Q.1

Following shortcomings were noted:

(i)

While explaining historical cost, hardly any student mentioned that this was the generally accepted/most widely used method of asset valuation.

(ii)

In explaining replacement cost, students failed to mention that a problem in using this method was estimation which involved subjective judgment.

(iii)

Very few could explain the concept of true and fair view. According to IASB framework, financial statements would normally show a true and fair view if:

• The principal qualitative characteristics like relevance, reliability, understandability, comparability etc. are applied in preparing the financial statements and
• Appropriate accounting standards are used.

Q.2

(a)

Main differences related to the reasons for the discounts, basis of calculation and accounting treatment. Only few were able to identify all of them.

(b)

This part was better attempted as the differences were rather apparent.

Q.3

Depreciation accounting:

The main point in the question was to understand that all vehicles purchased in 1992 or earlier were fully depreciated by the end of 2002 and hence no depreciation was required to be charged thereon. Similarly for vehicles purchased in 1993, depreciation was to be charged for 2003 and not for 2004. However a large number of students wasted much time in making disposal account and calculating previous years’ depreciation which were not required. With a rate of 10% and straight line basis, depreciation for the years 2003 and 2004 could have been easily calculated with due adjustment for additions and sales.

Q.4

Bank reconciliation:

This was well done. However marks  assigned for proper headings could not be secured by majority.

Q.5

Distinction between capital and revenue expenditure:

Most students classified the items properly but failed to give appropriate reasons.

Q.6

Consignment Account:

The common mistake was (1) students valued/debited the consignment account at cost plus mark-up, but valued the closing stock at cost price only. (2) Cost of freight was ignored for stock valuation purpose.

Q.7

Partnership, goodwill etc.

(i)

Students wasted much time by making year-wise adjustments to profits which they could have made to one consolidated profit figure of 5 years, as the goodwill was to be calculated on the basis of 5 years total adjusted profits. In the process, they made many mistakes.

(ii)

30%  cost of the machine i.e. Rs.48,000 which was wrongly written off previously was wrongly deducted by many students from profits instead of  being added

(iii)

For adjustment purpose many students calculated depreciation on the machine on the entire cost of Rs.160,000 instead of Rs.48,000/-.

(iv)

Stock over-valuation was either to be ignored or adjusted in two years. Many students adjusted the profits for only one year.

(v)

Many students simply ignored all adjustments.

Q.8

The shortcoming in the answers were as follows:

(i)

Students could not properly classify the transactions into personal and business items.

(ii)

Rs.60,300/- adjusted from the car price was to be credited to debtors’ account to arrive at correct sales figure. Most students failed to do it correctly.

(iii)

Rent of the house was Rs.11,700/- per month but many students took  it as Rs. 11,700/- per annum.