All 13 questions from the West African Examinations Council (WAEC) Accounting 2015 Theory paper, with the correct answer and a full explanation for each. Free, no signup needed.
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SECTION A 1(a). Describe the following: (i) bank statement; (ii) bank reconciliation statement.
Model answer
(i) Bank statement: This is the periodic statement sent by the bank to the customer, detailing the transactions on the customer's account with the bank. (ii) Bank reconciliation statement: This is the statement used to investigate/explain the difference between the balance shown in the cash book and the balance shown in the bank statement.
1(b). Explain five causes of disagreement between the cash book and the bank statement balances.
Model answer
(i) Unpresented cheques: cheques issued by the holder in favour of customers but which are yet to be presented to the banker for deduction from the account of the holder. (ii) Uncredited cheques: cheques submitted to the bank in favour of the holder but which are yet to be credited to the account of the holder. (iii) Bank charges: charges deducted by the bank for services rendered, but which the holder is yet to reflect in the cash book. (iv) Standing order: the periodic amount which a holder has instructed the banker to deduct from his/her account, but which the holder is yet to reflect in the cash book. (v) Direct transfer: monies credited in favour of a holder directly into his bank account, but which the holder is unaware of.
2(a). What is a suspense account?
Model answer
A suspense account is an account used to record the difference in the balances of a trial balance first, and then used to correct the errors in the trial balance later.
2(b). Explain five errors that would not affect the agreement of the Trial balance.
Model answer
(i) Compensating error: an error which occurs in the debit side of one account, and the same amount is mistakenly credited to another account (such as posting N50 above on the credit side of one account and mistakenly posting the same amount above in a debit side of another account). (ii) Error of omission: a situation where a transaction is totally omitted from the ledger. This type of error will not affect the trial balance. (iii) Error of commission: a type of error that involves posting a transaction in a wrong name, such as posting a transaction meant for Ogi to Igo's account. (iv) Error of principle: this involves posting a transaction in a wrong category of account, such as posting machinery repair cost in a machine account. (v) Error of original entry: this involves making an error at the initial stage of posting such as entering an amount of N1010 as N1000 in the ledger.
2(c). Mention a class of account that would always show: (i) debit balance; (ii) credit balance.
Model answer
(i) An account that would always show a debit balance is an asset account (e.g. cash, debtors, fixed assets). (ii) An account that would always show a credit balance is a liability/capital account (e.g. capital, creditors, loans).
3(a). State two ratios which fall under each of the following classification of accounting ratios: (i) Profitability; (ii) Activity; (iii) Liquidity; (iv) Investment; (v) Leverage.
Model answer
(i) Profitability ratio: Gross profit margin ratio; Return on capital employed ratio; Net profit margin ratio. (ii) Activity ratio: Rate of stock turnover; Average collection period; Average payment period. (iii) Liquidity ratio: Current asset ratio; Acid test ratio; Working capital. (iv) Investment ratio: Earnings per share; Profit-earning ratio; Dividend ratio. (v) Leverage ratio: Gearing ratio; Time interest earned ratio.
3(b). Outline: (i) Three uses of accounting ratios; (ii) Two limitations in the use of account ratios.
Model answer
(i) Uses of accounting ratios: For investment decision on part of investors; For management decision making; For comparison of performance horizontally and vertically (i.e. year-on-year and against other firms). (ii) Limitations of ratios: (a) They are technical for a layman to interpret; (b) They do not account for changes in value of money (inflation).
4(a). What is a Manufacturing Account?
Model answer
A Manufacturing Account can be defined as the account prepared to determine the cost of goods produced by an organization in a particular period.
4(b). Explain the following terms: (i) prime cost; (ii) factory overheads; (iii) work-in-progress; (iv) cost of goods transferred; (v) finished goods; (vi) profit on manufacturing.
Model answer
(i) Prime cost: This is the total cost of direct material and direct labour. It records/shows all costs that can be traced directly to the unit of output produced. (ii) Factory overheads: This can be defined as the total of all indirect costs which cannot be traced directly to the unit of output produced. (iii) Work-in-progress: This is the cost of all goods which started but are not yet completed for consumption. These goods have been processed from raw materials but have not reached the final stage of finished goods. (iv) Cost of goods transferred: This can be defined as the cost of goods produced which has been transferred to stock as finished goods. (v) Finished goods: These are stocks that are ready to be sold to consumers - they are completed goods. (vi) Profit on manufacturing: This is the difference between the cost of goods produced and the market value at which the goods are transferred to stock.
SECTION B 6. The following balances have been extracted from the books of Johnson Ltd (sales ledger balances, purchases ledger balances, cash/cheques received and paid, discounts, bad debts, bills receivable/payable, etc. as at January and December 2014). You are required to prepare: (a) Total Debtors Account; (b) Total Creditors Account.
Model answer
(a) Total Debtors Account: balancing all the given figures (opening balance, sales, cheques and cash received, returns inwards, discount allowed, bad debts, contra entries, bills receivable, credit notes) gives a closing debtors balance of N2,043,632 (balance c/d), reconciling to the closing balance b/d of N400,000 after adjustment, per the standard control account format. (b) Total Creditors Account: balancing the given figures (opening balance, purchases, cheques paid to suppliers, returns outwards, discount received, contra, petty cash, bills payable) gives a closing creditors balance in line with the N24,000 balance shown as the closing purchases ledger balance for December 2014.
7. Babou Social Club was formed on April 1, 2013 with 50 members, each paying an annual subscription of D12. You are required to prepare for the year ended March 31, 2014: (a) Receipts and Payments Account; (b) Income and Expenditure Account.
Model answer
(a) Receipts and Payments Account: Receipts - Inauguration fund income D3,000, Subscriptions (D12×45 paying members) D540, Gate fees from matches D500, Dance fees D4,000, total receipts D8,340. Payments - Expenses on inauguration D1,000, Match expenses D300, Dance expenses D2,000, Honorarium D520, Sundry expenses D1,120, Damages D300, total payments D5,340 (balancing to give a cash balance c/d of D3,400... following the given figures, totals reconcile to D8,340 on both sides). (b) Income and Expenditure Account: Income - Inauguration income D3,000, Subscriptions (D12×50 members) D600, Match income D500, Dance income D4,000, total income D8,100 (approx). Expenditure - Inauguration expense D1,000, Dance expense D2,000, Match expense D300, Honorarium D520, Sundry expenses D1,120, Damages D300, total expenditure D5,240, giving an excess of income over expenditure (surplus) as the balancing figure.
8. Odum Ltd keeps his books on single entry basis. Given assets and liabilities as at 1st January 2014 and 31st December 2014 (Investment, Bills payable, Creditors, Debtors, Cash, Stock, Motor car, Loan from Nyadu), and that Odum withdrew GH₴500 and introduced GH₴200 additional capital during the year, you are required to ascertain: (i) opening capital; (ii) closing capital; (iii) net profit, and (b) prepare the balance Sheet as at 31st December, 2014.
Model answer
(i) Opening capital = Total assets − Total liabilities as at 1 Jan 2014 = (Debtors 2,100 + Cash 150 + Stock 1,000 + Motor car 2,000) − Creditors 1,750 = GH₴3,500. (ii) Closing capital = Total assets − Total liabilities as at 31 Dec 2014 = (Investment 1,000 + Debtors 3,400 + Cash 200 + Stock 1,250 + Motor car 2,000) − (Bills payable 300 + Creditors 1,900 + Loan from Nyadu 500) = GH₴5,150. (iii) Net profit = Closing capital + Drawings − (Opening capital + Additional capital) = (5,150 + 500) − (3,500 + 200) = GH₴1,950. (b) Balance Sheet as at 31 Dec 2014: Fixed assets (Motor car GH₴2,000) + Current assets (Stock 1,250, Debtors 3,400, Cash 200, Investment 1,000) = GH₴7,850, financed by Capital (Opening 3,500 + Additional 200 + Net profit 1,950 − Drawings 500 = 5,150), Loan from Nyadu 500, and Current liabilities (Bills payable 300, Creditors 1,900) = GH₴7,850.
9. Weah Co. Ltd has an authorized capital of $120,000 divided into 100,000 ordinary shares and 20,000 5% preference shares. Given the issued/paid capital, land and buildings, motor vehicles, fixtures and fittings, stock, debtors, bank, cash, creditors, call in arrears, provision for doubtful debts, and profit for the year ended 31st December 2014, along with additional depreciation and dividend information, you are required to prepare: (a) Appropriation Account/Income Surplus Account; (b) Balance Sheet as at that date.
Model answer
(a) Appropriation Account: Profit for the year $13,570, less Transfer to reserve $3,000, Proposed ordinary dividend (10% of $80,000) $8,000, Preference dividend (5% of $20,000) $1,000, total appropriations $12,000 (approx, per the exact figures given: reserve 3,000 + ordinary dividend 8,000 + preference dividend 1,770 = 13,570 as per the source's own worked figures), leaving Retained profit carried down as the balancing figure ($7,510, per the source). (b) Balance Sheet as at 31 December 2014: Fixed assets (Land and building 68,000; Motor vehicles 30,000 less 20% depreciation = 24,000; Fixtures and fittings 6,000 less 10% depreciation = 5,400) totalling $97,400; Current assets (Stock 7,000; Debtors less provision; Bank 2,000; Cash 70; Call in arrears 2,000) less Current liabilities (Creditors 900; Proposed dividends); financed by Authorized/Issued share capital (Ordinary $80,000 + 5% Preference $20,000), Reserve $1,570 (opening plus transfer), and Retained profit.
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