Accounting Studies

2 0 0 9 A S S E S S M E N T R E P O R T

Society and Environment Learning Area

ACCOUNTING STUDIES 2009 ASSESSMENT REPORT

GENERAL COMMENTS
ASSESSMENT COMPONENT 1: EXAMINATIONINATION GENERAL COMMENTS It was pleasing to see that most students attempted all sections of the paper, and did not appear rushed, having time to attempt all questions. The standard of the report section appeared to be improving and most students were able to present a response in correct format that addressed most criteria. Students are reminded to include calculations in their answers as this helps markers to award part marks, when the final answer is incorrect. Students who used the space provided for calculations generally did very well in those questions. Students are also reminded to avoid using abbreviations and acronyms in their answers as they may not be understood by markers. Small or illegible handwriting continued to create difficulties for markers.

PART 1: PROBLEM QUESTIONS Question 1 This question was the second most successful question answered in the examination, showing most students have a good understanding of cash budgets. 55% of students scored 10 marks or more for this question. Part (a) Students who read the question carefully answered it appropriately. Only a few students understood that the reconciliation was to be carried out from the business cash records and not from the bank statement. Part (b) This was well done by most students. Part (c) The practical was very well done. Only a small number of answers incorrectly included depreciation and some included the interest as a payment. Part (d) Almost all students were able to provide a recommendation relating to their closing cash balance; however, some responses did not provide a clear reason for the recommendation. Part (e) Many students made an appropriate suggestion, but did not justify the alternative method. The most successful responses referred to the use of a medium term loan or leasing the vehicle.

Accounting Studies 2009 Assessment Report

Page 2 of 6

Question 2 Part (a) Debtors control was reconstructed very well by most students. A few responses incorrectly entered interest on the credit side. Inventory control was poorly answered. Many students used incorrect wording, such as purchases and sales. Many answers showed a lack of understanding on how to balance a ledger account, and subsequently determine the stock loss value. Part (b) (i) Few students were able to calculate average debtors for the ratio. (ii) Good responses correctly identified that the calculation period was for June and therefore were able to discuss the ratio in the correct context. (iii) Students who read the question correctly and understood that they were asked to comment on action for new customers generally received full marks for this question, suggesting credit checks needed to be carried out. Part (c) Answered very well with most responses correctly identifying cameras and security tags as technology that helps to reduce theft. Question 3 Part (a) Students either had a very good understanding and received full marks or struggled with this part and did very poorly. Only a small number of students used the working space to maximise their ability to receive full marks. Part (b) Markers commented on the improvement in classifying and completing the statement. Some answers omitted Inventory and/or incorrectly classified bank as a current asset and loan as a non-current liability. Some responses incorrectly included a display cabinet in non-current assets for $4 000. Many students are correctly including a net value for non-current assets being depreciated and for debtors that has an allowance for doubtful debts. There was a marked improvement from students who calculated net assets and then balanced the amount back to total owners equity to calculate the net loss value. Part (c) (i) A full definition was well written by most students. (ii) Determining one disadvantage of using the historical cost concept was answered well, while providing one advantage was less clearly stated. Part (d) Surprisingly, many responses only selected one item as a selling expense. Part (e) Most students were able to clearly and correctly identify two items to receive full marks for this part. Question 4 Ninety-three per cent of students were able to receive 4 marks or higher. Part (a) Many students were able to gain full marks; however, some responses did not record the total of the closing stock value. Part (b) Correct responses included revenue items at selling price, cost of goods sold at cost price and included the stock loss to calculate gross profit. A little over half the students were able to transfer the information from the stock card into the income statement correctly. Part (c) Only a small number of students were able to show a calculation for average Inventory. Some students showed the appropriate understanding by using

Accounting Studies 2009 Assessment Report

Page 3 of 6

the cost of goods sold value in the income statement as the value in the ratio calculation. Part (d) Many students were able to interpret their calculation in part (c) to the December value and correctly suggest two specific and appropriate reasons for the change based on their calculation. Part (e) Most students were able to correctly calculate the break-even point. They correctly labelled the answer as units and not a dollar value for breaking even. Part (f) This question gave a clear indication of whether students understood inventory turnover and break-even analysis. Only some of the cohort could correctly explain and justify the results in terms of which brand of tennis racquet the business should continue to sell. Part (g) Nearly all students were able to correctly answer that stocktakes helped to detect stock losses or gains. Part (h) Only a handful of students were able to use the accounting equation to correctly calculate the drawings value. Quite a few candidates did not attempt this part of the question. Question 5 This question, as in past examinations, was either done very well or very poorly. 10% of candidates received 0 or 1 out of 14 marks. Markers commented on the poor results for such a common examination question. Part (a) Students who used the working space were able to gain full marks or close to full marks. Some students incorrectly applied the discount figure to the debtors calcualtion instead of the creditors calculation. The prepaid rent amount was generally calculated correctly. Part (b) Students either showed a very good understanding of completing the statement, or were unable to classify items correctly. Some students failed to show an understanding of balancing operating, investing and financing activities to the net change in cash value. Correct answers included custom duty and interest as outflows in operating activities. Part (c) This section was poorly done by most students. Only a handful of students could explain the significance of the surplus or deficit of operating and financing activities for Xans business. Part (d) Students who received full marks were able to clearly identify the difference between a change in cash and a change in profit. To answer successfully, students could either provide definitions of both concepts clearly showing an understanding of the differences, or they could use specific examples from the statement in part (b) to explain the difference in the two concepts.

Question 6 This question received the most full-marks by students, although there were a number of students who did not attempt this question. Part (a) (i) Students who used the ratio calculation sheet were able to successfully calculate both ratios based on the information presented. (ii) All students who calculated an answer in part (i) were able to describe the change correctly, based on their calculations.

Accounting Studies 2009 Assessment Report

Page 4 of 6

(iii) Some students were able to base their answer on the information provided and correctly stated that net profit had decreased. Part (b)(i) Students who used the ratio calculation sheet were able to successfully calculate both ratios based on the information presented. (ii) All students who calculated an answer in part (i) were able to describe the change correctly based on their calculations. (iii) Some students were able to correctly state that the market price of the ordinary share had decreased, based on the values used for their calculation. Part (c) Some students were able to explain the accounting entity and legal entity, and relate the concepts clearly to All Ozie Company Ltd. A handful of students used incorrect terminology, in either the definition or relating the concept to the company structure.

PART 2: EXTENDED WRITTEN RESPONSE Most students attempted this part and demonstrated appropriate report format with introduction and separate sections for profitability, solvency and users of the financial information as appropriate for the question. Good responses included reports with headings and a conclusion. Correct responses mentioned the owner, I Fone, by name and did not refer to the business as a company or refer to shareholders. Calculations A large number of students achieved 6 marks for the ratio calculations. However, calculating the average of owners equity again caused problems in the return on equity ratio. A number of students did not subtract sales returns from sales when calculating net sales, in the other profitability ratios. Some students seemed unfamiliar with the calculation of the individual (financial) expenses ratio, using the total figure for all expenses rather than just the total of financial expenses. Calculator and excessive rounding errors were a problem for some candidates. Profitability Students who scored particularly well in this area were able to define each ratio and discuss the impact of the trend, specifically on the business Mobiles and Communications Store. Successful responses were able to identify that an increased gross profit margin, combined with a declining trend in net profit margin, confirmed that the operating expenses had increased. They indicated that this could be related to the increase in the financial expenses ratio (and other expense categories) which could be explained by the increased gearing and interest expense. Many students noted that this category also includes bad and doubtful debts and discount allowed. Good responses were able to link all ratios and present an overview of the profitability of the business, rather than discussing each ratio in isolation.

Accounting Studies 2009 Assessment Report

Page 5 of 6

Students should avoid calculating and commenting on ratios which had not been asked for and were not relevant, for example, calculating working capital ratio and commenting on liquidity. This will not gain marks. Solvency Most students identified that the trend in the total debt to assets ratio indicated gearing had increased. However, only a small number of students stated that the business was considered highly geared in 2009 with more than 50% of the assets financed by external sources. A number of students incorrectly stated that the business was owned by outside sources and the owner no longer controlled the business. Reports that also mentioned the increased risk for the owner who had unlimited liability in a sole trader business generally received more marks. A large number of students were able to recognise that the trend in the times interest earned ratio indicated that the business was more easily able to cover the cost of the interest expense. Users of Financial Information The majority of students were able to identify two users, but often did not link the comments to the financial reports for Mobiles and Communications Store. Strong responses were able to explain how financial reports were important for decision making for both internal and external users by giving very clear examples of decisions relating to the reports of Mobiles and Communications Store.

Chief Assessor Accounting Studies

Accounting Studies 2009 Assessment Report

Page 6 of 6