01 technical

key advice on
pass polish relevant to acca qualification paper F6 (POL)

This article is based on the examiner’s The f6 (pol) paper is designed to test
experience of setting and then
reviewing candidates’ attempts to knowledge of a broad range of taxation
pass Paper F6 (POL) over the past few matters. Focusing, as many students do,
years. It is aimed to help focus
the efforts of new and previously on corporate income tax is insufficient. The
unsuccessful candidates. skill required at this level demands that
What is worrying is that the overall
standard of scripts has somewhat knowledge is not superficial and confined
deteriorated, and it is clear that to computational matters, but candidates
knowledge of many important areas
of the syllabus is shallow or missing. are expected to explain matters intelligently.
There is also evidence of poor study
approach and weak exam technique.
The breadth of the syllabus does Key topics
Aims of the paper require a lot of study, since there are no ¤ The basic income tax computations.
The paper is designed to test optional questions, and all areas of the Most students are familiar with
knowledge of a broad range of taxation syllabus are covered in exams, although the many disallowables and other
matters. Focusing, as many students of course the examiner will set the adjustments required. However, the
do, on corporate income tax (CIT) minor topics only occasionally. In fact, structure of the computations is not
is insufficient.The skill required at the relative infrequency of some items well understood.
this level demands that knowledge seems to have caused candidates to Crucial is the magic formula that
is not superficial and confined to ignore them altogether. There is no hard taxable revenue minus allowable
computational matters, but candidates and fast rule as to when a particular costs gives income, which is not
are expected to explain and discuss topic will occur, but failing to examine always the tax base, but must always
matters intelligently, for example one item for two or three diets may be computed, since other matters
choosing an appropriate tax method indicate that it is due this time, or it depend on it.
where there are options, or explaining may not. A badly answered topic may The application of and rules for
VAT to a layman. reoccur surprisingly soon. Not studying reliefs, including loss relief, against
an area is not an option for the serious the income to arrive at tax base.
candidate. I provide below the areas Poland had in recent years reduced
of study that need to be fully grasped, these significantly, but the half dozen
some of which will come up in each or so that remain in each of the
paper, some only occasionally. I also income taxes are examined in depth.
mention points frequently done poorly ¤ The fixed asset classification and
by candidates in those areas. depreciation rules, including the
choices available. The latter is not
always done well.
 student accountant issue 16/2010
02
Studying Paper F6?
Performance objectives 19 and 20 are relevant to this exam

how to
taxation
¤ The separate sources in personal ¤ The taxation of foreign source Set out computations of income tax
income tax (PIT). It is extremely income, for both CIT and PIT, and and VAT accounts in two columns, to
important to understand and the two methods for mitigating the make life easier for yourself and the
distinguish between the six types of effects of double taxation. These have marker. If the marker can clearly see
earnings that are cumulated, and generally been poorly understood. what you are trying to set out, it is
the principles of cumulation. Each ¤ The value added tax (VAT) basic much easier to award the mark.
source has somewhat different rules allowed and disallowed inputs Do not blur simple computations
for costs, which need to be known. and outputs, and rules for partial with paragraphs of explanation. There
¤ Non-cumulated PIT sources are not exemption and carry forward/ is no time and no marks for lengthy
particularly significant, but property repayment of any excess input tax. wording. Please see the model answers
disposal is. Rules for property sales, ¤ Administrative matters, such as transfer provided for all prior exams.
and the relief available, were recently pricing rules, due dates for returns However, do show necessary, complex
examined and it would appear that and payments, including arrears. These workings separately and clearly
these were not well understood. do not each offer many marks, but annotate them.
¤ The incidence of health and social overall a fair part of the paper requires Allocate time approximately
security charges against the three knowledge of them, spread across in proportion to the marks available.
major ‘earnings from work’ sources, several of the above areas. The marking scheme is deeply
that is employment, registered analysed and fair. If you are spending
business activities, and contracts. Rules Exam technique excess time on a topic, you are doing
vary significantly between sources. The following points may be of value. something wrong; for example in
¤ Rules for married couples and Practise questions! Knowledge is all recent history recomputing 10 years
single parents. well and good, but the exam tests it of reducing balance depreciation
¤ The peculiarly exotic and specifically in case study scenarios. Each major at 28/14% to prove that an asset was
Polish alternative methods topic has been covered, some several fully depreciated for half a mark.
available for taxing PIT business times, so a comprehensive grasp of the
earnings. Although the tax card, flat necessary knowledge will be achieved. Jan Czerniawski is examiner for
rate on revenue, and flat 19% on Think about what is required before Paper F6 (POL)
income seem odd, they are used by putting pen to paper, in order not
up to one million businesswomen to produce repetitive and confusing,
and men, and need to be fully chaotic answers. Requirements are
understood, including the reliefs, if carefully drafted to ensure that the task
any, that are available. is clear and logical.
¤ Tax deduction on account by
remitters from each source, including
the alternate method. The rules The marking scheme is deeply analysed and
are messy, but differences arise
depending on the particular source, fair. If you are spending excess time on
and are not always known. a topic, you are doing something wrong.
01 technical

how to: business

case
relevant to acca qualification paper P3

For many ACCA students there is no phrase which causes ¤ ‘As expected, most candidates chose to use Porter’s
greater fear than ‘Using an appropriate model or models of five competitive forces as a framework for answering
your choice…’. Immediately a number of problems arise: this question. … there are very clear barriers to entry
¤ Which might be appropriate? signposted in the scenario and the data summarised in
¤ How many? Table 2 provided information about industry competitors.
¤ Choice – I might not choose correctly – I’d much rather be Some candidates chose to use PESTEL and SWOT…
told what to use. candidates who used these two models could gain marks
¤ If I choose incorrectly I’ve ruined my chances. as they do identify relevant issues in the scenario….
Unfortunately many candidates penalised themselves
This article will look at some of these problems and will by actually describing and using all three models (five
use as a subject to work on Question 1 from the June 2008 forces, PESTEL and SWOT), leading to long answers with
Paper P3 exam, AutoFone. This is reproduced here, with significant repetition. There is little to be gained by using
annotations. This is a typical Paper P3 Part (a) question with different models to make the same points.’
about three pages of information, including financial data,
then three requirements. A word about models
Models (or frameworks) are ubiquitous in Paper P3, but
What the examiner said it is important to realise that models are not designed
After each exam session, the examiner issues a report, to guarantee anyone a correct answer. How could they?
available on the ACCA website. It’s worth reproducing Organisations, their strategic positions, the requirements
extracts here of what the examiner said about candidates’ of their stakeholders and so on come in all shapes and
performance in this question: sizes, and no model could cope perfectly with every
¤ ‘… the use of case study scenarios. Many candidates had situation thrown at it. At best, perhaps, models are better
a problem applying the theoretical knowledge they had than starting with a blank sheet of paper; they give you a
learned to the context of the scenario. At this level, there structure for the information and a methodology that might
are relatively few marks available for describing a model help you to progress your analysis towards a conclusion,
such as Porter’s five competitive forces. The vast majority such as giving advice. Sometimes the word ‘model’ is
of the marks are for recognising the presence and effect of rather flattering. PESTEL, for example, is little more than a
these forces in the context of the case study scenario.’ checklist of potential environmental influences. This is why
¤ ‘It is important that the 15 minutes of reading time at the the examiner complains about candidates describing models;
start of the exam is used effectively. One of the ways of at this level in your exams they are means to an end, not an
making it more effective is to read the questions (ie the end in themselves.
requirements of the case study) before reading the case
study! This allows the candidate to put the case study into
the context of the questions.’
¤ ‘…there is no irrelevant information in the case study
scenarios. Candidates must concentrate on linking the
scenario information to questions and (where applicable)
to appropriate models.’
 student accountant issue 16/2010
02
Studying Paper P3?
Performance objectives 7, 8 and 9 are relevant to this exam

analysis
study approach
A second point is that although you might not be provided Clues about the main models might be useful
with input for all parts of the model, a model can still be
used. For example, there might be information about your The question mentions, or Model that might
competitors and suppliers, so Porter’s five competitive the scenario has information yield progress:
forces might be of some use even if you know nothing about about, or we want to find
the other three forces. Similarly, you might be given some out about:
information about pending legal and technological changes The environment PESTEL
and PESTEL can be used as a checklist to see that no other Competitive position Porter’s five forces
environmental factor has also been mentioned. Portfolio of products Boston consulting group
Of course, you do have to know the models, and matrix; product
occasionally you might be specifically asked to use one. life cycle analysis
At other times a specific model might be heavily hinted at Portfolio of companies Goold and Campbell; Ashridge
(see below) because the examiner feels it would be useful Outsourcing Harmon’s process strategy
in the context of the information provided. But do not get matrix
too obsessed with them. I often see discussions about Stakeholders Medelow’s matrix
whether there are 7, 8 or 9Ms to list resources, or whether Change management Balogun and Hope Hailey;
tax is a political, economic or a legal influence. It doesn’t Lewin
really matter: you have identified that considering resources Competitiveness of nations Porter’s diamond
might be important and also that tax can be an important How we make profits Value chain; generic strategies
environmental influence.
You do not need to know any models that are not And then there is SWOT. SWOT will always work insofar as it
mentioned in the ACCA Paper P3 Study Guide. is possible to allocate all effects and pieces of information
to strengths, weaknesses, opportunities or threats. But it
is barely sophisticated enough to be called a ‘model’; it’s
more of a sorted list, and other models might enable more
Models (or frameworks) are progress to be made. For example, using SWOT you could
label an ambitious firm thinking of entering your market as
ubiquitous in Paper P3, but it is a threat, but a Porter’s five forces analysis specifically opens
important to realise that models up the possibility of considering barriers to entry. This allows
you to make a judgment about the strength of the threat
are not designed to guarantee and also what you might be able to do about it. Rearranging
anyone a correct answer. How SWOT as a TOWS matrix is of more help: use strengths to
capitalise on opportunities, but avoid relying on weaknesses;
could they? Organisations come if there is a threat try to find a way in which your strengths
in all shapes and sizes, and no can be used to defend you.
model could cope perfectly with
every situation thrown at it.
03 technical

Note what the examiner said about making the same point Step 3. Look at the financial or quantitative data. This has
repeatedly using different models: there’s no point in doing always been provided in the case study, but it seems that
that. Nor is there any point in trying use too many models candidates adandon their particular quantitative and financial
in an attempt to show off your knowledge. Better to use two skills too easily and rush off to use strategic planning models.
models well to let you move towards a conclusion than endless Odd, given that this is an exam for accountants. Would you not
analysis but no conclusion. You will notice that the last row normally expect quantitative data to shout information at you?
of the table contains ‘generic strategies’ as a model. These are Look at trends, calculate a few ratios (GP%, liquidity, market
often not thought of as a way of collecting information and share, cost per unit) and see what might be there. Financial
are not usually considered until strategic choices are to be information and strategic planning are inseparable.
made. However, consideration of the generic strategies can be
immensely helpful when trying to understand a business: Step 4. Plan you answer. Make sure you address the
¤ If the business is successful it must be following a generic requirements, particularly two part requirements such
strategy: cost leadership or differentiation, each with or ‘identify and appraise’ or ‘describe and recommend’. Pay
without focus. attention to the marks available as this will indicate how
¤ If the business is not successful, it is not successfully much time to spend on that part of the question.
following a generic strategy and should be advised to try to
do so. Part (a)
Step 1: The requirements, part (a):
The question: AutoPhones (a) Using an appropriate model or models, analyse
The suggested four-step approach is: the competitive environment of AutoFone’s retail
shops division.
Step 1. Read the requirements. This will alert you to what the Note: requirement (a) includes 2 professional marks.
question is about: a takeover, opening up abroad, powerful (20 marks)
foreign competition, maturing market, or whatever.
So, you are to analyse the competitive environment. Probably
Step 2. Use your 15 minutes of reading time to read the the best tool is Porter’s five forces, but there is no reason
question in as relaxed a manner as you can. Annotate, why PESTEL could not also be used where appropriate, or
underline, highlight as you go – but try not to underline or even SWOT. Therefore, you should be ready to read through
highlight every word. Perhaps you could mark P, E, S, T, E, the scenario, annotating it as you go (eg: C = competitors,
L or ‘Cost leadership’ against sentences as you go through. B = buyers, Sup = suppliers, N = New entrants, Sub =
Reread several times if you need to and keep the requirements substitutes. Similarly for PESTEL).
in mind. Some people fear the case study because it contains
a lot of information, but these details provide you with your Step 2: Read the question in the light of the requirements.
ammunition. As the examiner says, there is no irrelevant Annotate the question paper. The question reproduced here
information, so always think what the information might allow has been annotated with comments relating to AutoFone’s
you to surmise. Be open-minded at this stage and annotate competitive environment.
with appropriate terms where you see fit. Try to use the
strategic planning vocabulary and terminology as this will
give ‘hooks’ to theories that might be useful. For example,
the scenario uses the phrase ‘our central business idea’.
Essentially that is the company’s ‘Mission’. Remember, treat
information and detail as friends: the hardest questions are
often the short ones, such as ‘What is life?’ As mentioned
above, a scenario gives you lots of ammunition with which to
attack the requirements.
 student accountant issue 16/2010
04

Step 3: Table 1 on page 8 shows how relatively unimportant Step 2: By now you will be familiar with the question, but will
both AFDirect and AFInsure are to the business so far. The need to skim again in the light of the requirements. Look for
analysis by age of customer shows that younger people are reasons to keep the retail shops and ways of refuting the two
relatively keen on buying over the internet. As internet-savvy directors’ paper.
people age, this branch of the business is likely to become
more important at the expense of the retail shop division. Step 3: Financial data.
Table 2 on page 8 shows how the mobile phone industry The retail shops contribute 85% of the company’s total
has changed from a growth rate of 5% 03/04 to only 0.7% turnover and 88% of mobile phone sales.
06/07. The only way for a firm to get bigger is to gain market
share so rivalry will become more intense. AutoFone has Retail shops are still profitable
managed to increase its market share from 2003 to 2007 ROCE 2007 = 5% (11/205); 2003 = 18%
and itself enjoyed growth of 2% 06/07. GP% 2007 = 26%; 2003 = 33%
Also, Table 2 shows five competitors of roughly equal NP% 2007 = 3%; 2003 = 12%
size (oligopoly). Price reductions by one have to be followed
by others to maintain their market shares – a potentially Step 4: Answer plan
unstable setup ¤ A change in approach to pushing more profitable phones
would increase profits (though perhaps at the expense of
Step 4: Answer plan the company’s reputation).
¤ potential entrants: low threat: providers already in market; ¤ Shops are on long leases so there could be substantial
other entrants would be given poor deal exit costs.
¤ suppliers: hardly any bargaining power (30-year contracts) ¤ Retail shops are still profitable.
¤ rivalry: providers; equal sizes; technology allows rivalry ¤ Retail shops are by far the largest part of the business.
over internet ¤ The brand is based on the reputation of the shops and
¤ buyers: little customer loyalty despite claim that AutoFone this may be linked to the success of the internet and
is impartial insurance businesses.
¤ substitutes: none known for the phone function
¤ market conditions: low growth = high competition; Part (c)
technology = internet competition. Step 1: The requirements, Part (c):
(c) The AutoFone retail shops division faces problems
Part (b) in remaining faithful to the original business idea of
Step 1: The requirements, Part (b): offering impartial advice to customers and developing an
(b) AutoFone’s CEO is anxious to develop a rational and well appropriate rewards system for its staff.
argued case for retaining the retail shops division. Evaluate what changes the AutoFone retail sales division
Write a briefing paper for the CEO to submit to the should consider making to both its business idea and
strategy planning committee explaining why the retail its rewards system.
shops division should continue to form a key part of (15 marks)
AutoFone’s future strategy.
Note: requirement (b) includes 3 professional marks. Evaluate implies that you must make a judgment on changes
(15 marks) that might be necessary to its business idea and reward system.

Briefing paper = memorandum to all intents and purposes. Step 2: By now you will be familiar with the question.
You are not asked to say if the retail shops division should Relevant material is in the fifth paragraph and three
remain important, you are asked to justify why it should. paragraphs between Tables 2 and 3.
05 technical

Step 3: Financial data. Previously, customers could only choose products and
Doesn’t seem very relevant here services from within one network provider’s range. AutoFone
allowed customers to choose products and services across
Step 4: Answer plan the range of the four providers and reflected this in the
¤ Business idea – might no longer be viable (note success company’s motto ‘ethical advice: the customer’s choice’.
of City branch). There will now be many review sites and
forums on the internet dedicated to comparing phones and N: not so profitable any more – barrier to entry
greater customer knowledge.
¤ Mature business usually means more competition and the Sup: low supplier pressure
old ways of achieving profits might not apply any more.
¤ There has to be recognition in reward scheme of In 1990, AutoFone signed a 30-year supply contract with
repair work done to phones bought from AFDirect, each provider. Although, in retrospect, these deals were on
otherwise resentment. commercially favourable terms for AutoFone, the network
¤ An attempt at management by objective which does not providers were happy to agree these deals because none of
really work. them believed that mobile telephones could be successfully
¤ Conflict/inconsistency: rewards closely based on profit. sold through retail shops. However, speaking in 2003, the
Managers supposed to be entrepreneurial but the City managing director of one of the networks suggested ‘that
branch manager was reprimanded. If ‘our central business AutoFone had got away with incredible profit margins’ when
idea’ is offering independent and impartial advice, they signed the deals in 1990. The four network providers
remuneration should be linked to that, not profits. themselves had re-signed 25-year licence deals with the
¤ Mission statement (or equivalent) might need to be looked government in 1995. Under the terms of these deals,
at and updated. Emphasis now, perhaps, needs to be licences will be restricted to the four current providers until
wider eg not just ‘independent advice’, but ‘advice, service, their renewal date of 2020.
insurance’. A one-stop shop.
N: no new entrants to networks
Introduction
The question is reprinted here from June 2008: Autofone. The N: large scale = barrier to entry
ACCA model answer is available from the ACCA website at
www.accaglobal.com/students/acca/exams/p3/past_papers Sup: low supplier pressure but locked in
Retail shops division
AutoFone was established almost 20 years ago at the AutoFone currently has 415 shops around the country. To
beginning of the mobile telephone boom. It was formed by reduce costs most shops are on the edge of (but not in) the
a dynamic chief executive officer (CEO) who still remains a main shopping area of the town they serve. It is usual for
major shareholder of the company. AutoFone to sign a 50-year shop lease in return for low initial
AutoFone brought two new concepts to the market. First, annual rental and a rent-free period at the start of the lease
it established retail shops where customers could go and while the company fits out the shop to reflect AutoFone’s
handle the products and discuss mobile phone options with corporate image. In 1997, AutoFone floated on the country’s
trained sales people. Before AutoFone, all mobile telephones stock market to assist the funding of further shops and so
were sold through the customer directly contacting the continue its organic growth. The national coverage of its
telephone network provider (like conventional home land shops, the publicity generated by its CEO and a successful
line services) and were generally aimed at business rather television advertising campaign culminated, in 2005, with
than leisure users. Second, AutoFone sold products and it being rated by consumers as one of the top 20 brands in
services from all the four major network providers licensed the country.
by the government to provide telecommunications services
in the country. B: Good brand = lower buyer pressure
 student accountant issue 16/2010
06

C: increased competition

Management by objective? (i) The licensed network providers have opened their
own retail stores, usually in city centres. AutoFone has
reacted to the opening of these shops by stressing
The CEO of AutoFone established the retail shops along, AutoFone’s independence and impartiality. Only at
in his words, ‘entrepreneurial lines’. He regards each shop AutoFone can impartial advice be received on all four
as an independent business, having to achieve a profit competing networks and their supporting services. The
target but without being closely monitored within these CEO now refers to this as ‘our central business idea’
targets. He believes that the company is ‘about providing and, as well as being core to their strategy, it is heavily
opportunity to its employees, providing them with autonomy emphasised in all their promotional material.
and responsibility to achieve their goals. It is not about
monitoring them every hour of the day, stifling creativity Mission? Differentiation
and enthusiasm’. To support this approach, sales staff are
given a relatively low basic salary with a substantial element (ii) Mobile phones have become more sophisticated. Many
of profit-related pay linked to the profit targets of the shop. now offer integrated cameras, mp3 players, web browsers
Commission is also paid to sales staff who successfully and email facilities. AutoFone offers these products in
sell mobile phone insurance to the customer. Each shop is both its shops and through its internet operation. Mobile
relatively small, usually employing three or four people. phones are either purchased outright or provided on
In recent years the CEO has been increasingly involved in monthly contracts. The minimum contract period with the
television, sports promotion and charity work. At AutoFone network provider is usually 12 months.
he has established a strategic planning committee of
senior headquarters managers to develop and implement AutoFone has itself established its own internet division,
the company’s business strategy. This committee includes AFDirect, as a separate division within the group. It has
the two longest serving board directors. The strategy still also established an insurance division (AFInsure) offering
continues to have at its heart the central business idea of insurance to cover loss or damage to mobile phones
giving independent and impartial advice to customers so purchased from the company. Revenue earned from each
that they can choose the best equipment and network for division, analysed by the age of the customer, is shown in
their needs. Table 1 on page 8.
Analysts agree that growth in the mobile phone business
Marketplace trends is slowing down and this is supported by the figures
Since AutoFone’s arrival into the market, two significant given in Table 2 on page 8 showing revenue from sales
trends have emerged: (both retail and Internet) for AutoFone and its competitors,
the four licensed network providers, for the period
2003–2007.

The CEO of AutoFone established the retail shops along, in his words,
‘entrepreneurial lines’. He regards each shop as an independent
business, having to achieve a profit target but without being closely
monitored within these targets. He believes that the company is
‘about providing opportunity to its employees, providing them with
autonomy and responsibility to achieve their goals.
07 technical

C: increased competition/technology
B: little buyer loyalty

However, while the AFDirect and AFInsure divisions are Future strategy
prospering, there are increasing problems in the retail shops The two longest serving directors on the strategic planning
division. Profitability has been declining over the past few committee are increasingly concerned about the company’s
years (see Table 3) and this has had a demoralising effect decline in profitability (see Table 3). They have written an
on shop employees. One shop manager commented, in his internal paper suggesting that the retail division should
exit interview, that the profit targets were unattainable in the be sold off and that AutoFone should re-position itself as
current market. ‘They might have been appropriate in 1997, an online retailer of phones. They believe that the retail
but they are not in 2007.’ Staff are particularly demoralised shops business model is no longer appropriate. They argue
by spending time explaining a particular product to a that a company concentrating solely on Internet sales and
customer who then leaves the shop and buys the product insurance would be a ‘smaller but more profitable and
cheaper on the internet. They have to wait for it to be focused’ business. The CEO is strongly opposed to
delivered (usually two or three days) but they are prepared to this suggestion because it was the shop-based approach
do this to gain the lower prices offered by the direct internet- to selling mobile phones that formed the original business
based companies, including AFDirect. It is also increasingly model of the company. He has a strong emotional
common for customers who have bought from AFDirect to attachment to the retail business. The two directors claim
take their phones to AutoFone’s retail shops for support and that this attachment is clouding his judgment and hence
service. This activity is not recognised in the shop employee’s he is unable to see the logic of an ‘economically justifiable
reward package. exit from the retail business’.
See Table 3 on page 9.
AutoFone’s central city branch
Despite the overall decline in the profitability of the Required:
shops, one branch has continually met or exceeded its (a) Using an appropriate model or models, analyse
profitability targets and is held up by the CEO as an example the competitive environment of AutoFone’s retail
of best practice – proof that the company’s approach to shops division.
mobile phone selling can still be profitably applied. This Note: requirement (a) includes 2 professional marks.
is the central city branch in one of the country’s most (20 marks)
prosperous cities. (b) AutoFone’s CEO is anxious to develop a rational and well
The CEO arranged for three members of the strategic argued case for retaining the retail shops division.
planning committee to visit the shop, posing as customers, Write a briefing paper for the CEO to submit to the
to investigate the reasons for the shop’s success. They found strategy planning committee explaining why the retail
the staff very friendly and helpful. However, they also found shops division should continue to form a key part of
that they were guided towards products and services which AutoFone’s future strategy.
had higher profit margins. Further investigation showed this Note: requirement (b) includes 3 professional marks.
always to be the case and so customers were sold products (15 marks)
which were profitable to the shop, rather than those best (c) The AutoFone retail shops division faces problems
suited to the customer’s needs. On receiving this information, in remaining faithful to the original business idea of
AutoFone’s board concluded that this was unethical as it offering impartial advice to customers and developing an
compromised their central business idea which stressed appropriate rewards system for its staff.
impartial advice to guide the ‘customer’s choice’. The Evaluate what changes the AutoFone retail sales division
manager of the shop was reprimanded and asked to adhere should consider making to both its business idea and its
to company policy. He resigned soon afterwards, followed by rewards system.
his two assistants. The shop is currently run by temporary (15 marks)
staff and profitability has significantly dropped. (50 marks)

Entrepreneurship punished Ken Garrett is a freelance author and lecturer

 student accountant issue 16/2010
08

Table 1: Analysis of AutoFone Sales: 2007 (all figures in $m)

Age of customer
Under 15 15–25 26–40 41–60 Over 60 Total
Division AutoFone retail shops 5 90 60 120 65 340
AFDirect 0 15 20 8 2 45
Total sales of mobile phones 385

AFInsure 0 1 3 7 3 14
Group total 399

Table 2: Market Analysis (all figures in $m) of sales of mobile phones

Company 2007 2006 2005 2004 2003

AutoFone 385 377 367 340 320
NetAG 350 348 345 340 305
09Net 390 388 380 365 350
PhoneLine 315 315 315 305 300
NetConnex 295 295 294 290 285
Total 1,735 1,723 1,701 1,640 1,560

while the AFDirect and AFInsure divisions are prospering, there are
increasing problems in the retail shops division. Profitability has
been declining over the Past few years and this has had a demoralising
effect on shop employees. One shop manager commented, in his exit
interview, that the profit targets were unattainable in the current
market. ‘They might have been appropriate in 1997, but they are not in 2007.’
09 technical

Table 3: extracted financial information for Autofone (retail shops division only)

Extracted financial information (all figures in $m)

Extracted from the Balance Sheet
2007 2006 2005 2004 2003
Total non-current assets 143 140 134 128 123
Current assets:
Inventories 345 340 335 320 298
Trade receivables 1,386 1,258 1,216 1,174 1,120
Cash and cash equivalents 345 375 390 400 414
Total current assets 2,076 1,973 1,941 1,894 1,832
Total assets 2,219 2,113 2,075 2,022 1,955

Total shareholder’s equity 150 155 160 165 169

Non-current liabilities:
Interest bearing long-term loans 55 50 45 40 35
Other provisions 16 15 13 13 10
Total non-current liabilities 71 65 58 53 45
Total current liabilities 1,998 1,893 1,857 1,804 1,741

Total equity and liabilities 2,219 2,113 2,075 2,022 1,955

Extracted from the Income Statement

2007 2006 2005 2004 2003

Revenue 340 337 332 320 305
Cost of Sales 250 252 230 220 205
Gross Profit 90 85 102 100 100
Wages and Salaries 39 38 37 35 33
Other expenses 40 38 35 30 30
Interest payable 4 4 3 3 3
Total 83 80 75 68 66
Net Profit before tax 7 5 27 32 34
Tax 2 3 5 4 4
Net Profit after tax 5 2 22 28 30

Extracted from annual reports

Number of employees 1,400 1,375 1,325 1,300 1,275

01 technical

examiner’s
approach to relevant to acca qualification paper P5

Prior to my first exam in December ¤ identify and assess the impact Questions will continue to be set
2010, the purpose of this article of current developments in within a specific scenario surrounding
is to explain my approach as a new management accounting and a business or its sector. Candidates
examiner and what, if any, changes can performance management on will need to absorb the information
be expected from the previous exams. measuring, evaluating and improving provided in the scenario as it will be
This article will be supplemented by organisational performance. vital in order to be able to demonstrate
an example question which will appear the ability to apply theory in practice.
in Student Accountant and on the Performance management systems However, general business knowledge
ACCA website. are the systems in an organisation about a sector and the current issues
The Paper P5 exam is based on the by which the performance of an facing businesses will also provide
syllabus which has not significantly organisation is measured, controlled fertile ground for demonstrating a
changed in the past year. The main and improved. The thrust of the paper candidate’s ability to make the skills
capabilities that a successful candidate will move towards the strategic level and knowledge built up at earlier levels
must possess are to: of considering different performance of study applicable in the real world.
¤ use strategic planning and control measurement techniques and At the Professional level, it is
models to plan and monitor management systems. Paper P5 necessary that candidates take a more
organisational performance builds on knowledge gained at other rounded view of the whole subject
¤ assess and identify relevant levels, for example, Paper P3 and rather than seeing it as a set of
macroeconomic, fiscal and market especially from Paper F5. Paper disconnected topics. For example, the
factors and key external influences on F5 tests the candidate’s ability in candidate will be expected to be able
organisational performance application and analysis of core not only to explain and use a particular
¤ identify and evaluate the design management accounting techniques. method of performance measurement
features of effective performance Paper P5 develops key aspects or management but also, to be able
management information and introduced at the Paper F5 level to evaluate its use compared to other
monitoring systems with a greater focus on the synthesis systems or metrics. This will mean that
¤ apply appropriate and evaluation of the key topics and single questions will often range over
strategic performance techniques. It will also introduce more different topics in the Study Guide.
measurement techniques specialised techniques and current As the business environment has been
in evaluating and improving issues in performance management. profoundly affected by the increased
organisational performance Therefore, candidates should not use of technology, there is less need at
¤ advise clients and senior expect to be retested in a Paper F5 a strategic level to manually perform
management on strategic business style on topics but need to be aware calculations. This is already tested heavily
performance evaluation and that all of Paper F5 knowledge is in earlier papers; therefore, there will be a
on recognising vulnerability to assumed to be known and will now be reduction in the volume of computational
corporate failure used in a more critical capacity. work required for this paper.
 student accountant issue 16/2010
02
Studying Paper P5?
Performance objectives 12, 13 and 14 are relevant to this exam

paper p5
Occasionally, longer computations may Finally, the implications of the The second capability addresses
appear but these will be used as a way of information should be considered from factors external to the business
allowing the student to absorb the data the business managers’ perspective and signifies an additional area of
in a question and become comfortable not just the finance professionals’. concern for candidates from the lower
with the scenario. Large repetitious Therefore, commenting on trends levels where the focus was more on
calculations will be avoided but it or reasons for trends should be an the internal factors associated with
should be noted that some repetition is opportunity to demonstrate that the traditional management accounting.
inevitable as, for example, a trend can candidate has absorbed the scenario This second point emphasises the need
only be identified with at least two or information and can combine it to consider the information needs of
more realistically three data points. with general business awareness the strategic level of management
However, computational work will not to provide useful advice for the rather than merely the operational and
totally disappear from Paper P5 but business’s managers. tactical levels.
it will feature more in the interpretation The third capability relates to the
and further analysis of data provided Capabilities information that management require
in the question. Candidates will have Now, taking each capability in turn, and the systems that are needed for
to demonstrate the ability to add value the first capability asks for the its delivery.
to their advice by taking information application of strategic planning Candidates will not be required to
already produced and identifying the and control models in performance have detailed technical knowledge of
important features. At the Professional management. These models hardware and software but are expected
level, comments should be helpfully emphasise the need to take a to be conversant with the broad
quantified where possible and the holistic view of the factors affecting hardware and software trends and
commercial implications discussed. the business and to consider them issues and how these interact with the
Candidates should be constantly when giving strategic advice on provision of performance information
on the lookout for ways to make performance. Good candidates at throughout the organisation. It is
their numbers more understandable, Paper P5 often distinguish themselves the effect of these technologies
for example, by comparing it to by being able to synthesise disparate on the performance management
increased activity of the business or to detailed points into an overall, decision-making processes that is
competitor performance. strategic approach for an organisation. most significant.

Performance management systems are the systems in an

organisation by which the performance of an organisation is
measured, controlled and improved. The thrust of
the paper will move towards the strategic level of considering
different performance measurement techniques and
management systems.
03 technical

The fourth capability is the Professional marks will continue Practice brings the experience of
application of the techniques of Paper to be a regular feature of at least handling the time limitations that you
P5 and its assumed knowledge in one of the Section A questions and it will face in reality and the confidence
specific scenarios. The fifth capability should be possible for a well-prepared of having met and defeated problems
takes this information and seeks to turn student to score most of these easily. outside the exam hall.
it into commercially valuable advice Efficient preparation will involve the
for strategic decision makers. This identification of appropriate formats Conclusion
capability also requires the candidate and structures to use in answering The key advice in order to pass
to be able to recognise and advise on questions and practising writing Paper P5 remains that the
situations where the organisation is in answers in order to improve clarity. candidate should:
danger of failing. The effective use of appropriate ¤ understand the objectives of the
The final capability reflects the introductions, conclusions and helpfully exam as explained in the Syllabus
requirement that at the final level of breaking the document into properly and prepare the detailed topics in the
ACCA’s examinations, the candidate is headed subsections will help to Study Guide
expected to show the ability to gather demonstrate a professional approach. ¤ be very comfortable with the areas
new knowledge from the general However, it should be stressed that the tested in Paper F5 and Paper P3
technical press and so the articles in approach taken will vary from question ¤ ensure that preparation for the exam
Student Accountant will be sources to question and the exam tests the has been based on a programme of
of topics for exam. These articles will candidates’ ability to apply their study set for the required syllabus
also be the principal route by which knowledge of professional presentation. and exam structure
the students will have new techniques In order to score full professional ¤ use an ACCA-approved textbook
and trends communicated outside of marks, the answer will have to be for Paper P5. They are structured
the slower cycle of revisions to the tailored to the specifics of the scenario around the syllabus and the
syllabus. Candidates should note that in the question recognising the needs examiner reviews them so that they
unlike in the compliance topics such of the readers of the document. give an effective coverage of what
as financial reporting and tax, changes Finally, there are some regularly is examinable
are not regularly made to the syllabus repeated but still valuable presentation ¤ practise questions under exam
areas so that older articles may well be points. First, on rounding, at this conditions in order to improve speed
as relevant to the upcoming exam as final level the candidate should use and presentation skills, ensuring
the most recent ones. their own judgment on how to round these test discursive, computational
Any additional reading beyond the figures – the basic rule is that there and analytic abilities
ACCA-approved texts and Student should be enough detail to make a ¤ study all the relevant articles that
Accountant articles should be viewed useful conclusion without obscuring appear in Student Accountant
as advisory and not required. But it in insignificant figures. Second, ¤ be able to clearly communicate
the candidate would also be advised short paragraphs are usually clear understanding and application
to broaden their general business but single sentence paragraphs are of knowledge in the context of a
knowledge by the regular reading of often insufficient and unable to get Professional level exam.
good quality business articles. This to the depth required at Paper P5.
will provide additional background and Bullet points are useful for lists but Alex Watt is examiner for Paper P5
examples of the techniques and issues not if commentary is required. Finally,
of performance management. reading model solutions is not a
substitute for actually writing out your
own answers.