NATIONAL OPEN UNIVERSITY OF NIGERIA

Plot 91, Cadastral Zone, Nnamdi Azikiwe Express Way, Jabi-Abuja

Faculty of Management Sciences, Department of Financial Studies
2020_1 Examination

COURSE CODE: ACC311 CREDIT UNIT: 3

COURSE TITLE: Financial Accounting
TIME ALLOWED: 2 1/2 HOURS

Instructions:

1. Attempt question number one (1) and any other three (3).

2. Question number 1 is compulsory and carries 25 marks while the others carry 15 marks
each.

3. Present all your points in coherent and orderly manner

Question One
Three brothers; Wa, Zo and Bia are in partnership, trading under the name and style WaZoBia.
The partnership agreement provides for:
% N'000
i. Annual commission payable to:
- Wa 4,000
- Bia 8,000
ii. Annual salary payable to:
- Wa 5,000
- Zo 8,000
iii. Interest on partners' fixed capital 5
iv. Interest on partners' drawings 5
v. Equal share of profit or loss (1:1:1)
The extract of the partnership balances for the period under review are as follows:

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 Wazobia
Trial Balance for the year ended October 31, 2019
Debit Credit
N'000 N'000

Partners' capital as at November 01, 2018:

- Wa 60,000
- Zo 60,000
- Bia 50,000
Partners' drawing
- Wa 5,000
- Zo 4,000
- Bia 2,000
Gross profit for the year 116,000
Trade receivables and payables 55,000 27,560
Irrecoverable debt 1,000
Utility 8,600
Postage and communication 3,200
Allowances for bad debt at November 01, 2018 6,000
Property, plant and machinery 270,400
Staff cost 18,360
Distribution cost 5,000
Other Income 4,000
Finance cost 1,000
5% Loan notes 50,000
Inventory at October 31, 2019 6,000
Accumulated depreciation on freehold properties 16,720
Accumulated amortisation of leasehold property 2,000
Rent and rates 3,360
Cash and cash equivalent 9,360
392,280 392,280

The following information is also relevant for the preparation of the financial statements:
i Allowances for doubtful debts should be adjusted to 10% of trade receivables;
ii Accrued expenses for the period were:
- Utility N400,000; and
- Postage and communication N200,000
iii Prepaid expenses were:
- Rent and rates N600,000; and
- Staff cost N300,000

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iv Property, plant and equipment (PPE) includes a leasehold property of N20,000,000 which is
amortised over 10 years. Depreciation charge for the year on freehold PPE has been estimated to
be N5,000,000; and
v Finance cost in the trial balance includes interest paid on 5% loan notes amounting to
N500,000.

You are required to prepare for the partnership firm:

a. Partners’ capital Account
b. Appropriation Account
c. Statement of profit or loss for the year ended October 31, 2019.
(25 marks)

Question Two
Graystone is the proprietor of a shop selling shoes, other footwear, perfumes and cosmetics. For
the purpose of accounting and control the business is divided into two departments as follows:
Department A: Shoes and other footwear;
Department B: Perfumes and cosmetics
For the year ended 31st March, 2018, the following balances were extracted from his books of
accounts:
Dr Cr
N N
Sales:
Department A 30,000
Department B 20,000
st
Inventory (1 April, 2017):
Department A 500
Department B 400
Purchases:
Department A 23,600
Department B 16,400
Salaries:
Department A 2,000
Department B 1,500
Wages for shoe packers 600
Rates 420
Insurance of building 200
Lighting and heating 480
Repairs to premises 100

(i) Inventory at 31st March, 2018 were valued at:

Department A, N600; Department B; N300
(ii) All common expenses incurred by Departments A and B should be apportioned in the
prepared ratio of 4:1 respectively.

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You are required to prepare Graystone’s Trading and Profit or Loss Accounts for the year ended
31st March, 2018, apportioning the overhead expenses, where necessary, to show the profit and
loss of each department. (10 marks)

B. State FIVE advantages of departmental account. (5 marks)

(Total 15 marks)

Question Three
a. Define the concept company according to the Company and Allied Matters Act (2004 as
amended). (3 marks)
b. Explain the following:
i. Legal personality
ii. Limited Liability
iii. Perpetual existence (3 marks)
c. State THREE differences between a private company and a public company (4 marks)
d. Distinguish between a memorandum of association and an article of association.(5marks)
(Total 15 marks)

Question Four
On 1 July 2018 the directors of ABC Limited decided to increase the issue share capital of the
Company by offering for subscription 500,000 ordinary shares of N2 each at a price of N4 per
share.
Per share
On application including premium N2.50
On allotment N0.70
On first allotment on 1 October 2018 N0.40
On second and final call on 1 April 2019 N0.40
The application lists were closed on 15 July 2018, by which date applications for 1,250,000
shares had been received. The directors decided to allot the shares to the applicants for the first
600,000 shares pro rata to their original application, the balance of the money received on
application being applied to the amounts due on allotment. The shares were allotted on 22 July
2018, and the cash paid by unsuccessful applicants was returned to them on the same date. The
balance of the allotment money was received by 31 July 2018 and the ‘call’ monies were
received on the due dates. Show the following accounts - Bank, application and allotment, share
capital, share premium, 1st call and second call- of the above transactions.
(15 marks)

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Question Five
Bendos Trading Company Limited
Trading and profit or loss account for the year ended 31 December 2018
2018 2017
N'000 N'000 N'000 N'000
Revenue 1,840 1,444
Less cost of sales
Opening inventory 116 90
Purchases 1,388 1,061
Warehouse expenses 64 48
1,568 1,199
Closing inventory 157 116
1,411 1,083
Gross profit 429 361
Less expenses:
Salaries and expenses of selling 78 72
Salaries and wages 56 50
Rent and rates 25 24
Bad and doubtful debts 6 8
Depreciation 44 32
Interest on mortgage loans 8 10
Power and lighting 17 15
General expenses 72 61
Director’s fees 34 24
Audit fees 7 7
347 303
Net profit 82 58
Appropriation
Provisions for taxation 18 12
Transfer to general reserves 10 8
Dividend payable 30 20
Retained in the profit or loss account 24 18
82 58

Bendos Trading Company Limited

Statement of Financial Position as at 31 December 2018

2018 2017
N'000 N'000 N'000 N'000
Non-current assets:
Land and buildings 83 60
Plant and machinery 240 160
Motor vehicles 40 40
Total non-current assets 363 260

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 Current assets
Inventory (Work in progress) 67 46
Inventory (finished goods) 90 70
Trade receivables (less doubtful debts) 110 20
Bank cash 20 30
287 226
Total assets 650 486

Equity and liabilities

Equity funds:
Issued/paid up capital 300 200
Capital reserves 23 --
General reserves 60 50
Profit and loss 42 18
425 268
10 per cent mortgage loan 80 100
505 368
Current liabilities
Trade payables 45 60
Bank overdraft 52 26
Dividend payable 30 30
Taxation 18 12
Total current liabilities 145 118
Total equity and liabilities 650 486

Required: From the above financial statements of Bendos prepare the following accounting
ratios for 2017 and 2018.
i. Net profit margin (2 marks)
ii. Current ratio (2 marks)
iii. Quick assets ratio (2 marks)
iv. Debt ratio (2 marks)
v. Total assets turnover (2 marks)
vi. Sales to debtors (2 marks)
vii. Earnings per share (3 marks)
(15 marks)

Question Six
The following information relate to the affairs of Success Plc for the period ended 31st
December:
Statement of financial position as at 31 December:
20x9 20x8
N’000 N’000
Non-Current assets 321,000 340,000
Long-Term Investment 50,000 30,000
371,000 370,000
Current Assets:

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 Inventories 200,000 90,000
Trade Receivables 82,000 60,000
Cash and bank balances 62,000 50,000
344,000 200,000
TOTAL ASSETS 715,000 570,000

Equity and Liabilities

EQUITY
Issued share capital 200,000 160,000
Share Premium 56,000 40,000
Retained Earnings 273,000 243,000
529,000 443,000
Non-Current Liability
Long-Term Loan 40,000 22,000
Current Liabilities
Trade payables 62,000 30,000
Bank overdraft 28,000 15,000
Income tax payable 24,000 20,000
Other payables 32,000 40,000
146,000 105,000
Total Liabilities 186,000 127,000
Total equity and liabilities 715,000 570,000
Statement of Profit or Loss for the year ended 31st December 20x9
N’000
Revenue 488,000
Cost of sales (285,000)
Gross profit 203,000
Distribution costs (44,000)
Administrative expenses (81,000)
Interest and dividends received 3,000
Finance cost (1,000)
Profit before tax 80,000
Income tax expense (24,000)
Profit for the period 56,000

Additional Information:
1. Depreciation charge for the year was N8million on land and building and N22 million on
plant and machinery.
2. During the year a plant with a carrying amount of N35million was sold for N42million.
3. During the year, an investment that had cost N8million some years earlier was sold for
N13million.
4. Dividend paid in the year amounted N26million.

Required: Prepare statement of cash flows of Success Plc for the period ended 31st December
20x9 using the Indirect Method. (15 marks)