Quiz 8 of 14

2017 Financial Accounting WAEC Theory Past Questions

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Question 1

(a) What is a source document?

Answer

Source documents - it is an original document evidencing a business transaction. It forms the basis in the books of accounts it provides basic details about a transaction

 

(b) List six types of source documents

Answer

Types of source documents:

(i) Cash receipts

(ii) Sales invoice

(iii) Purchases invoices

(iv) Petty cash vouchers

(v) Stores vouchers

(vi) Bank pay in slips

(vii) Cheque stubs/counterfeit

(viii) Credit notes

(ix) Debit notes

(x) Bank statement

 

(c)  State three users of subsidiary book

Answer

Uses of subsidiary books:

(i) As the primary record of transactions since they are the first to be written directly from the source document

(ii) To provide greater details about transactions than ledgers will do

(iii) As back up for entries made into the ledger

(iv) As a means of classifying data obtained from business documents

Question 2

(a) What is a bank reconciliation statement?

Answer

Bank Reconciliation Statement: It is a statement prepared by a bank’s current account holder on receipt of a bank statement. It is prepared to bring the firm’s cash book (bank column) balance into an agreement with its bank statement balance.

 

(b) State three reasons for preparing a bank reconciliation statement

Answer

Reason for preparing a bank reconciliation statement:

They are prepared in order to:

(i) Ensure that individual payments and receipts on the bank statement are reflected in the bank column of the cash book

(ii) Arrive at a basis for making any correction in the bank column of the cash book and bank statement balance at a particular date

(iii) Reconcile the balance per bank statement with the balance in the firm’s cash book at a particular date

(iv) Explain any difference between the balance as per the bank column of the cash book and the bank statement balance.

 

(c) Explain the following terms

(i) Unpresented Cheques

Answer

Unpresented Cheques: These are Cheques already issued by a current account holder to a named beneficiary and credited to the cash book. The named beneficiary is yet to take the Cheque to the bank for payment

(ii) Standing order

Answer

Standing Order: It is an instruction from a customer of a bank to his banker, the banker is directed to make certain regular payments out of his account to a named person or organization.

(iii) Credit transfer

Answer

Credit Transfer: This is a payment made directly into a customer’s account in the bank. They are made by third parties

Question 3

(a) Explain the following terms used in not-for-profit making organizations

(i) Accumulated fund

Answer

Accumulated Fund: It is the capital for a not-for-profit making organization. It is the difference between the total assets and total liabilities of a not-for-profit making organization at any point in time.

(ii) Subscription in arrears

Answer

Subscription In Arrears: It is the amount of subscription that is outstanding or had not been paid by any member as at the time of preparing the accounts of the club. This is classified as a current asset in the balance sheet

(iii) Receipts and payment account

Answer

Receipts and Payment Account: It is the equivalent of the cash book of a profit-making organization, the debit side shows details of opening cash book balances and all cash receipts while the credit side indicated all cash/bank payments and their closing balances.

(iv) Income and expenditure account

Answer

Income and Expenditure Account: It is the equivalent of the profit and loss account of a profit-making organization. It records only revenue expenditure and revenue receipts and it discloses a balance as surplus or deficit

(v) Entrance fees

Answer

Entrance Fees: These are amounts payable when a person first joins a club. These are normally included as income in the year that they are received. However, the club may capitalize it and spread it over a number of years

 

(b) Distinguish between shares and debentures

Answer

Distinction Between Shares and Debentures are:

(i) Shares are fractions or proportions of members’ interest or investment in a company while debentures are written acknowledgment of a long term loan given to a company

(ii) Shares attract dividends while debentures attract a fixed interest

(iii) Holders of shares are part owners of the company while holders of debentures are creditors to the company

(iv) The interest payable on debentures is compulsory while the dividend payable on shares depends on the availability of profit

Question 4

(a) List the four main groups of accounting ratios

Answer

(i) Profitability ratios/ performance ratios

(ii) Liquidity ratios/solvency ratio

(iii) Efficiency ratios/asset ratios/ activity ratios

(iv) Capital structure ratios/ gearing ratios/ leverage

(v) Security ratios/investor ratio/shareholder ratios

 

(b) Identify the accounting ratio which relates to each of the following statements:

(i) A return of GHc10 net profit for every GHc100 invested

Answer

Net Profit Margin: Net profit ratio; Net profit percentage; Net profit to sales ratio or net profit

 

(ii) Goods are held on the average for a period of one month before they are sold

Answer

Stock Turnover: inventories day; Stock turn or Turnover of Stock

 

(iii) Trade debtors on the average take a period of 33days to settle their debts

Answer

Debtor days; Receivables days; average collection period or Debtors Collection period

 

(iv) Trade creditors on the average are paid within 44days for credit purchases

Answer

Creditor’s days: Payables day; Average Payment Period or Creditors Payment Period

 

(v) Gross profit of GHc40 is made on every GHc100 of net sales

Answer

Gross Profit Margin; Gross Profit Percentage; Gross Profit to Sales Ratio or Gross Profit Sales

 

(vi) Current assets is three times that of current liabilities

Answer

Current Ratio or Working Capital Ratio

 

(vii) Liquid assets is three times that of current liabilities

Answer

Quick Ratio or Acid-Test Ratio

 

(viii) For every GHc100 net turnover, GHc17 is made after deducting operational expenses

Answer

Returns on Capital Employed or Operating Profit Margin

 

(ix) Profit covers interest payment 9 times

Answer

Interest Cover

Question 5

The trial balance of Debra Duwe Enterprises failed to agree. The difference was entered in the suspense account.

The following errors were later detected;

(i) A sum of $1,000 received from Salako has not been posted to his account

(ii) The sales day book was undercast by $560

(iii) Return outwards books was overcast by $140

(iv) Discount received $410 from Damilola had been correctly entered in the cash book but not posted to Damilola’s account

You are required to prepare

(a) Journal entries to correct the errors

Answer

Preparation of Journal Entries to Correct the Errors

Deba Duwe Enterprise, General Journal or Journal Proper

 

(b) Suspense account

Answer

Question 6

Idayah Limited is a manufacturing company; the following balances were extracted from its records on 31st December 2014

 

Additional information:

Goods manufactured were transferred to the sales department at cost plus 10%.

You are required to prepare the manufacturing, Trading, Profit, and Loss account for the year ended 31st December 2014

IDAYAH LIMITED
Manufacturing, Trading, Profit and Loss account for the year ended 31st December 2014

 NOTE: Manufacturing profit c/d = cost of production plus 10% = 10/100 x 228,400  = 22,840

 

Alternative solution

IDAYAH LIMITED
Manufacturing, Trading, Profit and Loss account for the year ended 31st December 2014

Question 7

 

Additional information

(i) Dauda paid all shop takings for the year into the bank apart from monthly drawings of D500 and miscellaneous expenses of D408

(ii) He was owing D7,600 to suppliers for inventory bought

(iii) The accounts receivable is t be treated as bad debts

(iv) Inventory was valued at D13,620

(v) Depreciation for the year was calculated as D720 for equipment and D1,000 for vehicles

You are required to prepare

(a) Statement of affairs as at 01/01/13

Answer

Preparation of Statement of affairs as at 1st January 2013
In the book of Dauda statement of affairs as at 1st January 2013   

 

(b) Income statement for the year ended 31st December 2013

Answer

Preparation of income statement for the year ended 31st Dec 2013

 

NOTE: Sales comprises of shop takings, received from debtors, additional income, and shop takings for the year

Sales = 96,000 + 6,000 + 408 + 1,400 = 104,308

Purchases = inventory purchased + inventory bought owing to the supplier

= 70,500 + 7,600  = 78,100

 

(c) Bank account

Answer

Preparation of bank account

Question 8

Govu, Tuga, and Kano are partners engaged in retail business, sharing profits and losses in the ratio 2:1:2 respectively. The following are the details of the extracts from their books as at 31st January 2013

Additional information

(i) The firm’s sundry assets were valued at GHc431,000

(ii) The firm was cash strapped and on 01/07/2013 Tuga advanced a loan of GHc100,000 to the partnership at the rate of 5% per annum interest was payable six monthly and was to be credited to his account

(iii) Govu and Kano were to receive salaries of GHc25,000 per annum each

(iv) The profit for the partnership before charging loan interest was GHc158,000 for the year ended 31st December 2013. the loan was not repayable until after the year 2016

You are required to prepare

(a) Profit and loss and appropriation account for the year ended 31st December 2013

Answer

Preparation of partnership profit and loss appropriation account for the year ended 31st December 2013

NOTE: Share of profit = Net profit less loan interest and total partners’ salaries
158,000 - (2,500 + 25,000 + 25,000) = 105,500

 

(b) Partners’ current accounts in a column form

Answer

Preparation of partners current account

Question 9

Preparation of departmental trading profit and loss account for the year ended 31st December 2016       

Question 1

(a) What is a source document?

Answer

Source documents - it is an original document evidencing a business transaction. It forms the basis in the books of accounts it provides basic details about a transaction

 

(b) List six types of source documents

Answer

Types of source documents:

(i) Cash receipts

(ii) Sales invoice

(iii) Purchases invoices

(iv) Petty cash vouchers

(v) Stores vouchers

(vi) Bank pay in slips

(vii) Cheque stubs/counterfeit

(viii) Credit notes

(ix) Debit notes

(x) Bank statement

 

(c)  State three users of subsidiary book

Answer

Uses of subsidiary books:

(i) As the primary record of transactions since they are the first to be written directly from the source document

(ii) To provide greater details about transactions than ledgers will do

(iii) As back up for entries made into the ledger

(iv) As a means of classifying data obtained from business documents

Question 2

(a) What is a bank reconciliation statement?

Answer

Bank Reconciliation Statement: It is a statement prepared by a bank’s current account holder on receipt of a bank statement. It is prepared to bring the firm’s cash book (bank column) balance into an agreement with its bank statement balance.

 

(b) State three reasons for preparing a bank reconciliation statement

Answer

Reason for preparing a bank reconciliation statement:

They are prepared in order to:

(i) Ensure that individual payments and receipts on the bank statement are reflected in the bank column of the cash book

(ii) Arrive at a basis for making any correction in the bank column of the cash book and bank statement balance at a particular date

(iii) Reconcile the balance per bank statement with the balance in the firm’s cash book at a particular date

(iv) Explain any difference between the balance as per the bank column of the cash book and the bank statement balance.

 

(c) Explain the following terms

(i) Unpresented Cheques

Answer

Unpresented Cheques: These are Cheques already issued by a current account holder to a named beneficiary and credited to the cash book. The named beneficiary is yet to take the Cheque to the bank for payment

(ii) Standing order

Answer

Standing Order: It is an instruction from a customer of a bank to his banker, the banker is directed to make certain regular payments out of his account to a named person or organization.

(iii) Credit transfer

Answer

Credit Transfer: This is a payment made directly into a customer’s account in the bank. They are made by third parties

Question 3

(a) Explain the following terms used in not-for-profit making organizations

(i) Accumulated fund

Answer

Accumulated Fund: It is the capital for a not-for-profit making organization. It is the difference between the total assets and total liabilities of a not-for-profit making organization at any point in time.

(ii) Subscription in arrears

Answer

Subscription In Arrears: It is the amount of subscription that is outstanding or had not been paid by any member as at the time of preparing the accounts of the club. This is classified as a current asset in the balance sheet

(iii) Receipts and payment account

Answer

Receipts and Payment Account: It is the equivalent of the cash book of a profit-making organization, the debit side shows details of opening cash book balances and all cash receipts while the credit side indicated all cash/bank payments and their closing balances.

(iv) Income and expenditure account

Answer

Income and Expenditure Account: It is the equivalent of the profit and loss account of a profit-making organization. It records only revenue expenditure and revenue receipts and it discloses a balance as surplus or deficit

(v) Entrance fees

Answer

Entrance Fees: These are amounts payable when a person first joins a club. These are normally included as income in the year that they are received. However, the club may capitalize it and spread it over a number of years

 

(b) Distinguish between shares and debentures

Answer

Distinction Between Shares and Debentures are:

(i) Shares are fractions or proportions of members’ interest or investment in a company while debentures are written acknowledgment of a long term loan given to a company

(ii) Shares attract dividends while debentures attract a fixed interest

(iii) Holders of shares are part owners of the company while holders of debentures are creditors to the company

(iv) The interest payable on debentures is compulsory while the dividend payable on shares depends on the availability of profit

Question 4

(a) List the four main groups of accounting ratios

Answer

(i) Profitability ratios/ performance ratios

(ii) Liquidity ratios/solvency ratio

(iii) Efficiency ratios/asset ratios/ activity ratios

(iv) Capital structure ratios/ gearing ratios/ leverage

(v) Security ratios/investor ratio/shareholder ratios

 

(b) Identify the accounting ratio which relates to each of the following statements:

(i) A return of GHc10 net profit for every GHc100 invested

Answer

Net Profit Margin: Net profit ratio; Net profit percentage; Net profit to sales ratio or net profit

 

(ii) Goods are held on the average for a period of one month before they are sold

Answer

Stock Turnover: inventories day; Stock turn or Turnover of Stock

 

(iii) Trade debtors on the average take a period of 33days to settle their debts

Answer

Debtor days; Receivables days; average collection period or Debtors Collection period

 

(iv) Trade creditors on the average are paid within 44days for credit purchases

Answer

Creditor’s days: Payables day; Average Payment Period or Creditors Payment Period

 

(v) Gross profit of GHc40 is made on every GHc100 of net sales

Answer

Gross Profit Margin; Gross Profit Percentage; Gross Profit to Sales Ratio or Gross Profit Sales

 

(vi) Current assets is three times that of current liabilities

Answer

Current Ratio or Working Capital Ratio

 

(vii) Liquid assets is three times that of current liabilities

Answer

Quick Ratio or Acid-Test Ratio

 

(viii) For every GHc100 net turnover, GHc17 is made after deducting operational expenses

Answer

Returns on Capital Employed or Operating Profit Margin

 

(ix) Profit covers interest payment 9 times

Answer

Interest Cover

Question 5

The trial balance of Debra Duwe Enterprises failed to agree. The difference was entered in the suspense account.

The following errors were later detected;

(i) A sum of $1,000 received from Salako has not been posted to his account

(ii) The sales day book was undercast by $560

(iii) Return outwards books was overcast by $140

(iv) Discount received $410 from Damilola had been correctly entered in the cash book but not posted to Damilola’s account

You are required to prepare

(a) Journal entries to correct the errors

Answer

Preparation of Journal Entries to Correct the Errors

Deba Duwe Enterprise, General Journal or Journal Proper

 

(b) Suspense account

Answer

Question 6

Idayah Limited is a manufacturing company; the following balances were extracted from its records on 31st December 2014

 

Additional information:

Goods manufactured were transferred to the sales department at cost plus 10%.

You are required to prepare the manufacturing, Trading, Profit, and Loss account for the year ended 31st December 2014

IDAYAH LIMITED
Manufacturing, Trading, Profit and Loss account for the year ended 31st December 2014

 NOTE: Manufacturing profit c/d = cost of production plus 10% = 10/100 x 228,400  = 22,840

 

Alternative solution

IDAYAH LIMITED
Manufacturing, Trading, Profit and Loss account for the year ended 31st December 2014

Question 7

 

Additional information

(i) Dauda paid all shop takings for the year into the bank apart from monthly drawings of D500 and miscellaneous expenses of D408

(ii) He was owing D7,600 to suppliers for inventory bought

(iii) The accounts receivable is t be treated as bad debts

(iv) Inventory was valued at D13,620

(v) Depreciation for the year was calculated as D720 for equipment and D1,000 for vehicles

You are required to prepare

(a) Statement of affairs as at 01/01/13

Answer

Preparation of Statement of affairs as at 1st January 2013
In the book of Dauda statement of affairs as at 1st January 2013   

 

(b) Income statement for the year ended 31st December 2013

Answer

Preparation of income statement for the year ended 31st Dec 2013

 

NOTE: Sales comprises of shop takings, received from debtors, additional income, and shop takings for the year

Sales = 96,000 + 6,000 + 408 + 1,400 = 104,308

Purchases = inventory purchased + inventory bought owing to the supplier

= 70,500 + 7,600  = 78,100

 

(c) Bank account

Answer

Preparation of bank account

Question 8

Govu, Tuga, and Kano are partners engaged in retail business, sharing profits and losses in the ratio 2:1:2 respectively. The following are the details of the extracts from their books as at 31st January 2013

Additional information

(i) The firm’s sundry assets were valued at GHc431,000

(ii) The firm was cash strapped and on 01/07/2013 Tuga advanced a loan of GHc100,000 to the partnership at the rate of 5% per annum interest was payable six monthly and was to be credited to his account

(iii) Govu and Kano were to receive salaries of GHc25,000 per annum each

(iv) The profit for the partnership before charging loan interest was GHc158,000 for the year ended 31st December 2013. the loan was not repayable until after the year 2016

You are required to prepare

(a) Profit and loss and appropriation account for the year ended 31st December 2013

Answer

Preparation of partnership profit and loss appropriation account for the year ended 31st December 2013

NOTE: Share of profit = Net profit less loan interest and total partners’ salaries
158,000 - (2,500 + 25,000 + 25,000) = 105,500

 

(b) Partners’ current accounts in a column form

Answer

Preparation of partners current account

Question 9

Preparation of departmental trading profit and loss account for the year ended 31st December 2016