Your September Applied Skills tips…
The exam will be approximately 40% calculation and 60% discussion, meaning that it is not sufficient to be able to perform all of the calculations. Interpretation and application are crucial, especially in section C.
Best advice for section A and B is study all areas. Students should also expect the unexpected.
Areas you can expect to be tested in section C are budgetary systems, planning and operational variances, mix and yield variances and evaluation of the company performance (either as a whole or on a divisional basis). You are strongly advised to plan answers to section C questions before starting to write. Ensure you make reference to the scenario in your answer
Expect some OTs to be devoted to the administration of income tax and corporation tax. That means you must be comfortable with the following:
*Due dates for payment of income tax (including payments on account).
*Due dates for the payment of corporation tax (including instalments for large companies).
*Filing dates for income tax and corporation ta returns.
*Penalties and interest for late payments and returns.
Other topics likely to be tested in section A are:
*VAT rules on registration, impairment loss (bad debt) relief, and the SME schemes relating to cash accounting, annual accounting and flat-rate schemes.
*Inheritance tax die on lifetime transfers both in the donor’s life and on death.
*Statutory residence tests for individuals.
*Identification of groups of companies for corporation tax loss reliefs and gains.
*Trading loss reliefs for both companies and sole traders.
Section A offers the TX team the opportunity to test the howl syllabus – so practice all kins of questions.
At least 50% of your revision time has to be spent answering the section C questions in practice and revision kit to build up confidence and speed in a way that will also maximise marks.
Remember to learn your income tax and corporation tax pro formas.
Calculations which require no more than two or three entries into your calculator can be included on the face of your pro formas (eg time apportioning a salary), calculations which are more complex (eg company car benefits) need separate workings which are properly referenced (W1, W2, etc) and have a heading.
Attempt the narrative parts of the requirement – aim for as many sentences as there are marks with each sentence containing something technical. Keep your paragraphs to no more than 3 sentences long.
In both numerical and narrative answers leave plenty of space on the page. So in pro formas – leave a gap between each line (you may need to add something in). Show workings down the pages rather than across the page as it makes them easier to mark. In narrative answers leave a line or two between each paragraph just in case you remember something later. Well-spaced answers are also easier to mark!
You know the two longest questions will focus on income tax and corporation tax. These are likely to include the following:
*Relief for pension contributions.
*Adjustments to profit to arrive at trading income for both companies and sole traders – in past sittings we have seen a number of questions whereby you have to correct errors in computations included in the scenario.
*Capital allowance computations.
Section A’s 15 2 mark OTs will be on a wide range of topics, including several on consolidation and interpretation of financial statements. Expect a few questions on inflation and specialised entities.
In section B questions are not dependent on each other and can be answered in any order. Each scenario could be a mix of topic areas or focused on one topic and will usually consist of 2/3 calculations and 2/3narratives.
Section C has two 20 mark questions, one covering interpretations and the other preparation of financial statements. One question is likely to be in the context of a single company and one in the context of a group, so you could have a single company interpretation and a groups preparation or vice versa.
Accounts prep questions may include extracts or stand alone calculations or full statements of profit or loss and other comprehensive income and/or statement of financial position.
Both questions will cover the accounting for items from other areas of the syllabus.
May include a short separate part, eg with a statement of changes in equity, statement of cash flows extract, earnings per share calculation or linked written topic.
A consolidated question would include one subsidiary and often an associate, with adjustments, eg fair values, deferred/contingent consideration, PUP on inventories/PPE, intragroup trading and balances, goods/cash in transit.
A single entity question could be preparation form a trial balance or restatement of given financial statements with the usual adjustments for depreciation, revaluation and current/deferred tax (including deferred tax on revaluations) plus a mixture of adjustments on other syllabus areas, eg lease, substance over form issues, financial instruments (change in fair value or amortised cost), share issues, government grants, inventory valuation, revenue recognition or construction contracts.
Each mini-case question in section A will test single topic areas of the syllabus and so will either test syllabus area A, B, C, D, or E. You can particularly expect questions in section A to focus on syllabus areas A and E.
All 3 questions in section B will be broken down into sub requirements and be scenario based. The majority of marks in each question will test syllabus areas B, C and/or D.
Areas expected to be tested in Q16 and Q18 include:
*Audit risk (identification and explanation of audit risks from a scenario and explanation of the auditor’s response to each risk).
*Internal controls (identification and explanation of deficiencies in internal control and the recommendation of suitable internal controls or description of tests of controls).
*Audit procedures (both substantive procedures and tests of controls).
Section A questions will often be knowledge based (testing your knowledge of key technical terms) and will balance out the questions in section B and C. It is therefore likely that a good number of these questions will test your understanding of financial management and objectives (ratio analysis, the concept of shareholder wealth), as well as the economic environment and financial institutions topics (financial intermediation, fiscal and monetary policies). The efficient market hypothesis is likely to be tested here too.
Areas in section B expected to be commonly tested in this section are working capital management (eg, the operating cycle, the impact of a change in credit period or accepting a factor’s offer), business or security valuations (eg, methods of valuation), and financial risk management (most likely mainly in the form of currency risk but it is possible that at least an aspect of interest rate risk is examined here).
The two section C questions will focus mainly on syllabus sections C, D and E. Section C is working capital management, section D is investment appraisal and is likely to feature NPV with inflation and tax. Section E is business finance; either an evaluation of financing options (interest coverage and gearing ratios are likely to be important here) or a cost of capital and analysis are most likely. Whichever of these 3 topics does not feature in section C is likely to appear in section B.