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WAEC Financial Accounting 2015 Question 17

Question 17

Accruals and Prepayments

Extracts from the books of a firm as at June 30, 2012 showed the following balances: Advertising Dr GH¢36,000; Electricity Dr GH¢60,000. Advertising was paid by cheque covering 12 monthly instalments ending March 31, 2012. Electricity was paid by cash covering 15 monthly instalments from March 1, 2011.
Advertising owing in respect of the year ended June 30, 2012 is

  1. A.GH¢ 12,000.
  2. B.GH¢ 9,000.
  3. C.GH¢ 6,000.
  4. D.GH¢ 3,000.
Show the answer and explanation

Answer: B (GH¢ 9,000.)

Explanation

Each instalment is GH¢36,000 ÷ 12 = GH¢3,000. Payments stop at March 2012, so April, May and June 2012 are owing: 3 × 3,000 = GH¢9,000.