Quiz 6 of 14

2018 Financial Accounting WAEC Theory Past Questions

Responses

Your email address will not be published. Required fields are marked *

back-to-top
error:

Question 1

(a) Mention three disadvantages to a business that does not keep proper accounting records

Answer

Disadvantages to a Business that does not keep Proper Accounting Records

(i) Inability to ascertain accurate profit or loss

(ii) It could lead to a wrong assessment of taxes

(iii) There’s the possibility of arbitrary spending leading to business collapse

(iv) Fraud and dishonesty will not easily be detected/checked

(v) It could lead to loss of vital business records

(vi) It makes it difficult to prepare a financial statement

(vii) It could lead to difficulty in planning business activities

(viii) It could lead to inaccurate decisions

(ix) It makes it difficult for businesses to obtain credit facilities

(x) It makes it difficult to detect errors

 

(b) Explain the following characteristics of accounting information

(i) Relevance

Answer

Accounting information is relevant if it is useful for the intended purpose

(ii) Comparability

Answer

This means that accounting information should be capable of being compared with those of similar entities and from one period to another

(iii) Consistency

Answer

This characteristic requires accounting information to be prepared following similar procedures and method

(iv) Reliability

Answer

This characteristic requires accounting information to be verifiable and factual

 

(c) State two limitations in the use of accounting information for business decision making

Answer

Limitations in the use of accounting information:

i) The use of historical cost reduces the relevance of accounting information in making current decisions

(ii) Information that cannot be measured in monetary terms is not recorded in accounting and this makes accounting information incomplete

(iii) Possibility of error in accounting can reduce the usefulness of accounting information

(iv) Where precise information is not available accountants rely on estimates which may be inaccurate for decision making,

(v) Some businesses window-dress their financial statements thereby misleading users

(vi) Businesses use different accounting policies which makes comparison misleading

Question 2

(a) Explain with examples, the following components of cost in a manufacturing account

(i) Direct material cost

Answer

This is the cost of physical inputs/raw materials that can easily be traced to the units produced, e.g. cost of raw materials, cost of wood for producing furniture, the cost of fabric for sewing dresses, the cost of leather for producing shoes, cost of oranges for producing juice e.t.c

(ii) Direct labour cost

Answer

This is the cost of human effort that is used in the processing of materials that can be traced to the finished product e.g wages of factory workers e.t.c.

(iii) Factory overhead

Answer

This refers to indirect production costs that are incurred in the processing of goods e.g factory rent, depreciation of plant and machinery, the cost of lubricants, e.t.c

 

(b) Describe the three types of stocks in a manufacturing concern

(i) Raw materials: These are unprocessed materials that constitute the initial input in the manufacturing process

(ii) Work in progress: These are partially processed materials in the production process that require further processing

(iii) Finished goods: These are fully completed/processed goods that are transferred to the store and held for sale.

Question 3

(a) Which business organizations have the need to prepare a departmental account?

Answer

(i) Large general stores having separate departments such as frozen foods, household appliances, books/stationery

(ii) Firm of chartered accountants which have audit, tax, business consultancy department

(iii) Insurance companies - life, marine, motor, burglary departments

 

(b) State two reasons for preparing departmental accounts

Answer

Reasons for preparing departmental account:

(i) To ascertain the profit or loss for each department

(ii) To compare the performance of the departments over the year

(iii) To assist management in taking decisions on which department to support or drop

(iv) To assist management in its effort to control cost in the various departments

(v) To provide a basis for rewarding staff

(vi) To stimulate competition among the departments

(vii) To enable management to apportion expenses to various departments

 

(c) State how the following income and expenses are apportioned in departmental account

Answer

Apportionment of income and expenses in departmental accounts

Items Basis
i. Discount allowed Sales of each department
ii. Discount received Purchases of each department
iii. Rent and rates Floor space occupied
iv. Staff related costs Number of employees in each department
v. Depreciation Book value/cost of the fixed assets in each department
vi. Canteen Number of employees
vii. Electricity Area of occupied
viii. Advertisement Value of sales
ix. Bad debts Credit sales of each department

Question 4

(a) List Six users of accounting information

Answer

Users of accounting information:

(i) Management

(ii) Employees

(iii) Government agencies

(iv) Customers/debtors

(v) Suppliers/creditors

(vi) Trade unions

(vii) Trade associations

(viii) General public

(ix) Shareholders/owners/employer

(x) Financial analysts

(xi) Auditors

 

(b) State the formula and the uses of each of the following accounting ratios:

(i) Quick ratio

Answer

Quick ratio =  \( \frac{Current \: assets \: - \: Stock \: inventory}{Current \: liabilities} \)

The ratio is used to measure the ability of a business to pay its short term debts from current assets, after eliminating inventories

(ii) Net profit margin

Answer

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

This ratio is used to determine the net profit earned on each Cedi/Naira/Dollar/Dolasi/Leone of sales made by the business

(iii) Total assets turnover

Answer

Total assets turnover = \( \frac{Sales \: \times\: 100}{Total \: assets} \)

This ratio is used to measure how efficiently a business can use its asset to generate sales

(iv) Creditors payment period (in days)

Answer

Creditors payment period (in days) = \( \frac{Trade \:  creditors \: \times\: 365 \: days}{Creditor \: purchases} \)

The ratio measures, on average, the number of days that the business takes to pay its trade creditors

Question 5


The company adopts a straight line method of depreciation at the rate of 10% per annum from the date of purchase. A separate account is prepared for provision for depreciation. On 30th June 2014, the motor vehicle which was purchased on 1st July 2013 was sold for GHc240, 000.

You are required to prepare:

(a) Motor vehicle account for the year 2013, 2014 and 2015

Answer

 

(b) Provision for depreciation on motor vehicle account for the year 2014, 2014 and 2015

Answer

 

(c) Motor vehicle disposal account

Answer

Question 6

On 31st December 2016. the bank column of the cash book of Aminata Enterprise showed a debit balance of D48,500. however, the bank statement showed a credit balance of D54,900 as on the same date.

A detailed comparison of entries revealed the following:

(i) Customers cheque amounting to D8,450 had not been credited by the bank as at 31/12/2016

(ii) Cheques amounting to D8,850 had not been presented for payment as at 31/12/2016

(iii) Bank charges of D1,000 and interest on investments of D2,500 collected by the banker appeared only in the bank statement

(iv) On the 30/12/2016 there was a wrong credit of D3,500 in the bank statement

(v) Kesse Enterprise, a customer, had paid into the bank directly a sum of D3,000 on 29th December 2016. this has not been recorded in the cash book

(vi) A cheque for D2,000 received from Jallo Enterprise a customer which was deposited has been returned unpaid. This had not been entered in the cash book

You are required to:
(a) Write up the adjusted cash book

Answer

(b) Prepare a bank reconciliation statement as st 31/12/2016

Answer

Question 7

Olu, a sole trader has the following financial details for the year ended 31st December 2016  You are required to prepare

(a) Statement of affairs as at 1st January 2016

Answer

NOTE: Capital = Total assets - Total liabilities

To determine credit sales and purchases 

 

(b) Trading profit and loss account for the year ended 31st December 2016

Answer

 

(c) Balance sheet as at 31st December 2016

Answer

Question 8

Boyson Social Club presented the following statements for the year ended 31st December 2016:

Five new members had not paid membership dues of Le300 each for the year
You are required to prepare for Boyson Social Club for the year ended 31/12/16

(a) Subscription account

Answer

 

(b) Bar trading account

Answer

 

(c) Income and expenditure account for the year ended 31st December 2016

Answer

Question 9

The total balance of Obinah for the year ended 31st December 2016 was provided as follows:


You are required to prepare for Obinah
The Trading, Profit, and Loss account for the year ended 31st December 2016 and a balance sheet as at that date

Preparation of Trading, Profit, and Loss account for the year ended 31st December 2016

Answer

Question 1

(a) Mention three disadvantages to a business that does not keep proper accounting records

Answer

Disadvantages to a Business that does not keep Proper Accounting Records

(i) Inability to ascertain accurate profit or loss

(ii) It could lead to a wrong assessment of taxes

(iii) There’s the possibility of arbitrary spending leading to business collapse

(iv) Fraud and dishonesty will not easily be detected/checked

(v) It could lead to loss of vital business records

(vi) It makes it difficult to prepare a financial statement

(vii) It could lead to difficulty in planning business activities

(viii) It could lead to inaccurate decisions

(ix) It makes it difficult for businesses to obtain credit facilities

(x) It makes it difficult to detect errors

 

(b) Explain the following characteristics of accounting information

(i) Relevance

Answer

Accounting information is relevant if it is useful for the intended purpose

(ii) Comparability

Answer

This means that accounting information should be capable of being compared with those of similar entities and from one period to another

(iii) Consistency

Answer

This characteristic requires accounting information to be prepared following similar procedures and method

(iv) Reliability

Answer

This characteristic requires accounting information to be verifiable and factual

 

(c) State two limitations in the use of accounting information for business decision making

Answer

Limitations in the use of accounting information:

i) The use of historical cost reduces the relevance of accounting information in making current decisions

(ii) Information that cannot be measured in monetary terms is not recorded in accounting and this makes accounting information incomplete

(iii) Possibility of error in accounting can reduce the usefulness of accounting information

(iv) Where precise information is not available accountants rely on estimates which may be inaccurate for decision making,

(v) Some businesses window-dress their financial statements thereby misleading users

(vi) Businesses use different accounting policies which makes comparison misleading

Question 2

(a) Explain with examples, the following components of cost in a manufacturing account

(i) Direct material cost

Answer

This is the cost of physical inputs/raw materials that can easily be traced to the units produced, e.g. cost of raw materials, cost of wood for producing furniture, the cost of fabric for sewing dresses, the cost of leather for producing shoes, cost of oranges for producing juice e.t.c

(ii) Direct labour cost

Answer

This is the cost of human effort that is used in the processing of materials that can be traced to the finished product e.g wages of factory workers e.t.c.

(iii) Factory overhead

Answer

This refers to indirect production costs that are incurred in the processing of goods e.g factory rent, depreciation of plant and machinery, the cost of lubricants, e.t.c

 

(b) Describe the three types of stocks in a manufacturing concern

(i) Raw materials: These are unprocessed materials that constitute the initial input in the manufacturing process

(ii) Work in progress: These are partially processed materials in the production process that require further processing

(iii) Finished goods: These are fully completed/processed goods that are transferred to the store and held for sale.

Question 3

(a) Which business organizations have the need to prepare a departmental account?

Answer

(i) Large general stores having separate departments such as frozen foods, household appliances, books/stationery

(ii) Firm of chartered accountants which have audit, tax, business consultancy department

(iii) Insurance companies - life, marine, motor, burglary departments

 

(b) State two reasons for preparing departmental accounts

Answer

Reasons for preparing departmental account:

(i) To ascertain the profit or loss for each department

(ii) To compare the performance of the departments over the year

(iii) To assist management in taking decisions on which department to support or drop

(iv) To assist management in its effort to control cost in the various departments

(v) To provide a basis for rewarding staff

(vi) To stimulate competition among the departments

(vii) To enable management to apportion expenses to various departments

 

(c) State how the following income and expenses are apportioned in departmental account

Answer

Apportionment of income and expenses in departmental accounts

Items Basis
i. Discount allowed Sales of each department
ii. Discount received Purchases of each department
iii. Rent and rates Floor space occupied
iv. Staff related costs Number of employees in each department
v. Depreciation Book value/cost of the fixed assets in each department
vi. Canteen Number of employees
vii. Electricity Area of occupied
viii. Advertisement Value of sales
ix. Bad debts Credit sales of each department

Question 4

(a) List Six users of accounting information

Answer

Users of accounting information:

(i) Management

(ii) Employees

(iii) Government agencies

(iv) Customers/debtors

(v) Suppliers/creditors

(vi) Trade unions

(vii) Trade associations

(viii) General public

(ix) Shareholders/owners/employer

(x) Financial analysts

(xi) Auditors

 

(b) State the formula and the uses of each of the following accounting ratios:

(i) Quick ratio

Answer

Quick ratio =  \( \frac{Current \: assets \: - \: Stock \: inventory}{Current \: liabilities} \)

The ratio is used to measure the ability of a business to pay its short term debts from current assets, after eliminating inventories

(ii) Net profit margin

Answer

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

This ratio is used to determine the net profit earned on each Cedi/Naira/Dollar/Dolasi/Leone of sales made by the business

(iii) Total assets turnover

Answer

Total assets turnover = \( \frac{Sales \: \times\: 100}{Total \: assets} \)

This ratio is used to measure how efficiently a business can use its asset to generate sales

(iv) Creditors payment period (in days)

Answer

Creditors payment period (in days) = \( \frac{Trade \:  creditors \: \times\: 365 \: days}{Creditor \: purchases} \)

The ratio measures, on average, the number of days that the business takes to pay its trade creditors

Question 5


The company adopts a straight line method of depreciation at the rate of 10% per annum from the date of purchase. A separate account is prepared for provision for depreciation. On 30th June 2014, the motor vehicle which was purchased on 1st July 2013 was sold for GHc240, 000.

You are required to prepare:

(a) Motor vehicle account for the year 2013, 2014 and 2015

Answer

 

(b) Provision for depreciation on motor vehicle account for the year 2014, 2014 and 2015

Answer

 

(c) Motor vehicle disposal account

Answer

Question 6

On 31st December 2016. the bank column of the cash book of Aminata Enterprise showed a debit balance of D48,500. however, the bank statement showed a credit balance of D54,900 as on the same date.

A detailed comparison of entries revealed the following:

(i) Customers cheque amounting to D8,450 had not been credited by the bank as at 31/12/2016

(ii) Cheques amounting to D8,850 had not been presented for payment as at 31/12/2016

(iii) Bank charges of D1,000 and interest on investments of D2,500 collected by the banker appeared only in the bank statement

(iv) On the 30/12/2016 there was a wrong credit of D3,500 in the bank statement

(v) Kesse Enterprise, a customer, had paid into the bank directly a sum of D3,000 on 29th December 2016. this has not been recorded in the cash book

(vi) A cheque for D2,000 received from Jallo Enterprise a customer which was deposited has been returned unpaid. This had not been entered in the cash book

You are required to:
(a) Write up the adjusted cash book

Answer

(b) Prepare a bank reconciliation statement as st 31/12/2016

Answer

Question 7

Olu, a sole trader has the following financial details for the year ended 31st December 2016  You are required to prepare

(a) Statement of affairs as at 1st January 2016

Answer

NOTE: Capital = Total assets - Total liabilities

To determine credit sales and purchases 

 

(b) Trading profit and loss account for the year ended 31st December 2016

Answer

 

(c) Balance sheet as at 31st December 2016

Answer

Question 8

Boyson Social Club presented the following statements for the year ended 31st December 2016:

Five new members had not paid membership dues of Le300 each for the year
You are required to prepare for Boyson Social Club for the year ended 31/12/16

(a) Subscription account

Answer

 

(b) Bar trading account

Answer

 

(c) Income and expenditure account for the year ended 31st December 2016

Answer

Question 9

The total balance of Obinah for the year ended 31st December 2016 was provided as follows:


You are required to prepare for Obinah
The Trading, Profit, and Loss account for the year ended 31st December 2016 and a balance sheet as at that date

Preparation of Trading, Profit, and Loss account for the year ended 31st December 2016

Answer