June 2008
This paper followed the usual format of two sections with a sole trader in one section and a partnership scenario in the other. Section 1 presented a partnership business with incomplete records. In Section 2 candidates were required to deal with some adjustments for a sole trader including the part exchange of a fixed asset, and produce a profit and loss account and balance sheet. In both sections they were asked to show knowledge and understanding by explaining accounting terms.
Again it was pleasing to see that most candidates showed workings for their answers. This enables more marks to be given in the case of a wrong answer, and is a good habit for the workplace.
It was pleasing to see that the general standard of double entry accounting, including accurate account names, showed an improvement this time following my comments in the December 2007 report. This is important and will continue to be tested.
A few candidates are still using pencil to complete their exam, although this is not recommended. If candidates are untidy this is not specifically penalised, but if it means that workings cannot be followed or words and figures cannot be read, marks will be lost, so candidates should try to present a neat and tidy exam paper.
Task 1.1
Candidates were required to write up the sales and purchases ledger control accounts from the incomplete records, with the missing figure being the bank in each case. Most did this very well, with only a minority muddling up which side entries should go, or putting sales ledger entries in the purchases ledger control account and vice versa. Those who got full marks entered the figures and the labels correctly.
Task 1.2
First, candidates had to find the figure that had been paid off the loan, and then they had to complete the bank summary using information given plus their previous answers. Most candidates were able to do this very well. Very few made errors in (a). In (b) the most common errors were to include the sales and purchases figures rather than the bank figures they had found in task 1.1. A significant number of candidates entered the correct figures but labelled them as sales/purchases rather than the correct sales/purchases ledger control account.

Task 1.3
This was a simple depreciation calculation using the reducing balance method. The majority of candidates scored full marks on this task, with the most common error being to use straight line rather than reducing balance depreciation, or occasionally using the wrong percentage. This seems to be a simple case of not reading the task carefully. Some candidates attempted to reconstruct the depreciation from year one, which was unnecessary.
Task 1.4
Administration expenses had to be adjusted for two accruals. Most candidates did this correctly, though a few deducted figures instead of adding them. In this case, showing workings gained more credit than simply showing the incorrect figure without workings.
Task 1.5
This task required the writing up of a Taccount for wages with and adjustment for one of the partner’s drawings, followed by writing up the current accounts for the partners. The labelling of entries on this task was not as accurate as in task 1.1 (for example, mentioning drawings but not being specific about Jan), and the adjustment was often on the wrong side of the accounts or omitted from the current accounts.
Occasionally, candidates included the capital sums in the current accounts, which is incorrect. Some did not balance off correctly, or transferred the balances to the incorrect side of the trial balance, which is a basic error.
Task 1.6
The production of a trial balance from the preceding incomplete records is a demanding task requiring full understanding of the tasks already performed. Some candidates were able to produce correct, balancing trial balances, which was very pleasing, and the majority were able to make a very good attempt. The most common mistakes were to enter the bank figure on the wrong side; enter the current account balances on the wrong side; use the loan payment figure rather than the closing balance figure; and using the bank figures from task 1.1 rather than the correct sales/purchases or closing control account figures. Those students who are very weak in this area enter many debits and credits on the wrong side, or no balances at all despite there being a pro-forma this time. There are plenty of past papers available, all with this task in
Section 1, so students should prepare by practising as many as possible.
Task 1.7
This was a task to test understanding of goodwill when a new partner is introduced into a business. In part
(a) very few candidates were able to give a full ‘textbook’ definition of goodwill, but lay explanations showing understanding of the underlying concept gained credit, as did the mention of goodwill being an intangible asset. In part (b) candidates needed to explain that on the introduction of a new partner the existing partners need to be rewarded for their past work; this was often poorly done. Many candidates explained the accounting entries around introducing and eliminating goodwill, that is how the entries would be made, rather than the underlying reason why. In part (c) the accounting entries on the introduction of a new partner were tested. Few candidates were able to do this, with many variations including the use of current accounts; not showing partner capital accounts separately; entries back to front; and entries to show the elimination of goodwill in addition to the introduction (although the task clearly stated that it was the introduction of goodwill before a new partner joined that was required).
Task 2.1
In this task, three simple adjustments were required to an extract from the extended trial balance for a sole trader. These were well done by the majority of candidates, with the most common errors being back to front entries.
Task 2.2
In this task, candidates were guided through the calculations required for dealing with a part-exchange of a fixed asset. This approach seemed to help in comparison with previous performance, with many candidates achieving high marks in parts (a) to (d). The figures calculated then had to be used to make entries on the extended trial balance in part (e). Again the performance was better than seen previously on this task, but some entries were still omitted (especially the bank entry) or entered the wrong way round. Some candidates do not total the adjustments column to check whether they have made a full set of double entries, which would have been a sensible action.
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Task 2.3
A profit and loss account had to be produced from the extract from the ETB. A working column was provided for showing the calculation of adjusted figures. Students are advised to take advantage of this column, as incorrect figures without workings cannot be given any marks.
Overall, the performance on this task was very pleasing, with many candidates providing well laid out and accurate profit and loss accounts, despite the absence of a pro-forma. Common errors were to overlook interest received and/or the disposal account figure, or to enter these the wrong way round. Drawings were occasionally included as an expense. A small minority of candidates had no idea how a profit and loss account should look or what it should include.
Task 2.4
In this task the balance sheet was required from the extract from the ETB. Many of the comments in task 2.3 apply here, too. Candidates were less confident about the layout of this task than of the profit and loss account (task 2.3). Common errors were inclusion of interest received; incomplete adjustments for the disposal even where the figures were on the ETB; and incorrect totals for net assets (for example, omitting fixed assets).
Task 2.5
This was a task about the difference between capital and revenue expenditure, followed by the application of this knowledge in the context of the scenario given. Performance varied on this task, with some candidates providing excellent answers but others not being able to adequately explain what constitutes capital and revenue expenditure despite this being a very basic requirement (for example saying that capital expenditure is expenditure on assets, or what the proprietor introduces to the business). Revenue expenditure was often described only as that required to maintain fixed assets. Most candidates correctly identified that the item would be treated as capital, but it was disappointing that the answers were not more contextualised. The most competent mentioned the size of Nell’s business and the fact that, although the sum would not be considered sufficient to capitalise in some businesses, it would be in hers.
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