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
2
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
3
Overall Performance
Questions
Popularity
Performance
1
Satisfactorily
answered
2
Good
3
96.0%
Well answered
4
35.7%
Poor
5
68.3%
Well answered
4
Question 1 – Consolidated
financial statements
 Satisfactorily answered
 Well prepared for a question on
consolidated financial statements
5
Question 1 – Consolidated
financial statements
a) 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”
6
Question 1 – Consolidated
financial statements
b) 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
7
Question 1 – Consolidated
financial statements
c) 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
8
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
9
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
10
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
11
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
12
Question 2 – Partnership
accounts
 Good
 Quite familiar with the preparation of
various accounts for a partnership
13
Question 2 – Partnership
accounts
a)




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
14
Question 2 – Partnership
accounts
b) 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
15
Question 2 – Partnership
accounts
c) 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
16
Question 2 – Partnership
accounts
d) No difficulty in preparing the
required journal entries
 Mistakenly recorded the assets in
the books of A&B Ltd at book values
17
Question 3 – Cash flow
statement
 Well answered
 Demonstrated an acceptable level of
understanding in preparing a cash
flow statement
18
Question 3 – Cash flow
statement
a) 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
19
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
20
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 6months was not to be treated as
cash equivalents
21
Question 3 – Cash flow
statement
b) 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
22
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
23
Question 4 – Ratios and Errors
a) 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
24
Question 4 – Ratios and Errors
b) 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
25
Question 4 – Ratios and Errors
c) 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
26
Question 4 – Ratios and Errors
d) 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
27
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 nonrefundable rental premium and the
accrued rent at the end of year 2008
28
Question 5 – Non-profit making
organisation
 Well-answered
 Could identify the items to be shown
in the income and expenditure
account and balance sheet
29
Question 5 – Non-profit making
organisation
a) 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
30
Question 5 – Non-profit making
organisation
b) 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
31
Question 5 – Non-profit making
organisation
c) 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
32
Thank you !