FINANCIAL
ACCOUNTING
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Keeping
in view the level of students who are at the verge of entering
in to the practical component of their professional learning,
the paper was structured to test pure theoretical knowledge, presentations
and practical application of principles set by International Standards.
It was evident from the answers submitted that students were not
only deficient in theoretical knowledge but also seriously lacking
in simple presentation skills. |
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Q.1 |
It
was similar to the questions set in previous papers on preparation
of company’s financial statements, a frequently asked question.
This time it was very simple and short in size. Unexpectedly,
students have shown their unserious attitude towards the core
subject. Very small number could prepare ‘statement of changes
in equity’. Incorporation and listening expenditure and start
up costs were deferred by most students. It should have been charged
to P & L under the new applicable fourth schedule. Notes to
the accounts were given like rough working notes without caring
for their importance with reference to the disclosure requirements. |
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Q.2 |
Initial recognition
of fixed assets is one of the common accounting events an accountant
faces in practice. Understanding of attributable costs and identification
of economic events distinct from acquisition of asset was tested.
Students lost easy scoring topic due to surface learning of the
relevant Standard. The common mistakes were as follows: |
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(1) |
Electrical
items were recorded at Rs.330/- which was the mark-up price, instead
of cost of Rs.300. International Accounting Standard has in detail
laid down calculation method for recoverable amount of an asset
and impairment loss thereon. Confused understanding of recoverable
value and treatment of impairment loss was seen in answers given
by the candidates. |
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(2) |
Instruments
costing Rs.150,000 which were destroyed were capitalized instead
of being charged off. |
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(3) |
Terminal
benefits of labour to be laid off were incorrectly deducted from
Fair Value to arrive at recoverable amount. |
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Q.3 |
Treatment
of events occurring after balance sheet date are being asked frequently
in accounting papers in recent attempts. A sizeable number of
students were well prepared and accordingly gave satisfactory
answers with varying quality of reasoning. However there was a
vast majority who were not very clear as to which situations are
an evidence of condition existing at the balance sheet date and
those which reflect conditions arising after the balance sheet
date. Most common mistake was that decline in value of stocks
as was the case in item (d), after the balance sheet and sale
thereof at a price less than cost was incorrectly treated as an
adjusting event although the condition arose after the balance
sheet date. |
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Q.4 |
Questions on partnership
are common and performance was good as expected. Most commonly
repeated mistake was that students tried to make realization account without passing
necessary adjustments at year-end. |
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Q.5 |
(a) |
Disclosure requirement
of financial lease in lessee’s books has its own practical importance
in prevailing financial environment. Most of the students mentioned
some disclosures but important disclosures like disclosing carrying
amount, reconciliation of minimum payment with its present value
and its further bifurcation into various periods as prescribed,
were often missing from the answer. |
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(b) |
Majority of the candidates
were comfortable in describing initial recognition of financial
lease. |
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(c) |
Profit on disposal
of fixed assets under sale and lease back arrangement has to be
deferred in case of finance lease whereas in case of operating
lease it should be recognized immediately. Most examinees did
not know about it. Some were even unable to identify the nature
of leases in given cases. Many students failed to consider depreciation
accumulated up to the date of sale and lease back transaction
and ended up with incorrect carrying value of the assets and the
profit. |
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Q.6 |
(a) |
It was strange that
most students were unaware of such easy ratios as interest and
dividend cover. |
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(b) |
This was a question
requiring comments on performance
of two similar companies with different capital structure and
operational attitude. Students showed very weak knowledge in discussing
the matter with reference to performance ratios. Some unnecessarily
discussed the financial and liquidity ratios, which are not performance
ratios. |