INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN EXAMINERS’ COMMENTS SUBJECT Financial Accounting General: The overall performance in this paper
was average. Most of the students attempted all the questions but were able to do well in two of the easier questions i.e. Questions 1 and 3 whereas performance in other three questions was mostly average. Most of the students showed reasonable understanding of the basic concepts but were weak as far as meeting disclosure requirements were concerned. Another reason for incorrect answers was that the questions were not read carefully which resulted in mistakes which could otherwise have been avoided. Quite often simple calculations were performed using lengthy methods. Q.1 This was an easy question on cash flow statement. Most of the students were able to get above average marks. Most commonly observed errors in this question were as follows: • • Effect of write off of Rs. 6 million was not taken while computing the amount of provision for bad debts. Financial charges amounting to Rs. 75 million was not added as adjustment for non-cash items whereas financial charges paid were computed without considering opening and closing balances of accrued financial charges. Gratuity paid during the year was not considered while computing the amount of provision for gratuity. The effect of accrued financial charges was not excluded while computing the increase / decrease in trade and other payables. Carrying value of vehicle disposed of was not added while computing capital expenditure. Carrying value of investment disposed of was not added while computing purchase of long term investment. Bonus shares issued during the year amounting to Rs. 22 million were not considered in computing the amount of ordinary shares issued. Many students applied bonus share ratio on closing balance of share capital instead of the opening balance. Deferred taxation was not considered in calculating income taxes paid. Gratuity paid was classified as a financing activity instead of operating activity. SESSION Intermediate Examination - Autumn 2012
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It was suggested that revenue from sale of machine should be recognized on the date of sale of machinery instead of the date of delivery of machine. yet. Depreciation on leased assets was charged on the basis of lease term instead of useful life of the assets. Disclosure note mentioning the details of lease such as interest rate. was not given.
Other mistakes were as follows: Part (a) • A significant number of students could not identify that revenues from the transaction needed to be bifurcated between revenue from sale of goods and interest revenue. Comparative figures were not disclosed. Amount of Rs.3
This question tested the knowledge and understanding of IAS-18 (Revenue Recognition).0 million which was payable at the time of exercising the purchase option. the students were unable to take full advantage as various types of mistakes were made. Some of the students wasted time in preparing journal entries which were not required. they did not discuss the recognition of interest income. This approach is not acceptable.725879%.
Part (b) • Most of the candidates were unable to identify that this was a case of consignment sale and hence the amount of revenue can be estimated reliably only when the unsold newspapers are returned.
Q. simple mistakes were visible in many cases. Financial charges for the future period were not computed on the basis of implicit interest rate of 15. Three different situations were given and in each case the students were required to discuss various issues pertaining to revenue recognition. Consequently. Some of the general mistakes relevant to all the three parts were as follows: • • • Many students specified the revenue recognition criterion but did not discuss whether/when and how the criterion was met under the given circumstances. 2. some student mentioned the paragraph numbers from IAS-18.Examiners’ Comments on Financial Accounting Autumn 2012 Q. These have been enumerated below: • • • • • • • Cost of leased assets was not shown under Property. purchase option etc. Many students produced journal entries and calculations which were not required. Plant and Equipment. However.2 Questions on lease financing are a common feature in almost every attempt. was not considered in calculating the Minimum Lease Payments.
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. This was a simple question considering the open book mode of examination. Instead of mentioning the criteria.
the reliability of the estimate of revenue. Effect of depreciation charged on repairs expenses which were wrongly capitalized was not corrected. extracts from draft statement of financial position and draft income statement were given. a large number of students wasted time in preparing journal entries. separately. Surprisingly. SL’s managerial involvement and reliable estimate of costs were mostly ignored. however.5
The requirement of the question was to prepare relevant extracts from notes to the financial statements on property. Figures for the period 2010-11 were not given in the Statement of Changes in Equity. Most commonly observed errors were as follows: • Very few students knew that correction of error would require retrospective adjustment whereas revision of useful life is a change in accounting estimate and requires prospective adjustment. the following aspects were rarely mentioned: • • That it is probable that the economic benefit will flow to the company The two method(s) which could have been used to compute the revenue in the given situation.e. Other aspects like transfer of risk of ownership. relevant extracts from Statement of Changes in Equity and Correction of Error Note were also required. Disclosure requirements were hardly followed whereas a number of mistakes were made while calculating various figures. only few students among them mentioned the “effect on income statement” and “effect on statement of financial position”. plant and equipment and deferred tax.
Q. instead of preparing the extracts.Examiners’ Comments on Financial Accounting Autumn 2012 • Many candidates discussed only one criterion i.
Part (c) The students generally did well in identifying that revenue and costs can be reliably estimated.
In addition to the above. Moreover.4
In this question. The students were required to revise the same after incorporating the following adjustments: • • Revision of estimated useful life during the current year Correction of an error made in prior years. Correction of error note was not given by a significant number of students. The word “Restated” was not mentioned against the comparative figures.
• • • Q. The performance in this question was quite poor.
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. in respect of a company which follows a policy of revaluation of fixed assets at the beginning of each year.
Deferred tax reconciliation. Name of valuer and date of last valuation.
An important point which was missed by most students was that adjustments for revaluation has to be broken down into the following: • • Increase/decrease in revaluation Revaluation income/expenses.
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.Examiners’ Comments on Financial Accounting Autumn 2012 A large number of students calculated the depreciation amount for 2011 and 2012 correctly but failed to provide appropriate disclosures specially as regards the following: • • • Carrying amount of assets if cost model hads been used.