neco 2021 financial_accounting | Essay
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Question 1
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XYZ Ltd purchased a machine for ₦500,000 on 1 January 2023. The machine has an estimated useful life of 5 years and a residual value of ₦50,000. The company uses straight‑line depreciation. During the year the following events occurred:
- On 15 March the company paid ₦120,000 for insurance covering the period 1 March to 28 February of the next year.
- On 30 June the company received ₦200,000 in advance for a service contract that will be performed over the next 8 months.
- On 31 December the company discovered that a piece of equipment costing ₦80,000 was mistakenly recorded as a revenue expense.
Answer the questions below.
Question Parts
(a)
Identify the accounting concepts that are relevant to each of the three events above and explain how they should be applied.
(b)
Compute (i) the depreciation expense for the year and (ii) the insurance expense to be recognised in the accounts for the year ended 31 December 2023.
(c)
Prepare the adjusting journal entries for (i) the insurance, (ii) the advance revenue, and (iii) the equipment mis‑recording.
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Question 2
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ABC Traders commenced business on 1 January 2023 with cash of ₦150,000 and capital of ₦150,000. During January the following transactions were recorded:
1. Purchased inventory on credit for ₦70,000.
2. Sold goods costing ₦45,000 for cash ₦80,000.
3. Paid rent cash ₦10,000.
4. Received ₦30,000 from a customer on account.
5. Paid ₦5,000 for advertising on credit.
6. At 31 January a physical count showed inventory on hand of ₦20,000, but the ledger shows ₦25,000.
Answer the questions below.
Question Parts
(a)
Record the journal entries for transactions 1 to 5.
(b)
Post the entries to T‑accounts for Cash, Inventory, Accounts Payable, Sales Revenue, Cost of Goods Sold, Rent Expense, Advertising Expense, and Capital.
(c)
Prepare a trial balance as at 31 January 2023.
(d)
Explain the effect of the inventory discrepancy (physical count ₦20,000 vs ledger ₦25,000) on the trial balance and suggest the adjusting entry required.
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Question 3
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A small trading business, XYZ Traders, operates on a cash basis and maintains the following books of original entry: a General Journal, a Purchases Journal, a Sales Journal and a Cash Receipts Journal. During the month of March, the following transactions were recorded in the General Journal:
1. 01/03 – Purchased goods on credit from Supplier A for ₦150,000.
2. 05/03 – Paid cash ₦45,000 to Supplier A for the above purchase.
3. 12/03 – Sold goods on credit to Customer B for ₦200,000.
4. 15/03 – Received cash ₦80,000 from Customer B as part of the above sale.
5. 20/03 – Purchased goods on credit from Supplier C for ₦120,000.
6. 25/03 – Paid cash ₦60,000 to Supplier C.
7. 28/03 – Paid rent cash ₦30,000.
Using the information above, answer the following questions:
Question Parts
(a)
Record the appropriate journal entries for each of the seven transactions in the correct books of original entry (General Journal, Purchases Journal, Sales Journal, Cash Receipts Journal).
(b)
From the journal entries prepared in part (a), extract the Purchases Journal and compute the total purchases for the month of March.
(c)
Explain why a Purchases Journal is classified as a special journal and state two advantages of using it.
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Question 4
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ABC Enterprises maintains the following opening balances on 1st April 2023 (all amounts in ₦):
Cash – Debit ₦50,000
Capital – Credit ₦120,000
Drawings – Debit ₦5,000
Sales – Credit ₦0 (closed at year‑end)
Purchases – Debit ₦0 (closed at year‑end)
Rent Expense – Debit ₦0
During April the following transactions occurred and were recorded in the General Journal:
1. 03/04 – Purchased goods on credit from Supplier D for ₦80,000.
2. 05/04 – Sold goods for cash ₦95,000.
3. 10/04 – Paid cash ₦20,000 for rent.
4. 12/04 – Received cash ₦30,000 from a customer for a previous credit sale.
5. 18/04 – Purchased goods on credit from Supplier E for ₦45,000.
6. 22/04 – Paid cash ₦50,000 to Supplier D.
7. 28/04 – Paid cash ₦25,000 to Supplier E.
After posting the above transactions, the accountant discovers that the purchase from Supplier D (₦80,000) was mistakenly recorded twice in the Purchases account.
Answer the following:
Question Parts
(a)
Post all the transactions to the appropriate ledger accounts (Cash, Purchases, Sales, Rent Expense, Supplier D, Supplier E, Capital, Drawings). Show the balance of each ledger after posting.
(b)
State the corrected closing balance of the Purchases account after eliminating the duplicate entry.
(c)
Explain the effect of the correcting entry on the trial balance and on the profit or loss for the month.
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Question 5
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The ledger balances of Alpha Traders at 31 December 2023 are given below. All amounts are in Naira.
Cash Dr 150,000
Accounts Receivable Dr 80,000
Inventory Dr 120,000
Equipment Dr 200,000
Cost of Goods Sold Dr 180,000
Salaries Expense Dr 70,000
Rent Expense Dr 30,000
Drawings Dr 20,000
Accumulated Depreciation Cr 50,000
Accounts Payable Cr 90,000
Loans Payable Cr 150,000
Capital Cr 250,000
Sales Revenue Cr 300,000
Prepare a trial balance and answer the following questions.
Question Parts
(a)
List the trial balance showing total debits and total credits.
(b)
State the amount of discrepancy and indicate whether the trial balance is balanced.
(c)
Suggest one plausible posting error that could have caused the discrepancy and propose the necessary adjusting entry to correct it.
(d)
After posting the adjusting entry, prepare the corrected trial balance totals.
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Question 6
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Beta Enterprises uses a three‑column cash book (Cash, Bank and Discount) for the month of March 2023. All figures are in Naira.
Opening balances: Cash 30,000 Bank 50,000
Transactions recorded in the cash book:
Cash receipts:
1. Cash sales.........................45,000
2. Cash received from customers (deposited in bank)...........20,000
3. Discount received......................500
Cash payments:
4. Cash purchases.........................25,000
5. Rent paid in cash......................8,000
6. Bank payment for utilities..............5,000
7. Bank payment for loan principal........10,000
8. Discount allowed.........................300
9. Cheque received from a customer for 5,000 that later bounced (i.e., was returned unpaid).
The bank statement for March shows a closing balance of 55,000. The statement also records an outstanding deposit of 3,000 (deposits made but not yet reflected) and an unpresented cheque of 2,000 (cheques issued but not yet cleared).
Prepare the cash book and answer the following questions.
Question Parts
(a)
Complete the cash book showing the closing balances of the Cash and Bank columns.
(b)
Prepare a bank reconciliation statement showing the adjusted cash book balance and the bank statement balance.
(c)
Explain why discount received and discount allowed are recorded in separate columns and discuss their effect on the profit of the enterprise.
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Question 7
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The following information relates to the cash transactions of XYZ Ltd for the month ended 31 March 2021.
Cash book (bank side) balance at 31 March 2021: ₦ 1,250,000
Bank statement balance at 31 March 2021: ₦ 1,180,000
Outstanding items (not yet cleared by the bank):
- Cheque No. 1025 dated 28 March for ₦ 45,000 (still outstanding)
- Cheque No. 1030 dated 30 March for ₦ 32,500 (still outstanding)
- Deposit made on 30 March for ₦ 78,000 not yet reflected in the statement
Bank side adjustments:
- Bank service charges of ₦ 2,500 (deducted by the bank)
- Interest earned on the balance of ₦ 1,500 (credited by the bank)
- The bank incorrectly credited ₦ 8,000 to XYZ Ltd’s account for a customer’s payment that belongs to a different account.
Company side errors:
- A cheque of ₦ 12,000 issued on 25 March was recorded in the cash book as ₦ 21,000.
- A direct debit of ₦ 5,500 for electricity was not recorded in the cash book.
- A receipt of ₦ 9,000 from a customer was entered on the cash book on the wrong side (debit instead of credit).
Using the above information, answer the questions that follow.
Question Parts
(a)
Prepare a bank reconciliation statement for XYZ Ltd as at 31 March 2021.
(b)
Identify two errors made by the bank and two errors made by XYZ Ltd that affect the reconciliation, and explain briefly how each error would be corrected in the cash book.
(c)
After adjusting the cash book for all identified errors, compute the corrected cash book balance.
(d)
Briefly discuss how the bank reconciliation process enhances the reliability of the financial statements of XYZ Ltd.
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Question 8
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ABC Enterprises maintains a sales ledger (receivables) and a purchases ledger (payables). The following extracts are provided for the month ended 30 June 2021.
**Sales Ledger Control Account (as shown in the trial balance)**\nOpening balance (debit).....................₦ 540,000\nCredit sales recorded in the period...........₦ 820,000\nSales returns (debit).........................₦ 30,000\nDiscounts allowed (debit)....................₦ 12,000\nCash receipts recorded in the cash book........₦ 730,000\nClosing balance (debit)......................₦ 588,000\n\n**Individual customer balances (excerpt)**\n- Alpha Ltd: ₦ 150,000\n- Beta Co.: ₦ 120,000\n- Gamma Traders: ₦ 95,000\n- Delta Services: ₦ 78,000\n- Epsilon Ltd.: ₦ 145,000\nTotal of the above customers = ₦ 588,000\n\n**Additional information**\n1. A sale of ₦ 25,000 to Beta Co. was posted twice in the sales ledger.\n2. A cash receipt of ₦ 18,000 from Alpha Ltd. was mistakenly credited to Gamma Traders.\n3. Discount of ₦ 4,000 allowed to Delta Services was omitted from the control account but recorded in the subsidiary ledger.\n4. A credit note of ₦ 6,000 issued to Epsilon Ltd. for returned goods was recorded in the control account but not reflected in the subsidiary ledger.\n5. The trial balance shows the control account closing balance as ₦ 588,000 (debit).\
Using the information above, answer the following questions.
Question Parts
(a)
Prepare the Sales Ledger Control Account for the month ended 30 June 2021, showing all necessary columns and the correct closing balance after adjusting for the items listed in the additional information.
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