Most students attempted this question which was unfortunate as the question was generally answered poorly.  Many students did not actually answer the question asked.  So quite a few students wrote several pages but still achieved only a handful of marks.

Part A

(a) Students were asked to provide the journal entries in the accounting records of Berry plc relating to the purchase of the equipment in January 20X4.  Common errors were as follows

•   A few students didn’t give journal entries just a list of figures and a few got their DRs and CRs the wrong way round.

•    Most students recorded the cost of equipment as £55,500DR instead of £55,000, no adjustment for delivery costs or removal of inspection cost

•    Some students incorrectly identified the CR entry for the purchase of the equipment as cash instead of accounts payable.

•    Because of the above treatment many students did not identify inspection cost as a separate asset

•    Some students calculated depreciation even though these journals were initial recognition of the asset

•    Most students gave the correct journal entry for the repairs

(b) Students were asked to provide the journal entries in the accounting records of Berry plc relating to the equipment for the year ended 31 December 20X5.  Most students were able to record the new major inspection cost correctly but there were issues with the other entries.  Common errors included

•    Credit was given if students used an incorrect equipment cost from (a) but still many students calculated the depreciation incorrectly.

•   Very few student included an entry to derecognise the former major equipment expense

•    Where students did include this entry many used the original £3,000 rather than £2,000.

(c) Very few students answered this correctly.  The question asked for the objective of the impairment test.  The objective is not to correctly ‘value’ the asset, see if there is better, more efficient equipment, see if the equipment will be viable in the future, etc (some of the incorrect answers).  The objective is to ensure that the asset’s carrying value does not exceed its recoverable amount. A lot of students wrote nearly half a page (some more), far too much for 2 marks.  Remember to look at the number of    marks available.

(d) For this part students were asked to calculate, using the criteria in IAS 36 Impairment of Assets, whether the equipment is impaired at 31 December 20X7, and if so,          provide the journal entry to record the impairment in the accounting records

•   A lot of students did recognise that the carrying amount needed to be compared to recoverable amount

•    However many students just used the present value of £25,000 and didn’t adjust this for the residual value of £2,500 = £28,000 ie value in use.

•    Some students correctly identified that fair value less costs to sell was £27,000 -  £1,500 = £25,500 but then didn’t compare this to the value in use and choose the higher.

•   A lot of students made errors in calculating the carrying amount of the equipment mainly to do with the number of years of depreciation but other errors involving   the inspection costs

Part B

This part of the question required students to apply IAS 10 Events after the Reporting Period to each of the scenarios.  Some students spent a lot of time explaining IAS10 giving              definitions etc.  There were no marks for this as the question explicitly asked for the              accounting treatment in each scenario.  Marks were given for this and not for a summary of  IAS10.

(a)       This was an adjusting event and most students recognised it as such.

However, a lot of those students didn’t give a correct justification related to IAS10. For full marks students needed to

•    explicitly identify the event (finding the company liable and the requirement to pay for the damage) and

•    the timing (post year end but before authorisation of FS),

•    the condition (the lawsuit) and timing ie before the year end ,

•    any adjustments required

(b)       This was also an adjusting event.  Many students incorrectly stated that this

was a non-adjusting event.  Marks awarded again for full explanation (see points (a) above)

(c)       This was a non-adjusting event and the majority of students correctly            identified it as such.  Marks were lost by not giving a full explanation (see (a) above)

Question 2

This was the next most frequently attempted question.  Generally this question scored much higher marks than Question 1.  Some parts (Part A for example) achieved higher marks than others.

Part A

This question required students to prepare journal entries to record various transactions in the journal of a Pizza company.  The transactions all involved the sales of Pizzas and        required students to think about how to record deferred income, income from receivables  and cash sales.  Fortunately, many students scored highly on this part of Q2 many scoring 10/10.  Of the three parts this was answered the best.  The main errors were as follows

•    Many students lost marks by incorrectly naming ledger accounts.  Instead of ‘CR     Sales’ some students wrote ‘DR Pizza’ this does not make sense. Another common error was ‘CR Gift cards’ instead of ‘CR Deferred Income’ .

•    Some students had the correct entries but reversed the double entry ie DR Sales and CR Cash for the sale of pizzas for instance.  It is important that by this stage in your  course you can understand basic double entry.

•    Some students misunderstood the idea of deferred income.  Some students CR Accounts Payable or Inventory although I am unclear why.

Part B

This part of Q2 scored the lowest marks of the three parts with quite a few students not         attempting it all.  The requirement for this question stated “Discuss the recognition of the       dividend declaration with reference to the Conceptual Framework, providing an alternative    treatment where appropriate” .  I have reproduced it in full as students should note the            italicised “Conceptual Framework” (CF).  Students should have referred to the definition of a liability and an expense as this is how the accountant had , incorrectly, recorded the dividend. The chief errors were as follows

•    Many students did not refer to the CF at all so were unable to gain many of the marks available for the question

•   A lot of students did refer to the CF and gave the definitions (with varying levels of  accuracy) of a liability and an expense but incorrectly stated that the treatment was correct.  This was usually because they decided there had been a ‘Past Event’ (eg  the selling of shares or declaring the dividend), there was a ‘Present Obligation’ (eg because of the declaration) or that liabilities had increased

•    The alternative accounting treatment was often missed out or was incorrect

•   Very few students discussed reversing the entry made to record the dividend as an expense and a liability

Part C

Students generally gained at least half marks (6/13) for this question.  Most students gained the easy marks which included the initial recognition of the asset, depreciation for the year in 20X1 and 20X7.  Those students who lost marks generally did one or all of the following

•    Lost easy marks by not reading the question.  Several students CR Payable instead of Cash for the initial recognition of the Building

•    Incorrect double entry ie DR Accumulated Depreciation CR Depreciation expense. Again by this stage you need to be able to get the double entries the correct way   around.

•    Some students use a variety of figures for the useful economic life.  It should have been 50 but several used 5, 10 or even 15 years

•    Using a whole year of depreciation for 20X7 instead of 9/12

•    Some students omitted the reversal of accumulated depreciation needed because of the revaluation

•    Some students failed to give the double entry which transferred the building to the Investment Property Account

•   Again there was a mis-labelling of accounts with several students creating a ‘Lease’ account instead of ‘Investment Property.