CARIBBEAN EXAMINATIONS COUNCIL

REPORT ON CANDIDATES WORK IN THE CARIBBEAN ADVANCED PROFICIENCY EXAMINATION JUNE 2003

ACCOUNTING

Copyright 2003 Caribbean Examinations Council St Michael, Barbados All rights reserved

2 ACCOUNTING CARIBBEAN ADVANCED PROFICIENCY EXAMINATION JUNE 2003 UNIT I GENERAL COMMENTS In 2003, 911 candidates registered for the examination. This represents an increase of 83 per cent when compared with the entry in 2001. The CAPE Accounting Unit 1 examination, (Financial Accounting) consisted of three papers. Paper 01 consisted of 27 multiple-choice items, 9 per module, and 6 short answer questions, 2 per module, all of which were compulsory. The time allocated to this paper was 90 minutes. Paper 02 was an extended essay paper comprising three questions. Question one (Module 1.1) was an essay question divided into three parts, question two (Module 1.2) was a mini case, and question three, (Module 1.3) was an extended problem with computational aspects as well as report writing. Paper 3A was the Internal Assessment component and is school based. This paper was assessed by the class teacher and moderated by CXC. This year an alternate paper for the external candidates was introduced. This Paper 3B comprised three questions, one per module. Five candidates registered for this paper. UNIT I PAPER 1 The performance on this paper as a whole was unsatisfactory. The mean on this paper was 21.05 out of maximum possible mark of 63. The marks ranged between 0 46 and the standard deviation was 7.62. On this Paper, 9 Multiple Choice items and two short answer questions were set on each module. The maximum mark for each module was 21. Module 1 The short answer questions were 28 and 31. The mean mark on this Module was 8.90, the standard deviation was 3.36 and the scores ranged from 0-20. Module 2 The short answer questions were 30 and 32. The mean mark on this Module was 7.11, the standard deviation was 3.17 and the scores ranged from 0-16. Module 3 The short answer questions were 29 and 33. The mean mark on this Module was 5.04, the standard deviation was 2.79 and the scores ranged from 0-16.

3 DETAILS OF PERFORMANCE MULTIPLE-CHOICE The performance on the twenty-seven (27) multiple-choice items was fair. The mean mark on the multiple-choice component of the paper was 12. SHORT ANSWER QUESTIONS Question 28 This question required candidates to match the internal control principle which would best eliminate the internal control problem presented. The response to this question was satisfactory with a mean of 3.37 out of 6 and a standard deviation of 1.46. Common weaknesses in the candidates solutions were: A number of candidates did not appear to have a full understanding of the term independent internal verification. Item 6 read, Cash shortages were NOT discovered because there were NO daily cash counts by supervisors. Most candidates saw this as establishment of responsibility and not independent internal verification. Item 2 read Alison, Arlene and Kathy-Ann handle cash sales from the same cash register drawer. The candidates responded that the violation of internal control principle was segregation of duties or other controls instead of selecting establishment of responsibility as the violation.

Most candidates answered the other four items correctly. Question 29 Candidates were required to prepare the operating activities section of the statement of cash flows using the indirect method. The response to this question was unsatisfactory with a mean of 1.55 out of 6 and a standard deviation of 1.36. Weaknesses Candidates showed weaknesses in the inappropriate treatment of increases and decreases in assets and liabilities in the operating activities section of the cash flow statement. Some candidates started their statement with the gross profit figure while others used the income before taxes rather than the net income. Some candidates included the change in cash in their statement. Some candidates added the deferred tax liability and income tax payable together.

4 A number of candidates did not have the appropriate headings and many were unfamiliar with the term cash flow. Instead they attempted a trading and profit and loss account. A few candidates added and subtracted the changes correctly but deducted the net change from the net income rather than adding. Question 30 This question required candidates to: a) b) Prepare a journal entry to record the revaluation of a partnership before the admission of a partner. Calculate the amount of capital that the incoming partner would need to invest to obtain a 10 per cent interest in the partnership.

The response to this question was unsatisfactory with a mean of 1.25 out of 6 and a standard deviation of 1.42. Weaknesses A common weakness in this question was that candidates used the ledger format for the preparation of journal entries. Another weakness was that candidates used the existing capital figure in the journal rather than the adjusted one. A noticeable number of candidates did not update the partners capital account after the revaluation. Some candidates used a revaluation account to record the increases and decreases in land and buildings and inventory, but did not allocate the difference to the existing partners using their respective profit and loss sharing ratios. In the preparation of Part (b) of the question some candidates recognized that the $990,000 in the value of the business represented 90 per cent, some used 10 per cent of the $990,000, while others used 10 per cent of $865,000 as the new partners capital. Not all candidates attempted this part of the question. Question 31 This question required candidates to prepare a journal entry to record the following: a) b) c) Purchase of a bond as a temporary investment Receipt of interest Sale of bond

The response to this question was poor with a mean of 1.50 out of 6 and a standard deviation of 1.41. Weaknesses A common weakness was that candidates were not able to prepare journal entries. Some candidates did not treat the bond as investment by recording it as an asset. Instead they treated it as a liability, while others had difficulty in calculating the interest for half of a year.

5 Some candidates calculated the interest on the purchase price and not the face value of the bond. Requirement (c) required candidates to calculate the interest for two months but many candidates did not calculate the interest correctly. In some cases candidates did not calculate the gain on sale of investments. Question 32 Candidates were given a balance sheet of a sole proprietorship and additional information pertaining to fair values of its assets. The sole proprietorship was sold to a company through a share issue. Candidates were required to prepare a balance sheet after the sale. The response to this question was satisfactory with a mean of 3.55 out of 6 and a standard deviation of 1.65. Candidates were able to prepare the balance sheet but a number of them did not use the fair values of the assets in the revised balance sheet. Some of candidates did not record the share premium in the balance sheet. While others did not balance the balance sheet. Question 33 Candidates were given information pertaining to a gain contingency and a loss contingency and were required to report on the accounting treatment for these contingencies. The response to this question was unsatisfactory with a mean of 0.41 out of 6 and a standard deviation of 0.91. Weaknesses A large number of candidates did not respond to this question and the few who attempted it appeared to be unfamiliar with the topic. Some candidates did not understand the concept of a gain contingency but attempted to record information pertaining to the gain contingency. Those candidates who attempted Part (b) of the question appeared to be a little more familiar with the use of notes to disclose information, but again the concept of contingency appeared to have eluded them. PAPER 2 This paper consisted of three compulsory questions. Some candidates did not attempt all the questions on the paper. The mean for this paper was 35.91 out of a possible 105. The standard deviation was 13.87 and the scores ranged from 0 to 76. PERFORMANCE ON QUESTIONS Question 1 This question was divided into three parts and candidates were required to answer all the parts. The first part dealt with the conceptual framework. Candidates were given a diagram highlighting constraints, objectives of financial reporting, qualitative characteristics of accounting information, elements of financial statements, operating guidelines, assumptions and principles. Candidates were required to write short notes on four of the elements. The

6 response to this question was fair. Candidates appeared to have a good understanding of the qualitative characteristics of accounting information and the objectives of financial reporting. Many however, had difficulty in discussing the elements and the operating guidelines. Some candidates misinterpreted the concepts relating to elements of financial statements, while others did not understand the term constraints in the conceptual framework and wrote generally on the word constraint. The second part of the question provided candidates with a scenario about a medical office where there were breaches in internal control. Candidates were required to write a report outlining the breaches in internal control at the medical office. This section of the question was answered fairly well. Candidates were able to identify the internal control principles that were violated however a number of them had difficulty in relating the control principle to the case outlined. In the third part of the question candidates were required to outline the importance of an effective internal control system. Candidates were able to perform on this section creditably. Many of the candidates were able to identify at least three reasons for having an effective internal control system in an organisation. On the other hand there were a few who had difficulty in differentiating between the internal control principles and the effectiveness of the control system in an organisation. This question had a mean of 12.78, a standard deviation of 6.40 and the scores ranged from 030. Overall, some candidates performed well on the question but a large percentage did not respond to all parts of the question and this affected their performance. Question 2 This question dealt with a mini-case involving incomplete records. Candidates were required to outline the differences with respect to liability and ownership among private companies, public companies and partnerships. This section was well done by most candidates. The next section required candidates to prepare a set of financial statements for the business entity from the incomplete records. The performance on the section was unsatisfactory with a large number of candidates unable to prepare financial statements. Even though this is quite basic, a large number of candidates did not demonstrate knowledge in the area. This is quite surprising since the preparation of financial statements is a CSEC activity and all candidates should be able to obtain at least the formatting marks. The mean on this question was 12.50 out of 35, with a standard deviation of 6.85 and the scores ranged from 0-30. Candidates performance on the question as a whole was quite varied. Some of the candidates were able to obtain full marks for the balance sheet section relating to fixed assets and the capital section but were unable to treat other non-fixed assets in the same manner. Common weaknesses were: Candidates treating investments as capital and not as an asset Not using the lower cost or market rule to value the investments Not being able to differentiate between sales and cash receipts from sales for the cash account

7 Candidates preparing a cashflow statement instead of a cash account Incorrect treatment of loan and loan interest. The loan interest was recorded in the balance sheet and the loan in the income statement Investment treated as an expense in the income statement Candidates preparing an income and expenditure account instead of an income statement Not using IAS in the preparation of their statements and treating the purchases as opening stock/beginning inventory Provision for bad debts being treated correctly in the income statement but not deducted from account receivables in the balance sheet. Incorrect calculation of the accounts payable balance.

Question 3 Candidates were provided with a list of accounts balances and were required to prepare a balance sheet after taking some adjustments into consideration. They were also required to prepare notes on the financial statements and describe the purpose of notes. The overall performance on this question was unsatisfactory. The mean on this question was 10.62 and the standard deviation was 5.56. The question was reasonably well done by some candidates but many had difficulty in allocating items to the appropriate headings. The following observations were made: i) ii) iii) iv) v) vi) vii) viii) The intangibles were included with the fixed assets. Note receivable was treated as a current liability or added to accounts receivable in the current assets. A years interest was accrued on the note instead of three months. This amount was treated as a liability. Accruals and prepayments were not handled correctly. Accruals were treated as an asset while prepayments were treated as a liability. No distinction was made between short term and long term investments. Reserve for bad debts and for depreciation were included in the owners equity section of the balance sheet. Authorized share capital was added to the capital and reserves. The lower or upper range for the contingent liability was included in the balance sheet.

8 ix) x) Depreciation on factory equipment was not correctly calculated by most of the candidates. Sinking fund was included in the capital section of the balance sheet.

Many of candidates were able to state the purpose of notes but could not identify general types of notes. Some candidates wrote about debit and credit notes in this section of the question. In the last part of the question, candidates did not prepare the four notes required to accompany the balance sheet. They confused additional information given in the question and the notes that were required for financial statements. PAPER 3A For Unit 1, Internal Assessment samples were received from 50 centres. There was a general improvement in the quality of project reports received this year. Candidates and teachers must be complemented on the issues they raised in these projects. Some teachers are still using the syllabus prior to the 2002 and as such were assessing the students using different guidelines. Teachers should ensure that the syllabus that is being used is the current syllabus and should make note of the changes with reference to internal assessment. Teachers must also use the correct stationery for submitting candidates scores. The mean on this paper was 23.61 out of 42. The standard deviation was 7.24 and scores ranged from 6-42. ALTERNATIVE PAPER 3B This paper was examined for the first time in 2003. Only 4 candidates wrote this paper. The performance on this paper was unsatisfactory. The paper consisted of three questions, one per module. Question 1 This question required candidates to write a report to the accountant outlining major accounting assumptions that were violated in some recorded transactions. This part of the question was well done by one candidates. The other three candidates did not write a report but attempted to correct the journal entries. The second part of this question, which required candidates to discuss the purpose of accounting standards, was satisfactorily done by all of the candidates. Question 2 This question required candidates to prepare a report outlining deficiencies in the presentation of financial statements. Again a common mistake made by some candidates was redoing the financial statements and not writing a report as required.

9 Question 3 This question focused on Module three. Some candidates did not respond. This question required candidates to make recommendations for the improved presentation of the financial statements presented. There was one candidate who answered this question very well. UNIT II In 2003 451 candidates registered for the examination. This represented an increase of 113 per cent over the 2002 entry. The CAPE Accounting Unit 2 examination (Cost and Management Accounting) consisted of three papers. Paper 01 consisted of 27 multiplechoice items 9 per module and 6 short answer questions 2 per module, all of which were compulsory. The time allocated to this paper was 90 minutes. Paper 1 The performance on this paper as a whole was satisfactory. The mean was 25.59 out of maximum possible of 63. The marks ranged between 061 and the standard deviation was 12.22. Paper 02 This was an extended essay paper comprising of three questions, one per module. The time allocated for this paper was 2 hours. Paper 3A This was the internal assessment component and is school-based. This paper was assessed by the class teacher and moderated by CXC. Paper 01 On Paper 1, 9 Multiple Choice items and two short answer questions were tested from each module. The maximum mark for each module was 21. Modules 1 The short answer questions were 30 and 31. The mean was 11.23 and the standard deviation was 5.23. The scores ranged from 0-21. Modules 2 The short answer questions were 29 and 31. The mean was 7.73 and the standard deviation was 4.11. The scores ranged from 0-21. Modules 3 The short answer questions were 28 and 32. The mean was 7.73 and the standard deviation was 4.61. The scores ranged from 0-21.

10 DETAILS OF PERFORMANCE MULTIPLE CHOICE The performance on the twenty-seven (27) multiple-choice items was good. The mean mark on this section of the paper was 16. SHORT ANSWER QUESTIONS Question 28 This question required candidates to: (a) (b) (c) (d) Calculate the companys contribution margin ratio Calculate the break-even point Calculate the number of units to be sold to earn a given target profit Calculate the margin of safety

The performance on this question was satisfactory. The mean was 2.47 out of 6 with a standard deviation of 1.98. Most candidates were able to calculate the contribution margin ratio and apply the break-even formula to the given situations. A weakness identified in some candidates responses was the use of the total figure for the contribution instead of the contribution per unit in the breakeven formula. Some candidates correctly calculated the contribution margin ratio but had some difficulty in expressing the result. Question 29 This question required candidates to: a) b) c) Compute the unit product cost under absorption costing Compute the unit product cost under variable costing Prepare a variable costing income statement

The response to question was unsatisfactory. The mean for this question was 1.97 with a standard deviation 1.75. Most candidates performed well on Part (a) of the question. Common weaknesses in the candidates solutions were: Some candidates did not make the distinction between variable and product cost and gave the total variable cost as the answer for Part (a). Some candidates added the variable selling and administrative cost to the variable manufacturing cost in answering Part (a).

11 The income statement was too vague and they did not separate variable manufacturing costs from selling in Part (c). A number of candidates were unable to determine the value of ending inventory under both methods. Some candidates used the unit cost in the preparation of the income statement as the solution.

Question 30 This question required candidates to allocate service department costs. The response to this question was good. The mean was 3.86 and the standard deviation was 2.48. Scores ranged from 0-6. Common weaknesses in the candidates solutions were: Some candidates appeared to have difficulties in using the fixed and variable cost percentages in allocation. Often candidates used the wrong percentage when allocating the fixed cost. They used 70 per cent instead of 30 per cent.

Question 31 Candidates were given information pertaining to an entity using ABC and the first stage allocation was completed. They were required to compute the activity rates for two departments and calculate the cost of a particular job. The mean for this question was 1.48 and the standard deviation was 1.52. Most candidates were able to accurately calculate the cost per unit of activity. A common weakness in the candidates solutions was their inability to apply the activity rates calculated to the cost of the job. Question 32 This question was a standard costing question. Candidates were required to calculate price and quantity variances for materials, labour and variable overheads. The mean for this question was 0.88 and the standard deviation was 1.53. Scores ranged from 0-6. The formula appeared to be well know by candidates but their major area of weakness was their inability to correctly substitute in the formulae the calculation of actual quantity, standard quantity, actual hours and standard hours. Candidates should be encouraged to write the formula at all times and then substitute the required information into the formula. Question 33 This question required candidates to calculate the value of ending inventory using LIFO and FIFO methods.

12 The mean for this question was 2.78 and the standard deviation was 2.47. Scores ranged from 0-6. Most candidates were able to calculate the number of units in the ending inventory but some had difficulty in calculating the value of the ending inventory. Candidates should be encourage to present information such as this in a tabular format. PAPER 2 Question 1 This question required candidates to: a) b) Prepare a schedule of cost of goods manufactured Calculate the profit or loss from a special order using relevant costs

Most candidates performed extremely well on the preparation of the schedule of cost of goods manufactured. The following were however observed: Indirect costs were not recognized as factory overhead; factory overhead costs were deducted from the prime cost section rather than being added; and some candidates prepared a trading and profit and loss account which was not an additional requirement of this question. The section of the question that posed some difficulty was the calculation of the profit or loss from a special order using relevant costs. Many candidates had difficulty understanding the concept of relevant cost. Only a few candidates focused on the variable costs given in the question. Some were able to make an appropriate analysis based on their answers but a large number did not give a reason for their answers. The mean on this question was 21.74 and the standard deviation was 4.54. The scores on this question ranged from 4-35. Question 2 This question provided candidates with data pertaining to job costing and process costing. Candidates were required to calculate cost rates in a job-costing environment, use given information to prepare a process-costing worksheet using the weighted average method, and calculate the cost and price of a job using the job-costing method. Candidates performed quite well on this question. There were cases where some candidates divided figures instead of multiplying them. The major weakness was that candidates did not analyze the question properly. They calculated the direct cost for each professional instead of aggregating the figures and making one calculation. Additionally some candidates used units instead of dollars in calculating the rates. Most candidates who were exposed to this topic performed well on the preparation of the process costing worksheet. A large number received full marks for this part of the question. Some did not attempt this part of the question while a few did the double entry process costing accounts instead of the worksheet.

13 Many candidates did not attempt Part (c) of the question, however some of those candidates who attempted it scored full marks. The mean mark on this question was 15.13 and the standard deviation was 8.13. The scores ranged from 0-35. Question 3 Candidates were provided with information and were required to prepare a cash budget and supporting schedules. In addition, the second part of the question incorporated net present value analysis. This question was well done by a large number of candidates, some of whom received full marks. There were a few candidates who had some difficulty in preparing the purchases schedule. The calculation of the NPV was done correctly by most of those who attempted it. The mean for this question was 16.33, the standard deviation was 9.89 and the scores ranged from 0-35. PAPER 3A For Unit 2, Internal Assessment samples were received from 37 centres. The internal assessment comprised three tests which were constructed, administered and marked by the teacher. These tests, along with the keys and mark schemes submitted for moderation were well constructed with the objectives clearly identified. The test items selected were of a level of difficulty, type and mix of questions appropriate to the level being assessed. The sample scripts submitted were marked consistently with the keys and mark scheme. Teachers must ensure that they use the correct stationery for submitting candidates scores. The mean on this paper was 25.69, the standard deviation was 7.95 and the scores ranged from 2-41. GENERAL COMMENTS A large number of candidates are not responding to all the questions on the examination paper. No response to questions significantly affects the final grade a candidate is awarded. Teachers must inform candidates that in order to be successful in the examination they must perform satisfactorily on all modules. A no-response on a question affects their chances of obtaining a satisfactory grade in a module and this will affect their composite score and their final grade. Teachers must try to complete the syllabus and should assign topics for research that lend themselves to self-directed learning. Again this year there is evidence to support the call for candidates to complete the syllabus. A large number of candidates were unfamiliar with topics that were being examined. It should be noted that the comments made last year with respect to performance on questions are the same comments being made again this year. During the marking exercise teachers views were solicited on the question type, level of difficulty and presentation of the questions. They concurred that the questions were of the appropriate level and difficulty. They further noted that the questions were quite similar to those on the Specimen Paper and the ones used during their teaching and testing. However, they noted that candidates were not attending classes during April and this affected their ability to complete the syllabus.