WAEC SSCE - Financial Accounting - 2019

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When the letter "C" is written in front of an entry in the folio column of a cash book, it shows that it is a contra entry. A contra entry is a type of transaction in accounting that involves two accounts. In this type of entry, the debit and credit entries cancel each other out, resulting in a net effect of zero. In other words, if you were to add up the two entries, the total would be zero. This type of entry is used when money is transferred from one account to another, such as when you transfer money from your checking account to your savings account.

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The balance on the bank statement would be less than the cash book balance if bank charges are deducted from the customer's account. The cash book balance is the record of all the money that has come into and gone out of a customer's account as recorded by the customer. However, the bank statement is a record of all transactions in a customer's account as recorded by the bank. When the bank deducts charges such as service fees or overdraft fees, these charges are not recorded in the customer's cash book, but they are recorded in the bank's records and will appear on the bank statement. This means that the balance on the bank statement will be lower than the balance recorded in the customer's cash book.

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The fixed installment method of depreciation assumes that the asset loses an equal amount of value each year over its useful life. To determine the depreciation per annum using this method, we subtract the salvage value (scrap value) from the original cost of the asset and then divide the result by the useful life in years. In this case, the original cost of the lathe machine is Le 45,600, and the salvage value is Le 1,600. The useful life of the machine is 20 years. Therefore, the annual depreciation is: Depreciation = (Original cost - Salvage value) / Useful life Depreciation = (45,600 - 1,600) / 20 Depreciation = 44,000 / 20 Depreciation = 2,200 Therefore, the depreciation per annum for the lathe machine is Le 2,200.

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A general partner is a type of business partner whose liability goes beyond their capital. This means that if the business is sued or incurs debt, the general partner is personally responsible for paying those debts, even if they go beyond the amount of money they have invested in the business. In simple terms, a general partner is fully responsible for the financial obligations of the business, unlike a limited partner whose liability is limited to the amount of money they have invested. So, if you are a general partner in a business, you are responsible for all of the debts and obligations of the business, even if they are more than the amount of money you have invested.

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First, we need to calculate the interest on capital for both partners. Interest on Ogah's capital = 5% of 60,000 = 3,000 Interest on Ajem's capital = 5% of 65,000 = 3,250 Next, we need to calculate the interest on their drawings. Interest on Ogah's drawings = 3% of 20,000 = 600 Interest on Ajem's drawings = 3% of 30,000 = 900 Now, we can calculate the total amount of interest for each partner by adding the interest on their capital and the interest on their drawings. Total interest for Ogah = 3,000 + 600 = 3,600 Total interest for Ajem = 3,250 + 900 = 4,150 We can now calculate the adjusted capital for each partner by adding their capital account, current account balance, and subtracting their drawings and the interest on their drawings. Adjusted capital for Ogah = 60,000 + 40,000 - 20,000 - 600 = 79,400 Adjusted capital for Ajem = 65,000 + 50,000 - 30,000 - 900 = 84,100 The total adjusted capital for the partnership is the sum of the adjusted capital for both partners. Total adjusted capital = 79,400 + 84,100 = 163,500 Now, we can calculate each partner's share of the profit. Ogah's share of the profit = (2 / 5) x (100,000 - 10,000 - 3,600) = 51,150 Ajem's share of the profit = (3 / 5) x (100,000 - 10,000 - 4,150) = 48,850 Therefore, the answer is option A - 51,150.

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The primary concern of shareholders in a business is the dividend payable. Dividends are payments made by a company to its shareholders, typically from the company's profits. Shareholders invest in a business with the expectation of receiving a return on their investment, and one way they can receive this return is through dividends. Shareholders generally want to see the company perform well so that they can receive higher dividends. While other factors such as the ability to pay interest and welfare of employees may also be important to shareholders, the primary concern is typically the dividend payable.

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The amount of dividend declared is N200,000. To calculate this, you first need to find out the total value of the company's ordinary share capital, which is 1,000,000 shares x N2.00 per share = N2,000,000. Next, you take 10% of this amount to find the dividend, which is 10% of N2,000,000 = N200,000. So the directors of Olu Ltd. declared a dividend of N200,000.

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The total cash receipts for the period can be calculated by adding up all the cash received during the period. From the information given, the following cash transactions took place: Cash sales on April 11 = N50,000 Cash sales on April 28 = N49,000 Therefore, the total cash receipts for the period is: N50,000 + N49,000 = N99,000 So the correct option is (A) N99,000.

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The concept that seeks to prevent profits from being overstated is "prudence." Prudence is a principle of accounting that requires caution and conservatism when making estimates or judgments about financial transactions. It encourages accountants to be careful not to overstate the value of assets or profits, and to recognize potential losses or liabilities in a timely manner. By applying the principle of prudence, accountants ensure that financial statements accurately reflect the financial position and performance of a business. This helps to maintain the credibility and integrity of financial reporting, and enables stakeholders to make informed decisions based on reliable information.

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Companies issue shares to the public in order to raise capital. When a company issues shares, it is essentially selling ownership in the company to investors in exchange for funds. These funds can then be used to invest in new projects, expand the business, pay off debts, or for any other purpose that the company deems necessary. In return, shareholders receive a portion of the company's profits, as well as voting rights and other benefits depending on the type of shares they own.

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In accounting, partners' share of profit is transferred to the credit side of the partner's current account. The current account is a record of the transactions related to each partner's capital contributions, drawings, and share of profits or losses. So, when a profit is made, the partners' share of that profit is credited to their current account to show an increase in their capital balance. On the other hand, the fixed capital account is a record of the long-term investments made by the partners into the business, such as buildings, machinery, and equipment. The fixed capital account is not usually affected by the profits or losses of the business, but rather by any changes in the value of the long-term investments. So, in summary, the partners' share of profit is credited to their current account, while the fixed capital account is maintained separately.

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The quality of accounting information is that it should be "verifiable". This means that the information should be capable of being checked and confirmed by independent sources or methods. In other words, the accuracy and truthfulness of the accounting information should be able to be verified by others to ensure that it is reliable and trustworthy. Verifiability is important in ensuring that financial statements are free from bias or manipulation, which is crucial for making sound business decisions.

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The quick ratio is a measure of a company's ability to pay off its short-term debts with its most liquid assets. It is calculated by subtracting the value of a company's stock (raw materials, work in progress, finished goods) from its current assets, and then dividing the result by the company's current liabilities. So, the correct option is (3): x = current assets; y = stock and z = current liabilities. This is because the quick ratio formula subtracts the stock (inventory) value from the current assets to arrive at the most liquid assets available for paying off short-term obligations. And, the current liabilities reflect the company's immediate debts that must be paid off in the short term.

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To determine the cash balance at the end of the period, we need to add up all the cash inflows and subtract all the cash outflows. Starting with the cash inflows: - Cash sales on April 11: N50,000 - Cash sales on April 28: N49,000 Total cash inflows: N99,000 Moving on to the cash outflows: - Bought goods for cash on April 20: N30,000 - Bought postage stamp for cash on April 26: N5,000 - Cash purchases on April 29: N11,000 - Paid salaries on April 30: N18,000 Total cash outflows: N64,000 To determine the cash balance, we subtract the total cash outflows from the total cash inflows: Cash balance = Total cash inflows - Total cash outflows Cash balance = N99,000 - N64,000 Cash balance = N35,000 Therefore, the cash balance at the end of the period is N35,000.

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The closing capital can be calculated using the following formula: Closing Capital = Opening Capital + Net Profit - Drawings Plugging in the values from the information given, we get: Closing Capital = 10,800 + 6,000 - 2,500 Closing Capital = 14,300 Therefore, the closing capital is 14,300. This represents the total amount of capital that the business has at the end of the accounting period after taking into account the net profit earned during the period and the amount withdrawn by the owner. The closing capital is an important figure that helps the business owner to understand the financial health of the business and make decisions about its future operations.

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This would be treated as "drawings". Drawings refer to the goods or cash that the owner of a business takes out of the business for personal use. In this case, Sulah took two textile materials worth N500 from his business for his children's use. Since this was not a sale or a loan, but rather an extraction of goods for personal use, it would be considered as "drawings" from the business. It is important for business owners to keep track of their drawings as it affects the profitability and financial position of their business.

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In public sector accounting, salaries of employees are classified as recurrent expenditure. Recurrent expenditure refers to regular and routine expenses incurred by an organization in carrying out its day-to-day activities. These expenses are incurred repeatedly and are necessary for the normal functioning of the organization. Salaries of employees are a type of recurrent expenditure as they are paid regularly, such as monthly or bi-weekly, to compensate employees for their services. This is in contrast to capital expenditure, which refers to the costs incurred for acquiring and improving assets such as land, buildings, and equipment. Therefore, since salaries are a routine and regular expense necessary for the day-to-day operations of an organization, they are classified as recurrent expenditure in public sector accounting.

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Limitations of ratio analysis

1. Based on historical (past) data: Ratios are computed from past financial statements and may not reflect the current or future position of the business.
2. Ignores price-level changes (inflation): Because figures are stated at historical cost, comparison over time can be misleading when the value of money is changing.
3. Affected by different accounting policies: Firms using different methods of depreciation, stock valuation, etc., cannot be fairly compared, and even one firm may change its policies.
4. Ignores qualitative and non-monetary factors: Ratios do not capture matters such as management quality, staff morale, government policy or market conditions.
5. Only as reliable as the accounts on which they are based: If the financial statements contain errors, window-dressing or manipulation, the ratios will also be misleading.
6. No single standard for interpretation: There is no universally accepted ideal figure for a ratio, so interpretation is often subjective and depends on the analyst.
7. A ratio in isolation has little meaning: Ratios must be compared with a standard, a budget, past years or other firms to be useful; one figure alone tells little.
8. Difficulty of inter-firm comparison: Differences in size, nature of business and accounting periods make comparison between firms unreliable.

(Any relevant limitations, well explained.)

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(a) Reasons for including outstanding liabilities in the Balance Sheet

1. To comply with the accruals (matching) concept, so that all expenses relating to the period are charged against the income of that period, whether paid or not.
2. To give a true and fair view of the financial position by showing all amounts the business owes as at the balance sheet date.
3. To ensure the net profit is not overstated, since ignoring outstanding expenses would understate expenses and inflate profit.
4. To disclose the full extent of the organisation's obligations to third parties, which is useful to creditors and other users of the accounts.

(Any relevant reasons.)

(b) Recording an income-generating activity of a bar in a not-for-profit making organisation

Where a club or society runs a subsidiary trading activity such as a bar, a separate Bar Trading Account is prepared to find the profit or loss made by the bar. Its profit is then credited (or its loss debited) to the Income and Expenditure Account. The treatment is as follows:

1. Prepare a Bar Trading Account: credit it with bar sales/takings; debit it with the cost of bar goods sold (opening bar stock + bar purchases - closing bar stock) and any direct bar expenses (for example, barman's wages).
2. The resulting bar profit is transferred to the credit side of the Income and Expenditure Account (a bar loss is transferred to the debit side).
3. The closing bar stock is shown as a current asset, and any amount owing for bar purchases (bar creditors) as a current liability, in the Balance Sheet.

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(a) Sales Journal:

(b) Customers' Accounts in the Sales Ledger:

Papuk

Abass

(c) Sales Ledger Control Account:

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(a) Three reasons a cheque would be dishonoured

1. Insufficient funds in the drawer's account to meet the cheque.
2. The cheque is post-dated or stale (out of date), that is, presented before its date or more than six months after it.
3. A difference or irregularity in signature, or the signature does not match the specimen held by the bank.
4. The words and figures differ, or the cheque has a material alteration that is not countersigned.
5. The account holder has stopped payment, died, or become bankrupt.

(Any three.)

(b) Explanation of terms

(i) Petty cash float: The fixed sum of money advanced to the petty cashier at the beginning of a period to meet small, routine cash payments, and which is restored to the same figure at the start of each new period under the imprest system.

(ii) Contra entries: Entries that appear on both the debit and credit sides of the same cash book, representing transfers between cash and bank of the same business (for example, cash paid into the bank or cash withdrawn from the bank for office use). They are marked with the letter \(C\) in the folio column.

(iii) Imprest system: A method of operating the petty cash book in which the petty cashier is given a fixed float, spends it on small items, and is then reimbursed at the end of the period with exactly the amount spent, so that the opening balance is always the same fixed sum.

(c) Three advantages of keeping petty cash under the imprest system

1. It provides control over small (petty) expenditure, since spending cannot exceed the float.
2. It relieves the chief cashier of recording numerous small payments, allowing division of labour.
3. It makes it easy to detect errors and fraud, because the cash in hand plus vouchers must always equal the float.
4. It reduces the amount of cash exposed to loss or theft at any one time.

(Any three.)

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Workings. Interest on capital 8%: Ubochi \(= 8\% \times 300{,}000 = 24{,}000\); Hassanah \(= 8\% \times 250{,}000 = 20{,}000\). Hassanah's salary \(= 10{,}000 \times 12 = 120{,}000\). Interest on drawings 5%: Ubochi \(= 5\% \times 20{,}000 = 1{,}000\); Hassanah \(= 5\% \times 15{,}000 = 750\).

(a) Profit and Loss Appropriation Account for the year ended 31 December 2015

(b) Partners' Current Accounts

Closing current account balances (credit): Ubochi D85,650 and Hassanah D179,350.

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(a) Three effects of drawings on the business of a sole proprietor

1. Drawings reduce the owner's capital, since they are deducted from capital in the Balance Sheet.
2. Drawings reduce the assets of the business (cash or goods taken out fall by the amount withdrawn).
3. Drawings reduce the working capital and cash available for running the business, which may affect its liquidity and ability to expand.

(Note: drawings do not affect the calculation of net profit; they are an appropriation of capital, not an expense.)

(b) Treatment in the Balance Sheet

(i) Accrued expenses: These are expenses incurred during the period but not yet paid at the year end (for example, rent owing). In the Balance Sheet they are shown as a current liability, since the business owes the amount. (The amount is also added to the relevant expense in the Profit and Loss Account.)

(ii) Prepaid expenses: These are expenses paid in advance that relate to the following period (for example, insurance paid ahead). In the Balance Sheet they are shown as a current asset, because the benefit is still owed to the business. (The amount is deducted from the relevant expense in the Profit and Loss Account.)

(iii) Accrued income: This is income earned during the period but not yet received at the year end (for example, rent receivable due but not yet collected). In the Balance Sheet it is shown as a current asset, since it is owed to the business. (The amount is added to the relevant income in the Profit and Loss Account.)

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(a) Increase in provision for doubtful debts

This arises when the new required provision is greater than the existing one. Only the increase is charged as an expense. It is debited to the Profit and Loss Account and added to the provision so that, in the Balance Sheet, the full new provision is deducted from debtors to show net debtors.

(b) Decrease in provision for doubtful debts

This arises when the new required provision is smaller than the existing one. The fall in the provision is treated as a gain. It is credited to the Profit and Loss Account (added to gross profit), and in the Balance Sheet the reduced (new) provision is deducted from debtors.

(c) Provision for discount on debtors

This is an estimate of the cash discount the business expects to allow debtors who pay promptly. The new provision (or the increase) is debited to the Profit and Loss Account. In the Balance Sheet it is deducted from debtors, after first deducting the provision for doubtful debts (so it is calculated on good debtors only).

(d) Provision for discount on creditors

This is an estimate of the cash discount the business expects to receive from creditors for prompt payment. It is treated as an anticipated income: the provision (or increase) is credited to the Profit and Loss Account, and in the Balance Sheet it is deducted from creditors under current liabilities.

(e) Provision for depreciation

This is the accumulated amount set aside to spread the cost of a fixed asset over its useful life. Each year's depreciation charge is debited to the Profit and Loss Account. The accumulated provision for depreciation is deducted from the cost of the fixed asset in the Balance Sheet to show the net book value.

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(a) What are closing entries?

Closing entries are the journal entries made at the end of an accounting period to transfer the balances on the nominal (revenue and expense) accounts to the Trading and Profit and Loss Account. They close off the income and expense accounts so that they start the next period with nil balances, and they bring together the figures needed to determine gross profit and net profit.

(b) Distinction between a branch and a department

(c) Four reasons for the preparation of branch accounts

1. To determine the profit or loss made by each branch separately.
2. To control the branch and check the honesty and efficiency of branch staff (guard against fraud).
3. To ascertain the value of stock, cash and other assets held at each branch.
4. To help the head office in decision-making, such as whether to expand, retain or close a branch.
5. To measure the performance of branch managers for reward or control purposes.

(Any four.)

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Treatment. Only items that the trader had not yet recorded, or had recorded wrongly in the cash book, are adjusted here. Items (viii) unpresented cheque, (ix) uncredited lodgement, and (x) the bank's own error are timing/bank errors that belong in the reconciliation statement, NOT the cash book. The N400 credit transfer (v) and the N40 receipt (vii) are both direct credits to be added; item (iii) understated a lodgement by N40 (add back); item (vi) overstated a payment by N360 (add back); item (xi) is a transfer received into the bank not yet recorded (add).

(a) Adjusted (Adjusted) Cash Book as at 30 September 2017

Adjusted cash book balance \(= 7{,}600 + 40 + 400 + 360 + 40 + 6{,}000 - (160 + 40 + 200) = N14{,}040\) (debit balance).

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(a) What is a Ledger?

A ledger is the principal book of accounts in which all transactions, after first being recorded in the books of original entry, are finally classified and posted into their respective accounts. It contains the individual accounts (personal, real and nominal) and from it the balances are extracted to prepare the trial balance and final accounts.

(b) Uses of an invoice

To the seller:

• It is the source document for recording the credit sale in the sales journal.
• It serves as evidence that goods have been sold and dispatched to the buyer.
• It states the amount owed and forms the basis for demanding payment from the buyer.

To the buyer:

• It is the source document for recording the credit purchase in the purchases journal.
• It shows the details of goods received, quantities, prices and any trade discount, for checking against the order and goods received.
• It serves as evidence of the debt owed to the supplier and supports payment.

(c) Advantages of dividing the ledger into different classes

1. It allows the division of labour, so that different clerks can work on different ledgers at the same time.
2. It makes the location of accounts and detection of errors easier and faster.
3. It enables control accounts to be prepared for each subsidiary ledger, providing an internal check.
4. It reduces the size of any one ledger, making the books more manageable and orderly.
5. It improves secrecy and internal control, since sensitive accounts (for example, the private ledger) can be kept separate.

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(a) Sources of revenue to a federal government

• Taxes (company income tax, personal income tax, value added tax, capital gains tax)
• Customs and excise duties (import and export duties)
• Royalties and proceeds from petroleum, gas and solid minerals
• Licences, fees, fines and penalties
• Earnings and dividends from government-owned corporations and investments
• Loans and grants (internal and external borrowing, aid)
• Rents and rates on government property

(Any relevant sources.)

(b) Advantages of the cash basis in public sector accounting

1. It is simple and easy to operate and understand, needing little accounting expertise.
2. It is objective and less subject to manipulation, since it records only actual cash received and paid.
3. It makes it easy to compare actual cash receipts and payments with the approved budget.
4. It is cheaper to maintain because it avoids complex accruals, provisions and valuations.
5. It readily shows the cash position of the government at any time.

(c) Five reasons for public sector accounting

1. To demonstrate accountability and stewardship of public funds by those entrusted with them.
2. To ensure that public money is spent strictly in line with the approved budget and appropriation.
3. To provide information for planning, control and decision-making by government.
4. To prevent and detect fraud, waste and misappropriation of public funds.
5. To provide information to users such as the legislature, the public and international agencies, and to aid audit.