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Financial Accounting - Professional Stage – June 2013

PROFESSIONAL STAGE FINANCIAL ACCOUNTING – OT EXAMINER’S COMMENTS

The performance of candidates in the June 2013 objective test questions section for the Professional Stage
Financial Accounting paper was good. Candidates performed better on LO3 (preparation of consolidated
financial statements) than they did on the other two syllabus areas.

When practising OT items, care should always be taken to ensure that the principles underlying any particular
item are understood rather than rote learning the answer. In particular, candidates should ensure that they read
all items very carefully.

The following table summarises how well* candidates answered each syllabus content area.

Syllabus area Number of questions Well answered Poorly answered

LO1 4 3 1
LO2 6 4 2
LO3 5 5 0
Total 15 12 3

*If 50% or more of the candidates gave the correct answer, then the question was classified as ‘well answered’.

Comments on the two most poorly answered questions, both in LO2 (preparation of single company financial
statements) are given below:

Item 1

This item required candidates to calculate closing inventory in accordance with IAS 2, Inventories. The question
featured raw materials, work in progress and finished goods. Almost all candidates calculated a net realisable
value for work in progress and finished goods which was lower than cost and used that figure in their
calculation. However, although most candidates correctly allowed for a discounted selling price and for costs still
to be incurred to complete the work in progress, a majority did not reduce the discounted selling price by the
selling costs to be incurred to arrive at the correct figure for net realisable value.

Item 2

This item tested the calculation of the amount of an intangible asset to be capitalised in accordance with IAS 38,
Intangible Assets. Most candidates recognised that initial research costs and the cost of evaluating research
findings should not be capitalised and that development costs and patent registration costs should be
capitalised. However, a majority of candidates failed to recognise that the depreciation charged in the period on
specialised equipment needed for the development process should also have been capitalised.

Copyright © ICAEW 2013. All rights reserved. Page 1 of 14

a finance lease taken out during the year. Financial Accounting .600) Profit before tax 357. Page 2 of 14 .600 Trade and other receivables 32. calculation of the annual depreciation charge. Falcon Ltd (a) Income statement for the year ended 31 December 2012 £ Continuing operations Revenue (W5) 1. More marks were available than could be awarded for each requirement. This allowed credit to be given for a variety of valid points which were made by candidates.850 Income tax expense (35.450 Finance cost (12.250 Statement of financial position as at 31 December 2012 £ £ Assets Non-current assets Property.000 – 2. Markers were encouraged to use discretion and to award partial marks where a point was either not explained fully or made by implication.Professional Stage – June 2013 PROFESSIONAL STAGE FINANCIAL ACCOUNTING MARK PLAN AND EXAMINER’S COMMENTARY The marking plan set out below was that used to mark this question. Adjustments included a warranty provision.000) (33. and an adjustment to revenue to reflect IAS 18.600 Cost of sales (W1) (631.600) Profit for the year 160. Part (b) required a discussion of the objective of general purpose financial statements and the purpose of accounting standards.400 Non-current asset held for sale 80.000 (W6)) (13.850 Discontinued operations Loss for the year from discontinued operations (W2) (164.800 68.400 Total assets 692. Question 1 Overall marks for this question can be analysed as follows: Total: 30 General comments Part (a) of this question tested the preparation of an income statement (which needed to be split between continuing and discontinued operations) and a statement of financial position from a list of balances plus a number of adjustments. Revenue.200) Administrative expenses (W1) (223.000) Profit for the year from continuing operations 324.150 Copyright © ICAEW 2013. illustrated by reference to the financial statements prepared in Part (a).600 + 1.264.850 Distribution costs (W1) (38. plant and equipment (W3) 543.750) Gross profit 632. All rights reserved.000 148.200) Profit from operations 371.750 Current assets Inventories 35.

200 223.000) Closing inventories (35.400) Adj re lease payment (5.600) Loss on held for sale asset/depreciation (120.500 Total PPE 543.500 Taxation 35.000 123.000 – (85.400 + 5.600 228.200 (2) Loss on discontinued operations £ Revenue 114.600 375.000 – (40.000 Depreciation – plant @ 25% (53.000) Leased building (W6) 112.600) (3) PPE Plant and Land and equipment buildings £ £ B/f Cost 570.600) Depreciation charges (W3) 53.000 Provisions 55.500 215.750 Copyright © ICAEW 2013.550 340.000 B/f Accumulated depreciation (235.500 ÷ 25) (OF)) (10.900 + 17.300 43.600 Opening inventories 30.000) 5.000 x 1/3) 20.000 Retained earnings (W4) 140.000 Finance lease liability (W6) 5.500 Current liabilities Trade and other payables 78.600) (95.000)) Other discontinued operations costs (55.750 38.000 631.550 Non-current liabilities Finance lease liability (W6) 103.750 10.000) Classified as held for sale (120.000 Borrowings 34.900) (5.000) (164.200 Adj re discontinued operations (160.500 Deferred income (60.100 Total equity and liabilities 692.250 382.000 x 1/3) 20.300) (183.000 Deferred income (60.300) (17.000 x 2%) Ab + (112. Page 3 of 14 .000) 161.500 235. Financial Accounting .750) Depreciation – buildings ((275.000 Costs included in TB (160.Professional Stage – June 2013 Equity and liabilities Equity Ordinary share capital 200. All rights reserved.150 Workings (1) Allocation of expenses Cost of sales Distribution Administrative costs expenses £ £ £ Per Q 744.

000 2013 108. Copyright © ICAEW 2013.000) 1. Financial Accounting .Professional Stage – June 2013 (4) Retained earnings £ At 1 January 2012 (19.250 At 31 December 2012 140.500) 1.600 (6) Lease of land and buildings SOD = (24 x 25)/2 = 300 £ Total payments (5. and then calculated a (smaller) impairment loss.550 (5) Revenue £ Per TB 1. The shortcut taken above recognised the fact that only a single figure for PPE was required for the statement of financial position.500) Finance charge 12. All rights reserved.000) Discontinued operations (114.500 24/300 x 108.500 Year ended 31 B/f Payment Capital Interest C/f December £ £ £ £ £ 2012 112.000) 103.600 Less: After sales support re future years (60.700) Profit for the period 160.000 x 2/3) (40.500 (5. Page 4 of 14 .264.418.000 x 25) 125.500 Tutorial note Credit was also given if candidates depreciated the held for sale asset to the date of classification as held for sale.000 Fair value (112.500 12.000) 107.500 (5.

plant and equipment figure for the statement of financial position. instead of deducting it. . Financial Accounting . usually correctly.Calculating depreciation and/or impairment on the held for sale asset but failing to remove the cost of the held for sale asset from property. .Calculating. .Failing to deduct the prior year tax overestimate from the current year tax estimate to arrive at the correct current year income statement charge and/or showing the wrong figure in current liabilities. It was often impossible to see any “audit trail” to support the final figure for property. with many candidates either ignoring these figures or including them in continuing operations. . . Other common errors included the following. although hardly any candidates showed headings for “Continuing operations” and “Discontinued operations” (which was surprising as these were included in Question 2 on the paper). and an incomplete calculation of the loss from discontinued operations. as opposed to the liability for the year). . The majority of candidates did not appear to have been unnerved by the inclusion of a discontinued operation in this question and. Far fewer candidates seem capable of producing a clear working for property. Page 5 of 14 . All rights reserved. a carrying amount for the leased asset but then failing to add that figure in to the property.Showing the asset held for sale in non-current as opposed to current assets.Failing to include a sub-total for operating profit on the income statement. With regards to the latter. plant and equipment on the face of the statement of financial position and many candidates lost potential marks because of this. . plant and equipment which resulted in them repeating calculations and often losing the “connection” between the depreciation expense to go into the costs matrix and the depreciation expense to be added to accumulated depreciation brought forward. This is an issue which has been flagged up repeatedly. Presentation was reasonable. but far less increased this loss by the estimated future costs and/or by the depreciation and/or impairment on the held for sale asset.Professional Stage – June 2013 Most candidates made a reasonable attempt at this question with the vast majority preparing a complete statement of financial position and income statement. although very many candidates calculated a second year interest charge for the finance lease when this was not needed.Adding the opening retained loss to the profit for the year. Total possible marks 25 Maximum full marks 25 Copyright © ICAEW 2013. A minority of candidates time-apportioned the figures for the Scottish operations. It was very noticeable that those candidates who did not use this format tended to produce disorganised workings (often split between the face of the income statement and /or a number of separate workings) which were difficult to follow and therefore might have lost marks. almost all candidates calculated this as the sales of the Scottish operations less its costs.Incorrectly calculating the sum-of-the-digits for the finance lease. the finance lease calculations. the inclusion of the wrong amount on the statement of financial position for income tax payable (including the charge for the year.Not correcting administrative expenses to remove the lease payment incorrectly posted to this account. pleasingly. plant and equipment. . clearly not understanding how IFRS 5 should be applied. . almost all included a figure for loss from discontinued operations on the face of the income statement.Depreciating the leased asset by 2% when it had a shorter useful life of 25 years.Taking the depreciation on the leased asset to cost of sales instead of administrative expenses. Almost all candidates did use the recommended “costs matrix” when allocating costs between the three expense categories. the asset held for sale and allocation of costs to the correct expense category were all well dealt with.Treating the resultant deferred income as a current or non-current asset rather than as a liability or failing to split the liability between current and non-current. By far the most common errors were the failure to correctly split the finance lease liability between current and non-current. opening and closing inventory. . although a significant number of candidates lost marks by failing to include appropriate sub-totals on their statement of financial position. The adjustments to revenue. .

plant and equipment under the cost model. Page 6 of 14 .250. For example. Users will need to then take care if comparing Falcon Ltd’s financial statements with those which use the valuation model. Many candidates thought that the main purpose of accounting standards is to ensure that financial statements are prepared on the basis of “substance over form” and then proceeded to give examples of accounting for substance over form. disappointing. Financial Accounting . Leases. with very few candidates scoring more than one or two marks. but the discontinued operations have made a loss of £164. as usual. For example. Accounting standards create a common understanding between users and preparers on how particular items are treated. and only a minority were able to provide examples from Falcon Ltd’s financial statements which were relevant to either the objective of general purpose financial reporting or to the purpose of accounting standards. Again. It is IAS 17. All rights reserved. Revenue. lenders and other creditors in making decisions about providing resources to the entity. the lessor of the land and buildings may have looked at Falcon Ltd’s previous financial statements in deciding whether or not to extend credit.850. This will be common practice across all entities following IFRS and will make their financial statements comparable with those of other companies. Hence an adjustment was made in Part (a) to remove the revenue relating to after-sales support not yet provided. They would have considered whether Falcon Ltd would be likely to be able to meet the lease repayment terms. Investors would be particularly interested in the information concerning continuing versus discontinued operations – particularly as the continuing operations have made a profit of £324. less than half of its actual continuing profits. These decisions involve buying. Hence the lease of the building was treated as a finance lease. this will be common practice across all entities following IFRS Attempts at the written part of the paper were. The purpose of accounting standards The purpose of accounting standards is to identify proper accounting practices for the preparation of financial statements. which dictates the correct treatment of finance versus operating leases. Whilst most candidates recognised that accounting standards helped to achieve consistency or comparability very few made the point that accounting standards inform the preparers of accounts how to deal with key accounting issues in the financial statements.Professional Stage – June 2013 (b) The objective of general purpose financial reporting The IASB Conceptual Framework states that the objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors. Falcon Ltd’s suppliers may look at the financial statements in deciding whether or not to grant credit – they may be concerned that the fact that Falcon Ltd’s current liabilities are way in excess of its current assets may mean that the company could struggle to pay its debts as they fall due. selling or holding equity and debt instruments and providing or settling loans and other forms of credit. IAS 18. Others discussed the qualitative characteristics of financial statements at length and gave examples of how various accounting standards met these qualitative characteristics. Many failed to gain the marks for those parts of the answer that could be taken from the open book text. Total possible marks 8½ Maximum full marks 5 Copyright © ICAEW 2013. it will be clear from Falcon Ltd’s financial statements that it carries its property. dictates that Falcon Ltd only account for revenue on services provided to date. Without this split it may have seemed that Falcon Ltd was only able to generate profits of £160.600.

plant and equipment (60.800 – 3.850 Interest paid (W1) (20.600 Increase in trade and other receivables ((75.500) 164.500 Cash and cash equivalents at end of period 20.200) Net cash from operating activities 394.000 + 20. tax paid.040) Cash flows from financing activities Proceeds from share issues (220.450 – 5.000 110.000) – (40.500 + 8.200) Dividends paid to non-controlling interest (W6) (22.000 Dividends received from associate (W4) 50.000)) (5. plant and equipment (W3) (460. where a subsidiary had been disposed of during the year.900) (700) Decrease in trade and other payables ((52.000 – 56.650 Cash flows from investing activities Purchase of property. additions to property.500) – 1.400) 365. All rights reserved. plant and equipment.000 – 125. plant and equipment 60.500 Share of profits of associate (56.500 Note: Reconciliation of profit before tax to cash generated from operations £ Profit before tax (324.000) (25.610) Net increase in cash and cash equivalents 6.000) Income tax paid (W2) (81.000) – 140.850 Copyright © ICAEW 2013. Missing figures to be calculated included dividends paid (to the group and to the non-controlling interest).200) Proceeds from sale of property. Page 7 of 14 .000 + 50.600 Disposal of Owl Ltd net of cash disposed of ((194. and proceeds from the issue of share capital.560 Net cash used in investing activities (185.450 x 80%) + 10. Eagle plc Consolidated statement of cash flows for the year ended 31 December 2012 £ £ Cash flows from operating activities Cash generated from operations (Note) 495.000 Cash and cash equivalents at beginning of period 14. dividends received.000) Dividends paid (W5) (266. Financial Accounting .410) Net cash used in financing activities (203.000 Profit on disposal of property.000)) Repayment of long-term loan (150.850) Cash generated from operations 495.900) – 88.Professional Stage – June 2013 Question 2 Overall marks for this question can be analysed as follows: Total: 19 General comments This question tested the preparation of a consolidated statement of cash flows and supporting note.100 + 41.000) (4.700) Finance cost 22.700 + 13.000) Depreciation charge 175.

800 Cash received (β) 50.400) 71.000 C/d 68.890 C/d 140.000 25.000 CIS 254.700 201.200 B/d 78. All rights reserved.800 Disposal (194.450 x 20%) 38.000 Additions (β) 460.500 Disposal of sub 187.600 1.700 (4) Investment in associate £ £ B/d 179.024.100 929.700 1.600 CIS 56. plant and equipment £ £ B/d 983.100 C/d 663.800 + 6.600 C/d 1.500 201.500 Other disposals 56.000 B/d 3.443.200 CIS 50.200 B/d 675. Financial Accounting .200 Depreciation charge 175.200 929.Professional Stage – June 2013 Workings (1) Interest paid £ £ Cash (β) 20.200 149.000 C/d 5.500 236.410 B/d 150.000 CIS (64. Page 8 of 14 .200 149.500 Copyright © ICAEW 2013.700 C/d 185.900 236.000 25.500 (5) Retained earnings £ £ Dividends in SCE (β) 266.443.200 (6) Non-controlling interest £ £ Cash (β) 22.000 (2) Income tax £ £ Cash (β) 81.000 CIS 22.200 (3) Property.

All rights reserved. once again. repayment of the long-term loan and purchase of property.Professional Stage – June 2013 Most candidates produced a well-presented statement of cash flows with all the relevant headings. many candidates failed to adjust or adjusted incorrectly for the subsidiary disposed of during the period. with very few candidates completing some of their T accounts with all the entries the wrong way round. many candidates lost marks for use of the incorrect bracket convention and/or including cash flows under the wrong headings. plant and equipment” which was all too often shortened to “PPE” and Dividends paid to non-controlling interest” abbreviated to use “NCI”. with many miscalculating the sale proceeds (showing a lack of understanding as to how the profit on disposal is calculated). However. The reconciliation note was generally well done with candidates making a good attempt at the adjustments. although a number misclassified the former as a financing cash flow and others included total profit for the year in retained earnings instead of including only the group share. Most candidates correctly made the adjustments for the associate. However. will cause candidates to lose presentation marks. Page 9 of 14 . candidates lost most marks on the groups aspect of the question. as many failed to appreciate that the bonus issue (which was made out of the share premium account) was effectively a contra entry between the share capital and share premium accounts. The profit on disposal of property. the finance costs and the depreciation charge. Figures for income tax paid. It was less common to see the correct figure for dividends paid to the non-controlling interest as. Financial Accounting . most candidates failed to add the disposed of subsidiary’s profit before tax to the continuing profit before tax. Hence all that was needed was a comparison of the opening and closing figures in a combined T-account to arrive at the cash proceeds. in one of the main financial statements. interest paid. or adjusted incorrectly for. plant and equipment was often ignored or added instead of being deducted. a significant number of candidates failed to adjust. although the headings that continue to let candidates down are “property. in particular failing to adjust accurately for the disposal of the subsidiary and miscalculating the figure for the actual disposal as it should appear in the statement. the tax on the discontinued operations in the income tax T-account. Pleasingly. Others omitted to include all three necessary credit entries in the property. Such abbreviations. to form the first figure of the reconciliation note. Only a minority of candidates correctly calculated the proceeds from the share issues. As usual. Typically for a question featuring a consolidated statement of cash flows. workings took the form of T accounts. some candidates still insist on producing tabular workings or workings on the face of the statement of cash flows. However. In the main. It was also rare to see the correct figure for the disposal of the subsidiary. It was less common to see the correct adjustments for the movements in trade receivables and payables. hardly any candidates produced no workings at all – an even riskier approach as if figures are calculated incorrectly it is not possible to award any partial marks. although most clearly knew to deduct the cash disposed of from their figure (although a minority deducted this from the closing cash and cash equivalents figure in the statement of cash flows). with most errors being made over the adjustment for the disposed of subsidiary’s figures. Many candidates also correctly calculated the figure for dividends received from the associate and dividends paid to the parent. plant and equipment T-account. plant and equipment were those most commonly calculated correctly and shown correctly on the face of the statement although in a minority of cases a positive figure was shown. This can make it more difficult to see evidence of correct double entry and to award marks where the final figure is incorrect (or uses the incorrect bracket convention). Total possible marks 19 Maximum full marks 19 Copyright © ICAEW 2013.

A good number of candidates correctly calculated the fair value adjustment in respect of the building.600 x 3/12)) (32. many then also included the professional fees that should have been written off to expenses. Total possible marks 6½ Maximum full marks 6 Copyright © ICAEW 2013. Part (b) required the preparation of the consolidated income statement. Part (a) required the calculation of the goodwill arising on acquisition of the new subsidiary.30) 390.000.000 – (3. they themselves had not.160 Working – fair value adjustment re building £ Fair value at 1 April 2012 154. However.200) Non-controlling interest at acquisition x 30% 165.360 19.000 Shares at market value (300.200 x 3/12) 12. Some credit was given for this. Fewer deducted the dividends paid and fewer still made the correct adjustment for goodwill (although a good number adjusted by the gross figure of £33. comprising parent. although a significant minority calculated this in Part (b) and did not adjust for it in Part (a).100) Contingent liability (20.000) 44. Financial Accounting . All rights reserved.000 – ((250. plant and equipment.000 405.000) (551. Where an adjustment was made for the contingent liability. retained earnings brought forwards and three months of the profit for the year.000 Profit to 31 March 2012 (49.000 x £1. Kite plc (a) Goodwill arising in the business combination with Vulture Ltd £ £ Consideration Cash 15. and impairment write-downs.000 Retained earnings at 1 January 2012 567. Adjustments included intra-group transactions of both inventory and property.000 Almost all candidates used the correct methodology for calculating goodwill. failing to appreciate that whilst the company had incorrectly included this figure in the cost of investment (which was not given in the question). It is not sufficient to put “x NCI%”.000) Fair value adjustments: Re building (W) 44.Professional Stage – June 2013 Question 3 Overall marks for this question can be analysed as follows: Total: 22 General comments This question featured a group of companies. having correctly added the cash and the shares.000 Goodwill to be written off (33. In calculating the consideration almost all candidates included the cash of £15.000 Carrying amount at 1 April 2012 (250. two subsidiaries (one acquired during the year) and one associate. almost all candidates added share capital. with fair value adjustments to be made.000 ÷ 25) x 14)) (110.300 Less: Dividends paid (120. In calculating the net assets at acquisition.000 and the shares at market value.000 Net assets at acquisition Share capital 100. It was therefore rare to see this amount written off to operating expenses in Part (b). although some lost marks for not showing the % used to calculate the non-controlling interest share of the net assets at acquisition.000). Page 10 of 14 . most did use the correct figure of £20. Others deducted this figure.

100 (1.850.160 (W2)) 7.980 Workings (1) Consolidation schedule Kite plc Harrier Vulture Adj Consol Ltd Ltd 9/12 £ £ £ £ £ Revenue 1.300) – prof fees re acquisition (5.000) Profit from operations 384.000) 2.000) (584.579.600) (43.525) Gross profit 968.800 x½ 13.400) (9.818.700 (3.080 Profit before tax 391.Professional Stage – June 2013 (b) Consolidated income statement for the year ended 31 December 2012 £ Revenue (W1) 2.125) Profit for the period 314.500 879.480 314.818.700) (328.550 (132.105 Income tax expense (W1) (76.500 Vulture Ltd (30% x 36.400 10.160 (3) Non-controlling interest in year £ Harrier Ltd (20% x 142.025 Operating expenses (W1) (584.000 54.600) (598.600 (2) PURPs Harrier Ltd Buzzard Ltd % £ £ Sales 100 132.600 x 40%) – 3. All rights reserved. Financial Accounting .000) Tax (37.600) (103.200) GP 20 26.600 (W1)) 10.225) (76.000 (OF from a) ÷ 11) x 9/12) – adj re GW w/o on acq 2.200) – PPE PURP ((275.600 x 9/12) – GW impairment (12.000) building ((44.050.400 X 40% 2.500) ÷ 5) Op expenses – per Q (345.850.500 36.800) (117.125) 142.550 Cost of sales (W1) (1.500 491.980 Profit attributable to Owners of Kite plc (β) 275.500 Non-controlling interest (W3) 39.000 – PURP (W2) (13.025 Share of profit of associate ((30.500) (29.500 (W1)) 28.000 – 2.000) – additional deprec on (3.125) 132. Page 11 of 14 .525) 234.550 Cost of sales – per Q (1.200 5.000 – 8.480 Copyright © ICAEW 2013.000 Cost of sales (80) (105.980 39.

although some then forgot to reduce the group share of the associate’s profit by only the group share of the associate’s provision for unrealised profit. but just for the difference in subsequent depreciation. Financial Accounting . with some charging this instead against the parent’s profits. A minority of candidates included the goodwill impairment in the subsidiary’s column instead of in the parent’s. The additional depreciation on the fair value adjustment calculated in Part (a) also produced a number of different answers with only a minority of candidates gaining all the marks for the calculation and for dealing with the adjustment correctly. Very few candidates did their consolidation workings on the face of the group income statement. It was also common to see this figure in the parent’s column rather than the subsidiary’s (ie seller’s) column. All rights reserved. The most common loss of presentation marks was for abbreviating non- controlling interest to “NCI”.Professional Stage – June 2013 The consolidation schedule was generally prepared correctly with almost all candidates appreciating that only nine-twelfths of the acquired subsidiary’s results should be included. although a significant number of candidates also deducted the impairment loss in respect of the associate. Page 12 of 14 . Others omitted to state what percentage they were using in this calculation (or what figure they were multiplying this percentage by) and so lost marks. A significant number of candidates failed to appreciate that this transfer had taken place in the previous year and so there was no need to make an adjustment for the original profit on transfer. Common mistakes were to either not take nine-twelfths of the of one year’s worth of the adjustment or to use the incorrect adjustment in the first place. Most candidates made a reasonable attempt at the associate calculation. A few candidates omitted to reduce the group share of the associate’s profit by the impairment loss in respect of the associate. The intra-group sale of a machine was less well dealt with. with only a minority of candidates getting this completely correct. Total possible marks 16 Maximum full marks 16 Copyright © ICAEW 2013. The non-controlling interest was correctly calculated by the majority of candidates although a small number used the group percentage holding rather than the non- controlling interest percentage. The provision for unrealised profit in respect of the subsidiary’s sales was generally included correctly along with the goodwill impairment. A significant number of candidates calculated the correct unrealised profit figure but then went on to add it to cost of sales rather than deducting it. with the most common error being a failure to adjust for the unrealised profit (or forgetting to adjust it for the associate percentage). Candidates who produced a consolidation schedule gained the majority of the more straightforward marks available and then usually went on to prepare a reasonable consolidated income statement which gained a good number of the presentation marks available. Most candidates correctly reduced group revenue and cost of sales by the sales made between the parent and the subsidiary. The most common error for the write-off of the goodwill on the unincorporated business was to not adjust by nine-twelfths and/or to add the resultant figure to operating expenses rather than deducting it. which was pleasing. but some also made the same adjustment with the sales between the parent and the associate. The most common mistakes were made in the calculation of the adjustments in the consolidation schedule. The majority of candidates correctly calculated the two provisions for unrealised profit on intra-group sales.

000 x 3%) (6.000 389.000) Adj to depreciation re special plant (W3) (2.300 400.000 ÷ 20) (150.000 380.000) Depreciation on property (3. Opening balances were provided together with a series of events which occurred during the current year.000) – Restated balance 500. a prior period error. All rights reserved. Some of the matters also impacted on the draft profit for the period.000 for the year (Ws 1 and 2) Dividend on ordinary shares – – (120.000.000 125.000 – – Total comprehensive income – – 79.000 (20.20) Transfer to retained earnings – – 20.800 Less: Dividend on redeemable preference shares (200.000 50.700 – Issue of ordinary shares 100.000) (W2) At 31 December 2012 600.000 x 0. the payment of ordinary and redeemable preference dividends.Professional Stage – June 2013 Question 4 Overall marks for this question can be analysed as follows: Total: 9 General comments This question required the preparation of a statement of changes in equity for a single entity. Matters to be dealt with included the issue of ordinary shares. a change from the cost model to the revaluation model (with resultant reserve transfer) and a change of depreciation method. Financial Accounting .000 175.500) Add: Error re opening inventory 100.000 489.000 Workings (1) Revised profit for the year £ Draft profit 137.000 79.000 125.000) – (600.300 Copyright © ICAEW 2013.700 – Correction of error – – (100. Page 13 of 14 .000 369. Hawk Ltd Statement of changes in equity for the year ended 31 December 2012 Ordinary Share premium Retained earnings Revaluation share surplus capital £ £ £ £ At 1 January 2012 500.

000 (3) Depreciation adjustment re special plant £ Depreciation charged in 2012 (30. Where the correction of the error was made on the statement it was often added rather than deducted.000 x 25%) 7. reflecting the “excess” depreciation for the year. Only a small minority of candidates included the redeemable preference shares in the statement of changes in equity. The brought forward figure for retained earnings was sometimes adjusted by the correction of the error rather than showing this adjustment as a separate line on the statement of changes in equity itself. The adjustments to profit were not generally well dealt with.Professional Stage – June 2013 (2) Revaluation and depreciation transfer £ Valuation on 1 January 2012 3. All rights reserved. highlighting a lack of understanding in this area. The revaluation surplus arising in the year was generally calculated correctly. Only a few candidates showed a restated balance after this adjustment had been made. Candidates generally included the profit figure in the statement although only a minority correctly identified this as being part of “total comprehensive income”.600. Financial Accounting .500 Depreciation on new basis (30. A number of candidates calculated one or other of the old and new depreciation figures but then often failed to make the resultant adjustment in the correct direction. Of those candidates that did attempt to make adjustments to profit the most common errors were to make the adjustments in the wrong direction (ie added rather than deducted or vice versa). The majority of candidates correctly included the brought forward figures for ordinary share capital and share premium. with probably only around half of candidates making some of the adjustments.000) 2. Most candidates who arrived at the correct revaluation figure also arrived at the correct transfer between the revaluation surplus and retained earnings.000 – 770. instead of in a separate working. Page 14 of 14 .370.500 Most candidates made some kind of attempt at this question although full presentation marks were only gained by a minority of candidates. although this was almost always presented on a separate line to “total comprehensive income” usually being described as a revaluation.000 Annual transfer ÷ 20 20.000 400.000.000 Carrying amount of property on 1 January 2012 (3. Total possible marks 10 Maximum full marks 9 Copyright © ICAEW 2013.000 Additional charge needed 2.000 ÷ 3) 10. The majority of candidates showed the correct entries for the share issue in the period. and for the dividend payment made. Only a minority of candidates correctly calculated the depreciation adjustment for the special plant and went on to adjust profit correctly for it. Some candidates made their adjustments on the face of the statement of changes in equity.