Practice gce model questions vol1 financial_accounting 2018 Past Questions

Question 1 View Details

A company purchases equipment for \(\text{₦}120,000\) cash. The equipment has a residual value of \(\text{₦}20,000\) and a useful life of 5 years, and the company uses straight‑line depreciation. Explain the effect of this transaction on the accounting equation and state the amount of depreciation expense for the first year.

A. No net effect on the accounting equation; depreciation expense = \(\text{₦}15,000\)

Correct B. No net effect on the accounting equation; depreciation expense = \(\text{₦}20,000\)

C. No net effect on the accounting equation; depreciation expense = \(\text{₦}25,000\)

D. No net effect on the accounting equation; depreciation expense = \(\text{₦}30,000\)

Correct Answer: B

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Question 2 View Details

Three partners A, B and C share profit in the ratio 3:2:1. Their opening capital balances are \(\text{₦}150,000\), \(\text{₦}100,000\) and \(\text{₦}50,000\) respectively. At year‑end the net profit before any adjustments is \(\text{₦}84,000\). Before a new partner D is admitted, the partnership revalues land by \(\text{₦}30,000\) and a building by \(\text{₦}18,000\). Goodwill of \(\text{₦}60,000\) is recognised and is to be shared among the existing partners in their profit‑sharing ratio. D will take a one‑fifth share of future profits and will contribute cash equal to the amount of goodwill allocated to him. Calculate D's cash contribution and the new capital balances of all partners after his admission.

A. D contributes \(\text{₦}15,000\). New capitals - A: \(\text{₦}210,000\), B: \(\text{₦}140,000\), C: \(\text{₦}70,000\), D: \(\text{₦}15,000\).

B. D contributes \(\text{₦}12,000\). New capitals - A: \(\text{₦}200,000\), B: \(\text{₦}130,000\), C: \(\text{₦}70,000\), D: \(\text{₦}12,000\).

C. D contributes \(\text{₦}10,000\). New capitals - A: \(\text{₦}198,000\), B: \(\text{₦}132,000\), C: \(\text{₦}66,000\), D: \(\text{₦}10,000\).

Correct D. D contributes \(\text{₦}12,000\). New capitals - A: \(\text{₦}204,000\), B: \(\text{₦}136,000\), C: \(\text{₦}68,000\), D: \(\text{₦}12,000\).

Correct Answer: D

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Question 3 View Details

The trial balance of XYZ Ltd at 31 December 2025 (all figures in \(\text{₦}\) thousands) is:\nCash \(50\), Trade receivables \(80\), Inventory \(120\), Property, plant & equipment (cost) \(300\), Accumulated depreciation \(100\), Accounts payable \(70\), Bank loan \(150\), Share capital \(200\), Retained earnings (b/f) \(30\).\nAdditional information:\n- Sales revenue for the year was \(\text{₦}500\).\n- Purchases during the year amounted to \(\text{₦}200\).\n- Closing inventory is \(\text{₦}140\).\n- Depreciation is charged on the gross block at 20 % using the reducing‑balance method.\n- Bad debts written off: \(\text{₦}5\); allowance for doubtful debts created: \(\text{₦}3\).\n- A final dividend of 10 % on the share capital is declared (payable next year).\n- The company issues 2 000 new shares of \(\text{₦}20\) each at a premium of \(\text{₦}5\) per share; the proceeds are received in cash.\nAssuming the company had 10 000 shares before the issue, prepare a statement of profit or loss for the year and compute the earnings per share (EPS) after the share issue.

A. EPS = \(\text{₦}21\) per share (net profit \(\text{₦}252\) thousand, total shares 11,000)

B. EPS = \(\text{₦}20\) per share (net profit \(\text{₦}240\) thousand, total shares 12,000)

Correct C. EPS = \(\text{₦}21\) per share (net profit \(\text{₦}252\) thousand, total shares 12,000)

D. EPS = \(\text{₦}22\) per share (net profit \(\text{₦}264\) thousand, total shares 12,000)

Correct Answer: C

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Question 4 View Details

A local government authority prepared its annual budget for 2025 (figures in \(\text{₦}\) thousands) as follows:\nRevenue - Tax revenue \(150,000\), Grants \(30,000\), Other income \(10,000\). Total budgeted revenue = \(190,000\).\nExpenditure - Salaries \(80,000\), Maintenance \(25,000\), Capital projects \(40,000\), Debt service \(10,000\), Miscellaneous \(5,000\). Total budgeted expenditure = \(160,000\).\nActual results at year‑end: Tax revenue \(138,000\), Grants \(32,000\), Other income \(9,500\). Actual revenue = \(179,500\).\nExpenditure actual: Salaries \(85,000\), Maintenance \(27,000\), Capital projects \(38,000\), Debt service \(12,000\), Miscellaneous \(6,500\). Actual expenditure = \(168,500\).\nThe authority regards any variance exceeding 5 % of the total budgeted revenue as material and requires a comment. Calculate the percentage variance for revenue and for expenditure, state whether each variance is material, and suggest one appropriate managerial action for each material variance.

A. Revenue variance = -4.0 % (not material); Expenditure variance = +6.0 % (material). Action: reduce capital project spending to control expenditure.

Correct B. Revenue variance = -5.5 % (material); Expenditure variance = +4.5 % (not material). Action: strengthen tax‑collection controls to address the revenue shortfall.

C. Revenue variance = -6.0 % (material); Expenditure variance = +4.5 % (not material). Action: implement stricter salary budgeting.

D. Revenue variance = -5.5 % (material); Expenditure variance = +5.5 % (material). Action: increase grant applications to boost revenue.

Correct Answer: B

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Question 5 View Details

The following information is available for XYZ Ltd for the year ended 31 March 2025.\n- Opening cash balance: \(\text{₦}25,000\)\n- Cash sales: \(\text{₦}120,000\)\n- Credit sales: \(\text{₦}200,000\); of which \(\text{₦}30,000\) was received in cash during the year.\n- Purchases: \(\text{₦}150,000\) (all on credit).\n- Cash purchases: \(\text{₦}20,000\)\n- Payments to creditors: \(\text{₦}140,000\)\n- Rent expense paid in cash: \(\text{₦}15,000\)\n- Salaries paid in cash: \(\text{₦}25,000\)\n- Interest received in cash: \(\text{₦}5,000\)\n- Bank loan taken: \(\text{₦}40,000\) (cash received).\n- Dividend paid in cash: \(\text{₦}10,000\)\n- Closing cash balance as per bank statement: \(\text{₦}30,000\)\n- The bank statement shows a cheque issued for \(\text{₦}8,000\) that was not recorded in the cash book.\nNo other information is available. Assume no other cash receipts or payments.\nRequired: Reconstruct the cash book to determine (a) the cash receipts from customers (excluding cash sales) and (b) the cash payments to suppliers (excluding cash purchases). Also compute the net profit for the year.

A. Cash receipts from customers (excluding cash sales) = \(\text{₦}58,000\); cash payments to suppliers (excluding cash purchases) = \(\text{₦}148,000\); net profit = \(\text{₦}135,000\).

Correct B. Cash receipts from customers (excluding cash sales) = \(\text{₦}58,000\); cash payments to suppliers (excluding cash purchases) = \(\text{₦}148,000\); net profit = \(\text{₦}115,000\).

C. Cash receipts from customers (excluding cash sales) = \(\text{₦}30,000\); cash payments to suppliers (excluding cash purchases) = \(\text{₦}148,000\); net profit = \(\text{₦}115,000\).

D. Cash receipts from customers (excluding cash sales) = \(\text{₦}58,000\); cash payments to suppliers (excluding cash purchases) = \(\text{₦}140,000\); net profit = \(\text{₦}115,000\).

Correct Answer: B

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Question 6 View Details

The Purchases Control Account for the year shows an opening debit balance of \(\text{₦}0\), total purchases recorded in the purchases journal of \(\text{₦}125,000\), trade discounts received of \(\text{₦}2,500\) and a closing debit balance of \(\text{₦}119,000\). The subsidiary ledger of individual suppliers records total purchases of \(\text{₦}125,000\) and total purchase returns of \(\text{₦}4,000\). Assuming all purchase returns should be posted to the Purchases Control Account, determine the amount of purchase returns that have been omitted from the control account.

Correct A. 500

B. 900

C. 600

D. 400

Correct Answer: A

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Question 7 View Details

A machine was purchased on 1 January 2018 for \(\text{₦}150,000\). It has an estimated residual value of \(\text{₦}15,000\) and a useful life of 5 years, and the company initially applied the straight‑line method. On 1 January 2020 the estimated residual value was revised to \(\text{₦}10,000\) and the remaining useful life was reassessed to 3 years. Calculate the depreciation expense for the year ended 31 December 2020.

A. 28000

Correct B. 28667

C. 28666

D. 28700

Correct Answer: B

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Question 8 View Details

The profit and loss account for the year shows a gross profit of \(\text{₦}240,000\) and operating expenses of \(\text{₦}90,000\). Interest expense is \(\text{₦}12,000\) and tax expense is \(\text{₦}30,000\). The company has an ordinary share capital of \(\text{₦}200,000\) and declares a dividend at \(5\%\) of the share capital. It also transfers \(10\%\) of profit after tax to a general reserve. Determine the amount transferred to retained earnings.

A. 86000

Correct B. 87200

C. 78800

D. 97200

Correct Answer: B

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Question 9 View Details

Parent Co. holds \(80\%\) of the voting shares of Subsidiary Ltd. For the year ended 31 December 2020 the subsidiary reported profit before tax of \(\text{₦}500,000\). Tax expense is \(30\%\) of profit before tax. During the year the subsidiary paid interest of \(\text{₦}15,000\) to the parent on an inter‑company loan. No dividends were paid. Determine the amount of profit attributable to the parent that should be recognised in the consolidated statement of profit and loss for the year.

A. 307000

B. 350000

Correct C. 292000

D. 280000

Correct Answer: C

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Question 10 View Details

A manufacturing company produces a single product. The following data relate to the year ended 31 December 2020:\n\n- Opening stock of raw materials: \(\text{₦}20,000\)\n- Purchases of raw materials: \(\text{₦}120,000\)\n- Closing stock of raw materials: \(\text{₦}15,000\)\n- Direct labour cost: \(\text{₦}80,000\)\n- Production overheads are applied at \(150\%\) of direct labour.\n- Opening work‑in‑process (WIP): \(\text{₦}30,000\)\n- Closing WIP: \(\text{₦}25,000\)\n- Opening finished goods stock: \(\text{₦}40,000\)\n- Closing finished goods stock: \(\text{₦}35,000\)\n- An abnormal loss of raw materials amounting to \(\text{₦}5,000\) is charged to the profit and loss account.\n\nSales revenue for the year was \(\text{₦}500,000\) and selling and distribution expenses were \(\text{₦}60,000\). Calculate the net profit for the year.

A. 115000

Correct B. 100000

C. 105000

D. 95000

Correct Answer: B

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Question 11 View Details

The cash book for the month shows an opening balance of \(5{,}000\) (debit). During the month the following transactions were recorded: - Cash sales: \(12{,}000\) - Loan received: \(3{,}000\) - Rent paid: \(2{,}500\) - Utilities paid: \(800\) - Purchase of inventory: \(4{,}200\) One cheque of \(1{,}200\) was mistakenly entered on the receipt side instead of the payment side. After correcting this error, what is the closing cash‑book balance (debit) at month end?

Correct A. £10,100

B. £13,700

C. £10,900

D. £9,100

Correct Answer: A

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Question 12 View Details

At month‑end the cash book shows a balance of \(7{,}000\) (debit). The bank statement balance is \(8{,}200\). The following items are known: - Outstanding checks: \(800\) - Deposits in transit: \(200\) - A bank fee of \(30\) has been charged by the bank but not yet recorded in the cash book. - The bank has overstated the balance by \(50\) due to an error. - The bank collected a note receivable for the company amounting to \(580\) which has not been recorded in the cash book. Determine the corrected cash‑book balance after completing the bank reconciliation.

A. £6,970

B. £7,580

C. £6,750

Correct D. £7,550

Correct Answer: D

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Question 13 View Details

The Machinery account had an opening balance of \(15{,}000\) (debit). During the year the following transactions were posted to this account: - Purchase of new machinery on 10 March: \(5{,}200\) - Purchase of new machinery on 25 July: \(3{,}800\) - Sale of machinery on 30 September for \(4{,}500\). The original cost of the sold machine was \(6{,}000\) and its accumulated depreciation at the date of sale was \(1{,}200\). - Depreciation expense for the year is charged at 10 % of the opening balance. - At year‑end a further depreciation of 5 % is charged on the balance of the Machinery account after posting the above transactions but before this additional depreciation. Calculate the closing balance of the Machinery account at the end of the year.

A. £14,675

B. £15,075

Correct C. £15,675

D. £16,275

Correct Answer: C

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Question 14 View Details

A company purchases office supplies costing \(1{,}200\). It pays cash of \(300\) at the time of purchase and agrees to pay the balance later. Record the journal entry for this transaction using double‑entry bookkeeping.

A. Debit Office Supplies £1,200; Credit Cash £400; Credit Accounts Payable £800

Correct B. Debit Office Supplies £1,200; Credit Cash £300; Credit Accounts Payable £900

C. Debit Office Supplies £1,200; Credit Cash £300; Credit Accounts Payable £1,000

D. Debit Office Supplies £1,200; Credit Cash £200; Credit Accounts Payable £1,000

Correct Answer: B

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Question 15 View Details

The following figures are extracted from a trial balance (all amounts in £): - Sales: \(45{,}000\) - Opening Stock: \(5{,}000\) - Purchases: \(20{,}000\) - Closing Stock: \(6{,}500\) - Carriage Inwards: \(800\) - Carriage Outwards: \(600\) - Salaries: \(7{,}200\) - Rent: \(2{,}400\) Two adjustments have not been recorded: 1. Discount received of \(500\). 2. Depreciation expense of \(1{,}200\). Prepare the income statement and state the net profit for the period.

A. £14,300

B. £15,500

Correct C. £14,800

D. £16,000

Correct Answer: C

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Question 16 View Details

During the month the following transactions were recorded: 1. Purchased inventory on credit for ₦100,000 plus VAT at 5 %. 2. Sold goods for cash ₦200,000; the cost of goods sold was ₦140,000. 3. Paid salaries cash ₦30,000. 4. Received a bank loan of ₦50,000 (interest payable later). The opening cash balance was ₦40,000. The trial balance shows a cash balance of ₦255,000, which is ₦5,000 less than the cash that should result from the transactions. Assuming the only error is that the VAT on the purchase was mistakenly treated as a cash payment and not recorded, determine the amount of VAT that should have been recorded.

Correct A. 5000

B. 4500

C. 1000

D. 10000

Correct Answer: A

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Question 17 View Details

A piece of equipment was purchased for ₦100,000. The company prepares its financial statements using the historical cost convention. At the reporting date the equipment's fair value is estimated to be ₦150,000. What amount should be shown as the equipment's carrying amount in the balance sheet?

A. 50000

B. 150000

C. 120000

Correct D. 100000

Correct Answer: D

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Question 18 View Details

At the start of the financial year a government department's General Fund carried forward an unspent appropriation of ₦200,000. During the year the department received a capital grant of ₦500,000, of which 60 % must be spent on capital projects; the remaining 40 % may be transferred to the General Fund. The department spent ₦300,000 from the General Fund and ₦250,000 on capital projects. At year‑end, what is the balance in the General Fund and how much of the capital grant must be returned to the granting authority?

Correct A. General Fund balance = 100000; Grant to be returned = 50000

B. General Fund balance = 100000; Grant to be returned = 0

C. General Fund balance = 150000; Grant to be returned = 50000

D. General Fund balance = 0; Grant to be returned = 50000

Correct Answer: A

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Question 19 View Details

A municipal council uses modified accrual accounting. The following information is given for the year: - Revenue earned: ₦1,200,000, of which ₦200,000 is still receivable at year‑end. - Expenditure incurred: ₦800,000, of which ₦150,000 is still payable at year‑end. - Capital asset purchase: ₦500,000 paid in cash. - Depreciation on capital assets (straight‑line, 10‑year life, no residual value). The opening cash balance was ₦300,000 and opening net assets were ₦2,000,000. Prepare the statement of financial position amounts for cash, receivables, payables, and closing net assets.

A. Cash = 150000; Receivables = 150000; Payables = 150000; Closing net assets = 2350000

Correct B. Cash = 150000; Receivables = 200000; Payables = 150000; Closing net assets = 2350000

C. Cash = 150000; Receivables = 200000; Payables = 150000; Closing net assets = 2300000

D. Cash = 200000; Receivables = 200000; Payables = 150000; Closing net assets = 2350000

Correct Answer: B

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Question 20 View Details

A manufacturing company produces a single product. Data for the period are as follows: - Opening stock of raw materials: ₦80,000 - Purchases of raw materials: ₦250,000 - Closing stock of raw materials: ₦70,000 - Direct labour cost: ₦180,000 - Manufacturing overhead applied at 150 % of direct labour cost. - Opening work‑in‑process (WIP): ₦60,000 - Closing WIP: ₦50,000 - Opening finished goods: ₦90,000 - Closing finished goods (as recorded): ₦100,000, but a physical count shows it is overstated by ₦5,000. - Sales revenue: ₦1,200,000 - Selling & distribution expenses: ₦120,000 - Administrative expenses: ₦80,000 Calculate the cost of goods sold, gross profit and net profit for the period after adjusting for the over‑statement of finished‑goods stock.

A. COGS = 765000; Gross profit = 435000; Net profit = 235000

B. COGS = 710000; Gross profit = 490000; Net profit = 290000

Correct C. COGS = 715000; Gross profit = 485000; Net profit = 285000

D. COGS = 625000; Gross profit = 575000; Net profit = 375000

Correct Answer: C

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Question 21 View Details

The Purchases Account had an opening debit balance of \(£5,000\). During the month the following entries were posted: (i) Purchase of inventory \(£12,000\) recorded as a credit, (ii) Return of goods to supplier \(£1,200\) recorded as a debit, (iii) Discount received \(£300\) recorded as a credit. At the end of the month the accountant discovers that entry (i) was posted on the wrong side. After correcting this error, what is the closing balance of the Purchases Account?

A. 16900

B. 19100

C. 15100

Correct D. 17900

Correct Answer: D

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Question 22 View Details

A business records its transactions in three books of original entry: the Sales Journal, the Purchases Journal and the Cash Book. The following transactions occurred in January:\n\n1. 5 Jan - Bought office furniture for \(£2,500\) cash.\n2. 9 Jan - Purchased raw materials on credit for \(£8,400\).\n3. 12 Jan - Sold goods for \(£6,200\) cash.\n4. 15 Jan - Purchased machinery on credit for \(£15,000\).\n5. 20 Jan - Paid electricity bill cash \(£900\).\n6. 22 Jan - Sold goods on credit for \(£4,500\).\n7. 27 Jan - Purchased office supplies for \(£1,200\) cash.\n8. 30 Jan - Purchased inventory on credit for \(£3,600\).\n\nWhat is the total amount recorded in the Purchases Journal for the month?

A. 26000

Correct B. 27000

C. 24000

D. 30700

Correct Answer: B

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Question 23 View Details

A trial balance shows total debits of \(£85,000\) and total credits of \(£84,500\). To balance the trial balance, a Suspense Account was opened. Later the accountant discovers that a sales return of \(£500\) was omitted from the Sales Returns and Allowances account (a credit entry). The missing entry is posted to the correct account and the same amount is removed from the Suspense Account. What is the balance of the Suspense Account after this correction?

Correct A. 0

B. -500

C. 500

D. 100

Correct Answer: A

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Question 24 View Details

A machine was purchased for \(£48,000\). It was originally depreciated using the straight‑line method over 8 years with zero residual value. After three years the company decides to change to the reducing‑balance method at a rate of 25 % per annum and also revises the residual value to \(£4,000\) with a remaining useful life of 5 years. What is the depreciation expense for the fourth year (the first year under the reducing‑balance method)?

A. 8000

B. 6000

C. 5000

Correct D. 7500

Correct Answer: D

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Question 25 View Details

At month‑end the cash book shows a balance of \(£4,310\). The bank statement balance is \(£5,000\). The following items need to be considered:\n\n- Outstanding checks amount to \(£800\).\n- Deposits in transit total \(£200\).\n- The bank charged a service fee of \(£30\) that has not been recorded in the cash book.\n- A receipt from a customer for \(£300\) was mistakenly entered in the cash book as \(£150\).\n\nAfter adjusting for all of the above, what is the adjusted cash book balance?

A. 4130

B. 4280

C. 4460

Correct D. 4430

Correct Answer: D

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