KASNEB DCM common mistakes
KASNEB DCM · Understand the traps and how to avoid them.
Computing the cost of a loan or trade credit using the nominal/flat rate quoted by the lender, and reporting that as the effective annual cost, without adjusting for discounted interest, compensating balances, or the reducing-balance amortisation of the principal.
Candidates memorise one 'cost of credit' formula from a class example and apply it to every instrument, so a loan quoted at 12% flat is reported as 12% when the effective cost is roughly double. The flat-rate presentation is the number most prominently printed in the question, so it anchors the answer.
What to do instead
Before calculating, write down three things: net proceeds actually received, total finance charge actually paid, and the average outstanding balance or the period the funds are held. Then apply the matching formula (discount basis: interest/net proceeds x 365/period; flat/reducing balance: build a short amortisation table and use the approximate or IRR method). Always add a one-line statement of the effective annual rate alongside the nominal rate so the marker can see you distinguished the two.
Evaluating a proposed change in credit policy (for example relaxing credit terms or introducing a cash discount) by comparing the extra sales value against the discount cost and extra bad debts, instead of comparing incremental contribution against the incremental carrying cost of the additional investment in debtors.
Candidates treat the sales figure as the benefit because it is the largest number in the scenario and it is the headline in the question stem. They also forget that only the variable-cost element of additional debtors requires funding, and they omit the opportunity cost of that funding entirely.
What to do instead
Use a fixed marginal-analysis layout for every credit policy question: (1) incremental sales x contribution ratio = incremental contribution; (2) new debtor days = old days + change; (3) incremental investment in debtors = (incremental sales x variable cost ratio x new debtor days/365) plus (existing sales x variable cost ratio x change in days/365); (4) cost of that investment at the required rate of return; (5) discount cost computed on the sales that will actually take the discount; (6) change in bad debts at the variable cost, not the selling price. Decide only on the net figure.
When the trial balance does not agree, inserting the difference into a suspense account and then leaving that balance untouched in the statement of financial position, rather than opening a suspense account, posting the correcting journals through it, and showing it clearing to nil.
The suspense account is taught as a 'plug' for an unexplained difference, so candidates treat the balance as a permanent figure to be carried forward. Under exam time pressure, producing a balanced statement of financial position feels like completion, and the uncleared suspense account is the cheapest way to get there.
What to do instead
Treat any difference as evidence of at least one error, not as an answer. Write the suspense account as a full T-account with opening balance, each correcting entry on the correct side with a narration, and a closing balance that must be nil if all errors are found. If the question says some errors remain undetected, state explicitly that the remaining balance stays in suspense and disclose it separately; never bury it inside receivables or payables.
Charging a full year of depreciation on an asset acquired part-way through the year, and on disposal crediting the full sale proceeds to the asset account instead of removing accumulated depreciation and recognising the profit or loss on disposal.
Candidates learn the straight-line formula as 'cost less residual over useful life' without the time apportionment step, and the disposal double entry (three accounts: cost, accumulated depreciation, disposal) is a multi-step sequence that is easily collapsed into a single 'cash in, asset out' entry.
What to do instead
Adopt a fixed routine for every non-current asset question: draw a small disposal account, open it with cost and accumulated depreciation, enter proceeds, and read the balancing figure as profit or loss. For additions and disposals, prorate depreciation by months held and state the months used. Reconcile the closing carrying amount to opening carrying amount plus additions less disposals less charge as a check.
Treating a price list, an advertisement, a shop display or a request for a tender as an offer, and therefore concluding that a contract was formed as soon as a customer tendered the price or asked to buy.
In everyday language 'offer' means a price quote, so candidates import the ordinary meaning into the legal test. The distinction turns on a technical test (whether the statement shows a definite intention to be bound on acceptance) that is not visible in the wording of a scenario.
What to do instead
Run the three-part test explicitly in the answer: is there a definite promise to be bound, are all terms certain and is it communicated to a specific person or class? Classify the statement, then identify the offer in the facts (usually the customer's order or tender) and the acceptance. Quote the category name in the answer, and where the facts involve a display or advertisement, say expressly that it is an invitation to treat and that the contract forms when the seller accepts.
Holding shareholders, directors or a parent company personally liable for the debts of a limited company as the default answer, or treating a company and its members as the same legal person when applying the facts of a scenario.
Candidates reason from fairness ('the owner took the money, so the owner should pay') rather than from the legal rule, and they conflate limited liability (members' liability to the company) with separate legal personality (the company's own capacity to contract, sue and be sued).
What to do instead
Answer in two steps. Step one: state the rule that on incorporation the company is a separate legal person and members' liability is limited to amounts unpaid on their shares, then apply it to the facts to show who is and is not liable. Step two: only then consider the recognised exceptions (fraud or fraudulent trading, personal guarantee, breach of directors' duties, wrongful trading) and state clearly which exception, if any, the facts trigger.
Answering a demand-and-supply question by saying a price change shifts the demand curve, confusing a movement along a curve with a shift of the curve, and mis-signing cross-price elasticity (treating complements as positive or substitutes as negative).
Candidates use 'demand falls' and 'demand curve shifts left' as synonyms. The distinction is diagrammatic and is usually tested through a verbal scenario with no diagram given, so the missing visual cue removes the check that normally catches the error.
What to do instead
Before writing, sketch the axes and label them, and state the rule aloud: a change in the good's own price moves you along the curve; a change in any other determinant (income, tastes, price of related goods, expectations, number of buyers) shifts the curve. For elasticity, write the sign convention next to the definition (substitutes positive, complements negative, income elasticity positive for normal and negative for inferior goods) before substituting figures.
Preparing the cash-flow forecast in a business plan by lifting the accrual profit figure across as the cash position for each period, or concluding that a business cannot fail while it is profitable.
Profit and cash are taught separately (financial accounting vs entrepreneurship) and candidates do not carry the distinction into a planning question. Sales-based profit also feels like the 'good news' figure that a lender would want to see.
What to do instead
Build the cash-flow forecast as a receipts-and-payments schedule: cash received from debtors after the collection period, cash paid to suppliers after the credit period, capital expenditure, loan repayments, tax and owner drawings, each in the month the cash actually moves. Reconcile it to profit with the working-capital movements and state the conclusion that liquidity, not profitability, determines the ability to meet obligations as they fall due.
Building spreadsheet answers with values typed directly into formula cells instead of cell references, and using relative references where absolute references are required, so that a copy of the formula gives wrong answers that are not noticed.
Candidates type the number they can see rather than pointing at the cell, because it is faster under exam pressure, and the error is invisible on screen until the formula is copied or an input is changed. The dollar-sign convention is memorised as syntax but not as a concept about what should stay fixed.
What to do instead
Adopt a discipline: separate input cells from calculation cells, every calculation references cells, and before copying any formula decide which components must stay anchored and use $ accordingly. Then run a sensitivity check - change one input and confirm every dependent cell moves as expected. In a written answer, describe the use of absolute referencing and named ranges explicitly, since markers award method marks for these.
Answering an ethics scenario by naming a principle ('this is a confidentiality issue') or by jumping straight to an external body or the police, without identifying the specific threat, applying the facts, considering safeguards and stating the escalation route in order.
Candidates treat the ethics question as a definitions question because the underlying syllabus lists principles and threats. Naming the label feels like the answer, and 'report it' feels decisive without requiring analysis of whether internal escalation was required first.
What to do instead
Use a fixed four-step structure for every scenario: (1) identify the ethical threat and name it precisely (self-interest, self-review, advocacy, familiarity, intimidation); (2) state the relevant principle and the specific fact that engages it; (3) evaluate the safeguards available, starting with disclosure to the client or employer and internal escalation, then considering withdrawal or notifying the professional body; (4) state the recommended course of action and its consequence. Reserve external reporting for the point where internal routes have been exhausted or a legal duty to report arises.