100
5 1,000 3,000 Interest on drawings:
Aina: ( × 20,000)
100
10 1,000
Ojo (100 × 10,000)
10 600 1,600
Aina ( × 6,000)
100
Share of profit:
2 19,067
Ojo: (3 × 28,600)
1 9,533
Aina ( × 28,600)
3
28,600
31,600 31,600

Note: Partnership profit = N31,600 – 3,000 = N28,600

(ii)
OJO AND AINA
Current Account
Ojo Aina Ojo Aina
N N N N
Drawings 10,000 6,000 Interest on capital 2,000 1,000
Interest on drawings 1,000 600 Share of profit 19,067 9,533
Balance c/d 10,067 3,933
21,067 10,533 21,067 10,533

Note:
(a) Balance c/d (Current Account Balance):
- Ojo: N21,067 (CR) – 11,000 (DR) = 10,067 (CR)
- Aina: N10,533 (CR) – 6,600 (DR) = 3,933 (CR)

2004/6 Theory
Alpha, Blank and Cyron are partners. They agreed to share profits in the ratio 3:2:1 respectively. The balances in their
books as at 31st December, 2001 were as follows:
N
Trading income 88,000
Bank interest received 2,600
Salaries 25,000
Rent 7,000
Stationery and printing 2,500
Accountancy and audit fees 1,630
Subscriptions to trade association 5,060
Travelling expenses 700
Sundry office expenses 800
Debtors 130,000
Investment interest 6,000
Capital Account: Alpha 2,400 Cr.
Blank 1,600 Cr.
Cyron 800 Cr.
Current Account: Alpha 1,200 Dr.
Blank 800 Dr.
Cyron 400 Dr.
391
Additional Information:
(a) Outstanding creditors: stationery N70; Sundry office expenses N240.
(b) Cyron is to be credited with a partnership salary of N6,000.
(c) 5% interest on capital is allowed for the full year and no interest allowed on current account.
(d) Provide 2% of debtors as bad debt.

You are required to prepare:

(i) Profit and Loss Account;
(ii) Profit and Loss Appropriation Account for the year ended 31st December, 2001.
Solution
(i)
ALPHA, BLANK AND CYRON:
Profit and Loss Account for the year Ended 31st December, 2001
N N N N
Salaries 25,000 Income from trading 88,000
Rent 7,000 Bank interest received 2,600
Stationery and printing 2,500 Investment interest 6,000
Add: Outstanding 70 2,570
Accountancy & Audit Fees 1,630
Subscription to trade ass. 5,060
Travelling expenses 700
Sundry office expenses 800
Add: Outstanding 240 1,040
Provision for bad debt:
2 2,600
- ( 100
× 130,000)
Total operating expenses 45,600
Net – profit c/d 51,000
96,600 96,600

(ii)
ALPHA, BLANK AND CYRON
Profit and Loss Appropriation Account for the year ended 31st December, 2001
Partner’s salary N N N N
Cyron 6,000 Net – profit b/d 51,000

Interest on capital:
5 120
Alpha: (100 × 2,400)
5 80
Blank: (100 × 1,600)
5 40 240
Cyron: (100 × 800)
6,240

Share of Profit:
3 22,380
Alpha: (6 × 44,760)
2 14,920
Blank: (6 × 44,760)
1 7,460 44,760
Cyron: ( × 44,760)
6
51,000 51,000

Note:
(a) Partnership profit = Net – profit – partnership expenses
= N51,000 – 6,240 = N44,760
3
(b) Profit sharing ratio = Alpha: 3(6)
2
Blank: 2(6)
1 1
Cyron: 6 (6)

392
2007/8 (Theory)
Dayo and Kola are in partnership sharing profits and losses in the ratio of 3:2. The following balances were extracted
from the books of the firm for the year ended 31st Mach.
Dr Cr
N N
Capital: Dayo 120,000
Kola 100,000
Current Account:
Dayo 10,000
Kola 45,000
Drawings: Dayo 20,000
Kola 30,000
st
Stock: 1 April, 2005 12,000
Plant and machinery 150,000
Fixtures and fittings 40,000
Equipment 60,000
Provision for doubtful debts 1,000
Debtors 35,000
Creditors 25,000
Discount allowed 850
Discount received 1,200
Bad debts 650
Sales 180,000
Purchases 114,000
Returns inwards 500
Returns outwards 800
473,000 473,000

Additional information:
(a) Stock – 31st March, 2006 N18,000.
(b) Interest on capital at 5% per annum.
(c) Interest on drawings at 10% per annum.
(d) Depreciate plant and machinery by 5%.
(e) Provision for doubtful debts should be at 5% on debtors.
(f) Dayo to receive a partnership salary of N5,000.

You are required to prepare:

(i) Trading, Profit and Loss Account.
(ii) Appropriation Account for the year ended 31st March, 2006;
(iii) Partner’s Current Accounts.

393
Solution
(i)
DAYO, AND KOLA:
Trading, Profit and Loss Account for the year ended 31st March, 2005
N N N N
Opening stock 12,000 Sales 180,000
Add: Purchases 114,000 Less: Returns inwards (500)
Less: Returns outwards (800) 113,200 Net – sales 179,500
Cost of Goods Available for Sale 125,200
Less: Closing stock (18,000)
Cost of goods sold 107,200
Gross – profit c/d 72,300
179,500 179,500

Discount allowed 850 Gross – profit b/d 72,300

Bad debts 650 Discount received 1,200
Under provision for bad debt 750
Depreciation:
- Plant and Machinery 7,500
Total operating expenses 9,750
Net – profit c/d 63,750
73,500 73,500
Note:
(i) Gross – profit c/d = Net – sales – Cost of goods sold
= N179,500 – 107,200 = N72,300
(ii) Net – profit c/d = Gross income – Total operating expenses
= N73,500 – 9,750 = N63,750
(iii) Provision for bad debt (under provision) = New provision for bad debt – old provision
5
= (100 × 35,000) – 1,000
= 1,750 – 1,000 = N750
5
(iv) Depreciation: Plant and machinery = 100
×150,000 = N7,500
(ii)
Profit and Loss Appropriation Account for the year ended 31st March, 2005
Partner’s salary N N N N
Dayo 5,000 Net – profit 63,750
Interest on Drawings:
Interest on capital: 10 2,000
Dayo ( × 20,000)
100
5 6,000 10 3,000 5,000
Dayo: (100 × 120,000) Kola (100 × 30,000)
5 5,000 11,000
Dayo: (100 × 100,000)
16,000
Share of Profit:
3 31,650
Dayo: (5 × 52,750)
2 21,100 52,750
Kola: (5 × 52,750)
68,750 68,750

Note:
(a) Partnership profit = N68,750 – 16,000 = N52,750
3 2
(b) Profit sharing ratio – Dayo: (5) Kola: (5)

394
(iii)
Current Account
Dayo Kola Dayo Kola
N N N N
Balance b/d 10,000 - Balance b/d - 45,000
Drawings 20,000 30,000 Salary 5,000 -
Interest on drawings 2,000 3,000 Interest on capital 6,000 5,000
Balance c/d 10,650 38,100 Share of profit 31,650 21,100
42,650 71,100 42,650 71,100
Balance b/d 10,650 38,100

Note:
(a) Balance c/d (Partners’ Current Account Balance):
- Dayo: N42,650 (CR) – 32,000 (DR) = N10,650
- Kola: N71,100 (CR) – 33,000 (DR) = N38,100

2008/5
In a partnership business, the net-profit serves as opening figure for
A. trading account B. profit and loss account C. current account D. appropriation account
Answer: Appropriation account (D)

2008/8 (Theory)
Pauline, Quincy and Rosaline trade under the name BEVERLY QUEENS and Co On 31st December, 2002, they decided
to dissolve their partnership. They had always shared profits in the ratio 3:2:1 respectively.
Balance sheet as at 31st December, 2002
N N N N N
Capital Accounts: Fixed Assets:
Pauline 60,000 Premises 50,000
Quincy 50,000 Machinery 30,000
Rosaline 30,000 Motor vehicles 25,000
140,000 105,000
Current Accounts: Current Assets:
Pauline 2,000 Stock 18,000
Quincy 1,000 Debtors 30,000
Rosaline 5,000 8,000 Less provision for bad debts (2,000) 28,000
Creditors 17,000 Bank 14,000 60,000
165,000 165,000

Additional information:
(a) Machinery was sold for N18,000.
(b) Stock was sold for N19,000.
(c) There were three motor vehicles, and all were taken over by the partners at agreed values as follows:
i. Pauline N8,000
ii. Quincy N10,000
iii. Rosaline N5,000
(d) The premises were taken over by Rosaline at an agreed values at N85,000.
(e) The amount collected from debtors was N27,000 after bad debts and discounts had been deducted.
(f) The creditors were discharged for N16,000; the difference being discounts received.
(g) The cost of dissolution amounted to N10,000.

You are required to prepare:

(i) Realization Account,
(ii) Partners Capital Account;
(iii) Partners Current Account;
(iv) Bank Account.

395
Solution:
(i)
BEVERLY QUEENS & CO
Realization Account
Book value of Assets: N N Amounts Realized: N N
Premises 50,000 Machinery 18,000
Machinery 30,000 Stock 19,000
Motor vehicles 25,000 Debtors 27,000
Stock 18,000
Debtors 28,000 Asset taken over (motor vehicle)
Bank – Realization Expenses 10,000 Pauline 8,000
161,000 Quincy 10,000
Rosaline 5,000 23,000
Profit on Realization:
3 6,000 Premises taken over
Pauline: (6 × 12,000)
2 4,000 (Rosaline) 85,000
Quincy: (6 × 12,000)
1 2,000 12,000 Discount (Creditor) 1,000
Rosaline: (6 × 12,000)
173,000 173,000

Note:
(a) Profit on realization: Amount Realized – Net Book value of Assets
= N173,000 – N161,000 = N12,000
(b) Profit on Realization (3:2:1) = 6
3
Pauline: × 12,000 = 6,000
6
2
Quincy: 6
× 12,000 = 4,000
1
Rosaline: 6
× 12,000 = 2,000
12,000

Reminder:
Note that Realization account is usually prepared by partnership business or venture whenever the business comes to an
end to determine the profit or loss made on the assets of the business disposed.

(ii)
BEVERLY QUEENS & CO.
Capital Account
Pauline Quincy Rosaline Pauline Quincy Rosaline
N N N N N N
Motor vehicle taken 8,000 10,000 5,000 Balance b/d 60,000 50,000 30,000
over
Premises taken over - - 85,000 Current account 2,000 1,000 5,000
Balance c/d (Bank) 60,000 45,000 - Share of profit – on 6,000 4,000 2,000
realization
Balance c/d (Bank) - - 53,000
68,000 55,000 90,000 68,000 55,000 90,000
Balance c/d - - 53,000 Balance b/d 60,000 45,000 -

(iii)
BEVERLY QUEENS & CO.
Current Account
Pauline Quincy Rosaline Pauline Quincy Rosaline
N N N N N N
Capital 2,000 1,000 5,000 Balance b/d 2,000 1,000 5,000
2,000 1,000 5,000 2,000 1,000 5,000

396
Summary of Partner’s Capital Account:
Pauline: N60,000 (CR) Balance
Quincy: N45,000 (CR) Balance
Rosaline: N53,000 (DR) Balance
(iv)
BEVERLY QUEENS & CO.
Bank Account
N N
Balance b/d 14,000 Creditors (17,000 – 1,000) 16,000
Machinery 18,000 Cost of dissolution 10,000
Stock 19,000 Capital: Pauline 60,000
Debtors 27,000 Quincy 45,000
Capital – Rosaline 53,000
131,000 131,000

2010/7 Theory
Taiwo and Kehinde are in partnership sharing profits and losses equally. Their balance sheet as at 31st December, 2007
is as follows:
Taiwo and Kehinde
Balance sheet as at 31st December, 2007
N N N N
Capital Fixed Assets:
Taiwo 36,000 Goodwill 12,000
Kehinde 36,000 72,000 Freehold property 20,000
Motor vehicles 30,000
Current Accounts: Furniture and fittings 6,000
Taiwo 2,400 68,000
Kehinde 1,400 3,800 Current Assets:
Current Liabilities: Stock 12,880
Creditors 20,000 Debtors 18,400
Bills payable 7,000 Bank 3,360
Accruals 840 27,840 Cash 1,000 35,640
103,640 103,640
Additional information:
(i) On 31st December, 2007, Idowu was admitted into the partnership.
(ii) Profits and losses would still be shared equally.
(iii) Idowu introduced capital of N36,000.
(iv) The following assets were revalued:
N
Goodwill 18,000
Freehold property 30,000
Motor vehicles 50,000
Stock 12,000
(v) A provision of 5% is to be made on debtors.
(vi) Goodwill is no longer to be retained in the books.
You are required to prepare:
(a) Revaluation Account;
(b) Goodwill Account;
(c) Partner’s Capital Account.
(d) Partner’s Current Account.

397
Solution
(a)
TAIWO AND KEHINDE
Revaluation Account
Reduction in value of Assets N Increase in the value of Assets: N
Stock (12,880 – 12,000) 880 Goodwill (18,000 – 12,000) 6,000
5
Provision for bad debt (100 × 18,400) 920 Freehold property (30,000 – 20,000) 10,000
1,800 Motor vehicles (50,000 – 30,000) 20,000

Share of profits (equally):

1 17,100
Taiwo: (2 × 34,200)
1 17,100
Kehinde: ( × 34,200)
2
36,000 36,000

Revaluation Profit = N36,000 – 1,800 = N34,200 (This will be shared equally between the partners).

(b)
Partner’s Goodwill Account
N Capital: N
Balance b/d 12,000 Taiwo 6,000
Revaluation 6,000 Kehinde 6,000
Idowu 6,000
18,000 18,000

The value of Goodwill (N18,000) will be shared equally among the partners.

(c)
Partner’s Capital Account
Taiwo Kehinde Idowu Taiwo Kehinde Idowu
N N N N N N
Goodwill written off 6,000 6,000 6,000 Balance b/d 36,000 36,000 -
Balance c/d 30,000 30,000 30,000 Bank - - 36,000
36,000 36,000 36,000 36,000 36,000 36,000
Balance b/d 30,000 30,000 30,000
2011/8 (Theory)
Romeo and Juliet were in partnership and shared profits and losses equally. They decided to dissolve the partnership on
30th April, 2008. As at that date, the partnership balance sheet was as follows:
Romeo and Juliet
Balance Sheet as at 30th April, 2008
N N N
Capital Fixed assets
Romeo 600,000 Plant and machinery 650,000
Juliet 550,000 Delivery van 280,000
Fixtures and fittings 170,000
1,100,000
Current Account Current Assets
Romeo 150,000 Stock 90,000
Debtors 55,000
Current liabilities Cash 45,000 190,000
Trade creditors 100,000
Current Account
Juliet 110,000
1,400,000 1,400,000

398
Additional information:
(i) The following were realised from the assets:
N
Plant and machinery 580,000
Delivery van 225,000
Stock 110,000
Debtors 50,000
(ii) Creditors were paid in full.
(iii) Dissolution expenses totalled N50,000.
(iv) Fixtures and fittings were taken over by Romeo for N100,000.

You are required to prepare:

(a) Realization Account;
(b) Partners Capital Account in Columnar form; and
(c) Cash Accounts.
Solution:
(a)
ROMEO AND JULIET
Realization Account
Net book value of Assets: Realization Value: N
Plant and machinery 650,000 Plant and machinery 580,000
Delivery van 280,000 Delivery van 225,000
Fixtures 170,000 Fixtures 100,000
Stock 90,000 Stock 110,000
Debtors 55,000 Debtors 50,000
Dissolution cost 50,000 1,065,000

Share of Loss on Realization:

1 115,000
Romeo (2 × 230,000)
1 115,000
Juliet (2 × 230,000)
1,295,000 1,295,000

Note:
(a) Loss of Realization: Realization value – NBV of Assets
= N1,065,000 – 1,295,000 = N230,000
230,000
(b) Share of Loss (equally) = 2 = N115,000
(b)
Romeo and Juliet Capital Accounts
Romeo Juliet Romeo Juliet
N N N N
Current accounts - 110,000 Balance b/f 600,000 550,000
Fixtures taken over 100,000 - Current accounts 150,000 -
Loss on realization 115,000 115,000
Balance c/d (Cash) 535,000 325,000
750,000 550,000 750,000 550,000

(c)
Romeo and Juliet
Cash Account
N N
Balance b/d 45,000 Trade creditors 100,000
Plant and machinery 580,000 Cost of dissolution 50,000
Delivery van 225,000
Stock 110,000 Capital Account:
Debtors 50,000 Romeo 535,000
Juliet 325,000
1,010,000 1,010,000

399
2012/5 (Theory)
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 year ended 31st December, 2010.
Dr Cr
N N
Capital Account; Audu 370,000
Bala 730,000
Drawings: Audu 10,000
Bala 120,000
Purchases 2,400,000
Sales 3,500,000
Creditors 510,000
Debtors 600,000
Provision for bad debts 10,000
Provision for depreciation on equipment 170,000
Plant and equipment 700,000
Cash in hand 10,800
Cash at bank 400,000
Stock 370,000
Insurance 8,300
Selling expenses 440,000
Administrative expenses 330,000
Bank interest received 59,100
5,349,100 5,349,100
Additional information:
(i) Interest on capital is 6% per annum.
(ii) Salaries: Audu N75,000
Bala N90,000
(iii) Closing stock was N130,000.
(iv) Audu’s Capital Account including a credit for N40,000 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 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) Partner’s Capital Accounts.
Solution:
(a)
AUDU AND BALA
Trading, Profit and Loss Account for the year ended 31st December,
2010
N
Sales 3,500,000
Less: Cost of goods sold:
Opening stock 370,000
Add: Purchases 2,400,000
2,770,000
Less: Closing stock (130,000) (2,640,000)
Gross – profit c/d 860,000
Add: Interest received 59,100
919,100
Less: Expenses
Insurance 8,300
Selling expenses 400,000
Administrative expenses 330,000
Provision for bad debts 35,000
Depreciation: Plant and Machinery 70,000 (843,300)
Net – profit c/d 75,800

400
Notes:
1
(a) Provision for bad debts (1% of sales) = × 3,500,000 = N35,000
100
10
(b) Depreciation: Plant and equipment (10%) = × 700,000 = N70,000
100

(b)
AUDU AND BALA
Appropriation Account for the year ended 31st December, 2010
N N N
Net – profit b/d 75,000
Deduct:
Salaries – Audu 75,000
Bala 90,000 165,000

Interest on Capital – Audu 19,000

Bala 43,800 63,600 228,600
Share of Loss (equally): (152,800)
1 76,400
Audu ( × 152,800)
2
1 76,400 152,800
Bala ( × 152,800)
2

Notes:
6
Interest on capital: Audu - × 370,000 – 40,000 = N19,800
100
6
Bala – × 730,000 = N43,800
100

(c)
AUDU AND BALA
Capital Accounts
Audu Bala Audu Bala
N N N N
Drawings 10,000 120,000 Balance c/d 370,000 730,000
Share of loss 76,400 76,400 Salary 75,000 90,000
Balance c/d 378,400 667,400 Interest on capital 19,800 43,800
464,800 863,800 464,800 863,800
Balance b/d 378,400 667,400

Balance c/d: Audu – N464,800 (CR) – 86,400 (DR) = N378,400 (CR)

Bala – N863,800 (CR) – 196,400 (CR) = N667,400 (CR)

2013/7 (Theory)
Ade and Bola are in partnership sharing profits and losses in the ratio 3:2 respectively. Their balance sheet as at 30 th
June, 2010 is as follows:

Balance sheet as at 30th June, 2010

Le Le Le
Capital: Ade 120,000 Equipment 100,000
Bola 80,000 Fixtures 40,000
Current Account: Ade 5,000
Bola 9,000 Stock 23,000
Debtors 48,000
Cash 34,000
Loan: Bola 20,000
Interest accrued 4,000
24,000
Trade Creditors 7,000
245,000 245,000
401
They decided to admit Caro into the partnership on the following terms:
(i) Caro shall contribute N50,000 as capital and be entitled to one-fifth of future profits.
(ii) Ade and Bola shall henceforth share profits and losses equally.
(iii) Bola shall have her loan converted to capital but the accrued interest must be paid immediately.
(iv) Assets are to be revalued as follows:
Le
Equipment 90,000
Fixtures 52,000
Stock 21,000
Debtors 46,400
You are required to prepare:
(a) Revaluation Account;
(b) Partners Current Accounts in Columnar form;
(c) Opening Balance Sheet for Ade, Bola and Caro partnership.
Solution
(a)
Realization Account
Reduction in the value of Assets: Le Increase in the value of Assets: Le
Equipment (100,000 – 90,000) 10,000 Fixtures (52,000 – 40,000) 12,000
Stock (23,000 – 21,000) 2,000
Debtors (48,000 – 46,400) 1,600

Share of Revaluation loss (3:2)

3 960
Ade: (5 × 1,600)
2 640
Bola: (5 × 1,600)
13,600 13,600

Revaluation Loss: 13,600 – 12,000 = (N1,600)

(b)
ADE AND BOLA
Current Account
Ade Bola Ade Bola
Le Le Le Le
Revaluation loss 960 640 Balance b/f 5,000 9,000
Balance c/d 4,040 8,360
5,000 9,000 5,000 9,000
Balance b/d 4,040 8,360

(c)
ADE, BOLA AND CARO
Balance sheet as at (Opening)
Le Le Fixed Assets: Le Le
Capital Account: Equipments 90,000
Ade 120,000 Fixtures 52,000
Bola (80,000 + 120,000) 100,000 142,000
Caro 50,000 270,000

Current Account: Current Assets:

Ade 4,040 Stock 21,000
Bola 8,360 12,400 Debtors 46,400
Cash 80,000 147,400
Current Liability:
Trade creditors 7,000
289,400 289,400
Note:
Cash balance: Closing cash balance + Caro Capital – Interest Accrued
= Le34,000 + 50,000 – 4,000
= Le84,000 – 4,000 = Le80,000
402
2014/32 to 34
Le
Capital: Aye 20,000
Bee 30,000

Drawings: Aye 8,000

Bee 2,000

Profit for the year 10,000

Interest on capital – 6%
Interest on drawings – 10%

Profit sharing in the ratio of capital.

2014/32
The divisible profit is
A. Le14,000 B. Le12,000 C. Le10,000 D. Le8,000
Answer: Le8,000 ⎯ ⎯→ Le10,000 + Le1,000 – Le3,000 = Le8,000 (D)

2014/33
Aye’s share of profit is
A. Le6,000 B. Le4,800 C. L4,000 D. Le3,200
Answer: Le3,200 ⎯ ⎯→ 2 × 8,000 = Le3,200
3
(D)
2014/34
Bee’s share of profit is
A. Le8,000 B. Le6,000 C. Le4,800 D. Le3,200
3
Answer: Le4,800 ⎯ ⎯→ × 8,000 = Le,4,800 (C)
5

Workings:
Aye and Bee
Profit and Loss Appropriation Account
Interest on capital: Le Le
6 1,200 Net-profit b/d 10,000
Aye: ( × 20,000)
100
6 1,800
Bee: ( × 30,000)
100
3,000 Interest on drawings:
10 800
Aye: ( × 8,000)
100
10 200
Bee: (100 × 2,000)
Share of profit (2:3)
2 3,200
Aye: (5 × 8,000)
3 4,800
Bee: (5 × 8,000)
11,000 11,000

Partnership profit: Le11,000 – 3,000 = Le8,000

Profit sharing ratio (in the ratio of capital):
Aye capital Le20,000 2
:
Bee capital Le30,000 3
5
2 3
Aye: 5, Bee 5

403
2019/26 to 28
Ajem Ogah
GHe GHe
Capital account 60,000 65,000
Current account 40,000 50,000
Drawings 20,000 30,000
Salary 10,000 -

Net-profit was GHe100,000.

Ajem and Ogah were in partnership sharing profits and losses in the ratio 2:3. Interest on capital and drawings were 5%
and 3% respectively.

2019/26
Ogah’s share of profit was
A. GHe51,150 B. Ghe50,250 C. GHe34,100 D. Ghe33,500
Answer: GHe51,150 ⎯ ⎯→ 35 × 85,250 = 51,150 (A)

2019/27
Ajem’s current account balance was
A. GHe65,000 B. GHe60,000 C. GHe42,000 D. GHe40,000
Answer: GHe66,500 ⎯⎯→ GHe87,100 – GHe20,600

2019/28
Interest on drawings amounted to
A. GHe6,000 B. GHe1,500 C. GHe900 D. GHe600
Answer: GHe1500 ⎯ ⎯→ GHe600 + GHe900 = GHe1,500 (B)

Workings:
AJEM AND OGAH
Profit and Loss Appropriation Account
Salary GHe GHe
Ajem 10,000 Net-profit b/d 100,000

Interest on capital: Interest on drawings:

5 3,000 Ajem: ( 3 × 20,000) 600
Ajem: (100 × 60,000) 100
5 3,250 Ogah: ( 3 × 30,000) 900
Ogah: (100 × 65,000) 100

16,250

Share of profit (2:3)

2 34,100
Ajem: ( × 85,250)
5
3 51,150
Ogah: (5 × 85,250)
101,500 101,500

Partnership Profit: GHe101,500 – GHe16,250 = GHe85,250

AJEM AND OGAH

Current Account
Ajem Ogah Ajem Ogah
GHe GHe GHe GHe
Drawings 20,000 30,000 Balance b/d 40,000 50,000
Interest on drawings 600 900 Salary 10,000 -
Balance c/d 66,500 73,500 Interest on capital 3,000 3,250
Share of profit 34,100 51,150
87,100 104,400 87,100 104,400
Balance b/d 66,500 73,500

404
Balance c/d (Current account balance):
- Ajem: GHe87,100 (Cr) – 20,600 (Dr) = GHe66,500(Cr).
- Ogah: GHe104,400 (Cr) – 30,900 (Dr) = GHe73,500 (Cr)

2022/32 – 34
Teteh and Kukuma are in partnership with capital balances of N300,000 and N200,000 respectively. They agreed to
share profits on the basis of their capital. The profit for the year is N150,000 and the interest on capital is 5%

2022/32
Teteh’s share of profit is
A. N90,000 B. N75,000 C. N60,000 D. N50,000
3
Answer: N75,000 ⎯ ⎯→ 5 × N125,000 = N75,000 (B)

2022/33
Kukuma’s current account balance is
A. N90,000 B. N70,000 C. N60,000 D. N50,000
Answer: N60,000 ⎯ ⎯→ N10,000 + N50,000 = N60,000 (C)

2022/34
Teteh’s share of interest on capital is
A. N75,000 B. N25,000 C. N15,000 D. N10,000
5
Answer: N15,000 ⎯ ⎯→ × N300,000 = N15,000 (C)
100

Workings:
Teteh and Kukuma
Profit and Loss Appropriation Account
Interest on capital:
5 15,000 Net-profit b/d 150,000
Teteh: (100 × 300,000)
5 10,000
Kukuma ( × 200,000)
100
25,000

Share of profit (2:3)

3 75,000
Teteh: (5 × 125,000)
2 50,000
Kukuma: (5 × 125,000)
150,000 150,000

Partnership Profit: N150,000 – 25,000 = 125,000

Current Account
Teteh Kukuma Teteh Kukuma
N N N N
Balance c/d 90,000 60,000 Interest on capital 15,000 10,000
Share of profit 75,000 50,000
90,000 60,000 90,000 60,000
Balance b/d 90,000 60,000

2022/4 NABTEB
Which of the following is not recorded in a partnership appropriation account?
A. interest on capital B. partner’s drawing C. share of profit D. interest on drawing
Answer: Partner’s drawing (B)

2022/34 NABTEB
Interest on drawings by partners is credited in the
A. drawing account B. appropriation account C. profit and loss account D. joint venture
account
Answer: Appropriation account (B)

405
2018/31 NABTEB
Where partnership deed does not exist, profits and losses are shared
A. based on capital B. on equal basis C. based on interest D. based on drawings
Answer: On equal basis (B)

2018/32 NABTEB
Which of the following is not covered by a partnership agreement?
A. contributions to capital B. shares of profit or losses C. number of employees D. salaries of partners
Answer: Number of employees (C)

2022/29 Neco
In partnership, a quash partner is a partner
A. under quasi act B. under the limited partnership act C. who contributes capital in the business
D. who neither contributes capital nor takes part in the management E. who takes part in the management
Answer: who neither contributes capital nor takes part in the management (D)

2022/31 – 33 Neco (Internal)

Justina and Justice were in partnership sharing profits or losses in the ratio of 3:2 respectively.
The following information relates to their business for the year ended 31st August, 2011.
N
Capital: Justina 120,000
Justice 60,000

Drawing: Justina 12,000

Justice 18,000
Interest on drawings 10%
Interest on capital 5%
Net – profit for the year 36,000

2022/31
The interest on Justina’s capital is
A. N60,000 B. N4,500 C. N3,000 D. N2,200 E. N1,500
5
Answer: N6,000 ⎯
⎯→ × N120,000 = N6,000 (A)
100

2022/32
The interest on Justice’s drawing is
A. N2,700 B. N2,400 C. N2,100 D. N1,800 E. N1,500
10
Answer: N1,800 ⎯
⎯→ × N18,000 = N1,800 (C)
100

2022/33
What is the interest on Justice’s capital?
A. N6,000 B. N4,500 C. N3,000 D. N2,250 E. N1,500
5
Answer: N3,000 ⎯
⎯→ × N60,000 = N3,000 (C)
100

406
2022/7 (PC) Neco
The following trial balance were extracted from the books of Ammi and Zee on 31st December, 2020, after a full year’s
trading.
Dr Cr
N N
Motor vehicle 129,000
Furniture and fittings 31,500
Land and building 200,000
Capital: Ammi 150,000
Zee 125,000
Current Account
Ammi 10,875
Zee 4,700
Drawings: Ammi 6,350
Zee 3,250
Cash at bank 43,000
Sales 192,100
Purchases 137,500
Salaries 21,425
Creditors 47,500
Debtors 35,500
Stationery and printing 2,710
Electricity 4,010
Rent received 24,475
Loan: Ammi 42,500
Zee 26,250
Provision for bad debt 950
Stock at 1st January, 2020 8,465
Bad debt 1,640
624,350 624,350

Additional information:
1. Stock as at 31st December, 2020 was N4,295.
2. Provision for bad debt is to be 4% of debtors.
3. Depreciation is to be written off at the rate of 5% on motor vehicle and 10% on furniture and fittings.
4. The partnership agreement provides that;
(a) Profits and losses are to be shared in ratio0 of 3:2 respectively.
(b) Interest on capital is 2% per annum.
(c) Interest on drawings is 3% per annum.
(d) Interest on partners loan is 2.5% per annum.
(e) Both partners are entitled to a salary of N6,000.

You are required to prepare:

(i) Trading, profit or loss account for the year ended 31st June, 2020.
(ii) Appropriation account.
(iii) Partner’s current account.

407
Solution:
(i)
AMMI AND ZEE
Trading, Profit and Loss Account for the year Ended 31st December, 2020
N N N N
Opening stock 8,465 Sales 192,100
Add: Purchases 137,500
Cost of gods available for sale 145,965
Less: closing stock (4,295)
Cost of goods sold 141,670
Gross – profit c/d 50,430
192,100 192,100

Salaries 21,425 Gross – profit b/d 50,430

Stationery and printing 2,710 Rent received 24,475
Electricity 4,010
Provision for bad debt 470
Depreciation: Motor vehicle 6,450
Furniture and 3,150
Fittings
Bad debt 1,640
39,855
Net – profit c/d 35,050
74,905 74,905

Notes:
4
(a) Provision for bad debt: 100 × 35,500 – 950
= N1,420 – N950 = N470
5
(b) Depreciation: Motor vehicle – 100 × 129,000 = N6,450
10
Furniture and fittings – 100 × 31,500 = N3,150

(ii)
AMMI AND ZEE
Appropriation Account
Interest on Capital: N N
2 3,000 Net-profit b/d 35,050
Ammi: (100 × 42,500)
2 2,500 5,500 Interest on drawings:
Zee (100 × 26,250)
3 190.5
Ammi: (100 × 6,350)
Interest on Loan: 3 97.5
Zee: (100 × 3,250)
2.5 1,062.5
Ammi: (100 × 42,500)
2.5 656.25 1,718.75
Zee ( × 26,250)
100

Partner Salary:
Ammi 6,000
Zee 6,000 12,000
19,28.75

Share of profit (3:2)

3 9,671.55
Ammi: ( × 16,119.25)
5
2 6,447.70
Zee (5 × 16,119.25)
35,338 35,338
Note:
(a) Partnership Profit: N35,338 – 19,218.75 = N16,119.25

408
(iii)
AMMI AND ZEE
Current Account
Ammi Zee Ammi Zee
N N N N
Drawings 6,350 3,250 Balance b/d 10,875 4,700
Interest on drawings 190.5 97.5 Interest on capital 3,000 2,500
Balance c/d 24,068.55 16,956.45 Interest on loan 1,062.5 656.25
Salary 6,000 6,000
Share of profit 9,671.55 6,447.70
30,609.05 20,303.95 30,609.05 20,303.95
Balance b/d 24,068.55 16,956.45
2019/35 – 38 Neco
Dayo and Akeem are in partnership sharing profit and losses in the ratio 3:2 respectively. Net-profit before any
distribution. Net-profit before any distribution to the partners amounted to N5,000 for the year ended 31st December,
2008. Interest on the capital is 5%. Akeem is an active partner.
Dayo Akeem
N N
Capital 2,000 6,000
Salaries - 500
Interest on drawings 50 100

2019/35
What is Dayo’s share of profit?
A. N2,550 B. N2,500 C. N2,050 D. N1,650 E. N1,550
3
Answer: N2,550 ⎯
⎯→ × N4,250 = N2,550 (A)
5
2019/36
How much is the interest on capital of Akeem?
A. N500 B. N400 C. N300 D. N200 E. N100
5
Answer: N300 ⎯
⎯→ × N3,000 = N300 (C)
100
2019/37
What is Akeem’s share of profit?
A. N2,000 B. N1,900 C. N1,800 D. N1,700 E. N1,600
2
Answer: N1,700 ⎯
⎯→ × N4,250 = N1,700 (D)
5
2019/38
How much is the interest on capital of Dayo?
A. N150 B. N130 C. N100 D. N70 E. N50
5
Answer: N100 ⎯
⎯→ × N2,000 = N100 (C)
100
Working:
Dayo and Akeem
Appropriation Account
Salary: N N
Akeem 500 Net-profit b/d 5,000

Interest on capital: Interest on drawings:

5 100 - Dayo 50
Dayo: ( × 2,000)
100
5 300 400 - Akeem 100 150
Akeem: ( × 6,000)
100
900
Share of profit (3:2)
3 2,500
Dayo: ( × 4,250)
5
2 1,700
Akeem: ( × 4,250)
5
5,150 5,150

Partnership profit: N5,150 – 900 = N4,250

409
2009/42 UME
In partnership account, conversion of non-cash assets into cash is referred to as:
A. realization B. disposal C. dissolution D. revaluation Answer: Dissolution (C)

2010/2 UTME
The interest on partner’s loan is
A. debited in current account B. credited in profit and loss account
C. debited in profit and loss account D. credit in current account Ans : Debited in current account (A)

2010/43 UTME
The capital contributed by the partners is treated in the
A. current account B. capital account C. trading account D. balance sheet
Answer: Capital account (B)
2021/4
Where partners maintain a fluctuating capital account, partner’s share of profit is credited to
A. capital account B. profit and loss appropriation account
C. current account D. profit and loss account
Answer
Capital account (A)

2021/6 – 7
Attama and Wawa were in partnership sharing profits and losses in the ratio 4:3. Attama was entitled to a salary of
D13,000 per annum. A net profit of D34,000 was made for the year.

2021/6
The residual profit of the business for the year is
A. D47,000 B. D34,000 C. D22,000 D. D21,000
Solution
D21,000 (D) ⎯ ⎯→ D34,000 – D13,000 = D21,000

2021/7
Attama’s share of profit is
A. D21,000 B. D19,428 C. D12,000 E. D9,000
4
Answer: D12,000 (C) ⎯
⎯→ × D21,000 = D12,000
7

2021/39
The partner who partakes in the management of the firm and assumes personal responsibility for the firm’s debt is a
A. general partner B. sleeping partner C. quasi partner D. limited partner
Answer: General partner (A)

1997/45
Which of the following is not an item in a partnership profits and loss appropriation account?
A. interest on drawings B. interest on loan C. partner’s salary D. partner’s commission
Answer: Interest on loan (B)

1997/46
Under a fixed capital structure, interest on capital is treated in
A. current account B. capital account C. realization account D. interest account
Answer: Current account (A)

410
2021/8
Loly and Willy were in partnership sharing profits and losses in the ratio 3:2 respectively. The balance sheet as at 31 st
December, 2019 is as follows:
Balance sheet as at 31st December, 2019
Capital: Le Le Fixed Assets: Le Le Le
Loly 200,000 Furniture & fittings 80,000
Willy 150,000 350,000 Plants & machinery 240,000
Loan 100,000 Motor vehicles 30,000 350,000

Current liabilities Current Assets:

Creditors 90,000 Stock 50,000
Debtors 60,000
Less: P.F.D.D. (5,000) 55,000
Cash 85,000 190,000
540,000 540,000

Additional information:
Joe was admitted into the business on the following terms:
(i) Plant and machinery was revalued at Le300,000.
(ii) Furniture and fittings was revalued at Le60,000.
(iii) Stock was revalued at Le10,000.
(iv) Provision for doubtful debts was increased to Le7,000.
(v) Loly took over one of the motor vehicles for Le10,000.
(vi) Joe contributed Le100,000 as capital and paid Le75,000 for goodwill which was shared among the old partners.
You are required to prepare:
(a) Revaluation account;
(b) Capital account;
(c) Balance sheet after the admission of Joe.
Solution
(a)
Revaluation Account
Le Le
Furniture & fittings 20,000 Plant and machinery 60,000
Stock 40,000 Asset taken over (Loly) 10,000
Share of surplus:
3 6,000
Loly: ( × 10,000)
5
2 4,000
Willy: ( × 10,000)
5
70,000 70,000
(b)
Dr Partner’s Capital Account Cr
Loly Willy Joe Loly Willy Joe
Le Le Le Le Le Le
Balance c/d 251,000 184,000 100,000 Balance b/f 200,000 150,000 -
Cash – capital - - 100,000
Revaluation 6,000 4,000 -
Goodwill 45,000 30,000 -
251,000 184,000 100,000 251,000 184,000 100,000
Balance b/d 251,000 184,000 100,000
(c)
Loly, Willy and Joe Balance Sheet As At 31st December, 2019.
Capital Account: Le Le Fixed Assets: Le Le
Loly 251,000 Plant and machinery 300,000
Willy 184,000 Furniture and fittings 60,000
Joe 100,000 535,000 Motor vehicle 10,000

Long term liability: Goodwill 75,000

Loan 100,000
Current Liabilities: Current Assets:
Creditors 90,000 Stock 10,000
Debtors (60,000–7,000) 53,000
Cash 85,000 148,000
725,000 593,000

411
2019/31 Exercise 16.1
The partner whose liability goes beyond his capital is a
A. nominal partner B. general partner C. limited partner D. dormant partner

2000/42 – 48 Neco Exercise 16.2

Ade and Nana are in partnership sharing profit and losses in the ratio 3:2 respectively. The following information relates
to their business for the year ending 31st December, 1997.
N
Capital – Ade…………… 40,000.00
Nana………….. 20,000.00
Drawings – Ade…………… 4,000.00
Nana………….. 6,000.00
Interest on capital 5%
Interest on drawings 10%
Profit N12,000.00

42. The interest on Ade’s capital is

A. N2,000 B. N1,500 C. N1,000 D. N750 E. N500

43. What is the interest on Nana’s capital account?

A. N500 B. N750 C. N1,000 D. N1,500 E. N2,000

44. The interest on Nana’s drawing is

A. N900 B. N800 C. N700 D. N600 E. N500

45. What is Ade’s share of the profit?

A. N7,000 B. N6,000 C. N5,000 D. N4,000 E. N3,500

46. What is Nana’s share of the profits?

A. N3,500 B. N4,000 C. N5,000 D. N6,000 E. N7,000

47. What is Ade’s current account balance?

A. N1,600 DR B. N3,600 CR C. N400 CR D. N4,500 CR E. N5,600 DR

48. The balance onNana’s current account is

A. N5,600 DR B. N4,500 CR C. N4,000 CR D. N3,600 CR E. N1,600 DR

1996/4 (Nov) Exercise 16.3

Okon and Chiazor are in partnership sharing profit and losses in the ratio 4:3. They are to share N35,000. Chiazor’s share is
A. N26,250 B. N20,000 C. N15,000 D. N11,667 E. N8,750

2016/13 Neco Exercise 16.4.

Partner’s interest on drawing is credited to _____ account.
A. appropriation B. current C. drawings D. income & expenditure E. profit and loss

2001/41 Exercise 16.5.

An agreement made by partner’s to regulate and govern their business activities are known as:
A. partnership act B. partnership deed C. partnership code D. memorandum

2016/13 Neco Exercise 16.6.

Partner’s interest on drawing is credited to ______ account.
A. appropriation B. current C. drawings D. income & expenditure E. profit and loss

1995/35 UME Exercise 16.7

A partnership on admitting a new partner, revalued the business’ land and building from N30,000 to N70,000. The
difference of N40,000 should be
A. credited to land and building account B. debited to asset revaluation account
C. credited to asset revaluation account D. credited to profit and loss appropriation account
1999/31 UME Exercise 16.8
Goodwill can be valued in partnership when
A. partners make profit B. large losses are made C. a partner retires D. a new branch is opened
412
2000/35 UME Exercise 16.9
The partnership deed normally specifies
A. how profits or losses are to be shared B. the capital to be contributed annually
C. how salaries are paid to employees D. the profit that should be earned annually
2009/38 UME Exercise 16.10
1
Sule and Ahmed are in partnership shared profits and losses equally. If Khadija is admitted as a new partner to take 5th
as her share, what is the new profit or loss sharing ratio?
1 1 1 1 1 3
A. Sule , Ahmed and Khadija B. Sule , Ahmed , Khadija
3 3 3 5 5 5
2 2 1 2 1 2
C. Sule 5, Ahmed and Khadija
5 5
D. Sule 5
, Ahmed and Khadija 5
5

2001/1 Exercise 16.11

(a) What is partnership?
(b) State six rules which shall apply in a partnership business in the absence of express agreement.
2009/2 Neco Exercise 16.12.
Explain the following: (a) Partner’s current accounts; (b) Partnership appropriation accounts; (c) Limited partners.
2012/3 Exercise 16.13
(a) Explain 5 events that may lead to the dissolution of a partnership.
(b) State how the proceeds from dissolution of partnership are applied.
2019/2 NABTEB Exercise 16.14
(a) What is partnership?
(b) State 5 conditions under which partnership can come to an end.
(c) List 5 differences between a partnership business and a sole trader business.
1992/1(Nov) Exercise 16.15.
Taiwo and Kehinde are in partnership sharing profits and losses equally. The following is the balance sheet of the
business as at 31st December, 1990.
TAIWO AND KEHINDE
Balance sheet as at 31 -12 - 90
Capital: N N Fixed Assets: N N
Taiwo 18,000 Freehold property 12,000
Kehinde 18,000 36,000 Motor vehicles 16,000

Furniture & fittings 6,000

34,000
Current Accounts:
Taiwo 1,200
Kehinde 700 1,900
37,900

Current liabilities: Current Assets:

Creditors 13,000 Stock 6,440
Accruals 420 13,420 Debtors 9,180
Bank 1,700 17,326
51,320 51,320
Additional information:
(a) On 31st December, 1990, Idowu was admitted into the partnership.
(b) Profits and losses would still be shared equally.
(c) Idowu introduced a capital of N15,000.
(d) The following assets were revalued.
N
Freehold property 24,000
Motor vehicles 18,000
Furniture & fittings 3,000
Stock 5,000
(e) Goodwill was valued at N10,000 and it is to be retained in the books.
You are required to prepare:
(i) Record the transactions in the books of the partnership.
(ii) Prepare the balance sheet immediately after the admission of Idowu on 31st December, 1990.

413
2012/8 Neco Exercise 16.6
Ene, Ime and Mfon are in partnership sharing profits and losses in the ratio 2:2:1 respectively. The partners are to receive
interest of 5% per annum on the credit balances of their capitals and 10% on current account (credit balances) at the beginning
of each year. No interest is to be charged on drawings. Mfon is entitled to a partnership salary of N15,000 per annum together
with a 3% commission on trading after charging current account interest and salary but before charging interest on capital.
The partner’s balances as at 1st January, 2008 were as follows:
Current Account
N
Ene 25,000 Cr
Ime 40,000 Dr
Mfon 15,000 Dr
Capital account
N
Ene 100,000
Ime 80,000
Mfon 46,000

Drawings during the year were:

N
Ene 37,5000
Ime 27,000
Mfon 32,500
The trading profit for the year ended 31st Dec 2009 was N225,000.
You are required to prepare:
(i) The Profit and Loss Appropriation Account for the year ended 31st Dec. 2009.
(ii) The Current Account for each partner in columnar form and;
(iii) The Capital Account for each partner in columnar form.
Exercise 16.17
R. Omoroghene and R. Arodoweoghene decide to cease business and dissolve their partnership on 31st December.
Their balance sheet as at that date was as follows:
N N N N
Creditors 48,000 Sundry debtors 140,000
Reserve 30,000 Fixtures & fittings 9,000
Stock 86,000
Current a/c:
R. Arodoweoghene 7,000 Current a/c:
R. Omonoghene 5,000
Capital a/c Cash at bank 37,000
R. Omonoghene 112,000
R. Arodoweoghene 80,000
277,000 277,000
They share profits in the ratio 7:5 to R. Omoroghene and R. Arodoweoghene respectively. Debtors realized 99% of the book
value; fixtures and fittings N10,000. Stock was sold for N100,000. Creditors were paid at N54,000, there having an error in
the balance sheet and the realization expenses amount to N11,200.
Prepare the necessary accounts to show the results of the realization.

2004/21 Exercise 16.18

Which of the following is NOT a debit item in the partnership profit and loss appropriation account?
A. interest on partners drawings B. partners salaries C. interest on partners capital
D. share of profit

2004/25 Exercise 16.19

Goodwill is taken into account in partnership when
A. the business has good customer B. the business is making huge profit
C. a new partner is admitted D. a partner becomes dormant

414
2005/16 – 19
Ade Bola
N N
Capital accounts 60,000 40,000
Current accounts 10,000 (Cr.) 6,000 (Dr.)
Drawings 8,000 2,000

Interest on drawings is 5%, interest on capital is 10%.

Profits and losses are shared equally. Net profit for the year is N30,000.

2005/16 Exercise 16.20

The amount of distributable profit is
A. N39,500 B. N30,500 C. N30,000 D. N20,500

2005/17 Exercise 16.21

Ade’s share of profit is
A. N19,750 B. N15,250 C. N15,000 D. N10,250

2005/18 Exercise 16.22

Bola’s current account balance is
A. N18,150 Cr. B. N16,150 Cr. C. N10,150 Cr. D. N6,150 Cr.

2005/19 Exercise 16.23

The total amount credited to the profit and loss appropriation account is
A. N40,500 B. N30,500 C. N30,000 D. N25,000

2006/18 to 19
Ebrima Jaiteh
D D
Capital 2,000 10,000
Drawings 4,000 3,000
Salary - 900
Profit sharing 3 2
5 5
ratio

Profit for the year before 5% interest on capital was D18,000.

2006/18 Exercise 16.24

Ebrima’s share of profit was
A. D10,440 B. D9,900 C. D7,500 D. D6,600

2006/19 Exercise 16.25

Jaiteh’s share of profit was
A. D10,440 B. D9,900 C. D7,560 D. D6,600

2007/32 Exercise 16.25

In the absence of partnership agreement, profit and losses are shared
A. in the ratio of capitals B. equally
C. in the ratio of drawings D. according to services rendered

2007/33 Exercise 16.27

Which of the following is credited to a partnership appropriation accounts?
A. interest on capital B. interest on drawings C. partner’s salaries D. partner’s drawings

415
Exercise 16.28
Ivana and Ivan are in partnership sharing profits and losses 2:1 respectively. the following is the balance in the balance
sheet as at 31st December, 2000 when it was dissolved

N N
Capital Account: Equipment 10,000
Ivana 60,000 Motor vehicle 32,500
Ivan 20,000 Stock 40,000
Bank 30,500
Creditors 42,500 Goodwill 23,000
Loan 23,000 Debtors 9,500
145,500 145,500

Additional Information:
The equipment and Motor vehicle realised N5,000 and N27,500 respectively. The book debts were collected and realized
N6,500. The stock was sold for N35,000. The creditors were paid N40,000. The expenses on realization amounted to
N3,500. The loan was settled.

You are required to prepare:

(a) Realization Account;
(b) Cash Account; and
(c) Capital Account.

416
Chapter seventeen
DEPARTMENTAL ACCOUNTS
Departmental accounts are accounts relating to the several departments or sections of a business drawn up with a view
to ascertaining their individual performances. A business may have a number of departments each dealing in a different
type of goods. For instance, Departmental Store is an example of large scale trading by a retail trader.
In order to carryout business more efficiently, a businessman divides his store into many sections, each sections is called
a Department. In order to ascertain the profit or loss made by each department, it is desirable to prepare separate Trading
and Profit and Loss Account for each department.
REASONS FOR DEPARTMENTAL ACCOUNT
(i) To determine the profit/loss of each department.
(ii) To compare the performance or results of the different departments.
(iii) To ascertain or defect unprofitable department in an organization.
(iv) To monitor the progress of each department.
(v) To ascertain the contribution of each department to the overall success or failure of an organization.
(vi) To reward or reprimand departmental managers on their performance.
ALLOCATION OF EXPENSES
The expenses of the business are often split between the various departments and the net profit for each department then
calculated. Each expense is divided between the departments on what is considered to be the most logical basis. The
following methods can be used as a basis of apportionment:
- Turnover basis. - Number of articles sold basis.
- Floor space basis. - Purchases basis.
- Volume of space occupied basis. - Book value basis.
- Consumption basis. - Equality basis.
INTER-DEPARTMENTAL TRANSFERS
Goods are often supplied from one department to another – Inter-Departmental transfer. Such transfer must be credited
to Supplying Department and debited to Receiving Department. If the transfers are made at cost price, then it can be
treated as mere transfer. No further adjustment is needed. However, if the transfers of goods are made at selling price,
then a profit is earned by the supplying department of the same organization. When a goods is transferred from one
department to another, still remain unsold with the transferee department at the end of the accounting period, there arises
a necessity to eliminate the unrealized profit on such stock on hand. This is because, so much of issuing department’s
profit (notional) remain unrealized from the viewpoint of the firm as a whole. The reserve will be equal to the profit
included in respect of unsold goods at the end of closing.
FINAL ACCOUNT
The final accounts of an establishment operating on departmental basis will be made up of a trading and profit and loss
account. To determine the profit or loss of each department, a columnal departmental, profit and loss account is prepared
like the specimen below:
X Y X Y
Opening stock x x Sales X X
Purchases x x Less: sales returns (X) (X)
Carriage inwards x x
Less: Returns outwards (x) (x)
x x
Interdepartmental transfer (x) x
Goods available for sale x x
Less: closing stock (x) (x)
Cost of goods sold x x
Gross – profit c/d x x
x x X X

Wages and salaries x x Gross profit b/d X X

Rent x x Discount received X X
Commission x x
Motor expenses x x
Depreciation x x
Net profit c/d x x
x x X X
417
2011/12
In departmental accounts, rent is apportioned on the basis of
A. purchases B. floor area occupied C. number of personnel D. volume of sales
Answer: Floor area occupied (B)

2012/26 Neco
Inter – departmental transfer is recorded in ______ account
A. cash B. profit and loss C. purchases D. sales E. trading
Answer: Trading (E)

2001/14 Nov
A basis for apportioning advertisement in departmental accounts is
A. floor space B. purchases C. debtors figures D. sales
Answer: Sales (D)

2003/10
The transfer of goods between departments is recorded by debiting
A. the receiving department and crediting the giving department B. the giving department and crediting the receiving department
C. stock account and crediting trading account D. Trading accounting and credit purchases account
Answer: Debiting the receiving departments and crediting the receiving department (A)

2014/35 UTME
In a departmental account, the expenses to be apportioned on the basis of turnover is
A. carriage inwards B. returns outwards C. discount received D. carriage outwards
Answer: Carriage inwards (A)

2005/30 Neco
The main objectives of departmental account in a business organization is
A. ascertain each departments gross and net profit B. ascertain each departments selling price
C. determine the cost of purchases of each department D. determine the mark – up price
E. prepare departmental accounts
Answer: Ascertain each department gross and net profit (A)

2016/38-39 Neco
The following extracts are from the books of Olu Zik limited a departmental store.
Dept. A Dept. B
N N
Sales 400,000 400,000
Cost of sales 210,000 105,000
Expenses 80,000 95,000

38. How much is the gross profit for department A?

A. N400,000 B. N295,000 C. N2000 D. N110,000 E. N190,000
Answer: N190,000 (E)

39. What is department A’s net profit?

A. N400,000 B. N300,000 C. N220,000 D. N180,000 E. N110,000
Answer: N110,000 (E)

Workings:
Dept. A Dept. B
Sales 400,000 400,000
(210,000) (105,000)
190,000 295,000
Less: Expenses (80,000) (95,000)
Net profit 110,000 200,000

418
1997/4 (Nov) & 2013/4
James Ugo’s business is carried out in two departments as follows:
Departments A: Stationery
B: Hardwares

The following balances were extracted from his books for the year ended 31st December, 1994.
N
Stock: 1/1/94 Dept. A 5,000
,, B 4,000
Purchases Dept. A 236,000
,, B 164,000
Sales Dept. A 300,000
,, B 200,000
Rent and rates 1,800
Office expenses 1,200
Insurance 1,000
Repairs to premises 2,900
Stock: 31/12/94 Dept. A 6,000
,, B 3,000

Additional information:
All common expenses should be apportioned in the ratio of sales.
You are required to prepare a Departmental Trading, Profit and Loss Account for the year ended 31st December, 1994.
Solution
JAMES UGO’S
Departmental, trading and profit or loss account for the year ended 31st December, 1994
A B A B
N N N N
Opening stock 5,000 4,000 Sales 300,000 200,000
Purchases 236,000 164,000
C.G.A.S 241,000 168,000
Closing stock (6,000) (3,000)
Cost of goods sold 235,000 165,000
Gross profit 65,000 35,000
300,000 200,000 300,000 200,000

Rent & rates 1,080 720 Gross – profit b/d 65,100 35,000
Office expenses 720 480
Insurance 600 400
Repairs to premises 1,740 1,160
Net – profit c/d 60,860 32,240
65,000 35,000 65,000 35,000

419
2012/5 Neco
The following balances were extracted from the books of Yesmin Enterprises for the year ended 31st December, 2009.
N N
Insurance 1,800
Commission paid 4,500
Rent and rates 3,400
Delivery expenses 1,700

Purchases:
Suya Department 31,000
Masa Department 46,000
Mineral Department 26,000 103,000
Sales:
Suya Department 53,000
Masa Department 69,000
Mineral Department 31,000 153,000
Administrative expenses 5,500
Salaries 19,500
Advertising 2,330
Opening stock:
Suya Department 8,000
Masa Department 13,000
Mineral Department 4,000 25,000
Closing stock:
Suya Department 11,000
Masa Department 14,000
Mineral Department 3,000 28,000
Additional information:
Expenses are to be apportioned on the following basis:
(a) Salaries, administrative expenses, advertising and rent and rates – equally.
(b) Commission paid and delivery expenses - sales.
(c) Insurance–ratio 5:3:2 to Suya, Masa and Minerals respectively.

You are required to prepare Departmental, Trading, Profit and Loss Accounts for the year ended 31st December, 2009.
Solution
Yesmin Enterprises
Departmental Trading, Profit and Loss Account for the year ended 31st December, 2009.
Suya Masa Mineral Suya Masa Mineral
N N N N N N
Opening stock 8,000 13,000 4,000 Sales 53,000 69,000 31,000
Purchases 31,000 46,000 26,000
C.G.A.S 39,000 59,000 30,000
Closing stock (11,000) (14,000) (3,000)
Goods sold 28,000 45,000 27,000
Gross profit 25,000 24,000 4,000
53,000 69,000 31,000 53,000 69,000 31,000

Insurance 900 540 360 Gross – profit b/d 25,000 24,000 4,000
Commission 1,354 2,010 1,136 Net – loss - - 8,167
Delivery expenses 512 759 429
Rent & rates 1,133 1,133 1,133
Adm. Expenses 1,833 1,833 1,833
Salaries 6,500 6,500 6,500
Advertising 776 776 776
Net – profit c/d 11,992 10,449
25,000 24,000 12,167 25,000 24,000 12,167

420
2018/15 NABTEB (ADVANCED)
From the following balances of Johnson Ltd. You are required to prepare a departmental trading, profit and loss account
for the year ended 31st December, 2013.
Sales: N N
Department A 60,000
Department B 40,000
Stock at 1st January, 2013:
Department A 1,000
Department B 800
Purchases: Department A 47,200
Department B 32,800
Commission 1,400
General office salaries 2,000
Rates 600
Insurance 500
Lighting 1,200
Repairs 480
Internal telephone 240
Cleaning 40
Sundry expenses 140
Discount received 100
Advertising 460
Stationery 300
Electricity 1,640
Stock as at 31st December, 2013:
Department A 1,200
Department B 600
2 3
The total floor area occupied by each department was: Department A ( ) ; Department B ( )
5 5
The following basis of apportionment should be used for the departments: commission, advertising, discount allowed – proportionate
to sales.
Discount received – proportionate to purchases. Cleaning, electricity, internal telephone, insurance on the basis of total floor rate.
All other expenses should be apportioned equally between the departments.
Solution
JOHNSON LTD
Departmental, Trading and Profit and Loss Accounts for the year ended 31 st December, 2013.
A B A B
N N N N
Opening stock 1,000 800 Sales 60,000 40,000
Purchases 47,200 32,800
C.G.A.S 48,200 33,600
Closing stock (1,200) (600)
Cost of goods sold 47,000 33,000
Gross profit c/d 13,000 7,000
60,000 40,000 60,000 40,000

Commission 840 560 Gross–profit 13,000 7,000

Advertising 276 184 Discount received 59 41
Discount allowed - -
Cleaning 16 24
Electricity 656 984
Telephone 96 144
Insurance 200 300
General office salary 1,000 1,000
Rates 300 300
Lighting 600 600
Repairs 240 240
Sundry expenses 70 70
Stationery 150 150
Net profit c/d 8,615 2,485
13,059 7,041 13,059 7,041

421
Notes:
(i) Discount received – N100 (47:32) (viii) General office salary – N2,000 (equally)
47 2,000
Department A = × 100 = N59 Department A = = N1,000
79 2
32 2,000
Department B = × 100 = N41 Department B = = N1,000
79 2

(ii) Commission – N1,400 (3:2) (ix) Rates – N600 (equally)

3 600
Department A = × 1,400 = N840 Department A =
2
= N300
5
2 600
Department B = × 1,400 = N560 Department B =
2
= N300
5

(iii) Advertising – N460 (3:2) (x) Lighting – N1,200 (equally)

3 1,200
Department A = × 460 = N276 Department A =
2
= N600
5
2 1,200
Department B = × 460 = N184 Department B =
2
= N600
5

(iv) Cleaning – N40 (2:3) (xi) Repairs – N480 (equally)

2 480
Department A = × 40 = N16 Department A =
2
= N240
5
3 480
Department B = × 40 = N24 Department B =
2
= N240
5

(v) Electricity – N1,640 (2:3) (xii) Sundry expenses – N140 (equally)

2 140
Department A = × 1,640 = N656 Department A =
2
= N70
5
3 140
Department B = × 1,640 = N984 Department B=
2
= N70
5

(vi) Telephone – N240 (2:3) (xiii) Stationery – N300 (equally)

2 300
Department A = × 240 = N96 Department A =
2
= N150
5
3 300
Department B = × 240 = N144 Department B =
2
= N150
5

(vii) Insurance – N500 (2:3)

2
Department A = × 500 = N200
5
3
Department B = × 500 = N300
5

2021/38
The objective of preparing departmental accounts is to determine the
A. sales of each department B. total cost attributable to each department
C. capital employed by each department D. profitability of each department
Answer
Profitability of each department (D)

422
2021/6
Sesay operates a shop with two departments A and B. The following balances were extracted from his book at 31 st December, 2019.
Dr Cr
GH₵ GH₵
Sales: Department A 30,000
Department B 20,000

Stock: Department A (01–01–19) 500

Department B (01–01–19) 400

Purchases: Department A 23,600

Department B 16,400

Wages of Sales Assistants:

Department A 2,000
Department B 1,500
Delivery expenses (Dept. A) 300

Common Expenses:
General office salaries 1,500
Rates 260
Fire insurance 100
Electricity 240
Repairs to premises 500
Telephone 500
Cleaning 600
Auditing charges 2,400
Stationery 1,200
Additional information:
(i) Stock as at 31st December, 2019 were valued at Department A GH₵600, Department B GH₵300.
(ii) General office salaries, telephone, audit charges and stationery are to be apportioned on the basis of sale.
(iii) All other common expenses are to be apportioned as follows:
Department A – one fifth.
Department B – Four – fifth.
You are required to prepare:
Sesay’s Departmental Trading, Profit and Loss Account for the year ended 31 st December, 2019.
Solution
SESAY:
Departmental Trading, Profit and Loss Account for the year ended 31 st December, 2019.
GH₵ GH₵ GH₵ GH₵
A A A B
Opening stock 500 400 Sales 30,000 20,000
Purchases 23,600 16,400
Goods available for sale 24,100 16,800
Closing stock (600) (300)
Cost of goods sold 23,500 16,500
Wages of Sales Assistant 2,000 1,500
Cost of sales 25,500 18,000
Gross – profit c/d 4,500 2,000
30,000 20,000 30,000 20,000

Delivery expenses 300 - Gross – profit b/d 4,500 2,000

General office salaries 900 600 Net – loss c/d - 1,600
Telephone 300 200
Auditing charges 1,440 960
Stationery 720 480
Rates 52 208
Fire insurance 20 80
Electricity 48 192
Repairs to premises 100 400
Cleaning 120 480
4,000 3,600
Net – profit c/d 500 -
4,500 3,600 4,500 3,600

423
Notes: Apportionment of common expenses:
1 4
(v) General office salaries – GH₵1,500 (3:2) (v) Rates – GH₵260 ( ∶ )
5 5
3 1
Department A: × 1,500 = 900 Department A: × 260 = 52
5 5
4
2 Department B: × 269 = 208
Department B: × 1,500 = 600 5
5 1 4
(vi) Fire Insurance – GH₵100 (5 ∶ 5)
(vi) Telephone – GH₵500 (3:2) 1
3 Department A: × 100 = 20
Department A: × 500 = 300 5
5
4
2 Department B: × 100 = 80
Department B: × 500 = 200 5
5

(vii) Auditing Charges – GH₵2,400 (3:2) 1

(vii) Fire Insurance – GH₵240 (5 ∶ 5)
4
3
Department A: × 2,400 = 1440 1
5 Department A: × 240 = 48
5
2
Department B: × 2,400 = 960 4
5 Department B: × 240 = 192
5
(viii) Stationery – GH₵1,200 (3:2) 1 4
3 (viii) Repairs to premises – GH₵500 (5 ∶ )
Department A: × 1,200 = 720 5
5 1
2
Department A: × 500 = 100
5
Department B: × 1,200 = 480
5 4
Department B: × 500 = 400
5

1 4
1995/2 – ₵ (5 ∶ 5)
Abike Amuluduri is the proprietress of a shop selling books, periodicals, newspapers
1 and children’s games and toys.
×
For the purpose of her accounts, she decided to divide her business into two departments.
5
Department A: Books, periodicals and newspapers. 4
Department B: Games, toys and fancy goods. ×
5
st
The following balances were extracted from her nominal ledger on 31 March, 1993.
Dr Cr
N N
Sales - Department A 150,000
Department B 100,000
Stock 1-4-92: Department A 2,500
Department B 2,000
Purchases: Department A 118,000
Department B 82,000
Wages of Sales Assistants
- Department A 10,000
- Department B 7,500
Newspapers delivery wages 1,500
General office salaries 7,500
Rates 1,300
Insurance 500
Electricity 1,200
Repairs to premises 250
Telephone 250
Cleaning 300
Accounting and audit fees 1,200
General office expenses 600
Stocks: 1 – 3 – 93 Department A 3,000
Department B 1,500
The portion of the total floor area occupied by each department was:
1
Department A - 5
(one – fifth)
4
Department B - (four – fifth)
5

424
You are required to:
Prepare a departmental trading, profit and loss account of Abike Amuluduri for the year ended 31st March, 1993

Note: Apportionment should be made using the following bases:

Area - Rates, insurance, electricity, repairs, telephone and cleaning

Turnover - General office salaries, accountancy and audit fees and general office expenses.
Solution
ABIKE AMULUDURI
Departmental Trading, Profit and Loss Account for the year ended 31st March, 1993
A B A B
N N N N
Opening stock 2,500 2,000 Sales 150,000 100,000
Purchases 118,000 82,000
C.G.A.S 120,500 84,000
Closing stock (3,000) (1,500)
Cost of goods sold 117,500 82,500
Gross profit 32,500 17,500
150,000 100,000 150,000 100,000

Wages 10,000 7,500 Gross profit b/d 32,500 17,500

Delivery wages 1,500 -
General salaries 4,500 3,000
Rates 260 1,040
Insurance 100 400
Electricity 240 960
Repairs 50 200
Telephone 50 200
Cleaning 60 240
Accountancy 720 480
General office 360 240
17,840 14,260
Net profit c/d 14,660 3,240
32,500 17,500 32,500 17,500

Workings:
3
i. General office salaries: Dept. A: × 7,500 = 4,500
5 1
2 vi. Electricity: Dept. A: × 1,200 = 240
Dept. B: × 7,500 = 3,000 5
5 4
3
Dept. B: 5 × 1,200 = 960
ii. Accountancy & Audit fees: Dept. A: 5
× 1,200 = 720
1
Dept. B:
2
× 1,200 = 480 vii. Repairs: Dept. A: ×250 = 50
5
5 4
Dept B: 5 × 250 = 200
3
iii. General office expenses: Dept. A: × 600 = 360
5 1
2 viii. Telephone: Dept. A: ×250 = 50
Dept. B: × 600 = 240 5
5 4
1
Dept B: 5
× 250 = 200
iv. Rates: Dept. A: 5 × 1,300 = 260
4 1
Dept. B: 5 ×1,300 = 1,040 ix. Cleaning: Dept. A: × 300 = 60
5
4
1 Dept. B: 5 × 300 = 240
v. Insurance: Dept. A: 5 × 500 = 100
4
Dept B: 5 × 500 = 400

2014/36
In a departmental account, where no basis of apportionment exist, apportionment is
A. on profit basis B. according to employee decision
C. according to materials available D. on equal basis
Answer: On equal basis (D)

425
2007/1 UME
A company has departments X, Y and Z. Department X occupies a space twice that of Y while Z occupies half the space
of Y. If the company pays N70,000 on rent, what is the amount of rent that should be allocated to Y?
A. N30,000 B. N40,000 C. N20,000 D. N10,000
Answer
X Y Z
4 : 2 : 1 ⎯ ⎯→ (2 × 70,000) = N20,000
7

2006/38 UME
Departmentalization of accounts is useful because it shows the
A. overall performance of a firm B. price per unit of a product C. cost per unit of a product
D. overall performance of a division
Answer
Overall performance of a division (D)

2006/45 UME
A company has departments S, T and U. The sales are N20,000, N40,000 and N60,000 respectively. If the sales
commission paid is N12,000, how much is T’s share?
A. N8,000 B. N2,000 C. N4,000 D. N6,000
Answer
40,000 1 1
Ratio of T is = , Thus T’s commission share × 12,000 = N4,000 ( C )
20,000+40,000+60,000 3 3

2005/36
Departmental accounts are prepared to aid the comparison of the
A. previous year’s transaction B. daily profits C. worker’s performance D. management performance
Answer
Management performance (D)

1995/44 UME
Departmental accounts are maintained to ascertain the
A. profits of the entire organization B. contribution of each departments
C. expenses of each departments D. sales of each department
Answer
Contribution of each department (B)

2017/9
The following balances were extracted from books of Emeka Company Limited for the year ended 31st December, 2016.
Department Amount (N)
Sales: Cloth 68,000
Dress 54,000
Shoes 41,000
Purchases: Cloth 44,800
Dress 37,060
Shoes 29,060
Electricity and water 3,570
Sales expenses 1,956
Commission paid 3,260
Printing and stationery 750
Wages and salaries 27,000
Miscellaneous expenses 6,900
Inventory 01 – 01 – 2016: Cloth 12,410
Dress 9,550
Shoes 7,750
Inventory 31 – 12 – 2016: Cloth 10,540
Dress 7,350
Shoes 8,280

426
Additional information:
Expenses are to be apportioned between departments as follows:
(i) Sales expenses and commission in proportion to sales;
(ii) Printing and stationery; wages and salaries in the portion 6:4:5 respectively.
(iii) Other expenses equally.
You are required to prepare a Departmental Trading and Profit and Loss Account for the year ended 31 st December,
2016.

Solution
EMEKA COMPANY LIMITED
Departmental Trading, Profit and Loss Account for the year ended 31st December, 2016
Cloth Dress Shoes Cloth Dress Shoes
N N N N N N
Opening stock 12,410 9,550 7,750 Sales 68,000 54,000 41,000
Add: purchases 44,800 37,060 29,060
57,210 46,610 36,810
Less: Closing stock (10,540) (7,350) (8,280)
Cost of goods sold 46,670 39,260 28,530
Gross profit c/d 21,330 14,740 12,470
68,000 54,000 41,000 68,000 54,000 41,000

Sales expenses 816 648 492 Gross- profit b/d 21,330 14,740 12,470
Commission 1,360 1,080 820 Net- loss c/d - - 1,582
Printing & stationery 300 200 250
Wages & salary 10,800 7,200 9,000
Miscellaneous 2,300 2,300 2,300
Electricity & water 1,190 1,190 1,190
16,764 12,616 14,050
Net - profit c/d 4,566 2,124
21,330 14,740 14,052 21,330 14,740 14,052

Workings:
68 6
i. Sales expenses: Cloth: × 1,956 = N816 iv. Wages & Salary: Cloth : × 27,000 = N10,800
163 15
54 4
Dress:
163
× 1,956= N648 Dress : × 27,000 = N7,200
15
41 5
Shoes: × 1,956 = N492 Shoes : × 27,000 = N9,000
163 15

68 6,900
ii. Commission: Cloth: × 3,260 = N1,360 v. Miscellaneous (equally): Cloth :
3
= N2,300
163
54 6,900
Dress :
163
× 3,260 = N1,080 Dress :
3
= N2,300

41 6,900
Shoes : × 3,260 = N820 Shoes :
3
= N2,300
163

6 vi. Electricity & water (equally):

iii. Printing & Stationery: Cloth : × 750 = N300 3,570
15 Cloth : = N1,190
3
4
Dress : × 750 = N200 3,570
15 Dress : = N1,190
3
5
Shoes :
15
× 750 = N250 3,570
Shoes : = N1,190
3
Comment: The shoes department is not profitable, it recorded a loss of (N1,582). Management attention is needed.

427
2020/8
Yallawa Stores Ltd. Has two departments. The following balances were extracted from its books as at 31 st December, 2017.
Le
Purchases: Department A 720,000
Department B 520,000
Rent and rates 50,000
Commission 55,000
Insurance 5,000
Sales: Department A 1,500,000
Department B 1,250,000
Discount received 124,000
Advertising 20,000
Salaries and wages 250,000
Depreciation 35,000
Administration and general expenses 50,000
Opening stock: Department A 150,000
Department B 100,000
Closing stock: Department A 175,000
Department B 142,000
Additional information:
Expenses are to be apportioned to the departments as follows:
(i) Commission – the basis of sales.
(ii) Salaries and wages – 3:2 for department A and B respectively.
(iii) Discount received – 10% of purchases.
(iv) Other expenses are to be apportioned equally.
You are required to prepare a Departmental Trading, Profit and Loss Account for the year ended 31st December, 2017.
Solution
YALLAWA STORES LIMITED
Departmental Trading, Profit and Loss Account for the year ended 31stDecember, 2017
A B A B
Le Le Le Le
Opening stock 150,000 100,000 Sales 1,500,000 1,250,000
Add: Purchases 720,000 520,000
Goods available 870,000 620,000
Less: Closing stock (175,000) (142,000)
Cost of goods sold 695,000 478,000
Gross - profit c/d 805,000 772,000
1,500,000 1,250,000 1,500,000 1,250,000

Commission 30,000 25,000 Gross profit b/d 805,000 772,000

Salaries and wages 150,000 100,000 Discount received 72,000 52,000
Rent and rates 25,000 25,000
Insurance 2,500 2,500
Advertising 10,000 10,000
Admin. & Gen. Exps 25,000 25,000
Depreciation 17,500 17,500
260,000 205,000
Net - profit c/d 617,000 619,000
877,000 824,000 877,000 824,000

428
Workings:
10
(i) Discount received: Dept. A :
100
× 720,000 = 72,000
10
Dept. B :
100
× 520,000 = 52,000

3
(ii) Commission: Dept. A : × 55,000 = 30,000
5.5
2.5
Dept. B :
5.5
× 55,000 = 25,000

3
(iii) Salaries and wages: Dept. A :
5
× 250,000 = 150,000
2
Dept. B : × 250,000 = 100,000
5

iv. Other expenses apportioned equally.

50,000
- Rent and rates: Dept. A : = 25,000
2
50,000
Dept. B : = 25,000
2
20,000
- Advertising: Dept. A : = 10,000
2
20,000
Dept. B : = 10,000
2
5,000
- Insurance: Dept. A : = 2,500
2
5,000
Dept. B : = 2,500
2
50,000
- Admin. & Gen. Exps: Dept. A : = 25,000
2
50,000
Dept. B : = 25,000
2
35,000
- Depreciation: Dept. A : = 17,500
2
35,000
Dept. B : 17,500
2

1997/1
(a) What is departmental account?
(b) Explain the term appropriation in departmental accounts.
(c) State five purpose of preparing departmental accounts.
Answer
(a) Departmental accounts are accounts relating to many departments or units/sections of an enterprise prepared with
the motive of ascertaining their individual performance.
(b) The term appropriation in departmental accounts means the process of allocation, splitting or sharing of expenses
between the various departments using a particular method.
(c) Purposes for preparing departmental accounts:
- To ascertain each department profit or loss.
- To determine the performance of each departmental manager.
- To determine cost of purchase for each department.
- To monitor the progress of each department.
- To compare the results of the different departments.
- To ascertain unprofitable department.

429
Use the following information to answer questions 39 and 40
2008/39 to 40
Henik Plc has department A and B and has made the following information available concerning its operations:
Department A Department B
N N
Turnover 100,000 80,000
Commission N3,600
Rent N6,000
Floor Space 200m2 100m2

2008/39
How much commission was apportioned to Department A?
A. N9,600 B. N3,600 C. N2,000 D. N1,600
5
Answer: N2,000 ⎯
⎯→ 9 × 3,600 (apportioned on the basis of turnover) (c )
100,000 : 80,000
5 : 4

2008/40
Rent apportioned to Department B is
A. N4,000 B. N3,600 C. N2,000 D. N1,600
1
Answer: N2,000 ⎯ ⎯→ 3 × 6,000 (apportioned on the basis of floor space occupied) (c )
200m2 : 100m2
2 : 1
2010/9 (Theory)
Abike is the proprietress of a shop which operates two departments A and B. the following balances were presented for
the period ended 31st March, 2008.
Dr Cr
N N
Sales: Department A 150,000
Department B 100,000
Stocks 1/4/07: Department A 2,500
Department B 2,000
Purchases: Department A 118,000
Department B 82,000
Wages of sales assistants:
Department A 10,000
Department B 7,500
Sales commission:
Department A 1,500
Office salaries 7,500
Rates 1,300
Insurance 500
Electricity 1,200
Repairs to premises 250
Telephone charges 250
Cleaning 300
Accountancy fees 1,200
Office expenses 600
Stock 31/3/08: Department A 3,000
Department B 1,500
Additional information:
(i) The portion of total floor area occupied by each department was:
1
Department A…5
4
Department B..5
(ii) Apportionment of overhead is to be made as follows:
Area: rates, insurance, electricity, repairs, telephone and cleaning.
Turnover: office salaries, accountancy fees and office expenses.

430
You are required to prepare:
Departmental Trading, Profit and Loss Account for the year ended 31st March, 2008.
Note: Total columns are not required.
Solution:
ABIKE SHOP
Departmental Trading, Profit and Loss Account for the Year ended 31st March, 2008.
A B A B
D D D D
Opening stock 2,500 2,000 Sales 150,000 100,000
Add: Purchases 118,000 82,000
120,250 84,000
Less: Closing stock (3,000) (1,500)
Cost of goods sold 117,500 82,500
Gross – profit c/d 32,500 17,500
150,000 100,000 150,000 100,000

Wages of sales assistant 10,000 7,500 Gross – profit b/d 32,500 17,500
Sales commission 1,500 -
Office salaries 4,500 3,000
Rates 260 1,040
Insurance 100 400
Electricity 240 960
Repairs to premises 50 200
Cleaning 60 240
Accounting fees 720 480
Office expenses 360 240
Telephone 50 200
Total operating 17,840 14,240
expenses
Net – profit c/d 14,660 3,260
32,500 17,500 32,500 17,500

Workings: (Appropriation of Operating Expenses between department A and B)

1. Office salaries (D7,500) – Turnover basis
Dept. A: 150,000 = 3
: (3:2) 6. Cleaning (D300) – Area occupied
B: 100,000 = 2 1
Dept. A: 5 × 300 = 60
3
∴ Dept. A: × 7,500 = 4,500
5
4
2 Dept. B: 5 × 300 = 240
Dept. B: × 7,500 = 3,000
5 7. Telephone charges (D250): Area occupied
2. Rates (D1,300) – Area occupied: 1
1 Dept. A: 5 × 250 = 50
Dept. A: × 1,300 = 260
5
4
4 Dept. B: 5 × 250 = 200
Dept. B: × 1,300 = 1,040
5
3. Insurance (D500) – Area occupied: 8. Accountancy fees (D1,200): Turnover basis
1 3
Dept. A: × 500 = 100 Dept. A: × 1,200 = 720
5 5
4
Dept. B: × 500 = 400 2
Dept. B: 5 × 1,200 = 480
5
4. Electricity (D1,200) – Area occupied:
1 9. Office expenses (D600): Turnover basis
Dept. A: 5 × 1,200 = 240 3
Dept. A: 5 × 600 = 360
4 2
Dept. B: 5 × 1,200 = 960 Dept. B: 5 × 600 = 240
5. Repairs (D250) – Area occupied
1
Dept. A: 5 × 250 = 50
4
Dept. B: 5 × 250 = 200

431
2019/45 – 47
Using the following information to answer questions 45 to 47
Dept. A Dept. B
D D
Sales 16,000 24,000
Purchases 9,000 6,000
Opening stock 600 500
Closing stock 900 600
Discount allowed 800 1,200
Carriage inwards (proportion to sales) 1,600

2019/45
Carriage inwards for Dept. B is
A. D1,600 B. D960 C. D800 D. D640
Answer
D960 ⎯ ⎯→ 6 × 1,600 = D960 (B )
10

2019/46
Net-profit for Dept. A is
A. D6,340 B. D5,860 C. D4,960 D. D4,900
Answer: D5,800 ⎯ ⎯→ Gross profit – Expenses
D6660 – D800 = D5,860 (B)

2019/47
Net-profit for Dept. B is
A. D17,460 B. D16,660 C. D16,200 D. D15,940
Answ er
D15,940 ⎯ ⎯→ D17,140 – D1,200 = 15,940 (D)

Workings:
Departmental Trading and Profit and Loss Account
A B A B
Opening stock 600 500 Sales 16,000 24,000
Add: Purchases 9,000 6,000
Carriage inward (4:6) 640 960
10,240 7,460
Less: Closing stock (900) (600)
Cost of Goods sold 9,340 6,860
Gross – profit c/d 6,660 17,140
16,000 24,000 16,000 24,000
Discount allowed 800 1,200 Gross – profit b/d 6,660 17,140
Net – profit c/d 5,860 15,940
6,660 17,140 6,660 17,140

432
2014/6 NABTEB (Theory)
From the following balances of Rochas Limited, you are required to prepare departmental, trading and profit and loss
account for the year ended 31st December, 2010.
N
st
Stock at 1 January, 2010
Cosmetics 10,000
Clothing 30,000
Utensils 45,000

Sales for 2010

Cosmetics 2,800,000
Clothing 4,800,000
Utensils 4,400,000

Purchases for 2020

Cosmetics 480,000
Clothing 790,000
Utensils 950,000
Rent and Rates 635,000
Lighting and heating 1,200,000
Insurance 450,000
Carriage inwards 300,000
Carriage outwards 45,000
Administrative expenses 105,000
Wages and salaries 206,000
Fixed assets 4,500,000

Additional information:
(a) Closing stock was 20% more than the opening stock of 2009.
1
(b) Carriage outward expenses are to be apportioned 2 to utensils, the remainder shared equally between cosmetics and
clothing departments.
(c) Rent and rates, administrative expenses, wages and salaries are to be apportioned on the basis of sales.
(d) All other expenses are to be apportioned equally.
(e) Fixed assets are depreciated at 10% per annum.
Solution
ROCHAS LIMITED:
Departmental Trading and Profit and Loss Account for the year ended 31 st December, 2010
Cosmetics Clothing Utensils Cosmetics Clothing Utensils
N N N N N N
Opening stock 10,000 30,000 45,000 Sales 2,800,000 4,800,000 4,400,000
Add: Purchases 480,000 790,000 950,000
490,000 820,000 995,000
Carriage inwards 100,000 100,000 100,000
C.G.A.S 590,000 920,000 1,095,000
Less: Closing stock (12,000) (36,000) (54,000)
Cost of goods sold 578,000 884,000 1,041,000
Gross – profit c/d 2,222,000 3,916,000 3,359,000
2,800,000 4,800,000 4,400,000 2,800,000 4,800,000 4,400,000
Rent and rates 148,167 254,000 232,833 Gross–profit b/d 2,222,000 3,916,000 3,359,000
Lighting and heating 400,000 400,000 400,000
Insurance 150,000 150,000 150,000
Carriage inwards 11,250 11,250 22,500
Administrative expenses 24,500 42,000 38,500
Wages & Salaries 48,067 82,400 75,533
Depr. (Fixed Assets) 150,000 150,000 150,000
931,984 1,089,650 1,069,366
Net – Profit c/d 1,290,016 2,826,350 2,289,634
2,222,000 3,916,000 3,359,000 2,222,000 3,916,000 3,359,000

433
Workings: (Apportionment of Expenses). 1
(i) Carriage outwards (N450,000): of 45,000 to utensils,
(i) Carriage inwards (N300,000) – Equally 2
300,000 the balance (N22,500) to be divided equally between
- Cosmetics: = N100,000 cosmetics and clothing.
3
1
300,000 - Utensils: × 45,000 = N22,500
- Clothing: = N100,000 2
3 1
300,000 - Cosmetics:
2
× 22,500 = N11,250
- Utensils: = N100,000
3 1
- Clothing: × 22,500 = N11,250
2
(ii) Rent and Rates (N635,000) Basis of Sales: (7:11:12) > 30
7 (ii) Administrative expenses (N105,000) – 7:12:11
- Cosmetics: × 635,000 = N148,107 7
30 - Cosmetics: × 105,000 = N24,500
30
12
- Clothing: × 635,000 = N254,000 12
30 - Clothing: × 105,000 = N42,000
30
11 11
- Utensils: × 635,000 = N232,833 - Utensils: × 105,000 = N38,500
30 30

(iii) Lighting & Heating (N1,200,000) – Equally (iii) Wages and salaries (N206,000) – 7:12:11
7
1,200,000 - Cosmetics: × 206,000 = N48,667
- Cosmetics: = N400,000 30
3
12
1,200,000 - Clothing: × 206,000 = N82,400
- Clothing: = N400,000 30
3 11
- Utensils: × 206,000 = N75,533
1,200,000 30
- Utensils: = N400,000
3 (iv) Depreciation of fixed assets (N4,500,000) – equally
10
(iv) Insurance (N450,000) – Equally = × 4,500,000 = N450,000
100
450,000
- Cosmetics: = N150,000 450,000
3 = = N150,000 each
3
450,000 (v) Closing stock:
- Clothing: = N150,000 - Cosmetics: N10,000 + (20% of 10,000)
3
450,000
= N10,000 + 2,000 = N12,000
- Utensils: = N150,000 - Clothing: N30,000 + (20% of 30,000)
3 = N30,000 + 6,000 = N36,000
- Utensils: N45,000 + (20% of 45,000)
= N45,000 + 9,000 = N54,000
2022/6 Neco (PC) Theory
The following balances were extracted from the books of Ofisco Enterprises for the year ended 31st December, 2018.
N N
Sales:
Department x 90,000
Department y 60,000
Stock at 1st January, 2018:
Department x 1,500
Department y 1,200
Purchases:
Department x 70,800
Department y 49,200
Commission 2,100
General office salaries 3,000
Rates 900
Insurance 750
Lighting 1,800
Repairs 720
Telephone 360
Cleaning 60
Sundry expenses 210
Discount allowed 180
Advertising 690
Stationery 450
Electricity 2,460
Stock at 31st December, 2018:
Department x 1,800
Department y 900
The total floor area occupied by each department was:
2 3
Department x (5) Department y (5)
434
The following basis of apportionment should be used for the departments: commission, advertising, discount allowed, -
proportionate to sales. Discount received – proportionate to purchases. Cleaning, electricity, telephone-on the basis of
floor rate. All other expenses should be apportioned equally between the departments.

You are required to prepare:

Departmental trading, profit or loss account for the year ended 31st December, 2018.
Solution
OFISCO ENTERPRISES
Departmental Trading, Profit and Loss Account for the year ended 31st December,
2018.
X Y X Y
N N N N
Opening balance 1,500 2,000 Sales 90,000 60,000
Add: Purchases 70,800 49,200
C.G.A.S 72,300 51,200
Less: Closing stock (1,800) (900)
Cost of Goods sold 70,500 50,300
Gross – Profit c/d 19,500 9,700
90,000 60,000 90,000 60,000
Insurance 375 375
Commission (3:2) 1,260 840 Gross profit b/d 19,500 9,700
Advertising (3:2) 414 276 Discount received - -
Discount allowed (3:2) 108 72
Cleaning (2:3) 24 36
Electricity (2:3) 984 1,476
Telephone (2:3) 144 216
General office salaries 1,500 1,500
Rates 450 450
Lighting 900 900
Repairs 360 360
Sundry expenses 105 105
Stationery 225 225
6,849 6,831
Net-profit c/d 12,651 2,869
19,500 9,700 19,500 9,700
Workings:
(i) Commission (2,100) ⎯⎯→ 3:2
3
- X = 5 × 2,100 = N1,260

2
- Y = 5 × 2,100 = N840
(ii) Advertising (N690) ⎯
⎯→ 3:2
3
- 5 × 690 = N414

2
- × 690 = N276
5
(iii) Discount allowed: (N180) ⎯
⎯→ 3:2
3
- X = × 180 = N108
5
2
- Y= 5
× 180 = N72
(iv) Cleaning (N60) ⎯
⎯→ 2:3
2
- X = 5 × 60 = N24
3
- Y = 5 × 60 = N36
(v) Electricity (N2,460) ⎯ ⎯→ 2:3
2
- X = 5 × 2,460 = N984
3
- Y = 5 × 2,460 = N1,476

435
(vi) Telephone (N360) ⎯
⎯→ 2:3
2
- X = × 360= N144
5

3
- Y = 5 × 360 = N216

3,000
(vii) General Office Salaries (equally) N3,000 = = N1,500
2
900
(viii) Rates (N900) ⎯
⎯→ equally = 2
= N450

750
(ix) Insurance (N750) ⎯
⎯→ equally = = N375
2

900
(x) Lighting (N1800) ⎯
⎯→ equally = = N450
2

720
(xi) Repairs (N720) ⎯
⎯→ equally = = N360
2

210
(xii) Sundry Expenses (N210) ⎯
⎯→ equally = = N105
2
450
(xiii) Stationery (N450) ⎯
⎯→ equally = 2
= N225

2022/55 Neco
Lighting and heating in departmental account is based on apportioning using
A. direct analysis B. floor area C. number of staff employed
D. purchases E. turnover
Answer: Floor area (B)

2008/42 Neco
The following methods are used as basis of apportionment of expenses in departmental accounts except
A. direct analysis B. floor space C. number of articles sold
D. profit of each department E. turnover
Answer: Direct analysis (A)

2008/43 Neco
In departmental accounts, arrangements whereby goods purchased by one department is sold in another department is
called _____ transfer.
A. inter-continental B. inter-departmental C. internal D. international E. inter-trading
Answer: Inter-departmental (B)

2008/44-45 Neco
Departmental Trading Account for the year ended 31st December, 2004
Jewelry Footwears Jewelry Footwear
N N N N
Opening stock 40,000 50,000 Sales 200,000 250,000
Purchases 130,000 125,000
170,000 175,000
Less: Closing stock (20,000) XXXX
150,000 160,000
Gross-profit c/d XXXX 90,000
200,000 250,000 200,000 250,000

2008/44
The value of closing stock for footwear is
A. N90,000 B. N50,000 C. N20,000 D. N15,000 E. N10,000
Answer: N15,000 ⎯ ⎯→ C.G.A.S – C.G.S
N175,000 – N160,000 = N15,000 (D)

436
2008/45
The gross profit of Jewelry is
A. N90,000 B. N50,000 C. N20,000 D. N15,000
Answer: N 50,000 ⎯ ⎯→ Sales – Cost of goods sold
N200,000 – N150,000 = N50,000
2006/54–57 Neco
CHINATU ANYANWU ENTERPRISES
Departmental Trading, Profit and Loss Account for the year 31st December, 2004
A B C A B C
N N N N N N
Opening stock 16,000 30,000 10,000 Sales 120,000 140,000 80,000
Add: Purchases 44,000 60,000 30,000
60,000 90,000 40,000
Less: closing stock (10,000) (20,000) (15,000)
Cost of goods sold 50,000 70,000 25,000
Gross – profit c/d 70,000 70,000 55,000
120,000 140,000 80,000 120,000 140,000 80,000

2006/54
What is the total value of opening stock of department ‘B’ and sales of department ‘C’?
A. N90,000 B. N110,000 C. N200,000 D. N220,000 E. N260,000
Answer: N110,000 ⎯ ⎯→ N30,000 + 80,000 = N110,000 (B)
2006/55
Calculate the total amount of purchases and gross profit of department A, B and C.
A. N200,000 B. N215,000 C. N329,000 D. N450,000 E. N500,000
Answer: N329,000 ⎯⎯→
Total Purchases: A + B + C
= N44,000 + N60,000 + N30,000 = N134,000

Total Gross-profit: A + B + C
= N70,000 + N70,000 + N55,000 = N195,000
= N134,000 + N195,000 = N329,000 (C)
2006/56
What is the ratio of department ‘B’ sales to its gross-profit?
A. 2:1 B. 2:2 C. 3:1 D. 3:2 (E) 4:1
Answer: 2:1 ⎯ ⎯→ N140,000 : N70,000 (A)
2 : 1
2006/57
What is the total value of cost of goods sold for departments A, B and C?
A. N95,000 B. N130,000 C. N145,000 D. N180,000 E. N200,000
Answer: N145,000 ⎯ ⎯→ A + B + C
N50,000 + N70,000 + N25,000 = N145,000 (C)

437
1989/6
Sule runs two departments for Suya and Tea. The following balances were extracted from the ledgers at 31st December,
1999.
Dr Cr
N N
Sales: Suya 5,000
Tea 4,500
Stocks 1/1/86 : Suya (Raw meat) 200
Tea 250
Purchases: Raw meat for suya 2,000
Ingredients for suya 500
Tea bags 1,000
Milk and sugar for tea 600
Sundry expenses for suya 300
Salaries of Assistant: Suya 600
Tea 400
Electricity 240
Cleaning 110
General expenses 200
Debtors 3,100
9,500 9,500

You are given the following additional information:

(a) Stocks at 31st December, 1986:
Suya (raw meat) N50
Tea bags 40

(b) Electricity, cleaning and general expenses are apportioned equally between the two departments.
Prepare a departmental trading, profit and loss account for the year ended 31st December, 1986 (Total column is not
required)
Solution
SULE
Departmental Trading, Profit and Loss Account, 31st December, 1986
SUYA TEA SUYA TEA
N N N N
Opening stock 200 250 Sales 5,000 4,500
Add: Purchases:
- Raw meat 2,000 -
- Ingredients 500 -
- Tea bags - 1,000
- Milk and sugar - 600
Goods available for sale 2,700 1,850
Less: Closing stock (50) (40)
Cost of goods sold 2,650 1,810
Gross – profit c/d 2,350 2,690
5,000 4,500 5,000 4,500
Salaries 600 400 Gross – profit b/d 2,350 2,690
Sundry expenses 300 -
Electricity 120 120
Cleaning 55 55
General expenses 100 100
1,175 675
Net – profit c/d 1,175 2,015
2,350 2,690 2,350 2,690

438
Notes:
(i) Electricity (N240) ⎯⎯→ to be apportioned equally
240
- Suya: 2 = N120
240
- Tea: = N120
2
(ii) Cleaning (N110) ⎯
⎯→ To be apportioned equally:
200
- Suya: 2 = N100
200
- Tea: = N100
2
(iii) General Expenses (N200) ⎯
⎯→ To be shared equally:
200
- Suya: 2 = N100
200
- Tea: 2
= N100
(iv) Net – profit: Suya – N2,350 – 1,175 = N1,175
Tea – N2,690 – 675 = N2,015

2006/34 Neco Exercise 17.1

Which of the following is an advantage of departmental accounting?
A. all departments operates at a profit B. any department operating at a loss will be identified
C. gross profit of each department can be ascertained to compare their performance
D. managers of every departments are paid at the end of the year
E. turnover of each department is determined by the total head office
2003/11 Exercise 17.2
Which of the following is the basis for apportioning rent among departments?
A. sales B. floor area C. no. of employees D. direct cost of labour
2013/42 UTME Exercise 17.3
The objective of departmental account is to
A. ascertain the cost of running the organization B. ascertain the amount of profit or loss for each department
C. ascertain the amount of profits or losses for the enterprises D. offset the loss of each department
2005/25-29 Neco Exercise 17.4
Ijeoma Okafor departmental trading, profit and loss account for the year ended 31st December, 2004
Men’s wears Ladies wears Men’s wears Ladies wears
N N N N
Opening stock 30,000 20,000 Sales 300,000 500,000
Purchases 120,000 240,000
150,000 260,000
Less: closing stock XXX XXX
28,000 130,000
Wages 8,000 20,000
Cost of sales 36,000 XXX
Gross – profit c/d XXX XXX
300,000 500,000 300,000 500,000

25. What is the value of closing stock for men’s wear department?
A. N260,000 B. N150,000 C. N130,000 D. N122,000 E. N100,0000
26. What is the amount of closing stock for ladies wears department for the period?
A. N260,000 B. N150,000 C. N130,000 D. N122,000 E. N100,000
27. The cost of sales for ladies wears department is
A. N100,000 B. N122,000 C. N130,000 D. N150,000 E. N260,000
28. Calculate the value of gross profit for men’s wears department
A. N500,000 B. N400,000 C. N350,000 D. N300,000 E. N264,000
29. What is the gross-profit for ladies wears departments?
A. N264,000 B. N300,000 C. N350,000 D. N400,000 E. N500,000

439
2018/45 Exercise 17.5
The basis of apportionment of insurance on building in departmental account is
A. floor space occupied by the department B. purchase cost of the building C. value of the building
D. number of offices in the building
2011/6 Exercise 17.6
The following information was taken from the books of Adebola trading company which has three departments:

Books Electricals Clothing

D D D
Stock – (01/01/2010) 120,000 180,000 240,000
Purchases 3,720,000 4,380,000 3,240,000
Stock – (31/12 /2010) 240,000 360,000 480,000
Sales 4,800,000 5,400,000 4,200,000
Wages and salaries 120,000 60,000 180,000
Furniture 360,000 180,000 240,000
Motor van 300,000 360,000 240,000
Additional information:
(i) The following expenses cannot be traced to any particular department:
Insurance D180,000
Rent D120,000
Advertising D60,000
General expenses D900,000
(ii) The company decided to apportion the insurance and rent in proportion to sales. Advertising and general
expenses are to be apportioned in the ratio 2:1:1 respectively.
You are required to prepare a Departmental Trading and Profit and Loss Account for the year ended 31st December, 2010.
Note: Total columns are not required.

2018/3 NABTEB (Nov) Exercise 17.7

Aminat Abiodun operates the Lagos Departmental Stores, selling provisions, clothing and hardware. The following
details relate to the business for the year end 31st December, 1998.
N
Stock at 1st January, 1998:
Provisions 10,000
Clothing 30,000
Hardware 45,000
Sales for 1998
Provisions 2,800,000
Clothing 4,800,000
Hardware 4,400,000
Purchases for 1998
Provisions 480,000
Clothing 790,000
Hardware 950,000
Rent and rates 635,000
Lighting and cooling 1,200,000
Insurance 450,000
Carriage inwards 300,000
Carriage outwards 45,000
Administration expenses 105,000
Wages and salaries 206,000
Fixed assets 4,500,000
Additional information
(a) Closing stock was 20% more than the opening stock of 1997.
1
(b) Carriage outwards expenses are to be apportioned to hardware, the reminder equally between provision and clothing.
2
(c) Rent and Rates, Administration expenses and wages & salaries are to be apportioned on the basis of sales.
(d) All other expenses are to be apportioned equally.
(e) Fixed assets are depreciated at 10% per annum.
You are required to prepare Departmental, Trading and Profit and Loss Account to show departmental and total profit.

440
2000/8 (Nov) Exercise 17.8
The following balances have been extracted from the books of ADE ADE Enterprises for the ended 31st March, 1999.
N N
Sales: Department A 25,000
B 12,500
C 17,000 54,500

Purchases: Department A 12,000

B 8,000
C 10,000 30,000
Delivery expenses 1,800
Insurance 2,500
Rent 4,200
Salaries and wages 4,000
Administrative and general expenses 3,000
Advertisement 4,500
Discount received 5,000

Opening Stock: Department: A 2,100

B 450
C 600

Closing Stock: Department: A 500

B 940
C 680
Additional information:
(a) Expenses are to be apportioned as follows:
Delivery expenses – proportionate to sales.
Salaries, insurance and rent – 6:6:3
Other expenses are to be apportioned equally.

(b) Discount received are to be apportioned according to purchases.

You are required to prepare a Departmental, Trading and Profit and Loss Account for the year ended 31st March, 1999.
NOTE: Total columns are not required.
1992/20 – 23
NAGODE (NIG) LTD.
Departments: A, B and C
(i) Rent for the year N3,000
(ii) Selling and distribution expenses N1,800
(iii) Departments Turnover Floor Space (Sqm3)
A N40,000 120
B 60,000 80
C 80,000 100
1992/20 Exercise 17.9
How much rent is apportioned to dept. A?
A. N2,000 B. N1,800 C. N1,200 D. N1,000 E. N800
1992/21 Exercise 17.10
How much rent is apportioned to Dept. C
A. N2,000 B. N1,800 C. N1,200 D. N1,000 E. N800
1992/22 Exercise 17.11
How much of selling and distribution expenses is apportioned to department B?
A. N1,800 B. N800 C. N600 D. N480 E. N400
1992/23 Exercise 17.12
How much of selling and distribution expenses is apportioned to department A?
A. N1,800 B. N800 C. N720 D. N600 E. N400

441
1992/4 Exercise 17.13
The following balances were extracted from the books of Goody Enterprises for the year ended 31st December, 1990.
N N
Insurance 800
Commission paid 3,500
Rents and rates 2,460
Delivery expenses 700
Purchases: Department A 30,000
Department B 45,000
Department C 25,000 100,000

Sales: Department A 52,000

Department B 68,000
Department C 30,000 150,000

Administrative expenses 4,560

Discount received 770
Salaries 18,300
Advertising 1,210
Depreciation 2,100

Opening stock: Department A 7,000

Department B 12,000
Department C 3,000 22,000

Closing stock: Department A 10,000

Department B 15,000
Department C 5,000 30,000

Additional information:
(a) Salaries, depreciation, rents and rates, administration and general expenses – equally.
(b) Discount received – purchases.
(c) Advertising, commission and delivery expenses – sales.
(d) Insurance – ratio 5:3:2 to A, B and C respectively.
You are required to prepare departmental trading, profit and loss account for the year ended 31st December, 1990.
1995/2 Exercise 17.14
Abike Amuhiduri is the proprietress of a shop selling books, periodicals, newspapers and children’s games and toys. For the
purpose of their accounts, she decided to divide her business into two departments. Department A: Books, periodicals and
newspapers. Department B: Games, toys and fancy goods. The following balances were extracted from her nominal ledger
on 31st March, 1993.
Dr Cr
N N
Sales – Department A 150,000
Department B 100,000
Stock 1/4/92: Department A 2,500
Department B 2,000

Purchases: Department A 118,000

Department B 82,000

Wages of Sales Assistant: Department A 10,000

Department B 7,500
Newspaper delivery wages 1,500
General office salaries 7,500
Rates 1,300
Insurance 500
Electricity 1,200
Repairs to premises 250
Telephone 250
Cleaning 300
Accounting and audit fees 1,200
General office expenses 600
Stock 1/3/93: Department A 3,000
Department B 1,500
The portion of the total floor area occupied by each department was:
- Department A – one fifth
- Department B – four – fifth
442
You are required to:
Prepare a Departmental Trading, Profit and Loss Account of Abike Amuhiduri for the year ended 31 st March 1993.

Note: Apportionment should be made using the following bases:

Area – Rates, insurance, electricity, repairs, telephone and cleaning.
Turnover – General office salaries, accountancy and audit fees and general office expenses.
2003/41 – 42 (Nov)
Dept. A Dept. B
N N
Sales 100,000 150,000
Cost of sales 60,000 80,000
Promotional expenses 2,500 3,200
Area in sq metres 50 30
Number of employees 6 8
Other expenses:
Staff welfare 21,000 8,000

2003/41 Exercise 17.15

The net profit for Department A is
A. N66,800 B. N51,800 C. N37,000 D. N23,500

2003/42 Exercise 17.16

The net profit for Department B is
A. N66,800 B. N51,800 C. N37,500 D. N23,500

2000/8 Exercise 17.17

The following balances have been extracted from the books of ADE ADE Enterprises for the year ended 31 st March, 1999.
N N
Sales: Department A 25,000
Department B 12,500
Department C 17,000 54,500

Purchases: Department A 12,000

Department B 8,000
Department C 10,000 30,000

Delivery expenses 1,800

Insurance 2,500
Rent 4,200
Salaries and wages 4,000
Administrative and general expenses 3,000
Advertisement 4,500
Discount received 5,000
Opening stock: Department A 2,100
Department B 450
Department C 600 3150

Closing stock: Department A 500

Department B 940
Department C 680 2120

Additional information:
(a) Expenses are to be apportioned as follows:
Delivery expenses – Proportionate to sales
Salaries, insurance and rent – 6:6:3
Other expenses are to be apportioned equally.

(b) Discount received are to be apportioned according to purchases.

You are required to prepare a Departmental Trading and Profit and Loss Account for the year ended 31st March, 1999.

443
Chapter Eighteen

ACCOUNTING FOR LIMITED COMPANIES

LIMITED LIABILITY COMPANY
Limited Liability Company are also called joint stock companies. A limited liability company is a business organization
that has some benefits of a corporation and some of a limited partnership. In other words, it is an entity type that gives
owners the benefits of owing a corporation while maintaining the advantages of limited partnership. For example,
limited liability Company, usually called members are protected with limited liability just like if they were shareholders
in a corporation. Third parties cannot attack owners’ personal assets because of this protection. Also, members can
participate directly in the management of the company.

TYPES OF COMPANIES
(a) Limited companies: This type of company fall into two (2) categories:
(i) Companies limited by shares: As the name implies, the liability of the company is limited to the share price
of each shareholder. Personal assets of the shareholders would not be disturbed; their responsibilities are
limited to their debt of the company up to their share price only.
(ii) Companies limited by guarantee: Companies limited by guarantee do not issue shares or have shareholders.
They are usually no profit organizations. If in the case of profit, the company distributes it among its
members if it is not a charitable organization. If the company goes bankrupt, then their liability is limited
to the amount they have pre-decided on the memorandum of the company. Guarantors are the members of
the companies limited by guarantee.
(b) Unlimited companies: These are very common in our business environment. These are companies in which the
risk/loss (liabilities) of members goes beyond the amount remaining unpaid on the shares allotted to them during
the event of liquidation.
(c) Public limited company: A public limited company is a company limited by shares which name ends with the
word “PLC”. Its share can be quoted on the stock exchange or may not be quoted.
(d) Private limited company: A private limited company is a company which rights to transfer shares is restricted,
numbers of members restricted to fifty (50) and public cannot subscribe for its shares. A private limited company
name will end with the word “Ltd”.

CHARACTERISTICS OF A LIMITED LIABILITY COMPANY

1. Legal Personality: A limited liability company has all the attributes of a person. The fundamental attribute of
corporate personality is that the company is a legal entity distinct from its members. It can sue and be sued.
2. Limited Liability: It offers limited liability protection, Limited Liability Company members are only responsible
for their own actions and they cannot be held responsible for torts and civil wrongs committed by other members of
the company. Due to the limited liability feature, it becomes easier to scale up the business without risking your
personal assets.
3. Separate Legal Existence: Limited Liability Company has a separate legal identity from its members. In case of
an unincorporated partnership, the owners own collectively as a group of individuals. However, it can legally
transact business and enter into contracts in its own name. It can own property and institute lawsuits as a separate
legal entity.
4. Publication of Annual Accounts: The financial statements should be prepared, audited and published in dailies
annually.
5. Perpetual succession: The Company can exist for a long period. The death of a member will not affect the existence
of the company because a company once registered becomes an entity different from the owners. `
6. Access to Capital Investment: It is very easy for a company to raise more capital by means of subscription from
members of the public.
7. Retained Earnings: A limited liability company can plough back part of its profit and the rest will be distributed
as dividend.

CLASSIFICATION OF COMPANIES BASED ON SHARES

A company limited by shares are classified into:
1. Private Limited Liability Company.
2. Public Limited Liability Company.

1. Private Limited Liability Company: A private company is formed by an association of specific number of people.
It is defined by section 22 of CAMA 1990 as a company, which by its Articles limits the number of its members
fifty and restricts the right to transfer its shares.

444
Features of Private Company
1. Two to fifty people are required to set it up.
2. Restricts the transfer of its shares.
3. It must be stated in its memorandum to be a private company.
4. It prohibits any invitation to the public to subscribe to its shares.
5. Appointment of directors may be done in a simple way.
6. Its shares are not quoted on the stock exchange market.

2. Public Limited Liability Company: This is any other company that does not qualify under the private company,
Sections of CAMA defined it, “as a company which allows the public to subscribe to its shares and whose shares
are transferable”.

Features of a public company

1. The word “public” must be stated in the memorandum.
2. Does not restrict the right to transfer its shares.
3. It must be formed at least seven people but no limit to number of shareholders.
4. It can place invitation to the public to subscribe for any shares of the company.
5. Its shares are quoted on the stock market.
6. It must publish its annual accounts.

ESSENTIALS IN THE FORMATION OF A COMPANY

The Companies and Allied Matter Act (CAMA) provides any seven (7) or more persons may form a public limited
company, and any two (2) or more a private company, provided they apply to the CORPORATE AFFAIRS
COMMISSION (C.A.C) and company with the requirements in the Act.

For a company to be registered, it must follow the following procedures:

(i) Get the promoters: Promoters are individuals who conceive the idea of a firm and requirements of the venture.
(ii) Submission of relevant and necessary documents: The following documents will be filed and submitted to the
registrar of companies for due consideration and verification. Memorandum of Association, Article of Association
and a statement of nominal capital.
(iii) Logging and stamping of documents with the registrar of companies for verification.
(iv) Issuance of certificate of registration or incorporation.

THE CONSTITUTION OF COMPANIES

A company constitution is a legal document that defines how a company can operate. It also sets out the rights and
duties of people in the company, such as members, directors and the company secretary. A constitution can be adopted
when you register your company, after registration, or not at all.

FORMATION OF COMPANIES
Before a limited liability company could be registered, the promoters that conceive the idea of setting of the business
will submit to the registrar of companies, the following documents
(i) Memorandum of association.
(ii) Article of association.
(iii) Address of the registered office.
(iv) Statement of authorized share capital.
(v) List of people that have agreed to be directors.
(vi) Declaration from a solicitor or lawyer.

MEMORANDUM OF ASSOCIATION
This contains the general matters of the company (external rules of the company) such as the following:
- The name of the company ending either with the word “Ltd” or “Plc”.
- Where the registered office is situated.
- The objects for which the company is formed.
- That the liability of the company is limited.
- The account of the share capital with which the company proposes to be registered.
- The amount of authorized capital.

445
ARTICLES OF ASSOCIATION
This contains the internal regulations of the company such as:
- Regulation of transfer of shares.
- Holding of meetings.
- The rights and responsibilities of shareholders.
- The duties and powers of directors.
- How directors may be appointed.
- Other matters of internal regulations.

PROSPECTUS
This is a document issued by limited companies inviting the public (investors) to subscribe to its shares. It has the
following contents:
- The name of the company.
- The historical background of the company.
- The address of the company.
- The number of the registered capital.
- The number of issued capital.
- The closing date of the shares made available to the members of the public.
- A five-year financial summary.
- The name of the issuing house.
- The nominal value of the share or debenture.
- Procedures for applications and allotment of shares or debenture.
- Market value of the shares or the debenture.

CERTIFICATE OF INCORPORATION
This is a document which gives legal backing or authority to the company to operate as a legal personality. It is the
responsibility of the company’s registrar to issue this document after been satisfied with all the relevant documents
submitted.

SHARE CERTIFICATE
This is a document showing ownership of shares in a company.

CAPITAL (SHARE CAPITAL)

Share capital is the money a company raises by issuing common or preferred stock. Share capital is reported by a
company on its balance sheet in the shareholder’s equity section. The information may be listed in separate line items
depending on the source of the funds. These usually include a line for common stock, another for preferred stock, and a
third for additional paid-in-capital.

Common stock and preferred stock shares are reported at their par value at the time of sale. In modern business, the
“par” or face value is a nominal figure. The actual amount received by a company in excess of par value is reported as
“additional paid-in-capital”.

The amount of share capital reported by a company includes only payments for purchases made directly from the
company. The later sales and purchases of those shares and the rise or fall of their prices on the open market have no
effect on the company’s share capital.
(i) Authorized capital: This is the total amount of shares which the company is empowered to issue to the public for
subscription.
(ii) Issued capital: This is the part of the authorized capital which has been issued out, whether they have been fully
paid or not.
(iii) Paid up capital: This is the actual amount paid by members in respect of their shares.
(iv) Called up capital: This is the amount due to the company in respect of shares issued.
(v) Capital invested: This represent the actual amount of money(s) which brought into the business by the proprietor
from his outside interests.
(vi) Capital employed: This is the effective amount of money that is being used in the business.
(vii) Working capital: This is the excess of current assets over the current liabilities.
(viii) Calls in arrears capital: This is the amounts called for but not yet received.
(ix) Calls in advance capital: This is the amount money received prior to payment being requested.
(x) Uncalled up capital: This is the total amount which has not been called up on the issued share capital.

446
TYPES OF SHARES
A share can be defined as a unit of a capital or ownership/investors interest in a company.
(a) Preference shares: These are shares which gives preferential right to their holders. The preference is the right of
fixed dividend out of annual profits before any dividend can be paid to other shareholders. We have:
- Cumulative preference shares.
- Participating preference shares.
- Redeemable preference shares
(b) Ordinary shares: These are shares which did not give any preferential right to their holders. The holders of such
shares can only receive dividend after every other categories of shareholders have been settled. Ordinary
shareholders are the real owner of the company. We have:
- Preferred ordinary shares.
- Deferred ordinary shares.
(c) Debentures shareholders: This is a person who lends money to a limited liability company. Debenture
shareholders are creditors to the company. They are the first class of shareholders to pay.

ISSUE OF SHARES
As mentioned above, shares represent the units of capital or ownership of a limited liability company. Shares can be
issued by companies on the following terms or methods:
(a) Shares issued at par: This is when shares are issued at the actual price, i.e. the nominal price is equal to the issuing
price.
(b) Shares issued at discount: This is when shares are issued or quoted at a price below the nominal price.
(c) Shares issued at premium: This is when shares are issued at a price above the nominal price.

FINAL ACCOUNT OF A COMPANY

The final accounts of a registered company have three (3) parts. The trading, profit and loss account and an appropriation
account. Company’s account is prepared in such a way that some of the information is not disclosed in the body of the
account but rather attached to the account as “note”. This is called a PUBLISHED ACCOUNT. The Appropriation
account is the account where the profit after tax is shared (i.e. appro priated).

2014/3 NABTEB
The excess of current assets over current liabilities is
A. issued capital B. authorized capital C. nominal account D. working capital
Answer: Working capital (D)

2009/21
The document making a public offer for the sale of a company’s share is
A. memorandum of association B. articles of association C. prospectus D. certificate of incorporation
Answer: Prospectus (C)

2009/8
A document which acknowledges that a company owes a person a stated sum of money with an agreement to pay a
fixed rate of interest periodically is
A. share certificate B. allotted certificate C. preference certificate D. debenture certificate
Answer: Debenture certificate (D)

2001/43
Issue of prospectus is an invitation to members of the public to
A. subscribe for shares B. register a company C. redeem shares D. liquidate a company
Answer: Subscribe for shares

2015/39
The document which sets out the internal arrangement for the proper management of a company is the
A. prospectus B. articles of association C. memorandum of association D. certificate of incorporation
Answer: Articles of association (B)

2008/58 Neco
Shares are said to be issued at a premium when they are issued
A. above par value B. above N1.00 per share C. at a discount D. below par value E. below N1.00 per share
Answer: Above par value

447
2006/11-13 (Nov)
Use the following information to answer questions 11 to 13
Authorized capital:
100,000 Ordinary Shares @ N20 each
100,000 10% Preference Shares @N10 each.
Issued capital:
80,000 Ordinary Shares @N30 each fully paid
50,000 10% Preference Shares @N10 each fully paid
11. The share premium is
A. N3,000,000 B. N2,400,000 C. N2,000,000 D. N800,000 Answer: N800,000 → [N30 – (20 × 80,000 shares)]

12. The preference share dividend payable is

10
A. N500,000 B. N100,000 C. N50,000 D. N5,000 Answer:N5,000 → (100 × 50,000 shares)

13. The unissued ordinary share capital is

A. N2,000,000 B. N600,000 C. N400,000 D. N200,000 Answer: N400,000 → (N20 × 20,000 shares)

2000/18
Expenses incurred when incorporating a company are
A. preliminary expenses B. selling expenses C. administrative expenses D. financial expenses
Answer: Preliminary expenses (A)

2016/2 Neco
An ordinary share of N1 was issued at N2. The share was issued at
A. discount B. loss C. par D. premium E. profit Answer: Premium (D)

2010/59 Neco
A class of preference shares in which dividend rights are carried forward is known as
A. cumulative B. floating rate C. issued D. participating E. redeemable
Answer: Cumulative (A)

1996/2 (Nov)
Shareholders who are the owners of the company and whose dividends are not fixed are:
A. redeemable preference shareholders B. ordinary shareholders C. cumulative preference shareholders
D. non – cumulative preference shareholders E. participating preference shareholders
Answer: Ordinary shareholders (B)

2019/24
Companies issued shares to the public in order to
A. reduce the number of directors B. reduce the number of shareholders C. raise capital D. general profit
Answer: Raise capital (C)

2014/44 UTME
Payments of shares in excess of amount offered give rise to
A. subscription in advance B. revenue reserve C. capital reserve D. calls-in-advance
Answer: Subscription in advance (A)

1997/41 UME
Share premium can be used to
I. Write off discount on shares III. Pay dividends. .
II. Give loans to directors. IV. Pay company’s formation expenses
A. I and IV only B. I and III only C. II and III only D. III and IV only Answer: I and III only (B)

1997/42 UME
A company has 5% debentures worth N500,000, ordinary share capital N200,000 and preference shares N1,500,000.
If the company made a profit of N1,000,000, the debenture interest would amount to
A. N1,000,000 B. N500,000 C. N50,000 D. N25,000
5
Answer: × N500,000 = N25,000 (D)
100

448
1997/43 UME
Alabede (Nig.) Limited issued 50,000 ordinary shares of N1 each at a mark value of N2.50 each. The share premium is
A. N125,000 B. N100,000 C. N75,000 D. N50,000
Answer: (N50,000 × N1.50 = N75,000) (C)

1999/42 UME
Under which of these conditions can a company issue shares at discount?
I. A resolution must be passed at a general meeting III. The share must have existed for at least six years
II. The amount of discount must be stated in the resolution IV. On the order of court
A. I, II and III only B. I, II and IV only C. I, II and IV only D. II, III and IV only
Answer: I, II and III only (A)

2000/27 UME
Didi Ltd offered 10,000 ordinary shares of N1.50 each at a discount of 2% which were fully subscribed with regard to
the offer above.
A. shares are never offered at a discount; the offer is invalid
B. the value of shares in the capital account will be lowered by 2%
C. the company incurs a loss to the tune of 2% of the offer
D. each of the subscribers losses 2% of investment
Answer: The company incurs a loss to the tune of 2% (C)

2021/31 – 32 Neco
Larry Limited has 4,000,000 ordinary shares of 50k each and 150,000 5% preference shares of N1 each fully paid.
N
Net – profit for the year 90,000
Interim dividends paid:
Ordinary shares 25,000
Profit and loss appropriation b/f 10,000
Goodwill written off 1,000

31. The amount of preference shares dividends payable at the end of the year is
A. N27,500 B. N25,000 C. N20,000 D. N10,000 E. N7,500
Answer
5
100
× 150,000 = 7,500 (E)

32. At the end of the period, what is the balance of the profit and loss appropriation account?
A. N100,000 B. N90,000 C. N75,000 D. N74,000 E. N66,500
Answer: N100,000 – N26,000 = N74,000 (D)

Workings:
Dr Appropriation Account Cr
N N
Interim ordinary dividend 25,000 Net-profit c/d 90,000
Goodwill written off 1,000 Net-profit b/d 10,000
Retained profit 74,000 ________
100,000 100,000

2021/17 Neco
Which of these is NOT a source of capital to companies?
A. Bank loan B. Capital reserves C. Debentures D. Personal savings D. sales of shares
Answer: Personal savings (D)

2021/53 Neco
That portion of issued capital that is required for payment at a particular time is _____ capital.
A. authorized B. called-up C. issued D. paid-up E. uncalled
Answer: Paid – up (B)

449
2020/49
The excess of net assets acquired over purchase consideration is
A. capital reserve B. goodwill C. purchase price D. discount
Answer: Capital reserve (A)

1998/27
Payment for shares in excess of amount demanded gives rise to
A. dividend warrant B. revenue reserve C. capital reserve D. calls-in-advance
E. calls-in-arrears
Answer: Calls-in-advance (D)

1998/36
When a share is sold for less than its nominal value, the difference is debited to
A. share premium account B. share discount account
C. profit and loss account D. capital reserve account
Answer: share discount account (B)

1999/25
Dividend proposed by a company is shown in its balance sheet as
A. current assets B. current liability C. long-term liability D. fixed asset
Answer: Current liability (B)

1999/43 – 44
Umana Ltd, issued 200,00 shares at 1.00 each out of its authorized share of capital of N300,000 at N1.00 each. At the
end of the first call, all shareholders paid in full, except for one shareholder who owes N10,000.

1999/43
The company’s paid – up capital is
A. N310,000 B. N290,000 C. N210,000 D. N190,000
Answer: N190,000 ⎯ ⎯→ N200,000 – N10,000 (D)

1999/44
The unissued capital of the company is
A. N310,000 B. N300,000 C. N210,000 D. N100,000
Answer: N100,000 ⎯ ⎯→ N300,000 – (200,000 × N1.00) (D)

1999/45
The total share capital which a company would be allowed to issue is known as
A. issued share capital B. authorized share capital C. working capital D. fixed capital
Answer: Authorized share capital (B)

2000/10
In a bonus issue of one new share for every four held, a holder of 100,000 shares will get additional shares of
A. 50,000 B. 25,000 C. 20,000 D. 10,000
100,000
Answer: 25,000 ⎯ ⎯→ = 25,000 bonus shares (B)
4

2001/9
Ikemesit Enterprises Limited has an authorized share capital of N200,000 divided into 160,000 ordinary shares of N1.00
each and 40,000 6% preference shares of N1.00 each. 120,000 of the ordinary shares had been issued and fully paid,
while all the preference shares were issued and fully paid. The non-profit after taxation for the year ended 31st December,
1999 was N49,000. The Profit and Loss Account had a credit balance of N24,000 as at 1st January, 1999.
Additional information:
(a) Write off preliminary expenses N1,700.
(b) Transfer N6,000 to general reserve and N4,000 to capital reserve.
(c) Half of the dividend due on the preference share had been paid in July, 1999.
(d) An interim dividend of 5% had been paid on the ordinary shares in September, 1999, and the directors have
proposed a final dividend of 10%.
You are required to prepare the:
(i) Appropriation Account; and
(ii) Balance Sheet extract as at 31st December, 1999.
450
Solution:
(i)
IKEMESIT ENTERPRISES LIMITED
Profit and Loss (Appropriation) Account, 31st December, 1999
N N
Preliminary expenses 1,700 Net-profit b/d 49,000
Transfer to reserves: Retained profit b/f 24,000
- General reserve 6,000
- Capital reserve 4,000

Interim dividend paid:

- Ordinary share 6,000
- Preference share 1,200

Final dividend paid:

- Ordinary share 12,000
- Preferable share 1,200
32,100
Unappropriated profit c/d 40,900
73,000 73,000

Notes:
(i) Interim dividend paid:
1 6 1
- Preference share: ( × 40,000) = 2 (2,400) = N1,200
2 100
5
- Ordinary share: × 120,000 = 0.05 × 120,000 = N6,000
100

(ii) Final proposed dividend:

1 6 1
- Preference share: ( × 40,000) = (2,400) = N1,200
2 100 2
10
- Ordinary share: × 120,000 = 0.1 × 120,000 = N12,000
100

(b)
IKEMESIT ENTERPRISES
Balance sheet extract as at 31st December, 1999
FINANCED BY: N N
Authorized share capital:
40,000 6% preference shares @ N1 each 40,000
160,000 ordinary shares @ N1 each 160,000
200,000

Issued and fully paid capital:

40,000 6% preference shares @ N1 each 40,000
120,000 ordinary shares @ N1 each 120,000
160,000
Reserves:
Capital reserves 6,000
Revenue reserves 4,000
Unappropriated profit 40,900 50,900
Shareholders fund 210,900

Current liabilities:
Proposed dividends:
- Preference shares 1,200
- Ordinary shares 12,000 13,200
224,100

451
2002/24
When shares are oversubscribed, the promoter may decide to scale down. When this is done the shares are issued
proportionally.
A. on pro-rata B. at discount C. at par D. at premium
Answer: on pro–rata ⎯ ⎯→ For example, a subscriber for share subscribe for 1,000 shares but he/she is allocated 50
shares for every 100 applied for. (A)

2002/7
DATA LTD. is issuing 10,000 ordinary shares of N1.00 each payable 0.10 on application, N0.20 on allotment, N0.40
on the first call and N0.30 on the Second Call.

Applications were received for 15,500 shares. A refund of the money is made in respect of 500 shares while for the
remaining 15,000 shares applied for an allotment is to be made on the basis of 2 shares for every 3 applied for. The
excess application monies are set off against the allotment monies.

You are required to prepare:

(a) Bank Account;
(b) Application and Allotment Account;
(c) First Call Account;
(d) Second Call Account;
(e) Ordinary Share Capital Account;
Solution
DATA LIMITED
(a)
Dr Bank Account Cr
N N
Application 1,550 Application and allotment 50
Allotment 1,500 Balance c/d 10,000
First call 4,000
Second call 3,000
10,050 10,050
Balance b/d 10,000

(b)
Dr Application and Allotment Account Cr
N N
Bank 50 Bank 1,550
Ordinary Share Capital 3,000 Bank 1,500
3,050 3,050

(c)
Dr First Call Account Cr
N N
Ordinary share capital 4,000 Bank 4,000

(d)
Dr Second Call Account Cr
N N
Ordinary share capital 3,000 Bank 3,000

(e)
Dr Ordinary Share Capital Account Cr
N N
Balance c/d 10,000 Application and allotment 3,000
First call 4,000
Second call 3,000
10,000 10,000
Balance b/d 10,000

452
Notes:
(i) Total money received on application: N0.10 × 15,500 = N1,550
15,000
(ii) Total money received on allotment: N0.20 ×
2
= N0.20 × 7,500 = N15,00
i.e.2 shares for every 3 shares applied for.
(iii) Total money received on first call: N0.40 × 10,000 = N4,000
(iv) Total money received on second call: N0.30 × 10,000 = N3,000

2008/9 – 11
Tale Ltd has 100,000 ordinary shares of N1.00 each and 60,000 5% preference shares of N1.00 each. Both were fully
paid.
N
Profit and loss appropriation b/f 10,000
Net – profit for the year 6,000
Proposed dividend on ordinary shares 4,000
Interim dividend 6,000
Goodwill written off 600

2008/9
The balance of the profit and loss appropriation account as at the end of the year was
A. N16,000 B. N10,000 C. N5,400 D. N1,400
Answer: N16,000 ⎯ ⎯→ N10,000 + 6,000 = N16,000 (A)

2008/10
The authorized capital of Tale Ltd is
A. N176,000 B. N166,000 C. N160,000 D. N16,000
Answer: N160,000 ⎯ ⎯→ Ordinary shares + Preference shares
N100,000 + 60,000 = N160,000

2008/11
The dividend payable to preference shareholders is
A. N9,000 B. N6,000 C. N3,000 D. N2,400
5
Answer: N3,000 ⎯ ⎯→ × 60,000 = N3,000
100

2008/1
(a) State 3 distinguishing features between Reserves and Provisions.
(b) State 2 types of Reserves with an example each.
Answer
(a) Distinguish features between Reserves and Provisions:
(i) Reserves are set aside to boost/strengthen the financial position of the business whereas provisions are set-
aside for specific purpose.
(ii) Reserves are appropriation of the profit whereas provision is a charge against profit.
(iii) Reserves appear in the profit and loss appropriation account whereas provision appear in the profit and
loss account.
(iv) Reserves form parts of proprietorship whereas provision is a diminution of proprietorship.
(v) Reserves are not used to meet any liability whereas provision are used to meet any known liability.

(b) Types of Reserves

1. Capital Reserves: These are reserves which are not meant for distribution as dividends e.g. share premium,
pre-incorporated profits, profit on forfeiture of shares, surplus on revaluation of assets, capital redemption
reserve fund.
2. Revenue Reserves: These are reserves which are usually meant for distribution through the profit and loss
e.g. general reserve, specific reserve, profit and loss account balance.

453
2008/6
Badgie Ltd has an authorized capital of D100,000 divided into 20,000 ordinary shares of D5 each. The whole of the
shares were issued at par, payments being made as follows:
On application D0.50
On allotment D1.50
First call D2,00
Second call D1.00
Applications were received for 32,600 shares. It was decided to refund application monies on 2,600 shares and to allot
the shares on the basis of two for every three applied for. The excess application monies are to be held to reduce amount
payable on allotment. The calls were made and paid in full with exception of one member holding 100 shares who paid
neither the first nor the second call. All cash receipts and payments were passed through the bank.
You are required to prepare:
(a) Application Account;
(b) Allotment Account;
(c) First call Account;
(d) Second call Account;
(e) Bank Account;
(f) Ordinary Share Capital Account.
Solution
(a)
BADGE LIMITED:
Dr Application Account Cr
D D
Ordinary share capital 10,000 Bank 16,300
Bank (refund) 1,300
Allotment 5,000
16,300 16,300

Notes:
(a) Total money received on application: D0.50 × 20,000 = D10,000
(b) Refund on application money: D0.50 × 2,600 = D1,300
(c) Allotment (Excess application monies): (30,000 – 20,000) × D0.50
= 10,000 × 0.50 = D5,000
(b)
Dr Allotment Account Cr
D D
Ordinary share capital 30,000 Bank 25,000
Application 5,000
30,000 30,000

(a) Total money received on allotment: D1.50 × 20,000 = D30,000

(b) Bank: D30,000 – 5,000 = D25,000
(c)
Dr First call Account Cr
D D
Ordinary share capital 40,000 Calls – in – arrears 200
Bank 39,800
40,000 40,000

(a) Total money received on first call: D2.00 × 20,000 = D40,000

(b) Calls – in – arrears: D2.00 × 100 = D200
(c) Bank: D40,000 – 200 = D39,800
(d)
Dr Second call Account Cr
D D
Ordinary share capital 20,000 Calls – in – arrears 100
Bank 19,900
20,000 2`0,000

454
(a) Total money received on 2nd call: D1.00 × 20,000 = D20,000
(b) Calls–in–arrears: D1.00 × 100 = D100
(c) Bank: D20,000 – 100 = D19,900

(e)
Dr Bank Account Cr
D D
Application 16,300 Application (refund) 1,300
Allotment 25,000 Balance c/d 99,700
First call 39,800
Second call 19,900
101,000 101,000

(f)
Dr Ordinary share account Cr
D D
Balance c/d 100,000 Application 10,000
Allotment 30,000
First call 30,000
Second call 20,000
100,000 100,000
Balance b/d 100,000

2009/24 – 26
1
The authorized capital of City Entertainment Company is made up of 200,000 2 2 preference shares Le60 each and
300,000 ordinary shares of Le20. 80% of the ordinary shares have been issued at Le30 each and fully paid. All the
preference shares have been issued at par and fully paid. The directors decided to pay the preference dividend and
recommended ordinary dividend of Le0.10 share.

2009/24
What is the amount of preference payable for the year?
A. Le600,000 B. Le500,000 C. Le300,000 D. Le5,000
1
Answer: Le5,000 ⎯ ⎯→ 200,000 × 2 % = Le5,000
2
(D)

2009/25
What is the amount of the share premium?
A. Le9,000,000 B. Le5,000,000 C. Le3,000,000 D. Le2,400,000
Answer: Le2,400,000 (D)

2009/26
The value of the ordinary share capital to be stated in balance sheet is
A. Le9,000,000 B. Le7,200,000 C. Le4,800,000 D. Le4,000,000
Answer: Le4,800,000 (C)

2022/37
The maximum amount a company can raise through the issue of share is
A. reserve capital B. authorized capital C. paid – up capital D. loan capital
Answer: Authorized capital (B)
2022/38
A unit of a company’s capital is
A. share B. stock C. premium D. debenture
Answer: Share (A)

455
2022/7
The authorized and issued share capital of Ozideli Limited Comprised 400,000 ordinary shares of Le1 each and 100,000
8% preference shares of Le1 each.

The Trial Balance at the end of the year was as follows:

Dr Cr
Le Le
Sales 1,500,000
Purchases 1,000,000
General expenses 280,000
Debenture interest 8,400
7% debentures 120,000
Ordinary share capital 400,000
8% preference share capital 100,000
Plant and machinery at cost 160,000
Motor vehicle at cost 70,000
Profit and loss account (31/12/17) 8,600
Creditors 172,400
Debtors 500,000
General reserve 10,000
Provision for depreciation:
- Plant and machinery 20,000
- Motor vehicle 10,000
Bank 22,600
Stock (31/12/17) 300,600
2,341,000 2,341,000

Additional information:
(i) Stock on hand at 31/12/2018 was Le400,000.
(ii) The directors were to receive remuneration of Le70,000.
(iii) Depreciation is to be calculated on plant and machinery at Le32,000 and motor vehicle at Le14,000.
(iv) The directors decided to transfer Le12,000 to general reserve.
(v) Preference dividend for 2018 will be paid on 10/10/2019.

You are required to prepare:

(a) Trading, profit and Loss Appropriation Account for the year ended 31st December, 2018.
(b) Balance Sheet as at that date.

456
Solution
OZIDELI LIMITED
Trading, Profit and Loss Appropriation Account for the year ended 31st
December, 2018
Le Le
Opening stock 300,000 Sales 1,500,000
Add: Purchases 1,000,000
Cost of goods available for sale 1,300,000
Less: Closing stock (400,000)
Cost of goods sold 900,000
Gross – profit c/d 600,000
1,500,000 1,500,000

Directors remuneration 70,000 Gross – profit b/d 600,000

Debenture interest 8,400
General expenses 280,000
Depreciation: Plant & Machinery 32,000
Motor vehicle 14,000
404,400
Net-profit c/d 195,600
600,000 600,000

Preference dividend 8,000 Net-profit b/d 195,600

General reserve 12,000 Balance b/f 8,600
Retained profit 184,200
204,200 204,200

(a) Preference dividend: 8% of 100,000 = Le8,000

(b)
Balance Sheet as at 31st December, 2018
Cost Depr. NBV
Authorized & Issued Share Capital: Le Le Fixed Assets: Le Le Le
400,000 ordinary share @Le1 400,000 Plant and machinery 160,000 (52,000) 108,000
100,000 preference share @ Le1 100,000 500,000 Motor vehicle 70,000 (24,000) 46,000
154,000
General reserve 10,000
Add: Transfer 12,000
22,000
Retained profit 184,200 206,200

Long term liability:

7% debenture 120,000

Current liabilities: Current Assets:

Preference dividend 8,000 Stock 400,000
Creditors 172,400 Debtors 500,000
Directors remuneration 70,000 250,400 Bank 22,600 922,600
1,076,600 1,076,6000

(a) Accumulated depreciation: Plant and machinery

= Le20,000 + 32,000 = 52,000
- Motor vehicle
Le10,000 + 14,000 = Le24,000

457
2014/7
The trial balance of Ewan as at December, 2010 is as follows:
D D
Share capital 100,000
Motor van (at cost) 120,000
Provision for depreciation:
Motor van 1-1-2010 44,000
Sales and purchases 389,814 538,266
Returns inwards and outwards 526 165
Rents and rates 7,500
Insurance 8,000
General expenses 9,000
Salaries and wages 59,628
Interest 5,000
Debtors and creditors 50,820 13,512
Bad debts 1,629
Provision for doubtful debts 1–1–2010 2,053
Directors salaries 28,000
Stock: 1 – 1 – 2010 85,716
Profit and loss account 1–1–2010 87,400
12% debentures 50,000
Bank 69,763
835,396 835,396

Additional information:
(i) Unpaid salaries and wages at 31st December, 2010 – D7,000.
(ii) The provision for doubtful debt is to be made on debtors at 10%.
(iii) Rents and rates owing at 31st December, 2010 – D4,000.
(iv) Depreciation on motor van is to be charged at 20% per annum on cost.
(v) Insurance paid in advance at 31st December, 2010 – D2,800.
(vi) Stock at 31st December, 2010 – D95,000.
(vii) 10% dividend is proposed for 2010.

You are required to prepare:

(a) Trading and Profit and Loss Account for the year ended 31st December, 2010:
(b) Profit and Loss Appropriation Account for the year ended 31st December, 2010.

458
Solution
(a)
EWAN
Trading and Profit and Loss Account for the year ended 31st December, 2010
D D D D
Opening stock 85,716 Sales 538,266
Add: Purchases 389,814 Less: Returns inwards (526)
Less: Returns outwards (165) 389,649 Net – sales 537,740
Cost of goods available for sale 475,365
Less: Closing stock (95,000)
Cost of goods sold 380,365
Gross – profit c/d 157,375
537,740 537,740

Interest bad debts 5,000 Gross – profit b/d 157,375

Bad debts 1,629
Directors salaries 28,000
General expenses 9,000
Rent and rates 7,500
Add: Accrued/owing 4,000 11,500
Insurance 8,000
Less: Advance (2,800) 5,200
Salaries and wages 59,628
Add: Unpaid 7,000 66,628
Increase in provision 3,029
Depreciation: motor van 24,000
153,986
Net – profit c/d 3,389
157,375 157,375

Notes:
(i) Increase in provision: New provision – old provision
New provision = 10% of debtors
= 0.1 × 50,820 = 5,082
∴ 5,082 – 2,053 = D3,029
(ii) Depreciation of motor van: 20% × 120,000
= 0.2 × 120,000 = D24,000
(iii) Net – profit: Gross Profit (Income) – Operating Expenses
= D157,375 – 153,986 = D3,389

(b)
EWAN
Profit and Loss Appropriation Account for the year
ended 31st December, 2010
D D
Proposed dividend 10,000 Balance b/f 87,400
Retained profit 74,011 Net-profit b/d 3,389
84,011 84,011

(a) Proposed dividend: 10% of share capital

= 0.1 × D100,000 = D10,000

2018/40 NABTEB
A unit of a company’s capital which can be bought is
A. share B. interest C. asset D. property
Answer: Share (A)

459
2018/41 NABTEB
Preliminary expenses of a limited liability company are
A. fixed assets B. current assets C. fictitious assets D. fictitious liabilities
Answer: Fictitious assets (C)

2022/18 NABTEB
Issues of prospective is an invitation to members of the public to
A. register a company B. subscribe for share C. redeem shares D. liquidate shares
Answer: Subscribe for shares (B)

2022/20 NABTEB
Remex company limited issued ordinary shares of N1 each to the public at N1.20. The shares were issued at
A. discount B. par C. premium D. pro-rata
Answer: Premium – Shares issued above nominal price (C)

2022/36 NABTEB
The internal regulation of a limited liability company by a document called
A. memorandum of association B. deeds of agreement C. prospective D. articles of
association
Answer: Articles of Association (D)

2022/40 NABTEB
A document which acknowledged that a company owes a person a stated sum of money with agreement to pay a fixed
rate of interest periodically is known as
A. share certificate B. allotment certificate C. preference certificate D. debenture certificate
Answer: Debenture certificate (D)

2022/13 Neco (PC)

The maximum amount a company is allowed to raise through sale of shares is ____ capital.
A. authorized B. issued C. paid – up D. right issue E. working
Answer: Authorized (A)

2022/23 Neco (PC)

The following are securities traded in the capital market except
A. bonds B. debentures C. dividends D. shares E. stocks
Answer: Dividends – This is a return on capital invested (C)

2022/35 Neco (PC)

Financial market is made up of ____ and _____ markets
A. capital, money B. commodity, property C. lending, borrowing D. primary, secondary
Answer: Capital, money (A)

2022/41 Neco (PC)

The Memorandum of Association contains the following except
A. amount of authorized capital B. name of a company C. objects of the company
D. rights of shareholders E. status of the company
Answer: Rights of shareholders (D)

2022/42 Neco (PC)

The document that gives legal existence to a company is
A. article of association B. certificate of incorporation C. certificate of trading
D. memorandum of association E. prospectus
Answer: Certificate of incorporation – a business/company is recognised as a legal entity or body upon the issuance of
certificate of registration (RC) by corporate affairs commission (C.A.C).

2022/44 Neco (PC)

The number of persons that form a private company ranges from
A. 20 to 30 B. 15 to 50 C. 10 to 50 D. 5 to 50 E. 2 to 50
Answer: 2 to 50 – i.e. minimum of 2 persons and maximum of 50 persons.

460
2022/34 Neco (Internal)
Another name for nominal capital is ____ capital.
A. authorized B. called-up C. issued D. preference E. share
Answer: Authorized (A)

2022/41 Neco
A person who applies for shares in a company is called
A. allotee B. applicant C. promoter D. shareholder E. subscriber
Answer: Subscriber (E)

2022/43 Neco
The maximum amount which a firm is allowed to raise by way of selling shares is _____ capital.
A. authorized B. called up C. issued D. paid-up E. working
Answer: Authorized (A)

2022/45 Neco
Which of the following items is not debited in a company’s appropriation account?
A. corporate tax B. directors fees C. general reserve D. Goodwill written-off
E. interim dividend
Answer: Directors fees – Directors fees is charged to the profit and loss account as operating expenses (B)

2022/46 Neco
The net worth of a business is the
A. asset B. bank loan C. capital D. debenture E. equipment
Answer: Capital = Assets – liabilities (C)

2022/47 Neco
The following are sources of finance to a company except
A. bank loan B. bill discounting C. commercial paper D. factoring
E. personal savings
Answer: Personal savings (E)

2022/48 Neco
In company account, profit after tax is determined in the _____ account.
A. appropriation B. current C. profit and loss D. realization E. evaluation
Answer: Appropriation (A)

2018/23 to 25 Neco
N
Authorized share capital:
75,000 ordinary share capital 750,000
25,000 6% preference shares 250,000
1,000,000
Issued and paid up capital:
50,000 ordinary shares 500,000
20,000 6% preference shares 200,000
700,000
Reserves:
General reserve 100,000
Share premium 75,000
Profit and loss account 13,000
5% debentures 100,000
Creditors 60,000
Proposed dividend 66,000
1,114,000

2018/23 Neco
What is the total of the share capital?
A. N1,000,000 B. N875,000 C. N700,000 D. N500,000 E. N200,000
Answer: N1,000,000 ⎯ ⎯→ Ordinary share capital + preference share
= N750,000 + 250,000 = N1,000,000
461
2018/24 Neco
Calculate the total capital reserves
A. N175,000 B. N100,000 C. N75,000 D. N66,000 E. N60,000
Answer: N75,000 ⎯ ⎯→ share premium (C)

2018/25 Neco
What is the total revenue reserves?
A. N175,000 B. N105,000 C. N25,000 D. N13,000 E. N6,000
Answer: N175,000 ⎯ ⎯→ General reserve + share premium
= N100,000 + 75,000 = N175,000 (A)
2003/15 Nov
The amount of company’s profit given to shareholder is
A. warrant B. dividend C. bonus D. allotment
Answer: Dividend (B)

2005/34 Nov
Share issue to shareholders free of charge is
A. bonus issue B. rights issue C. founders issue D. management issue
Answer: Bonus issue (A)

2005/36 Nov
A scrip issue is made at
A. market value B. discount C. premium D. no cost
Answer: No cost (D)

2000/3 Nov
Payment for shares on instalment basis is done by means of
A. prospectus B. allotment C. warrants D. calls
Answer: Calls (D)

2000/46 Nov
In relation to the value of share, which of the following does not belong to the group?
A. par B. premium C. discount D. loss
Answer: Loss (D)

462
1993/1 (Nov)
The following trial balance was extracted from the books of Okoro Trading Company Limited as at 31 st December,
1990.
Dr Cr
N N
20,000 ordinary shares of N1.00 each issued and fully paid 20,000
Share Premium 10,000
General reserve 8,000
Profit and Loss Account 3,000
Salaries and wages 5,000
Discounts 200 400
Carriage inwards 160 -
Returns 240 360
Carriage outwards 560
Purchases /Sales 45,000 91,740
Stock 1st January 8,000
Loans 24,000
Interest on loans 1,000
Provision for bad & doubtful debts 2,000
Preliminary expenses 12,000
Motor vehicle expenses 1,800
Director’s salaries 6,000
Repairs to premises 250
Rates 1,600
Premises at cost 20,000
Motor vehicle at cost 23,000
Plant and Machinery at cost 25,000
Provision for depreciation: plant & machinery 2,500
Debtors /creditors 12,390 8,000
Sundry expenses 3,500
Cash in hand 300
Cash at bank 4,000
170,000 170,000

Additional information:
(a) Stock at 31st December N12,500.
(b) Expenses paid: Motor Expenses N200, Insurance N450, Sundry Expenses N400.
(c) Prepaid expenses: N
Rates 320
Sundry Expenses 250
(d) Provision for bad debts to be increased to N2,800.
(e) Part of the Premises is sublet at N2,400 per annum.
(f) Monthly Salaries and Wages bill N400.
(g) Bad debts at 31st December N600.
(h) Loan interest is at 5% per annum.
(i) Provision for depreciation on straight line method:
- Premises 2%, Plant and Machinery 25%.
- Motor vehicles 10%
(j) Write off Preliminary Expenses.
(k) Transfer to General Reserve N5,000 and N5,000 to Revenue Reserve.
Prepare:
(i) Trading, Profit And Loss and Appropriation Account for the year ended 31st December, 1990:
(ii) A Balance sheet as at that date.

463
Solution
(i) OKORO TRADING COMPANY LIMITED:
Trading, profit and loss account for the year ended 31st December, 1990
N N N N
Opening stock 8,000 Sales 91,740
Add: Purchases 45,000 Less: returns (240) 91,500
Add: Carriage inward 160
Less: Returns outwards (360) 44,800
C.G.A.S 52,800
Less: closing stock (12,500)
Cost of goods sold 40,300
Gross profit c/d 51,200
91,500 91,500

Salaries &Wages 4,800 Gross-profit b/d 51,200

Discount allowed 200 Discount received 400
Carriage outwards 560 Rental income 2,400
Interest on loan 1,200
Motor vehicle expenses 2,000
Directors salaries 6,000
Repairs to premises 250
Rates 1,280
Provision for depreciation:
- Premises 400
- Plant & machinery 6,250
- Motor vehicle 2,300
Sundry expenses 3,650
Insurance 450
Bad debts 600
Provision for bad debts 800
Net – profit c/d 23,260
54,000 54,000
APPROPRIATION:
General reserve 5,000 Net – profit b/d 23,260
Revenue reserve 5,000 Net – profit b/f 3,000
Preliminary expenses 12,000
Retained profit c/d 4,260
26,260 26,260

(ii) OKORO TRADING COMPANY LIMITED:

Balance Sheet as at 31st December, 1990
Authorized capital N N Fixed Assets: Cost Depr. NBV
N N N
20,000 ord. sharesatN1 each 20,000 Premises 20,000 (400) 19,600
Motor vehicle 23,000 (2,300) 20,700
Issued capital: Plant & machinery 25,000 (8,750) 16,250
20,000 ord. sharesatN1 each 20,000 56,550
Revenue reserves: Current Assets:
General reserve 13,000 Stock 12,500
Revenue reserve 5,000 Debtors 12,390
Share premium 10,000 Less: Bad debt (600)
Retained profit 4,260 32,260 Less: Provision (2,800) 8,990
Cash in hand 300

Long – term liabilities Bank 4,000

Loans 24,000 Rent receivable 2,400
Rates prepaid 320
Sundry expenses 250
Current liabilities: Wages & salaries 200 28,960
Creditors 8,000
Loan interest – owing 200
Motor expenses – owing 200
Accrued insurance 450
Sundry expenses – owing 400 9,250
85,510 85,510

464
Workings:
(i) Salaries and wages; N (ii) Interest on loan: N
Cash paid 5,000 Amount due for payment = (5% × 24,000) 1,200
Less: outstanding due (400 × 12) (4,800) Less: Amount paid (1,000)
Prepayment 200 Outstanding 200

(vii) Debtors:
(iii) Provision for bad debts:
N
N
Cash 12,390
New provision 2,800
Less: Bad debt (600)
Less: old provision (2,000)
11,790
Increase in provision 800
Less: Provision (2,800)
8,990
(iv) Motor vehicle expenses:
N (viii) General reserve: N8,000 + 5,000 = N13,000
Cash paid 1,800 (old) (new)
Accrued 200
(ix) Depreciation:
Profit& Loss Account 2,000
Premises : 2% ×N20,000 = N400
(v) Rates:
N Plant and machinery : 25% × 25,000
Cash paid 1,600 New provision N6,250
Less: prepaid (320) Old provision 2,500
Profit& Loss Account 1,280 8,750

Motor vehicle : 10% × N23,000

(vi) Sundry expenses:
= N2,300
N
Cash paid 3,500
Add: owing 400
3,900
Less: Prepaid (250)
Profit& Loss Account 3,650

2000/8 Neco
DUMEX (NIG.) LTD. issued 400,000 ordinary shares at N1.00 each at N1.20 per share payable as follows:
(a) 25K per share on application, (c) 35K per share on first call,
(b) 40K per share on allotment (including premium), (d) 20K per share on second and final call.
You are required to show the ledger accounts to receive the above transactions.
Solution
Workings:
(a) Money received on application =0.25 × 400,000 = N100,000 (c) Money received on 1st call = 0.35 × 400,000 = N140,000
(b) Money received on allotment = 0.40 × 400,000 = N160,000 (d) Money received on 2nd call = 0.20 × 400,000 = N80,000.
Note: Allotment Premium (0.40 – 0.20 × 400)
= 0.20 × 400,000
Premium = N80,000

Dr Bank Account Cr
N N
Application 100,000 Balance c/d 480,000
Allotment 160,000
First call 140,000
Second call 80,000
480,000 480,000

Dr Application and Allotment Account Cr

N N
Ordinary share capital 100,000 Bank 100,000
Ordinary share capital 80,000 Bank 160,000
Share premium 80,000
260,000 260,000

Dr First Call Account Cr

465
N N
Ordinary share capital 140,000 Bank 140,000

Dr Second Call Account Cr

N N
Ordinary share capital 80,000 Bank 80,000

Dr Share Premium Account Cr

N N
Application & Allotment 80,000

Dr Ordinary share capital Account Cr

N N
Balance c/d 400,000 Application & allotment 100,000
Application & allotment 80,000
First call 140,000
Second call 80,000
400,000 400,000

Dr Balance sheet (extract) Cr

N N
Issued capital 400,000 Bank 480,000

Reserve 80,000
480,000 480,000
2005/7 Neco
Kanada and Co Limited has an authorized capital of N120,000 divided into 20,000 7% preference shares of N1.00 each and 100,000
ordinary shares of N1 each. All the preference shares are issued and fully paid. 80,000 ordinary shares have been issued and paid
for at N1.10K per share. You are also given the following information.
N
12% debentures 10,000
Land and buildings (cost N45,000) 41,500
Plant and machinery 22,000
Motor vehicles 15,000
Profit and Loss Account as at January, 2003 8,300
Creditors 30,510
Debtors 57,550
General reserves 3,000
Provision for depreciation:
Plant and machinery 2,800
Motor vehicle 1,500
Cash at bank 12,630
Cash in hand 980
Stock 36,300
Net – profit for the year 21,850

You are also informed that the directors have recommended the following: (i) that N7,000 be transferred to the general reserve.
(ii) the payment of dividends on the preference shares. (iii) a dividend of 10% on the ordinary shares.
You are required to prepare:
(a) The Profit and Loss Appropriation Account for the year ended 31 st December, 2003; and
(b) A balance Sheet as at that date.
Solution
(a) KANADA AND COMPANY LTD
Profit and Loss Appropriation Account for the year ended 31st December, 2003.
Proposed dividend: N N N N
Preference share 1,400 Net – profit b/d 8,300
Ordinary share 8,000 9,400 Net – profit c/d 21,850

Revenue reserve:
General reserve transfer 7,000
Retained – profit 13,750
30,150 30,150

(b) KANADA AND COMPANY LTD

466
Balance sheet as at 31st December, 1990
Authorized capital: N N Fixed Assets: Cost Depr. NBV
N N N
20,000 Pref. sharesat N1/ 20,000 Land &Building 45,000 (3,500) 41,500
100,000 Ord. sharesat N1/ 100,000 Plant and Machinery 22,000 (2,800) 19,200
120,000 Motor vehicle 15,000 (1,500) 13,500
Issued capital: 74,200
20,000 Pref. sharesatN1 20,000 Current Assets:
80,000 Ord. sharesat N1.10 88,000 108,000 Stock 36,300
Cash at hand 980
Revenue reserves: Cash at bank 12,630
General reserve 3,000 Debtors 57,550 107,460
Add: Transfer 7,000
Retained profit 13,750 23,750
Long – term liabilities
12% debentures 10,000
Current liabilities:
Creditors 30,510
Proposed – dividends:
Preference share 1,400
Ordinary share 8,000 9,400
181,660 181,660

2006/6 (Nov)
1
Bretuo Ltd. has an authorized capital of 600,000 shares, made up of 200,000 7 % Preference shares of D1.00 per
2
share, and 400,000 Ordinary Shares of D0.50 per share.
140,000 Preference shares and 300,000 Ordinary shares were issued at par, paid up and the cash banked.
The following balances were extracted from the ledgers at the end of the company’s trading year ended 30th April,
2005.
D
5% Mortgage loan 40,000
Land and buildings 78,400
Plant and machinery 205,000
Preliminary expenses 20,000
Debtors 78,400
Creditors 64,800
Motor vehicles 26,000
Bank 32,640
Stock 24,760
A net profit of D70,400 was realized during the year.
The directors decided to:
(a) Pay dividend on preference shares;
(b) Pay 10% dividend on ordinary shares;
(c) Write-off D2,000 on preliminary expenses;
(d) Transfer 3,000 to general reserve
You are required to prepare: (i) Profit and Loss Appropriation Account for the year ended 30th April, 2005; and
(ii) A balance sheet as at that date.

467
Solution
(i) BRETUO LIMITED
Profit and Loss Appropriation Account for the year ended 30th April, 2005.
Proposed dividends: D D D D
Preference share (7½%) 10,500 Net-profit b/f 70,400
Ordinary shares (10%) 30,000
40,500
Revenue Reserve:
Preliminary expenses (write off) 2,000
Transfer to General reserve 3,000 5,000
45,500
Retained – profit c/d 24,900
70,400 70,400

(ii) BRETUO LIMITED

Balance Sheet as at 30th April, 2005
Authorized capital: D D Fixed Assets: D D
200,000 Pref. sharesat D1.00 200,000 Land &Building 78,400
400,000 Ord. sharesat D0.50 200,000 Plant &Machinery 205,000
400,000 Motor Vehicle 26,000
309,400

Issued – capital:
140,000 Pref. sharesat D1.00 140,000
300,000 Ord sharesat D0.50 150,000 290,000 Current – Assets:
Stock 24,760
Debtors 78,400
Revenue Reserve: Bank 32,640 135,800
Transfer to Gen. Reserve 3,000
Retained profit 24,900 27,900
Preliminary expenses (20,000 – 2,000) 18,000
Long-term liability:
5% mortgage loan 40,000
Current liability:
Creditors 64,800
Proposed Dividend:
Preference share 10,500
Ordinary share 30,000 40,500
463,200 463,200

2019/8 Neco
David and Co Ltd is authorized to issue N200,000 ordinary shares of N1.00 each. On 1st January, 2017 the company
issued 160,000 shares payable as follows:
On application 0.20K;
On allotment 0.50K;
Final call 0.30K
On 1st January, 2017 application was closed.
On 1st March, 2017 allotment was made and the register was closed at the end of the month.
Final call was made on 1st May, 2017 with 21 days of grace. All shares issued were fully subscribed for and all payments
made into the banks.
You are required to show both journal and ledger entries for the above transactions.
Solution
Workings:
(i) Total money received on application: 0.20 × 160,000 = N32,000
(ii) Total money received on allotment: 0.5 × 160,000 = N80,000
(iii) Total money received on final call: 0.30 × 160,000 = N48,000

468
(i)
DAVID AND COMPANY LIMITED JOURNAL ENTRIES
DR CR
N N
Bank account 32,000
Application account 32,000
Being money received on application
Application account 32,000
Share capital account 32,000
Allotment of 160,000 ordinary shares at N0.20 per share
Bank account 80,000
Allotment account 80,000
Being money collected on allotment
Allotment account 80,000
Share capital account 80,000
Allotment of 160,000 ordinary shares at N0.50 per share
Bank account 48,000
Final call account 48,000
Being money collected on final call
Final call account 48,000
Share capital account 48,000
Shares of N0.30 per share

(ii) LEDGERS
Dr Bank Account Cr Dr Final Call Account Cr
N N N N
Application 32,000 Balance c/d 160,000 Ordinary shares capital 48,000 Bank 48,000
Allotment 80,000
Final call 48,000 ______
160,000 160,000 Dr Ordinary share capital Account Cr
N N
Balance c/d 160,000 Application 32,000
Dr Application Account Cr Allotment 80,000
N N ______ Final call 48,000
Ordinary shares capital 32,000 Bank 32,000 160,000 160,000

Dr Allotment Account Cr
N N
Ordinary shares capital 80,000 Bank 80,000

2017/14 NABTEB (ADVANCED)

The following Trial Balance was extracted from the books of Bassey Ltd as at 30th September, 2001
N N
Share Capital, Authorized and issued 250,000 Ordinary N1Shares 250,000
Directors’ current accounts:
Eddy 6,800
Gilson 3,900
Profit and Loss Account 30/9/2000 73,600
Purchases and Sales 913,750 1,184,000
Stock 30/9/2000 107,500
Loan from Zeby Ltd @5% interest per annum 50,000
Loan interest accrued (30/9/2000) 2,500
Goodwill 30,000
Bad debts 4,700
Provision for bad debts 30/9/2000 1,400
Rent receivables 2,500
Trade Debtors and Creditors 135,600 93,100
Motor and Delivery Expenses 17,720
General Expenses 63,300
Bank Balance 120,080
Directors’ Salaries 146,300
Wages and Salaries 124,250
Rates and Insurance 4,600
1,667,800 1,667,800

469
Additional information:
(a) Stock in trade as at 30th September, 2001 N115,500.
(b) Provision for bad debts is to be increased to N30,000.
(c) Wages and salaries accrued at 30/9/2001 N2,000
(d) Rates and insurance paid in advance at 30/9/2001N620.
(e) The item “rent receivables N2500” includesN500 in respect of the period from 1 st October, 2001 to 31st December, 2001.
(f) Provision is to be made for depreciation of motor vehicles at the rate of 20% per annum on cost.
(g) During the year to 30th September, 2001, Eddy, one of the directors, took goods costing N1,750 out of the business stock
for his own use. No entry for such matter has been made in the books.
Required:
To prepare a trading and profit and loss account for the year ended 30 th September, 2001 and a balance sheet as at that date (ignore
taxation).
Solution
BASSEY (NIG.) LTD:
Trading and profit and loss account for the year ended 30th September, 2001
N N N N
Opening stock 107,500 Sales 1,184,000
Add: Purchases 913,750
1,021,250
Less: Goods withdrawn (1,750) 1,019,500
C.G.A.S 1,019,500
Less: Closing stock (115,500)
Cost of goods sold 904,000
Gross – profit c/d 280,000
1,184,000 1,184,000

Interest on loan 2,500 Gross – profit b/d 280,000

Add: Accrued 2,500 5,000 Rent received 2,500
Bad debts 4,700 Less: Advance (500) 2,000
Increase in provision for bad debts (30,000 – 28,600 Net – loss c/d 117,394
1,400)
Motor &Delivery expenses 17,720
General expenses 63,300
Directors’ Salaries 146,300
Wages &Salaries 124,250
Add: accrued 2,000 126,250
Rates &Insurance 4,600
Less: Advance (620) 3,980
Depreciation: Motor vehicle 3,544
399,394 399,394

2015/8
Weah Co. Ltd has an authorized capital of $120,000 divided into 100,000 ordinary shares and 20,000 5% preference
share.
$
Issued and fully paid capital:
- Ordinary share capital 80,000
- 5% preference share 20,000
Land and buildings at cost 68,000
Motor vehicles at cost 30,000
Fixtures and fittings at cost 6,000
Stock 7,000
Debtors 6,300
Bank 2,000
Cash 70
Creditors 900
Call in arrears 2,000
Provision for doubtful debts 300
Profit for the year ended 31 – 12 – 2014 13,570

470
Additional information:
(i) Provide for depreciation on motor vehicles at 20% and furniture and fittings at 10% per annum.
(ii) The directors decided to:
- Transfer $3,000 to reserve;
- recommend a dividend of 10% on ordinary shares and pay preference shares dividend.

You are required to prepare:

(a) Appropriation Account/Income Surplus Account for the year ended 31st December, 2014;
(b) Balance sheet as at that date.

Solution
(a)
WEAH COMPANY LIMITED:
Appropriation Account/Income Surplus Account for the year ended 31st December, 2014
Proposed Dividend: $ $ $ $
Ordinary share 8,000 Net profit b/d 13,570
Preference share 1,000 9,000
Transfer to reserve 3,000
12,000
Retained profit 1,570
13,570 13,570

Workings:
• Proposed Dividends:
10
- Ordinary shares: × 80,000 = 8,000
100
5
- Preference share: × 20,000 = 1,000
100

• Retained profit: 13,570 – 12,000 = $1,570

(b) WEAH COMPANY LIMITED :

Balance sheet as at 31st December, 2014
Authorized capital: $ $ Fixed Assets: Cost DEP. NBV
$ $ $
Ordinary share 100,000 Land & Buildings 68,000 - 68,000
Preference share 20,000 Motor vehicles 30,000 (6,000) 24,000
120,000 Fixtures & fittings 6,000 (600) 5,400
97,400
Issued capital :
Ordinary share 80,000 Current Assets:
Preference share 20,000 100,000 Stock 7,000
Debtors 6,300
General Reserve: Less: P.F.D.D. (300) 6,000
Transfer 3,000 Calls in arrears 2,000
Retained profit 1,570 4,570 Bank 2,000
Cash 70 17,070
Current Liabilities :
Creditors 900
Proposed Dividend:
Ordinary share 8,000
Preference share 1,000 9,000
114,470 114,470

471
2009/9
Zainabou Ltd has an authorized share capital of D800,000 made up of 600,000 ordinary shares of D1 each and 400,000
3% preference share of D0.50 each. During the year ended 31st December, 2006, the following details were extracted
from the financial records of the company.
D
Issued and fully paid capital:
- Ordinary shares of D1.00 each 500,000
- 3% preference shares by D0.50 each 100,000
General reserve 30,000
Goodwill 20,000
5% Debentures 20,000
Stock at 31st December, 2006 25,000
Net - profit 80,000
Land and building (at cost) 517,500
Fixtures and fittings (at cost) 25,000
Motor vehicles 80,000
Provision for depreciation:
- Fixtures and fittings 2,500
- Motor vehicles 16,000
Creditors 10,000
Debtors 50,000
Bank 40,000
Cash in hand 1,000

Additional information:
(a) Provision is to be made for preference shares dividend;
(b) The directors recommend a dividend of 4% on ordinary shares;
(c) The value of goodwill is to be written off over a period of four years.

You are required to prepare : (i) Profit and Loss Appropriation Account for the year ended 31st December, 2006;
(ii) a balance sheet as at that date.

Solution (Vertical method)

(i) ZAINABOU LIMITED:
Appropriation Account for the year ended 31st December, 2006
D D
Net - profit 80,000
Deduct: Expenses
Preference share dividend 3,000
Ordinary share dividend 20,000
Goodwill written – off 5,000 (28,000)
Retained profit 52,000

Workings:
3
(i) Preference share dividend: × 100,000 = 3,000
100
4
(ii) Ordinary share dividend:
100
× 500,000 = 20,000
20,000
(iii) Goodwill written–off: = 5,000
4

472
(ii)
ZAINABOU LIMITED
Balance sheet as at 31st December, 2006
COST DEPR. NBV
Fixed Assets: D D D
Motor vehicles 80,000 (16,000) 64,000
Furniture and fittings 25,000 (2,500) 22,500
Land and buildings 517,500 - 517,500
Total fixed assets 604,000
Goodwill 20,000 (5,000) 15,000
Current Assets:
Stock 25,000
Debtors 50,000
Bank 40,000
Cash 1,000 116,000

Less: Current liabilities:

Creditors 10,000

Proposed Dividends:
Preference share 3,000
Ordinary share 20,000 (33,000) 83,000
702,000
FINANCED BY:
Authorized capital:
600,000 ordinary shares @ D1 each 600,000
400,000 preference shares 3% @ D0.50 each 200,000
800,000
Issued capital:
500,000 ordinary share @ D1 each 500,000
200,000 3% preference share @ D0.50 each 100,000
600,000
Revenue Reserves:
General reserve 30,000
52,000 82,000
Long-term liability:
5% Debenture 20,000
702,000
2021/15
Company as a legal entity means that it
A. must always have a company lawyer B. can sue and be sued
C. must settle disputes among shareholders in court D. should prepare accounts approved by a lawyer
Answer: Can sue and be sued (B)

1997/23
A public company issues its shares to the public through a
A. gazette B. constitution C. memorandum D. prospectus
Answer: Prospectus (D)

1997/28
A company’s called up capital is the same as its
A. authorized capital B. issued capital C. subscribed capital D. premium capital
Answer: Issued capital (B)

1997/41
The document which sets out the arrangement of a company is the
A. prospectus B. articles of association C. certificate of incorporation D. certificate of trading
Answer: Articles of association (B)

473
1997/4
Explain the following in respect of a company:
(a) Limited liability;
(b) Ordinary shareholders;
(c) Preference shareholders;
(d) Debenture holders;
(e) Authorized share capital.
Answer
(a) Limited liability: This is a company in which the loss/risk of the company is limited to the share price of each
shareholders.
(b) Ordinary shareholders: These are shareholders who did not have any preferential right. They are the real owners
of the company and they are entitled to dividend after every other categories of shareholders must have been settled.
(c) Preference shareholders: These are shareholders who are given preferential right. Preference shareholders enjoy a
fixed percentage rate as dividend.
(d) Debenture holders: Debenture shareholders are creditors to the company. They are the first class of shareholders to
pay.
(e) Authorized share capital: This is the total amount of shares which the company is empowered to issue to the public
for subscription.

2021/9
The authorized capital of Babs Company Ltd is 200,000 ordinary share. The company decided to issue 180,000 of the
share at $2 on the following terms:
$0.40 on application;
$0.70 on allotment;
$0.90 on first and final call
Applications were received for 200,000 shares on June 20, 2019 and allotments made on June 30, 2019 on which date,
excess application monies were returned to unsuccessful applicants.
First and final call was made in July 26, 2019. All instalments were received on due dates.
You are required to prepare:
(a) Bank Account;
(b) Ordinary share application account;
(c) Allotment Account;
(d) First and Final Call Account;
(e) Ordinary Share Capital Account;
Solution
(i) Total money received on application: $0.40 × 180,000 = $72,000
(ii) Total money received on allotment: $0.70 × 180,000 = $126,000
(iii) Total money received on 1st & final call: $0.90 × 180,000 = $162,000.

Note: The shares were issued at par by the company.

(a)
Dr Bank Account Cr
$ $
Application money 72,000 Balance c/d 360,000
Allotment money 126,000
First & final all money 162,000
360,000 360,000
Balance b/d 360,000

(b)
Dr Ordinary Share Application Account Cr
$ $
Ordinary Share Capital 72,000 Bank 72,000

(c)
Dr Allotment Account Cr
$ $
Ordinary Share Capital 72,000 Bank 72,000

474
(d)
Dr First and Final Call Account Cr
$ $
Ordinary Share Capital 162,000 162,000

(e)
Dr Ordinary Share Capital Account Cr
$ $
Balance c/d 360,000 Application 72,000
Allotment 126,000
First and final call 162,000
360,000 360,000

1996/9-10 (Nov) Exercise 18.1

Use the following information to answer questions 9 and 10

Ordinary share capital N120,000

7% preference share capital N100,000
General reserve N30,000
Profit and Loss Account N25,000

9. Shareholders fund is
A. N275,000 B. N220,000 C. N175,000 D. N145,000 E. N120,000

10. Preference divided is

A. N10,150 B. N9,100 C. N8,400 D. N7,000 E. N2,100

2016/3 Neco Exercise 18.2

Nominal capital is also known as _____ capital
A. called up B. issued C. paid – up D. registered E. uncalled – up

2016/5 Neco Exercise 18.3

Director’s remuneration is recorded in the book as
A. appropriation B. capital expenditure C. current asset D. current liability E. revenue expenditure

2001/1 Exercise 18.4

The income accruing to debenture holders is called
A. dividend B. net profit C. shares D. interest

2012/8 Neco Exercise 18.5

Share premium is an example of
A. loan capital B. general reserve C. capital reserve D. revenue reserve E. share capital

1999/43 Nov Exerise 18.6

Shares sold at a price less than their nominal value are issued at
A. loss B. discount C. par D. premium

2008/53 Neco Exercise 18.7

The profit that is not appropriated by a company is an example of
A. capital reserve B. debentures C. general reserve D. proposed dividend D. revenue reserve

2008/59 Neco Exercise 18.8

The document that defines the relationship of a company to the outside world is called
A. articles of association B. deed of partnership C. certificate of incorporation
D. memorandum of association E. company agreement

2014/44 UTME Exercise 18.9

Payments for shares in excess of amount offered gives rise to
A. subscription in advance B. revenue reserve C. capital reserve D. calls – in – advance

475
2014/45 UTME Exercise 18.10
The details of the share capital which a company is authorized to issue is contained in the
A. Articles of Association B. Companies and Allied Matters Act C. Memorandum of Association
D. Share Capital Certificate

2016/1b Neco Exercise

Briefly explain the following terms:
i. Authorized capital. iii. Paid – up capital.
ii. Issued capital. iv. Called – up capital. v. Working capital.

1999/9 Nov. Exercise 18.11

McKay and Sons Limited has authorized capital of 1,000,000 Ordinary shares of N20 per share.
On 1st July, 1997 it issued 800,000 shares at a price of N20 per share payable as follows:
Per share
On application N10.00
On allotment N6.00
First call 2.00
Final call 2.00
Applications were received for 1,000,000 shares of these, 100,000 were rejected and the money refunded to the
applicants. The remaining shares were allotted pro – rata and the surplus application money was carried forward to
allotment on account. The calls were duly made and the sums received.
You are required to prepare ledger accounts to record the share issue.

2012/6 Neco Exercise 18.12

Lino and Co Limited was incorporated with an authorized capital of N1,200,000 divided into 200,000,7% preference
shares of N1 each and 1,000,000 ordinary shares N1 each. All the preferences shares were issued and fully paid for;
800,000 ordinary shares have been issued and paid for atN1.20 per share.
On 31st December, 2009, the following balances were extracted from the books of the company after the Trading, Profit
and Loss Account had been prepared.
N
12% Debentures 100,000
Land and buildings 450,000
Plant and machinery 220,000
Motor vehicle 150,000
Profit and Loss Account as at January 2009 83,000
Creditors 305,100
Debtors 575,500
General reserve 30,000
Provision for depreciation:
(a) Land and Building 35,000
(b) Plant and Machinery 28,000
(c) Motor Vehicles 15,000
Cash at bank 206,300
Cash in hand 9,800
Stocks 363,000
Net – profit for the year 218,500
At the annual general meeting, the directors resolved and recommended the following:
(i) A dividend of 10% on the ordinary shares.
(ii) Payment of dividends on the preference shares.
(iii) N70,500 be transferred to the general reserve.
You are required to prepare:
(i) Appropriation account; and
(ii) Balance sheet as at 31st December, 2009.

476
2018/16 NABTEB Exercise 18.13
The Trial Balance of Evans Nig. Ltd as at 31st December, 2015 is as follows:
N N
Share capital 100,000
Motor van at cost 120,000
Provision for depreciation: Motor van 1/1/2015 44,000
Sales and purchases 389,814 538,266
Returns inwards and outwards 526 165
Rent and rates 7,500
Insurance 8,000
General expenses 9,000
Salary and wages 59,628
Interest 5,000
Debtors and creditors 50,820 13,512
Bad debts 1,629
Provision for doubtful debts 1/1/2015 2,053
Directors salaries 28,000
Stock 1/1/2015 85,716
Profit and loss account 1/1/2015 87,400
12% debentures 50,000
Bank 69,763
835,396 835,396
Additional information:
(i) Unpaid salaries and wages at 31st December, 2015 N7,000.
(ii) The provision for doubtful debts is to be made on debtors at 10%.
(iii) Rent and rates owing at 31st December, 2015 N4,000.
(iv) Stock at 31st December, 2015 N95,000.
(v) Depreciation on motor van is to be charged 20% per annum on cost.
(vi) Insurance paid in advance at 31st December, 2015 N2,800.
(vii) 10% dividend is proposed for 2015.
You are required to prepare:
(a) Trading, profit and loss account for the year ended 31st December, 2015.
(b) Profit and loss appropriation account for the year ended 31st December, 2015.

2008/8 Neco Exercise 18.14

I.K.B (Nig.) Ltd has an authorized capital of N200,000 divided into 200,000 ordinary shares of N1.00 each. The
following balances were extracted from the books of the company at December, 2004.
N
Issued capital (fully paid) 120,000
General reserve (1st January 2004) 20,000
Unappropriated profit brought forward 2,920
st
Profit for the year to 31 December, 2004 29,340
Fixtures and fittings at cost 9,600
Machinery at cost 74,000
Freehold premises at cost 96,000
Stock 17,700
Provision for depreciation:
Fixtures and fittings 3,200
Machinery 29,000
Bank overdraft 3,720
Sundry creditors 6,880
Provisions for bad debts 740
Sundry debtors 18,500
The directors decided to transfer N6,000 to reserve and to recommend a dividend of 15% on the issued ordinary shares.
You are required to prepare the appropriation account of the company for the year ended 31 st December, 2004 and a
balance sheet as at that date.

477
2001/9 Exercise 18.15
Ikemesit Enterprises Limited has an authorized share capital of N200,000 divided into 160,000 ordinary shares of N1
each and 40,000 6% preference shares of N1 each. 120,000 of the ordinary shares had been issued and fully paid, while
all the preference shares were issued and fully paid. The profit after taxation for the year ended 31 st December, 1999
was N49,000. The Profit and Loss Account had a credit balance of N24,000 as at 1st January, 1999.
Additional information:
(a) Write the preliminary expenses N1,700.
(b) Transfer N6,000 to general reserve and N4,000 to capital reserve.
(c) Half of the dividend due on the preference shares had been paid in July, 1999.
(d) An interim dividend of 5% had been paid on the ordinary shares in September, 1999, and the directors have
proposed a final dividend of 10%.
You are required to prepare the:
(i) Appropriation account; and
(ii) Balance Sheet extract as at 31st December, 1999.

2003/2 Exercise 18.16

(a) What is share premium?
(b) List 3 purposes for which a share premium is utilized

2005/38 Exercise 18.17

Which of the following is not an appropriation of profit?
A. dividends B. reserves C. provisions D. bonus issues

2005/39 Exercise 18.18

Which of the following is a capital reserve?
A. profit and loss account balance B. share premium C. gross profit D. share discount

2006/11 – 13
N
Ordinary share of N1.00 each 500,000
8% preference shares of N1.00 each 200,000
Interim dividends paid:
- Ordinary shares 40,000
- Preference shares 12,000
Profit for the year 100,000

2006/11 Exercise 18.19

If no profit is to be retained, proposed preference shares dividend is
A. N28,000 B. N16,000 C. N12,000 D. N4,000

2006/12 Exercise 18.20

If no profit is to be retained, proposed ordinary shares dividend is
A. N48,000 B. N14,000 C. N40,000 D. N28,000

2006/13 Exercise 18.21

The dividend per ordinary share for the year is
A. N0.88kobo B. N0.40kobo C. N0.20 D. N0.17kobo

2007/46 Exercise 18.22

Holders of ordinary shares do not have the right to
A. participate in additional issue of shares B. vote at annual general meetings
C. elect the board of directors D. receive dividends at predetermined rate
2007/48 Exercise 18.23
An example of capital gain is
A. premium B. bonus C. shares D. debenture
2002/39 NABTEB Exercise 18.24
The document that guides the relationship of a company with the outside world is referred to as
A. articles of association B. prospective
C. memorandum of association D. corporate affairs commission
478
2022/50 NABTEB Exercise 18.25
When shares are sold at part it means that they are issued at
A. the market value B. the nominal value C. a discount D. a premium

2022/28 Neco Exercise 18.26

Adex company limited issued ordinary shares of N1 each to the public at N1.20k. The shares were issued at
A. discount B. loss C. par D. profit E. premium

2022/44 Neco Exercise 18.27

The persons responsible for the formation of a company are called
A. directors B. promoters C. shareholders D. sponsors E. subscribers

2004/2 Nov Exercise 18.28

(a) What is a debenture stock?
(b) Explain with examples the following terms:
(i) Par value;
(ii) Discount;
(iii) Premium.

1990/4 Exercise 18.29

ABC (Nig.) Ltd issued 200,000 ordinary shares of N1.00 each at N1.20k per share payable as follow:
(a) 25k per share on application.
(b) 40k per share on allotment (including the premium).
(c) 35k per share on first call.
(d) 20k per share on second and final call.

Required: show the ledger accounts to record the above information.

1991/5 Exercise 18.30

ABC Ltd, Manufacturing toys. Its authorized shares capital is N800,000 made up of 600,000 ordinary shares of N1 each
and 400,000 3%% preference shares of N0.50 each. During the year ended 31st December, 1989, the following balance
were extracted from the financial records of the company.
Issued and fully paid capital: N
Ordinary shares of N1.00 each 500,000
3% preference shares of N0.50 each 100,000
General reserve 30,000
Goodwill 20,000
5% debentures 20,000
Stock at 31st December, 1989 25,000
Net profit for the year 80,000
Land and building at cost 517,500
Fixtures and fittings at cost 25,000
Motor vehicles at cost 80,000
Provision for depreciation:
- Fixtures and fittings 2,500
- Motor vehicles 16,000
Creditors 10,000
Debtors 50,000
Bank 40,000
Cash in hand 1,000

Additional information:
(a) Provision to be made for the preference shares dividend. The directors recommended ordinary share dividend of
4%.
(b) Goodwill to be written off over four years.

Prepare:
(i) Appropriation Account for the year ended 31st December, 1989 and
(ii) Balance Sheet as at that date.

479
1993/17 to 18
Use the following information to answer questions 17 to 18
N
10,000 ordinary shares of N1 each 10,000
5,000 5% preference shares of N1 each 5,000
Profit and loss account 8,000
8% debenture 10,000
Creditors 3,000
Bank overdraft 2,000
Plants and machinery 10,000
Furniture and fittings 3,000
Stock 8,000
Debtors 5,000
1993/17 Exercise 18.31
What is the amount of share capital
A. N33,000 B. N25,000 C. N23,000 D. N15,000 E. N10,000
1993/18 Exercise 18.32
What is the value of shareholder’s equity?
A. N25,000 B. N23,000 C. N18,000 D. N15,000 E. N10,000
1996/1 Exercise 18.33
The following list of balances were extracted from the books of Zingarella (Nig.) Limited as at 31st December, 1994.
N N
20,000 ordinary shares of N1 each 200,000
50,000 8% preference share of N1 each 50,000
10% debentures 50,000
Share premium 8,000
General reserve 10,000
Profit and loss account 1/1/94 2,500
Freehold premises 150,000
Plant and machinery (cost N300,000) 180,000
Stock 1st January, 1994 23,800
Purchases and sales 281,600 409,641
Returns inwards and outwards 10,300 17,350
Discounts allowed and received 6,450 9,250
Debtors and creditors 30,030 20,020
Provision for bad debt 1/1/94 905
Wages and salaries 21,400
Postages and telephone 5,800
Debenture interest 3,000
Directors fees 15,600
Insurance expenses 2,000
Interim dividends: Preference 3,000
Ordinary 5,000
Cash and bank balances 39,686
777,666 777,666
Additional information:
(i) The authorized share capital of the company is N400,000 ordinary shares of N1 each and 100,000 8%
preference shares of N1 each.
(ii) Stock on 31st December, 1994 was N27,280.
(iii) During the year, goods worth N6,500 were lost to theft. No entry had been made in the books to reflect this.
(iv) Insurance prepaid was N200.
(v) During the year, a plant originally losting N50,000 and on which N30,000 depreciation had been provided was
sold for N22,000. This transaction had been included on sales.
(vi) Depreciation has been and is to be provided on plant and machinery at 10% on cost.
(vii) Provision for bad debt is to be maintained at N2,500.
(viii) The directors wish to provide for:
i. a final preference dividend;
ii. a final ordinary dividend of 5%.
You are required to prepare:
(i) Trading, Profit and Loss and Appropriation Accounts for the year ended 31st December, 1994 and
(ii) Balance Sp-oheet as at that date.

480
Chapter Nineteen
CONSIGNMENT ACCOUNTS
Definition of consignment of goods
A consignment of goods is the act of sending goods by the owner (sender/principal) to his representative (receiver/agent)
who in turn possession of the goods, warehouse and sells them on behalf of the owner for a commission.

Features:
1. The possession of the goods transfers from one party to another.
2. The consignor is responsible for all the risks expenses and damages associated with the consigned goods.
3. The relation of the persons in the consignment is that of consignor (principal) and the consignee (agent) and not of
the buyer and seller.
4. Only the possession of the goods is with the consignee and not the ownership.
5. Profit or loss on the sale of the goods belongs to the consignor.
6. The consignor sends Pro-forma invoice. While the consignee sends Account sales.

Related terms used in consignment of goods

(i) Consignment: This is the goods/items sent by the owner of the receiver or agent for ultimate sale.
(ii) Consignor: This is the person who purchases goods and sends to agents. He is also called the principal or the
sender.
(iii) Consignee: This is the person whom goods are sent for selling. He is also referred to as agent or representative or
the receiver.
(iv) Ordinary commission: This is a fee payable by consigner to consignee for sale of goods when the consignee does
not guarantee the collection of money from ultimate customer. This is called sales commission.
(v) Del Credere commission: This is additional commission payable to the consignee for taking over additional
responsibility of collecting money from customers.
(vi) Account sales: This is a periodical statement prepared by consignee to be sent to the consignor giving details of
all sales, expenses incurred and commission due for sale, damaged – in – transit and deducting the amount of
advance remitted by him.
(vii) Loss of goods – in – transit: This is the total amount/value of goods damaged or lost before reaching the
consignee. It is determined by using the formulae below:
Quantity lost Consignor′ s cost
Cost of goods lost =
Quantity consigned
×
1
(viii) Stock deficiency: This is the total amount of goods missing in the hand of the consignee. It is determined using
the formulae below:
Quantity lost Consignors+consignee cost
Cost of goods lost = ×
Quantity consigned 1
(ix) Unsold stock: This is the total value of goods remain unsold in the hands of the consignee at the accounting year
– end.
Quantity unsold Consignor′ s cost+consignee′ s relevant cost
Unsold stock = ×
Quantity consigned 1
(x) Consignment account: This is the account prepared to determine the profit or loss on consignment transaction.

481
Differences between the consignment and sales
Consignment Sales
1. When goods are sent by one merchant to another for sale When goods are sent by a merchant to its buyer
of such goods on commission basis, then it is called to receive the value of such goods, then it is
consignment. called a sale.
2. Ownership is not transferred to consignee in the case of In the case of sale, the ownership of goods passes
consignment. immediately to the buyer.
3. The relationship between consignor and consignee is one In the case of a sale, expenses after delivery are
of principal and agent. borne by a buyer.
4. In the case of consignment, consignor can send goods to In the case of sale, a seller sends goods to the
consignee without receiving order from him. buyer only after receiving order from him.
5. The risk in the goods is not transferred to the consignee In the case of a sale, the risk is immediately
dispute the transferred to the consignee despite the transferred to the buyer.
transfer to the possession of goods, consignee holds the
goods at the risk of the consignor, so any damage or loss
to the goods is, therefore borne by consignor.
6. In consignment, unsold goods are returned to consignor. In a sale, goods are sold to earn profit.
7. Consignee has to submit account sales statement to the A buyer not to submit such type of statement.
consignor.
Expenses on consignment
This are those expenses which are incurred on consignment by consignor or consignee. Non recurring expenses must be
included in the cost of the consignment for arriving at the consignment, this expenses are added. Some of these expenses
are: freight, rent, dock expenses, fire insurance, carriage, marine insurance, etc.
Account Sales
This is a statement specifying the price at which the goods are sold, the commission earned by the consignee, the
expenses incurred by the consignee on behalf of the consignment and the net balance for which the consignee is liable.
Format of Account Sales
Account sales is a simple statement which consignees prepare to communicate to the consignor their consignment related
financial transactions and activities. Also, there is no specific or standard format of preparation of account sales.
However, the consignor may guide the consignee regarding the order in which the information may be arranged in the
account sales. The best format is the one which fully satisfies the information needs of the consignor.

XYZ ACCOUNT SALES 31ST DECEMBER, 20XX

N N
Sales X
Less: Expenses
Dock charges X
Port dues X
Insurance X
Import duties X
Landing fee X
Warehousing X
Sales commission X
Del credere commission X (X)
Sight draft X

E & O. E
31st Dec. 20xx _____________
Date Sign (consignee
Books of the Consignor
The relevant account’s to be prepared in the books of the consignor are:
(i) Consignment Account: This account assist in the determination of the profit or loss on consignment. It is debited
with all expenses incurred by both the consignor and the consignee on the consignment, and credited with proceeds
from sales of goods at selling price, insurance claim for goods lost in transit and the value of closing stock (unsold stock).
(ii) Consignee’s Account: This is the personal account of the consignee. This account is debited with sales value of
consignment. All expenses incurred directly by the consignee with respect to the consignment is credited to the
consignee’s account.
(iii) Goods sent on consignment Account: This account records the total value of goods sent to consignee at cost. It is
credited with consignment at cost.
482
Books of the Consignee
The consignee as we known is a mere agent to the consignor for the goods consigned to him. The consignment do not
belong to him, so he only keeps custody of the goods. Therefore, he should not record the goods in his books. All he
needs is to open a personal account in the name of the consignor in his books.

Illustration 19.1
On January 15, 2015 ONORIODE ABOLADE ENTERPRISES sent on consignment 200 T.V. set costing N50,000
each to PRAMEOVIC electronics, Ughelli Nigeria. Onoriode Abolade Enterprises paid foreign and shipping charges
N430,000 and insurance N110,000. On March 20, the company received the following account sales from
PRAMEOVIC electronics.

Account sales of 500 TV sets

N N
200 T.V. sets at N80,000 16,000,000
Less expenses:
Landing charges 240,000
Port dues 120,000
Import duties 400,000
Commission 5% 800,000 (1,560,000)
Signed draft enclosed for E. & O. E. 14,440,000

PRAMEOVIC ELECTRONICS, Ughelli, Nigeria

You are required to show the necessary entries in the books of the consignor.

Solution
Dr GOODS SENT ON CONSIGNMENT ACCOUNT Cr
2015: N 2015: N
March 20 Trading account 10,000,000 Jan 15 Consignment to Prameovic 10,000,000

Dr CONSIGNMENT ACCOUNT Cr
2015: N 2015: N
Jan 15. Cost of consignment 10,000,000 Mar. 20 Sales 16,000,000
Freight & shipping 430,000
Insurance 110,000
Landing fee 240,000
Port duties 120,000
Import duties 400,000
Commission (5%) 800,000
12,100,000
Profit on consignment 3,900,000 _________
16,000,000 16,000,000

Dr CONSIGNEE ACCOUNT Cr
2015: N 2015: N
March20. Sales 16,000,000 Mar. 20 Landing fees 240,000
Port dues 120,000
Import duties 400,000
Commission 800,000
1,560,000
___________ Draft 14,440,000
16,000,000 16,000,000

Dr PROFIT AND LOSS ACCOUNT Cr

2015: N 2015: N
Mar. Profit & Loss 3,900,000 Jan 15 Consignment a/c 3,900,000

483
Illustration 19.2
MERIT sends the following account sales to CARINA with respect to consignment from the latter to the former.

ACCOUNT SALES
N N
Sales: Credit 270,000
Cash 1,155,000 1,425,000

LessExpenses:
Transportation 14,000
Selling expenses 36,000
Shop rent _8,000
58,000
Balance due to consignor 1,367,000
31st Aug. 2017
Date RAD
Signed.

Carina purchased the goods at total cost of N1,000,000. Each item costs N10,000. Carina incurred the following
expenses on the consignment:
Transportation N24,000
Insurance N16,000
As at the time Merit sent the accounts sales, 15 units of the items were still unsold. They were later sold at N16,000
each and the following expenses borne by merit:
Selling expenses N12,000
Bad debt N10,000
Merit is to get a commission of 10% on all sales and 5% Del credere commission on credit sales. The remaining 5 units
of the items were lost in transit. The insurance company paid the full claim on the items.
You are required to show the relevant accounts in the book of Carina.
Solution
BOOKS OF CONSIGNOR
Dr Goods sent on consignment account Cr
N N
Trading account 1,000,000 Consignment to merit 1,000,000

(ii)
Dr Consignment Account Cr
N N
Cost of consignment 1,000,000 Sales: Credit 270,000
Expenses: Carina: Cash 1,155,000
Import duty 24,000
Insurance 16,000 Insurance claim 52,000
Expenses: Merit:
Transportation 14,000 Stock c/d 159,480
Selling expenses 36,000
Shop rent 8,000
Commission: Sales (10%) 142,500
Del Credere (5%) 13,500
Profit on consignment 382,480 ________
1,636,480 1,636,480
Balance b/d 159,480
Consignee: (Merit) Consignee: (Merit)
Selling expenses 12,000 Sales (15 × 16,000) 240,000
Commission 24,000
Balance c/d 44,520
240,000 240,000
Balance b/d 44,520

484
(iii)
Dr Consignees Account (Merit) Cr
N N
Sales 1,425,000 Shop rent 8,000
Transportation 14,000
Selling expenses 36,000
Commission 156,000
_________ Bank draft 1,211,000
1,425,000 1,425,000
Sales (15 × 16,000) 240,000 Consignment:
Selling expenses 12,000
Commission 24,000
Bank draft 204,000
240,000 240,000

Dr Insurance Claim Account Cr

N N
Consignment 52,000 Bank 52,000

Notes:
(i) Commission received by consignee (Merit):
*Sales commission = (10% of N1,425,000)
= 0.1 × 1,425,000
= N142,500

*Del credere = (5% of N270,000)

= 0.05 × 270,000
= N13,500

Total commission = N142,500 + N13,500

= N150,000

(ii) Insurance claim: 5% of consignor’s cost

Consignor’s total cost = (N1,000,000 + N240,000 + N16,000)
= 1,040,000

∴ Insurance claim = 0.05 × N1,040,000

= N52,000

Quantity sold Quantity unsold

(iii) Unsold stock =[Quantity consigned × consignor cost] + [Quantity consigned−Quantity lost ×

consignee cost]

15 1,040,000 15 22,000
=[
100
× ] + [ × ]
1 95 1

= (0.15 × 1,040,000) + (0.1579 × 22,000)

= N156,000 + N3,473.7
= N159,480.
(iv) Commission on unsold stock = 10% of (unsold stock × insurance cost)
= 0.1 × (15 × N16,000)
= 0.1 × N240,000
= N24,000

485
Illustration 19.3
Barry White Ltd. of Belgium consigned goods to the value of N500,000 to their agent Shalom Enterprises of Nigeria.
He paid Freight N1,000; insurance N10,000; Shipping charges N10,000 and they drew a bill on Shalom Enterprises at
60 days for N375,000. This bill, Barry White Ltd. discounted with their bankers, the charge therefore being N5,000. In
due course, Shalom Enterprises renders account sales showing the amount for which the goods were disposed off as
being N625,000. He deducts his commission which is 9% and expenses on landing N2,500; warehouse rent N2,500 and
remits a draft on Rainbow Bank for the balance.

Show the necessary ledger accounts in the books of the consigner and consignee.
Solution
In the book of the consignor (Barry White Ltd.)
(i)
Goods Sent on Consignment Account
N N
Consignment to:
Trading Account 500,000 Shalom Enterprises 500,000

(ii)
Consignment Account
N N
Goods on consignment 500,000 Proceed from sales 625,000
Freight 1,000
Insurance 10,000
Shipping charge 10,000
Landing charge 2,500
Warehouse rent 2,500
Commission (9% of 625,000) 56,250
Profit on consignment 42,750
625,000 625,000

(iii)
Bills Receivable Account
N N
Shalom Enterprise 375,000 Cash 375,000

(iv)
Discount Charges Account
N N
Bank 5,000 Profit and Loss Account 5,000

(v)
Consignee (Shalom Ent.) Account
N N
Sales 625,000 Bills receivable 375,000
Landing charges 2,500
Warehouse rent 2,500
Commission received 56,250
Bank draft 188,750
625,000 625,000

486
(vi)
Cash Book
N N
Bill receivable 375,000 Discount charges 5,000
Consignee (draft) 188,750 Freight 1,000
Insurance 10,000
Shipping charges 10,000
Balance c/d 537,750
563,750 563,750
Balance b/d 537,750

In the books of the consignee (Shalom Enterprises):

(i)
Consignor (Barry White) Account
N N
Landing charges 2,500 Sales 625,000
Warehouse rent 2,500
Bills payable 375,000
Commission 56,250
Cash 188,750
625,000 625,000

(ii)
Bills Payable Account
N N
Cash 375,000 Barry White Ltd. 375,000

(iii)
Commission Account
N N
Profit and Loss Account 56,250 Barry White Ltd. 56,250

(iv)
Cash Book
N N
Proceed from sales 625,000 Langes charges 2,500
Warehouse rent 2,500
Commission 56,250
Bills payable 375,000
Draft 188,750
625,000 625,000

Illustration 19.4
Goods amounting to N320,000 were consigned to Odunfa Ventures Ltd on June 20, 2019 to Lala Ltd. in Oshogbo. On
the same date expenses paid in cash by Odunfa Ventures Ltd in respect of goods were Freight N12,400 and Insurance
N10,000 on receipt of the goods on 21st July, 2019 a bill was drawn by Odunfa Ltd on Lala Ltd for N150,000, payable
in 3 months time which was discounted by the company for N148,000 on 30th July. An account sales received from Lala
Ltd on 30th July disclosed that he had goods on hand to the value of N40,000 at original cost and sales amounted to
N410,000. It further showed that he had made deductions for commission on sales to date of N12,000 and for selling
expenses N5,000. The balance due for goods was settled by Lala Ltd by means of a two months bill accompanying the
account sales which Odunfa Ltd discounted with its bank being charged N2,400.

Show the ledgers accounts:

(a) In the books of Odunfa Ventures ltd;
(b) In the books of Lala Ltd.

487
Solution:
(a) In the books of Odunfa Ventures Ltd.
(i)
Goods sent on consignment account
N N
Consignment to:
Trading Account 320,000 To Lala Ltd 320,000

(ii)
Consignee (Lala Ltd.) Account
N N
Proceed from sales 410,000 Selling expenses 5,000
Bill receivable 150,000
Commission 12,000
Draft 243,000
410,000 410,000

(iii)
Consignment Account
N N
Good sent on consignment 320,000 Sales 410,000
Freight 12,400 Closing stock 42,800
Insurance 10,000
Discount charges 2,000
Selling expenses 5,000
Discount charges 2,400
Commission 12,000
Profit on consignment 89,000
452,800 452,800

Stock Consignor Expenses

(i) Closing stock: Stock + [Cost of Consignment × 1
]

40,000 12,400 + 10,000

= N40,000 + [ × ]
320,000 1

= N40,000 + N2,800 = N42,000

(ii) Profit on consignment: N452,800 – N363,800 = N89,000

(iv)
Bills Receivable Account
N N
Lala Ltd – (1st Bill) 150,000 Bank 148,000
Lala Ltd – (2nd Bill) 243,000 Discount 2,000
Bank 240,600
Discount 2,400
393,000 393,000

(v)
Cash Book
N N
Bills receivable 150,000 Discount – 1st Bill 2,000
Bills 243,000 Discount – 2nd bill 2,400
Freight 12,400
Insurance 10,000
Balance c/d 366,200
393,000 393,000

(i) Balance c/d: N393,000 (DR) – N26,800 (CR)

= N366,200 (DR)
488
(b) In the books of Lala Ltd.
(i)
Consignor Account
N N
Bills payable 150,000 Sales 410,000
Selling expenses 5,000
Commission 12,000
Bills payable – Draft 243,000 Insurance 10,000
410,000 410,000

(ii)
Bills Payable Account
N N
Balance c/d 393,000 Odunfa Venture Ltd. 150,000
Odunfa Venture Ltd. 243,000
393,000 393,000

(iii)
Commission Account
N N
Profit and Loss Account 12,000 Odunfa Venture Ltd. 12,000

Illustration 19.5
Salisu of Kano, Nigeria purchased 300 leather bags at N2,000 per bag. On 1st October, 2021 he sent the bags to his agent
Olembe of Younde of Cameroon with a note that he desired, if possible to obtain N3,000 per bag. The bags were sold
by Olembe on 31st October at N2,900 per bag, the charges being dock charge N2,962; insurance and storage N3,560;
carriage from dock N1,420. Olembe is to receive 2% sales commission and additional 1% del credere commission.

Prepare the account sales by Olembe of Younde Cameroon to Salisu of Kano.

Solution:
OLEMBE ACCOUNT SALES 31ST OCTOBER, 2021
N N
Sales (300 × 2,900) 870,000

Less: Expenses
Dock charges 72,962
Insurance & storage 103,560
Carriage 31,420
Sales commission 17,400
Del – credere 8,700 (234,042)
Sight draft 635,958

E & O. E
31st October, 2021 Sign
(Consignee)
2
(a) Sales commission: 100 × 870,000 = N17,400

1
(b) Del credere: × 870,000 = N8,700
100

Illustration 19.6
On March 8, 1995, PZ a Lagos trader consigned 240 crates of goods to MB an agent in Ghana. The cost of the goods
was N25 a case. PZ paid carriage to the port N294 and insurance N186. On 30 April, 1995, PZ received account sales
from MB showing that 200 cases had been sold for N7,000 and MB had paid freight at the rate of N2 per case and port
charges amounting to N372. MB was entitled to a commission of 5% on sales. A sight draft for the net amount due was
enclosed with the account sales.

You are required to show the accounts of the above transactions in the ledger of PZ and to show the transfer to profit
and loss account at 30th April, 1995. (Neco Adapted)
489
Solution
In the books of PZ (Consignor)
(i)
Goods sent on Consignment Account
N N
Consignment to:
Trading Account 6,000 To MB (240 × 25) 6,000

(ii)
Consignment Account
N N
Cost of consignment 6,000 Sales (200 × 25) 7,000
Carriage (PZ) 294 Stock – unpaid 1,080
Insurance (PZ) 186
Freight (MB) (240 × 2) 480
Port charges (MB) 372
Sales commission (5%) 350
Profit on consignment 398
8,080 8,080

(a) Stock (unsold):

Stock Consignors Expenses
Stock + [Cost of Consignment × ]
1

Stock = (40 × 25) = N1,000

1000 294 + 186

= 1000 + [6000 × 1
]

= 1000 + 80 = N1,080
(b) Profit on consignment = N8,080 – 7,682 = 398

(iii
Consignee’s (MB) Account
N N
Sales 7,000 Freight 480
Port charges 372
Commission 350
Sight draft 5,798
7,000 7,000

(iv)
Profit and Loss Account
N N
Profit & Loss 398 Consignment a/c 398

Illustration 19.7
On 14th of March, 2022 Olumide of Ilara send on consignment 100 sacks of Kolanut to Funke of Zungeru at N50,000
per sack. on April 39th 2022, Funke forwarded an account sales with a draft for the balance, showing the following
transactions.
(i) 60 sacks sold at N85,000 each and 30 sacks at N80,000.
(ii) Port and duty charges N350,000.
(iii) Storage and carriages N250,000.
(iv) Commission on sales 5% and del credere commission 3%.

You are required to prepare the necessary ledgers account to record the transaction above.

490
Solution:
(i)
Goods Sent on Consignment Account
N N
Consignment to:
Trading Account 5,000,000 To Funke (100 × 50,000) 5,000,000

(ii)
Consignment to Funke Account
N N
Cost of consignment 5,000,000 Proceeds from sales:
Port and duty charges 350,000 - (60 × 85,000) 5,100,000
Storage and carriage 250,000 - (30 × 80,000) 2,400,000
Sales commission (5%) 375,000 Closing stock 380,000
Del – credere (3%) 225,000
Profit on consignment 1,680,000
7,880,000 7,880,000

10 3,800,000
(a) Closing stock: 100 × 1
= N380,000
(b) Profit on consignment = 7,880,000 – 6,200,000 = N1,680,000

(iii)
Consignment Account (Funke)
N N
Sales 7,500,000 Port and duty charges 350,000
Storage & carriages 250,000
Sales commission 375,000
Del–credere 225,000
Sight draft 6,300,000
7,500,000 7,500,000

(iv)
Profit and Loss Account
N N
Profit and loss 1,680,000 Consignment 1,680,000

Illustration 19.8
Fatimah a consignor dispatched 500 books at a total cost of N1,250,000 to Mariam her consignee. 20 books were lost
in transit. Mariam further incurred expenses apart from selling expenses of N240,000. The closing stock at the end of
the period was 30 books.

You are required to:

(i) Show the value of stock cost.
(ii) Closing stock.
Solution
Stock lost Consignor′ s Attributable cost
(i) Value of stock lost:
Total of goods consigned
×
1
20 1,250,000
= 500 × 1
= N50,000
(ii) Value of closing stock:
Unsold stock Unsold stock Consignee cost
[ × Consignor Attributable Cost] + [ × ]
Total of goods consigned Total Stock Consigned−Quantity lost 1
30 1,250,000 30 240,000
=[ × = N75,000] + [ × ]
500 1 500−20 1
30 240,000
= 75,000 + [ × ]
480 1

= 75,000 + 15,000 = N90,000

491
2022/37 NABTEB
The following items are on the debit side of a consignment account except
A. dock charges B. transport cost C. proceeds of sales D. cost of the goods
Answer: Proceeds of sales (C)

2019/43 NABTEB
In the consignee’s record, the accounting treatment of expenses paid for on behalf of the consignor is debit
A. cash account, credit cash account B. cash account, credit consignor’s account
C. consignor’s account, credit cash account D. cash account, credit consignee’s account
Answer: Consignor’s account, credit cash account (C)

2022/5 Neco (PC)

The purpose of consignment account is to determine
A. carriage on sales B. closing stock C. commission paid D. profit or loss E. total sales
Answer: Profit or loss (D)

2022/51 Neco (PC)

The person who forwards goods to an agent is a
A. consignee B. consignor C. contractor D. seller E. sender
Answer: Consignor (B)

2022/53 Neco (Internal)

The owner of goods in a consignment account is
A. agent B. broker C. consignee D. consignor E. producer
Answer: Consignor (D)

2022/50 Neco
A consignee can be referred to as
A. agent B. offerer C. principal D. stay E. storebroker
Answer: Agent (A)

2016/48
The process in which a consignor sends goods to a consignee is called
A. account sales B. consignment C. double entry D. joint venture D. stock transfer
Answer: Consignment (B)

2016/53 Neco
Which of the following is not found in a consignment account?
A. bank charges B. carriage on sales C. contra entry D. insurance & freight E. warehousing charges
Answer: Contra entry (C)

2005/31 Neco
The parties to goods on consignment are
A. consignor and consignee B. consignor and principal C. consignee and agent D. consignee and delcredere
agent
E. commission agent and consignee
Answer: Consignor and consignee (A)

2000/58 Neco
An arrangement whereby goods are sent to an agent who tries to sell them on behalf of an agent on commission basis is
called
A. consignor B. consignee C. consignment D. proforma invoice E. merchant
Answer: Consignment (C)

2014/44 NABTEB (Dec)

An agent who sells goods on behalf of the principal receives a remuneration called
A. commission B. del credere commission C. salary D. wages
Answer: Commission (A)

492
2011/3 NABTEB
On January 1, 2005, Usman Madaki consigned to Nwoke M, 300 bales of Damask materials costing N300,000. He
incurred the following expenses:
N
Carriage to port 5,000
Telephone 1,000
Warehousing 500

Nwoke M, received the goods on 27th January, 2005 and paid the following expenses:
N
Dock and landing charges 3,700
Warehousing 400
Insurance 3,000
Sales commission wage 5% and del credere commission 2½%. On 31st March, 2005, Nwoke sold the goods for
N500,000 and settled the net proceeds on 30th April, 2005.

You are required to prepare: (a) Account sales;

(b) Consignment to Nwoke, M. (c) Consignment outwards account.
Solution
(a)
Account sales of Nwoke, M as at 30th April, 2005
N N
Sales 500,000
Deduct: Expenses:
Dock and landing 3,700
Warehousing 400
Insurance 3,000
5% sales commission 25,000
2½ del credere commission 12,500 (44,600)
Balance due to consignor 455,400

30th April, 2005 _______________

Date Signed
(b)
Consignment to Nwoke, M.Enterprise
N N
Cost of consignment 300,000 Proceed from sales 500,000
Expenses: Usman
Carriage to port 5,000
Telephone 1,000
Warehousing 500
Expenses: Nwoke
Dock & Landing fee 3,700
Warehousing 400
Insurance 3,000
Commission 37,500
Profit on consignment 148,900
500,000 500,000
(c)
Dr Consignment Outwards Account Cr
2005: N 2005: N
Jan. 27 Trading account 300,000 Jan 1 Consignment to Nwoke, M. 300,000

493
2011/8 Neco
On April 1st Horn and Co. had consigned to Moses J. goods costing N4,000 on which they paid freight, insurance e.t.c.
amounting to N500.
On August 31st, Moses J.’s first account sales was received, showing that he had effected sales of N2,800 of which
N2,500 had been received in cash. His expertise to date was N400 and commission of 5% on gross sales.

On receipt of the Account Sales, the consignment Account was balanced off, stock being valued at N3,000. A further
Account sales was received on December 31st, showing that the balance of goods had been sold for N3,450 and the cash
collected, debtors had also paid, less a discount of 5 percent. The expenses of Moses were N120, and commission of
5 percent.
You are required to prepare the accounts in the books of Horn and Co. to December 31st assuming Moses J. remitted the
balance due with each Account sales.
Solution

(a) BOOKS OF HORN & CO.

Dr Goods on Consignment Account Cr
N N
April 1st Trading account 4,000 Aug 31st Consignment to Moses J. 4,000

(b)
Dr Consignment to Moses, J. Account Cr
April 1st N Aug 31st: N
Cost of consignment 4,000 Sales: Cash 2,500
Freight & insurance 500 Credit 300 2,800

Aug 31st: Stock c/d 3,000

Expenses 400
5% commission 140
Profit on consignment 760
5,800 5,800
st
Dec 31 :
Balance b/d 3,000 Dec 31st
Expenses – consignment 120 Sales 3,450
Commission 173
Balance c/d 157
3,450 3,450

(c)
Consignee Account
N N
Sales 2,800 Selling expenses 400
Commission 140
Bank draft 2,260
2,800 2,800

Sales 3,450 Consignment:

Selling expenses 120
Commission 173
Bank draft 3,157
3,450 3,450

2014/7 NABTEB
In March, Universal Music Ltd of Gambia forwarded to Omega suppliers Ltd. their agents in Nigeria 60 radiograms and
36 DVD stereo invoiced at cost. The radiograms costing N12,130 each and the DVD stereo N2,700 each. On March 24th
they paid freight and insurance on the consignment amounting to N141,350. The shipment was accompanied by a bill
of exchange dated March 29th for N750,000 which was accepted by Omega Suppliers Ltd. On arrival on May 19th Omega
Suppliers sold the radiograms at N17,500 each and the DVD stereos at N4,250 each. They were entitled to 5%
commission on sales and their disbursements in connection to the transaction amounted to N39,750.
On May 28th they remitted the balance due to Universal Music Ltd. by telegraphic transfer.

494
You are required to prepare: (a) The accounts sales forwarded by Omega Suppliers Ltd.
(b) The ledger accounts recording the transaction in the books of Universal Music Ltd.
Solution
(a)
Account Sales of Omega Suppliers Ltd
N N
Sales: Radiograms (N17,500 × 60) 1,050,000
DVD stereos (N4,250 × 36) 153,000
1,203,000
Deduct:
Bills payable 750,000
Market expenses 39,750
5% commission 60,150 (849,900)
Balance due to consignor 353,100

May 28th 2016 _________

Date Signed
(b)
Dr Goods on consignment account Cr
N N
March 1: Trading account 825,000 March 1: Consignment to Omega: 825,000

Dr Consignment to (Omega suppliers) Account Cr

N N
Cost of consignment 825,000 Proceed from sales 1,203,000
Expenses:
Freight and insurance 141,350
Marketing expenses 39,750
5% commission 60,150
Profit on consignment 136,750
1,203,000 1,203,000

Dr Consignee’s Account (Omega Suppliers Ltd) Cr

N N
May 19 Consignment Account (sales) 1,203,000 May 19: Marketing expenses 39,750
Commission (5%) 60,150
Bills payable 750,000
________ Bank draft 353,100
1,203,000 1,203,000

Dr Bills Receivable Account Cr

N N
March 24 Omega supplies Ltd 750,000 March 24 Cash/bank account 750,000

FWBA21
On 8th February, 1985 P. J., a Lagos trader, consigned 120 cases of goods to M.B., an agent in London. The cost of the
goods was N25 a case. P. J. paid carriage on the port N147 and insurance N93.
On 31st March, 1985 P. J. received an account sales from M.B., showing that 100 cases had been sold for N3,500 and
M.B had paid freight, at the rate of N2 a case, and port charges amounting to N186. M.B was entitled to a commission
of 5% on sales. A sight draft for the net amount due was enclosed with the Account Sales.

You are required to show the accounts for the above transactions in the ledger of P.J. and to show the transfer to Profit
and Loss Account at 31st March, 1985.

495
Solution

Dr Goods sent on consignment Account Cr

1985 N 1985: N
Feb. 8 Trading Account 3,000 Feb. 8 Consignment to M.B. (120 ×N25) 3,000

Dr Consignment (to M.B) Account Cr

N N
Cost of consignment 3,000 Sales: (N35 × 100) 3,500
Expenses (P.J):
Carriage 147 Closing Stock (WK1) 733.20
Insurance 93
Expenses (M.B):
Freight (N2 × 120) 240
Port charges 186
Commission (5%) 175
Profit on consignment 392.2
4,233.20 4,233.20

Consignees Account
N N
Sales 3,500 Freight 240
Port charges 186
Commission (5%) 175
Bank draft 2,899
3,500 3,500

Dr Profit and loss on consignment Account Cr

1985 N 1985: N
March 31 Profit and Loss Account 392.20 March 31 Consignment to M.B 392.20

Workings:
20
(i) Closing stock = × (3,000 + 147 + 93 + 240 + 186)
120
20
= × 3,666 = N611
120
2000/2 Neco Exercise 19.1
(a) Differentiate between a ‘consignor’ and a ‘consignee’.
(b) Identify, and briefly explain, THREE main books of accounts that will be opened in the consignor’s book when
goods are sent on consignment.

2012/1 Neco Exercise 19.2.

Explain each of the following items: (i) Consignee. (ii) Consigner. (iii) Consignment outwards.
(iv) Del – credere commission. (v) Account sales.

Exercise 19.3
On 15thNovember, 1995, Ufot of Ibadan consigned 300 cases of wooden items to Pedlar of London at Ȼ10 per case. On
31st December, 1995, Pedlar forwarded an account sales, with a draft for the balance. Showing the following
transactions.
1. 250 cases sold at Ȼ20 each and 50 at Ȼ18 each.
2. Port and duty charges Ȼ720.
3. Storage and carriage charges Ȼ410
4. Commission on sales 5% + 1% del – credere.

You are required to prepare:

(a) Account sales, and
(b) Show the Consignment Inward Account in the books of Pedlar. Ignore interest.
496
Exercise 19.4.
Uka and sons of Aba consigned 100 cartons of goods to Dauda of Kano on 1 st January, 1998. The goods cost N60 per carton. Uka
and sons paid freight, insurance and carriage amounting to N150 and drew a 3 months bill of exchange for N4,000 on Dauda. The
bill was discounted for N3,960.
On arrival of the goods in Kano, Dauda paid landing and custom charges N135. By the consignment agreement, Dauda is entitled
to a commission of 5 percent on sale. On June 30, 1998, Uka and sons received an account sales which showed that Dauda sold 50
cartons at N95 each and 10 cartons at N90 each. A banker’s draft was enclosed for the balance due on sales.
Show the records off the transactions in Uka and Sons books.
2017/16 NABTEB (ADVANCED) Exercise 19.5
On March 15th 2003, Adeniyi consigned to his Agent, Benson, 1000 flower pots which costN1 each and insurance and freight
amounted to N50. Benson is entitled to a commission of 10% of Gross Sales. Benson immediately returned 100 flowers pots which
were slightly chipped and paid return freight and insurance of N10.
Adeyemi whose financial year ended on 31 st December, 2003 received from Benson an account sale made up to date, this shows
that Benson had sold 600 flower pots for N1,200 and had paid warehouse charges of N25 on the whole of the consignment and
carriage on the flower pot sold at N15. Benson sent a sight draft in settlement of the balance money on which Adeyemi incurred
bank charges of N5.
Benson sold the remaining flower pot for N400, incurring expenses of N10. He sent Adeyemi a second account sales made up to
31st October, 2003, accompanied by a sight draft for the balance due on which Adeyemi paid bank charges of N3 in Adeyemi’s
books. All purchases are debited to Trading Account.
You are required to prepare the following: (a) Consignment account; (b)Goods on consignment account and
(c) Benson’s personal account.
2009/27 Neco Exercise 19.6
Goods sent by a principal or consignor, to an agent or the consignee to sell on behalf of the principal or consignor is referred to as
A. consignee B. consignment C. consignor D. credit sale E. hire purchase

2009/28 Neco Exercise 19.7

In consignment accounts, the sender of the goods is called
A. agent B. broker C. consignee D. consignor E. d el-credere
2008/47 Neco Exercise 19.8
The statement sent by a consignee to a consignor stating the gross proceeds of the goods sold is called _____
A. account payable B. account receivable C. account sales D. consignment account
E. expenses on consignment
2008/48 Neco Exercise 19.9
The dispatch of goods for sales from the point of view of the consignor is called _____
A. account sales B. consignment inwards C. consignment outwards
D. consignment returns E. periodical sales
2004/1c Neco Exercise 19.10
Explain the following accounting terms:
(i) Account sales;
(ii) Consignment outwards.
Exercise 19.11
Segun Idowu of Sango-Ota consigned goods worth N330,000 to his agent Umukoro Edafe of Warri on 2 nd July, 2003. He paid
freight N3,000 and insurance N2,600. On 16th August, 2013 he received an account sales from Umukoro Edafe showing the
following details: import duty N1,305, warehousing N4,205, advertisement N1,050. Sales: Cash N300,000, credit N120,000. He
1
sent a bank draft for the balance after deducting his commission of 5% on total sales and 2 % del-credere commission on credit.
2

You are required to show the necessary accounts in the books of the consignor.
Exercise 19.12
Emurotu Enterprises on 1st November, 2020, consigned goods costing N348,000 to Abilabi and sons who paid the following
expenses:
Loading N3,400
Transport 7,200
Weighing 1,200
On 12 December, 2020 Abilabi and sons prepared an account sales which in addition to showing the expenses showed sales proceeds
of N520,000 and a commission of 5% had been taken one quarter of the goods were unsold.
Show the consignment accounts in the books of both the consignor and the consignee.
2000/50 Neco Exercise 19.13
The account that shows the cost of goods send on consignment is
A. consignee’s account B. consignor’s account C. consignment outwards account
D. consignment to consignee’s account E. goods on consignment account

497
Chapter Twenty
ACCOUNTS OF JOINT VENTURE
Meaning of Joint Venture
Joint venture can be described as a business arrangement, wherein two or more independent firms come together to form
a legally independent undertaking, for a stipulated period, to fulfill a specific purpose such as accomplishing a task,
activity or project. In other words, it is a temporary partnership, established for a definite purpose, which may or may
not use a specific firm name.

Nature of Joint Venture

Joint venture is very similar to partnership, but a clear difference is that joint venture is normally of a temporary
character. The co-venturers contribute capital and share profits or losses in agreed proportion or ratio. In a joint venture,
one party many provide the capital for the venture, while the other party provides the expertise in marketing and selling
the goods.
Under international financial reporting standard (IFRS), there are 3 types of joint venture:
(i) Jointly controlled operations: Here, each venturer uses its own assets, incurs its own expenses, and raises its own
financing.
(ii) Jointly controlled assets: Under this arrangement venturers may jointly control or own the assets contributed to or
acquired by a joint arrangement.
(iii) Jointly controlled entities: This arrangement involve a legal entity in which each venturer has an interest.
Similarities between Joint Venture and Partnership
i. They both share profits and losses according to agreement.
ii. They both involve two or more people.
iii. They both have duties and rights.

Differences between Joint Venture and Partnership

Joint Venture Partnership
i. This involves two or more companies jointing This involves individuals who join together for a
together in business. combined venture.
ii. This can be described as a contractual agreement Whereas, a partnership involves an agreement between
between two companies that aims to undertake a two parties wherein they agree to share the profits as
specific task. well as any loss incurred.
iii. It is not just profit that binds the parties together; Persons involved are co-owners of a business venture
it can be formed for specific purposes. and their aim is making a profit.
iv. This will last for only a limited period until their This will last for many years until the parties involved
goal is achieved. have no differences.
v. They can use as much or as little of the capital Members can claim a capital cost allowance as per the
cost allowance. partnership rule.
vi. A member of a joint venture can retain the Members cannot act according to their wishes because
identity of his/her firm or property. they do not have any individual identity.
vii. They can be held jointly and severally liable for If a criminal act is committed through a partnership, the
one another’s wrongful acts, but a joint venture culpable members of the partnership are held criminally
must have the elements of a partnership. responsible, rather than the partnership itself.

Accounting Entries in Joint Venture

Accounts of joint ventures may be grouped broadly into two classes viz:
A. Where no separate set of books is opened for the joint venture.
B. Where a separate set of books is opened for the joint venture.

Books to be open in Joint Venture

A. Where no separate set of books is opened for the joint venture:
(i) Personal ledger account;
(ii) Memorandum joint venture account
B. Where a separate set of books is opened for the joint venture:
(i) Co – venturer capital account;
(ii) Joint venture account (P & L account). (iii) Joint cash/bank account.

498
Illustration 20.1
Carina of Kayama and Merit of Ughelli enter into a joint venture. Carina is to supply the Crayfish packaged in sacks
and pay some expenses. Merit is to sell the sacks of Crayfish in Ughelli and receive the cash, and pay the remainder of
the expenses. Profits are to be shared in ratio 3:2 respectively.
Details of the transactions shows that:
N
Carina supplied the cryfish costing 180,000
Carina paid carriage 20,000
Carina paid for storage 16,000
Merit paid shop rent 12,000
Merit paid selling expenses 32,000
Merit received cash from sales 320,000
Show the accounts necessary to record the above transactions and also the final settlement between the venturers.

Solution
Carina and Merit:
Memorandum Joint Venture Account
N N
Rent 12,000 Proceed from sales 320,000
Purchases 180,000
Carriage 20,000
Storage 16,000
Selling expenses 32,000
260,000
Share of profit:
3 36,000
Carina: (5 × 60,000)
2 24,000
Merit: (5 × 60,000)
320,000 320,000

In the books of Carina:

Dr. Joint venture with Merit Cr
N N
Purchases 180,000 Balance c/d 252,000
Carriage 20,000
Storage 16,000
Share of profit 36,000
252,000 252,000
Balance b/d 252,000

In the books of Merit:

Dr. Joint venture with Carina Cr
N N
Shop rent 12,000 Cash sales 320,000
Selling expenses 32,000
Share of profit 24,000
Balance c/d 252,000
320,000 320,000
Balance b/d 252,000

499
Illustration 20.2
Silas and Felix entered into a joint venture to acquire factory reject IPHONES from the manufacturer and sell at a series of 3 months
interval. They agreed to share joint venture profits and losses in ratio 2:1 respectively:
At the start of the venture, Silas sent Felix a cheque for N2,000,000 to provide him with funds for his participation in the venture.
They managed to sell all the phones they had bought by 31 st August, 2018 by which date their cash transactions had been:
Silas Felix
N N
Sales 3,200,000 2,100,000
Marketing expenses 327,000 463,000
Advertising expenses 103,000 91,000
Shop rent 85,000 70,000
Sales Girl salary 48,000 -
Sundry expenses 59,000 29,000
Purchases 1,600,000 1,100,000
Travelling expenses 327,000 463,000
Settlement between the co – venturers took place by cash.
You are required to prepare: (a) Joint Venture with Felix Account in the ledger of Silas.
(b) Joint Venture with Silas Account in the ledger of Felix. (c) Memorandum Joint Venture Account.
Solution
(a) In the books of Silas:
Joint venture with Felix Account
N N
Transfer to Felix 2,000,000 Sales 3,200,000
Travelling expenses 327,000 Cash 1,905,333
Marketing expense 103,000
Shop rent 85,000
Sales Girl salary 48,000
Sundry expenses 59,000
Purchases 1,600,000
Share of profit 883,333
5,105,333 5,105,333

(b) In the book of Felix:

Joint venture with Felix Account
N N
Travelling expenses 463,000 Transfer (Silas) 2,000,000
Marketing 91,000 Sales 2,100,000
Shop rent 70,000
Sundry expenses 29,000
Purchases 1,100,000
Share of profit 441,667
1,905,333
4,100,000 4,100,000

(c) Silas and Felix

Memorandum Joint Venture Account
N N
Travelling expenses 790,000 Sales 5,300,000
Marketing 194,000
Shop rent 155,000
Sales girl salary 48,000
Sundry expenses 88,000
Purchases 2,700,000
Share of profit:
2 883,333
Silas: ( × 1,325,000)
3
1 441,667
Felix: ( × 1,325,000)
3
5,300,000 5,300,000

Note: It is only Silas that paid for salesgirl salary.

500
Illustration 20.3
Ufuoma and Tega entered into Joint Venture on 1st January, 2018 to purchase of a supply of imported goods N4,000,000.
Ufuoma contributed N2,750,000 of this and Tega contributed the balance. On 14th January, 2018, Ufuoma paid import
duty of N250,000 and 4th February, warehouse charge of N200,000. Ufuoma made the following cash sales; N1,850,000
22nd; N700,000 29th. On 17th February, the venture was completed and Ufuoma took the balance of N350,000 worth of
goods into his own business. On 15th January, Tega paid carriage N70,000 insurance N30,000. Her cash sales were
2 1
N2,100,000. Profit have to be shared in the proportion 3 to Ufuoma and 3 to Tega.

You are required to prepare:

(i) Joint Venture Account in the books of the Ventures.
(ii) Joint Memorandum Account.
Solution
(i) In the books of Ufuoma:
Dr Joint Venture with Tega Account Cr
N N
01/01 purchases 2,750,000 22/01 Sales 1,850,000
14/01 Import duty 250,000 29/01 Sales 700,000
04/02 Warehouse 200,000 17/02 Goods taken over 350,000
Share of profit 300,000 Balance due from Tega 600,000
3,500,000 3,500,000

In the books of Tega:

Dr Joint Venture with Ufuoma Cr
N N
01/01 purchases 1,250,000 15/01 Sales 2,100,000
15/01 Carriage 70,000
15/01 Insurance 30,000
Share of profit 150,000
Balance due to Ufuoma 600,000
2,100,000 2,100,000

(ii)
Dr Ufuoma and Tega Memorandum Account Cr
N N
01/01 purchases 4,000,000 15/01 Sales 2,100,000
14/01 Import duty 250,000 22/01 Sales 1,850,000
15/01 Carriage 70,000 29/01 Sales 700,000
15/01 Insurance 30,000 17/02 Take-over (Ufuoma) 350,000
04/02 Warehouse 200,000
4,550,000
Share of profit:
2 300,000
Ufuoma ( × 450,000)
3
1 150,000
Tega (3 × 450,000)
5,000,000 5,000,000

Note:
(a) Profit = Total income – Total Expenses = Profit
= N5,000,000 – 4,550,000 = 450,000
2
(b) Share of profit – Ufuoma: × 450,000 = N300,000
3

1
– Tega: 3 × 450,000 = N150,000

501
Illustration 20.4
Mumu and Otondo were in a Joint Venture dealing in acquisition of second hand used motor car (Tokumbo). Both are
involved in purchase and sale. They agreed to share profit and losses equally. Mumu purchased the first motor car for
cash paying N2,400,000 and incurred N140,000 on carriage and N160,000 or repairs. He subsequently sold the motor
car for N3,600,000. Otondo purchased the second Motor car for cash N2,400,000 also paying N120,000 for carriage
and N100,000 for painting. Otondo also purchased another car on credit for N1,200,000 and paid carriage N40,000.
Otondo sold the two motor cars purchased by him at a whopping sum of N4,800,000. Cash was remitted in payment of
the balance due between the two venturers.

You are required to prepare the Memorandum Joint Venture Account and the entries in each party’s book.
Solution:
(i)
Dr Mumu and Otondo Memorandum Account Cr
N N
Purchases – Mumu 2,400,000 Sales – Mumu 3,600,000
Carriage 140,000 Sales – Otondo 4,800,000
Repairs 160,000
Purchases – Otondo 2,400,000
Carriage 120,000
Painting 100,000
Purchases – Otondo 1,200,000
Carriage 40,000
6,560,000

Share of profit:
1 920,000
Mumu: (2 × 1,840,000)
1 920,000
Otondo: (2 × 1,840,000)
8,400,000 8,400,000

(b)
In the books of Mumu:
Joint Venture with Otondo Account
N N
Purchases 2,400,000 Sales 3,600,000
Carriage 140,000 Cash balance due from Otondo 20,000
Repairs 160,000
Share of profit 920,000
3,620,000 3,620,000

In the books of Otondo:

Joint Venture with Mumu Account
N N
Purchases – 1st Car 2,400,000 Sales 4,800,000
Carriage 120,000
Painting 100,000
Purchases – 2nd Car 1,200,000
Carriage 40,000
Share of profit 920,000
Cash balance due to Mumu 20,000
4,800,000 4,800,000
Note:
(a) Joint venture profit: N8,400,000 – N6,560,000 = N1,840,000
1
(b) Share of profit (equally) – Mumu (2 × 1,840,000) = N920,000
1
– Otondo (2 × 1,840,000) = N920,000

502
Illustration 20.5
Sharp and Samsung entered into a joint venture to acquire surplus and reject electronics from users, repairs and sell.
Both agreed to share joint venture profits and losses in the ratio 3:2 respectively. At the on set, sharp sent to Samsung a
cheque for N8,000,0000 to provide her with fund for her participation in the venture. They managed to sell all the goods
they had bought by 31st March, 2020 by which date, their cash transactions had been:
Sharp Samsung
N N
Sales 12,800,000 8,400,000
Travelling 1,308,000 1,852,000
Advertising 420,000 364,000
Stall rents/market tolls 340,000 280,000
Wages of casual workers 192,000 100,000
Sundry expenses 236,000 116,000
Purchases 6,400,000 4,300,000

Settlement between the parties took place by cheque with sharp.

You are required to prepare:

(a) Memorandum Joint Venture Account;
(b) Joint Venture with Samsung in Sharp Account and Joint Venture with Sharp in Samsung Account.
Answer
(a)
SHARP AND SAMSUNG
Dr Memorandum Joint Venture Account Cr
N N
Purchases (6,400,000 + 4,300,000) 10,700,000 Sales: Sharp 12,800,000
Travelling (1,308,000 + 1,852,000) 3,160,000 Samsung 8,400,000
Advertising (420,000 + 364,000) 784,000 21,200,000
Stall Rent (340,000 + 280,000) 620,000
Wages (192,000 + 100,000) 292,000
Sundry (236,000 + 116,000) 352,000
15,908,000

Share of profit (3:2):

3 3,175,200
Sharp: (5 × 5,292,000)
2 2,116,800
Samsung: (5 × 5,292,000)
21,200,000 21,200,000
Note:
Joint venture profit: N21,200,000 – N15,908,000 = N5,292,000

(b)
In the books of Sharp:
Dr Joint Venture with Samsung Account Cr
N N
Purchases 6,400,000 Sales 12,800,000
Travelling 1,308,000
Advertising 420,000
Stall rent/market stalls 340,000
Wages of workers 192,000
Sundry expenses 236,000
Share of profit 3,175,200
Balance due 728,800
12,800,000 12,800,000

503
In the books of Samsung:

Dr Joint Venture with Sharp Account Cr

N N
Purchases 4,300,000 Sales 8,400,000
Travelling 1,852,000 Balance due 778,800
Advertising 364,000
Stall rents 280,000
Wages of casual workers 100,000
Sundry expenses 116,000
Share of profit 2,166,800
9,178,800 9,178,000

2022/7 NABTEB
Usman and Olatumbosun entered into a joint venture to buy motor car. Purchases and sales are made by both of them.
They share profits and losses equally. Usman purchased motor car for cash N2,400 and paid carriage of N140 and repairs
N160. He sold the motor car for N3,600. Olatunbosun purchased motor car for cash N2,400 on which he paid for carriage
N120 and N100 for painting. Olatumbosun also purchased a motor car on credit for N1,200 and paid carriage N40.
Olatunbosun sold all the motor cars purchased by him for N4,800, cash remitted in payment of the balance due between
the parties.

You are required to prepare the memorandum joint account and the entries in each parties books.
Solution:
USMAN AND OLATUNBOSUN
Dr Memorandum Joint Venture Account Cr
Usman: N N
Purchases – Usman 2,400 Sales – Usman 3,600
Carriage 140 Sales – Olatunbosun 4,800
Repairs 160
Olatunbosun:
Purchases 2,400
Carriage 120
Painting 100
Purchases 1,200
Carriage 40
6,560

Share of profit;
1 920
Usman: ( × 1,840)
2
1 920
Olatunbosun: (2 × 1,840)
8,400 8,400

Note:
(a) Joint venture profit: N8,400 – N6,560 = N1,840

In the books of Usman:

Dr Joint Venture with Olatunbosun Account Cr
N N
Purchases 2,400 Sales 3,600
Carriage 140 Cash balance due from Olatunbosun 20
Repairs 160
Share of profit 920
3,620 3,620

504
In the books of Olatunbosun:
Dr Joint Venture with Usman Account Cr
N N
Purchases (cash) 2,400 Sales 4,800
Carriage 120
Painting 100
Purchases (credit) 1,200
Carriage 40
Share of profit 920
Cash balance due to Usman 20
4,800 4,800

2011/7 NABTEB
On March 1, 2005, Gambo entered into joint venture with Haruna for the purchase and sales of refrigerators. Gambo
bought 100 medium at N630 each. On March 10, Haruna remitted N35,000 to Gambo as is contribution to the purchase.
On March 13, Gambo sent 80 refrigerators Haruna who sold them at N700 each. Haruna incurred the following
expenses: storage N20, lighting N5, transportation N35. The agreement provided that profit and losses would be shared
in the ratio 3:2 between Gambo and Haruna respectively. On the other hand, Haruna sold the 20 refrigerators with him
at N720 each after incurring N50 sundry expenses.

You are required to prepare the:

(a) Appropriate ledger accounts in the books of Gambo and Haruna.
(b) Memorandum Joint Venture Account.
Solution:
(a)
In the books of Gambo:
Dr Joint Venture with Haruna Account Cr
N N
Purchases (100 × N630) 63,000 Cash from Haruna 35,000
Share of profit 4,374 Cash balance due from Haruna 32,374
67,374 67,374

In the books of Haruna:

Dr Joint Venture with Gambo Account Cr
N N
Cash remitted to Gambo 35,000 Sales (80 × 700) 56,000
Storage 20 Sales (20 × 720) 14,400
Lighting 5
Transportation 35
Sundry expenses 50
Share of profit 2,916
Cash balance due to Gambo 32,374
70,400 70,400

Note:
(i) Joint venture profit = N70,400 – 63,110 = 7,290
3
(ii) Share of profit (N7,290) – Gambo: 5 × 7,290 = 4,374
2
– Haruna: 5 × 7,290 = 2,916

505
(b)
GAMBO AND HARUNA
Dr Memorandum Joint Venture Account Cr
N N
Purchases 63,000 Sales: Cash 56,000
Storage 20 Cash 14,400
Lighting 5
Transportation 35
Sundry expenses 50
63,110

Share of profit (3:2):

3 4,374
Gambo: (5 × 7,290)
2 2,916
Haruna: (5 × 7,290)
70,400 70,400

2014/4 NABTEB
Miss May and Miss Koko entered into joint venture business and agreed to buy palm oil during the month of March to
June, 2008, and to sell the palm oil in December, 2008. They agreed to share the profits and losses equally. Miss May
paid N8,000 for the palm oil, containers N1,000 and transport expenses amounted to N500, while the labour of the local
assistant amounted to N500. Miss Koko spent N6,000 to buy the palm oil; local assistant (labor) amounted to N350.
Miss May sold the oil bought by her and that of Miss Koko for N30,000 and incur expenses in connection with the sale
of oil amounted to N600.

You are required to prepare:

(a) A statement to show the joint venture account with Miss Koko.
(b) The Memorandum Joint Venture Account to settle the Accounts of the Ventures.
Solution:
(a)
In the books of Miss May:
Dr Joint Venture with Miss Koko Account Cr
N N
Purchases – palm oil 8,000 Sales 30,000
Containers 1,000
Transport expenses 500
Labour of local assistant 500
Selling expenses 600
Share of profit 5,925
Cash balance due from Miss Koko 13,475
30,000 30,000

In the books of Miss Koko:

Dr Joint Venture with Miss May Account Cr
N N
Purchases – palm oil 6,000 Cash balance due to Miss May 13,475
Containers 800
Local transport 400
Local assistant labour 350
Share of profit 5,925
13,475 13,475

506
(b)
MISS MAY AND MISS KOKO
Dr Memorandum Joint Venture Account Cr
Miss May: N N
Purchases 8,000 Sales (Miss May) 30,000
Containers 1,000
Transport 500
Labour of local assistant 500
Selling expenses 600

Miss Koko:
Purchases 6,000
Containers 800
Labour of Local assistant 350
Transport 400
18,150

Share of profit (equally):

1 5,925
Miss May: (2 × 11,850)
1 5,925
Miss Koko: (2 × 11,850)
30,000 30,000

Note:
(i) Joint venture profit: Proceed from sales – Total expenses = Profit
= N30,000 – N18,150 = N11,850
1
(ii) Share of profit (equally) – Miss May: (2 of 11,850) = N5,925
1
– Miss Koko: (2 of 11,850) = N5,925

2022/10 Neco (PC)

Joint venture is a
A. business activity that involves 2 to 20 persons B. business activity undertaken by 2 or more persons
C. business activity undertaken by 2 or more persons without a specific period
D. family business that runs for a long period E. one man business activity
Answer: Business activity undertaken by 2 or more persons for a specific period (B)

2022/9 Theory Neco (PC)

Chima and Akpan entered into a joint venture to sell generator plant. Chima bought a generator plant cash for N250,000
incurring transport cost of N16,000. Akpan bought generator costing N340,000 and sold it for N550,000. Chima sold
generator for N390,000 and Akpan paid shop rent of N7,500. Chima and Akpan incurred sundry expenses of N5,000
and N3,000 respectively. Profit is to be shared ratio 3:2.

You are required to prepare:

(i) The joint venture account with Chima.
(ii) The joint venture account with Akpan.
(iii) The memorandum joint venture account.
Solution:
(i)
In the books of Chima:
Dr Joint Venture with Akpan Account Cr
N N
Purchases 250,000 Proceed from sales 390,000
Transport cost 16,000 Cash balance due to Akpan 72,100
Sundry expenses 5,000
Share of profit 191,100
462,100 462,100

507
(ii)
In the books of Akpan:
Dr Joint Venture with Chima Account Cr
N N
Purchases 340,000 Proceed from sales 550,000
Shop rent 7,500
Sundry expenses 3,000
Share of profit 127,400
Cash balance due from Chima 72,100
550,000 550,000

(iii)
CHIMA AND AKPAN
Dr Memorandum Joint Venture Account Cr
Chima: N N
Purchases 250,000 Sales: Chima 390,000
Transport cost 16,000 Akpan 550,000
Sundry expenses 5,000 940,000

Akpan:
Purchases 340,000
Shop rent 7,500
Sundry expenses 3,000
621,500

Share of profit (3:2):

3 191,100
Chima: (5 × 318,500)
2 127,400
Miss Koko: ( × 318,500)
5
940,000 940,000

Notes:
(i) Joint venture profit: N940,000 – N621,500 = N318,500
3
(ii) Share of profit (3:2): Chima = × 318,500 = N191,100
5
2
Akpan: 5 × 318,500 = N127,400

2022/54 Neco
Which of the following is a characteristics of joint venture?
A. business activities are short lived B. business becomes one C. limitation to membership
D. partners maintain one capital E. there is perpetual succession
Answer: Business activities are short lived (A)

2019/54 Neco
A joint venture is similar to a
A. cartel B. cooperative society C. partnership D. public enterprise E. trade association
Answer: Partnership (C)

2012/10 Neco
A party to a joint venture arrangement is called
A. co-founder B. member C. partner D. shareholder E. venturer
Answer: venturer (E)

508
2004/6 Neco
Chima Madu who resides in Nasarawa had entered into a joint venture with Nnamso Akpan who lives in Uyo. They
agreed that Chima Madu should buy groundnut oil in Nasarawa and transport it to Nnamso Akpan in Uyo for selling.
They also agreed that profit and losses should be shared in the ratio of 2:3 respectively.

In January, 2002, Chima Madu bought 200 gallons of groundnut oil at N500 per gallon and sent them to Nnamso Akpan
in Uyo. He paid N6,000 for carriage.

Nnamso Akpan sold some of these gallons of groundnut oil for N70,000 and paid the money into his own Bank account.
He spent N4,000 on selling. In the month of March, 2002, Chima Madu came to Uyo on leave and found that some
gallons of the groundnut oil had been sold. As a result of which he took N10,000 worth of groundnut oil which he
presented as gifts to his friends resident at Eket town near Uyo. Nnamso Akpan also took the rest of the groundnut oil
for N20,000. The venture was terminated and accounts were rendered by each venturer.

You are required to prepare:

(a) Joint Venture accounts in the venturer’s books and
(b) A Joint Venture Memorandum account.

Solution
(a) In the books of Chima Madu:
Dr. Joint venture with Nnamso Akpan Account Cr
N N
Purchases (N500 × 200gallons) 100,000 Stock (taken over) 10,000
Carriage 6,000 Cash from Nnamso in settlement 100,000
Share of loss 4,000

110,000 110,000

In the books of Nnamso Akpan:

Dr. Joint venture with Chima Madu Account Cr
N N
Selling expenses 4,000 Sales 70,000
Share of loss 6,000 Stock (taken over) 20,000
Cash to Chima Madu in settlement 80,000 ______
90,000 90,000

(b) Chima Madu and Nnamso Akpan

Dr. Memorandum Joint Venture Account Cr
N N
Chima Madu: Sales: Chima Madu 70,000
Purchases 100,000 Stock (taken over):
Carriage 6,000 Chima Madu 10,000
Nnamso Akpan 20,000
Nnamso Akpan:
Selling expenses 4,000
Share of loss:
2 4,000
Chima Madu( × 10,000)
5
3 6,000
Nnamso Akpan (5 × 10,000)
110,000 110,000

509
2012/7 Neco
Yakubu, Aminu and Kareem won the bid to buy the stock in trade of an old established stove company which is about to be wound up.
Profit and losses are to be shared among them in the ratio of 4:3:3. The following transactions took place in the month of March, 2008.
March 2: Yakubu rented a shop for N20,000
March 5: Aminu supplied stove costing N80,000
March 7: Yakubu paid labourers for off-loading of stove N10,000
March 10: Aminu paid for transport N13,000.
March 13: Yakubu paid local government market level N6,000
March 15: Yakubu paid sundry expenses N10,400
March 27: Kareem paid selling expenses N30,000.
March 31: Kareem received cash from sales of stove N200,000

You are required to prepare: ( i ) Joint Venture Account in the book of each of the venturers and
( ii ) Memorandum Joint Venture Account.
Solution
(i) In the books of Yakubu:
Joint venture with Aminu & Kareem Account
N N
Shop rent 20,000 Cash from Kareem in settlement 58,640
Off-loading 10,000
Market levy 6,000
Sundry expenses 10,400
Share of profit 12,240
58,640 58,640

In the books of Aminu:

Joint venture with Yakubu & Kareem Account
N N
Store supplies 80,000 Cash from Kareem in settlement 102,180
Transport 13,000
Share of profit 9,180
102,180 102,180

In the books of Kareem:

Joint venture with Yakubu & Aminu Account
N N
Selling expenses 30,000 Sales 200,000
Share of profit 9,180
Cash to Yakubu and Aminu in settlement 160,820
200,000 200,000

(ii) Yakubu, Aminu and Kareem

Memorandum Joint Venture Account
N N
Shop rent 20,000 Sales – Kareem 200,000
Cost of store 80,000
Off-loading 10,000
Transport 13,000
Market levy 6,000
Sundry expenses 10,400
Selling expenses 30,000

Share of profit:
4 12,240
Yakubu: ( × 30,600)
10
3 9,180
Aminu: ( × 30,600)
10
3 9,180
Kareem: : ( × 30,600)
10
200,000 200,000

510
2021/8 Neco
Sunset Motors Limited and Blue Sea Motors dealer Limited entered into a joint venture for sale of motor vehicles
allocated to Sunset Motors Limited from Global Motors Plc, Lagos. Both venturers were to contribute resources towards
the success of the business. The following expenses were incurred:
Sunset Motors Bluesea Motors
N N
Cash contribution 150,000 100,000
Hotel bills at Jos 2,000 1,500
Driver wages & allowance 3,200 1,900
Rent (space & showroom) 1,200 1,400
Local advertising & distribution expenses 4,000 3,200
Administrative expenses 5,600 6,000
Proceeds from sales 240,000 180,000
Stock take over at cost 20,000 24,000
3 2
You are also told that the venturers agreed to share profit or loss in the following manner 5 for sunset motors and 5 for
Bluesea Motors.
You are required to prepare:
Joint Venture Account for Sunset Motors Limited and Bluesea Motors Dealer Limited as at the end of the venture.

Solution
In the books of Sunset Motors
Joint Venture Account with Bluesea Motors
N N
Rent 1,200 Sales 240,000
Cash contributed 150,000 Stock taken over 20,000
Hotel bills 2,000 Cash to Bluesea in settlement 16,400
Driver wages & Allowance 3,200
Advertising & distribution expenses 4,000
Administrative expenses 5,600
Share of profit 110,400
276,400 276,400

In the books of Bluesea Motors

Joint Venture Account with Bluesea Motors
N N
Rent 1,400 Sales 180,000
Cash contribution 100,000 Stock taken over 24,000
Hotel bills 1,500
Driver wages & Allowance 1,900
Advertising & distribution expenses 3,200
Administrative expenses 6,000
Share of profit 73,600
Cash to Sunset in settlement 16,400
204,000 204,000

511
Sunset motors and Bluesea motors Ltd
Joint Venture Memorandum Account
N N
Cash contributed 250,000 Sales 420,000
Hotel bills 3,500 Stock taken over 44,000
Rent 2,600
Driver wages & Allowance 5,100
Administrative expenses 11,600
Advertisement & Dist. Expenses 7,200
280,000

Share of profit:
3 110,400
Sunset (5 × 184,000)
2 73,600
Bluesea (5 × 184,000)
464,000 464,000

Note:
- Profit = N464,000 – N280,000
= N184,000
- Share of joint profit:
3
Sunset motors = × 184,000 = N110,400
5
2
Bluesea Motors = × 184,000 = N73,600
5

2018/47 Exercise 20.1 NABTEB

A joint venture is sometimes regarded as a kind of
A. limited company B. sole trading C. partnership D. public company

2016/25 Neco Exercise 20.2

Joint venture has the following characteristics except
A. business activities are short lived B. it involves two or more people C. it is for a specific venture
D. it is for immediate profit E. there is perpetual succession

2019/45 NABTEB Exercise 20.3

When two or more people tackle a particular business together, they are engaged in
A. partnership B. joint venture C. manufacturing D. hire purchase

2005/8 Neco Exercise 20.4

Omueti and Harina entered into a joint venture to buy and sell paintings. They agree to share profits equally. A summary
of their transactions is as follows:
N
Omueti bought paintings 1,500
Haruna bought paintings 2,000
Omueti paid renovation expenses 750
Omueti paid cash to Haruna on account 500
Haruna paid selling expenses 250
Omueti received cash from sales 4,000
Haruna sold painting on credit 2,500
Haruna received cash from debtors 1,500
Omueti retained a painting for his own use valued at 500

You are required to prepare a memorandum joint venture account and to show the entries in each of the venturer’s books
necessary to record only respective transactions regarding the joint venture.

512
2018/6 NABTEB Exercise 20.5
Favour, Olayinka and Ojo entered into a joint venture for dealing in second hand clothing materials. Profits and losses
are to be shared in ratio 4:3:3. The following transactions took place in the month of December, 2010.
N
Dec. 1 Favour rented premises for 10,000
Dec. 2 Olayinka supplied jeans costing 40,000
Dec. 7 Favour engaged labour for off-loading jeans 5,000
Dec. 9 Olayinka paid for transport 6,500
Dec. 12 Favour paid for lighting and heating of the business premises 3,000
Dec. 15 Favour’s further sundry expenses 5,200
Dec. 25 Ojo paid selling expenses 15,000
Dec. 30 Ojo received cash from sales of jeans materials 100,000
You are required to prepare:
(i) Memorandum joint ventures account;
(ii) Joint venture account on the books of each of the venturers.

1995/4 Exercise 20.6

Lanre, Haruna and Okoro entered into a joint venture on January 1, 1994 as dealers in articles. The following transactions
took place:
1994:
Jan 1 Lanre hired a shop paying 3 months’ rent N3,000
Jan 2 Haruna bought a motor van for N54,000.
Jan 5 Haruna bought articles for N13,000
Jan 12 Okoro received cash from sales amount to N75,800
Jan 24 Lanre bought article for N24,000
Feb. 2 Motor van broke down. Okoro agreed to use his own van for the job at an agreed
charge N8,000 until the ventures is over.
Feb. 10 Motor van bought on January 2 was sold by Okoro for N42,000.
Feb. 17 Sales of articles, cash kept by Haruna N15,600.
Feb. 22 Lighting and heating, bills paid for shop by Okoro N2,400.
Feb. 27 Okoro bought articles for N8,800.
March 3 General shop expenses paid for N16,000 Lanre and Okoro paying half each.
March 15 Articles sold by Okoro N19,800 proceeds being kept by him.
March 31 Joint venture ended and articles unsold were taken over by Haruna at an agreed value of N42,000.
You are required to show:
(a) Joint Venture Account in each parties books.
1 1 1
(b) Memorandum Joint Venture Account. (profits shared Haruna 2, Lanre 3, Okoro 6). Settlement was effected by the
venturers on March 31, 1994.
Exercise 20.7
Adamu and Sanusi are iron merchants, each carrying on business on his own account. They share profits and losses equally.
The following transactions took place during the year 2014.
March Adamu bought scrap for N12,400 and paid N300 for storage.
April Sanusi sold part of this steel for N14,200. Adamu disposing off the rest for N1,500.
May Sanusi bought steel for N33,800 and paid N600 for sorting and delivery. Adamu sold half of this steel for N52,500 and
paid commission and advertising N650, the reaminder being taken into Sanusi’s own stock at a value of N18,590. It was
agreed that Adamu and Sanusi should be allowed N2,400 and N1,600 respectively for general expenses.
Prepare the Memorandum Joint venture account and the entries in each party’s book.

Exercise 20.8
Yinka, Ahmed and Nwosu won the bid to buy stock in trade of an old established store company which is about to be wound
up, profit and losses are to be shared among them in the ratio of 4:3:3. The following transaction took place in the month of
June, 2019.
June 2 Yinka rented a shop for N60,000
June 6 Ahmed supplied goods costing N120,000
June 8 Yinka paid labourers for off-loading of goods N50,000
June 13 Ahmed paid for carriage N53,000
June 19 Yinka paid market levy N46,000
June 26 Nwosu paid selling expenses N50,400
June 30 Nwosu received cash from sales of goods N240,000.
You are required to prepare:
(a) Joint Venture Account in the books of each of the Venturers. (b) Memorandum Joint Venture Account.
513
Exercise 20.9
Akeju, Tope and Oso entered into a joint venture for dealing in second hand clothing materials, profits and losses are
shared among Akeju, Tope and Oso in the ratio of 4:3:3.

The following transactions took place in the month of December, 2009.

N
Dec. 1 Akeju rented premises for 20,000
3 Tope supplied Jeans costing 80,000
7 Akeju engaged labour for offloading 10,000
9 Tope paid for transport 13,000
12 Akeju paid for lighting and heating of the business premises 6,000
15 Akeju paid further sundry expenses 10,000
25 Oso paid selling expenses 30,000
30 Oso received cash from sales 200,000
You are required to prepare:
(i) Memorandum Joint Venture,
(ii) Joint Venture Accounts in the books of each of the Venturer (Neco Adapted)
Exercise 20.10
Amadi and Mudiaga entered into a joint venture to sell goat. Amadi purchased 50 goats for cash worth N1,500,000 and
paid transport expenses amounting to N150,000. Mudiaga bought 60 goats worth N2,100,000, and sold 55 goats for
N40,000 each. Amadi sold the balance for N42,000 each. Mudiaga paid for selling expenses amounting to N25,000.
Amadi and Mudiaga agreed to share profit and losses equally.

You are required to show:

(a) The Joint Venture Account with Mudiaga.
(b) The Joint Venture Account with Amadi.
(c) The Memorandum Joint Venture Account.

Exercise 20.11
A joint venture has all but one of the following advantages
A. increase in capital B. access to patent C. pool of skills D. more shares

Exercise 20.12
All joint ventures are like partnership in
A. the capital structure B. the agreement made C. the way it is dissolved
D. the number of people involved

Exercise 20.13
One of the following is similar to a joint venture.
A. Limited liability company B. partnership C. cooperative society D. pubic corporation

Exercise 20.14
Delta and Edo entered into a joint venture. Delta purchased goods worth N6,000,000 and Edo contributed money for
paying for half of them. Delta incurred costs of N200,000 on the goods. Edo sold goods worth N4,200,000, making
profit of N1,100,000. Delta sold goods worth N1,000,000 for N1,600,000 and Edo, N146,000. It was agreed that each
party should take over at cost, all unsold goods, and share profit or losses equally.

Prepare the memorandum account and the accounts in the books of each party to the venture.

Exercise 20.15
The areas to be agreed upon in a joint venture agreement include the following EXCEPT
A. the venture to go into B. the duration of the venture
C. how the profits and losses arising should be shared among the venture partners
D. how to raise capital from the public

514
Chapter twenty one

BRANCH ACCOUNTS
Definition of Branch Accounting
A branch is defined as a segment of a business enterprises located in a different geographical area from the corporate
headquarters and managed by the headquarters. Branch accounting is the system of the bookkeeping under which the
company maintains separate accounts for each of the operating locations or branches of the company and it is followed
with the motive of increasing the transparency and knowing the cash flow position and the financial picture of each such
location of working of the company. It can also refer to records individually produced to show the performance of
different locations, with the accounting records actually maintained at the corporate headquarters. However, branch
accounting usually refers to branches keeping their own books and later sending them into the head office to be combined
with those of other units.

Motives for operating Branches

(i) Branches reduce organizational conflicts.
(ii) Branches create job opportunities.
(iii) Branches provide the firm with better understanding of local customers.
(iv) Branches provide opportunity for employees training at managerial level.

Classes of Branches
(a) Independent branches (autonomous)
This is a self – accounting branch i.e. it is a branch that keeps or maintains its own accounting records.
(b) Non – independent branches
This is a branch whose accounting records are wholly maintained by the corporate headquarter.
(c) Foreign branches
This is an independent branch located in a country other than one in which the head office is sited.

Pricing Methods for Branches

Whichever classes of branches adopted, there are 3 methods of preparing the accounts of a branch:
(i) Cost price method: Here, the head office invoices goods to the branch at cost. The following accounts will be
maintained for the branch transactions.
- Branch stock account.
- Goods sent to branch account.
- Branch debtors account.
- Branch expenses account.
- Branch profit or loss account.

(ii) Cost price plus a percentage method: Here, the head office invoices goods to the branch at a transfer price which
is cost price plus a profit loading. The profit loading which is a percentage of cost price is called mark – up. The
following accounts will be maintained for the branch:
- Branch stock account.
- Goods sent to branch account.
- Branch mark – up account.
- Branch debtors account.
- Branch expenses account.
- Branch profit or loss account.
Note: Invoice price = cost price + mark – up.

(iii) Selling price method: Here the head office invoice goods to the branch at a transfer price i.e. the selling price. The
branch is forbidden from selling at a price rather the selling price approved by the head office. The following
accounts will be maintained for the branch:
- Branch stock account.
- Goods sent to branch account.
- Branch expenses account.
- Branch trading account.
- Profit or loss account.

515
Divisions of Branch Accounting
(a) Where the head office maintains all the accounts under this arrangement, the head office carries out all the buying
of goods and sent it to the branches at selling price. The branches receives the goods carry out the sales of the
goods sent to it by the head office and forwarded to the head office at an interval the details of goods received and
returned to the head office, details of cash sales and credit sales, including cash collected from debtors, stock
expenses, debtors and cash balance at the end of the period.

Accounting Entries
(i) Branch adjustment method: With this method, the profit loading will be taken to a special account called
“BRANCH ADJUSTMENT ACCOUNT”. Under this system the following account is prepared:
- Branch stock account.
- Branch adjustment account.
- Goods sent to branch account.
- Branch debtors account.
(ii) Memorandum method: Under this method, two separate columns are maintained on both sides of the branch stock
account. One of the two columns records cost and entries therein are part of the double entry system of book
keeping. The other second column records the selling price to the cost figures. The following accounts will be
maintained under this method:
- Branch stock account (two – columns).
- Goods sent to branch accounts.
- Profit or loss accounts.
(b) Where the branch maintains separate accounts: Under this arrangement, the branches keeps a separate accounts
from that of the head office; this may be due to the distance between the branch and the headquarters, nature of
business, size of the branch and finance.

Accounting Entries
The following accounts will be opened:
(i) A “branch account” in the headquarter books.
(ii) A “head office account” in the branch books.

Illustration 21.1
ARODOWE (NIG.) LTD operates a head office in Asaba and a branch in Ozoro. All goods are purchased by the head
office and sent to Ozoro at cost plus of 25%. The following details were given for the year ended 31st December, 2017:
N
Goods sent to branch at cost 500,000
Sales on credit 350,000
Returns to Asaba at cost 5,000
Cash taking remitted to Asaba 100,000
Stock at close at cost price 125,000
Stolen cash taking 1,500
Sundry expenses paid 9,500
Goods stolen at cost 400
Allowances off selling price 1,000
You are required to prepare necessary accounts using: (a) Memorandum column method.
(b) Branch adjustment method
Solution
(a) Using the memorandum column method:

Dr Branch stock account Cr

S.P C.P S.P C.P
N N N N
Goods sent to branch 625,000 500,000 Returns to Asaba 6,250 5,000
Gross – profit - 91,400 Credit sales 350,000 350,000
Cash remitted to Asaba 100,000 100,000
Cash stolen 1,500 1,500
Sundry expenses 9,500 9,500
Goods stolen 500 400
Allowances of selling price 1,000 -
Closing stock 156,250 125,000
625,000 591,400 625,000 591,400

516
Dr Goods sent to Branch Account (C.P) Cr
N N
Returns to Asaba 5,000 Branch stock 500,000
Transfer to Asaba trading account 495,000
500,000 500,000

Dr Profit and Loss Account (C.P) Cr

N N
Sundry expenses 9,500 Gross – profit 91,4000
Cash stolen 1,500
Goods stolen 400
Net – profit 80,000 ______
91,400 91,400

Workings: (ii) Selling price of returns to Asaba

(i) Selling price of goods sent to Ozoro: = Mark – up × cost price
Profit = Mark – up × cost price 25
25 = 100 × 5,000 = N1,250
= 100 × N500,000= N125,000
S.P = C.P + profit
= N5,000 + 1,250 = N6,250
S.P = C.P + profit
S.P = 500,000 + 125,000 = 625,000
(iii) Selling price of goods stolen: (iv) Selling price of closing stock
25 25
= × 400 = N100 = 100 × 125,000
100

Selling price = N400 + N100 = N500 = N31,250

Selling price = N125,000 + 31,250 = N156,250
(b) Using branch adjustment method:

Dr Branch Stock Account (S.P) Cr

N N
Goods sent to Ozoro 625,000 Returns to Asaba 6,250
Credit sales 350,000
Cash remitted to Asaba 100,000
Cash stolen 1,500
Sundry expenses 9,500
Goods stolen 500
Allowance to S.P 1,000
Stock at close 156,250
625,000 625,000

Dr Goods sent to Branch Account (C.P) Cr

N N
Returns to Asaba 5,000 Branch stock 500,000
Asaba Trading Account 495,000
500,000 500,000

Dr Branch Adjustment Account (profit) Cr

N N
Returns to Asaba 1,250 Profits on goods sent to Ozoro 125,000
Goods stolen 100
Allowances of S.P 1,000
Gross – profit 91,400
Stock 31,250
125,000 125,000

517
Dr Profit and Loss account Cr
N N
Sundry expenses 9,500 Gross – profit 91,400
Cash stolen 1,500
Goods stolen (C.P) 400
Net profit 80,000
91,400 91,400

Dr Goods stolen Account Cr

N N
Branch stock 400 Profit &Loss account 400
Illustration 21.2
Maja enterprises has its head office in Lagos and operates a branch in Jos. All branch transactions are recorded in the
books at the head office from where branch expenses are also paid. All cash received by the Branch is sent to the head
office. Branch sales were strictly on cash basis. The goods were invoiced to the branch at cost plus 20%. On 1st January,
1997, the stock of goods held by the branch amounted to N32,400 at invoiced price. On the same date, the balance on
the branch adjustment account was N5,400. During the year ended 31st December, 1994, the following transactions took
place at the branch.
N
Goods received from head office at invoiced price 292,140
Goods returned to head office at invoiced price 5,778
Sales 300,834
Expenses 36,243

On 31st December, 1995, the stock of goods at the branch at invoice price was N17,928.
You are required to prepare: (a) Branch stock account. (b)Branch adjustment account.
(c)Branch profit and loss account
Solution
(a)
Dr Branch Stock Account (S.P) Cr
N N
Opening stock 32,400 Returns to Head Office 5,778
Goods sent to branch 292,140 Sales 300,834
Stock at close 17,928
324,540 324,540

(b)
Dr Branch Adjustment Account (profit) Cr
N N
Goods returned 963 Opening stock 5,400
Closing stock 2,988 Goods sent to branch 48,690
Gross – profit 50,139
54,090 54,090

(c)
Dr Profit and Loss Account Cr
N N
Expenses 36,243 Gross – profit b/d 50,139
Net – profit 13,896
50,139 50,139
Workings:
(i) Goods returned (markup – margin) (ii) Closing stock:
20 1
Mark – up = 100 = 5 1
= 6 × N17,928 = N2,988
1 1
Margin = 5+1 = 6 (iii) Goods sent to branch:
1
Converting mark-up to margin
6
× N292,140 = N48,69
1
= 6 × N5778 = N963 Returns = 1,500 – 300 = 1,200
518
Illustration 21.3 CCA
KG limited with head office in Leeds has a branch in Brand Ford. All goods are purchased by head office and supplied
to and sold by the branch at 25% over cost. Apart from a sales ledger kept at the branch, the whole of the transactions
are recorded in the books of head office. The following are the particulars relating to the transactions at the branch
during the year ended 31st December, 1997.
£
st
Stock at January 1 1997 at invoiced price 5,000
Sundry debtors at January 1st 1997 4,800
Goods supplied by H.O at invoiced price 28,500
Returns to head office at invoiced price 1,500
Sales on credit 24,000
Sales for cash 2,800
Bad debts written off 200
Cash received from debtors 25,500
Discounts allowed 500
Stock on hand at December 31st 1997 at invoiced price 5,125
Prepare the following accounts: (a) Branch stock account. (b) Branch total debtors account.
(c) Branch adjustment account. (d) Goods sent to the branch account.
Solution
(a)
Dr Branch Stock Account (S.P) Cr
£ £
Opening stock 5,000 Returns to Head office 1,500
Goods sent to branch 28,500 Sales – credit 24,000
Sales – cash 2,800
Deficiency 75
Closing stock 5,125
33,500 33,500

(b)
Dr Branch Adjustment Account (C.P) Cr
£ £
Goods returns 300 Opening stock 1,000
Deficiency 15 Goods sent to branch 5,700
Closing stock 1,025
Gross – profit 5,360
6,700 6,700
(c)
Dr Branch Total Debtors Account Cr
£ £
Balance b/f 4,800 Bad debts 200
Sales (credit) 24,000 Discount allowed 500
Cash received 25,500
Balance c/d 2,600
28,800 28,800
(d)
Dr Goods sent to Branch Account Cr
£ £
Returns 1,200 Branch stock 22,800
Trading account 21,600
22,800 22,800

Workings:
1 1 1
(i) Goods returns: mark – up to margin = 4+1 = 5 (iii) Closing stock: × 5,125 = £1,025
5
1 1
× 1500 = £300. (iv) Opening stock: 5 × 5,000 = £1,000
5
1
(ii)
1
Deficiency = 5 × 75 = £15 (v) Goods sent to branch: 5 × 28,500 = £5,700

519
Illustration 21.4
KOBIZ (NIG) LTD. opened a new branch on January 1st. The head office is to maintain all records. The Managing
Director wishes to access the relative merits of the two system of charging goods to branch.
(i) at cost price. (ii) at cost plus a percentage.
He requested you to prepare the approximate ledger accounts under the two system. He gives you the following
information for the year ended 3st December, 2018.
N
Goods sent to branch at cost 500,000
Returns from branch at cost 5,000
Branch credit sales 350,000
Cash taking remitted to head office 100,000
Branch expenses 9,500
Cash stolen (insured) 1,500
Closing stock at branch at cost 125,000

There was no cash in hand on December 31st.Goods are invoiced to branch at cost plus 25% which is selling price.
Goods pilfered at cost was N400 and allowances of selling price was N1,000.
Solution
KOBIZ (NIG.) LTD
(i) Using cost price method:
Dr Goods sent to Branch Account Cr
N N
Returns to Head Office 5,000 Branch stock 500,000
Trading account 495,000
500,000 500,000

Dr Branch Stock Account Cr

N N
Goods sent 500,000 Returns to Head Office 5,000
Credit sales 350,000
Profit &Loss 91,400 Cash sales 100,000
Sales expenses 9,500
Cash stolen 1,500
Pilferage 400
Balance 125,000
591,400 591,400

(ii) Using cost plus a percentage (%) method:

Dr Goods sent to Branch Account Cr
N N
Returns by branch 5,000 Branch stock 500,000
Trading account 495,000
500,000 500,000

Dr Branch Stock Adjustment Account Cr

N N
Branch stock 1,250 Closing stock 125,000
Pilferage 100
Selling allowance 1,000
Profit &Loss 91,400
Balance c/d 31,250
125,000 125,000
Balance b/d 31,250

520
Dr Branch Stock Account (S.P) Cr
N N
Goods sent 625,000 Returns to head office 6,250
Pilferage (400 + 100) 500
Stolen cash 1,500
Credit sales 350,000
Cash sales 100,000
Sales expenses 9,500
Allowance 1,000
Balance c/d 156,250
625,000 625,000

Workings:
(a) Calculation of invoice price:

(i) Goods sent branch (iii) Pilferage goods:

N N
Cost 500,000 Cost 400
Add: mark – up (25%) 125,000 Add: mark – up (25%) 100
625,000 500
(iv) Closing stock profit element:
(ii) Goods returned to the branch:
Cost + profit = selling price
N
100% + 25% = 125%
Cost 5,000 25
Add: mark – up (25%) 1,250 = 100 × 156,250
6,250 = N31,250

Illustration 21.5
Triumph Nigeria Ltd. has its head office in Asaba with the branch office in Ibadan. All goods are purchased and sent to
Ibadan by the head office at cost. The following relates to the account on 31/12/2019.
N
Stock at start 100,000
Goods sent to the branch 800,000
Goods returned to the head office 50,000
Rent and rates 60,000
Bad debt 22,000
Cheques remitted to head office 362,000
Salaries 120,000
Sundry expenses 84,000
Cash sales 400,000
Credit sales 380,000
Cheques from debtors 220,000
Discount allowed 20,000
Branch stock on 31/12/2019 80,000
Branch debtors on 31/12/2019 136,000
Branch debtors on 1/1/2019 18,000
Branch bank account on 1/12019 120,000

You are required to open the following account:

(a) Branch Stock Account.
(b) Goods sent to the Branch Account.
(c) Branch Debtors Account
(d) Branch Bank Account.
(e) Branch Expenses Account.

521
Solution:
(a)
Dr Branch Stock Account Cr
N N
Opening balance 100,000 Goods returned to H. O. 50,000
Goods sent to branch 800,000 Cash sales 400,000
Apparent profit 10,000 Credit sales 380,000
Closing balance 80,000
910,000 910,000
Balance b/d 80,000

Note:
(i) Apparent profit: N910,000 (CR) – N900,000 (DR) = N10,000

(b)
Dr Goods Sent to Branch Account Cr
N N
Goods sent to H. O. 50,000 Good sent to branch 800,000
Head office purchase 750,000
800,000 800,000

(c)
Dr Branch Debtors Account Cr
N N
Opening balance 18,000 Cheques from debtors 220,000
Branch stock (credit sales) 380,000 Bad debts 22,000
Discount allowed 20,000
Closing balance 136,000
398,000 398,000
Balance b/d 136,000

(d)
Dr Branch Bank Account Cr
N N
Opening balance 120,000 Rent and rates 60,000
Sales 400,000 Salaries 120,000
Cheque from debtors 220,000 Sundry expenses 84,000
Cash remitted to H. O. 362,000
Closing balance 114,000
740,000 740,000
Balance b/d 114,000

Note:
(i) Closing balance (Balance c/d): N740,000 – N626,000 = N114,000

(e)
Dr Branch Expense Account Cr
N N
Sundry expenses 84,000 Profit and loss account 306,000
Rent and rates 60,000
Salaries 120,000
Bad debt 22,0000
Discount allowed 20,000
306,000 306,000

522
Illustration 21.6
VICTORIA and RHODA Sisters Limited operates its branch at cost plus 20% on cost. The following details was
given:
Opening stock 12,000
Goods received to the branch at invoice price 80,000
Credit sales 60,000
Cash sales 16,000
Returns to head office at invoice 4,000
Goods stolen at invoice price 800
Normal loss due to deterioration 1,600
You are required to prepare the necessary ledger accounts using memorandum approach and stock adjustment account
methods.
Solution:
(a)
Memorandum Branch Account
Invoice Price Cost Price Invoice Price Cost Price
N N N N
Opening stock 12,000 10,000 Returns to H.O. 4,000 3,333
Goods received 80,000 66,667 Goods stolen 800 667
Apparent profit - 11,333 Credit sales 60,000 60,000
Cash sales 16,000 16,000
Normal loss 1,600 -
Closing stock 9,600 8,000
92,000 88,000 92,000 88,000

Note:
(i) Apparent profit (Cost price) = N88,000 – N76,667 = N11,333
Workings
20 20 20 1
Step 1: Convert Mark – up (100) to margin = = =
100 + 20 120 6
Step II: Compute the cost element:
1
(i) Opening stock: 6 × 12,000 = N2,000 (profit loading)
∴ Cost price = Invoiced price – profit loading
= N12,000 – N2,000 = N10,000
1
(ii) Closing stock: × 9,600 = N1,600 (profit loading)
6
∴ Cost price = N9,600 – N1,600 = N8,000.
Note:
Closing stock (invoiced price) = N92,000 – N82,400 = N9,600
1
(iii) Goods stolen: × 800 = N133 (profit loading)
6
∴ Cost price = N800 – N133 = N667
1
(iv) Goods received = × 80,000 = N13,333 (profit loading)
6
∴ Cost price = N80,000 – N13,333 = N66,667
1
(v) Returns to H. O. = 6 × 4000 = N667 (profit loading)
∴ Cost price = N4,000 – N667 = N3,333

Dr Goods sent to Branch Account Cr

N N
Goods returned to H.O. 3,333 Goods received 66,667
Head office purchases 63,334
66,667 66,667

523
Dr Branch Profit and Loss Account Cr
N N
Goods stolen 667 Memorandum branch 11,333
account
Normal loss 1,600
Profit and loss account 9,066
11,333 11,333

Note:
Under memorandum method, the branch stock account will be ruled with two columns as we have above. One set of the
column is used to record the entries at invoiced price while the set of the columns is used to record the entries at cost
price. These columns are simply memorandum entries and do not form part of the double entries.

(b)
Stock adjustment method:
Dr Branch Stock Account (Invoiced Price) Cr
N N
Opening stock 12,000 Returns to H. O. 4,000
Goods received 80,000 Goods stolen 800
Credit sales 60,000
Cash sales 16,000
Normal loss 1,600
Closing stock 9,600
92,000 92,000

Dr Branch Stock Adjustment Account Cr

N N
Returns to H. O. 667 Opening stock 2,000
Goods stolen 133 Goods received 13,333
Normal loss 1,600
Closing stock 1,600
Profit and loss account 11,333
15,333 15,333

Note:
(i) Profit and loss account = N15,333 – N4,000 = N11,333

Dr Goods Sent to Branch Account Cr

N N
Goods returned 3,333 Goods sent to branch 66,667
Head office purchase 63,334
66,667 66,667

Dr Branch Profit and Loss Account Cr

N N
Goods stolen 667 Branch stock adjustment 11,333
Net-profit 10,666
11,333 11,333

Note: Under the Branch adjustment method or branch markup, a branch mark-up account will be opened and the profit
loading (i.e. profit element) posted in order to determine the gross profit of the branch. The goods sent account is shown
at cost price while the branch cost account is shown at selling price.

524
Illustration 21.7
Rome Ltd. has its corporate head office in Benin with a branch at Asaba. You are required to write-up the branch
accounts in the head office books.
N
Goods from head office 80,000
Salaries and wages 4,000
Cash sales remitted to Benin 76,420
Stock on 1/1/2014 10,000
Stock cost 220
Rent paid 3,250
Stock on 30/12/2014 13,360
Sundry expenses 640
1
The goods are invoiced at selling price being 3 the cost.

You are required to prepare the necessary account using:

(i) Memorandum Method;
(ii) Branch Adjustment Method.
Solution:
(i)
Memorandum Method:
(a)
Dr Memorandum Branch Account Cr
Invoice price Cost Price Invoice Price Cost Price
N N N N
Opening balance 10,000 7,500 Cash sales 76,420 76,420
Goods sent 80,000 60,000 Stock loss 220 220
Branch profit 19,160 Closing stock 13,360 10,020
90,000 86,660 90,000 86,660
Balance b/d 13,360 10,020

(b)
Dr Goods sent to Branch Account Cr
N N
Head office purchase 60,000 Goods sent to branch 60,000
60,000 60,000

(b)
Dr Branch Profit and Loss Account Cr
N N
Closing balance 3,340 Opening balance 2,500
Stock loss 55 Goods sent to branch 20,000
Profit and loss account 19,105
22,500 22,500

(c)
Dr Branch Profit and Loss Account Cr
N N
Stock loss 165 Branch stock adjustment 19,105
Rent 3,250
Salaries and wages 4,000
Sundry expenses 640
Net – profit 11,050
19,105 19,105

525
Note: Workings
Conversion of mark–up ⎯
⎯→ Margin
1 1 1
3
=
3+1 4

3 1
Cost element (price) = ( ), profit loading = ( )
4 4
(i) Goods sent to Branch:
1
- Profit loading: × 80,000 = N20,000
4

3
- Cost price: × 80,000 = N60,000 or N80,000 – N20,000 = N60,000
4
(ii) Stock loss:
1
- Profit loading: × 220 = N55
4
3
- Cost Price: × 220 = N165 or N220 – N55 = N165
4
(iii) Opening stock:
- Profit loading = N10,000 = N2,500
3
- Cost price = × 10,000 = N7,500 or N 10,000 – N2,500 = N7,500
4
(iv) Closing stock:
1
- Profit loading: × 13,360 = N3,340
4
3
- Cost price: 4
× 13,360 = N10,020 or N13,360 – N3,340 = N10,020

Illustration 21.8
Jagaban (Nig.) Ltd has a head office in Lagos and operates a branch in Abuja. At the end of March 31 st 2017, the
following transactions had been recorded:
N
Salaries of Abuja branch 36,000
Rent 20,000
Transport 12,500
Goods sent to Abuja 628,000
Sundry expenses 132,000
Opening stock of goods 41,000
Closing stock of goods 52,000
Electricity 10,000
Cash from sales 837,000
Sales to debtors 185,000
Opening debtors 6,000
Goods returned to Head Office 7,000
Closing Debtors 3,000
Cash sent to Head Office 750,000

You are required to open:

(a) The branch Trading and Profit and Loss Account.
(b) Goods sent to Branch Account.
(c) The Branch Expenses Account.
(d) The Branch Debtors Account.
(e) The Branch Cash Account.

526
Solution
(i)
Dr Branch Trading and Profit and Loss Account Cr
N N
Opening stock 41,000 Sales: Cash 837,000
Add: Goods sent 628,000 Credit 185,000
669,000 1,022,000
Less: Goods returned (7,000)
662,000
Less: Closing stock (52,000)
Cost of goods sold 610,000
Gross-profit c/d 412,000
1,022,000 1,022,000

Salaries 36,000 Gross–profit b/d 412,000

Transport 12,500
Rent 20,000
Electricity 10,000
Sundry expenses 132,000
Net–profit c/d 201,500
412,000 412,000

(ii)
Dr Goods sent to Branch Account Cr
N N
Opening balance 41,000 Goods returned to H.O. 7,000
Goods sent to branch 628,000 Branch Trading Account 610,000
Closing balance 52,000
669,000 669,000

(iii)
Dr Branch Expenses Account Cr
N N
Salaries 36,000 Profit and loss account 201,500
Transport 12,500
Rent 20,000
Electricity 10,000
Sundry expenses 132,000
201,500 201,500

(iv)
Dr Branch Debtors Account Cr
N N
Opening balance 6,000 Cash account 188,000
Sales 185,000 Closing balance 3,000
191,000 191,000
Balance b/d 3,000

(v)
Dr Branch Cash Account Cr
N N
Cash sales 837,000 Cash sent to H. O. 750,000
Receipt from debtors 188,000 Balance c/d 275,000
1,025,000 1,025,000
Balance b/d 275,000
527
2016/37
The branch account records
A. head office transactions with the branch B. branch transactions with the head office
C. goods sent to branch at selling price D. cash received from branch as sales
Answer: Branch transactions with the head office (B)

2016/39
The cost of goods returned to branch to head office is debited to
A. branch stock adjustment account B. goods sent to branch account C. branch stock account
D. branch profit and loss account
Answer: Goods sent to branch account (B)

2019/41 NABTEB
The head office usually issues goods to branches at
A. prime cost B. cost price C. production cost D. net realizable
Answer: Cost price (B)

2022/36 Neco (PC)

Which of the following is an objective of branch accounting?
A. ascertain the profit or loss for each branch B. determine the total debtors of each branch
C. determine the total creditors of each branch D. ignore the performance of the branches
E. share profit or loss to each business
Answer: Ascertain the profit or loss for each branch (A)

2022/50 Neco (Internal)

Which of the following account is not used in a branch account?
A. branch profit and loss account B. branch stock account C. creditors account
D. debtors account E. goods sent to branch account
Answer: Creditors account (C)

2022/57 Neco
The branch accounting applies only to business that has
A. different operations under the same B. few products C. many departments
D. many employees E. many locations of operation
Answer: Many locations of operation (E)

2006/47
Where the head office maintains all books of account, goods sent to branch is credited to
A. goods sent to branch account B. branch stock account C. branch stock adjustment account
D. head office current account
Answer: Goods sent to branch account (A)

2006/33 Neco
Which of the following is NOT a method of charging goods to branches?
A. a mark – up price B. cost price C. cost price and mark – up price D. selling price
E. selling price plus profit
Answer: Selling price plus profit (E)

2015/42
Goods stolen at the branch is debited to
A. defalcations account B. branch stock account C. branch adjustment account D. branch debtors account
Answer: Branch adjustment account (C)

2011/37
Goods sent to branch are recorded in the head office’s book at
I. Selling price
II. Cost price plus mark – up percentage.
III. Cost price.
A. I and II only B. I and III only C. II and III only D. I, II and III
Answer: I and III only (B)

528
2012/16
Branch stock account is used to determine the
A. net value of goods sent to branch B. gross profit of the branch C. branch credit sales
D. branch net profit or loss
Answer: Gross profit of the branch (B)

1996/5 (Nov)
Branch A sent goods to branch B. The entries to record the transactions are, debt
A. Branch B’s stock account, credit goods sent to Branch A’s account
B. goods sent to B’s account, credit B’s stock account
C. Branch A’s stock account, credit goods sent to branch B’s account
D. goods sent to branch B’s account, credit branch A’s account
E. sales account, credit purchases account
Answer: Branch B’s stock account, credit goods sent to branch B’s account.

2014/38 – 39 UTME
Use the following information to answer questions 38 and 39
Hussaina Enterprises sent goods worth N800,000 at cost plus mark – up of 25% to its branch.
38. What is the cost price of the goods sent to the branch?
A. N600,000 B. N620,000 C. N640,000 D. N700,000
1
Answer: N640,000 ⎯
⎯→ [N800,000 − (5 × 800,000)]

39. Determine the profit on the goods sent to the branch at profit margin of 25% mark-up.
A. N150,000 B. N160,000 C. N170,000 D. N180,000
Answer: N160,000 (B)

2011/36 UTME
The correct entries to record goods transferred to branch from head office is to debit
A. branch supplied account and credit branch stock account
B. branch stock account and credit goods sent to branch account
C. branch stock account and credit purchases account
D. goods sent to branch account and credit branch stock account
Answer: Branch stock account and credit goods sent to branch account (B)

2011/37 UTME
The two accounts that are normally opened in the head office when goods are transferred to a branch are
A. branch stock account and goods sent to branch account
B. branch supplies and branch receipts
C. goods sent to branch account and branch receipts account
D. goods sent to branch account and branch supplies
Answer: Branch stock account and goods sent to branch account (A)

2010/36 UTME
If goods were returned to branch by the customer, the correct posting for this transaction is to debit
A. branch debtor’s account and credit head office account
B. head office account and credit branch stock account
C. branch stock account and credit branch debtor’s account
D. branch cash account and credit branch stock account
Answer: Branch stock and credit branch debtor’s account (C)

2010/37 UTME
The branch expenses paid by the head office is recorded in the books by debiting branch
A. bad debt account and crediting branch debtors account
B. expenses account and crediting bank account
C. profit and loss account and crediting branch stock account
D. discount allowed account and crediting branch debtor’s account
Answer: Profit and loss account and crediting branch stock account (C)

529
2017/44
A branch that keeps its own records, prepares the records of transactions with the head office in the
A. branch current account B. branch stock account
C. head office current account D. profit and loss account
Answer: Head office current account (C)
2017/45
The accounting entries when goods are sold on credit at the branch are debit
A. branch debtors account; credit sales account
B. branch current account; credit head office current account
C. branch debtors account; credit head office current account
D. head office current account; credit sales accounts
Answer: Branch debtors account; credit sales account (A)

2015/42
Goods stolen at the branch is debited to
A. defalcation account B. branch stock account C. branch adjustment account
D. branch debtors account
Answer: Branch stock account (B)

2009/7
The following balances were extracted from the book of Nationwide Enterprises in respect of its branch at Kenema for
the year ended 30th June, 2007.
Le
Branch stock account 1 – 7 – 2006 60,000
Branch debtors account 1 – 7 – 2006 132,500
During the year:
Goods sent to branch at S.P 540,000
Cash sales by branch 144,000
Credit sales by branch 360,000
Goods returned by branch debtors 18,000
Cash paid by branch debtors 274,000
Branch expenses paid by head office 33,200

Additional information:
(a) Closing stock at the end of the year at the branch, was valued at Le111,600 at selling price.
(b) Goods are invoiced to branch at cost plus 20%

You are required to prepare: (i) Branch stock account; (ii) Branch profit adjustment account;
(iii) Branch debtors account; (iv) Branch profit and loss account.
Solution
(i)
Nationwide Enterprises Branch Stock Account
Le Le
Balance b/f 60,000 Cash sales 144,000
Goods sent to branch 540,000 Branch debtors 360,000
Branch debtors returns 18,000 Branch profit and loss 2,400
Balance c/d 111,600
618,000 618,000
Balance b/d 111,600

Note:
- Branch closing stock: Le618,000 – Le506,400 = Le111,600
- Cash sales = Le540,000 + 20% (mark – up) – Le504,000 = Le144,000
(ii)
Branch Profit Adjustment Account
Le Le
Branch P & L A/C 84,400 Balance b/f 10,000
Balance c/d 18,600 Goods sent to branch 90,000
Profit on branch returns 3,000
103,000 103,000

Balance b/d 18,600

530
(iii)
Branch Debtor’s Account
Le Le
Balance b/f 132,500 Returns 18,000
Sales cash 360,000 Cash paid by branch debtors 274,000
Balance c/d 200,500
492,500 492,500
Balance c/d 200,500

Note: Branch debtors balance = Le492,500 – Le292,000

= Le200,500
(iv)
Branch profit and loss account
Le Le
Branch stock (loss) 2,400 Branch profit adjustment A/C 84,400
Branch expenses 33,200
Branch profit and loss account 48,800
84,400 84,400
Balance c/d 84,400

2013/6
A company based in Accra has a branch in Kumasi to which goods are supplied from the head office. All goods are
charged out to this branch at cost plus 50% mark-up. The branch remits to the head office all cash received from
customers. The following transactions took place at Kumasi branch during the year ended 31st December, 2009.
GH¢
Stock – 1st January, 2009 41,400
Goods received from head office at S.P 171,840
Cash sales 154,140
Goods returned from branch to head office at selling price 2,640
Cash received from debtors 6,120
Goods returned from credit customers to branch 1,060
Debtors – 1st January, 2009 2,130
Debtors – 31st December, 2009 2,100
Stock – 31 December, 2009 at selling price
st
50,370
You are required to prepare: (a) Branch stock account; (b) Goods sent to branch account;
(c) Branch debtors account; (d) Branch adjustment account.
Solution
(a)
Dr Branch stock Account Cr
GH¢ GH¢
Balance b/f (opening stock) 41,400 Cash sales 154,140
Goods received from Head office 171,840 Credit sales 7,150
Returns 1,060 Goods returned to Head office 2,640
Balance c/d (closing stock) 50,370
214,300 214,300
Balance b/d 50,370

Note: Credit sale = GH¢214,300 – GH¢207,150 = GH¢7,150.

(b)
Dr Goods sent to Branch Account Cr
GH¢ GH¢
Returns from branch 1,760 Branch stock 114,680
Transfer to Trading A/C 112,920
114,680 114,680

531
(c)
Dr Branch Debtor’s Account Cr
GH¢ GH¢
Opening balance 2,130 Closing balance 2,100
Credit sales 7,150 Returns to branch 1,060
Cash from debtors 6,120
9,280 9,280

(d)
Dr Branch Stock Adjustment Account Cr
GH¢ GH¢
Returns by branch 880 Opening balance (balance b/d) 13,800
Gross - profit 53,410 Good sent to branch 57,280
Closing balance (Bal c/d) 16,790 ______
71,080 71,080
Balance b/d 16,790

Note: All goods are charged out to branch at cost plus 50% mark-up.
50 1
Mark – up 50% = =
100 2
1 1
∴ Mark – up to margin = =
1+2 3

Workings:
1
i. Returns from branch = 2,640 – ( × 2,640)
3
= 2,640 – 880
= 1,760
1
ii. Goods sent to branch = 171,840 – ( × 171,840)
3
= 171,840 – 57,280
= 114,560
iii. Transfer to trading account = 114,680 – 1,760
= 112,920
1
iv. Returns to branch = 3 × 2,640 = 880

v. Opening stock (branch stock adjustment) Balance b/d:

1
= 3 × 41,400
= 13,800
vi. Closing stock (Branch Stock Adjustment) Bal. b/d
1
= 3 × 50,370
= 16,790
vi. Goods sent to Branch (Branch Stock Adjustment)
1
= 3 × 171,840
= 57,280
viii. Gross profit (Branch stock adjustment):
71,670 – 17,670 = 53,410

532
2004/9
Moyinnet Limited has a branch in Abeokuta and forwarded goods for resale from the head office in Lagos invoicing
them at selling price; the mark-up was one-third of selling price. During the year to 31st December, 2001, the following
transactions took place at Abeokuta:
N
Goods received from Lagos 360,000
Gods returned from Lagos 3,360
Bad debts 1,192
Cash received from debtors 137,248
Cash discounts given 3,616
Cash sales 201,600
Credit sales 144,000

The following additional information is relevant:

1 – 1 – 2001 31 – 12 – 2001
N N
Stock in hand at selling price 32,160 42,000
Debtors 13,216 15,160

You are required to prepare: (a) Branch stock account; (b) Goods sent to Branch Account;
(c) Branch stock Adjustment Account; (d) Branch Debtor’s Accounts.
Solution
(a)
MOYINNET LTD:
Dr Branch Stock Account Cr
N N
Balance b/d 32,160 Sales – cash 201,600
Goods sent to branch 240,000 Sales – credit 144,000
Branch stock adjusted 120,000 Branch returns 2,240
Branch stock adjusted 1,120
Branch stock adjusted (loss) 1,200
Balance c/d 42,000
392,160 392,160
Balance 42,000
Workings:
1 1
i. Goods sent to branch: 360,000 – (3 × 360,000) ii. Goods returned to branch: 3,360 – (3 × 3,360)
= 360,000 – 120,000 = 3,360 – 1,120
= 240,000 = 2,240

1 * Branch Stock Adjusted return = 1,120

* Branch stock adjusted: 3 × 360,000 = 120,000

iii. Branch Stock Adjusted (Loss): 392,160 – 390,960 = 1,200

(b)
Dr Goods sent Branch Account Cr
N N
Returns 2,240 Branch stock account 240,000
Trading account 237,760
240,000 240,000

(c)
Dr Branch Debtor’s Account Cr
N N
Balance b/d 13,216 Cash received 137,248
Credit sales 144,000 Discount 3,616
Bad debts 1,192
15,160
157,216 157,216
Balance b/d 15,160
533
(d)
Dr Branch Adjustment Account Cr
N N
Branch stock – loss 1,200 Balance b/d 10,720
Returns 1,120 Branch stock a/c 120,000
Branch P & L – Gross profit 114,400
Balance c/d 14,000 _______
130,720 130,720
Balance b/d 14,000
Note:
1
▪ Opening stock balance (Bal. b/d): 3 × 32,160 = 10,720
1
▪ Closing stock balance (Bal. c/d): 3 × 42,000 = 14,000
▪ Branch Gross-profit: N130,720 – N16,320 = N114,400

1994 Nov
A. G. Badmus Ltd operates a Head Office in Lagos and a branch at Kano. All goods are purchased at Lagos and sent to
1
Kano at a cost plus 12 2%. All sales at the branch are for cash. After meeting sundry local expenses, all cash is remitted
to Lagos. The stock at Kano in January 1, 1992 amounted to N9,360.
A summary of the branch weekly returns for the period ended 31st May, 1992 was as follows:
N
Goods sent to branch at selling price 100,080
Goods returned to Lagos at selling price 1,008
Cash returned to Lagos 97,200
Reduction in selling price 1,098
Sundry expenses account 1,974
Goods invoiced out to Kano at N540 on 31st May, 1992, were not received until 15th June, 1992. The stock of goods at
the branch on 31st May, 1992, amounted to N7,380 at the invoice price and cash remitted to Lagos at N36 on 29th May,
1992 was received only on 8th June, 1992. For the system of accounting, the Head Office uses the memorandum column
method for recording branch transactions.
You are required to prepare: (a) Branch accounts in the Head Office Books, including the necessary accounts.
(b) The profit and Loss accounts for the period ended 31st May, 1992.
Solution
(a) A. G. BADMUS
Dr Branch stock account Cr
S.P C.P S.P C.P
N N N N
Goods sent to branch 100,080 88,960 Goods returned to Head O. 1,008 896
Balance b/d 9,360 8,320 Cash remitted 97,200 97,200
Branch P&L - 10,934 Discount allowed 1,098 1,098
Sundry expenses 1,944 1,944
Cash in transit 36 36
Goods in transit 540 480
Goods at hand 7,380 6,560
109,440 108,214 109,440 108,214
Balance b/d:
Good in transit 540 480
Goods at hand 7,380 6,560

Dr Goods sent to Branch Account Cr

N N
Branch stock c/d 896 Branch stock b/d 88,960
Head office trading 88,064
88,960 88,960

Dr Cash in transit Account Cr

N N
Branch stock 36
534
Dr Discount Allowed Account Cr
N N
Branch stock 1,098 Profit &Loss account 1,098

Dr Sundry Expenses Account Cr

N N
Branch stock 1,944 Profit &Loss account 1,944

Dr Branch Stock Adjustment Account Cr

N N
Branch stock 112 Balance b/d 1,040
Branch stock 234 Branch stock 11,120
Branch profit & loss 10,934
Cash in transit 60
Goods at hand 820 _______
12,160 12,160

(b)
KANO BRANCH
Profit and Loss Account for the year 31st May, 1992
N N
Discount allowed 1,098 Gross – profit b/d 10,934
Sundry expenses 1,944
Net – profit c/d 7,892 ______
10,934 10,934

Workings:
(i) Opening stock of goods at branch (S.P):
(iv) Goods in transit (N5400);
Cost + profit = selling price
Cost + profit = selling price
Cost plus is 12½% (12.5%) 100
Cost = 112.5 × 540 = N480
Stock of goods at Kano N9,360
12.5
100 Profit = × 540 = N60
Cost = 112.5 × 9,360 = N8,320 112.5

12.5 Cost + profit = selling price

Profit = × 9,360 = N1,040
112.5
N480 + N60 = N540
Cost + profit = selling price
(v) Goods at hand (N7,380):
N8,320 + N1,040 = N9,360
Cost + profit = selling price
(ii) Goods sent to Kano at selling price (N100,080) 100
Cost = × 7,380 = N6,560
112.5
Cost + profit = selling price 12.5
100 Profit = 112.5 × 7,380 = N820
Cost = 112.5
× N100,080 = N88,960
Cost + profit = selling price
12.5
Profit = 112.5 × N100,080 = N11,120
N6,560 + N820 = N7380
Cost + profit = selling price
N88,960 + N11,120 = N100,080

(iii) Goods returned to head office at (S.P) N 1,008

Cost + profit = selling price
100
Cost = 112.5 × 1,008 = N896
12.5
Profit = 112.5 × 1,008 = N122

Cost + profit = selling price

N896 + N122 = N1,008

535
1998/3 (Nov)
The following transactions were recorded between Joe Brown Enterprises of Port Harcourt and its branch at Maiduguri
up to December 31, 1995.
(a) Goods sent by head office to branch N60,000; of this amount, goods to the value of N4,000 had not been
received by the year end.
(b) A sum of N15,000 had been remitted by the branch on 1/1/95, to provide imprest.
(c) Cash to the amount of N42,000 had been remitted by the branch to the head office but N3,000 of this had not
been received by 31st December, 1995.
(d) Goods returned during the year from branch to head office amounted to N2,500.

You are required to prepare:

(i) Maiduguri Branch Account in the books of the head office;
(ii) Head Office Current Account in the books of Maiduguri Branch.
Solution
(i)
JOE BROWN ENTERPRISES BOOK
Dr Maiduguri Branch Current Account Cr
N N
Cash remitted 15,000 Goods in transit 4,000
Goods sent 60,000 Cash in transit 3,000
Goods return 2,500
Cash remitted to head office 39,000
(42,000 – 3,000)
Stock at close 26,500
75,000 75,000

(ii) MAIDUGURI BRANCH BOOK

Dr Head Office Current Account Cr
N N
Cash remitted 42,000 Cash imprest 15,000
Goods returned 2,500 Goods received 50,000
Balance c/d 26,500 ______
71,000 71,000
Balance b/d 26,500

2012/8
Magoro Enterprises had its head – office in Kano and operates a branch at Ibadan. All purchases are made by the head
– office and invoiced to the branch at cost plus 20 percent. 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 N21,600 at invoice price. On the same date,
the balance of the Branch Stock Adjustment Account was N3,600.
During the year ended 31st December, 2009, the following transactions took place at the branch:
N
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 N11,952.

You are required to prepare:

(a) Branch Stock Account;
(b) Branch Stock Adjustment Account;
(c) Branch Profit and Loss Account.

536
Solution
(a)
Dr Branch Stock Account Cr
N N
Opening stock 21,600 Goods return 3,852
Goods sent to branch 194,760 Sales 200,556
Stock at close 11,952
216,360 216,360
Balance b/d 11,952

(b)
Dr Branch Stock Adjustment Account Cr
N N
Goods returned 642 Opening stock 3,600
Closing stock 1,992 Goods sent to branch 32,460
Gross profit 33,426
36,060 36,060

(c)
Dr Branch Profit and Loss Account Cr
N N
Expenses 24,162 Gross - profit 33,426
Net – profit 9,264

33,426 33,426

Notes:
(i) Goods returned at cost price:
20
120
× 3,852 = N642

(ii) Closing stock at cost price:

20
× 11,952 = N1,992
120

(iii) Goods sent to branch at cost price.

20
× 194,760 = N32,460
120

2006/9 Nov
Finoh has been trading after a number of years with its head office at Kent and a branch at Samu. All purchases are
made by the head office and goods are invoiced to the branch at cost plus 25%.
Details of Finoh’s trading for the year ended 31st December, 2005 were as follows:
N
Opening stock at branch (at cost) 12,000
During the year:
Goods sent to branch (at cost) 57,840
Cash sales 58,500
Credit sales 9,840
Returns to head office (at cost) 2,000
Cash from branch debtors 4,000
Bad debts written off 1,000
You are required to prepare:
(a) Branch Stock Account; (b) Branch Adjustment Account;
(c) Goods sent to Branch Account; and (d) Branch Debtors Account.

537
Solution
(a)
Dr Branch Stock Account (Selling Price) Cr
N N
Goods sent to branch 72,300 Returns to Head Office 2,500
Stock at start 15,000 Cash sales 58,500
Credit sales 9,840
Stock at close 16,460
87,300 87,300

(b)
Dr Branch Adjustment Account Cr
N N
Returns to Head Office 500 Profit on goods sent to branch 14,460
Gross – profit 13,960
14,460 14,460

(c)
Dr Goods sent to Branch Account (C.P) Cr
N N
Returns to Head Office 2,000 Branch Stock 57,840
Head Office T.A 55,840
57,840 57,840

(d)
Dr Branch Debtors Account Cr
N N
Sales: credit 9,840 Cash from debtors 4,000
Bad debts 1,000
Balance c/d 4,840
9,840 9,840

Notes: Profit = mark – up × cost price (ii) Goods returned to head office (S.P):
25
(i) Goods sent to branch (S.P): = 100 × 2,000 = N500
S.P = C. P + profit Cost + profit = selling price
25
× 57,840 = N14,460 2,000 + 500 = N2,500
100
Cost + profit = selling price
57,840 + 14,460 = N72,300

2021/24
The value of goods sent to a branch is debited to the
A. goods sent to branch account B. Branch Debtors Account C. Branch Adjustment Account
D. Branch Stock Account
Answer:Branch Stock Account (D)

2021/7
Ologun Trading Enterprises supplied goods to its Enugu Branch.
The following transactions were recorded with the branch in December, 2019.
1
(i) On 1st December, 2019, goods costing D24,000 were invoiced to the branch at cost plus 333%.
(ii) At the end of the month, the branch returns showed that sales were D20,000.
(iii) Goods invoiced at D320 were returned to the head office.
(iv) Closing stock at the branch was D11,520 at selling price.

You are required to prepare in the head office books the following accounts:
(a) Goods sent to Branch Accounts;
(b) Branch Stock Account;
(c) Branch Adjustment Account.

538
Solution:
(a)
Dr Goods sent to Branch Account Cr
D D
Goods returned from branch 213 Branch stock account 16,000
Transfer to trading account 15,787
16,000 16,000

Workings:
1. Goods returned from branch (D320)
= 33.33% × 320 = D107
= 320 – 107
= D213
2. Goods sent to branch (D24,000)
= 33.33% × 24,000 = D8,000
= D24,000 – D8,000
= D16,000

(b)
Dr Branch Stock Account (S.P) Cr
D D
Opening stock (Balance c/d) 7,840 Returns to H.O. 320
Goods sent to branch 24,000 Sales 20,000
Closing stock 11,520
31,840 31,840

(c)
Dr Branch Adjustment Account Cr
D D
Goods returned 107 Opening stock 2,613
Branch Gross-profit 6,666 Goods sent to branch 8,000
Closing stock 3,840
10,613 10,613
Workings:
Opening stock: 33.33% × 7,840 = 2,613
Closing stock: 33.33% × 11,520 = 3,840
Branch gross profit: 10,613 – 3,947 = 6,666

2005/6 (Nov) Exercise 21.1

Tandem Enterprises with head office in Banjul invoices goods to its Soma branch office at cost plus 25%. Branch
expenses are paid for by the head office. The following information relates to the branch for the month of January, 2003:
D
Goods invoiced to branch at selling price 150,000
Goods returned by branch at selling price 18,000
Cash sales by branch 72,000
Credit sales by branch 35,000
Branch debtors 1/1/2003 5,500
Cash received from branch debtors 28,000
Branch expenses 3,840
Branch stock on 31st January at selling price 24,000

You are required to prepare: (a) Goods sent to Branch Account (b) Branch Stock Account
(c) Branch Adjustment Account (d) Branch Dedtors Account

539
1980/3 (Nov) Exercise 21.2
Alimany & Co. has a head office in Banjul and operates a branch in Sapu. Goods for resale are acquired by head – office
and invoiced to the branch at cost. All expenses are paid by head office. The branch only maintains a Sales Day Book
and a Sales Ledger; it sends monthly statements to head office and banks all cash received daily to the credit of head
office account. Below are the figures relating to the six months ended 31st October, 1980 which have been extracted
from the branch returns and from the books at head office:
D
Goods received from head office 25,170
Returns to head office 420
Stock, 1 May, 1980 6,250
Cash sales 16,080
Credit sales, six months to 31st October, 1980 27,760
Allowances to customers 130
Discount allowed to customers 1,320
Bad debts 2,180
Rent, Rates and Taxes 1,080
Returns from customers 280
Wages and Salaries 2,940
Debtors, 1 May, 1980 14,750
Stock, 31 October, 1980 5,950
Sundry expenses 630
Cash received from customers 25,160
Debtors, 31 October, 1980 15,420

(a) Prepare the necessary accounts in the books of the head office to show the result of the branch for the half year
ended 31 October, 1980.
(b) State the objectives achieved by the head office in adopting this method of recording branch transactions. What are
the disadvantages of this method?

1993/5 (Nov) Exercise 21.3

Margeretta PLC has its head office at Apapa and branch at Ikeja. All goods are purchased by the head office and invoiced
to the branch at a mark – up of 12½%. All sales at the branch are for cash, and after meeting sundry local expenses all
cash is remitted to head office on 31st December.
The following balances were extracted from the branch books for the year ended 31st December, 1990:
N
Branch Stock – 1st January 9,360
31st December 7,380
Goods received from head office 100,000
Goods returned to head office 1,008
Reduction in selling price 1,098
Cash remitted to head office 97,200
Sundry expenses 1,944
Additional information:
(a) Goods invoiced to the branch at N540 on 30th December were not received until 2nd January 1991.
(b) Branch cash in hand on 31st December was N36
Prepare:
(i) Branch Stock Account;
(ii) Goods sent to Branch Account;
(iii) Branch Mark – up Account and
(iv) Branch Profit and Loss Account as they would appear in the books of the head office.
2009/7 Exercise 21.4
The following balances were extracted from the books of Nationwide Enterprises in respect of its branch at Kenema for
the year ended 30th June, 2007.
Le
Branch stock account 1/7/06 60,000
Branch debtors account 1/7/2006 132,500
During the year:
Goods sent to branch at selling price 540,000
Cash sales by branch 144,000
Credit sales by branch 360,000
Goods returned by Branch debtors 18,000
Cash paid by Branch debtors 274,000
Branch expenses paid by Head office 33,200
540
Additional information:
(a) Closing stock at the end of the year at the branch, was valued at Le 111,600 at selling price
(b) Goods are invoiced to branch at cost plus 20%
You are required to prepare:
(i) Branch Stock Account:
(ii) Branch Profit Adjustment Account
(iii) Branch Debtors Account
(iv) Branch Profit and Loss Account

Exercise 21.5
Williams (Nig) Ltd has its head office in Lagos and a branch office at Ibadan. Goods are purchased at the head office
and invoiced to the branch at cost plus 25%. The following transactions took place in the month of December, 2001.
N
Goods invoiced to branch 125,0000
Goods returned to branch 15,000
Cash sales by branch 50,000
Credit sales by branch 37,500
Branch expenses paid by head office 3,200
Remittance by branch debtor to H. O. 26,000
Goods damaged at branch at selling price 625

You are required to prepare:

(a) Goods sent to branch account.
(b) Branch stock account.
(c) Branch debtors account.
(d) Branch stock adjustment account (WASSCE Adapted)

Exercise 21.6
FFJ Food Ltd was a branch in Yenogoa and forwarded goods for resale from the head office in Ughelli invoicing them
1
at selling price; the mark–up was 3 of selling price.

During the year 31st December, 2021, the following transactions took place to Yenogoa:
N
Goods received from Ughelli 6,200,000
Goods returned to Ughelli 315,000
Cash received from debtors 2,050,000
Cash discount given 110,000
Bad debts 174,200
Cash sales 4,750,000
Credit sales 1,307,000

The following additional information is relevant:

Opening stock on hand at selling price at start was N146,250 and at close 168,000. Debtors at opening was N120,100
and at close N130,250.

You are required to prepare:

(a) Branch Stock Account;
(b) Goods sent to Branch Account;
(c) Branch Stock Account;
(d) Branch Debtors Account.

541
Exercise 21.7
1
PRAMEOVIC Trading Enterprises invoice goods to their Akure branch at 3 on cost, and the branch sales are exclusively
in cash. All branch expenses are paid by the Head Office. From the following details write up the Branch Stock Account,
Branch Adjustment Account and Branch Profit and Loss Account in the head office books.
N
Goods sent to Akure 284,000
Wages 23,800
Sales 280,000
Opening stock 21,900
Insurance 2,280
Electricity 2,640
Rent 2,950
Closing stock 24,700

Exercise 21.8
Yellow Sky (Nig) Ltd. has a branch at Port Harcourt. Goods are invoiced to the branches at cost plus 20% on cost. The
branch remits all cash received to the head office, all expenses are paid by the head office. From the following
particulars, prepare all necessary accounts.
N
Branch account on 1/01/2018 7,400
Sales: cash 8,000
Credit 65,000
Goods from H. O. at invoiced price 77,000
Cash received from debtors 62,000
Discount allowed to debtors 6,400
Bad debts written off 800
Branch expenses paid by H. O. 10,000
Branch stock on 31/12/2018 (invoice price) 17,000

542
Chapter twenty two

PUBLIC SECTOR ACCOUNTING

Definition of Public Sector Accounting
Public sector accounting which is also known or called Government Accounting can be defined as a process of recording,
analyzing, summarizing, communicating and interpreting of government financial information in total and in details,
recording all transactions involving the receipt, transfer and disposition of public funds and property for a particular
period.

Reasons for Public Sector Accounting

There are many reasons why government engaged in keeping of records or books of accounts. The following can be
said to be the purpose of public sector accounting:
(i) For proper and effective planning of government financial activities.
(ii) For better decision making.
(iii) To serve as a basis for control of government spending.
(iv) To show the various sources of government revenue.
(v) To prove government financial accountability and transparency.
(vi) To show government receipts, transfer and disbursement of funds and property.

Users of Government Accounting

1. President of the country.
2. Governors.
3. Legislative arms.
4. House of assembly.
5. Foreign investors.
6. Local investor.
7. The public.
8. International financial institutions.
9. International non – financial institutions.

Public Sector Accounting Related Terms

The following terms are commonly used in public sector accounting;
(i) Capital expenditure: These are expenditure which add to the value of fixed assets.
(ii) Recurrent expenditure: This represents the cost of running the government establishment on a day – to – day
basis.
(iii) Recurrent revenue: This represents the total amount of money collected by the government agencies from their
regular sources of revenue which is usually on daily basis.
(iv) Capital revenue: This represents the revenue/receipts accruable to the government through loans and grants
from domestic and foreign sources.
(v) Estimates: This is the proposal of government in terms of spending in a given year.
(vi) Head: This is the code given to each item of government expenditure or revenue for the purpose of allocation
of revenue and control of expenditure.
(vii) Vote: This is the term given to the allocation of money made to a head.
(viii) Warrants: This represents the authority through which money is expanded in government.

Basis of Government Accounting

1. Cash basis: Under this basis, revenues for the sales of goods or services are recorded in the books and reported
on your tax return in the year actually or constructively received. Expenses are recorded in the books and reported
on your tax return in the year.
2. Accrual basis: This is used by government parastatals. Financial transactions are recorded not when actually
payment is made or cash received but as soon as the contract is agreed upon and sealed.
3. Commitment basis: This basis recognizes the obligation to pay for the goods or services receivable for which
order has been placed even though the goods or services has not been actually received. The transaction is only
recognized when the organization is committed to it.
4. Hybrid method: The hybrid method combines the accrual and cash methods of account. For example, the accrual
method could be used to account for inventory held for sale and the cash method to account for business expenses.

543
Differences between Public Sector Accounting and Private Sector Accounting
Below are some of the distinctions between the accounts prepared by government and private individuals:
Public sector accounting Private sector accounting
(i) Government account is prepared on cash basis. Commercial accounts are maintained on accrual basis.
(ii) The aim of government is provide goods & The goal/aim of a private enterprise is to maximize
services that are essential at a lower price to the shareholders wealth (profit maximization).
citizen (not to make profit).
(iii) Government derived revenue from the public. Commercial enterprise derived revenue from the sales of
goods and services.
(iv) In government accounting, costs of fixed assets In commercial accounting cost of assets are spread over
are written off immediately. the useful life of the asset.
(v) Tangible fixed assets are not shown in the Tangible fixed assets are shown in the balance along side
balance sheet. the total depreciation.
(vi) Current assets are not shown in the balance sheet. Current assets are shown in the balance sheet.
(vii) Government is accountable to the general public. Commercial enterprise is accountable to the shareholders.
(viii) Government accounting is regulated by the Commercial account is regulated by CAMA 1990.
constitution of the country.
(ix) Government target is the general public without The target of private enterprise are the individuals who
any form of discrimination in service delivery. have the ability to pay for goods and services.

Various Finance Officers of Government

1. Accountant-General of the Federation: This is the Chief Accounting officer of the receipts and payments of the
federation. He is responsible for the general supervision of the accounts of all ministries and extra-ministerial
departments. He is also charged with the responsibility of planning and preparing the annual financial statements
as may be required by the minister of finance.
2. Auditor – General for the Federation: He is charged with the responsibility of auditing and reporting on the
financial statements prepared by the Accountant – General of the federation. He also has the right to report and
audit on the account kept by all persons and bodies established by the law and entrusted with issues, sale, transfer
or delivery of stamps, stores, securities and other properties of the federal government. He writes reports at the end
of the year stating whether all accounts have been properly kept, or if all public funds have been fully accounted
for or not, or if monies have been spent on the purposes they were meant for or not.
3. Accounting Officer: Accounting officers are permanent securities of ministries and heads of extra-ministerial
departments. They are responsible for the day-to-day financial activities of the ministries at extra-ministerial
departments. They are to ensure that proper budgeting and accounting systems are established in his ministry and
extra-ministerial departments and to ensure that essential management control tools are put in place to minimize
waste and frauds.
4. Sub-Accounting Officer: This officer is entrusted with receipts, custody and disbursement of public funds. He is
required to maintain a treasury cash book together with such other books as may be required by the Accountant –
General. Examples of sub-accounting officers are sub – treasurer of the federation, federal pay officer, police pay
office, etc.
5. Revenue Collector: This is an officer, apart from a sub-accounting officer who keeps receipts and collects
specified forms of revenue on behalf of the government. The revenue collector has no right to spend out of the
money collected.
6. Imprest holder: This is a finance officer that is charged with the responsibility of disturbing public money whose
vouchers cannot be presented immediately to a Sub-Accounting officer. He maintains an imprest cash book.

Sources of Finance Available to Government

1. Federal Government
(i) Direct Taxes: These consists of company income tax, capital gain tax, petroleum profit tax, back duty
assessment, personal income tax faze, back duty assessment, capital gain tax, personal income tax of
foreigners resident in Nigeria.
(ii) Indirect taxes: These are taxes raised from goods and services in form of custom and excise duties, VAT, etc.
(iii) Mining: These includes oil pipeline license fees, rents of mining rights, mining fees, royalties on minerals,
rents of oil well, etc.
(iv) Licences and internal revenue such as arms and ammunition licences fees, goldsmith licence fees, radio and
TV fees, etc.
(v) Direct allocation from federation account at prevailing rate.
(vi) Fee such as court fines, court fees and medical fees.
(vii) Direct taxes which includes PAYE of the armed forces and police personnel, foreign, service officers and
resident of the Federal Capital Territory, Abuja.
(viii) Sales of stalls, publication and stamps, commission on money order and poundage on postal orders.
544
(ix) Rent of government quarters, land and buildings.
(x) Interest and repayment (general) such as repayment of motorcycle loan and interest granted to individuals
by government corporations and companies.
(xi) Armed forces which may include sales of armed forces property such as old vehicle and stalls.
(xii) Interests and repayments (state) which has to do with the repayment of loan and interest granted to state
government by the federal government.
(xiii) Refund for services rendered by federal government officers to state and local government, public
corporations and other statutory bodies.

2. State Government
(i) Grant from the federation account to every state of the Federal Republic of Nigeria.
(ii) Income tax which includes PAYE, withholding tax on individual, capital gain tax on individuals, stamp duties
on investment executed by individuals, road taxes and business registration fees, etc.
(iii) Interest and repayment of loans granted to workers.
(iv) Revenue from statement government investments.
(v) Licences of cars, motorcycle, vehicles, etc.
(vi) Rent of statement government properties.

3. Local Government
(i) Statutory allocation from the federal account.
(ii) 10% of state internally generated revenue.
(iii) Fees and other charges imposed by the council under the instrument.
(iv) Shops and kiosk rates.
(v) Tenement rates
(vi) Slaughter slab fees.
(vii) Naming of streets fees.
(viii) Marriage, birth and death registration fees.
(ix) Radio and television license fees.
(x) Proceeds from economic protection undertaken.
(xi) Merriment and road closure levies.
(xii) Donations.
(xiii) Interest and dividend on investment.
(xiv) Grant from the federal government.
(xv) Proceeds from the sale of seized goods and boarded vehicles.
Various Accounts Operated by the Federal Government
1. Federation Account: This is an account into which all revenue collected by the government of the federation are
paid. This does not include proceeds from Pay as you earn of the personnel of the Armed Forces of the Federation,
the Nigeria Police Force, Foreign Service officers and residents of Federal Capital Territory.
2. Federal Government Account or Consolidated Revenue Funds: This is a distributable fund account, which is
set up by the constitution of the country. The fund will be distributed to the states and local government in
accordance with the revenue sharing formula.
3. Development Fund: This is established for carrying out capital projects. It is a fund established to provide basic
infrastructural facilities such as construction of roads and bridges.
4. Contingency Fund: This is set up to meet unforeseen circumstances or expenditure in an urgent situation caused
by natural disasters such as tsunami, famine, drought, inferno floods, earthquakes etc. This fund is derived through
consolidated revenue fund.
Authorities to Incur Expenditure
The authority to incur an expenditure or to make an obligation to obtain goods or services that will result in the eventual
expenditure of funds. To incur expenditure is called “Warrants”. Warrants must be issued by the Minister of Finance
and these include:
i. Annual General Warrants of Recurrent Expenditure: Authorizes the Accountant General of the Federation to
release funds for the payment of personal emolument and other services provided for in the approved
estimate/budget.
ii. Provisional General Warrant: This is issued at the beginning of the financial year before the Appropriation Act
comes into operation. It provides for the continuation of services of Government on a scale not exceeding the level
of these services in the previous financial year.
iii. Supplementary General Warrant: This is used for additional personal emolument and other services provided
for in the approved supplementary estimates.
iv. Reserve Expenditure Warrant: This authorizes the release of funds included in the approved annual and
supplementary estimates but excluded from the annual general or supplementary general warrants, that is, the
release of fund which the minister of finance initially withheld in order to exercise special control.
545
v. Supplementary Contingencies Warrant: This is issued in exceptional cases where virement is not possible.
Application for additional provision reveals such high degree of urgency that the issue of funds cannot be postponed
until a Supplementary Appropriation Act is passed.
vi. Virement Warrant: This is issued when, as a result of unforeseen circumstances during the time the annual
estimates were being approved, an additional provision is required under a particular Sub-Head and an equivalent
amount can be saved under another Sub-Head of the same Head. However, Virement Warrants should not be used
to create a new Sub-Head or for items disallowed by the Budget or Estimate Committee.
vii. Development Fund Annual General Warrants: This authorizes the Account General of the Federation to issue
funds for expenditure on capital projects, as contained in the annual estimate and authorizes the officer controlling
expenditure to incur expenditure on these projects.
viii. Provisional Development Fund General Warrant: This is issued before the approval of the draft capital
estimates at the beginning of the financial year. It provide for continuation of government activities at a level not
exceeding the level of those services prevailing in the previous financial year.
ix. Development Fund Supplementary General Warrants: This is a document issued authorizing the Accountant
General of the Federal to release funds and the officer controlling votes to incur expenditure on capital projects as
approved by the national assembly in the Supplementary Appropriation estimate.
x. Development Fund Reserved Expenditure Warrant: This permits the release of funds included in the approval
annual or supplementary capital estimates, but excluded from the Development Fund Annual General Warrant and
Development Fund Supplementary General Warrant.
xi. Development Fund Supplementary Warrant: This authorizes additional expenditure over and above that which
is included in the Development Fund Annual General Warrant or Development Fund Supplementary General
Warrant for purposes of revote capital expenditure which was provided for in the previous financial year but not
fully expended in that year.
xii. Development Fund Virement Warrant: This permits the issue of additional funds necessary for the completion
of capital projects, for which money already allocated in the estimate is not enough to complete the project.

Illustration 22.1
From the following information containing receipts and expenditure of capital expenditure of the Nama-Nama Nation,
you are required to prepare a statement of account for development fund for the year ended 31st December, 2015.
N
Agriculture 1,025
Domestic loans 4,829
Foreign loans 9,116
Livestock forestry 939
Mining 811
Contribution from consolidated fund 25,360
Manufacturing 2,965
Utilities 3,778
Communications 2,986
Transportation 5,426
Construction 1,327
Housing 1,446
Other services 3,420
Debit balance 28,770
External grant 5,270

546
Solution
Nama-Nama Nation
Statement of Development Fund, 31st December, 2015
N N
Debit balance b/f (28,770)
External grants 5,270
Contribution from consolidated fund 25,360
Foreign loans 9,116
Domestic loans 4,829
15,805
Deduct:
Agriculture 1,025
Housing 1,446
Transportation 5,426
Livestock forestry 939
Manufacturing 2,965
Mining 811
Utilities 3,778
Communications 2,986
Construction 1,327
Other services 3,420 (24,123)
Balance (8,318)

Illustration 22.2
The following balances were extracted from the books of Agbabiaka state of Nigeria as at 31st March, 2009.

DR CR
N N
Cash account 50,000
Consolidated revenue fund 90,000
Allocation from federal government 200,000
account
Other revenue 20,000
Personal cost 100,000
Investment 100,000
Deposit 50,000
Advances 60,000
Loan from central government 50,000
Loan to local government 60,000
Fixed deposit 40,000
410,000 410,000

Additional information:
(i) N20,000 should be transferred to Development fund for capital projects.
(ii) Other charges approved by fund management committee and paid during the year but which were omitted from
the books amounted to N25,000.
(iii) Total grants of N80,000 collected from central government for capital projects to be embarked upon during the
year had not been recorded in the books.

You are required to prepare:

(a) Consolidated Revenue Fund Account.
(b) Development Fund Account.
(c) Statement of Assets and Liabilities (WAEC Adapted)

547
Solution
(a)
AGBABIAKA STATE:
Consolidated Revenue Fund Account, 31st December, 2009
N N
Balance (01–01–2010) 90,000
Allocation from central government 200,000
Other revenue 20,000
310,000
Deduct Expenditure:
Personal cost 100,000
Other charges 25,000 (125,000)
185,000
Transfer to Development Fund (20,000)
Balance c/d 165,000

(b)
AGBABIAKA STATE
DEVELOPMENT FUND ACCOUNT, 31ST MARCH, 2009
Receipt from central government 80,000
Transfer from consolidated revenue fund 20,000
100,000
(c)
AGBABIAKA STATE
Statement of Assets and Liabilities, 31st March, 2009
Assets: N N
Investment 100,000
Advances 60,000
Cash (50,000 + 80,000 – 25,000) 105,000
Loan to local government 60,000
Fixed deposit 40,000
365,000
Liabilities:
Consolidated revenue fund 165,000
Development fund 100,000
Deposits 50,000
Loan from central government 50,000 365,000
365,000

Note:
Dr Cash account Cr
N N
Balance b/d 50,000 Other charges 25,000
Grant omitted 80,000 Balance c/d 105,000
130,000 130,000

Balance c/d = N130,000 (Dr) – N25,000 (Cr) = N105,000 (Dr)

548
Illustration 22.3
The following information is made available by the Accountant – General of the federation for the year 2018.
N
Revenue for the year
Import duties 450,000
Export duties 1,000,000
Excise duties 3,000,000
Petroleum profit tax 15,000,000
Capital gain tax 50,000
Proceed from crude oil sales 25,000,000
Royalties on oil 5,000,000
Personal income tax: Armed forces 30,000
Foreign affairs personnel 10,000
Federal capital territory residence 15,000
Royalties on coal 100,000
Quarrying licenses 10,000
Court fines 30,000
Medical fees 20,000
Royalties of loan – state government 50,000
Visa fees 20,000
Rent on Government properties 15,000

The following expenditures were made during the year:

Personal costs 2,500,000
Overheads 10,000,000
Transfer to Development fund 10,000,000
Transfer from contingency fund 5,000,000
Transfer to contingency fund 4,000,000

Required:
(a) Prepare Federation Account statement as at 31st December, 2018 using the following sharing formula:
Federal Government 48.5%
State Government 24%
Local Government 20%
Special fund 7.5%

(b) Prepare consolidated Revenue Fund as at 31st December, 2018.

Solution:
(a)
Statement of Federation Account as at 31st December, 2018
N N
Revenue: 450,000
Import duties 1,000,000
Export duties 3,000,000
Capital gain tax 50,000
Petroleum profit tax 15,000,000
Royalties on oil 5,000,000
Proceed from crude oil sales 25,000,000
Total Revenue: 49,500,000
48.5 24,007,500
Federal Government ( 100 × 49,500,00)
24 11,880,000
State Government (100 × 49,500,00)
20 9,900,000
Local Government (100 × 49,500,00)
7.5 3,712,500 49,500,000
Special fund (100 × 49,500,00)
49,500,000

549
(b)
Statement of Consolidated Revenue Fund, 31st December, 2018
REVENUE RECEIPTS N N
Personal income tax: Armed forces 30,000
Foreign affairs 10,000
Federal Capital Territory 15,000
55,000
Royalties on coal 100,000
Court fines 30,000
Quarrying licenses 10,000
Medical fees 20,000
Visa fees 20,000
Payment of loan from state government 50,000
Rent on government properties 15,000
Total of internally generated revenue 300,000
Transfer from contingency fund 5,000,000
Allocation from federation account 24,007,500
Total Revenue 29,307,500

RECURRENT EXPENDITURE:
Personal cost 2,500,000
Overhead cost 10,000,000
Total recurrent expenditure 12,500,000
Transfer to development fund 10,000,000
Transfer to contingency fund 4,000,000 (26,500,000)
Balance c/f 2,807,500

2023/17
The allocation of funds from treasury to accounting heads in public sector is
A. float B. vote C. virement D. budget
Answer: Vote (B)

2023/18
The source of fund available to a local government/district assembly includes
A. common fund allocation B. excise duties C. road tolls D. foreign loans
Answer: Common fund allocation (A)

2023/20 – 21
The health department of Banjul Local Government incurred the following expenditures in 2020:
Le
Construction of hospital wards 200,000
Purchase of hospital beds 20,000
Purchase of stationeries 15,000
Salaries and wages 60,000
Purchase of drugs 50,000
Purchase of x-ray machine 100,000

2023/20
The capital expenditure for the year is
A. Le445,000 B. Le370,000 C. Le320,000 D. Le125,000
Answer: Le320,000 ⎯ ⎯→ Le200,000 + Le20,000 + Le100,000 = Le320,000 (C)

2023/21
The recurrent expenditure for the year is
A. Le445,000 B. Le370,000 C. Le320,000 D. Le125,000
Answer: Le125,000 ⎯ ⎯→ Le15,000 + Le60,000 + Le50,000 = Le125,000 (D)

550
2023/44
Which of the following items is classified as capital expenditure in public sector accounting?
A. financial charges B. construction works cost
C. training and conference cost D. wages and salaries
Answer: Construction works cost (B)

2023/6
The following were extracted from the books of Edun Republic for the year ended 31/12/2021.
$
Receipts from oil and gas 522,500,000
Import duties 250,000,000
Export duties 180,500,000
Receipt from agriculture 60,000,000
Permit and license fees 92,000,000
Personal and other income taxes 230,500,000
Miscellaneous income 100,500,000

Additional information:
(i) The country is structured into six (6) regions/states A, B, C, D, E, F.
(ii) The population of each of the region/states are:
A: 100,000 B: 350,000 C: 250,000 D: 100,000 E: 300,000
F:200,000
(iii) Revenue is shared 30% to the Federal/Central Government. 10% to education trust fund and 60% to be shared by
the Regions/States on the basis of population.

You are required to compute:

(a) The total revenue for the country for year 2021.
(b) Revenue for the federal/central government for year 2021.
Solution:
(a)
Edum Republic Total Revenue for year 2021.
$
Receipts from oil and gas 522,500,000
Import duties 250,000,000
Export duties 180,500,000
Receipt from agriculture 60,000,000
Permit and license fees 92,000,000
Personal and other income taxes 230,500,000
Miscellaneous income 100,500,000
1,436,000,000

(b) Revenue for Federal/Central Government:

Sharing formula is given as:
Federal/Central Government : 30% (0.3)
Education trust fund : 10% (0.1)
Regions/states : 60% (0.6)

Therefore:
Federal/Central Government revenue:
30
× $1,436,000,000 = $430,800,000
100

(c) Revenue for Regions/States collectively and individually for year 2021:
Total revenue to Regions/States:
60
× $1,436,000,000 = $861,600,000
100

551
Revenue allocation to each regions/states
Regions Population Individual Allocation ($) Collective Allocation
A 100,000 66,276,923.08
B 350,000 231,969,230.80
C 250,000 165,692,307.70
$861,600,000
D 100,000 66,276,923.08
E 300,000 198,830,769.20
F 200,000 132,553,846.20
1,300,000 861,600,000 861,600,000

Workings:
State Population
Regions/state allocation: Total Population × Total State Revenue
Regions/state:
100,000
A= × $861,600,000 = $66,276,923.08
1,300,000
350,000
B= × $861,600,000 = $231,969,230.80
1,300,000
250,000
C= × $861,600,000 = $165,692,307.70
1,300,000
100,000
D= × $861,600,000 = $66,276,923.08
1,300,000
300,000
E= × $861,600,000 = $198,830,769.20
1,300,000
200,000
F= × $861,600,000 = $132,553,846.20
1,300,000

1998/30 to 31
The education department of Arimoro local government incurred the following expenses
N
Construction of classrooms 500,000
Purchase of tables and chairs 50,000
Purchase of textbooks for library 40,000
Annual inter-house sports competition 20,000
Payment of teacher’s salary 80,000

1998/30
Capital expenditure for the year was
A. N690,000 B. N590,000 C. N500,000 D. N140,000 E. N100,000
Answer: N590,000 ⎯ ⎯→ N500,000 + N50,000 + N40,000 (B)

1998/31
Recurrent expenditure for the year was
A. N170,000 B. N130,000 C. N120,000 D. N100,000 E. N80,000
Answer: N100,000 ⎯ ⎯→ N20,000 + N80,000 (D)

1998/4
As at 31st December, 1995, the cash book balance of Isobo sub-treasury was as follows:
(a) Cash N903,825.
(b) Bank N2,100,000.

552
On 1st January, 1996, the following transactions were carried out in the sub-treasury:
Receipts N
TRV 1001 – cash from Mr. Muhammed 15,000
1002 – cheque from Mrs. Akpan 52,500
1003 – cash from Alhaji Bello 4,650
1004 – cash from Miss Ngozi 3,390
1005 – cheque from Mr. Abiola 225,000
1006 – cheque from Mr. Mfon 3,750
1007 – cash from Mr. Adisa 6,615
1008 – cheque from Mrs. Ibinabo 105,045
1009 – cheque by remittance 300,000

Receipts:
TPV 2001 – cheque to Mr. Chukwu 450,000
2002 – cheque to Miss Bola 184,290
2003 – cheque to Mr. Udofia 22,650
2004 – cash to Mr. Olumoran 15,000
2005 – Cash to Alhaji Hamza 10,575
2006 – cheque to Mrs. Ekanem 285,045
2007 – cheque to Miss Baregha 234,225
2008 – cash to Mr. Dogo 36,000
2009 – cheque to Mr. Edet 186,030

You are required to post the above transactions into the main cash book, showing the new cash and bank balances.

ISOBO SUB-TREASURY
Main Cash Book as at 1st January, 1996
Date TRV Particulars L/F Cash Bank Date TRV Particulars L/F Cash Bank
No No
Jan N N N N
1 Balance b/f 903,852 2,100,000 1 2001 Mr. - 450,000
Chukwu
1 1001 Mr. 15,000 - 1 2002 Miss Bola - 184,290
Muhammed
1 1002 Mrs. Akpan - 52,500 1 2003 Mr. Udofia - 22,650
1 1003 Alh. Bello 4,650 - 1 2004 Mr. 15,000 -
Olumoran
1 1004 Miss Ngozi 3,390 - 1 2005 Alh. Namza 10,575
1 1005 Mr. Abiola - 225,000 1 2006 Miss - 285,045
Ekanem
1 1006 Mr. Mfon - 3,750 1 2007 Miss - 234,225
Baregha
1 1007 Mr. Adisa 6,615 - 1 2008 Mr. Dogo 36,000 -
1 1008 Mrs. - 105,045 1 2009 Mr. Edet - 186,030
Ibinabo
1 1009 Remittance - 300,000 1 Balance c/d 871,932 1,424,055
933,507 2,786,295 933,507 2,786,295
Balance b/d 871,905 1,424,055
Note:
CASH:
Balance c/d: N933,507 (Dr) – N61,575 (Cr) = N871,932

BANK:
:N2,786,295 (Dr) – N1,362,240 (Cr) = N1,424,055

553
2001/6
The following balances have been extracted from the books of Uduak Local Government for the year ended 31 st
December, 1999.
Head N
General Revenue 5,450,000
4001 Maintenance of vehicles 25,000
4002 Stationery 18,000
4003 Sinking of bore holes 130,000
4004 Staff salaries 1,750,000
3001 Stationery allocations 8,000,750
4005 Refuse disposal expenses 5,400
3002 Interest on fixed deposit account 13,400
4006 Rehabilitation of roads 2,500,650
4007 Fines 38,000
4008 Rates 1,500,520
3003 Renewal of licenses 70,860
4009 Renovation of schools 2,150,640
4010 Salary of traditional chiefs 76,000

You are required to prepare:

Uduak Local Government’s Revenue and Expenditure statement for the year ended 31st December, 1999.
Solution
UDUAK LOCAL GOVERNMENT
Statement of Revenue and Expenditure, 31st December, 1999
Heads Expenditure Amount Heads Revenue Amount
N N
4001 Maintenance of vehicles 25,000 Balance b/f 5,450,000
4002 Stationery 18,000 3001 Statutory allocation 8,000,000
4003 Sinking of boreholes 130,000 3002 Interest on deposit 13,400
4004 Staff salaries 1,750,000 3003 Renewal of license 70,860
4005 Refuse disposal 5,400
4006 Road Rehabilitation 2,500,650
4007 Fines 38,000
4008 Rates 1,500,520
4009 Renovation of schools 2,150,640
4010 Salaries of traditional rulers 76,000
Balance c/d 5,340,050
13,534,260 13,534,260

Notes:
Total revenue: N13,534,260
Total Expenditure: (8,194,210)
Difference ⟹ 5,340,050

Revenue Heads: 3001 – 3003

Expenditure Heads: 4001 – 4010

554
2002/9 Theory
A country “Y” comprises five states – A, B, C, D and E. The following information relate to the revenue for the fiscal
year ended 31st December, 2000.
N
Receipts from mineral resources 7,000,000
Receipts from agriculture 669,000
Import duties 2,652,000
Excise duties 1,275,000
Permit and license fees 250,000
Personal and corporate tax income 3,654,000
Other income 500,000

Additional information:
(a) Revenue is shared as follows: 40% to the local government; 10% to each of the states; 5% of the total revenue to
the consolidated fund, 5% of the total revenue to be shared by the states on population basis.
(b) The population of each state is as follows:
A – 450,000; B – 400,000; C – 500,000 D – 300,000 E – 350,000

You are required to compute:

(i) Total revenue for country “Y” during the year, 2000;
(ii) Revenue for national government.
(iii) Revenue for the shares individually and collectively.
Solution:
(i) Country “Y” total revenue for year 2000:
N
Receipts from mineral resources 7,000,000
Receipts from agriculture 669,000
Import duties 2,652,000
Excise duties 1,275,000
Permit and license fees 250,000
Personal and corporate income tax 3,654,000
Other income 500,000
Total revenue 16,000,000

(ii) Total Revenue for National Government:

40
40% of Total Revenue: × 16,000,000 = N6,400,000
100
5
50% of total income to consolidated fund: 100 × 16,000,000 = N800,000

Therefore:
Total Revenue for National Government: N6,400,000 + 800,000 = N7,200,000

(iii) Revenue to the states individually and collectively:

States Population Allocation

Population Basis Equal Basis Individually Collectively
N N N N N
A 450,000 180,000 1,600,000 1,780,000
N8,800,000

B 400,000 160,000 1,600,000 1,760,000

C 500,000 200,000 1,600,000 1,800,000
D 300,000 120,000 1,600,000 1,720,000
E 350,000 140,000 1,600,000 1,740,000
Grand Total 2,000,000 800,000 8,000,000 8,800,000 8,800,000

555
Note:
Total Revenue to the 5 states:
5
5% of total revenue = × 16,000,000 = N800,000
100
Total Population: A + B + C + D + E
: 450,000 + 400,000 + 500,000 + 300,000 + 350,000 = 2,000,000

Revenue allocation based on population will be

States
450,000
A : × 800,000 = N180,000
2,000,000
400,000
B : × 800,000 = N160,000
2,000,000
500,000
C : × 800,000 = N200,000
2,000,000
300,000
D : × 800,000 = N120,000
2,000,000
350,000
E : × 800,000 = N140,000
2,000,000

Revenue allocation on equal basis:

10% of N16,000,000 = 0.1 × 16,000,000

2006/17
Which of the following is not a source of revenue to a government?
A. taxation B. sale of goods C. imposition of fines D. grants
Answer: Sale of goods (B)

2008/50
Which of the following is not an instrument for controlling public expenditure?
A. constitution B. financial regulation C. budget D. memorandum of association
Answer: Memorandum of association (D)

2009/39
The authority of the Accountant-General to disburse from government fund is
A. provision B. warrant C. vote D. estimate
Answer: Warrant (B)

2009/8 Theory
The following balances have been extracted from the books of Amansie East Local Government for the year ended
31st December, 2006.
Head Particulars N
1001 Taxes 7,000,000
1002 Rates 4,500,000
1003 Local licenses 500,000
1004 Earnings from commercial undertakings 200,000
1005 Rent on local government properties 1,000,000
2001 Renovation of chairman’s office 2,000,000
2002 Construction of market stalls 1,500,000
2003 Office of the secretary 1,500,000
2004 Department of personal management 2,000,000
2005 Department of supplies and finance 2,000,000
2006 Agriculture and community development 1,500,000
3001 External loans 2,000,000
3002 Grants 2,500,000
3003 Miscellaneous receipts 1,500,000

You are required to prepare statement of revenue and expenditure for the year ended 31st December, 2006.

556
Solution
AMANSIE EAST LOCAL GOVERNMENT
Statement of Revenue and Expenditure, 31st December, 2006
Head Expenditure: Amount Head Revenue Amount
N N
2001 Renovation of chairman’s office 2,000,000 1 Recurrent revenue:
2002 Construction of market stalls 1,500,000 1001 Taxes 7,000,000
2003 Office of the secretary 1,500,000 1002 Rate 4,500,000
2004 Department of personal mgt. 2,000,000 1003 Local licenses 500,000
2005 Agriculture and community 1,500,000 1004 Earnings from commercial 200,000
development
Balance c/d 10,700,000 1005 Rent on local government proposal 1,000,000
Capital revenue:
3001 External loans 2,000,000
3002 Grants 2,500,000
3003 Miscellaneous receipts 1,500,000
19,200,000 19,200,000

Note:
Total Revenue: N19,200,000
Total Expenditure: (8,500,000)
Surplus (Bal. c/d): 10,700,000

2022/8
Omuga District council made the following for 2020:
Heads Particulars Amount
D
20011 Construction of market stalls 100,000
20012 Maintenance of roads 30,000
20031 Construction of health centre 120,000
20041 Repair of vehicle 10,000
20051 Sinking of borehole 80,000
20061 Lubricants 20,000
20071 Purchase of ambulance 60,000
20081 Electricity bills 15,000
20091 Office equipment and machines 20,000
20101 Yellow fever vaccine 12,000
20111 Construction of laboratory 130,000
20121 Servicing of generator 5,000
20141 Travelling expenses 10,000
20161 Stationery 5,000
20131 Purchase of hospital equipment 90,000
20151 Purchase of generator 40,000
20171 Purchase of water treatment plant 110,000
20181 Drugs for health centre 30,000
20191 Purchase of office furniture 80,000
20201 Environmental sanitation 40,000
20221 Staff benefits 20,000
20211 Construction of day care centre 110,000
20231 Construction of toilets 60,000
20241 Telephone expenses 12,000
20251 Provision of street light 90,000
20261 Refuse disposal 30,000
20281 Salaries 100,000
20301 Hospitality expenses 30,000

You are required to prepare for the year ended 31st December, 2020:
(a) Statement of capital expenditure:
(b) Statement of revenue expenditure.
557
Solution
(a)
OMUGA DISTRICT COUNCIL
Statement of Capital Expenditure for the year ended 31st
December, 2020
Heads Particulars Amount
D
20011 Construction of market stalls 100,000
20031 Construction of health centre 120,000
20051 Sinking of borehole 80,000
20071 Purchase of ambulance 60,000
20091 Office equipment and machines 20,000
20111 Construction of laboratory 130,000
20131 Purchase of hospital equipment 90,000
20151 Purchase of generator 40,000
20171 Purchase of water treatment plant 110,000
20191 Purchase of office furniture 80,000
20211 Construction of day care centre 110,000
20231 Construction of toilets 60,000
20251 Provision of street lights 90,000
Grand total capital expenditure 1,090,000

(b)
Statement of Revenue Expenditure for the year ended
31st December, 2020
Heads Particulars Amount
D
20021 Maintenance of roads 30,000
20041 Repairs of vehicles 10,000
20061 Lubricants 20,000
20081 Electricity bills 15,000
20101 Yellow fever vaccines 12,000
20121 Servicing of generators 5,000
20141 Traveling expenses 10,000
20161 Stationery 5,000
20181 Drugs for health centre 30,000
20201 Environmental sanitation 40,000
20221 Staff benefit 20,000
20241 Telephone expenses 12,000
20261 Refuse disposal 30,000
20281 Salaries 100,000
20301 Hospitality expenses 30,000
Grand Total Revenue Expenditure 369,000

2011/2
Which of the following is capital expenditure?
A. extension of building B. repairs of generator
C. purchase of stock D. purchase of stationery
Answer: Extension of building (A)

2013/31
The public account committee is an organ of
A. military regime B. parliament C. presidency D. councilors
Answer: Parliament (B)

558
2014/4
Classify the following:
(i) Purchase of land.
(ii) Purchase of motor vehicle.
(iii) Rent received.
(iv) Repairs to motor vehicle.
(v) Fuel cost for running the vehicle.
(vi) Sale of land previously bought.
(vii) Interest on loan to purchase land.
(viii) Wages of cleaner.
(ix) Payments for carriage inwards in machine bought.
(x) Installation cost of machine.
(xi) Cost of repairs to a factory building.
(xii) Cost of papers used in the account department.
(xiii) Proceeds from disposal of motor vehicle.
(xiv) Commission received from a transaction.
(xv) Legal fees paid in buying a land.

Into: (a) Capital expenditure; (b) Revenue expenditure (c) Capital receipts (d) Revenue receipts
Solution:
S/N ITEMS CLASSIFICATION
(i) Purchase of land Capital expenditure
(ii) Purchase of motor vehicle Capital expenditure
(iii) Rent received Revenue receipt
(iv) Repairs to motor vehicle Revenue expenditure
(v) Fuel cost for running the vehicles Revenue expenditure
(vi) Sale of land previously bought Capital receipt
(vii) Interest on loan to purchase land Revenue expenditure
(viii) Wages of cleaner Revenue expenditure
(ix) Payments of carriage inwards on machine Revenue expenditure
(x) Installation cost of machine Capital expenditure
(xi) Cost of repairs to a factory building Revenue expenditure
(xii) Cost of paper used in the account department Revenue expenditure
(xiii) Proceeds from disposal of motor vehicle Capital receipts
(xiv) Commission received from a transaction Revenue receipt
(xv) Legal fees paid in buying land Capital expenditure

2017/47 to 48
Nzemaman Local Government incurred the following expenditure in the year 2015.
D
Construction of market stalls 120,000
Staff salaries 40,000
Purchase of stationery 9,000
Sinking of boreholes 200,000
Building of classrooms 90,000
Maintenance of vehicles 35,000
Purchase of equipment 28,000

2017/47
Recurrent expenditure for the year is
A. D112,000 B. D84,000 C. D77,000 D. D49,000
Answer: D84,000 ⎯ ⎯→ staff salaries + purchase of stationery + maintenance of vehicles
D40,000 + 9,000 + 35,000 = D84,000 (B)

2017/48
Capital expenditure for the local government is
A. D473,000 B. D438,000 C. D422,00 D. D410,000
Answer: D438,000 ⎯ ⎯→ D120,000 + 200,000 + 90,000 + 28,000
= D438,000 (B)
559
2019/35
A feature of government accounting is that the
A. fixed assets are depreciated B. objective is to report profit made by the government
C. accounts are prepared on accrual basis D. accounts are prepared on cash basis
Answer: Accounts are prepared on cash basis (D)

2020/7 Theory
The following balances were extracted from the books of Abobaku local government for the year ended 31st
December, 2019.
D
Construction of an office block 3,850,000
Renovation of classroom blocks 1,065,000
Court fines 90,000
Building permits 650,000
Rehabilitation of street lights 470,500
Wages and salaries 7,880,000
Medical services 1,334,650
Provision of pipe borne water 2,500,000
Interest on investments 250,000
Lorry park levies 380,000
Market tolls 560,000
Property rates 1,200,000
General administration 630,700
Motor vehicle procured 6,653,000
Extension of office building 950,000
Grant from donor agencies 2,000,000
Royalties 4,500,000
Subvention from central/federal government 20,000,000
Donations to charity homes 250,000
Entertainment permits 70,000
Staff training 550,000
Entertainment expenses 200,000
Marriage registration fees 80,000
Allowances to community leaders 370,000
Birth certificate fees 160,000
Maintenance of motor vehicles 650,000

You are required to prepare for the year ended 31st December, 2019:
(a) Statement of Recurrent expenditure.
(b) Statement of capital expenditure.
(c) Statement of revenue.
Solution
(a)
ABOBAKU LOCAL GOVERNMENT
Statement of Recurrent Expenditure, 31st December, 2019
Particulars: Amount
D
Rehabilitation of street lights 470,500
Medical services 1,334,650
General administration 630,700
Wages and salaries 7,880,450
Staff training 550,000
Donations to charity homes 250,000
Entertainment expenses 200,000
Allowances to community leaders 370,800
Maintenance of motor vehicles 650,000
Total recurrent expenditure 12,337,100

560
(b)
ABOBAKU LOCAL GOVERNMENT
Statement of Capital Expenditure, 31st December, 2019
Particulars: Amount
D
Renovation of classroom blocks 1,065,000
Provision of pipe borne water 2,500,000
Motor vehicle procured 6,653,000
Construction of an office block 3,850,000
Extension of office building 950,000
Total capital expenditure 15,018,000

(c)
ABOBAKU LOCAL GOVERNMENT
Statement of Revenue for the year ended 31st December, 2019
Particulars: Amount
D
Court fines 90,000
Building permits 650,000
Interest on investments 250,000
Lorry park levies 380,000
Market tolls 560,000
Property rates 1,200,000
Entertainment permits 70,000
Birth certificate fees 160,000
Marriage registration fees 80,000
Royalties 4,500,000
Grants from donor agencies 2,000,000
Subvention from central/federal government 20,000,000
Total revenue 29,940,000

2022/32 NABTEB
Which of the following is not used in the public sector accounting?
A. bank reconciliation statement B. cash book C. trial balance D. profit and loss
account
Answer: Profit and loss accounts (D)

2022/5 NABTEB
A document used in government accountability to show evidence of cash receipt and payment is
A. budget B. warrant C. vote D. voucher
Answer: Voucher ⎯ ⎯→ This is a document used in government accounting to show the concrete evidence of cash
receipts and payments (D)

2019/23 to 24 NABTEB
The education department of Ibe local government incurred the following expenses in 2005
N
Construction of classroom 500,000
Purchase of textbooks 40,000
Annual interhouse sports competition 20,000
Payment of salaries 80,000

2019/23
Capital expenditure for the year was
A. N690,000 B. N590,000 C. N540,000 D. N140,000
Answer: N540,000 ⎯ ⎯→ N500,000 + N40,000 = N540,000 (C)

561
2019/24
Recurrent expenditure for the year
A. N170,000 B. N140,000 C. N120,000 D. N100,000
Answer: N100,000 ⎯
⎯→ N20,000 + 80,000 = N100,000 (D)

2019/46 NABTEB
Recurrent expenditure of government is paid from
A. reserve fund B. consolidated revenue fund C. development fund D. contingency fund
Answer: Consolidated revenue fund (B)

2019/47 NABTEB
The amount of money granted by government to public institution to meet recurrent expenditure during a fiscal year is
A. subvention B. budget C. deposit D. estimate
Answer: Subvention (A)

2018/49 NABTEB
Which of the following is NOT a source of fund to a local government?
A. motor park levy B. customary C. company tax D. market stall tax
Answer: Company tax (C)

2018/2 NABTEB
Explain the following concepts as commonly used in Government Accounting procedures.
(a) General warrant.
(b) Capital expenditure.
(c) Recurrent expenditure.
(d) Supplementary budget.
(e) Payment voucher.
Answer
(a) General warrant: This is an instrument, which gives authority to the Accountant General to release money for the
settlement of personal emolument and other services provided for in the approved budget.
(b) Capital expenditure: These are expenditures incurred on long term project, which usually add to the value of the
assets. They are mostly used to acquire assets of permanent nature. Examples are: construction of classrooms, sinking
of boreholes, construction of hospitals and health care centres, purchase of refuse disposal van, etc.
(c) Recurrent expenditure: These are expenses used for the day-to-day running or administration of the activities of
government. They are not permanent in nature, examples include: payment of staff salaries, repairs, purchase of drugs,
stationery, maintenance of vehicles, etc.
(d) Supplementary budget: This is a budget approved in situations where the revenue budget appropriated for activities of
government to be carried out in a fiscal year is not sufficient or where a budget is required for an activity of the
Government to which budget is not appropriated.
(e) Payments voucher: These are prepared by parastatals and ministries to record expenses incurred in government
offices. Payments voucher serve as written evidences or proof that payments have been made. It usually state the
amount involved, the purpose and the beneficiary.

2006/29 NABTEB
The transfer of money from one vote to another is known as
A. vote B. warrant C. virement D. budgeting
Answer: Virement (C)

2022/16 Neco (PC)

Government accounting is different from commercial accounting because it
A. aims at maximization of profit B. derives revenue through sales of goods and services
C. is governed by CAMA 1990 D. is prepared on accrual basis
E. provide goods and services at reasonable price to the people
Answer: Provide goods and services at reasonable price to the people (E)

2022/58 and 59
The Education and Department of Oshoko Local Government incurred following expenses in 2015.
N
Construction of classrooms 1,000,000
Purchase of tables and chairs 100,000
Purchase of textbooks for library 80,000
Annual inter house sports competition 40,000
Payment of teacher’s salary 160,000
562
2022/58 Neco (Internal)
The recurrent expenditure for the year is
A. N340,000 B. N260,000 C. N240,000 D. N200,000 E. N160,000
Answer: N200,000 ⎯ ⎯→ N40,000 + N160,000 (D)

2022/59 Neco (Internal)

The capital expenditure for the year is
A. N1,380,000 B. N1,180,000 C. N1,000,000 D. N280,000 E. N200,000
Answer: N1,180,000 ⎯ ⎯→ N1,000,000 + N100,000 + N80,000 (B)

2022/60 NABTEB (Internal)

The transfer of funds from one vote head to another within the same economic head is called a/an
A. estimate B. virement C. vote D. voucher E. warrant
Answer: Virement (B)

2018/33 Neco
An estimate of government total revenue and expenditure for a particular year is called
A. appropriation B. budget C. emolument D. votes E. warrant
Answer: Budget (B)

2018/41 Neco
The amount approved for each item in a government budget is called
A. deposit B. grant C. investment D. loan E. vote
Answer: Vote (E)

2009/29 Neco
In government accounting, expenditures which add to the value of fixed assets are called ______ expenditure.
A. capital B. current C. fixed D. government E. recurrent
Answer: Capital (A)

2006/6 Neco
A systematic review, analysis and interpretation of the financial transactions of government is called
A. cashbook B. company account C. partnership account D. public sector account
E. purchases day book
Answer: Public sector account (D)

1998/22 (Nov)
Who among the following is an accounting officer for receipts and payments?
A. Governor B. Accountant – General C. Auditor General D. Treasury Cash Officer E. Federal Pay Officer
Answer: Treasury Cash Officer (D)

2012/46
Which of the following is not revenue to a local government?
A. fines B. licenses C. personal income tax D. tenement rates Answer: Personal income tax (C)
2012/17
The name given to a budget in public service accounting is
A. vote B. subvention C. order D. estimate Answer: Estimate (D)
2009/42
As evidence of payment to government treasury, revenue collectors issue:
A. treasury card B. receipt voucher card C. treasury receipt D. payment voucher
Answer: Treasury receipt (C)

563
2005/8 (Nov)
The following balances were extracted from the book of Tiwantiwa Local Government for the year ended 31st
December, 2003:
N
Construction of new classrooms 385,000
Renovation of community library 106,500
Replacement of street lighting bulbs 47,050
Personnel costs 788,450
Purchase of drugs 133,465
Sinking of boreholes 250,000
Allowances of community leaders 37,800
General administration expenses 63,070
Maintenance of motor vehicles 65,330
Staff training and development 55,800
Entertainment 20,900
Extension of office buildings 400,000
Donation to motherless babies home 25,000
You are required to prepare:
(a) Statement of Capital Expenditure;
(b) Statement of Recurrent Expenditure.
Solution
First, we identify and separate Capital expenditure, recurrent expenditure among the extracted items
Now take a calm glance at the solution without the figures and you will get the difference
Projects that are permanent, which will stand the test of time, are not for immediate consumption are capital expenditure

(a)
TIWANTIWA LOCAL GOVERNMENT:
Statement of Capital Expenditure 31 – 12 – 2003
N
Construction of new classrooms 385,000
Renovation of community library 106,500
Sinking of boreholes 250,000
Extension of office buildings 400,000
Total capital expenditure 1,141,500

(b) TIWANTIWA LOCAL GOVERNMENT:

Statement of Recurrent Expenditure 31 – 12 – 2003
N
Replacement of street lighting bulbs 47,050
Personal costs 788,450
Purchase of drugs 133,465
Allowances of community leaders 37,800
General administration expenses 63,070
Maintenance of motor vehicles 65,330
Staff training and development 55,800
Entertainment 20,900
Donations to motherless babies home 25,000
Total recurrent expenditure 1,236,865

564
1993/6 (Nov)
Ireti Olu Local Government made the following receipts and payments in December, 1990:
Heads Items Amount
N
1001 Rates 10,500
1002 Federal Government take – off grant 50,000
2001 Teachers Salaries 80,000
1003 Market stalls 15,000
2002 Repairs of public buildings 10,000
2003 Other staff salaries 55,000
2004 Sinking of wells 25,000
1004 Motor park fees 5,000
1005 Poll tax 100,000
1006 Customary court fines 8,000
1007 Social parties fees 18,000
1008 Environmental sanitation day’s fines 5,000
2005 Building of classrooms 28,000
1009 Federation Account 200,000
1010 Launching of Education fund 100,000
2006 Maintenance of vehicles 16,000
2007 Purchases of drugs for dispensary 20,000
1011 Registration and medication fees 12,000
2008 Stationery 13,000
2009 Maintenance of roads 8,000

Additional information:
Expenditure Heads are coded 2001, 2002 e.t.c. while Revenue Heads are 1001, 1002 e.t.c.

Prepare:
(a) Departmental Votes Revenue Account;
(b) Departmental Vote Expenditure Accounts; (c) Statement of Capital and Revenue Expenditure.
Solution
This is a guided solution, where additional information on Expenditure Heads are coded 2001, 2002 e.t.c and Revenue
Heads are 1001, 1002 e.t.c.is to be strictly adhered to. Now take a look at the codes only and see, how they played the
major role in the solution

(a) IRETI-OLU LOCAL GOVERNMENT

Departmental Votes Revenue Account Dec. 1990
Heads Particulars Amount
N
1001 Rates 10,500
1002 Fed. Government take - off grant 50,000
1003 Market stalls 15,000
1004 Motor park fees 5,000
1005 Pool tax 160,000
1006 Customary court fines 8,000
1007 Social parties fees 18,000
1008 Environmental sanitation fines 5,000
1009 Federation account 200,000
1010 Launching of Education fund 100,000
1011 Registration and medication fees 12,000
Total Revenue Votes 583,500

565
(b)
Departmental Votes Expenditure Account Dec. 1990
Heads Particulars Amount
N
2001 Teachers’ salaries 80,000
2002 Repairs of public buildings 10,000
2003 Other staff salaries 55,000
2004 Sinking of wells 25,000
2005 Construction of classrooms 28,000
2006 Maintenance of vehicles 16,000
2007 Purchase of drugs for dispensary 20,000
2008 Stationery 13,000
2009 Maintenance of roads 8,000
Total Expenditure Votes 255,000

(c) Statement of Capital and Revenue Expenditure

Statement of Capital Expenditure Account Dec. 1990
Heads Particulars Amount
N
2004 Sinking of wells 25,000
2005 Construction of classrooms 28,000
Total capital expenditure 53,000

Statement of Revenue Expenditure Account Dec. 1990

Heads Particulars Amount
N
2001 Teachers’ salaries 80,000
2002 Repairs of public buildings 10,000
2003 Other staff salaries 55,000
2006 Maintenance of vehicles 16,000
2007 Purchase of drugs for dispensary 20,000
2008 Stationery 13,000
2009 Maintenance of roads 8,000
Total revenue expenditure 202,000

566
2012/9
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 additional information relates to Suna Local Government

(i) Revenue generated: Le

Renewal of licenses 175,000
Tenement rates 150,000
Fines 125,000
Park collections 150,000

(ii) Expenses incurred:

Stationery 450,000
Maintenance of vehicles 1,750,000
Salaries of traditional chiefs 1,080,000
Rehabilitation of roads 7,195,000
Rural electrification 2,125,000

(iii) Cash balance 1/1/10 175,000

You are required to prepare:

(a) A statement showing the allocation made to each Local Government; and
(b) Receipts and Payments Account of Suna Local Government for the year ended 31st December, 2010.

Solution
Workings: 4,000,000
Ana × 40,000,000
(i) Allocation on equal basis: 16,000,000
60
60% of Le100,000,000 = × Le100,000,000 = Le10,000,000
100
= Le60,000,000
Suna 2,000,000
Amount received on equal basis will be × 40,000,000
16,000,000
Le 60,000,000 = Le5,000,000
= Le10,000,000 each
6
Din 2,000,000
(ii) Allocation on population basis 16,000,000
× 40,000,000
40
40% of Le100,000,000 = 100 × Le100,000,000 = Le5,000,000
= Le40,000,000 2,000,000
Total population: 16,000,000 Sika × 40,000,000
16,000,000

= Le5,000,000
Local Government
Oruko 2,000,000
× 40,000,000 Tiri 4,000,000
16,000,000 × 40,000,000
16,000,000
= Le5,000,000
= Le10,000,000

567
(a)
Statement of allocation 31st December, 2010
Local Government Equal basis Population Basis Total Allocation
Areas Le Le Le
Oruko 10,000,000 5,000,000 15,000,000
Aha 10,000,000 10,000,000 20,000,000
Suna 10,000,000 5,000,000 15,000,000
Din 10,000,000 5,000,000 15,000,000
Sika 10,000,000 5,000,000 15,000,000
Tiri 10,000,000 10,000,000 20,000,000
Grand total 60,000,000 40,000,000 100,000,000

(b)
SUNA LOCAL GOVENRMENT
Receipts and Payments Accounts for the year ended 31st December, 2010.
RECEIPTS Le PAYMENTS: Le
Balance b/d 175,000 Stationery 450,000
Allocation from F.G 15,000,000 Maintenance 1,750,000
Renewal of licenses 175,000 Salaries 1,080,000
Tenement rates 150,000 Rehabilitation of roads 7,195,000
Fines 125,000 Rural electrification 2,125,000
Park collections 150,000 Balance c/d 3,175,000
15,775,000 15,775,000

2006/2 Nov
(a) List four sources of government revenue.
(b) State three purposes of public sector accounting.
(c) List five users of government accounting information.
Solution
(a) The following are the various sources of government revenue;
(i) Allocation from federal account. (vi) Grants/subventions
(ii) Sales of government properties & assets. (vii) Licensing of motor vehicles.
(iii) Royalties. (viii) Park collections.
(iv) Proceed from the sales of crude oil. (ix) Fines.
(v) Returns from government investments. (x) Poll collections.
(b) The following are the purposes of public sector accounting:
(i) For effective planning.
(ii) As a basis for control of government spending. (iv) To show government financial accountability.
(iii) For better decision making. (v) To show government receipts and disbursement of fund.
(c) Users of government accounting information include:
(i) Government officials. (vi) Foreign governments.
(ii) Local and foreign investors. (vii) Foreign creditors.
(iii) Pressure groups. (viii) President, Governor and Local Government Chairman.
(iv) General public. (ix) Researchers.
(v) Financial institutions – foreign & local. (x) Legislators.

568
Fg 2021
The political structure of country ‘X’ comprises five states A, B, C, D and E and the federal government. The following
information relates to the revenue for the fiscal year ended 31st December, 1986:
N
Receipts from mineral resources 7,250,000
Receipt from agriculture 669,000
Import duties 1,275,000
Excise duties 500,000
Personal and company income tax 2,652,000
Other incomes 3,654,000
You are also given the following information:
(a) Revenue is shared as follows:
40% to the federal government, 10% to each of the states on equal basis. 5% of the total revenue to the federal
government – consolidated fund.
(b) The population of each states is as follows: A – 500,000; B – 450,000; C – 400,000; D – 350,000; E – 300,000
You are required to prepare the: (i) Total revenue for the country. (ii) Revenue for the federal government.
(iii) Revenue for the state collectively and individually.
Solution
(i) Country ‘X’ Total Revenue Income (iii) Revenue for states collectively and individually:
N
Mineral resources 7,250,000 (a) Revenue allocation – state
Agriculture 659,000 10% of N16,000,000 = N1,600,000 per state.
Import duties 1,275,000 (b) Revenue allocation – population basis
Excise duties 500,000 Total population = 2,000,000
Personal and company income tax 2,652,000 5% of N16,000,000 = N800,000
Other income 3,654,000
Total 1,5,990,000
(ii) Federal Government Revenue
Workings:
Sharing formula is given as: States N
Federal government = 40% A 500,000 200,000
× 800,000
State = 10% 2,000,000
Population basis = 5% B 450,000 180,000
Federal consolidated fund = 5% × 800,000
2,000,000
Therefore:
C 400,000 160,000
Revenue for Federal Government:
2,000,000
× 800,000
40
40% of 16,000,000 = × 16,000,000
100 350,000
D × 800,000 140,000
= N6,400,000. 2,000,000
Consolidated fund: E 300,000 120,000
5 × 800,000
5% of 16,000,000 = × 16,000,000 2,000,000
100 800,000
= N800,000
N7,200,000

States Population Allocations Collective revenue

Population basis Equal basis Individuals
N N N
A 500,000 200,000 1,600,000 1,800,00
B 450,000 180,000 1,600,000 1,780,000
C 400,000 160,000 1,600,000 1,760,000 N8,800,000
D 350,000 140,000 1,600,000 1,740,000
E 300,000 120,000 1,600,000 1,720,000
Grand total 2,000,000 800,000 8,000,000 8,800,000 8,800,000

569
1993/6
The following information was extracted from the staff establishment department at the Lagos State Commission for
Women Affairs on 30th September, 1990.
Post Grade level No in post Rate
Director – General 17 1 N26,000 × 2,400 – 38,000
Directors 16 3 N20,000 × 2,000 – 30,000
Assistant Directors 15 - N16,000 ×1,800 – 26,800
Chief Budget officers 14 - N15,000 × 1,500 – 24,000
Chief Accountants 14 2 N15,000 × 1,500 – 24,000
Assistant Chief Accountant 13 - N14,000 × 1,200 – 22,400
Principal Accountant 12 - N10,000 × 1,000 – 20,000
Senior Accountant 10 - N8,000 × 800 – 16,000
Accountant I 09 6 N7,000 × 750 – 14,000
Accountant II 08 - N6,000 × 600 – 12,000
Senior Executive Officer 08 - N6,000 × 600 – 12,000
Higher Executive Officers 07 - N5,000 × 520 – 10,200
Executive Officers 06 20 N4,500 × 500 – 9,500
Senior Clerical Officers 05 - N4,500 × 400 – 8,500
Clerical Officers 04 - N3,500 ×400 – 7,500
Clerical Assistants 03 - N3,000 × 350 – 6,500
Messengers 02 10 N2,500 × 300 – 5,500
Labourers 01 - N2,000 ×250 – 4,500
Additional information:
(a) Allowances are as follows;
Grade level Housing Transport
12 and above N2,400 p.a N1,800 p.a
07 – 11 N1,800 p.a N1,200 p.a
05 – 06 N1,200 p.a N600 p.a
Others N600 p.a N400 p.a
(b) All employees are on first step of their salary.
You are required to prepare the personnel cost budget for the commission for 1991.
Solution
Here the column of ‘number in post’ is key player in the solution, it represent nonexistence and existence officers
Note: Personnel cost =[(𝑥 − 1)𝐼𝑛𝑐𝑟𝑒𝑚𝑒𝑛𝑡𝑎𝑙 𝑟𝑎𝑡𝑒 + 𝑆𝑡𝑎𝑟𝑡𝑖𝑛𝑔 𝑏𝑎𝑠𝑖𝑐 𝑠𝑎𝑙𝑎𝑟𝑦]𝑛
x = New step to which the officer moved to n = No of staff in post or grade level
- Director General (1): - Accountant I (6):
(i) Basic salary = [(2 – 1) N2,400 + N26,000] 1 = N28,400 (i) Basic salary = [[(2–1)750 + 7,000)]6 = N46,500
(ii) Housing allowance = N2,400 × 1 = N2,400 (ii) Housing allowance = N 1,800 × 6 = N10,800
(iii) Transport allowance = N1,800 × 1 = N1,800. (iii) Transport allowance = N1,200 × 6 = N7,200
Total = N28,400 + N2,400 + N1,800 = N32,600 Total = N46,500 + N10,800 + N7,200 = N64,500
- Director (3):
(i) Basic salary = [(2 – 1) 2,000 + 20,000]3 = N66,000 - Executive Officers (20):
(i) Basic salary = [(2–1) 500 + 4,500]20 = N100,000
(ii) Housing allowance = N2,400 × 3 = N7,200
(ii) Housing allowance = N1,200 × 20 = N24,000
(iii) Transport allowance = N1,800 × 3 = N5,400 (iii) Transport allowance = N600 ×20 = N12,000
Total = N66,000 + N7,200 + N5,400 = N78,600 Total = N100,000 + N24,000 + N12,000 = N136,000
- Chief Accountants (2):
- Messengers (10):
(i) Basic salary = [(2 – 1) N1,500 + N15,000]2 = N33,000
(i) Basic salary = [(2 – 1) 300 + 2,500]10 = N28,000
(ii) Housing allowance = N2,400 × 2 = N4,800
(ii) Housing allowance = N600 × 10 = N6,000
(iii) Transport allowance = N1,800 × 2 = N3,600
(iii) Transport allowance = N400 × 10 = N4,000
Total = N33,000 + N4,800 + N3,600 = N41,400
Total = N28,000 + N6,000 + N4,000 = N38,000

Labourers and others that are not captured in the solution was that their number in post column
is dash that is not available or zero, no staff in those post.

570
LAGOS STATE COMMISSION FOR WOMEN AFFAIRS
Personnel Cost Budget for 1991
Post No in Grade level Basic Housing Transport Total
post salary allowance allowance
N N N N
Director general 1 17 28,400 2,400 1,800 32,600
Director 3 16 66,000 7,200 5,400 78,600
Assistant Director - 15 - - - -
Chief budget officer - 14 - - - -
Chief Accountant 2 14 33,000 4,800 3,600 41,400
Asst. Chief Accountant - 13 - - - -
Principal Accountant - 12 - - - -
Senior Accountant - 10 - - - -
Accountant I 6 09 46,500 10,800 7,200 64,500
Accountant II - 08 - - - -
Senior Executive Officer - 08 - - - -
Higher Executive Officer - 07 - - - -
Executive Officers 20 06 100,000 24,000 12,000 136,000
Senior Clerical Officer - 05 - - - -
Clerical Officers - 04 - - - -
Clerical Assistants - 03 - - - -
Messengers 10 02 28,000 6,000 4,000 38,000
301,900 55,200 34,000 391,100

Therefore the personnel budget cost for the commission of women affairs is N391,100.

2020/4
(a) List:
i. three books of accounts used in public sector accounting;
ii. four users of public sector accounting information;

(b) State four differences between the private sector accounting and the public sector accounting.
Answer
(ai) The following are the various books of accounts used in public sector accounting:
1. Payment voucher.
2. Receipt voucher.
3. Adjustment voucher.
4. Stores issue voucher.
5. Stores receipt voucher.
6. Stock register.
7. Cash book.
8. Vote book.
9. Imprest cash book.
10. Salary abstract.
11. Expenditure ledger, etc.
(ii) The following are the major users of accounting information:
1. Government agencies;
2. Trade unions;
3. Investors;
4. Researchers (students & teachers);
5. Financial analysts;
6. Financial institutions (banks, insurance house, etc);
7. Auditors;
8. Suppliers;
9. Creditors; (foreign lenders)
10. Legislators;
11. Civil Society Organisation (CSO);
12. Non-Governmental Organisation (NGO);
13. Foreign governments;
14. International Financial Organisations – such as ADB, IMF, ICM, IFC, London Club, Paris Club, etc.

571
(b) The differences between public sector and private sector accounting

Public Sector Accounting Private Sector Accounting

i. Objective and aim is to ascertain efficiency of funds Objective is to maximize profit.
collected from the public.
ii. Accounts are prepared for the general public. Accounts are prepared for shareholders.
iii. No distinction between capital and revenue, There is a clear distinction between capital and
expenditure and income. revenue expenditure and income.
iv. Accounts are prepared on cash basis of accounting. Accounts are prepared on accrual basis of
accounting.
v. Does not adopt matching concept. Adopt matching concept of accounting.
vi. Preparation & presentation of accounts is regulated Preparation & presentation of accounts is
by the constitution. regulated by company’s code.

2011/9
The following balances have been extracted from the books of Agbo state as at 31st December, 2010.
DR CR
Le Le
Cash account 50,000
Consolidated Revenue Fund (01 – 01 – 2010) 90,000
Allocation from Central Government Account 200,000
Other Revenue: 20,000
Personal costs 100,000
Investment 100,000
Deposit 50,000
Advances 60,000
Loans from Central Government 50,000
Loans to Local Government 60,000
Fixed deposit 40,000
410,000 410,000

Additional information:
(i) Le20,000 should be transferred to Development Fund for capital projects.
(ii) Other charges approved by the Funds Management Committee and paid during the year but which were omitted
from the books amounted to Le25,000.
(iii) Total grants of Le80,000 collected from Central Government for capital projects to be embarked upon during
the year had not been recorded in the books.

You are required to prepare:

(a) Consolidated Revenue Fund Account;
(b) A statement showing the Development fund for the year.
Solution
(a)
AGBO STATE
Consolidated Revenue Fund Account for the year ended 31st December, 2010
Le Le
Personal cost 100,000 Balance b/f 90,000
Transfer 20,000 Allocation from F.G. 200,000
Other charges 25,000 Other revenue 20,000
Balance c/d 165,000 _______
310,000 310,000

(b)
Statement of Development Fund for the year Ended 31st December, 2010
Le
Transfer from Consolidated Revenue Fund 20,000
Cash 80,000
100,000

572
2003/5
The following balances have been extracted from the books of Durodoluwa Local Government for the year ended 31st
December, 2001.
Head N
- General revenue balance (1 – 1 – 2001) 2,407,000
4001 Postages and stationery 123,450
4002 Maintenance of vehicles 365,845
4003 Purchases of drugs 606,435
4004 Personnel costs 4,366,155
3001 Subvention from Federal Government 7,000,000
3002 Subvention from State Government 2,500,000
4005 Grant to schools 1,500,000
3003 Rates and fines 300,100
3004 License renewal fees 176,400
4006 Disposal of refuse 203,440
4007 Salaries of traditional chiefs 105,000
4008 Provision of street lights 850,000
3005 Sale of grounded vehicles 74,500

You are required to prepare a statement of revenue and expenditure for the local government for the year ended 31st
December, 2001.
Solution
DURODOLUWA LOCAL GOVERNMENT:
Statement of Revenue and Expenditure for the year Ended 31st December, 2001
HEAD EXPENDITURE AMOUNT HEAD REVENUE AMOUNT
N N
4001 Postages & stationery 123,450 - Balance b/f 2,407,000
4002 Maintenance of vehicles 365,845 3001 Subvention from F.G. 7,000,000
4003 Purchase of drugs 606,435 3002 Subvention from state 2,500,000
4004 Personnel cost 4,366,155 3003 Rates & fines 300,100
4005 Subvention to schools 1,500,000 3004 Licences renewals 176,400
4006 Disposal of refuse 203,440 3005 Sales of grounded vehicles 74,500
4007 Salaries of chiefs 105,000
4008 Street lights 850,000
- 𝑅 4,337,675
Excess of
𝐸
12,458,000 12,458,000
Note:
▪ Head 3001 – 3005 are revenue items.
▪ Head 4001 – 4008 are expenditure items.

1994/4
The following balances have been extracted from the books of Agbede Local Government for the year ended 31st
December, 1991.
Head N
- General Revenue Balance – 1st January, 1991 2,750,000
3001 Staff salaries 892,750
3002 Sinking of boreholes 69,250
3003 Stationery 9,000
3004 Maintenance of vehicles 12,620
2001 Stationery allocation 4,000,380
3005 Salaries of traditional chiefs 36,000
2002 Interest on Fixed Deposit Account 5,200
3006 Refuse disposal expenses 1,800
3007 Renovation of schools 980,000
2003 Rates 650,500
2004 Fines 19,500
3008 Rehabilitation of Roads 1,200,580
2005 Renewal of licenses 40,420
You are required to prepare Agbede Local Government’s Revenue and Expenditure statement for the year ended 31 st
December, 1991.
573
Solution
AGBEDE LOCAL GOVERNMENT
Statement of Revenue and Expenditure for the year Ended 31st December, 1991
HEAD PARTICULARS N N
REVENUE:
- Revenue Balance b/f 2,750,000
2001 Statutory allocation 4,000,380
2002 Interest on Fixed Deposit Account 5,200
2003 Rates 650,500
2004 Fines 19,500
2005 Renewal of licenses 40,420
Total Revenue 7,466,000

DEDUCT EXPENDITURE:
3001 Staff salaries 892,750
3002 Sinking of boreholes 69,250
3003 Stationery 9,000
3004 Maintenance of vehicles 12,620
3005 Salaries of traditional chiefs 36,000
3006 Refuse disposal expenses 1,800
3007 Renovation of schools 980,000
3008 Rehabilitation of roads 1,200,580
Total expenditure (3,202,000)
Excess of Revenue over Expenditure 4,264,000

Note:
▪ Head 2001 – 2005 are revenue items.
▪ Head 3001 – 3008 are expenditure items.

2011/13 Exercise 22.1

The document used in government accounting to show evidence of cash receipts and payment is the
A. budget B. warrant C. vote D. voucher

1998/13 (Nov) Exercise 22.2

Which of the following is not a source of federal government revenue?
A. withholding tax B. royalty
C. motor license fees D. company income tax E. petroleum profit tax
2005/42 (Nov) Exercise 22.3
The authority to transfer funds from one sub – head to another within the same vote is
A. warrant B. budget C. appropriation D. virement
2012/17 Exercise 22.4
The name given to a budget in public service accounting is
A. vote B. subvention C. general order D. estimate
2001/32 Exercise 22.5
Which of the following does not relate to government accounting system?
A. vote B. trial balance C. consolidated fund D. profit and loss account
2001/48 Exercise 22.6
The expenditure on a good or service which is consumed either immediately or within a current accounting period is
A. annual expenditure B. budgetary expenditure C. capital expenditure D. recurrent expenditure

2011/45 UTME Exercise 22.7

The fund in which all government receipts are paid is
A. development fund B. consolidated revenue fund C. trust fund D. contingency fund

2011/48 Exercise 22.8

Which of the following is a signatory to federal government account?
A. Governor of CBN B. Auditor – General C. Accountant – General D. President

574
2011/49 UTME Exercise 22.9
The Chief Accounting Officer of a Local Government is the
A. Treasurer B. Chairman C. Director of Personnel D. Auditor

2012/48 UTME Exercise 22.10

The book into which all types of a ministry’s expenditure are recorded is the
A. ledger book B. payment book C. vote book D. expenditure book

1992/6 (Nov) Exercise 22.11

The Federal Ministry of Health incurred in 1989 the following:
N
Construction of hospital wards 28,500,000
Purchase of beds 920,000
Repairs of ambulances 25,000
Salaries and wages 31,000,000
Maintenance of vehicles 7,500,000
Purchases of theatre equipment 7,920,000
Purchase of petrol and lubricants 800,000
Construction of boreholes 1,200,000
Purchase of drugs 10,550,000
Purchase of vaccines 1,330,000
Maintenance of mortuary buildings 670,000
Maintenance of incubators 3,800,000
Purchase of X – ray machines 4,200,000
You are required to prepare statements of:
(a) Capital expenditure; and
(b) Recurrent expenditure for the ministry for 1989.
2004/9 (Nov) Exercise 22.12
Eti – Oni Local Government made the following receipts and payments in December, 2002.
Head N
2001 Fines 960,000
2002 Registration Fees 640,000
3001 Purchase of Petrol 430,000
2003 Market stalls 1,060,600
3002 Purchase of vans 440,000
2004 Poll tax 260,000
2005 Grants from State Government 720,000
3003 Purchase of stationery 130,000
2006 Motor Park Collection 600,000
3004 Repairs of public toilet 200,000
3005 Salaries and wages 500,000
3006 Maintenance of vehicles 250,000
2007 Federation Account 2,000,000
2008 Licenses 50,000
2009 Rates 70,000
3007 Road maintenance 710,000
2010 Tenement rate 320,000
3008 Purchase of Equipment 605,450
3009 Construction of roads 800,500
3010 Interest on Bank Loan 120,000
3011 Sundry expenses 110,000
You are required to prepare:
(a) Revenue and Expenditure Account, and
(b) Statement of capital expenditure.

575
2008/7 Neco Exercise 22.13
The Federal Government approved a total of N500,000,000 for five local governments in Akur State for year 2004. The
sum was to be shared among the local government in the ratio of their internally generated revenue for the year as given
below:
Local Government InternallyGenerated Revenue
N
Akpim 650,000
Ekom 1,000,000
Ihitte 850,000
Kpam 2,000,000
Tete 500,000
st
For the year ended 31 December, 2004; Ihitte Local Government council made the following payments:
N
Salaries and wages 1,250,000
Sinking of boreholes 340,000
Construction of rural roads 2,450,000
Purchases of 30 Keke NAPEP 3,000,000
Purchase of vaccines 540,000
Purchase of improved seedlings 634,000
Purchase of tractors 4,647,000
Maintenance of L.G. guest house 380,000
Fuel and lubricants 140,000
You are required to prepare:
(a) A statement showing revenues available to each local government council; and
(b) For Ihitte local government council:
(i) Receipts and payment account,
(ii) Statement showing separately capital and recurrent Expenditure.

1991/ (Nov) Exercise 22.14

Government approved for the year ended 31/12/89 N10,000,000 to ten (10) local Authorities of the Federation. The
allocation was as follows:
(a) 80% on Population Basis and
(b) 20% on equality of Local Authorities.
Local authorities Population
A 200,000
B 450,000
C 300,000
D 375,000
E 680,000
F 490,000
G 320,000
H 350,000
I 375,000
J 460,000
4,000,000

Local Authority E generated the following additional revenue during the year.
N
Fines 25,000
Licenses 15,000
Park operations 1,000
Rates 17,500
It also made the following payments:
N
Salaries and wages 25,000
Electricity 2,000
Stationery 5,000
Servicing of vehicles 36,000
Required:
(i) A statement of allocation made to each of the Local Authorities and
(ii) Receipts and Payments Account of Local Authority E for the year ended 31st December, 1989.
576
Chapter twenty three
ACCOUNTING FINANCIAL RATIO AND ANALYSIS

ACCOUNTING RATIO DEFINED

An accounting ratio is a proportion or fraction expressing the correlation between one item in a set of financial statement
and another item in the same financial record.

DEFINITION/MEANING OF FINANCIAL ANALYSIS

Financial analysis can be defined as the process of identifying the financial strengths and weakness of the firm by
properly establishing correlation between the items of the balance sheet and the income statement.
Financial analysis can be grouped into intra- company analysis and inter – company analysis.

TOOLS USED FOR FINANCIAL ANALYSIS

The following are usually used for financial analysis:
(i) Accounting ratio.
(ii) Cash flow statement.
(iii) Value added statement.
(iv) Common sense.
(v) Experience.

ACCOUNTING RATIOS
A. Liquidity Ratios
This ratio describes the extent to which a firm can conveniently pay or liquidate its debts as they fall due. Examples
of liquidity ratios are:
(i) Current ratio: This measures the extent by which the assets that are convertible into cash within an
accounting year cover the indebtedness payable within the same accounting period. The higher the ratio, the
more secured are the external creditors as the organization is liquid enough to offset their indebtedness as at
when due. The ideal ratio is 2:1 i.e, current assets should cover current liabilities two times.
Current Assets
It is computed thus:
Current Liabilities

(ii) Acid Test Ratios: The acid test, or quick ratio, compares a company’s most short term assets to its most
short-term liabilities to see if a company has enough cash to pay its immediate liabilities, such as short term
debt. The acid-test ratio disregards current assets that are difficult to liquidate quickly such as inventory.
Current Assets−Inventory
It is computed as;
Curent Liabilities
(iii) Creditor’s PaymentPeriod: This is another liquidity ratio that measures the time it takes the organization to
settle its indebtedness to the third party. If the average collection period is more than creditor’s payment
period, it can turn out to be liquidity problem. That is why it must be considered with the average collection
period.
Average trade creditors
It is computed as;
Credit purchases
× 365 days

(iv) Debtor’s turnover: This measures the degree or rate at which credit sales metamorphosis to debtors. That is,
it shows the slowness of debtors. Debtors is a component of current assets, high amount of debtors will give
rise to high incidence. The higher the ratio, for better for the organization.
Credit sales
It is computed thus;
Average trade debtors

(v) Creditor’s turnover: This is a measure of how often a particular company pays off its debts to suppliers
within a given accounting period. This relates back to the more general term ‘credit turnover’ which simply
means during a particular time frame.
𝐂𝐫𝐞𝐝𝐢𝐭 𝐩𝐮𝐫𝐜𝐡𝐚𝐬𝐞𝐬
It is calculated thus:
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐜𝐫𝐞𝐝𝐢𝐭𝐨𝐫𝐬
B. Profitability Ratios
This ratio shows the relative profitability and efficiency of utilization of resources of a business. This ratio shows
how profitable and efficient the company is.
577
Ratio under this group includes:
(i) Gross – profit margin (%): This shows the percentage of total sales that turn out to be gross profit. It shows
relative efficiency of the business after considering sales and cost of sales before the operating expenses. The
higher the ratio, the better for the organization.
Gross−profit 100
It is calculated thus: ×
Sales 1

(ii) Net – profit margin (%): This is another profitability ratio that shows the proportion of sales that turns out to be
net profit. It shows the relative efficiency of the business. The higher the ratio, the better for the organization as
the shareholders may have access to more dividends.
Net−profit 100
It is calculated thus:
Sales
×
1

(iii) Returns on capital employed (ROCE): This is a financial ratio that can be used in assessing a company’s
profitability and capital efficiency. In other words, this ratio can help to understand how well a company is
Profit 100
generating profits from its capital as it is put to use. It is calculated thus;
Capital Employed
× .
1
(iv) Capital employment turnover: This shows how efficiently the sales are generated from the capital employed by
the firm. This ratio helps the investors or the creditors to determine the ability of a firm to generate revenues from
the capital employed and act as a key decision factor for lending more money to the asking firm.
Turnover/sales
It is computed thus: .
Capital employed
(v) Expense to Sale Ratio: It is computed to show the relationship between an individual expense or group of expenses
and sales. It is computed by dividing a particular expense or group of expenses by net sales. Expense ratio is
expressed in percentage.
Individual Expense 100
It is computed thus: ×
Sales 1
(vi) Total Assets Turnover: This shows the relationship between the fixed assets at one hand and sales of turnover on
the other hand. It shows how the organization has used the total assets to generate sales. The higher the ratio, the
better for the organization.
Turnover/Sales 100
It is calculated thus: ×
Total Assets 1
(vii) Individual Asset Turnover: This explains how the organization has used a particular asset such as plant and machinery to
generate sales. That is, the ratio shows the relationship between individual asset and sales. The higher the ratio, the better
for the organization showing that such organization has used such asset to generate more sales.
Sales 100
This is calculated thus: ×
Individual Asset 1
(viii) Return on Total Assets: This ratio shows the relationship between returns and total asset of the company. This
explains how the management of the organization has used current and fixed assets to generate profit. High ratio
is desirable as it shows that the organization has used the total assets to generate returns.
Profit after tax and preference Dividends
It is computed as: .
Ordinary Shareholder′ fund
C. Shareholders Ratios
Also called investors ratios, these are ratios that are used by stakeholders in the stock exchange to enable them compare
alternative investments. These ratios measures how successful investor’s equity/fund had been utilized. Examples are:
(i) Earnings Per Share (EPS): This shows the proportion of the profit that goes to the ordinary shareholders. It is the
profit expressed in monetary term, attributed to each ordinary share, based on profit or in case of group, on the
consolidated profit for the period after deducting tax. Minority interest, extra-ordinary items after deducted
preference dividends and other preference share appropriations, divided by the number of ordinary shares in issue
and ranking for divided. It is always abbreviated as EPS.
Earnings available to ordinary shareholders
Equity shares ranking for dividend
The higher the ratio, the better for the shareholders (Equity).
(ii) Price/Earning Ratio (P/E ratio): This explains the length of times it takes an investor to recoup its investment
through earnings. It shows the relationship between the current market price and earning per share. It is very
important yardstick in measuring the relative worth of the share. It is very import yardstick in measuring the relative
Market price per share 100
worth of the share. It is computed thus:
Earning per share
×
1
An increased ratio is desirable for the shareholders as it indicates that it will take them a short time to recoup the
original amount invested.

578
(iii) Dividend Per Share (DPS): This explains the dividend policy of an organization. It attempts to explain the
proportion of the profit attributable to ordinary shareholders in relation to the retain profit. That is, it shows
the dividend payable and the relation policy or the company. The total ordinary divided means both divided
paid and proposed and must be included but before withholding tax.
Total Ordinary Dividend 100
Dividend Per Share =
Issued share capital (Equity)
×
1

(iv) Earnings yield (EY): This explains the relationship between earning per share and market price per share. It
is a reserve of price earning ratio. It shows the potential returns on investment.
Earnings per share 100
It is computed thus: `
Market price Per share
×
1

(v) Dividend Yield: This shows the relationship between the current divided per share and market price per share.
Dividend per share 100
It shows the current return on investment. It is computed thus: ×
Market Price per share 1

(vi) Dividend Cover: This explains the total dividend available to contributors of capital in relation to the current
Maximum possible profit avaialbe for distribution
profit available for distribution. Dividend Cover =
Actual Dividend Payable
The actual dividend means gross dividend is dividend is dividend before the deducted of withholding tax.
- Mark – up: This is when profit is expressed as a fraction, or percentage of the cost price.
Profit 100
Therefore, mark – up = × 1
Cost price
- Margin: This is when profit is expressed as a fraction, or percentage of the selling price.
Profit 100
Margin = ×
Selling price 1

- Rate of turnover: Also called stock – turnover represents the number of times the stock was used within a specific period.
Cost of goods sold
ROT =
Average stock

2012/45-46 UTME
N
Purchases 44,800
Sales 85,850
Trade creditors 12,250
Trade debtors 24,000
Accrued expenses 350
Prepaid expenses 700
Stock: 1 – 1 – 2006 25,120
Stock: 31 – 12 – 2006 27,840

Note:
▪ Current Assets = N24,000 + N700 + N27,840 = N52,540
▪ Current liability = N12,250 + N350 = N12,600
▪ Cost of goods sold = N25,120 + N44,880 – N27,840 = N42,160
25,120+27,840
▪ Average stock = = N26,480
2
45. Calculate the acid test ratio
A. 1.94:1 B. 1.96:1 C. 1:1.94 D. 1:1.96
Current Assets−Stock 52,540 − 27,840 24,700
Answer: 1.96:1 (B) Acid Test Ratio = = = = 1.96
Current Liabilities 12,600 12,600

46. Determine the number of times stock was turned over during the period to the nearest figure.
A. 1 B. 2 C. 3 D. 4
Cost of goods sold 42,160
Answer: 2 (B) Stock turnover = = = 1.59 ≈ 2
Average stock 26,480

579
2010/8 Neco
Use the information from the book of Oloketuyi Enterprise to answer the question below:
N
Purchases 75,000
Creditors 15,000
Debtors 30,000
Fixed assets 120,000
Sales 135,000
Opening stock 60,000
Expenses 45,000
Closing stock 90,000
Calculate: (a) Cost of goods sold. (b) Net – profit. (c) Working capital. (d) Gross – profit percentage.
(e) Current ratio. (f)Net – profit percentage. (f) Rate of stock turnover.
Solution
(a) Cost of goods sold = opening stock + purchases – closing stock (b) Net – profit = gross profit – expenses
= N60,000 + 75,000 – 90,000 Gross profit = cost of goods sold – sales
= N135,000 – 90,000 = N45,000 = N135,000 – 45,000 = 90,000
Net profit = N90,000 – 45,000 = N45,000
(c) Working capital = debtors + stock Net−profit 100
= N30,000 + 90,000 (f) Net – profit percentage = ×
Sales 1
= N120,000 45,000 100
Gross−profit 100 =
135,000
× = 33.3%
(d) Gross profit percentage = × 1
Sales 1
Cost of goods sold
N90,000 100 (g) Rate of stock turnover =
= × = 66.7% Average stock
N135,000 1 N90,000 + 60,000
But Average stock =
2
Current Assets 150,000
(e) Current ratio = Current Liabilities = = N75,000
2
120,000 45,000
= = 8 times ∴ Rate of stock turnover = = 0.6 times
15,000 75,000

2006/9
The following were extracted from the books of Mid – land company:
Trading profit and loss accounts for the year ended
31st December, 2005
N N
Sales 500,000
Less: cost of goods sold
Opening stock 30,000
Add: purchases 400,000
430,000
Less: closing stock (50,000) 380,000
Gross – profit 120,000
Less: Expenses (50,000)
Net – profit 70,000

Balance sheet as at 31st December, 2005

N N
Fixed Assets 101,000
Current Assets:
Stock 50,000
Debtors 15,000
Cash 10,000 75,000
176,000
Less: Current liabilities:
Creditors (20,000)
156,000
Financed by:
Capital 143,000
Add: Net-profit 70,000
Less: drawings (57,000) 13,000
156,000
580
You are required to calculate:
(a) Stock turnover; (b) Gross profit to sales; (c) Current ratio; (d) Acid – test ratio; (e) Return - on - capital employed.
Solution
Cost of goods sold
(a) Stock turnover =
Average stock
30,000+50,000 80,000
But Average stock =
2
= = N40,000
2
N380,000
∴ Stock turnover = = 9.5 times
40,000

Gross−profit 100 120,000 100

(b) Gross – profit to sales =
Sales
×
1
= × = 24%
500,000 1

Current Assets 75,000

(c) Current ratio = Current Liabilities = = 3.75 times
20,000

Current Assets – Closing Stock Net−profit 100

(d) Acid – test ratio = (e) Return-on-capital employed = ×
Current Liabilities Capital employed 1
75,000 − 50,000 70,000 100
= = 156,000 × 1
20,000
25,000
= = 1.25time = 44.87%
20,000

2001/8 Nov
The following are the summarized balance sheet of Ekemini Koko (Nig.) Limited as at 31st December, 1998 and 1999:
1998 1999
N N N N
Fixed Assets:
Land and building 320,000 320,000
Machinery at cost 200,000 160,000
Less: Depreciation (100,000) 100,000 (80,000) 80,000
420,000 400,000
Goodwill 80,000 80,000

Current Assets:
Stock 260,000 240,000
Debtors 240,000 200,000
Investment 48,000 60,000
Cash at bank 112,000 660,000 60,000 560,000
1,160,000 1,040,000
Share capital:
Ord. share of N1 each 480,000 400,000
Profit & loss account 320,000 340,000

Current liabilities:
Creditors 344,000 260,000
Accruals 16,000 360,000 40,000 300,000
1,160,000 1,040,000

The net profit for the year 1998 was N120,000 and N88,000 for 1999.
You are required to:
(a) Calculate for the years 1998 and 1999:
(i) Return on capital employed; (ii) Current ratio; (iii) Working capital; (iv) Acid test ratio.
(b) Calculate average stock for the year 1999.
Solution
Net−profit 100
(ai) Return on capital employed: × 1
Capital employed
Capital employed (1999) = N400,000 + N340,000 = N740,000
Capital employed (1998) = N480,000 + N320,000 = N800,000
Therefore, return on capital employed:
120,000 100
1999 =
740,000
× 1 = 16.2%
88,000 100
1998 =
800,000
× 1 = 11.0%

581
Current Assets
(ii) Current ratio = (iii) Working capital = Current Assets – Current Liabilities
Current Liabilities
500,000
1999 = = 1.871 1999 = N560,000 – N300,000 = N260,000
300,000
660,000
1998 = = 1.831 1998 = N660,000 – N360,000 = N300,000
360,000
Current assets−Inventory 𝑁240,000+ 260,000
(iv) Acid – test ratio = (b) Average stock for the year 1998: =
Current Liabilities 2

560,000−240,000 320,000 500,000

1999 = = = 1.07:1 = = N250,000
300,000 300,000 2
660,000−260,000 400,000
1998 = = = 1.11
360,000 360,000

2019/9
The following information was extracted from the books of Abudabhi and Sons Ltd:
A. Trading, profit and loss account for the year ended 31st December, 2014.
N N
Sales 360,000
Opening stock 30,000
Add: purchases 210,000
240,000
Less: closing stock (40,000) (200,000)
160,000

Salaries 92,500
Director’s fees 5,000
Insurance 1,600
Travelling expenses 3,400
Utilities 4,000
General expenses 1,000
Depreciation 12,500 (120,000)
40,000
Taxation (10,000)
30,000
Dividends (15,000)
Retained profit for the year 15,000
Retained profit brought forward 35,000
Retained profit carried forward 50,000
All sales and purchases were on credit.
(B) Balance sheet as at 31st December, 2014.
N N N
400,000 ordinary shares @ N0.25 each. 100,000
Retained profits 50,000
Shareholder’s funds 150,000

Represented by:
Land and building 90,000
Vehicle 15,000
105,000

Current Assets:
Stock 40,000
Debtors 30,000
Bank 17,000
Cash 3,000
90,000
Current liabilities
Creditors 20,000
Dividend payable 15,000
Taxation 10,000 (45,000) 45,000
150,000

582
You are required to calculate:
(a) Stock turnover ratio; (b) Gross profit margin; (c) Net profit margin; (d) Current ratio; (e) Acid test ratio;

Solution
Net−profit 100
Cost of goods sold
(a) Stock turnover ratio = Average stock (c) Net – profit margin =
Sales
× 1
30,000 100
30,000 + 40,000 70,000 =
360,000
× = 8.3%
Average stock = = = N35,000 1
2 2
Current Assets
200,000 (d) Current ratio =
Stock turnover = = 5.71 times Current Liabilities
35,000 90,000
Gross−profit 100 = = 2:1
(b) Gross – profit margin = Sales
× 1 45,000
Current Assets−Stock
=
160,000
×
100
= 44.4% (e) Acid – test ratio = Current
360,000 1
90,000−40,000 50,000
= 45,000
=
45,000
= 1.1:1
2023/4
(a) Explain accounting ratio giving one example of liquidity ratio.
(b) State 3 uses of accounting ratios.
(c) Outline 3 limitations to the use of accounting ratios.
Answer
(a) Accounting ratios are relationship between figures expressed as ratio which are used by information users in
giving meaning to the financial statements.
(b) Uses of accounting ratios:
(i) Ratios are used for assessing performance of companies in the same business.
(ii) Ratios are used to measure the ability of the firm to meet its short – term obligations.
(iii) Ratios helps in comparing performance.
(iv) Ratios are used in preparing industrial average.
(v) Ratios can be used to interprete financial statements.
(c) Limitations to the use of accounting ratios:
(i) Ratios can be easily manipulated.
(ii) Different accounting policies can affect ratio computation.
(iii) Ratio is easily affected by inflation.
(iv) Difficult to set industrial averages.
2022/43 – 45 NABTEB
N
Fixed assets 920,800
Current assets 350,000
Current liabilities 223,000
Long term liabilities 447,000
Capital 600,000

2022/43
The total liabilities is
A. N447,000 B. N670,000 C. N823,000 D. N1,047,800
Answer: N670,000 ⎯ ⎯→ Current liabilities + long term liabilities
N223,000 + N447,000 = N670,000 (B)
2022/44
The working capital is
A. N127,000 B. N573,000 C. N600,000 D. N697,000
Answer: N127,000 ⎯ ⎯→ current assets – current liabilities
N350,000 – N223,000 = N127,000 (A)
2022/45
The total assets is
A. N600,800 B. N670,000 C. N1,047,000 D. N1,270,800
Answer: N1,270,800 ⎯ ⎯→ Fixed assets + current assets
N920,800 + N350,000 = N1,270,800 (D)
2022/29 Neco (PC)
Turnover means ____ of a business
A. net-profit B. net purchases C. net sales D. purchases E. sales
Answer: Sales (E)

583
2022/18 – 20 Neco (PC)
N
Plant and machinery 150,000
Creditors 4,340
Debtors 7,000
Long term loan 60,000
Stock 10,500
Overdraft 8,000
Cash in hand 1,800
Accrual 1,200

2022/18
What is the value of current liabilities?
A. N60,000 B. N13,540 C. N8,000 D. N4,340 E. N1,200
Answer: N13,540 ⎯ ⎯→ creditors + overdraft + accruals
N4,340 + N8,000 + N1,200 = N13,540

2022/19
Calculate working capital
A. N20,440 B. N13,100 C. N7,340 D. N5,760 D. N5,670
Answer: N5,760 ⎯ ⎯→ current assets – current liabilities
N19,300 – N13,540 = N5,760

Note:
Current assets: Stock + debtors + cash in hand
= N10,500 + N7,000 + N1,800 = N19,300
Current liabilities: Creditors + overdraft + accruals
= N4,340 + N8,000 + N1,200 = N13,540
2022/20
What is capital?
A. N130,440 B. N113,100 C. N96,760 D. N95,760 E. N95,340
Answer: N95,760 ⎯ ⎯→ Assets – liabilities
= N169,300 – N73,540 = N95,760
Note:
(i) Assets: Plant and machinery + debtors + stock + cash in hand
= N150,000 + 7,000 + 10,500 + 1,800 = N169,300
(ii) Liabilities: Creditors + long term loan + overdraft + accrual
= N4,340 + 60,000 + 8,000 + 1,200 = N73,540

2022/8 Neco
From the following information, draw the balance sheet of Mallam Idris Adamu, a farmer, on 20th September, 2016.
N
Land and building 36,000
Milking herbs 8,100
Short term loan – Mr. Fayemi Fayose 5,000
Long – term loan from First Bank 30,000
Cash at bank 5,680
Cash in hand 1,750
Credits 4,500
Equipment and tools 2,160
Machinery 12,870
Cassava (for sale) 4,440
Capital 31,500

From the balance sheet, state Mallam Adamu’s:

(i) Fixed assets.
(ii) Working capital.
(iii) Current liabilities.
(iv) Current assets.
584
Solution:
MALLAM IDRIS ADAMU
Balance sheet as at 20th September, 2016.
N N Fixed Assets: N N
Capital 31,500 Land and building 36,000
Equipment and tools 2,160
Machinery 12,870
Long term liability: 51,030
Loan from first bank 30,000
Current Assets:
Stock 8,100
Current liabilities: Debtors 4,440
Loan from Fayemi 5,000 Cash at bank 5,680
Creditors 4,500 9,500 Cash in hand 1,750 19,970
71,000 71,000

(i) Fixed assets = N51,030

(ii) Working capital = N19,970 – N9,500 = N10,470
(iii) Current liabilities = N9,500
(iv) Current assets = N19,970

2022/42 Neco (Internal)

The short term solvency of a company is determined with ____ ratio.
A. acid test B. debtors to equity C. gross profit margin D. net profit margin
E. price earning
Answer: Acid test (A)

2022/15-17 Neco (Internal)

N
Stock at 1st January, 2013 13,000
Stock at 31st December, 2013 11,000
Creditors at 31st December, 2013 10,000
Creditors at 1st January, 2013 8,000

Cash paid for goods during the year was N40,000 and gross profit was 25% on cost. Administrative and selling expenses
was N5,500.

2022/15
The amount of purchases for the year is
A. N50,000 B. N44,000 C. N42,000 D. N40,000 E. N38,000
Answer: N42,000 ⎯ ⎯→ N10,000 + N40,000 – N8,000
= N50,000 – N8,000 = N42,000

OR

Dr Total Creditors Control Account Cr

N N
Closing balance 10,000 Opening balance 8,000
Cash paid 40,000 Purchases 42,000
50,000 50,000

585
2022/16
What is the stock turnover rate?
A. 4 times B. 3.7 times C. 3.5 times D. 3.3 times E. 3 times
Answer: 3.7 times (B)
Cost of goods sold
Stock turnover rate: Average cost
(i) Cost of goods sold: Opening stock + Purchases – Closing stock
= N13,000 + N42,000 – N11,000
= N55,000 – 11,000 = N44,000
Opening stock + Closing stock
(ii) Average stock:
2
N13,000 + N11,000 24,000
= = = N12,000
2 2
44,000
∴ stock turnover rate = = 3.666 ≃ 3.7 times
12,000

2022/17
The average stock for the year is
A. N13,000 B. N12,000 C. N11,000 D. N10,000 E. N9,000
13,000 + 11,000 24,000
Answer: N12,000 ⎯
⎯→ = 2
= N12,000
2

2018/27 – 30 Neco
Nma is a banker whose ledger balances are given as follows:
N
Premises 55,000
Debtors 7,200
Cash at bank 20,000
Loan 50,000
Outstanding rent 2,200
Creditors 15,600
Motor vehicle 16,000
Stock at hand 6,200
Cash in hand 5,000
2018/27
What is the total capital?
A. N109,400 B. N91,600 C. N67,800 D. N46,000 E. N41,600
Answer: N41,600 ⎯ ⎯→ Assets – Liabilities
Assets: N55,000 + N7,200 + N20,000 + N16,000 + N6,200 + N5,000 = N109,400
Liabilities: N50,000 + N2,200 + N15,600 = N67,800
Capital = N109,400 – N67,800 = N41,600 (E)
2018/28
Total current assets amount to
A. N71,000 B. N56,800 C. N50,800 D. N38,400 E. N27,200
Answer: N38,400 ⎯ ⎯→ (N7,200 + N20,000 + N6,200 + N5,000) = N38,400 (D)

2018/29
Nma’s working capital is equal to
A. N60,500 B. N50,800 C. N41,000 D. N21,600 E. N20,600
Answer: N20,600 ⎯ ⎯→ current assets – current liabilities
Current Assets: N7,200 + N20,000 + N6,200 + N5,000 = N38,400
Current Liabilities: N2,200 + N15,600 = N17,800
Working capital = N38,400 – N17,800 = N20,600
2018/30
What is Nma’s total fixed assets?
A. N81,000 B. N71,000 C. N61,000 D. N51,000 E. N41,000
Answer: N71,000 ⎯ ⎯→ Premises + Motor vehicle
N55,000 + N16,000 = N71,000
586
1999/9
Profit expressed as a proportion of cost price is
A. gross profit B. mark-up C. margin D. profit percentage
Answer: Mark – up (B)

2000/25
Profit expressed as a fraction of the selling price is known as
A. mark-up B. margin C. gross profit D. net profit
Answer: Margin (B)
2019/34
Which of the following formulae is used to calculate stock turnover rate?
Sales Cost of Sales Cost of Sales Cost of Sales
A. B. C. D.
Average Stock Average stock Closing stock Opening Stock
Cost of Sales
Answer: Average stock
(B)

2009/9
The following are the summarized balance sheets of Farouk Nig. Limited at 31st December, 2005 and 2006.
2006 2005
Fixed Assets: N N N N
Land and building 320,000 320,000
Equipment (at cost) 100,000 80,000
420,000 400,000
Goodwill 80,000 80,000
500,000 480,000
Current Assets:
Stock 260,000 240,000
Debtors 240,000 200,000
Bank 48,000 60,000
Cash in hand 112,000 660,000 60,000 560,000
1,160,000 1,040,000

Shared capital:
Ordinary share of N1.00 each 480,000 400,000
Profit and Loss account 320,000 340,000

Current Liabilities:
Creditors 344,000 260,000
Accruals 16,000 360,000 40,000 300,000
1,160,000 1,040,000

The net profit for the year were:

2005: N120,000
2006: N88,000
You are required to calculate for the years 2005 and 2006;
(a) Working capital;
(b) Current ratio;
(c) Acid test ratio;
(d) Return on capital employed.
(e) Stock to current assets ratio; and
(f) Capital employed.
Solution
(a)
Working capital: Current Assets – Current Liabilities
2005 2006
Current – Assets N N
560,000 660,000

Less: Current liabilities (300,000) (360,000)

Working capital 260,000 300,000

587
Current Assets
(b) Current Ratio: Current Liabilities

2005 2006
560,000 660,000
=
300,000 360,000
= 1.87:1 1.8:1
Current Assets − Stock
(c) Acid – Test Ratio: Current Liabilities
2005 2006
560,000−240,000 660,000−260,000
= 360,000
300,000

320,000 400,000
=
300,000 360,000

= 1.07:1 1.11:1
Net−profit
(d) Return on capital employed:
Capital employed

120,000 100
ROCE (2005):
(400,000+340,000)
×
1
120,000 100
= × = 16.2%
740,000 1
88,000 100
ROCE (2006) = ×
(480,000 + 320,000) 1
88,000 100
= × = 11.0%
800,000 1
Note:
(i) Capital employed (2005) = Ordinary share + profit and loss
= N400,000 + N340,000 = N740,000

(ii) Capital employed (2006) = N480,000 + N320,000 = N800,000

Stock
(e) Stock to current Assets Ratio:
Current Assets
240,000
2005: = 0.43:1
560,000

260,000
2006: = 0.39:1
660,000
(f) Capital employed: Assets – Liabilities
Capital employed (2005): N1,040,000 – N300,000 = N740,000
Capital employed (2006): N1,160,000 – N360,000 = N800,000

2022/14 – 15
3
A trader bought goods worth N16,000 and sold 4 of it for N20,000.

2022/14
The gross profit is
A. N12,000 B. N8,000 C. N6,000 D. N4,000
3
Answer: N8,000 ⎯ ⎯→ Sales – (4 × 16,000)
= N20,000 – 12,000 = N8,000

2022/15
The margin would be
2 3 1 2
A. 3 B. 5 C. 2 D. 5
2 Profit 8,000 2
Answer: ⎯
⎯→ Selling Price
= 20,000 = 5
5

588
2022/25 – 26
GHe
Sales 200,000
Purchases 170,000
Opening stock 40,000
Closing stock 50,000

2022/25
The gross profit percentage is
A. 25% B. 20% C. 15% D. 10%
Answer: 20% (B)

Workings: (Determination of Profit)

Trading Account
GHe GHe
Opening stock 40,000 Sales 200,000
Purchases 170,000
C.G.A.S 210,000
Less: Closing stock (50,000)
Cost of goods sold 160,000
Gross profit 40,000
200,000 200,000

Gross−profit 100
∴ Gross – profit (%): ×
Sales 1
40,000 100
= × = 20%
200,000 1

2022/26
Stock turnover ratio is
A. 4 times B. 3.78 times C. 3.56 times D. 3.2 times
Answer
Cost of goods sold
3.56 times ⎯
⎯→
Average stock
Opening stock + Closing stock
Average stock:
2
40,000 + 50,000
=
2
90,000
= = N45,000
2
160,000
∴ Stock of turnover ratio = 45,000
= 3.56 times (C)

2019/15
2
The mark-up on a product is 3. The mark–up is
3 2 1 2
A. 5 B. 5 C. 3 D. 9
2 2 2
Answer:
5
⎯
⎯→ =
2 + 3 5

1989/13
A business marked up its cost by 50%. This would mean a gross profit of
A. 33% on the cost price B. 50% on the selling price C. 66% on the selling price
D. 66% on the market price E. 33% on the selling price
Answer: 33% on the selling price (E)

589
1994/12 – 16
Balance Sheet
N N
Ordinary share capital 100,000 Plant and machinery 60,000
6% preference share 60,000 Furniture 50,000
Reserve 20,000 Motor van 68,000
180,000 178,000

10% Debentures 40,000 Stock 14,000

Creditors 25,000 Debtors 36,000
Accrued rent 3,000 Prepayments 1,800
Bank 18,200
248,000 248,000

1994/12
What is the current ratio?
A. 1:1 B. 1:2 C. 3:1 D. 5:2 E. 6.8:7
Answer
(i) Current Assets: Stock + Debtors + Prepayments + Bank
= N14,000 + N36,000 + N1,800 + N18,200 = N70,000
(ii) Current Liabilities: Creditors + Accrued Rent
= N25,000 + N3,000 = N28,000
Current−Assets 70,000
= 28,000 = 2.5:1 ≃ 3:1 (C)
Current Liability

1994/13
What is the ratio of debentures to equity?
A. 1:1 B. 2:1 C. 3:1 D. 5:2 E. 6.8:7
Answer: 5:2 ⎯ ⎯→ Ordinary share capital : Debentures
100,000 : 40,000 = 5:2

1994/14
What is the net total assets?
A. N178,000 B. N180,000 C. N208,000 D. N220,000 E. N248,000
Answer: N248,000 ⎯ ⎯→ Fixed assets + Current assets
= N178,000 + N70,000 = N248,000

1994/15
What is the equity capital?
A. N100,000 B. N120,000 C. N160,000 D. N180,000 E. N220,000
Answer: N120,000 ⎯ ⎯→ Ordinary share capital + Reserve
= N100,000 + N20,000 = N120,000

1994/16
The working capital is
A. N42,000 B. N60,000 C. N68,000 D. N70,000 E. N100,000
Answer: N42,000 ⎯ ⎯→ CA – CL
= N70,000 – N28,000 = N42,000

1994/36
Bosun bought goods worth N500 and sold it at a margin of 20% on selling price. For how much did he sell the goods?
A. N100 B. N125 C. N500 D. N600 E. N625
1
Answer: N625 ⎯
⎯→ ( × 500) + 500
4
= 125 + 500 = N625
20 1 1 1
Note: Convert margin to mark–up 100 = 5 = 1 − 5
=4

590
1998/1
From the balance sheet given below, calculate the following:
(i) Fixed assets. (ii) Current assets. (iii) Current liabilities. (iv) Working capital. (v) Capital employed.
st
Balance sheet as at 31 March, 1997
N N
Capital 23,350 Premises 10,000
Fixed loan interest accrued 800 Plant & machinery 8,000
Fixed loan 5,000 Furniture & fittings 2,000
Bank overdraft 1,200 Stock on hand 12,000
Creditors 10,500 Trade debtors 9,000
Expenses accrued 250 ______
41,100 41,100
Solution
(i) Fixed assets: (iii) Current liabilities
N10,000 + N8,000 + N2,000 = N20,000 N80 + N1,200 + N10,500 + N250 + N5,000 = N17,750
(ii) Current assets: (iv) Working capital = N21,100 – N17,750 = N3,350
N12,000 + N9,000 + N100 = N21,100 (v) Capital employed = N23,350
2015/3
(a) State two (2) ratios which fall under the following classification of accounting ratios:
(i) Profitability; (ii) Activity; (iii) Liquidity; (iv) Investment; (v) Leverage.
(b) Outline:
(i) three uses of accounting ratios; (ii) two limitations in the use of accounting ratios;
Solution
(a)
i. Profitability ratios: ii.Activity ratios: iii. Liquidity ratios:
- Gross profit margin. - Stock turnover - Current ratio
- Net profit margin. - Debtors turnover. - Quick acid test
ratio.
- Return on capital employed. - Average collection period. - Debtors ratio.
- Returns on equipment. - Average payment period.. - Creditors ratio.

iv. Investment ratios: v. Leverage ratios:

- Price earning ratio. - Fixed interest cover.
- Dividend yield ratio. - Fixed dividend cover.
- Earnings per share. - Gearing ratio.
- Dividend cover ratio. - Proprietary ratio.
(bi) Uses of accounting ratios include:
- To compare the financial performance of a firm in two different years.
- Accounting ratio is also useful for business evaluation.
- Accounting ratios are useful for planning.
- Useful for decision making.
(bii)
- Accounting ratios are historical in nature.
- Accounting ratios are not quantifiable.
- Accounting ratios do not have a universally accepted uniform parameters.

2000/11 Nov
Mark – up is profit expressed as a
A. proportion of cost price B. proportion of selling price C. percentage of sales D. percentage of purchases
Answer: Proportion of cost price (A)
1999/38 Nov
The rate of stock turnover is obtained by
Cost of sales Average stock Sales Sales
A. B. C. D.
Average stock Sales Average stock Cost of sales
Cost of sales
Answer: Rate of stock turnover = Average stock (A)

591
2011/39 NABTEB
Working capital is
A. current liabilities less current assets B. current assets less fixed assets
C. fixed assets less current liabilities D. current assets less current liabilities
Answer:Working capital is Current assets less current liabilities (D)

2019/15
2
The mark – up on a product is 3. The margin is
3 2 1 2
A. B. C. D.
5 5 3 9
2 2 2
Answer Margin = (3 = 3+2 = 5) B.

2021/9 Neco
𝑥
(a) If the rate of turnover of stock is represented by the letter K and the formula for finding this rate is: K = (Y+Z) ÷ 2,
what does letter X, Y, Z stand for?
(b) The opening stock of a trader is given as N14,750, his purchases loss returns for the year amounts to N72,100 and
his closing stock is valued at N10,650. Find the rate of turnover of stock.
(c) If the gross profit on turnover of the above trader is 20%, calculate the turnover of the trader for the year.
Solution
(a) K = Rate of turnover, x = cost of goods sold
Y = opening stock, Z = closing stock

(b) Where: Opening stock = N14,750, purchases N72,100, closing stock = N10,650
Cost of goods sold
Rate of turnover =
Average stock
Cost of goods sold = N14,750 + N72,100 – N10,650
N14,750 + N10,650
Average stock = 2
= N12,700
N76,200
∴ Rate of turnover = = 6 times
12,700

(c) Profit on turnover = 20% of N76,200 = N15,240

Turnover (sales) = cost of goods sold + profit
= N76,200 + N15,240
= N91,440

2016/8
The following information relates to the books of accounts of Adom Ltd.
TRADING PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST DECEMBER, 2014
GH¢ GH¢
Opening stock 20,000 Sales 240,000
Add: purchases 160,000
180,000
Less: closing stock (36,000)
Cost of goods sold 144,000
Gross profit c/d 96,000 _______
240,000 240,000

Selling & distribution expenses 73,200 Gross profit b/d 96,000

Administrative expenses 14,800
Net profit 8,000 ______
96,000 96,000

592
Balance sheet as at 31st December, 2014
GH¢ GH¢ GH¢ GH¢
Share capital: Fixed asset at cost 125,000
Ordinary share 100,000 Less: Depreciation 25,000
Preference share 10,000 100,000

General reserve 24,000

Profit & loss account 8,000 32,000

Current liabilities: Current Assets:

Trade creditors 28,000 Stock 36,000
Accruals 12,000 40,000 Debtors 39,000
Cash and bank 7,000 82,000
182,000 182,000

You are required to calculate any six of the following:

(a) Gross – profit percentage; (d) Current ratio; (g) Working capital;
(b) Net – profit percentage; (e) Acid test ratio; (h) Shareholders fund;
(c) Return on capital employed; (f) Rate of stock turnover; (i) Liquid assets
Solution
ADOM LIMITED: Accounting Ratios
Gross−profit
(a) Gross – profit percentage: × 100
Sales Current Assets
(d) Current ratio:
Current Liabilities
96,000
= 240,000 × 100 = 40% 82,000
= = 2.05:1
40,000
Net−profit Note:
(b) Net-profit percentage: Sales
× 100 ▪ Current Assets = GH¢36,000 + GH¢39,000 + GH¢7,000 = GH¢82,000
▪ Current Liabilities = GH¢28,000 + GH¢12,000 = GH¢40,000
8,000
= 240,000 × 100 = 3.33% ▪ Standard accounting is 1.

Current Assets−Closing Stock

Net profit (e) Acid – test ratio:
(c) Return on capital employed: Capital employed × 100 Current Liabilities

82,000−36,000
8,000 =
= 142,000 × 100 = 5.6% 40,000
Note: Capital employed = (100,000 + 10,000 + 32,000)GH¢ 46,000
= 40,000 = 1.15:1
= 142,000

Cost of Goods sold

(f) Rate of stock turnover: Average stock (h) Shareholders fund = stated capital + retained profit
144,000 Stated capital = GH¢100,000 + GH¢10,000 + GH¢24,000
= 28,000
= 5.14times. = GH¢134,000

Opening Stock+Closing Stock Retained profit = GH¢8,000

Note: Average stock = 2 ∴ Shareholders fund = GH¢134,000 + GH¢8,000 = GH¢142,000
20,000+36,000
= 2
56,000
= (i) Liquid Assets: Current assets – (Debtors + stocks)
2
= GH¢82,000 – GH¢ (39,000 + 36,000)
= GH¢28,000 = GH¢82,000 – GH¢75,000
= GH¢7,000
(g) Working capital: Current assets – Current liabilities
= 82,000 – 40,000 = GH¢42,000

593
2008/9
Below are the final accounts of Dream Bird Ltd
Trading, profit and loss Appropriation Accounts for the year ended 30th April, 2006
D D
Opening stock 497,250 Sales 2,040,000
Add: purchases 1,453,500
1,950,750
Less: Closing stock (726,750)
1,224,400
Gross – profit c/d 816,000 ________
2,040,000 2,040,000

Total expenses 714,000 Gross – profit b/d 816,000

Net-profit c/d 102,000 _______
816,000 816,000

Proposed dividend 76,500 Balance b/d 38,250

Balance c/d 63,750 Net-profit b/d 102,000
140,250 140,250

DREAM BIRD LTD

Balance Sheet As At 30th April, 2006
Authorized and issued D D Fixed Assets: D D
Share capital: Total fixed Assets 840,000
1,020,000 shares @D1.00 each 1,020,000 Less: Depreciation 255,000
585,000
Revenue reserve:
General reserve 126,000
Profit and loss account 63,750 189,750

Long-term liabilities
7% debentures 63,750
Current liabilities: Current Assets:
Creditors 382,500 Stock 726,750
Proposed dividend 76,500 459,000 Debtors 280,500
Bank 140,250 1,147,500
1,732,500 1,732,500

You are required to use the above final accounts of Dream Bird Ltd to calculate the following:
(a) Working capital; (d) Current ratio; (g) Returns on capital employed;
(b) Gross-profit margin; (e) Quick (acid-test) ratio; (h) Owner’s equity.
(c) Net-profit margin; (f) Rate of stock turnover;
Solution
DREAM BIRD LTD
Financial Ratio
(a) Working capital: Current Assets – Current liability
= D1,147,500 – 459,000
= D688,500
Gross−profit
(b) Gross- profit margin: Sales
× 100
816,000
= 2,040,000 × 100
= 0.4 × 100 = 40%
Net−profit
(c) Net-profit margin: =
Sales
× 100
102,000
= × 100
2,040,000
0.05 × 100 = 5%
594
Current Assets
(d) Current Ratio: Current Liabilities
1,147,500
= = 2.5:1
459,000

Current Assets−Stock
(e) Quick (Acid – Test) Ratio:
Current Liability
1,147,500−726,750
=
459,000
420,750
= 0.92:1
459,000
Cost of Goods Sold
(f) Rate of stock turnover =
Average Stock
D1,224,000
= = 2 times
D612,000

Note:
Opening stock + Closing stock
- Average stock =
2
D497,250 +D726,750
=
2
D1,224,000
= = D612,000
2
Net−Profit
(g) Return on capital employed: Capital Employed × 100
D102,000
=
D1,273,500
× 100 = 8%
Note:
Capital employed = D1,020,000 + 189,750 + 63,750 = D1,273,500
(h) Owners equity: share capital + reserve
= D1,020,000 + D189,750 = D1,209,750
2021/13 – 14
Le
Sales for the year 450,000
Purchases for the year 230,000
Opening stock 60,000
Closing stock 40,000

2021/13
The stock turnover period is
A. 88 days B. 73 days C. 58days D. 41days
Answer: 58 days (C)
Cost of goods sold
Workings: Stock turnover = Average stock
Cost of goods sold = Le60,000 + 230,000 – 40,000 = Le 250,000.
Average stock = Le60,000 + 40,000 ÷ 2 = Le50,000
Gross profit = Le450,000 – 250,000 = Le200,000
250,000
∴ Stock turnover = = 5 days
50,000

2021/14
The mark – up is
A. 88% B. 80% C. 44.44% D. 26.67%
Answer: 80% (B)
Workings:
Profit 100 200,000
Mark – up = Cost price × 1 = = 80%
250,000

595
2021/26
A business includes 50% mark – up on all its products. This would mean margin of
2 1 2 1
A. 66 3 % B. 66 3 % C. 33 3 % D. 33 3 %
1
Answer: 33 3 % (D)

2021/40
Acid test ratio of a firm measures
A. profitability of a firm B. capital adequacy of a firm
C. liquidity of a firm D. quality of debtors of a firm
Answer: Liquidity of a firm (C)

2021/50
The cost of goods sold for the year is Le200,000 and the mark – up is 30%. The sale for the year is
A. Le260,000 B. Le200,000 C. Le140,000 D. Le60,000
Answer: Le260,000 (A)

Workings:
Sales (S.P) = Le200,000 + 30% of 200,000
= Le200,000 + 60,000
= Le260,000

1997/37 – 39
Balance sheet as at 31st December, 2011
Le Le
Ordinary share capital 200,000 Goodwill 70,000
8% preference share 100,000 Motor van 120,000
General reserve 50,000 Equipment 80,000
5% debenture 30,000 Stock 56,000
Creditors 20,000 Debtors 60,000
Bank 14,000

400,000 400,000

1997/37
The current ratio is
A. 6:5:1 B. 3:7:1 C. 3:5:1 D. 3:1
Answer: 6:5:1 (A)

Workings:
Current Assets CA
Current ratio = =
Current Liabilities CL
Current Assets = Le56,000 + Le60,000 + Le14,000 = Le130,000
Current liabilities = Le20,000
130,000
∴ current ratio = = 6.5:1
20,000

1997/38
The ratio of current assets to total assets is
A. 1:5.4 B. 1:3.4 C. 1:3.1 D. 1:2.5
Answer: 0.325:1 (No Answer)

Workings:
1. Current Assets = Le56,000 + 60,000 + 14,000 = Le130,000
2. Total Assets = Le70,000 + Le120,000 + Le80,000 + Le56,000 + Le60,000 + Le14,000 = Le400,000.
130,000
∴ Ratio of current Assets to total assets = = 0.325:1
400,000
1997/39
The acid-test ratio is
A. 6.5:1 B. 3.7:1 C. 3.5:1 D. 3:1
Answer: 3.7:1 (B)

596
Workings:
CA −S 130,000−56,000 74,000
Acid-test ratio = = = = 3.7:1
CL 20,000 20,000

1997/9
The following information was extracted from books of Kokumo Enterprises in 2010:
D
Opening stock 165,500
Closing stock 131,500
Creditors – opening balance 100,000
Creditors – closing balance 125,000
Cash paid for goods during the year 500,000
Selling expenses 68,500
Administrative expenses 31,250
Mark – up 25%

You are required to:

(a) Calculate margin;
(b) Prepare total creditors control account;
(c) Prepare trading, profit and loss account;
(d) Calculate the stock turnover rate;
(e) Percentage of net – profit on sales.
Solution
Profit 100
(a) Margin = (Selling Price × ) mathematically:
1
1
Mark – up is 25% ( )
4
1 1
Margin will be: = (20%)
4 +1 5
(b)
Total Creditors Control Account
D D
Closing balance 125,000 Opening balance 100,000
Cash paid for goods 500,000 Purchases 525,000
625,000 625,000
Balance b/d 525,000

(c)
Trading, Profit and Loss Account
D D
Opening Stock 162,500 Sales 695,000
Purchases 525,000
Cost of goods available 687,500
Closing stock (131,500)
Cost of goods sold 556,000
Gross profit c/d 139,000
695,000 695,000
Selling expenses 68,500 Gross – profit b/d 139,000
Administrative expenses 31,250
Net – profit 39,250
139,000 139,000

Notes:
1. Sales = cost of goods sold + 25% of cost of goods sold.
= D556,000 + 25% of D556,000
= D556,000 + D139,000 = D695,000

597
Cost of goods sold
(d) Stock turnover rate =
Average stock
Cost of goods sold = D556,000 (Trading Acct)
Closing Stock +Opening Stock
Average stock =
2
131,500 + 162,500 294,000
= = = D147,000
2 2
556,000
∴ Stock Turnover Rate =
147,000

= 3.78 times ≃ 4 times

(e) Percentage of Net profit on sales (Net – profit margin)

Net−profit 100 39,250 100
= × = × = 5.65% ≃ 6%
Sales 1 695,000 1

1999/37 Exercise 23.1

Mark – up is
Profit 100 Profit 100 Purchases 100 Opening stock 100
A. × B. × C. × D. × 1
Selling price 1 Cost price 1 Sales 1 Closing stock

1999/31 Exercise 23.2

Which of the following is the most liquid asset?
A. cash B. debtors C. stock D. equipment

1996/16 – 17 Nov
N
12,000 ordinary shares of N1 each 120,000
Share premium 15,000
15% debentures 30,000
Creditors 7,500
Debtors 9,000
Land and buildings 18,000
Equipment 12,000
Cash and bank balances 3,000
Calculate:
(i) Shareholders fund; (ii) Current assets; (iii) Total value of long – term liabilities; (iv) Total fixed assets.

2005/1 Nov Exercise 23.4

(a) Explain the terms: (i) Profitability; (ii) Liquidity.
(b) State two (2) accounting ratios used in measuring: (i) Profitability; (ii) Liquidity.
(c) List four (4) users of profitability ratios.

2001/44 – 46 Exercise 23.5

N
Sales 200,000
Opening stock 20,000
Purchases 140,000
Closing stock 10,000
Expenses 10,000
Bank 10,000
Capital 85,000
Creditors 35,000
Debtors 50,000
Fixtures and fittings, cost 10,000
Freehold land and building 70,000
Drawings 10,000
Calculate the following ratios:
(a) Percentage of net – profit to sales; (b) Acid test; (c) Gross – profit margin;
(d) Stock turnover. (e) Working capital.

598
2004/35 – 37 Nov Exercise 23.6
From the details below calculate: (i) Current ratio; (ii) Equity capital; (iii) Working capital.
N
Capital – Authorized 2,000,000
Issued 940,000
10% debentures 200,000
Creditors 60,000
Debtors 30,000
Prepayments 4,000
Stock 130,000
Fixed assets 960,000
Bank 80,000
2012/18 – 20 Exercise 23.7
Use the following information to answer questions below:

Balance sheet as at 31st December, 2016

N N
Capital 40,000 Freehold premises 50,000
Less: net loss (5,000) Stock 3,000
35,000 Debtors 4,000
Less: drawings (2,000) Cash at bank 6,500
33,000 Cash in hand 1,500
Long term loan 20,000
53,000
Creditors 8,000
Accrued expenses 4,000 ______
65,000 65,000

(i) Calculate the working capital; (ii) Determine the working capital ratio; (iii) Acid test ratio is.
2006/7 Neco Exercise 22.8
Use the following information from the books of Ojima Enterprises to answer the question below:
N
Sales 45,000
Opening stock 20,000
Closing stock 30,000
Expenses 15,000
Fixed assets 40,000
Debtors 10,000
Creditors 5,000
Purchases 25,000
Calculate:
(a) Cost of goods sold; (c) Current ratio; (e) Gross – profit percentage;
(b) Net profit; (d) Working capital; (f) Net – profit percentage; (g) Rate of stock turnover.

2019/42 – 44 Neco
N
Fixed assets 184,160
Current assets 70,000
Current liabilities 44,600
Long – term liabilities 50,000
Short – term liabilities 39,400
Capital 120,000

2019/42 Exercise 23.9

The total net asset is
A. N260,540 B. N254,860 C. N254,160 D. N254,060 E. N252,160
2019/43 Exercise 23.10
The working capital is
A. N25,650 B. N25,480 C. N25,460 D. N133,000 E. N131,000

599
2019/43 Exercise 23.11
The total liabilities is
A. N137,000 B. N136,000 C. N134,000 D. N133,000 E. N131,000

2018/7 Neco Exercise 23.12

Current assets less stock is equal to _____ asset
A. fixed B. liquid C. net current D. permanent E. short term

2013/10 to 12
N
Net profit 60,000
Total assets 520,000
Current liabilities 150,000
Current assets 280,000

2013/10 Exercise 23.13

The current ratio is
A. 1.87:1 B. 1:1.87 C. 1:2 D. 2:1

2013/11 Exercise 23.14

The capital employed is
A. N740,000 B. N580,000 C. N370,000 D. N280,000

2013/12 Exercise 23.15

The return on capital employed is
A. 17.2% B. 16.2% C. 15.2% D. 11.2%

2014/9 Exercise 23.16

The following balances were extracted from the books of Duru stores limited on September 30, 2012.
N
Ordinary share capital 150,000
6% debentures 45,000
Freehold premises (at cost) 127,500
Plant and machinery (at cost) 105,900
Retained profits 65,883
Provision for depreciation – Plant and machinery 38,100
Debtors 31,664
Creditors 34,730
Accrued rent 2,440
Bank and cash balances 22,890
Stock 48,219

You are required to:

(a) Prepare a balance sheet as at September 30, 2012.
(b) Calculate the following:
(i) Acid test ratio;
(ii) Capital employed;
(iii) Working capital;
(iv) Current ratio.

2015/3 Exercise 23.17

(a) State 2 ratios which fall under the following classification of accounting ratios;
(i) profitability; (ii) activity; (iii) liquidity (iv) investment; (v) leverage
(b) Outline:
(i) Three (3) uses of accounting ratios.
(ii) Two (2) limitations in the use of accounting ratios.

600
1995/9 to 14
N
Sales 45,000
Opening stock 20,000
Closing stock 30,000
Expenses 15,000
Fixed assets 40,000
Debtors 10,000
Creditors 5,000
Purchases 25,000
1995/9 Exercise 23.18
The cost of goods sold is
A. N45,000 B. N30,0000 C. N25,000 D. N20,000 E. N15,000
1995/10 Exercise 23.19
Net profit is
A. N45,000 B. N30,000 C. N25,000 D. N20,000 E. N15,000
1995/11 Exercise 23.20
Net – profit percentage is
A. 100% B. 67% C. 50% D. 33% E. 22%
1995/12 Exercise 23.21
Current ratio is
A. 16:1 B. 15:1 C. 8:1 D. 2:1 D. 0.5:1
1995/13 Exercise 23.22
Working capital is
A. N60,000 B. N45,000 C. N40,000 D. N35,000 E. N20,000
1995/14 Exercise 23.23
Gross profit percentage is
A. 100% B. 67% C. 50% D. 33% E. 22%
1998/17 to 20
N
Furniture and fittings 15,000
Land and buildings 40,000
Motor vehicle 25,000
Stock 10,000
Debtors 27,500
Cash in hand 2,000
Bank overdraft 17,500
Profit and loss b/d 28,000
Rent owing 800
Sundry creditors 22,000
1998/17 Exercise 23.24
The value of current asset is
A. N68,300 B. N57,000 C. N40,300 D. N39,500 E. N34,000
1998/18 Exercise 23.5
The value of current liabilities is
A. N65,500 B. N40,300 C. N39,500 D. N28,000 E. N22,000
1998/19 Exercise 23.26
The opening capital is
A. N52,000 B. N51,200 C. N48,300 D. N39,500 E. N28,000
1998/20 Exercise 23.27
The value of total fixed assets is
A. N119,500 B. N90,000 C. N80,000 D. N79,200 E. N68,300

601
Chapter twenty four
ACCOUNTING AND INFORMATION AND COMMUNICATION TECHNOLOGY (ICT)

MEANING OF INFORMATION AND COMMUNICATION TECHNOLOGY

Information and Communication Technology (ICTs) is a broader term for Information Technology (IT), which refers to
all communication technologies, including the internet, wireless networks, cell phones, computers, software, middle
ware, video – conferencing, social networking, and other media applications and services enabling users to access,
retrieve, store, transmit, and manipulate information in a digital form.

Information and Communication Technology (ICT) has been a major factor of efficient accounting system and great
organizational performance recently. ICT has been used to augment the reliability of accounting information and organizational
performance. The benefits of ICT in accounting include: speed of processing information, accuracy, ability to process high
volume of information, performance reconciliations, ease and capacity of information storage and security.
COMPUTER
A computer is an electro-mechanical device that is used for processing data to give a meaningful result called or referred
to as information.
Data: This can be described as letters, symbols, number or any unprocessed (raw) information fed or sends into a
computer for processing sake. They are unsorted and ungrouped data.
Information: This is described as a processing data produced by the computer used for decision making.
Data Processing: Data processing involves the various steps involved in producing useful information from raw data.
Data processing can be done through either manual data processing or electronic data processing.
PARTS OF A COMPUTER
The parts of a computer comprises of the following:
(a) Monitor: This is the part of a computer that looks like a television set. It is referred to as VISUAL DISPLAY
UNIT (V.D.U). We have two types of monitor:
(i) Monochrome monitor: Display black and white.
(ii) Colour monitor: Display colours.
(b) Keyboard: This is the part of the computer that looks like a modern day typewriter keyboard. It is used for typing.
We have two types of keyboard.
(i) Standard keyboard;
(ii) Enhanced keyboard.
(c) Central Processing Unit (C.P.U): The C.P.U is described as the brain and the heart of the entire computer system.
Every data sent into the computer system must pass through the C.P.U for processing. The C.P.U is internally,
divided into three parts:
(i) The Arithmetic Logic Unit (ALU): This part of the computer is responsible for processing all arithmetic
and logical tasks that came into the computer.
(ii) The Control Unit (C.U): This is the part of the computer that directs jobs to the various directions either for
processing or storage.
(iii) The Memory Unit (M.U.): This is the part of the computer that controls the safe keeping of all jobs to be
stored in the computer system.

A computer set

602
TYPES OF COMPUTER
We have 3 basic types of computer, they are:
(a) Analog computer: This is the type of computer that measures data rather than counting e.g. wall clock, abacus,
speedometer, thermometer e.t.c.
(b) Digital computer: This is the type of computer that counts or calculate data in number (i.e. digit) such that the
exact result or information can be known, e.g. calculators, wrist watches digital/smart wrist watches, digital fuel
dispensers, e.t.c.
(c) Hybrid computer: This is the type of computer which combines both the qualities of digital and analog computers
e.g. television set, a robot, automated teller machine.

CATEGORIES OF A COMPUTER
The computer can be categorized into four classes namely:
(a) Super computers: They are the largest, fastest and most expensive computers used for complex calculations by
scientist, e.g. Cray 2, Cray MP.
(b) Mainframe computers: They are large and expensive computer. They are saver based computers.
(c) Mini computers: They are smaller, less powerful and less expensive rather than mainframe computer. Easier to
operate and install, e.g. laptop, desktop, palm/note books.
(d) Micro computers: They are chips and embedded computers, e.g. RFI chip, MR Chip, e.t.c.

CHARACTERISTICS OF A COMPUTER
Characteristics of a computer are: - Speed. - Automatic. - Accuracy.
- Storage. - Diligence. - Versatility.

COMPONENTS OF A COMPUTER SYSTEM

A computer system is made up of:
1. Hardware: This is the physical component of a computer that can be seen and touched, examples are keyboard,
monitor, mouse, C.P.U, printer.
2. Software: These are programs that make the hardware to work. We have systems software and application
programs. Examples of software are PC Dos, MS Dos, MS word, pagemaker, games, e.t.c.
3. People hardware: These are people working with the computer, examples are computer programmers, computer
system analyst, computer instructors or teachers, e.t.c.

COMPUTER INPUT DEVICES

They are equipment which feed or send data or information to the processing unit of a computer for processing.
Examples of input devices are: mouse, lightpen, scanner, joystick, punchcard, keyboard, VRD, OCR, OMR, magnetic
stripes, bar codes e.t.c.

COMPUTER OUTPUT DEVICES

These are equipments through which computer display the result (output) of processing activities. Examples are monitor,
printers, motors, audio speaker or sound blaster, fax machine.

COMPUTER VIRUS AND ANTI VIRUS

Computer viruses are programs which can hang up the operation of the computer system thereby denying the user
optimum use of the system. Virus can be sometimes very difficult to detect, examples of virus are:
- Evil virus. - New year virus. - Italian virus. - Ralia Odinga virus.
- Angel virus. - Sadam virus. - Lucifer virus e.t.c.

Computer antivirus are programs or software that can fight against virus, i.e. they can kill or clean virus from the
computer system. Examples of anti – virus are:
- NAV. - Scan. - Doctor Solomon. - Kasper.
- CPA. - Norton 360. - Bit defender. - Smadav.

APPLICATION OF COMPUTER IN ACCOUNTING

The usefulness of computer in accounting cannot be over emphasized. Computer assist Accountants and Book Keepers
in many ways; application of computer packages into accounting has made accounting tasks becomes more easier,
accurate and reliable. In accounting computer can be applied or useful in the preparation of the following:
(i) Bank Reconciliation Statement. (ii) Inventory Control. (iii) Financial control. (iv) Purchase ledger.
(v) Sales ledger. (vi) Nominal ledger. (v) Payroll system.

603
IMPORTANCE OF COMPUTER
The following are the importance of computer:
(i) It is very accurate. (iv) It does not get tired like human being.
(ii) It is very fast. (v) It makes easier research work.
(iii) It can store large volume of data. (vi) Computer is very consistent.
(vii) Difficult tasks and risky jobs to handle by human beings can be performed by special computers.
DISADVANTAGES OF COMPUTER
The following can be said to be some of the problems associated with computer:
(i) High cost of acquiring computers.
(ii) High installation and maintenance cost.
(iii) It requires special skills before one can operate it.
(iv) The use of computer can give rise to errors and wrong data will give rise to wrong information (GIGO) garbage in
– garbage out.
(v) Errors or mistakes in computer cannot be easily traced or identified or detached.
(vi) It makes people become very lazy.
(vii) The use of computer can cause unemployment.
(viii) Computer cannot function without the use of power.
COMPUTER TERMS AND ACRONYMS
Abacus: The first counting tools.
Algorithm: A set of step-by-step instructions guaranteed to solve a particular problem.
ALU: Arithmetic Logic Unit.
Analog: A way of representing data as a continuous, smoothly varying signal wave
contrast with digital.
Application software: Software used to manipulate input data in order to provide users with meaningful
information.
Artificial intelligence: The study of how to make computers smarter by programming them to emulate
human reasoning.
Assemblers: A program that translate language statement into machine language.
ATM: Automated Teller Machine is a specialized form of interactive terminal that is part
of an online banking system in which data entered at the point of transaction
automatically updates banking records.
Back – up: Keeping copies of files.
BASIC: Beginners All – Purpose Symbolic Code. An easy – to – learn high level
programming language that is most often used for interactive processing.
Binary Number System: This is the number system used by computer meaning in 0’s and 1 i.e. base 2.
Bit: This is the smallest unit identifiable in the computer memory, which can be 1 or
0.
Booting: Is the process of starting up the computer, i.e. putting it on.
Bug: An error in a program.
Byte: Is the combination of a specialized number of bits. A byte is 8 bits.
Cathode Ray Tube (CRT): A TV-like screen that displays instructions and the computer response.
Character: Is the smallest element that can be found in a computer file.
Chip: A tiny wafer of silicon containing a multitude of electronic components.
COBOL: Common Business Oriented Language. A high level programming languages
specifically developed for use in business.
Coding: The process in which the programmer writes the instructions in a programming
language after the logic was been designed.
Command: These are instructions given to the computer to perform.
Compiler: A program used to translate a source program into an object program.
Computer: A general purpose machine that accepts data as input, processes it, and provides
information as output.
Computer – Assisted Instruction (CAI): The use of computer systems to assist in the instruction of students.
Control keys: A special keyboard, usually market (CTRL) like a shift key.
Cursor: A small blinking underline or rectangle that indicates where your input will
actually appear on the screen.
Data: Anything that can be processed by the computer.
Database: A collection of related files.
Debugging: The process of finding and correlation errors (bugs) in a program.
Demodulation: The process of transforming analog data into digital data.

604
Digital computer: Is a type of computer that operates on binary digits and relies on counting for its
operations.
DBMS: Data Base Management System.
EDP: Electronic Data Processing.
EPROM: Electronic Programmable Read Only Memory.
EFT: Electronic Fund Transfer. A cashless method of paying for goods or services via
a computer.
Fiber Optics: The transmission of digital data in the form of light impulses via harlike transparent fibres.
Field: An individual data within a record.
Files: A collection of related records.
Firmware: ROM chips that contain built – in programming functions.
Floppy disk or diskette: A small flexible disk, coated with iron oxide, on which data is stored.
Flowchart: A graphical representation for the definition, analysis or solution of a problem, in
which symbols are used to represent operations, data, flow, equipment e.t.c.
Font All characters with one design, style and size.
Gates: These are electronic switches that control the flow of pulses so that logic
operations are carried out.
Gigabyte: Approximately/1 billion bytes.
Hard disk A microcomputer storage device that can typically store between 10 and 100 or
more million characters.
Hard copy: Output on paper from a computer.
Hardware: The set of devices of the computer system that can be physically seen.
High – level language: A symbolic programming language that is similar to English, e.g. PASCAL, BASIC, e.t.c.
Icon: A small symbol displayed on a screen that represents files and other objects that
commonly appear on a desktop.
I/O: Input, Output
IT: Information Technology
Input: Raw data fed into the computer.
Integrated circuit: A circuit consisting of hundreds of electronic components, thousands of which
are imprinted onto a silicon microchip.
Justification: The ability of a word processing package to align left and right margins of a document.
Keyboard: Look like a typewriter keyboard used for entering data into the computer system.
Kilobyte: A measure of storage equal to 1,024bytes.
Large – scale Integration (LSI): The process of packaging thousands of electronic circuits onto a single silicon
chip.
Light pen: A pen – shaped devices that uses a laser beam to transmit signals to the CPU by
writing on the screen.
LAN: Local Area Network. A network that connects computers and terminals that are
located in nearby offices.
Low – level language: A symbolic programming language that resembles machine language.
LSI: Large Scale Integrated Circuit.
Magnetic disk: A flat circular plate with a magnetic surface on which data can be stored.
MIS: Management Information System.
Matrix: A mathematical term for an array or table.
Megabyte (MB): Approximately 1 million bytes.
Micro processor: A tiny silicon chip, about the size of a child’s fingernail.
Microwave: High – frequency radio signals used to transmit data at a high speed.
Modem: A device that enables digital data to be transmitted over telephone lines by
converting digital signals to analog signals and vice – versa.
MS – DOS: Microsoft Disk Operating System.
Network: A system of interconnected computers and terminals that communicates with each
other.
Numeric Data Field: A field in a record that has only numbers in it.
Operating system: The master of programs that manage the computer.
Optical disk:
Output: Information, process data.
Packaged program: A program designed for general use and sold or leased by computer vendors.
Point – of – sale (POS): A terminal used in retail establishments to enter data at the actual location where
a sale is transacted.
Printer: A device that converts output into paper form.
605
Processor: The part of the system that transforms input data into useful information (output).
Program: A set of instruction for processing data.
RAM: Random Access Memory
ROM: Read Only Memory.
Record: A collection of related fields.
Software: The total set of programs that enables a computer system to process data.
Syntax: The rules guiding the use of a command.
Syntax error: An error that occurs when the programmer violates the grammatical rules of the
programming language.
System analysis: The steps taken to examine an existing computer system and to determine whether
a new system should be installed; the step taken to design a new system.
Terminals: A combination of keyboard and a display used in communicating with a remote
computer.
Time sharing: Participation in available computer time by multiple users, via computer
terminals.
Translator: A program converting other programs from one language to another language.
Users: Anyone who uses the computer.
Valve: It provide a method of switching current on and off.
VLSI: Very – Large – Scale Integration.
Wide – Area Network: A network that uses microwave relays and satellite to reach users over long
distances around the world.
Worksheet: A document that is divided into row and columns format (spreadsheet).
WWW: World Wide Web.

2022/1 NABTEB
An error found in a computer is a
A. virus B. bug C. mistake D. mute
Answer: Bug (B)

2022/2 NABTEB
Which of these factors is less important when installing a computer system?
A. floor carpet B. office space C. power supply D. skilled labour
Answer: Floor carpet (A)

2022/3 NABTEB
Which of the following is not a unit of a computer?
A. cursor B. output C. control D. input
Answer: Cursor – This is an input device in computer (A)

2019/49 NABTEB
Which of the following is an advantage of computer?
A. it depends much on paper work B. it does not need constant power supply
C. its initial capital layout is low D. it can manipulate complex data
Answer: It can manipulate complex data (D)

2011/50 NABTEB
The following are disadvantages of computer except it
A. it involves huge capital B. can take on virus C. is accurate D. can be manipulated
Answer: Is accurate (C)

2006/43 NABTEB
Computer programmes are
A. memory B. softwares C. hardwares D. microprocessors
Answer: Softwares (B)

2010/55 Neco
What does CPU stand for in computer?
A. central processing unit B. continental processing unit C. control processing unit
Answer: central processing unit (A)

606
2006/24 Neco
The following are computer hardwares except
A. central processing unit B. keyboard C. mouse D. operating system
E. visual display unit
Answer: Operating system (D)

2004/50 Nov
Which of the following is not a feature of a computer? It is
A. very fast B. an electronic device C. very consistent D. very cheap
Answer: Very cheap – Computer is quite expensive and this is one of the reason why it cannot be found in any
business organisations or homes (D)

2004/9 Nov
The computer program instructions are read into the
A. output unit B. input unit C. storage unit D. central processing unit
Answer: Central processing unit (D)
2004/49
Computer programmes are
A. microprocessor B. software C. hardware D. memory
Answer: Software (B)
2005/47
The part of the C.P.U used for the processing of data is
A. memory unit B. arithmetic and logic unit C. output unit D. input unit
Answer: Arithmetic and Logic Unit (ALU) (B)
2007/42
The correct sequence in data processing is
A. input ⎯⎯→ process ⎯ ⎯→ output B. input ⎯
⎯→ output ⎯
⎯→ process
⎯→ input ⎯
C. process ⎯ ⎯→ output ⎯→ output ⎯
D. process ⎯ ⎯→ input
Answer: Input ⎯
⎯→ process ⎯
⎯→ output (A)
2007/41
Which of the following is not a data processing method?
A. manual B. mechanical C. electronic D. formatting
Answer: Formatting (D)
2008/12
Which of the following is not a characteristics of a computer?
A. large storage capacity B. very fast C. highly accurate D. highly diligent
Answer: Highly diligent (D)

2009/43
Hardware in data processing refers to
A. programs run on the computer B. entry and store information on computer
C. Microsoft disc operating system D. mechanical components of the computer
Answer: Mechanical component of the computer e.g. keyboard, mouse, monitor, printer, C.P.U (D)

2013/36
A set of instructions or programs which controls the operation of a computer is
A. software B. hardware C. monitor D. keyboard
Answer: Software (A)

2013/37
The process of deleting, tracing and eliminating errors in a computer program is
A. reproduction B. debugging C. sorting D. retrieving
Answer: Debugging (B)

2014/38
An example of input device of a computer is
A. an optical character reader B. a graph plotter C. a visual display unit D. printer
Answer: An optical character reader (A)
607
2000/24
In computing, external storage is called
A. backing storage B. logging storage C. primary storage D. extra storage
Answer: Backing storage (A)
2000/26
In computing ALU stands for
A. Accounting Logical Unit B. Arithmetic Logic Unit C. Access Logic Unit D. Additional Liability Unit
Answer: Arithmetic Logic Unit (B)
2000/37
Which of the following is not an example of input device?
A. card reader B. keyboard C. Visual Display Unit D. Central Processing Unit
Answer: Visual Display Unit (C)

2005/14 Neco
The term used to describe programs or set of instructions given to computers to perform certain function is called
A. computing B. hardware C. processing D. software E. programming
Answer: Software (D)

2006/34
A set of instruction fed into a computer for accomplishing a given task is a/an
A. input B. programme C. output D. data
Answer: Input (A)

2008/14 Neco
In computer, the name given to basic facts such as the number of items sold is called
A. computing B. data C. information D. processing E. program
Answer: Data (B)
2003/1
The transformation of pieces information into a more useful format is
A. data processing B. information processing C. computerization D. system analysis
Answer: Data processing (A)
2003/3
Which of the following is not an externally visible part of a computer?
A. central processing unit B. microchip C. monitor D. keyboard
Answer: Microchip (B)
2008/15 Neco
Which of the following is not a classification of computers?
A. mainframe B. micro computers C. mini computers D. software E. word – processor
Answer: Software (D)

2009/22
Programs installed in computers to facilitate processing of data are:
A. hardware B. software C. magnetic tapes D. diskettes Answer: Software (B)
2006/49 Nov
Which of the following is not an output device?
A. keyboard B. printer C. VDU D. graphic plotter Answer: Keyboard (A)

2006/50 Nov
An error found in a written computer program is a
A. virus B. bug C. mistake D. menu Answer: Bug (B)
2011/38
Computer memory sizes are measured in
A. kilometres B. kilowatts C. kilobytes D. centimetres
Answer: Kilobytes (C)
2011/43
The diagrammatic representation of the working of the computer program is
A. flowchart B. desktop C. keyboard D. byte
Answer flowchart
608
2015/49
Which of the following is a spreadsheet application?
A. Excel B. word C. internet D. windows
Answer Excel (A)

2001/50
Which of the following serves as an input, storage and output device of a computer?
A. diskette B. keyboard C. monitor D. printer
Answer: Diskette (D)

2006/25 Neco
An electronic device which accepts raw facts as input, processes and brings out information is called
A. computer B. hardware C. processor D. program E. software
Answer: Computer (A)

2012/26
Which of the following is not an input device?
A. card reader B. paper top reader C. alpha – numeric keyboard D. line printer
Answer: Line printer (D)

2012/4
Which of the following is not part of the central processing unit of a computer?
A. arithmetic logic unit B. memory unit C. input unit D. control unit
Answer: Input unit (C)

2000/10 Nov
Which of the following is an example of output device?
A. keyboard B. arithmetic unit C. central processing unit D. printer
Answer: Printer (D)

2011/29 Neco
Which of the following is the most significant part of a computer?
A. bits B. CPU C. RAM D. ROM
Answer: C.P.U (B)
1999 /49
The device used to enter data into a computer system is known as
A. keyboard B. interpreter C. printer D. menu
Answer: Keyboard (A)
2005/1 Nov
Which of the following is the correct sequence of processing accounting data?
A. interpretation, collection, presentation and recording B. presentation, recording, collection and interpretation
C. collection, recording, presentation and interpretation D. recording, presentation, collection and interpretation
Answer: Collection, recording, presentation and interpretation (C)

2005/43 Nov
Which of the following is not an advantage of electronic data processing?
A. process data faster B. ability to handle large volume of data C. ensures accuracy
D. ensures workless commitment
Answer: Ensures workers commitment (D)

2011/1
Explain any three of the following:
(a) Computer error; (c) Downtime;
(b) “garbage in – garbage out”, (d) Debugging; (e) Computer service bureau/cyber café.
Answer
(a) Computer error: This is an error or mistake in computing. An inaccurate output from a computer system.
(b) Garbage in – garbage out: Means whatever one feeds into the computer, either correct or incorrect is exactly what
would be processed and produced as output.
(c) Downtime: This is the period in which the computer or the network is not available.
(d) Debugging: Finding and correcting errors in a program.
(e) Computer service bureau/cyber-café: These are internet service provider.
609
2009/3
(a) State two differences between hardware and software in electronic data processing.
(b) Outline four functions of the central processing unit (CPU).
Solution
(a) Difference between hardware and software.
Hardware Software
(i) It can be physically seen. Non physical.
(ii) Mostly plastic rubber and metallic. They are codes and routines.
(iii) Shapes are fixed and sizes. No definite shape or sizes.
(b) The following are the functions of central processing unit:
(i) It processes all arithmetic and logical tasks that comes into the computer system.
(ii) It directs jobs to the various directions either for processing or storage through the control unit.
(iii) It helps in safe keeping of all jobs to be stored in the computer.
(iv) It helps in the manipulation of data.

1999/3 Nov
(a) Define: (i) Hardware; (ii) Software.
(b) Explain the following terms, giving an example in each case; (i) Input devices; (ii) Output devices.
(c) Explain the following: (i) RAM; (ii) ROM.
Answer
(ai) Hardware: This is the set of devices of the computer system that can be physically seen.
(ii) Software: This is the total set of programs that enables a computer system to process data.

(bi) Input devices: The part of the system that accepts data from the user. The devices which is used to feed data to
the processing unit of the computer for processing, e.g. Keyboard. Mouse, Light pen, Scanner.
(ii) Output devices: The devices through which computer display the result of processed data (information).
e.g. Printer. Monitor, Fax – machine, Speaker.
(ci) RAM: Random – Access Memory is the computer’s main memory. It is volatile and losses its contents when there
is cut in the power supply. It is a short term storage of data and instruction.
(ii) ROM: Read Only Memory is prewired instructions that cannot be altered by programmed instructions. It is for
permanent storage and does not rely on a constant power supply to retain its contents.
2000/2 Nov
(a) Distinguish between data and information.
(b) State four reasons why some firms continue to process data manually inspite of the increasing availability of
electronic data processing methods.
Answer
(a) Data: This is the unprocessed or raw materials for which information is produced. Data can also be defined or
refers to as facts, events, activities and transaction which have been recorded.
Information: Information refers to output, or processed data. It is the result of a processed data.
(b) The following are the reasons why some firms continue to process data manually:
(i) It is less expensive to process data manually.
(ii) Ignorance of the advantages of electronic data processing.
(iii) Acquiring computer is very expensive; i.e. high cost of acquiring computer.
(iv) Lack of qualified personnel to operate the computer system.
(v) Processing data electronically involves a lot of process and cumbersome.
2005/3 Nov
Explain any three of the following:
(a) Central processing unit; (c) Visual display unit (e) Batch processing;
(b) Data processing; (d) Random Access Memory; (f) Keyboard.
Solution
(a) Central Processing Unit: This is the part of the computer system that controls all computer operations.
(b) Data processing: This is the process of manipulation data by a computer to become an output or result.
(c) Visual Display Unit: This is the part of a computer that looks like a television set. It is also known or called
monitor.
(d) Random Access Memory: This is a short term storage of data and instructions. It is volatile, and losses their content
when there is cut in the power supply.
(e) Batch Processing: This is a system in which a number of tasks are put together for the computer to process them.
(f) Keyboard: This is a device used for entering data and for coding or using program instructions in computer.

610
2011/3 Neco
Explain each of the following computer terms:
(i) Programme. (ii) Circuit. (iii) Hybrid Operating system Software.
Solution
(i) Programme: Programme refers to a set of instructions for processing data.
(ii) Circuit: An electrical connection containing a switch, a power source, a connector (wire) and end – point.
(iii) Hybrid: This is a type of computer which combines both qualities of digital and analog computers.
(iv) Operating system: This is a master set of programs that manage the computer.
(v) Software: This is a set of programs that enables a computer system to process data. It consists of both operating
system and application program.

2015/49
Which of the following is a spreadsheet application?
A. excel B. word C. internet D. windows Answer: Excel (A)

2015/50
The quantity output information depends on the
A. quality of input data B. time of processing C. spread of processing D. quantity of output device
Answer: Quality of input data (A)

2010/1
A business is considering the introduction of a computer accounting system.
(a) State four
(i) Benefits of a computer accounting system; (ii) Disadvantages of a computer accounting system.
(b) List three areas of application of computer in accounting.
Answer
(ai) The following are some of the benefits of a computer accounting system:
- It reduces time wastage or it saves time.
- It reduces the cost of labour.
- It makes editing of records easy.
- It gives accurate records.
- It makes works less tedious.
- It makes integration of different information easier.
(ii) Disadvantages of a computer accounting system include the following:
- It leads to redundancy of staff.
- It is highly prone to fraudulent practice.
- It requires expertise skill to handle it.
- It involves high maintenance cost.
- High purchase and installation cost.
- It is affected by frequent changes in technology (obsolescence).
(b) The following are areas of application of computer in accounting.
- Preparation of invoice and bills.
- Preparation of staff payroll.
- Recording of stores and inventory.
- Preparation of statement of account.
- Monitoring cash position.
2009/14 Neco Exercise 24.1
The end product of data after being converted into more useful form is called
A. circuit B. computing C. data D. information E. password
2009/15 Neco Exercise 24.2
Which of the following is NOT a computer hardware?
A. application package B. hard disk C. keyboard D. mouse E. visual display unit

2003/39 Nov Exercise 24.3

Which of the following is an advantage of computerization?
A. it can manipulate complex data B. it’s initial capital outlay is low C. it does not need constant power supply
D. it depends much on paper work
2003/40 Nov Exercise 24.4
A set of procedures for solving a problem with the use of the computer is
A. system B. software C. program D. hardware
611
2003/5 Nov Exercise 24.5
Which of the following is NOT a factor to be considered in installing a computerized system?
A. floor carpet B. office space C. skilled labour D. constant power supply

2006/42 NABTEB Exercise 24.6

Which of the following is NOT a unit of the computer?
A. cursor B. output C. input D. control

2006/43 NABTEB Exercise 24.7

Computer programmes are
A. memory B. software C. hardware D. micro processors

2018/50 NABTEB Exercise 24.8

An error found in a written computer programme is __________

2001/3 Nov Exercise 24.9

A set of instructions to operate a computer is called __________________

2019/48 NABTEB Exercise 24.10

Computer programmes are _________________

2012/38 Neco Exercise 24.11

To ensure data is processed, the programme installed in a computer is called ______________.

2012/39 Neco Exercise 24.12

______ is the most significant part of a computer?

2009/4 Neco Exercise 24.13

(a) What is computer?
(b) Distinguish between: (i) Data and information. (ii) Software and hardware.
(c) State any four tasks in which a computer may be useful in an accounting environment.

612
Chapter twenty five
ACCOUNTING FOR STOCK VALUATION
STOCK VALUATION
Stock or inventory or material can take the form of raw materials, work-in-progress, finished goods and consumable
materials. Stock valuation can be defined as a process of determining the value to attach to the stock issued to production.
It becomes necessary to account for the price of each issue because various receipts would have been made at various
prices.
STOCK TAKING
This is the process of determining the physical quantities of stock items in the store. Stock taking can be done using any
of the following method:
(i) Periodic stocktaking; (ii) Perpetual stocktaking; (iii) Continuous stocktaking.

(i) Periodic Stocktaking: This is a type of stock taking whereby a business conducts a physical count of the inventory
at specific intervals. Periodic stock taking lets a company know the beginning and ending inventory within an
accounting period but unlike other methods of stock management does not track inventory on an ongoing basis.
(ii) Perpetual Stocktaking: This type of stock taking is whereby a business uses electronic tracking systems to
continually record inventory. The development of electronic POS systems, barcoding, and radio frequency
identification (RFID) made it possible for businesses to track changes to inventory in real-time, offering a highly
detailed and up-to-date overview of current stock or cost of goods sold.
(iii) Continuous Stocktaking: This is simply physical checking or counting of inventory held by the entity and by
continuous stocktaking it means inventory counts that are undertaken on regular basis. This method is used over
periodic stock counts to increase accuracy especially for the goods which are high value or have high turnover.

STOCK CONTROL
This is defined as the use of control and monitoring measures to prevent or detect loss when it occurs or soon afterward.
The overall objective of stock control in accounting is to minimize, in total, the costs associated with stock. The costs
can be categorized into three groups:
(i) Carrying costs: It include cost of holding or cost of keeping stock in the store. Examples are storage charge, audit
cost, insurance, interest on capital invested on stock, handling cost, pilferage and damage cost.
(ii) Ordinary cost: These are costs of obtaining and getting the stock into the store, e.g. set – up cost, touching cost,
transportation cost, clerical and administration cost of purchasing.
(iii) Stock out cost: These are cost of being without or running out of stock e.g. loss contribution as a result of stock
out, production storage cost, e.t.c.

STOCK CONTROL LEVELS

(a) Re – Order Level (ROL): This is the level to which the stock is to be allowed to fall before an order for further
supplies is placed.
Re – order level = Max. usage × Lead time
(b) Economic Order Quantity (EOQ): This is the quantity that minimize the total cost and holding of stock.
2DCo
EOQ = √
P Cs
D = Annual demand or usage. CO = ordinary cost.
P = Price per unit. CS = carrying/holding cost.
(c) Maximum Stock Level: This is the level of the stock that must not be exceeded without specific without specific
authority from the management of the firm.
Max. stock level = ROL + EOQ – (Min. Usage × Min. Lead Time)
(d) Minimum stock level: This is the lowest level of the stock. It is a level to which the stock should be allowed to
fall.
Min. Stock Level = ROL – (Average Usage × Average Lead Time)
(e) Average stock level: This is maximum stock level plus minimum stock level divided by 2.
Max. stock + Min. stock
Average Stock Level =
2

613
STOCK VALUATION METHODS
There are many methods of valuing or pricing stocks (materials). However, the statement of Accounting Standards
(SAS) No. 4 on stock recommends eight (8) valuation methods for use by businesses:
The first 4 shall be examined:
(i) First In First Out (FIFO): This is an asset-management and valuation method in which assets produced or
acquired first are sold, used, or disposed of first. For tax purposes, FIFO assumes that assets with the oldest costs
are included in the income statement’s Cost of Goods Sold (COGS). The remaining inventory assets are matched
to the assets that are most recently purchased or produced.

Advantages of First In First Out (FIFO):

1. It helps in maintaining records of inventory in natural way i.e. recording is done in the same order as units are
bought or produced therefore much easier to understand and relate.
2. It best fits the situation where entity holds inventory that has fast turnover and converts quickly thus revenue
and costs are from related periods. This is also in line with matching principle of accounting.
3. As ending inventory value is based on most recent purchases therefore, value is much better reflection of
market prices of similar product prevailing at period end date.
4. As oldest available units are accounted for under cost of goods sold, therefore, possible risk of reduced net
realizable value (NRV) and resulting loss recognition is negated automatically as entity is not dragging old
units in inventory records.
5. As the value of closing stock is pivotal in current asset total and related accounting ratios therefore, much
relevant ending inventory value will lead to reliable analysis.
6. Normally, economies are inflationary, meaning prices are always rising. Where inflation is causing increase in
operating expenses, same inflation will also cause increase in ending inventory value which will help increase
gross profit figure and ultimately covering the inflated operating expenses.

Disadvantages of First In First Out (FIFO):

1. It can get clumsy, complex and difficult to manage the inventory and respective prices of each batch if entity
places many order for goods that have fluctuating price. Thus prone to more errors as well.
2. As cost of goods sold is based on the oldest inventory based on prices that are no longer relevant for analysis
conducted after the end of the period. Therefore, additional work might be needed to adjust for inflation and
other factors affecting inventory price to get the suitable figure.
3. For costing decisions, the cost of sales value is not reliable especially under inflationary economies. As cost of
sales is based on prices at the beginning of the period that may be significantly different from prices at the end
of the year. If entity is using cost plus pricing then chances are that price deduced on such cost is inappropriate
(causing it to be much lower than what it should be) and not according to prevailing market price.
4. The effect of inappropriate cost of sales figure is amplified if entity buys inventory in the beginning of the
period for the whole period especially if prices fluctuate significantly. Thus forcing management to change
procurement process and spread the purchases over the period to reduce the effect which may cause higher
total ordering cost.
5. Matching principle requires the revenue and costs to be matched and reported in the same period. Compliance
may become difficult if the nature of product is such that it has slow turnover and require time to convert and
price may change during the delay thus revenues and costs to be from different periods.
6. Because of inflation, value of inventory may increase even if the physical count has decreased. The cause
overstatement of profit or “bloating” with no real value to back up and render profit comparison over the period
and other analysis based on profit unreliability.

(ii) Last In First Out (LIFO): This is an accounting method for inventory and cost of sales in which the last items
produced or purchased are assumed to be sold first; allows business owner to value inventory at the less expensive
cost of the older inventory; typically used during times of high inflation. This method of accounting assumes that
you’ll sell the most recently purchased inventory first.

Advantages of Last In First Out (LIFO)

1. Materials are issued at cost price and therefore, no profit loss will result by following this method. Like FIFO,
this method recovers cost from production because actual cost of materials is charged to production.
2. Production is charged at the recent prices as far as possible because materials are issued from the latest
consignment.
3. In times of rising prices, this method is suitable because materials are issued at the current market prices which
are high. The method thus help in showing a lower profit because of increased charge to production during
periods of rising prices and lower profit reduces burden of income tax.

614
Disadvantages of List In First Out (LIFO):
1. Like FIFO this method may lead to electrical error as every time an issue is made, the store ledger clerk will
have to go through his record to ascertain the price to be charged.
2. Like FIFO comparison between one job and the other job will become difficult because one job started a few
minutes after another of some type may bear a different charge for materials consumed, merely because the
earlier job exhausted the supply of the lower priced or higher priced materials in stock.
3. The stock in hand is valued at a price which does not reflect current market price. Consequently, closing stock
will be understood or overstated in the balance sheet.

(iii) Weighted Average (WA): The weighted average method, which is mainly utilized to assign the average cost of
production to a given product, is most commonly employed when inventory items are so intertwined that it becomes
difficult to assign a specific cost to an individual unit. This is frequently the case when the inventory items in
question are identical to one another. Furthermore, this method assumes a store sells all of its inventories
simultaneously.
To use the weighted average model, one divides the cost of the goods that are available for sale by the number of
those units still on the shelf. This calculation yields the weighted average cost per unit – a figure that can then be
used to assign a cost to both ending inventory and the cost of goods sold.

Advantages of Weighted Average (WA):

1. This method can be applied in any company, industry or organization since it generates merchandise, products
prices that customers can obtain.
2. Its application is not complicated, rather it is easy and simple for the necessary calculations in your company,
guaranteeing you an effective inventory control.
3. If inflation occurs in the country where you reside, you will not have losses because your profit will cover the
cost previously calculated as well as the new ones. In other words, price will remain stable without hurting
you.

Disadvantages of Weighed Average (WA):

1. When you register the inventory control it usually affects your initial inventory, it can even affect the
calculation of the other costs, both the initial and the final one.
2. It can be cumbersome to register the existing merchandise or product with the registration of the entry of the
new merchandise or product.

(iv) Simple Average (SA): It is a method for inventory valuation or deliver cost calculation, where even if accepting
inventory goods with different unit cost. Here, the value of closing stock is calculated by taking the total of the
prices paid for different batches supplied and dividing the sum by the number of batches.

Advantages of Simple Average

1. Simple average method is very suitable when materials are received in uniform lot quantities.
2. Simple average method is very easy to operate.
3. Simple average method reduces clerical work.

Disadvantages of Simple Average

1. If the quantity in each lot varies widely, the average price will lead to erroneous costs.
2. Costs are not fully recovered.
3. Closing stock is not valued at the current assets.

FACTORS TO CONSIDER WHEN SELECTING A METHOD:

1. Frequency of issue: The frequency of issue of materials will be considered before selecting a method. How frequent
is the material issued from the store.
2. Frequency of material purchases: Also the rate at which materials are purchased and brought into the store is also
taken into consideration.
3. Price stability: The stability of the market price is also considered on method of pricing.
4. Costing system in operation: The system of costing in operation is also very important. It should be considered
whether the company is operating standard costing method or historical system.
5. Method of stock control in operation: The method of stock control in operation is also important. It should
consider whether it is manual or computerized method. If computerized control is in operation it will be very easy
to calculate.

615
Illustration 24.1
Alfa and Mega (Nig.) Limited, has the following information available in respect of materials held in the store:

Budgeted consumption
Average usage 30,000 units/week
Maximum usage 50,000 units/week
Minimum usage 10,000 units/week
Lead – time 4 – 8 weeks
Annual usage 300,000 units
Ordering cost N2,000

Storage costs are 25% per annum of the stock value. While price per unit of material is N500.
You are required to compute:
(i) Re-order level.
(ii) Economic order quantity (EDQ).
(iii) Minimum stock level.
(iv) Average stock level.
(v) Stock turnover.
Solution
(i) Re-order level = maximum usage × maximum lead time
= 50,000 × 8
= 400,000 units.
2DCO
(ii) Economic Order Quantity (EOQ) = √
PCS
2×300,000 × 2,000 1,200,000,000
=√ =√ = √9,600,000= 3,098.4 ≈ 3,098 units
N500 × 0.25 125

(iii) Minimum stock level = ROL – (Average usage × Average Lead Time)
= 400,000 – (30,000 × 6)
= 400,000 – 180,000
= 120,000 units.

(iv) Maximum stock level = ROL + EOQ – (Minimum usage × minimum LT)
= 400,000 + 3,098.4 – (10,000 × 4)
= 403,098.4 – 40,000
= 363,098.4 units.

Maximum stock level+minimum stock level

(v) Average stock level =
2
220,000 + 363,098.4 583,098.4
= = = 291,549.2 units.
2 2
Annual demand
(vi) Stock turnover = Average stock level
300,000
= = 1.029 times.
291,549.2

Illustration 24.4
From the following information show the value of closing stock using FIFO.
Receipts Price Issues
January 4 125 120
January 13 100 140
January 14 - 90
January 19 150 150
January 21 - 100
January 26 60 160
January 30 - 145

616
Solution:
Store Ledger Account using FIFO Method
Date Receipts Issues Balance
January Qty Price Value Qty Price Value Qty Price Value
N N N N N N
4 125 120 15,000 - - - 125 15,000
13 100 140 14,000 - - - 225 29,000
14 - - - 90 120 10,800 135 18,200
19 150 150 22,500 - - - 285 40,700
21 - - - 35 120 4,200 250 36,500
21 - - - 65 140 9,100 185 27,400
26 60 160 9,600 - - - 245 37,000
30 - - - 35 140 4,900 210 32,100
30 - - - 110 150 16,500 100 15,600
Closing stock: 100 15,600

Illustration 24.5
Use the following information to calculate the closing stock using standard price of N5.00
Receipt Price Issue
July 1 150 5
July 4 100 5
July 6 - - 80
July 10 - - 100
July 20 90 5.5
July 24 - - 80
Solution:
Store Ledger Account using Standard Price
Date Receipts Issues Balance
July Qty Price Value Qty Price Value Qty Value
N N N N N
1 150 5 750 150 750
4 100 5 500 250 1,250
6 80 5 400 170 850
10 100 5 500 70 350
20 90 5 450 160 800
24 80 5 400 80 400
Closing stock: 80 400

Note: Standard price of N5.00 is used for computation. Under this method a pre-determined price is used in pricing out
all issues of materials to production. Factors which may influence future price of materials will be considered when
setting the price.

Illustration 24.6 (CIMA Adapted)

Rice and Timber Ltd had the following transactions in one of its raw materials during April, 2010.
April 1 Opening stock 40 units @ N100 each
April 4 Bought 140 units @ N110 each
April 10 Used 90 units
April 12 Bought 60 units @ N120 each
April 13 Used 100 units
April 16 Bought 200 units @N100 each
April 21 Used 70 units
April 23 Used 80 units
April 26 Bought 50 units @ N120 each
April 29 Used 60 units

You are required to write up store ledger using:

1. Simple average.
2. Weighted average.

617
Solution
(i)
Store Ledger Account using Standard Price
Date Receipts Issues Balance
April Qty Price Value Qty Price Value Qty Price Value
N N N N N N
1 40 100 4,000 40 100 4,000
4 140 110 15,400 180 105 18,900
10 90 105 9,450 90 105 9,450
12 60 120 7,200 150 110 16,500
13 100 110 11,000 50 110 5,500
16 200 100 20,000 250 107.5 26,875
21 70 107.5 7,525 180 107.5 19,350
23 80 107.5 8,600 100 107.5 10,750
26 50 120 6,000 150 110 16,500
29 60 110 6,600 90 110 9,900
490 52,600 400 43,175

(i) Total value of materials issued = N43,175.

(ii) Value of closing stock = N9,900.

(ii)
Store Ledger Account Using Weighted Average
Date Receipts Issues Balance
April Qty Price Value Qty Price Value Qty Price Value
N N N N N N
1 40 100 4,000 40 100 4,000
4 140 110 15,400 180 107.78 19,400
10 90 107.78 9,700 90 107.78 9,700
12 60 120 7,200 150 112,67 16,900
13 100 112.67 11,267 50 112,67 5,633
16 200 100 20,000 250 102.53 25,633
21 70 102.53 7,177 180 102.53 18,455
23 80 102.53 8,202 100 102.53 10,254
26 50 120 6,000 150 108.36 16,254
29 60 108.36 6,502 90 108.36 9,754
490 52,600 400 42,848

Illustration 24.2
ABOLADE commenced business as a sole trader in January, 2015 on Adire and Kampala Textile Merchant. The
following are the details of “Adire” purchased and sold by him in January, 2015.
Jan 2nd purchased 50 bundles at N500 each.
Jan 6th purchased 75 bundles at N550 each.
Jan 10th sold 40 bundles at N900 each.
Jan 12th sold 45 bundles at N925 each.
Jan 18th purchased 35 bundles at N600 each.
Jan 20th sold 25 bundles at N975 each.
Jan 26th sold 30 bundles at N900 each.
Jan 29th purchased 45 bundles at N625 each.
Jan 31st sold 25 bundles at N950 each.

You are required to prepare the store ledger account using:

a. FIFO method;
b. LIFO method;
c. Simple Average Method;
d. Weighted Average Price Method.

618
Solution
a..
Stores ledger account using FIFO method.
DATE RECEIPTS ISSUES BALANCE
QTY PRICE VALUE QTY PRICE VALUE QTY VALUE
N N N N N
Jan. 2 50 500 25,000 - - - 50 25,000
Jan 6 75 550 41,250 - - - 125 66,250
Jan 10 - - - 40 500 20,000 85 46,250
Jan. 12 - - - 10 500 5,000
35 550 19,250 40 22,000
Jan. 18 35 600 21,000 - - - 75 43,000
Jan. 20 - - - 25 550 13,750 50 29,250
Jan. 26 - - - 15 550 8,250
15 600 9,000 20 12,000
Jan. 29 45 625 28,125 - - - 65 40,125
Jan 30 - - - 20 550 11,000
5 625 3,125 40 26,000
205 115,375 165 89,375

Note:
(i) The closing stock at 31st January, 2015 using FIFO is 40 bundles at N26,000.
(ii) Total sales in January, 2015:
N
40 bundles at N900 = 36,000
45 bundles at N925 = 41,625
25 bundles at N975 = 24,375
30 bundles at N900 = 27,000
25 bundles at N950 = 23,750
152,750

(iii) ABOLADE:
Trading account for the month of January, 2015.
N N
Sales 152,750
Deduct: Cost of goods sold:
Purchases 115,375
Closing stock (26,000)
Cost of goods sold 89,375
Gross profit 63,375

b. Stores ledger account Using LIFO method

DATE RECEIPTS ISSUES BALANCE
QTY PRICE VALUE QTY PRICE VALUE QTY VALUE
N N N N N
Jan. 2 50 500 25,000 - - - 50 25,000
Jan 6 75 550 41,250 - - - 125 66,250
Jan 10 - - - 40 550 22,000 85 44,250
Jan. 12 - - - 35 550 19,250
10 500 5,000 40 24,250
Jan. 18 35 600 21,000 - - - 75 45,250
Jan. 20 - - - 25 600 15,000 50 30,250
Jan. 26 - - - 10 600 6,000
20 500 10,000 20 14,250
Jan. 29 45 625 28,125 - - - 65 40,375
Jan 31 - - - 25 625 15,625 40 26,750
205 115,375 165 92,875

(i) Total value of goods issued (cost of goods sold) = N92,875.

(ii) Value of closing stock = N26,750.
(iii) ABOLADE:

619
Trading account for the month of January, 2015.
N N
Sales 152,750
Less Cost of goods sold:
Purchases 115,375
Closing stock (26,750)
Cost of goods sold 88,625
Gross profit 64,125

c. Store ledger account using Simple Average Method

DATE RECEIPTS ISSUES BALANCE
QTY PRICE VALUE QTY PRICE VALUE QTY VALUE
N N N N N
Jan. 2 50 500 25,000 - - - 50 25,000
Jan 6 75 550 41,250 - - - 125 66,250
Jan 10 - - - 40 525 21,000 85 45,259
Jan. 12 - - - 45 525 23,625 40 21,625
Jan. 18 35 600 21,000 - - - 75 42,625
Jan. 20 - - - 25 550 13,750 50 28,875
Jan. 26 - - - 30 550 16,500 20 12,375
Jan. 29 45 625 28,125 - - - 65 40,500
Jan 31 - - - 25 569 14,225 40 26,275
205 115,375 165 89,100

(i) Total value of goods issued = N89,100.

(ii) Value of closing stock = N26,275.
(iii) ABOLADE
Trading account for the month of January, 2015.
N N
Sales 152,750
Less Cost of goods sold:
Purchases 115,375
Closing stock (26,000)
Cost of goods sold (89,100)
Gross profit 63,650

d. Store ledger Account using weighted Average Method

DATE RECEIPTS ISSUES BALANCE
QTY PRICE VALUE QTY PRICE VALUE QTY VALUE
N N N N N
Jan. 2 50 500 25,000 - - - 50 25,000
Jan 6 75 550 41,250 - - - 125 66,250
Jan 10 - - - 40 370 14,800 85 51,450
Jan. 12 - - - 45 370 16,50 40 34,800
Jan. 18 35 600 21,000 - - - 75 55,800
Jan. 20 - - - 25 477 11,925 50 43,875
Jan. 26 - - - 30 477 14,310 20 29,565
Jan. 29 45 625 28,125 - - - 65 57,690
Jan 31 - - - 25 888 22,200 40 35,490
205 115,375 165 79,885

(i) Total value of goods issued = N79,885.

(ii) Value of closing stock = N35,490.

(iii) ABOLADE
Trading account for the month of January, 2015.
N N
Sales 152,750
Less Cost of goods sold:
Purchases 115,375
Closing stock (35,490)
Cost of goods sold (79,885)
Gross profit 72,865
620
Illustration 24.3
The following budgeted consumption data is from the book of MERIT manufacturing (Nig.) Ltd Ughelli, Delta State:
Months Units consumed
January 150,000
February 150,000
March 250,000
April 300,000
May 400,000
June 500,000
July 500,000
August 500,000
September 500,000
October 450,000
November 300,000
December 200,000

Economic order quantity is 1,000 units.

Delivery period from suppliers: 4 – 2 months.
You are required to compute the following: (a) Re – ordering level. (b) Maximum stock level.
(c) Minimum stock level. (d) Average stock level. (e) Store turnover
rate.
Solution
(a) Re – ordering level: (c) Minimum stock level:
= 500,000 × 4 = 2,000,000 – (350,000 × 3) = 2,000,000 – 1,050,000
= 2,000,000 units. = 950,000 units.
(b) Maximum stock level: (d) Average stock level:
= 2,000,000 + 1,000 – (150,000 × 2) =
1,800,000 +950,000
=
2,750,000
= 1,375,000 units.
= 2,100,000 – 300,000. 2 2
= 1,800,000 units. (e) Store turnover rate:
4,200,000
= 1,375,000 = 3.05 times.
2014/23-24 UTME
2/3 purchases 900 books at N1,000 each.
4/3 purchases 590 books at N950.
5/3 sales 300 books at N900 each.

2014/23 UTME
Determine the cost of goods sold using FIFO
A. N285,000 B. N300,000 C. N570,000 D. N600,000
Answer
N300,000 (300 books @N1,000 = N300,000).
Workings
FIFO METHOD
RECEIPTS ISSUES BALANCE
DATE QTY PRICE VALUE QTY PRICE VALUE QTY VALUE
N N N N N
2/3 900 1,000 900,000 - - - 900 900,000
4/3 590 950 560,500 - - - 1,490 1,460,500
5/3 - - - 300 1,000 300,000 1,190 1,160,000

2014/24 UTME
Calculate the cost of goods available for sale using LIFO
A. N801,000 B. N1,100,500 C. N1,160,500 D. N1,175,500
Answer
(900 + 1,000) + (590 × 950) – (300 × 950) = N1,460,500 – 285,500 = N1,175,000 (D)
Workings
LIFO METHOD
RECEIPTS ISSUES BALANCE
DATE QTY PRICE VALUE QTY PRICE VALUE QTY VALUE
N N N N N
2/3 900 1,000 900,000 - - - 900 900,000
4/3 590 950 560,000 - - - 1,490 1,460,500
5/3 - - - 300 950 285,000 1,190 1,175,500
621
2013/18 UTME
What type of stock valuation method would a vegetable seller adopt in valuing its product?
A. LIFO B. FIFO C. Simple Average D. Weighted Average
Answer: Vegetation is a perishable product. FIFO (B)

2012/20 – 21 UTME
1/5/07 purchased 100 bags of milk @N10.00 each.
3/5/07 purchased 60 buys of milk @N11.50 each.
8/5/07 issued 85 bags of milk.
15/5/07 purchased 180 bags of milk @N12.80 each.
22/5/07 issued 145 bags of milk.

2012/20 UTME
Using FIFO method, what would be the value of stock 9/5/07?
A. N862.50 B. N840.00 C. N806.25 D. N750.00
Answer
(100 × N10) + (60 × N11.50) – (85 × N10)
= N1,000 + 160 – 850 = N840.00 (B)

Workings
FIFO METHOD
RECEIPTS ISSUES BALANCE
DATE QTY PRICE VALUE QTY PRICE VALUE QTY VALUE
N N N N N
1/5/7 100 10.00 1,000 - - - 100 1,000
3/5/7 60 11.50 690 - - - 160 1,690
8/5/7 - - - 85 10.00 850 75 840
15/5/7 180 12.50 2,304 - - - 255 3,144
22/5/7 - - - 15 10.00 150 240 2,994
60 11.50 690
70 12.50 875 110 1,429

2012/21 UTME
Using simple average method, calculate the value of stock after 22/5/07.
A. N1198.00 B. N1218.00 C. N1257.67 D. N1422.90
Answer: N1422.90 (D)

SIMPLE AVERAGE METHOD

RECEIPTS ISSUES BALANCE
DATE QTY PRICE VALUE QTY PRICE VALUE QTY VALUE
N N N N N
1/5/7 100 10.00 1,000 - - - 100 1,000
3/5/7 60 11.50 690 - - - 160 1,690
8/5/7 - - - 85 10.75 913.75 75 776.25
15/5/7 180 12.80 2,304 - - - 255 3,080.25
22/5/7 - - - 145 11.43 1,657.35 110 1,422.90

2012/22 UTME
The LIFO method has an advantage over FIFO in that stocks are valued at
A. previous prices B. current prices C. average rate D. flat rate
Answer: Current price (B)

2011/17 UTME
In a period of declining price, which of the following methods would result in higher profit?
A. simple average B. weighted average C. LIFO D. FIFO
Answer: FIFO (D)

2010/20 UTME
If a company values its stocks in the period of rising prices using LIFO method, there is a tendency for it to
A. have a higher cost of goods sold B. have a higher gross – profit C. pay higher income tax
D. have a higher value for closing stock
Answer: Have a higher value for closing stock (D)
622
2008/20 – 21 UME
Aug. 1 Received 20 units at N60 each.
Aug. 6 Received 20 units at N68 each.
Aug. 10 Issued 16 units.
Aug. 20 Received 40 units at N80 each.
Aug. 31 issued 48 units.
2008/20 UME
Using the simple average method, what is the cost per unit of the closing stock?
A. N80 B. N74 C. N64 D. N60
Answer: N80 (A)
The last receipt was at N80 per unit.
Workings:
SIMPLE AVERAGE METHOD
RECEIPTS ISSUES BALANCE
DATE QTY PRICE VALUE QTY PRICE VALUE QTY VALUE
AUG N N N N N
1 20 60 1,200 - - - 20 1,200
6 20 68 1,360 - - - 40 2,560
10 - - - 16 64 1,024 24 1,536
20 40 80 3,200 - - - 64 4,736
31 - - - 04 60 240 60 4,496
20 64 1,280
24 69.30 1,663.20 16 2,832.80

2008/21 UME
Using the FIFO method, what is the value of the closing stock?
Answer N1,370.
FIFO
RECEIPTS ISSUES BALANCE
DATE QTY PRICE VALUE QTY PRICE VALUE QTY VALUE
AUG N N N N N
1 20 60 1,200 - - - 20 1,200
6 20 68 1,360 - - - 40 2,560
10 - - - 16 60 960 24 1,690
20 40 80 3,200 - - - 64 4,890
31 - - - 4 60 240 60 4,650
20 68 1,360
24 80 1,920 16 1,370

2021/8
The stock valuation method in which the most recent costs are assigned to the cost of goods sold is
A. FIFO B. LIFO C. weighted Average D. simple average
Answer LIFO (B)
2021/1
(a) What is stock valuation?
(b) State 2 characteristics of the following methods of stock valuation.
(i) FIFO (ii) LIFO
Answer
(a) Stock valuation is the process of ascertaining the value to attach to the stocks issued to production.
(b) (i) Characteristics of LIFO
- The price at which stocks are issued is actual cost.
- Value of closing stock reflects current price levels.
- It assumes that issues are made out of the oldest batch in store.
- Raw materials issued to production are priced at prices of oldest batches.
- In a period of rising prices, closing stocks are by implication, profits are overstated.
(ii) Characteristics of LIFO:
- The price at which stocks are issued is actual cost.
- Value of closing stock reflects the price levels ruling in the early part of the period.
- Raw materials issued to production are priced at prices of latest batches.

623
2021/8 (Adjusted)
Mofeloluwa Enterprises uses periodic inventory system. The company’s records show that beginning of product number
G12 on 1st January, 2016 and purchases of the item during the year as follows:
Quantity (units) Price/units (N)
January: stock at start 900 10
February: Purchases 1200 11
April: Purchases 3,000 12
May: Issued 4,000 13
November: Issued 900 15

A physical count indicates 1,600 units in inventory at the end of the year.
You are required to calculate the:
(a) Cost of goods sold using First–in–First–Out (FIFO) and Last–In–Last–Out (LIFO).
(b) Value of stocks at the end of the year using FIFO and LIFO methods of stock valuation.
Solution
(i)
Stores ledger account using FIFO method
Receipts Issues Balance
Date Quantity Price Value Quantity Price Value Quantity Value
N N N N N
Jan 900 9,000
Feb 1,200 11 13,200 - - - 2,100 22,200
April 3,000 12 36,000 - - - 5,100 58,200
May - - - 900 10 9,000
1,200 11 13,200
1,900 12 22,800
4,000 45,000 1,100 13,200
Nov. - - - 900 12 10,800 200 2,400
4,200 49,200 4,900 55,800

(ii)
Stores ledger account using LIFO method
Receipts Issues Balance
Date Quantity Price Value Quantity Price Value Quantity Value
N N N N N
Jan 900 9,000
Feb 1,200 11 13,200 - - - 2,100 22,200
April 3,000 12 36,000 - - - 5,100 58,200
May - - - 3,000 12 36,000
1,000 11 11,000
4,000 46,000 1,100 12,200
Nov. - - - 900 11 9,900 200 2,300
4,200 49,200 4,900 55,900

(a) (i) Cost of goods sold using FIFO = N55,800

(ii) Cost of goods sold using LIFO = N55,900
(b) (i) Value of stock at end of the year using FIFO = N2,400.
(ii) Value of stock at end of the year using LIFO = N2,300.

Exercise 25.1.
A firm annual usage of a certain company is 3,000 units which is purchased at a price of N2.50k per component. Cost
of acquiring the inventory amounts to N15 per order and carrying cost is N0.05k per component.
Determine the economic order quantity (EOQ) of the company.

624
Exercise 25.2:
Show the stores ledger entries as they would appear when using.
(i) First In – First Out method (FIFO).
(ii) Last In – First Out method (LIFO)
(iii) Simple Average method (SA)
(iv) Weighted Average method (WA).

Units Price (N)

Nov 1st Balance in hand 3,000 2,000
Nov 2nd Purchased 2,500 20
Nov 4th Issued 1,500 -
Nov 6th Purchased 2,000 20.30
Nov 14th Issued 1,500 -
Nov 18th Issued 2,000 -
Nov 25th Purchased 2,000 20.40
Nov 29th Issued 1,500 -
Nov 30th Purchased 1,000 20.20

Exercise 25.3:
The component below is one of thousands of items kept in the store of REVJ. Manufacturing Limited:
The maximum stock level is 23,000 units
Expected consumption, per month:
Maximum – 6,000 units
Minimum – 2,400 units.

Expected delivery period:

Maximum – 6 months.
Minimum – 3 months.
From the data above, calculate:
(a) Re – order level;
(b) Minimum stock level;
(c) Maximum stock level;
(d) Average stock held.

Note: EOQ is given as 1,200 units.

2009/20-21 UME Exercise 25.4.
Jan 1 Received 1,000 units at N10 each.
Jan 2. Issued 1,500 units.
Jan 4. Received 1,000 units at N11 each.
Jan 5. Issued 1,000 units.
2009/20 UME Exercise 25.5
Using FIFO method, what is the value of the closing stock?
A. N34,000 B. N29,000 C. N17,000 D. N12,000
2009/21 UME Exercise 25.6
What is the value of closing stock using simple average?
A. N11,500 B. N17,000 C. N17,500 D. N28,500
2009/22 UME Exercise 25.7
Which of the following methods gives a conservative closing stock value during a period of rising prices?
A. LIFO B. FIFO C. Simple average D. periodic simple average

1997/28 UME Exercise 25.8

Which of the following stock valuation methods is suitable under inflationary condition?
A. FIFO B. LIFO C. Simple average D. weighted average

Exercise 25.9
State the six (6) basic assumptions of the Economic Order Quantity (EOQ).

Exercise 25.10
State 4 advantages of using the FIFO method of pricing store issues and 4 disadvantages.

Exercise 25.11
Mention 4 advantages and 4 disadvantages of using simple average price method of pricing store issues.

625
ANSWERS TO EXERCISES
CHAPTER TWO
2.1.
(a) Personal accounts: accounts of personnel or corporate who have business dealings with the firm.
(b) Real accounts: Tangible assets e.g. building, furniture, motor vehicles, e.t.c.
(c) Nominal accounts: accounts for expenses.
(d) Liability accounts: account for recording debts and claims owned by the firm.
(e) Assets accounts: Account for properties and belongings of the firm.

2.2. Dr. Sales account, Cr Bamidele’s account.

2.3. Jan 1: Dr – capital a/c.
Cr – cash a/c
Jan 2: Dr – insurance a/c
Cr – bank a/c
Jan 3: Dr – furniture a/c
Cr – bank a/c
Jan 4: Dr – bank a/c
Cr – cash a/c
Jan 5: Dr – purchases a/c
Cr – cash a/c
Jan 6: Dr – Sales a/c
Cr – cash a/c
2.4. II and II only
2.5. ledger
2.6. Oct 1: Cr – capital a/c
Dr – cash a/c
Oct 2: Dr – fixtures a/c
Cr – bank a/c
Oct 5: Dr – telephone a/c
Cr – cash a/c
Oct 10: Dr – bank a/c
Cr – cash a/c
Oct. 18: Dr – purchases a/c
Cr – Tom a/c
Oct 20: Dr – Ajasco a/c
Cr – sales a/c
Oct 21: Dr – Drawings a/c
Cr – cash a/c
Oct 30: Dr – Returns inwards a/c
Cr – Returns outwards a/c
2.7. Debit cash account, credit generator account
2.8. Reference purposes
2.9. Can be used by any type of business
2.10. Land
2.11. Credit cash account, debit bank account
2.12. Real and cash accounts
2.13. Furniture and fittings account
2.14. Salaries and wages
2.15. Debit entry must have a corresponding credit entry
2.16. Ledgers and subsidiary book
2.17. Equipment account
2.18. Credited to returns outwards account
2.19. Plant account
2.20. Nominal account
2.21. Journal and ledger
2.22. i, ii and iii only
2.23. salaries account
2.24. sales account
2.25. nominal account
2.26. motor vehicle
2.27.
2.28. Nominal
2.29. Real
2.30. Supplier’s account

CHAPTER THREE
3.1. July 1: Dr – GSM Ltd a/c, Cr – Cash a/c .
July 2: Dr – Purchases a/c, Cr – Mallam Sule’s a/c
July 3: Dr – Sales a/c, Cr – Deputy’s a/c.
Dr – Discount allowed a/c.
July 4: Cr – Deputy’s a/c, Dr – Carriage a/c.
Dr – Freight a/c.
July 5: Dr – Rent a/c, Cr – cash a/c
July 6: Dr – Johnson’s a/c, Cr – Aboki’s a/c.
July 7: Dr – Adamu’s a/c, Cr – Deputy’s a/c.
July 8: Dr – Motor car a/c, Cr – cash account.
July 14: Dr – Mallam Dogoyaro’s a/c,
Cr – cash a/c, Cr – discount received a/c.
July 15: Dr – Bad debt a/c, Cr – Dada a/c.
July 20: Dr – Adamu a/c, Cr – Amaka’s a/c
3.6. I and II only
3.7. journal
3.9. a chronological record of accounting transactions

626
CHAPTER FOUR
4.1. Assets: motor vehicle, premises, stock of goods, cash in hand, fixtures, machinery.
Liabilities: creditors for goods, debentures , owing to bank, loan from A. Jibril.
4.2. 1 – N800 2 – N1,000 3 – N2,000 4 – (N3,000) 5 – (N1,000)
4.3. substance over form
4.4. (i) true (ii) true (iii) false (iv) false (v) true (vi) true (vii) true
4.5. N1000 + N500 = N1500
4.6. consistency
4.7. business entity
4.8. liabilities – capital = assets
4.9. prudence concept
4.10. conservation concept
4.11. matching
4.12. prudence
4.13. materiality concept
4.14. cost concept
4.15. business entity
CHAPTER FIVE
5.1. cheque stub
5.2. journal proper
5.3. credit note
5.4. debit note
5.5. (i) price list (ii) letter of enquiry (iii) order (iv) quotation (v) delivery note

CHAPTER SIX
6.1. cash book
6.2. petty cash
6.3. cash float
6.4. discount, cash and bank
6.5. cash book
6.6. machinery
6.7. typewriter
6.10. Sales journal: S. Binta – N7,850. M. Muhammed – 6,150 K. Nkechi – 1,940
Y. Ayustede – 200 D. Taiwo – 5,200
Total sales journal – N21,340 (CR)
6.11. Purchases journal: Obi & Sons – N3,262.50
Alomu, J. O – 6,820.80
Aghogho A. S – 3,485.75
Total purchases forward – N13,569.05 (DR)
Discount received – N545.95 (CR)
6.12. Dr (cash): Cash in hand ₵500,000,Bank ₵5,000,
Dr(Bank): Nana ₵4,750; Ngiah ₵6,650; Prince ₵12,350;Johnson stores ₵15,000;
Cash(contra) ₵45,000; Sales ₵9,000, Cash at bank ₵59,500
Dr (discount): Nana ₵250; Ngiah ₵350; Prince ₵650; Johnson ₵1,000.
Cr (Cash): Purchases ₵2,500; Bank (contra) ₵45,000; Shares ₵241,500, Yayra ₵21,450; Kekeli ₵36,675,
Klenam ₵39,000; Salaries ₵115,000, Drawings ₵4,000.
Cr (Bank): Cash ₵5,000, Drawings ₵6,700, Sarah ₵8,500.
Cr (Discount): Yoyra ₵550; Kekeli ₵950; Klenam ₵1,000, Sarah ₵500
6.13. Dr (cash): Bal. b/fwd N40,000; rent N20,000; Gen. exps N600; Sales N185,000; Sales N200,000;
Bank (c) N48,500; Rent received N2,500; Cash sales N120,000; |Bank (c) N43,000.
Dr (Bank): Bal. b/fwd) N112,000; Loan N10,000; Cash deposit N30,000; Sales N194,000;
Commission N520; Sales N200,000.
Cr (Bank): Rent N20,000; Gen.Exps. N600, Stationery N150, Bank(c) N43,000; Osaro (loan) N5,000;
James N20,000; Wages N75,000.
Cr (Bank): Purchases N60,000; Cash(c) N43,000; Motor van N60,000; Odion N5,000;Cash(c) N48,500; James N5,000.
6.14. Dr: Balance on hand (float) N200,000.
Cr: Stationery: N34,800; transport: N119,400, Postages: N42,700; Medical: N114,500.
Total: N311,400; Bal. c/d: N111,400.
6.15. returned to suppliers
6.16. value by which the credit side exceeds the debit side
6.17. N50,000
6.18. debited to Sales Returns Account
6.19. petty cash
6.20. cash book
6.21. debit side of a three column cashbook

CHAPTER SEVEN
7.1. trial balance
7.2. it is a list of balances in the books
7.3. Dr: Discount allowed N63; Bad debt N55; Sundry expenses N1,050; Debtors N1,200; Purchases N7,200;
Wages N850; Stock (1-1-06) N2,000;Stock (31-12-06) N1,650; Motor van N18,000;Drawings N2,500,
Building N7,500; Furniture N2,500;Returns inwards N32.
Cr: Sales N23,000; Capital N16,000;Creditors N1,805;Bank overdraft N2,620; Returns outwards N4,000.
7.4. Accuracy of ledger entry
7.5. N60 credit, N100 debit
7.8. closing profit
7.9. trial balance
7.10. trial balance

627
CHAPTER EIGHT
8.1. (a) Journal entry (i) Dr: Sales account Le480.Cr: Suspense account Le480
(ii) Dr: Office furniture account Le14,400; Cr: Purchases account Le14,400
(iii)Dr: Bank account Le180; Cr: Creditors account Le180.
(iv)Dr: Returns inward account Le148. Cr: Debtors account Le148
(v) Dr: Sundry expenses account Le640, Cr: Suspense account Le640.
(b) Suspense account: Cr: Sales Le480, Sundry expenses Le480, Dr: Differences in trial balance Le1,120.

8.2. (i) Journal entry: (a) Dr. Supplies account N2,400; Cr. Suspense Account N2,400.
(b) Dr. Sales Account N900; Cr. Suspense Account N900
(c) Dr. Debtors Account N180; Cr. Suspense account N180.
(d) Dr. Purchases Account N620;Cr. Cash account N620
(e) Dr. Suspense account N5,200; Cr. Supplier’s account N5,200
(f) Dr. Udom’s account N1,000; Cr Udoh Account N1,000
(g) Cr. Furniture Account N540; Dr. Repairs Account N540.
(h) Dr. Rent Account N4,800; Cr. Suspense account N4,800.
8.6. commission
8.7. principle
8.9. compensation
8.10. undercasting of purchases

CHAPTER NINE
9.9. bank statement
9.10. cashbook
9.12. dishonoured cheques
9.13. fixed assets register
9.14. bank statement
9.15. credited to the cheque book

CHAPTER TEN
10.1. (i) B – N4,000 (ii) E – N12,000
10.2. B
10.3. (i) E – N5,800 (ii) E – N17,400. (iii) E – N7,680.
10.4. Depreciation:
Methods of depreciation and given and one example each.
10.8. insurance policy
10.9. fixed sum set aside for the replacement of the assets
10.10. depreciation
10.11. diminishing balance method
10.12. devaluation of naira
10.15. depreciation
10.16. N1,500
10.17. N9,000
10.18. N1,920

CHAPTER ELEVEN
11.1. (i) A – N5,350 (ii) D – N9,100
11.2 (i) B – N138,000 (ii) C – N42,000.
11.3. C
11.4 (i) D – N700 (ii) E – N500 (iii) C – N1,150 (iv) B – N16,000 (v) D – N15,200.
11.5. (i) A – N5,000 (ii) B – N4,965
11.6. (a)(i) Trading account: To determine the gross profit or the gross loss of a business.
Profit and loss account: To ascertain the net profit or net loss of a business.
(ii) Balance sheet: To ascertain the assets and liabilities of a business concern.
(b)(i) Accrued expenses (ii) Prepaid expenses (iii) Provision for discounts (iv) Provision for depreciation
(iv) Provision for bad/doubtful debts
11.7. Trading account: Dr: Opening stock N3,438, Purchase N15,663; Carriage inwards N693;
Returns inwards N1,272; Closing stock N1,698; Manufacturing wages N11,568;
Gross profit N15,994; Cost of sales N28,412.
Cr: Sales N44,952; Returns inwards N546.

Profit and loss account:

Dr: Salaries N1,884; Rent, rate and insurance N1,832; Carriage outwards N972; Office expenses N2,856;
Salesman commission N3,261; Bad debts N1,200; Provision for bad debts (under) N528;
Depreciation–Leasehold N1,611.4; Plant and machinery N1,800; Office equipment N105; Net–profit c/d N298.6

Cr: Gross – profit b/dN15,994; Discount received N354. Total N16,348

Balance sheet:
Capital N27,000 +Net profit N298.6 –Drawings N2,100 =N25,198.6+Creditors N5,094. Total N30,292.6

Fixed assets: Leasehold N6,445.6+Plant and machinery N5,400 +Office furniture N945 =N12,790.6

Current assets:
Stock N1,678 +Debtors N11,191 +Cash in hand N3,720 +Cash at bank N663 +Insurance N250 = N17,502
Total = N30,292.6
11.8. Trading account:
Dr: Opening stock N5,685; Purchases N111,485, Cost of goods sold N117,070; Gross – profit N26,140.
Cr: Sales N143,810.
Profit and Loss Account:
Dr: Office expenses N1,690; Distribution expenses N1,300; Advertisement N1,118; Interest on loan N1,200;
Bad debts N900; Under provision N698; Depreciation for motor vehicle N5,380; Net profit c/d N10,840.
Cr: Gross – profit b/d N26,140.

628
CHAPTER TWELVE
12.1. general
12.2. (i) N3,400 (ii) N9,000
12.3. account for the control of entries
12.4. Le9,149
12.5. debtor’s account
12.6 total accounts
12.7. provide quick information for the preparation of customer’s statement
12.8. N9,590
12.9. dishonoured received
12.10. balance b/d
12.11. Sales ledger control account:
Dr: Sales ledger (Dr) balance N2,450; Credit sales N37,600; Sales ledger (Cr) balance N470.
Cr: Sales ledger (Cr) balance N390; Cash sales N20,000; Bad debts N188; Provision for doubtful debts N245;
Discount allowed N168; Returns inwards N207; Cheque received N22,150; Cash received N14,000.

Purchases ledger control account:

Dr: Purchases ledger (Dr) balance N217; Discount received N683; Returns outwards N175;
Cheque from creditors N15,500.
Cr: Purchases ledger (Cr) balance N1,847; Credit purchases N15,800 ;
Purchase ledger closing (Dr) balance N240.
12.13. Sales ledger control account:
Dr: Opening (Dr) balance N600,000; Credit sales N7,150,000; Dishonoured cheque N6,000;
Closing (Cr) balance N10,000; Total N7,766,000.
Cr: Opening (Cr) balance N15,000; Returns inwards N36,000; Discount allowed N85,000; Set – off N12,000;
Bad debt N10,000; Cash received N7,000,000,
Closing (Dr) balance N608,000. Total N7,766,000.
Purchases ledger control account:
Dr: Opening (Dr) balance N10,000; Returns outwards N20,000; Discount received N140,000; Set – off N12,000;
Cash paid to creditors N4,700,000
Closing (Cr) balance N955,500. Total N5,837,500
Cr: Opening (Cr) balance N1,030,000, Credit purchases N4,800,000
Closing (Dr), balance N7,500. Total N5,837,500
12.18. N14,450
12.19. N15,000
12.20. N24,000
12.21. N63,000
12.22. bills payable

CHAPTER THIRTEEN
13.1. Manufacturing Account: (Raw materials)
Dr: Opening stock N20,000; Purchases N150,000;
Closing stock N11,500; Factory wages N120,000; Direct expenses N5,000; Prime cost N283,500.
Factory o/h expenses: Factory rent N11,600; Factory repairs N20,100; Indirect wages N50,000;
Plant repairs N30,900; Factory insurance N20,000; Work manager salary N11,400,
W.I.P (start) N3,000; W.I.P(close) N4,000; Production cost N426,500.
Trading Account: (Finished goods)
Dr: Opening stock N40,500; Production cost N426,500;
Closing stock N30,000; Cost of goods sold N437,000; Gross – profit N163,000.
Cr: Sales N605,000; Sales returns N5,000.
Profit and Loss Account:
Dr: Office salaries N20,000; General expenses N30,000; Salaries of salesman N50,000,
Sales commission N5,000; Advertising expenses N20,000; Public relation expenses N10,500;
Wages N5,000; Van expenses N9,000; Net – profit c/d N4,000.
13.2. Manufacturing Account:
Dr: Opening stock of R.M N15,500; Purchases of R.M N46,500; Carriage on R.M N1,360;
Closing stock of R.M N16,050; Cost of raw materials consumed N47,310; Factory wages N4,760,
Prime cost N52,070; Factory expenses N2,900; Depreciation of plant N3,333; Repairs to plant N2,547;
Rent and rates N2,000; W.I.P N18,000 – W.I.P N17,900; Cost of production N62,950.
Cr: Cost of production completed N62,950
Trading account:
Dr: Opening stock F.G N23,000; Production cost N62,950; Carriage on F.G N840;
Closing stock of F.G. N19,500; Gross profit N6,710.
Cr: Sales N84,000.
13.5 .(i) N33,000
(ii) N74,940
(iii) N14,600
13.6. (i) N28,500
(ii) N20,000
(iii) N33,800
(iv) N1.500
13.7. (i) D98,000
(ii) D117,700
(iii) D138,000
13.9. carriage outwards
13.10. royalties payable
13.11. D226,250
13.12. D431,250
13.13. D286,250
13.14. cost of goods produced
13.15. GHe52,500
13.16. GHe64,500
13.17. factory expenses
629
13.18. N17,000
13.19. N15,000
13.20. N57,900
13.21. N20,300
13.22. N78,200

CHAPTER FOURTEEN
14.1.(i) N19,400 (ii) N19,800
14.2. Opening capital
14.3.(i) N4,300 (ii) N1,500.
14.4. Trading, profit and loss account:
Trading a/c:
Dr: Opening stock N400; Purchases N21,000, C.G.A.S N21,400;
Closing stock N300; Cost of goods sold N21,100; Gross – profit N9,060. Total 30,160.
Cr: Sales N30,160.
Profit and loss a/c:
Dr: Staff wages N2,000; Sundry expenses N100; Telephone N50; Advertising N200; Insurance N50;
Repairs N300; Rate N350; Rent N380; Electricity N230; Depreciation N100; Net- profit N7,300.
Cr: Gross – profit b/d N9,060;Investment income N2,000. Total N11,060.
Balance sheet:
Capital N1,570 +Net-profit N7,300 –Drawings N2,630 = N6,240 + current liabilities (electricity N40 + creditors N2,000)
Total N8,280.
Fixed Assets: Equipment N1,000 – N100 = N900
Current assets: Stock N300 + Rate prepaid N150 + Bank N6,390 = N7,380. Total N8,280.
14.5. Trading Account:
Dr: Opening stock N6,720; Purchases N79,050; C.G.A.S N85,770;
Closing stock N6,540; Cost of goods sold N79,230; Gross profit c/d N23,190. Total N102,420.
Cr: Sales N102,420.
Profit and loss account:
Dr. General expenses N11,490; Bad debts N900; Net profit N10,800. Total N23,190.
Cr: Gross – profit b/d N23,190.
14.6(a) Statement of Affairs as at 1st January, 2001:
Assets; Debtors N20,930 + Stock N18,750 + Cash N875 + Bank N6,365 + Plant and machinery N22,500 +
Land and building N75,500 + Fixtures & fittings N4,000 = N148,420.
Liabilities: Creditors N14,590 + Loan N15,000 = N29,590
Capital = N148,420 –N29,590 = N118,830.
(b) Statement of Affairs as at 31st December, 2001:
Assets: Debtors N26,595 +Stock N20,500 +Cash N625 +Bank +Plant and machinery N25,000 +
Land and building N75,000 + Fixtures and fittings N3,500 = N151,220
Liabilities: Creditors N10,920 + Loan N15,000 + Overdraft N3,140 = N29,060
Capital = N151,220 – 29,060 = N122,160
(c) Statement of profit as at 31st December, 2001:
Closing capital N122,160 –Opening capital N118,830 = N3,330.
14.8. statement of affairs
14.10. N25,500
14.11. N24,500
14.12. N83,600
14.14. statement of assets
14.15. single entry

CHAPTER FIFTEEN
15.1. accumulated fund
15.2. accrued expenses on annual dances
15.6. Receipts (Dr): Subvention from F.G. N45,000, Subvention from state N35,000; Rate and fines N15,000;
Income from investments N50,000; Tenement rates/royalties N270,000; Licenses issued N130,000
Total N545,000.
Payments (Cr): Salaries and wages N300,000, Vehicle expenses N5,000; Vehicle purchased N60,000;
Stationery & printing N16,000; Repairs and maintenance N20,000;
Hospital drugs purchased N4,000; Bank charges N3,000; Donation to schools N60,000.
Total N465,000. Balance c/d N80,000.
15.7.(i) Statement of Affairs as at 1st January, 1998:
Stock N600 +Prepaid expenses N380 –Rent payable N60 =N920
(ii) Income and expenditure account:
Expenditure (Dr): Rent N1,830; Postages & Stationery N1,364; Anniversary dance N3,430;
Raffle draw tickets N1,700; Bank charges N180; General expenses N2,645. Total N11,149
Incomes (Cr): Donations N4,050; Raffle draw N11,500; Subscription N14,235 (N150 + N14,450 – N365).
Total N29,755.
Surplus of income over expenditure (N29,755 – 11,149) N18,606.

15.8.(a) Statement of Affairs as at 1st Jan. 2017:

Assets: Equipments N25,000 +Furniture & fittings N20,000 +Stock N1,200 +Banks N2,000
=N48,200 –Bar supplies N2,400 =N45,800 (Accumulated fund)

(b) Bar trading account;

Dr: Opening stock N1,200; Purchases N31,700; Cost of goods available for sale N32,900;
Closing stock N3,200; Cost of goods sold N29,700; Bar profit N15,300.
Cr: Sales N45,0000.
(c) Income and Expenditure Account:
Dr: Wages N3,500; General expenses N4,000; Printing and stationery N1,200; Repairs N2,000;
Surplus of income over expenditure N49,600. Total N60,300

630
15.10(a) Receipts and payments account:
Receipts(Dr): Inauguration D3,000; Subscription D540; Gate fees D500; End of year dance D4,000. Total D8,040

Payments (Cr): Inauguration expenses D1,000; Football match expenses D300; Dance expenses D2,000; Honorarium D520; Sundry expenses D1,120;
Damages to furniture D300; Balance c/d D2,000. Total D8,040.

(b) Income and Expenditure Account:

Expenditure (Dr): Inauguration expenses D1,000;Football match expenses D300; Dance expenses D2,000;
Honorarium to Officers D520; Sundry expenses D1,120; Damages to furniture D300; Surplus of I/E D2,860
Income(Cr): Inauguration expenses D3,000;Subscription D600;Gate fees D500; End ofyear dance D4,000.
Total D8,100
15.12. N5,350
15.13. N400 (asset)
15.14 cash book
15.15. shown as current liability in the balance
15.16. deficit
15.17. outstanding wages and salaries

CHAPTER SIXTEEN
16.1. general ledger
16.2(i) N2,000
(ii) N1,000
(iii) N700
(iv) N6,000
(v) N4,000
(vi) N4,500 Cr
(vii) (N1,600) Dr
16.3. N15,000
16.4. appropriation
16.5. partnership deed
16.6. appropriation
16.7. credited to asset revaluation account
16.8. a partner’s retire
16.9. how profits or losses are to be shared
2 2 1
16.10. Sule , Ahmed and Khadija
5 5 5
16.15. Revaluation Account:
Dr: Furniture and fittings N3,000; Stock N1,440; Share of surplus – Taiwo N4,780;Kehinde N4,780.
Cr: Freehold property N12,000; Motor vehicle N2,000
(b) Ledgers:
Dr: Freehold property N12,000; Motor vehicle N2,000; Goodwill N10,000.
Cr: Furniture & fittings N3,000; Stock N1,440; Bank N16,700
(c) Partner’s capital account:
Dr: Balance c/d – Taiwo N28,980; Kehinde N28,480; Idowu N15,000.
Cr: Balance b/d – Taiwo N18,000; Kehinde N18,000, Current a/c – Taiwo N1,200, Kehinde N700;
Bank – Idowu N15,000; Goodwill – Taiwo N5,000, Kehinde N5,000;
Surplus on revaluation – Taiwo N4,780, Kehinde N4,780
(d) Balance sheet:
Capital: Taiwo N28,980, Kehinde N24,840, Idowu N15,000.
Current liabilities: Creditors N13,000, Accruals N420, Total = N85,850.

Fixed assets: Freehold property N24,500; Motor vehicle N18,000; Furniture and fittings N3,000.
Current assets: Stock N5,000; Debtors N9,180; Bank N16,700. Total N85,880
16.18. interest on partners drawings
16.19. a new partner is admitted
16.20. N20,500
16.21. N10,250
16.22. N6,150 Cr.
16.23. N30,500
16.24. D9,900
16.25. D6,000
16.26. equally
16.27. interest on drawings

CHAPTER SEVENTEEN
17.1. gross profit of each department can be ascertained to compare their performance
17.2. floor area
17.3. ascertain the amount of profit or loss for each department
17.4(i) N122,000
(ii) N130,000
(iii) N150,000
(iv) N500,000
(v) N350,000
17.5. floor space occupied by the department
17.6. Departmental trading and profit or loss account:
Department A: Dr: Opening stock D120,000; Purchases D3,720,000;
Less closing stock D240,000, Gross-profit c/d D1,200,000.
Cr:Sales D4,800,000.
Department B: Dr: Opening stock D180,000, Purchases D4,380,000;
Less closing stock D360,000, Gross profit c/d D1,200,000.
Cr:Sales D5,400,000.
Department C: Dr: Opening stock D240,000, Purchases D4,380,000,
Less closing stock D480,000; Gross profit D1,200,000.
Cr: Sales D4,200,000.

631
Profit and Loss Account:
Department A: Dr: Insurance D60,000; Rent D40,000; Advertising D30,000; General expenses D450,000;
Wages & salaries D120,000; Expenses D450,000; Wages & salaries D120,000;
Net – profit c/d D500,000
Cr: Gross profit b/d D1,200,000
Department B: Dr: Insurance D67,00; Rent D45,000; Advertising D15,000; General expenses D225,000;
Wages and salaries D60,000; Net profit c/d D788,000.
Cr:Gross profit D1,200,000.
Department C: Dr: Insurance D52,500, Rent D35,000; Advertising D15,000; General Expenses D225,000;
Wages & salaries D180,000; Net – profit c/d D693,000.
Cr: Gross – profits b/d D1,200,000.
17.7. Departmental trading and profit and loss account:
Dept (provision): Dr: Opening stock N10,000; purchases N480,000; carriage inwards N100,000;
Less closing stock N12,000; Gross – profit c/d N2,282,000.
Cr: Sales N2,800,000.
Dept. (clothing): Dr: Opening stockN30,000; purchases N790,000; carriage inwards N100,000;
Less closing stock N36,000; gross - profit c/d N3,916,000.
Cr : Sales N4,800,000
Dept (Hardware): Dr: Opening stock N45,000; purchases N950,000; Carriage inwards N100,000;
Less closing stock N54,000; gross - profit N3,359,000.
Cr: Sales N4,400,000
Profit and Loss Account:
Dept (Provision). Dr: Rent & rates N148,167; wages & salaries N48,067; carriage outwards N11,250;
Administrative expenses N35,000; lighting and cooling N400,000;
Depreciation of fixed assets N150,000; net- profit c/d N1,489,514.
Cr: Gross - profit b/d N2,282,000.
Dept (clothing): Dr: Rent & rates N254,000; wages and salaries N82,400; carriage outwards N11,250;
Administrative expenses N35,000; lighting & cooling N400,000;
Depreciation of fixed assets N150,000; net – profit c/d N2,978,134.
Cr: Gross-profit b/d N3,916,000.
Dept (hardware): Dr: Rent & rates N232,833; wages and salaries N82,400; Carriage outwards N11,250;
Administrative expenses N35,000; lighting and cooling N400,000;
Depreciation of fixed assets N150,000;
Cr: Gross – profit b/d N3,359,000.
17.9. N1,200
17.10. N800
17.11. N480
17.12. N720
17.15 N23,500
17.16. N51,800

CHAPTER EIGHTEEN
18.1.(i) N220,000
(ii) N7,000
18.2. registered
18.3. revenue expenditure
18.4. interest
18.5. capital reserve
18.6. premium
18.7. revenue reserve
18.8. article of association
18.9. capital reserve
18.10. Memorandum of Association
18.11. Total money received:
- On application = 1,000,000 ×N10 = N10,000,000
- On allotment = 1,000,000 ×N6 = N6,000,000
- First call = 1,000,000 ×N2 = N2,000,000
- Final call = 1,000,000 ×N2 = N2,000,000

Bank account:
Dr: Application N10,000,000; allotment N6,000,000; first call N2,000,000; final call N2,000,000
Cr: Balance c/d N20,000,000
Application account:
Dr: Ordinary share capital N10,000,000
Cr: Bank N6,000,000.
First Call Account:
Dr: Ordinary share capital N2,000,000
Cr: Bank 2,000,000
Final Call Account:
Dr: Ordinary share capital N2,000,000
Cr: Bank N2,000,000.
Ordinary share capital account:
Cr: Application N10,000,000; allotment N6,000,000; first call N2,000,000; final call N2,000,000
Dr: |Bank N20,000,000
18.12. Appropriation account:
Dr: Proposed dividend – ordinary share N100,000, preference share N14,000;
General reserve transfer N70,000; retained profit N117,500
Cr: Net – profit b/d N218,000; Net – profit c/d N83,000

632
Balance sheet:
Authorized capital – preference share N200,000, ordinary share N1,000,000
Issued capital – preference share N200,000, ordinary share N800,000
Revenue reserve – general reserve N30,000, transfer to general reserve N70,000, retained profit N117,500
Long term liability – 12% debenture N100,000.
Current liability – creditors N305,100
Proposed dividend – Ordinary share N100,000, preference share N14,000.
Fixed - assets – Land & buiding N415,000.
Plant & Machinery N192,000
Motor vehicle N135,000.
Current assets – Stock N363,000, debtors N575,500, bank N206,300, cash N9,800.

18.14. Appropriation account:

Dr: Proposed dividend – ordinary share N18,000. Revenue reserve - transfer to general revenue N6,000,
retained profit N8,260.
Cr: Net – profit b/d N29,340; inappropriated profit c/d N2,920.

Balance sheet:
Authorized capital: ordinary share N200,000.
Issued capital: ordinary share N120,000.
Revenue reserve: General Reserve N20,000, transfer N6,000; retained profit N8,260.
Current liability: creditors N6,880, bank overdraft N3,720, proposed dividend – ordinary share N18,000.
Total N182,860.

Fixed assets: Furniture & fittings N6,400, machinery N45,000, freehold premises N96,000.

Current assets: Stock N17,700, debtors N17,760. Total N182,860.

18.17. provisions
18.18. share premium
18.19. N16,000
18.20. N40,000
18.21. N0.20
18.22. receive dividends
18.23. bonus
18.24. memorandum of association
18.25. the nominal value
18.26. premium
18.27. promoters
18.31. N15,000
18.32. N23,000

CHAPTER NINETEEN
19.2.(i) Consignee: The receiver or the agent.
(ii) Consignor: The sender or the principal.
(iii) Consignment outward: Goods sent on consignment.
(iv) Del – credere commission: Extra commission received for selling on credit.
19.3.(a) Accounts sales:
Proceeds from sales ₵5,900 less expenses: port and duty ₵720, storage and carriage ₵410, commission ₵354. Draft ₵4,416.
(b) Consignment inward account:
Dr: Cost of consignment ₵3,000; port and duty ₵720; storage carriage ₵410; commission ₵354;
Profit on consignment ₵1,416.
Cr: 5,900.

19.4. Goods on consignment account:

Dr: Trading account N6,000
Cr: Consignment to Dauda N6,000

Consignment to (Dauda) Account:

Dr: Goods sent on consignment N6,000, carriage, freight and insurance N150, landing and custom charges N135,
commission N255.50, discount on bill N40, profit on consignment N1,500;
Cr: Sales N5,650,
Closing stock N2,514. Total N8,164.

Dauda Enterprises (Consignee’s) Account:

Cr: Landing and custom charges N135, sales commission N282,50, Del credere N56.50,
Bills payable N4,000, bank draft N1,176;
Cr: Consignment Account N5,650.
19.6. consignment
19.7. del-credere
19.8. account sales
19.9. consignment outwards
19.13. goods on consignment account

CHAPTER TWENTY
20.1. partnership
20.2. there is a perpetual
20.3. joint venture
20.4. In the books of Omueti:
Joint venture with Haruna: Dr: Printing N1,500, Renovation N750, share of profit N2,000, cash N500;
Cr: Stock takeover N500, Bal. c/d N4,250

In the books of Haruna:

Dr: Printing N2,000, selling expenses N250, share of profit N2,000, Bal. c/d N250;
Cr: Proceeds from sales N2,500, cash from Omueti N500, cash from debtorsN1,500

633
Memorandum Joint Venture Account:
Dr: Printing (N2,000 + 1,500) N3,500, Renovation N750, selling expenses N250,
Share of profit: Omueti N2,000, Haruna N2,000,
Cr: Sales (N4,000 + 2,500) N6,500, stock 500, Cash N1,500.
20.5.(i) Memorandum Joint Venture Account:
Dr: Rent N10,000, Purchases N40,000, labour N5,000, transport N6,500, lighting and heating N3,000,
sundry expenses N5,200, selling N15,000, profit (Favour N5,920, Olayinka N4,440, Ojo N4,440) N14,800;
Cr:N100,000.
(ii) Favour’s book:
Dr: Rent N10,000, labour N5,000, lighting N3,000, sundry expenses N5,200, share of profit N5,920,
Cr: Cash settlement N29,120
Olayinka’s Book:
Dr: Purchases N40,000, transport N6,500. Share of profit N4,440;
Cr: Cash settlement N50,940.

Ojo’s Book:
Dr: Selling expenses N15,000, share of profit N4,440, cash to Favour and Olayinka N90,560;
Cr: Sales N100,000.
20.11. pool of skills
20.12. the number of people involved
20.13. partnership
20.15. how to raise capital from the public

CHAPTER TWENTY ONE

21.1.(a) Goods sent to Branch Account:
Dr: Returns by branch D18,000, head office trading account D132,000
Cr: Branch stock D150,000
(b) Branch Stock Account:
Dr: Goods sent to branch D150,000, stock at start (1 – 1 – 2003) D5,500
Cr: Returns to head office D18,000, cash sales D72,000, credit sales D35,000, stock at close D24,000
(c) Branch adjustment account:
Dr: Returns to Head Office D4,500, Branch expenses D3,540, gross profit D29,060.
Cr: Profit on goods sent to branch D37,500.
(d) Branch Debtors Account:
Dr: Credit sales D35,000
Cr: Cash from debtors D28,000, balance c/d D7,000

CHAPTER TWENTY TWO

22.1. voucher
22.2. motor license fees
22.3. virement
22.4. vote
22.5. profit and loss account
22.6. recurrent expenditure
22.7. consolidated revenue fund
22.8. Accountant-General
22.9. Auditor
22.10. expenditure book

22.11(a) Capital Expenditure Account:

Construction of hospital wards N28,500: purchases of beds N920,000; purchases of theatre equipment N7,920,000;
construction of boreholes N1,200,000; purchases of incubators N3,800,000; purchases of X – ray machines N4,200,000
(b) Recurrent Expenditure Account:
Repairs of ambulances N25,000; salaries and wages N31,000,000; maintenance of vehicles N7,500,000; purchases of petrol and lubricants N800,000;
purchases of drugs N10,550,000; purchase of vaccines N1,330,000; maintenance of mortuary buildings N670,000

22.12(a) Revenue and Expenditure Account:

Revenue items:
FinesN960,000; registration fees N640,000; market stalls N1,000,000; poll tax N260,000;
Grant from state government N720,000; motor park collection N600,000; federation account N2,000,000;
LicensesN50,000; rates N70,000; tenement rate N320,000; interest on bank loan N120,000.

Expenditure items:
Purchases of petrol N430,000; purchase of vans N440,000; purchase of stationery N130,000; repairs of public toilets N200,000; maintenance of vehicle
N250,000; Road maintenanceN710,000; purchase of equipment N605,450; construction of roads N800,000

(b) Statement of capital expenditure:

Purchase of vans N440,000; road maintenance N710,000; purchase of equipmentN605,450;
Construction of roads N800,500

22.13(a) Statement of revenue available to each local government council:

650,000
Akpim: ( × 500,000,000) = N65,000,000
5,000,000
1,000,000
Ekom: ( × 500,000,000) = N100,000,000
5,000,000
850,000
Ihitte: ( × 500,000,000) = N85,000,000
5,000,000
2,000,000
Kpam: ( × 500,000,000) = N200,000,000
5,000,000
500,000
Tete: ( × 500,000,000) = N50,000,000
5,000,000

(bi) Ihitte L.G.A. Receipts and Payment Account:

Receipts: Allocation from F.G. N85,000,000; internally revenue generated N850,000; total N85,850,000

634
Payments:
Salaries & wages N1,250,000; sinking of boreholes N340,000, construction of rural roads N2,450,000; purchase of keke NAPEP N3,000,000; purchase
of vaccines N540,000; purchase of improved seedlings N634,000; purchase of tractors N4,647,000; maintenance of L.G. guest houseN380,000; fuel
and lubricants N140,000; balance c/d N72,469,000
(bii) Statement of capital expenditure:
Sinking of boreholes N340,000; construction of rural roads N2,450,000; purchase of keke NAPEP N3,000,000; purchase of tractors N4,647,000; total
N10,437,000

Statement of recurrent expenditure:

Salaries and wages N1,250,000; purchase of vaccines N540,000; maintenance of L.G. guest house N380,000;
Fuel and lubricants N140,000; purchase of improved seedlings N634,000. Total N2,944,000.

CHAPTER TWENTY THREE

Profit 100
23.1. ×
Cost price 1
23.2. stock
23.3(i) N120,000 (ii) N12,000 (iii) N30,000 (iv) N30,000.
23.4.
23.5(a) 20% (b) 1.714:1 (c) 25% (d) 10 times (e) N60,000.
23.6(i) 2.93:1 (ii) N1,060,000 (iii) N180,000
23.7(i) N17,000 (ii) 2.1:1 (iii) 1:1
23.8(a) N15,000 (b) N15,000 (c) 8:1 (d) N40,000 (e) 66.7% (f) 33.3% (g) 0.6times
23.9. N254,160
23.10. N131,000
23.11. N134,000
23.12. net profit
23.13. 1.87:1
23.14. N370,000
23.15. 16.2%
23.18. N15,000
23.19. N15,000
23.20. 33%
23.21. 8:1
23.22. N35,000
23.23. 67%
23.24. N39,500
23.25. N40,300

CHAPTER TWENTY FOUR

24.1. information
24.2. application package
24.3. it can manipulate complex data
24.4. software
24.5. floor carpet
24.6. cursor
24.7. software
24.8. Bug
24.9. Routines/programmes/code
24.10. Software
24.11. Data processing software
24.12. Keyboard

CHAPTER TWENTY FIVE

24.1. EOQ = 845.5 units ≈ 859units
24.2.
24.3(a) 36,000 units (b) 17,100units (c) 44,400units (d) 30,750units
24.4. N17,000
24.5. N28,500
24.6. N11,500
24.7. LIFO
24.8. FIFO

635
636