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The composition and topics of ¤ Not realising the ¤ A small minority of candidates
the questions was such that on post‑acquisition period was are still proportionally
was weak or non-existent answers to the sections of the paper
this diet there was very little two years; many candidates consolidating the associate
difference in substance between only accounted for one-year’s (some even proportionally
the International paper (the additional depreciation on the consolidated the subsidiary);
primary paper) and all other new property and amortisation others fully consolidated
requiring written comment, interpretation, and analysis.
adapted papers and therefore of the brand. the associate and computed
these comments generally apply ¤ The detailed components of a non‑controlling interest
to all versions of Paper F7. the consolidated retained of 70%.
earnings were often missed, ¤ Many candidates did not
QUESTION 1 namely depreciation account for the effect of the
This question required the adjustments, unrealised profit share exchange, on acquisition
preparation of a consolidated (URP) in inventory (often of the interest in the associate,
statement of financial position calculated wrongly as well – on the share capital and
(balance sheet) for a parent, see below), and gain/loss on share premium.
a subsidiary (line‑by‑line available-for-sale investments.
consolidation), and an ¤ Many candidates did not QUESTION 2
associate (equity accounted). calculate the non-controlling This was a familiar question on
The question required the interest under the revised preparing financial statements
calculation of goodwill, with standard by taking the fair from a trial balance with various
the consideration based on a value at acquisition (as adjustments. These involved
cash payment and loan note given) and then adjusting for a revaluation of a non-current
issue (that had already been post‑acquisition profits/losses asset, dealing with a finance
accounted for), and included (not applicable to UK version). lease agreement, accounting for a
some fair value adjustments. ¤ The URP was often calculated construction contract, a revenue
This was the best answered as a gross profit percentage, recognition issue, an effective
question and demonstrated whereas the question stated rate finance cost for a financial
that most candidates have that it was a mark up on cost. instrument, and taxation.
a sound knowledge of Some candidates eliminated This question was the second
consolidation techniques. the cost of the inventory rather best answered question. The
The main areas where than the URP in the inventory, most common errors were
candidates went wrong were and many incorrectly split the as follows:
as follows: URP between the parent and ¤ Deducting the agency
¤ In the goodwill calculation, the subsidiary even though the sales from revenue,
a failure to account for the parent had made the sale. without recognising the
loan note element of the commission earned.
consideration and/or the ¤ Rather worryingly, deducting
non‑controlling interest the closing inventory from the
element of the goodwill (not cost of sales (by definition it
applicable to UK version), and has already been deducted).
incorrectly accounting for the
new property by using its fair
value rather than the excess of
fair value over cost.
03 exams
did they know the difference between cash and non-cash flows.
depreciation and impairment finance cost of the redeemable lease, basing the finance
reversal of the leasehold preference shares at the cost and current/non-current
property on the revaluation as nominal rate of its dividend liability on the carrying amount
if it had been at the beginning rather than at the effective rate of the leased asset rather than
of the year (the question based on the carrying amount on the opening liability for the
clearly stated it was at the end at the start of the period. Also, lease obligation.
of the year). the dividends are part of the ¤ Showing equity dividends in
¤ Taking the reversal of the finance cost in the income the income statement rather
impairment to reserves rather statement and the shares than as part of the retained
than through the income themselves are classified as earnings (or statement of
statement as, on this occasion, debt on the statement of changes in equity if it had
this reversed a previous financial position; redeemable been required).
impairment loss recognised in preference shares do not
the income statement. have the characteristics of an The statement of financial
¤ Worryingly, depreciating the equity instrument. position was generally well done
owned plant and equipment ¤ Making errors in the treatment and most of the errors that were
using cost rather than carrying of the taxation in both the made related to the following
value; the distinction between income statement and the through of errors from the
straight line and reducing statement of financial position. income statement.
balance depreciation should be These errors included: crediting
very familiar to candidates at the under-provision of tax from QUESTION 3
this stage. the previous year to the income Part (a) required the preparation
¤ Deciding that the leasehold statement (as a debit balance of a statement of cash flows
property and the leased it should have been charged); (for 15 marks) followed by some
plant (and hence the finance treating the closing provision ‘targeted’ interpretation (for 10
lease payment) were the for deferred tax as a charge marks). Cash flows are generally
same asset; this produced in the income statement (it popular with candidates and
some very unhelpful workings should be the movement on the many scored well. However, again
and balances. provision that appears in the the overall performance was not
¤ Providing many complex (and income statement); showing as good as I would have expected,
unnecessary) lease calculations the current tax net of the with surprisingly few candidates
– if future payments are to be under‑provision as a current earning maximum marks. Less
discounted, the appropriate liability (only the current year’s well-prepared candidates showed
factors will be provided as part tax is a current liability). poor format knowledge, with
of the question. ¤ Making a fair attempt at the little idea of which items should
construction contract figures appear in which section of the
in the workings (credit was statement, nor did they know
given for this), but often not the difference between cash and
following these through to the non‑cash flows.
financial statements.
student accountant 10/2009
04
Practise past papers for Paper F7
www.accaglobal.com/students/acca/exams/f7/past_papers
an area causing marks to be lost was geeting the cash movements the wrong
items are normally for correctly previous section having already have had on the bank balance
identifying them as inflows or identified the effect of those if the previous year’s (2008)
outflows rather than for correct changes. The same candidates credit periods been maintained
arithmetic. Some candidates split were usually convinced that the in the current year (2009). This
the two finance costs both within changed credit periods were the involved calculating 2008’s
the adjustments and within the cause of the changes in the gross credit periods and then applying
cash outflows (often in different margin, which shows a lack of those to the credit sales and
sections of the statement) which understanding between profit credit purchases of 2009 to
was not necessary. and cash. give ‘theoretical’ receivables and
Part (b) gave information payables balances for 2009.
about percentage changes in These could then be compared
the sales and the cost of sales to the actual payables and
instigated by the directors’ receivables balances of 2009 to
actions, which was accompanied identify the ‘theoretical’ effect on
by information on changes the bank balance.
in credit periods. Part (b) (i)
required candidates to calculate
the gross profit margin that
should have resulted from the
cost and revenue changes.
05 exams
but simply did not discuss all the elements of the scenarios which inevitably
There were many candidates who were on the right lines with question 4,
Many candidates presented Also, in Part (a), there was a Part (b) (i) dealt with the
a simple comparison of this lot of confusion over the period consequences of a fire after
year’s credit periods with those covered by the standard. Many the reporting period. Common
of the previous year; either candidates thought there was a errors were to say that this
those candidates did not read set time (eg three or six months) was an adjusting event (it
the requirement properly or or that the period extended to the was non‑adjusting), and most
they only have a ‘mechanical’ AGM. To state that an adjusting candidates netted off potential
understanding of the ratios and event requires adjustment – and insurance proceeds from the
cannot adapt this understanding a non-adjusting event doesn’t losses and did not appreciate
to a different scenario. Weaker – did not earn any marks as it that the losses and the related
candidates decided to calculate says nothing and certainly does insurance claim required
the inventory turnover figures for not relate to the issues raised by different considerations. Hardly
both years and then compute IAS 10. any candidates realised that
the working capital cycle, which Many candidates also thought the subsequent disruption of
was of no relevance to the that the determining factor – trading may have brought into
question set. regarding whether to adjust question the going concern of the
or not – was whether the item company (which would then make
QUESTION 4 was material or not. Several it an adjusting event). Even those
Performance was particularly candidates suggested that candidates who correctly stated
disappointing for this question. examples (ii) and (iii) were not that this was a non-adjusting event
Part (a) was straightforward for material, despite the note to proceeded, often at great length,
anyone who had read IAS 10, the question providing clear to itemise the journal entries
Events after the Reporting Period guidance on this point. Weaker needed as if it was an adjusting
(or equivalents), and the three candidates confused the topic event (without any mention of the
illustrative examples are well with prior period adjustments going concern aspects).
documented in both the standard and the use of provisions and Part (b) (ii) was an example of
and in textbooks. In Part (a), contingent items. sale of inventory at a loss after the
many candidates attempted to Unsurprisingly, if candidates reporting period. Most candidates
limited the marks gained.
distinguish between adjusting were not able to correctly answer focused on the sale itself, saying
and non-adjusting events through Part (a), they did not gain that it should be dealt with in
the use of examples rather than many marks in the examples the following year and therefore
by description. Examples were in Part (b). However, many no adjustment was required.
not asked for in Part (a) and candidates who did know the Some correctly appreciated
therefore did not earn marks. definitions in Part (a) still could that the relevant issue was that
not apply the circumstances to the inventory’s value should be
the Part (b) scenarios. There were adjusted because its net realisable
a lot of comments in Part (b) that value (NRV) was below cost.
contradicted definitions given in
Part (a).
student accountant 10/2009
06
Listen to the Paper F7 examiner analysis interview
www.accaglobal.com/learningproviders/tuition_provider/analysis_interviews/fundamentals/f7