WAEC SSCE - Financial Accounting - 2020

The purpose of preparing a trading account is to ascertain 

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The purpose of preparing a trading account is to ascertain the gross profit earned or the gross loss incurred by a business during a particular accounting period. A trading account is an account in the financial records of a business that is used to calculate the gross profit or gross loss of the business. It shows the total revenue generated by the business during the accounting period, as well as the total cost of goods sold during the same period. By deducting the cost of goods sold from the total revenue generated, the trading account shows the gross profit earned by the business. If the cost of goods sold exceeds the revenue generated, the trading account shows a gross loss. In summary, the purpose of preparing a trading account is to calculate the gross profit or gross loss of a business during a particular accounting period. This is done by comparing the total revenue generated by the business to the total cost of goods sold during the same period.

Eze introduces his private car into his business. The aspect of the accounting equation of the business that would be affected are

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When Eze introduces his private car into his business, the aspect of the accounting equation that would be affected are Assets and Capital. This is because the private car would be recorded as an asset of the business, increasing the total value of assets. At the same time, Eze's equity in the business (i.e., his capital) would also increase, as he has contributed a valuable asset to the business. In summary, the introduction of Eze's private car into his business would increase both the total assets and the owner's equity (capital) of the business.

A partner who contributes capital but does not participate in the day-to-day running of the business is 

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A partner who contributes capital but does not participate in the day-to-day running of the business is called a "sleeping partner." Sleeping partners are also known as silent partners or dormant partners. Unlike active partners, sleeping partners do not take an active role in the management of the business. Instead, they provide financial support by contributing capital to the partnership. In return, they receive a share of the profits in accordance with the partnership agreement. Sleeping partners may be involved in the decision-making process of the business, but they are not involved in the day-to-day running of the business. They are typically passive investors who provide financial support to the business without actively participating in its management. Therefore, the correct answer is "a sleeping partner."

Income received in advance is treated in the balance sheet as a 

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Income received in advance is treated in the balance sheet as a current liability. Income received in advance refers to payments received for goods or services that have not yet been delivered or performed. This means that the business has an obligation to provide the goods or services in the future, and the payment received is considered a liability until the obligation is fulfilled. As a result, income received in advance is typically recorded in the balance sheet as a current liability, which is a debt that is expected to be settled within one year. This is because the payment received represents an obligation that the business must fulfill in the near future, and it is classified as a liability because it represents a debt owed to the customer. Classifying income received in advance as a liability helps to accurately reflect the financial position of the business and provides a clear picture of its obligations and debts.

Use the following information to answer the question below

Provision for doubtful debts------1,000Cr
Bad debts--------500Dr
Debtors-------50,000Dr
Additional bad debts to be written off-----500
New provision for doubtful debts to stand at 5% of debtors

The net figure for debtors in the balance sheet is 

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A credit purchase of N200 from Osae was posted to the account of Osei. This is an error of 

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Kwamenah bought goods worth Le 50,000 from Doe and Sons Limited on the following terms: 3% trade discount: 10% cash discount. Kwamenah returned defective goods worth Le 8,000 the next day and made payment for the
remaining goods on the due date.

Kwamenah would record the 10% discount in the
 

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A debit balance of N420 on the purchases ledger control account means that the 

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Use the following information to answer the questions below

A manufacturing company's cost of production was D 200,000. The finished goods were transferred to the warehouse at D 220,000. At the end of the year, 9% of these goods were still in stock.

The value of the closing stock of finished goods that would be shown in the balance sheet is

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The value of the closing stock of finished goods that would be shown in the balance sheet is D19,800. Closing stock refers to the value of the inventory that is still unsold at the end of a period, such as the end of the year. In this case, 9% of the finished goods were still in the warehouse at the end of the year, so to calculate the value of the closing stock, we need to determine the cost of this inventory. The cost of production was D200,000 and the finished goods were transferred to the warehouse at D220,000, so the difference of D20,000 represents the profit on the production. To determine the cost of the closing stock, we need to divide the profit by the percentage of goods still in stock, which is 9%. D20,000 / 9% = D222,222.22 The value of the closing stock is then calculated as the cost of production plus the profit, which is D200,000 + D22,222.22 = D222,222.22. Finally, to determine the value of the closing stock of finished goods that would be shown in the balance sheet, we need to multiply this amount by the percentage of goods still in stock, which is 9%. D222,222.22 x 9% = D19,800 Therefore, the value of the closing stock of finished goods that would be shown in the balance sheet is D19,800.

Recognition of profit when goods are sold and the buyer takes ownership of them is in line with
 

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The recognition of profit when goods are sold and the buyer takes ownership of them is in line with the realization concept. This concept states that revenue (including profit) should be recognized when it is earned or realized, regardless of when the cash is received. In other words, when goods are sold and ownership is transferred to the buyer, the seller has earned the revenue and can recognize the profit at that point, even if the payment for the goods is not received until a later date. This concept is important because it ensures that a company's financial statements accurately reflect the revenue and profit earned during a given period, rather than simply reflecting the cash that was received during that period. This allows investors and other stakeholders to make informed decisions about the company's financial health and future prospects.

A business extracted its trial balance and discovered that the total of the credit side exceeded the total of the debit side. Pending further investigation, the difference would be 

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Kwamenah bought goods worth Le 50,000 from Doe and Sons Limited on the following terms: 3% trade discount: 10% cash discount. Kwamenah returned defective goods worth Le 8,000 the next day and made payment for the
remaining goods on the due date

The cash paid by Kwamenah was 

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Debtors and credit sales for a period are D 120,00 and D 600,00 respectively. The debtor's payment period would be

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To calculate the debtor's payment period, we need to use the debtor's turnover ratio, which is calculated by dividing the credit sales by the average debtors for the period. The debtor's turnover ratio indicates the number of times the company has collected its average level of debtors during the period. In this question, the credit sales for the period are D 600,00, and the debtors are D 120,00. The average debtors can be calculated by dividing the total debtors by the number of days in the period. Assuming a 365-day accounting year, the average debtors would be: Average Debtors = (Total Debtors / Number of Days) x 365 = (D 120,00 / 365) x 365 = D 120,00 Now we can calculate the debtor's turnover ratio by dividing the credit sales by the average debtors: Debtor's Turnover Ratio = Credit Sales / Average Debtors = D 600,00 / D 120,00 = 5 The debtor's turnover ratio of 5 indicates that the company has collected its average level of debtors five times during the period. To determine the debtor's payment period, we need to convert this ratio into days. Debtor's Payment Period = Number of Days / Debtor's Turnover Ratio = 365 / 5 = 73 Therefore, the debtor's payment period is 73 days, and the correct answer is "73 days."

The document which serves as the authority to incur expenditure in the public sector is 

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The document which serves as the authority to incur expenditure in the public sector is called a warrant. In the public sector, money can only be spent with the proper authorization. A warrant is a document issued by the government or its authorized agencies, such as the treasury, authorizing a specific amount of money to be spent for a specific purpose or project. It is a legal document that serves as the authority to incur expenditure from the public purse. Warrants are typically issued after a vote has been passed in parliament or a budget has been approved. They are used to control spending and ensure that public funds are used for their intended purposes. Once a warrant has been issued, it is the responsibility of the authorized officer to ensure that the money is spent in accordance with the terms of the warrant. Option A (warrant) is the correct answer. Option B (vote) is incorrect because a vote is the decision-making process used by parliament to approve the budget and authorize government spending. Option C (budget) is incorrect because a budget is a financial plan that sets out the government's revenue and expenditure for a specific period. A budget does not authorize spending but provides a framework for spending decisions. Option D (voucher) is incorrect because a voucher is a document used to record the details of a financial transaction, such as the payment of an invoice. A voucher is not an authority to incur expenditure but is used to document the expenditure that has already been authorized.

A total of D 9,160 was entered in the sales account as D9,610. To correct this error: debit 

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To correct the error of D9,160 being entered as D9,610 in the sales account, we need to determine the difference between the correct amount and the amount entered in the account. The correct amount is D9,160, and the amount entered in the account is D9,610. Therefore, the difference is: D9,610 - D9,160 = D450 This means that the sales account was overstated by D450. To correct this error, we need to decrease the amount in the sales account by D450. Since the sales account is a nominal account and has a normal credit balance, we need to debit the account to reduce the balance. The correct entry to correct the error is: Debit Sales Account D450 Credit Suspense Account D450 This entry reduces the sales account balance by D450 and creates a corresponding credit balance in the suspense account. The suspense account is a temporary account that is used to hold the difference until it can be resolved or until the end of the accounting period when adjustments are made. Option C (Sales Account D450; credit Suspense Account D450) is the correct answer. Option A (Sales Account D450: credit Sales Day Book D450) is incorrect because it suggests that the error should be corrected in the sales day book, but the error was in the sales account. Option B (Sales Day Book D450: credit Sales Account D450) is also incorrect for the same reason. Option D (Suspense Account D450; credit Sales Account D450) is incorrect because it suggests that we should credit the sales account, which is the opposite of what we need to do to correct the error.

Doe and Sons Limited would enter the 3% discount in the 

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In a situation of incomplete records, profit is determined as 

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The concept that guides a firm to adopt a regular method of recording transactions in its books over a period is
 

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Use the following information to answer the question below
Ata. Bubu and Chikum were in partnership sharing profits and losses in proportion to their capital contributions:

             Capital     Drawings
Ata       40,000       8,000
Bubu    30,000      5000
Chikum 20,000        -
Net profit for the year was 40,500 and the interest on capital was 5% per annum.

The profit available for sharing by the partners is 
 

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To calculate the profit available for sharing among the partners, we need to first calculate the total capital of the partnership: Total capital = Ata's capital + Bubu's capital + Chikum's capital Total capital = 40,000 + 30,000 + 20,000 Total capital = N90,000 Next, we need to calculate the interest on capital for each partner: Ata's interest on capital = 5% of 40,000 = 2,000 Bubu's interest on capital = 5% of 30,000 = 1,500 Chikum's interest on capital = 5% of 20,000 = 1,000 Now, we can calculate the total interest on capital: Total interest on capital = Ata's interest on capital + Bubu's interest on capital + Chikum's interest on capital Total interest on capital = 2,000 + 1,500 + 1,000 Total interest on capital = N4,500 The net profit for the year was N40,500. We need to subtract the interest on capital from the net profit to get the profit available for sharing: Profit available for sharing = Net profit - Total interest on capital Profit available for sharing = 40,500 - 4,500 Profit available for sharing = N36,000 Therefore, the profit available for sharing among the partners is N36,000. Option C matches this answer.

The excess of net assets acquired over purchase consideration is 

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When bank charges are discovered in a bank statement, the adjustment is effected in the 

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When bank charges are discovered in a bank statement, the adjustment is usually made in the cash book. This is because bank charges are expenses that reduce the balance of the account. The cash book is a record of all transactions that involve cash or bank, including bank charges. Therefore, when bank charges are discovered in a bank statement, the amount of the charges is debited to the cash book, which reduces the balance in the account. The other options listed (bank reconciliation statement, suspense account, and bank loan account) are not typically used to adjust for bank charges. A bank reconciliation statement is used to reconcile the balance in the bank account with the balance in the cash book, but it does not directly adjust for bank charges. A suspense account is a temporary account used to record transactions with unknown or incomplete information, and it is not usually used to record bank charges. A bank loan account is a separate account used to track loans, and it is not typically used to record bank charges.

Items shown in the manufacturing account include
i. Purchases of raw materials
ii. Purchases of finished goods
iii. Carriage inwards
iv. Carriage outwards 
 

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A debit entry in a fixed asset account represents 

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A debit entry in a fixed asset account represents an increase in the fixed asset account. In accounting, a debit entry indicates an increase in assets or a decrease in liabilities, and a fixed asset account is used to record the purchase and acquisition of long-term assets like buildings, machinery, or equipment. Therefore, a debit entry in a fixed asset account means that the business has acquired or invested in a new long-term asset, which increases the value of the fixed asset account.

A non-cash expense chargeable against profit and loss account is 

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A non-cash expense chargeable against the profit and loss account is a type of expense that is incurred by a company, but is not a direct outflow of cash. This means that the company has not physically paid cash for the expense, but it still has an impact on the company's profits. An example of a non-cash expense is the provision for doubtful debts, which is an amount set aside by a company to cover potential losses from customer default. This expense is recorded in the profit and loss account, even though no cash has been paid out. Other examples of non-cash expenses include depreciation of assets, amortization of intangible assets, and impairment of assets. It is important for companies to accurately record non-cash expenses in their financial statements, as it provides a more complete picture of the company's financial performance and financial position.

Use the following information to answer the question below
Ata. Bubu and Chikum were in partnership sharing profits and losses in proportion to their capital contributions:

             Capital     Drawings
Ata       40,000       8,000
Bubu    30,000      5000
Chikum 20,000        -
Net profit for the year was 40,500 and the interest on capital was 5% per annum

Bubu's share of profit is

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Use the following information to answer the question below

Provision for doubtful debts------1,000Cr
Bad debts--------500Dr
Debtors-------50,000Dr
Additional bad debts to be written off-----500
New provision for doubtful debts to stand at 5% of debtors

The provision for doubtful debts to be charged to the Profit and Loss Account is

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An office equipment bought for use was found to be defective and returned to the supplier. The subsidiary book to record this transaction is 

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The subsidiary book to record the transaction of returning defective office equipment bought for use is the returns outwards journal. The returns outwards journal is used to record transactions in which a business returns goods to its suppliers. In this case, the defective office equipment is being returned to the supplier. When the return takes place, the business would record the transaction in the returns outwards journal. The entry would typically include information such as the name of the supplier, the date of the return, a description of the item being returned, and the reason for the return. The amount of the return would also be recorded, and a credit note would be issued to the supplier. In summary, the returns outwards journal is used to record transactions in which goods are returned to suppliers, making it the appropriate subsidiary book to record the return of the defective office equipment in this scenario.

Use the following information to answer the questions below

A manufacturing company's cost of production was D 200,000. The finished goods were transferred to the warehouse at D 220,000. At the end of the year, 9% of these goods were still in stock.

The value of the closing stock of finished goods in the trading account is?

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The value of the closing stock of finished goods in the trading account is D19,800. To calculate the value of the closing stock of finished goods, we first need to calculate the cost of goods sold (COGS). The COGS is calculated as follows: COGS = Cost of production + Purchases - Closing stock In this case, we are given that the cost of production is D200,000 and there were no purchases. To calculate the closing stock, we need to first calculate the cost of the goods transferred to the warehouse. This is calculated as follows: Cost of goods transferred = Cost of production + Profit margin Cost of goods transferred = D200,000 + 10% of D200,000 (profit margin) Cost of goods transferred = D200,000 + D20,000 Cost of goods transferred = D220,000 Since 9% of the finished goods were still in stock, the closing stock is calculated as follows: Closing stock = 9% of D220,000 Closing stock = D19,800 Therefore, the value of the closing stock of finished goods in the trading account is D19,800.

A method of charging depreciation at a fixed percentage of the net book value is 

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The method of charging depreciation at a fixed percentage of the net book value is called the reducing balance method. This method assumes that the asset will lose value more rapidly in the early years of its life and less rapidly in later years. It involves calculating depreciation as a fixed percentage of the asset's net book value, which is the original cost of the asset less its accumulated depreciation. This means that the depreciation charge will decrease over time, as the net book value of the asset reduces. This method is commonly used for assets that have a high rate of obsolescence or wear and tear, such as machinery or vehicles.

The cost incurred on goods purchased for production which can be traced to a particular unit is classified as
 

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The accounting concept which distinguishes an enterprise from its owners is 

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The "business entity concept" distinguishes an enterprise from its owners. This concept treats a business as a separate entity from its owners, and separates the business's finances and transactions from those of its owners. For example, imagine you own a small bakery. The business entity concept says that the bakery has its own financial transactions and assets, separate from your personal financial transactions and assets. This means that when the bakery earns money, it is not considered your personal income, and when the bakery has expenses, it is not considered your personal expenses. This concept is important in accounting because it allows for a clear and accurate record-keeping of a business's financial activities, making it easier to understand the financial performance of the business.

The double entry for interest on drawings by a partner is: debit 

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A trader adds 25% on cost as profit. The profit on sales of $300,000 would be 

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The accounting equation of a business shows the
 

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The accounting equation of a business shows the assets and the sources of financing them. The accounting equation, also known as the balance sheet equation, is a fundamental concept in accounting that represents the relationship between a business's assets, liabilities, and owners' equity. It states that the total value of a business's assets must always equal the sum of its liabilities and owners' equity. The equation is usually represented as: Assets = Liabilities + Owners' Equity This equation shows that the assets of a business are financed either by borrowing money (liabilities) or by the owners investing in the business (owners' equity). It provides a snapshot of a business's financial position at a specific point in time and helps to ensure that the accounts are in balance. The accounting equation is a useful tool for understanding the financial health of a business and is an important concept for anyone who is interested in managing or analyzing the financial performance of a business.

Discount allowed N2,000;
Bad debts 1,000
Cheque received from customers 24,000
Returns inwards 500;
Sales ledger balance at the beginning 2.000

The amount of sales is

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A computer set bought for150,000 was disposed of for N45,000 after some years of use. The profit on disposal was 7,500. Accumulated depreciation at the time of disposal was 

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Use the following information to answer the question below
Ata. Bubu and Chikum were in partnership sharing profits and losses in proportion to their capital contributions:

             Capital     Drawings
Ata       40,000       8,000
Bubu    30,000      5000
Chikum 20,000        -
Net profit for the year was 40,500 and the interest on capital was 5% per annum.

The balance in Chikum's Current Account is
 

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The balance in Chikum's current account is N9,000. To calculate the balance in Chikum's current account, we need to first calculate the profit sharing ratio for the partners. The total capital of the partnership is N90,000, and each partner's capital contribution is as follows: - Ata: N40,000 - Bubu: N30,000 - Chikum: N20,000 The profit sharing ratio for the partners is therefore: - Ata: 40,000/90,000 = 4/9 - Bubu: 30,000/90,000 = 1/3 - Chikum: 20,000/90,000 = 2/9 Next, we need to calculate the interest on capital for each partner. The interest on capital is calculated as follows: Interest on capital = Capital * Interest rate Interest on Ata's capital = N40,000 * 5% = N2,000 Interest on Bubu's capital = N30,000 * 5% = N1,500 Interest on Chikum's capital = N20,000 * 5% = N1,000 The total interest on capital for the partnership is N4,500. To calculate the profit for each partner, we subtract the interest on capital and drawings from their share of the net profit: - Ata: (4/9 * N40,500) - N2,000 - N8,000 = N11,000 - Bubu: (1/3 * N40,500) - N1,500 - N5,000 = N3,000 - Chikum: (2/9 * N40,500) - N1,000 - 0 = N6,000 Finally, we can calculate the balance in Chikum's current account as follows: Balance in Chikum's current account = Chikum's share of the profit - Chikum's interest on capital - Chikum's drawings Balance in Chikum's current account = N6,000 - N1,000 - 0 Balance in Chikum's current account = N5,000 Therefore, the balance in Chikum's current account is N9,000.

The document which contains the internal regulations of a limited liability company is the 

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The document which contains the internal regulations of a limited liability company is the "Articles of Association." The Articles of Association are a legal document that outlines the rules and regulations governing the internal management of a limited liability company. The document typically includes provisions relating to the company's objectives, share capital, and the rights and duties of the company's directors and shareholders. The Articles of Association are separate from the Memorandum of Association, which is another legal document that sets out the company's constitution, including its name, registered office, and objectives. While the Memorandum of Association outlines the company's external relationships with third parties, such as customers, suppliers, and lenders, the Articles of Association govern the internal relationships between the company's directors and shareholders. Therefore, the correct answer is "Article of Association."

An example of a real account is 

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Real accounts are accounts that represent tangible assets or liabilities that exist in the real world. These accounts are not closed at the end of the accounting year, and their balances are carried over to the next accounting period. An example of a real account is the "Office Computer Account," which represents a tangible asset that exists in the real world. This account would record the cost of purchasing office computers, as well as any additions or improvements made to these assets. The balance in this account would be carried forward from one accounting period to the next, and it would be adjusted for any depreciation or disposals of office computers during the year. By contrast, nominal accounts represent revenues, expenses, and gains or losses that are associated with a specific accounting period. These accounts are closed at the end of the accounting year, and their balances are transferred to the company's retained earnings or capital account. Therefore, "Computer Repairs Account," "Computer Insurance Account," and "Depreciation of Computer Account" are examples of nominal accounts as they represent expenses and losses that are associated with a specific accounting period, and their balances are closed at the end of that period.

The internal users of accounting information are the

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The internal users of accounting information are the employees, managers, and other people within the organization who use the information for decision-making and to carry out their job responsibilities. They are not external to the organization, like creditors, investors, and customers. Internal users may use accounting information for a variety of purposes, such as planning, controlling operations, and evaluating performance. They may also use it to make decisions about budgets, investments, and other financial matters. The information they receive is typically more detailed and specific to the organization than what is provided to external users.

The following balances were extracted from the books of Abobakau Local Government for the year ended 31st December 2019.

Construction of an office block ------ 3,850,000
Renovation of classroom blocks ----1,065,500
Court fines---- --------------------------------90,000
Building permits ---- -----------------------650,000
Rehabilitation of street lights-- ----------470,500
Wages and salaries----------------------7,880,450
Medical services -- ----------------------1,334,650
Provision of pipe borne water--- -----2,500,000
Interest on investments-------------------250,000
Lorry park levies----------------------------380,000
Market tolls-----------------------------------560,000
Property rates-----------------------------1,200,000
General administration------------------- 630,700
Motor vehicle procured-----------------6,653,000
Extension of office building------------- 950,000 
Royalties ----------------------------------4,500,000
Subvention from Central/Fed govt 20,000,000
Grants from donor agencies---------2,000,000
Donations to charity homes----------250,000
Entertainment permits------------------70,000
Staff training ----------------------------550,000
Entertainment expenses ------------200,000
Marriage registration fees ------------80,000 
Allowances to community leaders-380,000
Birth certificate fees ------------------160,000
Maintenance of motor vehicles----650,000

You are reg You are required to prepare for the ended 31st December 2019

(a) Statement of Recurrent Expenditure

(b) Statement of Capital Expenditure 

(c) Statement of Revenue

Answer Details

Statement of Recurrent Expenditure:

• Wages and salaries ------------------------7,880,450
• Medical services -------------------------1,334,650
• Rehabilitation of street lights ---------470,500
• Provision of pipe borne water -------2,500,000
• Interest on investments ----------------250,000
• Lorry park levies -------------------------380,000
• Market tolls ------------------------------560,000
• Property rates --------------------------1,200,000
• General administration -----------------630,700
• Entertainment expenses --------------200,000
• Staff training -----------------------------550,000
• Allowances to community leaders ---380,000
• Birth certificate fees --------------------160,000
• Maintenance of motor vehicles -----650,000

Total Recurrent Expenditure: ------- 16,166,300

Explanation:
Recurrent expenditure refers to the day-to-day running expenses of an organization that are incurred regularly, such as salaries, rent, utilities, and other expenses that are necessary for the organization's ongoing operations. The statement of recurrent expenditure shows the total amount spent on such expenses during the year. In this case, the total recurrent expenditure of Abobakau Local Government for the year ended 31st December 2019 was 16,166,300.

Statement of Capital Expenditure:

• Construction of an office block -----3,850,000
• Renovation of classroom blocks ---1,065,500
• Building permits -----------------------650,000
• Extension of office building ---------950,000
• Motor vehicle procured --------------6,653,000

Total Capital Expenditure: ------------12,168,500

Explanation:
Capital expenditure refers to the money spent on acquiring, constructing, or improving fixed assets, such as buildings, equipment, and land. The statement of capital expenditure shows the total amount spent on such assets during the year. In this case, the total capital expenditure of Abobakau Local Government for the year ended 31st December 2019 was 12,168,500.

Statement of Revenue:

• Court fines ------------------------------------90,000
• Interest on investments -------------------250,000
• Lorry park levies ------------------------------380,000
• Market tolls ------------------------------------560,000
• Property rates --------------------------------1,200,000
• Royalties ---------------------------------------4,500,000
• Subvention from Central/Fed govt ---20,000,000
• Grants from donor agencies ------------2,000,000
• Donations to charity homes --------------250,000
• Entertainment permits ---------------------70,000
• Marriage registration fees ----------------80,000

Total

The books of Omiye Social Club showed the following information for the year ended 31st December 2015

Balances as at 1st January 2015 were as follows:

Accumulated fund 266,000
Bank deposit  80,000
Clubhouse 160,000
Furniture and fittings  24,000

Additional information
i. Outstanding as at 31st December 2015:
- stationery N400
- general expenses 1,200

ii. Salaries of l0,600 paid including 1,000 owed since 2014.

iii. Depreciate clubhouse by 10% and furniture and fittings by 15%

You are required to prepare:

(a) Income and Expenditure Account for the year ended 31st December 2015

(b) Balance Sheet as at that date.

Answer Details

Income and Expenditure Account for the year ended 31st December 2015

Income:

• Subscription: 130,000
• Proceeds from concert: 9,000
• Interest on deposit: 2,400
• Income from dance: 7,200

Total Income: 148,600

Expenses:

• Salaries: 10,600
• Outstanding Salaries from 2014: 1,000
• Maintenance: 13,000
• Stationery: 1,600 (1,200 outstanding + 400 current)
• Postage: 600
• Dance expenses: 4,000
• General expenses: 6,600 (5,400 + 1,200 outstanding)
• Depreciation on clubhouse: 16,000 (10% of 160,000)
• Depreciation on furniture and fittings: 3,600 (15% of 24,000)

Total Expenses: 56,000

Net Income: 92,600 (148,600 - 56,000)

Balance Sheet as at 31st December 2015

Assets:

• Accumulated fund: 266,000
• Bank deposit: 80,000 + 2,400 (interest on deposit)
• Clubhouse: 160,000 - 16,000 (depreciation)
• Furniture and fittings: 24,000 - 3,600 (depreciation)

Total Assets: 478,800

Liabilities and Equity:

• Subscription: 130,000
• Outstanding expenses: 2,000 (1,600 stationery + 400 general expenses)
• Net Income: 92,600

Total Liabilities and Equity: 224,600

Explanation:

The Income and Expenditure account summarizes the club's income and expenses for the year ended 31st December 2015. The income includes subscription, proceeds from a concert, interest on deposit, and income from dance. The expenses include salaries, maintenance, stationery, postage, dance expenses, general expenses, and depreciation on clubhouse and furniture and fittings. The net income is calculated by subtracting the total expenses from the total income.

The Balance Sheet summarizes the club's assets, liabilities, and equity as at 31st December 2015. The assets include accumulated fund, bank deposit, clubhouse, and furniture and fittings. The liabilities and equity include subscription, outstanding expenses, and net income. The net income is added to the accumulated fund to calculate the total equity. The value of the clubhouse and furniture and fittings are reduced by their respective depreciation amounts. The total assets equal the total liabilities and equity.

(a) Explain the term fixed capital account.

(b) State three conditions that would result in a change in the profit and loss sharing ratio of a partnership.

(c) Outline three circumstances that would give rise to the creation of goodwill in a partnership

Answer Details

a) Fixed Capital Account refers to the capital that is invested in a business or partnership for the purpose of acquiring long-term assets such as machinery, equipment, buildings, and land. These assets are used to produce goods or provide services and are not meant to be sold in the normal course of business. The amount invested in these assets is recorded in the fixed capital account and is considered as part of the partners' equity in the business.

b) The profit and loss sharing ratio in a partnership can change due to the following conditions:

1) If the partners agree to change the ratio as specified in the partnership agreement.

2) If a new partner joins the partnership, the existing partners may decide to adjust the ratio to accommodate the new partner's contribution.

3) If a partner leaves the partnership, the remaining partners may decide to adjust the ratio to reflect the departure of the partner.

c) Goodwill in a partnership can arise from the following circumstances:

1) If the business has a strong reputation and a loyal customer base, this can lead to the creation of goodwill.

2) If the business has a unique location or a valuable intellectual property, this can also contribute to the creation of goodwill.

3) If the business has a highly skilled and experienced workforce, this can also result in the creation of goodwill.

(a)What is a not-for-profit making organization?

(b) Outline two differences between a for-profit organization and a not-for-profit making organisation.

(c) Explain the following sources of funding in a not-for-profit making organisation:
i. subscription
ii. life membership fee
iii.  entrance fee
iv. donation

Answer Details

a) A not-for-profit making organization, also known as a non-profit organization, is an entity that operates for a specific purpose, such as a charitable, educational, religious, or social cause, rather than for generating profits. Their goal is to fulfill their mission, not to make money.

b) Two differences between a for-profit organization and a not-for-profit organization are:

• Profit orientation: For-profit organizations aim to generate profits for their owners or shareholders, while not-for-profit organizations do not distribute any profits to their members or stakeholders. Instead, they reinvest their resources in furthering their mission and improving their programs and services.
• Legal structure: For-profit organizations are usually structured as corporations, limited liability companies (LLCs), or partnerships, while not-for-profit organizations are structured as non-profit corporations or charitable trusts. This difference affects their legal and tax status, as well as their governance and accountability mechanisms.

c) The sources of funding in a not-for-profit making organisation are:

• Subscription: A subscription is a regular payment made by members of an organization to support its activities and receive certain benefits, such as access to events, publications, or services. For example, a museum may offer annual memberships to visitors who want to support its exhibitions and education programs.
• Life membership fee: A life membership fee is a one-time payment made by members of an organization to become permanent members and enjoy ongoing benefits, such as voting rights or discounts on products or services. For example, a professional association may offer life memberships to its members who want to support its advocacy and networking activities.
• Entrance fee: An entrance fee is a one-time payment made by new members of an organization to cover the administrative costs of processing their applications and providing them with orientation and materials. For example, a sports club may charge an entrance fee to new members who want to join its teams and use its facilities.
• Donation: A donation is a voluntary contribution made by individuals, foundations, corporations, or government agencies to support the mission and programs of a not-for-profit organization. Donations can be of any amount and can be used for a specific purpose, such as funding a scholarship or a research project, or for general operating support. Donors may choose to support a not-for-profit organization based on their alignment with its mission and values.

(a) List; 
i. Three books of accounts used In public sector accounting
ii.  Four users of public sector accounting information.

(b) State four differences between the private sector accounting and the public sector accounting

Answer Details

(a)

(i) Three books of accounts used in public sector accounting are:

1. Cash Book: Records all cash transactions made by an entity.
2. Ledger: Maintains a record of all financial transactions, including revenues, expenses, assets, and liabilities.
3. Budget Book: Records the estimated and actual revenues and expenses of an entity.

(ii) Four users of public sector accounting information are:

1. Government Officials: Use accounting information to manage government finances, allocate resources, and make financial decisions.
2. Citizens: Use accounting information to evaluate the government's performance and hold officials accountable.
3. Investors: Use accounting information to evaluate the government's financial performance and decide whether to invest in public projects.
4. Creditors: Use accounting information to evaluate the government's ability to pay back debts and make informed lending decisions.

(b)

There are four main differences between private sector accounting and public sector accounting:

1. Objectives: The primary objective of private sector accounting is to generate profits, while the primary objective of public sector accounting is to provide services and meet the needs of citizens.
2. Source of Funds: The private sector generates its revenue from customers who purchase goods and services, while the public sector generates its revenue from taxes, grants, and other sources of funding.
3. Accountability: The private sector is accountable to its owners or shareholders, while the public sector is accountable to citizens and stakeholders.
4. Reporting: Private sector accounting focuses on financial performance and profitability, while public sector accounting focuses on compliance with legal and regulatory requirements, transparency, and accountability.

(a) Outline two differences between bookkeeping and accounting

(b) List one source document used for each of the following transactions:
i. sales
ii. purchases
iii. cash deposit
iv. salary
v. returns outwards

(c) State three purposes of source documents

Answer Details

(a) Two differences between bookkeeping and accounting are:

1. Scope: Bookkeeping is concerned with the recording of financial transactions, while accounting involves the interpretation and analysis of financial information to make business decisions.
2. Complexity: Bookkeeping is a relatively straightforward process that involves recording financial transactions in a systematic manner, while accounting requires more specialized knowledge and skills, such as financial analysis and reporting.

(b) One source document used for each of the following transactions are:

1. Sales - Sales invoice
2. Purchases - Purchase invoice
3. Cash deposit - Deposit slip
4. Salary - Payslip
5. Returns outwards - Credit note

(c) Three purposes of source documents are:

1. Evidence of transactions: Source documents serve as evidence that a financial transaction has taken place, and provide a record of the details of the transaction, such as the date, amount, and parties involved.
2. Recording of transactions: Source documents are used to record financial transactions in an organized and systematic manner, which helps to ensure that transactions are accurately recorded and can be easily tracked and analyzed.
3. Verification and reconciliation: Source documents are used to verify and reconcile financial transactions, which helps to ensure that there are no errors or discrepancies in the accounting records. This is important for ensuring the accuracy and reliability of financial information, which is essential for making informed business decisions.

The following transactions were extracted from the books of Odis Enterprises for the year ended 31st December 2018: 0) cash received from trade debtors N100,000

i. cash paid to suppliers N72,000
ii. expenses paid during the year were: rent- N2,500, general expenses N1,800
iv. cash of N5200 was withdrawn by the proprietor for personal use.
v. fixed assets valued at  N8,000 on 31st December 2017 were to be depreciated at 10 per annum

Additional information:
                           31st December 2017     31st December 2018
Trade debtors          11,000                              13,000
Trade creditors         4,000                                6,500
Rent owing                 -                                         500
Cash                       12,100                               30,000                            
Stock                       15,900                               17,000

You are required to prepare:
(a) Statement of Affairs as at 1st January 2018
(b) Cashbook
(c)  Trading Profit and Loss Account for the year ended 31st December 2018.

Answer Details

(a) Statement of Affairs as at 1st January 2018:

Cash: N12,100

Stock: N15,900

Fixed assets: N8,000

Total Assets: N36,000

Trade creditors: N4,000

Rent owing: N0

Capital (Opening): N32,000

Trade debtors: N11,000

Total Liabilities: N47,000

Net Deficiency: N11,000 (Total Liabilities - Total Assets)

(b) Cashbook:

Yallawa Stores Ltd has two departments. The following balances Were extracted from its books as at 31st December 2017.

Purchases: Department A    720,000
                   Department B   520,000
Rent and rates                       50,000
Commission                          55,000
Insurance                                5,000
Sales: Department A         1,500,000
           Department B         1,250,000
Discount received                124,000
Advertising                             20,000
Salaries and wages             250,000
Depreciation                          35,000
Administration and general expenses 50,000
Opening stock: Department A   150,000
                         Department B   100,000
CIosing stock: Department A     175,000
                       Department B     142,000

Additional information: Expenses are to be apportioned to the departments as follows
i. commission on the basis of sales:
ii. salaries and wages - 3:2 for Department A and B respectively
iii. discount received - 10% of purchases
iv. other expenses are to be apportioned equally.

You are required to prepare a Departmental Trading, Profit, and Loss Account for the year ended 31st December 2017.

Answer Details

Department Trading, profit, and Loss account for the year ended 31st December 2017