WAEC Accounting 2019 Theory Past Questions

Model answer

(a) Increase in provision for doubtful debt: An increase in the provision for doubtful debt means that the doubtful debts of the current year has increased compared with the previous year. Thus, this is an emphasis to the business. The accounting treatment in the final account goods thus: Dr Profit and loss account with the increase; Cr Debtors account with the increase. (b) Decrease in provision for doubtful debt: A decrease in provision for doubtful debt means that the doubtful debts of the current year has decreased compared with doubtful debt of the previous year. This is an income to the business e.g. in 2017, the doubtful debt was estimated at N300 but in 2018 it was estimated that the premiums N300 doubted has reluctant to N250. This is an income to the business. Thus, the accounting treatment is: Dr Debtors account with the decrease; Cr Profit and loss account with the decrease. (c) Provision for discount on debtors: This is the allowance based on some percentage allowed debtors as deduction from their total debts. It could be caused or used to influence quick payment or quantity purchase. The provision is a relief to the debtors and an expense to the business, thus the accounting treatment is: Dr Profit and loss account; Cr Debtors account. (d) Provision for discount on creditors: This is the allowance based on some percentage allowed by creditors to the organization. It could be to facilitate quick payment. It is an income to the organization, thus the accounting treatment is: Dr Creditors account; Cr Profit and loss account. (e) Provision for depreciation: This can be defined as an allowance made for replacement of fixed asset as a result of wear and tear. It is an expense to the organisation, thus the accounting treatment in the final account is: Dr Profit and loss account; Cr Asset account.

Model answer

(a) Closing entries: These are balancing entries in the journal accounts which are transferred to the income and expenditure account or the balance sheet. (b) A branch is a division of an organization which is located in another location apart from its headquarters or other branches while a department is a section of a single organization divided into units operating under a single roof. Example of a branch is a bank while example of a department is a departmental stores or finance department in an organization. (c) Reasons for the preparation of a branch account: i. To determine branch profit and for loss. ii. To reconcile branch and head office account. iii. To prevent fraud at the branch. iv. To know branch performances.

Model answer

(a) Effects of drawings on the business of a sole proprietor: i. It reduces the capital of the proprietor in the business if the drawing is in form of money. ii. It could reduce profit of the drawing if in form of goods. iii. It leads to reduction in asset of comparing if it's in form of cash and flow stock. (b)(i) Accrued expenses: It is added to current liabilities in the balance sheet. (ii) Prepaid expenses: It is added to current asset in the balance sheet. (iii) Accrued income: It is added to current asset in the balance sheet.

Model answer

(a) Reasons for dishonouring cheques: i. Irregularity in signature of drawer. ii. Disagreement in amount written in word and the one written in figure. iii. Suspicion of alteration in the displaced (altered) cheque. (b)(i) Petty cash float: This can be defined as maximum amount given to the petty cashier to run the petty cashbook. Expenses incurred are reimbursed regularly for the cashier to keep the maximum amount intact. (ii) Contra entries: These are referred to entries posted in both debit and credit side of a single account or two similar account (such as total debtors account and total creditors account) to offset the effect of the transaction. (iii) Imprest system: This can be defined as a system of petty cashbook in which a certain amount is given to the petty cashiers to run some minute expenses in order not to overlook the main cash books. The amount spent is reimbursed regularly to keep the maximum amount intact. (c) Advantages of keeping petty cashbook using imprest system: i. It reduces burden or too much entry in the main cash book. ii. It monitors the small daily but recurring expenses in the organisation. iii. It minimizes fraud.

Model answer

See the Sales Journal, Papuk Account, Abass Account, and Sales Ledger Control Account tables in the Diagram column. Sales to Papuk (80 bags x GH¢255 = GH¢20,400, less 5% trade discount of GH¢1,020) = GH¢19,380. Papuk pays via cheque less a 10% cash discount (GH¢1,938), settling the account in full. Abass's account records the GH¢1,170 credit sale, a GH¢900 cash payment received, leaving a balance of GH¢270 owing. The Sales Ledger Control Account totals GH¢21,570 on the debit side (from total sales of GH¢20,400 and GH¢1,170) and is balanced by the cheque received (GH¢17,442), discount allowed (GH¢1,938), cash received (GH¢900), and the closing balance owed (GH¢270).

Model answer

See the Profit and Loss Appropriation Account and Partners' Current Account tables in the Diagram column. Note: Hassanah's monthly salary of D10,000 gives an annual salary of D120,000 (D10,000 x 12); interest on capital is Ubochi D24,000 (8% x D300,000) and Hassanah D20,000 (8% x D250,000). After deducting salary and interest on capital from the net profit of D300,000, the remaining profit of D137,750 is shared 3:2 between Ubochi (D82,650) and Hassanah (D55,100). The Partners' Current Accounts show closing balances of D385,650 for Ubochi and D429,350 for Hassanah, after accounting for drawings and interest on drawings.

Model answer

See the Adjusted Cash Book and Bank Reconciliation Statement tables in the Diagram column. The cash book is adjusted for items not yet recorded by Adedeji: the standing order (GH¢160), bank charges (GH¢40), the dishonoured cheque (GH¢200), the transfer to bank (GH¢6,000), the understated payment correction (GH¢40), the credit transfer received (GH¢400), and the overstated payment correction (GH¢360), and the unrecorded receipt (GH¢40), giving an adjusted cash book balance of GH¢2,040. The Bank Reconciliation Statement then reconciles this adjusted balance to the bank statement balance by accounting for the unpresented cheque (GH¢600), the uncredited cheque (GH¢3,600), and the bank's crediting error (GH¢1,080-600=GH¢480 difference), arriving at the balance as per the bank statement.

Model answer

See the Journal Entries and Suspense Account tables in the Diagram column. The Suspense Account opens with a balance brought down of Le1,120 (the difference on the original trial balance), which is fully cleared by correcting the overstated sales figure (Le480) and the omitted sundry expenses (Le640), bringing the account to balance.

Model answer

See the Trading, Profit and Loss Account and Balance Sheet tables in the Diagram column, showing a Gross profit of N160,000, Net profit before tax of N40,000, and Shareholders' funds of N150,000. (i) Stock turnover ratio = Cost of goods sold / Average stock = N200,000 / N35,000 = 5.71 times, approximately 6 times (Average stock = (N30,000+N40,000)/2 = N35,000). (ii) Gross profit margin = (Gross profit/Sales) x 100 = (N160,000/N360,000) x 100 = 44.4%. (iii) Net profit margin = (Net profit/Sales) x 100 = (N40,000/N360,000) x 100 = 11.1%. (iv) Current ratio = Current assets/Current liabilities x 100 = (N90,000/N45,000) x 100 = 2:1. (v) Acid test ratio = (Current assets - Stock)/Current liabilities x 100 = (N90,000-N40,000)/N45,000 x 100 = 1.11:1.