Allocation of marks

“How many marks would i get is i wrote an answer like this;”

3

Here’s the rest of the suggested solution to the question (which is worth 14 marks!)

None of what you’ve written is incorrect (it’s not likely to be is it – it’s almost a verbatim copy of the examiner’s own answer!) and, if you work on the general principal of one mark for each relevant markable point, you’ve got 3 you need another 11

But, given that there are 14 separate points in the suggested solution, it would seem likely that those bits of evidence are only a half mark each!

Here’s the marking scheme (you’ll find it on page 27 of the suggested solutions)

“Generally 1 mark for each point made:
– Materiality of the mine to total assets – Impairment review should have been performed – Materiality of the potential write off to profit – No impairment write off means overstated assets and profit – Potentially all of the mine may be closed down and therefore impaired – Equipment which cannot be recovered also needs to be written off – Improvements to health and safety should be capitalised – Costs of abandoning/sealing up collapsed tunnels should be expensed – Separate presentation of material impairment costs in financial statements – Provision to be recognised for damaged properties/relocation costs of local residents – Further claims may be made leading to provisions or contingent liabilities – The authority may impose fine/penalty – provision or contingent liability – Going concern disclosure if accident creates significant doubt – Break up basis if authority withdraw company’s operating licence
(ii) Evidence
– Operating licence, reviewed for conditions relating to health and safety and for potential fines and penalties
– A written representation from management on their intention (or not) to bring the non-compliance to the attention of the National Coal Mining Authority
– A copy of board minutes where the accident has been discussed to identify the rationale behind the non-disclosure
– A copy of reports issued by engineers or other mining specialists confirming the extent of the damage caused to the mine by the accident
– Any quotes obtained for work to be performed to make the mine safe and for blocking off entrances to abandoned tunnels
– Confirmation, possibly by physical inspection, that the undamaged portion of the mine is operational
– A copy of the surveyor’s report on the residential properties, reviewed for the expert’s opinion as to whether they should be demolished
– A review of correspondence entered into with the local residents who have been relocated, to confirm the obligation the company has committed to in respect of their relocation
– Copies of legal correspondence, reviewed for any further claims made by local residents – A review of the Ledge Hill Mine accident book, for confirmation that no one was injured in the
accident – A copy of management’s impairment review, if any, evaluated to ensure that assumptions are
reasonable and in line with auditor’s understanding of the situation – Confirmation that impairment losses have been recognised as an operating expense – A review of draft disclosure notes to the financial statements where provisions and contingent
liabilities have been discussed – A review of cash flow and profit forecasts, forming a view on the overall going concern status of
the company Maximum marks 14”

Another consideration is there is likely to be some equipment which is contained in the tunnels which can no longer be used. It is possible that some of the equipment may be recovered, but it is likely that a large proportion of it will have to be abandoned and written off, increasing the impairment loss to be recognised.
IAS 1 Presentation of Financial Statements requires that an individual item of income or expense which is material should be disclosed separately, and gives impairment of assets as an example of a circumstance which may warrant separate disclosure.
The costs which have been incurred and are yet to be incurred to ensure the safety of the mine in the future should be treated as capital expenditure at the time when the costs are incurred. There may also be costs to be incurred in making the unusable tunnels safe, for example, entrances may need to be blocked up. These costs should be expensed as they do not relate to future economic benefit and so do not meet the definition of an asset. There is a risk that capital and revenue expenses have not been appropriately classified

Provisions and liabilities
There has also been damage caused to some properties situated above the mine. Dasset Co may need to recognise a provision in relation to any costs it will suffer in relation to repairing or demolishing the properties. According to IAS 37 Provisions, Contingent Liabilities and Contingent Assets, a provision should be recognised if there is a present obligation as a result of a past event, a probable outflow of economic benefits, and a reliable estimate can be made.
It seems that the criteria have been met, as the accident happened before the year end and gives rise to an obligating event. Dasset Co is meeting all expenses of the residents who have been relocated, so the company appears to be acknowledging responsibility for the accident and its impact on the residential properties. The damage to the properties will result in a cash outflow for the company whether they have to be demolished or repaired, and the expert should be able to provide a reliable estimate of the amount. Therefore a provision should be recognised.
The company may suffer further cash outflows as a result of the accident, and consideration needs to be made as to whether a provision or a contingent liability should be recognised in respect of them. The residents may claim further damages against the company, for example, for stress caused by the accident, and compensation for expenses such as damaged fixtures in the properties.
There may also be a clause in the National Coal Mining Authority’s operating licence that imposes a fine on Dasset Co in the event of any non-compliance with health and safety regulations. Any such fines may need to be recognised as provisions or contingent liabilities.
There is a risk that provisions have not been appropriately recognised, leading to overstated profit and understated liabilities, or that contingent liabilities have not been disclosed accurately and completely.
Going concern
Finally, there may be going concern implications as a result of the accident. Given the relatively small size of the Ledge Hill mine in relation to the company’s total operations, it is unlikely that the closure of part, or even all, of the mine alone would create a risk to going concern. However, bad publicity may create difficult trading conditions, and a claim for high compensation from the group of local residents could place the company’s cash flow under strain. If these factors cast significant doubt on going concern, then disclosures should be made in the note to the financial statements.
The very worst case scenario is that the National Coal Mining Authority could withdraw the company’s operating licence completely, which would cause it to cease operational existence. This may be very unlikely; however, it would mean that the financial statements should be prepared on the break up basis.
(ii) Evidence
– A copy of the operating licence, reviewed for conditions relating to health and safety and for potential fines and penalties which may be imposed in the event of non-compliance.
17
– A written representation from management on their intention (or not) to bring the non-compliance to the attention of the National Coal Mining Authority.
– A copy of board minutes where the accident has been discussed to identify the rationale behind the non-disclosure. – A copy of reports issued by engineers or other mining specialists confirming the extent of the damage caused to
the mine by the accident. – Any quotes obtained for work to be performed to make the mine safe and for blocking off entrances to abandoned
tunnels. – Confirmation that the undamaged portion of the mine is operational, e.g. from reviewing a specialist’s report. – A copy of the surveyor’s report on the residential properties, reviewed for the expert’s opinion as to whether they
should be demolished. – A review of correspondence entered into with the local residents who have been relocated, to confirm the obligation
the company has committed to in respect of their relocation. – Copies of legal correspondence, reviewed for any further claims made by local residents. – A review of the Ledge Hill Mine accident book, for confirmation that no one was injured in the accident. – A copy of management’s impairment review, if any, evaluated to ensure that assumptions are reasonable and in
line with auditor’s understanding of the situation. – Confirmation that impairment losses have been recognised as an operating expense. – A review of draft disclosure notes to the financial statements where provisions and contingent liabilities have been
discussed. – A review of cash flow and profit forecasts, forming a view on the overall going concern status of the company.

How many do you think it’s worth? Be honest with yourself.

Seriously, how many marks is your post worth?

I’m looking at the examiner’s answer here and it goes on for a page and a half of typed script (81 lines in my post above)

You managed 11 lines

I’m not for one minute suggesting that you would need an answer like the examiner’s, but you have to admit that yours is quite severely lacking in length and depth

Please don’t be upset …… just work on the principle that, if you want to score lots of marks, you’re going to have to make lots of points!

Better that I be cruel to you now – at least you’ve got the time to try to change and it’s better than me soft-stroking your ego and then seeing the result could go against you

You’re welcome

Work on the basis of one point per sentence

One sentence per paragraph

No more than 3 lines per paragraph

For 14 marks you have 7 minutes to plan 14 separate points and then you have just 18 minutes 12 seconds to write out those 14 paragraphs – that’s why your paragraphs are no longer than 3 lines

18 minutes 12 seconds comes down to 1 minute 18 seconds writing per paragraph

This is serious!

Copy something from a source document and see how much you can write in 1 minute 18 seconds.

Get a friend, spouse or loved one (if that’s not your spouse) to time you

Get them to say “Start” and then, one minute 18 seconds later they say “Stop” and that’s the MAXIMUM you should be writing in the exam for 1 point / 1 mark / 1 sentence / 1 paragraph

Ok?

Good …. and let me know if you get past 3 lines!