ICAN Financial Accounting 2021 November Past Paper

Time Allowed: 3 hours 15 minutes (including 15 minutes reading time)

SECTION A: MULTIPLE-CHOICE QUESTIONS (20 MARKS)

INSTRUCTION: YOU ARE REQUIRED TO ANSWER ALL QUESTIONS IN THIS SECTION

Write ONLY the alphabet (A, B, C, D or E) that corresponds to the correct option in each of the following questions/statements:

Which of the following will result in an increase in cash of the business?
1. Drawings from the business
2. Payments for a new assets
3. Proceeds from disposal of non-current assets
4. Payments to a suppliers
5. Goods sold on credit to customers
Which of the following is a correct accounting principle?
1. Revenue should be supported by equity
2. There should be a balance in the account payable in order to measure total assets
3. Where total liabilities is zero, the assets are equal to equity
4. Total liabilities and equity are equal
5. Total assets can be less than liabilities and equity
A cheque of N5,000,000 paid to Alhaji Daleko was correctly entered in the cash book but omitted in Alhaji Daleko‟s account. To correct this error, debit Alhaji Daleko‟s account and credit.
1. Cash account
2. Bank account
3. Suspense account
4. Purchases account
5. Control account
Success Motors bought three Toyota Jeep on cash at the cost of N16,000,000. On debiting the vehicle account, the corresponding credit for the purchase will appear in the
1. Sales day book
2. Purchase day book
3. Payable account
4. Cashbook
5. Purchases account
An item credited in the bank statement but yet to be recorded in the firm‟s cash book is
1. Standing order
2. Direct credit
3. Direct debit
4. Uncredited lodgements
5. Unpresented cheques
The control account is used in facilitating
1. The location of errors in the various accounts
2. To update bank transactions
3. The payment of debts and liabilities of the firm
4. Location of petty cash book error
5. Balancing the trial balance
Subscription in arrears is treated in the statement of financial position of a not-for-profit organisation as
1. Current asset
2. Current liability
3. Non-current assets
4. Intangible asset
5. Tangible asset
Accounting concepts are generally accepted principles used in the preparation and presentation of financial statements. Which of the following is NOT an accounting concept?
1. Going concern
2. Impairment
3. Matching
4. Periodicity
5. Prudence
According to IAS 2-Inventories, which of the following costs should be included in determining the value of inventories of a manufacturing company?
1. Carriage inwards
2. Carriage outwards
3. General administrative overheads
4. Depreciation of land and building
5. Discount allowed
In accordance with IAS 1-Presentation of Financial Statements, which of the following is NOT a component of financial statements
1. Statement of financial position
2. Statement of profit or loss and other comprehensive income
3. Statement of changes in equity
4. Statement of affairs
5. Statement of cashflows
If the total discount allowed in a cash book was N52,000 and the total discount received was N66,700, which of the following is TRUE concerning the two discounts?
1. They should not appear in the trial balance as they were already either received or paid out
2. They must be balanced in the cash book and the difference taken to the receivables
3. They must not appear in the general ledger
4. They must be balanced in the cash book and the difference taken to the trial balance
5. They should not be balanced in the cash book before being taken to the trial balance
A source document for the sales day book is
1. An invoice
2. Cheque stub
3. A customer advice
4. A credit advice
5. A requisition form
In a cash book, the opening balance was N70,600, closing balance was N86,600 and the total cash received during the period was N180,000. What was the amount of cash paid out during the period?
1. N89,000
2. N98,000
3. N146,000
4. N164,000
5. N186,000
The fixed amount of money given to a petty cashier at the beginning of a period is called
1. Float
2. Imprest
3. Petty cash
4. Cash received
5. Cash advance
Which of the following bank reconciliation items should NOT be added or subtracted from the cash book balance to determine the adjusted bank balance?
1. Bank service charges
2. Unpresented cheques
3. Direct transfer
4. Cash book error
5. Value added tax charges
The basic features of the single entry system of accounting are:
1. Books of accounts are not maintained and business relies only on bank statement
2. The journal records are absent and only the main ledger is kept
3. There are incomplete classifications and recording of accounting procedures
4. Only credit sales transactions and credit purchases are recorded
5. Only debit entries are made
A business proprietor failed to maintain proper records, but you managed to ascertain that his opening capital, closing capital and drawings during the year were N225,000, N260,000 and N10,000 respectively. Determine the profit for the period
1. N25,000
2. N45,000
3. N55,000
4. N65,000
5. N75,000
Adjustments are made for prepaid and accrued expenses in order to comply with which fundamental accounting concept?
1. Matching
2. Prudency
3. Aggregation
4. Materiality
5. Consistency
Which of the following is NOT a liability?
1. Accrued wages
2. Trade Payables
3. Prepayments
4. Insurance due but unpaid
5. Rent arrears
Goodwill can be valued in partnership when
1. Partners make profit
2. Large losses are made
3. A partner retires
4. A new branch is opened
5. A partner receives salary

SECTION B: OPEN-ENDED QUESTIONS (80 MARKS)

INSTRUCTION: YOU ARE REQUIRED TO ANSWER ANY FOUR OUT OF THE SIX QUESTIONS IN THIS SECTION

QUESTION 1

On April 6, 2020, Alhaji Mogaji received his bank statement for the month ended March 31, 2020. The bank statement showed a balance of N41,740,000 (overdraft) as at March 31, while the cash book showed a balance of N52,599,000 (Credit) as at that date. On examination of the cash book and the bank statement the following were discovered:

Bank charges of N201,000 had not been recorded in the cash book;
Alhaji Mogaji exceeded his overdraft limit during the month of March. The bank had therefore charged him a default penalty of N250,000. This was not reflected in the cashbook;
A sum of N1,250,000 had been credited to Alhaji Mogaji‟s bank account in error;
A cheque for N1,230,000 had been returned by the bank as dishonoured, in effect, the bank charged Alhaji Mogaji N15,000. This was not reflected in the cash book;
Cash receipts of N3,740,000 were posted as cash payments of N4,730,000 in the cash book;
On March 21, Alhaji Mogaji transferred cash of N650,000 to his personal bank account. This was credited to the business bank account in error by the bank;
Standing orders and direct debits of N1,115,000 had not been posted to the cash book;
Customers had transferred N2,170,000 directly to the bank account and credit alert received but no record had been made in the cash book;
An amount of N5,120,000 lodged to the bank account on March 31, 2020, had not been credited by the bank;
The following cheques, drawn on the bank account, had not been presented to the bank for payment as at March 31, 2020:

Cheque Number	Date Cheque was written	₦
No: 4528	March 11, 2020	840,000
No: 4535	March 28, 2020	1,740,000
No: 4537	March 31, 2020	3,670,000

You are required to:

Prepare the adjusted cash book for the month of March, 2020. (9 Marks)
Prepare a statement on March 31, 2020 reconciling the bank statement balance with the adjusted cash book balance. (7 Marks)
Explain TWO reasons for preparing bank reconciliation statement on a regular basis. (4 Marks)

QUESTION 2

Bala and Ade had been together in partnership for several years in plastic manufacturing, sharing profits and losses in the ratio of 3:2 after charging salaries of N3,000,000 p.a. each.

On September 1, 2020, Ngozi was admitted into the partnership on the following terms:

That she paid N2,800,000 to the partnership as her capital contributions; and
She would be entitled to a salary of N2,700,000 per annum and a 20% share of profits after charging all salaries.

Bala and Ade are to continue their old profit-sharing ratios and Ngozi's 20% share of profits is guaranteed at a minimum of N1,500,000 per annum, by the old partners.

On December 31, 2020 the following balances were extracted from the partnership books of Bala, Ade and Ngozi:

--* insert table here

You are informed that

Allowances for doubtful debts should be maintained at 5% of receivables.
Inventory at December 31, 2020, was valued at N12,000,000.
Depreciation on plant and machinery is 20% per annum, and on motor vehicles is 25% per annum.

You are required to prepare

Statement of profit or loss and appropriation for the year ended December 31, 2020; accounting for Ngozi on a pro rata time basis. (12 Marks)
Partners' current account for the above period. (8 Marks)

(Total 20 Marks)

QUESTION 3

The following balances remained in the books of Chukwu Limited as at December 31, 2020

--* Put a table here

The following additional information is relevant.

Office fittings and equipment are to be depreciated at 15% on cost, and motor vehicles at 20% of cost.
Provisions are to be made for:
1. Directors' fees (N6,000,000)
2. Audit fees (N2,500,000)
The amount for insurance includes a premium of N600,000 paid on September 1, 2020, to cover the company against fire loss for the period September 1, 2020, to August 31, 2021.
A bill for N548,000 in respect of electricity consumed up to December 31, 2020, has not been accounted for.
The Directors have recommended that:
1. N15,000,000 be transferred to general reserves.
2. 5% dividend is paid on ordinary share capital.

You are required to prepare

Trial balance of Chukwu Limited at December 31, 2020. (6 Marks)
Statement of profit or loss for the year ended December 31, 2020. (8 Marks)
Statement of financial position as at December 31, 2020. (6 Marks)

Note: Ignore taxation. (Total 20 Marks)

QUESTION 4

Accounting concepts are the broad principles and general assumptions underlying the preparation of financial statements.

Required:

Explain cash, accrual, and break-up bases of accounting. (6 Marks)
State FOUR limitations associated with the cash basis of accounting. (8 Marks)

Mallam Isa is considering setting up a petty cash book from which to pay small expenses, however, he is not sure of how a petty cash book operates.

Required:

Explain to Mallam Isa the operation of a petty cash book. (6 Marks)

(Total 20 Marks)

QUESTION 5

Explain the term “inventories” as defined by IAS 2-Inventory. (3 Marks)
Explain the costs that should be included when measuring the value of inventories. (8 Marks)
Identify any cost which should be excluded when measuring the value of inventories. (4 Marks)
Ebuka and Sons Enterprises is a manufacturing business entity which imports some of its raw materials from overseas. The business recently took delivery of some materials as detailed below:
1. 2000kg of materials at N625 per kg subject to a trade discount of 5%.
2. Import duties and other non-recoverable taxes paid amounted to N266,000.
3. 3% early payment discount allowance enjoyed by the enterprise amounted to N37,500.
4. Delivery cost on materials imported from custom warehouse to production plant is N125,000.
5. 3,500kg of local materials at N250 per kg subject to a trade discount of N50,000.
6. Carriage inwards on local materials purchased was N205,000.
7. Special toll fare paid to commodity board for local materials purchased was N25,000.

Required:

Calculate the total cost of inventory of raw materials (3 Marks)
It is estimated that these materials can produce 5000 units of the finished product. Calculate the material cost per unit of the finished product. (2 Marks)

(Total 20 Marks)

QUESTION 6

IAS 16 – Property, Plant and Equipment requires an entity to make certain disclosures in the financial statements for each major class of property, plant and equipment.

Required:

State FIVE of the disclosures required under IAS 16. (10 Marks)

Propati Limited has a fleet of motor vehicles that are used to distribute goods to the market. As of July 2020, the cost of the vehicles was N750,000,000, and their accumulated depreciation was N30,500,000. On January 1, 2021, the company bought a new vehicle for N2,800,000. One of the old vehicles, which was acquired 3 years ago at a cost of N1,000,000 with accumulated depreciation of N600,000, was accepted by the seller in part-exchange at a value of N480,000.

Required:

Calculate the gain or loss on the disposal of the old car. (2 Marks)
Prepare the following ledger accounts in respect of the transactions:
1. Motor vehicles account (4 Marks)
2. Accumulated depreciation account (2 Marks)
3. Disposal of asset account (2 Marks)

(Total 20 Marks)