WAEC SSCE - Financial Accounting - 2001 (Objective)

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The concept being described here is the realization principle, which is a fundamental accounting principle that governs the recognition of revenue in financial statements. This principle states that revenue should be recognized by a business when it has been earned, and the collection of the corresponding payment is reasonably assured. In simpler terms, a business should only recognize revenue when it has completed the sale of goods or services to a customer and is confident that it will receive payment for those goods or services. This means that a business cannot recognize revenue before it has delivered the goods or services, nor can it recognize revenue for goods or services that have not yet been paid for. Therefore, the realization principle ensures that financial statements reflect the true economic reality of the business by only recognizing revenue when it has been earned and is reasonably assured.

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The correct options are ii and iii only. A Limited Liability Company (LLC) is a type of business entity where the owners are not personally liable for the company's debts or liabilities. The owners of an LLC are called members, and they have limited liability for the company's debts and obligations. i. Members do not have the power to bind the company. This means that they cannot act on behalf of the company without proper authorization. ii. Perpetual succession means that the LLC can continue to exist even if one or more of its members leave or die. The LLC can also continue to exist if it is sold or merged with another company. iii. A certificate of incorporation is a legal document that establishes the existence of an LLC. It contains important information such as the company's name, address, and purpose. iv. An LLC does not automatically wind up on the death of a member. The company can continue to exist with the remaining members, or the deceased member's ownership interest can be transferred to their heirs or sold to another person. Therefore, the correct options are ii and iii only.

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The acid test ratio is a financial ratio that helps to measure a company's short-term solvency. It measures the company's ability to pay off its current liabilities using its current assets, excluding inventory. The formula for the acid test ratio is: Acid Test Ratio = (Current Assets - Inventory) / Current Liabilities A company with a high acid test ratio is considered to have good short-term solvency because it has enough liquid assets to pay off its current liabilities. A low acid test ratio, on the other hand, may indicate that the company has difficulty paying off its short-term obligations. Therefore, the correct option is the acid test ratio.

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Fixtures are not an intangible asset. An intangible asset is an asset that does not have a physical existence but can be owned and has a value. Examples of intangible assets include licenses, patents, trademarks, copyrights, goodwill, and brand recognition. Fixtures, on the other hand, are tangible assets that are attached to a property or building and are considered part of it. Examples of fixtures include lighting fixtures, plumbing fixtures, and built-in furniture. These assets have a physical existence and are not considered intangible assets. Therefore, the correct answer to the question is fixtures.

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Suppliers' personal accounts are found in the purchases ledger. The purchases ledger is a subsidiary ledger that is used to record all transactions related to the purchase of goods and services on credit from suppliers. Each supplier has their own personal account in the purchases ledger, which shows the details of all transactions with that supplier, such as purchases made, payments received, and any amounts owing. The purchases ledger is an important tool for managing a business's accounts payable, as it allows the business to keep track of all amounts owed to suppliers and to ensure that payments are made on time. It is also used to generate reports such as an aged creditors report, which shows how much money is owed to each supplier and how long the amounts have been outstanding.

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The labor cost incurred by a business firm for installing machinery should be treated as part of the cost of the machinery. This means that it should be added to the cost of the machinery and recorded in the machinery account. For example, if a business spends $10,000 on a new machine and $2,000 on labor costs to install the machine, the total cost of the machine would be $12,000. The $2,000 labor cost should be recorded in the machinery account as part of the total cost of the machine. This approach is consistent with the accounting principle of cost allocation, which requires that all costs associated with an asset be recorded as part of the cost of that asset. It also ensures that the business accurately reflects the true cost of the machinery in its financial statements.

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An issue of prospectus is an invitation to members of the public to subscribe for shares of a company. A prospectus is a formal document that provides details about the company, its business operations, financial performance, and the terms and conditions of the share offer. The purpose of issuing a prospectus is to attract potential investors and encourage them to buy shares in the company. When a company issues a prospectus, it is inviting members of the public to invest in the company by buying its shares. The company sets the price of the shares and the number of shares available for purchase, and investors can decide whether or not to invest based on the information provided in the prospectus. Therefore, the correct option in this case is "subscribe for shares," as an issue of prospectus is an invitation to members of the public to invest in a company by buying its shares.

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Shares sold at the nominal value are issued at par. Nominal value or face value is the stated value of a share or security that appears on the face of the share or security certificate. It is also known as par value. When a company issues shares at their nominal value or par value, it means that the shares are being sold at the original issue price, without any premium or discount. Therefore, when shares are issued at their nominal value or par value, they are issued at par. This means that the selling price is equal to the face value or nominal value of the share. Hence, the correct option is "par".

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The error described, where the sale of goods for N600 to Ade was not posted, is an error of omission. An error of omission occurs when a transaction is completely left out and not recorded in the accounting records. In this case, the sale of goods to Ade for N600 was not recorded, which means that the revenue from the sale was not recognized, and the financial statements would not reflect this transaction. Commission refers to an error where a transaction is recorded incorrectly, while principle refers to the underlying accounting concept or rule being violated. Compensation, on the other hand, refers to making up for a loss or damage caused. However, in this case, none of these options seem relevant to the error at hand.

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To determine the cost of raw materials consumed, we need to calculate the total cost of materials available for use during the accounting period. This can be done by adding the opening stock of raw materials and the purchases made during the period. Total Cost of Materials Available = Opening Stock of Raw Materials + Purchases Total Cost of Materials Available = 8,000 + 45,000 Total Cost of Materials Available = 53,000 We then subtract the closing stock of raw materials to determine the cost of raw materials consumed. Cost of Raw Materials Consumed = Total Cost of Materials Available - Closing Stock of Raw Materials Cost of Raw Materials Consumed = 53,000 - 9,500 Cost of Raw Materials Consumed = 43,500 Therefore, the answer is N43,500.

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The excess of current assets over current liabilities is known as working capital. Working capital is the amount of money that a company has available to fund its day-to-day operations. It represents the difference between a company's current assets (such as cash, inventory, and accounts receivable) and its current liabilities (such as accounts payable and short-term loans). A positive working capital indicates that a company has enough current assets to cover its short-term obligations, while a negative working capital means that a company may face difficulties in meeting its short-term obligations. Therefore, the correct option in this case is "working capital," as it represents the excess of current assets over current liabilities.

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The main Government Fund used to service all operations of the government is the Consolidated Revenue Fund. The Consolidated Revenue Fund is the main account used by the government to collect and disburse money for all its operations. It is the pool of money from which the government pays for all its expenses, including salaries of public officials, infrastructure development, social welfare programs, and debt servicing. The fund is made up of all revenues collected by the government, including taxes, duties, and other sources of income. The General Fund is a term used to describe the account used by the government to collect and disburse money for a specific purpose, such as a particular government department or agency. A special fund is an account set up for a specific purpose, such as a disaster relief fund or a trust fund for a particular project. The Consolidated Reserve Fund, on the other hand, is a fund set aside for emergencies or contingencies and is not used for regular government operations. Therefore, the correct option is the Consolidated Revenue Fund.

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The amount to be posted to the personal ledger is N536. The imprest system is a method of managing petty cash whereby a fixed amount of money is set aside for small expenses, and when that amount is exhausted, it is replenished back to the original amount. In this case, the imprest amount is N4,000. The transactions that took place during the month are recorded in the petty cash book. In order to maintain the imprest system, we need to calculate the total amount of expenses incurred during the month and compare it to the amount of money remaining in the petty cash fund. The total expenses for the month are N2,758 (328 + 914 + 375 + 536 + 928 + 437 + 210). This means that the amount of money left in the petty cash fund is N1,242 (N4,000 - N2,758). In order to replenish the petty cash fund back to its original amount of N4,000, N2,758 is added to the amount of money left in the petty cash fund, which gives a total of N4,000. Therefore, N1,242 is the amount that needs to be posted to the personal ledger as an expense incurred during the month. Out of the given options, the correct answer is N536, which represents the amount paid to J. Thomas, a creditor. Therefore, the correct option is N536.

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Preliminary expenses are a fictitious asset. Preliminary expenses are the expenses incurred by a company at the time of its incorporation, such as legal fees, registration fees, printing charges, and fees paid to underwriters. These expenses are considered as an asset because they have already been incurred by the company, but they cannot be written off as expenses in the same accounting year. Since preliminary expenses cannot be converted into cash or used to generate revenue, they are considered as a fictitious asset. They are shown on the balance sheet under the head of assets, but they are not tangible assets like cash or inventory. Therefore, the correct option is preliminary expenses.

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An agreement made by partners to regulate and govern their business activities is known as a Partnership Deed. A Partnership Deed is a legal document that outlines the terms and conditions of a partnership between two or more individuals. It serves as a contract between the partners and includes information such as the name of the partnership, the purpose of the partnership, the contributions of each partner, the sharing of profits and losses, the management of the partnership, and the procedures for dissolution of the partnership. The Partnership Deed helps to establish clarity and understanding among the partners and provides a framework for the operation of the business. It also helps to prevent misunderstandings and disputes that may arise in the course of the partnership. Therefore, the correct option is Partnership Deed.

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The control account is prepared in the general ledger of a company. A control account is a summary account that shows the total balance of a group of subsidiary accounts. For example, the accounts receivable control account summarizes the balances of all the individual customer accounts in the sales ledger. Similarly, the accounts payable control account summarizes the balances of all the individual supplier accounts in the purchases ledger. The general ledger is the main ledger of a company that contains all of the summary accounts, including control accounts, and is used to prepare the company's financial statements. All the transactions from the other subsidiary ledgers (such as the sales and purchases ledgers) are posted to the general ledger through the control accounts. Therefore, the correct option in this case is "general ledger," as the control account is prepared in the general ledger of a company.

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The net price of each item after a trade discount of 25% is 75% of N40,000 = N30,000. So the total cost for 5 items would be N30,000 x 5 = N150,000. Now, there is a cash discount of 10% available if payment is made within the credit period. This means that the amount to be paid within the credit period would be 90% of N150,000. Therefore, the amount to be paid within the credit period would be 90/100 x N150,000 = N135,000. Hence, the answer is N135,000.

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The amount by which assets exceed specific liabilities is called a reserve. In simpler terms, a reserve is a portion of a company's profits that is set aside to cover future contingencies, such as unexpected expenses or losses. This reserve is essentially an amount of money that a company puts aside to help it weather any future financial difficulties that may arise. For example, a company may create a reserve fund to cover the cost of potential legal liabilities or to pay for future capital expenditures. This reserve can be considered as a safety net for the company in case of unforeseen events that may negatively impact its financial position. It's important to note that a reserve is different from a provision, which is an amount set aside to cover a specific liability or expense that is known or highly probable but uncertain in terms of timing or amount. A reserve, on the other hand, is a more general term that refers to funds set aside for future contingencies that are not specifically identified. Overall, the use of reserves is a common practice in financial management as it allows a company to be better prepared for unexpected situations that may arise in the future.

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The amount spent on stationery can be calculated by adding up all the transactions related to stationery. From the information given, we know that notebooks and envelopes were bought, which are both types of stationery. The amount spent on notebooks is N328, and the amount spent on envelopes is N437. So, the total amount spent on stationery is N328 + N437 = N765. Therefore, the correct option is N765. It is important to keep track of petty cash transactions using the imprest system to ensure that the petty cash fund is always replenished and that there is proper documentation for all transactions. This helps to prevent fraud and mismanagement of funds.

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To calculate the percentage of net profit to sales, we need to first calculate the net profit. Net profit is the difference between total revenue (sales + credit sales) and total expenses (opening stock + purchases + expenses + closing stock). Total revenue = Sales = 200,000 Total expenses = Opening Stock + Purchases + Expenses - Closing Stock = (20,000 + 140,000 + 10,000) - 10,000 = 160,000 Net profit = Total revenue - Total expenses = 200,000 - 160,000 = 40,000 Now, to calculate the percentage of net profit to sales, we divide the net profit by sales and multiply by 100. Percentage of net profit to sales = (Net profit/Sales) x 100 = (40,000/200,000) x 100 = 20% Therefore, the percentage of net profit to sales is 20%. This means that for every dollar of sales, the company is earning 20 cents in net profit.

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The profit or loss on the disposal of an asset can be calculated as the difference between the sale proceeds and the carrying amount of the asset. The carrying amount of an asset is its cost less accumulated depreciation. In this case, the fixed asset was purchased for N10,000 and was depreciated at a rate of 20% per annum using the straight-line method. The accumulated depreciation for the asset as at the end of 1999 can be calculated as follows: Depreciation per annum = 20% of N10,000 = N2,000 Depreciation for 4 years (1996 to 1999) = N2,000 x 4 = N8,000 Therefore, the carrying amount of the asset as at the end of 1999 is: Carrying amount = Cost - Accumulated depreciation = N10,000 - N8,000 = N2,000 The asset was sold for N2,000, which is the same as its carrying amount. Therefore, there is no profit or loss on the disposal of the asset. Hence, the correct option is N2,000 loss (option D).

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Raw materials stock is not an example of a fictitious asset. A fictitious asset is an asset that is shown on a company's balance sheet but has no tangible value or does not exist in reality. It is important to note that fictitious assets are not real assets that can be used to generate revenue or profits for the company. They are usually created artificially to conceal losses or inflate the value of the company. Examples of fictitious assets include debit balances in a profit and loss account, preliminary expenses of a limited company, and expenditure on incorporation carried forward. These items do not represent any tangible assets or value and are only created for accounting purposes. In contrast, raw materials stock is a real asset that has tangible value and can be used in the production process to generate revenue for the company. Raw materials are an essential component of a manufacturing business, and their value is reflected in the company's inventory account. Overall, it's important for companies to avoid creating fictitious assets as they can misrepresent the company's financial position and mislead investors and other stakeholders.

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The expenditure on a good or service which is consumed either immediately or within a current accounting government is called recurrent expenditure. Recurrent expenditure is the regular and routine spending that a business or government incurs to maintain its day-to-day operations. It is also known as operating expenditure (OPEX) or revenue expenditure. Examples of recurrent expenditure include salaries and wages, rent, utilities, repairs, maintenance, and consumable supplies. In contrast to recurrent expenditure, capital expenditure refers to the spending on assets that have long-term value and will be used over a period of years. Budgetary expenditure refers to the planned spending in a budget, while annual expenditure refers to the spending over a one-year period. Therefore, the correct label for the given definition is recurrent expenditure.

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When the head office issues goods to branches, the usual cost that is recorded for accounting purposes is the cost price of the goods. The cost price of goods is the total cost incurred to acquire or produce them, including all direct and indirect costs such as raw materials, labor, and overhead expenses. Using the cost price of goods allows the head office to accurately track the cost of goods sold and the value of inventory held by the branches. It also ensures that the branches are charged a fair price for the goods that they receive from the head office. While other methods such as prime cost, production cost, and net realizable value may also be used to value goods, cost price is the most commonly used method when issuing goods to branches. This is because it provides a straightforward and reliable method for calculating the value of goods, and it is consistent with the accounting principle of cost allocation.

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Profit and loss account does not relate to government accounting system. A profit and loss account is a financial statement that shows a company's revenues and expenses over a period of time, usually one year. It is used by businesses to determine their net income or net loss for the year. On the other hand, government accounting is concerned with the financial transactions of the government, including the collection of public revenue, the management of public funds, and the preparation of financial reports. The other options, namely vote, trial balance, and consolidated fund are all related to government accounting. In government accounting, a vote refers to an authorization by the legislature to spend money from the public treasury for a specific purpose. A trial balance is a list of all the accounts in the ledger with their respective debit and credit balances. The consolidated fund is a term used in government accounting to refer to the main account of the government where all revenues, loans, and public funds are deposited. Therefore, the correct option is the profit and loss account.

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To calculate the gross profit, we need to subtract the cost of goods sold (COGS) from the total sales revenue. The formula for gross profit is: Gross Profit = Sales - Cost of Goods Sold We can calculate the COGS by using the following formula: COGS = Opening Stock + Purchases - Closing Stock Let's substitute the given values in the formula: COGS = 20,000 + 140,000 - 10,000 COGS = 150,000 Now we can calculate the gross profit using the first formula: Gross Profit = Sales - COGS Gross Profit = 200,000 - 150,000 Gross Profit = 50,000 Therefore, the gross profit is N50,000. In simple terms, gross profit is the profit a company earns after deducting the cost of goods sold from its total sales revenue. It indicates the profitability of a company's core business operations, without factoring in other expenses such as operating expenses or taxes.

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The Chief accounting officer of the federation is the Accountant General. The Accountant General is the highest-ranking accounting officer in the country, responsible for managing the financial operations of the federal government. They are responsible for maintaining the central accounting records of the government, managing the payment of salaries, pensions and other entitlements, and ensuring compliance with financial regulations. The Accountant General is responsible for preparing the financial statements of the government and coordinating the audit of the government's accounts by the Office of the Auditor General. Therefore, the correct option is the Accountant General.

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The primary source of entry into the debtors ledger is sales invoices. Sales invoices are the documents used to record the sale of goods or services to customers on credit. They provide a detailed breakdown of the items sold, the quantity, the price, and any applicable taxes or discounts. When a sale is made on credit, a sales invoice is created and serves as the primary source of entry into the debtor's ledger. The debtor's ledger is a record of all amounts owed to the business by its customers. Each customer has their own account in the ledger, which shows the total amount owed, the payment history, and any outstanding balances. When a sales invoice is created, it is recorded in the debtor's ledger as an increase in the amount owed by the customer. Suppliers' invoices are used to record purchases made by the business from suppliers, and returns outwards notes are used to record returns of goods to the supplier. Payment vouchers are used to record payments made by the business to its suppliers or other creditors. None of these documents serve as a primary source of entry into the debtor's ledger. Therefore, the correct option is sales invoices.

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Sales invoices are the primary source of entry into the debtors ledger. The debtors ledger is a subsidiary ledger that contains all of the individual customer accounts for a company. It is used to track the amounts owed by each customer for goods or services sold on credit. When a company sells goods or services on credit to a customer, it issues a sales invoice to the customer. The sales invoice contains details about the sale, such as the date, the items sold, the quantity, and the price. The sales invoice is the primary source of entry into the debtors ledger, as it is used to record the amount owed by the customer. The amount owed is recorded in the customer's individual account in the debtors ledger, and is updated as subsequent transactions occur (such as when the customer makes a payment or returns goods). Therefore, the correct option in this case is "sales invoices," as they are the primary source of entry into the debtors ledger.

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The accounting entries for recording cash withdrawal by the proprietor for personal use are "Drawings" (debit) and "Cash" (credit). When the proprietor withdraws cash from the business for personal use, it is considered as a reduction in the proprietor's equity in the business. Therefore, the withdrawal amount needs to be debited to the "Drawings" account, which is a contra equity account that reduces the owner's equity in the business. At the same time, the "Cash" account needs to be credited for the same amount as cash is leaving the business. This reflects the reduction in the amount of cash that the business holds. In summary, to record a cash withdrawal by the proprietor for personal use, the "Drawings" account needs to be debited, and the "Cash" account needs to be credited. This reflects the reduction in the proprietor's equity in the business and the decrease in the amount of cash held by the business.

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The error of debiting the salaries account with the commission of N5,000 to a sales representative is an example of a "principle" error in accounting. Accounting principles are the fundamental concepts and assumptions that guide the preparation of financial statements. One of these principles is the principle of "matching." This principle requires that expenses should be recognized in the same accounting period as the revenues to which they relate. In other words, expenses should be matched with the revenues they helped to generate. In the given scenario, the commission of N5,000 is an expense that should be recognized in the period in which the sales representative earned it. Therefore, it should have been debited to the commission expense account rather than the salaries account. By debiting the salaries account, the principle of matching has been violated, as the expense is not being matched with the revenue it helped to generate. Hence, the error is an example of a "principle" error, as it violates the fundamental accounting principle of matching expenses with revenues.

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The income accruing to debenture holders is called Interest. Debentures are a type of debt instrument that companies use to raise capital. When a company issues debentures, it agrees to pay a fixed rate of interest to the debenture holders at regular intervals until the maturity of the debenture. The interest payment is usually made on a yearly or half-yearly basis. Unlike dividends, which are a share of a company's profits paid to shareholders, debenture holders do not share in the company's profits. Instead, they receive a fixed interest payment that is determined at the time the debentures are issued. Therefore, the correct option is interest.

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Prime cost is the sum of direct materials and direct labor cost. From the given information, the direct wages cost is N6,450 and the opening and closing stock of raw materials is N8,000 and N9,500 respectively. Therefore, the direct materials cost is: Direct materials cost = Opening stock of raw materials + Purchases - Closing stock of raw materials Direct materials cost = N8,000 + N45,000 - N9,500 Direct materials cost = N43,500 Hence, the prime cost can be calculated as follows: Prime cost = Direct materials cost + Direct wages Prime cost = N43,500 + N6,450 Prime cost = N49,950 Therefore, the correct option is (iii) N49,950.

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A subsidiary record is a book containing detailed information about a specific type of transaction, account or asset. It is separate from the main accounting records such as the journal or ledger, but it is linked to them. For example, a subsidiary record can be a sales ledger that contains detailed information about each sale, such as the customer's name, the date of the sale, the amount sold, and the method of payment. The sales ledger is then used to update the general ledger, which contains summary information about all the sales made during a particular period. Therefore, a subsidiary record is not a book of ordinary entry, a part of the ledgers or found in the journal, nor does it contain the balance sheet.

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The depreciation method that allocates higher value to the use of an asset in its earlier years is the diminishing balance method. This method allocates a higher amount of depreciation expense in the earlier years of an asset's life, and a lower amount of depreciation expense in the later years of its life. This is because it assumes that an asset is more productive and efficient in its early years, and less productive and efficient as it ages. Therefore, it allocates a higher percentage of the asset's cost as depreciation in the early years, and gradually decreases the percentage in later years. This method results in a faster write-off of the asset's cost, and a lower carrying value of the asset on the balance sheet.

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The purchase of furniture is a capital expenditure. Capital expenditures are expenses that are incurred by a business for acquiring or improving long-term assets, such as buildings, equipment, or furniture, that will be used by the business for more than one accounting period. These expenses are not immediately charged against the company's revenue but are instead capitalized, meaning they are recorded as assets on the company's balance sheet and gradually expensed over their useful lives through a process called depreciation. The purchase of furniture is a capital expenditure because it is an expense incurred by the business for acquiring a long-term asset that will be used by the business for more than one accounting period. The furniture will be recorded as an asset on the balance sheet and gradually expensed over its useful life through depreciation. In contrast, expenses like salaries and wages, stationery, and repairs of a motor vehicle are considered revenue expenditures because they are incurred for the purpose of generating revenue in the current accounting period and are expensed immediately. In summary, the purchase of furniture is a capital expenditure because it is an expense incurred for acquiring a long-term asset that will be used by the business for more than one accounting period, while expenses like salaries and wages, stationery, and repairs of a motor vehicle are revenue expenditures because they are expensed immediately and incurred for the purpose of generating revenue in the current accounting period.

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The Purchases Ledger Control Account is also referred to as the "Total Creditors Account". This is because it represents the total amount of money that a company owes to its suppliers for the purchases made on credit. The Purchases Ledger Control Account is used to keep track of all the transactions related to purchases made on credit, such as invoices received from suppliers, payments made to them, and any discounts or returns. By maintaining this account, a company can monitor its outstanding debts to its suppliers, and ensure that it is paying them on time. In summary, the Purchases Ledger Control Account is a summary account that represents the total amount of money owed to suppliers for purchases made on credit, and it is also known as the Total Creditors Account.