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Summer 2010
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Summer 2010
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PE Report On Examination Paper 6002/01
General Comments
The level of responses this year again appeared to be quite strong. It is good to see
that candidates have practiced certain areas and techniques, and clearly understand
these parts of the syllabus. However, some topics still require a little more practice
to ensure high marks are achieved in the examination.
Although overall standards were good, the general points listed below could be
addressed by candidates to improve performance.
• Where the candidate shows no workings but gets the correct answer they will
obtain all the marks available. However, candidates are advised to show all
workings, as marks are available for the stages in the workings. Showing the
answers only is a “high risk strategy”, as a wrong answer results in no marks.
Question 1
This was a very popular question, and where candidates answered using Format 1 of
the Companies Act, marks were usually good. The number of answers that still had
the accounts drawn up as if they were prepared for a sole trader- with no reference
to the headings and layout required by the Companies Act - is decreasing, which is
pleasing. Section (b) was often poorly done, as candidates were unfamiliar with the
Auditors Report. A common fault was to believe that Auditors acted as some kind of
management consultants to the business, and told the company how to improve
performance.
Question 2
This was not a particularly popular question. Part (a) was answered very well, but
there were mixed responses for (b). Candidates seemed to get overwhelmed by the
amount figures, and the “number crunching” required, in order to draw up the Cash
Budget. Answers to (c) were mediocre, with most students making vague points
about the advantages of cash budgets. Better marks were obtained where
candidates made specific points and explained those points.
Question 3
This was a popular question and answers were generally good, as students appear to
have a fairly sound understanding of Mergers. Answers to (a) were accurate,
calculating the purchase price and the number of shares. Candidates found (b) a
little tougher, especially the entries for the Purchase Consideration, and the Loss on
Realisation. The new balance sheet for (c) was done well, except for the Capital
and Reserves section. There were some really strong answers in (d), with issues such
as economies of scale, and dilution of voting rights being mentioned. Candidates
need to be aware that where two firms at the same stage of production merge, this
is horizontal integration, not vertical. Both would be good reasons for a merger.
Common errors:
• The Realisation account included items at the revalued amount.
• Incorrect calculation of the Capital and Reserves section of the St Andrew’s
balance sheet.
• Feeling that Sandra, as a shareholder, was a major decision maker in the old
and new firm. In reality, has share of the voting would be very small, with
little influence.
Question 4
This was a popular question which had mixed responses, although overall, the marks
were quite good. Calculations for (a) were usually correct, although not so often for
(b). This was usually due to not taking full account of the number of workers, hours
worked in a week, and weeks in a month. Suggestions in (c) were often superficial,
and were not explained. This would have been particularly important if trying to
justify employing more skilled workers on a higher rate of pay! It was disappointing
to see the poor responses for (d) as few understood the meaning of management by
exception. Most answers explained the advantages of budgeting, which really missed
the point.
Question 5
A very popular question that was answered well. Candidates were tested on their
ability to calculate, include the correct units, and on their understanding of what
their answers meant. The Dividend Cover could be argued either way. Shareholders
may think a low figure is good, as all the profits are being given out as dividends. On
the other hand, a high figure could be good as profits are retained in the business for
future growth, and the value of the business rises. A good habit for students to get
into is to calculate the difference between years when answering evaluation in (c),
otherwise they are merely repeating answers from (b), which are not going to obtain
marks twice!
Common errors:
• Failure to use a unit in the answer e.g. % , pence, £
• Incorrect formula used. E.g. using the Authorised Share Capital instead of the
Issued Share Capital to find Earnings per share, or Dividend per Share
• Misunderstanding as to which set of figures was the Industry Average. Some
even thought they were last year’s figures.
Question 6
Not a particularly popular question, although answers for (a) were good. The payback
period was calculated well, although some had trouble using the correct formula for
finding the months. The Accounting Rate of Return was found quite tricky, although a
number of alternative formulae were allowed. However, students are advised to use
the method shown in the mark scheme, which does not involve any further
calculations for net cash inflows or initial outflows. Appraisal of the project was
usually good in (c), with both sides considered and a decision made as to whether to
go ahead with the project. However, candidates had to be careful when talking
about profits after the payback or after five years, as the project only had a five year
life.
Common errors:
Question 7
The least popular question in Section B, and it had mixed responses. Students were
able to obtain some marks in (a) (i), without being exact in definitions. For variable
costs, the word “directly” is crucial. It was disappointing to see the examples being
offered in (a) (i). However, the formulae used in (a) (ii) were correct and the
differences explained well. Calculating the break even point in (b) was usually done
well. Answers for (c) were disappointing, as many merely described break-even
theory, rather than addressing the question. Few candidates evaluated the
effectiveness of break-even analysis as an aid to business decision-making.
Unit 2 – 6002
Max.
Grade A* A B C D E
Mark
Raw Mark Boundary 200 174 159 144 129 115 101
Uniform Mark Boundary 300 270 240 210 180 150 120
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