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APRIL 2011

ALL YOU NEED TO KNOW FOR THE JUNE 2011 EXAMS

THE ESSENTIAL GUIDE

EXAM ADVICE AND GUIDANCE FOR TRAINEES

INCLUDING EXAMINERS FEEDBACK AND

EXAMINABLE DOCUMENTS

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EDITORS

CHOICEWelcome to the Student Accountant Essential

Exam Guide. This issue is packed with over51,000 words of advice and guidance from

examiners, examinable documents, andessential information to help you preparefor the June 2011 exams, including how toenter, deadlines, and exam rules.

We strongly recommend that you read theexaminer feedback relevant to the papers you are

planning on taking in June. Reading the examinerfeedback together with the published questions

and answers from the latest exam session can helpyou identify where students have gone wrong in the past,

and how to develop your answers to achieve the bestmarks possible.

In addition to the examinerfeedback, this issue also includes theexaminable documents relevant tothe International papers for financialreporting and audit, and the taxrates for the UK tax papers. Theseare essential reading for the June

2011 exams.The Noticeboard section includes

the exam timetable for June 2011,information on how to apply forexams by the deadline of 15 April 2011and exam rules and regulations.

We also include information on the key aspects of Foundationsin Accountancy, ACCAs new suite of entry-level qualifications,and explain how applying for membership might be easier thanyou think.

I hope that you find this essential guide useful in helpingyou prepare fully for the June 2011 exams.

Email me at [email protected] with your thoughtsfeedback on this issue.

Victoria MorganEditor, Student Accountantmagazine

Accessthelatest

informationonFoundations

inAccountancyat

www.accaglobal.com/fia

STUDENT ACCOUNTANT ESSENTIAL EXAM GUIDE 04/2011 03

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CAT EXAM DOCUMENTS ONLINEExaminable documents relevant toCAT Papers 3, 6, 8 and 9 are availableat www.accaglobal.com/students/pass/examinable_documents

INTERACTIVEEmail us [email protected] your detailsif you would like to be proledin Student Accountant

KEY DATES FOR THE JUNE 2011EXAM SESSIONExam entry deadline 15 April 2011Exams start 6 June 2011For a full list of the latest ACCA exam rules, go to page 73 of this issue

04 CONTENTS

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STUDENT ACCOUNTANTIn addition to this twice-yearly printed issue, we also email an alert to a newissue ofStudent Accountantevery two weeks. Make sure youre keeping upto date with the latest issue at www.accaglobal.com/sa

EXAMS

RESOURCES

12ACCA QUALIFICATION FEEDBACKFeedback for variant papers is available online at www.accaglobal.com/students12 Paper F113 Paper F214 Paper F316 Paper F4 (Global)18 Paper F520 Paper F6 (UK)22 Paper F725 Paper F829 Paper F932 Paper P134 Paper P236 Paper P338 Paper P439 Paper P543 Paper P6 (UK)47 Paper P7

51CAT QUALIFICATION FEEDBACK51 CAT Paper 353 CAT Paper 455 CAT Paper 557 CAT Paper 658 CAT Paper 760 CAT Paper 861 CAT Paper 9 (UK)63 CAT Paper 10

EXAM TECHNIQUE06 Command words and revision tips08 How to approach multiple-choice questions

10 A close look at question verbs65 EXAMINABLE DOCUMENTSRelevant to ACCA Qualication nancial reporting, audit and taxpapers for the June 2011 exam sitting

STUDENT ACCOUNTANT TECHNICAL ARTICLE ARCHIVEAll technical content from Student Accountantis on ACCAs website atwww.accaglobal.com/students/student_accountant/archive

Answers to frequently-asked questions about ACCAs qualifications can befound at www.accaglobal.com/learningproviders/tuition_provider/faq

69 NOTICEBOARD

ESSENTIAL INFORMATION TO HELP WITH YOUR EXAM ADMINISTRATION70 ACCA Connectcontact details and the latest ACCA and CATQualication and Foundations in Accountancy fees

71 Detailed exam timetable for the June 2011 exam session to help withyour diary planning

72 Answers to your frequently-asked questions about exams and myACCA

73 Essential advice and rules that you should be aware of before you takeyour June 2011 exams

EDITORIAL TEAMVictoria MorganEditor

Glen PattersonDeputy editor

Jackie DollarArt editor

Richard GoodingDesigner

Rhian LewisEditorial executive

WWW.ACCAGLOBAL.COMJamie AmblerDigital publishing editor

29 Lincolns Inn Fields LondonWC2A 3EEUnited Kingdom

tel: +44 (0)20 7059 5700email: [email protected]

PUBLISHING ANDADVERTISINGAdam WilliamsHead of publishing

Anthony KayProduction manager

For all advertising-related mattersplease contact Lisa Peake:tel: +44 (0)20 7902 1224email: [email protected]

Published by the CertiedAccountants Educational Trust incooperation with ACCA.

The Council of ACCA and thepublishers do not guarantee theaccuracy of statements made bycontributors or advertisers, oraccept any responsibility for anystatement which they may makein this publication.

No part of this publication may bereproduced, stored in a retrievalsystem, or transmitted in any

form or by any means, electronic,mechanical, photocopying orotherwise, without prior writtenpermission of the publishers. CAET 2011 ISSN 1473-0979

FOUNDATIONS INACCOUNTANCYACCAs new suite of entry-levelqualications will be rst examined in theDecember 2011 exam session. Find out moreon page 73 of this issue

Please email [email protected] with your feedback on this issue

Welcome to the STUDENT ACCOUNTANT ESSENTIAL EXAM GUIDE 04/2011

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UNDERSTANDINGCOMMAND WORDSExaminers frequently complain thatstudents do not read exam questions

properly, not just misunderstandingthe requirement but also ignoringthe question structure. As a result,students often lose marks because ofpoor exam technique even if theirsyllabus knowledge is faultless.

Understanding command words isthe key. Examiners choose these wordswith care, and use them to show howthey want the question to be answered,and to indicate how they will beawarding marks.

For example, in a discursive questionyou might be asked to explain ordiscuss. This means you have todemonstrate in-depth knowledge(so you can explain), or show yourunderstanding of related issues (so youcan discuss); if you simply provide alist of statements then you are unlikelyto gain all the marks on offer. However,if you are asked to list key points, thenextra explanation is unnecessary, wontgain extra marks and crucially willwaste valuable exam time.

Go through past papers and identify allthe different command words used andask for help if youre not sure what yourebeing asked to do, as command words

are signposts to a successful answer.

See page 8 for a list of commonquestion verbs

EXAMTECHNIQUE

06 TECHNIQUE TIPS

REVISION TIPS IMPROVEYOUR TECHNIQUEIts easy to feel overwhelmed whenstarting the revision phase so muchwork to get through and so little time.But by stepping back and planningstrategically, revision can be easier,quicker and more effective.

Start by drafting a revision timetable.This provides a perspective on whatneeds to be done, sets targets,and breaks down the workload intomore manageable chunks. You can alsouse the timetable to prioritise thoseareas needing extra attention.

Reading notes and study textsare all part of the process, but activerevision is more engaging fromsimply highlighting key words, to

creating diagrams to help youunderstand and remember keyconcepts. Note cards are anotheruseful device, especially as they areportable enabling revision whereveryou go.

Past paper practice is another must,helping you test both knowledge and

exam technique. Schedule time for atleast one mock exam before you takethe real thing, so you can get a feel forthe exam process, and practise yourtime management skills.

And finally, make sure you takeenough breaks, eat healthily and savesome time for family and friends balance is important if you want to bein the best shape possible when youfinally take your exam.

SUCCESSFUL ANSWERSLIST KEY POINTS

DEMONSTRATE

IN-DEPTH KNOWLEDGE

OR EXPLAIN

IDENTIFY ALL THE DIFFERENT

COMMAND WORDS

6JUNE2011

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MULTIPLE-CHOICE QUESTIONS THE GOLDEN RULESMultiple-choice questions (MCQs) arenot easy. Demanding both syllabus

knowledge and the right technique,good MCQ performance can mean thedifference between pass and fail. Sowhat should you remember?

First, prepare thoroughly, revisingacross the syllabus. Although somematerial is clearly more suitable forMCQs calculations for example, ordefinitions of terms dont try to predictwhich syllabus areas MCQs will cover.

In the exam, think clearlyand read carefully. Much timeand effort goes into preparingMCQs, and especially intothe distractors the wrong

EXAMTECHNIQUEMULTIPLE-CHOICE QUESTIONS AND TOP TIPS ON STRESS MANAGMENT

08 TECHNIQUE TIPS

answers. These wrong choices replicatecommon mistakes and so will seemvery plausible, especially under examconditions. Always make a considered

choice when choosing your answer.Good time management is crucial,although its better to allocate time togroups of MCQs rather than individualquestions. Youll probably find someMCQs take less time to answer thanothers by completing these questionsfirst youll know how much time is left toanswer the more difficult MCQs.

And finally answer all the questions.There are no penalties for wronganswers, but definitely no marks for anunanswered question. Try not to guess,but if youre running out of time orknowledge make an educated choice.

STRESSMANAGEMENTExam stress affects even the mostexperienced ACCA student, andalthough it can keep you focused andalert, it can also affect your examperformance. Keeping stress undercontrol is, therefore, crucial.

To combat stress, plan aheadas much as possible. Create arevision schedule and if you startto slip behind, then work out how to

catch up before it becomes a realproblem. Above all, avoid the panicthat prompts last minute, late nightcramming guaranteed to raisestress levels.

And dont forget exam technique when you enter the exam hall you needto feel confident, knowing both thesyllabus and the structure of theexam paper.

Exercise and healthy eating can keepstress levels low. A 10-minute walkwill help get things in perspective, andrefresh you for more effective revision.

Avoid too much caffeine, sugary drinksand junk food eaten at your desk these can affect your overall wellbeing,making things worse, not better.

And practise some quick and easyrelaxation techniques for the dayof the exam, such as slow breathing,or tensing then relaxing muscles.See what works for you and use it tocounter any stress that could build upwhile you wait for the exam to start.EXAM SUCCESS

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We take a look at the intellectual levelsfor the ACCA Qualification papers,which should help you know how toanswer questions at different levels that

you might be asked to do in an exam.It is particularly important to consider

EXAMTECHNIQUE

10 TECHNIQUE TIPS

the question requirements carefullyto make sure you understand exactlywhat is being asked, and whether eachquestion part has to be answered in

the context of the scenario or is moregeneral. You also need to be sure that

you understand all the tasks that thequestion is asking you to perform.

The different levels of the ACCAQualification each address different

intellectual levels. See table below forfurther information.

INTELLECTUAL LEVELS

Knowledge and comprehension Application and analysis Evaluation and synthesisPapers F1F3 Papers F4F9 Papers P1P7

retention and recall of knowledge analysis of unfamiliar situations to generalisation, comparisonunderstanding of major accounting prepare reports and solve problems and discrimination using complex and

and business ideas, techniques using relevant concepts and theories unstructured informationand theories recognition of subtle or hidden assessment and evaluation

use of knowledge and techniques in information patterns and trends within of complex informationnew but familiar situations financial and other information, use of reasoned argument

recognition of fundamental cause and the ability to interpret these to infer and make judgmentsand effect in accounting. the ability to infer from given presentation and justification of

information and draw conclusions. valid recommendations.

ACCA examiners have highlightedthe lack of understanding of therequirements of question verbs asthe most serious weakness in manycandidates scripts. Given beloware some common question verbs usedin exams.

QUESTION VERBS

Analyse Intellectual level 2, 3 Actualmeaning Break into separate parts anddiscuss, examine, or interpret each part

Key tips Give reasons for the currentsituation or what has happened.Apply Intellectual level 2 Actual meaningTo put into action pertinently and/orrelevantly Key tips Properly apply thescenario/case.Assess Intellectual level 3 Actual meaningTo judge the worth, importance, evaluateor estimate the nature, quality, ability,extent, or significance Key tips Determinethe strengths/weaknesses/importance/significance/ability to contribute.Calculate Intellectual level 2, 3 Actualmeaning To ascertain by computation,

to make an estimate of; evaluate, toperform a mathematical process Keytips Provide description along withnumerical calculations.Comment Intellectual level 3 Actualmeaning To remark or express an opinionKey tips Your answer should include anexplanation, illustration or criticism.Compare Intellectual level 2 Actualmeaning Examine two or more things toidentify similarities and differences Key

tips Clearly explain the resemblancesor differences.Conclusion Intellectual level 2 ,3 Actualmeaning The result or outcome of an actor process or event, final arrangementor settlement Key tips End your answerwell, with a clear decision.Criticise Intellectual level 3 Actualmeaning Present the weaknesses/problems; evaluate comparative worthDont explain the situation; insteadanalyse it Key tips Criticism often

involves analysis.Define Intellectual level 1 Actual meaningGive the meaning; usually a meaningspecific to the course or subject Key tipsAlso explain the exact meaning becauseusually definitions are short.Describe Intellectual level 1, 2 Actualmeaning Give a detailed account or keyfeatures. List characteristics, qualitiesand parts Key tips Make a picture withwords; identification is not sufficient.Discuss Intellectual level 3 Actualmeaning Consider and debate/argueabout the pros and cons of an issue.

Examine in-detail by using argumentsin favour or against Key tips Write aboutany conflict, compare and contrast.Evaluate Intellectual level 3 Actualmeaning Determine the scenario in thelight of the arguments for and againstKey tips Mention evidence/case/point/issue to support evaluation.Explain Intellectual level 1, 2 Actualmeaning Make an idea clear. Showlogically how a concept is developed.

Give the reason for an event Key tipsDont just provide a list of points,add in some explanation of the pointsyoure discussing.Illustrate Intellectual level2 Actualmeaning Give concrete examples.Explain clearly by using comparisonsor examples Key tips Add insome description.Interpret Intellectual level 3 Actualmeaning Comment on, give examples,describe relationships Key tips Include

explanation and evaluation.List Intellectual level 1 Actual meaningList several ideas, aspects, events,things, qualities, reasons, etc Key tipsDont discuss; only make a list.Outline Intellectual level 2 Actualmeaning Describe main ideas,characteristics, or events Key tips Brieflyexplain the highlighted points.Recommend Intellectual level 3 Actualmeaning Advise the appropriate actionsto pursue in terms the recipient willunderstand Key tips Give advice or counsel.Relate Intellectual level 2, 3 Actual

meaning Show the connections betweenideas or events Key tips Relate to realtime examples.State Intellectual level 2 Actual meaning

Explain precisely Key tips Focus on theexact point.Summarise Intellectual level 2 Actualmeaning Give a brief, condensed accountInclude conclusions. Avoid unnecessarydetails Key tips Remember to concludeyour explanation.

INTELLECTUAL LEVELS AND QUESTION VERBS

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ACCA FEEDBACKPAPER F1

ACCOUNTANT IN BUSINESS

The December 2010 exam saw a moreeven performance by candidates across allsyllabus areas than in previous sessions. Itappears that candidates are now preparingfor questions on as many subject areasas possible, and this has resulted in fewquestions having very low pass rates.This is in contrast to earlier papers, whencandidates scored higher pass rates on

accounting and nance questions thanthose relating to organisations and humanresources management. While passrates on the latter were generally high,candidates also performed well on topicsthat have presented major difculties inthe past.

The highest pass rates were onquestions relating to the relativeadvantages of computerisedsystems and manual systems, theuse of spreadsheets at work, timemanagement, purchase ledger,organisational concepts (scalar chainand span of control) and the Blake andMouton managerial grid.

Lower pass rates were achievedon questions relating to control,International Accounting Standards,training assessment, the contributionof the accounting function to marketingactivities, data protection, security andBelbins team roles theory. It shouldbe noted that some of these questionswere worth a single mark, confirmingthat such questions can still present asmany problems to some candidates asthose worth two marks.

Over 70% of candidates answered

questions on job description, selection,outsourcing and leadership stylessuccessfully, which is encouraginggiven the historically lower passrates on questions relating to humanresources management. The majority ofcandidates also answered questions onleadership theory, organisational culture,Honey and Mumfords learning stylesand multi-skilling successfully.

Inevitably, some candidates guessedthe answers to certain questions,witnessed by the choice of option Dfor questions with only A, B and C as

available answers, and option C orD for questions with two choices ofA or B.

SAMPLE QUESTIONSQuestion 23 required an understandingof the contribution of the accountingfunction to the activities of themarketing department.

Analysis of costs and revenues ofdifferent products would assist the

marketing department in respect ofwhich activity?A Differentiating the technical

features of products from thoseof competitors

B Calculating the maximum discountsthat sales personnel are permittedto offer

C Targeting sales effortstowards the most appropriatesocio-economic groups

D Determining production bonuses tobe paid

The correct answer is B. By analysingcosts and revenues through the use ofmarginal costing or related techniques,the marketing department will knowthe extent to which discounts will erodeprofit margin or contribution.

Analysis of costs and revenues cannothelp the marketing department todifferentiate the technical features ofproducts from those of competitors,as the accounting information provideddoes not identify such informationeither for competitors or the companyitself. Likewise, analysis of costs andrevenues serves little purpose in relationto targeting socio-economic groups, asthis requires qualitative assessment ofcustomer needs and buyer motivation.Production bonuses are not ordinarilydecided by the marketing department.

Only 36% of candidates answered thisquestion correctly.

Question 24 related to data protection.Which of the following principles isusually recommended for inclusion in

legislation on data protection?A The data user should provide the data

subject with regular and detailedinformation on the data held

B All personal data held by data usersshould be updated by checkingthis data with the subject atregular intervals

C All personal data held by data usersshould be adequate for the purposesof the data user but not excessive

D All personal data held by data usersshould be reviewed regularly andautomatically deleted after a specified

period of time

The correct answer is C. It is a generallyaccepted principle that organisationsshould hold only data that is necessaryfor operational purposes, and shouldnot store data that goes beyondsuch purposes.

It is impractical for mostorganisations to provide regular detailupdates on personal data held, and

arguably of little importance to mostdata subjects, who in many jurisdictionshave a statutory right of access if theywish to obtain such information froma data user. It is also impractical fordata users to enter into regular dialoguewith data subjects in order to checkand update the data, though manyorganisations do so for the purposeof marketing. It is undesirable fororganisations to automatically delete all

data after a specified period of time, asit is usually appropriate that some datais held for long periods while other manybe retained for just a single transaction.


Question 45 related to different typesof control in relation to management ofaccounting information.

DEF Co has decided to include in eachcustomers account number a checkdigit which will have an arithmeticalrelationship to other digits in theaccount number.

This is an example of which of thefollowing types of control?A Input controlB Back-up controlC Output controlD Contingency control

The correct answer is A.Most candidates eliminated distractor

C, but responses were evenly spreadacross the other three choices.

In this context, a check digit is usuallya number included in an accountnumber that is calculated from the other

numbers in it. For example, it could bedigit 2 plus digit 5 divided by digit 3. Ifan operative makes a transcribing error,the check digit helps to identify theinput error.

Check digits are not used for the otherthree purposes.


CONCLUSIONSThe ability of many candidates toanswer questions across all areas ofthe syllabus confirms that prospects

of success in Paper F1 are enhancedby a sound knowledge and goodunderstanding across all areas of thesyllabus. The questions ask candidatesto demonstrate their knowledge andapply knowledge at a basic level. Noneof the learning objectives are examinedin great depth, so it is unnecessary tospend many hours on each topic.

There is no evidence to suggestthat this paper is time pressured, so

12 EXAMS

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candidates will always benefit fromreading the requirement carefully inorder to arrive at the right answer.In order to maximise use of thetime available, candidates shouldavoid selecting answers too quicklyor spending too long persuadingthemselves that their choiceis appropriate.

It is especially important to givedue consideration to all answer

options, as the distractors are allusually quite plausible, but incorrectalternatives. Candidates may sometimesunderestimate the amount of thoughtthey should give to a question, and thisseems to be backed up by performanceon certain questions in December,where the pass rate was comparativelylow on topics that previously causedlittle difficulty. Examples includePorters value chain, procurementand assessment of the effectivenessof training.

Candidates are encouraged to answerevery question on the paper. Even if thecorrect answer is not known, it may bepossible to arrive at it by ruling out thedistractors as incorrect. This processof deduction can be practised using thePilot Paperand materials produced bylearning providers.

PAPER F2

MANAGEMENTACCOUNTING

This was the seventh exam under thecurrent syllabus. The two-hour paper,as usual, contained 50 multiple-choicequestions 40 carried two marks each

and the other 10 carried one mark each.This mix continues to be exactly in linewith the Pilot Paper. The overall generalperformance of candidates improved atthis sitting compared with recent sittings.The performance on an individual questionbasis also improved on this occasion, ononly a very few questions was the correctanswer not selected by at least 40% ofthe candidates.

The following questions taken fromthe December 2010 exam are oneswhere the performance of candidates

was weak in each case less than40% of the candidates selected thecorrect answer. Each of these questionscarried two marks and each related to amainstream topic in the Study Guide.

SAMPLE QUESTIONSFOR DISCUSSION

EXAMPLE 1A company which operates a process

costing system had workinprogressat the start of last month of 400 units(valued at $3,000) which were 40%complete in respect of all costs. Lastmonth 1,500 units were completedand transferred to the finished goodswarehouse. The cost per equivalentunit for output produced last monthwas $20. The company uses the FIFOmethod of cost allocation.

What is the total cost of the 1,500units transferred to the finished goodswarehouse last month?A $26,800B $28,200C $29,800D $30,000

The correct answer was C. This questiontested Section D6(g) and (h) in theStudy Guide.

If 1,500 units were completed in themonth then 1,100 units (1,500400)must have been started and finished inthe month. These are valued at $22,000(1,10020). The 400 units fromopening workinprogress (WIP) werealready 40% complete so last monthwould have had 60% of work done to

complete them. The total value of the400 units is, therefore, calculated as:$3,000+$(4000.620) = $7,800. Thetotal value of the months output was$(22,000+7,800) = $29,800.

Each of the three wrong answerswas selected by at least 17% of thecandidates. Candidates selecting answerA had simply failed to add in the $3,000opening WIP value. Answer B could havebeen obtained by valuing the 400 unitsas follows: $3,000+$(4000.420) =$6,200. This had taken the percentage

to complete the WIP as 40% instead of60%. Answer D was simply 1,500 unitsvalued at $20 per unit and made noadjustment for WIP.

EXAMPLE 2A company uses standard marginalcosting. Last month the budgetedcontribution was $20,000 and the onlyvariances that occurred were as follows:

$Sales price 3,000 AdverseSales volumecontribution 5,000 FavourableFixed overheadexpenditure 1,000 Adverse

What was the actual contribution lastmonth?A $18,000B $19,000C $21,000D $22,000

The correct answer was D. Thisquestion tested Section E5(b) of theStudy Guide the reconciliation ofbudgeted and actual contribution undermarginal costing.

The fixed overhead expenditurevariance is not relevant to areconciliation of budgeted and actualcontributions. Fixed costs are deductedafterwards from contribution to arrive atprofit. Therefore, the correct calculationof actual contribution was:(20,0003,000 + 5,000) = $22,000.

Answer A was obtained by adding

the adverse sales price variance andsubtracting the favourable sales volumecontribution variance to the budgetedprofit. Answer B could have beenobtained in two (wrong) ways. First,by simply deducting the adverse fixedoverhead expenditure variance fromthe budgeted contribution. Second,by netting the three variances listedin the question and then deductingthis net figure from the budgetedcontribution there were two errorsmade in this case. The most popularwrong answer was C (chosen by a third

of the candidates) which added thenet of all three variances listed to thebudgeted contribution.

EXAMPLE 3Are the following statements, whichrefer to different types of budgets, trueor false?

STATEMENT 1An annual budget that can be broken

PAPER F1 CANDIDATES ARE ENCOURAGED TO ANSWEREVERY QUESTION ON THE PAPER. EVEN IF THECORRECT ANSWER IS NOT KNOWN, IT MAY BE POSSIBLETO ARRIVE AT IT BY RULING OUT THE DISTRACTORS ASINCORRECT. THIS PROCESS OF DEDUCTION CAN BEPRACTISED USING THE PILOT PAPERAND MATERIALSPRODUCED BY LEARNING PROVIDERS.


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PAPER F2 CANDIDATES SHOULD READ PREVIOUS PAPERF2 EXAMINERS REPORTS THEY ARE ALL STILL VERYRELEVANT AND HELPFUL. EACH CONTAINS THREEMULTIPLE-CHOICE QUESTIONS. ACCESS THESE ONTHE ACCA WEBSITE.

down into monthly budgets, whichdiffer depending on the number of

working days in each month, is called aflexible budget.

STATEMENT 2An annual budget set before the startof a year based on estimated salesand production volumes is called afixed budget.

Statement1Statement2A True TrueB False FalseC True FalseD False True

The correct answer was D. This questiontested section E3(a) in the Study Guide

the explanation of fixed, flexible andflexed budgets.

A flexible budget is one whichrecognises different cost behaviourpatterns and is designed to change toreflect different volumes of activity.Therefore, statement 1 is false.Statement 2 describes a fixed budgetand is, therefore, true.

All three incorrect answers wereselected by significant numbers ofcandidates even the least popular

choice (Answer C the exact oppositeto the correct answer) was chosenby nearly 16% of the candidates.This seems to indicate that this partof the Study Guide is generally notwell understood.

Future candidates are advised to:Study the whole syllabus. The exam

will always cover all sections of theStudy Guide.

Use the Pilot Paperquestions forpractice. The Pilot Paperis also avery good guide to the styles ofquestions that will continue to be

set and to the coverage of the topicsin the Study Guide. It is also gives agood indication of the approximatesplit between calculation andnon-calculation questions that willcontinue in exams up to and includingthe June 2011 sitting.

Practise as many multiple-choicequestions as possible in preparing forthe exam.

Read questions carefully in the exam.

Read previous Paper F2 examinersreports they are all still very relevant

and helpful. Each contains threemultiple-choice questions. Accessthese on the ACCA website.

PAPER F3

FINANCIAL ACCOUNTING

The following three questions havebeen taken from the Internationalvariant of the paper and were the threequestions with the lowest pass rates onthe paper. The aim of reviewing thesequestions is to give future candidatesan indication of the types of questionsasked and guidance on dealing withexam questions.

SAMPLE QUESTIONSFOR DISCUSSION

1ThefollowingextractisfromthefinancialstatementsofPompeii,alimitedliabilitycompanyat31October:

2010 2009 $000 $000Equity and liabilitiesShare capital 120 80

Share premium 60 40Retained earnings 85 68

265 188Non-current liabilitiesBank loan 100 150

365 338

What is the cash flow from financingactivities to be disclosed in thestatement of cash flows for the yearended 31 October 2010?A $60,000 inflowB $10,000 inflowC $110,000 inflow

D $27,000 inflow (2 marks)

The correct answer is B. Only 32% ofcandidates answered this correctly. Interms of difficulty this question was notparticularly complicated, but statementsof cash flows have been consistentlyanswered badly in each sitting of thepaper. In this question, the answer canbe derived as follows:

Cash flows from financing: $000Issue of share capital(120+60)(80+40) 60Repayment of bank loan(100150) (50)Net cash inflow from financing 10

The most common answer selectedwas D which included retained earningsin the calculation which is incorrect.Candidates need to spend more time

learning the format and technique foranswering questions on this topic.

2SmithandJonescommencedinpartnershipon1December2009sharingprofitsequally.Smithpaidcashof$40,000intothepartnership.Jonespaidincashof$25,000andbroughtinamotorvehicle,computerandfurnitureworth$15,000.Thepartnersmaintainbothcapitalandcurrentaccounts.

The partnership pays interest oncapital at 4% per annum.

What should the balance be on thecapital accounts of Smith and Jones at30 November 2010? Smith JonesA $41,600 $41,600B $40,000 $40,000C $40,000 $25,000D $41,600 $26,000

(2 marks)

The correct answer is B. Only 33%of candidates selected B, with themajority selecting option A. Partnershipaccounts is another area that seems toconsistently show poor performance. It

is a large part of the Paper F3 syllabusso it is surprising that candidatesperform so badly. This question requiredknowledge of what should be includedin the capital accounts of a partnership.There were no complicated calculationsto perform, so this shouldnt havecaused any problems. The correctanswer of B shows both partnerscontributing an equal amount of capital

the only difference being that Joneshas paid cash and other assets into thepartnership. Most candidates selectedA which meant that they correctly

identified the capital balance, butthen added on the interest on capital,which should be included in the currentaccount balance.

3ThestatementoffinancialpositionofCartwright,alimitedliabilitycompany,showsclosingretainedearningsof$320,568.Theincomestatementshowedprofitof$79,285.Cartwrightpaidlastyearsfinaldividendof

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$12,200 during the current year andproposed a dividend of $13,500 at theyear end. This had not been approvedby the shareholders at the end ofthe year.

What is the opening retainedearnings balance?A $241,283B $387,653C $254,783D $253,483

(2 marks)

The correct answer is D and almost 36%of candidates selected this option. Thisquestion required knowledge of howdividends are treated in the financialstatements and then working backwardsto obtain the opening retained earningsbalance. The solution is calculatedas follows:Opening retained earnings + profit

prior year final dividend = closingretained earnings

Opening retained earnings = $79,285$12,200$320,568

Opening retained earnings = $253,483

The most frequently selected incorrectanswer was B. This distracter tookclosing retained earnings as the openingbalance and then added profit lessthe final dividend ($320,568+$79,285

$12,200). This is a careless errorfrom not reading the questioncarefully enough.

CONCLUSION

It has been surprising that thesequestions were the worst answeredon the paper at this sitting. Theycover key exam topics and all arerelatively straightforward. Partnershipsand statements of cash flows areconsistently amongst the worstanswered questions in the paper, whichseems to highlight that candidates arenot preparing sufficiently in these areas.At the risk of repeating the conclusionof previous reports, candidates mustfocus on the breadth of the syllabus asthis exam will examine the whole range

of the Study Guide and candidates needto prepare for this.

PAPER F4 (GLO)CORPORATE AND BUSINESS LAWAs usual, this paper was made up of 10compulsory questions, each of 10 marks,although many of them were subdividedinto distinct parts. I have previously statedthat this format seems to have settled down

and to meet with candidates approvalfrom way they tackle it. That seems still tobe the case and some learning providerscommented positively on the format.However, it should be said that a number ofcandidates did not follow the structure andprovided general and obviously preparedanswers to specic topics. This is a point Iwill return to on a number of occasions inmy report.

It has to be recognised that the

performance of candidates wasunsatisfactory. This paper should havebeen tackled much better than it was bythe generality of candidates.

As I have said many times thesyllabus is wide and it has to befully examined over time. While it isrecognised that some aspects of thesyllabus are less central than othersand hence are examined less frequently,they nonetheless have to be examinedat some time. However, when theseareas are examined they are generallypresented in the context of a paper thatprovides more than ample opportunityto reach a pass standard through anadequate treatment of more obvious,not to say easier topics. I stronglysuggest that such is the case in thepaper under consideration. I hope todemonstrate this when I consider theindividual questions. Consider Question5 on registers and accounting records.When this question was asked before,some time ago, I had assumed it wouldbe an easy question for people doing anaccountancy qualification. In the event Iwas wrong and it was done inadequatelyas it has been again. However, the

subject is on the syllabus and has tobe examined over time. Moreover, I stillmaintain it is not only relevant, butimportant for students to be aware ofthe interface between law and other moreobviously accountancy-based modules.

Even if Question 5 was not expected,it should equally be noted that bothQuestions 3 and 6 were extremelygenerous in the breadth of approachthey allowed candidates. Thesequestions could have been muchnarrower, but were deliberately writtento afford candidates as much scope as

possible to answer them.This paper was far more accountancyfocused than previous papers and gavecandidates the opportunity to use theircore basic accountancy knowledge.Questions 4, 5 and 9 should have beenanswered extremely well but answersvaried considerably. Candidates seemedto completely forget anything else anddid not have the ability to draw onbrought forward knowledge to answer

the questions. Candidates do not seemable to recognise how the variousdifferent topics from their studiesfit together.

It would appear that in preparinganswers rather than topics, candidatesfail to come to terms with the underlyinglaw and struggle when a topic isexamined in a way that they have notprepared for. I will return to this aspectin the detailed consideration below.

This also relates to the issue ofquestion spotting and the structureof the paper. For some time now thepaper has adopted a fairly standardstructure. Thus, Question 1 will alwaysbe on legal systems, Question 3 onthe UN Convention on Contracts forthe International Sale of Goods (CISG)with Questions 46 usually being oncompany law. The problem questionsalways start with a contract question,although the actual topic coveredchanges. Question 9 is usually acompany question. While it is good thatlearning providers can give candidatesan indication of the likely structure ofthe paper, it is becoming apparent thatsome candidates are no longer actuallyengaging with the question set, butare simply adopting the approach thatsays This is Question 8, it must beabout contract here is everything Iknow about contract law, from offer toremedies. Question 10 is where insiderdealing has turned up, so here is ananswer on insider dealing.

Some candidates clearly prepareanswers to topics and deliver them,even if they are not relevant. Such

action merely indicates that thecandidates do not actually understandthe underlying legal concepts orprinciples. It is apparent that somecandidates prepare answers based onquestions from the previous paper andsubmit them as answers to completelydifferent questions.

What follows is an analysis ofthe way in which question wereattempted by candidates, althoughas usual, the emphasis tends to beon the negative aspects rather thanfocusing on the sound work that many

candidates produced.

SPECIFIC COMMENTSQUESTION 1This question required candidates toanswer a question on the separation ofpowers. It is pleasing to report that thequestion was dealt with well by the vastmajority of candidates.

Part (a) was generally done wellwith most candidates being able to

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explain the meaning and purpose of thedoctrine. It was especially pleasing tosee some candidates taking advantageof the possibility of considering theirown political systems in their analysis ofthe concept.

Part (b) was done fairly well, withsome answers even considering theimpact of the UKs membership of theEuropean Union.

QUESTION 2

This question referred to thepossibility of setting aside arbitrationdecisions under the UN Convention.Given the fact that it has beenexamined on a number of times, it hasto be said that it was not done as wellas expected. This question was thefirst example of the prepared answer.Arbitration has been examined asQuestion 2 in many recent papers andcandidates appeared to have preparedthe generic arbitration answer. Assuch these generic answers considered

everything relating to arbitration andsome fortunately gained some marksby eventually stumbling on to theactual topic of the question. However,the relevant content tended to be toolittle too late, and time would havebeen much better spent focusing onthe actual issue. In relation to theactual topic, although many candidateswere able to deal with it very wellindeed, a significant number confusedsetting aside with the right to appealagainst an arbitral decision.

QUESTION 3

This was a wide-ranging question onthe remedies available for breach ofcontract, so it did not require answersabout the formation of contracts,consideration or terms. However, thosecandidates who had prepared generalanswers provided such details, but gotno marks for them.

The standard of answers produced onthis question varied in standard quite

considerably. Often full marks wereawarded to candidates who explainedthe definition of a breach of contract,addressed different types of breachand in particular fundamental breach,and fully explained the remediesavailable to the buyer with reference tothe convention. However, a substantialnumber of candidates producedanswers that were unstructuredand lacking in focus, which wasdisappointing given the centrality ofremedies in the syllabus.

QUESTION 4

This question related to share issue andthe rights of shareholders. Although ithad never been examined before, it wasdeliberately worded in a way to affordcandidates the possibility to use theirwider business/accountancy knowledgewithin the context of specific legalprovisions. On the whole it was done atleast fairly well.

Part (a): this should have been done

very well. The types of share and therights of shareholders are a basicconcept for any candidate studyingaccountancy. However, answers to thiswere extremely confused. Pre-emptionrights were confused with promoters ofcompanies and companys first issueof shares, which was simply incorrect.Only a small number of candidateswere able to describe pre-emptionrights and where this was the case, fullmarks were often awarded.

Part (b): this was generally well donewith most candidates being able to

define what a rights issue was. Answersscored full marks where candidatesdescribed that rights issues could bemade at less than market value, rightsdid not have to be taken, and that thepurpose was to raise more capital forthe company.

Part (c): again, this was generallywell done but some candidates thoughtthat a bonus issue was a payment toemployees for good work.

QUESTION 5

This question related to companyregisters and charges and has alreadybeen referred to in the introduction tothis report.

Part (a) referred to registers.Answers were mixed. A high number ofcandidates approached the questionfrom a company constitution angleand described the Memorandumof Association and Articles. Some

candidates misinterpreted the questionand described the role of the companysecretary and the documents neededto form a company in the first place.No marks were awarded for these typesof answers.

The suspicion is that as these topicshave been examined in the recent pastcandidates expected that they wouldnot be examined again. Some werefortunate that registration documentsand registers both refer to membersand directors.

Part (b) related to companyaccounts. Surprisingly, not manycandidates scored full marks in thispart. Sometimes candidates took anextremely complex view of the questionand explained corporate governanceprocedure. Again, corporate governancemust be examined somewhere soprepare and provide a general answer onthat topic. But once again the genericprepared answer was not appropriate.Some answers focused on the actualrecords and documents which need tobe kept. Answers were succinct and tothe point and mentioned receipts andpurchase invoices, records of cash,

assets and liabilities. Credit was alsoawarded for discussion of the incomestatement, statement of financialposition and cashflows.

QUESTION 6

This question related to companydirectors duties. There can be no morecentral concept in company law andone that has been examined on manyoccasions and in many different ways.As has been said in the introduction,this formulation was deliberately chosenas the widest way of examining the

topic. Candidates were either extremelyknowledgeable in this area and wereawarded full marks or answers wereinadequate. Where candidates didnot know the statutory duties, creditwas given for relevant points whichdemonstrated a basic understanding.For example, promoting the successof the company was interpreted bysome as making the company performto the best of its ability and ensuring

WHILE IT IS RECOGNISED THAT SOME ASPECTS OF THE

PAPER F4 SYLLABUS ARE LESS CENTRAL THAN

OTHERS AND HENCE ARE EXAMINED LESS FREQUENTLY,

THEY NONETHELESS HAVE TO BE EXAMINED AT SOME

TIME. WHEN THESE AREAS ARE EXAMINED THEY

ARE GENERALLY PRESENTED IN THE CONTEXT OF A

PAPER THAT PROVIDES MORE THAN AMPLE

OPPORTUNITY TO REACH A PASS STANDARD THROUGHAN ADEQUATE TREATMENT OF MORE OBVIOUS TOPICS.


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SOME PAPER F4 CANDIDATES CLEARLY PREPARE ANSWERS TO TOPICS AND DELIVERTHEM, EVEN IF THEY ARE NOT RELEVANT. SUCH ACTION MERELY INDICATES THATTHE CANDIDATES DO NOT ACTUALLY UNDERSTAND THE UNDERLYING LEGALCONCEPTS OR PRINCIPLES. IT IS APPARENT THAT SOME CANDIDATES PREPAREANSWERS BASED ON QUESTIONS FROM THE PREVIOUS PAPER AND SUBMIT THEM ASANSWERS TO COMPLETELY DIFFERENT QUESTIONS.

success. The benefit of the doubt wasgiven to candidates and marks wereawarded accordingly.

Some candidates explained in greatdetail the different types of directors,and the process of appointment andremoval and the concept of corporategovernance. This type of answersreceived no marks.

Directors duties are a commontopic, so it was surprising to note that

some candidates did so poorly, butonce again it is symptomatic of theprepared answer syndrome, built on noreal underpinning of understanding.Corporate governance is an importantpart of the syllabus, it has beenexamined in a particular way in thepast, so any question on directors mustrelate to corporate governance and ofcourse the Directors Disqualification Act1986, which must always be mentionedtogether with fraudulent and wrongfultrading, because there is a really goodchance that they will turn up exceptwhen they dont.

QUESTION 7This question related to the UNCITRALmodel law on credit transfers, and itwas inadequately answered. This wasclearly a topic for which candidates hadnot prepared any standard answers andsuch lack of preparation clearly causedconfusion amongst those attemptingthe question, and many did not evenattempt to do this question. As a resultthe best that some candidates coulddo was to repeat the question in theiranswer. Part (b) was done even less well.

QUESTION 8This first scenario question, as usualreferred to contractual issues under theUN CISG, specifically the requirementas to quality under Article 35. As a topicthat is central to the syllabus and onethat has been examined on a number oftimes previously, if in different forms,it might have been thought that thiswas a question that could have beenanswered fairly well. However, althoughsome candidates were well prepared onthe specifics, a significant number of

candidates prepared generic answerson CISG, starting from offer and endingwith remedies, which is not the samething at all, and merely evidences a lacklegal knowledge and analytical skill.

QUESTION 9This question related to the rulesgoverning the payment of companydividends, particularly in relation to aplc. The topic has been examined on

numerous occasions previously, but thiswas the first time that it had appearedin the form of a problem scenario. Theway in which candidates dealt withthis question perfectly encapsulatesthe main point of this report, that thosewho understand the underlying legalprinciples can deal with the questionsno matter how they are presented,but that those who are simply learningrote answers get lost quickly andtoo easily.

Part (a): answers varied in standardquite dramatically. Some candidateswere able to discuss that a dividendcan only be paid out of accumulatedrealised profits less accumulatedrealised losses. They also recognisedthat a public company may only make adistribution if, following the distribution,the amount of its net assets is not lessthan the aggregate of its called-up sharecapital and undistributable reserves.This was extremely encouraging andshowed a good understanding of thesubject. Answers concluded that thedividend was illegal as the revaluationreserve is undistributable.

At the other end of the scale,

other candidates thought that therevaluation was distributable and thatthe dividend was legal. Others didnot even approach the legality of thedividend at all and instead went downthe route of resolutions and proceduresneeded for the declaration of dividends.Furthermore, some candidatesconcluded that all shareholders wereentitled to a dividend and if one hadbeen declared, and then one shouldbe paid.

Part (b): some sound answers inrelation to the liability of directors,

shareholders and auditors also wereproduced. Some candidates ignoredthis part of the question altogether orconcluded that Dee and Eff had donenothing wrong and as the shareholdershad approved the dividend, it shouldbe paid. This conveyed a complete lackof understanding of the principles andindeed of the question as a whole.

QUESTION 10

This question required candidates tocompute the amounts for distributionbetween the partners.

Answers were mixed. Some answersunderstood that partners had unlimitedliability, that the partnership could bewound up at the wish of the partners,that external creditors needed to bepaid before partners and that, asthe partnership agreement outweighsthe Partnership Act 1890, the remainderwas to be spilt in accordance with theCSR. A lot of marks were availablefor merely calculating the finaldistributions, so this question gavethe opportunity for lots of marks to beawarded. Where the approach to thequestion was correct as outlined above,seven marks were often awarded. Thepoint of the question was once againto place accountancy practice in a legalcontext and vice versa.

Some candidates believed that thequestion related to voluntary winding ofa company and wrote at length aboutpreferential creditors. Whilst somesimilarities can be drawn, this was anincorrect approach and demonstrateda fundamental lack of basic

understanding between how a companyoperates compared to a partnership.Others wrote everything they knew aboutpartnerships and the different ways inwhich a partnership could be dissolvedincluding death of a partner, etc. Thiswas not relevant and further displayed ageneral lack of application skills.

PAPER F5

PERFORMANCE MANAGEMENT

This was my rst paper as the new examinerfor Paper F5 but the syllabus remained

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exactly the same as in previous sittings.The structure o the paper also remainedthe same fve questions worth 20 markseach although, in this paper, there was a20-mark discussion question. The purposeo this was to balance the paper; therewas quite a lot o inormation to absorbin Question 2 and there were quite a ewcalculations to perorm in Question 3,albeit basic ones. By the time candidatesgot to Question 5, it was elt that they

would beneft rom a chance to displaytheir understanding o budgeting withouthaving to absorb much inormation.

As accountants, we often have towrite reports that include l ittle or nonumerical analysis. This need for clarityof expression is explicitly required at theProfessional level papers, so it seems agood idea to start preparing candidatesmore for this now.

The pass rate on this paper saw a dropfrom previous recent sessions. I believethat the reason for this is primarily thatcandidates tried to question spot. So, forexample, because linear programmingcame up in June 2010, the belief wasthat it would not come up again inDecember 2010. The lesson to be learntis that you cant question spot in theseexams. You have to make sure that youare comfortable with every area of thesyllabus; otherwise you may be caughtout. Anyone who watched the ExaminersSpecial Student Engage event inSeptember should have got this messageThis is still availlable on ACCA.TV.

The paper was 54% computationaland 46% narrative, since withinQuestion 2 there were a certain

number of marks available for thecalculations. On the whole, Question4 was the best answered, althoughthere were still a surprising numberof candidates uncomfortable with thearea of activitybased costing (ABC).In every question, candidates had theopportunity to earn some easy marksquickly, and wellprepared candidatesattempted these parts first.

SPECIFIC COMMENTSQUESTION 1This question covered the fundamental

area of variance analysis. Part (a)started off with some basic calculationsfor sales variances and materialsvariances, followed by some moretricky calculations on labour variances.There were plenty of easy marks inthis question, but if anyone didntunderstand variances properly, theywould have struggled with the labourvariances, which required a little bitof thought. The sales and materials

variance calculations were thankfullywell performed by candidates, butthe attempts at the labour varianceswere poor.

The question clearly stated that thelabour variance related solely to thetemporary workers. This meant that itwas necessary to work out exactly howmany hours the temporary workers hadworked for. The calculation was notparticularly difficult, but it did require

an understanding of the scenario.Since permanent workers only hadthe capacity to work 2,200 hours anda total of 2,475 hours was neededfor production, the initial calculationrequired was that there was a shortfallof 275 hours. However, the questionstated that temporary workers tooktwice as long as permanent workersand, therefore, the temporary workerswould be needed for 550 hours.Approximately 20% of candidatesworked this out and went on to calculatethe variances correctly.

Part (b) was the written part of thequestion, asking for an explanationof the reasons why Carad Co wouldbe interested in the material priceplanning and the material priceoperational variance. The mostcommon error was that candidatesdidnt read the requirement properly.They expected it to be asking themhow the manager had performedand this was what they wrote about.Every exam sitting, this proves aproblem candidates preempting thequestion and not reading it properly.It should not be assumed that every

single variance question will give yousome variances, maybe ask you tocalculate some more, and then askfor a discussion of managementsperformance. Exam papers cannot beallowed to become that predictable ascandidates would then start to onlypartly prepare for them, on the basisthat they know what will be examined,more or less. Candidates who did readthe question, however, tended to makea reasonable attempt at this part.

QUESTION 2

This was a typical performancemeasurement question. There wasquite a lot of information to absorbbut I strongly believe that, unless youare given plenty of information to workwith, it is only possible to make verygeneralised, insipid comments. Thisis not what Paper F5 is all about. Iwant candidates to be able to handleinformation and make some qualityanalysis about it. It requires common

sense and ability to link information.This should not be too much to askof a partqualified accountant, whowould have to exhibit these qualities inthe workplace.

Needless to say, answers were poor.Anyone who had read my technicalarticle on this area, or indeed mypredecessors article on this area,would know that comments such asturnover decreased by 8.3%, which

is poor will score only a calculationmark, for working out the 8.3%. Isthis decrease in turnover poor? Well,it depends on the market in whichthe company is operating. You haveto read the scenario. When you takeinto account the fact that there hasbeen a 20% decline in the demand foraccountancy training, AT Cos 8.3%looks relatively good. You must linkinformation; this is an essential skill forany accountant. Nothing is ever whatit seems.

Let me also take the opportunityto distinguish between an acceptablecomment, which might earn one mark,compared to a good point, which mightearn two marks. Cost of sales fell by$10.014m in the year. Part of thisreduction was down to a fall in freelancelecture costs. A good candidate wouldhave commented that, whilst thecompany requested that freelancelecturers reduce their fees by 10%, theactual fee reduction gained was 15%, astrong performance. A comment suchas this would have earned two marks.A less observant comment, earningone mark, would have been that the

reduction in cost of sales was partly dueto the fact that the company requestedfreelance lecturers to reduce their feesby 10%.

I hope that this question will serveas a good revision question to futurePaper F5 candidates. The informationgiven is there to help you makeworthwhile comments. It is not there totrip you up. When planning the question,you should annotate it carefully,crossreferencing different parts ofthe question, linking financial andnonfinancial information etc.

QUESTION 3It was this question that probablymade students fall down on Paper F5 inDecember 2010. Why? Was it difficult?No. Was it time pressured? Perhaps alittle, but the calculations were routine.Was it expected? No! It was obvious thatmany candidates hadnt even looked atthis area at all. They took a gamble andit didnt pay off.


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Much of this question could havebeen examined in Paper F2. Whythen, was it in a Paper F5 exam? It isbecoming more and more apparentthat the assumed Paper F2 knowledgefor Paper F5 simply isnt there and it isnecessary to make candidates realisethat it is examinable under PaperF5 and that, if they dont know thesubject matter, they need to go awayand study it! Would it be possible to

turn round to your manager and tellhim/her that you cant do a particularpiece of work for them because it is onan area you studied last year, not thisyear? I dont think so.

In accountancy, you have to carryknowledge forward with you to use atlater stages. You cant simply think thatthe exam is over, so you can forget itall now. If you have got an exemptionfrom Paper F2 but cant remember thesubject, youve got to do some revisionbefore attempting Paper F5.

Those candidates who had revisedthis area made a decent attempt atthis question, with many of themscoring full marks in Part (a) at least.This is because the numbers involvedwere not particularly complicated. Itis important, when answering a linearprogramming question like this, toset out your workings clearly, witha logical progression in steps fromdefining the variables and constraints,through to drawing the graph andfinding the solution. This makes iteasier to mark.

The recommended approach isto use the iso-contribution line to

find the optimum solution; it is thequickest way to do it. Candidateswerent penalised if they used thesimultaneous equations method,because they were not told whichmethod to use, but they penalisedthemselves because it took themlonger to do it.

It is essential to show all of yourworkings. So, for example, theiso-contribution line needs to be workedout and then drawn on to the graph. Ifyou didnt show how you worked it out,you stood to lose some marks.

Where you are asked to work to twodecimal places, you should do it. Inthis question, it was necessary in orderto keep a level of accuracy required toanswer Part (b) as well. While follow-onmarks were available for Part (b)wherever possible, if fundamentalmistakes had been made in Part (a)so that, for example, there was noslack for amino acids, it was hard toaward marks.

QUESTION 4This was the best-answered question onthe paper, with a significant number ofcandidates earning the full five marksavailable in Part (a) for calculating thecost of each product using traditionalabsorption costing. Part (b), whichrequired a costing of the products underactivity-based costing (ABC), producedmore mixed results. Perhaps the mostsurprising outcome was that nearly

all candidates mixed up the driver formachine set ups (which should havebeen the 36 machine set ups) with thedriver for machine running costs (whichshould have been 32,100 machinehours). We certainly saw far more ofthese answers than correct answers. Imnot quite sure why there was such anincidence of error here, but fortunatelymost candidates went on to completethe calculations correctly and earn theappropriate follow-on marks.

In Part (c), the requirement askedcandidates to explain how ABC couldhelp the company improve profitability,using the calculations performedin Parts (a) and (b). Answers werevery poor. The requirement was veryspecific about what should be talkedabout ABC in relation to improvingthe profitability of this company, not ingeneral. Candidates were expected tosay that because, for example, productA required more set ups than productsB and C, the set up costs were higher,meaning that As profitability was farlower under ABC. The company coulduse this to identify how cost savingscould then be made, by reducing the

number of set ups. Alternatively, thecompany could consider whether itcould charge a higher price for productA, thus improving profit by pushing uprevenues. The biggest problem withanswers to Part (c) was that candidatesdid not read it properly and simplystarted taking about the benefits ofABC in general. They scored poorlyfor this.

QUESTION 5This question may have beenunexpected in that it was a pure

discussion question but this should havehelped candidates who were feeling bitpressed for time. Again, anyone whoreads Student Accountantwould haveseen an article in this over the past yearand a half on incremental vs zero-basedbudgeting. Technical articles are nevermeant as an indicator of what is goingto be examined in a forthcoming sessionbut should be seen as a useful resource,there to supplement the study materials

being used. They are there to helpbroaden your knowledge; if you fail toprepare you prepare to fail.

Part (a) of Question 5 askedcandidates to discuss the difficultiesencountered in budgeting in the publicsector compared to the private sector,drawing comparisons between thetwo organisations. There were somereasonable attempts at this, althoughtoo many candidates simply compared

the two types of organisation withoutrelating it to budgeting. Similarly, asignificant number of candidates wereclearly confused about the differencebetween public sector organisationsas opposed to publicly listedcompanies, and answered the questionentirely incorrectly.

Part (b) asked for an explanation ofthe terms incremental budgeting andzero-based budgeting. These were theeasy marks in the question and mostcandidates got them. Part (c) asked forthe key steps in zero-based budgeting.These were also easy marks for thosewho had revised well; answers here wereagain quite good, with only a minority ofcandidates making no attempt.

Finally, Part (d) asked for aconsideration of the statementthat there is no longer a place forincremental budgeting, particularlyin the public sector. There were somereasonable attempts at this, although,as with Part (a), some answers focusedpurely on the benefits and drawbacksof both methods without relating itback to the statement.

In summary, a mixed set of comments

on the different questions. Question 2was poor, with much improvement stillneeded in this area; Question 3 wasreally disappointing, showing a lack ofrevision; and the other three questionswere a mix of good and bad, but formany not good enough to make upfor the difficulties encountered with theother two questions.

PAPER F6 (UK)TAXATIONThis paper continued in the same style as

that of the June 2010 paper, with the aimof being less predictable and requiredcandidates to think a bit more in order toachieve a pass mark. Although the overallresult was satisfactory, the performancewas not quite as good as expected. Themain problems were that candidates wereobviously not expecting a question onPAYE, and Question 4, although not beingparticularly difcult, required some carefulplanning before doing the computations.

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QUESTION 1

In Part (a) candidates were required tocalculate a taxpayers taxable income.The taxpayer had resigned from oneemployment, and then commencedemployment with a second employer.During the tax year he received variousbenefits including a beneficial loan,a place at a workplace nursery, thepayment of gym membership fees, theuse and then acquisition of an asset,

the use of living accommodation,childcare vouchers, and the use of acompany gym. In Part (b) candidateswere required to (i) explain the basis ofcalculating the taxpayers PAYE tax codeand the codes purpose, and (ii) describethe circumstances in which the PAYEforms P45, P60 and P11D form wouldhave been completed, state who wouldhave provided them, the informationthat would have been included, and thedates by which they should have beenprovided to the taxpayer.

Part (a) of this question wasreasonably well answered, but Part(b) caused problems for virtually allcandidates. In Part (a) there wereno areas that consistently causeddifficulty, although a surprising numberof candidates did not appreciate thata bonus would have been assessed inthe previous tax year as the taxpayerwas entitled to it in that year. Whencalculating the beneficial loan usingthe average method, many candidatesused a nil figure rather than the balanceat the date of repayment. Candidatesshould try not to repeat their answers.For example, exempt benefits were often

shown as such in the computation oftaxable income, but were then shownagain in subsequent notes. There isno need to do this. It was surprising inPart (b) that very few candidates knewanything about the PAYE tax code, andnot much more about the PAYE forms.This just seems to be an area of thesyllabus that was not revised. As regardsthe PAYE forms, a bit of commonsense,together with the knowledge that formP45 is given when employment ceases,form P60 is given at the end of the taxyear, and form P11D is in respect of the

benefits provided to a taxpayer, wouldhave meant that most of the marks wereeasily obtainable.

QUESTION 2

In Part (a) candidates had to (i) statewhich companies a company would betreated as being associated with, (ii)calculate the companys corporation taxliability (this involved the computationof a deduction for a lease premium,

the computation of capital allowances,the treatment of overseas branchincome, and the calculation of frankedinvestment income), and (iii) advise thecompany of the taxation disadvantagesof converting its overseas branches into100% overseas subsidiary companies. InPart (b) candidates had to (i) calculatethe amount of output VAT payable bythe company, (ii) advise the company ofthe default surcharge implications if itwas late in submitting its VAT return andin paying the related VAT liability, and(iii) state the circumstances in which thecompany would be, and not be, requiredto issue a VAT invoice, and the periodduring which such an invoice shouldbe issued.

This question was generally wellanswered, and there were many verygood answers. In Part (a)(i), candidatesshould realise that when given a listof four companies, it is good examtechnique to explain for each companywhether it is or is not treated asbeing associated.

In Part (a)(ii), the only aspect whichconsistently caused problems was the

asset that was integral to a building.Although candidates correctly claimedthe annual investment allowance againstthis expenditure, many candidates thenclaimed the 40% first-year allowanceon the balance of expenditure, ratherthan adding it into the special rate pool.Several candidates treated the leasepremium as income rather than as adeduction. Candidates should try to usea new page for large capital allowancescomputations. In Part (a)(iii), mostcandidates correctly stated that theconversion of the overseas branches into

subsidiaries would increase the numberof associated companies, but only a fewwere aware that UK loss relief and UKcapital allowances would not then beavailable. Part (b)(i) was well answered,although a number of candidates didnot appreciate that the tax point forservices supplied was when the invoicewas issued, as this was before the basictax point or the date of payment. Somecandidates showed (an incorrect) input

VAT figure for the cost of fuel despitethe question only requiring a calculationof the output VAT. Part (b)(ii) was notas well answered as would have beenexpected, and too many candidatessimply explained the default surchargerules without applying them to thecompanys situation. Part (b)(iii) wasalso often not well answered, with fartoo many candidates stating that a VATinvoice would not have to be issued ifthe company was not registered for VAT,when quite clearly it was registered.

QUESTION 3

This question was concerned witha taxpayer who was the controllingshareholder and managing director ofan unquoted trading company. In Part(a) candidates were required to explainwhy the taxpayers disposal of ordinaryshares in the company qualified forentrepreneurs relief. Part (b) requireda calculation of the taxpayers capitalgains tax liability (the gains involvedwere (1) the disposal of land to thecompany, (2) the gift of quoted ordinaryshares following a takeover, and (3)

the disposal of ordinary shares in thecompany from a share pool). Part (c)required a calculation of the companyscorporation tax liability (the gaininvolved was a part disposal of the landbought from the taxpayer). The relevantdue dates were required for both Parts(a) and (b).

This question was very well answered,with many perfect answers. It was oftenthe question that made the differencebetween a pass mark and a fail. InPart (a) the fact that the companywas a trading company was often not

mentioned. There were few problemsin Part (b), although for the disposalof land it was not always appreciatedthat the relevant cost was that when itwas inherited by the taxpayer. Part (c)generally caused a few more problems.Even when the part disposal rules werecorrectly applied to the cost of the land,many candidates did not appreciatethat the same principle applied tothe enhancement expenditure. It was

ALTHOUGH THE OVERALL PAPER F6 (UK) RESULT WAS

SATISFACTORY, THE PERFORMANCE WAS NOT

AS GOOD AS EXPECTED. THE MAIN PROBLEMS WERE

THAT CANDIDATES WERE OBVIOUSLY NOT EXPECTING

A QUESTION ON PAYE, AND QUESTION 4, ALTHOUGH

NOT BEING PARTICULARLY DIFFICULT, REQUIRED

CAREFUL PLANNING BEFORE DOING THE COMPUTATIONS.


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disappointing that the annual exemptamount was often deducted whencalculating the corporation tax liability.

QUESTION 4This question was concerned with adirector who was given the choice ofbeing provided with a leased companymotor car or alternatively being paidadditional directors remuneration andthen privately leasing the same motor

car herself. In Part (a) candidates hadto advise the director of the income taxand National Insurance contribution(NIC) implications of (1) being providedwith the company motor car, and (2)receiving the additional directorsremuneration. In Part (b) candidateshad to advise the company of thecorporation tax and NIC implicationsof (1) providing the company motorcar, and (2) paying the additionaldirectors remuneration.

This question was generally answeredquite badly, with the main problembeing that candidates simply didnot spend enough time thinking andplanning their answers, but just plungedstraight in performing every calculationthat they could think of. In Part (a) theanswer was in fact very straightforward,with a fairly simple car benefitcalculation and then income tax and NICcalculations at the directors marginalrates of 40% and 1% respectively. Fartoo many candidates calculated a fuelbenefit despite being told that fuel wasnot provided for private journeys. In Part(b) many candidates stated that capitalallowances would be available despite

the motor car being leased. Candidatesoften stated that the companyscorporation tax liability would beincreased rather than reduced as aresult of the additional expenditure, andvery few candidates appreciated thatNIC was a deductible expense. Part (c)was more difficult, although credit wasgiven for any sensible approach suchas comparing the tax liabilities undereach alternative.

QUESTION 5In Part (a) candidates had to calculate

a taxpayers taxable income and taxablegains for each of the tax years from200506 to 200910. The taxpayerhad made a trading loss in the tax year200910, and the requirement was thatthis be relieved as early as possible,but without unnecessarily wastingpersonal allowances. Then in Part (b)candidates had to explain why it wasbeneficial to carry loss relief forwardagainst future trading profits rather than

making a current year claim against achargeable gain.

This question was reasonably wellanswered. In Part (a) many candidatesdid not appreciate that loss relief couldbe claimed against the chargeable gain,and it was disappointing that so manycandidates included the chargeablegain as part of their taxable incomecomputation. Another common errorwas to restrict the loss relief claims

so as to preserve personal allowances,which of course is not possible. Part(b) was not so well answered since fewcandidates appreciated that carryingthe loss forward would preserve theannual exempt amount as well as savingincome tax at the rate of 20% and Class4 NIC at the rate of 8%, rather than at18% if relief was claimed against thechargeable gain.

PAPER F7

FINANCIAL REPORTING

I am delighted to say that the overallperformance of candidates on this diet wasmuch improved from the disappointingresults of recent diets.

Most commentators believed this tobe a fair paper for which a well-preparedcandidate could readily attain a passmark within the time constraints ofthe exam.

As with past papers, thebest-answered questions were theconsolidation in Question 1 andfinancial statements preparation inQuestion 2. An important differencein this diet was that there were many

good answers to the performanceappraisal in Question 3. Even thenormally low-scoring Questions 4 and 5that related to the wider syllabus areasprovided many reasonable attempts.

Despite the above, there are still asignificant number of candidates whodid not answer Question 4 or 5 andsometimes both, but not on as large ascale as previously reported.

I am pleased to report that as areflection of the above, there were manystrong marks in the 70s and even higherfrom some truly impressive candidates.

There were some exam techniqueissues that caused problems forsome candidates. Answers with no orunreferenced workings to support themwere common. Markers cannot allocateany marks to an incorrect figure unlessthey can see how the figure has beenarrived at.

Poor handwriting was a particularproblem on the interpretation sectionof Question 3 with markers reporting

difficulty reading (and thereforeawarding marks to) several scripts.There was also evidence of candidatesnot answering the question that wasasked, which I refer to in the individualquestion commentary below.

The composition and topics of thequestions was such that on this dietthere was very little difference betweenthe International paper (the primarypaper) and all other variant papers,so these comments generally apply toall streams.

SPECIFIC COMMENTSQUESTION 1This required the preparationof consolidated statements ofcomprehensive income and financialposition. It included a fair valueadjustment for a downward valuationof the subsidiarys propertyand the related reduction in thepost-acquisition depreciation. Furtheradjustments required the eliminationof current account balances andintra-group trading, includingunrealised profit (URP), and anincrease in the value of available-for-

sale investments.The majority of candidates clearly

have a good working knowledge ofconsolidation techniques which showedthrough in good marks for this question.As usual it was the more complexaspects where errors occurred:

CONSOLIDATED STATEMENT OFCOMPREHENSIVE INCOMEIntra-group sales should only beeliminated for the post-acquisitionperiod (four months), many deducted$12m (being for 12 months) or $2m

THERE WERE SOME PAPER F7 EXAM TECHNIQUE ISSUESTHAT CAUSED PROBLEMS FOR SOME CANDIDATES.ANSWERS WITH NO OR UNREFERENCED WORKINGS TOSUPPORT THEM WERE COMMON. MARKERS CANNOTALLOCATE MARKS TO AN INCORRECT FIGURE UNLESSTHEY CAN SEE HOW THE FIGURE HAS BEEN ARRIVED AT.

22 EXAMS

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(being the amount remaining inclosing inventory).

Several candidates calculated the URPas $500,000 ($2m25%), but the 25%was a stated as a mark-up on cost whichgave $400,000 ($2m25/125).

The fair value reduction in thedepreciation charge was often addedrather than deducted from cost of sales.

One or both other comprehensiveincome gains were often shown in the

income statement rather than underother comprehensive incomeMost candidates understood

the principle of calculating thenon-controlling interest (NCI); however,the adjustments to the subsidiaryspost-acquisition profit for the URP and/or reduced depreciation were frequentlyomitted from the calculation.

CONSOLIDATED STATEMENT OFFINANCIAL POSITIONAs with the income statement mostcandidates scored well, however theproblem areas were:

Treating the fair value reduction of theproperty as an increaseSome candidates used the subsidiarysshare value (of $3.50) to value theconsideration paid by the parent(Premier) ($5 should have beenused) and several did not include theconsideration (fair value) of the NCI,effectively only calculating the parentsshare of the goodwill (note this does notapply to UK-based answers).

A surprising number did not correctlycalculate the subsidiarys net assets

at the date of acquisition due to eitheran incorrect pre- and post-acquisitionapportionment of the profit for the yearand/or including the post-acquisitiondepreciation adjustment (andsometimes the URP in inventory) aspre acquisition.

The majority of candidates didnot eliminate the loan notes given aspart of the purchase considerationfrom the carrying amount of theavailable-for-sale investments.

Many did not attempt to recordthe increase in the parents share

capital and premium as a result of theshare exchange.A considerable number of candidates

added the increase in the value of theparents property to the land revaluationreserve, not realising it had already beenincluded (note this does not apply to theUK paper).

As already stated, despite theseerrors, there were many good scoreson this question. However, it should be

said that there were a small minority ofcandidates that appeared to have donevery little study or preparation and madefundamental errors. These includedusing proportional consolidation and/or not time apportioning the relevantincome statement items, whilst somecandidates even time apportioned thestatement of financial position balances,revealing a complete misunderstandingof the subject.

QUESTION 2This question was a traditionalpreparation of financial statementsfrom a trial balance combined withseveral adjustments including: a rightsissue of shares and the accompanyingdividend calculation, the issue ofloan note in a prior year, revaluationof land and buildings, accounting foran environmental provision as part ofthe cost of a non-current asset andaccounting for taxation.

As with Question 1, this wasattempted by nearly all candidates andwas well answered by most with manyhigh scores. Most of the problemswere with the adjustments and evenwhere candidates did not get them fullycorrect, they often picked up someof the marks. The frequent problemsareas were:

Statement of comprehensive incomeMany candidates got the dividendcalculations wrong mainly becausethe first dividend was paid before therights issue and therefore based themon a different number of shares to

those in issue at the year end. Weakercandidates added the dividends to theadministrative expenses which shows aserious lack of understanding and somecandidates deducted the dividends inthe income statement rather than intheir answer to Part (b).

A high number of candidates did notcapitalise the future decontamination(environmental) costs related to theacquisition of some new plant, this hada knock on effect with depreciation, thecreation of the related provision and theunwinding of the first years discount

(see below).Some candidates treated therevaluation of the land and buildingas being at the beginning of the yearrather than at the end of the year andsome did not account for depreciationbefore calculating the revaluation gain(effectively combining the two). This isan issue I have reported on repeatedly.

Very few candidates got the financecosts totally correct, many did not use

the effective interest rate (they insteadused the nominal rate) on the loan note,and even fewer included the unwindingof the environmental provision as afinance cost and some even omitted thebank interest.

Most scored well on the tax, butthere was the usual error with deferredtax of charging the closing provisionto the income statement rather thanthe movement in the provision, a

number also got the sign of the variouscomponents wrong (ie adding ratherthan deducting or vice versa).

Many candidates misclassified oneor both items of other comprehensiveincome by including them in theincome statement.

Statement of changes in equityThis was generally very well done. Ishould mention that although many ofthe figures (profit for year dividendspaid, share issue, etc) were incorrectas a result of earlier errors they werenot penalised in this statement andmarked as correct under the principlesof method marking. The most commonproblem was treating the share issueas being in addition to the $50m shownin the trial balance, in fact this figurealready included the new issue andcandidates should have worked backto calculate the opening share capital.There were also many errors in theactual calculation of the share capitaland share premium.

Statement of nancial positionThis was again generally well done

with most errors being due to theknock on effect of errors made in thestatement of comprehensive incomewhich, as noted above, were notgenerally penalised. Th

acca april 2011

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