According to the examiner’s report there were two sections to the examination paper and all questions were compulsory. Section A consisted of 20 multiple-choice questions (two marks each) which covered a broad range of syllabus topics. Section B consisted of three questions (2 for 15 marks and one for 30 marks). These questions covered the main syllabus areas in more depth, supporting both financial statement preparation and interpretation skills. The numerical aspects of the Section B questions were encouraging and it would appear that candidates are becoming increasingly familiar with IFRS terminology and formats. Basic errors seen previously, such as proportional consolidation, were very rare. The interpretation question was the weakest as candidates relied too heavily on the ratios and did not make sufficient use of the additional information provided ; for example, the timing of the changes in the second year and their influence on the results of that year.

Specific comments

Section A

It was pleasing to note that, once again, most candidates attempted all of the multiple choice questions.

Candidates preparing for a subsequent F7 examination are advised to work through the pilot paper, past exam papers and the two sample questions from this paper provided below. The development of the correct answers in the two questions used below should be reviewed carefully as these are examples of questions where students made common errors. Section A questions will continue to provide a broad coverage of the syllabus and therefore candidates should aim to revise all areas of the F7 syllabus, rather than attempt to “spot questions”. The following two questions are reviewed with the aim of giving future candidates a technical review of the question, guidance on how to approach such questions and an indication of the types of questions posed in

Section A of the exam.

Sample questions for discussion

Example 1

Jetsam Co entered into a lease for an item of plant on 1 April 20X0 which required payments of $15,000 to be made annually in arrears. The fair value of the asset was estimated at $100,000 at the inception of the lease and Jetsam Co’s cost of borrowing is 8%. The lease was for a three- year period and the plant’s estimated economic life was ten years.

What amount should he charged to profit or loss relating to the lease for the year ended 31 December 20X0?

A $11,250

B $6,000

C $7,500

D $13,500

This question tested candidate’s knowledge of lease agreements and the distinction between an operating and a finance lease. Although information was given that referred to a finance lease agreement for the asset, candidates were expected to understand that, by leasing the asset for only three years of its ten year life, it was an operating lease. The lease rental, as an expense, needed to be time apportioned at $15,000 x 9/12 =

$11,250 = Answer A.

Many candidates treated the lease as a finance lease and calculated the depreciation charge ($100,000/10years x 9/12 = $7,500 = Answer C) or the finance charge ($100,000 x 8% x 9/12 = $6,000 = Answer B) or combined the two charges to $13,500 (Answer D). As already noted this was an operating lease and therefore these figures were not appropriate in this case.

This topic covers a key area of financial statement preparation and leases have been regularly examined. The distinction between the two types of lease and the accounting treatment of both, following IAS 17 Leases, is a topic that future candidates should be aware of.

Example 2

Inventory may be measured on a first in, first out (FIFO) or a weighted average cost (WAC) basis. For property, plant and equipment (PPE) the choice is between the cost and revaluation models.

In a period of rising prices, which of the following combinations would lead to higher profitability ratios?

Inventory PPE

A FIFO Revaluation model

B FIFO Cost model

C WAC Revaluation model

D WAC Cost model

As the question gives all four combinations, and specifically mentions rising prices, it needed deductive reasoning to determine that the correct answer was B. FIFO would give a lower cost of sales than WAC and therefore higher profits and profitability ratios (such as gross and operating profit margins). This would eliminate distractors C and D.

The PPE cost model would give lower depreciation charges than the revaluation model and therefore higher profits and lower capital employed (both combining to give a higher return on capital employed). This eliminates answer A.

The analysis of financial statements and the impact of alternative valuation models on financial ratios is a key area of the F7 syllabus and will continue to be examined in a variety of forms.

Section B

Question One

This was a fifteen mark question requiring the preparation of a statement of profit or loss and other comprehensive income and a statement of changes in equity for a single company using IFRS formats. This was generally well answered by candidates.

However, many candidates wasted valuable time by preparing lengthy journal entries to support the adjustments in the question. These were not necessary to answer the question and candidates should refer to similar F7 single company financial statement preparation questions in recent past papers. A number of candidates also prepared either the statement of financial position or supporting workings (such as non-current asset carrying amounts) which was also not necessary and earned them no marks.

It continues to be the case that, even at this level, a significant number of candidates cannot distinguish between straight line (cost-based) and reducing balance (carrying amount-based) depreciation. The question will always makes clear which method is to be used (and if time apportionment is to be used).

The finance cost of a loan note should, always be based on the effective cost (rather than the “coupon” rate) and, of course, time apportioned where necessary. In this question there was also an in-substance loan (based on a cash receipt treated as sales rather than a loan) which would also attract a finance charge based on the given rate of interest. Many candidates either ignored or incorrectly accounted for these costs.

The question included the revaluation of property and many candidates took the revaluation surplus as the difference between the asset’s cost and fair value. The correct treatment is the difference between the asset’s carrying amount and fair value.

In the statement of changes in equity, a majority of candidates worked forwards and, in effect, accounted for the share issue a second time. The information in the question stated the balances as at the reporting date so for this statement it was necessary to work backwards to determine the opening balances on share capital and share premium. The error with share capital meant that the dividend was calculated on the wrong number of shares,

but candidates gained marks under the own figure rule for deducting dividends from retained earnings (those candidates who deducted dividends from other elements of equity did not obtain those marks).

Question 2

This was a two-part interpretation question with part (a) (for four marks) requiring candidates to calculate two specified ratios. There was sufficient information given in the question to indicate figures that should be included

in, and excluded from, the ratios. The only exception was operating profit (or profit before interest and tax – the same figure in this question) which candidates were expected to use as the numerator for ROCE. Whilst many candidates, by showing full workings, gained all four marks there were others who had little idea of how to link the numerator and denominator to obtain meaningful ratios for both years.

Part (b) for 11 marks was less well answered. Many candidates simply repeated the ratios from part (a) and stated whether they had increased or decreased (not even suggesting whether they gave a better or worse position). The central aim of the question was to comment on the changes that had taken place during the second year, although these had only been implemented half way through the year so the results could not reflect a full year’s benefit from them. Few candidates realised that, although there was only half a year’s results from the changes in the statement of profit or loss, the statement of financial position reflected the year-end position as a result of the changes. The changes made during the second year should lead to improved results in the future.

Although the basis of the ratio calculations was clearly stated in part (a), for part (b) candidates should have discussed the impact of the property revaluation (in the second year only) and the change from an operating lease to a finance lease. It was not necessary to recalculate numbers or new ratios to reflect these changes –although many candidates wasted time by doing so – but to discuss their impact and the lack of direct comparability between the two year’s financial statements as presented.

Question 3

This 30 mark question required the preparation of a consolidated statement of financial position which has been examined many times in the past (for 25 marks) and a short separate written relating to an associate (for 5marks).

With respect to the goodwill calculation, the common problems were: (i) missing one or more elements of the calculation of the controlling or non-controlling interest at the date of acquisition; (ii) not correctly determining the pre-acquisition element of the retained earnings from the year of acquisition (a seasonal or a timeapportioned adjustment); (iii) adding the fair value adjustment of an asset where its fair value was less than its carrying value ; (iv) ignoring the intangible asset to be recognised by the parent on acquisition although this asset would not be separately recognised by the subsidiary in its own financial statements; and (v) ignoring the fair value adjustment (at acquisition) of the subsidiary’s own financial asset investments.

For the consolidation itself common problems were: (i) not increasing the carrying amount of property, plant and equipment by the reduced depreciation charge from the fair value adjustment noted above (if the fair value of the asset is decreased then the post-acquisition depreciation charge should also be reduced); (ii) not amortising the intangible asset recognised separately in the goodwill calculation; (iii) using (in this case) margin rather than

mark-up to determine unrealised profit on inventory held and in transit; (iv) not accounting correctly for goods in transit and inter-company balances and ensuring the correct elimination of items; (v) not correctly adjusting share capital and share premium from the purchase consideration calculated at the goodwill stage; (vi) not accounting for the deferred consideration or the outstanding interest (as a deduction from post-acquisition profits and an addition to the liability); and (vii) not accounting for the acquisition taking place part way through the year, thus requiring several items to be time apportioned.

Part (b) for 5 marks was generally poorly answered. It may be that candidates felt the 95% already completed would be sufficient to gain a pass mark, although there was no other evidence of particular time management problems and all three Section B questions were attempted by nearly all candidates.

The question required candidates to distinguish between the first part of the year when an investment was held as an associate (with a level of shareholding and board representation to give significant influence over the investee) and the second part of the year when, although the shareholding was unchanged, there was no longer any representation on the board. This change meant that there was no significant influence and it was no longer an investment in an associate and equity accounting could no longer be used. Few candidates appreciated the status of the investment changed once board representation was lost or that, from that point onwards it would be treated as an investment at fair value through profit or loss.


For this first September sitting, performance was generally good and encouraging. Candidates are, once again, reminded of the importance of reviewing past F7 papers to identify the skills required in applying their knowledge in the examination. An appropriate level of workings supports good answers and allows markers to understand how answers have been arrived at – excessively lengthy and absent workings do not allow that to happen. The F7 syllabus is extensive but good exam (and exam preparation) techniques are just as important as learning the key elements of International Standards, with preparation and analytical skills.

The above report  was culled from

According to the examiner’s report, there were two sections to the examination paper and all of the questions were compulsory. Section A consisted of 15 multiple choice questions (two marks each) which covered a broad range of syllabus topics. Section B had four questions worth 10 marks each and two longer questions worth 15 marks, each testing the candidates’ understanding and application of taxation in more depth. The following paragraphs report on each section and focus on some of the key learning points.

Specific Comments

It was very pleasing to see that once again almost all candidates attempted all of the questions. Candidates preparing for the next examination of F6 (UK) are advised to work through the specimen paper, past exam papers and sample questions discussed here and to carefully review how each of the correct answers were derived.

Section A questions aim to provide a broad coverage of the syllabus, and future candidates should aim to revise all areas of the F6 (UK) syllabus, rather than attempting to question spot. The following two questions are reviewed with the aim of giving future candidates an indication of the types of questions asked, guidance on dealing with exam questions and to provide a technical debrief on the topics covered by the specific questions selected.

Example 1

Yui commenced trading on 1 April 2014, and registered for value added tax (VAT) from 1 January 2015. Her first VAT return is for the quarter ended 31 March 2015. During the period 1 April 2014 to 31 March 2015, Yui incurred input VAT of £110 per month in respect of the hire of office equipment.

How much input VAT in respect of the office equipment can Yui reclaim on her VAT return for the quarter ended

31 March 2015?

A £660

B £990

C £330

D £1,320

This question tested candidates’ knowledge of the rules for claiming input VAT for services incurred prior to VAT registration. Along with the claim for input VAT relating to the quarter ended 31 March 2015, input VAT can also be reclaimed for services supplied within the six months prior to registration. The correct answer was therefore £110 x 9 (3 + 6) = £990.

Unfortunately, many candidates attempting this question ignored the pre-registration aspect and therefore

selected option C, £330 (£110 x 3). In addition, a number of candidates selected option D where input VAT was claimed for the full 12 months from 1 April 2014 to 31 March 2015 (£110 x 12 = £1,320).


Example 2

Mammoth Ltd commenced trading on 1 January 2012. The company’s augmented profits have been as follows:

Period £

Year ended 31 December 2012 524,000

Year ended 31 December 2013 867,000

Year ended 31 December 2014 912,000

Throughout all of these periods, Mammoth Ltd had one associated company.

What is the first year for which Mammoth Ltd will be required to pay its corporation tax liability by quarterly


A Year ended 31 December 2013

B None of the years ended 31 December 2012, 2013 or 2014

C Year ended 31 December 2014

D Year ended 31 December 2012

This question tested candidates’ knowledge of the first year exception from the requirement for a large company to pay its corporation tax liability by quarterly instalments. With one associated company, the relevant profit limit is £750,000 (£1,500,000/2). This limit was first exceeded for the year ended 31 December 2013, but the

exception means that instalments are not payable until the year ended 31 December 2014 and thus the correct answer is option C. A number of candidates ignored the exception and chose the year ended 31 December 2013 (option A). Option B was another popular choice, with candidates ignoring the implications of the associated company.

Future candidates should take note that they must not only know the relevant tax rules, but they also have to carefully read and appreciate all aspects of the question.


Section B

Question One

This question was on capital gains tax, and it involved a taxpayer who had both disposed of a main residence and made a part-disposal of an acre of land.

Part (a) of the question required a calculation of the taxpayer’s capital gains tax liability for the tax year and was well answered by the majority of candidates. The only consistent mistake was for candidates to consider that the 36-month any-reason period of deemed occupation for principal private residence (PPR) relief was available when calculating the gain on the main residence. This period of deemed occupation for PPR was not available because the unoccupied period was not followed by a period of actual occupation. Part (b) of the question required an explanation as to why it would have been beneficial for the taxpayer to have delayed the sale of the acre of land. Most candidates realised that delaying the disposal until after the end of the tax year would result in an additional annual exempt amount being available. However, only a few candidates picked up the additional points that the taxpayer had some unused basic rate tax band in the following tax year which would result in a lower rate of capital gains tax being payable and that the due date for the capital gains

tax liability would also be deferred.


Question Two

This inheritance tax question was generally fairly well answered and involved an individual who had made

various lifetime gifts to other individuals. Part (a) of the question required candidates to determine how much of the taxpayer’s nil rate band was still available after taking account of the various lifetime gifts. This required knowledge of the various inheritance tax exemptions which are available. Although many candidates demonstrated satisfactory knowledge here – workings were often badly laid out, hard to follow, and repeated the same points. It is in such situations that the reading time can be put to good use in planning an appropriate layout.


Part (b) of the question required knowledge of the conditions which have to be met if gifts out of income are to be exempt from inheritance tax. Many candidates struggled with this part of the question, giving all sorts of inappropriate advice such as recommending that the relevant donees marry (so that gifts were in respect of marriage) and ensuring that the taxpayer does not die for seven years rather than focussing on the conditions for the normal expenditure out of income exemption, as the question required.


Part (c) of the question required a basic knowledge of taper relief – when is it available to a taxpayer, and

whether the availability of taper relief affects the amount of inheritance tax payable in respect of a person’s estate at death. A number of candidates simply copied out (and often explained) the taper relief table from the tax rates and allowances. This was a time consuming approach to gaining one mark. In addition, many candidates did not appreciate that taper relief has no effect as regards the inheritance tax payable on an estate at death.


Question Three

This value added tax (VAT) question was mainly narrative in nature, and was generally not satisfactorily

answered. The question involved a company which had recently commenced trading.

Part (a) of the question required candidates to explain from what date the company was required to register for VAT, and by when it was required to notify HM Revenue and Customs (HMRC) of the registration. Many candidates explained in detail why the company had to register for VAT under the historical test. However, many candidates failed to realise that the earlier future test took precedence. The relevant date was therefore when the company signed a contract for the increased sales.

Part (b) of the question required candidates to state how and when the company would have to submit its

quarterly VAT returns and pay any related VAT liability. Very few candidates appreciated here that VAT returns must be filed online, with payments being made electronically.

Part (c) of the question required candidates to state the circumstances when a VAT registered business (not using the VAT cash accounting scheme) would have to account for output VAT at the time that payment is received from a customer. There were many creative answers to this part of the question involving everything from the flat rate scheme to exports. However, all that was required was a basic explanation of the tax point rules for services- output VAT is accounted for at the time that payment is received if a customer pays before the basic tax point and before an invoice is issued (for example, if a deposit is paid). Part (d) of the question produced some satisfactory answers. It required candidates to advise the company as to why it should be beneficial for the company to use the VAT cash accounting scheme. This was because the company allowed its customers 60 days credit when paying for services (so the payment of output VAT would be postponed), and also because the company was concerned about impairment losses (VAT relief for these is automatic under the cash accounting scheme). Input VAT recovery would not be affected because the company paid for purchase invoices as soon as they were received.


Question Four

This question had three separate scenarios, of which the first and third were fairly well answered and the second was less well answered. The first scenario in part (a) involved three individuals who were in partnership, preparing accounts to 31 October annually. A fourth partner joined mid-way through an accounting period and the requirement was to calculate the new partner’s trading income assessment for his first tax year as a partner. Although many candidates demonstrated satisfactory knowledge here – a large number wasted a significant amount of time by also performing calculations for the three existing partners, despite the requirement only concerning the new partner.

The second scenario in part (b) involved an employee who was provided with a beneficial loan part-way through the tax year. The loan was subsequently increased before the end of the tax year. The basic idea behind this question was that candidates had to calculate the benefit using the average method (they were instructed to use this method), with the interest actually paid to the employer being calculated on a strict basis. However, many candidates failed to read the requirement carefully and thus ignored the instruction to use the average basis when calculating the taxable benefit. In addition, many candidates failed to use proper workings and accordingly became confused mid-way through their calculations.

The third scenario in part (c) involved a self-employed taxpayer who had made a trading loss in the tax year. On the assumption that the taxpayer relieved his trading loss as early as possible, the requirement was to calculate the amount of trading loss carried forward to the next tax year. Once again, many candidates’ workings were not well-laid out. Many candidates prepared tax computations for both years for which figures were provided, before realising that all that was required was a loss memorandum. The set off of the brought forward capital loss against the current year chargeable gain was also often overlooked.

Question Five

This was the 15-mark question focussing on income tax and it involved a self-employed taxpayer.

Part (a) of the question involved the calculation of the taxpayer’s income tax liability and it was generally

satisfactorily answered. In addition to his trading profit, the taxpayer received property income, building society interest and interest from savings certificates. The level of his taxable income meant that the personal allowance was not available. Candidates need to appreciate that their answers should be as clear as possible and workings should be clearly shown, although these should be kept to the minimum required. For example, only one working was needed for the property income. In addition, it was not always obvious from candidates’ answers that the personal allowance was not available and that the interest from the savings certificates was exempt from tax.

Part (b) of the question involved income tax planning as it asked candidates to calculate the income tax which would have been saved if the taxpayer had undertaken a number of tax planning actions (such as contributing to a personal pension scheme) . It was generally well answered, although some candidates took an unnecessarily long approach by redoing the entire income tax computation. Candidates are advised that the use of marginal tax rates can often by used to answer such requirements and this is good practice for those candidates who are planning to attempt the advanced taxation paper.

Question Six

This was the 15-mark question focusing on corporation tax. It involved a company which had recently been incorporated and commenced trading.

Part (a) of the question required candidates to state when an accounting period starts for corporation tax

purposes. Most candidates appreciated that an accounting period starts when a company commences to trade, but many could not provide any other circumstances. For example, an accounting period will also start when a company otherwise becomes liable to corporation tax.

Part (b) of the question required a calculation of the company’s corporation tax liability for a four-month period. The calculation involved adjusting for disallowed expenditure, calculating the deduction for a lease premium, a detailed capital allowances computation, the treatment of loan interest received for non-trading purposes, and the calculation of marginal relief. The aspect of this question which appeared to cause candidates the most difficulties was the lease premium deduction and the difficulties were largely due to a failure to read the question carefully. Candidates were given the amount of the premium assessed on the landlord as income. However, a lot of candidates misread this figure as being the total premium paid. Part (c) of the question was reasonably well answered. It required knowledge as to how long a company must retain the records used in preparing a self-assessment corporation tax return, and the consequences of not retaining records for the required period.

The above report was culled from

According to the examiner’s report, there were two sections to the examination paper and all questions were compulsory. Section A consisted of 20 multiple choice questions (two marks each) which covered a broad range of syllabus topics. Section B had three shorter questions (worth 10 marks each) and two longer questions (worth 15 marks each). These questions covered all of the main syllabus areas.

On the whole, candidates scored better in Section A than Section B. The calculation aspects of Section B were also encouraging, showing that the technical side of the subject can be overcome with preparation and practice. However, many candidates did not apply the information given in the scenario to their answers in the written sections, and tried to rely on knowledge alone. Application of knowledge to the scenario is a vital skill, and will be tested throughout the ACCA syllabus.

Specific Comments

Section A

It was very pleasing to see that once again almost all candidates attempted all of the questions Candidates preparing for the next examination of F5 are advised to work through the pilot paper, past exam papers and sample questions discussed here and to carefully review how each of the correct answers were derived. Section A questions aim to provide a broad coverage of the syllabus, and future candidates should aim to revise all areas of the F5 syllabus, rather than attempting to question spot. The following two questions are reviewed with the aim of giving future candidates an indication of the types of questions asked, guidance on dealing with exam questions and to provide a technical debrief on the topics covered by the specific questions selected.

Sample Questions for Discussion


Example 1

B Co. operates a production process which generates a contribution of $4 per hour. Wages are paid at $7 per hour and labour is fully utilised. During busy periods workers are offered the chance to work overtime, which is paid at $10 per hour. However, workers are currently refusing to work overtime because of an industrial dispute. B Co has just received an additional order which must be fulfilled immediately which will require 10 hours of labour to fulfil.

What is the total relevant cost of labour for the additional order?

A $11

B $40

C $100

D $110

This question tested candidates’ knowledge of relevant costing principles, specifically labour costs and was not answered well by candidates. When finding the relevant cost of labour, the first question we should ask is ‘do we have spare capacity?’ If we do (and our labour is paid a guaranteed minimum number of hours), then we can undertake the job at no extra cost, therefore the relevant cost is zero (remember that relevant costs look at the change in cash flows as a result of a decision).

However, in this question, there is no spare capacity. If this is the case, we have to look at the options available, and pick the cheapest. If we pay overtime, or hire extra staff, any extra costs are relevant as the extra costs are directly linked to the job. The other option is to divert production from another product, which is an option here. The general rule for this situation is that the relevant cost is the contribution lost plus the labour cost, but it’s worth looking into why, as this is a common mistake in relevant costing questions. What we have to look at is ‘what are the changes in cashflows as a result of this decision’. If we look purely at labour costs, there is no change – we are simply telling our workforce to stop working on one product, and come and work on the job in question, so no change in cashflows. We do, however, lose the benefit from the product we divert from. We lose the revenue, because we can no longer sell the product, but we save the variable costs as we no longer make it. Fixed costs will be unchanged, so the benefit lost is the contribution. Finally though, we’ve just said that we’ll save the variable costs of producing the other product, but we won’t actually save the labour costs – which is

why we need to add them back. It can be a difficult concept to understand, but remember, if we’re diverting production, the relevant cost is contribution lost plus the labour cost.


In the context of our question, we can either divert production or pay overtime. Based on the above, the cost of diverting production is the contribution lost of $4/hr plus the labour cost of $7/hr, ie $11/hr. The overtime cost is $10/hr, so ordinarily we would choose this as it is cheaper, however due to the industrial action no overtime is available. This leaves us with only one option – pay $11/hr. The question asks for the total cost of the 10 hours required, so $11/hr*10hours=$110, answer D.

Answer A was the correct hourly relevant cost, but not the total cost. Answer B recognised the contribution lost of $4/hr, but didn’t add back the labour cost. Answer C was the cost of the overtime, which couldn’t be selected due to the industrial dispute.

Relevant costs are a regularly examined topic in F5 and future candidates should be aware of relevant costing principles, as well as common relevant costs such as materials, labour and overheads.


Example 2

B Co produces quarterly rolling budgets and had forecast the costs of material purchases for the next four

quarters (quarters 1, 2, 3 and 4). Purchases for quarter 1 were budgeted to be $220,000 and it was anticipated that the cost of materials would rise at a rate of 2% per quarter.

At the end of quarter 1:

‒ Actual material purchases were recorded at $210,000. This was due to a change of material supplier duringthe quarter.

‒ A revised estimate for the increase in material purchase costs was made. The rise was now predicted to be only 1% per quarter.

‒ The budget was updated.

What estimate for total annual material purchases should be recorded in the updated budget?

A $896,754

B $852,684

C $861,211

D $1,071,211

This question tested the area of budgeting, specifically rolling budgets, and was not well answered by the

majority of candidates. The main point here is that budgets are updated to include all information – at the end of quarter 1 we have more information than when we set the budget at the start of quarter 1. Our original budget incorporating the 2% increase as originally forecast would look as follows:

Q1 Q2 Q3 Q4 Tot





233,466 906,754

The new information is that actual quarter one material purchases were $210,000 and the increase would only be 1% per quarter. With this new information we would roll our budget on a quarter, starting with Q2. The most important number here is the Q2 forecast – this would now be based on a 1% increase on the Q1 actual figure, as this is the most up to date information we have. Therefore the Q2 figure is $210,000*101%=$212,100. The remaining quarters’ forecast figures follow from this – increasing by 1% per quarter, giving the following:

Q2 Q3 Q4 Q1 Tot







Therefore the answer is C. Answer A simply takes the original budget and revises the Q1 figure to $210,000 – reducing the total by $10,000. Answer B is obtained by adding Q2-Q4 revised budget, but including the Q1 actual figure, which does not ‘roll’ the budget on a quarter. Answer D includes the correct figures, but incorrectly adds in the Q1 figures, which would no longer form part of the budget.

Budgeting is a key area of the F5 syllabus, and future candidates should be aware of all the different methods available to a business.

Section B

Question One

The first question was a ten mark question covering target costing. Part (a) required knowledge of the steps involved in target costing. This was well answered by most candidates – showing a good appreciation of the basics of the subject.

Part (b) required candidates to apply this knowledge to the scenario given, and discuss the benefits and

difficulties faced in implementing target costing within a service provider. Results on this question were mixed –it was pleasing to see that many candidates were aware of how service providers differ from manufacturers. However, a common error in this question was to explain the characteristics of service providers but not apply it to target costing as required, making it very difficult to award marks. Writing “Services are variable in nature,” is true, but doesn’t address the requirement regarding the difficulties of target costing. “Services are variable in nature, therefore the amount of resources used for each customer will be different, making pricing and costing more difficult,” would address the requirement. Better answers used the facts given in the scenario to give their points more weight and would score more highly as a result.

Exam technique is important on questions like this too – the requirement asked for benefits and difficulties – two separate things. Candidates should try to break up their written answers with headings wherever possible; both to give the answer structure and to ensure that the whole requirement is met. Some candidates failed to achieve full marks as they only addressed half of the requirement – this could be avoided by reading the requirements carefully during the 15 minute reading time.


Question Two

Part (a) required candidates to use the minimax regret approach to advise a business on its supply levels. A significant proportion of candidates were able to score full marks on this question as they knew the method required – as is often the case in questions of this nature, if the steps are known, full marks can be obtained. Unfortunately, if candidates are not familiar with the steps, then it is very difficult to score any marks. This shows the importance of preparation, and using the resources available. Past papers are available, to allow candidates to practise the techniques needed. While minimax regret hasn’t been examined in detail on a long question, it was discussed in detail in the Examiner’s report from the June 2015 sitting – showing its importance.

The F5 syllabus is very broad, and there is a lot to learn – however, question spotting is a tactic which can prove damaging – it is much better to spend the time going through the syllabus and trying to cover everything, rather than being an expert on only some topics such as ABC or linear programming.

Part (b) required an explanation of an ‘expected value’ and discussion of its merits in this situation. This was another area where candidates struggled – a common approach was to write out the formula. This does not address the requirement, as it does not explain that it is a long-run weighted average return. Strong answers recognised that expected values are used by risk neutral investors for repeated decisions.


Question Three

Question 3 required candidates to assess the performance of a company. The scenario gave performance measures for three categories, along with scores for the company’s competitors.

Part (a) asked candidates to calculate a weighted average overall score for each company, based on the three measures already given. Part (b) followed on from this, requiring candidates to discuss whether statement made by the company’s managing director regarding their performance was true. Again, good exam technique was invaluable here – the statement made two key points – stronger answers took each point in turn and assessed its validity. A significant minority of candidates misinterpreted the requirement, and discussed the performance of the company, and how it might improve. Careful analysis of the requirements (during the reading and planning time) would have avoided this.

Part (c) tested candidates’ knowledge of the terms Efficiency and Effectiveness in a Value For Money (VFM) framework and their application in this scenario. A pleasing number of candidates scored very well on this part of the question, applying the knowledge to the information in the scenario. Application marks were scored when candidates selected appropriate measures for the company.


Question Four

The first of the longer questions covered Multi-Product CVP (Cost-Volume-Profit) analysis for a business selling three products. It was encouraging to see that many candidates were well prepared for these questions.

Part (a) required the calculation of the weighted average contribution to sales ratio, and was well answered by most, and full marks were regularly scored. However, there were still many candidates who simply took the mean of the individual contribution to sales ratios. These must be weighted according to the revenues expected from each product. By far the simplest method for calculating this figure is to take the total contribution and divide by total revenue. Another common mistake is to add up the individual contribution/unit and divide by the sum of the individual selling prices. This does not give the correct weighting, which is why we have to multiply by volume first.

Part (b) tested candidates’ ability to calculate the margin of safety. This requirement was well answered.

Part (c) asked candidates to produce a multi-product Breakeven chart. This was the first time that such a chart had been asked for, and as a consequence marks were low. Many answers gave a Profit Volume chart, which was asked for last time this topic was examined in detail. It’s possible that this could have been due to not reading the requirement carefully enough – picking out the key words “multi-product” and “chart”, and rushing to do the graph.

Part (d) was a simple test of the candidates’ understanding of how the breakeven point would change if the products were sold in a different order. Most candidates recognised that the breakeven point would reduce, but did not pick up the “explain” mark – that the fixed costs would be covered quicker by the higher C/S ratio.


Question Five

Question 5 tested variances – specifically planning and operational sales variances. The scenario gave candidates a draft operating statement showing the sales volume and sales price variance, as calculated by a trainee accountant (which contains errors). There is also information regarding the market conditions and decisions made by the sales director.

Part (a) firstly asked candidates to redraft the operating statement, correcting any errors. It was good to see that most did address the “redraft” element of the requirement – essentially copying down what was in the scenario, and checking the numbers. The other requirement in part (a) was to show the sales variances at a level of detail which would be sufficient to assess the performance of the company and the sales director. Well prepared candidates realised that this meant that some of the variances would be down to uncontrollable “planning” errors, and the original budget should be revised accordingly. The operating statement could then show the variances due to uncontrollable factors, and those down to internal decisions, i.e. planning and operational variances.

Many candidates attempted to calculate cost variances in answering this question. While no marks could be lost, valuable time is wasted. Part (b) then asked candidates to assess the performance of the business and sales director. The difficulty here was identifying the cause and effect relationships between the various variances and the information in the scenario. Basic marks will be awarded for saying what a variance means, but more marks can be given if a candidate explains WHY it happened. For example, “The sales price planning variance was adverse, meaning that the market price was lower than expected,” will get some credit, but “The sales price planning variance was adverse, meaning that the market price was lower than expected. This was due to the government’s tax cut, which was out of the control of the sales manager,” will gain more marks. The difference here can be clearly seen with the second response containing a justification and so candidates should practice supporting their points with information from the scenarios given.



Performance in the technical areas of this examination was strong. Candidates should review past papers to identify the skills required in applying their knowledge, as this is a common weakness. Analysing the requirement carefully and using the information provided in the scenario are also areas many candidates should look to improve. Whilst the size of the F5 syllabus may be daunting, good exam technique is just as important as learning the management accounting methods and techniques.

The above report was culled from


According to the examiner’s report the Paper F4 exam will undergo significant changes in the coming year, with a new format for the written papers, both for English and Global, applicable from December 2014 and the introduction of computer-based exams (CBEs) for both English and Global from 19 November 2014.

It cannot be denied that the new structure of Paper F4 represents a major change in how the content is examined, but, hopefully, what follows will reassure learning providers and, more importantly perhaps, candidates that what is examined has changed little and how the content examined is suitable to this new format. This article explains the validity of the content and approach in relation to the exam structure. In dealing with the new format, it focuses on the written paper as reference can be made directly to the specimen paper that is available on the website currently. CBE specimens will be made available in advance of the introduction of English and Global by the on-demand CBE model.

Moving Paper F4 (ENG) and (GLO) to the on-demand CBE model allows us to introduce added flexibility into our exam schedule, while, as detailed below, ensuring our assessments are relevant for finance professionals.

The syllabus

The general aim of Paper F4 remains the development of knowledge and understanding about the general legal framework within which an accountant operates. To that end it is thought necessary to develop an awareness of specific legal areas of central importance to business in general, and to accountants in particular.

It has to be emphasised that Paper F4 does not aim to make candidates into lawyers. For the most part, in a ‘real life’ context, legal questions will be dealt with by legal professionals. Accountants must be aware, however, of the legal framework within which their legal professionals operate, and indeed which controls their operation, and must be sufficiently sensitive to the fact that certain issues require expert legal advice.

The stated capabilities of the Paper F4 syllabus remain as follows:

  • Identifying the essential elements of the legal system, including the main sources of law. (It is felt that candidates must have a minimum understanding of the legal framework in order to understand the operation of the substantive law. Now that the Human Rights Act 1998 has bedded into English law it has been decided not to examine it as a substantive topic, although its effect remain pervasive and may arise in a consideration of specific aspects of law.)
  • Recognising and applying the appropriate legal rules relating to the law of obligations (both contractual and tortious). (These are the essential legal relationships that people generally enter into, but accountants in particular must be aware of the issues raised. Negligence is felt essential as it is the basis for understanding professional negligence. It should be noted that in terms of tort law attention will be focussed on the essential business-centred torts of passing off and negligence and others, such as the personal torts of nuisance and trespass, have been removed from the syllabus.)
  • Explaining and applying the law relating to employment relationships. (This is an important and popular element of the syllabus.)
  • Distinguishing between alternative forms and constitutions of business organisations.
  • Recognising and comparing types of capital and the financing of companies.
  • Describing and explaining how companies are managed, administered, and regulated.
  • Recognising the legal implications relating to insolvency law.
  • Demonstrating an understanding of various criminal offences that may arise in the operation of businesses. This latter aspect of the syllabus was enhanced by the necessary introduction of the law relating to bribery but, in recognition of the fact that the syllabus cannot just be allowed to grow, it was decided to remove ‘corporate governance’ from the Paper F4 syllabus. This was in no way to imply that corporate governance was not an essential aspect of the operation of businesses, but it was recognised that the issue was dealt with more fully in Papers F8 and P1.

The foregoing has referred specifically to the Paper F4 (ENG) syllabus. The Paper F4 (GLO) syllabus, designed to reflect international aspects of business law, remains essentially unchanged, although with the removal of corporate governance.

The exam

This is the area where real change will take place. From December 2014 the exam will move from the current three-hour paper to a two-hour paper, which will be divided into two sections.

Section A will be worth 70 marks. It will contain a mixture of 20 one-mark and 25 two-mark questions. The use of the word ‘mixture’ is deliberate, as it is important to emphasise that within the exam paper questions will be randomised, so candidates will have to recognise the area of law they are dealing with before offering an answer. It should also be emphasised that the whole syllabus will be open to exam and the availability of 45 questions makes it highly likely that all aspects of the syllabus will be examined in each exam.

Candidates will be required to select the correct one from a list of potential answers. As objective test (OT) questions there can only be one correct answer to each question. The allocation of marks will depend on the complexity of the question with one-mark questions having fewer possible answers than two-mark questions. It will be apparent that the format of Section A will lend itself to computer-based marking and will facilitate conversion to computer-based exam, when that is made available.

Section B will contain five six-mark multi-task questions (MTQs) and in effect will replicate the three analysis/application questions to be found at the end of the previous exam paper. The format of the questions will be similar to the previous problem scenarios and they will contain a series of tasks that relate to a scenario.


A significant part of any educational process is about imparting knowledge, and clearly objective testing is capable of assessing whether that knowledge has been assimilated or not. The current Paper F4 exam structure, to a very large degree, is designed to assess whether candidates possess a sufficient level of legal knowledge to be deemed fit to function as accountants. It might be thought that the use of OTs would exacerbate the mere unthinking collection of knowledge, but in fact the reverse may prove to be the case. Knowledge will have to be marshalled appropriately; there will only be one correct answer and candidates must know it. Also, the new format will stop the question-spotting provider of prepared answers. The sheer number, together with the randomisation, of questions will require candidates to cover the whole syllabus and should require them to think about what aspect of that syllabus they are being questioned on.

However, education is much more than the mere passing on of knowledge; it is about the inculcation of the higher level skills of analysis, reflection and synthesis. Well written questions in Section B of the new format will be capable of testing those higher skills. Candidates may only be required to provide short responses to question prompts, but in order to get the correct answer, they must engage in the appropriate processes of analysis, and reflection. Candidates may not be required to write out those processes but the provision of the correct answer is the proof that they have nonetheless engaged in those processes.

ACCA has an established approach to exam development that ensures that levels of rigour across the qualification are maintained when changes are introduced. In developing the new format for Paper F4 we undertook extensive consultation, including review sessions with subject matter experts and global exam trialling with exam ready candidates. These are key steps of our exam development process that ensure that the new exam format is fit-for-purpose.


Paper F4 will continue to recognise that candidates are potential accountants, rather than potential lawyers. The structure of the new paper will change significantly from December 2014 but the syllabus will not significantly change subject to the changes mentioned in the article above.

Candidates should ensure that they take the time to familiarise themselves with the relevant structure and question types for the exam they will be sitting.

The above message was culled from

According to the examiner’s report, section A of the examination consists of 35 multiple choice questions of two marks each, covering a broad range of topics on the syllabus. Section B has two longer questions (15 marks) testing the candidates’ understanding and application of financial accounting skills in more depth. Thus, all questions are compulsory. The following paragraphs report on each section and focuses on some of the key learning points.

Section A

This section tests a wide range of the syllabus; some questions test knowledge, whilst others require the

application of accounting techniques and detailed calculations. Candidates are advised to attempt all the

questions; even if they are undecided on the correct answer (after doing their own calculations) they should always choose an answer. Candidates preparing for the next examination of FFA/F3 are advised to work through the sample of questions illustrated below and those provided in previous examiner’s reports. They have been chosen to help candidates understand some of the questions that past candidates have found more difficult. Carefully review how each of the correct answers are derived.

Sample questions for discussion

Example 1 (based on question 13)

S Co has the following share capital in issue at 31 March 2015:

30,000 2% $1 irredeemable preference shares

20,000 4% $1 redeemable preference shares

100,000 50c ordinary shares

What amount will be included as equity capital in the statement of financial position at 31 March 2015?

A $130,000

B $70,000

C $80,000

D $100,000

This question is testing whether the candidate understands the different forms of financial capital i.e. debt or equity, and how they are treated in the financial statements. Debt requires the payment of interest (or the transfer of some other form of economic benefit) to the provider of the finance, whereas equity gives the provider of the finance a right to share in the residual assets of the business should it cease to trade. Some forms of finance have the characteristics of both debt and equity, for example preference shares. It is therefore important to understand the type of preference share when deciding upon its

treatment in the statement of financial position. In this example the 30,000 2% $1 irredeemable preference shares do not have to be repaid and are therefore treated as equity. The 20,000 4% $1 redeemable preferences will have to be repaid to the preference shareholders so are regarded as debt and shown as a liability on the statement of financial position. The 100,000 50c ordinary shares are equity and will be shown as $50,000 in the statement of financial position.

The correct answer to this question is therefore C, i.e $30,000+ $50,000 = $80,000.

Example 2 (based on question 28)

F Co’s statement of profit or loss for the year ended 31 March 2015 shows a profit for the year of $575,000. During the year, an ordinary dividend of $130,000 was paid and land costing $600,000 was revalued to $640,000.

What was the total comprehensive income for the year?

A $40,000

B $485,000

C $575,000

D $615,000

This question is testing whether a candidate understands the difference between the statement of profit or loss and the statement of comprehensive income. The statement of profit or loss summarises the incomes earned and expenses incurred during the financial period. The statement of comprehensive income is an extension of the statement of profit or loss to include unrealised gains, for example on the revaluation of intangible assets.

In this example the ordinary dividends of $130,000 are not relevant to answering the question, as they do not affect the statement of profit or loss or the statement of comprehensive income. The total comprehensive income for the year is $615,000 i.e. $575,000 (profit from the statement of profit or loss) + $40,000 (the unrealized gain on the land revaluation). The correct answer is D.

Example 3 (based on question 34)

The following information relates to L Co and M Co.

L Co M Co

Equity $1,500,000 $1,500,000

Profit before interest and tax $100,000 $100,000

Gearing ratio 25% 35%

Both companies borrow money at an interest rate of 5% and no new loans have been taken out during the year.

Based on this information, which of the following statements is TRUE?

A M Co’s interest cover is higher than L Co’s

B L Co’s interest cover is higher than M Co’s

C L Co and M Co have the same interest cover

D It is not possible to draw any conclusions regarding interest cover from the

information provided

To answer this question the candidate needs to understand two key ratios: the gearing ratio and the interest cover ratio. Gearing is the level of external debt a company has (e.g. outstanding loans) in comparison to equity.

Using the gearing ratio it is possible to calculate the amount of external long term debt each company has:

L Co M Co

Long Term Debt Long Term Debt = 25% Long Term Debt = 35%

Equity $1,500,000 $1,500,000

Long term Debt = $375,000 $525,000

Both companies pay 5% interest on debt therefore:

L Co M Co

Interest = $18,750 $26,250

The interest cover ratio indicates the ability of a company to pay its interest out of profits. As both companies have the same profit before interest and tax it is obvious that L Co cover is higher that M Co’s. However, for completeness the calculations are shown below:

L Co M Co

Interest cover = PBIT $100,000 $100,000

Interest payable $18,750 $26,250

Interest cover = 5.3 3.8

The correct answer to this is question is therefore B.

Section B

In this section candidates are required to prepare more in depth answers which usually test a candidate’s ability to draft financial statements.

Candidates are often unsure of the correct format in which to present their answer and how to apply various accounting techniques. Neat and logical workings should always be presented so that marks can be awarded for method, even if the final answer is wrong.

The following comments explain how candidates might be able to improve their performance in future, for two financial statements:

Consolidated Statements of Financial Position

 In the paper version of the exam, use the correct format for a consolidated statement of financial


 Give the statement it’s correct title i.e. “Consolidated statement of financial position at (year-end date)”

 The assets and liabilities of the parent and the subsidiary are added together on a line-by-line basis.

 The investment in the subsidiary (shown in the parents SoFP) is replaced with a goodwill figure. Where

necessary, show clearly your workings for the goodwill figure.

 The share capital and share premium balances are not added together; only the balances related to the parent are used in the consolidation.

 The group share of the subsidiary’s profit is calculated and added to the groups retained earnings. Where necessary, clearly show workings for the calculation of retained earnings.

 If there is intra-group trading then adjust the receivables and payables that cancel each other out.

 Any dividends paid by the subsidiary to the parent should be adjusted, as the net effect to the group is


 Adjust for any unrealised profits on sales of inventory between the parent and the subsidiary.

Preparing a Statement of profit or loss for a sole trader

 Carefully read through the information provided in the question and decide what should be included in

the statement of profit and loss. Remember not everything in a trial balance may be needed.

 Consider any notes provided and decide what adjustments or calculations are required e.g. prepayments

or accruals.

 Exam questions of this type typically require a depreciation figure to be calculated using a stated


 in the paper version of the exam, always show your workings and reference them to the figures in the



Overall, many candidates might still be able to improve their marks by learning the format of the key financial statements, and focusing on their exam technique. Candidates should carefully manage their time to ensure that all questions are answered.

The above report was culled from

According to the examiner’s report, the examination consists of two sections. Section A of the paper contains 35 objective test questions – each worth 2 marks, and section B contains 3 MTQs worth ten marks each. All questions are compulsory. The paper is two hour examination. Specimen exams reflecting this structure are available on the ACCA website together with a number of practice MTQs

As always, excellent scores were achieved by some candidates. I congratulate both them and their teachers. I offer my commiserations to those who were not successful. In section A the worst answered questions were calculation based. Calculation questions accounted for approximately 46% of section A questions, and as usual were answered worse than the narrative based questions. Seven out of the 10 worst answered section A questions were calculation based in the January to June 2015 diet.

There was little difference in performance between section B calculation and narrative questions. As is usually the case for this paper, F2 candidates on average, performed better than FMA candidates. The following questions are ones where the performance of candidates was very weak.

Section A: Sample questions for discussion

Example 1

A company uses standard marginal costing. Its budgeted contribution for the last month was $20,000. The actual contribution for the month was $15,000, and the following variances have been calculated:

Sales volume contribution variance $5,000 adverse

Sales price variance $9,000 favourable

Fixed overhead expenditure variance $3,000 favourable

What was the total variable cost variance?

A $9,000 adverse

B $9,000 favourable

C $12,000 adverse

D $12,000 favourable

The correct answer is A.

This is calculated by finding the balancing figure. The total variance between budgeted contribution and actual

contribution is $5,000 adverse ($20,000 – $15,000). The sales volume and sales price variances sum to

$4,000 favourable, so to balance, the variable cost variance must be $9,000 adverse.

The most popular answer was B ($9,000 favourable), This implies they used the correct approach but made an error on the sign of the variance.

Answers C and D included the fixed overhead expenditure variance in the reconciliation of the two contribution figures. This is incorrect because it would be needed to reconcile profit figures, but not contribution figures. Questions on the reconciliation of budgeted and actual profits or contributions regularly cause candidates difficulty on this paper and future candidates are recommended to study this area carefully.

Example 2

Normally no losses are expected from a process. Any abnormal losses are sold for scrap.

Which of the following calculates the net cost to the company of one unit of abnormal loss?

A Total input cost ÷ actual output units

B Total input cost ÷ expected output units

C (Total input cost – total scrap value) ÷ expected output units

D (Total input cost ÷ expected output) – scrap value per unit

The correct answer is D.

The principle here is that whilst it is reasonable to build the net cost of normal (expected) losses into production cost (because they are a normal feature of the process) , it is not reasonable to do the same with abnormal losses, because, as their name suggests, they are not a normal feature of the process.

The production cost of abnormally lost units is the same as the cost of good production (Total input cost less the revenue from the sale of normal losses ÷ expected output). In this case no losses are expected, so this is equal to total input cost ÷ expected output. Because the abnormal losses can be sold for scrap, their net cost is the cost per unit of making them, less the revenue derived from their sale that is (Total input cost ÷ expected output) –scrap value per unit.

A simpler approach is to eliminate the incorrect options.

Answer A is incorrect because it would spread the cost of abnormal losses over all production units

Answer B is incorrect because it fails to recognize the benefit of abnormal losses (their scrap sales revenue)

Answer C was chosen by majority of candidates. presumably because it resembles the text book equation for

calculating unit cost (Total input cost – revenue from normal losses) ÷ expected output. It is incorrect here because

(i) all the losses are abnormal

(ii) it spreads the scrap value benefit of abnormal losses across all units produced.

Example 3

A company uses a blanket overhead absorption rate of $5 per direct labour hour. Actual overhead expenditure in

a period was as budgeted.

The under/over absorbed overhead account for the period have the following entries:

DR                   CR

$ $

Production overhead 4,000 Profit or loss account 4,000

4,000 4,000

Which of the following statements is true?

A Actual direct labour hours were 800 less than budgeted

B Actual direct labour hours were 800 more than budgeted

C Actual direct labour hours were 4,000 less than budgeted

D Production overhead was over absorbed by $4,000

The correct answer is A.

The debit to the profit or loss account implies that overheads were under absorbed. We are told that actual

overhead expenditure was in line with budget, so the only cause of the under absorption has to be actual activity being less than budgeted. A shortfall of 800 direct labour hours would lead to an under absorption of 800 direct labour hours x $5 per hour = $4,000. Selecting answer B and D, suggest that candidates were confused with debits and credits or under and over absorption of overhead.

Only a minority selected C, presumably most rejected it because it did not allow for the overhead absorption rate of $5 per direct labour hour. Overall candidates need to make sure they understand the causes of under or over absorption of overhead and the bookkeeping entries involved.


Section B

Section B contains 3 questions, one from each of syllabus areas C Budgeting, D Standard Costing and E Performance Measurement. This approach will continue in future papers. The balance of questions in section A

reflects this weighting so as to preserve the overall balance of the paper. Common problems with section B questions included the following

 A poor understanding of purchases budgets, particularly the effect of production levels on purchases.

 An inability to calculate and explain fixed production overhead expenditure, volume, capacity and

efficiency variances.

 An imprecise knowledge of value for money concepts, particularly economy and efficiency.

Future candidates are advised to:

  • Study the whole syllabus, because the paper will cover the full syllabus.
  • Practise as many questions as possible.
  • Read questions very carefully in the examination.
  • Try to attempt the “easy” examination questions first.
  • Not to spend too much time on apparently “difficult” questions.
  • Attempt all questions in the examination (there are no negative marks for incorrect answers).
  • Read previous Examiner’s Reports.

For paper exam, present section B answers as tidily as possible

The above report was culled from


ACCA F1 Examiners Report for June 2015 Diet Report

General Comments

The examination was made up of two parts. Part A of the paper comprised 46 objective test questions, worth 1 and 2 marks, while part B of the paper had 6 multi-task questions each relating to different parts of the syllabus, and each worth 4 marks. Candidates were asked to attempt all of the questions in 2 hours. Candidates appeared to have prepared well for the examination, with very few questions presenting major difficulties. The vast majority of candidates completed the paper, suggesting that it was not time pressured. Syllabus topics on which candidates performed well included stakeholders, outsourcing, responsibilities for budgetary planning, personal effectiveness and financial information used to prepare the profit or loss account.

Section E of the syllabus, which is concerned mainly with personal effectiveness and communications, presented least difficulty, and candidates dealt with questions relating to appropriate methods of communication to deal with specified situations very well. Questions drawn from this part of the syllabus had the highest average pass rates.

Syllabus topics on which candidates performed poorly included non-governmental organisations, Tuckman’s team development theory, intrinsic rewards, and corporate codes of ethics. There was also evidence to suggest that candidates struggled to identify the appropriate action that should be taken by external auditors when evidence of fraud was uncovered. Many candidates did not understand how a package of legislation would impact on the labour market and wages. Newer organisational models (hollow, modular, virtual) and Herzberg’s two factor theory presented difficulties for some.

Candidates did not always understand some of the distinctions between the role and duties of internal auditors and external auditors, or indeed some of the attributes of both. Scenario-based questions posed no significantly greater level of difficulty than shorter questions, though clearly candidates would have spent longer reading through these and considering the information presented. There was some evidence to suggest that part B questions with slightly longer scenarios offered candidates more opportunity to make reasoned selections of answers. This was especially applicable to questions on types of organization (companies, cooperatives, partnerships) and ethical theories (deontological and teleological approaches). For candidates who choose to take the paper-based version of the examination, it has to be emphasised very strongly that they must select answers in the manner required, as set down clearly in the instructions. Writing narrative answers and giving written justifications for answers is given no credit, as the required answers are objective. Candidates must never write out words, sentences or paragraphs. If the candidate believes that the correct answer is B, it is only necessary to write the letter B, and nothing else. By attempting to enhance the submission with added words, phrases or sentences, candidates simply waste valuable time that would be better spent on questions that are more challenging. Likewise, it is futile to write down more answers that the number required. Therefore, if there are two correct answers and the candidate writes ‘B, D and E’, no marks will be awarded, even if two of the selections are correct.

As stated above, the examination can be completed within the required time by a well-prepared candidate, but it is significant that some candidates did not attempt all of the questions, and in some cases this may have been critical in achieving success. Even if the candidate is not certain of the correct answer, by reading and considering the choices carefully it is often possible to eliminate some of them, enabling an informed decision to be made. Questions should not be left unanswered. It is inevitable that some candidates will choose answers on a balance of probabilities even if they do not know the answer, and this is entirely acceptable. However, a minority of submissions suggested that some answers were pure guesswork, and this is supported by the fact that some candidates chose option D for questions where there was no such option. For example, single mark questions can only have A, B or C as a correct answer.

Sample questions for discussion

This section of the report discusses three questions with which candidates experienced difficulties.

Question 9

This question required an understanding of the differences between intrinsic and extrinsic rewards.

Which of the following is driven by intrinsic rewards?

A Pawel, who wants good grades in his examinations to secure a bonus

B Quentin, who sees achievement of his targets as a way of securing promotion

C Ralph, who has declined managerial appointments because he enjoys his current job

D Suzanne, who tries to be the best in her team in order to build her reputation in the company

Intrinsic rewards are those which arise from performance of the work assigned to the individual, and are often related to the quality of working life. They include factors such as job satisfaction, recognition, the feeling of belonging to a successful organisation and personal growth. By contrast, extrinsic rewards are dependent on the decisions of others and are generally pre-determined by external forces. They may include pay and fringe benefits as determined by the employer, or a national minimum wage decided by legislators. In the context of this question, targets set by managers, bonuses and the person’s reputation are driven by external factors to the job itself, while enjoyment of the job is clearly intrinsic. The correct answer is therefore C.

The pass rate for this question was 36%.

Question 29:

The question required an understanding of how the performance of a non-governmental organisation (NGO) is assessed.

The performance of a non-governmental organisation is most often measured in respect of which of the


A Customer satisfaction

B Profitability

C Value for money

Non-governmental organisations (NGOs) are a diverse group of bodies which, although independent of

government, generally have social, welfare or environmental objectives. They are not necessarily charities, though some charities would undoubtedly be recognised as NGOs.

In many cases, NGOs have to be financially self-sufficient and must therefore break even or turn a surplus. However, profitability is not a recognised objective of most NGOs. They are also not truly commercial organisations, so customer satisfaction could not be measured in the conventional sense. If option A had stated ‘stakeholder satisfaction’, this would be a credible answer. Instead of using the usual commercial criteria, the performance of NGOs is often assessed using value for money indicators associated with effectiveness and efficiency. The correct answer is therefore C.

It is quite possible that candidates were confused by the term ‘non-governmental’, assuming that it referred to commercial organisations. However, NGOs are clearly mentioned in the syllabus and study guide as a particular type of organisation, so it is necessary to study them as a distinct type of entity.

The correct answer was selected by 25% of candidates.

Question 43

This question required knowledge of the content of a corporate code of ethics.

Which of the following should be included in a corporate code of ethics?

A A detailed description of all of the commercial objectives of the company

B The consequences for employees of violating the standards of behaviour expected of them

C A summary of the responsibilities of the individual directors of the company

D A list of laws and regulations with which the company will comply

A corporate code of ethics typically opens with a statement of values, mission and core objectives of a company, but it would never include a detailed description of all of the commercial objectives as laid down by its board of directors. The strategic plan would most certainly include such as statement.

The details of responsibilities of individual directors are often set out in the directors’ report and financial statements published by larger companies, and indeed may be a corporate governance requirement for listed companies. However, the corporate code of ethics would not normally drill down to personal responsibilities of individual directors, as the code itself would be expected to be relevant irrespective of future changes in the composition of the board. Although the corporate code may allude to specific laws and regulations, it would not be expected to include all of these.

The correct answer is B. Many organisations now acknowledge that in order for a corporate code of ethics to be effective, it is necessary to combine statements of minimum standards with explicit preventative actions that the company is prepared to take when violations occur.

The correct answer was chosen by 37% of candidates.


The performance of candidates was generally sound, with pass rates on individual questions suggesting a satisfactory or good standard of preparation, and although some topics appeared to be easier or more difficult, this may have been a function of the requirement rather than the specific topic set. Candidates should attempt all of the questions on the paper, and plan their time accordingly. It should be possible for a candidate who has invested sufficient time in study to make an attempt at every requirement.

Although it is unlikely that even the best prepared candidates will know every answer instantly, distractors can often be eliminated by a process of deduction. This takes time, and there is perhaps a case for dealing with questions in ‘sweeps’, by getting marks quickly for questions where the answer is known straight away, and then focusing more time and effort on those requiring greater thought.

The part B questions are generally longer and therefore probably need to have more time allocated to them. For example, parts of these questions may require two or three selections from more than four choices, should be considered carefully. It was clear that some candidates opted for default selections, such as choosing ‘A’ for all options or using sequences (often A, B, C, D), but this is seldom a successful strategy, as answers are randomised in advance.

Those taking the paper-based examination must follow the instructions and make their answers legible. A significant minority of candidates presented detailed answers when it was only necessary to write down the chosen letter. This is time consuming and often self-defeating. It is very regrettable that in some cases, credit could not be given because it was unclear what the candidate had actually chosen. If an answer cannot be read, credit cannot be given.

The Above examiners report was culled from

According to the examiner’s report, the examination consisted of two sections. Section A contained one question for 50 marks and section B

contained three questions of 25 marks each from which candidates had to answer two questions.

P1 questions are based on case scenarios and those candidates who studied the information in the case and applied it suitably in their answer were well rewarded. There is a temptation for candidates to simply draw upon knowledge rather than apply this knowledge in their answers and reproduce remembered notes. Candidates taking this approach are unlikely to be well rewarded.


Question One

The case scenario in Q1 was about a private family owned company delivering public sector care services. The services provided by the company were outsourced to them by the local government authority. The requirements were based around governance arrangements for a small private company fulfilling public sector contracts and how they might address the service delivery failures that were identified in the case scenario. As with many previous cases this scenario was based on a real-life situation and the requirements covered several areas of the study guide.


Part (a) was worth eight marks and contained two tasks relating to corporate governance and agency (this was knowledge essentially) and then to compare corporate governance in a large listed company and a smaller privately owned company (the case scenario could be used to support the candidates answer as this was based around a private family owned company).

The knowledge element of the task was well answered by candidates, but in the second part of the task many candidates failed to recognise that in both private sector businesses and in large listed companies, one aspect of corporate governance is about delivering acceptable long-term economic returns to investors, but the difference is in the agency relationship. The relationship has to be aligned in a large listed company in order to maximize investor confidence but in a privately owned company agency problems are less likely to exist as the company is usually owned and managed by the same people.

Many candidates also failed to recognise that governance is also important when revenues are generated from contracts that are awarded by commissioning bodies like regulatory authorities and the government. Gaining and maintaining the full confidence of these bodies and the service users is also likely to be the focus of governance structures.


Part (b) was worth ten marks and contained two tasks: both addressing remuneration issues in the public sector as against the private sector. Many candidates recognised higher degrees of risk and increased complexity equate to higher rewards for a CEO of a large listed public company, but failed to consider that when delivering public sector contracts there are constraints from government spending budgets. Public sector spending is often funded by taxation. There is a lot of political and economic pressure to get best value from this revenue so stakeholders react negatively if they feel

the payment is too high. Some candidates also failed to explain that management motivations also differ and ‘a public sector ethos’ usually correlates with lower salaries.

Examiner’s report – P1 September 2015 2


Part (c) contained two tasks. Many candidates did not obey the verb in the first task and as it required an explanation therefore a definition was insufficient. Candidates needed to relate both tasks to the case and those who just demonstrated their knowledge as an answer did not gain as many marks as those that applied that knowledge to the case situation. Candidates also failed to recognise the difference between a corporate code of ethics and a governance code and many candidates discussed governance guidelines when the question clearly stated corporate code of ethics.


Part (d) contained two requirements and was to be answered in the form of a business letter. The four

professional marks were awarded for layout, flow, tone and structure of the letter. These should be

straightforward marks for a well prepared candidate who has rehearsed the different communication types that can be examined in P1. Evidence on this paper is that students are not clear how a business letter should be structured. Candidates would be well advised to remind themselves of the communication types and the correct ways of structuring and using language differently in each requirement type.


Part (d) required candidates to address issues around internal controls to care service providers. Weak answers produced a general explanation of the importance of internal controls. Candidates who answered in context and related the importance of internal controls to the issues in the case were well rewarded. The answer required proposals for suitable internal control changes which would address the service delivery failures described in the case. It was necessary to carefully study the case to draw out the evidence of the failures and those candidates who managed to do this achieved the highest marks. Many candidates simply identified how typical control failures in general might be managed without reference to the case and failed to gain as many marks.


Question Two

The case scenario was based on a bank providing financial services. Due to the global economic crisis of 2008, the bank had got into difficulty and the government has intervened with a sizeable investment in return for a majority equity shareholding. The professional members of staff sold insurance policies to clients irrespective of whether the client actually needed them. This was happening because the professional staff were rewarded via a generous commission scheme. The auditors had issued an unmodified report and had not identified the irregularity that was prevalent in the bank.


Part (a) asked the candidates to complete two tasks relating to the fundamental principles which should underpin professional behaviour and to assess the extent to which these principles were evident in the bank. Many students were well rewarded for their answers in the first task, but in this second part did not find the necessary evidence from the case. These candidates might have benefited from highlighting the evidence when reading through the case to ensure maximum marks for this part of the question.


Part (b) asked the candidates to do two tasks. Candidates needed to discuss issues with commission based reward schemes; this could include staff being focused on their own short term gain and will mean that they focus on making the sale today rather than the future consequences. Candidates needed to expand on this lack of objectivity when a system is based on personal gain and how sales became quantity based rather than quality based. The consequence of this being damage to a company’s reputation. The second task required a discussion of how the commission scheme could have been adapted to encourage more ethical practice. Candidates performed better on the second task finding it easier to recommend improvements. Answers might include introducing ‘cooling off periods”, staff being better supervised and changes in the design of the remuneration package so rewards were based on other aspects of business performance not just sales volumes’.

Examiner’s report – P1 September 2015 3

Part (c) contained two tasks relating to external audit. Candidates needed to recognise that the primary

responsibility of external audit is to report to shareholders on whether, in their opinion, the financial statements are free from material misstatement which could be caused by fraud and error. Auditors need to be aware that risks are happening and reliability comes from their knowledge of the company and the industry and then ensuring that the audit encompassed tests of controls around the company and industry requirements. Students also needed to assess the consequences of the auditor’s failure. Candidates recognised that an unmodified report would lead to shareholders and other stakeholders having confidence in the financial statements and would believe nothing was awry in the company. The case informed candidates that the company’s equity value had been impacted, candidates needed to expand on this referencing the government as a shareholder and the impact on the public interest of the company. The reputational consequence for the auditors could also be explored in the answer.

Question Three

The case scenario was based on a company who serviced hotel chains and who started life as a small family concern and had experienced rapid growth and needed to attract additional capital so had recently listed on the stock exchange. The company operated in one country and complied with the country’s governance codes. The remit of the audit committee included all aspects of risk management and so the company had not created a separate risk committee.

The company’s expansion strategy included entering a new country that had experienced rapid growth and domestic prosperity. The government in the new country operates very low levels of indirect tax which has stimulated the hotel industry. This attractiveness is offset by a number of risks that will be faced by choosing to operate in the country.

The question related to the function and roles of a risk committee. Many candidates did this task very well. The second task was to discuss the advantages of a risk committee to the company in the case. Many candidates continued to make general statements about the role and function of the committee and did not relate their answer to the recent listing and entry into the new country both increasing the need for more expertise.

Candidates should also recognise that the audit committee might not be in a good position to continue to manage all aspects of risk management and a separate committee helps the board to ensure that adequate risk management systems are in place to meet every eventuality.

Part (b) contained two tasks, the first task being answered better than the second overall. Candidates should have explained that the spectrum of risk appetite goes from risk adverse to risk seeking and comprises two elements that of level and capacity and needed to discuss how the appetite of the company in the case had been influenced by its corporate strategy and the risks it has chosen to bear. A well-structured answer discussed its rapid growth and its venture into a new country as examples of this. The company is risk seeking due to the many risks in the new country offset by the high returns from the economic growth and low indirect taxation.

Many candidates just discussed the many risks the company was facing and did not correlate this to the return. Candidates that only focused on the risks did not gain as many marks.

Part (c) concerned strategic and operational risks arising from the entry into the new market and how they could be controlled. The risks were evidenced in the case. Many candidates were not very specific about the controls and gave very general answers utilising the TARA framework in their answers. As an example some candidates suggested that the trading risk could be transferred without going on and saying they could take out an insurance policy covering the value of the goods which could be lost or damaged on the long journey to the new country. Candidates who were very general in their answers did not gain as many marks.


Examiner’s report – P1 September 2015 4

Question Four

The case scenario was based on an individual who had received a surprise inheritance. The new found wealth was to be invested in a portfolio of shares. The investments were only in companies with strong management and a credible corporate social responsibility record. Information was given in the case regarding one potential investment.

Part (a) concerned the information value that voluntary disclosures provide to shareholders. Most candidates who answered the question were able to do this quite well. Some candidates failed to relate the answer to shareholders and did not gain as many marks.

Part (b) concerned information in annual reports and which aspects would help the individual in the case to make an investment decision based on his personal criteria. Many candidates discussed many different types of information, but failed to relate the information to the criteria and failed to gain as many marks. Candidates could have considered as examples the biographical details of directors to determine the strength of management and the social and environmental reports to determine their environmental footprint and their concern for society at large.

Part (c) required candidates to assess the appropriateness of the potential investment evidenced in the case using a particular model. This question was answered very well by many candidates. The students who engaged with the case and evidenced their answer gained more marks.

The above report was culled from

When asked during an interview how he managed to reach the top as a professional bodybuilder and Hollywood actor, Arnold Schwarzenegger replied with a single word, “Drive!” All great success ultimately begins with an idea, but what makes ideas become reality is the fuel of human desire. An idea by itself can give you a temporary feeling of inspiration, but burning desire is what gets you through all the perspiration necessary to overcome the unavoidable obstacles along the way.

Take a moment to think about the goals you’ve set for yourself. How committed are you to achieving these goals? Under what conditions would you give up? What if you could significantly increase your desire to achieve these goals? What if you wanted them so badly that you knew with absolute certainty that you would absolutely, positively never ever give up? When you are truly 100% committed to reaching your goals, you move from hoping to knowing. If you want something badly enough, then quitting is simply not an option. You either find a way or make one. You pay the price, whatever it takes.

Those with an intense, burning desire to achieve their goals are often referred to as being “driven.” But is this special quality reserved only for a privileged few? Certainly not. With the right approach, anyone can cultivate a deep, burning desire within themselves and move to a state of total commitment, knowing with certainty that success is as inevitable as the sunrise.

So how do you cultivate burning desire? You begin with an outside-in approach, altering your environment in ways that will strengthen your resolve while eliminating doubt. If you take the time to do it right, you’ll establish a positive feedback cycle, such that your desire will continue to increase on a daily basis.

Here are 6 steps you can take to cultivate burning desire to achieve any goal you set for yourself:

1. Burn the ships.

I’m not going to pull any punches with this one. If your goals are really important enough to you, then you can start by burning the proverbial ships, such that you have no choice but to press on. For instance, you can raise a cheque of 20k to pay a committee of friends if you fail your exams. Nobody wants to lose their money carelessly. This is called willpower leveraging. You use a small bit of willpower to establish a consequence that will virtually compel you to keep your commitment.

2. Fill your environment with desire boosters.

Let’s say one of your important goals is to pass you exam successfully. Get some poster board, and make your own posters that say, “I have passed X and always look at and say it to yourself to hear every morning and night,” where X is your goal, and put them up around your house. Change your screensaver to a text message that says the same thing

3. Surround yourself with positive people.

Most people often make the mistake of sharing their goals with anybody. Please make friends with people who will encourage you on the path to your goals, and find ways to spend more time with them. Share your goals only with people who will support you, not those who will respond with criticism and discouragement.

4. Feed your mind with empowering information on a daily basis.

Inspirational books and audio programs are one of the best fuel sources for cultivating desire. If you want to successful in your exams, read audio visual materials that will ease your success for at least 1 hour daily. If you want to do anything in life whether on relationship, business, parenting etc. then start devouring books that relates to that aspect of life. Go to seminars on occasion. I advise that you feed your mind with some form of motivational material (books, articles, audio programs) for at least fifteen minutes a day.

5. Replace sources of negative energy with positive energy.

Take note and control what goes into your mind that affect your attitude — what you read, what you watch on TV, the cleanliness of your home, etc. Note which inputs influence you negatively, and strive to replace them with positive inputs. I’ll give you some good places to start. First, avoid watching TV news — it’s overwhelmingly negative. Do you really need to hear about the woman who was butchered to death by her jealous husband? Fill that time with positive inputs instead, like motivational and educational audio programs daily

6. Take immediate action.

Once you set a goal for yourself, act immediately. As you begin working on a fresh new goal, don’t worry so much about making detailed long-term plans. Too often people get stuck in the state of analysis paralysis and never reach the action stage. You can develop your plan later, but get moving first. Just identify the very first physical action you need to take, and then do it. This is actually the step that differentiates you from procrastination and excuses. I know many people who want to write their exam. Unfortunately, they have not taking any step at all and they need the certification to rise in their career. Taking immediate action is like the ignition of a car. Without igniting the engine, the car will not move. If you know that you have difficulty taking immediate action, recite “I am an action person” 7x morning and night.

Please post your comment below and I will personally reply them.



Tayo Stephen




In all the books I have read on successful people so far. I observed that they all have one thing in common which serve as the foundation on which all other success was built on. Most of them are very productive and efficient.

Now what is productivity? Productivity is a state of producing something quality. A person is also productive if he/she is highly efficient in any task. Efficient here means that the person meets target, does not give excuses, deliberately put everything down on paper or notepad.

However, irrespective of your kind of job,task or business you run, productivity is still the same everywhere. Now lets us consider the 5 ways to become productive in all your endeavour.

  1. Mind exercise: while some of us do physical exercise and ignore the mind exercise which is also important because it helps correct our conventional beliefs or what I call auto suggestion which has been deposited in us sub-consciously without us knowing. The mind exercise will help us focus on the 80/20 rule, focus on the important and suppress the urgent, decide before starting an event, treat time as money, eliminate trivial decision because it helps clarify your mind. The physical exercise is also important because it helps manage anxiety and keep the body in a good condition.
  2. Be Positive and Energetic: Energy according to the law of thermodynamics can be created nor destroyed but can be transferred from one form to another. Energy is all around us. We have both positive and negative energy depending on the one you harness. So when you are emotionally imbalance little can be done in terms of task because of your state. However, you will ask how the energy can be used. It is very simple. It is by going through inspirational materials first thing in the morning for at least 30mins, drink water then with smile, pleasure and vision confess all the goals (short and long)  you want to achieve in life.
  3. Write things down: one of the rules of becoming productive is to always put things down on paper or gadgets like notepad as fast as possible. Early scientist document both their failure which later lead to their success. Now, the reason why you must document your idea, task etc is that the probability of you forgetting is very high because we are not designed to remember all things. Most of highly successful people that I know and those I have gone through their autobiography like Joe Gerald, Brian Tracy etc have emphasize on this.
  4. Avoid the distraction of Technology: Technology has contributed immensely to the emancipation of humanity. However, if not properly managed, it will cause a serious distraction. Which is why I advice that you limit the emails reply at a time, turn out the news because nothing new is happening under the sun and after all, you can always come back to view it at the end of your task. Avoid chatting social media at work. Do not answer any phone unless it is a true emergency.
  5. Planning: In execution of a task, always look for the easiest way to executive and achieve your result. Likewise, try to execute a task at a time. Do not schedule meetings unless they are decisive and don’t be a perfectionist ; it is better done than perfect.

I hope it is very helpful.

Post your comment below and I will personally reply them


Tayo Stephen