2023 WASSCE: 40 WASSCE Financial Accounting Questions
This content consists of topical questions candidates sitting for the 2023 WASSCE should watch out for. In this content, we will provide you with some potential WAEC (West African Examinations Council) Financial Accounting. Please note that these questions are created based on typical topics covered in Financial Accounting at the WASSCE level. Make sure you attempt all questions
WASSCE Questions on Financial Statements
1. Define the income statement and state its main purpose.
– The income statement is a financial statement that shows a company’s revenues, expenses, and net income or loss over a specific period.
2. What is the purpose of the statement of financial position?
– The statement of financial position (also known as the balance sheet) provides a snapshot of a company’s financial position by showing its assets, liabilities, and equity as of a specific date.
3. Explain the concept of depreciation and its importance in financial statements.
– Depreciation is the allocation of the cost of a long-term asset over its useful life. It helps in spreading the cost of the asset over its usage, which matches expenses with revenue generated by the asset.
4. Differentiate between gross profit and net profit.
– Gross profit is revenue minus the cost of goods sold, while net profit is the final profit after deducting all expenses, including operating expenses and taxes.
5. What is working capital, and why is it important for a business?
– Working capital is the difference between a company’s current assets and current liabilities. It indicates a company’s short-term liquidity and ability to cover its short-term obligations.
Likely WASSCE Financial Accounting Questions on Double-Entry Bookkeeping
6. Explain the concept of double-entry bookkeeping.
– Double-entry bookkeeping is a system where every transaction has equal and opposite effects on at least two accounts, maintaining the accounting equation (Assets = Liabilities + Equity).
7. Describe the terms “debit” and “credit” as used in accounting.
– Debit is an entry on the left side of an account, increasing assets and decreasing liabilities or equity. Credit is an entry on the right side of an account, decreasing assets and increasing liabilities or equity.
8. Provide an example of a journal entry for the purchase of inventory on credit.
– Debit: Inventory
– Credit: Accounts Payable
9. What is the purpose of a trial balance?
– A trial balance is used to ensure the equality of debits and credits in the general ledger and to identify errors before preparing financial statements.
10. Explain the difference between a general journal and a general ledger.
– The general journal records transactions in chronological order, while the general ledger contains individual accounts, summarizing the financial transactions of a business.
Financial Ratios Questions
11. Define the current ratio and its formula.
– The current ratio measures a company’s short-term liquidity and is calculated as Current Assets / Current Liabilities.
12. How is the debt-to-equity ratio calculated, and what does it indicate?
– The debt-to-equity ratio is calculated as Total Debt / Total Equity. It shows the proportion of a company’s financing that comes from debt compared to equity.
13. Calculate the gross profit margin using the formula.
– Gross Profit Margin = (Gross Profit / Total Revenue) × 100%
14. What does the return on equity (ROE) measure?
– ROE measures the profitability of a company relative to its equity shareholders and is calculated as Net Income / Average Equity.
15. Explain the significance of the price-to-earnings (P/E) ratio.
– The P/E ratio compares a company’s stock price to its earnings per share (EPS), indicating the market’s perception of the company’s future earnings potential.
Expected WASSCE Questions on Cash Flow Analysis
16. Differentiate between operating, investing, and financing activities in a cash flow statement.
– Operating activities involve core business operations, investing activities relate to acquiring and disposing of assets, and financing activities involve raising and repaying capital.
17. Calculate the net cash flow from operating activities using the direct method.
– Net Cash Flow from Operating Activities = Total Cash Inflows – Total Cash Outflows
18. What is the purpose of preparing a cash flow statement?
– The cash flow statement provides information about a company’s cash inflows and outflows during a specific period, helping to assess its liquidity and cash management.
Questions on Inventory Valuation
19. Explain the First-In, First-Out (FIFO) method of inventory valuation.
– FIFO assumes that the first units of inventory purchased are the first ones sold, leaving the latest purchases in ending inventory.
20. Describe the Last-In, First-Out (LIFO) method of inventory valuation.
– LIFO assumes that the last units of inventory purchased are the first ones sold, resulting in the oldest purchases remaining in ending inventory.
21. How does the Average Cost method calculate inventory value?
– The Average Cost method calculates inventory value by dividing the total cost of goods available for sale by the total units available.
WASSCE Financial Accounting on Budgeting
22. Define a budget and explain its importance for businesses.
– A budget is a financial plan that outlines expected revenues, expenses, and profits for a specific period. It helps in planning, controlling, and evaluating business performance.
23. Describe the concept of a cash budget.
– A cash budget forecasts expected cash inflows and outflows, helping a business manage its liquidity and cash position.
24. What is a flexible budget, and how does it differ from a static budget?
– A flexible budget adjusts for changes in activity levels, providing more accurate comparisons between actual results and budgeted amounts compared to a static budget.
Financial Analysis Questions
25. Explain vertical analysis as a method of financial statement analysis.
– Vertical analysis expresses each line item on a financial statement as a percentage of a base item, often total revenue or total assets.
26. Define horizontal analysis and its purpose in financial statement analysis.
– Horizontal analysis compares financial data over multiple periods to identify trends, changes, and growth patterns.
Auditing and Taxation WASSCE Questions
27. What is the purpose of an audit trail in accounting?
– An audit trail is a chronological record that documents the sequence of activities surrounding a financial transaction, providing transparency and accountability.
28. Explain the role of an external auditor in a company.
– An external auditor is an independent professional who assesses a company’s financial records to ensure accuracy and compliance with accounting standards.
29. Differentiate between direct and indirect taxes.
– Direct taxes are levied directly on individuals or businesses (e.g., income tax), while indirect taxes are collected by intermediaries and passed on to consumers (e.g., sales tax).
30. Describe the concept of Value Added Tax (VAT) and its impact on businesses.
– VAT is a consumption tax applied at each stage of the supply chain, ultimately paid by the end consumer. Businesses collect and remit the tax to the government.
Below are also full calculations questions candidates can lay hands on as they prepare to sit for the exams
Question: Financial Statements and Ratios
You have been appointed as the financial manager of ABC Ltd, a manufacturing company. For the year ended December 31, 20X5, the company provided the following financial data:
Income Statement
– Sales Revenue: GHȻ800,000
– Cost of Goods Sold: GHȻ400,000
– Operating Expenses: GHȻ150,000
– Other Income: GHȻ20,000
– Interest Expenses: GHȻ5,000
– Income Tax Expense: GHȻ30,000
Statement of Financial Position (Balance Sheet)
– Total Assets: GHȻ600,000
– Total Liabilities: GHȻ200,000
– Equity: GHȻ400,000
Using the provided data, perform the following tasks:
a) Calculate the Gross Profit for the year.
b) Determine the Net Profit after tax for the year.
c) Compute the Operating Profit Margin as a percentage of Sales Revenue.
d) Calculate the Return on Equity (ROE) using the Net Profit after tax and Average Equity.
Note: Assume that Average Equity for the year is the average of the beginning and ending equity. Please show all your calculations clearly and present your answers concisely.
Question 2: Budgeting and Cash Flow Analysis
You are the financial analyst of XYZ Ltd, a retail company. The following information is available for the upcoming fiscal year:
– Expected Sales Revenue: GHȻ1,200,000
– Cost of Goods Sold: GHȻ600,000
– Operating Expenses: GHȻ300,000
– Interest Expenses: GHȻ10,000
– Dividends to be paid: GHȻ40,000
– Cash inflows from customers: GHȻ1,000,000
– Cash outflows for operating expenses: GHȻ320,000
– Cash outflows for investing activities: GHȻ100,000
– Cash inflows from financing activities: GHȻ70,000
– Beginning Cash Balance: GHȻ50,000
Prepare a comprehensive cash budget for the upcoming fiscal year, including cash inflows, outflows, and the ending cash balance.
Question 3: Inventory Valuation and Ratios
As the financial manager of ABC Manufacturing, you have the following inventory transactions for the year:
– Beginning inventory: 500 units at GHȻ10 per unit
– Purchases: 800 units at GHȻ12 per unit, 300 units at GHȻ15 per unit
– Sales: 700 units
a) Using the weighted average cost method, calculate the cost of goods sold and the value of the ending inventory.
b) Calculate the Inventory Turnover Ratio and the Average Inventory for the year.
4TH Question: Financial Analysis and Ratios
You are analysing the financial performance of XYZ Ltd over two years. The financial data is as follows:
Year 1
– Total Revenue: GHȻ800,000
– Total Expenses: GHȻ600,000
– Total Assets: GHȻ1,000,000
– Total Liabilities: GHȻ400,000
Year 2
– Total Revenue: GHȻ900,000
– Total Expenses: GHȻ700,000
– Total Assets: GHȻ1,200,000
– Total Liabilities: GHȻ500,000
a) Calculate the Gross Profit Margin for both years.
b) Compute the Debt Ratio for both years.
c) Determine the Return on Assets (ROA) for both years.
5th Question: Financial Statements Interpretation
You are presented with the following financial information for Company ABC:
Income Statement
– Sales Revenue: GHȻ1,500,000
– Cost of Goods Sold: GHȻ800,000
– Operating Expenses: GHȻ300,000
– Interest Expenses: GHȻ10,000
– Income Tax Expense: GHȻ50,000
Statement of Financial Position (Balance Sheet)
– Total Assets: GHȻ1,800,000
– Total Liabilities: GHȻ600,000
– Equity: GHȻ1,200,000
a) Calculate the Gross Profit for the year.
b) Determine the Net Profit after tax for the year.
c) Compute the Debt-to-Equity Ratio.
d) Calculate the Return on Equity (ROE) using the Net Profit after tax and Average Equity.
Question 5: Cash Flow Analysis and Budgeting
You are preparing a cash flow statement for Company XYZ for the year. The following data is provided:
– Cash inflows from customers: GHȻ800,000
– Cash outflows for operating expenses: GHȻ350,000
– Cash outflows for investing activities: GHȻ120,000
– Cash inflows from financing activities: GHȻ50,000
– Beginning cash balance: GHȻ60,000
Prepare the cash flow statement, detailing each cash inflow and outflow activity, and calculate the ending cash balance. Include sections for operating, investing, and financing activities. Please ensure that your calculations are detailed and clearly presented in your answers.
Thanks for solving these WASSCE Financial Accounting questions.
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