Quiz 10 of 14

2016 Financial Accounting WAEC Theory Past Questions

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Question 1

a. What is a general journal

Answer

A general journal - This is a book of original entry/subsidiary book into which all transactions which cannot be recorded in any other subsidiary book are recorded

 

b. State six uses of the general journal

Answer

The General journal us used for:

i. Recording opening entries

ii. Recording sales /disposal of fixed assets on credit

iii. Recording the purchase of fixed assets on credit

iv. Correction of errors in the ledger accounts

v. Making adjustments to any of the entries in the ledger

vi. Recording closing entries

v. Making entries in respect of the contra-transactions/set-off/transfers

vi. Writing off bad debts

vii. Recording acquisitions of new businesses

Question 2

a. List four items each that are found on the:

I. Credit side of the sales ledger control account

Answer

Items found in the credit side of the sales ledger control account includes:

II. Debit side of the purchases ledger control account

Answer

Items found on the debit side of the purchases ledger control account includes

 

b. List seven (7) types of errors a trial balance will not reveal

Answer

Errors that are not revealed by a trial balance

Question 3

a. Outline three distinguishing features of public and private companies

Answer

Public company Private company
1 It allows the public to subscribe for shares or debentures It prohibits invitation to the public to acquire any shares or debentures
2 Membership is one to infinity (for Ghana) membership is seven to infinity (for other member countries) Membership is limited 1 to 50 people (for Ghana) membership is 2 to 50 (for other member countries)
3 Shares are easily transferable Transfer of shares is restricted
4 The company may invite the public to deposit money for a fixed period or payable at call whether bearing or not bearing interest Prohibits the company from making any invitation to the public to deposit money for fixed periods or payable at call, whether bearing or not bearing interest
5 Shares can be quoted on the stock exchange Shares cannot be quoted on the stock exchange
6 Final accounts should be published They are not legally mandated to publish their final account
7 The name of the company ends with “plc” The name of the company ends with Ltd

 

b. State three rights available to an ordinary shareholder.

Answer

Rights of the ordinary shareholders are:

Question 4

a. What is the depreciation of an asset?

Answer

Depreciation can be defined as the reduction in the economic value of a fixed tangible/non-current asset as a result of wear, tear, usage effluxion, and passage of time OR it is that part of the cost of a fixed tangible/non-current asset consumed during its period of use by the firm.

 

b. List three causes of depreciation

Answer

I. Wear and tear due to usage

II. Passage of time/effluxion of time

III. Depletion/exhaustion of the asset

IV. Inadequacy as a result of expansion in the productive capacity of an asset/superfluity

V. Obsolescence

VI. Erosion, rust, rot and decay

 

c. Explain the following method of depreciation:

Answer

I. Straight line

Straight line method of depreciation: This method makes provision for an equal amount to be charged as depreciation for each year of the useful life of an asset. The depreciation is ascertained by dividing the cost of the asset less the residual value by the number of the estimated useful life. i.e.

II. Reducing balance

Reducing balance method of depreciation: Under this method, annual depreciation is calculated as a fixed percentage of the net book value of the fixed asset at the end of the period. The amount of depreciation charged each year reduces.

III. Revaluation

Revaluation method: By this method,m the value of the asset is ascertained at the beginning of the period and revalued at the end of the period. The difference between the two amounts is charged as deprecation.

Question 5

Momoh enterprises cashbook showed a debit balance of Le4,500 on December 31, 2014. further examination revealed the following:

I. A direct debit of Le350 for subscription had been paid by the bank

II. Bank charges of Le500 had not been reflected in the cash book

III. Payment settled by standing orders were omitted from the cash book, electricity bill Le70 insurance Le320 and medical bill Le120

IV. A dividend of Le 320 paid directly into the bank had not been entered into the cash book

V. It was discovered that the cash book balance brought down was undercast by Le180

VI. Cheque amounting to Le4,800 issued had not been presented for payment

VII. Cheque amounting to Le1,990 paid into the bank had not yet been credited

You are required to prepare:

a. The revised cash book

Answer

b. Bank reconciliation statement as at December 31, 2014

Answer

MOMOH Enterprises

Bank Reconciliation Statement as at December 31, 2014

Question 6

The following is the Receipt and payments account of Kayode Social Club for the year ended 31st December 2014

 

Additional information:

I. Equipment was valued at N3,250 and furniture N1,550 on 31st December 2013

II. The following expenses were outstanding:

Salaries      N300

Transport      N100

Repairs      N250

III. Depreciation to be provided as follows:

Equipment      N505

Furniture      N55

IV. Subscriptions owing by members were as follows:

31st December 2013                     N1,200

31st  December 2014                    N2,100

V. The balance in the bank deposit account as 31st December 2013 was N3,000

You are required to prepare

a. Statement of affairs as at 31st December 2013

Answer

 

b. Subscriptions account for the year ended 31st December 2014

Answer

 

c. Income and expenditure account for the year ended 31st December 2014

Answer

NOTE: Surplus = Total income (N23,100) - Total expenses (N9,410) = N13,690

Question 7

The following balances were extracted from the books of Ogba Enterprise on December 31, 2014.

Additional information;

(i) Stock in trade at December 31, 2014 was 29,400

(ii) Provision for doubtful debts to remain at 8% of debtors

(iii) General expenses owing totalled 12,860

(iv) Rent prepaid 19,500

Depreciation is to be provided as follows;

Premises 12½ % on cost

Equipment 10% on cost

You are required to prepare:

(a) Trading profit and loss account for the year ended December 31, 2014

Answer

Ogba Enterprise: Trading Profit and Loss Account for the year ended December 31, 2014

NOTE: Gross Profit = Net Sales - Cost of goods sold

= 460,200 - 259,490

= 200,710

Net Profit = Gross Profit - Total Expenses

230,366 - 226,474

= 3,892

 

(b) A balance sheet as at that date

Answer

Question 8

The following information relates to the books of accounts of Adom Limited

Trading Profits and Loss account for the year ended 31st December 2014

Balance Sheet as at 31st December 2014

You are required to calculate any six of the following

(a) Gross profit percentage

Explanation

Gross profit percentage = \( \frac{Gross \: profit}{Sales} \: \times \: \frac{100}{1} \)

= \( \frac{GHC96,000}{GHC240,000} \: \times \: \frac{100}{1} \)

= 40%

 

(b) Net profit percentage

Explanation

Net profit percentage = \( \frac{Net \: profit}{Sales} \: \times \: \frac{100}{1} \)

= \( \frac{GHC8000}{GHC240,000} \: \times \: \frac{100}{1} \)

= 3.33%

 

(c) Return on capital employed

Explanation

Net profit percentage = \( \frac{Net \: profit}{Capital \: Employed} \: \times \: \frac{100}{1} \)

= \( \frac{GHC8000}{GHC142,000} \: \times \: \frac{100}{1} \)

= 5.63%

 

(d) Current ratio

Explanation

Current ratio = \( \frac{Current\: Asset}{Current\: Liabilities}  \)

= \( \frac{GHC82,000}{GHC40,000}  \)

= 2.05:1

 

(e) Acid test ratio

Explanation

Acid test ratio = \( \frac{Current\: Asset \: - \: Stock}{Current\: Liabilities}  \)

= \( \frac{GHC82,000 \: - \: GHC36,000}{GHC40,000}  \)

=1.15:1

 

(f) Rate of stock turnover

Explanation

Rate of stock turnover = \( \frac{Cost \: of \: goods \: sold}{Average \: Stock}  \)

Average Stock = \( \frac{opening \: stock \: + \: closing \: stock}{2} \)

Average Stock = \( \frac{GHC20,000 \: + \: GHC36,000}{2} \)

= GHC28,00

 

(g) Working capital

Explanation

Calculate working Capital = Current asset - Current liabilities

GHC82,000 - GHC40,000

GHC42,000

 

(h) Shareholders fund

Explanation

Shareholders fund = Stated capital + r=Retained earnings

= GHC100,000 + GHC10,000 + GHC24,000 + GHC8,000

=        GHC142,000

 

(i) Liquid assets

Explanation

Liquid assets: = Current Assets - (Debtors + Stocks)

GHC82,000 - (GHC39,000 + GHC36,000) = GHC7,000

Question 9

The following information was extracted from the books of Dauda manufacturing company for the year ended 31st December 2012

Additional information:

i. Factory expenses prepaid amounted to D5,000

ii. Selling expenses accrued was D2,500

iii. Rent is apportioned between the factory and selling department in the ratio 5:3 respectively

You are required to prepare

Manufacturing Trading, Profit and loss account for the year ended 31st December 2012.

Answer

DAUDA MANUFACTURING COMPANY

MANUFACTURING, TRADING, PROFIT AND LOSS ACCOUNT FIR THE YEAR ENDED 31ST DECEMBER 2012

Question 1

a. What is a general journal

Answer

A general journal - This is a book of original entry/subsidiary book into which all transactions which cannot be recorded in any other subsidiary book are recorded

 

b. State six uses of the general journal

Answer

The General journal us used for:

i. Recording opening entries

ii. Recording sales /disposal of fixed assets on credit

iii. Recording the purchase of fixed assets on credit

iv. Correction of errors in the ledger accounts

v. Making adjustments to any of the entries in the ledger

vi. Recording closing entries

v. Making entries in respect of the contra-transactions/set-off/transfers

vi. Writing off bad debts

vii. Recording acquisitions of new businesses

Question 2

a. List four items each that are found on the:

I. Credit side of the sales ledger control account

Answer

Items found in the credit side of the sales ledger control account includes:

II. Debit side of the purchases ledger control account

Answer

Items found on the debit side of the purchases ledger control account includes

 

b. List seven (7) types of errors a trial balance will not reveal

Answer

Errors that are not revealed by a trial balance

Question 3

a. Outline three distinguishing features of public and private companies

Answer

Public company Private company
1 It allows the public to subscribe for shares or debentures It prohibits invitation to the public to acquire any shares or debentures
2 Membership is one to infinity (for Ghana) membership is seven to infinity (for other member countries) Membership is limited 1 to 50 people (for Ghana) membership is 2 to 50 (for other member countries)
3 Shares are easily transferable Transfer of shares is restricted
4 The company may invite the public to deposit money for a fixed period or payable at call whether bearing or not bearing interest Prohibits the company from making any invitation to the public to deposit money for fixed periods or payable at call, whether bearing or not bearing interest
5 Shares can be quoted on the stock exchange Shares cannot be quoted on the stock exchange
6 Final accounts should be published They are not legally mandated to publish their final account
7 The name of the company ends with “plc” The name of the company ends with Ltd

 

b. State three rights available to an ordinary shareholder.

Answer

Rights of the ordinary shareholders are:

Question 4

a. What is the depreciation of an asset?

Answer

Depreciation can be defined as the reduction in the economic value of a fixed tangible/non-current asset as a result of wear, tear, usage effluxion, and passage of time OR it is that part of the cost of a fixed tangible/non-current asset consumed during its period of use by the firm.

 

b. List three causes of depreciation

Answer

I. Wear and tear due to usage

II. Passage of time/effluxion of time

III. Depletion/exhaustion of the asset

IV. Inadequacy as a result of expansion in the productive capacity of an asset/superfluity

V. Obsolescence

VI. Erosion, rust, rot and decay

 

c. Explain the following method of depreciation:

Answer

I. Straight line

Straight line method of depreciation: This method makes provision for an equal amount to be charged as depreciation for each year of the useful life of an asset. The depreciation is ascertained by dividing the cost of the asset less the residual value by the number of the estimated useful life. i.e.

II. Reducing balance

Reducing balance method of depreciation: Under this method, annual depreciation is calculated as a fixed percentage of the net book value of the fixed asset at the end of the period. The amount of depreciation charged each year reduces.

III. Revaluation

Revaluation method: By this method,m the value of the asset is ascertained at the beginning of the period and revalued at the end of the period. The difference between the two amounts is charged as deprecation.

Question 5

Momoh enterprises cashbook showed a debit balance of Le4,500 on December 31, 2014. further examination revealed the following:

I. A direct debit of Le350 for subscription had been paid by the bank

II. Bank charges of Le500 had not been reflected in the cash book

III. Payment settled by standing orders were omitted from the cash book, electricity bill Le70 insurance Le320 and medical bill Le120

IV. A dividend of Le 320 paid directly into the bank had not been entered into the cash book

V. It was discovered that the cash book balance brought down was undercast by Le180

VI. Cheque amounting to Le4,800 issued had not been presented for payment

VII. Cheque amounting to Le1,990 paid into the bank had not yet been credited

You are required to prepare:

a. The revised cash book

Answer

b. Bank reconciliation statement as at December 31, 2014

Answer

MOMOH Enterprises

Bank Reconciliation Statement as at December 31, 2014

Question 6

The following is the Receipt and payments account of Kayode Social Club for the year ended 31st December 2014

 

Additional information:

I. Equipment was valued at N3,250 and furniture N1,550 on 31st December 2013

II. The following expenses were outstanding:

Salaries      N300

Transport      N100

Repairs      N250

III. Depreciation to be provided as follows:

Equipment      N505

Furniture      N55

IV. Subscriptions owing by members were as follows:

31st December 2013                     N1,200

31st  December 2014                    N2,100

V. The balance in the bank deposit account as 31st December 2013 was N3,000

You are required to prepare

a. Statement of affairs as at 31st December 2013

Answer

 

b. Subscriptions account for the year ended 31st December 2014

Answer

 

c. Income and expenditure account for the year ended 31st December 2014

Answer

NOTE: Surplus = Total income (N23,100) - Total expenses (N9,410) = N13,690

Question 7

The following balances were extracted from the books of Ogba Enterprise on December 31, 2014.

Additional information;

(i) Stock in trade at December 31, 2014 was 29,400

(ii) Provision for doubtful debts to remain at 8% of debtors

(iii) General expenses owing totalled 12,860

(iv) Rent prepaid 19,500

Depreciation is to be provided as follows;

Premises 12½ % on cost

Equipment 10% on cost

You are required to prepare:

(a) Trading profit and loss account for the year ended December 31, 2014

Answer

Ogba Enterprise: Trading Profit and Loss Account for the year ended December 31, 2014

NOTE: Gross Profit = Net Sales - Cost of goods sold

= 460,200 - 259,490

= 200,710

Net Profit = Gross Profit - Total Expenses

230,366 - 226,474

= 3,892

 

(b) A balance sheet as at that date

Answer

Question 8

The following information relates to the books of accounts of Adom Limited

Trading Profits and Loss account for the year ended 31st December 2014

Balance Sheet as at 31st December 2014

You are required to calculate any six of the following

(a) Gross profit percentage

Explanation

Gross profit percentage = \( \frac{Gross \: profit}{Sales} \: \times \: \frac{100}{1} \)

= \( \frac{GHC96,000}{GHC240,000} \: \times \: \frac{100}{1} \)

= 40%

 

(b) Net profit percentage

Explanation

Net profit percentage = \( \frac{Net \: profit}{Sales} \: \times \: \frac{100}{1} \)

= \( \frac{GHC8000}{GHC240,000} \: \times \: \frac{100}{1} \)

= 3.33%

 

(c) Return on capital employed

Explanation

Net profit percentage = \( \frac{Net \: profit}{Capital \: Employed} \: \times \: \frac{100}{1} \)

= \( \frac{GHC8000}{GHC142,000} \: \times \: \frac{100}{1} \)

= 5.63%

 

(d) Current ratio

Explanation

Current ratio = \( \frac{Current\: Asset}{Current\: Liabilities}  \)

= \( \frac{GHC82,000}{GHC40,000}  \)

= 2.05:1

 

(e) Acid test ratio

Explanation

Acid test ratio = \( \frac{Current\: Asset \: - \: Stock}{Current\: Liabilities}  \)

= \( \frac{GHC82,000 \: - \: GHC36,000}{GHC40,000}  \)

=1.15:1

 

(f) Rate of stock turnover

Explanation

Rate of stock turnover = \( \frac{Cost \: of \: goods \: sold}{Average \: Stock}  \)

Average Stock = \( \frac{opening \: stock \: + \: closing \: stock}{2} \)

Average Stock = \( \frac{GHC20,000 \: + \: GHC36,000}{2} \)

= GHC28,00

 

(g) Working capital

Explanation

Calculate working Capital = Current asset - Current liabilities

GHC82,000 - GHC40,000

GHC42,000

 

(h) Shareholders fund

Explanation

Shareholders fund = Stated capital + r=Retained earnings

= GHC100,000 + GHC10,000 + GHC24,000 + GHC8,000

=        GHC142,000

 

(i) Liquid assets

Explanation

Liquid assets: = Current Assets - (Debtors + Stocks)

GHC82,000 - (GHC39,000 + GHC36,000) = GHC7,000

Question 9

The following information was extracted from the books of Dauda manufacturing company for the year ended 31st December 2012

Additional information:

i. Factory expenses prepaid amounted to D5,000

ii. Selling expenses accrued was D2,500

iii. Rent is apportioned between the factory and selling department in the ratio 5:3 respectively

You are required to prepare

Manufacturing Trading, Profit and loss account for the year ended 31st December 2012.

Answer

DAUDA MANUFACTURING COMPANY

MANUFACTURING, TRADING, PROFIT AND LOSS ACCOUNT FIR THE YEAR ENDED 31ST DECEMBER 2012