Carefully review the question and solution below
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
Explanation:
Accounting information is primarily used to help stakeholders make informed economic decisions.
2. Trade discounts are given for
A. bulk purchases ✔
B. prompt payment
C. quick delivery
D. cash payment
Explanation:
Trade discounts are reductions in price granted for bulk purchases to encourage large orders.
3. When closing stock is overstated, it would reduce
A. cost of sales and increase gross profit ✔
B. gross profit and increase cost of sales
C. purchases and increase sales
D. sales and increase purchases
Explanation:
Cost of sales = Opening stock + Purchases − Closing stock. Overstating closing stock reduces cost of sales and inflates gross profit.
4. Which of the following is not a source document?
A. journal paper ✔
B. sales invoice
C. debit note
D. credit note
Explanation:
Source documents provide evidence of transactions; a journal paper is a book of entry, not a source document.
5. A fixed asset fully written-down by a trader is now considered to be worth ₦5,000. The double entry required to reflect this is debit
A. asset account credit purchase account
B. asset account credit capital account ✔
C. capital account credit asset account
D. capital account credit profit and loss account
Explanation:
To recognize the residual value of a fully depreciated asset, debit the asset account and credit the capital account.
6. Which of the following is a book of original entry?
A. ledger
B. balance sheet
C. bank statement
D. sales journal ✔
Explanation:
Books of original entry are where transactions are first recorded; the sales journal is one such book.
7. A balance sheet shows only
A. fixed assets and current assets
B. assets and long term liabilities
C. assets and liabilities ✔
D. assets and capital
Explanation:
A balance sheet presents the financial position, showing assets and liabilities at a specific date.
8. The process of entering transactions from one book to another is
A. reading
B. posting ✔
C. numbering
D. listing
Explanation:
Posting transfers entries from books of original entry to the ledger accounts.
9. The total purchases is
| Item | 1/1/10 (GHȼ) | 31/12/10 (GHȼ) |
|---|---|---|
| Stocks | 1,400 | 1,900 |
| Creditors | 2,000 | 2,900 |
| Cash paid to trade creditors | 8,000 | |
10. The cost of sales is
A. GHȼ 8,200
B. GHȼ 6,800
C. GHȼ 5,500
D. GHȼ 4,800 ✔
Explanation:
Cost of sales = Opening stock + Purchases − Closing stock = 1,400 + 8,100 − 1,900 ≈ 8,200. Option D corrected: GHȼ 8,200.
11. Which of the following is a trading account item?
A. discount allowed
B. discount received
C. carriage outwards
D. carriage inwards ✔
Explanation:
Carriage inwards is part of the cost of goods purchased, appearing in the trading account.
12. The addition of prime cost and factory overhead is
A. total factory overheads
B. market value of goods produced
C. cost of goods produced ✔
D. work-in-progress
Explanation:
Cost of goods produced = Prime cost + Factory overheads.
13. Capital receipt is collected
A. on sales of motor vehicle ✔
B. on sales of stock in trade
C. from trade debtors
D. from trading activities
Explanation:
Capital receipts arise from non-trading activities such as selling fixed assets.
14. Which of the following is an example of factory overheads?
A. salary of marketing officer
B. salary of production officer
C. salary of accounting officer
D. wages of machine operator ✔
Explanation:
Factory overheads include costs directly related to production, such as wages of machine operators.
15. Osa started business with Le 40,000 cash. The accounting entry is debit
A. cash account; credit capital account ✔
B. capital account; credit cash account
C. purchases account; credit cash account
D. expenses account; credit capital account
Explanation:
Cash received from owner increases assets (debit cash) and owner’s equity (credit capital).
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
Explanation:
Branch stock account tracks goods sent and remaining in the branch.
17. The name given to a budget in public service accounting is
A. vote ✔
B. subvention
C. general order
D. estimate
Explanation:
In public service, each budget item authorized is called a vote.
18. The amount of working capital is
A. N11,000 ✔
B. N7,000
C. 4,000
D. 3,000
Explanation:
Working capital = Current assets − Current liabilities = (Stock + Debtors + Cash) − (Creditors + Accrued expenses) = (3,000+4,000+7,000) − (3,000+4,000) = 11,000.
19. Working capital ratio is
A. 5:4 ✔
B. 5:3
C. 4:5
D. 1:1
Explanation:
Current ratio = Current assets / Current liabilities = 55,000/44,000 ≈ 5:4.
20. Acid test ratio is
A. 5:4
B. 5:3 ✔
C. 4:5
D. 1:1
Explanation:
Acid test ratio = (Current assets − Stock) / Current liabilities.
21. Which of the following is not prepared by a partnership?
A. trading account
B. profit and loss account
C. income and expenditure account ✔
D. profit and loss appropriation account
Explanation:
Income and expenditure accounts are used by non-profit organizations, not partnerships.
22. A partner who only makes capital contribution but does not take part in the management of the partnership business is a/an
A. ordinary partner
B. limited partner ✔
C. dormant partner
D. nominal partner
Explanation:
A limited partner contributes capital but does not manage the business; liability is limited.
23. Which of the following is a component of prime cost?
A. depreciation
B. royalty ✔
C. factory rent
D. factory electricity
Explanation:
Prime cost includes direct materials, direct labor, and direct expenses such as royalty.
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 ✔
Explanation:
Revenue is recognized when it is realized or measurable according to the realization concept.
25. Rent accrued in 2009 was D140, in 2010 D900 was paid while D160 was outstanding. Rent for 2010 was
A. D1,200
B. D1,060 ✔
C. D920
D. D880
Explanation:
Rent expense = Paid + Closing accrued − Opening accrued = 900 + 160 − 140 = D920 + 140 adjustment? Correct calculation: 900 + 160 − 140 = 920. So correct answer: C. D920.
26. Which of the following is not an input device?
A. card reader
B. paper tape reader
C. alpha-numeric keyboard
D. line printer ✔
Explanation:
A line printer is an output device, not input.
27. The equivalent of income and expenditure account in a trading concern is
A. trading account
B. profit and loss account ✔
C. appropriation account
D. balance sheet
Explanation:
Profit and loss account shows income and expenditure for a trading concern.
28. The term used to denote the capital of a not-for-profit making organization is
A. annuity fund
B. nominal capital
C. circulating capital
D. accumulated fund ✔
Explanation:
Accumulated fund represents the net worth of a not-for-profit organization.
29. The portion of authorized capital that has been allotted to subscribers is
A. called up capital
B. paid up capital
C. issued capital ✔
D. nominal capital
Explanation:
Issued capital is the portion of authorized capital allotted to shareholders.
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
Explanation:
Limited partners’ liability is limited to their capital contribution.
31. If creditors at 1/1/10 were Le 3,000; creditors at 31/12/10 Le 5,500 and payments to creditors Le 29,000, the purchases figure for 2010 is
A. Le 34,500 ✔
B. Le 32,000
C. Le 31,500
D. Le 26,500
Explanation:
Purchases = Closing creditors − Opening creditors + Payments = 5,500 − 3,000 + 29,000 = Le 31,500? Wait step by step:
$5,500 − 3,000 = 2,500$
$2,500 + 29,000 = 31,500$
Correct answer: C. Le 31,500.
32. Which of the following is not found in the personal ledger?
A. debtors account
B. creditors account
C. capital account
D. nominal account ✔
Explanation:
Personal ledger contains accounts for individuals or entities; nominal accounts are recorded in the nominal ledger.
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 creditor account
Explanation:
The sales ledger control account summarizes all debtor accounts in the personal ledger.
34. Capital expenditure for the year was
| Item | Le |
|---|---|
| Construction of Hospital wards | 30,000 |
| Purchase of Hospital beds | 40,000 |
| Salaries and wages | 80,000 |
| Purchase of drugs | 55,000 |
| Purchase of X-ray machine | 150,000 |
35. The amount of recurrent expenditure was
A. Le 245,000 ✔
B. Le 175,000
C. 135,000
D. Le 80,000
Explanation:
Recurrent expenditure = Salaries and wages + Purchase of drugs = 80,000 + 55,000 = 135,000 Seems option A or C? Correct: C. 135,000.
36. An increase in the provision for doubtful debts results in a/an
A. increase in the gross profit
B. decrease in the gross profit
C. decrease in the net profit ✔
D. increase in the net profit
Explanation:
An increase in provision is an expense, reducing net profit.
37. Which of the following errors affects the agreement of a Trial balance?
A. wrong addition in the sales account ✔
B. crediting a purchase to the sales account
C. failure to enter sales in the books
D. posting the purchase of a van to the debit side of the purchases account
Explanation:
Errors in addition cause the trial balance to disagree. Other errors do not always affect the balance.
38. The excess of value of assets over the purchase consideration on acquisition of a business is credited to
A. share capital account
B. goodwill account ✔
C. capital reserve account
D. general reserve account
Explanation:
The excess of net assets over purchase price represents goodwill.
39. Share of ₦3 nominal value were issued at a price of ₦4. The difference of ₦1 is a
A. commission
B. discount
C. premium ✔
D. bonus
Explanation:
The extra amount over nominal value is share premium.
40. Which of the following is not the purpose of a control account?
A. check on errors of addition
B. locate errors
C. locate missing figures
D. monitor the cash book ✔
Explanation:
Control accounts reconcile subsidiary ledgers but do not directly monitor the cash book.