WAEC Accounting 1997 Past Questions & Answers

A suspense account is a temporary account used when the total debits in a trial balance do not equal the total credits. The difference is placed in this account to make the two sides balance, or 'agree'. This allows the accountant to prepare draft final accounts while searching for the errors that caused the imbalance.

Common mistake: Students often mistakenly choose option D, 'correct errors', because while the suspense account is part of the error correction process, its primary function is to temporarily make the trial balance agree.

The Purchases Account is an expense account and normally has a debit balance. If it was 'undercast', it means the total was added up to be less than it should be, making the debit side of the trial balance smaller. To correct this, you must increase the Purchases Account balance by debiting it, and the corresponding credit entry goes to the Suspense Account to clear the difference.

Common mistake: Students often mistakenly choose 'Overcasting of purchases' because they get confused; an overcast would mean the balance is too high and would require a credit to the Purchases Account to correct it, not a debit.

Subscription in advance is money received by an organisation from its members for the next accounting period. Since the service (e.g., membership benefits) has not yet been provided, the organisation owes this service to the members. This obligation to provide a future service makes the amount received a current liability in the Balance Sheet.

Common mistake: Students may incorrectly choose 'current asset' because they confuse income received in advance (a liability) with subscriptions still owed by members (an asset).

The Sales Day Book, also known as the Sales Journal, is a book of original entry specifically used to record credit sales of goods meant for resale. Cash sales are recorded in the Cash Book to track the immediate inflow of money. The Sales Day Book helps a business keep a detailed record of customers who owe it money (trade debtors).

Common mistake: Students often mistakenly choose option C, forgetting that cash transactions and credit transactions are recorded in separate books of original entry; cash sales go into the Cash Book.

Capital expenditure is money spent by the government on long-term assets that will be used for more than one year. Recurrent expenditure, on the other hand, is for day-to-day running costs. Items like beds, theatre equipment, and incubators are long-lasting assets, so they are capital expenditure. Drugs are consumed quickly and are a regular running cost, which makes them recurrent expenditure, not capital expenditure.

Common mistake: Students might mistakenly group all the options as medical assets, failing to distinguish between long-term equipment (capital) and consumable supplies (recurrent).

A Receipt and Payments Account is simply a summary of the cash book for a not-for-profit organisation, like a club or a church. It records all the actual cash received and all the cash paid out during a specific period. Therefore, the final balance on this account shows the amount of cash left at the end of that period, which is the cash in hand or at the bank.

Common mistake: Students often confuse the Receipt and Payments Account with the Income and Expenditure Account, which calculates a surplus or deficit, leading them to incorrectly choose option B.

Appropriation of profit refers to how a company distributes its net profit after all expenses and taxes have been paid. Dividends are the portion of this profit paid out to the company's owners (shareholders), making it a direct appropriation. Items like salaries and debenture interest are expenses charged against revenue to calculate the profit, not a distribution of the final profit.

Common mistake: Students often mistakenly choose debenture interest because it's a payment made by the company, but it is a charge against profit (an expense) rather than a distribution of profit.

Goodwill is the value of a business's good name and reputation. According to accounting principles, we only formally record (recognize) this value in the books when there is a change in the partnership structure, such as when a new partner joins or an old one leaves. This is because the new partner has to pay for their share of this existing goodwill, forcing the business to calculate and record its value.

Common mistake: Students often mistakenly choose option D because having good customer relations is what creates goodwill, but in accounting, we only record it when an event like admitting a new partner forces us to put a monetary value on it.

In accounting, accounts are classified into three main types: Real, Personal, and Nominal. Nominal accounts are used to record all business expenses, losses, incomes, and gains. Since 'Salaries' is an expense incurred by the business, it is correctly classified as a nominal account. The other options are different types: Machinery is a real account (asset), while Debtors and Creditors are personal accounts.

Common mistake: Students often confuse the different classes of accounts and may choose 'Machinery' because it is a physical asset, but this is a Real account, not a Nominal account.

The net book value is the cost of the asset minus its total accumulated depreciation. First, calculate the annual depreciation, which is 20% of N20,000, giving N4,000 per year. From 1st January 1992 to 1st July 1995 is 3.5 years, so the total depreciation is N4,000 multiplied by 3.5, which equals N14,000. Finally, subtract this total depreciation from the cost: N20,000 - N14,000 = N6,000.

Common mistake: Students often mistakenly choose N14,000 (Option B) because they correctly calculate the total accumulated depreciation but forget to subtract it from the original cost to find the net book value.