Q.1

The examinees were required to describe the main functions of a Commercial Bank. Most students gave generalized and haphazard answers. Many of them repeated the same function in different words. Some mentioned the advantages of a commercial bank whereas many others were confused between the functions of a commercial bank and State Bank.                             

Q.2

Three situations were given and the students were required to explain whether the revenue was correctly recorded.

(a)

Very few were able to point out that sale was not correctly recognized as it  can only be recorded when the goods have been delivered.

(b)

In practice, sales returns are not adjusted to a prior period. However, that is done mainly because of immateriality of the amount and as a matter of convenience. Principally the sale should be reversed in the period in which it was recorded.

(c)

Only few students rightly answered that sales could only be recognized when “telephone hours” were utilized or after July 31 whichever is earlier.

Q.3

The performance in this question was good. However the following mistakes were noted in some answers

•  Fire Insurance and Income Tax were also capitalized.
• Insurance in transit was not capitalized.
• Depreciation for 2004 was also revised based on the revised estimate and the difference adjusted in the year 2005

Q.4

This question on manufacturing, trading and profit and loss accounts was the best attempted question. The mistakes generally committed by the students were as follows:

•  Manufacturing account items were shown in profit and loss account and vice versa.
• Direct wages were shown as factory overheads.
• Factory overheads were deducted from prime cost instead of being added.
• Finished stock was shown in manufacturing account instead of trading account. Some calculated cost of goods sold (with finished goods adjustments) in a statement separate from manufacturing, trading and profit and loss account.
• Provision for bad debts for the year, was made at 10% of accounts receivable as the opening balance of the provision was ignored. In many cases provision was made without considering the information regarding write offs.
• Adjustments to various accounts were not made as per the information given in the question.

Q.5

This was an easy question for those students whose concepts were clear as they only had to review each information separately. About 20% of the students managed to secure passing marks in this question. Among the others, many were unable to make out whether a certain item has to be added or deducted. Some of the most prominent errors were as follows: 

• Adjustments for sales after June 30 were made at selling price, instead of cost.
• The effect of error in totaling the stock sheets was deducted instead of being added to the value of physical stock.
• Invoice of Rs. 8400 pertaining to goods which had not been delivered upto 11.07.2006 was required to be deducted from sales Invoices of Rs. 90,000 while making adjustments for sales subsequent to June 30. This was mostly ignored and in many cases added to the amount of Rs. 90,000 for adjustment purposes.
• The fact that a purchase invoice of Rs. 13,800 included in purchases of Rs. 60,100 related to goods received on July 15, i.e. after the date of physical stock taking, was ignored.
• Purchase of Rs. 9,400 referred to in note (iv) of the question were adjusted as if these had been made subsequent to June 30.

Q.6

Most of the students got confused while solving this question probably because some of the head of accounts seemed unfamiliar. However, since detailed procedure of when and how each account had to be debited and credited was given in the question, those conceptually strong students who managed to start the question with confidence were able to secure good marks.

Q.7

Joint venture and capital accounts is a topic which is tested frequently. Still only half the students managed to secure passing marks. Common mistakes were as follows:

• The question clearly stated that each of the partners took over stock worth    Rs. 516,000. Surprisingly, a large number of students incorrectly distributed stock worth a total of Rs. 516,000 between the two in the profit sharing ratio.
• Wrong posting of figures from joint venture account to partners’ accounts: e.g. debit in joint venture account debited to capital account instead of crediting.
• Interest due to partners was not considered.

Q.8

This question on bank reconciliation was well attempted. Two types of mistakes were generally seen: 

• Some items which should have been adjusted in the bank book were incorrectly shown as reconciling items.
• Since the balance in the bank book showed an overdraft many students got confused between adding or deducting certain items. Some of them just showed the adjustment without totals i.e. without indicating whether these are to be added or deducted and could not get any marks for that.