[Sam]

@harriet88 said:
Other option was P5 which I sat on Wednesday! Fingers crossed never have to sit one again!! Did you sit P7 this sitting or last?

Nah, I just sat P4 this time round. Did P2 and P7 together, then P1 and P3 together in December 2014. Fingers crossed! 18 January are results right? P7 seemed a significant amount of writing for the amount of marks, but is to be expected given it’s a wordy paper! How was P5?

[Sam]

@harriet88 said:
Sam: you averaged 74% in your other P papers? I don’t think you will have trouble passing 🙂 is this your final? What other option you choose?

Yeah – final exam! Potentially the final exam of my life (Hopefully – unless I decide to do CFAs…)! Really don’t fancy re-sitting in March given it’s my busy season so would probably end up waiting until June which would mean another 6 months on non-qualified salary… £££

I did P7 as the other option – employer gave me no choice and had to do the UK Variants for P2 and P7 which were a hassle learning the international stuff as well as the New UK GAAP / UK based info too.

What did you chose for your option or have you got it left to sit?

[Sam]

It was a dollar receip

@esoluyemo said:
You will divide all of them.

You buy futures and not selling futures. You will sell futures if you are borrowing or making payments.

Here, you are expecting to receive payment in Euro and the bank is buying dollar. This means the bank is buying futures.

Question 3
Think I misread the question.

The hedge was related to a 20.56m Euro receipt in 3 months time. You decide to buy or sell wrt the contract currency. Contract currency was in Euros therefore you would want to translate the receipt into dollars (buy dollars) hence sell the Euro contract currency. Surely this would be go short on the futures contract (sell futures)? Similarly this would be a put for the options, no?

Got forward as best rate to use and then explained if the rate had increased above 1.3500 to c1.3600 or 1.3700 (they gave the indirect rates and direct rates, so I just converted them so they were all comparable and consistent: (Direct rate = 1/indirect rate)) then this would have made the option worthwhile as the premium paid would have been outweighed by the exercised option. Think I may have got confused in the heat of the exam as a result of the contracts being put compared with many example calls in the question banks.

[Sam]

@harriet88 said:
Q1) separate out the profit before tax for manufacturing and deduct the tax at 22% to get the earnings X P/E ratio of industry average (8 X 1.2) 9.6 to get value of manufacturing to sell. R&D division FCF to firm based on growths for yr1-4 and then using growth model for yr5 into perpetuity of 3%. Discounted a the new merged WACC which I got to be 9% using the 2 betas, combining based on weighted average of each MV of equity and using CAPM. Gave a small additional value to C shareholder after paying a 35% premium to A. Then added the $1,600m synergy savings for 4 years with the relevant % increase, discounted at WACC 9%.

Question 1
Took an identical approach and got the same figures as above, but spent a good hour and ten doing these calculations, part 1a and 1c which meant only 20 minutes to complete the actual report, discussing the assumptions and part 1d. Tried to discuss as much as I could relating to the assumptions, estimates and models (WACC, FCF to firm, P/E, ungearing equity betas etc) but was extremely time pressured.

Suggested alternative defence tactics after discussing the crown jewell (CEO recommendation) as I ran out of discussion points to get 6 marks from the scenario. Literally had to guess Q1d based on the words in the question as I’d never seen this in the syllabus (only 6 marks so hopefully not the end of the world!)

Question 3
Started with Q3 which went the best given it was fairly similar to other Hedging FX questions from past papers. Hopefully gained a fair few marks here.

Question 2
The first part was ok, but the capital rationing bit for the 2 and 3 marks completely threw me so didn’t even bother looking at these bits and only did the final part on ethics for 5 marks once finished 2a.

This is potentially the most time pressured exam I have ever sat in my ACCA qualifications. Given I only actually answered 90% of the paper I expect it to be my lowest mark to date. Certainly not anywhere near the other 4 Professional papers which I’ve averaged 74% in so far. I can imagine this might be a low pass rate!

[Sam]

@fs28 said:
I read it that the PV of the obligation was $8m and the FV was still $7m, therefore the net liability was $1m – which led to a decrease in the NCL of $2m – in respect of location 1.

I got exactly the same, £2m decrease in the NCL. I basically treated it as a past service cost as I assumed it was, in substance, a curtailment to the pension scheme. I just found it odd that it decreased the NCL and just assumed I’d gone wrong somewhere – left it as a £2m decrease though so fingers crossed!

[Sam]

@Ashanti said:

@Peshteman. How do u treat that.? Which modules do u use.? Ever watched LSBF videos by Martin Jones.?

My understanding is you fair value the contingent consideration regardless of the probability. They provided the quoted share price (level 1 input as per IFRS 13) and multiply by the number of shares. It was a red herring as far as I am aware!

[Sam]

@dontetze said:
I didn’t calculate EPS, i did like this:

P/E=19
hence earnings is given calculate total market capitalization

P/3.6 =19

P= 19×3.6
p=68.4

hence NCI will be 20%of 68.4
NCI = 13.68

Ye I just did the same… earnings of the whole company of £3.6m*19 (PE ratio) then multiply by the shareholding of 20% so ended up with £13.68m. Thought i’d done it wrong at first look given the weird double decimal place!

[Sam]

@peshteman said:
Ias41 was added to the syllabus for this exam so it was likely to come up, everyone should have looked at it, and most marks were for knowing ifrs13 and how to treat level 3 inputs. For ias41 knowledge it was sufficent to know that biological assets are measured at fair value less cost to sell and after harvest are dealt with by ias2, nothing more was required

You are probably correct. IAS 41 came out in 2000, but should have clocked that the amendment last year on bearer plants would have come up over IFRS 9 being finalised in July 2014… oh well at least question 4 had 3 marks on hedge accounting… At least in the resit I now know that I shouldn’t focus on hot topics because they’re pretty “irrelevant”…

[Sam]

@mark0 said:
I thought contingent consideration is brought in at fair value, and the only way to know what the fair value of the CC was is to be given the value by the examiner? In the absence of stated FV of CC or any extra figures that we could use (such as the extra retained earnings and p/e ratio figures for the 80% sub FV of NCI working) to calculate this ourselves, I think (OK hope) we’re fine ignoring it? I just put a * and noted the above on my paper.

The probability factor was superseded recently I thought. The contingent consideration is brought in at fair value regardless of the likelihood (Assumed the FV included the “weighted probability” of the contingency being met). The fair value was provided as the share price in the question for the subsidiary. Can’t remember figures but saw that and assumed immediately it was a red herring to check whether candidates had seen the more recent updates on fair value of contingent consideration.

However could be wrong given I am seriously doubting a pass in this.

[Sam]

@mark0 said:

The only positive I can give to those reading is: it’s nearly unanimous that people found the paper particularly challenging, however the pass rate is roughly 50%. So with all things being equal, at least half of us strugglers managed to pass. Furthermore, the lowest pass rate since December 09 was 47%, so hopefully some lenient marking will be instituted if the figure looks to be dropping dramatically in this sitting (I can only hope!!).

Best of luck 🙂

I genuinely think this June sitting will be around 30% of people passing the exam. I have averaged over 75% in all previous Professional papers that I have sat and am seriously doubting the fact I have passed this exam. The content was obscure (IAS 41 Agriculture combined with IFRS 13, with very little on IFRS 9 which I would have expected to have seen in the exam particularly given the impairment discussions going on around changing from incurred loss to expected loss), the methods to calculate items like the NCI etc have not been seen in prior P2 exam questions nor any P&R kit I revised with. Although I could do these calculations (after some thought) I can easily see how it would throw a candidate in the exam, and those adjustments were significantly more difficult than what I’d come across previously. I simply relied on the remainder of the workings and “easy marks” (if you can call them that) to get a reasonable mark on the consolidation question.

Doing the UK variant meant there was going to be some discussion around differences between FRS102 and IFRS, but again, this was terribly specific on consolidation and exemptions for UK subsidiaries. For 8 marks this was ridiculous when I could probably secure 2 at a push here.

The only saving grace was question 4, which was a god send to anyone who had read the technical articles on the ACCA website. I actually think that I will need in the region of 20-25 marks on this final question to secure a pass overall.

I genuinely think that no matter how much revision I had done I would not have been able to perform any better than I had done on the day. There’s knowing the syllabus broadly with half the areas covered in detail and there’s knowing every aspect of the syllabus in sufficient detail to pull out treatment on valuing a maize field under IAS 41, which quite frankly is a waste of my time. The portion of people that would use that compared with IFRS 9 and those in the financial service sector astonishes me as to why it was even included, let alone 25 marks.

It’s fair to say that you’d expect a portion of the exam to be on an obscure area of the syllabus, but multiple areas and to the extent that it has, is simply an unfair test of our knowledge. Lets face it in the real world, you have an awareness of the area or treatment, you crack out your IFRS book and you tackle it without the ridiculous time pressures… not in the exam.

[Sam]

@rawfay said:
Q2 part B was not about money laundering i.e. ISA 240 auditor’s responsibility regarding fraud and error.

It was about ISA 250 laws and regulations. i.e. what an auditor is required to do if came across any non compliance.

I agree, reckon ISA 250 was the main focus but I think it hinted at potential criminal activity and the proceeds being the revenue (not being substantiated under £10k). Might have been implied / undertone? I just added it on as an additional discussion point.

[Sam]

@rebecca2 said:
Overall, I think the questions weren’t too difficult, however the time was extremely pressured. Feel like I could have written for another 30 mins at least! Also, thinking about it now not too sure whether I have been specific enough in my answers.

@tallaghthoop – I also touched briefly on possibility of money laundering in the Laws & Regs question, literally only 3/4 lines, just to be alert as to the possibility. If it’s incorrect I’m sure we didn’t waste too much time writing it!

Very wordy paper, lots of standards tested. I hope to pass but think it may be very tight!

Snap. I mentioned about the Money laundering, criminal activity, professional skepticism (Seemed to be a recurring theme in this exam, particularly after the ACCA article) given the nature of the products in the warehouses, the shady warehouse manager and the lack of evidence available for sales under £10k. Mentioned about not tipping off, MLRO, SOCA etc on this as well as ISA 250 non compliance etc

[Sam]

Very time pressured, answered the whole paper but meant sacrificing writing one or two final points on some of the earlier questions. MY HAND HURTS.

Question 1
EPS IAS 33 Knowledge was rusty. Did think it was unusual they were adjusting profit after tax for amortisation and depreciation? is this not manipulating / inflating the earnings figure? I mentioned about bringing in prior year restatement for comparability, given it was not listed previously and this would not have been done – not sure if this was necessary?

Sale and leaseback with repurchase was a little confusing with the “at market” buy back option. But if it were an operating lease they would be massively overstating the profit (through the profit on disposal)? Combining this with depreciation considerations for 3 months being stopped and the finance cost on the £35m loan (in substance) would be very material to the p&l? In substance it just felt to me that they were manipulating their year end profit by selling and leasing, so just played it safe and used IAS 18 / IAS 17 for revenue recognition and leases respectively to conclude it was an operating lease / not to derecognise the assets (£35m Proceeds – £8m profit on D for £27m NBV), adjust the profit on disposal and simply recognise a liability / loan with interest of LIBOR +2%.

UK Variant was a pain as I assumed a 10:11:10 split with 4 professional on the marks (Does not show split in partner email) only to hear it was a 6:17:8 split… Bleak!

Mentioned about cut off being a risk on revenue but forgot to slip in the deferred income issue even after noting it down in my plan! Was quite a few other risks I identified, namely overstatements of assets and income, understatements of expenses…

Referred to ISA 510 items specifically only for first requirement. Hope that was what it was hinting at!

Question 2:
Can’t remember what I wrote for first bit – all I knew my hand was starting to cramp up and fail!

Acquisition in this question was fewer marks than the first part. Expected something to do with consolidations would come up and had IFRS 3, IAS 28, ISA 600 ready and waiting!

Toxic chemical part was a bit hit and miss – will have to wait and see! Referred to ISA 250 and duties relating to non compliance and reporting, along with potential frauds / Money laundering given the shady nature of the warehouse manager – applying professional skepticism. Couple of ethics points on intimidation and confidentiality I noted too.

Question 3:
Professional skepticism was quite nice given the ACCA article. Focused mainly on that being linked with QC and lowering detection risk by obtaining sufficient appropriate evidence thus lowering audit risk. Used each example in turn to apply to hopefully crank up the marks after explaining it.

Question 4:
Some nice ethics, quality control ISQC 1 / ISA 220 stuff to slip in with professional issues too. Followed on nicely from the ACCA technical articles.

Question 5:
Took one look at the comment on construction contracts under IAS 11 and read no further. I assumed this was being replaced by IFRS 15 so what’s the point, there is no way I am even looking at it for my P2 exam let alone P7!?

[Sam]

76 in P3 & 75 in P1.

[Sam]

Question 1
I applied a ashridge model and BCG. Someone mentioned about BSG being product only, I noted that the Roam Group co was set up to facilitate the acquisition of companies and hence by default they are dealing In buying and selling stocks, hence the application of BCG is applicable for SBUs in this instance.

Granted very time pressured but managed to include ratio analysis and comments on the group branding.

Wrt the ashridge model People mentioned about it being Alien; I went for Ballast and heartland given they are all within the logistics business, hence complimentary / a good fit for the group portfolio.

Godiva:
Ratios were shocking compared to industry average; advised against the acquisition unless to asset strip (land $9m – use for warehousing or make a $0.2m profit based on explicit financials provided – although wasn’t 100% convinced with the figures provided).

Question2:
Evaluation of the process was pretty wooly; confused by the Evaluate section combined with recommendations – my understanding would be reviewing its effectiveness highlighting strengths as well as weaknesses, but recommendation only for weaknesses?

Asked whether to continue outsourcing it’s customer call handling process which implied all three individual processes as one. Suggested automating the password queries given there simplicity. The remainder in house given the notes about labour shortages in the home country, language issues amongst other financial and non financial factors such as why would you outsource something as important as negotiation of service contracts and technical queries (of which are redirected to specialists in house anyway).

Mentioned the Harmon’s process strategy matrix and applied to some extent but largely based in the explicit issues noted in the case as a heavier weighting as I felt these were more strategically important to the process than an application of the generic model.

Question 4
Analysed the primary activities although inbound and outbound logistics were much of a likeness, missed the point in marketing being good (I think by this point my attention span had started to waiver and had glazed over part of the case). Operations, while once state of the art are now dated and referred to the poor cost per unit as evidence of this as well as the issues around transport in and out logistically. Found this question quite hard to provide substantial evidence of Milton plant adding much value to be honest.

Regressions analysis was a fairly straight forward set of marks compared to the others – a switch in moist to dry food, reduction in demand for moist over time. Used the y = a + bx with the relevant values.

Commented on the correlation coefficient being strongly negative indicating as time passes demand for moist food falls.

Took the r squared to determine the variation in y explained by the variation in x being 89% which was also relatively high.

All in all was writing right up until the wire, would defo agree question 1 was ridiculous for the marks awarded and only finished the paper because I was strict on allocating time; over ran by about 10 mins on Q1 so had to shave roughly 5 off each of the section B questions to answer all questions sufficiently – could have done more given more time but hey ho!

[Sam]

Anyone else notice that the 450 hectares of land owned by Godiva was worth $9m and hence the investment would be worthwhile purchasing the airport, not using it as an airport and either using it for warehousing or simply sell off the assets individually?

I was unsure as to whether this was owned or not given the PPE of Godiva is only $6m.

[Author]

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