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Candidates’ Performance
in the 2010 Examination – Paper 1
Mr. WAN Shiu-kee
Vice Chairman
Hong Kong Association for
Business Education
Overall 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
2
Overall 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
3
Overall Performance
Questions
Popularity
Performance
1
Good
2
Satisfactorily
answered
3
95.6%
Good
4
31.7%
Satisfactorily
answered
5
72.7%
Poor
4
Question 1 – Consolidated
financial statements
Good
Demonstrated an acceptable level of
understanding of consolidated
financial statements
5
Question 1 – Consolidated
financial 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
6
7
Question 1 – Consolidated
financial 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
8
9
Question 1 – Consolidated
financial 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
10
Question 1 – Consolidated
financial 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
11
Question 1 – Consolidated
financial 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
12
13
Question 1 – Consolidated
financial 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
14
Question 1 – Consolidated
financial 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
15
Question 1 – Consolidated
financial 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
16
17
18
19
Question 2 – Cash flow
statement
Satisfactorily answered
Candidates were well prepared for
the question
Apparently familiar with the
classification of cash flows into 3
activities
20
Question 2 – Cash flow
statement
a) Good
Some candidates did not follow the
requirements of updating the cash at
bank account and prepare the bank
reconciliation
21
22
Question 2 – Cash flow
statement
b) Poor
Not able to explain the accounting
treatment for the returned cheque
repeated the accounting entries
made without considering the impact
of the returned cheque on accrued
expenses and prepaid insurance
23
24
Question 2 – Cash flow
statement
c) Satisfactorily answered
Could not work out the figures for
the 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
25
Question 2 – Cash flow
statement
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
26
Question 2 – Cash flow
statement
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
27
Question 2 – Cash flow
statement
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
28
29
30
31
Question 3 – Partnership
Good
Quite familiar with the preparation of
various accounts for a partnership
32
Question 3 – Partnership
a) Good.
Should adopt the account names as given
in the question
33
Question 3 – Partnership
b) Fair
NO goodwill account maintained in the
books 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
34
35
Question 3 – Partnership
c) Good
Required to transfer book values of
various 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
36
Question 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
37
38
Question 4 – Ratios analysis and
Valuation of inventories
Satisfactorily answered
Weak in answering conceptual
questions
39
Question 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
40
Question 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
41
42
Question 4 – Valuation of
inventories
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
43
Question 4 – Valuation of
inventories
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
44
45
Question 5 – Errors and Control
accounts
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
46
Question 5 – Errors and Control
accounts
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
47
Question 5 – Errors and Control
accounts
Performance in item (iii) was poor
Careless in missing the fact that a uniform markup 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
48
Question 5 – Errors and Control
accounts
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
49
Question 5 – Errors and Control
accounts
b) Well-answered
Some prepared an account instead
of a statement in columnar form to
update the totals of the extracted
sales ledger balances
50
Question 5 – Errors and Control
accounts
c) Could NOT point out when a credit
note was to be used by a company
51
Thank you !