candidates performance in the 2009 examination paper 1 n.
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Candidates’ Performance in the 2009 Examination – Paper 1. Mr. WAN Shiu-kee. Overall Performance. Satisfactory Possess broad understanding of the topics Able to give appropriate answers based on the scenarios given. Overall Performance. Should read the questions carefully

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overall performance
Overall Performance
  • Satisfactory
  • Possess broad understanding of the topics
  • Able to give appropriate answers based on the scenarios given
overall performance1
Overall Performance
  • 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
question 1 consolidated financial statements
Question 1 – Consolidated financial statements
  • Satisfactorily answered
  • Well prepared for a question on consolidated financial statements
question 1 consolidated financial statements1
Question 1 – Consolidated financial statements
  • 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”
question 1 consolidated financial statements2
Question 1 – Consolidated financial statements
  • 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
question 1 consolidated financial statements3
Question 1 – Consolidated financial statements
  • 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
question 1 consolidated financial statements4
Question 1 – Consolidated financial statements
  • 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
question 1 consolidated financial statements5
Question 1 – Consolidated financial statements
  • 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
question 1 consolidated financial statements6
Question 1 – Consolidated financial statements
  • 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
question 1 consolidated financial statements7
Question 1 – Consolidated financial statements
  • 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
question 2 partnership accounts
Question 2 – Partnership accounts
  • Good
  • Quite familiar with the preparation of various accounts for a partnership
question 2 partnership accounts1
Question 2 – Partnership accounts
  • 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
question 2 partnership accounts2
Question 2 – Partnership accounts
  • 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
question 2 partnership accounts3
Question 2 – Partnership accounts
  • 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
question 2 partnership accounts4
Question 2 – Partnership accounts
  • No difficulty in preparing the required journal entries
  • Mistakenly recorded the assets in the books of A&B Ltd at book values
question 3 cash flow statement
Question 3 – Cash flow statement
  • Well answered
  • Demonstrated an acceptable level of understanding in preparing a cash flow statement
question 3 cash flow statement1
Question 3 – Cash flow statement
  • 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
question 3 cash flow statement2
Question 3 – Cash flow statement
  • 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
question 3 cash flow statement3
Question 3 – Cash flow statement
  • 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
question 3 cash flow statement4
Question 3 – Cash flow statement
  • 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
question 4 ratios and errors
Question 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
question 4 ratios and errors1
Question 4 – Ratios and Errors
  • 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
question 4 ratios and errors2
Question 4 – Ratios and Errors
  • 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
question 4 ratios and errors3
Question 4 – Ratios and Errors
  • 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
question 4 ratios and errors4
Question 4 – Ratios and Errors
  • 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
question 4 ratios and errors5
Question 4 – Ratios and Errors
  • 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
question 5 non profit making organisation
Question 5 – Non-profit making organisation
  • Well-answered
  • Could identify the items to be shown in the income and expenditure account and balance sheet
question 5 non profit making organisation1
Question 5 – Non-profit making organisation
  • 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
question 5 non profit making organisation2
Question 5 – Non-profit making organisation
  • 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
question 5 non profit making organisation3
Question 5 – Non-profit making organisation
  • 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