(b) Computation of
Bad Debt Expense
Allowance for Doubtful Accounts
This part required the examinees to
compute the bad debts expense for the year, and
prepare the journal entries to set up the allowance for doubtful accounts and
of a specific account. It was aneasy question; however the responses were not as satisfactory as they should have been. In most cases,bad debt expense calculation was wrong because of haste and lack of understanding of the topic. Similarly,the entry for the
was mostly incorrect. The majority ignored the
specific bad debt expense
relating toa customer, while computing the total bad debt expense for the year. Some students calculated
bad debt expense
amounts on total sales value instead of outstanding balances.
Question No.4Preparation of
The candidates were asked to prepare the
using the methods of
double the straight-line rate
. This was an easy question. As faras the part
were concerned, the examinees did well.
However for the part
they were not fullyequipped with the required knowledge and consequently lost easy marks. The following shortcomings werenoted:
The majority overlooked to mention the title of the company.
Most of them succeeded in calculating the depreciation for a particular year, as well as the accumulateddepreciation correctly, but failed to prepare the complete schedules.
, the students used the mathematical formula to calculate the depreciation instead of using thegiven rate, which resulted in wrong answers. Even those who used the given rate, could not compute thecorrect depreciation for the last year, which required adjustment for the residual value.
Question No. 5(a)
and Downward Revaluation
Property, Plant and Equipment:
The examinees were asked to state the requirement of IAS-16 relating to
property, plant and equipment
. This proved to be the most difficult topic for the examinees and barring afew of them, the majority was caught off guard. It also exposed their lack of knowledge regarding IASs.Those who attempted it, tried to write about depreciation and wear and tear of assets.
(b) Computation of
and Recording the Purchase of a Business:
The question required the students to compute the goodwills, to be paid by the purchaser to the seller if
the purchaser requires an average rate of return of 10% on net assets purchased. Excess average annualearning of four years is treated as goodwill,
average annual earning is capitalized at 10% to determine thefair value of net assets and goodwill and
preparation of journal entry in the books of purchaser to recordthis purchase under
above. For part
, the performance of the examinees remained belowaverage. Most of them erred between average earnings and excess average earnings. Their lack ofunderstanding of capitalization and determination of the fair value of the net assets also contributed to theirpoor showing. The part
required a journal entry in relation to part
, but with the exception of a fewstudents, they could not produce correct journal entry. Some of the common mistakes that were observedincluded:
Instead of using the term
in the journal entry, they wrongly mentioned theaccounts of cash, payable and capital.
In addition, they omitted
in the journal entry.