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 !