[at800]

P4 – 57% at second attempt.
Now I’m an ACCA affiliate.
It took 7 years taking into account the 2 sessions missed.

I do recommend to ask Mr. John Moffat via “Ask Tutor” forum to eliminate confusion. Though, one should study hard to make a reasonable question;)

Thanks to Open Tution and personally to Mr. John Moffat!

P.S. Pink (the American singer) probably does not know what ACCA is, but I feel as if her song “Try” is about ACCA. In 2013 the song helped me to retake P2. I still remember that impulse, as ACCA is about character after all.

[at800]

In my opinion, the exam was OK.

I did Q1,Q2 and Q4.

I’m not going to guess whether I passed or not, however I do think that this time the exam was much better than in December 2014.

By the way, try the questions of the previous P4 examiner and you’ll see that the previous one was much worse. The previous examiner had tended to make things more complicated that they actually are. Just recall the question “BBS stores”…..

Thus, ACCA should NOT replace the current examiner.
He’s able to improve his exams, given that this one is much better than the previous.

[at800]

Hi John,

I’ve found the same thing in Q2 June 2014.
Again, no grossing up for the loan within the calculation of side effects.
At that, there is NO any notices for full credit for grossing up.
Why?

Is it somehow related to the following sentence in the question:
“It can be assummed that the debt capacity available for Burung Co is equal to the actual amount of debt finance raised for the project”
Please explain.

Thank you in advance.

[at800]

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.

[at800]

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 🙂

[at800]

Though in your lections, you use approach which looks like the examiner’s: the CFs are calculated and afterwards the effective rates, whereas calculations based on interest rates are rather illustrates shown at the end of the lectures for better understanding (at least, I understood them like this).

As per the BPP answer for Q2 2013, just after the caclulation of number of contracts, unexpired basis etc., follwos the table like as follows (the table is not completely the same to avoid copyright issues):

LIBOR-0,9 LIBOR+0,9
% %
LIBOR 3,19 4,99
Interest with spread 2,99 4,79
Closing future price 3,65 5,45
Futures (loss)/gain -1,59 0,21
Effective annual interest rate 4,58 4,58

+ Alongside with similiar approach for options

There are no cash figures at all!

Looks tempting, though I’m still not confident whether this is a good approach.

Please clarify whether one should follow such an approach.
Just to remind that the question is “Recommend a hedging strategy”

Thank you in advance.

[at800]

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.

[at800]

It’s a BPP addition I suppose.

[at800]

Hi John,

Let me ask whether question BBS Stores worth doing one more time.
Thus, I had difficulties with this question doing it about two weeks ago.
Should I review this question given that it’s been prepared by the previous examiner (and the question is NOT usual I’d say).

Thank you in advance.

[at800]

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.

[at800]

So, in case of.Q2 2014, we are forced to assume: we’re given with strike price per option which is NOT the futures price and pure basis for some dates. We have no any prices of futures. Thus, we can either add or deduct basis. Am I correct?

Thank you in advance.

[at800]

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!

[at800]

Well, the question from ACCA website states:

“Annual depreciation on non-current assets is 10% and this is the amount of investment needed to maintain the current level of activity.”

=> “Depn = CAPEX” – that’s how I understand this!

The calculation per answer:
Estimating value of new company after buy-out $m
Profits before depreciation 50
** Depreciation ((1/3 x $100m + $50m) x 10%) (8.3)
Tax (20%) (8.3)
** Cash flows before interest payment 33.4

** It is assumed that the depreciation is available on the re-valued non-current assets plus the new investment. It is assumed that no additional investment in non-current assets or working capital is needed, even though cash flows are increasing.

So, by the phrase “no additional investments in NCA or WC is needed”, the examiner means that no CAPEX other than, so-called, the “Depreciation CAPEX” is required. So, CAPEX=Depn which is OK. Am I correct?

Consequently, the depreciation shown above includes actually:
“CAPEX – less tax relief on depreciation”
Am I correct?

If I’m correct, the answer is rather tricky 🙂

Thank you in advance.

[at800]

And what about CAPEX? Why don’t we consider this as one-off?
It’s clearly stated about reinvestment and expansion of fleet (Airbus 380 super-Jumbo).
So, we should consider CAPEX as one off as well?

[at800]

Dear Sir,

I have two other questions on this question:

1) The BPP answer evaluates the FliHi gearing based on book values: Loan 150 m and NA considerred as equity – 120 m;

I’ve used a different approach: MV of a loan = BV of a loan => MV of loan =150m; MV of Equity = PAT * PE = 50 *10 = 500

This gives completely different equity beta for FliHi compared to the BPP answer.
Would I get the marks for such an approach?

2) BPP assummes that repayment of principal is one-off. It seems that we allways assumme that prinicpal repayment is one off (based on your response above).

However, the prior year principal repayment is (25) which is close to (31) for the current year. Therefore some doubts whether this is one-off or not are possible.

The question states that there’s been a programme of reinvestment recently.
Please clarify whether I should consider that it’s had influence over principal repayment only?

Please clarify what items should we consider as one-off to comply with examiner expectations?

Or, perhaps, one should just state reasonable assumptions to get all the marks.
Is it OK?

Thank you in advance.

[at800]

You’ve written that “we’re forced to assumme”. Is it widespread in P4 exam?

It seems a good point for exam techiques:
If candidate is stuck, he/she should suppose that he/she is “forced to assumme” by the examiner intentionally. This helps to keep calm and carry on. 🙂
Greate, really greate.

[at800]

Thank you very much.

P.S. The issue of bonds in China is also mentioned later in the answer, but the implications are clear: the same transaction costs and higher cost of debt.

[at800]

Thus, speaking more precisely, the estimation of asset beta based on 60% to ownership of property and 40% to hoteling services (based on revenue percentage) is not precise because the 40% of beta related to hoteling does not reflect the new business risk – as it still includes synergies from from possession of properties.
Am I correct?

[at800]

Thanks a lot!

[at800]

Thank you very much!

[at800]

Great, thank you very much!

[at800]

1) So, finally Pa=(Pe+X)/Pe, where X is the return phase of the delayed investment (or other type of return phase depending on the option type envolved).
Please confirm.

2) So, if the question states that 4 mln is PV, I should not do such excercises. As per exam technique, if it’s mentioned that there is NPV of the project – one should just put it to the formula accordingly without additional discounting.
Please confirm.

Thank you in advance.

[at800]

1) So, usually it’s like as follows which is mentioned in the text as well:
“Alternatively, if you have already written call options, then a delta hedge can be constructed by buying shares. Number of shares to hold = Number of call options sold × N(d1).”
It’s clear.

2) Purchase of put option implies the premium paid being the major cost, whereas selling of call option naturally stipulates costs that are determined by the fact whether the sold option is excercised or not. It’s still determined by stirke price and actual price, though the option seller bears much higher risks compared to counterparty. It’s the seller who bears the extreme risks upside risks (if any). Am I correct?

3) However, P4 syllabus and questions are mainly related to those who purchase the options. Frankly, I’ve never seen a question where an entity sells options. So, I should not spend too much time for meditations on issues related to selling an option. Am I correct?

Thank you in advance.

[at800]

Thank you very much!

By the way, I’ve found an additional strange thing in the answer to this question. BPP has written in top tips regarding preparation of CF statement : “Key things to remember are that the figures for interest, taxation, and dividends in the cash flow statement will be the accrued figures at the end of the previous years…”.
Why? There is nothing in the question that allows to make such an assumption.
Therefore, one should use T-accounts like in P2. The result is the same, though in my humid opinion, there is no alternative for T-accounts.

Am I correct?

[at800]

Thank you very much 🙂

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