Q.1

This question on consolidation of a subsidiary and a joint venture was the best attempted question with 77% securing pass marks. Common mistakes identified in many answers were as follows:

(i)

It was clearly mentioned in the question that share in Joint Venture has been acquired at book value, which was to be calculated at Rs.36,250. However many students assumed the consideration as Rs. 40,000 being the investment as appearing in MEL's balance sheet i.e. Rs. 160,000 less cost of CPL's acquisition of Rs. 120,000. The balance of Rs. 3,750 represented the cost of other investments.

(ii)

Depreciation on the excess fair value of plant was provided for 1 year. It should have been provided for 3 years i.e. from date of acquisition of April 1, 2003 till the date of balance sheet.

(iii)

The unearned profit on equipment purchased from the Joint Venture was wrongly calculated at Rs. 1,400 minus depreciation of Rs. 175 instead of 50% of these figures. Many students ignored depreciation. Many provided full year's depreciation instead of 6 months. Many students took the unearned profit as 25% of 7.0 million, instead of working back the cost.

(iv)

In few cases , cash at bank was netted off against bank overdraft.

(v)

A few students consolidated 80% of CPL's assets and liabilities and did not show 20% minority interest as a liability. On the other hand, some of them consolidated the Joint Venture at full values and showed 50% as minority interest.

Q.2

This question was very poorly attempted and only 20 students obtained pass marks. Mistakes made in the question were:

(i)

Cumulative figures as given in the question were taken as figure for the year. Consequently such students arrived at totally wild results. Even then, most of them could not identify, where they have gone wrong.

(ii)

Students were not clear about determining stage of completion / accrual of profit which could have been on the basis of (i) costs incurred to date compared to total estimated costs or (ii) percentage of work certified.

(iii)

Proper disclosures as required under IAS-11 were not made.

Bonus and penalties were not properly accrued as the students were not aware of the meaning / treatment of remote, possible and probable situations. Notes to accounts relating to contingent liability in 2005 and 2006 were not properly set out.

Q.3

It was a simple question for anybody who had studied the accounts of a general insurance company. However it was not attempted by as many as 26% students. Obviously, they had no idea how to proceed. Those who did attempt, were not upto the mark and the answers were deficient in many respects.

(i)

The workings showing computation of net premium, claims and commissions were made a part of the profit and loss account.

(ii)

The opening and closing balances of outstanding claims and commission were not adjusted properly, against claims and commission paid during the year. The closing balances were deducted instead of being added and opening balances were added instead of being deducted.

(iii)

The Revenue account was not drawn up in the prescribed format, i.e. in columnar form with separate columns for fire, marine, motor and miscellaneous insurance. Instead, only the total column was prepared.

(iv)

Many students did not provide income tax on profit.

Q.4

(i)

As the first right issue was made at market price, there was no adjustment factor in the right issue. Many students wasted their time in calculating the adjustment factor using various types of incorrect calculations.

(ii)

Weighted average of bonus shares were taken as one million i.e. 2.0 million x instead of taking it as 2.0 million in accordance with the IAS.

Q.5

This question on accounting for taxes was the worst attempted question and very few students could secure passing marks. Most of the students showed poor concepts and messed up all the figures. Those who produced relatively better answers made the following mistakes:

(i)

The only item creating permanent timing difference was the disallowance of 40% expenses. The students however wrongly related many others.

(ii)

To arrive at the taxable income, gratuity provision of Rs. 1.2 million created during the year was to be added back and payment to two employees totaling Rs. 200,000 was to be deducted. Many students added back the closing gratuity figure of Rs.3.5 million and deducted only Rs. 100,000.

(iii)

Taxable income resulting from the sale of leased machine was mostly ignored.

(iv)

Deferred tax on penalties and fines amounting to Rs. 100,000 should have been reversed as it was a case of permanent difference and had been wrongly accounted for, in prior years. The adjustment was mostly ignored

Q.6

Students were asked to draw up Statement of Compliance for inclusion in financial statements. Many students instead, produced Statement of Compliance as is included in Director's Report as required under the Code of Corporate Governance. 38% candidates did not attempt the question and only 20% got passing marks .

Q.7

The question was attempted by 60% students only. Students could not properly explain the concept of "Embedded derivatives" as narrated in para 10 of IAS 39. However, 38% secured pass marks.