Financial Accounting WASSCE (PC), 2018

Section A: Theory of Financial Accounting

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Question 3

     

    Which business organizations have need to prepare departmental accounts?

    (b)        State two reasons for preparing departmental accounts.
    (c)        State how the following incomes and expenses are apportioned in departmental accounts.

                (i)         discount allowed;
    (ii)        discount received;
    (iii)       rent and rates;
    (iv)       staff related costs;
    (v)        depreciation;
    (vi)       canteen expenses;
    (vii)      electricity;
    (viii)     advertising;
    (ix)       bad debts.

Observation

Majority of the candidates attempted this question on public sector accounting and performed fairly.  However, many of them could not differentiate between capital expenditure and recurrent expenditure. Below are some of the suggested responses with examples:
                                     

  1. Reasons for differentiating between capital expenditure and revenue expenditure.

Capital expenditure is differentiated from revenue expenditure in order to:

  1. enable proper classification of assets into fixed assets and current assets.
  2. ensure that the profit and loss account for any period is charged with the appropriate expenditure for the period.
  3. ensure that cost of fixed assets are spread over the period that the assets will be in use;
  4. show the accurate financial position at the end of each period.
  5. comply with accounting standards in reporting.

(b)       

  1. Capital Expenditure

Capital Expenditure is the expenditure incurred in the acquisition  and/or improvement of fixed assets whose benefits are enjoyed by the organization for more than one accounting period.

  1. Revenue Expenditure

Revenue Expenditure is the expenditure incurred in acquiring goods and services whose benefits are enjoyed by the organization in the same accounting period in which it is incurred

Classification of costs and expenses into capital expenditure and revenue expenditure:


Costs and Expenses

Classification

i. Interest on loan to purchases computers and printers

Capital expenditure

ii. Cost of stationery for printers

Revenue expenditure

iii. Cost of installing and testing computer

Capital expenditure

iv. Cost of ink for the printer

Revenue expenditure

v. Purchase price of computer

Capital expenditure

vi. Cost of transporting computer and printer to office premises

Capital expenditure

vii. Cost of repairs of computer

Revenue expenditure