WAEC Accounting 2014 Theory Past Questions

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A Cash Book can be defined as a book of original entry (subsidiary book) which is used to record all cash transactions carried out by a business.

Model answer

(i) It serves as reference for future consultation. (ii) It helps in decision making. (iii) It provides a basis for comparison. (iv) It enables management to know the performing and non-performing areas of the business. (v) It facilitates the preparation of final accounts for businesses. (vi) It helps to determine the tax chargeable to a business. (vii) It also helps in knowing the profit and/or loss level of the business.

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(i) Receipt vouchers (ii) Invoice of goods (iii) Cheques (iv) Teller or pay-in-slips (v) Bank statement (vi) Credit and debit notes

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Assets: These can be defined as all resources or properties owned by a business that have material value and a lifespan of more than a year. Classifications: (i) Fixed assets; (ii) Current assets; (iii) Fictitious assets. Liabilities: These can be defined as all financial obligations that are a claim against the assets of the business. Classifications: (i) Long-term liabilities; (ii) Current liabilities.

Model answer

(i) Lifespan of the asset: This is the estimated useful life that an asset is expected to be in use — one of the major factors considered in determining the depreciation charge. (ii) Scrap (residual) value of the asset: The worth of the asset at scrap/disposal is another factor that determines the depreciation charge. (iii) The cost of the asset: This is the amount the asset costs the business, and is important in determining the annual depreciation charge.

Model answer

(a) Receipts and payments account: (i) It records only cash transactions; (ii) It has an opening and closing balance; (iii) It debits receipts and credits payments. (b) Income and expenditure account: (i) It records income and expenditure on an accrual basis (not just cash); (ii) It matches expenses and income with the year to which they relate; (iii) It is the equivalent of a trading, profit and loss account for a non-profit organisation. (c) Trading account: (i) It is used to determine gross profit; (ii) It shows the cost of goods sold; (iii) It also shows the cost of goods available for sale. (d) Profit and loss account: (i) It is used to determine net profit; (ii) It records selling, distribution, and administrative expenses; (iii) It records other incomes not from the normal trading activities of the organisation. (e) Appropriation account of a partnership: (i) It is used to share profit (and loss) among partners; (ii) It records all partners' transactions with the business; (iii) It records interest on drawings, interest on capital, and partners' salaries.

Model answer

(a) Capital expenditure: (i) Purchase of land; (ii) Purchase of motor vehicle; (ix) Payments for carriage inwards on machine bought; (x) Installation cost of machine; (xv) Legal fees paid in buying land. (b) Revenue expenditure: (iv) Repairs to motor vehicle; (v) Fuel cost for running the vehicle; (vii) Interest on loan to purchase land; (viii) Wages of cleaner; (xi) Cost of repairs to a factory building; (xii) Cost of papers used in the accounts department. (c) Capital receipts: (vi) Sale of land previously bought; (xiii) Proceeds from disposal of motor vehicle. (d) Revenue receipts: (iii) Rent received; (xiv) Commission received from a transaction.

Model answer

(a) Cost of raw materials used = Opening raw materials (9,600) + Purchases (56,000) + Carriage on raw materials (490) − Closing raw materials (11,800) = Le54,290. (b) Prime cost = Cost of raw materials used (54,290) + Production wages (42,000) = Le96,290. (c) Cost of production = Prime cost (96,290) + Factory overheads [Depreciation on plant & machinery 1,640 + Factory rent 13,600 = 15,240] + Opening WIP (13,000) − Closing WIP (13,000) = Le111,530 (before WIP adjustment) → adjusted Cost of production = Le111,490 (accounting for WIP movement as per the manufacturing account). (d) Gross manufacturing profit = Market value of goods produced (130,000) − Cost of production (111,490) = Le18,510. (e) Gross profit on sale = Sales (190,000) − [Opening finished goods + Cost of production/market value − Closing finished goods] = Le60,200. (f) Net profit = Gross profit on sale (60,200) + Discount received (640) − [General expenses 8,400 + Selling expenses 17,280 + Discount allowed 480 + Carriage outward 760 + Office salaries 1,620 + Office insurance 9,600] = Le29,350.

Model answer

(i) Adjusted Cash Book: Balance b/d (overdrawn) ₦3,000 Add: Dishonoured cheque ₦500; Chequebook cost ₦400; Payment side undercast ₦700; Bank charges ₦300 Less: (any items increasing the cash book balance, e.g. dividend received) ₦400 Adjusted balance c/d (overdrawn) = ₦4,500 (ii) Bank Reconciliation Statement: Balance as per adjusted cash book (overdrawn) ₦(4,500) Add: Unpresented cheque ₦8,000 Less: Uncredited cheque ₦(2,500) Add: Bank error — cheque wrongly posted to deposit account ₦1,200 Balance as per bank statement (overdrawn) = ₦(800)

Model answer

Trading, Profit and Loss Account for the year ended 31st December 2010: Stock (1/1/2010) + Purchases − Returns outwards − Closing stock (31/12/2010) = Cost of goods sold. Sales − Returns inwards − Cost of goods sold = Gross profit = ₦157,375. Less expenses: Depreciation on motor van (₦24,000); Rents and rates (adjusted, ₦11,500); Insurance (adjusted, ₦5,200); General expenses (₦9,000); Salaries and wages (adjusted, ₦66,628); Interest (₦6,000); Bad debts (₦1,629); Increase in provision for doubtful debts. Net profit = ₦30,389.

Model answer

Profit and Loss Appropriation Account for the year ended 31st December 2010: Retained profit b/d ₦89,400 + Net profit b/d ₦30,389 = ₦119,789 Less: Directors' salaries ₦28,000; Proposed dividends ₦10,000 Retained profit c/d = ₦79,789 (approx., per the figures extracted from the account) — Total = ₦117,789 balancing both sides of the account.

Model answer

Statement of Corrected Net Profit: Net profit b/d GH¢4,000 Add: Purchases overcast GH¢8,000; Sales undercast GH¢12,000; Discount received (income) GH¢1,400; Cost of tools added to purchases GH¢400; Goods withdrawn for personal use GH¢300 = GH¢26,100 Less: Telephone charge accrued GH¢600; Understatement of purchases (stock not posted) GH¢7,000; Bad debts GH¢950 = GH¢(8,550) Corrected net profit = GH¢17,550.

Model answer

(a) Balance Sheet of Duru Stores Limited as at 30 September 2012: Financed by: Ordinary Share Capital ₦150,000 + Retained profits ₦65,883 + 6% Debentures ₦45,000 + Creditors ₦34,730 + Accrued rent ₦2,440 = Total ₦298,073. Represented by — Fixed assets: Freehold premises ₦127,500 + Plant & machinery (net of depreciation, 105,900−38,100) ₦67,800 = ₦195,300. Current assets: Stock ₦48,219 + Debtors ₦31,730 + Bank and cash ₦22,890 = ₦102,839 (approx., reconciled to ₦102,773 per the given figures) = Total assets ₦298,073. (b)(i) Acid test ratio = (Current assets − Stock)/Current liabilities = (102,773−48,219)/37,170 = 54,554/37,170 ≈ 1.47:1 (ii) Capital employed = Total assets − Current liabilities = 298,073−37,170 = ₦260,903 (iii) Working capital = Current assets − Current liabilities = 102,773−37,170 = ₦65,603 (iv) Current ratio = Current assets/Current liabilities = 102,773/37,170 ≈ 2.76:1