WAEC SSCE - Financial Accounting - 2020 (Essay)

Answer Details

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

• Cash book (main and subsidiary cash books)
• Vote book (departmental vote/expenditure control book)
• General ledger
• Journal (transfer journal)

(Any three. Others: revenue register, deposit register.)

(a)(ii) Four users of public sector accounting information

• The government (executive) and its ministries and agencies
• The legislature (National/State Assembly)
• Auditors (the Auditor-General)
• The general public and taxpayers
• International agencies and donors (for example, the World Bank, IMF)
• Creditors and lenders to government

(Any four.)

(b) Four differences between private sector and public sector accounting

(Any four.)

Answer Details

Approach. This is an incomplete-records (single entry) question. We first find opening capital from a Statement of Affairs, reconstruct the cash book, derive credit sales and purchases from the debtors/creditors movements, then prepare the final accounts.

(a) Statement of Affairs as at 1st January 2018 (i.e. the position on 31st December 2017)

(b) Cash Book (for the year ended 31st December 2018)

Note: the closing cash of N30,600 is the balancing figure; it agrees with the closing net assets below, confirming the accounts are consistent.

Working - credit sales and purchases

Sales = cash from debtors + closing debtors - opening debtors \( = 100{,}000 + 13{,}000 - 11{,}000 = 102{,}000 \).

Purchases = cash to creditors + closing creditors - opening creditors \( = 72{,}000 + 6{,}500 - 4{,}000 = 74{,}500 \).

Depreciation on fixed assets \( = 10\% \times 8{,}000 = 800 \).

Rent expense = paid 2,500 + owing 500 = 3,000.

(c) Trading, Profit and Loss Account for the year ended 31st December 2018

Check: Opening capital 43,000 + net profit 23,000 - drawings 5,200 = 60,800. Closing net assets = fixed assets 7,200 + stock 17,000 + debtors 13,000 + cash 30,600 - creditors 6,500 - rent owing 500 = 60,800. The two agree.

Answer Details

Approach. Each department is traded separately for gross profit, then indirect expenses are apportioned on the stated bases and charged against each department to find net profit.

Workings - apportionment of expenses

• Commission N55,000 on sales ratio A:B = 1,500,000:1,250,000 = 6:5 -> A 30,000; B 25,000.
• Salaries and wages N250,000 in 3:2 -> A 150,000; B 100,000.
• Discount received = 10% of purchases -> A 72,000; B 52,000 (total 124,000).
• Other expenses shared equally: Rent and rates 50,000 (25,000 each); Insurance 5,000 (2,500 each); Advertising 20,000 (10,000 each); Depreciation 35,000 (17,500 each); Admin and general 50,000 (25,000 each).

Departmental Trading, Profit and Loss Account for the year ended 31st December 2017

Check: total gross profit 1,577,000 + discount received 124,000 - total expenses 465,000 = net profit 1,236,000.

Answer Details

(a) Two differences between bookkeeping and accounting

(Any two.)

(b) One source document for each transaction

• i. Sales: Sales invoice (outgoing invoice)
• ii. Purchases: Purchases invoice (incoming invoice)
• iii. Cash deposit: Bank paying-in slip (deposit slip)
• iv. Salary: Payroll / pay slip (salary voucher)
• v. Returns outwards: Debit note (or credit note received from the supplier)

(c) Three purposes of source documents

1. They provide documentary evidence that a transaction actually took place.
2. They serve as the basis for making entries in the books of original entry.
3. They give the details of a transaction (date, parties, quantity, amount) for reference and checking.
4. They provide an audit trail and help in verifying and controlling transactions against fraud.

(Any three.)

Answer Details

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

A not-for-profit making organisation is a body formed to provide services or promote the welfare and common interest of its members or the public, rather than to earn profit for owners. Examples include clubs, societies, associations, churches and charities. Any surplus it makes is ploughed back to further its aims and is not distributed to members.

(b) Two differences between a for-profit and a not-for-profit making organisation

(Any two.)

(c) Sources of funding explained

(i) Subscription: The periodic (usually annual) amount paid by members to enjoy the facilities of the organisation; it is the main recurring source of income.

(ii) Life membership fee: A single large payment that entitles a member to lifetime membership without paying further annual subscriptions. It is usually capitalised and spread over the member's expected life, being credited to the Accumulated Fund or transferred in instalments to income.

(iii) Entrance fee: A one-off fee paid by a new member on first joining, in addition to subscription. It may be treated as revenue income of the year or capitalised, depending on the club's rules.

(iv) Donation: A gift of money or property received by the organisation. A general (small) donation is treated as income of the year; a large or specific donation is capitalised and added to the Accumulated Fund.

Answer Details

Preliminary note. The figures given form a Receipts and Payments account (opening cash N3,000, total N151,600, closing cash N116,800). We first confirm the opening Accumulated Fund, then prepare the Income and Expenditure account (adjusting for outstanding expenses, the prior-year salary paid, and depreciation) and finally the Balance Sheet.

Check on the opening Accumulated Fund (1st January 2015)

This agrees with the accumulated fund of N266,000 given in the question.

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

Salaries paid were N10,600 but N1,000 of this belonged to 2014, so only N9,600 is the 2015 charge. Stationery and general expenses are increased by the amounts still outstanding. Depreciation is charged at 10% on the clubhouse (N16,000) and 15% on furniture and fittings (N3,600).

Surplus for the year = N93,600 (total income N148,600 less total expenditure N55,000).

(b) Balance Sheet as at 31st December 2015

The Balance Sheet balances at N359,600, confirming the accounts. Note that the N1,000 salary owed at the start was settled during the year, so no salary liability remains at 31st December 2015.

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

Answer Details

(a) Fixed capital account

A fixed capital account is a partner's capital account whose balance is kept unchanged (fixed) from period to period. Only the amount of capital originally contributed (and any later permanent introduction or withdrawal of capital) is recorded in it. All other regular items such as interest on capital, salary, share of profit, drawings and interest on drawings are not passed through this account; instead they are recorded in a separate current account for each partner. This keeps each partner's true capital contribution clearly shown at all times.

(b) Three conditions that would change the profit and loss sharing ratio

1. Admission of a new partner, whose share must be provided out of the old partners' shares.
2. Retirement or death of a partner, so the remaining partners share the outgoing partner's portion.
3. A mutual agreement (amendment of the partnership deed) by the existing partners to alter the ratio, often because of changes in capital contributed or duties performed.

(Any three.)

(c) Three circumstances giving rise to the creation of goodwill

1. Admission of a new partner, when goodwill is valued to compensate the old partners for the reputation they built.
2. Retirement or death of a partner, when goodwill is valued so the outgoing partner receives a fair share of it.
3. A change in the profit-sharing ratio among the existing partners, which alters their relative claims on the firm's goodwill.
4. Amalgamation of the partnership with another firm or conversion into a company.

(Any three.)