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GeneralComments !*:g??[T
As normal,the paper dealtwith a wide range of issues and accounting standards.The paper was demanding butcandidates responded well resulting in a good pass rate.Candidates seem to havea good basic knowledge of accounting standards,and where the question requiresthis type of knowledge,no issue arises.However,there are few questions thatrequire simply rote knowledge.Cash flow statements are well done for the mostpart,although any complexity and application seems to create a problem.Topicalissues of a discursive nature are quite well done,indicating a good awareness ofcurrent issues.However,the computational parts are often poorly completed whichagain seems to indicate that application of knowledge is aproblem.Additionally,some candidates do not write in sufficient detail on thediscursive parts of the paper,and do not answer the question set.A generaldiscussion of the relevant standard,however,is not normally required,althoughdetailed discussion of the relevant section of the standard is required.Asignificant part of the paper comprises discursive elements and candidates needto develop skills in this area. G e`7`D>L
Candidates should,wherepossible,make sure that they show all workings and start each question on a newpage.Time management issues seem to have been less prevalent in recentdiets.There is some evidence that candidates spend disproportionate time onsingle question parts and hence not answering all the parts of the question.Timemanagement is critical in passing the paper.When the time allocated to aquestion is over,candidates should move on and start a new question,leavingsufficient space to come back and finish the question if time allows.Candidatesseem to have difficulty applying standards to the scenarios given in thequestions.It is often obvious that candidates have the knowledge,but they areunable to use this knowledge in answering the question.The scenario can oftengive candidates help in answering the question.There are several key principlesin each standard.Sometimes these are lost in the detail of the standard.Theseprinciples are the basis of most of the examination questions and candidatesshould concentrate on these principles.Candidates need to understand thestandards,and not just learn their content.Understanding will lead to betterapplication in the examination .There may is a misconception that the knowledgerequired to pass this paper can be gained in a short period just before theexamination.This is not the case.The knowledge should be built up over a periodof time and continuously consolidated.Candidates need to remember that theknowledge and application skills acquired from F7 (or the equivalent ifexemptions are claimed) are pre-requisite to P2. G~1 ;_'
SpecificComments X\Bl?
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Question One .JL J (WM
This question requiredcandidates to prepare a consolidated statement of cash flows for a group usingthe indirect method.The question required candidates to calculate goodwill onthe acquisition of an entity where the group already held an investment in theentity.The goodwill needed to be calculated in order to ascertain the impairmentof goodwill which was an adjustment to the operating activities of thegroup.Candidates performed well on this part of the question but often failed totake account of the deferred taxation adjustment.The question also requiredcandidates to deal with the acquisition of the subsidiary in preparing the cashflow statement and to calculate the cash flows relating to anassociate,PPE,non-controlling interest,deferred taxation,a defined benefitscheme,investment property,intangible assets and available for saleinvestments.This part of the question was well answered.There are some elementsof a cash flow question which are relatively easy to answer and candidatesgenerally obtained the marks in these areas.
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The main areas wherecandidates found difficulties were: ^ nPy(Q0
•Ensuring that the purchaseof the subsidiary was dealt with in calculating cash flows across the range ofassets and liabilities M
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•The treatment of the pastservice costs relating to the defined benefit scheme tG$O
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•The calculation of the cashflow on taxation, although many candidates made a good attempt at thiscalculation #1haq[Uv7
Part bof the question required candidates to comment on the directors’ view that theindirect method of preparing statements of cash flows is more useful andinformative to users than the direct method and to discuss the reasons why thedirectors may wish to report the loan proceeds as an operating cash flow ratherthan a financing cash flow commenting on whether there are any ethicalimplications of adopting this treatment.The first part of this element of thequestion was often poorly answered.In fact often it was not attempted.Currentlythere is a debate over whether the direct method should be used in preference tothe indirect method and thus candidates should be aware of the advantages anddisadvantages of the methods.It shows that candidates are not reading widelyenough and are focusing on a narrow range of topical issues.The ethical part ofthe question was quite well answered although many candidates did not read thequestion fully enough as it stated that the directors were to receive extraincome if the operating cash flow exceeded a predetermined target for theyear.Part of the answer to the question was therefore contained in thescenario.This further exemplifies the points raised in the introduction to thisreport. ;F258/J
QuestionThree C<J*C0vQO
This question dealt withreal world scenarios taken from corporate financial statements.It is importantthat the exam paper reflects actual issues in financial statements and thosecandidates can apply their knowledge to these scenarios. 3tf_\E+mIi
A public limited companywhich developed and operated airports was involved in litigation over anaccident at one of the airports and the issues was whether a provision orcontingent liability should be provided for.In this case it was important forcandidates to justify their conclusion by discussing the nature of a provisionand contingency.This part of the question was well answered although manycandidates came to the incorrect conclusion. #4m5 I="
In part b,candidates had todetermine the relationship between an entity and a company that it had investedin.There was a need to discuss the relationship between the two entities inorder to determine what the relationship constituted.Many candidates did notagain use the scenario and in this question it was critical to discuss the factsin the question.However the question was well answered. M^ '1Q.K
In part c the entity issuedshares for the acquisition of franchise rights at a local airport and vSnVq>-q&
showedirredeemable preference shares as equity instruments in its statement offinancial position.Candidates had to determine the correct accounting treatmentfor these items.This part of the question was not well answered with candidatesnot understanding how to account for the irredeemable preferenceshares.Understanding the nature of equity and liability is a key element of thesyllabus. A.r 7 ks
Overall the question was well answered. "v:k5a(
QuestionFour Sqn>L`Lz
In part a,candidates had tocomment on the different approaches which could have been taken by theInternational Accounting Standards Board in developing the ‘IFRS for Small andMedium-sized Entities’ explaining the approach finally taken by theIASB.Additionally candidates had to discuss the main differences andmodifications to IFRS which the IASB made to reduce the burden of reporting forSME’s.Specific examples had to be given and also a discussion of how the Boardhad dealt with the problem of defining an SME.This part of the question was verywell answered.The subject had been very topical and been the subject of articlesin the accountancy press. W$`v^1M2o
In part b candidates had todiscuss how the certain transactions should be dealt with in the financialstatements of an entity with reference to the ‘IFRS for Small and Medium-sizedEntities’.The answers to this part of the question were quite variable.The threetopic areas chosen were defined benefit,the purchase of an entity and researchand development expenditure.Candidates were generally unclear about how toaccount for the transactions and many used full IFRS.The main issue was thatcandidates automatically assumed that the corridor approach would be used fordefined benefit schemes which was incorrect. /= ;,lC
This question was generallywell answered. $^fF}y6N
