ACCOUNTING

SUBJECT 9197

PAPER 3

GENERAL COMMENTS

The question paper was largely fair in that it had content validity. All questions were set
on the current syllabus. The questions were all quite clear because there was no
evidence that the candidates misconstrued any of them.

COMMENTS ON INDIVIDUAL QUESTIONS

QUESTION 1 (a)

(i) required the candidates to prepare a capital reduction account for a company
which has been in distress for a number of years. Some candidates did not
appear to know what to include in the capital reduction account. Others reversed
their entries. Yet others appeared to be guessing, for instance one would credit
the amount of reduction in ordinary share capital to the capital reduction share
capital to the same account. Teachers and students should take note that a
capital reduction scheme has to be suctioned by a court law and no court would
allow such a scheme if it results in a debit balance on the capital reduction
account.

(ii) required the candidates to prepare the company’s balance sheet after the capital
reduction scheme had been effected. Some candidates included motor vehicles
in the valance sheet when the question clearly indicated that these had been
sold. Some candidates did not adjust the debtors for bad debts. The majority of
the candidates did not correctly adjust the bank balance, with some opting to
open a cash account instead. In short there was evidence that the candidates, in
general, did not read the question well. Teachers and students should note that
the nominal value of the shares should be stated in the balance sheet.

QUESTION 1 (b)

This question required the candidates to distinguish better capital reserves and revenue
reserves. While some candidates earned good marks in this part of the question, the
answers of most left a lot to be desired. Some candidates’ definition of capital reserves
referred to revenue reserves, to the extent that some candidates gave the general
reserves and the fixed assets replacement reserves as examples of capital reserves.
The opposite was also done, with some candidates giving the share premium amount
as an example of a revenue reserve.
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QUESTION 2 (a)

This question required candidates to prepare a trading profit and loss and appropriation
account from given data. This was an easy question for this level and some candidates
scored maximum marks. However, a good few did not correctly calculate the proposed
final dividend on ordinary shares. Yet others could not appreciate the fault that there
was an accrual on debenture interest and charged $25 000 as interest when the correct
figure was $15 000. The sequence of entries was also not correct in most answers.
Teachers and students should note that companies pay interest before tax and then
declare dividends if they so wish.

QUESTION 2 (b)

This question required candidates to calculate a number of investment ratios and the
net profit percentage, based on their answers to part (a). The greatest let down for
most candidates was that they did not know the applicable formulae. Furthermore,
while the question clearly stated that answers should be correct to two decimal places,
most candidates rounded their answers to one decimal place or even the nearest whole
number.

QUESTION 2 (c)

(i) This part of question required the candidates to explain how companies can sue
ratios to assess their own performance. While the majority of the candidates
responded well to this part of the question, a few tended to comment on the
ratios that they had calculated in part (b).

(ii) This part of the question required the candidates to explain why the return on
capital employed is an important measure of the performance of a company.
Some candidates answered the question well but others tended to analyze the
formula of the ratio, thereby losing a lot of easy marks.

QUESTION 3 (a)

(i) This part of the question required the candidates to recalculate gross profit of the
company, taking into account some errors and adjustments.

(ii) This part wanted a re-calculation of the net profit. It was dismaying to note that a
good number of candidates do not have an appreciation of what affects the gross
profit and the net profit. Teachers should take note that candidates require a
sound knowledge of the principle of double entry in order to answer such
questions well.
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QUESTION 3 (b)

(i) This part of the question required journal entries to correct given errors. This part
of the question also showed the extent of ignorance of basic double entry at this
level.

(ii) This part of the question required the candidate to write up a suspense account.
This was also a challenge to the candidates to demonstrate knowledge of double
entry. Their responses indicated that a lot of work needs to be done in this
regard.

QUESTION 3 (c)

This question required the candidates to explain why fixed or non-current assets are
depreciated. These were easy marks if the candidates had done any reading and most
of them did not disappoint. However, it must be noted that we do not depreciate fixed
assets to be able to replace them.

QUESTION 4 (a)

This question required candidates to prepare two consecutive process accounts. While
the majority of candidates did well to prepare Process 1, Process 2 account was not all
that well done. Some candidates prepared process accounts based on unit costs when
they should have used the relevant level of activity. A challenge to most candidates
was the calculation of the value of finished goods and work in progress based on the
degree of completion. This is a critical point of the syllabus which should be done
thoroughly. Many candidates lost marks on this part.

QUESTION 4 (b)

This question required the candidates to outline any five features of process costing.
These were easy marks but because most candidates had not properly prepared they
lost such marks. For instance, not all process costing results in joint products, abnormal
losses and so on.