III IC-46 common mistakes
III IC-46 · Understand the traps and how to avoid them.
Treating the trial balance as already proving the ledger is correct, so when the balance sheet does not balance the candidate plugs the difference into a suspense account instead of hunting for the transposition or one-sided entry that caused it.
Candidates learn that 'the trial balance balances' and then stop checking; they forget that a trial balance still balances when a transaction is posted to the wrong account on both sides or duplicated, so a forced plug hides the real error and loses the marks for the correcting journal.
What to do instead
Before any year-end work, run a checklist of error types the trial balance cannot detect (errors of principle, commission, omission, original entry, compensating errors, complete reversal). For each imbalance, compute the difference, test whether it is divisible by 9 (transposition), by 2 (one-sided posting), or equals a single ledger balance (omission), and write the correcting journal with a narrative before touching a suspense account.
Posting the bank interest, charges, and standing orders from the bank statement into the cash book but then preparing the bank reconciliation starting from the unadjusted cash book balance, so every reconciling item is counted twice.
The candidate does the update and the reconciliation as two disconnected exercises; the exam wording often says 'prepare the reconciliation after updating the cash book', and candidates miss that instruction under time pressure.
What to do instead
Adopt a fixed two-step layout: (1) adjusted cash book starting from the bank column balance, adding credits and deducting debits shown on the statement but not yet in the book; (2) reconciliation starting from the adjusted cash book balance, adjusting only for unpresented cheques and uncredited lodgements. Label the starting figure explicitly as 'adjusted' so a marker can see the sequence.
Preparing the manufacturing or trading account and the profit and loss account as one merged statement, mixing cost of goods sold items with operating expenses and putting closing stock in the wrong section.
Candidates memorise the arithmetic of cost of goods sold but not the structure of the final accounts, so opening stock, purchases, carriage inwards, and closing stock get jumbled with wages, rent, and depreciation.
What to do instead
Draw the skeleton before entering any number: manufacturing account (prime cost, factory overheads, work in progress) to cost of production; trading account (opening stock plus purchases plus direct costs less closing stock) to gross profit; profit and loss (gross profit plus other income less administration, selling, and finance costs) to net profit. Classify each trial balance item to a line first, then compute.
Calculating depreciation or provisions for doubtful debts on the closing balance only, ignoring the opening provision, so the charge to the profit and loss account is overstated or understated and the balance sheet figure is wrong.
Candidates treat the provision as a one-off balance sheet adjustment rather than a movement; they forget that only the increase or decrease in the provision is an expense or income, and that a bad debt written off reduces the receivables base before the provision is computed.
What to do instead
Always work a three-line schedule: opening provision, provision required on the adjusted receivables (after write-offs and recoveries), movement to profit and loss. For depreciation, state the policy (straight line or reducing balance), the date of acquisition for part-year charges, and the disposal treatment (remove cost and accumulated depreciation, recognise gain or loss) before computing.
Ignoring accruals, prepayments, and outstanding income at the year end, taking the cash paid or received as the expense or income for the period.
The cash book is the most visible source in the question, and candidates under time pressure copy cash figures into the profit and loss account without applying the matching principle; the adjustment notes at the end of the question are read last, if at all.
What to do instead
Read the additional information before starting the ledger work and annotate each trial balance line with its adjustment. Build a working for every adjusted item: expense per trial balance, add closing accrual, less opening accrual, less closing prepayment, add opening prepayment. Show the balance sheet accrual or prepayment as the balancing figure of that working.
Mixing up the accounting treatment of investments: classifying a long-term holding as current, or marking a current investment to market value through profit and loss when the question's basis is cost less provision for diminution.
Candidates carry over treatment from one syllabus area to another, and the exam deliberately tests whether the candidate applies the stated valuation basis rather than a default fair-value assumption.
What to do instead
For every investment in the question, write three labels before computing: purpose (trade, long-term, current), measurement basis given in the question or regulation, and where the movement goes (profit and loss or a reserve). Current investments are the lower of cost and market value; long-term investments are carried at cost unless a permanent diminution requires a provision. Reconcile the opening and closing carrying amounts in a movement schedule.
Applying the investment limits and valuation rules from memory without checking which instrument class and which insurer category the question describes, so a limit that applies to one asset class is applied to another.
The regulation sets different ceilings and eligibility conditions for different categories of assets and different types of insurer, and candidates learn a single headline percentage that they then apply universally.
What to do instead
Build a one-page matrix of asset class against permitted limit, eligible instrument, and valuation method, sourced from the current regulation, and reproduce the relevant row in the answer. State the category of the insurer and the class of the asset explicitly at the top of each calculation so the examiner can see the rule was selected, not guessed.
Answering a regulation question with a general description of prudence or policyholder protection instead of citing the specific approval, filing, or disclosure requirement the question asks about.
Candidates revise the purpose and philosophy of investment regulation but not the operational obligations, so they write plausible prose that scores nothing on a question testing a defined procedural step.
What to do instead
For each regulatory topic, memorise the operational chain: who must approve, what must be filed, within what time, with whom, and what happens on breach. Practise converting each into a numbered answer. If the exact figure or deadline is not known with confidence, state the principle and flag the uncertainty rather than inventing a number.
Handling the investment return in the revenue account without separating realised from unrealised gains, or without deducting investment expenses and tax at source, so the reported income and the fund movement do not reconcile.
The candidate treats all investment income as one line and does not link the revenue account to the balance sheet movement in investments and reserves, so the two statements disagree and marks are lost twice.
What to do instead
Prepare an investment income schedule: interest and dividends received gross, less tax deducted at source, plus realised gains on disposal, plus or minus the movement in unrealised gains, less investment management expenses. Post the total to the revenue account and carry the same figure into the reconciliation of the investment fund so both statements tie.
Running out of time because the candidate attempts the long final-accounts question first and leaves the short regulatory and theory questions unanswered, or writes full narratives for two-mark items.
Marks per minute are far higher on short definitional and regulatory items, but candidates are drawn to the big computation and to writing everything they know about each topic.
What to do instead
Allocate marks to minutes before starting (roughly one minute per mark), answer every short item first, and cap narrative answers at the number of points the marks imply. In computation questions, show the workings even when the final figure is uncertain, because method marks are awarded independently of the total.