ASE20104 - November 2019 - Examiner Report

Examiner’s Report

November 2019

Pearson LCCI Certificate in Accounting

Level 3(ASE20104)

2 LCCI ASE20104, November 2019

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Introduction

The Pearson LCCI Level 3 Certificate in Accounting (VRQ) gives candidates an

overview of the fundamental accounting principles and concepts that underlie all financial accounting and an introduction to management accounting. Candidates

are introduced to topic areas that they are likely to encounter in their working lives in practical, scenario-based situations.

To this end, the assessment for the November 2019 examination covered the

following topics:

• Accounting concepts and frameworks • Preparation of an extended trial balance

• Preparation of financial statements • Interpretation of financial statements

• Budgetary control • Introduction to decision making.

To achieve a good grade, it was important that candidates were able to succeed

at all these processes. Across the cohort, most candidates coped well with topics

involving calculations in general and on the preparation of a statement of financial

position of a company. It was the more descriptive and interpretative aspects of

the paper, those questions involving ‘explain’, ‘discuss’, and ‘evaluate’, that

differentiated candidates the most. In order to ensure the highest marks possible,

both centres and candidates should consider spending more time developing the

skills and knowledge required to answer this type of question.

The next section of this report will look at a range of questions and show examples

of candidates’ work. The section will explain how the candidate has performed and

give tips on how to improve. At the end of this report you will find a summary that

gives some recommendations to centres to help improve candidate performance.

It is also strongly recommended that this report is used in conjunction with the

mark scheme.


Question 1

Candidates scored above average marks on this question. This question was based

on the preparation of a statement of profit or loss for a limited company, with a

`state’ question on minimum amount of share capital and number of directors for

a public limited company.

The majority of candidates struggled to state the minimum amount of share capital

and number of directors for a public limited company as they either did not

attempt this part or stated the wrong amount for share capital and the wrong

number for directors.

The majority of candidates were able to prepare the statement of profit or loss to

a very high standard by showing the working notes on cost of sales, administrative

expenses and distribution costs with labels.

A good answer for part (b) is shown below.


Examiner Comments

This is an excellent example for preparing the financial statements

for a limited company by showing the notes with narratives/labels

and clear cross referenced.

Examiner Tips

It is important that candidates practice the correct company

format for financial statements, as these are assessed

regularly, to know the correct terminology used in a statement

of profit or loss such as profit from operations and profit for the

year.

A decrease on allowance for doubtful debts must be deducted to

calculate the final figure for administrative expenses.


Question 2

Candidates scored below average marks on this question. This question was based

on completion of the adjustment columns of the extended trial balance, impact of

the correction of the errors provided on profit for the year and a ‘state’ question

on the name of the other columns of the extended trial balance.

The majority of candidates completed the adjustment columns of the extended

trial balance correctly to a reasonable standard. The main mistakes were not

adjusting the closing inventory correctly due to damaged goods and comparing it

with the net realisable value, which was only 50% of the normal selling price, and

correction of disposal proceeds entry as the amount was recorded in the sales day

book and the amount being still outstanding.

The majority of candidates were able to state the two other columns of the

extended trial balance correctly, but a few candidates demonstrated a lack of

understanding of the extended trial balance as their responses included the name

of the ledger accounts rather than the columns. Candidates from a few centres

were clearly guessing and some adopted a strategy of putting either ticks

randomly or all ticks in one column.

A good answer for part (a) is shown below.



Examiner Comments

All entries were recorded correctly except disposal proceeds being

recorded in the sales day book. The candidate credited the

disposal account with the difference between the balance provided

on the disposal account and disposal proceeds rather than

recording the disposal proceeds in this account by crediting it and

removing it from revenue.

Examiner Tips

The totals of the adjustment columns of the extended trial

balance must balance to ensure that all the entries are completed

using the double entry rule.

Candidates must understand the revenue and capital expenditure

to understand the items affecting the profit for the year.

Revenue expenditure on the debit side of the adjustment column

will decrease the profit for the year and on the credit side will

increase the profit for the year.


Question 3


on the preparation of the statement of cash flows for a company along with two

`state’ questions on benefits of the change in cash and cash equivalents and

identification of distributable and non-distributable reserves and an `explain’

question on creation of share premium.

The majority of candidates were able to prepare the statement to reconcile the

profit for the year to net cash from operating activities and the statement of cash

flows to a required standard. Candidates from a few centres still struggle with the

correct terminology used for the statement of cash flows such as net

increase/decrease in cash and cash equivalents, net cash used /from investing or

financing activities. The main mistakes related to the preparation of the statement

of cash flows as candidates did miss out the revaluation for land to calculate the

acquisition of the land and buildings and did not show the issue of the shares

correctly. The majority of candidates just took the difference of the opening and

closing balances of the share capital and share premium without recognising that

there was bonus issue during the year. This demonstrates a lack of understanding

of the purpose of preparing the statement of cash flows and of not including the

short-term investment in the cash and cash equivalents at the year end as these

were included in the investing activities.

The majority of candidates struggled to state the two benefits of the change in

cash and cash equivalents as they just stated that there is no overdraft or loan,

but without stating the benefit of not having an overdraft as the positive cash and

cash equivalent was already provided, so it was just stating the fact.

The majority of candidates struggled to explain one reason for share premium.

Where they tried, they were only able to identify the share premium being a

difference between the issue price and nominal value of the shares but were

unable to develop it further to score the second mark.

The majority of candidates were able to identify the distributable and non-

distributable reserves correctly but again candidates from a few centres were

clearly guessing by putting one tick as distributable and one for non-distributable

reserve.

A good answer for part (b) is shown below.


Examiner Comments

Candidate recorded the short-term investment in the investing

activities, and hence lost a mark for not having the cash and cash

equivalents correct at the year end.

Examiner Tips

It is important that candidates practice using the correct

company format along with correct labels for financial

statements as these are assessed regularly.

Short term investments are treated as cash and cash

equivalents, hence not included in the investing activities.


Question 4


on calculation of the capital investment appraisal methods starting with accounting

rate of return and net present value, calculation of break-even point and

evaluation to choose the purchase of a machine.

The majority of candidates were able to calculate the accounting rate of return

and net present value correctly. The main mistakes were not calculating the

average profit for accounting rate of return and for net present value, not adding

back depreciation to calculate the net cash flows for each year, not adjusting the

repairs for the last two years and not including the residual value for the net cash

inflows for the last year.

The majority of candidates struggled to evaluate whether to purchase machine A

or B as they either stated the facts provided, such as accounting rate of

return(ARR) or net present value(NPV) or cost of one is either higher or lower than

the other, without analysing it. This required the possible impact on the business

or the reason for the difference between both machines.

The majority of candidates were able to calculate the break-even point correctly.

The main mistake was not rounding up the number of the units as their answer

stated the units in decimals.

A good answer for parts (a)(i), (a)(ii) and (c) is shown below.



Examiner Comments

The candidate used the correct formula for accounting rate of

return but lost one mark as the average investment was calculated

incorrectly.

The candidate used the correct method for net present value but

lost two marks for not adjusting the repairs cost for year 3 and 4.

The candidate calculated contribution incorrectly for part c as this

is the variable cost, as the contribution per unit is the difference

between the selling price per unit and variable cost per unit.

Candidate scored the final of mark as they rounded up the number

of units correctly.

Examiner Tips

To show the breakeven units correctly the figure must be

rounded up as you cannot sell a unit as a fraction. Normal

mathematical rule does not apply.


Question 5

Candidates scored average marks on this question. This question was based on

the preparation of the trade receivables budget and calculation of the total

receipts, along with written questions on stating the name of the other two

budgets, explanation on one benefit of cash sales and discussion on offering cash

discount to customers.

The majority of candidates struggled to prepare the trade receivables budget for

the three months as they either struggled to work out the opening balance, as two

types of the credit terms were provided, or where they calculated the receipts

correctly these were not shown after discount allowed.

The majority of candidates struggled to calculate the total receipts for each of the

months. Despite having the correct cash sales figures they did not use the receipts

from the trade receivables budget correctly. They either used the closing balance

or added the discount allowed figures to the receipts from trade receivables to

record the figures for each of the months.

The majority of candidates struggled to explain one benefit of introducing cash

sales. Where they tried they were able to identify only that the cash will be

received immediately, but were unable to develop it further to score the second

mark.

The majority of candidates were able to state the name of the two budgets

correctly, as expected.

The majority of candidates were able to form a decision relating to offering a cash

discount by discussing the impact on the profitability and liquidity.

A good answer for parts (a) and (b) is shown below.



Examiner Comments

The candidate did not calculate the correct opening balance for

trade receivables, receipts for the first two months and discount

allowed for the month of November, and hence lost four marks.

Candidate did use the receipt figures from the trade receivables

budget correctly in part b to calculate the total receipts by adding

to the correct cash sales figures for each of the respective months,

hence scored full marks for part b.

Examiner Tips

The receipts in the trade receivables budget are shown net of

discount allowed.


Paper Summary

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

advice.

• Practice preparing ledger accounts with correct labels and bringing the

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

subtotals with labels, as appropriate, by using the IAS terminology.

• Practice not only numerical questions but also understand the theory to be able to answer the ‘explain’ questions.

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

• Practice how to analyse the results from the information provided by giving

the reasons or considering what impact these 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

The grade boundaries for this paper can be found on Pearson’s website:

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




Documents

ASE20104 - November 2019 - Examiner Report