[Gia]

SBL opinion so far:
Scenario was set up as a company in the hotel industry that wanted to expand by acquiring (first time ever) another hotel chain in another country.

Q1
a) asked to asses why the Hotel was profitable so far – so I used Porter’s diamond and assessed all the factors that linked to the Hotel doing so well so far (in a competitive industry).
B) asked to asses if the acquisition was a good idea so I used Suitability, Acceptability and Feasibility criteria to assess this.

Q2
a) I remember asking us to write a report to the Board to alleviate the concern about the acquisition of the new hotel in regards to Social & environmental perspective/matters
b) Integrated reporting – why it is a good idea to be used by the company

Q3
a) Disruptive technologies – challenges for the Hotel and how they can use them in the future
b) 3 Slides on risks of a poor IT system – outcome and response

All in all the exam was quite fair, but very subjective responses could have been written.

Fingers crossed there will not be such a low passing rate and that all my answers make sense to the reviewer 🙂

Most probably missed a lot of points in the scenario. Don’t be fooled by the 4h, as it will take more than 45 min to read the scenario so that one would understand what is what. The requirements are extremely interpretable so, again, I hope I touched most of the points needed for a pass.

Good luck to us all!

[Gia]

Sat for the first time the INT variant. I’ve never felt so pressured by time in my life. I was reading through the requirements and the scenarios way too fast in order to catch matters that were not too obvious. I have looked at the requirements of Q 3,4 & 5 and chose Q 3 & 5 without even reading the scenario in Q 4 (which might have been easier than other Qs that i picked).

From what i recall:
Q1, a) Business risks:
1. Future restrictions on cash inflows in the division with the government grants
2. Loss on customer goodwill on the agricultural division’s strike being made public
3. Poor investment decisions with all that land held and not utilized
4. Potential risk of non-performance on the new acquisition due to lack of knowledge of the business
b) RoMM:
1. Operational segments – non compliance with disclosures
2. Impairment review on the division with the grants due to future restrictions as well as risk that the government grants are not properly accounted for (recognition and netted off against stipulated in the grant expense)
3. Revenue recognition – material (i believe), too early, should be recognized when the criteria is met, as the contract progressses
4. Impairment review of the rail division as the potential buyer is offering less than the carrying value
5. Agricultural division should be impaired as well due to the negative media, the provision should be recognized (but exclude the retraining fees as they should be expensed as incurred in the future period)
6. The investment property should be revalued at FV, no cherry picking, must check that all the assets in that class are @ FV
And i don’t recall anything else writing here.
c) Procedures on the restructuring provision:
– obtain the plan and check for arithmetical accuracy of calculations
– i don’t recall much about this answers either
d)Ethical threats due to business plan request and financing representation:
– advocacy
– self-review
– assuming management role
– also the 10% increase promised was like a bribe if not a contingency fee attached to the audit fee

Q2 A big blur which included quality control, ethics and evidence to be found in the audit file:
a) Year end Journals:
– the recurring one was material, needed more info even though was in line with last year’s figures, like customers balances this year checked vs. customers balances of last year, investigate and inquire further if any major differences are found.
– the one for impairment was like a management earnings adjustments -> management bias might be involved (it was a listed company)
b) New credit system implemented
– evidence was contradictory (nothing changed from last year but there’s a new system), little info was acquired, needed to test it for controls and not rely only on client’s word, etc.
c) Auditor giving advise to the client:
– on the payroll review i considered it as being correctly done, they should have tested the new overtime calculation
– on the advice for which he got paid, big no no, major ethical threat, the auditor should be removed from the audit team, re-training performed, self-interest threat, self-review threat -> an independent review should be done on the work the guy performed, etc…

Q5 a) expectation gap, benefits and difficulties of KAM – major disappointment with my reply 🙂
Part b) Not professional to blame somebody, to mention his name or when he joined the group.
– IFRS should not be abreviated
– the second matter (with the material misstatement) should have been in the Basis for qualified opinion
– the order was wrong, but i made a mistake, i said that the order should have been:
* Opinion
*Basis for opinion
* KAM
* Uncertainty regarding the going concern ( could not remember the correct name :))
– emphasis of matter paragraph should not be included, the matter should have been disclosed in the “never hear of” paragraph of Uncertainty regarding the going concern 🙂 Also my suggestion above is not correct 🙁 but i hope they will still give me some marks…

Q3 a) Matters to discuss about a nuclear accident:
– material, impaired, it happened right at the year end, therefore it’s a must to be impaired, going concern is questioned (40% of revenue stream), the provision should be recognized not only disclosed.
b) Difficulties in assessing corporate and social reports:
– discussed about KPI’s difficulties:
* difficult to put a monetary value on them
* controls are not efficient on gathering the data
* difficult to compare as they are not regulated so each company will calculate as they want
* difficult to identify stakeholders -> hope this is what was needed
c)Procedures to assess the reasonableness of the objective and target that the company set:
Objective: to be leader on training its staff
– obtain a list of major competitors and check if they have this KPI and confirm if objective is reasonable
Target: $200 per employee for training and 80% of employees trained internally
– obtain a list of the employees that attended the training, on a sample of them inquire if they really attended
– check the total training expense and obtain the invoices behind the journals to see if they are indeed training expenses
– and something more but i can’t remember.

This was my experience with P7 and i pity the person who is going to read my answers as my handwriting during the exam goes from bad to worse to illegible 🙁

Fingers and toes crossed and good luck to all of us!!!!

[Gia]

@ azaramirov: That question got me confused as well. In the end, i have calculated the rate for Y1 using the given interest rates and spot rate, then, using the rate i got i calculated the rate for year 2.

[Gia]

@Jayadev: depreciation is not actual cash outflow therefore is not included in the NPV calculation. One only includes the tax allowable benefit.

[Gia]

Hi all!

Anybody reached a negative NPV at Q5?

What I can recall from the exam was this:
Q5 NPV calculation and critically discuss the probability analysis:
– reached a negative NPV
– calculated the sale price and conversion costs by doing an average of the expected values. Used those numbers in the NPV calculation.
– made a small comment about the fact that the project was only amortized for 4 years not the 10 allowable…i did not understand if we should have amortize the asset for 4 years or 10…but after reading part b i said i’ll amortize it for 10 years…
– part (b) I did an annuity of the value of the net income after tax and added to it the amortization for the next years (discounted y1-10 and deduct y1-4).
-part (c) commented on probabilities(about the fact that they should be used if the project is repeated and the fact that the ENPV is not actually what the outcome is gonna be)

Q4 WACC
– do not recall the numbers but i think it was close to 9,something %. I remember the difference between the before and after the debenture loan 0.14 drop. Commented it is due to debt being “cheaper” than equity.
– part (b) was it SME’s funding thier maturity gap and funding gap here? i do not remember…

Q3 Hedging
– i matched the receipt and the payment and hedged the remaining amount via a forward contract and a loan vs deposit and got that the FW contract was more favorable.
– part (b) commented about the transaction, translation and economic risk.

Q2 Market valuation models
– probably made a fool out of myself…I remember that the net assets valuation gave me a number of $179 m…i think..
– part (b) EMH theory detalization

Q1 Overtrading
– made the workings of the ratios and commented upon them…hope they’ll give me a little bit of credit but don’t feel so confident on my reply…

How did you guys do?

[Gia]

@ Kharishma seeam: I have reached a negative NPV. How did you calculate the selling price and costs of construction?

[Gia]

@acca – My exam technique

I managed to finish all the papers i have sat till now. I usually start with reading the written Q and see what the subject area is related to which Q (meaning i only read the requirements). Then i do the MCQ – usually there are some reminders about the theory part in there so it’s a good memory test and “wake up”. Then i start with the Q that has the biggest marks and leave the ones with lowest last.

Of course you need to choose fist which Q you are most familiar with and leave the one you don’t know the last.

As an example:
F8 i did: MCQ and then 6,5,3,2,1.

[Gia]

@david1988 said:
What about the 4 objectives of purchasing system
– I said no damaged goods are accepted due to checks in place
– No wrong quantities or types of goods are received due to matching to PO when received
– All invoices are approved which achieves objective of accuracy of supplier invoices
– Can’t remember last one

Riiight…the control and its objective:
1. Goods checked for quality and orders – to accept only good quality purchases and only the co’s orders
2. Authorization in place for purchases – to only purchase the needed goods, efficiency in the purchase system
3. Inventory update automatically – never to run out of inventory in order not to loose sales & customer goodwill
4. And i think there was something with matching invoices to GRNs and purchase orders but i do not recall properly …

[Gia]

@nati1981 said:
no, it said all the purchase staff had restriction on the master file

Might be as you say…it seems you have a very good photogenic memory as you can quote so nicely from so many Qs of the exam.

But none the less…how can nobody from purchases department have zero access to the file? not even the supervisor/manager? Anyhow..

When are the results out? Anybody knows?

[Gia]

@david1988 said:
I got ADCCCCDBBDAD so a few different

Anyone else remember their MCQs?

Don’t recall them at all…just remember seeing a lot of Cs one after another in some portion and was like…this can’t be correct, then i was like…kehh..whateva…

[Gia]

@david1988 said:
Yes that was my final audit risk. Thanks, that was annoying me ha. Third party were sending stock reports direct to head office – Said risk of undertstatement or overtstatement in stock and subsequently the balance sheet – I said attend the count, ensure instructions are given and followed and perform test counts

I said they can’t attend all the warehouses counts -> should have put risk of not gaining sufficient appropriate evidence but instead wrote inventory might be misstated significantly…o man….., they should sample the count, discuss with management to see which ones were with errors or mistakes in last years, and attend counts to the ones with material amounts, the ones with high risk of misstatements and held at third parties….

[Gia]

Spot on David regarding the interim audit! So if i get like 2 marks that would be great!

[Gia]

@ccoda and everybody else

Wasn’t there supposed to be an inventory count somewhere? 23 warehouses….was it this with the audit risk?

Cuz i remember writing something about this but don’t know to which one…

[Gia]

@David1988

The interim audit…ahhh…the interim audit…who paid attention to the interim audit part? Not me…

The interim audit Q was earlier. i think it was a 10 marker…but i might be terribly wrong.

I probably made a fool out of myself but i gave my best shot with answering this Q:
1. Procedures:
*observe/assess the client’s controls
*observe the employees during daily work
*other bla bla like discussions with the management

2. How it helps with the final audit:
*auditors can focus more on the high risk areas
*they can test less data as the interim audit evidence is appropriate enough
*again some other nonsense probably but i can’t recall it….

[Gia]

All right David1988.

Q5 audit risk

I wrote about:
1. New client -> higher the risk…talked about contacting the outgoing auditors, made a big speech about not accepting the job if the client doesn’t allow them to contact the ex-auditors.
2. Repairs & upgrades-> FS might be wrong due to misstated expenses and NCA
3. Share @ a premium -> to allocate correctly the equity amounts
4. The client wanted to report high revenues or something like that -> auditor must remain alert and professional skepticism maintained throughout the audit
5. Hope i wrote five as i do not recall anything else…wait…was this the Q with the inventory count? if so, i think i mentioned something about the audit firm not being able to attend to all the 23 of the warehouses inventory count…

Anybody got anything else?

[Gia]

What was Q 5 about? Anybody recalls?

Ohhh…from all the things i lost i miss my mind the most…

[Gia]

Yeah Rana. I understand your frustration. I spent like 2 minutes trying to figure out what they meant by that, hence i recall even now the paragraph “access to the master file is restricted to all employees of the purchasing department”. Then i said what the hell…they must mean that all the PD employees have access and nobody else…was worth a shot as i was running low on finding 7 deficiencies…those guys had some pretty darn good controls set up in place 😛

[Gia]

@ Rana

Don’t recall the Q no. but the one with the fire (1) and inventory(2) i wrote:
1. Is not adjusting, just the inventory part should be written down at lower of cost and NRV
2. Adjusting – inventory should be written down to lower of cost and NRV. It was a material amount -> qualified opinion if not amended…

The payable Q:

I wrote that for the one with the difference in the reply there must be due to cash in transit or goods in transit(check the bank statement for payments, can’t recall anything else 🙁 )
The one that didn’t reply send a reminder, ask the client if we can call the supplier. Not material amount compared to the profit before tax…if in total with the rest of uncorrected misstatements turns out to be material -> adjustments need to be done. Do not recalll what examples I gave for the test….

[Gia]

@David1988

Q6
1. Orders are automatically input ->there is a risk that slow moving inventory might be ordered even if not really needed => hence they should be checked and then authorized
2. Suppliers are chosen automatically but there is no saying about an authorized list, hence they might order from expensive suppliers => increase in expenses. A list should be set up and reviewed regularly & updated.
3. No approval or checking of bank payments
4. Minimum order levels not updated for a long period
5. All PL employees had access to the master data file. The phrasing was confusing though: “access to the master file is restricted to the bla bla”…restricted… that word confused me a bit.
6. Goods not inspected at third party warehouses
7. Can’t recall…

Got few similar…anybody else recalls their answers?

[Gia]

I wrote that contingent assets are to be recognized only if they are completely certain of their materialization. They should not be included at all due to the fact that their lawyers were, maybe, just informed on the new claim against Bean…

[Gia]

Q1 – Mix & yield variance: I converted the grams in kg, worked out Mix variance A, yield variance F. Discussion part was me rambling about the yield variance: it occurs when the output is lower than the materials used for the actual quantity produced, due to: human error factor in making the loafs, poor quality of materials, human error in weighting the materials, more breads rejected by the inspector.

Q2 – weird approach to decision making with bottleneck resource, worked out the net profit by using the throughput vs the costs of investment. Option 1 was the only one covering the costs of investments. My interpretation of the table was that it was showing how the bottleneck is elevated at different options of investments.

Q3 – Incremental & participative budgets. Clearly incremental budgets, false impression of participative budgets. Suggested other types of budgets the JT & CT division could use. Commented on the veto decision of the AT senior manager, Mr. Molar (seriously? – cracked me up a lill bit :P). The managers are unmotivated, goal congruence is not achieved, missing on potential new clients due to old technology…stated some of the disadvantaged of incremental budgeting. Hope they make sense.

Q4 – worked out the ROI using both the profit before the head office costs and after, commented on the uncontrollable aspect of their apportionment and that division N’s manager could have gotten his commission if ROI is calculated before the HO cost allocation.Did not understand why they are asking me to discuss about my choice of the figures in calculating ROI…don’t remember the rest of the Q.

Q5 – got $23 as the cost of X, part b) did not understand how they want me to calculate the limiting factor. I took into consideration the making of all the products: L M LX and MX, their demand, the materials used, got Material A as limited…deleted my answer :)) , then i got stuck, i tried working the contribution per limited factor, ranked them, again i used ALL the products, got weird result, even more stuck, moved to c) can’t properly recall what they were asking but wrote general things (like the quality of X might not be the same, loosing clients due to not meeting the demand…etc)

I hope for the best and expect the worst… fingers crossed i will pass…

Also the MCQ, some of them were soooo long, took me two minutes to read and properly understand some of them. Compared to what Q they used to give in previous exams (I have done all the BPP revision kit Q, all the Q in the book, studied all material, studied via opentuition, done all the past papers from 2009) this exam’s questions were vague, weirdly formulated, long MCQ, but all in all, if you payed more attention (but one just simply can’t focus during an ACCA exam due to the time pressure) it was a passable exam…

Best of luck to us all.

[Gia]

@jamesuk19 said:
Discounted the 12,635 at 1/1.1 power of 2, got A in that answer I think.For assets I broke them down into item 1 (new plant) and item 2 (finance lease) depreciated those separately over the lifespan, then took the rest remaining and depreciated a fifth.

Q3 – I have done the same. I had to read multiple times the last part of note iii)..why, oh why, do they have to play so much with the English language…

The operating lease – total failure… I took 1.000 as a current asset…as it was a prepaid expense and i have expense in the Finance costs the other 1.000. Anybody can asses the number of marks on that one?

I know the tax i calculated correct. Thank you Sir Mike!

[Gia]

@jamesuk19 said:
Goodwill from memory

Share exchange 80% of 12.000 X 2/3 x $3
Deferred Consideration 1.54 x 80%x12.000 x 1/1.1 power 1
NCI was 20% x 12.000 x 2.5 I think
Less net assets (retained earnings at ACQ had to work backwards there, plus FV on revaluation and share cap)
FV of NA @ Aq. date:
Equity shares 12.000
Retained earnings – per q – don’t recall figure
Profit pre aq.: 2.400* 3/12
FV adj – plant 720

Then less the impairment of 500,000

Q1 was pretty sensible. Revenue had to knock out IC sales.
Cost of Sales, was Impairment, Profit in Stock, InterCo Sales,
Finance cost was the unwinding of discount and the 100,000

I have added some additional figures per above.
I did not impair the GW since the question asked for the GW at aquisition…i hope.. *with the rush of finishing everything i probably forgot what my name was if you would have asked me during the exam :|*

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