Pearson LCCI Certificate in Accounting (VRQ) Level 3 (ASE20104)

Examiners’ Report November 2017

ASE20104 November 2017

LCCI Qualifications LCCI qualifications come from Pearson, the world’s leading learning company. We provide a wide range of qualifications including academic, vocational, occupational and specific programmes for employers. For further information, please visit our website at www.lcci.org.uk. Pearson: helping people progress, everywhere Pearson aspires to be the world’s leading learning company. Our aim is to help everyone progress in their lives through education. We believe in every kind of learning, for all kinds of people, wherever they are in the world. We’ve been involved in education for over 150 years, and by working across 70 countries, in 100 languages, we have built an international reputation for our commitment to high standards and raising achievement through innovation in education. Find out more about how we can help you and your students at: www.pearson.com/uk. November 2017 All the material in this publication is copyright Publication code: 59671_ER © Pearson Education Ltd 2017

Introduction Pearson (LCCI) redeveloped the new Level 3 Certificate in Accounting (VRQ) (ASE20104) specification as a part of a Finance and Quantitative suite of qualifications from Level 1 to Level 4. 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. Candidates are introduced to topic areas they are likely to encounter in their working lives in practical, scenario-based situations. The qualification has been revised to allow candidates to progress to the Pearson LCCI Level 4 Certificate in Financial Accounting (VRQ), which extends and introduces new advanced topic areas in this field.

The assessment is out of 100 marks, comprising five compulsory questions. This assessment covered these topics:

accounting concepts and framework preparation of financial statements preparation of accounting records from incomplete records interpretation of financial statements budgetary control introduction to decision making.

Candidates performed very well on the preparation of the statement of profit or loss, statement of financial position, current accounts for partners, the preparation of budgets and the calculation of the accounting rate of return for capital investment appraisal. To progress to higher levels, and to score high grades, candidates must demonstrate the underpinning knowledge and understanding of fundamentals by preparing for the exam according to the specification, and by combining theory and practice.

Question 1 The majority of candidates scored above average marks for this question. Part (a) The majority of candidates prepared the statement of profit or loss for a company in the required format, by showing clearly the notes to the accounts (workings). The main mistakes were not treating the returns inwards and outwards correctly, not adding the carriage inwards to the purchases and the carriage outwards to the distribution costs, and not calculating the finance costs. Also including the tax under the distribution costs. Candidates from a few centres had the workings with figures only, without any description. It is important that the workings, or any figure in the accounting, must have the label that can help the users to understand the figures. See below an example of (a).

Part (b) Candidates were unable to state two reasons for the employees to be interested in their employer’s financial statements. The majority of candidates just stated one reason, such as continuity of their job/employment; and where they stated the second reason, such as payment for wages/salaries, candidates were unable to relate it to liquidity. See below an example of (b).

Examiner Comments Candidates must establish the type of the business (sole trader, partnership or company) to present the financial statements accordingly, as for these companies the financial statements are very prescriptive.

Examiner Tip Any expense relating to selling and distribution must be shown under the heading distribution costs for companies.

Question 2 The majority of candidates scored average marks on this question. Part (a) The majority of candidates were able to state one purpose of the partnership agreement.

See below an example of (a). Part (b)(i) The majority of candidates were able to calculate the total sales by using the mark up provided in the question correctly. See below an example of (b)(i).

Part (b)(ii) The majority of candidates were able to calculate the profit for the year by using the profit for the year to revenue percentage correctly. See below an example of (b)(ii).

Part (c) The majority of candidates prepared the current account in the correct format. Candidates from a few centres were unable to present it correctly with the correct dates and labels, which demonstrates lack of understanding of double entry. Less able candidates were unable to complete the balancing process as they did not bring the balances down, or the totals were missing. Candidates from a few centres did the current account in the statement format. See below an example of (c).

Part (d) The question assessed the candidates’ understanding of presenting the information for the partnership. Candidates from a few centres were unable to demonstrate that knowledge and understanding, as the net profit and drawings etc. were also listed in the statement of financial position. Most candidates prepared the partnership statement of financial position without showing the capital and current accounts balances for each partner. Other mistakes were either that the other payables were missing from the current liabilities, or the label for the final figure for total equity and liability was missing. The bank loan was labelled correctly under the non-current liabilities. See below an example of (d).

Part (e) The majority of candidates analysed the information provided for the partnership by calculating various ratios, and stating whether these are increasing or decreasing, which should not have been used, as no comparative information was provided. The responses should have included the comparative discussion of a sole trader and partnership to make a supported decision to join or not to join the partnership by a sole trader. Where candidates did engage with the question as required, the responses were stated in bullet points without any comparative discussion of both types of organisation, sole trader and partnership, to form a decision. Part (f) The majority of candidates scored full marks by stating the profitability ratios correctly. The main mistake was stating the liquidity ratios, instead of profitability ratios as required in the question.

See below an example of (f)

Examiner Comments Candidates must know the difference between the financial statements for different types of business.

Examiner Tip For partnerships, the transactions between the partners and business, such as profit/loss share, drawings and interest on capital/drawings, are not listed individually in the statement of financial position. These are recorded in the current account, to transfer the balance on this account for each partner to the statement of financial position. For discussion questions, candidates must discuss both points provided to make the final decision.

Question 3 The majority of candidates scored average marks on this question. Part (a) The majority of candidates were unable to state one difference between the tangible and intangible non-current assets. The responses included examples of both types of the asset rather than the difference between both types of asset. See below an example of (a).

Part (b) The majority of candidates were unable to complete the cost section of the table with headings/labels from the information provided in relation to acquisition and disposal of the non-current assets. For the accumulated depreciation section, candidates were unable to calculate and record the depreciation charge for the year correctly. The carrying opening balance was provided for each type of asset, but candidates were unable to calculate the closing balances for the carrying value to complete the table by using their figures. See below an example of (b).

Part (c) The majority of candidates calculated and stated the loss on disposal correctly. The main mistake was not calculating the accumulated depreciation correctly. See below an example of (c).

Part (d) The majority of candidates prepared the investing section by showing the acquisition and disposal of the non-current assets correctly, with labels and direction for the figures. The main mistakes were either not having the label for the subtotal for this section or not having the direction for the figures. See below an example of (d).

Part (e) The majority of candidates listed the three adjustments for the financing section correctly. The main mistake was listing the interest received/paid and dividend received as an adjustment for financing section. See below an example of (e).

Examiner Comments Where the disposal of the asset is involved, the accumulated depreciation needs to be adjusted first for the accumulated depreciation on the asset disposed. Calculate the accumulated depreciation of the previous years, (mostly for the asset/s disposed of), by having each year, or month, written with figures as stated in the deprecation policy.

Examiner Tip Where the table is provided, complete it by entering the information provided in the correct cell and check your answers by cross checking the total column.

Question 4 The majority of candidates scored above average marks on this question. Part (a)(i) The majority of candidates scored full marks on this question. The main mistakes were either not deducting the cash discount from the monies received during the first month or not adding this amount for the total of each month. Few candidates prepared the trade receivables account. See below an example of (a)(i).

Part (a)(ii) The majority of candidates calculated the total of the amount received from the trade receivables by adding the amount received from the trade receivables for each of the three months from Q4a(i) rather than by calculating the amount owing at the end of the month March, to be included as trade receivables in the statement of financial position. Only well-prepared candidates answered this question correctly. See below an example of (a)(ii).

Part (b)(i) The majority of candidates were able to state the two inventory valuation methods correctly. Many candidates missed the word weighted from the weighted average cost method. See below an example of (b)(i).

Part (b)(ii) The majority of candidates were unable to prepare the inventory budget correctly for each of the three months. The main mistakes were not including the opening balance provided for the month of January, and accounting the units sold at a cost, or not converting the sales into units correctly. A few candidates just calculated the closing balance for the month of March only. See below an example of (b)(ii).

Part (c) This was an explain question to identify the need for the inventory budget and have a linked justification. Where candidates tried, they were able to state the need for the inventory budget but did not develop it further. See below an example of (c).

Part (d) This was another explain question to identify the need for the cash budget and have a linked justification. Where candidates tried, they were able to state the need for the cash budget, but did not develop it further. A few candidates related the cash budget with the profitability, which is fundamentally wrong. See below examples of (d).

Examiner Comments Budgeting questions must be answered according to the period in question, mostly according to the months listed in columns.

Examiner Tip For the inventory budget (in value) the sales are always recorded at cost, not at sales value. The sales are always deducted whether the inventory budget is in units or in value.

Question 5 The majority of candidates scored below average marks on this question. Part (a) Candidates struggled to calculate the break-even units and to have this in revenue as they did not include the deprecation to the fixed overheads to have the fixed cost for the calculation of the break-even point. See below an example of (a).

Part (b)(i) Candidates calculated the revenue for year 2 and 3 correctly by using the information provided relating to the number of the units sold each year. See below an example of (b)(i).

Part (b)(ii) Candidates were unable to work out the cost of sales for year 4, as they did not account either for the increase in the number of the units or the purchase price per unit. See below an example of (b)(ii).

Part (b)(iii) Candidates were unable to calculate the profit for the year as most of candidates ignored the depreciation from their calculations. An example of (b)(iii) follows.

Part (b)(iv) The majority of candidates calculated the accounting rate of the return using the correct formula. The main mistake was not calculating the average investment correctly. An example of (b)(iv) follows.

Part (c) Candidates stated the funding method without relating it to the scenario provided, as the responses included issue of shares /debentures etc., which do not apply to the scenario of a sole trader. See below an example of (c).

Part (d) Candidates were unable to analyse the information provided on all the three methods of capital investment appraisal by relating it to the scenario. Where candidates tried, the responses were generic rather than relating to the scenario, such as payback and net present value use net cash flows, rather than profit and accounting rate of return, which may be subjective as it uses profit.

Examiner Comments To get full marks on discussion/evaluation/ written questions, check the marks and have the same number of points/arguments/justification to make the decision.

Examiner Tip Candidates must learn the accounting rate of return formula.

Paper Summary Candidates performed very well on the preparation of statements of profit or loss, statements of financial position, current accounts for partners, the preparation of budgets and the calculation of accounting rate of return for capital investment appraisal. Candidates need to practise explain/ discuss and evaluate questions. The candidates will benefit from the following:

Candidates must learn and practise the International Accounting Standards (IAS) terminology and formats to show subtotal and totals, including the labels for financial statements.

Candidates must show their workings with reference number such as W1, W2 etc.

Candidates must use the labels for the figures used in the workings. Candidates must learn and practise the preparation of ledger

accounts with full details. Candidates must learn and practise the preparation of all financial

statements with full details. Candidates must learn and practise the preparation of all budgets

with full details. Candidates must practise analysing the financial information

according to the question requirement. Visit Pearson website for various resources to support candidates

learning https://qualifications.pearson.com/en/qualifications/lcci/financial-and-quantitative/accounting-2015.coursematerials.html

Grade Boundaries Grade boundaries for this, and all other papers, can be found on the website on this link: http://qualifications.pearson.com/en/support/support-topics/results-certification/grade-boundaries.html