A-LEVEL ACCOUNTING ACCN3 Further Aspects of Financial Planning Report on the Examination 2120 June 2016 Version: 1.0
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Overview With the exception of perhaps sources of finance and some aspects of limited companies (most notable the schedule of non-current assets) all other mainstream topics from the syllabus were represented in the questions and so the paper overall was well balanced. The key changes in approach for this session were that the format is now a structured question and answer booklet to replicate the style of the AS papers and also that there was an objective testing element. Supplying templates for the completion of the realisation account, bank account and statement of cash flows enabled students to provide outcomes in a more standard and uniform fashion. For the statement of cash flows especially it is also worth noting that the workings section was more prescriptive and provided a framework which clearly helped the majority of students show calculations which were easier to decipher. Finally on the statement of cash flows, it was a deliberate strategy to have some of the arguably easier figures (including changes in inventories, trade receivables and trade payables) provided. Some questions continue to have other parts of the syllabus embedded within them and students need to be vigilant to the fact that this could be the case based on the evidence. In this paper, an example would be the inclusion of the accounting knowledge about IAS36 impairment of assets in the partnership question. Also, there continues to be the expectation that students can use aspects from the AS syllabus in a synoptic way such as the format for control accounts and both the bonus and rights issue of shares. Overall, the standard of responses was good but inevitably variable in parts. There didn t appear to be any particular time constraints with the majority of students being able to complete the whole paper in the time available. Some shorter responses for task 4b appeared to be more due to a lack of any more substantial points to make as opposed to not having sufficient time to finish the task fully. There were some quite challenging parts to many questions and rather than providing confusion, the evidence from outcomes would suggest that instead these produced a better spread of marks and grades and therefore enabled appropriate stretch / challenge and differentiation to be tested. Layouts of computational tasks where the template hadn t been provided in the new structured question and answer booklet format tend to be of a generally good standard. This included a clear tabulation format for the AVCO valuation calculations and a conventional layout for the income statement under incomplete records. Workings were also quite well referenced and clear to follow but as with previously, it would be suggested that a simple ledger T account format is quite often a clearer way to calculate key figures in for example incomplete records. Students need to constantly think about the most efficient and thus time saving way to elicit the answer. Key examples from this paper would be to not do a perpetual method to find the inventory valuation using FIFO and to prepare columnar partner capital accounts instead of individual versions for each partner. Any workings prepared in isolation and where the outcome didn t ultimately get represented in the final task outcome, were not awarded full marks because part of the skill is knowing how these calculations integrate with the main task requirement. 3 of 7
Many students produced well-articulated prose responses in which the spelling punctuation and grammar were commendable. This is always encouraging to see as arguably many Accounting students have less well developed written communication skills in contrast to computational skills. The structure and content however in some instances needs to be refined. For both the inventory valuation method question and the question about financial performance based on liquidity and cash flow changes, the best responses used figures from the preceding calculation tasks to contextualise. Also, the depth of analysis in some questions was more superficial with either a one sided argument and / or no substantial development of points made. For the quality of presentation marks there are still some elementary mistakes being made and on this occasion the most notable would be to describe the final figure in the income statement as profit or loss whereas it needs to say only one of these as appropriate in the context. Question 1 (a) Although the layouts were variable, nevertheless, many students were able to correctly calculate the correct inventory valuation amount using the AVCO method of 23 560. Where a different inventory valuation amount was determined, this tended to be because the calculated average cost price was not a weighted average and so for example showed 71.10 as being the mean average of the 75 for the opening inventory and the subsequent 67.20 paid for the first consignment of inventory purchased. Also, where a perpetual calculation is required (as was the case here) then a total valuation amount needs to be clearly shown after each inventory transactions (either purchase or sale) and in some cases this wasn t done. (b) Many students correctly calculated the inventory amount using the FIFO method of 23 992. In some cases however, students took an unnecessarily complicated approach to determining this amount and so would have probably been penalised on the time taken to complete the task. Students need to remember that the amount of work required is usually proportionate to the marks available and so for only 2 marks in this case, the calculation is likely to be relatively simple. Students also need to appreciate that with FIFO, the inventory valuation amount will be identical using either the periodic or the perpetual method and so unless instructed to use a particular approach (which wasn t the case here) then the periodic version should be advocated. 4 of 7
(c) Many students gave some reasonably detailed responses to demonstrate the relative merits of using the FIFO method of inventory valuation in contrast to the AVCO method. However, some students didn t give a balanced argument and only tended to focus on the benefit of either the AVCO method (and thus advocated not changing method) of the FIFO method (and thus advocated changing method). Better responses also used figures to illustrate and these were rewarded in context for application marks provided that they corresponded with the outcome from the preceding calculation tasks. It should be noted that a definitive decision about whether to change method or not wasn t required. Valid points will only be rewarded once and so it isn t therefore possible to get more marks simply by offering the opposite point. An example of this would be to identify that the FIFO method is easier to calculate and then to proceed to state that the AVCO method is more complicated to calculate. (d) Many students were able to elicit the correct valuation amount of 10 224. Most students who got a different response tended to select the 10 000 amount and this meant that they were applying mark-up of 100/120 instead of margin of 80/100 to determine the cost price for sales and sales returns. Question 2 Not surprisingly perhaps the majority of students were able to produce an income statement in the required format and despite the fact that there were many variations in final outcomes, nevertheless there were also some more common areas either done well or where common misconceptions were evident. For both revenue and purchases, some students either didn t include the dishonoured cheque, contra and interest adjustments or did so but in the incorrect direction. Also, for revenue and purchases, some students only included the credit but not the cash transactions. A relatively small proportion of students used the inventory turnover ratio and where this wasn t used, then the closing inventory was merely a balancing figure in cost of sales. However, for this latter approach, it wasn t then possible to isolate a separate amount for the value of inventory stolen. Even for those students who did have a stolen inventory amount, very few subsequently included this same amount as an expense. Many students found a gross profit and profit for the year own figure amount as 25% and 5% of revenue respectively, although for others this didn t correspond correctly. Many students were able to manipulate correct accruals and prepayment adjustments to determine the expensed amounts for both wages and rent. Stolen inventory was correct in many responses but if not then the most common issues were not adjusting for the bal b/d and bal c/d and or only including drawings for one month. A few students also mistakenly included dishonoured cheque and or contra as a separate expense. Finally a balancing figure for general expense was quite often included and was valid where the expenses section had not been contaminated with extraneous transactions. 5 of 7
Question 3 (a) Many students were able to produce a realisation account and understood the double entry principles in the construction of this ledger account. Most students opted for the approach of posting individual transactions amount although the alternative of netting off amounts relating to each constituent part is also acceptable. Some students included the vehicle taken by Pugh at the estimated proceeds instead of the net book value which would have therefore required an adding back of the potential loss on the transaction to determine this figure. Other students didn t appreciate that IAS36 was being cited despite impairment being sign posted as existing for all other non-current assets. This meant that some incorrectly selected the value in use as the recoverable amount even though this contradicted the rule of taking the higher of this and the fair value. Some students also incorrectly included the bank overdraft in the realisation account. (b) Many students were able to produce the capital accounts and again understood the double entry principles in the preparation of this ledger. Reward was given where applicable if the amounts corresponded with the realisation account. A reasonable proportion of students were able to show the correct entries to apply the rule of Garner v Murray and to therefore account for the bankruptcy of Mears accordingly. Although less of a common mistake on this occasion, nevertheless some students showed amounts as bal c/d even though the partnership was clearly being dissolved. (c) Entries in the bank account had to correspond with amounts from a combination of the realisation account and the capital accounts and generally matched accurately allowing for own figures in many instances. However, some students didn t apply the double entry rules and so for example would have a debit entry in the bank account which mismatched a debit entry from a previous ledger account and a similar issue being evident with some credit entries. Another common error was including amounts which are non-cash transactions in the bank account and these tended to be the discount allowed of 625 and the discount received of 176 as well as the bad debt written off which amounted to 2350. 6 of 7
Question 4 (a) There was a full range of responses in the preparation and completion of the statement of cash flows. In a similar way to the income statement for incomplete records however, there were some more typically seen outcomes which made the same mistakes or misinterpretations based on the question stimulus materials. For depreciation and, setting aside the time apportionment issue, there is the fact that some students don t appreciate that the asset being disposed of is depreciated from the beginning of the year until the date of disposal, and therefore needs to feature in both the annual depreciation charge amount as well as in the accumulated depreciation for elimination on disposal (in this question, this was the amount of 1125). For interest paid, some students ignored the debenture loan repayment and so computed a full year s amount of 9600. Many students were able to calculate the number of shares issued through initially the bonus issue and subsequently the rights issue. However, there were then some errors in calculating the cash flow impact of these transactions with some attaching a cash flow amount to, for example, the bonus shares and maybe only calculating the rights issue at the premium price without the nominal value factored in to the equation. Also, for the dividends, some students didn t include the original shareholding in this computation. Encouragingly, many students correctly calculated the correct taxation paid figure and didn t merely use the tax liability from the previous year as has sometimes happened on previous occasions. (b) There were some fairly detailed responses to this prose task investigating performance based on changes in cash flows and liquidity of the business. Most students recognised that the answer needed to be contextualised to Van Moorsel and therefore used figures from the statement of cash flows to illustrate and thus were rewarded for application. However, many responses were constrained to merely identifying the key changes and quoting the amounts without providing any further insight about the implications of these changes as was required. The most commonly identified amplifications in this regard tended to focus on the dilution of ownership and impact on gearing and risk of a share issue with most other key cash flow changes being devoid of any supplementary analysis. It is also important that students clearly state the cash flow impact by using some descriptions which show the positive or negative effect rather than merely stating that the amount has increased or decreased which is a direction of change point only. Mark Ranges and Award of Grades Grade boundaries and cumulative percentage grades are available on the Results Statistics page of the AQA Website. Converting Marks into UMS marks Convert raw marks into Uniform Mark Scale (UMS) marks by using the link below. UMS conversion calculator 7 of 7