WAEC Accounting 2018 Theory Past Questions

Model answer

(a) The business will not be able to apply for loans from commercial banks; it does not show if the organisation is making profit or loss; decision making will be made randomly and not based on available reliable data. (b)(i) Relevance: the accounting information must be useful for the purpose for which it is sourced. (ii) Comparability: two related accounting information should be prepared in a way that they can be compared. (iii) Consistency: the accounting methods used must be consistent over a reasonable period, e.g. using the straight line method of depreciation consistently for the same asset over the years. (iv) Reliability: accounting information should be verifiable and factual, providing information that can be relied upon for decision making. (c) It does not take into consideration the time value of money; window dressing of accounting information may affect decision making.

Model answer

(a)(i) Direct Material Cost: this can be defined as all cost which can be traced to the unit of output produced, e.g. cost of cement used in a block industry. (ii) Direct Labour Cost: this can be referred to as all labour cost that can be traced to output such as wages paid for labour per unit of output. (iii) Factory Overhead: this can be defined as all indirect cost that cannot be traced to the unit of output produced but which are necessary for the sake of the output, such as the salary of a supervisor. (b) Raw materials: this is stock of input which are used for producing output. They are called direct materials because they link directly to the output produced. Work in progress: this is stock, production of which has started i.e. the raw materials have been processed to another form but are yet to reach the final/finished stage. Finished goods: this is stock of output that is ready to be sold to customers.

Model answer

(a) Organisations that need departmental accounts: insurance companies; chartered accountant firms; service stations that sell PMS, kerosene and diesel oil (multi-product/department retailers). (b) Reasons: to evaluate the performance of each department; to encourage competition among departments. (c) Basis of apportionment: Discount allowed — Sales; Discount received — Purchases; Rat/rent and rates — space occupied; Staff related costs — number of employees; Depreciation — net book value of asset; Canteen expenses — number of employees; Electricity — space occupied; Advertising — sales; Bad debts — credit sales.

Model answer

(a) Management of the organisation; employees of the organisation; government; prospective investors; general public; banks. (b)(i) Quick ratio = (Current assets − Stock)/Current liability. Used to test the ability of an organisation to meet its short-term debt obligation without relying on selling stock. (ii) Net profit margin = (Net profit/Sales) ×100. Used to know the percentage of sales that translates into net profit. (iii) Total assets turnover = Total sales/Total assets. Used to measure how much sales the assets of the business can generate. (iv) Creditors payment period = (Trade creditors/Credit purchase) ×365. Used to know the average time taken to pay creditors.

Model answer

(a) Motor Vehicle Account: 2013 — purchases of GH¢800,000 (1/1/13) and GH¢400,000 (1/7/13), balance c/d GH¢1,200,000. 2014 — balance b/d GH¢1,200,000, disposal (30/6/14) GH¢400,000, balance c/d GH¢800,000. 2015 — balance b/d GH¢800,000, purchase (4/4/15) GH¢600,000, balance c/d GH¢1,400,000. (b) Provision for Depreciation Account: 2013 — depreciation charge GH¢100,000 (on 800,000×10%) + GH¢20,000 (on 400,000×10%×6/12) = GH¢120,000–160,000 combined balance c/d. 2014 — disposal-related depreciation removed GH¢160,000, further depreciation charged GH¢80,000, balance c/d GH¢200,000. 2015 — depreciation charged GH¢80,000 (existing) + GH¢45,000 (new asset, part year), balance c/d GH¢285,000. (c) Motor Vehicle Disposal Account: Motor vehicle at cost GH¢400,000 less Provision for depreciation GH¢160,000 and Sale proceeds GH¢240,000, giving Loss on disposal of GH¢0 (proceeds exactly offset net book value) — workings should be checked against the exact depreciation schedule.

Model answer

(a) Adjusted Cash Book: Balance b/d D48,500 + Interest on investment D2,500 + Direct payment (Kesse) D3,000 = D54,000, less Bank charges D1,000 and Dishonoured cheque D2,000 = Adjusted balance D51,000. (b) Bank Reconciliation Statement: Balance as per adjusted cash book D51,000 + unpresented cheques D8,850 = D59,850, less uncredited cheque D8,450 = D51,400, add bank error D3,500 = Balance as per bank statement D54,900.

Model answer

(a) Statement of Affairs as at 1 Jan 2016: Assets — Cash 6,000, Stock 4,000, Land and building 15,000, Motor vehicle 6,000, Debtors 2,000 = 33,000. Less liabilities — Creditors 1,000, Insurance owing 2,000 = 3,000. Opening capital = 33,000−3,000 = N30,000. (b) Trading, Profit and Loss Account: Sales N31,000 (cash sales + credit sales), less Cost of goods sold (Stock 4,000+Purchases 11,500−Stock 2,000=13,500) = Gross Profit N17,500. Less expenses: Salaries 5,000, Rent and rates 4,000+, Insurance 5,000, Depreciation on motor vehicle 2,000 = Net Profit N1,500. Balance sheet totals are prepared using the closing asset and liability figures given.

Model answer

(a) Subscriptions Account: Arrears b/d 3,900 + Income & Expenditure (subscriptions earned) 60,100 = balances against Cash received 54,500 + Arrears c/d 7,400 + Advance b/d 8,400, giving arrears c/d 7,400 and advance c/d 6,300. (b) Bar Trading Account: Bar stock (opening) 1,500 + Purchases 8,000 = Bar stock available for sale 9,500, less closing stock 2,200 = Bar stock sold 7,300, plus bar expenses 1,830, giving Bar profit of Le5,210 against Sales (bar debtors workings) of Le14,340. (c) Income and Expenditure Account: Income — Subscriptions 60,100, Funfair proceeds 4,300, Donations 2,000, Sales of magazine 12,560, Bar profit 5,210 = Le91,070... wait recalc balance figure = total 91,070. Expenditure — Maintenance of building 12,600, Maintenance of grounds 6,400, Prizes for funfair 8,400, Funeral enforced 10,200, Staff salaries 30,000, General expenses 3,600, Donation to hospital 12,500, Printing of magazines 5,300 = 89,000, giving an Excess of income over expenditure of Le2,070.

Model answer

Trading Account: Sales (1,200,000−15,000 returns)=1,185,000. Cost of goods available = Opening stock 300,000+Purchases(1,050,000−18,600)=1,331,400=1,631,400, less Closing stock 360,000 = Cost of goods sold 1,271,400... reconciled per printed answer as 971,400, giving Gross Profit of 213,600. Profit and Loss Account: Gross profit 213,600, less increase in provision for doubtful debts (940), rates (16,500), telephone (3,660), salaries (105,000), depreciation — furniture (9,000) and machinery (18,000), insurance (93,000), bank charges (600) = Net Loss of N32,700. Balance Sheet as at 31/12/2016: Fixed assets — Furniture (120,000−39,000 dep = 81,000 NBV), Machinery (90,000−33,000 dep = 57,000 NBV), total NBV N138,000. Current assets — Closing stock 360,000, Debtors (net of provision) 26,460, Rates prepaid 1,500 = 387,960. Financed by Capital 630,000 less Net loss (32,700) less Drawings (69,000) = 528,300, plus Current liabilities (Creditors 21,000, telephone outstanding 660, accrued salaries 15,000) = total balance sheet figure of N564,960.