waec model questions vol1 2020 financial_accounting | Essay
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Question 1
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ABC Trading Ltd. is a small trading business that prepares its financial statements at the end of each financial year. The owners are considering whether to adopt a cash basis or an accrual basis of accounting, and they are also reviewing the qualitative characteristics that users of financial statements expect.
Question Parts
(a)
Explain the fundamental difference between the cash basis and the accrual basis of accounting, and state which basis is required by the Companies and Allied Matters Act (CAMA) for companies.
(b)
Identify and briefly discuss two qualitative characteristics of accounting information that are most relevant for the owners when evaluating the performance of the business.
(c)
The business purchased inventory on credit for ₦150,000 on 15 March and paid cash for utilities of ₦20,000 on 20 March. Using the accrual basis, show how each transaction affects the accounting equation (Assets = Liabilities + Owner’s Equity). Present your answer in a tabular format.
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Question 2
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XYZ Manufacturing Co. uses a perpetual inventory system and prepares its books on an accrual basis. The following transactions occurred during the month of June:
1. 3 June – Purchased raw materials on credit ₦120,000, terms 30 days.
2. 5 June – Paid cash for factory rent ₦15,000.
3. 10 June – Sold finished goods for cash ₦250,000; cost of goods sold (COGS) ₦180,000.
4. 15 June – Paid cash to suppliers for the raw materials purchased on 3 June.
5. 20 June – Recorded depreciation on factory equipment of ₦8,000 (straight‑line, not yet recorded).
Question Parts
(a)
Record each of the five transactions as journal entries in the appropriate format.
(b)
Post the journal entries to the relevant T‑accounts (show the balance after each posting).
(c)
Prepare a trial balance as at 30 June before the adjusting entry for depreciation.
(d)
After recording the depreciation adjusting entry, compute the gross profit for the month and state the effect of the adjusting entry on the trial‑balance totals.
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Question 3
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The following transactions were recorded by XYZ Trading Company during the month of March. The company uses the perpetual inventory system.
1. 1 March – Purchased inventory on credit from ABC Suppliers for ₦150,000.
2. 5 March – Sold goods costing ₦90,000 for ₦180,000 cash.
3. 10 March – Paid rent for the month ₦20,000 in cash.
4. 15 March – Received cash ₦30,000 from a customer for services to be performed in April.
5. 20 March – Paid ₦50,000 to ABC Suppliers on account.
At the end of March the company incurred an electricity expense of ₦5,000 which has not yet been paid.
Answer the following questions.
Question Parts
(a)
Record each of the above transactions in the appropriate book of original entry.
(i) Show the journal entry for each transaction.
(ii) State the name of the book in which the entry is recorded and give one reason for that choice.
(b)
Prepare a trial balance as at 31 March after posting the above transactions and the adjusting entry. Assume that the only other account in the books is Capital.
(c)
State the adjusting entry required for the accrued electricity expense and explain why it is necessary.
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Question 4
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Using the journal entries prepared in Question 3, post the amounts to the respective ledger accounts and answer the following.
Question Parts
(a)
Post each transaction to the appropriate T‑accounts for Cash, Inventory, Accounts Payable, Sales, Cost of Goods Sold, Rent Expense, Unearned Revenue, Electricity Expense and Capital. Show the closing balance of each account.
(b)
Prepare a simple statement of financial position as at 31 March using the balances obtained in part (a).
(c)
Explain how the transaction on 5 March (sale of goods) affected the accounting equation.
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Question 5
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The following ledger account balances were extracted from the general ledger of XYZ Trading Ltd. at 31 December 2022.
| Account | Debit (₦) | Credit (₦) |
|-----------------------|-----------|------------|
| Cash | 180,000 | – |
| Bank | 250,000 | – |
| Trade Receivables | 320,000 | – |
| Inventory – Opening | 210,000 | – |
| Inventory – Closing | – | 240,000 |
| Purchases | 560,000 | – |
| Sales | – | 950,000 |
| Salaries Expense | 120,000 | – |
| Rent Expense | 45,000 | – |
| Capital | – | 500,000 |
| Drawings | 80,000 | – |
| Miscellaneous Income | – | 30,000 |
Using the information above, answer the following:
a) Prepare a trial balance as at 31 December 2022.
b) Using the trial balance, calculate the gross profit for the year.
c) The total of the debit column of the trial balance you prepared is ₦ 1,865,000 while the credit column totals ₦ 1,770,000. Identify the most likely type of error that could have produced this difference and explain how it would be rectified.
Question Parts
(a)
Prepare a trial balance as at 31 December 2022.
(b)
Using the trial balance, calculate the gross profit for the year.
(c)
The total of the debit column of the trial balance you prepared is ₦ 1,865,000 while the credit column totals ₦ 1,770,000. Identify the most likely type of error that could have produced this difference and explain how it would be rectified.
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Question 6
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The following cash transactions were recorded by ABC Services Ltd. for the month of March 2023. The business uses a two‑column cash book (cash and bank columns).
| Date | Details | Cash Receipts (₦) | Cash Payments (₦) | Bank Receipts (₦) | Bank Payments (₦) |
|------|-----------------------------|-------------------|-------------------|-------------------|-------------------|
| 01/03| Opening balances | 50,000 | – | 120,000 | – |
| 03/03| Cash sales | 85,000 | – | – | – |
| 05/03| Paid rent (cash) | – | 20,000 | – | – |
| 07/03| Received bank loan | – | – | – | 150,000 |
| 10/03| Purchased equipment (cash) | – | 45,000 | – | – |
| 12/03| Collected from debtors (bank) | – | – | 70,000 | – |
| 15/03| Paid salaries (bank) | – | – | – | 60,000 |
| 18/03| Cash purchase of inventory | 30,000 | – | – | – |
| 20/03| Paid utilities (cash) | – | 12,000 | – | – |
| 22/03| Deposited cash in bank | – | – | 40,000 | – |
| 25/03| Received cash from customers| 55,000 | – | – | – |
| 28/03| Paid supplier (bank) | – | – | – | 35,000 |
| 30/03| Closing balances | – | – | – | – |
Using the above information, answer the following:
a) Prepare the cash book for March 2023 showing the cash and bank columns, and compute the closing cash balance and closing bank balance.
b) The bank statement for March shows a closing balance of ₦ 215,000. Reconcile the bank column of the cash book with the bank statement, given that:
- There are outstanding cheques amounting to ₦ 18,000.
- Deposits in transit amounting to ₦ 12,000.
- Bank charges of ₦ 2,000 not yet recorded in the cash book.
Prepare a bank reconciliation statement.
c) Explain why the cash book is considered a double‑entry book and state two advantages of maintaining a cash book.
Question Parts
(a)
Prepare the cash book for March 2023 showing the cash and bank columns, and compute the closing cash balance and closing bank balance.
(b)
The bank statement for March shows a closing balance of ₦ 215,000. Reconcile the bank column of the cash book with the bank statement, given that:
- There are outstanding cheques amounting to ₦ 18,000.
- Deposits in transit amounting to ₦ 12,000.
- Bank charges of ₦ 2,000 not yet recorded in the cash book.
Prepare a bank reconciliation statement.
(c)
Explain why the cash book is considered a double‑entry book and state two advantages of maintaining a cash book.
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Question 7
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A company’s cash book shows a balance of ₦185,000 at 31 December 2023. The bank statement for the same date shows a balance of ₦210,000. The following information is available:
- Deposits in transit amounting to ₦22,000.
- Outstanding cheques: ₦15,000 (Cheque No. 101) and ₦9,500 (Cheque No. 102).
- The bank charged a service fee of ₦1,200 which was not recorded in the cash book.
- The bank credited interest on the deposit of ₦800, also not recorded in the cash book.
- A cheque of ₦12,500 was mistakenly entered in the cash book as ₦1,250.
- A customer’s cheque of ₦5,000 was dishonoured and returned by the bank.
Prepare a bank reconciliation statement and answer the questions below.
Question Parts
(a)
Prepare a bank reconciliation statement showing the adjusted cash book balance and the adjusted bank balance.
(b)
State the corrected cash book balance after recording the bank service fee and interest.
(c)
Explain why the error of recording a cheque of ₦12,500 as ₦1,250 in the cash book does not affect the bank reconciliation process.
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Question 8
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The following information relates to the sales and purchases of XYZ Trading Ltd. for the month of March 2023.
- Opening balance of the Sales Ledger Control Account: ₦120,000 (debit).
- Credit sales during the month: ₦340,000.
- Cash received from customers: ₦300,000.
- Sales returns (goods returned by customers): ₦18,000.
- Trade discount allowed to customers: ₦12,000.
- Closing balance of the Sales Ledger Control Account: to be determined.
- Opening balance of the Purchases Ledger Control Account: ₦45,000 (credit).
- Credit purchases during the month: ₦210,000.
- Cash paid to suppliers: ₦190,000.
- Purchase returns (goods returned to suppliers): ₦9,000.
- Trade discount received from suppliers: ₦7,500.
- Closing balance of the Purchases Ledger Control Account: to be determined.
Using the above data, answer the questions that follow.
Question Parts
(a)
Prepare the Sales Ledger Control Account for March 2023 showing opening balance, credit sales, cash receipts, sales returns, discount allowed and the closing balance.
(b)
Prepare the Purchases Ledger Control Account for March 2023 showing opening balance, credit purchases, cash payments, purchase returns, discount received and the closing balance.
(c)
Using the control accounts prepared, determine the net effect of trade discounts on the profit for the month.
(d)
State two advantages of maintaining control accounts in a double‑entry accounting system.
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