WAEC Accounting 2022
Questions & Answers

Distractor check: A student might mistakenly select shareholders or customers, confusing who manages daily business operations with those who merely invest or purchase. Reasoning to the answer: The director operates as a core member of management, utilizing accounting data to evaluate overall business performance and formulate strategic goals. While customers check product details, shareholders monitor investment returns, and employees look at job security, directors carry the direct responsibility for overall performance. Common mistake: Confusing the governance role of a director with the investment focus of a shareholder.

Distractor check: A student might accidentally include non-current assets like motor vehicles or subtract current liabilities, leading to incorrect totals. Reasoning to the answer: Current assets encompass short-term resources expected to convert into cash within one year, which include stock, debtors, and cash. Adding these specific figures together (D35,000 + D18,000 + D12,850) gives a total current asset value of D65,850, whereas motor vehicles represent a fixed asset. Common mistake: Including fixed assets like motor vehicles in the calculation of total current assets.

Distractor check: A student might include asset values or creditors alone, forgetting to combine all short-term financial obligations into the calculation. Reasoning to the answer: Current liabilities represent financial obligations and debts that the business must settle within a one-year period. Summing up the bank overdraft of D280,000 and the creditors of D21,500 yields a total current liabilities amount of D301,500. Common mistake: Omitting the bank overdraft when calculating total current liabilities.

Distractor check: A student might confuse a purchase order with a sales order or proforma invoice, mixing up whether the buyer or seller initiates the paperwork. Reasoning to the answer: A purchase order is a formal document originated and issued by the buyer and sent directly to the seller to specify the exact items, quantities, and pricing desired. Conversely, sales orders come from sellers, proforma invoices act as preliminary bills, and credit notes reduce invoice balances. Common mistake: Confusing a purchase order issued by a buyer with a sales order generated by a seller.

Distractor check: A student might select a credit transfer, assuming any bank payment instruction shares the same classification. Reasoning to the answer: A standing order is a specific instruction given to a bank to regularly transfer a fixed sum of money at recurring intervals—such as quarterly—to a designated payee. A credit transfer is typically a one-off payment rather than an automated recurring instruction. Common mistake: Confusing recurring standing order instructions with one-off credit transfers.

1) Distractor check: Students might erroneously choose the balance sheet or trial balance, assuming these fundamental financial statements establish accounting records, but those reports represent end-of-period summaries. 2) Reasoning to the answer: Establishing initial records requires a chronological entry point to move asset and capital balances into ledger accounts, which is the exact function of the general journal for opening the books. 3) Common mistake: Confusing the initial recording phase of the general journal with end-of-period statements.

1) Distractor check: Test-takers could incorrectly select the journal because it is also a primary accounting book, yet it functions solely for chronological logging rather than classification. 2) Reasoning to the answer: Individual accounts like assets and liabilities are posted and classified from initial records to create structured summaries, a process executed within the principal ledger book that subsequently feeds the trial balance. 3) Common mistake: Mistaking the chronological sorting of the journal for the classificatory function of the ledger.

1) Distractor check: A student might mistakenly select option A, which increases cash and reduces the bank, misinterpreting the direction of the withdrawal. 2) Reasoning to the answer: When a proprietor takes funds for private use, owner's capital decreases through drawings, which requires debiting the drawings account as an expense to the owner while crediting the bank account to reflect the asset decrease. 3) Common mistake: Forgetting to credit the bank account when the funds are withdrawn directly from the bank.

1) Distractor check: Candidates might calculate #900 Cr or another figure by incorrectly adding bank charges or subtracting direct credits from the initial cash book balance. 2) Reasoning to the answer: Using a T-account approach, the starting cash book balance of #750 sits on the debit side, while direct credits of #300 and bank charges of #150 total #450 on the credit side, leaving a final balance c/d of #300 Cr. 3) Common mistake: Placing direct credits and bank charges on the incorrect side of the adjusted cash book T-account.

1) Distractor check: A test-taker could mistakenly subtract unpresented cheques or add uncredited cheques, reversing their proper bank reconciliation adjustments. 2) Reasoning to the answer: The final bank statement balance is reached by taking the adjusted cash book balance of #300, adding outstanding unpresented cheques which increase the bank balance, and subtracting uncredited deposits in transit, resulting in #1,480 Cr. 3) Common mistake: Treating uncredited cheques as additions instead of subtractions during bank reconciliation.

1) Distractor check: Students might lean toward the business entity concept or dual aspect concept, mixing up general accounting principles with rules on capitalization. 2) Reasoning to the answer: Accounting simplification is achieved through the materiality concept, permitting immaterial expenditures to be written off immediately as expenses instead of being capitalized as assets without distorting the financial statements. 3) Common mistake: Confusing the materiality threshold for expensing items with the business entity separation rule.

1) Distractor check: Candidates might confuse assets with capital, which represents owner's equity rather than owned and controlled business resources. 2) Reasoning to the answer: Economic resources that are owned or controlled by a business and generate future economic benefits, such as inventory and cash, are classified as assets, whereas liabilities represent external claims. 3) Common mistake: Failing to distinguish between owner's capital claims and actual physical or economic resources.

1) Distractor check: Students could mistakenly pick the credit balance on a supplier's account or capital account, overlooking how balance sheet classifications apply to debit and credit balances. 2) Reasoning to the answer: A customer's account showing a debit balance represents a trade debtor who owes money to the business, classifying it as a current asset, whereas drawings and credit balances represent equities or liabilities. 3) Common mistake: Assuming all debit balances on ledger accounts automatically translate to balance sheet assets.

1) Distractor check: A student might mistakenly calculate #12,000, which represents only the cost of goods sold rather than the final profit figure. 2) Reasoning to the answer: The cost of goods sold is found by taking three-quarters of #16,000 to equal #12,000, and subtracting this from the total sales revenue of #20,000 yields a gross profit of #8,000 from core trading activities. 3) Common mistake: Stopping the calculation at the cost of goods sold instead of subtracting it from sales revenue.

1) Distractor check: Candidates might calculate 2/3 by dividing the gross profit by the cost of goods sold instead of using sales revenue. 2) Reasoning to the answer: The gross profit margin is determined by dividing the gross profit of #8,000 by the total sales of #20,000, giving 0.4 which simplifies to 2/5, whereas markup evaluates profit against cost. 3) Common mistake: Confusing margin (calculated on sales) with markup (calculated on cost).

1) Distractor check: Students might incorrectly think gross profit decreases, failing to realize that provisions affect operating expenses rather than trading activities. 2) Reasoning to the answer: Because the prudence concept anticipates bad debts, raising the provision for doubtful debts introduces an additional expense debited to the profit and loss account, which drives down net profit while leaving gross profit unaffected. 3) Common mistake: Assuming changes in provisions for doubtful debts impact gross profit instead of net profit.

1) Distractor check: A student might select D320,000 by applying straight-line depreciation instead of the required diminishing balance method over the four-year period. 2) Reasoning to the answer: Applying a 10% diminishing balance rate yearly yields depreciation of D120,000 in Year 1, D108,000 in Year 2, D97,200 in Year 3, and D87,480 in Year 4, which sums to an accumulated depreciation of approximately D412,630. 3) Common mistake: Using flat-rate straight-line depreciation calculations instead of reducing balance percentages.

1) Distractor check: Candidates could mistakenly pick D1,080,000, which reflects only the first year's depreciation reduction rather than the net book value at the end of three years. 2) Reasoning to the answer: Across three years of 10% diminishing balance depreciation, accumulated depreciation totals D325,200, and subtracting this from the initial cost of D1,200,000 leaves a net book value of D874,800 as of December 31, 2020. 3) Common mistake: Calculating depreciation for fewer years than specified by the target date.

1) Distractor check: Test-takers might mistakenly compute a loss by miscalculating the accumulated depreciation or subtracting proceeds in reverse order. 2) Reasoning to the answer: Subtracting the four-year accumulated depreciation of D412,680 from the initial cost gives a net book value of D787,320, and comparing this against the disposal proceeds of D880,000 reveals a credit-bound profit on disposal of D92,680. 3) Common mistake: Subtracting book value from proceeds incorrectly and mixing up profit and loss outcomes.

1) Distractor check: Students could mistakenly choose cost of goods sold or profit on goods sold, confusing the factory's production stage with the final trading account. 2) Reasoning to the answer: Prime costs and factory overheads are accumulated within a manufacturing account specifically to determine the total cost of goods produced before transferring those figures to the trading account. 3) Common mistake: Confusing the cost of goods produced inside the factory with the final cost of goods sold.

1) Distractor check: A candidate might add the opening stock directly to total purchases without accounting for returns, yielding an incorrect total. 2) Reasoning to the answer: Net purchases are first found by subtracting raw material returns of Le15,000 from purchases of Le125,000 to get Le110,000, which is then added to the opening stock of Le822,000 to reach Le932,000 available for production. 3) Common mistake: Forgetting to deduct returns of raw materials from total purchases.

1) Distractor check: Students might select Le932,000 by stopping at the materials available for production instead of subtracting the closing stock. 2) Reasoning to the answer: Raw materials consumed are calculated by taking the available production materials of Le932,000 and subtracting the closing stock of Le560,000 to isolate the prime cost input. 3) Common mistake: Omitting the closing stock deduction when calculating raw materials consumed.

1) Distractor check: Candidates might pick returns inwards or bad debt, forgetting that these entries reduce rather than increase the control account balance. 2) Reasoning to the answer: The sales ledger control account debit side records increases in amounts owed by debtors, which includes bills dishonoured by debtors because the underlying obligation remains active. 3) Common mistake: Placing transaction types that reduce debtor balances, such as returns, on the debit side.

1) Distractor check: Test-takers might select trade creditors, confusing the sales ledger with the purchase ledger used for suppliers. 2) Reasoning to the answer: The sales ledger, also known as the debtors ledger, is dedicated entirely to housing the individual accounts of trade debtors who owe money to the enterprise. 3) Common mistake: Confusing customer accounts in the sales ledger with supplier accounts in the purchase ledger.

1) Distractor check: A student might choose 25% by miscalculating the cost of goods sold or using an incorrect denominator in the percentage formula. 2) Reasoning to the answer: Cost of goods sold is computed as opening stock plus purchases minus closing stock (GH¢40,000 + GH¢170,000 - GH¢50,000 = GH¢160,000), leaving a gross profit of GH¢40,000, which evaluates to a 20% gross profit percentage against sales. 3) Common mistake: Using the cost of goods sold instead of sales revenue as the base for calculating the gross profit percentage.

1) Distractor check: Candidates might calculate 4 times by dividing COGS by closing stock alone rather than finding the average stock value. 2) Reasoning to the answer: Average stock is determined by adding opening and closing stock and dividing by two (GH¢45,000), which is then divided into the COGS of GH¢160,000 to produce a stock turnover ratio of approximately 3.56 times. 3) Common mistake: Dividing cost of goods sold by closing stock instead of average stock.

1) Distractor check: Students might incorrectly select the materiality concept or business entity concept, confusing valuation conservatism with structural rules. 2) Reasoning to the answer: Anticipating future losses without recording unconfirmed profits is mandated by the prudence concept, ensuring that provisions for doubtful debts adjust assets and profits realistically. 3) Common mistake: Confusing the prudence convention with the materiality or money measurement concepts.

1) Distractor check: Test-takers might mistake subscriptions in advance for a current asset, missing the fact that advance receipts create an ongoing obligation. 2) Reasoning to the answer: Funds collected for future accounting periods represent subscriptions in advance, constituting an obligation to render future services and therefore classified as a short-term current liability. 3) Common mistake: Treating money received in advance as an asset rather than a current liability.

1) Distractor check: A student might pick current liabilities, confusing amounts owed to the organization with obligations owed by it. 2) Reasoning to the answer: Subscriptions in arrears are amounts that members owe for the current period, functioning as unpaid receivables that are reported as current assets on the balance sheet. 3) Common mistake: Classifying membership dues in arrears as a liability instead of a current asset receivable.

1) Distractor check: Candidates could mistakenly select a company seal, confusing internal partnership governance with corporate validation tools. 2) Reasoning to the answer: A partnership deed serves as the formal written agreement that governs profit sharing, duties, capital allocations, and dissolution protocols among partners. 3) Common mistake: Confusing a partnership deed agreement with corporate seals or general business codes.

Distractor check: A student might mistakenly select option A, C, or D because they relate to the current and appropriation accounts, but only one option correctly reflects the reduction of equity caused by partner withdrawals. Reasoning to the answer: Withdrawals made by partners are recorded on the debit side of their individual current accounts because such actions reduce their overall share of profits and equity. Meanwhile, the appropriation account functions to allocate net profit and handles entries by crediting current accounts. Common mistake: Confusing whether withdrawals act as an increase or a decrease to a partner's equity balance.

Distractor check: A student might pick options B, C, or D by incorrectly calculating the interest or profit sharing ratio without accounting for both components of the final distribution. Reasoning to the answer: First, compute the individual interest on capital by taking 5% of #300,000 for Teteh, which equals #15,000, and 5% of #200,000 for Kukuma, yielding #10,000, for a combined total of #25,000. Subtracting this combined interest from the total profit of #150,000 leaves a remaining profit of #125,000 to distribute. Since they agree to share profit according to their capital ratio of 300:200, which simplifies to 3:2, Teteh receives three-fifths of the remaining profit, calculating to #75,000. Adding Teteh's interest on capital of #15,000 to this profit share results in a total of #90,000. Common mistake: Forgetting to add back the interest on capital to the partner's share of the remaining profit.

Distractor check: A test-taker could select option A, B, or D by miscalculating the ratio fractions or forgetting to include the interest portion in the final ledger entry. Reasoning to the answer: Kukuma's interest on capital is calculated at 5% of #200,000, which gives #10,000. The remaining profit of #125,000 is then split using their 3:2 capital ratio, meaning Kukuma receives two-fifths of #125,000, amounting to #50,000. Assuming no other items are present, the total amount credited to Kukuma's current account is the sum of the interest and the profit share, equaling #60,000. Common mistake: Mixing up Teteh's capital proportion with Kukuma's capital proportion when determining the remaining profit share.

Distractor check: A student might mistakenly choose option A, B, or D by applying the profit-sharing ratio directly to the total profit instead of computing the specific percentage return on invested capital. Reasoning to the answer: To compensate for the capital invested, interest on capital must be charged prior to general profit sharing. For Teteh, this is determined by calculating 5% of the #300,000 capital balance, which produces an amount of #15,000. Common mistake: Applying the interest percentage to the total net profit of the business rather than the individual partner's capital balance.

Distractor check: Options B, C, and D might look plausible because they represent regular business expenditures, but they fall under day-to-day operating costs rather than startup outlays. Reasoning to the answer: Formation expenses, which encompass legal fees and registration costs associated with company incorporation, are categorized specifically as preliminary expenses and are typically written off against reserves. Common mistake: Failing to distinguish between long-term formation costs and routine operating expenses.

Distractor check: A student might select ordinary dividends or general reserves by confusing general profit distributions with mandatory priority payouts. Reasoning to the answer: Preference dividends take priority as a first charge on company profits, meaning they must be paid out before any ordinary dividends or general reserves can be addressed, in accordance with preference shareholders' rights. Reserves represent appropriations made only after these priority obligations are met. Common mistake: Treating preference dividends and ordinary dividends as having equal priority for payment from profits.

Distractor check: Students often guess paid-up capital or reserve capital because these terms relate directly to issued funds and uncalled amounts. Reasoning to the answer: Authorised capital, also referred to as nominal capital, represents the absolute maximum amount a company is allowed to raise through the issue of shares as stated in its memorandum of association without requiring further formal approval. In contrast, reserve capital is uncalled, paid-up capital has actually been issued and paid, and loan capital constitutes debt. Common mistake: Confusing the maximum legal limit of capital with the amount actually paid up by shareholders.

Distractor check: Options B, C, or D might be selected because they are related financial terms involving company finance, but they represent consolidated amounts, excesses, or debts rather than individual ownership increments. Reasoning to the answer: A share functions as a single unit of equity capital ownership, granting the holder specific rights to dividends and voting privileges. Stock represents consolidated shares, a premium is the excess over the nominal value, and a debenture is a form of debt. Common mistake: Confusing an individual ownership share with consolidated stock.

Distractor check: Options A, B, or D might be chosen by mistakenly treating petty cash restoration or expense items like wages as creditor transactions. Reasoning to the answer: The personal ledger tracks individual supplier accounts, and among all the listed transactions, the sole payment made to a creditor is the GH¢1,072 paid to Biodun, which is posted directly to Biodun's account within the purchase ledger, while all other entries cover operational expenses or wages. Common mistake: Treating wage payments or general petty cash floats as entries belonging to the personal ledger of creditors.

Distractor check: Students may select option B, C, or D by either including postage stamps or miscalculating the individual expense line items. Reasoning to the answer: Stationery expenditures comprise the purchase of note books totaling GH¢656 and envelopes totaling GH¢874. Adding these two figures together gives GH¢1,530, whereas postage stamps are classified separately as postal expenses rather than stationery. Common mistake: Grouping postage stamps under stationery expenses.