Quiz 12 of 14

2015 Financial Accounting WAEC Theory Past Questions

Responses

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Question 1

a. Describe the following:

i. Bank statement

Answer

Bank Statement: this is a document prepared by a bank and issued to its customers, it shows the following: date, particulars or details, debit, credit, and balance.

ii. Bank reconciliation statement

Answer

  • This is a statement prepared by a customer to reconcile or agree with his bank balance in the cash book with that of the bank statement.
  • It discloses items that must have caused discrepancies between the bank statement balance and cash book balance.
  • It shows the date at which the statement was prepared.
  • It discloses a closing balance which should agree with either the cash book balance or bank statement balance.
  • It states the date on which the statement was prepared.

 

b. Explain five causes of disagreement between the cash book and the bank statement balance

Answer

Causes of disagreement between the cash book and the bank statement balance are;

  • Standing Orders: These are payments made by the bank on the instruction of its customers but not yet recorded in the customer’s cash book
  • Uncredited Cheques: These are Cheques received by a customer of a bank and banked but have not been credited.
  • Discharged Cheques: These are Cheques paid out by a customer of a bank but have not been presented by the payee for payment.
  • Unpresented Cheques: These are Cheques paid out by a customer of a bank but have not been presented by the payee for payment
  • Errors made by the customer in his cash book
  • Bank Cheques and commission: These are Cheques and commissions levied by the bank for services rendered but not credited in the customer’s cash book
  • Credit Transfers: These are receipts by the bank on behalf of a customer and credited by the bank but not debited in the customer’s cashbook
  • Errors made by the bank in the customer’s account.

Question 2

a. What is a suspense account?

Answer

  • It is a temporary account which may be used to record differences arising in the trial balance pending the discovering of the errors
  • It is an account that holds unclassified transactions while a decision is being made.
  • is an account used temporarily to record receipts and disbursements that are yet to be

 

b. Explain five errors that would not affect the agreement of the trial balance.

Answer

Errors that would not affect the agreement of the trial balance are:

  • An error of commission: This is where the correct account is posted but to a wrong personal account of the same class.
  • An error of duplication: This is where a transaction is recorded twice in the books i.e. the debit and credit entries are made twice, the total being overstated by the same amount.
  • An error of Transposition: This occurs when the digits of a figure are interchanged but the double entry is observed using the same wrong figure.
  • Compensative error: This occurs where one or more errors on one side of an account are cancelled by errors of the same amount or another account.
  • An error of omission: This is where a transaction is completely left out unrecorded from the books of an account. Neither a debit nor credit entry is made.
  • An error of principle: This occurs where the correct amount is entered in the wrong class of
  • An error of original entry: This is where a wrong amount is posted from the subsidiary books and used for both the debit and credit entries in the ledger.
  • An error of complete reversal of entries: this occurs where the correct accounts are used but each entry is shown on the wrong side of the account

 

c. Mention a class of account that would always show

(i) Debit balance

Answer

Classes of accounts that would always show a debit balance are:

  • Assets account
  • Expenses account

(ii) Credit balance

Answer

Classes of accounts that would always show a credit balance are:

  • Income account
  • Liabilities account
  • Capital account

Question 3

a. State two ratios which fall under the following classification of accounting ratios:

(i) Profitability

Answer

  • Gross profit as a percentage of sales/Gross profit margin/ Gross profit percentage
  • Net profit as a percentage of sales/net profit percentage
  • Return on capital employed (ROCE)
  • Return on shareholder’s funds

(ii) Activity ratio

Answer

  • Stock turnover/stock turn/ rate of turnover
  • Debtor’s collection period/debtor;s days/ account receivable to purchases/average payment period/creditor’s rate

(iii) Liquidity

Answer

  • Current ratio/working capital ratio
  • Acid test/quick ratio

(iv) Investment

Answer

  • Dividend per share
  • Dividend yield
  • Price-earnings ratio
  • Dividend Cover

(v) Leverage

  • Gearing/Debit to equity
  • Time interest earned

 

b. Outline:

(i) Three uses of accounting ratios,

Answer

Uses of accounting ratio: Ratios assists users to:

  • Determine the creditworthiness of a business
  • Evaluate the overall performance of a business
  • Assets are the liquidity position of an organization
  • Identify the problem of areas of a firm’s finances
  • forecasts the future prospects of a business
  • Compare the performance of other competitors in the same line of business
  • Determine how secured one’s investments is in a business
  • Assess the efficiency of management

(ii) Two limitations in the use of accounting ratios.

Answer

  • The use of different method or policies in recording transactions limits the effectiveness of comparison between business.
  • Accounting ratios only measures the quantitative aspects of a firm’s performance and ignores other qualitative aspects.
  • The use of ratio as a basis for comparison becomes unfair as firms operate under different condition.
  • Some terms used in a particular firm may have different meanings or definitions in different firms.
  • The effect of price level changes/inflation limit the use of ratios in the comparison between different periods.
  • Some firms window-dress their financial statements thereby using figures that mislead.
  • The summarised nature of accounting information may lead to the omission of vital information rendering the use of the ratios derived from such deficiencies misleading.
  • Financial statements may be prepared several months before their use by which time values therein might have changed.

Question 4

a. What is a manufacturing account?

Answer

It is an account prepared by an organization involved in the production of goods.

 

b. Explain the following terms:

(i) Prime cost

Answer

Prime Cost: this is the cost that can be traced to a particular production unit. The components are direct materials, direct labour cost, and direct expenses.

(ii) Factory Overheads

Answer

Factory overheads: These are indirect costs incurred in the running of the factory. They are costs which cannot be traced to a particular labour cost.

(iii) Work-in-progress

Answer

Work-in-progress: these are partly finished goods or uncompleted work

(iv) Cost of goods transferred

Answer

Cost of goods transferred: this is the total production cost of finished goods. This is transferred from the manufacturing account to the trading account.

(v) Finished goods

Answer

  • Finished goods: these are products that have passed through the manufacturing They are goods that are available for distribution to customers.

(vi) Profit on manufacturing

Answer

  • Profit on manufacturing: this is the excess of market value over the production  cost of finished goods

Question 5

The following balances have been extracted from the books of Johnson

You are required to prepare

(a) total debtors account

Answer

(b) total creditor’s account

Answer

Question 6

Babou social club was formed on April 1, 2013, with 50 members, each paying an annual subscription of D12.

The following information was extracted from the books of the club on 31s March 2014.

i

Amount realized during InaugurationD3,000
Expenses paid on InaugurationD1,000

ii. All members paid their subscription with the exception of five members who were still owing by 31st March 2014

iii. Gate fees from organized football match were D500 and Expenses incurred D300

iv. Proceeds from the end of the year dance amount to 4,000 and expenses on dance D2,000

v. Honorarium to officers amounted to D500 and sundry expenses D1,120

vi. Amount paid for damages to furniture during dance D300.

You are required to prepare for the year ended 31st March 2014:

(a) Receipts and payments account

STEP I

ANSWER: PREPARATION OF RECEIPTS AND PAYMENT ACCOUNT

BABOU SOCIAL CLUB

RECEIPTS AND PAYMENT ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2014

 

NOTE: All income of the social club are recorded on the left side while all the expenses are recorded on the right side.

Balance c/d = Total income – Total expenses

 

 

(b) income and expenditure account

 Preparation of Income and expenditure Account for the year ended 31st March 2014

BABOU SOCIAL CLUB

Income and Expenditure Account for the year ended 31st March 2014

 

Wk2: proceeds from inauguration3,000
Less Expenses1,000
 2,000

 

Wk3: proceeds from football match500
Less Expenses300
 200

 

Wk4: proceeds from inauguration4,000
Less Expenses2,000
 2,000

Wk5: Excess of income over expenditure

= Total income – Total expenses
= 8,100 – 5,240 = 2,860

Wk6: Excess of income over expenditure540
Less Expenses60
 600

 

ALTERNATIVE SOLUTION FOR B

BABOU SOCIAL CLUB

Income and expenditure account for the year ended 31st March 2014

 

ALTERNATIVE VERTICAL REPRESENTATION FOR A

Receipts and payment Account for the year ended 31st March 2014

 

ALTERNATIVE VERTICAL REPRESENTATION FOR B

Income and Expenditure Account for the year ended 31st March 2014

Question 7

Odum Ltd keeps his books on simple entry basis and the following information relates to the business for the year 2014.

In addition, Odum withdrew an amount of GHC500 and introduced GHC200 as additional capital.

(a) You are required to ascertain

(i) opening capital

Answer

Preparation of statement of affairs as at 1st January 2014, to determine opening capital

From the above, opening capital = GHC3,500

 

 

(ii) closing capital

Answer

Preparation of statement of Affairs as at 31st December, 2014 to determine closing capital

From the above, closing capital = GHC5,150

 

 

(iii) net profit

Answer

Preparation of Net profit for the year ended 31st December 2014 to determine net profit

Statement of Net Profit for the year ended 31st December, 2014

 

 

(b) Prepare the balance sheet as at 31st December, 2014.

Answer

Preparation of balance sheet as at 31st December, 2014

 

ALTERNATIVE TO QUESTION 7B

Question 8

Weah CO. Ltd has an authorized capital of $20,000 divided into 100,000 ordinary shares and 20,000 5% preference share

Additional information: provide for depreciation on a motor vehicle at 20% and furniture and fittings at 10% per annum.

The directors decided to transfer $3,000 to reserve: recommend a dividend of 10% on ordinary shares and pay preference shares dividend.

You are required to prepare:

a. Appropriation account/ income surplus account for the year ended 31st December 2014

Answer

 

 

b. A balance sheet as at that date.

Answer

WEAH CO. LTD

WORKINGS:

1. Ordinary shares dividend

10% x 80,000 = 8,000

 

2. Preference shares dividend

5% x 20,000 = 1,000

 

3. Depreciation of Assets

Motor Vehicles = 20% x 30,000 = 6,000

 

4. Fixtures and fittings = 10% x 6,000 = 600

Question 9

The following balances were extracted from the books of Bonjuri, a retailer as at 31st March 2014.

Additional information:

i. Stock on 31st March 2014 was valued at Le60,000

ii. At 31st March, 2014 Le1,500 was outstanding on insurance; electricity was prepaid by Le500 and there was a doubtful debt of Le1,000

iii. Depreciation is to be provided on equipment at 10% on cost.

You are required to prepare:

(a) Trading profit and loss account for the year ended 31st March 2014

Answer

Preparation of Trading, profit and loss account for the year ended 31st March 2014

BONJURI

Trading profit and loss account for the year ended 31t March 2014

(b) Balance sheet as at that date

Answer

Preparation of balance sheet as at that date

BONJURI

Balance sheet as at 31st March, 2014

 

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