GCE Accounting 2022 Theory Past Questions

Model answer

(A) A control account is a memorandum account whose balance reflects the aggregate balances of many related subsidiary accounts that are part of the double entry system. Books of account from which entries are made into control accounts include: 1. Returns outward day book / purchases returns journal 2. Returns inward day book / sales journal 3. Sales day book / sales journal 4. Purchases day book / purchases journal 5. Cash book 6. General journal / journal proper (B) Uses of a control account: 1. It helps in locating errors. 2. It provides a check on the accuracy of balances in the ledgers. 3. It makes fraud more difficult. 4. The balances of total debtors and creditors can easily be calculated without going through every individual account. (C)(i) Items recorded on the debit side of the Purchases Ledger Control Account (transactions that reduce the debt owed to suppliers): 1. Cheque/payments to suppliers 2. Returns outwards 3. Discounts received 4. Contra entry/set-off (C)(ii) Items recorded on the debit side of the Sales Ledger Control Account (transactions that increase the debt owed by customers): 1. Credit sales 2. Debit notes issued 3. Interest charged on an overdue account 4. Dishonoured cheques

Model answer

(a) Goodwill is an intangible asset that cannot be seen or touched. It refers to the probability that existing customers will continue to patronize a business even after a change in ownership, arising from the reputation, customer loyalty and trust an organization has built up. It can also be seen as the excess of the purchase consideration paid for a business over the fair value of its net assets. (b) Items of recurrent expenditure for a local government (day-to-day running costs charged to the consolidated fund): 1. Purchase of drugs 2. Salaries and wages 3. Maintenance of vehicles 4. Repairs of roads 5. Repairs of public buildings 6. Stationery (c) Three types of inventory in a manufacturing account: 1. Raw materials: materials purchased by manufacturing companies from suppliers in their basic (unprocessed) form, used to produce finished goods. 2. Work-in-progress: partly finished or semi-finished goods; raw materials that have undergone some production processes but are not yet consumable as final products. The cost of production must be adjusted for the opening and closing work-in-progress. 3. Finished goods: goods that have completed all necessary manufacturing processes and are available for sale; their revenue contributes fully to the company's major operations.

Model answer

(a)(i) Accumulated Fund: this is the fund that corresponds to the capital of a partnership or sole trader in a non-profit-making organization; it is calculated using a statement of affairs and represents the excess of assets over liabilities at the start of the trading period, taking the place of capital. (a)(ii) Statement of Affairs: this is an account typically prepared to show the details of an organization's assets and liabilities, giving an overview of its financial position, similar in purpose to a balance sheet. (b) Sources of income for non-profit making organizations: 1. Subscriptions - periodic contributions from members to the association or society 2. Entrance fees - money paid on application for membership 3. Donations - gifts of money or otherwise from members or outsiders 4. Bar takings 5. Rent received 6. Profit on bar / sale of competition prizes (c) Differences between Receipts and Payments Account and Income and Expenditure Account: 1. Receipts and Payments Account only records cash transactions, whereas Income and Expenditure Account is adjusted for accruals and prepayments. 2. Receipts and Payments Account includes capital items, whereas Income and Expenditure Account excludes capital items. 3. The balance on a Receipts and Payments Account represents cash in hand or at bank (it is a real account), whereas the balance on an Income and Expenditure Account represents a surplus or deficit (it is a nominal account).

Model answer

(a) Accounts prepared by head office for the branch: 1. Memorandum branch account 2. Goods sent to branch account 3. Profit and loss account 4. Branch stock account 5. Branch adjustment/branch mark-up account (Any three of the above) (b) Methods of pricing goods charged to branches: 1. At Cost Price: the head office charges goods out to branches at cost price. This method is good when goods are perishable or when it would be difficult to determine an appropriate selling price; the exact result of the branch's operation can be assessed because the cost price is used, although the check imposed by comparing against a selling price is not available. 2. At Selling Price: goods are accounted for by the branch at the fixed selling price. This is usually adopted where goods are sold at specific/proprietary prices; it is not suitable for perishable goods, but its advantage is that head office can keep an effective check on stock issued and cash received. 3. At Cost Plus a Percentage: this is the most effective method - goods are charged to the branch at cost plus a fixed percentage (mark-up), providing a reasonably reliable check on cash and stock; the gross profit will be disclosed by the accounts. (c) Reasons for preparing departmental accounts: 1. The gross profit of each department can be ascertained. 2. An unprofitable department will be revealed. 3. The result of each department's operations can be used to assess/pay the managers of each department. 4. The progress of each department can be monitored. 5. It serves as an incentive for hard work, because an efficient department can be identified and encouraged. 6. It provides investors and outsiders with adequate information for their decisions.

Model answer

Dupe Enterprises Adjusted Cash Book (balancing figure approach): Dr side: Dividend 315,000; Payment overcast (correction, added back) 256,813; Credit transfer 1,050,000; Receipt undercast 256,813 -- Total Dr = 1,878,626 Cr side: Payment understated (correction) 332,500; Balance b/f (original overdraft) 216,126; Standing order 420,000; Bank charges 8,750; Dishonoured cheque 700,000; Balance c/d (adjusted, overdrawn) 201,250 -- Total Cr = 1,878,626 Adjusted cash book balance = #201,250 overdrawn (Dr side balance c/d 201,250, i.e. an overdraft). Bank Reconciliation Statement as at 31 December 2016: Balance as per adjusted cash book (overdrawn): 201,250 Add: Unpresented cheque: 1,165,500 = 1,366,750 Less: Uncredited cheque: (1,922,375) = (555,625) Less: Bank error: (150,000)... [Working: cheque drawn 697,550 less amount recorded in cash book (payment undercast) 365,050 = 332,500 correction] Balance as per bank statement (overdraft) = #905,625 Note: the balance is shown as an overdraft (negative) because a bank overdraft occurs when withdrawals exceed the amount held in the account - it is a short-term loan from the bank.

Model answer

Subscription Account: Subscription in arrears b/d 120 + Income & Expenditure (subscription income) 4,020 + Subscription in advance c/d 60 (Dr side) = 4,200; Subscription in advance b/d 30 + Cash received 4,000 + Subscription in arrears c/d 170 (Cr side) = 4,200. => Subscription income transferred to Income & Expenditure = 4,020. Competition Prizes Trading Account: Opening stock 70 + Purchases 630 = Cost of prizes available 700; less Closing stock 80 = Cost of prizes sold 620; Sales of competition prizes 800; Gross profit on competition = 180. Competition Prizes Suppliers Account (workings): Owing b/f 90 + Purchases 630 = 720; Payments 600 + Owing c/d 120 = 720. Preliminary working - Equipment: Equipment b/f 1,950 less equipment c/f 1,500 = Depreciation 450. Income and Expenditure Account for year ended 31 December 2019: Income: Subscription 4,020; Refund of rent 1,000; Donation 300; Gross profit on competition prizes 180 = Total income 5,500 Expenditure: Rent 3,000; Secretariat expenses 200; Donation to charity 60; Stationery and printing 320; Depreciation 450; Honorarium to speaker 2,200 = Total expenditure 6,230 => Excess of expenditure over income (deficit) = 730 Balance Sheet as at 31 December 2019: Accumulated fund 2,020 less excess of expenditure over income (730) = 1,290 Add: Current liabilities - Creditors 120; Subscription in advance 60; Excess of payment over receipts 280 = 460 Total = 1,750 Represented by: Fixed asset - Equipment 1,500; Current assets - Stock 80; Subscription in arrears 170 = 250 Total assets = 1,750 (balances).

Model answer

Trading, Profit and Loss Account for the year ended 31/12/18: Sales Le1,500,000 Less Cost of goods sold: Opening stock 300,000 + Purchases 1,000,000 - Closing stock 400,000 = 900,000 Gross profit = Le600,000 Less Expenses: General expenses 280,000; Debenture interest 8,400; Directors' remuneration 70,000; Depreciation - plant and machinery 32,000; motor vehicles 14,000 Net profit = Le195,600 Appropriation Account: Net profit b/f from previous year 8,600 + Net profit for the year 195,600 = 204,200 Less: Transfer to general reserve 12,000 Retained/undistributed profit carried forward = Le192,200 Balance Sheet as at 31/12/18 (Le): Fixed assets: Plant and machinery 160,000 less accumulated depreciation 32,000 = 108,000; Motor vehicle 70,000 less depreciation 24,000 = 46,000 Financed by: Authorized & issued share capital - Ordinary shares 400,000 + 8% Preference shares 100,000 = 500,000; General reserve 22,000; Retained profit 192,200; Long-term liabilities - Debentures 120,000; Current liabilities - Creditors 172,400; Accrued director's remuneration 70,000 Current assets: Debtors 500,000; Stock 400,000; Bank 22,600 (Total assets = Total capital and liabilities = Le1,076,600, confirming the accounts balance.)

Model answer

(A) Statement of Capital Expenditure for the year ended 31 December 2020 (students record only expenditure of a capital nature - items that add to the value of a fixed asset and are executed by the development fund): Construction of market stalls D100,000; Construction of health care centre D120,000; Sinking of borehole D80,000; Purchase of ambulance D60,000; Office equipment and machines D20,000; Construction of laboratory D130,000; Purchase of hospital equipment D90,000; Purchase of generator D40,000; Purchase of water transplant D110,000; Purchase of office furniture D80,000; Construction of daycare centre D110,000; Construction of toilet D60,000; Provision of street light D90,000 TOTAL Capital Expenditure = D1,090,000 (B) Statement of Revenue Expenditure for the year ended 31 December 2020 (recurrent day-to-day running costs, charged to the consolidated fund): Maintenance of road D30,000; Repairs of vehicles D10,000; Lubricants D20,000; Electricity bill D15,000; Yellow fever vaccine D12,000; Servicing generator D5,000; Travelling expenses D10,000; Stationery D5,000; Drugs for health care D30,000; Environmental sanitation D40,000; Staff benefit D20,000; Telephone expenses D12,000; Refuse disposal D30,000; Salaries D100,000; Hospitality expenses D30,000 TOTAL Revenue Expenditure = D369,000

Model answer

Kristy Control Account: Discount received 300 + Payment 3,900 = 4,200 (Dr); Balance b/f 4,200 (Cr). Balances. Erica Control Account: Goods returned 1,500 + Discount received 600 + Payment 6,600 = 8,700 (Dr); Balance b/f for Erica 8,700 (Cr). Balances. Kofi Control Account: Goods returned 900 + Balance c/d 30,600 = 31,500 (Dr); Purchases from Kofi 17,400 + 14,100 = 31,500 (Cr). Balances. Mary Control Account: Balance c/d 10,500 (Dr) = Purchases from Mary 10,500 (Cr). Balances. Total (Purchases Ledger) Control Account: Dr side: Discount received from Kristy 300; Payment to Kristy 3,900; Goods returned to Erica 1,500; Discount received from Erica 600; Payment to Erica 6,600; Goods returned to Kofi 900; Balance c/d 41,000 = Total 54,900 Cr side: Balance b/f for Kristy 4,200; Balance b/f for Erica 8,700; Purchases from Kofi 17,400; Purchases from Kofi 14,100; Purchases from Mary 10,500 = Total 54,900 Note: the simple rule is that any transaction that reduces a debt is recorded on the debit side, and any transaction that increases a debt is recorded on the credit side of the control account.