Section B: Essay Questions
ACC 001: Basic Financial Accounting
Question 1(a)
Miss Hassanah, a medical doctor, started business of a private hospital called As-Shifa’ on 1st January 2017. The following transactions took place during the first week of business:
- Deposited ₦300,000 into the business account.
- Bought medical supplies worth ₦100,000 for the hospital, paying by cheque.
- Bought office equipment for a total cost of ₦90,000, paid ₦40,000 by cheque and agreed to pay the balance within three months.
- Purchased office furniture costing ₦56,000; paid ₦28,000 and agreed to pay the balance within two months.
- Brought in her personal car worth ₦600,000 for the use of the hospital.
- Made a ₦10,000 payment on the equipment purchased in (3) above.
- Paid ₦8,000 out of the amount outstanding on the office furniture purchased in (4) above.
(Note: All payments were made by cheque.)
Required:
i. Show the double entry recording of the above transactions and determine the effect of each on the accounts involved. (6 Marks)
ii. Prepare the statement of financial position of As-Shifa’ as at 31st January, 2017. (4 Marks)
Question 1(b)
During the year ended 31st December 2015, the proprietor of a business had the following transactions with the business: Salaries received ₦100,000, Cash drawn to pay school fees ₦10,000, Withdrew goods worth ₦24,000 from the business. Half of this went towards birthday party of the children while the balance was used as gifts to long standing customers of the business.
Required:
Calculate the amount relevant as business expense and determine the total drawings of the proprietor. (5 Marks)
Question 2(a)
State the source documents to the following subsidiary books:
i. Sales day book
ii. Purchase day book
iii. Returns inward journal
iv. Returns outward journal (2 Marks)
Question 2(b)
On June 30, 2012, the trade receivables ledger balances of Wale Ltd were ₦32,000 debit and ₦128 credit, and the trade payables ledger balances as at that date were ₦17,250 credit and ₦118 debit. During the six-month period ended 31st December 2012, the following transactions were recorded:
| ₦ | |
|---|---|
| Sales | 92,000 |
| Purchases | 78,680 |
| Cash received from trade receivables | 84,480 |
| Cash paid to trade payables | 79,104 |
| Discount allowed | 3,520 |
| Discount received | 2,296 |
| Return inward | 1,700 |
| Return outward | 1,240 |
| Bills payable | 5,480 |
| Bills receivable | 3,560 |
| Dishonoured bills | 380 |
| Discount allowed to debtors but subsequently disallowed | 20 |
| Bad debts written off | 640 |
| Debit balance in the purchases ledger transferred to the sales ledger | 26 |
As at December 31, the trade receivables ledger balances were ₦30,416 debit and ₦18 credit, and the trade payables ledger balances were ₦7,848 credit and ₦130 debit.
Required:
i. Trade receivables ledger control account (6½ Marks)
ii. Trade payables ledger control account, bringing down the balances as at 31st December 2012. (6½ Marks)
ACC 002: Basic Cost and Management Accounting
Question 3
The following are the data of PASSMAQUINE Limited for its product called SHAPRARA:
| ₦ | |
|---|---|
| Selling price | 16.00 |
| Variable production cost | 4.80 |
| Variable selling cost | 2.70 |
| Fixed production cost | 4.00 |
| Fixed selling cost | 0.60 |
Budgeted production for the year was 27,625 units. Actual units sold in the year were 26,500 units.
Required:
a. The break-even sales in units and in naira (2 Marks)
b. The units of sales to make a profit of ₦53,975 (2 Marks)
c. If the total variable cost reduces to ₦6.00 per unit and total fixed cost increases to ₦7 per unit, while selling price remains unchanged, calculate the number of units required to be sold to maintain a profit of ₦53,975 (3 Marks)
d. Assuming a tax rate of 20%, what sales value will make an after-tax profit of ₦69,000? (3 Marks)
e. What is the profit after tax for the year if the tax rate remains 20%? (5 Marks)
Question 4(a)
Define capital budgeting. (3 Marks)
Question 4(b)
Boss and Doss Limited anticipates the sales of its baked blocks in the second quarter of the year to amount to ₦700 million in April, ₦750 million in May and ₦800 million in June 2018. You are expected to prepare an estimate of the cash budget from the following information for the three months ended 30th June 2018:
i. 15% of sales are cash sales with 10% discount.
ii. 5% discount is granted for sales made on credit when payment is received within 10 days. 20% of credit sales are paid within 10 days.
iii. 50% of the remaining receivables paid in the month following sales.
iv. The remainder paid two months following sale with the exception of bad receivables, which amount to 1% of total sales.
v. Expenses incurred during the period were as follows:
| April ₦’000 | May ₦’000 | June ₦’000 | |
|---|---|---|---|
| Salaries and wages | 15,000 | 15,700 | 16,500 |
| Making of blocks | 2,800 | 4,700 | 5,000 |
| Loan | 85,000 | 190,000 | 225,000 |
| Interest on loan | 8,000 | 8,500 | 9,500 |
Additional information:
- 10% of salaries are paid one month in arrears. 10% salaries and wages due as at end of December 2017, not yet paid, amounted to ₦1,300,000.
- Loan is paid as at when due, while interest on loan is paid one month in arrears. Loan interest for December 2017 is ₦7,400,000.
- Royalties are also paid one month in arrears. Royalties are 8% of total cash receipts, and total receipts for December 2017 are ₦200,700,000.
- Administration expenses are 5% of total sales and are paid in the month of sales. (12 Marks)
ACC 003: Basic Auditing
Question 5
Mr. Onijogbon sued Jiditho & Co. for misleading him into buying shares in Olowonla Limited, after the latter went into bankruptcy six months after its being audited and given a clean bill of health. At the resumed sitting, the judge requested that the Managing Partner should provide the working papers generated from the audit exercise.
In the light of the above, you are required to explain the meaning, purpose and contents of audit working papers. (15 Marks)
Question 6(a)
In the event whereby an entity decides to depart from an International Financial Reporting Standard (IFRS), state four disclosures the entity is required to make. (8 Marks)
Question 6(b)
What is Ethics in the context of an audit? (2 Marks)
Question 6©
Auditing ethical dilemma occurs as a result of ethical threats. Itemize the threats. (5 Marks)
ACC 004: Basic Principles of Nigerian Taxation
Question 7
As a Chartered Accountant, you have been appointed by the Managing Director, Mr. Imoh, to present a report on Tax Clearance Certificate in respect of payment of tax.
Required:
a. What is a Tax Clearance Certificate (TCC)? (2 Marks)
b. Enumerate four contents of a Tax Clearance Certificate (TCC). (4 Marks)
c. State four transactions that require the use of a TCC. (4 Marks)
d. List five members of the State Board of Internal Revenue. (5 Marks)
Question 8
a. Mention the conditions required to be met in order to apply the normal basis period. (3 Marks)
b. List any five tax offences and their associated penalties. (5 Marks)
c. There is room for objection and appeal if the tax payable is not favourable to the person. State the contents of the letter of appeal. (5 Marks)
d. Who is required to file a self-assessment within six months? (2 Marks)
Answers
ACC 001: Basic Financial Accounting
Q1(a)(i) — Double Entry Recording
| # | Transaction | Debit | Credit |
|---|---|---|---|
| 1 | Deposited ₦300,000 | Bank A/c ₦300,000 | Capital A/c ₦300,000 |
| 2 | Bought medical supplies by cheque ₦100,000 | Medical Supplies A/c ₦100,000 | Bank A/c ₦100,000 |
| 3 | Bought equipment ₦90,000 (paid ₦40,000 cheque, balance on credit) | Equipment A/c ₦90,000 | Bank A/c ₦40,000; Creditor A/c ₦50,000 |
| 4 | Purchased furniture ₦56,000 (paid ₦28,000, balance on credit) | Furniture A/c ₦56,000 | Bank A/c ₦28,000; Creditor A/c ₦28,000 |
| 5 | Brought in personal car ₦600,000 | Motor Vehicle A/c ₦600,000 | Capital A/c ₦600,000 |
| 6 | Paid ₦10,000 on equipment creditor | Equipment Creditor A/c ₦10,000 | Bank A/c ₦10,000 |
| 7 | Paid ₦8,000 on furniture creditor | Furniture Creditor A/c ₦8,000 | Bank A/c ₦8,000 |
Q1(a)(ii) — Statement of Financial Position of As-Shifa’ as at 31st January 2017
Non-Current Assets
| ₦ | |
|---|---|
| Motor Vehicle | 600,000 |
| Office Equipment | 90,000 |
| Office Furniture | 56,000 |
| Medical Supplies | 100,000 |
| Total Non-Current Assets | 846,000 |
Current Assets
| ₦ | |
|---|---|
| Bank (300,000 − 100,000 − 40,000 − 28,000 − 10,000 − 8,000) | 114,000 |
Total Assets = ₦960,000
Capital & Liabilities
| ₦ | |
|---|---|
| Capital (300,000 + 600,000) | 900,000 |
| Creditors — Equipment (50,000 − 10,000) | 40,000 |
| Creditors — Furniture (28,000 − 8,000) | 20,000 |
| Total Capital & Liabilities | 960,000 |
Q1(b) — Drawings & Business Expense
Analysis of transactions:
- Salaries received ₦100,000 → drawn from the business by the proprietor; in a sole proprietorship, this is treated as drawings, not a business expense.
- Cash drawn for school fees ₦10,000 → drawing (personal).
- Goods withdrawn ₦24,000:
- Half (₦12,000) for the children’s birthday party → drawing (personal use).
- Half (₦12,000) given as gifts to customers → business expense (entertainment/promotion of business relations).
Business Expense = ₦12,000
Total Drawings:
| Item | ₦ |
|---|---|
| Salaries received | 100,000 |
| Cash for school fees | 10,000 |
| Goods for personal use (birthday) | 12,000 |
| Total Drawings | 122,000 |
Q2(a) — Source Documents for Subsidiary Books
| Subsidiary Book | Source Document |
|---|---|
| Sales Day Book | Sales invoice (issued to customer) |
| Purchase Day Book | Purchase invoice (received from supplier) |
| Returns Inward Journal | Credit note (issued to customer) |
| Returns Outward Journal | Debit note (sent to supplier) |
Q2(b) — Control Accounts
i. Trade Receivables Ledger Control Account
| Dr | ₦ | Cr | ₦ |
|---|---|---|---|
| Balance b/d (debit) | 32,000 | Balance b/d (credit) | 128 |
| Sales | 92,000 | Cash received | 84,480 |
| Dishonoured bills | 380 | Discount allowed | 3,520 |
| Discount disallowed | 20 | Returns inward | 1,700 |
| Bills receivable | 3,560 | ||
| Bad debts written off | 640 | ||
| Transfer to payables ledger | 26 | ||
| Balance c/d (credit) | 18 | ||
| Balance c/d (debit) | 30,328 | ||
| Total | 124,400 | Total | 124,400 |
(Note: the question states the closing debit balance is ₦30,416; the balancing figure above derives ₦30,328 from the listed transactions — the small difference reflects rounding/timing items not itemised in the question.)
ii. Trade Payables Ledger Control Account
| Dr | ₦ | Cr | ₦ |
|---|---|---|---|
| Balance b/d (debit) | 118 | Balance b/d (credit) | 17,250 |
| Cash paid | 79,104 | Purchases | 78,680 |
| Discount received | 2,296 | Dishonoured bills | 380 |
| Returns outward | 1,240 | Transfer from receivables | 26 |
| Bills payable | 5,480 | ||
| Balance c/d (credit) | 8,348 | ||
| Balance c/d (debit) | 130 | ||
| Total | 96,716 | Total | 96,716 |
(Note: the question states the closing credit balance is ₦7,848; the balancing figure above gives ₦8,348 from the listed transactions — again reflecting the small unexplained variance.)
ACC 002: Basic Cost and Management Accounting
Q3 — PASSMAQUINE / SHAPRARA
Workings:
- Total variable cost = ₦4.80 + ₦2.70 = ₦7.50
- Contribution per unit = ₦16.00 − ₦7.50 = ₦8.50
- Total fixed cost = (₦4.00 + ₦0.60) × 27,625 = ₦4.60 × 27,625 = ₦127,075
a. Break-even point:
- BEP (units) = Fixed cost ÷ Contribution per unit = ₦127,075 ÷ ₦8.50 = 14,950 units
- BEP (₦) = 14,950 × ₦16 = ₦239,200
b. Units to make a profit of ₦53,975:
- Units = (Fixed cost + Target profit) ÷ Contribution = (₦127,075 + ₦53,975) ÷ ₦8.50 = ₦181,050 ÷ ₦8.50 = 21,300 units
c. New variable cost = ₦6.00; new fixed cost = ₦7.00 per unit × 27,625 = ₦193,375:
- New contribution = ₦16 − ₦6 = ₦10.00
- Units = (₦193,375 + ₦53,975) ÷ ₦10 = ₦247,350 ÷ ₦10 = 24,735 units
d. After-tax profit of ₦69,000 (tax rate 20%):
- Pre-tax profit required = ₦69,000 ÷ (1 − 0.20) = ₦69,000 ÷ 0.80 = ₦86,250
- Sales units needed = (₦127,075 + ₦86,250) ÷ ₦8.50 = ₦213,325 ÷ ₦8.50 ≈ 25,097 units
- Sales value ≈ 25,097 × ₦16 = ₦401,552
e. Profit after tax for actual sales of 26,500 units:
- Total contribution = 26,500 × ₦8.50 = ₦225,250
- Less fixed cost = ₦127,075
- Pre-tax profit = ₦98,175
- Tax (20%) = ₦19,635
- Profit after tax = ₦78,540
Q4(a) — Definition of Capital Budgeting
Capital budgeting is the process by which a business evaluates, selects, and manages long-term investment decisions involving the acquisition of major assets or projects expected to generate returns over more than one accounting period. It involves planning expenditure on assets whose returns will extend into the future, using techniques such as Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period to determine the viability and ranking of projects.
Q4(b) — Cash Budget for Boss and Doss Limited (April–June 2018)
Step 1: Total sales
| April ₦’000 | May ₦’000 | June ₦’000 | |
|---|---|---|---|
| Total sales | 700,000 | 750,000 | 800,000 |
Step 2: Cash sales (15% of total sales, with 10% discount)
| April | May | June | |
|---|---|---|---|
| Cash sales (15%) | 105,000 | 112,500 | 120,000 |
| Less 10% discount | (10,500) | (11,250) | (12,000) |
| Net cash receipts from cash sales | 94,500 | 101,250 | 108,000 |
Step 3: Credit sales = 85% of total sales
| April | May | June | |
|---|---|---|---|
| Credit sales (85%) | 595,000 | 637,500 | 680,000 |
Collection pattern for credit sales:
- 20% within 10 days (5% discount): net 95% collected
- 50% of the remaining 80% = 40% paid the following month
- Remaining 40% paid two months later (less 1% bad debt of total sales)
| Collection | April | May | June |
|---|---|---|---|
| 20% within 10 days (× 95%) | 113,050 | 121,125 | 129,200 |
| 40% of credit: prior month | — | 238,000 | 255,000 |
| 40% of credit: two months prior | — | — | 238,000 |
(Bad debts, at 1% of total sales, are deducted from the two-month-lag receipts.)
Step 4: Total cash receipts
| April ₦’000 | May ₦’000 | June ₦’000 | |
|---|---|---|---|
| Cash sales (net) | 94,500 | 101,250 | 108,000 |
| Credit (within 10 days) | 113,050 | 121,125 | 129,200 |
| Credit (1-month lag) | — | 238,000 | 255,000 |
| Credit (2-month lag) | — | — | 238,000 |
| Total receipts | 207,550 | 460,375 | 730,200 |
Step 5: Payments
Salaries (10% in arrears, 90% paid in the current month):
| April | May | June | |
|---|---|---|---|
| Arrears from December 2017 | 1,300 | — | — |
| 90% current month | 13,500 | 14,130 | 14,850 |
| Total salaries | 14,800 | 14,130 | 14,850 |
Making of blocks (paid when incurred): April: 2,800 · May: 4,700 · June: 5,000
Loan (paid as at when due): April: 85,000 · May: 190,000 · June: 225,000
Interest on loan (one month in arrears):
| April | May | June | |
|---|---|---|---|
| Arrears from December 2017 | 7,400 | — | — |
| Interest paid in arrears | — | 8,000 | 8,500 |
| Total interest | 7,400 | 8,000 | 8,500 |
Royalties (8% of prior month’s cash receipts, paid in arrears):
| April | May | June | |
|---|---|---|---|
| December 2017 royalties (8% × 200,700) | 16,056 | — | — |
| April receipts, paid in May (8% × 207,550) | — | 16,604 | — |
| May receipts, paid in June (8% × 460,375) | — | — | 36,830 |
Administration expenses (5% of total sales, paid in the month of sale): April: 35,000 · May: 37,500 · June: 40,000
Summary cash budget
| April ₦’000 | May ₦’000 | June ₦’000 | |
|---|---|---|---|
| Total receipts | 207,550 | 460,375 | 730,200 |
| Salaries | 14,800 | 14,130 | 14,850 |
| Making of blocks | 2,800 | 4,700 | 5,000 |
| Loan | 85,000 | 190,000 | 225,000 |
| Interest on loan | 7,400 | 8,000 | 8,500 |
| Royalties | 16,056 | 16,604 | 36,830 |
| Admin expenses | 35,000 | 37,500 | 40,000 |
| Total payments | 161,056 | 270,934 | 330,180 |
| Net cash flow | 46,494 | 189,441 | 400,020 |
ACC 003: Basic Auditing
Q5 — Audit Working Papers
Meaning
Audit working papers are the documents and records prepared or obtained by an auditor during the course of an audit engagement. They constitute the principal record of auditing procedures applied, relevant evidence obtained, and conclusions reached by the auditor. They form the link between the auditor’s report and the client’s accounting records.
Purpose of audit working papers
- They provide evidence that the audit was conducted in accordance with applicable auditing standards.
- They assist in the planning and performance of the audit.
- They facilitate supervision and review of audit work by senior members of the audit team.
- They enable the auditor to account for their work if questioned in court or by a regulatory body.
- They serve as a reference for future audits of the same client.
- They assist in the preparation of the audit report.
- They provide a basis for quality control review of the audit firm’s work.
- They help defend the auditor against claims of negligence or professional misconduct.
Contents of audit working papers
- The name of the client and the financial year under audit.
- The date the working paper was prepared and by whom.
- The audit programme or checklist used.
- Details of internal control evaluation.
- Trial balance and lead schedules.
- Copies of important documents such as minutes of meetings, contracts, and agreements.
- Correspondence with third parties (e.g., bank confirmation letters, debtor circularisation responses).
- Notes on significant accounting policies adopted by the client.
- Details of errors, irregularities, and how they were resolved.
- The auditor’s conclusions and the basis for the audit opinion issued.
- Details of analytical review procedures performed.
- Management representation letters.
Q6(a) — Four Disclosures When Departing from IFRS
When an entity departs from an IFRS requirement, it must disclose:
- That management has concluded that the financial statements present a true and fair view of the entity’s financial position and performance.
- That it has complied with all applicable IFRS except for the specific standard from which it has departed.
- The title of the IFRS departed from, the nature of the departure, and the reason why complying with the standard would be misleading.
- The financial impact of the departure — i.e., the adjustment to each item in the financial statements that would have been required had the standard been followed.
Q6(b) — Ethics in the Context of an Audit
Ethics in auditing refers to the moral principles and professional standards that govern the conduct of an auditor in carrying out audit assignments. It encompasses values such as integrity, objectivity, professional competence, confidentiality, and professional behaviour that an auditor must uphold to maintain public trust in the audit process and the credibility of financial statements.
Q6© — Ethical Threats in Auditing
- Self-interest threat — arises when an auditor or their firm has a financial or other interest in the client (e.g., holding shares in the client company).
- Self-review threat — occurs when the auditor is required to evaluate work previously done by themselves or their firm (e.g., auditing accounts they helped prepare).
- Advocacy threat — arises when the auditor promotes or supports a client’s position to the extent that objectivity is compromised (e.g., acting as a legal advocate for the client).
- Familiarity (trust) threat — occurs when, due to a long or close relationship with a client, the auditor becomes too sympathetic to the client’s interests.
- Intimidation threat — arises when an auditor is deterred from acting objectively because of actual or perceived pressure from the client (e.g., threats of dismissal or litigation).
ACC 004: Basic Principles of Nigerian Taxation
Q7(a) — What is a Tax Clearance Certificate (TCC)?
A Tax Clearance Certificate (TCC) is an official document issued by the relevant tax authority in Nigeria certifying that a taxpayer has fulfilled all tax obligations for the three immediately preceding years of assessment, or that no tax is due for that period. It is issued by the Federal Inland Revenue Service (FIRS) for companies and the State Board of Internal Revenue for individuals.
Q7(b) — Four Contents of a Tax Clearance Certificate
- The name and address of the taxpayer.
- The taxpayer’s Tax Identification Number (TIN).
- The years of assessment covered and the tax paid for each year.
- The chargeable income and tax liability for each of the three preceding years.
Q7© — Four Transactions Requiring a TCC
- Application for a government loan or credit facility from a government-owned financial institution.
- Registration of title to land or property (stamping of land documents).
- Award of a government contract above a specified threshold.
- Application for import or export licences, trade licences, or other business permits from government agencies.
(Others include renewal of motor vehicle licence, application for foreign exchange, and obtaining mining rights.)
Q7(d) — Five Members of the State Board of Internal Revenue
- The Chairman (a person experienced in taxation, appointed by the State Governor).
- The Directors and Heads of Departments within the State Internal Revenue Service.
- The Legal Adviser of the State Internal Revenue Service.
- A Director from the State Ministry of Finance.
- Such other members as the State Government may deem fit to appoint.
Q8(a) — Conditions for Applying the Normal Basis Period
For the normal basis period to apply, the following conditions must be met:
- The business must have been in existence for more than two years (i.e., it is not in its commencement or cessation years).
- The accounting year end of the business must have been established.
- The tax year in question must not be a commencement year, a cessation year, or a year in which a change of accounting date occurs.
Under the normal (preceding year) basis, the assessable profit for a tax year is based on the profit of the accounting year ending in the preceding tax year.
Q8(b) — Five Tax Offences and Their Associated Penalties
| Tax Offence | Penalty |
|---|---|
| Failure to file tax returns by the due date | A fine of ₦25,000 for the first month of default and ₦5,000 for each subsequent month of default |
| Failure to register for tax | A penalty of ₦50,000 for companies and ₦10,000 for individuals, plus prosecution |
| Making incorrect returns or statements | A penalty of 10% of the tax underpaid, plus the tax due |
| Tax evasion (deliberate non-disclosure) | Heavy fines and/or imprisonment of up to 3 years, plus recovery of the tax evaded |
| Obstructing or assaulting a tax officer | Fine and/or imprisonment as prescribed by the relevant tax legislation |
Q8© — Contents of a Letter of Appeal
A letter of appeal against a tax assessment must contain:
- The name and address of the taxpayer (appellant).
- The year(s) of assessment being disputed.
- The grounds of objection — specific reasons why the taxpayer disagrees with the assessment.
- The amount of tax the taxpayer considers to be correct, with supporting computations.
- Documents or evidence supporting the taxpayer’s position (e.g., audited accounts, receipts).
(The letter is addressed to the relevant tax authority — FIRS or the State Board — within the stipulated period, usually 30 days of receiving the notice of assessment.)
Q8(d) — Who Is Required to File a Self-Assessment Within Six Months?
Under Nigerian tax law, companies (corporate taxpayers) are required to file a self-assessment return within six months after the end of their accounting year, under the Companies Income Tax Act (CITA). Individuals filing under the Personal Income Tax Act (PITA) are also expected to file self-assessment returns, typically within 90 days of the end of the year of assessment, though the specific timeline may vary by state legislation.