neco 2019 financial_accounting | Essay
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Question 1
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A newly established trading company is preparing its first set of financial statements. Discuss the fundamental accounting concepts that must be observed in the preparation of these statements. In your answer:
Question Parts
(a)
List the fundamental accounting concepts that are relevant to financial reporting.
(b)
Explain how each of the concepts listed in (a) influences the preparation of the financial statements.
(c)
Provide a brief example (maximum 80 words) that illustrates the application of any three of the concepts listed in (a).
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Question 2
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The following information relates to Alpha Traders Ltd. for the month ended 30 June. The business uses a perpetual inventory system and the accounting period is one month.
- Opening stock of goods: ₦120,000
- Purchases on credit: ₦250,000
- Purchase returns (goods sent back to suppliers): ₦20,000
- Freight‑in (cost of bringing purchases to store): ₦5,000
- Sales on credit: ₦400,000
- Sales returns (goods returned by customers): ₦15,000
- Freight‑out (delivery of goods to customers): ₦3,000
- Salaries paid: ₦30,000
- Rent paid: ₦12,000
- Depreciation on equipment (straight‑line) for the month: ₦2,500
- Closing stock counted: ₦110,000
No other transactions occurred during the month.
Answer the following:
Question Parts
(a)
Prepare the journal entries for all the transactions listed above, including the adjusting entry for depreciation.
(b)
Prepare a trial balance as at 30 June showing all ledger balances after posting the entries in part (a).
(c)
Calculate the gross profit and net profit for the month and comment on how the valuation of closing stock affects the profit figures.
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Question 3
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ABC Manufacturing Ltd. carried out the following transactions during the month of March:
1. Purchased raw material worth ₦150,000 on credit from XYZ Suppliers.
2. Paid ₦45,000 cash to XYZ Suppliers as part of the outstanding balance.
3. Returned defective raw material costing ₦20,000 to XYZ Suppliers and received a credit note.
4. Received a 2% cash discount on the remaining balance payable to XYZ Suppliers and settled the balance in cash.
5. Sold finished goods for ₦250,000 on credit to customers. The cost of goods sold was ₦160,000.
6. Paid salaries amounting to ₦30,000 in cash.
7. Recorded depreciation of machinery at ₦12,000 for the month.
Using the information above, answer the following:
a) Record the appropriate journal entries for each of the above transactions in the Books of Original Entry.
b) Post the entries to the relevant ledger accounts (Raw Materials, Purchases, Sales, Cost of Goods Sold, Salaries, Depreciation, Cash, and XYZ Suppliers). Show the balances of each ledger account after posting.
c) Prepare a trial balance as at 31 March based on the ledger balances obtained.
Question Parts
(a)
Record the appropriate journal entries for each of the above transactions in the Books of Original Entry.
(b)
Post the entries to the relevant ledger accounts (Raw Materials, Purchases, Sales, Cost of Goods Sold, Salaries, Depreciation, Cash, and XYZ Suppliers). Show the balances of each ledger account after posting.
(c)
Prepare a trial balance as at 31 March based on the ledger balances obtained.
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Question 4
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XYZ Trading Co. prepared the following unadjusted trial balance as at 31 December:
| Account | Debit (₦) | Credit (₦) |
|-----------------------------|-----------|------------|
| Cash | 45,000 | |
| Accounts Receivable | 60,000 | |
| Inventory – Opening | 30,000 | |
| Machinery (cost) | 120,000 | |
| Accumulated Depreciation | | 20,000 |
| Trade Payables | | 50,000 |
| Capital | | 150,000 |
| Sales Revenue | | 200,000 |
| Purchases | 90,000 | |
| Salaries Expense | 25,000 | |
| Rent Expense | 15,000 | |
| Interest Receivable | 5,000 | |
| Interest Payable | | 3,000 |
| Bad Debts Expense | 2,000 | |
| Provision for Bad Debts | | 4,000 |
| | | |
| Total | 387,000 | 387,000 |
During the year the following adjusting entries were required:
1. Inventory on hand at year‑end was counted and found to be ₦28,000.
2. Depreciation on machinery for the year is ₦10,000.
3. One customer’s account was written off as irrecoverable amounting to ₦3,000.
4. Rent prepaid of ₦6,000 was recorded as an expense; the portion relating to the next year is ₦2,000.
5. Interest earned on a bank deposit of ₦5,000 was accrued.
6. Provision for doubtful debts was increased to ₦6,000.
Using the above information, answer the following:
a) Record the adjusting journal entries.
b) Post all entries (including the original trial balance items and the adjusting entries) to the appropriate ledger accounts and show the adjusted balances of Inventory, Accumulated Depreciation, Bad Debts Expense, Provision for Bad Debts, Rent Expense and Interest Receivable.
c) Prepare a Trading Account and a Profit & Loss Account for the year ended 31 December.
Question Parts
(a)
Record the adjusting journal entries.
(b)
Post all entries (including the original trial balance items and the adjusting entries) to the appropriate ledger accounts and show the adjusted balances of Inventory, Accumulated Depreciation, Bad Debts Expense, Provision for Bad Debts, Rent Expense and Interest Receivable.
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Question 5
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The ledger balances of XYZ Ltd. as at 31 December 2022 are given below. Prepare a trial balance and analyse any imbalance.
Ledger balances (all figures in ₦ thousands):
Cash – Dr 150
Accounts Receivable – Dr 85
Inventory – Dr 120
Equipment – Dr 200
Accumulated Depreciation – Equipment – Cr 45
Accounts Payable – Cr 90
Bank Loan – Cr 150
Capital – Cr 250
Sales Revenue – Cr 300
Cost of Goods Sold – Dr 180
Salaries Expense – Dr 70
Rent Expense – Dr 30
Utilities Expense – Dr 15
Interest Expense – Dr 10
Drawings – Dr 40
Question Parts
(a)
Prepare the trial balance showing separate Debit and Credit columns.
(b)
State whether the trial balance balances. If it does not, calculate the amount of the difference.
(c)
Suggest a plausible missing or erroneous entry that would correct the imbalance and show the adjusted total of both columns after the correction.
(d)
Briefly explain the purpose of preparing a trial balance in the accounting cycle.
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Question 6
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The cash book of ABC Enterprises for the month of January 2023 is partially shown below. All figures are in ₦ thousands. The opening cash balance on 1 January was ₦50,000 (debit). The bank statement for the same period shows a closing balance of ₦70,000 and notes the following items not yet recorded in the cash book:
- Bank charges of ₦1,000 (deduction).
- A cheque issued for ₦5,000 that has not been presented.
- A cash deposit of ₦15,000 made on 30 January not reflected in the bank statement.
- Interest income of ₦2,500 recorded in the cash book but not yet credited by the bank.
Cash Book (excerpt):
| Date | Particulars | Ref | Receipts | Payments | Balance |
|------|----------------------|-----|----------|----------|---------|
| 1 Jan| Opening Balance | OB | | | 50,000 |
| 1 Jan| Received from Customer A | R1 | 20,000 | | |
| 5 Jan| Rent Paid | P1 | | 8,000 | |
|10 Jan| Loan Proceeds | R2 | 30,000 | | |
|12 Jan| Salaries Paid | P2 | |15,000 | |
|15 Jan| Utilities Paid | P3 | | 4,000 | |
|20 Jan| Interest Income | R3 | 2,500 | | |
|25 Jan| Purchase of Supplies | P4 | |12,000 | |
|28 Jan| Cash Sales | R4 |25,000 | | |
|31 Jan| Closing Balance | | | | |
Tasks:
(a) Complete the cash book to determine the closing cash balance on 31 January.
(b) Prepare a bank reconciliation statement showing the adjusted cash book balance and the adjusted bank balance, and state the final reconciled balance.
(c) Identify two common reasons why discrepancies may arise between the cash book and the bank statement.
(d) Explain why the cash book is referred to as the "prime book of entry" in the accounting system.
Question Parts
(a)
Complete the cash book to determine the closing cash balance on 31 January.
(b)
Prepare a bank reconciliation statement showing the adjusted cash book balance and the adjusted bank balance, and state the final reconciled balance.
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Question 7
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The cash book of XYZ Ltd shows a cash balance of ₦1,250,000 as at 30 June 2024. The bank statement for the same date shows a balance of ₦1,100,000. The following information is available:
- Outstanding cheques not yet cleared: ₦80,000 (Cheque No. 102) and ₦45,000 (Cheque No. 103).
- Deposits in transit (cash deposited on 28 June but not yet reflected by the bank): ₦60,000.
- Bank service charges shown on the statement: ₦5,000 (not yet recorded in the cash book).
- Interest earned and credited by the bank: ₦3,000 (not yet recorded in the cash book).
- A customer's cheque of ₦25,000 was returned unpaid (dishonoured) by the bank and has not been entered in the cash book.
- The bank mistakenly credited ₦12,000 to XYZ Ltd’s account that actually belongs to another customer; the error was discovered during reconciliation.
Using the above data, answer the following:
a) List all adjustments that must be made to the cash book and to the bank statement in order to reconcile the two balances.
b) Prepare a bank reconciliation statement and compute the adjusted cash book balance.
c) Explain how the bank error (the ₦12,000 mis‑credit) and the dishonoured cheque affect the cash book balance and the bank statement balance.
d) Recommend two internal control measures that could help minimise such discrepancies in future.
Question Parts
(a)
List all adjustments that must be made to the cash book and to the bank statement in order to reconcile the two balances.
(b)
Prepare a bank reconciliation statement and compute the adjusted cash book balance.
(c)
Explain how the bank error (the ₦12,000 mis‑credit) and the dishonoured cheque affect the cash book balance and the bank statement balance.
(d)
Recommend two internal control measures that could help minimise such discrepancies in future.
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Question 8
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The following summary information relates to XYZ Ltd’s trade receivables and trade payables for the year ended 31 December 2024.
**Sales Ledger Control (SLC)**
- Opening balance (debit) – ₦500,000
- Credit sales to customers – ₦2,400,000
- Cash received from customers – ₦1,800,000
- Sales returns recorded in subsidiary ledgers – ₦120,000
- Trade discounts allowed – ₦60,000
- Bad debts written off – ₦30,000
- Closing balance shown in the ledger – ₦890,000
**Purchases Ledger Control (PLC)**
- Opening balance (credit) – ₦300,000
- Credit purchases – ₦1,800,000
- Cash payments to suppliers – ₦1,500,000
- Purchase returns recorded in subsidiary ledgers – ₦90,000
- Trade discounts received – ₦45,000
- Outstanding payments at year‑end (as per PLC) – ₦210,000
Using the above data, answer the following:
a) Prepare the Sales Ledger Control Account showing the correct closing balance.
b) Prepare the Purchases Ledger Control Account showing the correct closing balance.
c) Determine net credit sales, net credit purchases and compute the gross profit for the year.
d) Explain the purpose of control accounts in the accounting system and state two advantages of maintaining them.
Question Parts
(a)
Prepare the Sales Ledger Control Account showing the correct closing balance.
(b)
Prepare the Purchases Ledger Control Account showing the correct closing balance.
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