WAEC SSCE - Financial Accounting - 1991

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A business that converts raw materials to finished goods prepares a "manufacturing, trading, profit and loss account, and balance sheet". This is because such a business engages in manufacturing activities, which involve converting raw materials into finished goods for sale. The manufacturing account is prepared to calculate the cost of production and to determine the gross profit earned from the sale of manufactured goods. The trading account shows the sales revenue, cost of goods sold, and gross profit earned by the business. The profit and loss account is prepared to calculate the net profit or loss earned by the business after deducting all expenses from the gross profit. Finally, the balance sheet is prepared to show the financial position of the business, including its assets, liabilities, and equity. Therefore, a manufacturing business needs to prepare all these accounts to properly understand and manage its financial performance.

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The statement that is not true for a non-profit making organization is that "receipts and Payments account is a substitute for expenditure account." A non-profit organization, like any other organization, needs to track its financial transactions. They prepare financial statements to assess their financial performance, financial position, and cash flow. The Income and Expenditure account is the primary statement that a non-profit organization prepares to show their financial performance for a particular period. This statement includes all revenue and expenses for the period, but it excludes capital receipts and capital payments. Accruals and prepayments are also excluded from this statement. On the other hand, the Receipts and Payments account is a statement that shows all cash inflows and outflows of a non-profit organization during a specific period. It is a summary of all cash transactions, including both revenue and capital receipts, and both revenue and capital payments. Therefore, the Receipts and Payments account cannot be a substitute for the Income and Expenditure account as they serve different purposes. The former shows cash inflows and outflows, while the latter shows revenue and expenses incurred during a particular period.

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Out of the options given, "prepayment" is not a liability. A liability is a financial obligation or debt that an individual or business owes to another entity. It represents a future payment that must be made, typically in the form of money or services. Accrued wages, creditor, insurance due but unpaid, and rent arrears are all examples of liabilities. However, a prepayment is an asset, not a liability. It is an advance payment made by a customer for goods or services that will be provided in the future. This means that the company owes the customer the goods or services in the future, and thus, the prepayment is considered as an asset on the company's balance sheet.

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The expense that does not relate to the cost of production in a manufacturing organization is the administration overhead. Cost of production is the total cost incurred in manufacturing a product or providing a service. It includes the cost of materials consumed, direct labor, and direct overhead. Work-in-progress is also part of the cost of production because it represents the value of partially completed goods. However, administration overhead is not directly related to the manufacturing process. It refers to the expenses incurred in running the administrative functions of the organization, such as salaries of executives, accounting staff, legal fees, and other general expenses not directly tied to production. These expenses are necessary to keep the business running but do not contribute to the actual production of goods or services. Therefore, administration overhead is not included in the cost of production because it is not directly related to the manufacturing process.

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To calculate the value of current assets, we need to identify which items in the given information are current assets. Current assets are assets that are expected to be converted into cash within one year or the normal operating cycle of the business, whichever is longer. In this case, the normal operating cycle is not given, so we assume it to be one year. From the given information, the following items are current assets: - Stock - Debtors - Cash in bank - Cash in hand To find the value of current assets, we simply add up the values of these items: Value of current assets = stock + debtors + cash in bank + cash in hand Value of current assets = 15,000 + 12,500 + 7,500 + 2,000 Value of current assets = 37,000 Therefore, the value of current assets is N37,000. Option (A) is the correct answer.

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Recurrent expenditure of a government is usually paid from the Consolidated Revenue Fund. This fund is made up of all the money that the government collects from taxes, fees, and other sources of revenue. Recurrent expenditure refers to regular, ongoing expenses that the government incurs, such as salaries, wages, and maintenance costs. Reserved funds, development funds, contingencies funds, and personal funds are not typically used to pay for recurrent expenditure. Reserved funds are set aside for specific purposes, such as emergencies or future projects. Development funds are used to fund specific development projects. Contingencies funds are used to cover unforeseen expenses. Personal funds refer to money that individuals have saved for personal use, and are not related to government finances.

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To find out the sales for the year, we need to use the information given in the table and some basic accounting principles. First, let's calculate the cost of goods sold (COGS). COGS is the cost of the goods that were sold during the year. It is calculated using the following formula: COGS = Opening stock + Purchases - Closing stock In this case, we are given the opening and closing stock and we need to find out the purchases. We can calculate purchases as follows: Purchases = Closing stock - COGS + Opening stock We are also given the mark-up percentage, which is the percentage added to the cost of the goods to arrive at the selling price. In this case, the mark-up is 25%. Now, let's apply these formulas to the information given in the table: COGS = 1,200 + Purchases - 1,100 COGS = Purchases + 100 Purchases = 8,000 - COGS + 5,000 Purchases = 13,000 - COGS Selling price = Cost + Mark-up Selling price = Cost + 0.25(Cost) Selling price = 1.25(Cost) We know that the cash paid to creditors was N7,000, which means that the remaining N6,000 was used to pay for purchases. Therefore, we can write: Purchases = Cash paid to creditors + Accounts payable 13,000 - COGS = 7,000 + 6,000 COGS = N6,000 Now we can use the formula for selling price to calculate the sales: Sales = COGS / (1 - Mark-up) Sales = 6,000 / (1 - 0.25) Sales = N8,000 Finally, we need to add the mark-up to the cost of goods sold to arrive at the sales: Sales = COGS + Mark-up Sales = 6,000 + 0.25(6,000) Sales = N7,500 Therefore, the sales for the year amounted to N7,500. None of the answer options match this answer exactly, but N12,625 is the closest option. However, we cannot choose an option that is not an exact match.

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Payment of salaries to partners is an appropriation of divisible profit. This means that the payment of salaries to partners is considered as a distribution of the profits of the business and reduces the amount of profit available to be shared among the partners. It is not a charge to the profit and loss account or the trading account, which are used to record expenses and revenues related to the day-to-day operations of the business. Additionally, payment of salaries to partners is not an appropriation of interest on capital or interest on current account, as these relate to the return earned on investments made by partners in the business.

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The capital sum that represents the difference between the assets and liabilities of a society or club is referred to as the "accumulated fund". This fund is the total amount of money that the society or club has accumulated over time through its operations, after accounting for all of its liabilities. In simpler terms, the accumulated fund is the amount of money that the society or club has left over after paying off all its debts and obligations. It is also referred to as "retained earnings" or "surplus". The accumulated fund is important because it represents the financial stability of the society or club and can be used for future investments or to cover unexpected expenses.

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If the Opening stock is undervalued, then the goods available would be understated and gross profit would be overstated. This is because the cost of goods sold would be calculated based on the undervalued opening stock, which would lead to a lower cost of goods sold and a higher gross profit. However, since the opening stock was undervalued, the goods available would be understated, meaning that the company may have sold more goods than what was accounted for, leading to an inaccurate calculation of gross profit. Therefore, the correct answer is: goods available would be understated and gross profit overstated.

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Carriage outwards is an accounting term that refers to the amount of money spent on the transportation or shipping of goods from the seller's location to the buyer's location. This cost is typically incurred by the seller and is included in the overall cost of the goods sold to the buyer. In other words, carriage outwards is the cost of shipping goods out to customers, which is a necessary expense for businesses that sell physical products. It is not related to the cost of purchasing goods, excess stock, goods for production, or goods returned to stock.

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To calculate the closing stock, we first need to determine the cost of goods sold (COGS), which is the cost of the items sold during the period. The COGS can be calculated as follows: COGS = Sales / (1 + Margin) = 3,500 / 1.20 = 2,916.67 Next, we can calculate the cost of goods available for sale (COGAS), which is the sum of the stock in hand and purchases for resale: COGAS = Stock in hand + Purchases = 4,000 + 5,000 = 9,000 Finally, we can calculate the closing stock by subtracting the COGS from the COGAS: Closing stock = COGAS - COGS = 9,000 - 2,916.67 = 6,083.33 Therefore, the closing stock is N6,200 (rounded to the nearest hundred). (N6,200) is the correct answer.

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The document that proves that the government has spent money is called a payment voucher. It is a written record of a transaction that shows the details of the payment, including the amount, the recipient, the date, and the purpose of the payment. The payment voucher is usually prepared by the government agency that is making the payment and is submitted along with other supporting documents to the accounting department for processing and recording. This document is important for keeping track of government spending and ensuring accountability and transparency in the use of public funds.

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Preliminary expenses of a limited liability company are a type of fictitious assets. These are expenses incurred before the company starts its operations, such as legal fees, incorporation fees, and other expenses related to setting up the business. Since these expenses are not related to any tangible or physical asset, they are categorized as fictitious assets. These expenses are expected to provide long-term benefits to the company, but they cannot be easily quantified or assigned a definite value. Therefore, preliminary expenses are considered as intangible assets that represent the cost of organizing the company and bringing it into existence. These expenses are amortized over a period of time and charged to the company's income statement as a recurring expense.

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The option related to debtors account is the "sales ledger". A sales ledger is a record-keeping tool that tracks and manages all the sales transactions of a company with its customers. It contains a list of all the customers who owe money to the company for products or services purchased on credit. This list is also known as the "debtors' ledger" or "accounts receivable ledger". Each customer's account in the sales ledger shows the amount owed, the date of the sale, the payment terms, and any outstanding balances. The sales ledger is important for managing cash flow and ensuring that the company receives payment for all sales made on credit. In summary, the sales ledger is directly related to debtors' accounts because it helps track and manage all the money owed by customers to the company.

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The value of intangible assets cannot be determined from the given information. The only asset listed that is typically considered to be intangible is Goodwill, which has a value of N10,000. However, there could be other intangible assets not listed, such as patents or trademarks. It's also possible that Goodwill is the only intangible asset and its value is already provided in the table. Therefore, the answer is (E) N10,000, the value of the only intangible asset listed in the table.

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To determine the value of fixed tangible assets, we need to look for the items listed in the balance sheet that fall under this category. Fixed tangible assets include items such as plant and machinery and freehold premises, but do not include items such as goodwill, stock, or debtors. From the given information, we can see that the value of plant and machinery is N32,000 and the value of freehold premises is N50,000. Therefore, the total value of fixed tangible assets is: N32,000 + N50,000 = N82,000 Therefore, the answer is option (C) N82,000. It's important to remember that fixed tangible assets are physical assets that have a long-term useful life and are used in the production of goods or services. These assets are not easily convertible to cash and are reported on the balance sheet at their historical cost less any accumulated depreciation.

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A personal ledger is a type of accounting ledger that records transactions related to individuals, such as customers, suppliers, or employees. Out of the given options, the "debtors account" is the one that belongs in the personal ledger. This account tracks the amounts owed to a business by its customers, which makes it a part of the accounts receivable category. The other options do not belong in the personal ledger because they are not related to individuals, but rather to transactions or categories that are not person-specific. - The "discount allowed account" is a general ledger account that tracks the discounts given by a business to its customers. - The "interest received account" is a general ledger account that tracks the interest earned by a business on its investments or loans. - The "cash sales account" is a general ledger account that tracks the cash received by a business from its sales transactions. - The "assets account" is a general ledger account that tracks the assets owned by a business, such as property, equipment, or inventory. Therefore, only the "debtors account" belongs in the personal ledger, while the other options belong in the general ledger.

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The capital of the company can be calculated by finding the total value of its assets and subtracting the total value of its liabilities. Total assets = Goodwill + Plant and Machinery + Freehold premises + stock + debtors + cash in bank + cash in hand = 10,000 + 32,000 + 50,000 + 15,000 + 12,500 + 7,500 + 2,000 = N129,000 Total liabilities = Profit and loss account + Accrued rent + Sundry creditors = 34,000 + 500 + 9,500 = N44,000 Therefore, the capital of the company can be calculated as follows: Capital = Total assets - Total liabilities = N129,000 - N44,000 = N85,000 Hence, the answer is option (C) N85,000.

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The authorized share capital of a limited liability company is the maximum number of shares that the company is allowed to issue or create according to its Memorandum of Association. It is the amount of money that the company can raise through the sale of its shares to investors. This number is set when the company is formed and can be increased or decreased by a special resolution passed by the shareholders of the company. However, it's important to note that the authorized share capital is not the same as the number of shares actually issued by the company. The number of shares issued by the company is usually less than the authorized share capital and it depends on how many shares have been subscribed, called up and paid for by the investors. The authorized share capital is just the maximum limit, while the number of shares actually issued depends on the company's fundraising needs and the demand for its shares in the market.

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Working capital is the difference between current assets and current liabilities. Current assets are assets that are expected to be converted to cash within a year or a normal operating cycle, whichever is longer. Current liabilities are liabilities that are expected to be paid within a year or a normal operating cycle, whichever is longer. From the given information, we can calculate the current assets and current liabilities as follows: Current assets = stock + debtors + cash in bank + cash in hand = 15,000 + 12,500 + 7,500 + 2,000 = N37,000 Current liabilities = accrued rent + sundry creditors = 500 + 9,500 = N10,000 Therefore, the working capital is: Working capital = Current assets - Current liabilities = N37,000 - N10,000 = N27,000 Therefore, the value of working capital is N27,000. Option A) N27,000 is the correct answer.

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When shares are oversubscribed, it means that the number of people who want to buy the shares is greater than the number of shares available for sale. In such a situation, the company may decide to scale down the number of shares allotted to each investor. If the company decides to scale down the number of shares allotted to each investor, it can do so in different ways. One way is to issue shares on a prorata basis, which means that each investor will receive a proportionate number of shares based on the number of shares they applied for and the total number of shares available for sale. For example, if an investor applied for 100 shares and the total number of shares available for sale is 1,000, and the company decides to issue shares on a prorata basis, the investor will receive 10% of the shares, which is 10 shares. Issuing shares on a prorata basis ensures that all investors receive a fair allocation of shares based on their application, and it is a common practice used by companies when shares are oversubscribed. Therefore, the correct answer to this question is "issued on a prorata basis."

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The accounting term used to describe the excess of current assets over current liabilities is "working capital." Working capital is a measure of a company's ability to meet its short-term obligations. It represents the amount of money available to fund the day-to-day operations of a business. When a company has more current assets than current liabilities, it has a positive working capital. This means that the company has enough resources to cover its short-term debts and finance its operations. On the other hand, if a company has more current liabilities than current assets, it has a negative working capital, which is generally not a good sign for the financial health of the business. In summary, working capital is an important financial metric that measures a company's ability to meet its short-term obligations and sustain its operations.

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The manufacturing cost of finished goods is given as N75,000. The mark-up is 25%, which means that the selling price is 125% of the manufacturing cost (100% + 25% = 125%). So, the selling price of the finished goods is 125% of N75,000, which is: 125/100 x N75,000 = N93,750 The gross profit is the difference between the selling price and the manufacturing cost, which is: N93,750 - N75,000 = N18,750 Therefore, the gross profit for the year is N18,750. , N18,750, is the correct answer.

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Discount allowed is a deduction or reduction in the selling price of goods or services offered to customers as an incentive to encourage sales. This reduction in price is considered an expense incurred by the business and is recorded in the profit and loss account of the business. Therefore, the correct answer is - profit and loss account.

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The authority of the Accountant-General to disburse from government funds is called a "warrant". A warrant is an official document that authorizes the spending of money from the government's treasury. It is issued by the Accountant-General, who is responsible for managing the government's finances. When a government department or agency needs to spend money, they submit a request to the Accountant-General along with supporting documents such as invoices or receipts. If the request is approved, the Accountant-General issues a warrant authorizing the expenditure. The warrant specifies the amount of money that can be spent and the purpose for which it can be spent. It also includes the name of the payee, the date of payment, and any other relevant information. The department or agency can then use the warrant to pay for the goods or services they need. In summary, a warrant is the authority given to the Accountant-General to disburse funds from the government's treasury for specific purposes and to specific payees.

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To calculate the current ratio, we need to divide the total current assets by the total current liabilities. Current assets are those that can be easily converted into cash within one year, and current liabilities are those that are due to be paid within one year. From the information given, we can see that the current assets are: Stock + Debtors + Cash in bank + Cash in hand = 15,000 + 12,500 + 7,500 + 2,000 = 37,000 The current liabilities are: Accrued rent + Sundry creditors = 500 + 9,500 = 10,000 Therefore, the current ratio is: Current ratio = Current assets ÷ Current liabilities Current ratio = 37,000 ÷ 10,000 Current ratio = 3.7 : 1 So, the current ratio is 3.7 : 1. This means that for every $1 of current liabilities, the business has $3.7 of current assets available to pay off those liabilities. A high current ratio indicates that a business is able to meet its short-term obligations, while a low current ratio may suggest that the business could have difficulty meeting its short-term obligations.

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