Financial Accounting - Professional Stage – September 2012

PROFESSIONAL STAGE FINANCIAL ACCOUNTING – OT EXAMINER’S COMMENTS

The performance of candidates in the September 2012 objective test questions section for the Professional
Stage Financial Accounting paper was consistent with recent sittings and the long-term average.

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 2 2
LO2 6 3 3
LO3 5 5 0
Total 15 10 5

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

Comments on the most poorly answered question (below 40% of candidates gave the correct answer), on LO2
(preparation of single company financial statements) are given below:

Item 1
This item tested candidates’ understanding of the impairment (downward valuation) of a revalued non-current
asset. Candidates correctly identified the value of the impairment, by calculating the carrying amount of the
asset following an earlier revaluation and subsequent revised depreciation. Candidates thought that this full
impairment should be recognised in the income statement rather than calculating what amount was remaining in
the revaluation surplus following the annual transfers between the surplus and retained earnings.

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 Financial Accounting - Professional Stage – September 2012

MARK PLAN AND EXAMINER’S COMMENTARY

The mark plan set out below was that used to mark these questions. Markers are encouraged to use discretion
and to award partial marks where a point was either not explained fully or made by implication. More marks are
available than could be awarded for each requirement, where indicated. This allows credit to be given for a
variety of valid points, which are made by candidates.

Question 1

Overall marks for this question can be analysed as follows: Total: 32

General comments
This question was a typical question testing the preparation of an income statement and statement of financial
position from a trial balance. However, this question also required the preparation of the provisions table that
would form part of the provisions note. A number of adjustments were required to be made, including an
adjustment to inventory, depreciation, a held for sale asset and a finance lease.

Part b) covered conceptual issues, candidates were required to identify and describe the elements of the
financial statements which were relevant to the statement of financial position, with reference to provisions.

Aiskew plc – Statement of financial position as at 30 June 2012

£ £
ASSETS
Non-current assets
Property, plant and equipment (W5) 515,500

Current assets
Inventories (W2) 55,600
Trade and other receivables 250,100
Taxation 25,300
Cash and cash equivalents 47,000
378,000
Non-current asset held for sale 5,500
383,500
Total assets 899,000

Equity
Ordinary share capital (296,000 + 70,000) 366,000
Share premium account (155,000 + (140,000 – 70,000) 225,000
Retained earnings (114,700 – 62,933) 51,767
Equity 642,767

Non-current liabilities
Bank loan 160,000
Provisions (15,000 x 2yrs) 30,000
Finance lease (W4) 5,000
195,000
Current liabilities
Trade and other payables (34,700 – 3,500(W3)) 31,200
Provisions (58,500 (table) – 30,000) 28,500
Finance lease (W4) 1,533
61,233

Total equity and liabilities 899,000

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 Financial Accounting - Professional Stage – September 2012

Aiskew plc – Income Statement for year ended 30 June 2012

£
Revenue 974,000
Cost of sales (W1) (640,500)

Gross profit 333,500

Administrative expenses (W1) (295,700)
Other operating costs (W1) (121,700)

Operating loss (83,900)

Finance costs (W3) (4,333)
Profit before tax (88,233)
Income taxation 25,300

Net loss for the period (62,933)

Note: Marks will be awarded if items are included in a different line item in the income statement provided
that the heading used is appropriate.

Provisions and contingencies

Warranties Legal Onerous Total

claim lease
£ £ £ £
At 1 July 2011 – 7,000 – 7,000
Income statement charge(β) 3,500 3,000 45,000 51,500
At 30 June 2012 (W) 3,500 10,000 45,000 58,500

Workings
Warranties:
(10% x 20,000) + (5% x 30,000) = 3,500

Onerous lease:
(15,000 x 3 yrs) = 45,000

W1 Expenses
Cost of Admin Other
sales expenses operating
costs

Trial balance 601,500 295,700 72,000

Opening inventory 68,500
Less: closing inventory (W2) (55,600)
Provision charge (table) 51,500
Depreciation charge – plant & machinery (W5) 25,450
Held for sale asset (W6) 650
Finance lease payment - reversed (1,800)
640,500 295,700 121,700
W2 Inventory
£
Closing inventory 57,000
Adjustment:
Product B: (£14 – (£16 – £4)) x 700 (1,400)
55,600

W3 Finance costs
£
Per nominal ledger 7,500
Less: adjustment (140,000 x 5% x 6/12) (3,500)
Finance lease interest (W4) 333
4,333

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 Financial Accounting - Professional Stage – September 2012

W4 Finance lease
£
Instalments (£1,800 x 5yrs) 9,000
Fair value (8,000)
Interest 1,000

SOTD = (5 x 6) ÷ 2 = 15

Year ending B/fwd (£) Interest (£) Payment (£) c/fwd (£)

30 June 2012 8,000 5/15 x 1,000 = 333 (1,800) 6,533

30 June 2013 6,533 4/15 x 1,000 = 267 (1,800) 5,000

W5 Fixtures & fittings adjustment

£ Land Plant &
machinery
Cost – b/fwd 450,000 162,000
Held for sale asset (12,000)
150,000
Finance lease machine 8,000
158,000

Accumulated depreciation b/fwd (72,900)

Depreciation charge for year

150,000 x 15% 22,500
Finance lease machine (8,000 \ 5yrs) 1,600
Held for sale (12,000 x 15% x 9/12) 1,350
(25,450)

Classified as held for sale:

Acc depreciation (12,000 – 7,500) (4,500)
Dep in yr (1,350)
5,850
Carrying amount at 30 June 2012 450,000 65,500 515,500

W6 Held for sale asset

£
Carrying amount (7,500 – 1,350) 6,150
Fair value (5,500)
650

Most candidates produced a reasonable answer to this question, with the vast majority preparing a complete
statement of financial position and income statement, although a small minority did not complete the statement
of financial position. The preparation of a correct provisions table was extremely variable and candidates
clearly struggled with this requirement, showing a gap in their understanding in this area (see below).

Presentation of the income statement and statement of financial position was mixed with few candidates
achieving the maximum presentation marks available. The most common omissions were to fail to show an
operating profit/loss line on the income statement and/or to complete totals and/or sub-totals on the statement
of financial position. Some statements were simply very messy.

Most candidates correctly calculated figures for closing inventory and the finance lease. The most common
error in respect of closing inventory was to add a correctly calculated net realisable value write-down of £1,400
to the original figure for inventory, as opposed to deducting it.

The vast majority of candidates used a “costs matrix” to calculate the figures for cost of sales, administrative
expenses and other operating expenses.
However, although most candidates allocated their main depreciation charge to cost of sales, as instructed by

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 Financial Accounting - Professional Stage – September 2012

the question, a large number then took some other element of depreciation, such as the deprecation charge on
the leased asset, or the impairment loss, to a different cost category. Others failed to bring all their calculated
depreciation charge elements through to the costs matrix/income statement. Similarly, many failed to add all
their property, plant and equipment calculations together for the final figure for the face of the statement of
financial position, missing the land was a common mistake. Another common error was to include the £72,000
other operating costs under administrative expenses, instead of leaving this within that category.

The treatment of the tax refund confused many candidates, most commonly where there was a loss before tax,
with many candidates then adding the refund, thereby increasing the loss rather than decreasing it. Even if
candidates did manage to credit the tax refund to the income statement they then went on to show the figure as
a liability (either positive or negative) in the statement of financial position. A significant number who did show
the refund as a current asset failed to disclose it separately. Some candidates were clearly so confused by the
concept of a tax refund that they failed to account for this at all.

Only a minority of candidates arrived at a completely correct figure for property, plant and equipment with most
of the errors centring around the elimination of the held for sale asset. Many candidates calculated a
depreciation charge for the year up to the point of sale on that asset, but then failed to back that amount out of
property, plant and equipment, instead only backing out the opening accumulated depreciation on the asset. It
was also rare to see the held for sale asset included at the correct amount, in the correct position, on the face
of the statement of financial position, even where some attempt had been made to deal with it within property,
plant and equipment, or to calculate an impairment loss. And although most did attempt to calculate an
impairment loss, it was often incorrectly calculated and few then took it to the income statement.

Other errors within property, plant and equipment calculations included the following:

 Not including the leased asset in property, plant and equipment, even where they had calculated other
figures in respect of this lease.

 Depreciating the leased asset at 15% instead of over the five year lease term.

 Charging depreciation on the held for sale asset for a whole year, as opposed to only nine months.

With regard to the calculations underlying the closing provisions balance the most common errors were failing
to include the onerous lease and calculating a weighted average figure for the legal claim, rather than providing
for the most likely outcome of £10,000. A common failing was to prepare a note but then not take the correct
figures from that note to the income statement and statement of financial position, and often candidates wasted
time by recalculating/adding these figures again, often coming to different figures from their note. Only around
half of candidates correctly split their closing figure between current and non-current liabilities (recognising that
the onerous lease had a long-term element to it).

Total possible marks 29½

Maximum full marks 27

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 Financial Accounting - Professional Stage – September 2012

(b) Elements of financial statements and provisions

The three elements of financial statements are assets, liabilities and equity.

Provisions, contingent liabilities and contingent assets

A provision is a liability of uncertain timing or amount and should be recognised if there is a present obligation
from a past event, it is probable that an outflow of economic benefits will be needed to settle the obligation and
that a reliable estimate can be made of that amount.

If one or more of these requirements are not met then a provision should not be recognised as it is not a
liability.

Probable means that it is more likely than not to occur. If it is not probable that an outflow of economic benefits
will be needed to settle the obligation or the amount of the settlement cannot be measured reliably then it does
not meet the definition of a liability and instead the amount may need to be disclosed as a contingent liability.

For example, Aiskew plc has a contractual obligation to continue to pay rental on an unused property for the
next three years. So a contractual obligation exists, they are obliged to continue to pay the annual rental and
the rental is for a known amount, therefore a provision should be recognised as a liability exists.

Aiskew plc’s warranties policy instead raises an obligation as it has a published policy that it will rectify any
defect on its products under the warranty. Although, the amount that will be paid under warranties is not
certain it is possible to make a reliable estimate based on the number and amount of past claims under
warranties. Where there is more than one item the estimation of the amount of the liability is made using
expected values. In summary, an obligation has arisen from past events (the sale of the goods) and a reliable
estimate can be made and therefore a provision should be recognised as a liability exists.

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only
by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the
entity. As there is an element of uncertainty involved it does not meet the definition of an asset and instead
should be disclosed rather than recognised in the financial statements.

Most candidates correctly gave the elements of financial statements relevant to the statement of financial
position as assets, liabilities and equity. Many then went on to give some correct definitions from the open book
text for these terms (including for equity, which is not relevant to IAS 37). Very few went on to attempt to show
how these definitions related to the accounting treatment set out in IAS 37, less still using examples from
Aiskew plc. A number of candidates chose to not even attempt this part.

Total possible marks 7

Maximum full marks 5

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 Financial Accounting - Professional Stage – September 2012

Question 2

Overall marks for this question can be analysed as follows: Total: 15

General comments
This question was a single topic question covering non-current assets, both tangible and intangible in nature.
The question required the preparation of extracts from the statement of financial position and the statement of
cash flows along with a summary of amounts that would be recognised in the income statement.

Cawood Ltd

(i) Statement of financial position as at 30 June 2012 (extracts)

£
Non-current assets
Property, plant and equipment (W1) 4,959,455
Intangible assets (W4) 219,500

(ii) Summary of amounts included in income statement for the year ended 30 June 2012
£
Administrative expenses:
Depreciation (32,220 + 2,925 + 136,000) 171,145
Amortisation (29,000 + 4,000) 33,000
Profit on disposal of PPE (1,200)
General overheads 30,000
Staff relocation costs 10,500
Launch event 5,200
Research costs ((96,000 / 6months) x 2 months) 32,000

(iii) Extracts from Statement of cash flows for the year ended 30 June 2012
£ £
Cash flows from investing activities
Purchase of property, plant and equipment (1,375,800)
(1,297,800 + 78,000)
Purchase of intangible non-current asset (64,000)
Proceeds from sales of property, plant and equipment
((32,000 – 12,800) + 1,200) 20,400

Net cash used in investing activities (1,419,400)

Workings

W1 PPE – Carrying amounts

£ £
Land & buildings
Land 1,500,000
Property - cost 3,400,000
- acc depreciation (1,360,000)
- depreciation (3,400,000 x 4%) (136,000)
Constructions costs (W2) 1,297,800
4,701,800
Fixtures & fittings (W3) 257,655
4,959,455

W2 Cost of new retail outlet

£ £
Construction costs 1,200,000
Professional fees 7,800
Site preparation costs 90,000
1,297,800

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 Financial Accounting - Professional Stage – September 2012

W3 Fixtures & fittings

£
Cost at 30 June 2011 360,000
Disposal 1 July 2011 (32,000)
328,000
Accumulated depreciation (126,000)
Disposal 1 July 2011 (32,000 x 20% x 2yrs) 12,800
(113,200)
214,800
Less: depreciation (214,800 x 15%) (32,220)
Additions 1 April 2012 78,000
Less: depreciation (78,000 x 15% x 3/12) (2,925)
75,075
Carrying amount 257,655

W4 Intangibles
£
Cost b/fwd - brand 290,000
Amortisation (290,000 / 10yrs) (29,000)
Accumulated amortisation (101,500)
159,500
Development costs (96,000 – 32,000 I/S) 64,000
Amortisation ((64,000 / 4yrs) x 3/12) (4,000)
60,000
Carrying amount 219,500

The best candidates used a property, plant and equipment “table” to calculate the figures for the non-current
assets section of the statement of financial position. They also appeared to deal with the income statement
amounts and statement of cash flow extracts at the same time, as their answers demonstrated that each item
had been completely dealt with. So, for example, having decided what part of the costs incurred during the year
on the retail unit to capitalise they then took the remaining costs to their income statement amounts and to their
statement of cash flow extract.

Weaker candidates adopted a more sporadic approach, with messy workings, often failing to take all of their
calculated figures through to the required extracts/amounts. In the example above, they usually did capitalise
some of the costs incurred during the year on the retail unit, but then failed to take the amounts not capitalised
to their income statement amounts and/or to their statement of cash flow extracts. The same difference applied
to the research and development costs – weaker candidates capitalised part of the £96,000 (not always the
correct part) but then failed to take the remainder to the income statement.

Most candidates dealt with the following correctly:

 Capitalising the site preparation costs, construction costs and professional fees. The most common error
was also to capitalise the general overheads.
 The depreciation for the year on the buildings.
 The addition to the fixtures and fittings, and depreciation charge thereon (although a number depreciated
this for the whole year or for an incorrect number of months).
 The depreciation charge for the year on the brand.

Most difficulties were in relation the treatment of the research and development costs and the fixtures disposed
of during the year. The most common errors on the former were to capitalise the wrong number of months and
to charge a full year’s depreciation on the amount capitalised. Some simply capitalised the whole £96,000,
failing to recognise that costs incurred prior to the appliance being judged economically viable should not be
capitalised. It was also common to see the whole £96,000 as an outflow in the statement of cash flows, even
where a lesser amount had been capitalised.

In relation to the fixtures disposed of during the year most candidates correctly excluded £32,000 from cost, but
then reduced accumulated depreciation by the carrying amount. Others calculated the accumulated
depreciation on a reducing balance basis instead of on a straight-line basis, when the fixtures were sold on the
day the new policy came into force and therefore would have been subject to straight-line depreciation.

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 Financial Accounting - Professional Stage – September 2012

Many candidates lost marks in the statement of cash flow extracts by not showing outflows in brackets, and
inflows without brackets – a comment made repeatedly by the examiners. Candidates also need to be careful
that costs and income are also shown appropriately when preparing income statement figures. Abbreviations
such as “PPE” were also rife, which lost candidates presentation marks when used in the statement of financial
position or statement of cash flow extracts.

Other common errors included the following:

 In the statement of cash flow extracts showing only the capitalised costs as “Purchase of property, plant
and equipment”, forgetting to also include the £78,000 spent on fixtures.
 Depreciating the capitalised costs, when the retail unit was not opened until the last day of the year.

Total possible marks 16

Maximum full marks 15

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 Financial Accounting - Professional Stage – September 2012

Question 3

Overall marks for this question can be analysed as follows: Total: 11

General comments
This question was a mixed topic question, part a) centred around the workings for an associate for inclusion in
the consolidated financial statements. Part b) required the preparation of extracts from the consolidated
statement of changes in equity.

(a) Kippax plc

(i) Share of profit of associate (62,000 x 9/12 x 35%) 16,275

(ii) Investment in associate – Warlaby Ltd

£
Cost (10,000 + (25,000 x £1.40)) 45,000
Add: Share of post-acquisition profits (as above) 16,275
Less: PURP adjustment (W2) (980)
60,295
(2) Unrealised profit

£
28,000 100%
(22,400) 80%
5,600 20%

Warlaby - £5,600 x ½ = £2,800

Kippax share of Warlaby PURP - £2,800 x 35% = £980

Answers generally were slightly disappointing with fewer candidates than expected getting full marks. The
majority of candidates did manage to calculate the share of associate profit, although a significant number then
went on to deduct the PURP from this amount.

For the investment in associate, most candidates correctly calculated the cost (although a minority used the
year end share price) but few seemed to understand that as the associate was acquired within the year the
post acquisition profit was simply the figure from part (i). As a result a lot wasted time by doing some sort of net
assets working. A minority also still seem to be trying to calculate a goodwill figure.

Common errors were:

 Failing to multiply by 35% for the share of profit of associate and the PURP to reflect the appropriate
holding.
 Incorrectly deducting either the PURP or dividends when calculating the share of profit of the associate.
 Incorrectly deducting dividends when calculating the investment in associate.

Total possible marks 4½

Maximum full marks 4

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 Financial Accounting - Professional Stage – September 2012

(b)
Consolidated statement of changes in equity (extract) for year ended 30 June 2012

Share Share Retained

capital premium earnings

At 1 July 2011 600,000 300,000 3,196,000

Issue of shares (25,000 x 40p) 25,000 10,000 –
Interim dividend (625,000 x 15p) – – (93,750)
Issue of bonus shares (625,000 x 2) 1,250,000 (310,000) (940,000)
Total comprehensive income for the year (W) – – 1,550,695
At 30 June 2012 1,875,000 – 3,712,945

Working
£
Draft profit for year 1,543,800
Share of associate (part a)) 16,275
Less: associate dividend (35,000 x 10p) (3,500)
Less: PURP (980)
Less: Bad debt (9,800 x 50%) (4,900)
1,550,695

A number of students struggled with part (b), although a few did make a very good attempt at it.

The majority of candidates included the correct brought forward figures (although a few missed one out or
combined share capital and share premium). Disappointingly the majority of candidates seemed to struggle
with the basic double entry for both issues of shares. For the issue to acquire the associate some put the
nominal value into share capital but ignored share premium and a minority put it in, worryingly, as a negative.

A significant number of candidates were clearly confused over the bonus issue treating it as a 1 for 2 issue
rather than a 2 for 1 issue. Candidates again seemed to struggle with the double entry often realising that the
most that could be debited to share premium was to reduce it to zero but not then debiting the balance to
retained earnings.

Many candidates correctly calculated the dividends figure (although occasionally not including the shares
issued on 1 October even where they had actually included that issue in the SOCIE).

As total comprehensive income needed to be included in the SOCIE a number of adjustments were required to
the profit figure, generally candidates adjusted for the bad debt and many made an attempt to adjust for the
associate (although frequently not realising that they just had to use the figures already calculated in part (a)).
Few candidates realised that they needed to deduct the dividend from the associate. A number of students lost
marks by showing these figures as adjustments to retained earnings on the face of the SOCIE rather than
adjusting profit (ie the Income Statement).

Many candidates wasted time by attempting to do a non-controlling interest column even though the question
clearly stated that all subsidiaries were wholly-owned. This seems to suggest that candidates think a non-
controlling interest should be recognised for an associate.

Total possible marks 7

Maximum full marks 7

Total possible marks 11½

Maximum full marks 11

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 Financial Accounting - Professional Stage – September 2012

Question 4

Overall marks for this question can be analysed as follows: Total: 22

This question required the preparation of a consolidated statement of financial position. The group had two
subsidiaries, one of which was acquired during the year. The treatment of a gain on bargain purchase was
covered and inter-company trading had taken place during the year between the two subsidiaries.

Purston plc

(a) Consolidated statement of financial position as at 30 June 2012

£ £
Assets
Non-current assets
Property, plant and equipment (W9) 2,968,900
Goodwill (W4) 52,400
3,021,300
Current assets
Inventories (96,200 + 26,700 + 79,000 – 2,400 (W8) + 6,000) 205,500
Trade and other receivables (145,000 + 46,300 + 104,000 – 24,000 – 263,800
7,500)
Cash and cash equivalents (7,800 + 6,400 + 600) 14,800
484,100
Total assets 3,505,400

Equity and liabilities

Equity
Ordinary share capital 950,000
Share premium account 390,000
Retained earnings (W7) 1,175,520
Attributable to the equity holders of Purston plc 2,515,520
Non-controlling interest (W6) 452,580
Equity 2,968,100

Current liabilities
Trade and other payables (198,600 + 110,800 + 118,400 – 24,000) 403,800
Taxation (75,000 + 53,000 + 5,500) 133,500
537,300
Total equity and liabilities 3,505,400

Workings

(2) Net assets – Ruswarp Ltd

30 June Acquisition Post acq
2012
£ £ £
Share capital 320,000 320,000
Share premium account 156,000 156,000
Retained earnings 535,600 296,000
PURP (2,400 + 1,500) (3,900) –
FV adj 100,000 100,000
FV – depreciation (100,000 / 25yrs) x 5yrs (20,000) –
1,087,700 872,000 215,700

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 Financial Accounting - Professional Stage – September 2012

(3) Net assets – Skeeby Ltd

30 June Acquisition Post acq
2012
£ £ £
Share capital 180,000 180,000
Retained earnings 107,600 123,000
Revaluation surplus 300,000 300,000
587,600 603,000 (15,400)

(4) Goodwill – Ruswarp Ltd

£
Consideration transferred 750,000
Net assets at acquisition (W2) (872,000)
Non-controlling interest at acquisition (872,000 (W2) x 20%) 174,400
52,400

(5) Goodwill – Skeeby Ltd

£
Consideration transferred 180,000
Net assets at acquisition (W3) (603,000)
Non-controlling interest at acquisition (603,000 (W3) x 40%) 241,200
(181,800)

(6) Non-controlling interest

Ruswarp Ltd – share of net assets (1,087,700 (W2) x 20%) 217,540

Skeeby Ltd – share of net assets (587,600 (W3) x 40%) 235,040
452,580

(7) Retained earnings

£
Purston plc 830,400
Ruswarp Ltd (215,700 (OF) (W2) x 80%) 172,560
Skeeby Ltd ((15,400) (OF) x 60%)) (9,240)
Gain on bargain purchase (W5) 181,800
1,175,520
(8) PURP
Ruswarp Ltd
% £ £
SP (24,000 x ½) / (6,000 x 125%) 125 12,000 7,500
1
Cost (24,000 / 125% x /2) (100) (9,600) (6,000)
GP 25 2,400 1,500

(9) Property, plant and equipment

£
Purston plc 1,265,000
Ruswarp Ltd 1,096,000
FV property adj (100,000 – 20,000) 80,000
Skeeby Ltd 527,900
2,968,900

Generally, this question was very well answered with many students achieving close to full marks. Almost all
candidates correctly identified two subsidiaries and prepared the two net assets tables and workings for
goodwill, non-controlling interest and retained earnings.

The fair value adjustment in respect of Ruswarp Ltd was dealt with well (although a number of students failed
to realise that the adjustment for depreciation was cumulative ie for the 5 years since acquisition). Most
candidates correctly calculated the PURP and did go on to deduct this correctly from the net assets working
and inventory. Fewer realised that the net assets also had to be adjusted for the PURP for the goods in
transit.

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 Financial Accounting - Professional Stage – September 2012

Most candidates struggled with the revaluation surplus in Skeeby Ltd indicating that they did not understand
the difference between a revaluation that had taken place prior to acquisition and one that takes place after
acquisition.

Many candidates dealt with the discount on acquisition correctly although some ignored it or netted it off the
positive goodwill or deducted it from consolidated retained earnings. Worryingly a number of candidates
combined the goodwill workings for the two subsidiaries together into one working which is dangerous where,
as in this question, there is positive goodwill on one acquisition but a discount on acquisition for the other.

Most candidates struggled with the adjustments to trade receivables and trade payables for the inter group
balances. In particular the adjustments relating to the goods in transit were rarely dealt with correctly. In this
instance, it may have been helpful if they had written out a journal to ensure the double entry worked.

As we have seen over numerous sittings a significant number of candidates lost marks by failing to show an
audit trail both on the face of the statement of financial position and also in the non-controlling interest and
consolidated retained earnings workings by not showing clearly which figures from the net assets working
were being used. A number of candidates also seemed to think that the post acquisition profit figure to use in
consolidated retained earnings is simply the movement on the subsidiary’s retained earnings rather than the
movement in net assets.

Finally although most candidates ended up with a reduction in net assets for Skeeby Ltd in their net assets
working many then added it rather than deducting it from consolidated retained earnings.

Very few candidates finish off their consolidated statement of financial position completely and therefore miss
out on additional presentation marks available.

Total possible marks 22

Maximum full marks 22

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