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EXAMINER’S REPORT: Manual Bookkeeping, October 2007

Level II

As an examiner, it was most encouraging to see such a high standard of competence demonstrated in the papers at this level. I offer my congratulations to all the successful candidates but particularly to a small group who achieved 100%, which is evidence that there are some most competent Bookkeepers developing further their skills and attributes.

Question 1. Double Entry.

The Double Entry Scenario was overall well prepared. However, some candidates still persist in posting individual items from the Day Books to the General Ledger rather than as batch totals. This covers postings for Sales, Purchases, VAT Input and Output Tax, Sales and Purchases Returns. This was not penalised but in future examinations batch total transfers will be expected only. Some candidates when posting the HMRC VAT payment opened an account for HMRC and debited this account rather than debiting the VAT Account. This was fundamentally incorrect.

Question 2. Bank Reconciliation Statement.

Having successfully up-dated the Cash Book, some candidates persist in reconciling the cashbook to bank statement. The Reconciliation Statement is expected to start with the balance per the Bank Statement and finish with the balance per the Cash Book. Please note this well.

Question 3. Journal Entries and Suspense Account.

Some candidates failed to recognise that the Vet fees wrongly posted were Drawings. Others, on correcting the second error, attempted to adjust the VAT when there was no need to do so. The entry concerning the Suspense Account was well answered.

Question 4. The Final Accounts.

Some candidates still continue to post Drawings to the Profit and Loss Account. Terminology on the Balance Sheet still causes misunderstanding. Current Assets minus Current Liabilities is Net Current Assets or is commonly known as Working Capital. Some candidates show a total for this as the aggregate of Total Assets less Current Liabilities. In a future issue of the Newsletter I shall deal with the layout of a set of Accounts for a Sole Trader with focus on the purpose and use of the Terminology shown. Other candidates confused opening and closing stocks in the financial statements.

Question 5. The VAT Account and VAT Return.

Common errors here, as before, included ignoring the need for the word "None" where necessary on the Return. Also, some candidates posted the total on the VAT Account, debit and credit sides, to the form for Inputs and Outputs, this being incorrect. Overall the papers were, as previously mentioned, of a high standard but some candidates were not well prepared for this level of competence.

Level III

Again the standard of competence demonstrated here was most pleasing as the advanced concepts tested were indeed challenging.

Question 1. Incomplete Records.

This question was generally well done with few candidates having difficulty with Accruals and Pre-payments. Some candidates did not recognise how to measure Profitability.

Question 2. Limited Company Financial Statements.

Some candidates dealt incorrectly with both Carriage Inwards and Outwards. The determination of the profit on disposal of the asset caused problems for some. Please note that we do not Depreciate an asset in its year of sale. Balance sheet Terminology continues to be cause for concern for some. I expect to see here NBV of Fixed Assets, Net Current Assets, Total Assets less Current Liabilities, Long Term Liabilities and Net Assets. Net Assets being equal to Shareholders' Funds.

Question 3. Club and Society Financial Statements.

Some candidates dealt incorrectly with Donations by not showing them as Income but adding them in on the Balance Sheet to the Accumulated Fund. Other candidates failed to recognise the treatment of both opening and closing accruals and pre-payments and therefore calculated incorrect charges for the Income and Expenditure Account. In future examinations I shall ask to see detailed "T" accounts for both Subscriptions dealing with advance and arrears concept together with items of expenditure showing opening and closing accruals and per-payments and a mix of these.

Question 4. Partnership Accounts.

This question was less well answered than others. It asked candidates to calculate Interest on Capital on the balance at the end of the year. Many based it on opening capital. Although the Goodwill was well handled, some candidates had difficulty with the Revaluation and its effect on the Capital Accounts.

Question 5. Underpinning Knowledge.

Many candidates can prepare a set of final accounts but fail to understand terms such as Net Assets, Capital Employed and Shareholders’ Funds. Others struggled to calculate Gearing. Very few candidates scored full marks on this question. Questions of this type will continue to feature on this examination.

To those candidates who scored so highly - well done.

Dr Philip E Dunn
Head of Education