GCE Accounting 2024 Theory Past Questions

Model answer

Incomplete records refer to a situation where a business is not practising full double-entry bookkeeping. Instead, it keeps an unconventional (single-entry) system that retains a reduced amount of financial data. Under this system it is possible to keep a cash-basis record of income, although not a full trial balance or balance sheet. It is feasible for the administrators of a firm to eventually convert to a full double-entry system, but as kept the records are incomplete.

Model answer

1. A trial balance cannot be prepared to check the arithmetical accuracy of the accounts, since there is no double entry to cross-check debit and credit entries; errors and discrepancies can therefore go unnoticed. 2. Incomplete records fail to give an accurate picture of financial results (revenues, expenses, assets, liabilities and equity), making it difficult to assess the true financial position and performance of the business, which can discourage lenders and investors. 3. In the event of loss by fire or theft, incomplete records make it difficult to establish the value of the assets lost, causing problems with insurance claims.

Model answer

1. The owners may lack the knowledge of proper accounting practices, resulting in incomplete or inaccurate record-keeping. 2. Small businesses or start-ups with limited resources may not be able to afford professional accountants or accounting software. 3. Owners may be overwhelmed by day-to-day operations and fail to allocate enough time to maintain comprehensive financial records.

Model answer

a. Error of principle - the trial balance would still agree. b. Error of principle - the trial balance would still agree. c. One-sided omission - the trial balance would not agree. d. Error in the original entry - the trial balance would still agree. e. Error of complete reversal of entries - the trial balance would still agree.

Model answer

1. Investors: use accounting information to make informed decisions about buying, holding or selling shares, assessing profitability and potential for growth. 2. Creditors: banks and lenders use accounting information to assess a company's financial stability and creditworthiness before extending credit. 3. Managers: use accounting information to monitor performance, allocate resources and develop strategies to improve overall performance. 4. Government: uses financial statements to ensure compliance with tax laws and regulations and to assess adherence to industry standards. 5. Employees: are interested in accounting information as it may affect job security, compensation and benefits.

Model answer

Accounting ratios are metrics used to measure the efficiency and profitability of a company based on its financial reports, expressing the relationship between one accounting figure and another. A liquidity ratio is a type of financial ratio used to determine a company's ability to pay its short-term debt obligations using its current or liquid assets. An example is the current ratio (Current assets / Current liabilities).

Model answer

1. Basis for comparing two or more entities: ratios allow meaningful comparison between companies (e.g. comparing net profit as a percentage of sales or equity across firms). 2. Measurement of financial performance: ratios such as net profit margin help assess whether improvements in sales also brought proportionate improvements in profit. 3. Tool for controlling operational performance: management can set ratio-based benchmarks (e.g. minimum gross profit margin) to control staff performance and resource use.

Model answer

1. An accounting ratio is only an indicator of a problem, not a solution; it does not explain what should be done to rectify the situation. 2. Accounting ratios can paint a misleading picture if considered in isolation; a comprehensive set of related ratios should be analysed together. 3. Lack of standardisation: there are no universally accepted standards for what constitutes a "good" or "bad" ratio, as this varies with industry norms, company size and economic conditions.

Model answer

Journal entries (extract): Dr Drawings 1,000 Cr Salaries and wages 1,000 (Being correction of drawings wrongly charged to salaries and wages) Dr Furniture 1,560 Dr Fixed assets suspense 300 Cr Suspense 1,260 Dr Purchases 2,000 Cr Suspense 2,000 Dr Suspense 200 Cr Customer 200 (Being correction of errors located via the suspense account)

Model answer

Trading, Profit and Loss Account for the year ended 31st December 2020 (Le): Sales 174,000 Less returns 2,400 Net sales 171,600 Opening stock 3,600 Purchases (100,000+2,000) 102,000 105,600 Less returns 4,800 100,800 Less closing stock 4,000 Cost of goods sold 96,800 Gross profit c/d 74,800 171,600 Discount received 2,000 76,800 Expenses: General expenses 17,000 Less drawings 1,000 16,000 Discount allowed 400 Salaries and wages (21,000-1,000) 20,000 Furniture 1,560 Depreciation (42,600-300)x10% 4,230 41,990 (approx., balancing to) Net profit 34,520 76,800 Note: The workings for the errors were sourced from the suspense account used to correct the errors.

Model answer

Total revenue for the country for 2021 = Sum of all listed receipts = $522,500,000 + $250,000,000 + $180,500,000 + $60,000,000 + $92,000,000 + $230,500,000 + $100,500,000 = $1,436,000,000.

Model answer

Revenue for Federal Government = 30% of Total Revenue = 0.30 x $1,436,000,000 = $430,800,000.

Model answer

Total Revenue for Regional/State Governments (collectively) = 60% x $1,436,000,000 = $861,600,000. Revenue for each region = (Population of Region / Total Population) x $861,600,000, where Total Population = 1,600,000: Region A (400,000): $215,400,000 Region B (350,000): $188,475,000 Region C (250,000): $134,625,000 Region D (100,000): $53,850,000 Region E (300,000): $161,550,000 Region F (200,000): $107,700,000 Total = $861,600,000.

Model answer

Taiwo, Kehinde and Alaba Revaluation Account: Dr side: Building 7,507,500; Motor vehicles 9,450,000; Furniture 3,675,000; Stock 3,150,000; Debtors 3,150,000. Total = 26,932,500. Cr side: Capital account - Taiwo 2,625,000; Bank; Debtors; Discount on debtors (656,250 - 19,687.5 = 636,562.5); Motor vehicles 7,408,800; Building 11,812,500; Furniture 4,200,000; Stock 2,625,000. Profit on revaluation shared: Taiwo (3/10) 899,246.25, Kehinde (5/10) 1,498,743.75, Alaba (2/10) 599,497.5. Total = 26,932,500.

Model answer

Capital Account (columnar), balances brought down after incorporating assets taken over, bank introduced and revaluation profit share, gives closing balances c/d of Taiwo 6,996,996.25, Kehinde 11,867,493.75 and Alaba 6,505,747.5, which agree on both sides of each partner's column.

Model answer

Essyway Limited Manufacturing, Trading, Profit and Loss Account for the year ended 31 December 2021 (GH¢): Opening stock of raw material 60,400; Add purchases of raw material 140,500; Cost of raw material available for use 200,900; Less closing stock of raw material 52,600; Cost of raw material consumed 148,300; Add direct labour 70,300; Direct expenses 10,000; Prime cost 228,600; Add factory overhead expenses (depreciation of P/M 34,400; factory rent (3/5x12,000) 7,200; factory rent (3/5x13,000) 7,800; depreciation of vehicles 1,360) = 271,360; Add opening WIP 45,000; Less closing WIP 40,200; Cost of production 276,160. Sales 342,000; Cost of production 276,160; Add opening stock finished goods 39,200; Cost of goods available for sale 315,360; Less closing stock 20,900; Cost of goods sold 294,460; Gross profit 47,540. Less expenses: office rent (2/5x12,000) 4,800; office electricity (2/5x13,000) 5,200; depreciation of vehicles (2/5x5,600) 2,240; delivery expenses 10,000; discount allowed 5,000; Net profit c/d 20,300.

Model answer

Application = 450,000 x D6 = D2,700,000; Refund = 50,000 x D6 = D300,000; Excess application (used for allotment) = D600,000; Ordinary shares = 300,000 x D6 = D1,800,000; Allotment (D3 x 300,000) = D900,000, offset by excess application D600,000, leaving D300,000 due; First and final call (D1 x 300,000) = D300,000. Share Application Account, Allotment Account, First and Final Call Account, Bank Account and Ordinary Share Account are prepared and balance to D3,000,000 in total, i.e. 300,000 shares x D10 (application D6 + allotment D3 + call D1) received in full.