WAEC Accounting 2012 Past Questions & Answers

The correct answer is C because the main purpose of gathering and presenting accounting information is to help various users make informed economic decisions. For example, investors use the information to decide whether to buy or sell shares, while managers use it to plan and control the business operations. Preparing financial statements is the process, but using them to make decisions is the ultimate objective.

Common mistake: Students often mistakenly choose 'prepare the financial statements' because it is a major task in accounting, but it is the means to an end, not the final objective itself.

A trade discount is a reduction in the list price of goods given by a seller to a buyer to encourage them to buy in large quantities, which is known as bulk purchases. This discount is deducted on the invoice before the transaction is recorded in the accounting books. The main purpose is to motivate wholesalers and retailers to buy more stock from the manufacturer.

Common mistake: Students often confuse a trade discount with a cash discount, which is given for prompt payment (Option B), not for buying in large quantities.

Remember the formula for cost of sales is Opening Stock plus Purchases minus Closing Stock. If you overstate the closing stock, it means you are subtracting a bigger number from the cost of goods available, which will make your cost of sales smaller (reduce it). Since gross profit is calculated as Sales minus Cost of Sales, a smaller cost of sales will result in a bigger (increased) gross profit.

Common mistake: Students often mistakenly choose option B because they get confused about the relationship, thinking that a higher closing stock figure leads to a higher cost of sales, when it actually has the opposite effect in the formula.

A source document is the original paper evidence that a transaction occurred, like an invoice or receipt. The Journal proper is not a source document; it is a book of original entry where we record transactions that don't fit in other day books. We use information from source documents, such as sales invoices, debit notes, and credit notes, to make entries in the Journal proper.

Common mistake: Students may confuse the Journal proper with a source document because it is a 'book of first entry', but it is used to record transactions from source documents, not act as the source itself.

When a fixed asset that was previously valued at zero is found to be worth N5,000, its value in the books increases. According to the rules of double entry, an increase in an asset is recorded with a debit entry, so we debit the Asset Account. This increase in value is not from sales, but a direct increase in the owner's wealth in the business, so we credit the Capital Account to show the owner's equity has grown.

Common mistake: Students often mistakenly think the credit should go to the Profit and Loss Account, but a revaluation gain on a fixed asset is a capital item, not a revenue item earned from trading.

Books of original entry, also known as day books or journals, are the very first books where business transactions are recorded. The sales journal is a specific type of book of original entry used to record all credit sales of a business. After being recorded in the sales journal, these transactions are then posted to the individual accounts in the ledger.

Common mistake: Students often mistakenly choose the Ledger because it is a very important book, but it is a principal book where entries are posted *from* the books of original entry, not the first book of recording itself.

A Balance Sheet is a statement of financial position that is based on the fundamental accounting equation: Assets = Liabilities + Capital. It lists all the assets a business owns, and all the claims against those assets. These claims include both liabilities (what is owed to outsiders) and capital (what is owed to the owner), so the statement fundamentally shows a list of assets and liabilities.

Common mistake: Students might choose option D (assets and capital), forgetting that a Balance Sheet must also show the business's debts to external parties, which are its liabilities.

Posting is the correct accounting term for the process of transferring entries from the books of original entry (like the sales day book or cash book) to the individual accounts in the general ledger. This process helps to summarize all transactions related to a specific account, such as cash or a particular customer, in one place. For example, after recording a credit sale in the sales day book, you 'post' the entry to the debit of the customer's account and the credit of the sales account in the ledger.

Common mistake: Students might mistakenly choose 'listing' because it sounds like simply writing things down, but 'posting' is the specific technical term for the formal transfer of debit and credit entries to a ledger account.

The Trading Account is prepared to calculate the gross profit of a business by matching sales against the direct costs of those sales. Carriage inwards is the cost of transporting goods purchased into the business, making it a direct cost that is added to purchases in the Trading Account. The other options, like discounts and carriage outwards, are indirect expenses or income and are recorded in the Profit and Loss Account.

Common mistake: Students often confuse Carriage inwards with Carriage outwards, but Carriage outwards is a selling expense for delivering goods to customers and belongs in the Profit and Loss Account.

In a manufacturing account, the prime cost represents all the direct costs of production, such as raw materials and direct labour. Factory overheads are the indirect costs incurred in the factory, like factory rent and supervisor salaries. When you add the prime cost and the factory overheads together, you get the total cost incurred to produce the goods, which is known as the cost of goods produced.

Common mistake: Students might mistakenly choose 'market value of goods produced' because they confuse the cost of making a product with its selling price in the market.

A capital receipt is money received from the sale of a non-current asset (fixed asset), which is not part of the business's normal trading activities. A motor vehicle is a fixed asset, so the money from its sale is a capital receipt. Receipts from selling stock, collecting from debtors, or general trading are all revenue receipts because they are part of the business's main day-to-day operations.

Common mistake: Students often mistakenly choose option B because they confuse the sale of regular goods (stock) with the sale of a fixed asset, but only the sale of a fixed asset results in a capital receipt.

Factory overheads are indirect costs incurred in the factory to support the production process, but are not directly part of the finished product. While the wages of a machine operator are a factory cost, they are classified as direct labour because they can be directly traced to the goods being made. Indirect costs, like the salary of a factory supervisor or factory rent, are the true examples of factory overheads.

Common mistake: Students often confuse direct labour (like a machine operator's wages) with factory overheads, but direct labour is a component of prime cost, not an overhead cost.

This transaction illustrates the fundamental accounting equation: Assets = Capital + Liabilities. When the owner, Osa, introduces cash into the business, the business's assets (Cash) increase. An increase in an asset is recorded with a debit entry. At the same time, the owner's investment (Capital) in the business also increases, and an increase in capital is recorded with a credit entry. Therefore, the correct double entry is to debit the Cash Account and credit the Capital Account.

Common mistake: Students often mistakenly choose option B by reversing the entries, forgetting that from the business's point of view, it is receiving cash (a debit) and its capital is increasing (a credit).

The Branch Stock Account is a control account used under the stock and debtors system to monitor stock movements at a branch. Goods sent to the branch are debited, while sales and returns are credited, all usually at selling price. The balancing figure in this account represents the gross profit (if a surplus) or gross loss (if a deficit) of the branch.

Common mistake: Students often mistakenly choose option D, confusing the gross profit found in the Branch Stock Account with the net profit, which is calculated separately in the Branch Profit and Loss Account after considering all branch expenses.

In public sector accounting, the term 'estimate' is used to describe the government's annual financial plan. This plan details all the expected revenue and proposed expenditure for the upcoming financial year. It is presented to the legislature for consideration and approval before any money can be spent.

Common mistake: Students often mistakenly choose 'vote' because a vote is an approved allocation of money for a specific purpose, but the entire budget document itself is called an estimate before it is approved.

A partnership is a business set up by two or more people to make a profit. To calculate and share this profit, they prepare a Trading Account, a Profit and Loss Account, and a Profit and Loss Appropriation Account. The Income and Expenditure Account, however, is prepared by not-for-profit organisations like clubs and societies to find their surplus or deficit, not by profit-making businesses like partnerships.

Common mistake: Students might mistakenly choose the Profit and Loss Appropriation Account because it is unique to partnerships, but this account is essential for showing how profits are shared among partners.

A nominal partner is a partner 'in name only', meaning they are not involved in the day-to-day running or management of the business. Although a nominal partner typically only lends their name and does not contribute capital, this question focuses on the lack of management participation as the defining characteristic. Therefore, a partner whose only role is a financial one without any management duties is classified here as a nominal, or non-active, partner.

Common mistake: Students often choose 'dormant partner' because the textbook definition of a dormant partner is one who contributes capital but does not participate in management, which perfectly matches the question's description.

Prime cost is the total of all direct costs needed to produce goods, which are direct materials, direct labour, and direct expenses. In this question, factory electricity is treated as a direct expense because it is directly used to power the machines that make the products. Without this specific electricity, production cannot happen, so it is included in the prime cost.

Common mistake: Students often confuse general factory costs with direct costs, leading them to incorrectly choose 'Factory rent', which is an indirect cost (factory overhead) and not part of the prime cost.

The realization concept states that revenue should be recognized (recorded) only when it is earned, regardless of when the cash is received. This means revenue is recorded once the goods or services have been delivered to the customer and the amount can be measured accurately. The question directly describes this principle of recognizing revenue when it's measurable, making 'realization' the correct answer.

Common mistake: Students might mistakenly choose 'going concern' because it is a fundamental concept, but it relates to the assumption that a business will continue to operate in the future, not the specific timing of revenue recognition.

To find the rent expense for 2010, start with the total cash paid, which is D900. You must first subtract the D140 paid for last year's outstanding rent, as it is not a 2010 expense (D900 - D140 = D760). Then, you must add the D160 rent that is still outstanding for 2010, because the matching concept requires you to include all expenses for the period, whether paid or not. Therefore, the total rent for 2010 is D760 + D160 = D920.

Common mistake: Students often mistakenly add the closing accrual to the total cash paid (D900 + D160 = D1,060) without first removing the payment made for the previous year's debt.

An input device is any hardware used to send data to a computer, while an output device is used to receive data from it. A line printer is an output device because it takes processed information from the computer and prints it on paper for users to read. In contrast, a card reader and a keyboard are used to enter or 'input' data into the computer system.

Common mistake: Students might be confused by less common terms like 'Card reader' and incorrectly assume it is not an input device, failing to identify the printer as the clear output device.

An Income and Expenditure Account is prepared by not-for-profit organisations to find out if they made a surplus (profit) or a deficit (loss) for a period. Similarly, a trading concern like a business prepares a Profit and Loss Account to calculate its net profit or net loss. Both accounts match the revenues against the expenses of a period to determine the final financial result, making them equivalents.

Common mistake: Students often mistakenly choose Trading Account because it is also part of the final accounts, but it only calculates gross profit, not the final net profit which is equivalent to a surplus or deficit.

Not-for-profit organisations, like clubs or charities, do not have owners, so they don't use the term 'Capital' which represents owner's equity. Instead, the equivalent term is 'Accumulated Fund' or 'Cumulated Fund'. This fund represents the net worth of the organisation, which is the total assets minus the total liabilities, built up over the years from any surpluses of income over expenditure.

Common mistake: Students might mistakenly choose 'nominal capital' because it is a familiar term related to capital, but it specifically applies to limited liability companies, not not-for-profit organisations.

Issued capital is the specific portion of a company's authorized (or nominal) capital that has been offered and allotted to shareholders. While authorized capital is the maximum amount a company is legally permitted to issue, issued capital represents the actual amount that has been taken up by subscribers. Called-up capital is the part of the issued capital that the company has requested payment for, and paid-up capital is the amount shareholders have actually paid.

Common mistake: Students often confuse issued capital with called-up capital, not realizing that a company can allot shares to subscribers without immediately demanding full payment for them.

In a partnership business, there are different types of partners based on their liability. A limited partner is one whose liability for the firm's debts is restricted to the amount of capital they contributed. This means if the business owes money, the limited partner cannot lose more than their investment, and their personal properties are protected.

Common mistake: Students often confuse a 'limited partner' with a 'dormant' or 'sleeping partner', but a sleeping partner's inactivity does not automatically limit their liability; they usually have unlimited liability like a general partner.