[lukman94]

Passed with 57%. I am now officially an ACCA Affiliate. Alhamdulillah

[lukman94]

@rsi88

I don’t think you have to have to have sat AFM to know the WACC formula to the tee. The WACC is tested in both F9 and P2. In addition to this, the formula was clearly given in the text. For those that missed were clearly dwelling on the specimen paper and failed to understand the scenario.

All in all, I do agree with you in terms of the time allocated for the exam. Q1 was very doable, whereas Q2 & 3 had lots of information that had to be processed.

Fingers crossed for a pass.

[lukman94]

@mmcarey Sorry to burst your bubble mate but the scenario clearly said “ DEBT/DEBT+EQUITY not DEBT/EQUITY. Agreed that the common pitfalls state that if the exam mentions D/E then your logic applies. If DEBT/DEBT+EQUITY equals 35% then this means that the equation will be 35/35+65. Hence, Equity being 65/100 and post tax debt being 35/100 * (1-0.30).

[lukman94]

It was a new client as the question said “was assigned to the audit “ – apart from this it wasn’t very clear.

Audit risks for Q1 were as follows ;
– Listed Entity – risk of management bias I.e reversal of provisions
– New client – risk if misstated opening balanced
– Reliance on component auditor – risk of reduced audit quality
– Intangible Assets – included research costs, overstating assets and profit.
– finance costs not in line with increase in borrowing
– PPE increased with no sign of capex or depreciation
– goodwill increased by 130, 30 being unaccounted for. Risk of overstatement
– decline in revenue and Increased competition could merit impairment.

Ethical issues in Q1 – Integrated Report ;

Management responsibility + Self review threat. Mgt responsibility cannot be mitigated, decline request. Self review can be mitigated by use of different teams, howerver listed status would require to decline.

Q2 – Uncorrected Statements

Brief intro talking about how misstatements should be discussed with management and those charged with governance before modifying report.

Leases – Qualified – Not pervasive
Claims – Adverse – Material to both profit and assets.
Aggregate impact of leases and claims – Adverse opinion
Assets – Not material- Unmodofied

This is all I remember. Please feel free to add on to this,

[lukman94]

I feel absolutely miserable after that attempt. Question 1 took me 2hrs15mins, it was bloody long and exhausting. By the time I got to the other questions I was drained and couldn’t finish. Praying and hoping for a miracle. I knew how to answer all the questions just that time screwed me over

[lukman94]

Overall I don’t know how to feel about this exam.

Nonetheless here are my answers to the questions.

Part one of question 1 I started off by dissecting the mission statement into two. My response to that one question one was based on how well the performance measures related to the mission statement and how user-friendly the performance report was and the layout of the report .I managed to mention a few points on how the report did a good job in showing the revenue by division and also for the segmenting it by men women and children. I further spoke About the use of percentages to show operating profit margin and also suggested that the same should be done with regards to revenue. In addition to this I also commend the report on having comparative figures that’s allowing for easy comparison to prior years.

In terms of the performance measures I identified two sets of performance measures relating to the mission statement. The first part was with regards to providing exceptional shareholder value where the performance measures were earnings per share and dividends per share. As the question asked to critique the performance report I gave my opinion on the benefits and disadvantages of the performance measures in relation to the mission.

For performance measures relating to being the largest retailer in the country i identified return on capital employed, Market share and EVA. The same applies to these measures as I gave my opinion on how well they relate to the mission statement.

Part two of question one I identified three performance measures the first being revenue per square metre. My justification for selecting this measure was purely based on efficient allocation of resources and to see whether the organisation was making the most of floor space. My second and third recommended measures were to do with the strategies from the text with regards to increasing their online presence and increasing the use of technology. So my Measures were number of sales made online in relation to total sales and number of innovative awards received during the year.

Part three of the question was with regards to the value chain and supply chain. I simply spoke about how the value chain will create linkages that will assist the supply chain becoming more efficient and therefore reduce waste: I went on to talk about the benefits of having linkages and how primary acativities are supported by secondary activities and how this will benefit the supply chain.

The part on big data I simply defined the three v’s and I just waffled on this question as I was running out of time and had to simply move onto the next question.

I expect between 25/30 on this question.

With my options I selected question two and question four as I honestly did not prepare myself well on the Argenti score model.

For question two, It asked whether divisions and divisional managers should be assessed using different performance measures. I spoke of how the use of ROI as a measure of divisional managers performance will lead to dysfunctional behaviour and therefore mean that divisions are not performing to their full potential which would in hindsight affect the organisations performance. I also mentioned a few other points which I can’t recall at the moment .

Part B required an assessment as to whether the managers of green and blue should receive the annual bonus. I identified green as an investment centre and blue as a profit centre. When computing the ROI, for Green I did not include the allocate fixed head office costs and was able to compute an ROI of 15.3%. For blue I did not include the depreciation and the head office costs because the depreciation is to do with the investment centre and cannot be controlled by the blue, I was able to come up with an ROI of 14%. However as the note stated that the capital employed included capitalised research and development I took this into consideration and mention that under IFRS such capitalisation would not be acceptable . Therefore I suggested that if the capitalised R&D were removed the ROI would be above 15% and therefore blue should receive a bonus. I also took the closure of blue for Three months into consideration. Furthermore we were asked to assess the usefulness of using ROI as a divisional performance measure. I said that the use of ROI is not a good idea and related it to the rejection of the project by green and computed the ROI and the residual income to show that under ROI it is below the 15% target but with residual income it is increasing shareholder wealth. Thus meaning that projects will be rejected by divisions solely based on ROI target not taking into consideration the interests of the organisation.

Part C required the advantages of using residual income as a divisional pefomace measure. This was a pretty straightforward question I managed to mention 4 to 5 advantages.

Question four had two parts to it. Part A of the question was with regards to incremental budgeting. I spoke of how this was the correct choice of budgeting as the environment was fairly stable
with no changes expected in the future. However I did mention that the volatility in the energy market may require the need for rolling budgets.

Part B was tricky and I did not have enough time left. Identified causes of variances for labour being to do with cheap labour due to fixed contracts as stated in the text ( increment of 1% every 5 years) and for the labour efficiency spoke about the strike which may have caused more labour hours to be used than required.

For the materials variance, which was adverse, spoke about increase in material costs and a further increase in cost due to a delay in purchases being made.

Recommendations were along the lines of initiating fixed contracts with more than one supplier so as to hedge changes in prices.

I know my response is detailed. But please give me your thoughts.

Wish you all the best.

[lukman94]

Question 1 was very demanding in terms of time. If I remember correctly, it asked for business risk, risk of material misstatements, Audit procedures for restructuring and ethical issues with regards to providing advice on the business plan.

I used the same structure as previous past papers. I’m sure I got the professional marks that were available. Started off with a brief intro, went on to business risks ( I chose to identify risks individually for each division), the same structure for RMM, could only remember for a few procedures such as enquiring of Management of how they came up with provision etc. Ethical issues identified were intimidation threat, advocacy and self review. Explained each and provided safeguards were applicable.

For question 2 I was able to move past it fast. Required an explanation of quality control, prof/ethical issues and audit evidence. For QC, referred to ISQC1, and how audit work done was not sufficient. Professional issues spoke of integrity objectivity etc. Audit evidence was subjective.

For my options I selected Q 4 and Q5.

Question 4 was tough but I found it harder than 3. So opted for it. Required to speak about audit procedures. Was subjective too.

Question 5 I enjoyed! Sped through it. Key audit matters and critique of a an audit report. Was able to scrape 10/11 issues/problems with wording and layout of the audit report.

For KAMs, mentioned a few benefits such as giving users of the audit report a more detailed view of the organisation. Also stated that it allows the report to be tailored to each organisation rather than being vague and general.

Please share your thoughts. Wishing you all the success.

[lukman94]

Passed on my second attempt with 53%. I am so glad to be done with all F papers. Alhamdulillah.

[lukman94]

Passed on the first attempt with 73%. Alhamdulillah. Having passed P1 in December, I am so glad that I will not have to do the SBL. Moving on to the final 3 now – P2 P7 P5 !

[lukman94]

@LOLABUN

The pecking theory states that you take retained earning first, secured debt, unsecured debt and then equity shares.

[lukman94]

@SONAL

Yes I did take all into account. Just that I didn’t inflate the PBIT by 20 percent.

[lukman94]

OMG. I completely missed that out. Let’s hope I don’t lose much for not including that.

[lukman94]

How did you answer Q32 @SONAL ?

[lukman94]

Yes so for the EPS after expansion using rights was 1000/3000. 1000 being the Profit after tax and 3000 (2500 old shares + 500 new share).

Expansion through debt does not affect the amount of shares. It only affects the Profit after tax because finance costs increases.

I hope the above makes sense.

[lukman94]

Don’t worry. Let’s hope for the best.

[lukman94]

The exam was a totally unexpected one. I sat there and it took me a good 5 mins to accept the fact that the examiner screwed with us LOL. I started with section A and B and spent a good hour answering what I could and moving on to section C.

Q31
Equity Vs Business Finance.

Calculated the Theretical ex rights by calculating how many new shares had been issued 2500/5 = 500 new shares. This making total number of shares 3000. Calculated market values by multiplying 2500 * EX DIV PRICE and 500 * discounted price. Divided MV by number of shares to get theoretical ex rights of if I remember correctly somewhere between 4.60 and 4.70.

Moving on, calculated the Eps which was basically Profit after tax over number of shares. For equity, the number of shares increased giving EPS OF 0.33 and for debt finance, interest increased this affecting Profit after tax and giving an EPS of 0.35.

The new share price was simply PE RATIO that was given multiplied by EPS. I guessed this as I remembered doing this in a past paper.

In terms of which is better, I used the debt equity ratio and also spoke about other non financial matters.

For Islamic Finance, I spoke about Mudharaba as a alternative to equity and Sukuk for loan notes.

Q32

Multiplied the probabilities by the cash flows for each year. Multiplied by discount factor. Compared NPV to investment to see if it was financially acceptable. I got a positive result, so accepted investment.

Struggled with part where it asked about NPV being zero. Didn’t spend too much time on it as it was only 1 mark.

For highest probability, basically selected 0.5 from year 1 and 0.6 in year 2.

The last part required you to talk about
only TWO of the 3 mentioned concepts.

I selected simulation and spoke about how such methods are used in times of uncertainty in assisting to forcecast. Etc gave some advantages/ disadvantages.

Lastly, spoke about risk adjusted discount rates where I mainly spoke about CAPM and specific discount rates talking through the whole process of ungearing and regearing.

PLEASE LET ME KNOW YOUR THOUGHTS.

Fingers crossed for a pass 🙂

[lukman94]

@STUDYFREAKSY

I got an answer of 14.13. I used the “Borrow Rates” as the question clearly stated that the company was short of cash and would strictly have to borrow funds.

Because of this statement I used 10 as the spot rate instead of 10.20 for the money market hedge and used the borrow rates when calculating IRP.

[lukman94]

@seannyd

I didn’t use SWOT analysis for part A of question 1. I rather used a financial analysis approach. I looked at both financial and non financial indicators. Also looked at the decline in sales through the previous 2 channels.

In terms of strategic drift, I spoke about how there was evidence of it in the case as ABC had failed to implement a change in strategy when there was clear indication of a change in market trends (internet sales) it was only in 2015 when such changes had been made.

For the CSF and KPI question I defined both and identified them in the case. Was relatively starting forward.

For the mission statement, defined it, and analysed the MS in the text. It was well defined and the memo supported it well. Picked on the fact that there was no mention of how they would attract employees to work for them as it was mentioned in mission etc.

I picked Q 2 and Q3 from optionals.

Q2
Question was pretty straightforward applying the BCG and ashridge portfolio by looking at the data provided. Focusing mainly on market share and growth rates. My classifications were Star,Heartland + Question mark value trap + Dog Alien.

Benchmarking was straightforward too. Different types of benchmarking I.e internal + external, adv and disadvantages.

Q3
Identify problems in the procurement process , how it affects value and how would you redesign it. Very simple, no need for models.

Part B was to do with Job Design. Required to Define scientific management, job enrichment
And Japanese method. Fell short of time
So couldn’t answer t completely.

Hoping for the best. Insha Allah.

[lukman94]

Hi Moveone!

I attempted question 3 as I too wasn’t too comfortable in handling Q4.

I was able to identify 4 problems with the procurement process, such as only having 1 reviewer and the reviewer reviewing his own work.

Other issues I identified were selecting lowest cost for supppies that were too complex.

The identification was pretty straightforward. In terms of value
I spoke about how it would reduce bottlenecks and reduce the time departments receive their supplies.

Part B was to do with job redesign.

I defined the 3 concepts and allied them to the case.
Application was slightly difficult.

Please shed some light how you answered question 2.

Thank you !

[lukman94]

I put vital gym down as a question mark as I thought it had low market share in a growing industry.

For supreme holidays, the question mentioned it had the largest market share in the market and from the financials I was able to calculate the market growth over the period as 25/26%. In my
Regard this is can be considered as high market growth. For this reason i places supreme holidays as a star.

My classifications for the other businesses are similar to yours.

Let’s hope for the best.

[lukman94]

What’s done is done. At the end of the day we all have a different understanding of how the question should’ve been answered. I hope we all make it and move on to the remaining papers. Let’s enjoy the holidays and just wait for results day now.

[lukman94]

How are they wrong lol ? The Text clearly said the Scrap value was zero. If you look at previous exams where depreciation has been on a straight line basis you simple take the initial investment over the assets useful life multiplied by the tax rate. This gives you the tax relief per year. It was a fairly simple question that many people are over complicating.

[lukman94]

I can’t recall where it was in the question. But I am 100% sure that you were required to calculate the discounted pay back – which requires you to use a discount factor. If the question had asked for the pay back period then the answer would be 2 Years.

[lukman94]

Yes but judging from mark allocation if they asked you to compute it for 10 years then that would require a lot more effort and time. This is just my opinion. All the very best for results day. The question simply asked you to compute the nominal NPV – If you felt the need to go beyond 4 years was fully justified then may God be with you 🙂

[lukman94]

Judging from past exams, it’s either you do 4 year comparison or a 5 year comparison if tax is paid in arrears. Since the contribution and fixed costs provided were only for 4 years and tax was paid in the year it occurred m, the correct layout would be to a 4 year analysis.

[Author]

Posts