Financial Accounting · November 2025

(a) i) Types of accounting packages commonly used by organisations

• Spreadsheet packages (e.g. Microsoft Excel): Used for simple accounting tasks such as preparing budgets, financial models and basic statements.

• Specialised accounting packages (e.g. payroll software): Focus on a single function like payroll, inventory or tax management.

• Integrated accounting packages (e.g. ERP systems like SAP, Oracle): provide an all-in-one solution linking accounting with other business functions.

• Small business or general accounting packages (e.g. QuickBooks, Sage, Tally): Designed for SMEs to record transactions, manage ledgers and prepare reports.

• Cloud-based accounting packages (e.g. Xero, Zoho Books, Fresh Books): Hosted online, enabling users to access accounts anywhere, collaborate in real time and benefit from automatic updates and data backups.

• Industry-specific accounting packages (e.g. Medisoft for healthcare, Builder Trend for construction, FAMS for non-current asset management): Tailored to meet the unique needs of particular industries, providing specialised features beyond general accounting. 16

ii) Uses of the accounting packages

• Spreadsheet packages: Used for preparing budgets, simple financial analysis, ratio calculation and generating customised accounting schedules.

• Specialised accounting packages: Handle a specific function such as payroll processing, tax computation, or inventory tracking, making them efficient for targeted tasks.

• Integrated accounting packages (ERP systems): Provide an all-in-one solution by linking finance with operations (e.g. sales, inventory, HR), ensuring real-time information sharing and comprehensive controls.

• Small business or general accounting packages: Help SMEs record daily transactions, maintain ledgers, track receivables or payables and generate financial statements easily.

• Cloud-based accounting packages: Allow remote access to financial data from anywhere, support collaboration among users, enable real-time updates and offer automatic backups and software upgrades.

• Industry-specific accounting packages: Provide features tailored to unique industry needs (e.g. medical billing for healthcare, project costing for construction or non-current tracking for asset-heavy industries). b) i. Forms of accounting records ii. Functions of accounting records General ledger Provides a central summary of all transactions; ensures accuracy and completeness and serves as the basis for preparing financial statements. Subsidiary ledgers Give detailed control over individual accounts (e.g., customer or supplier balances), enabling reconciliation with the general ledger. Journals Record transactions in chronological order, ensuring classification and traceability before posting to ledgers. Source document records Provide original evidence of transactions (e.g., invoices, receipts), ensuring audit trail and accountability. Trial balance Summarises all ledger balances, helping to check arithmetical accuracy of postings and serving as a tool for detecting errors. Cash book Provides continuous record of cash and bank transactions, enabling monitoring of liquidity and prevention of cash misappropriation. Payroll records Ensure accurate calculation of wages, statutory deductions, and remittances, thereby 17 strengthening compliance and internal control. Inventory records Facilitate inventory control, valuation, and prevention of shortages or pilferage by tracking movement and balances of goods.

c) i. Definition of accounting Accounting is the process of recording, classifying, summarising, analysing and interpreting financial transactions and communicating the results to interested users for decision-making.

ii. The main objectives of accounting in business and economic decision-making

• Provide information for decision-making: Accounting generates financial statements and reports that help internal and external users, such as management, investors and creditors, make informed economic decisions;

• Ascertain profitability: One of the key objectives is to determine whether a business is making a profit or incurring a loss over a given period, which helps assess performance;

• Determine the financial position of a business: Through the preparation of a statement of financial position, accounting reveals the assets, liabilities and equity of an entity, showing its financial strength and solvency;

• Ensure stewardship and accountability: Accounting holds management accountable for the resources entrusted to them by owners and other stakeholders by providing transparent and accurate records;

• Helps management to plan for future resource allocation: Such as cash, labour and equipment;

• Maintain accurate records: To safeguard assets and deter fraud;

• Meets legal and statutory requirements: By maintaining accurate records for tax purposes and other regulatory filings; and

• Provides the financial data necessary for markets: To efficiently allocate capital to productive companies.

Examiner’s report This question tests candidates’ understanding of accounting packages, records and their role in decision-making. It covers practical applications and objectives of accounting systems. Many candidates attempted the question and their performance was below average. 18 Candidates’ pitfalls include the following:

• Focusing too narrowly on components of financial statements as examples of accounting records, instead of broader transaction-level records such as original documents, journals, ledgers and other supporting documents; and

• Inability to identify types and explain uses of accounting packages. Candidates are advised to broaden their scope on accounting records and accounting packages, such as original documents (invoices, receipts), journals, ledgers, and bank statements and highlights how these records and packages enhance financial control. Candidates should also pay attention to common accounting processes for diverse records.

Marking guide Marks Marks (a) Accounting packages

i. Explaining three (3) types of accounting packages 3 ii. Explaining three (3) uses of accounting packages 3 6

(b) Accounting records

i. Explaining three (3) forms of accounting records 3 ii. Explaining three (3) functions of accounting records 3 6

(c) Definition and objectives of accounting:

• Defining accounting 2

• Explaining three (3) objectives of accounting 6 8 Total 20

a) Classification of items as capital or revenue expenditure Item Capital (N) Revenue (N) Purchase of van 12,000,000 Vehicle registration and licensing 150,000 Replacement of tyres 200,000 Installation of GPS 300,000 Routine servicing 100,000 Insurance premium 250,000 Repainting to company colours 180,000 Fuel purchase 120,000 Extension of the van body 400,000 Total 13,030,000 670,000 19 b.

i) Problems that may arise when an organisation does not maintain a proper a proper asset register:

• Asset values (and their depreciation) are often misstated, leading to incorrect statement of financial position and statement of profit or loss and other comprehensive income, which can mislead stakeholders and investors;

• Businesses may overpay for insurance premiums or property on assets recorded in the books but no longer physically present or under insure critical equipment due to inaccurate valuations;

• Businesses may fail to make warranty claims, incurring out-of- pocket repairs or replacement costs;

• Unplanned asset breakdowns due to neglected maintenance can disrupt operations, cause production delays and lead to employee frustration and wasted time spent searching for equipment or information;

• Assets that are not tracked and accounted for are more prone to theft or loss, which can go unnoticed for extended periods;

• Detailed and accurate asset information is a key requirement for most financial audits and regulatory compliance checks. Discrepancies can lead to failed audits, significant fines, legal issues and reputational damage;

• Improperly disposed IT assets can become entry points for cyber threats or lead to data breaches if sensitive information is not properly wiped off, resulting in potential legal liabilities and loss of customer trust; and

• Without a clear record of who is responsible for a particular asset, it will be difficult to assign accountability for damage, loss or maintenance issues relating to any asset.

ii) When an asset register is maintained, then the above problems would be solved in the following ways:

• Asset values (and their depreciation) will be properly stated, thereby avoiding incorrect statement of financial position and income statement;

• Businesses will avoid overpayment for insurance premiums or property taxes on assets recorded in the books but no longer physically present and will not underinsure critical equipment due to inaccurate valuations; 20

• Proper records of purchase dates and maintenance history are available, thereby assisting such businesses to make warranty claims, when situation for such arises;

• Availability of accurate, real- time data needed for informed decisions regarding asset repair, replacement or disposal;

• An asset register helps in tracking assets, thereby eliminating or significantly reducing theft or loss, which can go unnoticed for extended periods, if there is no proper asset register in place; and

• It provides detailed ownership and purchase records for audit verification. C2 (i) Characteristics of partnership

• Agreement: Ade and Bisi formed the partnership by agreement.

• Profit-sharing: They agreed to share profits equally.

• Mutual agency: Ade could bind the firm in a contract without consulting Bisi

• Interests on partners’ capital and current accounts: Interests are not allowed on the partners’ capital and current accounts.

• Partners’ salary: Ade and Bisi are not entitled to remuneration for running the affairs of the firm.

• Partners’ loan: Any advance or loan made by any of the partners in excess of his agreed share of capital will attract interest at 5% per annum.

(ii) The contract Ade signed with a supplier, must have been signed in his capacity as a partner in Ade and Bisi partnership and as a result, such contract is binding on the both partners. In relation to the principles of partnership, the debt of the business, where the assets of the business cannot cover such debts, then the two partners will have to bear the repayments, as partners have unlimited liability. In relation to the debt of the business, creditors can claim from both partners’ assets if the business assets are insufficient.

Examiner’s report This question tests candidates’ knowledge of accounting concepts on capital and revenue expenditure, asset registers and partnership principles, focusing on practical implications and legal aspects of business operations. It assesses application of partnership principles to real life scenarios. Most of the candidates attempted the question and their performance was above average. Candidates’ pitfalls include the following:

• Inability to properly classify capital and revenue expenditure;

• Stating fewer than 3 problems of not maintaining an asset register; and

• Not linking features directly to Ade’s contract action. 21 Candidates are advised to understand fundamental accounting principles related to transactions and events. They should also practice how these principles affect recording of transactions and how to link theory to scenarios.

Marking guide Marks Marks (a) Classification of items as either capital or revenue expenditure

• Correct classification of the ten (10) items 5

• Correct total under each classification 1 6

(b) Asset register

i. Explaining three (3) problems of not maintaining proper asset register by an entity. 3 ii. Explaining three (3) problems solved by an entity maintaining proper asset register 3 6

(c) Partnership

i. Correctly identifying and explaining the characteristics of a partnership in the given scenario 3 ii. Correct application of the characteristics to the settlement of partner’s debt 5 8 Total 20

a)

i) Journal entries to correct the errors Debit (N) Credit (N)

• Retained earnings 50,000 Accumulated depreciation 50,000 Depreciation of N50,000 omitted

• Accrued rent or cash paid 120,000 Retained earnings 120,000 Rent expenses of N120,000 recorded twice, one now revised

• Trade receivables 200,000 Retained earnings 200,000 Credit sales of N200,000 omitted

• Prepaid insurance 40,000 Retained earnings 40,000 Prepaid insurance of N40,000 not adjusted 22

• Purchases 150,000 Repairs and maintenance 150,000 Purchases of N150,000 posted to repairs

• Inventory 100,000 Retained earnings 100,000 Closing inventory understated by N100,000

• Stationery expenses 80,000 Salaries expenses 80,000 Stationery expenses of N80,000 treated as salaries reclassified

• Retained earnings 60,000 Payables 60,000 Electricity bill of N60,000 not recorded

• Retained earnings 70,000 Loan payable 70,000 Loan interest of N70,000 treated as loan repayment

• Retained earnings 30,000 Trade receivables 30,000 Sales return of N30,000 omitted

ii) Statement of adjusted retained earnings ₦ ₦ Profit b/f 2,000,000 Rent expenses 120,000 credit sales 200,000 prepaid insurance 40,000 understatement of closing inventory 100,000 460,000 Deduct Depreciation 50,000 Loan interest 70,000 Electricity bill 60,000 Sales return 30,000 (210,000) 2,250,000

b) i) Importance of maintaining proper source documents While accurate ledger entries are important, source documents are fundamental to sound financial management and internal control. They serve as the primary evidence of business transactions and provide the basis for verifying the authenticity, accuracy and legitimacy of accounting records. 23

ii) Relevant source documents

• Invoices (sales and purchase invoices)

• Receipts (cash receipts, bank receipts)

• Bank statements

• Payment vouchers

• Delivery notes

• Contracts and agreements

• Credit notes and debit notes

• Petty cash vouchers

• Travel expense reports

iii) The risk of operating without source documents

• The following are the risks of operating without source documents

• The entity cannot verify transactions, making commission of errors or fraud easy. Duplicate billings and fictitious transactions, may go undetected.

• The entity may fail to meet regulatory requirements, leading to fines and penalties.

• Auditors may qualify the entity’s financial statements or issue a disclaimer of opinion, which may damage its reputation.

• The entity may struggle to support tax filings, leading to disputes with tax authorities.

• Without reliable financial data, management may make poor decisions, which may impact the business performance.

• The entity’s financial statements will be unreliable, hence, stakeholders may lose trust in them.

Examiner’s report Part (a) of the question tests candidates’ understanding of retrospective correction of prior period errors, using journal entries and impact on retained earnings while (b) part tests knowledge of the importance, uses and examples of source documents, as well as the risks associated with operating without them, thereby showcasing understanding of internal control and accounting principles. Majority of candidates answered the question, but performance was below average. Common pitfalls include:

• Incorrect journal entries: debiting and crediting wrong accounts

• Failing to recognise that retained earnings, not suspense account, is affected by prior period errors

• Stating consequences rather than importance of source documents

• Providing vague and unspecific uses and risks of operating without source documents Candidates are advised to ensure understanding of journal entries and correction of prior period errors; focus on importance, uses and examples of source documents; be specific when explaining risks of operating without source documents; and practice past questions of these nature to improve application and understanding. 24

Marking guide Marks Marks (a) Correction of errors

i. Preparing journal entries to correct the errors 5 ii. Preparing statement of adjusted earnings 5 10

(b) Source documents

i. Explaining the importance of source documents 2 ii. Stating four (4) examples of source documents 4 iii. Explaining the four (4) risks of operating without source documents 4 10 Total 20

a. (i) The purposes of asset coding, include the following:

• To assign a unique identifier to each asset, creating a digital record of its status, location and history.

• To enable easy monitoring and accountability for all assets.

• To prevent theft by making it easier to identify company property and track down stolen items.

• To provide tamper-evident features that will ensure unauthorised removal.

• To streamline operational processes and reduce errors by providing quick access to asset data.

• To support accurate recording, reporting and auditing of asset- related transactions.

(ii) The features of a good asset coding system, include:

• Permanence: The coding system should be enduring and not subject to frequent changes. This ensures continuity and avoids confusion in long-term asset tracking.

• Flexibility and scalability: The coding structure must be flexible enough to accommodate the addition of new assets and categories without requiring a complete overhaul of the existing system. This allows for future expansion.

• Significance (Descriptive): Each digit or group of characters within the code should mean something, providing key information about the asset at a glance, such as its type, location or department.

• Simplicity: The system should be simple and easy for all employees to understand and use. Overly complex codes can lead to errors and reduce efficiency.

• Consistency: A structured and uniform approach to naming and coding must be enforced across all assets. This is to preventmisinterpretation and to ensure clarity. 25

• Uniqueness: Each asset must have a unique identifier to prevent duplication in the asset register and ensure precise tracking and physical verification.

• Integration: A good coding system integrates well with other systems like accounting, procurement and maintenance software to ensure data consistency and improved data flow.

• Auditability: The coding system, when implemented as part of a comprehensive asset register, should support clear audit trails and assist in meeting compliance requirements for financial reporting and tax purposes.

(b) Coding structure: XX – YY – ZZZZ

• XX = Department (01 = Admin, 02 = Production, 03 = Sales)

• YY = Asset Type (10 = Motor vehicles, 20 = Office equipment, 30 = Plant & machinery)

• ZZZZ = Serial Number

i) A delivery van for sales department (first in the series). 03–10–0001

ii) Photocopier machine for administration (third in the series). 01–20–0003

iii) Lathe machine for production department (second in the series). 02–30–0002

iv) Office chairs for administration (fourth in the series). 01–20–0004

v) Truck for production department (first in the series). 02–10–0001

vi) Laptop computers for sales department (second in the series). 03–20–0002

(c) Mr. Uwaifor Three-column cash book Date Details Disc Cash Bank Date Details Disc Cash Bank N N N N N N 1/6/2025 Bal b/f - 50,000 120,000 5/6/2025 Creditor's (Wk) 1,500 - 28,500 10/6/2025 Debtor (Wk2) 800 - 39,200 15/6/2025 Cash - - 10,000 15/6/2025 Bank - 10,000 - 20/6/2025 Office rent - 15,000 - 25/6/2025 Cash - - 20,000 25/6/2025 Bank - 20,000 - 28/6/2025 Bank charges - - 1,200 30/6/2025 Bal c/d - 25,000 139,500 800 60,000 179,200 1,500 60,000 179,200 1/7/2025 Bal b/d 25,000 139,500 26

Examiner’s report The question tests candidates’ understanding of asset coding systems; purpose, features and application and their ability to prepare a three-column cash book, focusing on practical accounting skills. Majority of the candidates attempted the question and their performance was average. Candidates’ pitfalls include:

• Mixing up the purpose and features of asset coding with those of an asset register, confusing identification goals with the detailed tracking function of a register;

• Struggling with establishing clear coding systems, such as using sequential numbers per category;

• Posting errors of contra entries, with cash and bank columns sometimes reversed for transfers; and

• Discounts allowed were not always correctly reduced from cash received and discounts received were not properly adjusted in payments. Candidates are advised to distinguish between basic concepts, for example by clearly separating coding for identification and asset register for detailed tracking; They should also practice coding using a consistent structure and sequence numbers logically; and Master contra entries, handle discounts carefully, review formats and practice examples for clarity.

Marking guide Marks Marks (a) Assets coding

i. Explaining three (3) purposes of assets coding 3 ii. Explaining three (3) features of assets coding 3 iii. Application of codes to the six (6) given scenarios 6 12

(b) Preparation of three column cash book

• Correct entries for balance b/f on June 1, 2025 1

• Correct entries for contra transactions 2

• Correct entries for discount allowed and received 1

• Correct entry for cheque received from customers ½

• Correct entry for cash paid ½

• Correct entry for cheque paid to suppliers ½

• Correct entry for bank charges ½

• Correct entries for balance c/f 1

• Correct entries for balance b/f on July 1, 2025 1 8 Total 20 27

a) i) AB & CO Profit or loss appropriation account for the year ended December 31, 2024 N N N Net profit for the year 1,500,000 Interest on capital (Wk1): Aide 300,000 Bisi 200,000 500,000 Partners' salary-Bisi 250,000 (750,000) Balance of profit 750,000 Distributed as follows: Aide N750,000 x 3/5 450,000 Bisi N750,000 x 2/5 300,000 750,000

ii) AB &CO’s Current accounts as at December 31, 2024 A B A B N N N N Balance b/f - 100,000 Bal b/f 200,000 - Drawings 400,000 300,000 Interest on capital 300,000 200,000 Bal c/d 550,000 350,000 Partners' salary - 250,000 Balance of profit 450,000 300,000 950,000 750,000 950,000 750,000 Bal b/d 550,000 350,000 Working notes Wk1: Calculation of partners' interest on capital A B N N Partners' capital account balances 3,000,000 2,000,000 Interest on capital at 10% 300,000 200,000 28 b (i) Ogba Enterprises Journal entries for the month of July, 2024 DR CR N N Bad debt account 8,000 Trade receivables control account 8,000 Being amount owing by a receivable, who was declared bankrupt, now written-off as irrecoverable Trade receivables control account 5,000 Bad debt recovered account 5,000 Being recovery of a receivables’ account that had earlier been written off as bad debt, now recovered Cash book 5,000 Trade receivables control account 5,000 Being amount received from a receivables’, whose account had earlier been written off as bad debt, now recovered

ii. Trade receivables control account N N Balance b/f 250,000 Bad debt written off 8,000 Bad debt recovered 5,000 Cash book 5,000 Balance c/f 242,000 255,000 255,000 Bal b/d 242,000 Bad debt account N N Trade receivables 8,000 Profit or loss 8,000 Bad debt recovered account N N Profit or loss 5,000 Trade receivables control 5,000

Examiner’s report This question tests candidates’ understanding of appropriating profits in a partnership, maintaining partners' current accounts and accounting treatments for receivables, bad debts and recoveries, focusing on accurate journal entries. Most candidates attempted the question and their performance was above average. Candidates’ common pitfalls include the following:

• Appropriation errors: Missing interest calculations or incorrect profit sharing;

• Journal mistakes: Using wrong accounts for bad debts; and

• Recovery steps: Forgetting two steps in recovery, that is, reinstate and then record cash. 29 Candidates are advised to follow a structured approach in a few key areas. For example, when dealing with appropriation of profits, stick to the sequence; first address interest on capital, then salaries and finally distribute the remaining profits among partners. For journal entries, use precise accounts: post receivables, write- offs irrecoverable debts as bad debts expense and for recoveries, reinstate the debtor first, then record the cash receipt. It’s also helpful to practice examples with clear narratives, and double-check the fundamentals of debit and credit rules to avoid simple mistakes.

Marking guide Marks Marks (a) Partnership accounts

i. Preparation of statement of profit or loss appropriation account 4 ii. Preparation of partners current account 6 10

(b) Trade receivables

i. Journal entries for bad debt written off, bad debt recovered and cash received for bad debt recovered, including narrations 4 ii. Ledger accounts

• Trade receivables control account 4

• Bad debt account 1

• Bad debt recovered account 1 6 Total 20

a) i. Definition of accounting information Accounting information refers to financial data that has been processed and presented in a meaningful way to assist users in decision-making, planning, control and performance evaluation.

ii. Difference between internal and external users:

• Internal users are individuals within the organisation who use accounting information to make operational and strategic decisions for the day-to-day running of the business.

• External users are individuals or organisations outside the business who rely on accounting information to assess the company’s financial health, performance and compliance.

iii. Examples of internal users

• Management.

• Employees.

• Internal auditors.

• Departmental heads and head of units 30

iv. Examples of external users

• Investors

• Loan creditors or banks.

• Government (tax authorities)

• Regulatory agencies

• Suppliers.

(b) XYZ Manufacturing Limited Stakeholders and their specific information needs:

i. A bank considering granting a loan: needs information on liquidity and solvency (e.g., ability to repay loans, gearing ratio). ii. The company’s employees: need information on profitability and stability to assess job security and wage prospects. iii. Potential investors: need information on profitability and return on investment before committing funds. iv. The government (tax authorities): need information on taxable income to assess and collect correct taxes.

(c) i. Purpose of allowance for doubtful debts The purpose of an allowance for doubtful debts is to estimate and account for uncollectible account receivables, providing a more accurate and realistic picture of a company's financial health by matching bad debt expense with revenue in the same year or period. It is a contra-asset account that reduces the total accounts receivable on the statement of financial position, ensuring assets are not over stated and financial statements comply with accounting principles like the matching and prudence concepts.

ii. Balance on allowance account

• Trade receivables = N500,000.

• Required allowance = 5% × N500,000 = N25,000.

• Existing allowance (credit) = N12,000.

• Additional provision required = N25,000 − N12,000 = N13,000. Answer: Allowance for doubtful debts (closing balance) = N25,000.

iii. Journal entry To increase the allowance by N13,000:

• Dr Bad debts expense (profit or loss) N13,000.

• Cr Allowance for doubtful debts N13,000.

Examiner’s report The question tests candidates' understanding of how accounting information serves internal users and external users differently and assess knowledge of the allowance for doubtful receivables, its purpose and how to calculate the necessary adjustments. 31 Candidates’ common pitfalls are as follows:

• Inability to clearly distinguish between internal and external users of financial information; and

• Calculation errors in determining bad debt allowances; instead of reflecting the necessary adjustment, some candidates used the absolute allowance figure. Candidates should clearly differentiate between the internal users, such as managers and employees who need data for decision-making; and external users like investors, banks and government agencies who rely on it for investment, lending and regulation. However, for bad debt allowances, candidates should know how to calculate the necessary adjustment as the difference between balance brought forward and the allowances for the current year. Candidates are also advised to practice past questions for better performance in future examinations of the Institute.

Marking guide Marks Marks (a) Accounting information and users of financial statements

• Defining accounting information 2

• Differentiating between internal and external users of accounting information 2

• Stating four examples of internal users 2

• Stating four examples of external users 2 8

(b) Explaining the specific information need for each of the given four stakeholders 4

(c) Allowance for doubtful debts

i. Explaining the purpose of allowance for doubtful debts 2 ii. Calculating allowance for doubtful debts 3 iii. Preparing journal of allowance for doubtful debts 3 8 Total 20 32 ICAN/251/F/A2 Examination No.................. THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA