THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN
EXAMINERS’ COMMENTS
SUBJECT SESSION
Financial Accounting and Reporting-II Certificate in Accounting and Finance –
Autumn 2018
General
The overall passing ratio of 48% was much better than the previous result of 32.3%. In fact
it is the highest for this paper since introduction of the new education scheme. The highest
score in the paper was 91 marks.
Performances in all questions were quite good except for Q5. Poor performance in Q5 was
mainly due to the fact that such variation had not been examined previously.
Element of selective studies was evident from the fact that one fourth of the students could
not even obtain 15% marks in Q4 and Q5. Although students are using past papers as a key
element of their examination preparation but they should remember that topics/sub-
topics/variations not covered in past papers are also examinable.
Although many students performed well but some common and illogical mistakes were
noted. The persisting issue appears to be lack of practice and poor presentation in many
cases.
Attainment of full marks in a question is challenging but each question contains sufficient
achievable passing marks. It was observed that students spend too much time on completing
the question even though they have no idea of the difficult part of the questions. Students
are strongly advised to switch to the next question after they have spent reasonable time on
a question. This will ensure that they attempt all questions. 19.9% students were just short
of 9 or less marks and could have easily obtained them had they covered all areas on the
syllabus and/or attempted all questions in the paper.
Question-wise comments:
Question 1
The question required note on taxation and computation of deferred tax liability / asset. The
overall performance in the question was above average as 56.5% of the students secured
passing marks. Calculation of current tax was generally well dealt with. However, mistakes
were observed in reconciliation and computation of deferred tax. Some of the common
errors were as follows:
Unused opening provision of warranty was ignored while calculating warranty expense
and closing provision.
Deferred tax liability on dividend income was computed @ 30% instead of 10% and the
impact of lower rate was not presented in the reconciliation.
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Examiners’ Comments on Financial Accounting and Reporting-II Autumn 2018
Impact of excess accounting depreciation and excess tax gain was often taken
incorrectly i.e. added when it was required to be deducted and vice versa.
Question 2
The question required statement of cash flows using indirect method. The performance in
this question was excellent as 82% of the students secured passing marks. Some of the
common errors were as follows:
While calculating interest paid, students failed to incorporate the effect of unwinding of
discount on provision for dismantling.
While calculating payments for purchase of fixed assets, students deducted the amount
of right of use asset based on fair value of the machinery instead of present value of
lease payments.
Amount payable against purchase of fixed assets was neither adjusted in purchase of
fixed assets nor in changes in working capital.
Lease payments were shown in investing activities instead of financing activities.
Question 3
The question required explanation of fundamental principles of ICAP’s code of ethics,
potential threats faced in the given circumstances and available safeguards. 58.1% students
obtained passing marks in the question. The technical knowledge required to solve this
question was not of a high degree but the need to apply that knowledge was crucial to a
good answer. Explanation of the concepts seems to be an issue for the students. Generally,
they identified the correct issues but directly jumped to the conclusion without appropriate
explanation which cost them precious marks.
Question 4
The question required note on intangible assets in the consolidated financial statements. It
was based on IAS 38 and examined acquisition of intangible assets as part of business
combination. The performance in the question was below average as only 36.5% of the
students secured passing marks. Some of the common errors were as follows:
While determining the cost of development to be capitalized, expenditures which were
required to be capitalized were not capitalized and vice versa.
Parent company’s customer list was capitalized despite the same being expressly
prohibited in IAS 38.
Hardly any student bifurcated the revaluation adjustment between surplus and P&L.
IFRS requires that “additions due to business acquisition” should be separately
disclosed from other additions to the intangible assets. However, almost none of the
student presented this bifurcation.
Question 5
The question required statement of financial position along with relevant notes including
accounting policy for property, plant and equipment. This was the worst performing
question of the paper and only 7.5% of the students secured passing marks.
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Examiners’ Comments on Financial Accounting and Reporting-II Autumn 2018
Accounting policy for property, plant and equipment was only written by few. Some
students drafted disclosure note for property, plant and equipment instead of policy.
For preparing statement of financial position, amounts appearing in trial balance need to be
presented in appropriate head without any adjustments. Though, students prepared
statement of financial position but were not careful in identifying relevant line item,
presenting headings and putting sub-totals.
Most of the students did not seem to have any idea of relevant disclosure requirements.
Consequently, notes were not prepared by the majority. Students could not even secure
those marks which could have been obtained simply by copying additional information in
the notes.
Question 6
This question comprised of 2 short questions to increase the coverage of the syllabus. The
overall performance in the question was average as 44.8% of the students secured passing
marks.
Part (a) of the question required disclosure notes on lease transaction of a lessor. In many
cases, disclosures were given on the basis of IAS 17 instead of IFRS 16. Some of the other
common errors were as follows:
Lease term was taken as 3.5 years whereas it should have been 5 years as it was
reasonably certain that the option to extend the lease would be exercised.
Students were also not familiar with the requirement to disclose maturity analysis.
Part (b) of the question required calculation of impairment loss on plant. This part was not
attempted by a significant number of students. Those who attempted it usually calculated
correct fair value less cost to sell but often irrelevant items were included and relevant
items were ignored in calculating value in use.
Question 7
The question required discussion on treatment of the given matters relating to IAS 10 & 37
in the financial statements. Though students correctly identified the underlying issues but
directly jumped to the conclusion without the supporting explanation which cost them
precious marks. Many of the students just reproduced information given in the question
without explaining its impact on the financial statements or just quoted text from the
standards without reference to the question. 36.9% of the students could secure passing
marks. Some of the other common errors were as follows:
Students incorrectly stated in situation (i) that there was a present obligation due to
publishing of discount coupons in the newspaper. However, the obligating event was
the sale of the product which had not occurred till year end.
In situation (iv) almost all students suggested correctly that provision should be created.
However, the calculation of the amount of provision was often incorrect.
THE END
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