General Comments
The paper dealt with a wide range of issues and accounting standards. The paper was quite testing but candidates responded well resulting in a satisfactory pass rate. Candidates generally applied good examination techniques in answering the paper. However yet again there was evidence of candidates only answering two questions rather than the three questions required. This was particularly true of those candidates sitting the Malaysian and Hong Kong papers. Candidates seem to be answering the 50 mark question quite well but often the ethics section is not being answered. This would seem to suggest that either candidates have a problem with ethical issues which is a concern or candidates do not appreciate the importance of attempting all of the examination paper. An additional issue that was apparent was that candidates still do not have a good understanding of accounting for financial instruments which are examined frequently in this paper. An understanding of the accounting treatment of financial instruments is a fundamental pre-requisite for sitting this paper.
Specific Comments
Question One
The question required candidates to prepare a consolidated statement of comprehensive income，describe the amendments to the rules regarding reclassification of financial assets，and discuss how these rules could lead to ‘management of earnings’.Further candidates were asked to discuss the nature of and incentives for ‘management of earnings’ and whether such a process could be deemed to be ethically acceptable. Candidates generally performed well in this question. Candidates were required to calculate goodwill on the purchase of a subsidiary in order to determine the impairment of goodwill to be charged in the income statement. Candidates seemed to have a good knowledge of the calculation of goodwill under the full goodwill method. The question also dealt with the sale of an equity interest in a subsidiary which resulted in a positive movement in equity which was dealt by a movement on equity and not through other comprehensive income. Finally as regards the group accounting， candidates had to deal with the sale of a controlling interest which resulted in the retention of an associate interest. Generally candidates performed well this part of the question. The question also required candidates to deal with the accounting for an available-for-sale financial instrument using amortised cost. Candidates made a reasonable attempt at this element of the question. Other elements of the question included dealing with revenue recognition， revaluation gains/losses on property，plant and equipment，calculating non controlling interest and accruing holiday pay for the entity. In a question such as this， it is very easy to make a mistake in calculation. Thus it is always important to show workings in a clear concise manner so that marks can be allocated for the principles and method used by the candidate.
Part b of the question required knowledge of the recent change in accounting for the reclassification of financial instrument. Candidates did not perform well on this part of the question. It is important that candidates keep abreast of recent developments as the paper frequently examines recent pronouncements. Management of earnings was the topic which linked parts b and c. Candidates would benefit from wider reading in this area and also in the area of ethics. Often candidates’ answers are narrow and seem to lack application. A few hours researching management of earnings and ethics could be very beneficial. Candidates who answered part c on ethics performed satisfactorily.
A good performance on question 1 by candidates is key to success in the paper. Good performance always s linked to answering all parts of the question and to a fundamental understanding of group accounting. However， candidates should not spend a disproportionate amount of time on the question.
