Quiz 14 of 14

2014 Financial Accounting WAEC Theory Past Questions

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Question 1

a. What is a Cash book?

Answer

Cashbook is the book for recording detailed particulars of all money received and paid.

It is a book of original entry.

It contains records of all cash and cheque transactions.

All cash and cheques received are debited in this book while all cash and cheques paid are credited.

 

b. State seven benefits of keeping accounting records in the business.

Answer

  1. It provides written records essential for the proper conduct of business
  2. Financial records help management to make decisions
  3. It helps management to make references to past transactions
  4. It helps the business to ascertain profit or loss made
  5. It helps to prepare financial accounts and balance sheet
  6. It helps to determine debtors and creditors balance
  7. It helps to check embezzlement and other fraudulent activities
  8. It helps to determine the sales and purchases of a business
  9. It helps users of accounting information to make investment decisions.

 

c. List five source documents used in preparing the cash book

Answer

  1. Pay-in-ships
  2. Receipt
  3. Cheques
  4. Payment vouchers
  5. Bank statement
  6. Cheques counterfoil/stub

Note: Invoice, credit notes, debit notes are also source documents but not used in preparing the cash book.

Question 2

a. Define and list two classifications of each of the following:

i. Assets

Answer:

i. Assets: These are resources or properties owned by business enterprises

Assets can be classified into:

  1. Fixed assets e.g. motor vehicles, premises
  2. Current assets e.g. stock, cash

ii. Liabilities

Answer:

Liabilities: these are the financial obligations of a business enterprise.

Liabilities can be classified into:

  1. Long term liabilities e.g. Debenture, Long loan
  2. Current/Short term liabilities e.g. Loan, Bank Overdraft, Creditor

 

b. State and explain the factors to be considered in determining the annual depreciation charge for a fixed asset.

Answer

  1. Cost
  2. The estimated useful life of the asset
  3. Estimated scrap value/salvage value

Explanation:

  1. Cost: This is the amount paid for the acquisition of the asset.
  2. The estimated useful life of the asset: This is the expected period for which the asset will be put to use
  3. Estimated scrap value: This is the expected value at which an asset could be disposed of after its estimated useful life.

Question 3

Describe three features of each of the following financial statements:

a. receipts and payments account

Answer

Receipts and payment account

 

b.income and expenditure account

Answer

Income and Expenditure account

 

c. trading account

Answer

Trading Account

 

d. profit and loss account

Answer

Profit and Loss account

 

e. appropriation account of a partnership

Answer

Appropriation Account of partnership

Question 4

Classify the following:

i. Purchase of land

ii. Purchase of a motor vehicle

iii. Rent received

iv. Repairs to motor vehicle

v. Fuel cost for running the vehicle

vi. Sale of land previously bought

vii. Interest on a loan to purchase land

viii. Wages of cleaner

ix. Payment for carriage inwards on a machine bought

x. The installation cost of machine.

xii. Cost of repairs to Factory building

xiii. Cost of papers in the accounts department

xiv. Proceeds from disposal of motor vehicle

xiv. The commission received from a transaction

xv. Legal fees paid in buying land

into 

a. Capital expenditure

b. Revenue expenditure

c. Capital receipts

d. Revenue receipts

Answer

a. Capital expenditure:

i. Purchase of land,

ii. Purchase of motor vehicle,

iii. Payment for carriage inwards on a machine,

iv. The installation cost of the machine,

v. Legal fees paid in buying land.

 

b. Revenue expenditure:

i. Repairs to motor vehicle,

ii. Fuel cost for using the vehicle,

iii. Interest on loan to purchase land,

iv. Wages of cleaners,

v. Cost of repairs to Factory building,

vi. Cost of papers used in the accounts department.

 

c. Capital receipts:

i. Sales of land previously bought,

ii. Proceeds from disposal of motor vehicle.

 

d. Revenue receipts:

i. Rent received

ii. Commission received.

Question 5

Alex Co-Limited is a manufacturing company. The following balances were extracted from its book on 30th September 2010.

Additional information:

Goods manufacture during the year is to be transferred to the Trading account at Le 130,000.

You are required to prepare the necessary accounts to show the following

(a) Cost of raw materials used

(b) Prime cost

(c) Cost of production

(d) Gross manufacturing profit

(e) Gross profit on sales

(f) Net profit.

 

Answer

Step I: Preparation of manufacturing, trading and profit or Loss Account for the year ended 30th Sept 2012.

 

 Step II:

  1. Cost of raw materials used WK I = Le54,290
  2. Prime cost WK II = Le96,290
  3. Cost of production WK III = Le111,490
  4. Gross manufacturing profit WK IV = Le18,510
  5. Gross profit on sales WK V = Le60,200
  6. Net profit WK VI = Le41,210

 

Note: Gross manufacturing profit = Market Value – Cost of production

Le130,000 – le111,490 = Le18,510

Question 6

Johnson’s cash book showed an overdrawn balance of N3,000 on 31st December 2012 on his current account. The balance as per the bank statement was an overdrawn balance N800.

Further investigation showed the following:

(i) Cheque drawn amounting to N5,000 had not been presented for payment

(ii) Cheques amounting to N2,500 entered in the cash book as paid into the bank had not yet been cleared by the bank.

(iii) A cheque book costing N400 had been charged in the bank statement but not entered in the cash book.

(iv) A dividend of N400 paid directly to the bank had not been recorded in the cash book.

(v) A cheque for N1200 drawn on his current account had been charged by the bank to his deposit account.

(vi) A cheque for N500 paid into the bank had been dishonoured and shown as such by the bank, but no entry had been made in the cash book.

(vii) The payment side of the cash book had been undercast by N700

(vii) Bank charges of N300 entered in the bank statement had not been entered in the cash book

You are required to prepare:

(a) Adjusted cash book

Answer

 

(b) Bank reconciliation statement

Preparation of Bank Reconciliation Statement

 

 

Explanation:

i. You are having a credit balance in your adjustment cash book instead of a debit balance

ii. Start with balance as per cash book in your Bank reconciliation statement, you have to add uncredited cheque and subtract unpresented cheque because of the credit balance in your adjusted cash book.

iii. Your balance as per bank statement in your bank reconciliation statement is an overdraft and must be equal to the overdrawn balance figure in your question.

Question 7 

The trial balance of Evan as at December 2010, is as follows

 

Additional Information:

i. Unpaid salaries and wages as at 31st December, 2010 is D7,000

ii. The provision for doubtful debts is to be made at 10%

iii. Rents and rates owing at 31st December, 2010 is D4,000

iv. Depreciation on motor van is to be charged at 20% per annum on cost.

v. Insurance paid in advance 31st December, 2010 is D2,800 vi. Stock at 31st December, 2010 is D95,000 vii. 10% dividend is proposed for 2010.

You are required to prepare:

(a) Trading and profit and loss account for the year ended 31st December, 2010

(b) Profit and loss appropriation account for the year ended 31st December, 2010  

Answer:

Step I Workings

i.

Salaries & Wages 59,628
Add Salaries and Wages owing 7,000
Profit and loss Account 66,628

  ii.

Provision for doubtful debts on debtors = 10% of debtors  
  10% x 50,820 5,082
Less provision for doubtful debts 1/1/2010   (2,053)
Profit and loss account   3,029

  iii.

Rents & Rates 7,500
Add: Rent and rate owing 4,000
Profit and loss Account 11,500

  iv.

Depreciation on motor van at 20% 20% X 120,000 24,000
Profit and loss Account 24,000

v.

Insurance 8,000
Less Insurance paid in advance 2,800
Profit and loss Account 5,200

 

vi. Stock at 31st December, 2010 (closing stock)

= D95,000

 

vii. 10% dividend is proposed for 2010

    10% x 100,000 = 10,000

  Proposed dividend = 10,000

 

viii. Interest on debenture

= 12% x 50,000 = 6,000

Profit and loss account = 6,000

 

STEP-II: Preparation of Trading, Profit, and Loss Account.  

Answer

 NOTE: Net profit = Gross profit b/d – Total Expenses

= 157,375 – 154, 986

= 2,389

 

b. STEP III: Preparation of profit and loss account Appropriation  

Answer

 NOTE: Retained profit = 89,789 – 10,000 = 79,789

Question 8

The trial balance of Asibi as at December 31, 2010 failed to agree. A suspense account was opened for the difference. Draft final accounts were prepared which showed a net profit of GHC4,000 for the year to December 31, 2010. The following errors were subsequently discovered:

i. The purchases day book total GHC8,000 had been posted to the ledger as GHC16,000.

ii. The sales account had been undercast by GHC12,000

iii. Discounts received of GHC700 had been debited to discounts allowed account

iv. An accrued telephone charge of GHC600 was omitted.

v. Loose tools bought for GHC400 had been debited to the purchases account.

vi. Purchase of stock for GHC700 had not been posted to the ledger

vii. Bad debts of GHC 950 written off in the debtor’s account had not been treated in the expenses account

viii. Asibi had withdrawn goods to the value of GHC300 for her personal use. No entries had been made in the books.

You are required to prepare a statement showing the effect of the errors on the draft net profit and the corrected net profit for the year.

 

STEP I: Effects of errors on the Net profit

Answer

i.         Overstatement of purchases Profit was understated
ii.             Sales account undercast Profit was understated
iii.            Discount received added to discount allowed Profit was understated
iv.            Accrued telephone omitted Profit was understated
v.              Loose tools debited to purchases Profit was understated
vi.            Stock purchased was not posted Profit was understated
vii.          Bad debts written off not posted Profit was understated
viii.         Goods withdrawn not entered Profit was understated

 

STEP-II: Preparation of statement of corrected Net Profit

Answer

Question 9 

The following balances were extracted from the books of Duru stores limited on September 30, 2012.

You are required to:

a. Prepare a balance sheet as at September 30, 2012

b. Calculate the following

i. Acid test ratio

ii. Capital employed

iii. Working capital

iv. Current ratio

 

Step I: Preparation of a balance sheet as at September 30, 2010

Answer:

 

b. Step II: Calculation of the accounting ratio:

Answer

i. Acid Test Ratio = \( \frac{Current \: Asset \: - \: Stock}{Current \: Liabilities} \)

= \( \frac{102,773 \: - \: 48,219}{37,190} \)

= \( \frac{54,554}{37,190} \)

1.47:1

Question 1

a. What is a Cash book?

Answer

Cashbook is the book for recording detailed particulars of all money received and paid.

It is a book of original entry.

It contains records of all cash and cheque transactions.

All cash and cheques received are debited in this book while all cash and cheques paid are credited.

 

b. State seven benefits of keeping accounting records in the business.

Answer

  1. It provides written records essential for the proper conduct of business
  2. Financial records help management to make decisions
  3. It helps management to make references to past transactions
  4. It helps the business to ascertain profit or loss made
  5. It helps to prepare financial accounts and balance sheet
  6. It helps to determine debtors and creditors balance
  7. It helps to check embezzlement and other fraudulent activities
  8. It helps to determine the sales and purchases of a business
  9. It helps users of accounting information to make investment decisions.

 

c. List five source documents used in preparing the cash book

Answer

  1. Pay-in-ships
  2. Receipt
  3. Cheques
  4. Payment vouchers
  5. Bank statement
  6. Cheques counterfoil/stub

Note: Invoice, credit notes, debit notes are also source documents but not used in preparing the cash book.

Question 2

a. Define and list two classifications of each of the following:

i. Assets

Answer:

i. Assets: These are resources or properties owned by business enterprises

Assets can be classified into:

  1. Fixed assets e.g. motor vehicles, premises
  2. Current assets e.g. stock, cash

ii. Liabilities

Answer:

Liabilities: these are the financial obligations of a business enterprise.

Liabilities can be classified into:

  1. Long term liabilities e.g. Debenture, Long loan
  2. Current/Short term liabilities e.g. Loan, Bank Overdraft, Creditor

 

b. State and explain the factors to be considered in determining the annual depreciation charge for a fixed asset.

Answer

  1. Cost
  2. The estimated useful life of the asset
  3. Estimated scrap value/salvage value

Explanation:

  1. Cost: This is the amount paid for the acquisition of the asset.
  2. The estimated useful life of the asset: This is the expected period for which the asset will be put to use
  3. Estimated scrap value: This is the expected value at which an asset could be disposed of after its estimated useful life.

Question 3

Describe three features of each of the following financial statements:

a. receipts and payments account

Answer

Receipts and payment account

 

b.income and expenditure account

Answer

Income and Expenditure account

 

c. trading account

Answer

Trading Account

 

d. profit and loss account

Answer

Profit and Loss account

 

e. appropriation account of a partnership

Answer

Appropriation Account of partnership

Question 4

Classify the following:

i. Purchase of land

ii. Purchase of a motor vehicle

iii. Rent received

iv. Repairs to motor vehicle

v. Fuel cost for running the vehicle

vi. Sale of land previously bought

vii. Interest on a loan to purchase land

viii. Wages of cleaner

ix. Payment for carriage inwards on a machine bought

x. The installation cost of machine.

xii. Cost of repairs to Factory building

xiii. Cost of papers in the accounts department

xiv. Proceeds from disposal of motor vehicle

xiv. The commission received from a transaction

xv. Legal fees paid in buying land

into 

a. Capital expenditure

b. Revenue expenditure

c. Capital receipts

d. Revenue receipts

Answer

a. Capital expenditure:

i. Purchase of land,

ii. Purchase of motor vehicle,

iii. Payment for carriage inwards on a machine,

iv. The installation cost of the machine,

v. Legal fees paid in buying land.

 

b. Revenue expenditure:

i. Repairs to motor vehicle,

ii. Fuel cost for using the vehicle,

iii. Interest on loan to purchase land,

iv. Wages of cleaners,

v. Cost of repairs to Factory building,

vi. Cost of papers used in the accounts department.

 

c. Capital receipts:

i. Sales of land previously bought,

ii. Proceeds from disposal of motor vehicle.

 

d. Revenue receipts:

i. Rent received

ii. Commission received.

Question 5

Alex Co-Limited is a manufacturing company. The following balances were extracted from its book on 30th September 2010.

Additional information:

Goods manufacture during the year is to be transferred to the Trading account at Le 130,000.

You are required to prepare the necessary accounts to show the following

(a) Cost of raw materials used

(b) Prime cost

(c) Cost of production

(d) Gross manufacturing profit

(e) Gross profit on sales

(f) Net profit.

 

Answer

Step I: Preparation of manufacturing, trading and profit or Loss Account for the year ended 30th Sept 2012.

 

 Step II:

  1. Cost of raw materials used WK I = Le54,290
  2. Prime cost WK II = Le96,290
  3. Cost of production WK III = Le111,490
  4. Gross manufacturing profit WK IV = Le18,510
  5. Gross profit on sales WK V = Le60,200
  6. Net profit WK VI = Le41,210

 

Note: Gross manufacturing profit = Market Value – Cost of production

Le130,000 – le111,490 = Le18,510

Question 6

Johnson’s cash book showed an overdrawn balance of N3,000 on 31st December 2012 on his current account. The balance as per the bank statement was an overdrawn balance N800.

Further investigation showed the following:

(i) Cheque drawn amounting to N5,000 had not been presented for payment

(ii) Cheques amounting to N2,500 entered in the cash book as paid into the bank had not yet been cleared by the bank.

(iii) A cheque book costing N400 had been charged in the bank statement but not entered in the cash book.

(iv) A dividend of N400 paid directly to the bank had not been recorded in the cash book.

(v) A cheque for N1200 drawn on his current account had been charged by the bank to his deposit account.

(vi) A cheque for N500 paid into the bank had been dishonoured and shown as such by the bank, but no entry had been made in the cash book.

(vii) The payment side of the cash book had been undercast by N700

(vii) Bank charges of N300 entered in the bank statement had not been entered in the cash book

You are required to prepare:

(a) Adjusted cash book

Answer

 

(b) Bank reconciliation statement

Preparation of Bank Reconciliation Statement

 

 

Explanation:

i. You are having a credit balance in your adjustment cash book instead of a debit balance

ii. Start with balance as per cash book in your Bank reconciliation statement, you have to add uncredited cheque and subtract unpresented cheque because of the credit balance in your adjusted cash book.

iii. Your balance as per bank statement in your bank reconciliation statement is an overdraft and must be equal to the overdrawn balance figure in your question.

Question 7 

The trial balance of Evan as at December 2010, is as follows

 

Additional Information:

i. Unpaid salaries and wages as at 31st December, 2010 is D7,000

ii. The provision for doubtful debts is to be made at 10%

iii. Rents and rates owing at 31st December, 2010 is D4,000

iv. Depreciation on motor van is to be charged at 20% per annum on cost.

v. Insurance paid in advance 31st December, 2010 is D2,800 vi. Stock at 31st December, 2010 is D95,000 vii. 10% dividend is proposed for 2010.

You are required to prepare:

(a) Trading and profit and loss account for the year ended 31st December, 2010

(b) Profit and loss appropriation account for the year ended 31st December, 2010  

Answer:

Step I Workings

i.

Salaries & Wages 59,628
Add Salaries and Wages owing 7,000
Profit and loss Account 66,628

  ii.

Provision for doubtful debts on debtors = 10% of debtors  
  10% x 50,820 5,082
Less provision for doubtful debts 1/1/2010   (2,053)
Profit and loss account   3,029

  iii.

Rents & Rates 7,500
Add: Rent and rate owing 4,000
Profit and loss Account 11,500

  iv.

Depreciation on motor van at 20% 20% X 120,000 24,000
Profit and loss Account 24,000

v.

Insurance 8,000
Less Insurance paid in advance 2,800
Profit and loss Account 5,200

 

vi. Stock at 31st December, 2010 (closing stock)

= D95,000

 

vii. 10% dividend is proposed for 2010

    10% x 100,000 = 10,000

  Proposed dividend = 10,000

 

viii. Interest on debenture

= 12% x 50,000 = 6,000

Profit and loss account = 6,000

 

STEP-II: Preparation of Trading, Profit, and Loss Account.  

Answer

 NOTE: Net profit = Gross profit b/d – Total Expenses

= 157,375 – 154, 986

= 2,389

 

b. STEP III: Preparation of profit and loss account Appropriation  

Answer

 NOTE: Retained profit = 89,789 – 10,000 = 79,789

Question 8

The trial balance of Asibi as at December 31, 2010 failed to agree. A suspense account was opened for the difference. Draft final accounts were prepared which showed a net profit of GHC4,000 for the year to December 31, 2010. The following errors were subsequently discovered:

i. The purchases day book total GHC8,000 had been posted to the ledger as GHC16,000.

ii. The sales account had been undercast by GHC12,000

iii. Discounts received of GHC700 had been debited to discounts allowed account

iv. An accrued telephone charge of GHC600 was omitted.

v. Loose tools bought for GHC400 had been debited to the purchases account.

vi. Purchase of stock for GHC700 had not been posted to the ledger

vii. Bad debts of GHC 950 written off in the debtor’s account had not been treated in the expenses account

viii. Asibi had withdrawn goods to the value of GHC300 for her personal use. No entries had been made in the books.

You are required to prepare a statement showing the effect of the errors on the draft net profit and the corrected net profit for the year.

 

STEP I: Effects of errors on the Net profit

Answer

i.         Overstatement of purchases Profit was understated
ii.             Sales account undercast Profit was understated
iii.            Discount received added to discount allowed Profit was understated
iv.            Accrued telephone omitted Profit was understated
v.              Loose tools debited to purchases Profit was understated
vi.            Stock purchased was not posted Profit was understated
vii.          Bad debts written off not posted Profit was understated
viii.         Goods withdrawn not entered Profit was understated

 

STEP-II: Preparation of statement of corrected Net Profit

Answer

Question 9 

The following balances were extracted from the books of Duru stores limited on September 30, 2012.

You are required to:

a. Prepare a balance sheet as at September 30, 2012

b. Calculate the following

i. Acid test ratio

ii. Capital employed

iii. Working capital

iv. Current ratio

 

Step I: Preparation of a balance sheet as at September 30, 2010

Answer:

 

b. Step II: Calculation of the accounting ratio:

Answer

i. Acid Test Ratio = \( \frac{Current \: Asset \: - \: Stock}{Current \: Liabilities} \)

= \( \frac{102,773 \: - \: 48,219}{37,190} \)

= \( \frac{54,554}{37,190} \)

1.47:1