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Hi John,
Please clarify whethter I’m correct that the examiner uses a simplification by calculation of tax on divivdends from sub just via 6%*15?
Option 1 (which is NOT correct):
1) gross up the divivends 15/0.8
2) then calculate the extra tax required: (15/0.8)*(.26-.2)
However, this would be wrong because the question states that dividends are taxed – not profits. Is my understanding correct?Anyhow, assummed that dividends are taxed, the most precise calculatoion is as follows: 15*0.26-(15/.8)*.0.2
Could it be correct, if I assumme that corporate profit tax is involved?Perhaps, the examiner is quite right as by the words “on which annual tax is paid” he means only withholding tax. So, 15*(0,26-0,2)
However, it’s not clear which tax is meant and thus I’m forced to my assumptions. At that, any reasonable assumption gains marks. Am I correct?Thank you in advance.
I really am sorry but I do not have the question Limni.
The ACCA have removed it from their website, and although I save copies of past exams for most papers I did not bother doing so for June 2009 (June 2009 was the previous examiner – many of his questions were ridiculous, which is why he did not last long and was replaced in 2010).
Sorry about that 🙁
No problem!
However, could you please clarify what questions prepared by the previous examiner are quite ridiculous so that we could avoid getting confused by them.
Also, perhaps, his questions that are amended by BPP become less ridiculous and thus one should work with them as well. Am I correct?
However, anyhow, one should pay more attention to exams since June 2010, because they are prepared by the new examiner. Am I correct?
Thank you in advance!
You are correct about it being exams from June 2010 that are best.
The previous examiner was there for about 3 years – so exam questions from before 2007 are also OK. (Not all the previous examiners questions are bad, but many of them are!!)When BPP says ‘amended’, usually they haven’t changed them at all. It is just that if something is no longer in the syllabus then that bit is removed.
Mr Moffat if you contact me by email I can send you copies of past exam questions that you don’t have as I have them all saved on my computer.
Thank you, but I have all the decent exam questions saved. For the reasons I have given I did not want to save this one 🙂
Hi John,
There are only 6 25-mark questions on M&A in the BPP revision kit.
Though, M&A-related patterns are important. Thus, could you please, clarify whether one shoul work with the following questions of the previous examiner:
1) Mercury Training – June 08
2) Saturn Systems – June 08
Hm, 2 questions on M&A in one exam? Strange.
3) Burcolene -December 07
Should I do (or look through) these questions again, as frankly I had done them before you told me that questions of the previous examiner may be ignored. I’m asking mainly because there are only 6 25-mark questions on M&As.Thank you in advance.
All the questions that you mention are worth doing.
When I mentioned the previous examiner, he was not there very long and not all of his questions were ‘bad’. And the examiner before him asked good questions.
There reason there are not so many M&A questions in the revision kit, is that there is very little by way of technique and learning that is specific to M&A. Most of the knowledge needed is knowledge that you are learning anyway when going through other topics should has CAPM and discounting. (I don’t know if you have watched my lecture on Q1 of last times exam, which is a perfect example of what I mean.)
John, please clarify what questions other than Limni should be ignored.
Such a clarification would be very helpful: no confusion and time saved…
I suspect that Asteroid Systems from June 2008 is an example. Please clarify what questions are rather ridiculous and thus should be ignored.Thank you in advance.
The examiner was setting exams for 2007, 2008 and 2009.
Not all of his questions were so terrible, but many of them were!
Since 2010 it has been the current examiner, and all his questions are important.
Before 2007 it was another examiner (who was very old). Most of his questions were good (and, in fact, the current examiner said when he took over that he intended to set questions more like this old examiner 🙂 )
Hope that helps!
Hi John,
It’s been an error in my question: Limni relates to June 2013! – not 2009! 🙂
However, the discussion was rather valuable! Your comments on exams prepared by the prior examiner are very useful.
Though, I have to come back to the intial question:
Please clarify whethter I’m correct that the examiner uses a simplification by calculation of tax on divivdends from sub just via 6%*15?
Option 1 (which is NOT correct):
1) gross up the divivends 15/0.8
2) then calculate the extra tax required: (15/0.8)*(.26-.2)
However, this would be wrong because the question states that dividends are taxed – not profits. Is my understanding correct?Anyhow, assummed that dividends are taxed, the most precise calculatoion is as follows: 15*0.26-(15/.8)*.0.2
Could it be correct, if I assumme that corporate profit tax is involved?Perhaps, the examiner is quite right as by the words “on which annual tax is paid” he means only withholding tax. So, 15*(0,26-0,2)
However, it’s not clear which tax is meant and thus I’m forced to my assumptions. At that, any reasonable assumption gains marks. Am I correct?Thank you in advance and sorry for the error.
At least it has led to valuable results 🙂The wording is confusing and so I think you would get the marks.
The way I would interpret it (and the way it would actually work in practice in most countries) is that the tax charged in the foreign country would have been 15/0.8 x 20%
(because the question does say they will receive 15M on which tax has been paid – which suggests that the 15M is net of tax)Then the tax charged in the home country would have been calculated on the gross dividend (i.e. on the same figure that the foreign tax had been charged) so 15/0.8 x 26%
That would mean that the extra tax would be 15/0.8 x 6%.
That is what I would have done in the exam, which is different from the answer, but I am confident I would have got the marks.
Hi John,
Thanks a lot.
Though, please confirm that some questions imply that additional tax may be charged either on the full foreign profits, whereas others stipulate that only dividend-related part of the profits should be taxed.
The approach depends on question. Am I correct?Thank you in advance.
It does depend on the question.
For most questions in the past it has not been a problem because all of the profits have been remitted (so both profit and dividend are the same).
However the examiner will have to tell you the tax position. (If you can’t find it in the question then state your assumption and you will still get credit even if not full marks.)
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