pearson lcci certificate in financial accounting (vrq)

1 LCCI Certificate in Financial Accounting ASE20097 Level 3

Pearson LCCI Certificate in Financial Accounting (VRQ) Level 3 (ASE20097)

Examiners’ Report March 2018

1 LCCI Certificate in Financial Accounting ASE20097

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. March 2018 Publication code: ER57510A All the material in this publication is copyright © Pearson Education Ltd 2018


Introduction Pearson (LCCI) redeveloped the Level 3 Certificate in Financial Accounting (VRQ) (ASE20097) as a part of a Finance and Quantitative suite of qualifications from Level 1 to Level 4. This revised qualification 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 developed with a view to allowing progression on to the Pearson LCCI Level 4 Certificate in Financial Accounting (VRQ), which introduces candidates to advanced topic areas in financial accounting. The assessment is out of 100 marks comprising a total of five compulsory questions. This assessment covers these topics:

The purpose of maintaining financial records Recording financial transactions Balancing accounts and trial balance The purpose of the extended trial balance Producing the financial statements of a sole trader and partnership Introduction to interpretation of financial statements.

Candidates performed very well on the preparation of the non-current asset-cost account, statement of profit or loss, statement of cash flows, and the completion of adjustment columns of an extended trial balance, but the majority of candidates did not attempt explain, discuss and evaluate questions. Candidates are expected to demonstrate knowledge and understanding of all parts of the specification to achieve higher grades. Candidates need to prepare not just for the numerical/practical questions but also for the theory related to these questions to score higher grades. Overall, performance was better compared to the previous series but candidates still need to work on discursive questions especially relating to discussion and evaluation.


Question 1 The majority of candidates scored below average marks on this question. Part (a) Candidates were able state one difference between a general and limited partnership. See an example of (a).

Part (b) Candidates struggled to prepare the realisation account to show the profit or loss for each partner. Main mistakes were not accounting the non-current assets and trade receivables and trade payables correctly. Some candidates missed the purchase consideration and non-current assets taken by the partner. See an example of (b).


Part (c) Candidates were unable to calculate the amount due to the partners on dissolution by adjusting the capital and current accounts balances provided with the profit on realisation. Part (d) Candidates were unable to prepare the bank account from the provided information.

Examiner Comments The details in the ledger account must be the name of the opposite account to score the extra 1 mark.

Examiner Tip The bank account on dissolution of a partnership must balance.


Question 2 The majority of candidates scored above average marks on this question. Part (a) Candidates were unable to state two purposes of a suspense account. Where an attempt was made, candidates could only state one purpose. Parts (b)(i) and (ii) The majority of candidates were able to calculate the correct value of the inventory and the adjustment required to the inventory. Some candidates from a few centres had problems with using the mark-up percentage provided. See an example of (b)(i) and (ii).

Part (c) Candidates were unable to relate the prudence concept to the valuation of the inventory according to the accounting standard IAS-2. Part (d) The majority of candidates completed the adjustment columns of the extended trial balance for the transactions provided. Main mistakes were not recording the closing inventory adjustment correctly or prepaid rent received and depreciation charge for the motor vehicle due to the motor vehicle purchase being included in the motor expenses. See an example of (d).


Examiner Comments Candidates must understand whether the closing inventory adjustment is an increase or decrease in the amount in order to post the entries correctly in the adjustment columns. Candidates must pay special attention to the rent, particularly whether it is rent received or paid, in order to record the entries relating to the accruals or prepayments correctly.

Examiner Tip If the suspense balance is provided in the trial balance, then in the adjustment column of the extended trial balance candidates should record the opposite entry for the same amount. Gross profit margin is on sales, hence sales are 100 to work out the relationship to calculate the missing figures. Mark up is on cost of sales, hence cost of sales figure is 100 to work out the relationship to calculate the missing figures.

Question 3 The majority of candidates scored average marks on this question. Part (a)(i) Candidates were able to calculate the sales for the year correctly after adjusting the credit sales with the cash sales. The main mistake was not accounting for the drawings taken out of the cash sales. See an example of (a)(i).

Part (a)(ii) Candidates were able to calculate the purchases for the year correctly.

See an example of (a)(ii).


Part (b) The majority of candidates were able to prepare the statement of the profit or loss by adjusting the expenses with opening and closing adjustments relating to the accruals and prepayments. Some candidates treated loss on disposal as a profit, hence they added these to the gross profit as other income. See an example of (b).

Part (c) Candidates were unable to explain the one purpose of keeping full accounting records. Where candidates attempted this, they were only able to identify the need to keep full accounting records and were unable to develop it further to score full marks. See an example of (c).


Part (d) Candidates were unable to justify their decision whether to convert a sole trader business into a private limited company by discussing the advantages and disadvantages of both forms of organisation. The majority of candidates just stated the advantages of one type of organisation.

Examiner Comments Candidates must show workings for all the figures used in their calculations. Where possible, for calculate questions, prepare the ledger accounts to calculate the missing figures and to keep yourself on track. All financial statements must have the labels for the figures and the subtotals.

Examiner Tip For discuss questions always try to state comparative advantages and disadvantages or both sides of the discussion to form a decision and to score high/full marks.

Question 4 The majority of candidates scored average marks on this question. Part (a) The majority of candidates were able to state the qualitative characteristics of the financial reporting under the International Accounting Standards Board (IASB) framework. See an example of (a).

Part (b) Candidates were able to prepare the machinery cost account as required, but candidates from some centres recorded the carrying value for disposal rather than the cost and did not bring the balance down as stated in the question.

See an example of (b).


Part (c). The majority of candidates prepared the statement of cash flows correctly by stating the subtotals with labels for investing and financing activities. Main mistakes were not recording the dividend received in the investing activities and the issue of the shares in financing activities correctly. Part (d). Candidates were unable to demonstrate understanding of the transactions that cause the difference between the profit and cash (bank overdraft) in order to answer the reasons for a business having a bank overdraft despite making a profit.

Examiner Comments The bonus issue does not involve cash inflow, hence it is not included in the statement of cash flows. For explain questions, candidates must identify a point (in this case, reasons for the difference) and must develop it further (in this case, by stating the effect on cash and on profit) to score full marks.


Examiner Tip Cash and cash equivalents include the cash in hand and cash at bank (bank overdraft). It also includes short-term investments. Cash and cash equivalents at the beginning and at the end are always provided in the question and must be correct. Net increase and decrease can be worked out from the cash and cash equivalents at the beginning and at the end and must be correct. If the net increase or decrease, working through the statement, does not balance, then you must go back and check your figures but must not change the figures in investing or financing activities just to balance this figure.

Question 5 The majority of candidates scored average marks on this question. Part (a) The majority of candidates were able to calculate the corrected profit for the year after adjusting the closing inventory, bank interest, goods taken for personal use and irrecoverable debts. The main mistake was not calculating the closing inventory for damaged products by applying the cost or net realisable value, whichever is lower, according to the IAS2 for inventory valuation. See an example of (a).


Part (b) The majoroity of candidates prepared the statement of financial position correctly. The main mistake was not showing the subtotals with labels such as total liabilities. See an example of (b).


Part (c) Candidates were unable to evaluate the performance of two businesses by analysing the ratios provided. The majority of candidates stated just the fact that the ratios were more or lower rather than analysing the ratios by stating the possible reasons, or an impact on the business, for the ratios being higher or lower than other business to form a decision or provide an evaluation. Part (d) The majority of candidates were unable to demonstrate understanding of the accounting procedures required for a partnership organisation in addition to a sole trader. Part (e) Candidates were able to state two types of organisation a sole trader can covert a business to, other than a partnership. See an example of (e).

Examiner Comments Candidates must show the figures in detail and subtotals in the financial statements with labels, as appropriate, by using the IAS terminology. All calculations must be supported by workings/notes.

Examiner Tip For evaluation questions, candidates must analyse the ratios by stating the effect or reason for the difference or ratios being higher or lower to form a decision to score high/full marks.


Paper Summary Candidates performed very well only on numerical questions such as preparation of a non-current asset-cost account, statement of profit or loss, statement of cash flows, and completion of adjustment columns of an extended trial balance. Candidates will benefit from the following:

Candidates must learn and practise using the International Accounting Standards (IAS) terminology and formats.

Candidates must show their workings for any figure they calculate, with reference number such as W/Note1, W/Note2 etc.

Candidates must use the labels for the figures used in the workings.

Practise journal entries for the adjustments for extended trial balance.

Practise preparing ledger accounts with correct labels and bringing the balances down.

Practise preparing financial statements with correct labels and showing the subtotals with labels, as appropriate, by using the IAS terminology.

Do not just practise numerical questions but also understand the theory to be able to answer the explain questions.

Practise discuss question by providing the comparative statements for both sides.

Practise analysing the results from the information provided by answering the reasons or what impact it will have on the business currently or in future.

Visit Pearson website for various resources to support candidates learning https://qualifications.pearson.com/en/qualifications/lcci/financial-and-quantitative/financial-accounting-sept-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

pearson lcci certificate in financial accounting (vrq)

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