WAEC SSCE - Financial Accounting - 2018

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The accounting entry for cash realized from the sale of assets on the dissolution of a partnership is cash account; credit realization account. When a partnership is dissolved, the assets of the partnership are sold off, and the proceeds are distributed among the partners according to their share in the partnership. The cash received from the sale of assets is recorded by debiting the cash account. At the same time, a realization account is credited. The realization account is an account used to record the sale of assets and the payment of liabilities during the dissolution of a partnership. The reason why the cash account is debited is that cash is received as a result of the sale of assets, which is an inflow of cash. On the other hand, the realization account is credited because it records the amount realized from the sale of assets during the dissolution of the partnership. Therefore, the accounting entry for cash realized from the sale of assets on the dissolution of a partnership is cash account; credit realization account.

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The term used to describe the apportionment of the cost of a fixed asset to the profit and loss account is "depreciation". Depreciation is an accounting method used to allocate the cost of a fixed asset over its useful life. Fixed assets, such as machinery, buildings, and vehicles, lose their value over time due to wear and tear, obsolescence, and other factors. Depreciation is a way of recognizing this decrease in value in the company's financial statements over the useful life of the asset. Depreciation expense is recognized in the profit and loss account each accounting period, and it reduces the company's net income. By expensing a portion of the cost of the asset each year, the company can accurately reflect the impact of the asset's use on its financial performance.

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The concept that implies that a business will operate for an indefinitely long period of time is the going concern concept. In simple terms, the going concern concept assumes that a business will continue to operate and will not go bankrupt or shut down in the near future. This means that a business is expected to have enough resources, such as capital, to continue operating and to pay its debts as they come due. Under the going concern concept, a business records its transactions and prepares its financial statements as if it will continue to operate in the future. This allows the business to present a more accurate picture of its financial position and to make informed decisions about its future operations.

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Sales and purchases ledger are used to keep records of accounts of individual customers and suppliers. In other words, they are used to keep track of all the sales made by a business to its customers and all the purchases made by the business from its suppliers. The sales ledger keeps record of all the sales transactions, including the amount of money received from customers. On the other hand, the purchases ledger keeps record of all the purchases made by the business, including the amount of money paid to suppliers. By keeping records of these transactions in a systematic way, a business can easily keep track of its financial dealings with its customers and suppliers, which can help in making informed business decisions.

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The consistency concept in accounting aims at ensuring that a company uses the same accounting methods and principles consistently from one accounting period to another. This allows for comparability of accounting records, making it easier for investors and other stakeholders to analyze financial statements and make informed decisions. By using consistent accounting methods and principles, a company can also ensure that expenses are properly matched against revenue, leading to more accurate financial reporting. The consistency concept does not aim to reduce costs or suppress profits to be declared.

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Factory overhead is the total cost incurred in the production of goods, other than the direct cost of labor and materials. It includes various indirect costs such as rent, utilities, maintenance, and other expenses associated with operating a factory. One of the components of factory overhead is depreciation of plant and machinery. This refers to the decrease in value of the factory's equipment and assets over time due to wear and tear, obsolescence, and other factors. Depreciation is considered an indirect cost because it does not directly contribute to the production of goods, but is necessary to maintain the factory's productive capacity. In summary, depreciation of plant and machinery is an important component of factory overhead because it represents the ongoing cost of maintaining and replacing the factory's assets, which are essential for producing goods.

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The net book value of fixed assets is 14,354. To calculate the net book value of fixed assets, we need to subtract the accumulated depreciation from the cost of the assets. In this case, we have one motor vehicle and furniture and fittings. For the motor vehicle, we subtract the accumulated depreciation from the cost to get the net book value: Net book value of motor vehicle = Cost of motor vehicle - Accumulated depreciation on motor vehicle = 21,136 - 7,109 = 14,027 For the furniture and fittings, we also subtract the accumulated depreciation from the cost to get the net book value: Net book value of furniture and fittings = Cost of furniture and fittings - Accumulated depreciation on furniture and fittings = 1,334 - 1,007 = 327 To get the total net book value of fixed assets, we add the net book value of the motor vehicle and the net book value of furniture and fittings: Total net book value of fixed assets = Net book value of motor vehicle + Net book value of furniture and fittings = 14,027 + 327 = 14,354 Therefore, the net book value of fixed assets is 14,354.

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Entries in the purchase journal are transferred to the payable ledger. A purchase journal, also known as a purchases book, is a record of all the purchases made by a business. It is used to keep track of the details of the purchases, such as the date, supplier, and amount. The payable ledger is a record of all the amounts owed by the business to its suppliers. It is used to keep track of the details of the debts, such as the amount owed, due date, and terms of payment. The entries in the purchase journal are transferred to the payable ledger to update the record of the business's debts to its suppliers. This transfer helps ensure that the business has an accurate record of its finances and helps to ensure that it can pay its debts on time.

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In the event of winding-up, the parties who are paid last are ordinary shareholders. The priority of payment in a winding-up is determined by the order of priority specified in the Companies Act. Trade creditors, who are owed money for goods or services provided to the company, are usually paid before ordinary shareholders. Debenture holders, who have loaned money to the company in exchange for a fixed rate of interest, are usually paid before trade creditors. Preference shareholders, who have a right to receive a fixed dividend before ordinary shareholders, are usually paid before debenture holders. It's important to note that the order of priority can vary depending on the jurisdiction, and that in some cases, there may not be enough assets to pay all creditors in full, so they may receive a portion of what they are owed.

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On the debit side of the trial balance, you will typically find accounts that have a debit balance, meaning they represent an increase in assets or a decrease in liabilities. Out of the four options provided, two are likely to have a debit balance - discount allowed and provision for doubtful debts. Discount allowed is a reduction in the price of goods or services offered to customers as an incentive for early payment. This account is usually recorded as a debit since it represents a decrease in revenue for the business. Provision for doubtful debts, on the other hand, represents an estimate of the amount of money that a company is unlikely to collect from its debtors. Since this is a type of expense, it is typically recorded as a debit. Returns outwards and discount received are accounts that typically have a credit balance, meaning they represent a decrease in assets or an increase in liabilities. Therefore, they would appear on the credit side of the trial balance. In summary, provision for doubtful debts and discount allowed are the options that are likely to appear on the debit side of the trial balance.

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The prime cost of production is the sum of direct materials and direct labor costs. In this case, the direct material used is N64,000 and the direct labor cost is N30,000. Therefore, the prime cost of production is N64,000 + N30,000 = N94,000. We do not need to consider the production overheads or the work-in-progress at the beginning and end since they are not part of the prime cost of production. Prime cost only considers the direct costs associated with the production of goods, which are the direct materials and direct labor costs.

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A debit balance of N420 on the purchase ledger control account means that trade creditors are owed N420. The purchase ledger control account is a summary of all the transactions made with trade creditors, including purchases, payments, and returns. A debit balance on the account means that the total amount owed to trade creditors is higher than the total amount paid to them. In other words, the business has purchased goods or services on credit from its suppliers, but has not yet paid for them in full. Therefore, is the correct answer: trade creditors are owed N420.

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The document forwarded to a supplier showing unsatisfactory goods is a "debit note". A debit note is a document that serves as a notification to the supplier that the purchaser has returned or rejected goods due to issues such as defects, damage, or incorrect delivery. It is essentially a request for the supplier to issue a credit or refund for the goods, or to replace them. The debit note includes information such as the quantity and description of the unsatisfactory goods, the reason for their return or rejection, and any relevant dates or order numbers. The supplier is expected to respond to the debit note with either a credit note, confirming that a credit or refund will be issued, or a rejection, indicating that they dispute the claim. In summary, a debit note is used to communicate with the supplier regarding unsatisfactory goods, and serves as a record of the transaction for both parties.

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A reduction in price to encourage prompt payment is a cash discount. A cash discount is a reduction in the price of a product or service that is offered to customers who pay their bills within a specified period of time, usually within 10 or 15 days after the invoice date. The purpose of a cash discount is to encourage customers to pay their bills promptly, which can help improve a business's cash flow and reduce its accounts receivable. For example, a business might offer a 2% cash discount if a customer pays their bill within 10 days after the invoice date. This means that if the customer pays their bill within the specified period, they will receive a 2% reduction in the total amount due. Cash discounts are a common practice in business and can benefit both the customer and the business by helping to improve cash flow and reduce outstanding accounts.

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One of the characteristics of useful accounting information is comparability. Comparability refers to the ability to compare financial information across different periods and between different companies. When financial information is presented in a consistent manner and using the same accounting principles, it becomes easier to compare and analyze data over time and across different businesses. This is important for investors, creditors, and other users of financial information who need to make informed decisions based on reliable and comparable data. Without comparability, it can be difficult to determine whether a company's financial performance is improving or declining and to compare it to its peers.

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Investors in a business are mainly interested in the firm's profitability. Profitability refers to the ability of a business to generate profits, or income, from its operations. Investors want to know if the business is making money, and if so, how much and at what rate. This information helps them to assess the potential return on their investment and make informed decisions about whether or not to invest in the business. In simple terms, profitability is a measure of a company's success and its ability to generate returns for its shareholders. This makes it a critical factor for investors when deciding whether to invest in a company.

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The amount set aside out of profits to strengthen the financial position of the business is called a reserve. A reserve is a portion of a company's profits that is set aside and not distributed as dividends to shareholders. The purpose of a reserve is to strengthen the financial position of the company and to provide a cushion against unexpected losses or expenses. Reserves can be used for various purposes, such as investing in new projects, paying off debt, or preparing for future expenses. The amount of money set aside for reserves can vary depending on the company's financial goals and the economic conditions. In summary, a reserve is an amount of money that is set aside out of profits to strengthen the financial position of the business and provide a cushion against unexpected losses or expenses.

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A fall in the value of a fixed asset due to technological changes is described as obsolescence. Obsolescence occurs when a fixed asset becomes outdated and its usefulness declines due to changes in technology. For example, a computer system may become obsolete when new software requires more advanced hardware to run efficiently. As a result, the value of the asset may decrease due to the reduced demand for it. Obsolescence is different from wear and tear, which refers to the normal deterioration of a fixed asset due to usage over time. Wear and tear is a natural part of an asset's life cycle and is usually accounted for through depreciation. Depletion, on the other hand, refers to the reduction in value of natural resources due to their usage or extraction. For example, a coal mine may experience depletion as the coal reserves are extracted and the mine becomes less valuable. Superfluity refers to the surplus or excess of an asset, which may occur when there is a decrease in demand or when a company overinvests in assets. Therefore, the correct answer is obsolescence.

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The gross profit is Le 30,000 profit. To calculate gross profit, we subtract the cost of goods sold (COGS) from the sales revenue. COGS is the cost of the inventory sold during the period, and it includes the cost of opening inventory plus the cost of purchases, minus the cost of closing inventory. The calculation for COGS is: COGS = Opening stock + Purchases - Closing stock = 10,000 + 100,000 - 20,000 = 90,000 Therefore, the gross profit is: Gross profit = Sales - COGS = 120,000 - 90,000 = Le 30,000 profit Hence, the correct answer is Le 30,000 profit.

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A reduction in provision for doubtful debts will increase profits. When a business sells goods or services on credit, there is always a risk that some customers may not pay their debts. To account for this risk, businesses make a provision for doubtful debts in their financial statements. If a business reduces its provision for doubtful debts, it is effectively saying that it expects to receive more payments from its customers. This means that the amount of bad debts (i.e., debts that are not paid) will be lower, which will result in higher profits. Depreciation charges, undervalued closing stock, and returns inwards are all activities that can reduce profits. Depreciation is a non-cash expense that reduces the value of assets over time, undervalued closing stock means that the value of the closing stock has been understated, and returns inwards represent a decrease in sales revenue. Therefore, out of the options given, only a reduction in provision for doubtful debts will increase profits.

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Equity holders' funds refer to the shareholders' equity in a company, which is the residual interest in the assets of the company after deducting its liabilities. To calculate the equity holders' funds, we need to add the ordinary share capital and the retained earnings, as these are the two main components of shareholders' equity. In this case, the ordinary share capital is N70,000 and the retained earnings are N31,142. Therefore, the equity holders' funds are N70,000 + N31,142 = N101,142. We do not need to consider the other items, such as the motor vehicle, furniture and fittings, stock, debtors, bank, and creditors, as they are not directly related to the equity holders' funds. Therefore, the correct answer is "N101,142". is the correct answer. Options 1, 2, and 4 are incorrect as they do not accurately calculate the equity holders' funds.

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The concept which states that revenue is recognized when goods are sold is called the "realization concept". This concept is based on the principle that revenue should be recognized when a company has completed the earnings process, which typically happens when goods or services have been delivered to customers. In simpler terms, the realization concept suggests that revenue should only be recognized when a company has actually earned it by providing a product or service to a customer. This means that revenue cannot be recognized simply because an order has been received or because a product has been produced. For example, if a company sells a product to a customer on credit, revenue will be recognized at the point of sale, even if the customer has not yet paid for the product. This is because the company has completed the earnings process by delivering the product to the customer. Overall, the realization concept helps to ensure that a company's financial statements reflect the actual revenue it has earned and the expenses it has incurred in a given period.

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The process of distributing shares to successful applicants is called allotment. Allotment is the process of assigning and distributing shares to individuals or organizations who have applied for them during an initial public offering (IPO) or other share issuance. The allotment process is typically overseen by the company or its underwriters, who evaluate the applications and allocate shares to successful applicants based on the number of shares available and the demand for them. Once the allotment process is complete, successful applicants are notified and shares are typically credited to their brokerage or investment accounts, allowing them to participate in the ownership and potential growth of the company.

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The cost of goods sold is Le 90,000. To calculate the cost of goods sold, we need to know the cost of the goods that were sold during the period. We can calculate the cost of goods sold using the following formula: Cost of goods sold = Opening stock + Purchases - Closing stock In this case, the opening stock is 10,000, the purchases are 100,000, and the closing stock is 20,000. Therefore, the cost of goods sold = 10,000 + 100,000 - 20,000 = Le 90,000. This means that the total cost of the goods sold during the period was Le 90,000.

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The difference between a company's current assets and its current liabilities is known as working capital. Current assets are assets that can be easily converted into cash within a year, such as cash, inventory, and accounts receivable. Current liabilities are obligations that must be paid within a year, such as accounts payable, taxes payable, and short-term loans. Working capital is an important measure of a company's short-term liquidity and its ability to meet its current obligations. If a company has more current assets than current liabilities, it has a positive working capital, which indicates that it has sufficient resources to cover its short-term obligations. On the other hand, if a company has more current liabilities than current assets, it has a negative working capital, which indicates that it may face difficulties in meeting its short-term obligations. Therefore, the correct answer is "working capital". Options 1 is the correct answer. Options 2, 3, and 4 are incorrect as they do not accurately describe the calculation or concept of working capital.

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The transaction that is a revenue expenditure is the "purchase of fuel for a vehicle". Revenue expenditures are expenses incurred in the normal course of business operations that are aimed at generating revenue in the current accounting period. These expenses are not expected to provide long-term benefits to the company. In other words, revenue expenditures are incurred to maintain and operate a business. In the case of purchasing fuel for a vehicle, this is an expense that is required for day-to-day operations of the vehicle. This expense is essential for the vehicle to run and carry out business activities, but it does not provide any long-term benefit to the company. Therefore, it is considered a revenue expenditure. On the other hand, the purchase of plant and a new engine are examples of capital expenditures. These are expenses that are incurred to acquire assets that are expected to provide benefits to the company for several years. The construction of an office wall may also be a capital expenditure if it improves the value or usefulness of the office space beyond the current accounting period.

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Royalties paid in a manufacturing account are typically debited to the manufacturing account. This is because royalties are a manufacturing expense that is directly related to the production of goods. The manufacturing account is used to record all the costs incurred in the production of goods, including direct materials, direct labor, and manufacturing overheads such as royalties. By debiting royalties paid to the manufacturing account, the total cost of manufacturing the goods is increased, which reduces the profit earned on the sale of the goods. This reflects the fact that the payment of royalties is an expense that reduces the profitability of the manufacturing process.

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The total cost of production is 116,000. To arrive at the total cost of production, we need to add up the direct material used, direct labour, and production overheads. Direct material used = 64,000 Direct labour = 30,000 Production overheads = 22,000 Total cost of production = Direct material used + Direct labour + Production overheads Total cost of production = 64,000 + 30,000 + 22,000 Total cost of production = 116,000 Therefore, the total cost of production is 116,000.

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