NABTEB Questions And Answers For Financial Accounting all for you. Note that the NABTEB Questions and Answers below are not NABTEB Expo or Real Questions. They are Likely Questions.
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NABTEB Financial Accounting Questions And Answers
Question 1
a. Differentiate between authorized capital and issued capital.
b. List any FIVE items that can be found in the memorandum of association of a public
company.
c. Classify the following items into Personal, Real and Nominal account
i. Plant and machinery
ii. Motor lorries
iii. Rent and rates
iv. Insurances
v. Speed post delivery
vi. Glo calls
vii. Debtors
viii. Creditors
ix. Leased hold premises
x. M. bala and company limited.
Answers:
1a. Authorized capital: is the highest amount of capital stated in the memorandum of
association and approved by the registrar of the company considered as enough to run a
company. It is also known as a registered or nominal capital.
While
Issued capital is part of the authorized capital given out to member of the public for
subscription.
1b. Items in the memorandum of association of public company.
i. Name of the company
ii. Registered office of the company
iii. The objectives of the company
iv. The amount of authorized capital
v. A statement to the effect that the liability of the company is limited
vi. The names of the company promoters, their respective business and the amount of
shares taken by each of them
vii. The life span of the company that is, if the company is formed to last for a limited
time or as an ongoing concern.
viii. Conditions under which the memorandum of association can be amended.
Question 2
a. Explain the following terms in relation to a company
i. Memorandum of association
ii. Articles of association
iii. prospectus
b. Mention six items that are usually found in the Appropriation account of a limited liability
company.
Answer
i. Memorandum of association is a document forming the constitution of a company and
defining its objective and power with regards to its dealing with the outside word. It is a
document containing the rules sand regulation which govern the external relationship of
a company with outsiders.
ii. Articles of Association is a document in which the regulation which govern the internal
management of the company affairs the duties, rights and power of the shareholders are
stated.
iii. Prospectus is a document issued by the public limited companies inviting the public to
subscribe for shares of the company
2b. Items in the appropriation account of a company.
i. Net profit b/d
ii. General reserve
iii. Preferences dividend
iv. Corporation tax
v. Ordinary dividend
vi. Retain profit carried forward
vii. Balance /d (profit for last year)
Question 3a.
State the account to be debited (DR) the ones to be credited (CR) in each of the following
cases.
3b. List Ten items found in the Balance Sheet of a Sole trader.
i. Capital
ii. Net profit
iii. Net loss
iv. Drawing
v. Creditors
vi. Debtors
vii. Cash at hand
viii. Cash at bank
ix. Motor vehicle
x. Stock
xi. Furniture & fittings
xii. Computer/typewriter
Question 4
a. Explain the purpose of the income and expenditure account
b. State FOUR features of capital expenditure
c. Differentiate the term Deficit and Surplus in the account of non-profit-making concern.
Answer:
a. Income and expenditure account is aimed at determining the surplus of income over
expenditure or deficit or expenditure over income of a non-profit making
organisation.
b. Features of capital A/C
i. They are expenditure on fixed assets
ii. Benefits of capital expenditure are not fully derived within the accounting
period. They are long term expenditure
iii. It results in increase figures for fixed assets in the balance sheet.
iv. Capital expenditure is used to earn income for business.
QUESTION I
State FIVE steps of converting incomplete record and single entry accounts to double
entry accounts.
ANSWER
1. Five steps for converting incomplete records and single entry accounts to double
entry system are:
i. Preparation of total debtors accounts so as to get the credit sales figure
(missing).
ii. Preparation of total creditor’s accounts so as to get the credit purchases figure
(missing).
iii. Preparation of total sales figures by adding both credit sales and cash sales
figures together.
iv. Preparation of total purchase figure by adding the credit purchase figure missing
and the cash purchase together.
v. Computation of trading account from the calculation above.
QUESTION 2
(a) Give FOUR steps to be followed if a trial balance failed to balance.
(b) Differentiate between Receipts and Payments Accounts.
ANSWER:
2(a) Steps to be followed if a trial balance failed to balance are:
i. Check whether both the debit and credit entries of all transaction have been
posted.
ii. Check the additions on both sides of the trial balance.
iii. Check the figure posted to each of the account to ensure correct amount being
posted.
iv. Check whether the balances are correctly transferred to the correct side of the
trial balance.
v. If all the steps stated above are being taken are of, then, transfer the difference
to the suspense account.
B. Receipts Accounts: Are those items which a business received on cash basis
rather than on credit basis. They include subscriptions, donations due and cash sales.
They are always recorded on the debit side of receipts and payment accounts, whereas,
payment accounts are those items which a club has paid for and they are always written
on the credit side of the receipt and payment accounts. The difference between them is
the balance which may be debit or credit.
QUESTION 3:
Write briefly on these account terms:
a) Authorized capital.
b) Issued capital.
c) Working capital.
ANSWER
3(a) Authorized Capital:- This is the amount which a public company is allowed to
raise from the public for its business operations. It is also called registered or
nominal capital, it is stated in the memorandum of association of company and
approved by the registrar of companies.
3(b) Issuing Capital: It is that part of the Authorized Capital which a public company
has decided to issue out to the public for subscription.
3(c) Working Capital: It is the amount which a business has set aside for its day-today operations. It is the difference between current assets current liabilities.
QUESTION 4
a) Differentiate between bank statement and bank reconciliation statement.
b) State FIVE clauses contained in the memorandum of association of company.
c) State FIVE features that are supposed to be contained by an invoice.
ANSWER 4
4(a) Bank Statement: It is periodic statement of account which a commercial bank
gives to its customers either monthly or quarterly which has shown the amount
deposited and amount withdrawn including the balance whether credit or debit
balance. Whereas bank reconciliation statement is the brining of the activities of
the bank and that of the office into agreement. It is prepared by the
Cashier/Bursar or Account Clerk at regular interval e.g. yearly or half yearly.
1. Explain briefly the following terms
i. Bank statement
ii. Bank reconciliation statement
iii. Uncredited cheques
iv. Unpresented cheques
v. Dishonoured cheques.
Answers:
i. Bank statement: This is the periodic statement of account which a commercial bank
sends to its customers. It states the various deposits and withdrawals including the
balances in customers’ accounts. It is usually sent to current account holders.
ii. Bank Reconciliation statement: This is the method used by the cashier in an
organisation to make both the operations of the bank and that of the office come into
an agreement. It is usually headed “Bank Reconciliation Statement as at 31st Dec”¦”¦”¦.
“.
iii. Uncredited cheques: These are cheques which have been received by the bank which
have not been entered in the customers accounts. This cause disagreements between
Cash Book Balance and Bank Balance.
iv. Unpresented cheques: these are cheques drawn in favour of some people which have
not been taken to bank for collection by those who have received such cheques. They
cause disagreement between Cash Bank and Bank.
v. Dishonoured cheques:- These are cheques which when they are presented to the bank
for collection, the bank refuse to pay the amount written on such cheques. This may be
due to lack of fund in the account, irregular signature, alteration on the cheque, notice
to stop payment, lack of date on the cheque and differences between the amount in
words and that written in figures
QUESTION 1
(a) Differentiate between preference shares and ordinary shares of a company.
(b) Explain the following terms in relation to issuing of shares.
(I) At par.
(II) At premium.
(III) At discount.
ANSWER
(a) Preference shares: These are units of a company’s capital which have a fixed rate of dividend.
Holders of this class of shares are first when declaring dividends. This classes of shares are of
four types namely; participating preference shares, cumulative preferences shares, redeemable
and unredeemable preference shares. Whereas ordinary shares are otherwise known as
“Equity share”. It does not have a fixed rate of dividends, holders of this class of shares usually
receive dividends after the preference shareholders have been paid fully. There are many types
of ordinary shares namely, deferred ordinary shares, preferred ordinary shares, founder shares
e.t.c. holders of ordinary shares are usually refereed to as “Risk bearers” of the company.
(b) (i) Issuing shares at par: This means that the amount a shareholder pays for a share will
actually appears on the share certificate. Share used at the normal value.
(ii) Issuing share at premium: This means that a shareholder will pay more than what it appear
on the share certificate. This means the face-value of the share is lower than what a
shareholder pays. Selling of shares above the par value.
(iii) issuing share at discount: This means that the amount written on the share certificate is
higher than what the shareholder pay. Selling of shares below the par value .
QUESTION 2
(a) (i) Define cash book.
(ii) State THREE features of a cash book.
(b) Mention THREE documents that are needed by a company before it can be registered.
(c) Explain briefly each of these document
ANSWER
(a) (I) A cash book is an account in which all cash transactions are recorded. It is also a ledger and
does not record credit transactions.
(ii) The feature of a cash book are:
(a) It records only cash or bank transactions.
(b) No credit transactions are recorded
(c) It has debit and credit sides represented as Dr on the left and Cr. on the right hand
side.
(d) All receipts or incomes are recorded on the debit side while all payment are recorded
on the credit side.
(e) The data, particulars, folio and amount columns are stated on both sides of the cash
book.
(f) The difference between the debit and the credit sides is the balance.
(b) (I) The memorandum of association.
(ii) The articles of association.
(iii) The prospectus.
(c) The memorandum of association is the document that manages the external affairs of a
company e.g. the name of the company, the objectives clause etc.
The article of association is a document that takes care of the internal affairs of a company. E.g.
issue and transfer of shares, procedures for calling meeting.
The prospectus: This is an invitation to the general public to subscribe for the shares of the
company. This is done through commercial and merchant banks.
QUESTION 3
(a) List TWO errors that a trial balance will reveal and THREE errors that will not affect the trial
balance.
(b) State FIVE subsidiary books of account.
(c) Differentiate Gross profit from Net profit.
ANSWER
(a) Errors that a trial balance will reveal are
(i) Errors undercast.
(ii) Errors of omission of one entry or aspect of account.
(iii) Reversal of an entry.
(iv) Error of overcast.
(v) Single entry
Three errors that will not affect the trial balance are
(i) Compensating error
(ii) Error of principle.
(iii) Errors in the books of original entry.
(iv) Error of commission.
(v) Complete reversal of entries.
(vi) Error of omission.
(b) The subsidiary books of account are
(i) Sales journal.
(ii) Purchases journal.
(iii) Return inward journals.
(iv) Return outward journals.
(v) The petty cash book.
(vi) The cash book.
(vii) Journal proper.
(c) Gross profit: This is the excess of sales over the cost of goods sold, where as Net profit is the
excess of gross profit over the expenses of a business.
QUESTION 4
(a) List FOUR sources of income to a non-profit making concern.
(b) Explain any two of the sources mentioned above.
(c) Give THREE limitations of Receipt and payment account.
ANSWER:
(a) Sources of Income to a Non-profit making concern are:
(i) Subscriptions.
(ii) Donations.
(iii) Sale of tickets.
(iv) Loan from banks.
(v) Dance proceeds.
(b) Subscriptions: These are the amount that a club asks its members to pay for a specific period of time.
Donations: This refers to the money received from different people by a club.
Sales of Tickets: This is the amount collected as entrance fees from people who attend social engagements
organized by the club.
Sale of Drinks: This refers to the profit that a club realizes from the sales of deinks during a concert party.
Loan: This refers to the amount which a club borrows from banks for a specific purpose.
