candidates’ performance in the 2009 examination – paper 1

Candidates’ PerformanceCandidates’ Performancein the 2009 Examination – Paper 1in the 2009 Examination – Paper 1

Mr. WAN Shiu-keeMr. WAN Shiu-kee

2

Overall PerformanceOverall Performance

Satisfactory Possess broad understanding of the

topics Able to give appropriate answers

based on the scenarios given

3


Should read the questions carefully Should present their answers in a logical

and systematic manner Abbreviations are not acceptable Proper heading / title should be provided

for each account / statement Journal narratives should not be omitted Should show workings in their answers

4


Questions Popularity Performance

1Satisfactorily answered

2 Good

3 96.0% Well answered

4 35.7% Poor

5 68.3% Well answered

5

Question 1 – Consolidated Question 1 – Consolidated financial statementsfinancial statements

Satisfactorily answered Well prepared for a question on

consolidated financial statements

6


a) Poor Not able to explain the accounting

definition of goodwill in the context of consolidation

Wrongly focused on elaborating the difference between purchased goodwill and inherent goodwill

Did not understand the meaning of “attributing factors”

7


b) Well answered Computation of goodwill should

include holding company’s share of ordinary share capital, share premium, pre-acquisition profits and fair value adjustments on office premises

Did not net off the pre-acquisition dividend from the cost of investment

8


c) Not familiar with the adjustments relating to intra-group transactions

Mistakenly treated the mark-up as gross profit margin overstatement of cost of goods sold and understatement of gross profit

Could not identify the adjustments to be made to depreciation expenses depreciation on profit of the transferred machinery should be excluded, additional depreciation should be computed basing on the fair value adjustment of the office premises

9


Failed to exclude intra-group management fees from administrative expenses

No difficulty in calculating goodwill arising from consolidation, but not familiar with the treatment of impairment loss on goodwill

Profit attributable to the equity holders of the parent and minority interest were to be shown separately

10


Amounts of unrealised profit adjustment arising from upstream sale of machinery and additional depreciation on revaluation of office premises were to be apportioned to minority interest

11


Should present the consolidated balance sheet in vertical form and classify various items under the appropriate headings

Did not adjust the net book value of PPE with the amounts of unrealised profits on machinery, fair value adjustments on office premises and the related depreciation

12


Cash in transit should be shown neither as a separate item nor as a reduction of bank overdraft

Failed to deduct 2 years’ additional depreciation on fair value adjustment from retained profits

Ignored the depreciation adjustment on the transferred machinery from retained profits

13

Question 2 – Partnership Question 2 – Partnership accountsaccounts

Good Quite familiar with the preparation of

various accounts for a partnership

14


a) Confused the treatments of debit notes and credit notes

Rule of the lower of cost or net realisable value (LCN rule) should be applied to the valuation of closing inventories

Not aware that insurance expenses had been included in selling and administrative expenses

Wrongly calculated the allowance for doubtful debts basing on “confirmations received from trade debtors”

Returned cheques should be added to the balance of trade debtors

15


b) Remember that no goodwill account was to be maintained in the books GW should be written off through partners’ capital accounts

No difficulty in recording the drawings of the partners but the full amount of the partners’ salaries had been credited to the capital accounts

Share of profits should be calculated after taking away the partners’ salaries from the net profit before appropriation

16


c) Should transfer the book values of various assets to the realisation account failed to show the net amount of trade debtors and forgot to include the prepaid portion of the insurance expenses

Could not record the correct payment to trade creditors in the bank account

Ignored the share of realisation profits in recording the final settlement to the partners

17


d) No difficulty in preparing the required journal entries

Mistakenly recorded the assets in the books of A&B Ltd at book values

18

Question 3 – Cash flow Question 3 – Cash flow statementstatement

Well answered Demonstrated an acceptable level of

understanding in preparing a cash flow statement

19


a) Not able to calculate the correct amounts of the depreciation of machinery and equipment as well as profit before taxation

Not aware that short-term investment was listed at fair value wrongly computed the profit on sale of investment

Had difficulties in calculating the valuation surplus on short-term investments for adjustment to net cash flows from operating activities

20


Should classify interest paid as an operating activity and dividend income as an investing activity

Wrongly disclosed increase in fixed deposit as a cash flow from investing activities

Should not divide the proceeds from issuance of ordinary shares into par value and share premium and disclosed separately

21


Did not notice the repayment in 2008 and the re-classification of bank loan at the end of 2007 and 2008

Fixed deposit with a maturity of 6-months was not to be treated as cash equivalents

22


b) Fair Could not manage to explain 2

advantages of a cash flow statement to investors focused on stating the uses and classifications of a cash flow statement

23

Question 4 – Ratios and ErrorsQuestion 4 – Ratios and Errors

Poor Could not apply conceptual

understanding in solving various accounting problems

Did not posses sufficient knowledge of some specific issues related to lease, provisions and intangible assets, etc

24


a) Could not calculate the return on equity and return on capital employed correctly wrongly used average profit figure instead of averages for equity and capital employed

Failed to include issued debenture in calculating opening figure for equity

Did not adjust debenture interest to net profit in computing return on capital employed

25


b) Gave comments only on the gearing ratio without giving proper reference to their answers in (a)

Failed to explain the implications of return on equity and return on capital employed to the shareholders of a highly geared company

26


c) Did not understand how to apply the concept of “substance over form” in the question tended to list the criteria of a lease as their answers

27


d) Not aware that the books had been closed recorded omissions and corrections directly to various expenses instead of profit and loss account

Had difficulty in calculating the amounts of lease creditors and finance charge for the year

Not able to prepare the necessary journal entries to recorded the lease

28


Should not record the construction cost of the fire exits as a liability

Failed to apply the matching principle to deal with the non-refundable rental premium and the accrued rent at the end of year 2008

29

Question 5 – Non-profit making Question 5 – Non-profit making organisationorganisation

Well-answered Could identify the items to be shown

in the income and expenditure account and balance sheet

30


a) Did not know how to work out the cost of goods sold from sales to star plan members mistakenly treated the margin as the mark-up in arriving at total amount of cost of goods sold

Did not account for stock loss when calculating operating expenses

31


b) Had difficulty in calculating income from subscription fees forgot to allocate the star plan members’ subscription fees over a period of 3 years

Failed to apply the realisation principle in calculating revenue from wine tasting courses

Did not include the deposits for the function room as an expense in computing profit from annual dinner

32


c) Could not manage to split deferred subscription fees into current and non-current portions and show them correctly in the balance sheet

Deferred course fees for January and February 2009 should be disclosed as a current liability

Thank you !Thank you !

candidates’ performance in the 2009 examination – paper 1

Documents

depreciation adjustment

fair value adjustments

consolidated balance

related depreciation

years additional depreciation

transferred machinery

revaluation of office

office premisesdid