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CHIEF EXAMINER’S REPORT FOR MAY 2014 BUSINESS INFORMATION SYSTEMS (PAPER 1.4) PART 1

GENERAL PERFORMANCE OF CANDIDATES

The general performance of the candidates was good. It was evident that candidates did not have detailed grasp of the topics, obviously attributed to inadequate preparation. There were a number of high performers spread over the various centers.

The standard of performance was better than the previous ones. No question or sub-question was deemed to be sub-standard. In fact, all the questions were targeted to match the appropriate level of paper.

The questions covered:

- Database

- Data Security

- Types of Processing

- Electronic Commerce

- Systems Theory

- Outsourcing

- Feasibility Study

- Computer Networks

WEAKNESS OF CANDIDATES

There were isolated cases of some levels of weaknesses demonstrated by some of the candidates in answering the questions.

The main reasons that could be deduced were:

Very short period of preparation. Most candidates allow themselves only a few contact hours of study towards the examination.

Lack of or no apparent practical skills in the field of Information Systems in the workplace.

Poor communication skills.

The observed weaknesses may be remedied by the candidates themselves making conscious efforts to prepare adequately before registering to write the examination.

QUESTION BY QUESTION ANALYSES OF PERFORMANCE:

Q1. This was an extremely simple question on database which was only fairly well answered. Candidates had to identify system flaws associated with the company’s system.

Q2. This question was also on database and was a knowledge-based type question which candidates handled fairly well.

Q3. This was a straightforward knowledge-type question based on the types of processing available to organizations.

Q4. This was a straightforward knowledge-type question which was based on electronic commerce. It was also only fairly well answered.

Q5.

This was also a knowledge-type question on systems theory and was only fairly well answered by candidates.

Q6. This was an application-type question on Computer Software which attracted the worst answers.

Q7. This was an application question on computer networks and attracted fairly good answers.

In each question, the amount of work required was commensurate with the allotted time and marks. No question was ‘loaded’.

With a little bit more preparation and commitment, the entire paper should have been within the capability of any average candidate.

CHIEF EXAMINER’S REPORT FOR MAY 2014 ECONOMICS (PAPER 1.3)

GENERAL PERFORMANCE OF CANDIDATES

1. The performance was above average. There were two favourite questions (3 and 5) that candidates did answer well.

2. The higher performers were mostly in Cape Coast. There were some good candidates from other examination centres though.

3. The low performers were spread around all the examination centres. Many students at Zenith Exams Centre did well this time.

4. Generally, the majority of the candidates performed well.

NOTABLE STRENGTHS IN THE PERFORMANCE OF CANDIDATES

There were no notable strengths in the performance of candidates that cut across.

WEAKNESSES DEMONSTRATED BY CANDIDATES IN ANSWERING QUESTIONS

1. The main weaknesses demonstrated were in answering questions 3 and 5. For question 3, the students could not use the marginal utility approach to explain why the demand curve is negatively sloped. For question 5, the candidates could not identify the fiscal measures from measures available to correct persistent balance of payments deficit.

2. Candidates must be encouraged to attend classes.

3. Candidates should consult good reference books. They must also know that for data response questions all the answers should relate to the data.

QUESTION BY QUESTION ANALYSIS OF PERFORMANCE

1. Question 1 was on Production Possibility Curve. This question was properly answered.

2. Question 2 was on theory of the firm.

3. Question 3 was on the theory of consumer behaviour. Majority of candidates could not answer this question well.

4. This question was also on production possibility curve.

6.

Question 6 was on national income accounting. This question, however, was answered well by the candidates.

7. Question 7 was on government budget. This was properly answered by the candidates very well.

CHIEF EXAMINER’S REPORT FOR MAY 2014 BUSINESS MANAGEMENT (PAPER 1.2)

GENERAL PERFORMANCE

The Business Management paper was of standard nature. The Examiners in setting the questions did not leave any room for any ambiguities to be created. All the questions were of standard. Marks allocated to questions followed the weightings in the syllabus and were fairly allocated and clearly stated. The questions were also evenly spread over the topics in the syllabus.

The performance of candidates was generally very bad. Indeed, it compared very negatively to the November 2013 performance. Some candidates did extremely well with most performing badly and the poor performance spread across the various centres. Accra candidates who performed very well during previous examinations probably because they had access to more effective tutorials were a disappointment this time.

WEAKNESSES OF STUDENTS

Some of the candidates demonstrated a lack of understanding of some questions and gave the wrong answers.

DETAILED QUESTION-BY QUESTION ANALYSIS OF PERFORMANCE

Question 1

Most candidates answered this question and scored very high marks, although a few of them did poorly at (c).

Question 2

Many candidates attempted this question with some of them performing very well.

Question 3

Most candidates answered this question with a few of them scoring very high marks.

Question 4

A lot of candidates refrained from attempting this question, and the few who did scored very low marks. Some even scored zero.

Question 5

This question was badly answered by the few candidates who attempted it.

Question 6

Although only a few candidates attempted this question, some of them scored very good marks.

Question 7 Most of the candidates refrained from answering this question and most of those who did performed very badly at (b) and (c).

The questions were neither too loaded nor were the marks allocated over-generous. The amount of work required of the candidates was commensurate with the time and marks allotted.

CHIEF EXAMINERS REPORT FOR MAY 2014 FINANCIAL ACCOUNTING FUNDAMENTALS

GENERAL PERFORMANCE

The standard of the question paper was good and better than the previous paper. The questions were clear, well typed and the instructions were also clearly stated. There were no ambiguities in the paper.

The mark allocations followed the weight as stated in the syllabus and marks were duly allocated to all questions including sub-questions.

The questions were spread over the topics in the syllabus. The marking scheme was well typed out.

WEAKNESSES OF CANDIDATES

The performance of candidates was average compared to the previous sittings. A small number of candidates exhibited a high sense of preparedness while most were not well prepared. The strength of most candidates was demonstrated in the preparation of Income Statement and the statement of financial position and a question on the dissolution of a partnership. Candidates generally scored better in questions 4 and 5 than in the other questions.

STRENGTHS OF CANDIDATES

The level of preparedness of candidates was mixed because while others performed extremely well others performed poorly. The level of comprehension of candidates in the preparation of Income Statement and the statement of financial position was good with some scoring full marks.

The most prevalent reasons for some candidates obtaining low marks remains as in previous sittings, i.e. studying only a few selected topics, not reading the question carefully enough, or a lack of structure in the approach to answering questions.

QUESTION BY QUESTION ANALYSIS OF PERFORMANCE

Question 1

Question 1 was a theory question and in two parts. Part (a) required candidates to outline four activities that accountants normally undertake within a business organization. The part (b) (i) asked candidates to provide an appropriate definition of financial accounting and management accounting. Part (b) (ii) required candidates to outline four differences between management accounting and financial accounting.

The performance of candidates was quite mixed. A small number of candidates answered the question very well. Majority of candidates could not outline the differences between management accounting and financial accounting. This accounted for a great number of candidates obtaining low marks.

It is therefore recommended that lecturers preparing candidates should teach them the work of accountants in an organization as well as the differences between management accounting and financial accounting.

Question 2

Question 2 was on Cash Flow Statement and candidates were required to prepare a statement of Cash Flows in accordance with IAS 7. The approach to this question was really poor. Quite a number of candidates did not answer this question and those who attempted the question scored very low marks. Almost all candidates did not prepare for this particular question and could not prepare the accounts required.

It is recommended that lecturers preparing candidates should let them understand the theoretical framework as well as how to prepare cash flow statements.

Question 3

Question 3 asked candidates (a) to write short notes on the following; (i) Accounting concepts, (ii) Debit Note (iii) Purchase Order (b) asked candidates to prepare (i) Bad Debts Account, (ii) Allowance for Doubtful Debts (iii) Income Statement Extracts and (iv) Statement of Financial Position Extracts.

The approach to this question was quite mixed as some candidates did very well and others performed poorly. Majority of the candidates did not know how to prepare Bad Debts Accounts and Provision (allowance) for Doubtful Accounts.

Question 4

Question 4 requested candidates to prepare Income Statement and Statement of Financial Position for a sole trader. The approach to this question was very good except that some candidates could not treat items such as discounts and returns and provisions for bad debts correctly. Some candidates treated Trade Payables and Trade Receivables in the Income Statement instead of treating them in the Statement of Financial Position. It appeared that the candidates were not familiar with these terms as being same as Creditors and Debtors.

Some candidates could not treat carriage inwards and outwards correctly. Instead of adding the carriage inwards to the purchases figure and treating the carriage outwards as an expense, they treated these items wrongly.

A great number of candidates were not able to calculate and treat the allowance for doubtful debt

correctly. The allowable for doubtful debt in the trial balance was 15,000 and it was stated that due to improvement in debt recovery efforts the allowance was adjusted to 10,000. Some were able to calculate the difference of 5,000 as a reduction in allowable doubtful debt but treated it as an expense instead of adding it to the gross profit.

It is therefore recommended that lecturers preparing candidates for the examination should draw

their attention to the issues stated above.

Question 5

Question 5 required candidates to prepare (i) Realization Account (ii) Partners Capital Account and (iii) Bank Account. This question was well answered except that some of the candidates could not treat discount received from creditors in the Realization Account correctly. Some candidates also treated the balance on the creditors account in the realization account instead of debiting the creditors account and crediting the bank account. The treatment of winding up expenses was also a problem for some candidates. Instead of debiting the realization account with the winding up expenses and crediting the bank account, they rather debited bank account and credited the realization account. However, the performance in this question was good.

CONCLUSION

Candidates and lecturers should use past question papers as a guide to future question papers, but candidates also need to be aware that future papers, although still following the current specification, may differ in approach and format from the current series.

CHIEF EXAMINER’S REPORT FOR MAY 2014 COST AND MANAGEMENT ACCOUNTING

GENERAL PERFORMANCE

Candidates were examined in the subject of Break-even analysis, optimum production mix with limiting factors of production, relevant costs in decision making, preparation of profitability statements, standard costing and variance analysis and preparation of functional budgets. All the subjects areas were within the requirements of the syllabus.

QUESTION BY QUESTION ANALYSIS ON PERFORMANCE

Question 1

The performance of the candidates in Part (a) of this question is satisfactory. However, about 30% of the candidates could not calculate the contribution per the limiting factor and rank them appropriately.

Part ‘B’ was however poorly answered. They could not determine the Common Size (CS) Ratio of the multi- product by using the production proportions of 60% and 40%. This is shown below:

 

Fowls

G. Fowls

 
 

SP

15

10

VC

9

8

C

6

2

Proportion

60%

40%

C/S

3.6

0.8

=

4.4

Some of the candidates could not even determine the total fixed costs by simply adding the cost items listed in the question totaling ¢ 76,000.00

Question 2

The candidates had no difficulty preparing the Profit Statement for Option 1 where the foreign order is rejected. However, they had difficulties in determining the various cost items using the applicable capacity levels. These cost items at capacity levels are calculated as follows:

1. Sales at 80% capacity At 100%

= 6,400,000 = 6,400,000 x 100/80

= 8,000,000

2. Sales (Export) at 50% capacity

= ½ x 8,000,000

= 4,000,000

3. Direct Material Cost for Option 2 (100% capacity)

= 4,000,000 (100-15)% = 3,400,000

= 2,000,000 x 100/80

= 2,500,000

4. Direct Labour for Option 2 (100% capacity)

= 800,000 x 100/80

= 1,000,000

5. Variable Cost for Option 2 (100% capacity)

= 400,000 x 100/80

= 500,000

6. Direct Material for Option 3 (130% capacity)

7. Variable Cost for Option 3 (130% capacity)

Question 3

= 2,000,000 x 130/80 = 3,250,000

= 400,000 x 130/80

= 650,000

This question was poorly attempted by the candidates. They had difficulties in determining which costs are relevant for the respective decision alternatives.

Material Alpha

-

The relevant cost is the replacement cost of the material

Material Beta

-

There are alternative uses of the material. The relevant cost

Labour

-

is therefore the selling cost or the substitute cost i.e. ¢ 20.00 The company has temporary excess of labour. They will be

Dept. A

-

paid whether the contract is accepted or not. The opportunity cost is zero. Will incur an opportunity cost of charging out 250 hours at ¢ 30 per hour.

Dept. B

-

Will incur an additional cost of ¢ 3,600.00

Most of the candidates could not define and give the characteristics of a relevant cost. These are:

future costs, cash flows, differ between alternatives.

Question 4

About 80% of the candidates have difficulty calculating standard material price, labour rate, variable overhead rate as well as material quantities per mint and labour hours per mint from given variances. These made it impossible to prepare the Standard Product Cost sheet for the company.

These are highlighted below:

Standard Material Price

=

450,000/300,000

= ¢ 1.50

Standard Labour Rate

=

256,000/64,000hrs

= ¢ 4.00

Standard Variable Overhead Rate

=

¢

64,000/64,000hrs

= ¢ 1.00

Material Usage Variance

=

¢

18,000/ ¢ 1.5

= 12,000kg

Standard Quantity for actual production

=

300,000 12,000

= 288,000kg

Standard Quantity per unit

=

72,000/36,000

= 2hrs

Labour Efficiency Variance

=

¢ 32,000/4

= 8,000hrs

Standard Hours for actual product

=

64,000 + 8,000

= 72,000hrs

Standard Hours per unit

=

72,000/36,000

= 2hrs

Standard Product Cost Sheet

Direct Materials (8kg @ ¢ 1.50)

12.00

Direct Wages (¢ 4 @ 2 hours)

8.00

Variable Overhead (2 hours @ ¢ 1.00)

2.00

Question 5

¢ 22.00

This question examined candidates in the preparation of functional budgets. The performance is very satisfactory. Only few candidates have problem with the preparation of the Material Usage Budget.

This is simply evaluating the Production Quantities Budget at the units of materials per products.

The major difficulty encountered was the definition of a Principal Budget Factor and some examples in a financial institution. A Principal; Budget Factor is simply any limiting factor or key factor that will limit the activities of an undertaking.

Examples in a financial institution include interest rates, reserve ratios, level of ICT, customers, exposure limits etc.

CONCLUSION

Performance of the candidates is generally below expectations. Presentation of suggested solutions was poor and the expression of English language below standard.

CHIEF EXAMINER’S REPORT FOR MAY 2014 FINANCIAL REPORTING (PAPER 3.1)

GENERAL PERFORMANCE

The general performance of the candidates was abysmal. More than 80% of the candidates scored less than 40% of the total marks while a few candidates scored as low as 16%.

The high performers were concentrated in Accra, Kumasi, Cape Coast and Koforidua. The low performers were in the other regional centres. The general performance showed that the background of most of the candidates entering the examinations at this level was poor and they were not really prepared for the examinations.

The standard of the questions was good and could be compared to those previously administered. The questions were quite involving and the volume of work required especially in questions 2, 3 and four was enormous. The questions covered all the relevant sections and reflected the weighting of the topics in the syllabus, and it followed a similar pattern of the previous exams.

NOTABLE STRENGTHS OF CANDIDATES

Candidates who prepared adequately and were ready for the examinations scored more than 50%

of the total marks.

Candidates with high understanding of the Accounting Standards scored high marks especially in questions 1a and 5.

WEAKNESSES OF CANDIDATES

Most of the candidates were not fully prepared for the examination. They showed lack of understanding of the Accounting Standards and the double entry principles. The orderly and logical presentation of answers in most cases was below average.

A few of the candidates presented their answers without showing workings to support the final

figures in the answer, resulting in the loss of vital points.

A few of the candidates failed to record the question numbers answered on the front cover of the

answer book in chronological sequence and also on top of the page in the answer book. They also failed to record their index numbers and number the pages in the answer books. A few others failed to comply with the instructions not to write in the either margins. The use of “white out” is gradually being reintroduced. Whilst a sizeable number of candidates did not have index numbers and therefore had to rely on their Student’s Registration numbers.

DETAILED QUESTION BY QUESTION ANALYSIS OF PERFORMANCE

Q1. (a)

The approach to the question was above average, since most of them were able to indicate the symptoms of overtrading and they therefore scored the maximum marks.

(b) (i) Most of the candidates were able to compute the various ratios from the Financial Statement. However, a few candidates decided to set their own question by changing the repetition in Receivable collection period and Trade Receivable collection to Trade Payables which was not required and therefore got penalized.

(ii) Most candidates were able to compute and analyze the ratios to identify the company which sells goods as cheaply as possible to increase its volume of sales from the one which is located at a prestigious area with strong customer focus and charges premium on its goods.

Q2.

This was a of Consolidated Statement of Comprehensive Income of a group and consolidated statement of changes in Equity. This could have been a bonus question, since a Consolidated Income Statement and Financial position of a company and its Subsidiary came in the last examination which was messed up. This confirms the poor Preparation of candidates for the examination.

 

(a)

The performance showed that only a few candidates showed good understanding and preparation of Consolidated Statement of Comprehensive Income. Candidates were quite familiar with the preparation of Consolidated Financial position. So most of them spent valuable time preparing workings for consolidated financial position only for the workings to be abandoned. Thus, wasting valuable minutes.

(b)

Only a few candidates were able to prepare the Consolidated Statement of changes in equity.

Q3.

The approach to the question was far below average. Most candidates showed little or no knowledge in the preparation of a Financial Statement. Candidates at this level of the examination should expect series of notes to work on in the preparation of a Financial Statement. Even though the question did not request for published financial statement, a few candidates prepared notes, getting no marks.

 

(a)

Most of the candidates could not prepare Statement of Profit or Loss and other comprehensive income of a limited liability company.

(b)

Similarly, most of the candidates were unable to prepare the statement of changes in equity.

Q4.

This was a two part question on Hire Purchase and Partnership. It could have been a bonus question but it turned out to be a disaster for most of the candidates. However, candidates whose understanding of the double entry is good scored high marks by applying the principle to the notes in the Partnership question.

 

(a)

Only a few candidates approach to this section on Hire Purchase was above average.

 

Most of them could not compute the Cost of Sales for both Cash and Hire Purchase Sales. Hence, they could not derive the Closing Stock, and the Gross and Net Profits were all

wrong.

Similarly, the computation of the unrealized profit was also a challenge to most of

them. Most candidates appeared confused and therefore could not prepare the financial

position of the company, even though most of the items in the statement of financial position require little or no adjustment to earn them the points.

 

(b)

The approach to this section was below average. This could have been a bonus if candidates had taken their time to handle the adjustments required on the change in the partnership using the basic double entry principle.

 

i. Only a few were able to handle the increase in the goodwill on the admission of a new partner. The write off of the Goodwill from the accounts was a challenge to the candidates. Most of them debited the Capital account with items which should have been credited and vice versa.

ii. The preparation of the Statement of Financial Position on completion was also poorly handled by most of the candidates.

Q5.

This was a three part question which could have helped the candidates to score the marks to help them improve upon their performance.

 

(a)

(i) Most of the candidates who attempted this section of the question performed above average as they were able to state and explain the main qualitative characteristics of financial information.

 

(ii) Similarly, most of them were able to state and explain the bases of measuring assets and liabilities subsequent to their initial recognition.

 

(b)

Only a few were able to calculate the impairment loss, since most of them could not compute the future discounted cash flows to determine the recoverable amount.

(c)

Most of the candidates failed to explain how the oil platform should be treated in the financial statements. They concentrated on the computation of the figures in the financial statements, which they could also not get right.

SUGGESTIONS FOR FUTURE IMPROVEMENT

The academic background of candidates entering the exams at this level appears to be falling hence the poor performance in the subject. Candidates are therefore advised not to take the examinations for granted. They should ensure that they have completed the syllabus and worked through series of questions before registering for the examinations.

CHIEF EXAMINER’S REPORT FOR MAY 2014 PUBLIC SECTOR ACCOUNTING (3.2)

GENERAL PERFORMANCE

The examination paper was primarily concerned with knowledge of rules, comprehension and application of public accounts and audit. The paper explored The Financial Administration Act, 2003 (Act 654), The Financial Administration Regulations, 2004 (L. I. 1802), The Public Procurement Act, The Public Sector Accounting Manual of ICAG, IPSAS (International Public Sector Accounting) Rules and Contemporary Public Finance and Accounting Issues in Ghana.

There was remarkably some emphasis on the content and format of public sector financial statements as mentioned in The Financial Administration Regulations, the operations and analysis of activities of government agencies and other subject-based learning outcomes that achieves the core aim of learning and assessment of Public Sector Accounting.

WEAKNESSES OF CANDIDATES

Once again, technically, candidates failed to recognize the learning objectives being used according to the syllabus to assess and identify their knowledge and skills in public sector accounting. Majority of candidates therefore resorted to generalization of their own perspectives of the questions rather than exhibiting knowledge and understanding of Public Accounts and Audit. Comprehension and application of public sector accounting rules were chiefly ignored and enactments which specified rules of application probably were not known to these candidates.

Accounting and Accountability have traditionally been demonstrated in public sector accounting through the application of financial laws and regulations, the control of expenditure and compliance with rules and regulations which these laws specify. The Public Accounts and Audit Rules tend to be right, hardly giving room for ambiguity and personal definitions and interpretations.

It is also important for candidates to realize that public sector accounting is a dynamic financial information system. The rules are not static and may be modified over time. It is therefore necessary for candidates to be abreast with contemporary financial and accounting information with emerging areas such as environmental accounting, oil and gas accounting, Economic Partnership Agreement etc as they impact on governmental financial transactions.

ANALYSIS ON PERFORMANCE

The conceptional understanding of Public Accounts and Audit that enables candidates to analyse, interpret and communicate financial information about government as already pointed out is woefully lacking in the evaluation of the examination scripts. Only few candidates recognized the learning objectives and are therefore able to provide satisfactory answers. In summary therefore, the preparation for the examination was very poor.

The intentions of the syllabus and assessment of the candidates seem to suggest that there in a structural drift of the objectives and skills of the candidates within the overall examination scheme. Out of 966 scripts moderated only 217 candidates marginally scored 50 marks with very few above the 50 mark. This represents 22 percentage passes. Perhaps this is not the desired result the examiners wanted giving the fact that the questions asked were within the best practice and assessed in pursuit of the institute’s objectives. Incrementally, the percentage passes should over the years have reached above 50 percentage passes.

RECOMMENDATIONS

In order for candidates to develop the knowledge and comprehension of Public Accounts and Audit, there is a significant need for a certain level of educational programme in collaboration with ICAG that would afford candidates the opportunity to obtain qualitative learning programmes throughout the country. In the universities, polytechnics and other higher institutions there is the need for a collaborative effort so that students are taught and tested in Public Accounts and Audit properly aligned with ICAG’s syllabus.

CHIEF EXAMINER’S REPORT FOR MAY 2014 ADVANCED TAXATION & FISCAL POLICY

GENERAL PERFORMANCE

The standard of the paper was fair and therefore a good performance level was expected.

Performance on the whole is improving and quite good. It is however quite obvious that some of the candidates are still handicapped by the lack of tutors in their localities but with the availability of text books around and a little bit of effort they will overcome this problem.

QUESTION BY QUESTION ANALYSIS ON PERFORMANCE

Question 3

This question required the candidates to examine the accounts of Mr. Kpalito trading as “Go Slow” for tax purposes. Notes to the accounts were provided.

The tax case William Flood and sons Ltd. V. C. I. R. is applicable here. Briefly, William Flood, the managing director employed his children, a boy and a girl, in the business and paid them fat salaries beyond their qualifications for their positions. The I. R. S. detected this and accordingly adjusted the tax computation.

Mr. Flood objected to this and maintained that he had powers to pay. The judges agreed that even though he had powers to pay, the monies paid were not wholly, exclusively and necessarily incurred. The ruling was given in favour of the I. R. S.

Question 4

This question required the candidates to state incentives available in the various sectors of the economy to enable a Ghanaian who has been resident outside Ghana for a number of years to decide on the most appropriate beneficial investment or business to undertake.

This is basic because candidates at this level should be abreast with the circumstances in the country. Unfortunately, the performance was not as expected.

CHIEF EXAMINER’S REPORT ON MAY 2014 CORPORATE STRATEGY AND GOVERNANCE

GENERAL PERFORMANCE

The standard of the paper is comparable with those of previous years. There were no ambiguities in the paper. Marks allocation was fair and it was in line with the syllabus.

The performance of the candidates was generally good. Most of the candidates demonstrated a good grasp of the subject matter. The performance was good across all centres. However, candidates from the Accra centre did very well. Candidates who failed to obtain good marks were weak on the basics of the subject and may not have studied hard enough.

STRENGTHS OF CANDIDATES

The key strength was that most of the candidates answered the required number of questions. A good number of them demonstrated understanding of financial ratios and stakeholder analysis.

WEAKNESSES OF CANDIDATES

The main weakness of some of the candidates was lack of knowledge of the TOWS Matrix. Although it was not a popular question, the candidates who attempted performed poorly. They confused SWOT Analysis and TOWS Matrix. A few of the candidates also could not attempt computation of financial ratio.

QUESTION BY QUESTION ANALYSIS OF PERFORMANCE

Section A Case Study

This was a compulsory question. Some of the issues tested included the SWOT Analysis, strategic options and strategic alliance. The case also tested candidates on evaluation of performance of the company using financial ratios.

Generally, candidates did well in this case except a few of them who could not compute the financial ratios which was very surprising.

Question 2

The focus of this question was to test candidate’s understanding of the features of an ineffective board. The question was attempted by a good number of candidates and the performance was good. Some of the good points given by candidates included:

i. It has more than two inside directors: Inside directors are often said to be seeking to influence board decisions in their favour.

ii.

The CEO has close ties with several directors. This affects the independence of the board in making critical decisions which may not agree with the idea of the CEO.

iii. Directors own none or just a few shares in the company. This does not tie their interests to the fortunes of the company well enough to demand optimum commitment from them.

iv. Weak boards also meet occasionally instead of frequently. It is important that board members meet as frequently as possible to assess the performance of management and to take other critical decisions.

v. Weak boards also do not evaluate their own performance individually and as a group.

vi. Board members also do not evaluate the performance of the CEO because he is a member and often has close ties with the others.

Question 3

This question was in two parts. The first part of this question required the candidate to explain the concept of Board independence in corporate governance. The second part of the question asked candidates to advance arguments for the usefulness of corporate governance. It was a popular question and the performance was good.

Question 4

This question was in two parts. Part (a) of this question asked candidates to explain three reasons why investors prefer to invest in organization that practice good corporate governance principles.

In Part (b), the candidates were required to explain the basic approaches to ethnical behaviour.

A good number of the candidates attempted this question and the performance was good in part

(a). However, a good number of the candidates demonstrated lack of knowledge in part (b) of the question. Some of the points expected from the candidates to part (b) of the question include:

i. Utilitarian Approach: This approach proposes that actions and plans should be judged by their consequences. People should therefore behave in a way that will produce the greatest benefit to society and produce the least harm or the lowest cost. A problem with this approach is the difficulty in recognizing all the benefits and costs.

ii. Individual Rights Approach: This approach proposes that human right have certain fundamental rights that should be respected in all decisions. A particular decision or behaviour should be avoided if it interferes with the rights of others. A problem with this approach is in defining “fundamental rights”.

principles of distribute justice (people who are similar on relevant dimensions such as jobs seniority should be treated in the same way and fairness (liberty) should be equal for all persons).

The Justice Approach can also include the concepts of retributive justice (punishment should be proportional to the offence) and compensatory justice (wrongs should be compensated in proportion to the offence).

Affirmative action issues such as reverse discrimination are examples of conflicts between retributive and compensatory justice.

Question 5

In the first part, the candidates were asked to prepare a TOWS matrix and generate four alternative strategies based on information given in the question. The second part asked the candidates to comment on Company’s performance with respect to its external environment.

This question was not popular with the candidates. A few of the candidates demonstrated understanding of TOWS Matrix. Some of the candidates lost marks because they confused it with SWOT Analysis.

Question 6

The candidates were asked to assume the position of a Chief Finance Officer of a recently listed company by identifying stakeholders of a company, their respective expectations and make recommendations as to how the company can manage them to its benefit. This question was answered by a good number of the candidates and the performance was very good.

Question 7

This question was in three parts. In the first part, the candidates were asked to explain the technological environment of a business. The second asked for ways that technology assist organizations to achieve their goals. The final part of the question required candidates to give reasons why it is important for organizations to brand their products. The question was not popular but the few who attempted did well.

CHIEF EXAMINER’S REPORT FOR MAY 2014 ADVANCED AUDIT AND PROFESSIONAL ETHICS (PAPER 4.2)

GENERAL PERFORMANCE OF CANDIDATES

The rubrics were clear and there were no ambiguities in the questions. The right words were used in spelling out the requirements of the questions in line with learning outcome of the syllabus. Words such as outline, indicate, assess and discuss were used more than list and explain. There were however no question requiring analysis and evaluation. The questions were suitable to the level being examined as pure recall questions were few. The standard of the paper was comparable with the November 2013 paper in terms of question quality and levels of difficulty.

Candidates made spirited attempts in answering the question. Even where they lacked the required knowledge they tried good guesses. Taking past trends into consideration, performance was generally good.

WEAKNESSES OF CANDIDATES

As usual, some candidates preamble their answers with lengthy and unproductive introductions and unnecessary explanation of terms and concepts which was not required by the questions.

Some candidates did not pay heed to the instructions not to write in the spaces reserved for use by the examiner and moderator in the answer booklets. Furthermore, some candidates did not show any regard for correct spelling and grammar. Only few candidates did not write legibly/.

QUESTION BY QUESTION ANALYSIS ON PERFORMANCE

Question 1 (a)

Candidates were required to outline procedures to audit unrealized inter-company profits on stocks-in-trade. Some candidates did not know how inter-company profits arise and went “beating about the bush”. Other candidates provided the correct answers.

Question 1 (b) (i)

This question demanded identification of matters that should form the objectives of a forensic audit and which should be included in the investigation plan. The question was correctly answered by many candidates.

Question 1 (b) (ii)

Candidates were required to state what the client of a forensic auditor should expect from the investigation report. Some candidates did not use their imagination in answering the question. They just reproduced the contents of a forensic audit report without pointing out what the client would expect, namely confirmation of the fraud, identification of the perpetrators, the amount of loss suffered by the client etc. Few candidates gave the right answers.

Question 1 (c)

The question required candidates to determine the source from which an auditor of an insurance company could obtain knowledge of the Insurance Industry of the clients business. Many candidates answered the question correctly.

Question 2 (a)

Circumstances in which change of accounting policies is permissible as required by the question were correctly given by many candidates.

Question 2 (b)

Candidates were to describe ten issues to consider when reviewing audit working papers. Candidates were not familiar with the issues but rather demonstrated the review of financial statements instead of audit working papers.

Question 2 (c)

Matters an auditor should consider before accepting to act as a Principal Auditor of a holding company were demanded of candidates. Many candidates lacked the required knowledge and provided answers relevant to general acceptance of an audit engagement.

Question 2 (d)

Candidates were to assess five inherent risks and draft a risk register for the parent company. Some candidates could not distinguish inherent risk from other components of audit risk and therefore gave muddled answers.

Question 3 (a)

Analytical procedures during the planning stages of an audit were treated as the whole planning procedures themselves by some candidates. A few candidates however gave the right answers.

Question 3 (b)

Candidates were to discuss six controls management should implement before the introduction of an online sales system. The question received mixed treatment by candidates as both correct and wrong answers given freely.

Question 3 (c)

Six situations where social and environmental issues could potentially impart financial statements were fully and correctly discussed by many candidates. Some candidates were able to mention the issues but could not spell the impact on the financial statements.

Question 4 (a)

Candidates were to explain “expectation gap” in auditing and provide examples of the public expectation of an audit. Expectation gap is a topic in auditing one syllabus and some candidates seemed to have forgotten it. Many candidates could not explain the concept very well but were able to give the examples of public expectation of an audit.

Question 4 (b)

Candidates were to describe outline audit procedures to verify opening balances because some balances were given in the preamble to the question. Some candidates outline procedures to verify each of them rather than demonstrating the procedures to review opening balances as a whole. This question was poorly attempted.

Question 4c (i & ii)

Immediate action to take when it was discovered during an audit that the client has going concern difficulties and identification of going concern during the review of an audit were correctly done by many candidates.

Question 5a (i & ii)

These three sub-questions were on fixed assets register; matters to which an auditor will direct attention when examining the register, how useful the register is to both the client and the auditor and the contents of the register. To a large measure, the correct answers were given by many candidates.

Question 5b

Candidates were to explain safeguards to implement to ensure that conflict of interest is properly managed when auditing two clients who are competitors. This question was well answered.

CONCLUSION

The performance was generally good. Those who passed did so on merit as there was no sign of copying from one another. There is however more room for improvement.

CHIEF EXAMINER’S REPORT FOR MAY 2014 PRINCIPLES AND PRACTICE OF TAXATION (2.4)

GENERAL PERFORMANCE

The overall performance was average. It was in accordance or in line with normal trend.

ANALYSIS ON PERFORMANCE

The questions were satisfactory on the whole. The questions were fairly balanced. There were questions from Income and Value Added Tax. In the case of Income Tax, there were questions from Employment, Trading and Gift Tax.

CONCLUSION

There were candidates from different centres including Cape Coast, Sunyani, Tamale etc besides Accra. It is apparent that candidates from Accra fared better. Obviously they have the benefit of the Institute’s classes.

CHIEF EXAMINER’S REPORT ON MAY 2014 AUDIT AND INTERNAL REVIEW

GENERAL PERFORMANCE

Performance of candidates in the paper was good. Many candidates made very spirited attempts and achieved the desired results.

The paper met the required standard in line with the learning outcome of the syllabus. Majority of the questions involved explaining various terms, principles and procedures. Three sub- questions required listing of various factors while three other sub-questions demanded discussing and outlining of various principles and factors. The rubrics were clear and questions were within the comprehension of candidates. The questions covered five out six of the syllabus.

WEAKNESSES OF CANDIDATES

Candidates indulged in providing lengthy and unproductive introduction to their answers. Some candidates tried to explain terms in the requirements when that was not demanded. There were also unnecessary over elaborations in answering the questions when candidates were asked to just list or state factors. Some candidates did not read the instructions in the answer booklets and used up the spaces reserved for examiners and moderators.

QUESTION BY QUESTION ANALYSIS ON PERFORMANCE

Question 1a

Candidates were required to explain factors influencing a decision as to quantity of evidence obtained by an auditor. This question was well answered by many candidates.

Question 1b

This question required explanation of difference between Accounting Standards and Accounting Policies. Only few candidates provided the right answers. Some candidates confused one for the other.

Question 1c

Five fundamental ethical requirements under the IFAC Code of Professional Ethics for Professional Accountants demanded by this question were correctly listed and explained by almost all candidates.

Question 2a

Candidates were to explain the term “auditing around the computer” and why that approach is not efficient and effective means of auditing in a computerized environment. The explanation

was correctly given in most cases but the inefficiency and ineffectiveness of the approach were not clearly spelt out.

Question 2b

Explanation of Internal Control Systems required in computerized environment presented difficulties to many candidates as only few candidates could identify “General and Application Controls”. Three examples of specific control activities and objectives for each control were “no go area” for candidates.

Question 2c

CAATS were well explained but their uses in the auditing process were not properly treated.

Question 3a

This question demanded knowledge of the role of Internal Audit Department in an organization. Many candidates were able to give the right answers.

Question 3b

Candidates were to state five tests to confirm ownership of freehold land and buildings. While some candidates rightly restricted their tests to confirmation of ownership, other candidates went the full hog of verification of the asset.

Question 3c

Differences between a Letter of Engagement and a Management Letter received mixed treatment from candidates. While many candidates were able to distinguish the Letter of Engagement, the same cannot be said of the Management Letter. In fact, many candidates did not know what the Management Letter is.

Question 3d

Disclaimer of opinion and adverse opinion also received mixed response from candidates. Some candidates were able to spell out the circumstances and their effects giving rise to the two opinions, others confused one for the other.

Question 4a

Candidates were to describe five tests to audit stated capital. Stated Capital falling on the liability side of the balance sheet seemed to be beyond the comprehension of many candidates. Answers provided showed clearly that many candidates did not know what stated capital is. They confused it with a capital asset.

Question 4b

Five advantages and five disadvantages of using scientific sampling as against the use of non- scientific sampling were correctly discussed. However, some candidates gave the advantages and disadvantages of both approached to sampling instead of only the scientific approach.

Question 5a

Many candidates were able to state three control procedures or activities each for (i) sales, (ii) receipts of cash and (iii) stores management.

Question 5b

Candidates were to list five tests of control to assess control systems over acquisition and disposal of an item of plant. Some candidates were able to provide the correct answers but other candidates drew up internal control questionnaire for plant.

Question 5c

Many candidates could not outline three financial and operational indicators of going concern difficulties of a company. They could not be blamed because this question is outside the scope of the syllabus.

Question 5d

Quality Control is another topic outside the scope of the syllabus and rightly candidates could not explain it in relation to auditing. Those who ventured defined it in relation to the manufacture of a product.

CONCLUSION

The paper can be graded as good based on the performance of candidates generally. However, it must be said that some candidates exhibited levels of maturity in their approach to answering questions beyond expectation.

For once, correct spelling and good grammar were amply displayed by many candidates. Handwritings were good and candidates are commended for that.

CHIEF EXAMINER’S REPORT FOR MAY 2014 QUANTITATIVE TOOLS IN BUSINESS

GENERAL PERFORMANCE

The general performance was average. There was no concentration of high or low performers with respect to any of the examination centres. Once again, it was observed that the level of preparedness of candidates was not too good.

The standard of the paper was the same as previously administered ones. There were no ambiguities. The marks allocations of all questions followed the weightings in the syllabus and were fairly allocated to each sub-question.

STRENGTHS OF CANDIDATES

On the whole candidates did well on questions 4 and 6. These questions were well understood by candidates who attempted answering them. These two questions required the use of probability theory to successfully solve them. The other questions were poorly attempted. Candidates would be advised to consider every aspect of the syllabus as equally important as any other.

WEAKNESSES OF CANDIDATES

Generally, questions 1, 2, 3, 5 and 7 were not very well answered. Most candidates displayed lack of full foundational understanding of these questions and as a result their performances were very weak. This weakness was widespread. To offset this, candidates should solve a lot of questions and make effort to understand the importance, use and application of the quantitative tool techniques. Candidates should research beyond the texts and manuals provided under ICA. Learning centres should be provided at almost the catchment areas for prospective candidates.

QUESTION BY QUESTION ANALYSIS ON PERFORMANCE

Question 1b

Even though most of the candidates could rank the variables, they could not use the correct mathematical expression to calculate the Spearman’s coefficient that takes into account the ties in the ranking.

Question 1c

Some of the candidates did not use the required regression line of “Business Management” against “Economics” to answer the question.

Question 2a

This question was fairly attempted.

Question 2b

Most of the candidates could not interpret and solve the question as required.

Question 3

This question was so difficult for the candidates. Almost all who attempted this question performed poorly. The candidates could not draw the decision tree diagram and therefore, could not successfully answer the question as expected.

Question 4

This question was not so well attempted by the candidates. Most of the candidates who attempted this question performed so well.

Question 5

This question was so well attempted and this question appeared to be tough.

Question 6

This question was very well patronized and majority of the candidates was poor. Most of the candidates could not see the relevance of the use of the regression line to do the estimates.

CONCLUSION

All in all, the questions were very well within what the candidates are expected to know. Preparation by the candidates was not adequate.

CHIEF EXAMINER’S REPORT FOR MAY 2014 BUSINESS AND CORPORATE LAW (PAPER 2.3)

GENERAL PERFORMANCE

The performance of the candidates was just about average except that in isolated cases some candidates did extremely well. However, these high performances was not concentrated in any

particular centre. There were also no signs of copying. To sum up the performance reflected on the level of preparedness of each candidate.

The standard of the paper was the same as previously administered ones. There were no ambiguities or typing errors in the paper. The mark allocation conformed to the weightings in the syllabus and was fairly allocated to each sub-question. The questions were also evenly spread over the topics in the syllabus.

STRENGTHS OF CANDIDATES

On the whole, one cannot mention any notable strengths in the performance of candidates. The few who exhibited high performance was reflective of their preparedness for the examinations. I believe that the only way to enhance performances would be for candidates to prepare adequately for the examinations.

WEAKNESSES OF CANDIDATES

Some candidates failed to read the rubrics well. Thus instead of completing one question before going on to the next, they would answer a sub-question then jump over to the next question and then later answer the sub-question. This made the marking very difficult.

In an examination, it is preferable that one question is fully dealt with before the candidate tackles the next question. In some instances, the handwriting of candidates were so illegible that it put a lot of strain on examiners. It is important for candidates to realize that the examiners are also human and one does not expect an examiner to spend about an hour on a script trying to decipher the handwriting especially when that is coupled with wrong points.

However, most of the candidates who were weak lacked fundamental knowledge of the subject. In some instances, instead of stating legal principles, candidates were putting up points as if they were arguing on social subjects. In some instances instead of answering the question, candidates would set their own questions and answer them. This could be attributable to candidates lack of preparedness for the examinations. In some instances, candidates spelling were awful. They wrote the words as they heard them pronounced. For instance words like practice and practise denotes different meanings. The one with ‘c’ denotes a noun whereas the one with‘s’ denotes a verb. The same goes for advise and advice. Candidates may well be advised to beware of such slips. To sum up the only way for candidates to overcome these petty weakness is for them to have control over the English language.

QUESTION BY QUESTION ANALYSIS ON PERFORMANCE

Question 1

(a) Most of the candidates who answered this question deviated completely. They rather wrote on the elements of a valid contract whereas the question was on form of a contract. The general common law rule on the form of a contract is that a contract may be in any

form whatsoever. It could be oral, written or sometimes by conduct. However, in some instances, the law required that for a contract to be valid it should be in writing. These contracts include contracts for sale of land, contracts of guarantee, insurance contracts and hire purchase contracts. Where the law requires a particular form of contract, if the contract is not in that form, it is invalid notwithstanding the fact that all the element of a valid contract are present.

It is therefore necessary that candidates should understand the question before answering them.

(b) This part of the question was fairly well answered by candidates.

Question 2

(a)

This question was fairly well answered. However, on a question of this nature where the question refers to an Act, it would be better for the candidates to refer to the particular section of the Act and in this case section 15 of the Labour Act 2003 (Act 651).

(b)

This question suffered from the same lack of appreciation of the question. The requirement was payment of compensation arising out of employment. A lot of candidates missed this basic requirement and wrote on an employee being on a frolic of his own. If an employee is on a frolic of his own and he gets injured definitely the injury does not arise out of employment. Once the question refers to the workmen’s compensation Law PNDC Law 187, candidates were expected to find the answer within the provisions of the Act. There are three main grounds under which the employer would not be liable for injury arising out of employment:

i.

Where the employee is under the influence of drug or alcohol.

ii.

Where the injury is self induced

(c)

Where the employee has at anytime represented to the employer that the employee was not suffering or had not previously suffered from that or similar injury, knowing that the representation was false.

Reference should be made to section 2, sub-sections 5, 7 and 8 of PNDC Law 187.

Question 3

(a) Those who answered this question were asked to describe protected goods except that they failed to add the point that protected goods could only be recovered from the hirer by an action in court.

(b) This part was fairly well answered. However, candidates failed to touch on the point that a guarantor would also be entitled to recover any sums paid or any security given. Furthermore, candidates failed to bring out the fact that the hirer may make an application to the court for the return of the goods and for the rescheduling of the payments under the agreement.

Question 4

Candidates decided to set their own questions. The answers to this question was a typical example of such pitfalls. Most of the candidates who answered this question rather talked on the qualification of the auditor. The question demanded:

(a)

The nature of the relationship between the auditor and the company and

(b)

The rights of the auditor

For the avoidance of doubt, the auditor is not an officer or an agent of the company. The auditor stands in a …….relationship to members of the company. In this wise, he should be faithful, diligent, careful and exhibit the ordinary skill required of a professional and the auditor shall not be relieved of his duty to maintain appropriate professional standards. Neither will he be relieved of any liability as a result of breach of those standards.

Turning to his rights, he has a right of access to all books, accounts and vouchers of the company and may require from officers of the company any information and explanations deemed necessary. He also has the right to attend any general meeting and receive …….reality to such meetings. He has a right to be heard at the general meeting on any business which concerns auditors. He may also apply to the court for directions in relation to his functions.

Question 5

(a)

A lot of the candidates had a fair idea of the veil of incorporation and were able to explain themselves well.

(b)

This part of the question appeared to have posed a problem for candidates as most of the candidates rather used the requirements of question 6 to answer the question. The circumstances under which the corporate veil would be pierced are as follows:

i.

To avoid trading with the enemy in times of war

ii.

To avoid fraud

iii.

To prevent the deliberate evasion of a contractual obligation

iv.

The courts may also lift the veil to allow a group of associated company to be treated as one

Question 6

(a) This did not pose any problems.

(b) This did not also pose any problem but as mentioned earlier a lot of candidates who answered question 5 used the requirements of question 6 to answer that question even though the wording of the questions were very clear.

Question 7

(a)

This question was poorly answered. It appeared those who answered it were thinking of the definition of a partnership and therefore defined a partnership as contained in section 1 of the Incorporated Private Partnership Act 1962 (Act 152). Simply put, candidates were expected to explain how one can identify an institution as a partnership. The need for publicity of a partnership is contained in section 17 of the Act.

The first requirement of publicity is the painting or fixing the firm’s name at a conspious place at its offices. The second requirement is the firm’s name should appear on all letter heads and the names of the partners should also appear on the said letter heads. The third requirement is that the firm’s current certificates should be exhibited at any conspious place at the offices of the firm.

(b)

A lot of candidates who answered this question also missed the matters in issue. They wrote about the qualification of membership of the firm, the contributions from members, the management of the firm by the members but the question required the artificial personality of the firm. Under section 10 of the Act, once registered, a firm becomes a body corporate distinct from its members and it is capable of exercising the powers of a natural succession until otherwise dissolved.

However, notwithstanding the firm’s corporate nature, each member of the firm is liable without limit to the debts of the firm in practice therefore even though a judgment may be obtained against the firm as a corporate body, the judgment could be enforced against the individual members who constitute the firm.

Question 8

This question was fairly well answered by the candidates.

CHIEF EXAMINER’S REPORT FOR MAY 2014 ADVANCED FINANCIAL REPORTING

GENERAL PERFORMANCE

Generally, there was improvement in performance as compared to previous diets. Performance was however poor in centres outside Accra, a probable reflection of the possible lack of effective tuition in those areas. There was no similarity of answers to suggest any possible copying.

The standard of the paper was the same as previously administered ones. The questions were spread to cover all areas of the syllabus.

STRENGTHS OF CANDIDATES

Candidates showed improved understanding of the techniques of scheme design. There were good scored in this area.

WEAKNESSES OF CANDIDATES

Weaknesses of candidates can be summarized as follows:

i. Some candidates lacked adequate preparation for the examination and scored very low marks. Some of them filled in their index numbers, wrote the question numbers on the answer sheets without answering any of the questions; apparently they were not ready for the examination.

ii. Some candidates spent too much time on questions they believed they could handle; this left them little time to tackle other questions satisfactorily. As a result, they performed poorly. Candidates should be taught effective time management.

iii. Some candidates failed to attempt all questions and therefore drastically reduced their chances of passing.

iv. A number of candidates did not plan how to tackle the questions in a strategic manner. They answered the same question on several non-consecutive pages without cross-referencing the pages.

v. Some candidates wrote so illegibly that it was difficult to read and mark what had been written on the script. It is undoubtedly, in the candidates interest to write clearly.

QUESTION BY QUESTION ANALYSIS ON PERFORMANCE

Question 1

Question 1 was in two parts: a and b.

Part (a) tested calculation of goodwill in a piecemeal acquisition using fair values. Many candidates started calculating goodwill even when controlling interest had not been attained and got it wrong. Others showed good knowledge and picked good marks.

Part (b) tested consolidated statement of cash flows, with both acquisition and disposal of subsidiaries within the same question. Many candidates failed to appreciate the principles and seemed clueless, as evidenced in answers provided. Those who demonstrated adequate understanding of these topics earned good marks.

Question 2a

Question 2 was poorly answered. Many candidates simply walked away from the question without attempting it while those who attempted it failed to meet the examiner’s requirements.

The question was in parts a, b and c. Part a, test Amortized Cost as measurement for Financial Instruments. Most candidates showed lack of knowledge of the Standards.

Part b, tested basic knowledge in the measurement of Hedging Instruments relating it to the practical case of cocoa world international pricing. Those candidates who calculated certain key numbers such as gain on future contract managed to score good marks.

Part c was in previously unexamined area of Employee Benefits. Just a handful of candidates could make a good effort to answer it; many candidates shied away from the question completely.

Question 3

Question 3 was in parts a, b and c.

Part a involved explaining the terms Monetary Working Capital Adjustments, Cost of Sale Adjustment, and Holding Gains arising during the year. Candidates provided general opinion answers some of which were the same for all three cases. There were no technical differences in the answers provided. Many candidates wrote pages suggesting disproportionate use of time.

Part b required the determination of Deprival Values to be placed on three assets. This part was generally well answered.

Part c involved the calculation and interpretation of a Z-score. The majority of candidates were unable to calculate and interpret the Z-score and so lost many marks in this question.

Question 4

Question 4 involved techniques in handling a scheme of re-construction. It was generally well answered. However, some candidates

i. Failure to remove “Goodwill” from the financial statements of the reconstructed company

ii. Wrote elaborate reconstruction scheme, which was not a requirement of the question

iii. Wasted valuable time by preparing irrelevant accounts

iv. Computed a working capital position, an effort not required by the question

v. Brought both liquidation expenses and reconstruction expenses into the same calculation, not knowing exactly how to handle each of them.

Question 5a

Question 5 involved the calculation of a range of prices for an ordinary share using the net assets, price-earnings ratio and earning yield methods. The question was poorly answered by many candidates even though this topic appears regularly in recent examinations. Candidates simply are not able to master the basic techniques involved in this area of financial accounting. Common errors included:

i. Failure to adjust the net assets or the earnings with the information provided and

ii. Failure to state relevant formulas.

CHIEF EXAMINER’S REPORT FOR NOVEMBER 2013 FINANCIAL MANAGEMENT

GENERAL PERFORMANCE

There were five compulsory questions in the examination, each worth 20 marks. Almost all candidates attempted all five questions and there was little evidence of time pressure. Many candidates performed particularly well on questions 1a, 2b, 2c, 3a, 3b and 5a. These questions are all largely numerical in nature, apart from question 5a. The questions candidates found most challenging were questions 1b, 1c, 2a, 4a, 4b and 5b. These questions were also all largely numerical in nature. These questions were perhaps challenging because some candidates lacked an understanding of particular syllabus areas. A number of common issues relating to candidates answers can be highlighted:

Some candidates did not read the question requirement clearly and therefore gave relevant answers which scored few (if any) marks.

Poor time management between questions: for example, some candidates wrote too much for the marks on offer.

Illegible handwriting and poor formatting of answers.

QUESTION BY QUESTION ANALYSIS ON PERFORMANCE

Question 1(a)

This question required candidates to calculate the expected return using Capital Asset Pricing Model (CAPM). Most candidates did well on this part of question 1. Most candidates used the right model to obtain the expected return. However, some candidates could not compute the expected return using the CAPM. Significant number of candidates found it difficult to determine whether the share is undervalued, overvalued or properly valued comparing with the current market value.

Question 1(b)

Candidates were asked here to compute the cost of equity capital. Most candidates were not familiar with the Modigliani and Miller formulae on geared and un-geared company. Performance on this question was very poor.

Question 1(c)

This part of question 1 required candidates to determine the value of the firm where tax was given. Most candidates tended to struggle with this question and were unable to adjust for tax on the expected earnings before interest and tax.

Question 2(a)

The requirement here was for candidates to determine whether there should be a change in the company’s credit policy. Answers to this question demonstrated lack of understanding of debtors management. Most candidates failed to compute the current and proposed levels of debtors. The savings on reduction in debtors was also poorly handled and majority of candidates could not also determine the impact of the change in policy.

Question 2(b)

This part of question 2 required candidates to explain why most firms invest their temporal cash in treasury bills. Most candidates gained marks on this question by providing very good answers to the question.

Question 2(c)

The final part of question 2 required candidates to identify the market participants in the foreign exchange market. Most candidates were able to identify the market participants in the foreign exchange market.

Question 3(a)

The requirement here was for candidates to compute the gain from the merger, cost of the cash offer, cost of the stock alternative, net present value of the acquisition under cash offer and the net present value under the stock offer. Most candidates performed creditably well while a few had no knowledge on mergers and acquisition.

Question 3(b)

Candidates were asked to determine whether the company’s share price is overvalued. Most candidates were able to compute the dividend per share while few concentrated on computation of earnings per share which was not relevant to the question. Some candidates had difficulty in calculating the growth rate using the dividend per share computed. Some candidates were able to determine the share price of the company using the dividend growth model while others were not aware that this model is required to determine the price of the company. Candidates need to be familiar with this model and its variants.

Question 4(a)

The question required candidates to compute the portfolio expected return and the expected risk premium. Some candidates were able to compute the portfolio expected return and the expected risk premium though significant number of candidates did not understand the portfolio theory question.

Question 4(b)

The requirement here was for candidates to compute the appropriate cost of capital to be used in appraising new projects with the same operating risk characteristics. The question provided a hint to candidates to use the Weighted Average Cost of Capital (WACC) since the new project has the same operating risk characteristic. Most candidates failed to compute the WACC though some were able to compute the cost of equity capital using the Capital Asset Pricing Model (CAPM) and the cost of debt.

Question 5(a)

This part of the question required candidates to distinguish between Call option and Put option. Most candidates performed creditably well on this question though some few candidates did not understand the concept of option in finance theory.

Question 5(b)

The requirement here was for candidates to compute the value of various offers and select the best option. Most candidates found it difficult to compute the time value of the various offers especially the offer that involved annuity.

Question 5(c)

The final part of question 5 required candidates to outline the advantages and disadvantages of bank overdraft. Answers to this question were of variable quality, indicating that some candidates were lacking on knowledge in this area of the syllabus. A number of answers, for example, showed limited understanding of overdraft while some candidates wrote too much for the mark on offer.