Candidates’ PerformanceCandidates’ Performancein the 2010 Examination – Paper 1in the 2010 Examination – Paper 1
Mr. WAN Shiu-keeMr. WAN Shiu-keeVice ChairmanVice Chairman
Hong Kong Association for BusinHong Kong Association for Business Educationess Education
2
Overall PerformanceOverall Performance
Satisfactory Possess required skill and knowledge
in presenting financial information in logical and systematic manner
Should have thorough understanding of the syllabus
Able to give appropriate answers based on the scenarios given
3
Overall PerformanceOverall Performance
Abbreviations are not acceptable Proper heading / title should be given
to each account / statement Journal narrations should not be
omitted Should show workings in their
answers
4
Overall PerformanceOverall Performance
Questions Popularity Performance
1 Good
2Satisfactorily answered
3 95.6% Good
4 31.7%Satisfactorily answered
5 72.7% Poor
5
Question 1 – Consolidated Question 1 – Consolidated financial statementsfinancial statements
Good Demonstrated an acceptable level of
understanding of consolidated financial statements
6
Question 1 – Consolidated Question 1 – Consolidated financial statementsfinancial statements
a) Well-answered Only a few candidates failed to work
out the correct amount of purchase consideration
A few others ignored the revaluation adjustment for land and building in calculating the net assets of Sea Ltd
8
Question 1 – Consolidated Question 1 – Consolidated financial statementsfinancial statements
b) Poor Many candidates could not give
appropriate explanation for negative goodwill
Tended to repeat same circumstances in different wordings as two separate answers
10
Question 1 – Consolidated Question 1 – Consolidated financial statementsfinancial statements
c) Not familiar with the adjustments relating to intra-group transactions
Most candidates reduced turnover and cost of goods sold by the amount of intra-group sales of merchandise but some could not make the adjustment correctly
Had difficulties in handling intra-group sales with 2 different profit margins normal margin treated as mark-up on costs understatement of cost of goods sold and overstatement of gross profit
11
Question 1 – Consolidated Question 1 – Consolidated financial statementsfinancial statements
Not able to calculate and adjust depreciation overcharged arising from upstream sale of office equipment and the depreciation undercharged on the revalued land and building
Debentures of Sea Ltd acquired on 1.7.2009 debenture interest for 6 months should be deducted from both the income from investment and finance costs
12
Question 1 – Consolidated Question 1 – Consolidated financial statementsfinancial statements
Profits attributable to equity holders of the parent and MI were to be shown separately in the consolidated income statement
Only amount of depreciation adjustment arising from revaluation of land and building was to be shared by MI
No unrealised profits or losses arising from upstream sale of non-current assets in year 2009
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Question 1 – Consolidated Question 1 – Consolidated financial statementsfinancial statements
d) Should present the consolidated balance sheet in vertical form and classify various items under appropriate headings
Not able to adjust the correct amounts of depreciation to net book values of office equipment and land and building
Overlooked the amount of intra-group debenture interest did not take it away from both trade receivables and debenture interest payable
15
Question 1 – Consolidated Question 1 – Consolidated financial statementsfinancial statements
Treated the revaluation of land and building as post-acquisition adjustment and created a revaluation reserve on the consolidated balance sheet
Unrealised profit in inventory and depreciation adjustment on office equipment should be eliminated in full against retained profits
16
Question 1 – Consolidated Question 1 – Consolidated financial statementsfinancial statements
Most candidates were able to reduce retained profits and MI with amounts of unrealised profits on intra-group sale of office equipment and depreciation adjustment on revalued land and building but some omitted the fair adjustment from MI
20
Question 2 – Cash flow Question 2 – Cash flow statementstatement
Satisfactorily answered Candidates were well prepared for
the question Apparently familiar with the
classification of cash flows into 3 activities
21
Question 2 – Cash flow Question 2 – Cash flow statementstatement
a) Good Some candidates did not follow the
requirements of updating the cash at bank account and prepare the bank reconciliation
23
Question 2 – Cash flow Question 2 – Cash flow statementstatement
b) Poor Not able to explain the accounting treat
ment for the returned cheque repeated the accounting entries made without considering the impact of the returned cheque on accrued expenses and prepaid insurance
25
Question 2 – Cash flow Question 2 – Cash flow statementstatement
c) Satisfactorily answered Could not work out the figures for th
e various cash flows from operating activities
Mixed up various cheques received from customers and hence could not arrive at a correct amount of cash receipts from them
26
Question 2 – Cash flow Question 2 – Cash flow statementstatement
Had difficulties in computing the amount for purchase of office equipment not able to exclude it from cash paid to suppliers
Non-cash items should not be included in cash paid for operating expenses
Other income should not be grouped under investing activities
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Question 2 – Cash flow Question 2 – Cash flow statementstatement
NBV of the new office equipment should be calculated by taking into account the NBV of the disposed office equipment and depreciation on the old office equipment Depreciation + NBV = Cost of the new office equipment
Trade-in allowance should be excluded in computing the amount of cash paid for purchase of office equipment
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Question 2 – Cash flow Question 2 – Cash flow statementstatement
Fixed deposits already included as cash and cash equivalents should not be classified as as item under investing activities
Proceeds from issuance of ordinary shares should not be divided into par value and share premium and disclose separately
32
Question 3 – PartnershipQuestion 3 – Partnership
Good Quite familiar with the preparation of
various accounts for a partnership
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Question 3 – PartnershipQuestion 3 – Partnership
a) Good. Should adopt the account names as given
in the question
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Question 3 – PartnershipQuestion 3 – Partnership
b) Fair NO goodwill account maintained in the boo
ks amount of goodwill should be written off through the partners’ capital accounts using the old and new profit and loss sharing ratios
Many ignored that all non-current assets, except goodwill, had to be recorded back to their original NBVs basing on the new sharing ratios
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Question 3 – PartnershipQuestion 3 – Partnership
c) Good Required to transfer book values of variou
s assets to the realisation account
Some failed to show net amount of motor vehicles and plant and machinery
Others forgot to include cash at bank and deduct allowance for doubtful debts from trade receivables
37
Question 3 – PartnershipQuestion 3 – Partnership
Amount of trade receivables collected by Kam did not include discounts allowed and uncollectible debts
Commission to be credited to the capital acoount of Kam should be based on the amount collected
Interest on capital and share of profit should NOT be credited to partners’ capital accounts
39
Question 4 – Ratios analysis and Question 4 – Ratios analysis and Valuation of inventoriesValuation of inventories
Satisfactorily answered Weak in answering conceptual
questions
40
Question 4 – Ratios analysisQuestion 4 – Ratios analysis
A. Could not interpret dividend cover
correctly only able to describe how the ratio was to be calculated
Able to state 3 limitations of using ratio analysis in assessing financial position of a company
41
Question 4 – Ratios analysisQuestion 4 – Ratios analysis
B. Could NOT calculate the 3 ratios
correctly forgot to deduct amount of preference dividend from profits after tax took an incorrect number of ordinary shares as the denominator
Did NOT present ‘earnings per share’ in dollars
43
Question 4 – Valuation of Question 4 – Valuation of inventoriesinventories
C. Not aware of the adoption of
perpetual inventory system and FIFO method
Not familiar with journal entries relating to sales, returns inwards, abnormal inventory loss and inventory written-down
44
Question 4 – Valuation of Question 4 – Valuation of inventoriesinventories
Could NOT work out the right amounts of sales and cost of goods sold on 20.1.2010 and 31.1.2010
Did Not prepare journal entries to update cost of goods sold and inventory for sales and returns inwards
Could state 1 or 2 situations in which NRV of inventory was less than cost
46
Question 5 – Errors and Control Question 5 – Errors and Control accountsaccounts
Poor NOT aware that sales ledger control
account was kept as part of double entry system while sales ledger was kept on a memorandum basis
Ignored that the books had not been closed
47
Question 5 – Errors and Control Question 5 – Errors and Control accountsaccounts
a) Many recorded the corrections or omissions directly to P&L instead of various revenues and expenses accounts
Sales ledger control account should be adjusted instead of debtors’ account
48
Question 5 – Errors and Control Question 5 – Errors and Control accountsaccounts
Performance in item (iii) was poor
Careless in missing the fact that a uniform mark-up of 25% was maintained on all goods sold
Could NOT differentiate entries relating to sales and goods sent on sale-or-return basis
Mistakenly debited stock and credited sales ledger control with cost of goods to be returned by customers
49
Question 5 – Errors and Control Question 5 – Errors and Control accountsaccounts
Did NOT possess sufficient understanding of finance lease
Could NOT show journal entries relating to acquisition of leased office equipment, payments made and lease interest for year 2009
50
Question 5 – Errors and Control Question 5 – Errors and Control accountsaccounts
b) Well-answered Some prepared an account instead
of a statement in columnar form to update the totals of the extracted sales ledger balances
51
Question 5 – Errors and Control Question 5 – Errors and Control accountsaccounts
c) Could NOT point out when a credit note was to be used by a company