Pearson LCCI (VRQ) Level 3

LCCI ASE20104, April 2019

Pearson LCCI

Certificate in Accounting (VRQ)

Level 3

(ASE20104)

Examiner’s Report April 2019

2012-2013


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April 2019

Publication code: 63796_ER All the material in this publication is copyright

© Pearson Education Ltd 2019

http://www.lcci.org.uk/

http://www.pearson.com/uk


Introduction

This paper consists of 100 marks, comprising of a total of 5 questions. All the

questions are compulsory.

The assessment for the April 2019 examinations covered the following topics:

• Accounting concepts and frameworks

• Recording financial transactions • Preparation of financial statements

• Preparation of accounting from incomplete records • Interpretation of financial statements • Budgetary control

• Introduction to decision making.


Question 1

The candidates scored average marks on this question. This question was based on the preparation of partnership accounts on dissolution after a business was

sold to a limited company. It started with a realisation account before moving on to a capital account of a partner, the amount paid to a partner and the advantages of five different types of the organisation.

Although the majority of the candidates were able to prepare the realisation

account as expected, the main mistakes were either including the bank balance or including the bank figure for the disposal proceeds in addition to the total purchase consideration. It was also the case that several candidates did not show

the split of the profit on realisation with correct labels.

The majority of the candidates were able to prepare the partner’s capital account correctly with the opening balance, profit on realisation, asset taken over by the partner and share of the ordinary shares, before closing off the account with the

bank balance.

Most of the candidates were able to calculate the amount to be paid to the other partner by adjusting the opening capital with profit on realisation and the share of

the ordinary shares. A few candidates, however, added the share of the ordinary shares instead of deducting it.

The majority of the candidates were able to state an advantage of the type of the organisation. A few candidates struggled with the advantages of the partnership

and limited liability partnership, where candidates stated the partners have unlimited liabilities which is a disadvantage not an advantage.

Examiner Comments If the purchase consideration in total is included, the bank or

cash paid as part of a settlement is not included in the realisation account as it will be counted twice.

Examiner Tips For calculate questions, where possible prepare the ledger

account to keep yourself on track with the additions and subtractions.



Question 2

Across the cohort, candidates scored high marks on this question. This question

was based on the preparation of a statement of profit or loss for a company, and an explanation of the limitations of financial statements.

The majority of the candidates prepared the statement of profit or loss for a limited company to a high standard, showing the workings/notes for the cost of sales,

administrative expenses and distributing costs. The main mistakes were not accounting for the light and heat owing amount and prepayments for the general

expenses correctly. Other mistakes included ignoring the loss on disposal or treating it as a negative item in expenses, and not accounting the depreciation charge for delivery van correctly after accounting the accumulated depreciation

on disposal.

Despite the fact that they were able to score high marks on the preparation of a statement of profit or loss, most of the candidates then struggled to explain one limitation of financial statements. This indicates either rota learning or just

concentrating on numerical parts rather than understanding the theory. Only a handful of candidates were able to state a limitation and most of these were unable

to develop it further to score the second mark.


Examiner Comments

Any figure used in the financial statements requiring a calculation must have the supported workings/notes and these

must have the labels and cross references.

Examiner Tips The financial statements must have the correct labels for the figures.


Question 3

The candidates scored average marks on this question. This question was based

on the incomplete records of a sole trader, starting with a calculation of loss on an inventory. It proceeded to ask the candidates to adjust profit after adjusting

the inventory loss and general expenses, prepare the statement of financial position and, finally, calculate return on capital employed and asset turnover ratio.

The majority of the candidates were able to calculate the loss on inventory accurately, treating the insurance claim correctly to calculate the inventory loss.

Most of the candidates were able to calculate the adjusted profit correctly. A few candidates, however, deducted the total inventory and total general expenses,

rather than just adjusting the loss on inventory or the general expenses owing and prepayments.

The majority of the candidates scored below average marks on the preparation of the statement of financial position. This was because they did not use the correct

labels and did not show the sub totals for each section with labels as appropriate. They also struggled with carrying value of the non-current assets, other

receivables as they missed out the insurance claim and trade and other payables as these were not shown as one figure.

Many of the candidates struggled to calculate the return on capital employed and asset turnover ratios by using their own figures. The main mistakes involved not

knowing the asset turnover ratio formula and not expressing these ratios correctly.

Examiner Comments

Remember that trade and other receivables and trade and other payables are always shown as one figure on one row.

Examiner Tips The return on capital employed ratio is always expressed as a percentage, while asset turnover ratio is always expressed as

times.



Question 4

The candidates scored average marks on this question. This question was based

on a capital investment appraisal, beginning with a calculation of the net present value. It then involved calculating the payback period, evaluating which factory to

purchase, employing a formula on accounting rate of return, and applying accruals concept and other accounting concepts for depreciation non-current asset.

The majority of the candidates struggled to calculate the present value for the net inflows as they struggled to calculate the net cash inflows. They were, however,

able to score the marks for the net present value and payback period using their net cash inflows.

Most of the candidates scored average marks on the evaluate question, for they made the decision/conclusion based on generic points such as net present value

and payback period better or worse. Although the responses also included the difference of the production capacity and purchase price, these points were not developed enough to score the marks.

The majority of the candidates were able to state the formula for the accounting

rate of return. Few candidates included how the numerator is calculated and denominator is calculated rather than just stating average profit and average

investment respectively. The majority of the candidates were unable to explain the application of accruals

concept to depreciate the non-current assets. Only a few candidates were able to state the generic definition of accruals concept to match the expenses with the

revenue generated during a period. Even these candidates, however, did not relate this to depreciation to score the second mark. Some less able candidates stated methods of depreciation, which was not even required.

While most of the candidates were able to state the two other accounting concepts

applied for depreciating non-current assets, few included accruals concept again.

Examiner Comments Payback period is based on net cash inflows not on discounted cash inflows unless it is a discounted payback period.

Examiner Tips For payback period, round up the final answer to the months

and days (as appropriate).



Question 5

The candidates scored below average marks on this question. This question was

based on budgeting, starting with the function of financial accounting and management accounting. It then preceded to the preparation of a trade

receivables and trade payables budget and the naming of a financial statement to include the closing balances, before closing with a ‘discuss’ question reducing the credit terms by a company.

The majority of the candidates were unable to state functions of the financial and

management accounting. Instead, their responses mostly related to the purposes or differences between the financial and management accounting.

The majority of the candidates struggled to prepare the trade receivables budget by showing the discount and amount received correctly. The main mistakes were

not having the correct opening balance for the month of September and showing the total receipts due rather than the amount received after discount.

The majority of the candidates prepared the trade payables budget as expected.

Most of the candidates stated the name of the financial statement correctly, showing the closing balances of both trade receivables and trade payables. A few

candidates, however, stated the name of the sections rather than the name of the statement.

The majority of the candidates were unable to discuss the effect of the changes in the credit terms reduced for the trade receivables. Where they tried, most

candidates just discussed only two points to form the decision in favour of reducing the credit terms.

Examiner Comments

The receipts in the trade receivables budget are the amount received not the amount due, hence the discount is deducted to

show the receipts.

Examiner Tips

The closing balance of one period is the opening balance of the next period.



Paper Summary Overall, candidates performed well on:

• Preparation of ledger accounts • Preparation of statement of profit or loss

• Preparation of budgets.

But need to practice:

• Preparation of statement of financial position

• Calculation of net cash inflows • ‘Explain’ questions.

Based on their performance on this paper, candidates are offered the following advice:

• Practice journal entries for the adjustments for extended trial balance. • Practice preparing ledger accounts with correct labels and bring the

balances down as required. • Practice preparing financial statements with correct labels and show the sub

totals with labels as appropriate by using the IAS terminology.

• Do not just practice numerical questions but also understand the theory to be able to answer the ‘explain’ questions.

• Practice ‘discuss’ questions by providing the comparative statements for both sides.

• Practice how to analyse the results from the information provided by answering the reasons or what impact it will have on the business currently or in future.

Please visit Pearson’s website for various resources to support candidates’

learning:

www.lcci.org.uk

Grade Boundaries

Grade boundaries for this, and all other papers, can be found on Pearson’s website:

http://qualifications.pearson.com/en/support/support-topics/results-

certification/grade-boundaries.html

http://www.lcci.org.uk/

http://qualifications.pearson.com/en/support/support-topics/results-certification/grade-boundaries.html

http://qualifications.pearson.com/en/support/support-topics/results-certification/grade-boundaries.html

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