HKICPA QP Module 1 Accounting common mistakes

Before writing any journal, draft a one-line table: performance obligation / distinct? / control transfers (over time vs point) / amount allocated. Then apply the variable consideration constraint and, for any intermediary arrangement, test control (inventory risk, pricing discretion, primary responsibility) to decide gross versus net. Practise at least three multi-element contracts with a modification.

For every lease, state the lease term (including reasonably certain extension/termination options), identify fixed payments, in-substance fixed payments, and variable payments linked to an index, then discount at the implicit rate if determinable, otherwise the incremental borrowing rate. Separately compute the ROU asset as liability plus initial direct costs plus prepaid rent less incentives. Rehearse a remeasurement on a rate change and a modification that is not a separate lease.

Use a fixed working sequence: (1) acquisition-date fair value adjustments and related deferred tax; (2) goodwill with NCI measured under the chosen option; (3) post-acquisition reserves split between group and NCI; (4) intra-group balances, dividends, and unrealised profit in inventory and non-current assets with tax effects; (5) NCI share of profit and dividends. Do a timed full consolidation each week and mark against this checklist rather than the model answer.

For each balance, write the tax base explicitly: an asset's tax base is the amount deductible in future; a liability's tax base is carrying amount minus amounts deductible in future. Then classify as taxable or deductible temporary difference and check the initial recognition exemption and the exception for investments in subsidiaries. Include the deferred tax on acquisition fair value uplifts and on lease ROU assets and liabilities as a paired entry.

Always compute recoverable amount as the higher of fair value less costs of disposal and value in use, discounting value in use at a pre-tax rate consistent with the cash flows. Allocate goodwill to CGUs before testing, test the CGU, then apply the top-down test for corporate assets. State explicitly that a goodwill impairment is never reversed and that reversal of other assets is capped at the carrying amount net of amortisation that would have applied.

State the chosen policy for interest paid, interest received, and dividends paid at the top of the answer and apply it consistently. Use the indirect method from profit before tax, adjusting for non-cash items (depreciation, impairment, share-based payment, finance costs), then working capital changes, then tax and interest paid. Show gross proceeds and purchases of PPE, and reconcile cash and cash equivalents including overdrafts where repayable on demand and integral to cash management.

Build a share movement table with dates and a weighting factor per period. For a bonus issue or rights issue, adjust all prior periods by the bonus factor or the theoretical ex-rights fair value per share factor. For diluted EPS, add back after-tax interest on convertible debt and divide by the diluted denominator, applying the treasury stock method to options and testing each potential ordinary share for dilution in sequence.

Test three conditions in order: present obligation from a past event, probable outflow, reliable estimate. Reject future operating losses and general provisions, and recognise a restructuring provision only once a detailed plan is announced or implementation begun. Use expected value for a large population and the single most likely outcome for a one-off obligation, then discount where the time value is material and disclose the movement and uncertainties.

For each post-year-end item, ask whether the condition existed at the reporting date: if yes, adjust the amounts; if no, disclose if material. For going concern, assess management's assessment period, the adequacy of disclosures about material uncertainty, and the effect on classification of liabilities. Draft the note wording as well as the adjustment, since marks are awarded for disclosure.

Structure every analysis answer as compute, interpret, limit. Compute the ratio, state what it signals about profitability, liquidity, or gearing, and name the limitation (accounting policy choice, one-off item, seasonality, off-balance-sheet leases pre-HKFRS 16 comparatives). Where a ratio moves, trace it to the underlying transaction and quantify the effect before recommending an action.