APRIL 2013

EXAM ADVICE AND GUIDANCE

INCLUDING EXAMINERS’ FEEDBACK
AND EXAMINABLE DOCUMENTS
RELEVANT TO PAPERS F1 TO F3 AND
FOUNDATION LEVEL STUDENTS

YOUR ACCA JOURNEY

STARTS HERE
ALL YOU NEED TO KNOW FOR THE JUNE 2013 EXAMS

THE ESSENTIAL GUIDE

A_cover.indd 1 25/02/2013 14:14
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Essential guide FEB 2013.indd 2 20/02/2013 11:39

 STUDENT ACCOUNTANT | ESSENTIAL EXAM GUIDE | 04/13

EDITOR’S
CHOICE
Welcome to the latest issue of
Student Accountant Essential Guide

This issue is focused on exam-related

information that you need to support your
studies towards any of the Foundation level
exams and Papers F1, F2 and F3.
We include examiner feedback from
Papers F1, F2, and F3 and the Foundation
level papers. This advice looks at overall
performance and outlines areas where
candidates obtained both high and low marks. As well as examiner feedback, this issue
Reading the examiner feedback together with contains the examinable standards and
the past exam questions and answers from information relevant to the financial reporting,
the latest exam session can help you identify audit and tax papers. Use this information to
where students have gone wrong in the past, guide your exam preparation and take note of
and how to develop your answers to achieve the areas that you could be examined on.
the best marks possible – it is one of the key We include essential information on the key
resources to use in exam preparation. elements of the Foundation level qualifications
and important advice on entering at the
correct level to give you the best chance of
success and exam progression.
Our Exam Toolkit section contains a range of
useful advice to perfect your exam technique
and help you prepare for your next exams.
We’ve included detailed advice on taking
exams with multiple-choice questions and also
how to attempt a computer-based exam.
In Noticeboard, you can view the exam
timetable for June 2013, and access details
on the exam rules and regulations that you
need to be aware of, as well as information
on entering for exams.
We’ve produced this magazine to be
as helpful to you as possible in the lead up to
the June 2013 exams. We have also produced
two other tailored magazines for students
taking Papers F4–F9 and the Professional
level exams. These can be accessed at
www.accaglobal.com/studentaccountant.
I hope that you find this magazine useful
in your exam preparation. Email me at
studentaccountant@accaglobal.com with your
feedback on this issue.

Victoria Morgan
Editor, Student Accountant magazine

A_Welcome.indd 3 25/02/2013 14:32

 WELCOME | CONTENTS

44

D
OW NLOA
D ENT
STUD R APP
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PLAN es.apple.n -
//itu acca
http: us/app/ er/
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com ent-plan t=8
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4 1 0 3340
id5

ESSENTIAL GUIDE
49
06 EXAMINERS’ FEEDBACK 44 EXAM TOOLKIT
08 Paper FA1 44 How to answer
10 Paper FA2 multiple-choice questions
12 Paper MA1 49 Improve your exam
performance
13 Paper MA2
52 Exam day FAQs
16 Paper FAU
54 Exam day preparation
18 Paper FFM
20 Paper FTX 54 EXAMINABLE DOCUMENTS:
23 Paper F1/FAB WHAT YOU NEED TO KNOW
25 Paper F2/FMA 59 ACCA CAREERS
26 Paper F3/FFA 60 FOUNDATIONS IN
29 UPDATES TO THE ACCA PROFESSIONALISM
54
QUALIFICATION IN 2013 61 PERFORMANCE
30 THE FOUNDATION LEVEL: OBJECTIVES
ALL YOU NEED TO KNOW
34 THE FOUNDATION LEVEL:
STARTING AT THE RIGHT
LEVEL
37 APPROVED LEARNING 59
s
er

PARTNERS FAQs @A
CCA C are

40 COMPUTER-BASED EXAMS

STUDY SUPPORT VIDEOS

Access a range of study support videos at
www.accaglobal.com/studentaccountant

STUDENT ACCOUNTANT TECHNICAL

ARTICLE ARCHIVE
All technical content from Student Accountant is
on ACCA’s website at www.accaglobal.com/en/
student/publications/sa-archive.html
61

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A_Contents.indd 4 26/02/2013 17:06

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 FEEDBACK
EXAMINER FEEDBACK
FROM THE december 2012 exam session

Examiners’ feedback provides guidance on past ACCA exam performance

and suggests ways in which students can achieve higher exam results

08 paper fA1 18 Paper fFM

10 Paper fA2 20 paper FTX

To12 PAPER 23 paper

MA1, Study Guides, past papers,
access Syllabus F1/fab
examiner feedback, and
examiner resources, visit the links below:
13 PAPER MA2 25 paper F2/fma

16 Paper fAU 26 paper F3/ffa

technical archive on the acca website

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studentaccountant

EXAMINER GUIDANCE
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Essential guide FEB 2013.indd 5 20/02/2013 11:40

 8 EXAMS

exam feedback
PAPER FA1 of $3,690 and outstanding lodgements C $29,300
Recording financial of $5,120. D $26,730
transactions What should be the balance on Colin’s
Of the 50 multiple-choice questions bank account in the general ledger? Correct answer is A.
on the December 2012 paper, 29 A $25,550 debit
questions were correctly answered B $25,550 credit Payables are a liability and therefore
by more than 50% of candidates. C $22,690 debit will have a credit balance of $16,420
This is consistent with June 2012 but D $22,690 credit brought forward. With the transactions:
still represents a fall of 11% on the the purchase of goods would have a
December 2011 paper. Correct answer is A. double entry of DR Purchases $39,610
As mentioned in previous reports, and CR Payables ledger control account
not all questions are attempted. In When the question asks for ‘what $39,610, the purchase return would
fact, only eight out of the 50 questions should be the balance of the cash have a double entry of DR Payables
were answered by all candidates. This account in the general ledger’ it ledger control account $2,110 and CR
is much worse than for the June 2012 wants the correct amount after the Purchases $2,110, and the payment
paper and is extremely disappointing in reconciliation has been done. This would be DR Payables ledger control
a multiple-choice paper. If a candidate was found by taking the balance of account $24,620 and CR Cash $24,620.
does not know the correct answer a $24,120 which was positive (credit) So the credits were just the brought
guess will give a 25% chance of a with the bank, adding the outstanding forward balance and the purchases.
correct answer – this advice has been lodgements of $870 and deducting the $16,420 + $39,610 = $56,030. The
pointed out in previous comments. unpresented cheques $1,230: majority of candidates chose answer C,
Candidates performed exceptionally $24,120 + $5,120 – $3,690 = which was the balance carried forward
well in the questions regarding the $25,550 on the account, not the total of the
construction of a trial balance and Candidates yet again struggled with credit side. Candidates need to ensure
dealing with a suspense account. Given whether the balance was a debit or they are reading the requirement very
suspense accounts require candidates credit balance, with 31% of candidates carefully and not just assuming they
to apply their knowledge of double entry getting the answer numerically correct know what is being asked.
in detail, this was promising. but going for a credit rather than a
As highlighted in previous debit balance. When it says a credit QUESTION 20
comments, candidates perform very balance at the bank, this means that Question 20 was a control account
well in the questions about the use the bank owes cash to its customers, reconciliation question.
of documentation, but the questions so from the business’ point of view Pauline’s list of payables ledger
regarding the content of documents, a credit balance at the bank means balances totalled $13,120. Pauline later
such as the petty cash voucher, was it has a positive cash balance, which discovered that:
disappointing. would appear as a debit in the ledger of ¤ a debit balance of $100 had been
It was very pleasing to see that some the business. included in the payables ledger list
improvements had been made in dealing The unpresented cheques are as a credit balance
with discounts and sales tax, with cheques written by the business and ¤ the total of the purchase day book
questions in these areas generally done recorded in the cash book but not yet was understated by $1,200.
well. However, the questions dealing with showing on the bank statement, so they
the day books, and posting the entries need to be deducted from the bank The payables ledger balances and the
from the day books into the ledgers yet statement balance. control account reconciled after adjusting
again caused problems, although these Outstanding lodgements are for these errors.
are fundamental parts of the syllabus. receipts paid into the bank that have What is the correct total for the list of
Difficulties were also encountered in not yet cleared, and so are not yet balances on Pauline’s payables ledger?
other practical bookkeeping topics, showing on the bank statement and
such as questions that required ledger need to be added on. A $12,920
accounts to be balanced off. Many candidates incorrectly B $13,020
These issues also spread to deducted outstanding lodgements and C $14,320
dealing with control accounts and, as added on unpresented cheques. D $14,120
usual, questions on control account
reconciliations and bank reconciliations QUESTION 9 The correct answer is A.
produced the worst results. The issues Question 9 dealt with the payables
with these have been highlighted below. ledger control account. $13,120 – $200 = $12,920
Maureen owed her suppliers $16,420 The question wants the total on the
sample questions for discussion at the start of April. During April she list of balances of the payables ledger
QUESTION 7 bought goods costing $39,610, she – this is the total of all of the individual
Question 7 was a bank reconciliation returned goods costing $2,110 and suppliers’ accounts.
question. Just as in both the June 2012 made payments of $24,620. The suppliers are liabilities and
and December 2011 papers, this was What is the total of the credit side therefore the total will be a credit balance.
not well attempted. of Maureen’s payables ledger control If there is debit balance it means, for
Colin’s bank statement showed account for the month of April? some reason, the supplier owes money
a credit balance of $24,120. When to the entity – for example, if an entity
performing his bank reconciliation, A $56,030 has overpaid a supplier, or has paid a
Colin discovered unpresented cheques B $43,150 supplier and then subsequently returned

A_ExamFeedback.indd 8 20/02/2013 15:25

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Essential guide FEB 2013.indd 4 20/02/2013 11:39

 10 EXAMS

the goods. These debit balances should of the statement of financial position is created through a debit entry in the
be deducted from the total, but here they (30 November), the trader had three goodwill account. The double entry is
have been added on – candidates needed separate items that needed to be completed through credit entries in
to deduct the debit balances by double classified – cash takings, an overdraft the capital accounts of the original
the amount. and a petty cash balance. Once this is partners. The value credited to each
The total of the purchase day book clarified, it can be seen that the cash partner’s capital account is calculated
is posted to the payables ledger control takings (£2,468) and the petty cash by dividing the goodwill in the old profit
account only and therefore doesn’t affect balance ($44) are current assets and that and loss sharing ratio. In this case, the
the list of balances the total value is $2,512 ($2,468 + $44). old ratio was an equal share ($21,000)
Paper FA1 covers both knowledge of The bank overdraft is a liability and, to each partner.
the syllabus and the application of that therefore, it is not part of current assets. If goodwill is not to be carried in the
knowledge. The knowledge questions Option A was chosen by candidates books of the new partnership, it follows
were done significantly better than the who did not pay sufficient attention that a credit entry is required in the
application questions. As with previous to the date on which the takings were goodwill account to bring the balance on
papers, the questions that required banked. If the takings had been banked that account to nil. The double entry is
candidates to perform calculations were on 30 November, the overdraft would completed through debit entries in the
not done as well as those that were have become a balance of cash at bank capital accounts of the new partners,
pure narrative, although this differential of $895. When the petty cash balance with the value of each entry being
has narrowed. Candidates still seem of $44 is added, the result is $939. calculated by sharing the goodwill in the
to be spending more time reading However, as the takings were not banked new profit and loss sharing ratio. In this
and digesting the material rather than by 30 November, the overdraft at that question the new profit and loss sharing
practising questions. A well-prepared date remains and the takings were in the ratio meant that the following debit
candidate will make sure they have form of cash. entries were required:
practised all types of question. Option D was chosen by candidates
who made the error discussed in the Luka 2/5 $16,800
PAPER FA2 paragraph above and also omitted the Eden 2/5 $16,800
Maintaining Financial petty cash balance. Greg 1/5 $8,400
Records Option B was chosen by candidates who
The purpose of this report is to assist assumed that only the petty cash balance These entries lead to capital balances
candidates at future exam sittings so should be reported as a current asset. as follows:
that they can avoid the mistakes that Luka $22,000 (Cr) + $21,000 (Cr)
are most often made by candidates. Example 2 – $16,800 (Dr) = $26,200 (Cr)
The means of doing this is to focus Luka and Eden have been in partnership, Eden $22,000 (Cr) + $21,000 (Cr)
on three questions that were correctly sharing profits and losses equally. – $16,800 (Dr) = $26,200 (Cr)
answered by the lowest number of Greg was admitted to the partnership Greg $8,400 (Dr) = $8,400 (Dr)
candidates at the December 2012 on 1 December 2012. At that date Luka
sitting. Observations on how to select and Eden each had a credit balance of Thus, Greg must introduce $34,600
the correct answer, and why the other $22,000 on their capital accounts. ($26,200 + $8,400) to bring his capital
choices are incorrect, are made on It was agreed that: balance to a credit of $26,200.
each of these questions. 1 Goodwill, which would not be carried Option B was selected by candidates
in the books of the new partnership, who correctly calculated the closing
Sample questions for discussion had a value of $42,000 balances on the capital accounts of
Example 1 2 Profits and losses in the new Luka and Eden, but omitted the debit
Iona’s cash takings of $2,468 for partnership would be shared between entry for goodwill in Greg’s account.
30 November were not banked until Luka, Eden and Greg in the ratio 2:2:1 This can often arise when a candidate
4 December. 3 Greg would introduce cash so that, calculates a value that is included in
At 30 November, her bank balance immediately following his admission, the options, but fails to realise that
was an overdraft of $1,573 and she had the capital account balances of all their calculation is incomplete.
a balance of $44 in her petty cash box. three partners were equal. A few candidates calculated the
What amount should be included in adjustments on the original partners’
current assets in Iona’s statement of How much cash was Greg required accounts correctly, but swapped the
financial position at 30 November? to introduce? debit and credit entries leading to
revised balances of $17,800. Once
A $939 A $34,600 again, the inclusion of this value in the
B $44 B $26,200 choices meant that they stopped their
C $2,512 C $30,400 calculation at that point.
D $895 D $17,800 One way of avoiding this is to ignore
(or even cover up) the choices until the
This question tested candidates’ Those candidates with a good calculation has been completed.
ability to correctly classify assets and understanding of the principles of Many candidates simply calculated
liabilities. The question also required accounting for a change to a partnership the value of the debit entry required in
careful reading in order to avoid were able to successfully answer this Greg’s account ($8,400) and used this
selecting the wrong option. question. The key knowledge that was in conjunction with the starting balance
The key to obtaining the correct required was that, on the admission on each of Luka and Eden’s accounts to
answer was to note that, at the date of a new partner, the asset of goodwill obtain a value of $30,400.

A_ExamFeedback.indd 10 20/02/2013 15:25

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Essential guide FEB 2013.indd 3 20/02/2013 11:39

 12 EXAMS

Example 3 PAPER MA1 labour cost (37 hours × $11 per hour =
According to IAS 2, Inventories, which of Management Information $407.00).
the following is an acceptable basis for The exam consisted of 50 Option D includes the overtime
calculating the value of inventory? multiple‑choice questions, each worth premium, instead of the overtime hours
A Always use the realisable value of two marks. at basic rate, in the direct labour cost
each individual item The four questions below, covering {[(37 hours × $11 per hour) + (5 hours ×
B Value all items at the most recent different aspects of the syllabus, are $11 per hour × 0.3)] = $423.50}.
purchase price examples of questions that candidates
C Value all items at the earliest found difficult. This report explains, for Example 2
purchase price each sample question, the basis for Each finished unit of Product X contains
D Use the average cost of items the correct answer and for each of the 1.4 litres of Material Y. 10% of material
purchased in the period incorrect options selected by candidates. Y used is lost in processing. Sales and
production of Product X in a period were
To successfully answer this question, sample questions for discussion 21,000 and 20,200 units respectively.
candidates needed to have a good Example 1 What was the usage of Material Y in
knowledge of the key principles used Employee H works a basic 37-hour the period?
when valuing inventory. week and is employed on product
IAS 2 recognises two methods of manufacture. He is paid at a rate of A $340,000
valuation – first in, first out and weighted $11 per hour for the basic hours with a B $308,000
average. In the case of weighted average, premium of 30% for any overtime hours. C $56,000
the two acceptable approaches are Employee H worked five overtime hours D $24,000
continuous weighted average and periodic in Week 7 to satisfy sales demand.
weighted average. Choice D describes What amount, out of the total gross This question tested item D1c in the
periodic weighted average, and is thus the wages for Employee H in Week 7, should Study Guide.
correct answer. be charged as direct labour cost? The amount of material input that is
The inclusion of ‘realisable value’ in required in the period is dependent upon
choice A caused a problem for candidates A $407.00 how much of the product is produced
whose knowledge of the principles was B $462.00 rather than how much is sold. Also,
not sufficiently detailed. They did not C $478.50 if each finished unit of the product
appreciate that there is a difference D $423.50 requires 1.4 litres of material, and there
between ‘net realisable value’ and is a 10% loss of material in processing,
‘realisable value’. Moreover, net realisable This question tested item D2a in the then the 1.4 litres is 90% of the input of
value should only be used if this is lower Study Guide. material required.
than the cost value. Total hours worked productively The correct answer to this question is
For those candidates who did not read by direct workers – ie on product option B (20,200 units × 1.4 litres/unit ÷
the question carefully, choices B and C manufacture – are always charged as 0.9 = 31,422 litres).
caused some problems. In this case, B direct labour cost. The only question Option C was based on the sales, rather
appeared to describe first in, first out and regarding the direct labour cost is than the production quantity (21,000
C appeared to describe last in, first out. whether any overtime hours worked units × 1.4 litres/unit ÷ 0.9 = 32,667
Given that last in, first out is specifically are charged at basic rate only or litres). While Option A multiplied the 1.4
prohibited by IAS 2, choice C could be at a higher rate to also include the litres by a factor of 1.1 – ie added 10%
ruled out as incorrect. overtime premium. to the amount required per finished unit –
However, the fact that these choices If the overtime hours are specifically rather than divided by 0.9 (20,200 units ×
suggested that all items would have worked to satisfy the urgent requirement 1.4 litres/unit × 1.1 = 31,108 litres).
the same unit value meant that of a particular customer, then the Option D made no allowance for
both were incorrect. If the items in direct labour cost includes the overtime wastage – thus assuming that the 1.4
inventory had been bought at different premium as well as the basic rate. litres was the required material input per
dates and at different prices, then only Otherwise, the overtime premium unit rather than the amount required in
the most recently purchased items is charged as indirect labour cost each unit of output (20,200 units × 1.4
would be valued at the most recent (production overhead) and spread litres/unit = 28,280 litres.
purchase price. over all of the output manufactured in
a period. Example 3
Conclusion In the situation in this question, the What is the double entry, in an
The report on the June 2012 session overtime hours are worked to satisfy interlocking accounting system, for the
noted that same observations have sales demand generally and, therefore, purchase of raw materials on credit?
been made over a number of sittings. the overtime premium is charged as an
These observations were that the two indirect (not direct) labour cost. Debit Credit
main reasons why candidates are not The correct answer is Option B (42 A Raw materials Trade
successful are: hours × $11 per hour = $462.00). inventory payables
¤ a lack of clarity about the key points Option C charges the overtime B Trade Raw materials
of the topic, and premium as a direct labour cost payables inventory
¤ not reading the question with {[(37 hours × $11 per hour) + (5 hours × C Raw materials Cost ledger
sufficient care. $11 per hour × 1.3)] = $478.50}. inventory control
These observations remain valid Option A ignores the cost of the D Cost ledger Raw materials
following this session. overtime hours completely in the direct control inventory

A_ExamFeedback.indd 12 20/02/2013 15:25

 Student Accountant | ESSENTIAL EXAM GUIDE | 04/13

This question tested item A1f in the average pricing method and sample questions for discussion
Study Guide. the periodic weighted average Example 1
Two decisions were faced by candidates pricing method. This question The fixed production overhead
in this question. clearly demonstrates that there is absorption rate for Product X is $16.00
The first decision was whether the entry confusion between the two weighted per machine hour. Each unit of the
in the raw materials inventory account average methods. product requires 1.2 machine hours.
is a debit or a credit. As the entry in The cumulative weighted average Inventory of Product X was 800 units at
the inventory account is a purchase of method recalculates the weighted the beginning of a period and 850 units
materials, the account will be debited average price after each receipt of at the end.
(options A and C). inventory. This price is then used for What is the difference in profit in
The second decision was whether all subsequent issues until there is a the period if marginal costing is used
the other entry is in the trade payables further receipt of inventory when the instead of absorption costing?
account or in the cost ledger control weighted average price is recalculated
account. A key issue is the difference again. The periodic weighted average A $800 higher
between an interlocking accounting method, on the other hand, only B $960 higher
system and an integrated accounting calculates a single weighted average C $800 lower
system. An interlocking system is an price for each period, regardless of how D $960 lower
accounting system where separate ledger many separate receipts of inventory
accounts are kept for cost accounts and there have been. This question tested item C2e in the
for financial accounts. The cost accounts This question required application of Study Guide.
will include the detailed inventory the periodic weighted average pricing The difference between absorption and
accounts (as opposed to a purchases method. The correct option is C. The marginal costing is that product costs
account in the financial accounts) along periodic weighted average price is include fixed production overheads using
with details of sales and expenses, calculated by dividing the total value absorption costing, whereas they are
but will exclude financial accounting of the receipts plus opening inventory treated as period costs using marginal
items such as trade payables and trade for the period by the corresponding costing. Thus, if inventory increases in a
receivables. These financial accounting total kg. Thus {[(86kg × $11.2/kg) period, the fixed production overheads
aspects of transactions are posted to a + (200kg × $11.9/kg) + (200kg × included in inventory will increase using
cost ledger control account in order for $12kg)] ÷ (86 + 200 + 200kg)} = absorption costing. The resulting profit
the cost accounts to balance (options C $11.82/kg (to the nearest $0.01). The for the period will be correspondingly
and D). cost of the issue is $2,056.68 (174kg higher compared with using marginal
The majority of candidates had the × $11.82/kg). costing – ie the marginal costing profit
entries the right way round but confused A greater proportion of candidates will be lower.
interlocking accounts with integrated applied cumulative average pricing During the period in this question
accounts (option A). Some candidates (option B). The cumulative average the units of product in inventory
confused interlocking with integrated and price is calculated after the receipt increased by 50 units (850 units
also had the double entry the wrong way of inventory on Day 12. Thus {[(86kg in closing inventory – 800 units
round (option B). × $11.2/kg) + (200kg × $11.9/kg)] in opening inventory), and so the
÷ (86 + 200kg)} = $11.69/kg (to the marginal costing profit will be lower
Example 4 nearest $0.01). The cost of the issue is (options C and D).
The inventory record for Component C2 $2,034.06 (174kg × $11.69/kg). The fixed production overhead
for a month shows: Of the remaining candidates some absorption rate is $16 per machine
applied the LIFO method (option A) – hour and each unit requires 1.2
Day Movement kg $ per kg ie (174kg × $11.9/kg = $2,070.60) machine hours. The fixed production
1 Balance 86 11.20 – and others attempted to apply a overheads per unit of product are,
12 Receipt 200 11.90 periodic weighted average but excluded therefore, $19.20 ($16/machine hour ×
14 Issue 174 XXXX the opening inventory (option D) – 1.2 machine hours/unit).
18 Receipt 200 12.00 ie {[(200kg × $11.9/kg) + (200kg × Option D is the correct answer.
$12/kg)] ÷ (200 + 200kg)} = $11.95/ This is calculated as 500 units ×
The periodic weighted average method kg. The cost of the issue is $2,079.30 $19.20/unit = $960.
is used to price the issue of materials. (174kg × $11.95/kg). Option C incorrectly assumed
Each average price is rounded to the that the fixed production overheads
nearest $0.01. PAPER MA2 per unit of product are $16 (50 units ×
What is the cost of the issue in Managing Costs and Finance $16/unit = $800).
the month? The exam paper consisted of 50 Option B included the correct unit
multiple-choice questions, each worth cost but incorrectly stated the marginal
A $2,070.60 two marks. costing profit to be higher.
B $2,034.06 The four questions below, covering Option A included both an incorrect
C $2,056.68 different aspects of the syllabus, are unit cost and wrongly stated that the
D $2,079.30 examples of questions that candidates profit would be higher.
found difficult. This report explains,
This question tested item D1d in the for each sample question, the basis Example 2
Study Guide. for the correct answer and for each Which of the following performance
Candidates need to distinguish of the incorrect options selected measures are relevant for both profit
between the cumulative weighted by candidates. centres and investment centres?

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 14 EXAMS

40
1 Return on capital employed A 1 only
2 Residual income B 1 and 2
3 Net profit margin C 2 and 3 30

4 Labour efficiency D 1 and 3

NPV
1000 20
A 2 and 3 This question tested item C1h in the
B 1 and 4 only Study Guide.
C 1, 2 and 4 The predetermined overhead 10
D 3 and 4 absorption rate in this question is
calculated by dividing the total budgeted
This question tested item A1d in the overhead costs by the total budgeted 5 10 15 20
Study Guide. machine hours. This rate is then used
DISCOUNT RATE %
Managers of cost centres are to absorb overheads during a period
responsible for costs only. Performance according to the actual number of Taking each of the statements in the
measurement in cost centres machine hours worked. question in turn:
will, therefore, be related to cost Over/under absorption is the difference
management only. Managers of profit between the actual overhead expenditure Statement 1:
centres are responsible for revenues as incurred during the period and the When the NPV of a capital investment
well as costs. Performance measures amount of overhead absorbed. It follows project is plotted against a range of
in profit centres will, therefore, include that if actual overhead expenditure is discount rates on a chart, the IRR of the
measures related to revenue and profit above budget and the machine hours project is the point where the NPV curve
performance as well as costs. worked are below budget (the scenario cuts the horizontal (x) axis – ie it is the
Measures used to assess performance in this question) then the overhead will point at which the NPV is zero.
in investment centres will be the same be under absorbed – ie more spent Reading from the chart, the IRR is
as those used in profit centres with, than absorbed will leave an amount of approximately 14% and, therefore, the
in addition, measures of the success overhead to be charged (debited) against statement that the IRR is greater than
of capital investment decisions for profit in the income statement. 15% is not true.
which investment centre managers Option C is, therefore, the
are responsible. correct answer. Statement 2:
Such measures, especially return More candidates selected option B Based on DCF analysis, any project that
on capital employed, residual income thinking, incorrectly, that it was an over has a positive NPV when discounted at
(which is profit less an interest charge absorption that would then have led to a the cost of capital is worthwhile.
on capital employed) and asset turnover credit to the income statement. The project in question can be seen to
are thus unique to investment centres. Some candidates selected option D have a positive NPV at 11% (the cost of
They cannot be used in cost centres or thinking, incorrectly, that the under capital) as the point on the NPV curve,
profit centres because the managers of absorption would be credited to the in line with 11%, lies above, rather
those centres do not have responsibility income statement. than below, the horizontal axis of the
for investment performance. Other candidates selected option A chart. The statement that the project is
It follows from the above that thinking, incorrectly, both that it was an worthwhile is, therefore, true.
options A, B or C cannot be a correct over absorption and that it would lead to
answer to the question because a debit to the income statement. Statement 3:
they include performance measures The NPV of the project is in fact
unique to investment centres. However, Example 4 negative, not positive, when discounted
these three options were selected by A capital investment project has the at 16% as the NPV curve at that point is
the majority of candidates. Option D following NPV profile over a range of below, rather than above, the horizontal
was the correct answer because net discount rates. The cost of capital access. The statement is, therefore,
profit margin and labour efficiency are is 11%. not true.
measures that can be used both in profit
centres and in investment centres. Which statement(s) is/are true in Statement 4:
relation to the above diagram? The NPV curve cuts the vertical (y)
Example 3 axis at a value of $40,000. This is in
Production overheads are absorbed 1 The IRR is greater than 15% fact the undiscounted – ie 0% discount
using a predetermined rate per machine 2 Based on DCF analysis, the project rate – net cash flow of the investment
hour. The actual machine hours in a is worthwhile project (investment amount less total
period were less than budget while 3 The NPV is positive when discounted net cash inflows). It is a positive value
overhead expenditure was above budget. at 16% indicating net cash flows greater than
4 The investment amount is $40,000 the investment amount. It cannot
1 The over absorption will be debited to represent the investment amount and
the income statement A 1 and 2 whether or nor the investment amount
2 The over absorption will be credited B 2 only is $40,000 cannot be established from
to the income statement C 3 and 4 only the diagram. The statement is not true.
3 The under absorption will be debited D 2, 3 and 4 It follows from the above that
to the income statement option B (statement 2 only) is the
4 The under absorption will be credited This question tested item D3g in the correct answer. This was selected by
to the income statement Study Guide. 32% of candidates.

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 16 EXAMS

Some candidates selected option A, a haphazard selection, the auditor’s in the syllabus and good all-round
incorrectly believing that statement 1 selection ‘was made on a haphazard knowledge of these is required for
was also true. This indicated a lack of basis’. Similarly, in Question 4 where candidates to ensure a satisfactory mark
understanding about the IRR. there was a requirement to explain the for the section. Candidates are reminded
Others selected option D, incorrectly term ‘an unmodified audit opinion’, a that the best technique to adopt when
believing that statements 3 and 4 relatively high number of candidates answering Section A questions is to work
were true, as well as statement 2. answered along the lines of it being an through them methodically in order,
This indicates a more widespread audit opinion that ‘is not modified’. It leaving any questions about which they
misunderstanding of the diagram. was clear that a significant proportion of are unsure and returning to them after
Some candidates selected option C, candidates were not properly prepared to attempting the later questions in the
incorrectly believing that statements 3 sit the exam. section. Candidates are also reminded
and 4 only were true. Both statements The following deficiencies were again that there is always a random pattern to
are in fact not true. These candidates noted as being common among this the correct answer letters and frequency.
also failed to recognise that statement cohort of candidates:
2 is true – ie the project is worthwhile ¤ Not answering all of the questions. SECTION B
using DCF. Simply put, if a candidate omits QUESTION 1
to answer just one of the six-mark For a total of 15 marks over three parts,
PAPER FAU questions, then they have given up this question tested knowledge about
Foundations in Audit the chance of obtaining 12% of the internal control.
This exam paper comprised two required pass mark for the paper In Part (a), for three marks,
sections. Section A, worth 20 marks, (50%). The principle of answering all candidates were required to explain
contained 10 multiple-choice questions, the required questions is particularly the meaning of the term ‘a deficiency
each worth two marks, on topical areas important for all candidates if they in internal control’ and, in the main,
from across the syllabus. Section B, wish to increase their chances of the quality of answers was inadequate,
worth 80 marks, contained nine passing this paper. Good learning with only relatively few making the
compulsory questions, of which two preparation, combined with good time connection with the explanation
were worth 15 marks, two were worth management when sitting the exam, provided in ISA 265, Communicating
10 marks each and the other five were are key to achieving this. Deficiencies in Internal Control to
worth six marks each. ¤ Not following the requirements of Those Charged with Governance and
A reasonably good proportion questions – for example, not ‘explaining’ Management (and comprehensively
of candidates answered Section A matters or issues when requested to covered in recommended texts). The
to a satisfactory standard and a do so, or by describing irrelevant or requirement in Part (b), offered 12
number answered at least seven of incorrect matters or issues. marks and tested knowledge on specific
the 10 questions correctly. However, ¤ Writing answers that are either far too (i) authorisation, (ii) segregation of
a significant minority of candidates brief and therefore lacking insufficient duties and (iii) physical controls, and
appeared to have great difficulty with detail to justify any more than a small candidates were asked to identify two
these questions and secured relatively fraction of the available marks or, policies or procedures that should exist
few of the 20 marks available. There alternatively, writing very long rambling for each in the subject company. A
was a positive correlation between most answers containing totally incorrect relatively large proportion of candidates
candidates’ marks in Section A and or irrelevant material – and obtaining listed only one policy or procedure for
Section B of the paper. Consequently, none of the marks available. each and these were often incorrect
while some candidates answered to a ¤ Incorrectly asserting that it is the or not precise enough for the full two
satisfactory standard in both sections, auditor’s responsibility to ensure that marks. Others submitted two policies or
for others the paper served only to the financial statements show a ‘true procedures but, again, due to incorrect
emphasise (at best) an inadequate and fair view’ or to issue a ‘true and fair knowledge or the provision of imprecise
understanding of the theoretical and report’ (or similar). details, only a proportion of the marks
practical aspects of auditing across the ¤ Presenting illegible answers (perhaps were obtained. It was evident that in (ii)
various areas of the syllabus examined. by rushing). many candidates did not appreciate the
Most candidates scored unsatisfactorily In summary, although a fair number difference between ‘supervisory control’
on the 80 marks available in Section B of candidates performed satisfactorily in procedures and procedures that ensure
than of the 20 marks available in this exam, there were some who should the segregation of duties in a system.
Section A. However, there were some now take the opportunity to review their
exceptionally high marks achieved in whole approach to studying for this paper, Question 2
Section B by a significant number of and there are others who need to work There were 15 marks available over four
seemingly very well-prepared candidates. hard to improve their subject knowledge parts, testing aspects of audit risk and
Contrary to this, in a higher number of and exam technique. the audit risk model.
instances, the marks achieved in Section For Part (a) a number of candidates
B were very low. For many unsuccessful SECTION A were able to score 1.5 marks of the
candidates, when answering Section B Most candidates answered this section two available, by defining audit risk as
questions, a relatively common trait was to a satisfactory standard. However, a the risk that the auditor ‘expresses an
to provide answers that, in substance, significant proportion did not – with inappropriate opinion on the financial
relied on phrases used in the question. As some obtaining a very small fraction of statements’ (or similar) – but only a
an example, in Question 3 – in the context the 20 marks available. The questions minority of these obtained the extra half
of sample selection – many answers continue to test candidates’ knowledge mark for clarification of the link with
simply ‘explained’ that when making across the range of topics included material misstatement. Most candidates

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 Student Accountant | ESSENTIAL EXAM GUIDE | 04/13

scored at least a half mark on this part sample. A high proportion of candidates (iii) monetary loss by the third party as
but, given the fundamental importance presented very brief answers – along the a direct consequence of the auditor’s
of ‘audit risk’ and the way it drives audit lines of ‘it’s where the auditor selects negligence. In general, candidates’
engagements, it was unsatisfactory to items randomly’ – for which no marks answers fell into two distinct categories –
note the number of candidates that were awarded as this type of answer those that clearly displayed an adequate
struggled with the concept. does not demonstrate any level of real level of knowledge on the topic and those
Part (b) offered two marks for a understanding. In Part (b), for three that displayed an inadequate level of
definition of ‘detection risk’, and marks, again many candidates explained knowledge. On the whole, the general
while it was encouraging to see that a haphazard sampling as ‘the auditor standard of answers was unsatisfactory
relatively high number could provide a selecting items haphazardly’ (or similar), indicating that candidates had paid little
sound definition (although some others which proved little in terms of genuine attention to this area of the syllabus.
incorrectly submitted that it was the understanding of the term. Answers to
risk of the auditor's procedures not Part (c), about systematic sampling, Question 6
‘preventing’ a misstatement), it was showed some improvement with a For a total of six marks, the question
particularly unsatisfactory to note number of candidates appreciating the tested knowledge of the audit of
the significant minority of candidates concept of selecting at pre-determined irrecoverable trade receivables, with a
that appeared to be totally confused by intervals based on population and sample requirement to state just two procedures
the term. size. Notwithstanding this, a significant used to audit irrecoverable trade
Almost inevitably, Part (c) of the number of candidates misunderstood receivables (three marks for each).
question made reference to the two that systematic sampling simply relied The question was answered to an
categories of risk that combine on a computer ‘system’ to select a unsatisfactory standard by the majority
to determine the risk of material random sample. of candidates, with a large number
misstatement, and three marks were displaying a lack of understanding of the
available for identifying and explaining Question 4 most basic of substantive procedures, as
the concept of inherent risk, plus a For a total of 10 marks over two parts, well as the objective of specified tests. A
further three marks for identifying and this question tested knowledge of the high volume of answers submitted made
explaining the concept of control risk. auditor’s report. The generally low level reference to analytical procedures without
In fairness, most candidates identified of marks awarded indicates that the explaining how they could be applied to
each category (each worth one mark), majority of candidates have inadequate this audit situation. Many answers also
but the range of definitions provided knowledge in this area. comprised very brief comments such
for inherent risk and control risk were Of all the requirements included in the as ‘check for existence and ownership’
mixed. Candidates are again reminded paper, the requirement in Part (a) was (how?) and ‘check after – date receipts’
that, given the fundamental importance the most unsatisfactorily answered. For (why?) or ‘check documents’ (which?,
of ‘audit risk’ generally and the one mark each, candidates were required why?). Candidates should appreciate that
relevance of the audit risk approach to to (i) identify to whom the auditor’s such comments need explanation.
audit engagements, the topic is likely report on the financial statements of
to feature regularly in future Paper FAU a limited liability company should be Question 7
exams, so it is imperative to have a very addressed, and (ii) by whom it should For a total of six marks, the question
good understanding of the topic. be signed. There were a number of tested knowledge of the auditor’s
Part (d) required candidates to candidates who could not answer these responsibility with regard to the
explain how the audit risk model questions correctly. In Part (b), while disclosure of confidential information to
should be applied in practice to some candidates were able to obtain at a third party.
achieve a prescribed level of audit risk. least one of the two marks available for Answers to the requirement, to
Relatively few candidates answered to a explaining the meaning of an unmodified state three circumstances in which
satisfactory standard with many scoring audit report, others submitted answers auditors may be required to disclose
only one mark or less (of the five marks for which no marks were awarded due information to a third party or when
available). Candidates clearly need to to being incorrect or too brief. Part (c) such disclosures may be appropriate,
address this issue and ensure that they offered six marks for identifying and were mixed. The general standard of
fully comprehend the application of the explaining any two of the four forms of answers submitted was unsatisfactory,
audit risk model. modified audit opinions. The standard with relatively few candidates providing
of the answers to this requirement three sound examples of relevant
Question 3 was mixed. circumstances (two marks available
Over three parts, this question tested for each ), and a large core providing
knowledge of specific methods of Question 5 unrealistic examples.
sample selection. It was answered to a For a total of six marks, the question
relatively inadequate standard by a very tested knowledge of an auditor’s liability Question 8
significant number of candidates. to third parties. For a total of six marks, the question
Part (a) offered three marks for an Candidates were required to identify tested knowledge in the area of audit
explanation of the random selection and explain the three conditions (each working papers.
method. The important points to include for two marks) that must have existed The requirement was state three
in the answer were the fact that this for a third party to be successful in a advantages of using automated working
method treats the subject population as negligence claim against an auditor. papers. A majority of candidates scored
a homogenous mass and that it relies They are (i) a duty of care – enforceable at least two marks by stating at least
on random number tables or computer by law, (ii) negligence – by the auditor one advantage. A significant minority
generated random numbers to select a in the performance of that duty, and of candidates confused the term

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 18 EXAMS

‘automated’ with ‘standardised’ (in the questions, as a good mark here provides not attempted very well at all. Candidates
context of working papers). a solid base from which to attempt either did not attempt it, calculated the
Section B. accounting rate of return, or having
Question 9 discounted their cash flows at two
For a total of six marks over three SECTION B different discount rates, got the internal
parts, the question tested knowledge of Question 1 rate of return formula incorrect. Only a
external confirmations. Candidates scored well on Questions 1, small minority of candidates had a good
In Part (a), two marks were available 3 and 4. The questions candidates found attempt at the proper calculation.
for explaining the term ‘external most challenging were Questions 2, 5 Part (b) asked candidates to define
confirmation’. Most candidates correctly and 6. the term ‘business angel’ and state one
stated that it was confirmation from Question 1 required candidates disadvantage of this type of financing.
a ‘third party’ and obtained one mark to calculate the working capital The majority of candidates could
for this, but only a minority went on requirement for Frame Co, and then define the term, but fewer could state
to explain that it should be received tested candidates' knowledge of the the disadvantage, showing a lack of
directly by the auditor in written just-in-time (JIT) inventory management knowledge here.
form. Again, in Part (b) a number of system. This was the best answered
candidates scored at least one of the question in Section B. Question 3
two marks available for explaining why Part (a) has been examined before This 10-mark question was discursive,
external confirmations are deemed to and candidates showed that they had looking at the functions of a treasury
be a reliable form of audit evidence. studied this area of the syllabus. There department. It was purely a test of
However, in Part (c), a number of was a slight twist in that candidates had knowledge and, if candidates knew
candidates could not obtain the full to calculate the variable cost per unit this part of the syllabus, it should have
marks available for providing two but, on the whole, candidates coped represented 10 easy marks.
examples of external confirmations. well with this, or made an assumption, A common problem with this
This was because a relatively high and carried on with the rest of the question was that candidates misread
proportion of candidates provided calculation. Common errors that were the requirement and wrote about the
incorrect examples in the form of bank made included: advantages of a centralised treasury
statements and supplier statements. ¤ Not including lenses in the raw function. Those that answered the
material calculation. question set often gained half, or just
Paper FFM ¤ Correctly calculating the variable over half, marks for discussing a couple
Foundations in Financial overheads as $12.50 per unit, of valid functions such as foreign
Management multiplying by the expected output exchange management, and liquidity
The exam consisted of 10 objective of 25,000, but then incorrectly management. However, few showed
testing questions in Section A, adding back in the fixed overheads enough breadth or depth of knowledge
worth 20 marks overall, and six of $50,000. to score really highly on a question that
questions in Section B, one worth should have provided easy marks.
20 marks, three 10-mark questions Clear presentation was key to gaining
and two 15-mark questions. All method marks in this question and, in Question 4
questions were compulsory. the vast majority of scripts, workings Question 4 was, again, a 10-mark
The majority of candidates attempted were clear and referenced into the discursive question – this time looking
all of the questions, showing little main calculation. at receivables.
evidence of time pressure. Where Part (b) was a test of candidates’ Part (a) asked for definitions. A
questions were not answered, this knowledge of (JIT). Where most substantial minority confused invoice
appeared to be through lack of candidates could explain the JIT system, discounting with early settlement
knowledge. As I commented in my last fewer gained marks on the second part discount, but answers to the factoring
examiner report, it is imperative that of the requirement; the conditions part of the requirement were much
candidates study the entire syllabus, required for a JIT approach to work. better. Some candidates confused with
and do not try and question spot. Many candidates wrote about the and without recourse factoring but, on
There were instances where the advantages and disadvantages of JIT, the whole, they had a good attempt at
requirement was read incorrectly or the possible effects on the business the question.
by candidates. It is imperative that using JIT, and so did not answer the Part (b) looked at terms required in
candidates read the requirement question set. As I have said previously, a contract for a cash customer who is
carefully and answer the question set. it is important to read the requirement going to be allowed credit for the first
Presentation varied from script and answer the question that is set. time. A substantial number of students
to script but, generally, layout and latched on to the word ‘contract’ in
legibility was acceptable. Workings Question 2 the requirement and wrote about the
were generally clearly laid out, which is This 10-mark question covered elements of a contract, form, offer,
imperative if method marks are going to investment appraisal and financing acceptance, etc. This gained no marks,
be awarded to answers where the final for SMEs. and again shows the importance of
answer is incorrect. Part (a) required candidates to reading the requirement carefully.
calculate some simple cash flows for
SECTION A a project and then to calculate the Question 5
I reiterate here what I have said in past internal rate of return. Many candidates This was the least well-answered
examiner reports – that it is imperative calculated the cash flows correctly, but question on the paper. The requirement
that candidates practise the MCQ style the internal rate of return calculation was asked candidates to prepare a schedule

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 20 EXAMS

of relevant costs for a project. Relevant to set a credit limit’ and based their more frequently and, therefore, the
costing is commonly examined as answers around what a credit controller entire syllabus should be considered as
part of a larger investment appraisal would do in general terms before possibly being examined at every sitting.
question, where candidates would have granting credit – ie obtain credit
to pick out the relevant costs from references, etc, rather than answering Specific comments
a scenario before using them – for the question set. Question 1
example, to calculate the net present Part (d) provided mixed answers. This was a 15-mark question requiring
value. Being asked to complete the Some candidates knew what interest the calculation of income tax. It covered
relevant cost schedule seemed to throw cover was and provided comprehensive the basic principles of different types
candidates and they made mistakes answers. A sizeable minority thought of income, the personal allowance and
such as including depreciation, basic that interest cover was the profit margin pension contributions.
errors that candidates rarely make in to a finance provider on a loan. In general, this question was well
full net present value calculations. attempted with several candidates
The requirement also asked for CONCLUSION scoring full marks. However, there are
an explanation of the treatment of This was a paper that a candidate who still a few candidates making the same
each item in the question, including had studied the whole syllabus – and types of mistakes as those mentioned in
those that were considered irrelevant. who had carefully read the requirements previous reports.
Irrelevant costs were often just omitted – could have passed. Those who did The most common mistakes in this
from answers, and no explanation not pass showed a lack of knowledge, question were:
given as to why. This again shows or did not read the requirement ¤ Including both bonuses in the
the importance of reading the carefully enough. calculation – employment income is
requirement carefully. normally taxed on a receipts basis
The approach candidates should have Paper FTX and, therefore, only the bonus received
taken was to work through the scenario Foundations in Taxation (UK) during the tax year 2011–12 should
item by item, calculate the relevant cost This exam consisted of 10 have been included. The bonus
for each item (showing workings and multiple‑choice questions in Section A received in May 2012 would be taxed
stating why any costs were irrelevant), and nine questions in Section B. in the tax year 2012–13.
put the relevant cost into a schedule, There were no optional questions – all ¤ Including the personal allowance.
and then total up the relevant costs, as questions were compulsory and all of Where adjusted net income is above
the requirement asked candidates to them should have been attempted. £114,950 no personal allowance is
state the minimum price – ie the total. This report is usually based on due – candidates needed to state this
Section B only. However, given the to score the full mark.
The common errors were: results of Section A, a comment on this ¤ Pension contributions. Once again
¤ Including fixed overheads, cost of is merited. many candidates were not aware
preparation and profit margin as Section A was very poorly answered. of how to use the contributions.
relevant costs. This section tests the understanding Contributions by an employer are tax
¤ Incorrectly calculating the relevant of a candidate’s technical knowledge. free benefits. Net contributions by an
cost of the fabric and wood. Questions range from basic facts, such employee to a personal pension plan
¤ Only including labour at $5 per hour, as tax payment dates, to the calculation must be grossed up by 100/80 and
being the contribution lost, and not of benefits and rules of the use of then used to extend both the basic and
including the labour cost of $10 losses. The answers are either right or upper bands.
per hour. wrong – there are no part marks and, A few candidates taxed savings
¤ Including two weekly hiring fees therefore, candidates must be aware of income at 40% and dividend income at
totalling $400 in the relevant cost, basic rules to score any marks. Several 32.5% despite correctly extending the
and ignoring the minimum hiring fee candidates were unsuccessful at this bands. Once income exceeds the higher
of $450. sitting because they scored poorly on this threshold, income is taxed at 50% unless
section. Future candidates are warned it is dividend income, when it is taxed
Question 6 that they must be properly prepared for at 42.5%.
This question covered capital gearing this section and revise sample questions. Finally, candidates are reminded that if
and interest cover, looking mainly at the Section B produced answers that were any item given in the question is left out
use of the ratios when raising finance, a mix of very good and extremely poor. of the tax calculation or allowances are
but also how the gearing ratio can be Previous reports have mentioned that not given (or restricted), then comments
used to help set the credit limit for a the new syllabus and new exam format to this effect must be made in the answer
new customer. Performance on this allows for more of the syllabus to be to score full marks.
question was mixed. tested and have advised candidates that
Most candidates could explain what they need to study the entire syllabus Question 2
capital gearing was in Part (a) and and not just the basic principles that are This 15-mark question required
perform the gearing calculation in examined at every sitting. candidates to calculate the corporation
Part (c). Quite a high percentage of Several questions were not attempted tax payable by a UK company. It
candidates could not apply the theory by candidates indicating limited study of covered the common areas of profit
of gearing to explain why a finance the syllabus. This approach makes it very adjustment, business property income
provider or a credit controller might difficult to pass the exam. Many areas, and non-trade income.
find the gearing information useful which candidates previously gambled This question was well answered but
(Part (b)). In Part (bii), candidates on as being fringe topics and thus not a few made some basic errors. The
picked up on the words ‘information often examined, will now be examined common mistakes were:

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 Student Accountant | ESSENTIAL EXAM GUIDE | 04/13

¤ Not adjusting the trading profit ¤ Asset disposal. When an asset is sold ¤ the property must actually be let for
correctly. Items that have been the lower of the original cost or the at least 70 days a year
incorrectly included as income – ie the sale proceeds is deducted from the ¤ the property must not normally be
profit on the sale of the car – should relevant pool. Several candidates occupied for long-term occupation.
be deducted and items that have been calculated a ‘loss’ on the sale and gave
included as expenses and should not a balancing charge for this amount. Marks were still awarded if these
have been – ie the depreciation and periods were quoted as weeks or
legal fees – should be added. Some On the positive side most candidates months, which is generous as they
candidates did the reverse actions. knew to restrict writing down allowance should be quoted in days.
¤ Not calculating the business property to 9/12ths.
income on an accruals basis. Only The advantages are:
rent that should have been received in Question 4 ¤ income counts as relevant income for
the year ended 31 March 2012 should This was a 10-mark question requiring pension contributions
have been included. the calculation of the chargeable capital ¤ capital allowances are available
¤ Not netting the non-trade income gain on a disposal of shares by a UK (instead of wear and tear allowance)
received and paid together – this resident individual. ¤ capital gains reliefs are available on
problem has been noted in several This question was poorly answered, the disposal of the property.
previous reports. with very few candidates knowing the
¤ Using the incorrect rate of tax. Some identification rules for an individual. Some candidates stated that any loss
candidates surprisingly used the Many either tried to use the rules that can be used as if it was a trade loss –
marginal rate of tax despite correctly apply to companies and others simply this rule no longer applies.
showing the upper threshold as being added all the purchases together and
exceeded by the augmented profit. calculated one gain. Question 6
¤ Incorrectly stating the payment date. When an individual sells shares, This was a six-mark question on
Very few candidates knew that if a then purchases must be identified and sharing partnership profits. This was
company did not pay tax at the full disposed of in the following order: answered reasonably well by the majority
rate in the previous period, then ¤ same day of candidates.
quarterly payments are not normally ¤ next 30 days The main problem in this question
due in the current period. Those who ¤ 1985 pool. was the retirement of a partner part
did know this incorrectly stated the way through an accounting period. This
payment date as 31 January. The due Disposal proceeds are prorated requires the accounting period to be
date is nine months and one day after to each of the above purchases, and split into the periods before and after
the period end – ie 1 January 2013. separate gains for each are calculated the retirement and the calculation of
before being added together to give a separate apportionment of profits for
Question 3 final total. each of the two periods. Most candidates
This was a 10-mark question requiring Candidates are reminded that they were able to do this with the only
candidates to calculate the maximum must read the question carefully and common mistake being the allocation
capital allowances available to a answer what is required – in this case of the full amount of the salaries for
company for its nine-month period the chargeable gain was required, not the nine months prior to retirement.
ending on 31 March 2012. the taxable gain – ie after the annual These should have been limited to nine
Candidates had to deal with exempt amount, and not the capital months only. Once the salaries have
purchases that were either classed as gains tax payable. been allocated the remainder of the
special rate items or main pool items nine-month profit is then apportioned
and those that qualified for the annual Question 5 in accordance with the question –
investment allowance (AIA). This was a six-mark question on ie 40:40:20. Some candidates did not
In general, this question was very well furnished holiday lettings (FHL) in two deduct the salaries and apportioned the
answered. The common mistakes were: parts – the first asking for the three full nine-month profit.
¤ Giving AIA to the wrong item and not conditions based on rental periods that Finally, several candidates lost a
restricting the allowance. If a company must be met for a letting to qualify as a simple half mark by not adding the two
purchases both main pool items and FHL, and the second part asking for the separate periods together to give final
special rate items, then AIA should tax advantages. totals for each partner.
always be given to the special rate This was either not attempted
items in priority to main pool items. or very poorly answered. Very few Question 7
The allowance due is £100,000 for a candidates knew anything about FHL This was a six-mark question that
12-month period; if the period is less and, consequently, few marks were required candidates to identify exempt
than 12 months, then the allowance awarded. Guess work very rarely pays and non-exempt periods for principal
should be restricted accordingly off – statements such as ‘the building private residence (PPR) relief.
– ie for a nine-month period the must have nice furniture’ or ‘must be in This was either extremely poorly
allowance available is only £75,000. a sunny location’ not only have no tax answered or not attempted. The biggest
¤ Restricting allowances for private connection, but do not relate to rental issue was the meaning of ‘exempt’ and
use. If an item is used privately by periods as required by the question. ‘non-exempt’. If the question asks for
an employee, then the allowance is an exempt period for PPR, it is asking
not restricted (the employee will have The conditions that must be met are: for a period that is covered by PPR and
a taxable benefit). This restriction ¤ the property must be available for is therefore not subject to tax, whereas
applies to sole traders only. letting for at least 140 days a year the reverse is true for a non-exempt

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period where the period is not exempted The total for the tax year 2010–11 was pass rates for questions relating to
from tax. For instance, Kasper lived in £15,000 – therefore, £7,500 (50%) is accounting subjects were satisfactory,
the house from 1 October 2000 until payable on 31 January 2012 and 31 July and candidates seemed well prepared
30 September 2001 – this period is 2012. The final amount for the tax year in dealing with questions on budgetary
exempt (ie not subject to tax) because 2011–12 was £17,300; therefore the control, fraud, money laundering
of owner occupation. Many stated this balancing figure after the two payments and audit.
as non-exempt. of £7,500 is £2,300 and is due on The subjects that posed greatest
The final four years when Kasper 31 January 2013. difficulty were diversity (in the context
is living with his mother is not totally Many candidates were unaware of the of employment practices), the types of
exempt. The last three years of correct dates, many included class 2 questions that can be used in interview
ownership of a PPR is always exempt, contributions and several candidates situations, corporate governance,
but the other year cannot be covered took the figures in the question and sustainability, international accounting
by ‘three years for any reason’ because, calculated their own NIC figures based standards, Kolb’s learning theory and
in order to qualify under this rule, the on the annual thresholds. It was clear Porter’s five forces model. A question
owner must reoccupy the property after that these candidates were not reading that asked candidates to identify a
the period of absence. Kasper did not the question properly. type of report that would help the
do so in this question. organisation assess the effectiveness of
CONCLUSION an increase in expenditure on after-sales
Question 8 This performance was extremely service caused considerable problems,
This was a two-part question asking for disappointing. Many candidates were and this is discussed in greater detail
a comparison of the amount of value simply not prepared sufficiently. It is later in this report.
added tax (VAT) due from an individual disappointing that some candidates The paper included 15 scenario‑based
when she had either joined the flat rate are not successful simply because they questions, which would have required
scheme or not. have not attempted, in some cases, half more reading time than shorter
The first part was well answered; of the questions. This does not appear questions and probably greater
most candidates were able to correctly to be through lack of time but almost deliberation. However, only four of
deduct the input tax paid from the certainly due to lack of knowledge. The these questions had lower than average
output tax collected to give the amount new format of the exam allows more pass rates.
payable to HM Revenue & Customs. A parts of the syllabus to be tested, and There was no evidence to suggest that
few incorrectly used 20% despite the if candidates continue to restrict their any of the six syllabus areas present
question clearly stating that the figures studies to the common areas of personal greater difficulty than others, though
were inclusive of VAT. income tax calculations and corporation questions drawn from syllabus areas
The second part of the question, tax calculations only, then their chances A (organisations), C (accounting) and
involving the flat rate scheme, was not of success are very limited. E (personal effectiveness) had higher
well answered at all. Most candidates Finally, candidates must remember average pass rates than those relating to
appeared to have not heard of this to practise multiple-choice questions as syllabus areas B, D, and F.
scheme. The scheme is available to poor performance in this section was the
small businesses and is aimed at saving downfall of many candidates. SAMPLE QUESTIONS FOR DISCUSSION
administration. It requires the total (not Question 2
just the taxable) VAT inclusive sales to Paper F1/FAB Question 2 required knowledge of
be multiplied by the flat rate percentage Accountant in Business policies in relation to diversity and
relevant to the trade – this was given The paper was made up of 50 objective many candidates could not identify the
as 9%. The technical point here is test questions, each worth two marks. correct answer.
that traders are allowed a one percent Each question presented four choices, of Which of the following actions
deduction in the percentage for the first which one was correct. Candidates were would be permissible for an
year; therefore, 8% should have been required to answer all of the questions organisation, assuming it has adopted
used. No account is taken of purchases. on the paper in two hours. The questions a diversity policy?
Therefore, the calculation for Part (b) were evenly spread across the syllabus,
should simply have been £90,000 x 8% with either eight or nine questions from A Allowing only male staff to take large
= £7,200. each of the six syllabus areas. amounts of cash to the bank
Candidates performed strongly on B Advertising for staff over 60 years of
Question 9 most questions relating to management age to work in a residential care home
The final question was a six-mark theories, and there were high pass rates C Preventing female armed service
question on tax payment dates. This for questions on McGregor’s theory personnel from participating in
again was either omitted or very X and Y, Adair’s functional leadership hazardous missions
poorly answered. model, communications models, D Recruiting male actors only to play
For a sole trader the due dates of Mintzberg’s theory and Hofstede’s specific roles in a production of a play
payment for income tax and Class theory on culture. This was impressive,
4 National Insurance contributions as candidates have to remember many The correct answer is D
(NIC) are the same. They are based facts in relation to a considerable
on the previous year’s totals and the number of theories, and it would not Gender is an essential determinant
amounts payable are due on three dates: be possible to answer any of these of many parts that are played in
31 January in the relevant tax year, questions without formal study. theatrical productions. This is an
the 31 July and 31 January following the Questions on economics, marketing example of a ‘genuine occupational
tax year. and ethics caused few difficulties. The qualification’, which is one of the

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 24 EXAMS

generally accepted criteria under which marketing efforts by conveying a positive The key to understanding the
it is permissible to advertise specifically image of the organisation as being aspects of the theory tested by this
for males or females. customer orientated. question is that substitute products
Option B is clearly inappropriate, The majority of candidates chose are described by Porter as goods or
as the age of the potential recruit option C. A report on the costs of services provided by another industry
is irrelevant to carrying out the job. servicing, repairing and running vehicles that satisfy the same underlying
Physical strength could be a criterion, driven by customer-facing engineers customer needs. Therefore, the decision
but it cannot be assumed that all older will help the organisation to increase by GVS Company to diversify into land
people are physically weaker than efficiency by identifying areas in which transport, and the launch of new, high
younger people. cost containment or reduction may be speed train services by JVM Company,
Implicit in option A may be the possible, but has little to do with the are not a substitutes as they are offered
suggestion that male staff may be effectiveness of the service delivered by companies that provide passenger
more capable of resisting attack or to customers. transport services. As they operate in
threat. Similar logic could be applied A report on the costs of defects the same industry as LJP Company, they
to option C, given the fact that most that have been reworked or written off are not offering substitutes.
operational personnel in the armed is more concerned with operational As many transport companies
forces are males. These generalisations efficiency than the effectiveness of have discovered in recent times,
are based on physique and should be after-sales service. Likewise, a report the emergence of low cost video
avoided. Organisations usually have on revenues from sales of defective conferencing facilities has provided an
a policy that requires members of inventory or returned goods may alternative to travelling long distances to
staff not to resist if threatened, and indicate the effectiveness of those who attend physical, face-to-face meetings.
this should be equally applicable to sell goods, and perhaps marketing The underlying need is for users to
both men and women. Likewise, those generally, rather than those responsible communicate with one another, and the
responsible for hazardous missions for after-sales service. video conference provides a different
in the armed forces are likely to way of achieving the same objective.
consider suitability on factors other QUESTION 46 Most candidates knew that the
than gender. Question 46 tested the candidates’ increase in the costs of inventory
A disappointing number of candidates knowledge of Michael Porter’s five described in option B was not an
selected the correct answer. The most forces model. example of the threat of substitutes.
popular distractor was option B, which LJP Company operates train and bus Surprisingly, few candidates selected
was selected by over 40% of candidates. services throughout its home country, the correct answer, and this question
as well as some overseas services. LJP had the lowest pass rate out of the 50
QUESTION 43 Company dominates the market, but has questions on the paper.
Question 43 asked candidates to one major competitor.
identify a report that would be most In the context of Porter’s five forces CONCLUSION
useful in enabling the organisation to model, which of the following is an It would be unrealistic to expect even
assess the effectiveness of an increase example of the threat of substitutes to the best prepared candidates to have
in expenditure on after-sales service. It LJP Company? a comprehensive knowledge of every
tested the candidate’s understanding of A A decision by GVS Company, an subject area on this paper. The syllabus
how accounting information contributes airline, to diversify into land transport is both diverse and broad. However,
to organisational effectiveness. systems, with bus and train services the paper is intended to introduce
Which of the following reports targeted at business users business concepts, and candidates are
prepared by the finance department B A large increase in the costs of not expected to explore the subjects
would enable the organisation to assess inventory for the bus division, they encounter in great depth. As
the effectiveness of an increase in imposed by a company that demonstrated by the ACCA schematic
expenditure on after-sales service? manufactured all of LJP Company’s diagram in the syllabus document, papers
fleet of buses that are positioned at a higher level in
A Costs of defects reworked or written C The launch of new, high speed train the professional qualification expect
off due to failures in quality control services on all major domestic and candidates to build on the foundations
B Revenues from cross-selling activities overseas routes by JVM Company, they create by studying Paper F1/FAB,
focused on existing customers LJP’s main competitor Accountant in Business. The best approach
C Costs of servicing, repairing D The launch of a free, user-friendly to this paper, therefore, is for candidates
and running vehicles driven by and easily downloadable video to ensure that they have some knowledge
customer‑facing engineers conferencing package by ITX of as many topics contained in the
D Revenues from sales of imperfect Company, a multinational software learning objectives as possible.
inventory and returned goods producer Empirical evidence suggests that most
candidates are not time pressured in
The correct answer is B. The correct answer is D. this exam. However, some candidates do
not answer all of the questions on the
After-sales service activities focus According to Michael Porter, the paper. This can be a wasted opportunity,
on delivering added value to existing competitive environment is shaped especially for those who achieve very
customers. An increase in expenditure by five forces: competitive rivalry, the marginal fails. Even if a candidate does
on after-sales service should increase bargaining power of customers, the not know the correct answer, it is often
customer satisfaction and reduce bargaining power of suppliers, barriers possible to arrive at a choice between
complaints. It should also reinforce to entry and substitute products. two or three alternatives by a process of

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 Student Accountant | ESSENTIAL EXAM GUIDE | 04/13

elimination, and there is nothing lost by Time Output Overhead Price A $101,000
relying on instinct. (units) cost ($) index B $107,000
Some of the more demanding 2 years ago 1,000 3,700 121 C $109,000
theories can be better understood by current year 3,000 13,000 155 D $115,000
considering them in a practical context.
Recommended study materials include Using the high low technique, what is The question relates to Study Guide
practical examples to help students see the variable cost per unit (to the nearest reference D3a.
how the theories are applied, and reading $0.01) expressed in current year prices? The correct answer is C, but was
through these, even briefly, can make chosen by only 21% of candidates.
theories less obscure or esoteric. A $3.22 The correct answer can be obtained
Unlike written papers, in which B $4.13 by working backwards by adding
candidates can use alternative ways of C $4.65 appropriate adverse variances and
expressing their thoughts, the objective D $5.06 subtracting appropriate favourable
test nature of this paper requires variances from actual profit. Standard
candidates to understand some of the The question relates to Study Guide profit on actual sales is exactly what
jargon used to explain concepts. This references A3h and C2n. it says – actual units multiplied by
jargon does not necessarily have to be The correct answer is B. This is standard profit per unit. As it is based on
technical language to be misleading. calculated by first adjusting the actual units, a profit adjustment for the
An example of this is the word overhead cost from two years ago to difference between budgeted and actual
‘substitute’, which created difficulty current price levels by multiplying by volumes is not required and, hence, the
for some candidates in Question 46 155/121, to obtain a cost of $4,740. sales volume variance should be ignored.
as described above. This word is used This figure is then used in a high low The calculation can be most easily
by Porter in a completely different way calculation (change in cost divided by understood by looking at the standard
to micro‑economists writing about change in activity) to obtain the variable cost operating statement below.
substitute and complementary goods in cost per unit (($13,000 – $4,740) /
the context of supply and demand. (3,000 units – 1,000 units) = $4.13). $
Another example, not relevant to The most popular choice was option Budgeted profit not required
questions in this paper but included in C, which was selected by the majority of Sales volume variance not needed
the syllabus, is ‘investment’. A treasurer candidates. This indicates that, although Standard profit on
working in the finance department competent in the high low technique, actual sales 109,000
would regard the purchase of equities they failed to adjust costs to current Sales price variance 5,000 favourable
and bonds as investment, while price levels. In analysing cost data it is Total variable
Keynesian macro-economic theory important that inflation is allowed for. cost variance 7,000 adverse
defines investment as expenditure on Those who chose option D indicated that Fixed cost
capital equipment. either they guessed badly, or that they expenditure variance 3,000 favourable
Being able to define business terms in could competently perform the high low Fixed cost
the context in which they are used can calculation and that they realised a need volume variance 2,000 adverse
greatly enhance understanding. to adjust the figures for inflation, but Actual profit 108,000
failed to do so correctly and multiplied
Paper F2/FMA by 121/155. Finally, a minority chose If candidates understand how the
Management Accounting option A, again possibly suggesting a operating statement works, the correct
The two-hour paper contained 50 bad guess or, alternatively, that they answer can be quickly calculated as
multiple-choice questions – each worth indexed costs to price levels from two $108,000 + $2,000 – $3,000 + $7,000 –
two marks. The mix of questions years ago. $5,000 = $109,000.
across syllabus heads was exactly Incorrect answers were fairly
in line with both the pilot paper Example 2 evenly spread across the other three
and the December 2011 and June A company uses a standard absorption options, suggesting a large amount
2012 papers. The vast majority of costing system. The following figures are of guessing by candidates. Option
poorly attempted questions were available for the last accounting period D, $115,000, represents the correct
calculation based. Questions that were in which actual profit was $108,000. calculation of budgeted profit – ie the
poorly attempted were mainly in old standard profit figure for budgeted
syllabus areas. In general, Paper FMA $ volume. This was not the question
candidates performed worse than their Sales volume asked. Option B represents the answer
Paper F2 counterparts. profit variance 6,000 adverse obtained if candidates added back
The following questions taken from Sales price favourable variances and subtracted
the December 2012 exam are ones variance 5,000 favourable adverse variances. Finally, option A
where the performance of candidates Total variable represents a calculation of budgeted
was weak. Each of these questions cost variance 7,000 adverse profit if candidates added back
carried two marks and each related to a Fixed cost favourable variances and subtracted
mainstream topic in the Study Guide. expenditure variance 3,000 favourable adverse variances.
Fixed cost Performance on another question
Sample questions for discussion volume variance 2,000 adverse involving standard cost operating
Example 1 statements on the same paper was
The following data relates to a What was the standard profit for actual also poor. This suggests a lack of
company’s overhead cost. sales in the last accounting period? understanding in this area.

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Example 3 ¤ attempt all questions in the exam $

A truck delivered sand to two (there are no negative marks for Property 102,000
customers in a week. The following incorrect answers) Cost as at
details are available. ¤ try to attempt the ‘easy’ exam 1 November 2011 ( 20,400)
$ questions first Accumulated depreciation
Customer Weight of Distance ¤ not to spend too much time on as at 1 November 2011 81,600
goods delivered covered apparently ‘difficult’ questions
(kg) (km) ¤ read previous examiner’s reports On 1 November 2011, the company
X 500 200 ¤ read Student Accountant. revalued the property to $150,000.
Y 180 1,200 The company’s policy is to charge
680 1,400 Paper F3/FFA depreciation on a straight-line basis over
Financial Accounting 50 years. On revaluation there was no
The truck cost $3,060 to operate in Candidates continue to perform well in change to the overall useful economic life.
the week. Each customer delivery was those syllabus areas that are brought It has also chosen not to make an annual
carried separately, and the truck made forward from Papers FA1 and FA2 and transfer of the excess depreciation on
no other deliveries in the week. built on at this level. The questions revaluation between the revaluation
What is the cost per kilogram/ with the highest pass rates on this reserve and retained earnings.
kilometre of sand delivered in the week paper included: What should be the balance on
(to the nearest $0•001)? the revaluation reserve and the
¤ Books of prime entry depreciation charge as shown in the
A $0-003 ¤ Processing of ledger accounts financial statements for the year ended
B $0-010 ¤ Correction journals 31 October 2012?
C $2.186 ¤ Inventory valuation
D $4.500 ¤ Statements of cash flows Depreciation Revaluation
charge reserve
The question relates to Study Guide However, review of candidates’ $ $
reference B3c(ii). performance in December 2012 A 3,750 68,400
continues to show that there is little B 3,750 48,000
The correct answer is B. improvement from the previous C 3,000 68,400
two sittings on questions testing D 3,000 48,000
The cost per kg/km of sand delivered preparation of simple consolidated
is the cost of carrying 1kg of sand financial statements. The correct answer is A. The most
for 1km. Kg/km can be calculated by Questions with the lowest pass popular incorrect answer was C.
multiplying the weight of goods delivered rates included:
to each customer by the distance covered ¤ calculation of consolidated income The volume of data given in this
(500kg × 200km + 180 kg × 1,200km = statement extracts question can appear overwhelming,
316,000kg/km). If truck costs are divided ¤ identification of associates but with the good exam technique of
by this figure a cost of $0.010 is obtained and describing the principle of reading the question stem first, one
Option C represents the cost per equity accounting part of this question can be answered
kilometre travelled ($3,060/1,400km). ¤ accounting effects of a revaluation of quickly and efficiently.
Option A can be obtained by dividing truck a non-current asset. From the question stem, the
cost by 680kg × 1,400km = 952,000. revaluation reserve balance as at 31
This is a meaningless figure as it does The following examples were three of October 2012 is being asked for. When
not allow for different weights travelling the questions with the lowest pass rates revaluing an asset, it is the carrying
different distances. Finally, option D on the paper. The aim of reviewing these value of the asset that is revalued,
represents the average cost per kilogram questions is to give future candidates rather than the cost, and as the question
delivered ($3,060/680kg = $4.50). an indication of the types of questions states there is no annual transfer of the
Inevitably, examiner reports focus on asked and guidance on dealing with excess depreciation, the balance on the
the more difficult questions that were exam questions, as well as a technical revaluation reserve can be found as:
badly attempted. The exam also contained debrief on the topics covered by the
a number of questions that were very specific questions selected. $150,000 – $81,600 = $68,400
well answered. In the exam candidates
should ensure that they attempt the easier Sample questions for discussion It is good to see that candidates
questions first (generally the narrative Example 1 had spotted this, as the most popular
questions) to ensure they gain the ‘easy The following information is available for incorrect answer option of C also
marks’. They can then go on to attempt the year ended 31 October 2012: uses $68,400.
the more difficult or time consuming
questions last.
review of candidates’ performance in December
Future candidates are advised to:
¤ Study the whole syllabus.
2012 continues to show that there is little
¤ Practise as many multiple-choice improvement from the previous two sittings
questions as possible.
¤ Read questions very carefully in the
on questions testing preparation of simple
exam. consolidated financial statements

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 Student Accountant | ESSENTIAL EXAM GUIDE | 04/13

The tricky bit of this question, which

is commonly tested at this level, is
In this exam, some of the worst answered
what the new depreciation charge questions continue to involve core syllabus
will be. As the revaluation takes place
on 1 November 2011, a whole year’s
areas, including consolidation MCQs
depreciation is calculated on the
revalued amount. The new charge will
take the revalued amount of $150,000 company having a 20% holding in First, it is identified from the first
and depreciate the asset over its another company, significant influence sentence in the scenario that control
remaining useful economic life. may not exist – ie another company has been established – ie Tulip Co had
The question does not tell us how may hold the remaining 80% of the acquired a 70% holding. This means
long we have had the asset for but, by shares and, hence, equity accounting that Daffodil Co will be consolidated
looking at the accumulated depreciation would not be used in the investing as a subsidiary, on a 100% line-by-
brought forward, we can tell how old the company books. line basis to reflect control. Answer
original asset is: option D is incorrect as it consolidates
Statement 1 is incorrect Tulip Co’s gross profit with only 70%
Original depreciation charge: of Daffodil Co’s gross profit. Answer
$102,000/50 years = $2,040 per 2 In the consolidated accounts, the basic option C, which adds all of Tulip Co’s
annum and as $20,400 is accumulated principle of equity accounting is that consolidated gross profit and 100% of
depreciation brought forward, then the group’s share of the associate’s Daffodils Co’s gross profit, would also
the asset must have already been held profit after tax is included, not the be incorrect, as you must consider the
for 10 years. Therefore, the remaining dividend income which would be second issue.
useful economic life is 50 years – 10 shown in the investing company’s own In this question, as important as
years = 40 years income statement. the size of the holding acquired, is
the date on which it is acquired. The
The new depreciation charge should be Statement 2 is incorrect 70% holding was acquired on 1 March
calculated as: $150,000/40 years = 2012, which means that, during the
$3,750. Example 3 year ended 31 August 2012, Daffodil
Tulip Co acquired 70% of the voting Co had only been a subsidiary for
The incorrect answer option of C share capital of Daffodil Co on six months of the year. Only post
calculates the new depreciation charge 1 March 2012. acquisition results of the subsidiary
as $150,000/50 years = $3,000. The following extracts are from the should be consolidated.
individual income statements of the This means the consolidated gross
Example 2 two companies for the year ended profit would be reported as:
According to IAS 28, Investments in 31 August 2012.
Associates, which, if any, of the following Tulip Co $18,300
statements are correct? Tulip Co Daffodil Co Daffodil Co ($9,200 x 6/12) $4,600
$ $ Consolidated gross profit $22,900
1 Equity accounting will always be used Revenue 61,000 23,000
when an investing company holds Cost of sales (42,700) (13,800) The correct answer is B.
between 20%–50% of the equity Gross Profit 18,300 9,200
shares in another company. It is interesting to note that the two most
2 Dividends received from an investment What should be the consolidated popular incorrect answer options of C
in associate will be presented gross profit for the year ended and D did not take into account the date
as investment income in the 31 August 2012? of acquisition and shows that candidates
consolidated accounts. had, therefore, missed the six months
A $21,520 mid-year acquisition of Daffodil Co.
Statement 1 Statement 2 B $22,900
A Correct Correct C $27,500 Conclusion
B Correct Incorrect D $24,740 In this exam, some of the worst
C Incorrect Correct answered questions continue to
D Incorrect Incorrect The correct answer is B. A significant involve core syllabus areas, including
number of candidates selected the consolidation MCQs. This suggests
The correct answer is D. The most incorrect answers of C and D. These that more work is still needed. Careful
popular incorrect answer was C. include common errors, which are reading of the question stem, all
discussed below. the answer options and applying a
Taking each of the statements in turn: methodical approach should help
1 The key word to pick out of the first When answering questions on the candidates improve their attempts.
sentence is always. This is incorrect. preparation of consolidated financial In preparing for this exam, it is
First, if an investing company holds statements, there are two important essential that candidates do not try and
30% in another company and has facts to establish quickly: rote learn syllabus/subject areas and
no other investments, consolidated that they practise questions that will
accounts would not be produced and, 1 
What is the size of the help them understand the topics and
therefore, equity accounting would not holding acquired? enable them to apply their knowledge
be used. Second, despite an investing 2 What is the date of acquisition? to any question put to them.

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SA EG ads.indd 1 20/02/2013 15:40
 syllabus updates Student Accountant | ESSENTIAL EXAM GUIDE | 04/13

UPDATES to the ACCA

Qualification in 2013
Gareth Owen, ACCA qualifications manager, explains the
planned updates to the ACCA Qualification syllabuses taking
place in 2013 as part of the process of continuous syllabus
maintenance and improvement. The article highlights the
latest syllabus changes, including any minor structural
changes to exams

There are a number of syllabus changes All the detailed changes to the Key guidance on suitable
to the ACCA Qualification in 2013. These syllabuses are summarised below. entry points
are mainly minor additions and updates, Planned changes for 2014 and examinable
rather than major structural changes, DETAILED CHANGES OUTLINED FOR document updates
ensuring that the qualification continues JUNE AND DECEMBER 2013 In order to make changes to the cut-off
to evolve and adapt to the latest business Papers F1–F3 dates for examinable documents, in
and accounting sector needs. These The ACCA Knowledge module exams will response to feedback from stakeholders,
latest changes are being introduced to remain with the current structure of 50 the examinable document update for
update the syllabus content, to ensure two-mark questions throughout 2013 the following papers will be delayed for
that the ACCA Qualification continues to and in January 2014, and Papers F1 a session:
comply with the appropriate regulatory to F3 will operate with the same ¤ Papers F4 to F9 (except Paper F6)
standards, to improve the articulation examinable documents until January For these papers only, the examinable
between related syllabuses and to reflect 2014. There are no syllabus changes documents and Study Guide published
the views of our key stakeholders. planned for any of the three syllabuses for 2013 will also apply to the June
In all cases, please refer to the 2013 for Paper F1, Accountant in Business, 2014 session. ACCA Approved Learning
Study Guides for full details. The summary Paper F2, Management Accounting, or Partners – content are aware of this and
of changes is also included at the back of Paper F3, Financial Accounting, except this has been reflected in their materials.
each Study Guide. for a minor terminology change Paper F6 examinable documents will
regarding the IFAC Code of Ethics now be updated for 2014 as normal in line
Terminology changes known as the IFAC (IESBA) Code of with tax legislation.
The IASB has changed the names of Ethics. Exam questions will, however, It would normally be the case that
the performance statements. ACCA will still refer to the IFAC Code of Ethics. the Papers F1–F3 exams in 2013 would
implement this terminology in 2013 This only affects Section F of Paper F1, be based on regulation and legislation
for ACCA Study Guides and exams from Accountant in Business. For clarity, issued/passed on or before 30 September
Papers F4 to P7. the term IFAC will still be retained 2012. ACCA made an exception when
throughout this year. these papers were relaunched in
The following table shows the changes: There is no change to examinable December 2011 and extended the period
documents for these papers. As for the examinable documents with a
Old term New term explained above, the next update to the cut‑off date of 30 September 2010
examinable documents for these papers (including the version of the Framework
Income statement Statement of profit
will be for exams in 2014. prior to the changes to two chapters
or loss
There is also a very minor clarification in September 2010) being effective for
Statement of Statement of profit to a study outcome in Paper F2, exams right through to the end of exam
comprehensive or loss and other Management Accounting, as follows: year 2012. This has now been extended
income comprehensive to cover exam year 2013 too. As such, the
income new IAS 1 terminology will be examined
Section and Syllabus
from 2014 in these three exams.
subject area content
As in the previous version of IAS 1,
there is still the option to present Income statement Statement of profit
performance in either a single statement
or in two statements. No other wordings
or loss terminology changes
in accounting standards have been B1 (c) (iv) Re-apportion will not apply to
changed, as these generally referred to Accounting for service cost
items being charged/credited to profit material, labour centre costs to Papers F1, F2 and
or loss rather than mentioning the term and overheads production cost F3 until 2014 when
income statement. centres (including
Please note that terminology the use of the terminology changes
changes will not apply to Papers F1, F2 reciprocal method are made to all
and F3 until 2014 when terminology where service cost
changes are made to all Foundation centres work for Foundation level
level exam papers too. each other) exam papers too

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 30 foundation level

THE FOUNDATION
all you need to know

The Foundations level leads towards figure 1: How the Foundation level qualifications articulate with
a range of qualifications at a range the ACCA Qualification
of levels – from GCSE equivalent to
first‑year undergraduate degree level.
Figure 1 shows a diagram including
the Foundation level qualifications that
can lead to full ACCA membership.
There are a number of awards
available but there are four key
qualifications within the Foundation
level, each of which need to be
combined with the Foundations in
Professionalism module:
¤ Introductory Certificate in Financial
and Management Accounting
consisting of Paper FA1, Recording
Financial Transactions and Paper MA1,
Management Information.
¤ Intermediate Certificate in Financial
and Management Accounting
consisting of Paper FA2, Maintaining
Financial Records and Paper MA2,
Managing Costs and Finance.
¤ Diploma in Accounting and Business
which consists of Paper FAB,
Accountant in Business, Paper FMA,
Management Accounting and Paper FFA,
Financial Accounting.
Self-check modules The module includes a coverage
Certified Accounting Technician (CAT) ACCA has developed self-check modules of the law, fundamental principles of
candidates must complete the Diploma in mathematics and English, which are professional behaviour and how to apply
in Accounting and Business papers available free of charge for students. personal values at work. It concludes
described above and also pass two These modules are optional and can with a case study about potential
from three specialist options papers: assess a student’s readiness to take fraud and an end of module test. This
Paper FAU, Foundations in Audit; accounting exams set in the English assesses the student’s knowledge and
Paper FTX, Foundations in Taxation; and language. Results of the tests are understanding of the module content
Paper FFM, Foundations in Financial anonymously recorded, meaning that and there is a minimum pass mark of
Management. (The individual option ACCA does not know the individual 50%. Students who pass will have their
papers are also available as single results obtained by students. Results and student record automatically updated
awards for which an ACCA certificate feedback are given to students individually to recognise this. Those who fail will be
is available to successful candidates.) so that they can either decide that they pinpointed to their areas of weaknesses
CAT candidates must also complete are ready to register or whether they and can retry the test as many times as
the Foundations in Practical Experience need to do more work on their maths or necessary at no cost.
Requirement (FPER). English skills before doing so, by using the
Students registered on the Foundation tutorial material within each module or Foundations in Practical
level can decide to sit exams leading accessing further material through several Experience Requirement
towards any of the qualifications listed links available within the modules. The To gain CAT status, students must
above, subject to timetabling restraints self‑check modules are available at www. also have 12 months’ work experience
for paper-based exam papers. There is accaglobal.com/en/student/Essentials/ and have demonstrated at least 10
open access to the certificates and the Self-check-modules.html. work-based competence areas, four of
Diploma in Accounting and Business. which can be used for work experience
The qualifications available within the Foundations in Professionalism exemptions from the practical
Foundation level cover three levels. As a To obtain any or a combination of experience requirement of the ACCA
benchmark, the Introductory Certificate the above awards, students must Qualification. This means that any CAT
is set against GCSE or equivalent level, also complete the Foundations in holder who decides to transfer to the
the Intermediate Certificate is set at Professionalism module. This is ACCA Qualification after completing
A-level or equivalent and the Diploma an online interactive module that CAT would only have five Essentials
level is set at first‑year undergraduate develops knowledge and understanding of performance objectives left to complete
degree level or its equivalent, such how an accounting technician should within the ACCA practical experience
as the first year of a full‑time Higher behave professionally at work. It is requirement and two more years of
National Diploma. available via your myACCA account. experience to obtain.

A_Technical_FIA.indd 30 21/02/2013 17:45

 Student Accountant | ESSENTIAL EXAM GUIDE | 04/13

LEVEL
syllabus content Intermediate Certificate syllabus Paper FMA, Management Accounting
The qualifications within the Foundation Paper FA2, Maintaining Financial Records To develop the knowledge and ability
level are aligned to technician‑related To introduce the student to to apply appropriate management
occupational standards. This ensures fundamental principles of accounting accounting concepts and techniques for
that the syllabus of each paper reflects and to develop the knowledge and decision making; planning, control and
the current needs of employers. The understanding of the techniques used decision making, including forecasting
syllabuses concentrate on the core to maintain accounting records. To techniques and the preparation of
areas of transactional accounting account for fixed assets to produce budgets and standard costs.
and on the knowledge and skills most control accounts and reconciliations,
relevant to the technician accountant’s and be able to extract and correct Paper FFA, Financial Accounting
roles and responsibilities. Some new an initial trial balance, making the To develop knowledge and
areas have been added to the previous adjustments necessary to produce an understanding of the underlying
CAT Qualification syllabuses and some extended trial balance and to account principles and concepts relating to
areas removed. The syllabuses have for sole traders and partnerships. financial accounting and to demonstrate
also been re-aligned to provide more technical proficiency in the use of
effective progression through the levels Paper MA2, Management Costs double-entry techniques, including the
and to articulate more closely with and Finance preparation and interpretation of basic
the ACCA Qualification. Apart from To develop the knowledge and financial statements for sole traders,
the three specialist options papers, understanding of the principles and partnerships, companies and simple
all seven exams for the Introductory techniques used in recording, analysing groups of companies.
and Intermediate Certificates and reporting costs and revenues for
and the Diploma are available by internal management purposes. To Specialist Option Award
computer‑based examination. demonstrate and develop applicable syllabusES
cost concepts in making short-term Paper FTX (UK), Foundations in Taxation
Introductory Certificate syllabus decisions and to explain and use There is an emphasis on preparing
Paper FA1, Recording Financial performance measurement and computations of tax liability for
Transactions how spreadsheets can be applied in individuals and businesses, for income
To introduce the student to the basic these areas. tax, corporation tax, capital gains tax
accounting systems and documentation and value added tax (VAT), and this
that will be encountered in the Diploma level syllabus includes new transactional aspects of
workplace. To develop knowledge and Paper FAB, Accountant in Business preparing returns.
understanding of the operational To understand business in the
aspects of maintaining accounting context of its environment, including Access Study Guides (available on the
records and procedures and to learn economic, legal, and regulatory ACCA website) for the tax variants
how to record these transactions in influences on such aspects as available in Ireland, Lesotho, Malaysia
the books of prime entry, including governance, employment, health and and Singapore for further information.
accounting for cash, including petty safety, data protection and security.
cash transactions. The syllabus The syllabus also covers certain Paper FFM, Foundations in Financial
also includes an introduction to aspects of the regulatory framework Management
the principles of double entry and as they affect accounting, auditing and To examine all aspects of cash and
understanding how a computerised and corporate governance, examining the working capital management, and
a manual accounting system work. roles of internal and external auditors to develop an understanding of the
and introducing the importance of sources of short-term and long-term
Paper MA1, Management Information sound accounting and information finance. To develop the knowledge and
To introduce the student to the systems and of internal controls. understanding of the way organisations
knowledge of basic cost information The syllabus also introduces key finance their operations and make
required for management accounting. management and people issues such financing and investment decisions.
To develop the knowledge and ability to as individual and team behaviour,
recognise, collect and record basic cost leadership, motivation and personal Paper FAU, Foundations in Audit
and revenue information for planning effectiveness. Finally, the syllabus To develop knowledge and
and control, including introduction to covers ethics and professionalism in understanding of the external audit
full absorption cost and marginal cost, business and accountancy, including functions, including audit planning and
including the use and application of corporate codes of ethics and risk, internal control and audit evidence
spreadsheets in costing. conflict resolution. and procedures.

The qualifications within THE Foundation level are aligned to

technician‑related occupational standards. This ensures that the
syllabus of each paper reflects the current needs of employers

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