WAEC Accounting 2020
Questions & Answers

Options proposing a decrease or treating the event as a disposal profit or loss misapply standard ledger mechanics. Fixed asset accounts follow the debit rule for increases arising from purchases and acquisitions, while credits are used for decreases from disposals and depreciation. Common mistake: Confusing the treatment of asset value increases with disposal gains or losses.

Selecting the bank reconciliation statement or suspense account reflects confusion over where primary book adjustments occur. Bank charges reduce the business's bank balance and must be entered directly into the cash book upon discovery from the bank statement by debiting the expense and crediting the bank column. Common mistake: Recording bank statement discoveries only in the reconciliation statement instead of updating the cash book.

Options involving profit and loss accounts or interest accounts misstate partner capital adjustments. Interest on drawings represents a charge that reduces a partner's share of profit, requiring a debit to the Partner's Current Account and a corresponding credit to the Appropriation Account. Common mistake: Crediting the partner's account instead of debiting it when recording interest on drawings.

An error of principle, omission, or original entry would involve incorrect accounting concepts or totally missed postings rather than posting to a wrong personal account. Because the transaction was recorded in the account of Osei instead of Osae—two different suppliers within the same ledger class—this is classified as an error of commission. Common mistake: Confusing errors of commission with errors of principle when dealing with personal accounts.

Choosing options like Le 47,025 or Le 45,500 comes from miscalculating the combined bad debts or failing to deduct the new provision correctly. First, find total bad debts by adding the existing 500 to the additional 500 to get 1,000, which reduces debtors to 49,000. Next, calculate the 5 percent new provision on 49,000 to yield 2,450, and subtract this from 49,000 to arrive at Le 46,550. Common mistake: Forgetting to deduct additional bad debts from total debtors before calculating the new provision percentage.

Options like Le 2,500 or Le 1,000 arise from omitting the old provision or miscalculating the write-offs. The total charge to the Profit and Loss Account is computed by taking the total bad debts written off (1,000), adding the new provision (2,450), and subtracting the old provision (1,000), resulting in Le 2,450. Common mistake: Failing to subtract the existing provision when determining the net P&L provision expense.

Selecting the purchases journal, returns inwards journal, or general journal ignores the specific direction of the returned goods. When office equipment previously bought for use is returned to the supplier, the transaction must be recorded in the returns outwards journal. Common mistake: Confusing returns inwards with returns outwards when goods are sent back to a supplier.

Options mixing up addition and subtraction signs misstate the fundamental accounting equation for capital reconstruction. Profit from incomplete records is determined by taking closing capital, adding drawings, and subtracting opening capital, assuming no additional capital investments occurred. Common mistake: Subtracting drawings instead of adding them back when calculating profit from capital changes.

Choosing a vote, budget, or voucher confuses supportive financial documents with the actual legal mandate. A warrant serves as the official authorization from the treasury or minister allowing public sector spending from appropriated funds. Common mistake: Confusing a budget plan with an official treasury warrant authorization.

Options suggesting that trade creditors are owed money or that supplies increased misinterpret the normal nature of control accounts. A purchases ledger control account normally maintains a credit balance for amounts owed, so a debit balance indicates that trade creditors were overpaid by N420. Common mistake: Assuming a debit balance in a liability control account represents an amount still owed.

Options suggesting credits to the sales day book or omitting the suspense account misunderstand how to correct journal overstatements. An overstatement in the sales account by 450 creates a credit excess, which is corrected by debiting the suspense account for D450 and crediting the sales account, or vice versa depending on the error direction; here, correcting an overstated credit requires a debit to sales and credit to suspense, or correcting via suspense. Re-evaluating the source: overstatement in sales account (credited with 9,610 instead of 9,160) requires a debit to Sales Account D450 and a credit to Suspense Account D450. Common mistake: Failing to use a suspense account when rectifying a one-sided ledger imbalance.

Distractor check: A student might mistakenly select option A or B by miscalculating the interest or failing to subtract it from the net profit. Reasoning to the answer: To determine the profit available for sharing, compute the interest on capital for each partner at 5% per annum based on their capital contributions (Ata's 40,000 gives 2,000, Bubu's 30,000 gives 1,500, and Chikum's 20,000 gives 1,000), which yields a total interest of 4,500. Deducting this total interest from the net profit for the year of 40,500 leaves 36,000 as the final profit available for distribution. Common mistake: Forgetting to deduct total interest on capital from the net profit before sharing.

Distractor check: A student might pick option A or C by failing to factor in the interest or by mistakenly treating drawings as an addition to the current account. Reasoning to the answer: Chikum's capital contribution is 20,000 out of a total capital of 90,000, giving a profit-sharing proportion of 20/90 or 2/9. Multiplying this fraction by the available profit of 36,000 results in a profit share of 8,000. Add Chikum's interest on capital of 1,000 and subtract drawings of 0 to find the current account credit balance of 9,000. Common mistake: Confusing the treatment of drawings when calculating the final current account balance.

Distractor check: A student might select option A or C by misjudging Bubu's fraction of the profit-sharing ratio. Reasoning to the answer: Bubu's capital contribution is 30,000 out of the total capital of 90,000, creating a profit-sharing fraction of 30/90, which simplifies to 1/3. Applying this fraction to the profit available for sharing of 36,000 gives Bubu's share as 12,000. Common mistake: Miscalculating the capital contribution proportion fraction.

Distractor check: A student might incorrectly choose option B or D by confusing general accounting concepts with revenue recognition principles. Reasoning to the answer: The realization concept dictates that revenue is recognized when earned, which typically occurs at the point of sale when the risks and rewards of ownership transfer to the buyer. Common mistake: Mixing up the realization concept with the matching concept.

Distractor check: A student might choose option C because the trading account relies on the cost of goods sold, but that is a component rather than the final objective. Reasoning to the answer: The trading account's primary purpose is to calculate gross profit by deducting the cost of goods sold from net sales revenue. Common mistake: Confusing the final output of the trading account with one of its intermediate calculations.

Distractor check: A student might choose option A by incorrectly calculating 25% directly on the sales figure instead of the cost. Reasoning to the answer: A markup of 25% on cost means that sales equal cost multiplied by 1.25. Dividing the sales of 300,000 by 1.25 gives a cost of 240,000, and subtracting this cost from the sales revenue yields a profit of 60,000. Common mistake: Applying the percentage markup directly to the selling price instead of the cost price.

Distractor check: A student might select option A or C by confusing the separation of entities with valuation or continuity concepts. Reasoning to the answer: The business entity concept explicitly treats the business as a separate legal and financial entity from its owners, ensuring that only business transactions are recorded. Common mistake: Failing to separate personal owner transactions from business transactions.

Distractor check: A student might select option B or C by misidentifying the components of the accounting equation affected by personal capital injections. Reasoning to the answer: Introducing a private car into the business increases the business assets through the added car while simultaneously increasing the owner's capital contribution, which maintains the balance of Assets = Capital + Liabilities. Common mistake: Assuming personal asset introduction affects liabilities.

Distractor check: A student might select option A by misapplying the ratio or using incorrect days in the calculation. Reasoning to the answer: The debtor's payment period is calculated by dividing debtors by credit sales and multiplying by 365, which is (120,000 / 600,000) × 365. This evaluates to 0.2 × 365, giving exactly 73 days. Common mistake: Inverting the debtor and credit sales fraction in the formula.

Distractor check: A student might choose option B or D because they are profit and loss items, failing to distinguish cash transactions from non-cash provisions. Reasoning to the answer: A provision for doubtful debts is a non-cash expense that reduces profits without requiring any cash outflow, unlike items like rent, rates, or debenture interest that involve actual cash or accruals. Common mistake: Overlooking whether an expense involves a direct cash movement.

Distractor check: A student might pick option B or D by confusing direct material costs with factory overheads or direct expenses. Reasoning to the answer: Direct materials represent raw material costs purchased for production that can be directly traced to a particular unit, forming part of the prime cost. Common mistake: Confusing direct traceable material costs with general factory overheads.

Distractor check: A student might select option B or D by calculating the percentage on the production cost instead of the transfer price. Reasoning to the answer: The closing stock of finished goods in the trading account must be valued at the transfer price to the warehouse of 220,000. Taking 9% of 220,000 yields a closing stock value of 19,800. Common mistake: Valuing closing finished goods stock at production cost rather than transfer price.

Distractor check: A student might choose option B by using the production cost instead of the warehouse transfer price. Reasoning to the answer: In the balance sheet, finished goods closing stock is shown at the exact same transfer price used in the trading account, which is 9% of 220,000, equaling 19,800. Common mistake: Applying different valuation bases for the trading account and balance sheet.

Distractor check: A student might pick option C or D by mistakenly including finished goods or carriage outwards in the manufacturing account. Reasoning to the answer: The manufacturing account includes direct production costs such as the purchases of raw materials (i) and the carriage inwards (iii) associated with them. Purchases of finished goods (ii) and carriage outwards (iv) belong in the trading and profit and loss accounts respectively. Common mistake: Placing carriage outwards inside the manufacturing account.

Distractor check: A student might select option A or B by applying discounts in the wrong order or miscalculating the returns. Reasoning to the answer: The net invoice after a 3% trade discount on 50,000 is 48,500. The return credit for defective goods is 8,000 less 3% trade discount, equaling 7,760, which leaves a net due of 40,740. Applying a 10% cash discount of 4,074 gives a cash paid of 36,666, which is approximately 36,660 due to option rounding. Common mistake: Forgetting to deduct the trade discount from the returned goods value.

Distractor check: A student might choose option C or D by confusing the buyer's payment entry with journal or purchase entries. Reasoning to the answer: As the buyer, Kwamenah records the 10% cash discount in the cash book at the time of payment by debiting the bank, crediting the creditor, and debiting the discount received. Common mistake: Recording cash discounts in the purchases journal instead of the cash book.

Distractor check: A student might select option B by confusing trade discounts with cash discounts recorded in the cash book. Reasoning to the answer: As the seller, Doe and Sons Limited deducts the 3% trade discount at the point of sale and enters it directly in the sales journal when preparing the sales invoice. Common mistake: Treating trade discounts as if they are recorded in the cash book.

Distractor check: A student might pick option B or C by confusing limited or nominal partners with someone who invests capital but stays out of management. Reasoning to the answer: A sleeping or dormant partner provides capital investment but does not participate in the daily operations or management of the business, though they still share profits and losses. Common mistake: Confusing a sleeping partner with a limited partner.

Distractor check: A student might select option A, B, or D because they all involve computers, failing to recognize them as nominal expense accounts. Reasoning to the answer: Real accounts relate to assets and liabilities, making the Office Computer Account a real account because it represents a tangible asset, whereas repairs, insurance, and depreciation are nominal expense accounts. Common mistake: Treating computer expense or depreciation accounts as real accounts.

Distractor check: A student might choose option A or C by confusing consistency with periodicity or going concern concepts. Reasoning to the answer: The consistency concept requires a business to adopt and adhere to uniform accounting methods over successive periods to ensure financial statements remain comparable. Common mistake: Mixing up the consistency concept with the going concern concept.

Distractor check: A student might select option A or C by guessing the wrong side of the trial balance or sending the difference to profit and loss prematurely. Reasoning to the answer: A credit excess means the debit side of the trial balance is short, so a suspense account must be debited with the difference to temporarily balance the trial balance pending investigation. Common mistake: Crediting the suspense account when the credit side of the trial balance is already larger.

Distractor check: A student might pick option A or D because they focus only on specific parts of the balance sheet rather than the whole equation. Reasoning to the answer: The accounting equation, expressed as Assets = Liabilities + Capital, comprehensively shows the total assets of a business and the sources of financing them through debt and equity. Common mistake: Assuming the accounting equation only represents owner's equity or current items.

Distractor check: A student might choose option A, C, or D by including external stakeholders who rely on published financial statements. Reasoning to the answer: Internal users are those inside the organization, such as employees and managers, who use accounting information for internal operations and decision-making, unlike creditors, investors, and customers who are external users. Common mistake: Confusing internal management and staff with external stakeholders.

Distractor check: A student might select option C or D by incorrectly adding the profit to the disposal proceeds instead of subtracting it. Reasoning to the answer: The net book value is calculated by subtracting the profit on disposal from the disposal proceeds, which is 45,000 - 7,500 = 37,500. The accumulated depreciation is then found by subtracting this net book value from the original cost, giving 150,000 - 37,500 = 112,500. Common mistake: Adding the profit to proceeds when finding net book value.

Distractor check: A student might select option B by assuming any income-related item is an asset. Reasoning to the answer: Income received in advance represents unearned revenue, making it a current liability because the business owes a service or obligation to the payer. Common mistake: Classifying unearned revenue as an asset instead of a liability.

Students might mistakenly pick option A (N29,500) by accidentally adding the beginning sales ledger balance instead of subtracting it from the total. To find the amount of sales, rearrange the control account formula so that total credits plus ending balances minus beginning balances equal sales. Taking an assumed ending sales ledger balance of zero, you combine the cheque received from customers of 24,000, discount allowed of 2,000, bad debts of 1,000, and returns inwards of 500, then subtract the sales ledger balance at the beginning of 2,000, which results in 25,500. Common mistake: forgetting whether to add or subtract the beginning debtor balance in the control account calculation.

A student might select option B (goodwill) by confusing the scenario with an acquisition where the purchase price exceeds the net assets. When a business combination occurs and the net assets acquired surpass the purchase consideration, the transaction represents a bargain purchase gain. This surplus is accounted for as a capital reserve rather than an asset. Common mistake: confusing capital reserve with goodwill when evaluating purchase consideration versus net assets.

Learners often lean toward option D (Memorandum of Association) because it is another major constitutional document of a company. However, the Memorandum defines the external scope and powers regarding outsiders, whereas the internal regulations, directors' powers, and meeting procedures are outlined specifically by the Articles of Association. Common mistake: confusing the internal governance role of the Articles with the external scope defined by the Memorandum.

Option A (straight line method) is a common mistaken choice because it is the most frequently encountered depreciation technique, but it applies a fixed percentage to the initial cost rather than the current value. The correct approach applies a fixed percentage to the decreasing book value annually, which accelerates early depreciation charges. This technique is known as the reducing balance method. Common mistake: mixing up straight-line depreciation, which uses original cost, with reducing balance depreciation, which uses net book value.