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Financial Pillar

F1 – Financial Operations 24 November 2011 – Thursday Morning Session Instructions to candidates

You are allowed 20 minutes reading time before the examination begins during which you should read the question paper and, if you wish, highlight and/or make notes on the question paper. However, you will not be allowed, under any circumstances, to open the answer book and start writing or use your calculator during this reading time. You are strongly advised to carefully read ALL the question requirements before attempting the question concerned (that is all parts and/or subquestions). ALL answers must be written in the answer book. Answers written on the question paper will not be submitted for marking. You should show all workings as marks are available for the method you use. ALL QUESTIONS ARE COMPULSORY. Section A comprises 10 sub-questions and is on pages 3 to 6. Section B comprises 6 sub-questions and is on pages 8 to 10. Section C comprises 2 questions and is on pages 12 to 15. The country ‘Tax Regime’ for the paper is provided on page 2. Maths tables and formulae are provided on pages 17 and 18. The list of verbs as published in the syllabus is given for reference on page 19. Write your candidate number, the paper number and examination subject title in the spaces provided on the front of the answer book. Also write your contact ID and name in the space provided in the right hand margin and seal to close. Tick the appropriate boxes on the front of the answer book to indicate the questions you have answered.

 The Chartered Institute of Management Accountants 2011

F1 – Financial Operations

You are allowed three hours to answer this question paper.


COUNTRY X - TAX REGIME FOR USE THROUGHOUT THE EXAMINATION PAPER

Relevant Tax Rules for Years Ended 31 March 2007 to 2012 Corporate Profits Unless otherwise specified, only the following rules for taxation of corporate profits will be relevant, other taxes can be ignored: •

Accounting rules on recognition and measurement are followed for tax purposes.

All expenses other than depreciation, amortisation, entertaining, taxes paid to other public bodies and donations to political parties are tax deductible.

Tax depreciation is deductible as follows: o

50% of additions to Property, Plant and Equipment in the accounting period in which they are recorded;

o

25% per year of the written-down value (i.e. cost minus previous allowances) in subsequent accounting periods except that in which the asset is disposed of;

o

No tax depreciation is allowed on land.

The corporate tax on profits is at a rate of 25%.

No indexation is allowable on the sale of land.

Tax losses can be carried forward to offset against future taxable profits from the same business.

Value Added Tax Country X has a VAT system which allows entities to reclaim input tax paid. In country X the VAT rates are: Zero rated Standard rated

November 2011

0% 15%

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SECTION A – 20 MARKS [You are advised to spend no longer than 36 minutes on this section]

ANSWER ALL TEN SUB-QUESTIONS IN THIS SECTION

Instructions for answering Section A: The answers to the ten sub-questions in Section A should ALL be written in your answer book. Your answers should be clearly numbered with the sub-question number and then ruled off, so that the markers know which sub-question you are answering. For multiple choice questions, you need only write the sub-question number and the letter of the answer option you have chosen. You do not need to start a new page for each sub-question.

Question One 1.1

Which ONE of the following would NOT normally be considered a principle of a modern tax system? A B C D

Efficiency Equity Economic impact Raise revenues (2 marks)

1.2

Which ONE of the following is an example of formal incidence, but not effective incidence? A B C D

An entity being assessed for corporate income tax by the tax authority. An individual purchasing goods in a shop, the price including VAT. An employee having tax deducted from salary through the PAYE system. An entity charging VAT on its sales and paying its net VAT to the tax authority. (2 marks)

1.3

Which ONE of the following does NOT give rise to a deferred tax adjustment? A B C D

Entertaining expenses paid. Revaluation of a property. Depreciation of an asset that qualifies for tax writing down allowances. Tax losses that are carried forward for relief in future periods. (2 marks)

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1.4

BCF purchased an asset for $600,000 on 1 September 2004. BCF incurred additional purchase costs of $5,000. Indexation of the cost of BCF’s asset is allowed in Country X. The relevant index increased by 60% in the period from 1 September 2004 to 31 August 2011. BCF sold the asset on 1 September 2011 for $1,200,000. BCF incurred selling costs of $9,000. Assume all purchase and selling costs are tax allowable. How much tax was due from BCF on disposal of its asset? A B C D

$55,750 $56,500 $64,250 $146,500 (2 marks)

1.5

Which ONE of the following defines the meaning of “tax gap”? A B C D

The difference between the tax an entity expects to pay and the amount notified by the tax authority. The difference between the total amount of tax due to be paid and the amount actually collected by the tax authority. The difference between the due date for tax payment and the date it is actually paid. The difference between the amount of tax provided in the financial statements and the amount actually paid. (2 marks)

1.6

Which ONE of the following would NOT be regarded as a related party of RST? A B C D

RST’s chief executive officer. RST’s largest single shareholder holding 35% of RST’s equity shares. RST’s biggest customer, providing 55% of RST’s revenue. The wife of the chief executive officer of RST. (2 marks)

1.7

Which ONE of the following CANNOT be recognised as an intangible non-current asset in GHK’s statement of financial position at 30 September 2011? A B C D

GHK spent $12,000 researching a new type of product. The research is expected to lead to a new product line in 3 years’ time. GHK purchased another entity, BN on 1 October 2010. Goodwill arising on the acquisition was $15,000. GHK purchased a brand name from a competitor on 1 November 2010, for $65,000. GHK spent $21,000 during the year on the development of a new product. The product is being launched on the market on 1 December 2011 and is expected to be profitable. (2 marks)

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1.8

Which ONE of the following would be classified by WDC as a non-adjusting event according to IAS 10 Events After The Reporting Period? WDC’s year end is 30 September 2011. A

B

C D

WDC was notified on 5 November 2011 that one of its customers was insolvent and was unlikely to repay any of its debts. The balance outstanding at 30 September 2011 was $42,000. On 30 September WDC had an outstanding court action against it. WDC had made a provision in its financial statements for the year ended 30 September 2011 for damages awarded against it of $22,000. On 29 October 2011 the court awarded damages of $18,000. On 5 October 2011 a serious fire occurred in WDC’s main production centre and severely damaged the production facility. The year end inventory balance included $50,000 of goods from a discontinued product line. On 1 November 2011 these goods were sold for a net total of $20,000. (2 marks)

1.9

IFRS 8 Operating Segments requires information about operating segments to be disclosed in the financial statements. According to IFRS 8 Operating Segments which ONE of the following defines an operating segment. An operating segment is a component of an entity: A B C D

that is considered to be one of the entity’s main products or services. whose operating results are regularly reviewed by the entity’s chief operating decision maker. whose results contribute more than 10% of the entity’s total sales revenue. whose assets are more than 10% of the entity’s total assets. (2 marks)

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1.10 On 28 September 2011, GY received an order from a new customer, ZZ, for products with a sales value of $750,000. ZZ enclosed a deposit with the order of $75,000. On 30 September 2011, GY had not completed the credit referencing of ZZ and had not despatched any goods. Which ONE of the following will correctly record this transaction in GY’s financial statements for the year ended 30 September 2011 according to IAS 18 Revenue: A B C D

Debit Cash $75,000; Credit Revenue $75,000 Debit Cash $75,000; Debit Trade Receivables $675,000; Credit Revenue $750,000 Debit Cash $75,000; Credit Deferred Revenue $75,000 Debit Trade Receivables $750,000; Credit Revenue $750,000

(2 marks)

(Total for Section A = 20 marks)

Reminder All answers to Section A must be written in your answer book. Answers or notes to Section A written on the question paper will not be submitted for marking.

End of Section A

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Section B starts on the next page

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SECTION B – 30 MARKS [You are advised to spend no longer than 9 minutes on each sub-question in this section.]

ANSWER ALL SIX SUB-QUESTIONS IN THIS SECTION – 5 MARKS EACH

Question Two

(a)

The following is an extract from KM’s income statement for the year ended 31 March 2011: $ Revenue 966,000 (520,000) Cost of sales Gross profit 446,000 Administrative expenses (174,000) (40,000) Distribution costs 232,000 Finance cost (67,000) 165,000 Profit before tax Cost of sales includes depreciation charges of $42,000 for property, plant and equipment. Distribution costs include a depreciation charge for a new vehicle (see below). Included in administrative expenses are entertainment costs of $9,800. KM had been selling through retail outlets, but from1 April 2010 began selling on the internet and delivering to customers as well. KM purchased its first delivery vehicle on 1 April 2010 for $18,000. The vehicle qualifies for a first year tax allowance and is depreciated on a straight line basis over six years. The property, plant and equipment (excluding the delivery vehicle) qualified for tax depreciation allowance of $65,000 in the year ended 31 March 2011.

Required: (i)

Calculate the estimated amount of corporate income tax that KM is due to pay for the year ended 31 March 2011.

(ii)

Calculate the income tax expense charged to the statement of comprehensive income for the year ended 31 March 2011. (Total for sub-question (a) = 5 marks)

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(b)

LM imports luxury goods in bulk. LM repackages the products and sells them to retailers. LM is registered for Value Added Tax (VAT) in Country X. LM imported a consignment of perfume costing $50,000, paying excise duty of 20% of cost. The consignment was subject to VAT on the total (including duty). LM paid $9,775 repackaging costs, including VAT and sold the perfume for $105,800 including VAT. LM had not paid or received any VAT payments to or from the VAT authorities for this consignment.

Required: (i)

Calculate the net VAT due to be paid by LM on the perfume consignment.

(ii)

Calculate LM’s net profit on the perfume consignment. (Total for sub-question (b) = 5 marks)

(c)

Required: Explain the meaning of “tax base” and give THREE examples of the different tax bases regularly used by governments. (Total for sub-question (c) = 5 marks)

(d) Required: Explain the concepts of capital and capital maintenance as defined in the International Accounting Standards Board’s (IASB) Framework for the Preparation and Presentation of Financial Statements (Framework). (Total for sub-question (d) = 5 marks)

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(e)

You are the partner in charge of the audit of LMN. The following matter has been brought to your attention in the audit working papers. During the year LMN spent $500,000 on applied research, trying to find an application for a new process it had developed. LMN’s management has capitalised this expenditure. LMN management is refusing to change its accounting treatment as it does not want to reduce the year’s profit. The draft financial statements show revenue of $40 million and net profit of $4.5 million.

Required: (i)

Explain what is meant by “materiality” AND whether the matter highlighted above is material. (3 marks)

(ii)

Identify the type of audit report that would be appropriate to the above statements, assuming that LMN’s management continue to refuse to change the financial statements. (2 marks) (Total for sub-question (e) = 5 marks)

(f)

RS an employee, prepares monthly management accounting information for XYZ which includes detailed performance data that is used to calculate staff bonuses. Based on information prepared by RS this year’s bonuses will be lower than expected. RS has had approaches from other staff offering various incentives to make accruals for additional revenue and other reversible adjustments, to enable all staff (including RS) to receive increased or higher bonuses.

Required: Explain the requirements of the CIMA Code of Ethics for Professional Accountants in relation to the preparation and reporting of information AND the ethical problems that RS faces. (Total for sub-question (f) = 5 marks)

(Total for Section B = 30 marks)

End of Section B Section C starts on page 12

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Section C starts on the next page

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SECTION C – 50 MARKS [You are advised to spend no longer than 45 minutes on each question in this section.]

ANSWER BOTH QUESTIONS FROM THIS SECTION – 25 MARKS EACH

Question Three ABC sells goods to the building industry and carries out construction contracts for clients. ABC’s trial balance at 30 September 2011 is shown below: Notes $000 Administrative expenses 1,020 Cash and cash equivalents 440 Cash received on account from construction contract clients during year to 30 September 2011 – contract 1 (i) Cash received on account from construction contract clients during year to 30 September 2011 – contract 2 (i) Cash received on disposal of plant and equipment (iii) Construction contract 1 - work in progress for year to 30 September 2011 (i) 3,750 Construction contract 2 - work in progress for year to 30 September 2011 (i) 2,250 Distribution costs 590 Equity dividend paid (viii) 250 Equity Shares $1 each, fully paid at 30 September 2011 Income tax (v) 15 Interest paid – half year to 31 March 2011 58 Inventory at 30 September 2011 (excluding construction contracts) 310 Long term borrowings (redeemable 2021) (iv) Plant and equipment at cost 30 September 2011 (iii) 4,930 Property at valuation 30 September 2010 (ii) 11,000 Provision for deferred tax at 30 September 2010 (vi) Provision for plant and equipment depreciation at 30 September 2010 (iii) Provision for property depreciation at 30 September 2010 (ii) Cost of goods sold (excluding construction contracts) 3,210 Retained earnings at 30 September 2010 Sales revenue Share premium at 30 September 2011 Trade payables Trade receivables (vii) 810 28,633

Additional information provided: (i)

At 30 September 2011 ABC had two construction contracts in progress. Contract length Date commenced Fixed contract value

November 2011

Contract 1 3 years 1 October 2010 $11,000,000

12

Contract 2 2 years 1 April 2011 $8,000,000

Financial Operations

$000

4,000 1,800 15

2,500

2,300

250 2,156 3,750 627 9,500 1,500 235 28,633


Contract detail for year ended 30 September 2011 Proportion of work certified as completed Construction contract work in progress Estimated cost to complete contract Cash received on account from construction contract clients during year

Contract 1 40% $000 3,750 5,400 4,000

Contract 2 25% $000 2,250 6,750 1,800

Both contracts use the value of work completed method to recognise attributable profit for the year. (ii)

Property consists of land $3,500,000 and buildings $7,500,000. Buildings are depreciated at 5% per year on the straight line basis. No buildings were fully depreciated at 30 September 2011.

(iii)

Plant and equipment is depreciated at 25% per year using the reducing balance method. During the year to 30 September 2011 ABC sold obsolete plant for $15,000. The plant had cost $75,000 and had been depreciated by $65,000. All depreciation is considered to be part of cost of sales. ABC’s policy is to charge a full year’s depreciation in the year of acquisition and no depreciation in the year of disposal.

(iv)

The long term borrowings incur annual interest at 5% paid six monthly in arrears.

(v)

The income tax balance in the trial balance is a result of the under provision of tax for the year ended 30 September 2010. The directors estimate the income tax charge on the profit of the year to 30 September 2011 at $910,000.

(vi)

The deferred tax provision is to be increased by $19,000.

(vii)

On 1 August 2011, ABC was informed that one of its customers, EF, had ceased trading. The liquidators advised ABC that it was very unlikely to receive payment of any of the $25,000 due from EF at 30 September 2011.

(viii)

ABC made no new share issues during the year. ABC paid a final dividend for the year to 30 September 2010.

Required: Prepare ABC’s statement of comprehensive income and statement of changes in equity for the year to 30 September 2011 AND a statement of financial position at that date in accordance with the requirements of International Financial Reporting Standards. Notes to the financial statements are not required, but all workings must be clearly shown. Do not prepare a statement of accounting policies. (Total for Question Three = 25 marks)

Section C continues on page 14 TURN OVER

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Question Four The Draft summarised Statement of Financial Position at 30 September 2011 for three entities, PH, SU and AJ are given below:

PH $000

SU $000

AJ $000

50,390

57,590

41,270

Non-current Assets Property, plant and equipment Investments: 48,000,000 Ordinary shares in SU at cost

75,590

Loan to SU

12,600

8,000,000 Ordinary shares in AJ at cost

16,400

.

.

154,980

57,590

41,270

Inventory

10,160

14,410

10,260

Current account with SU

10,000

Trade receivables

21,400

13,200

11,940

1,260

3,600

3,580

42,820

31,210

25,780

197,800

88,800

67,050

126,000

48,000

24,000

Current Assets

Cash and cash equivalents Total Assets Equity and Liabilities Equity shares of $1 each Retained earnings

26,500

15,600

28,800

152,500

63,600

52,800

Long term borrowings Current liabilities

32,700

12,600

11,800

Trade payables

12,600

5,400

2,450

0

7,200

0

12,600

12,600

2,450

197,800

88,800

67,050

Non-current liabilities

Current account with PH Total Equity and Liabilities

Additional information: (i)

PH acquired all of SU’s equity shares on 1 October 2010 for $75,590,000 when SU’s retained earnings were $7,680,000. PH also advanced SU a ten year loan of $12,600,000 on 1 October 2010.

(ii)

The fair value of SU’s property, plant and equipment on 1 October 2010 exceeded its book value by $1,300,000. The excess of fair value over book value was attributed to buildings owned by SU. At the date of acquisition these buildings had a remaining useful life of 20 years. PH’s accounting policy is to depreciate buildings using the straight line basis.

(iii) At 30 September 2011 $90,000 loan interest was due on the loan made by PH to SU and had not been paid. Both PH and SU had accrued this amount at the year end.

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(iv) PH purchased 8,000,000 of AJ’s equity shares on 1 October 2010 for $16,400,000 when AJ’s retained earnings were $24,990,000. PH exercises significant influence over all aspects of AJ’s strategic and operational decisions. (v) SU posted a cheque to PH for $2,800,000 on 29 September 2011 which did not arrive until 7 October 2011. (vi) No dividends are proposed by any of the entities. (vii) PH occasionally trades with SU. In September 2011 PH sold SU goods for $4,800,000. PH uses a mark-up of one third on cost. On 30 September 2011 all the goods were included in SU’s closing inventory.

Required: (a) Define what is meant by control and explain how this is determined according to IAS 27 Consolidated and Separate Financial Statements. (5 marks)

(b) Prepare the consolidated statement of financial position for the PH group of entities as at 30 September 2011, in accordance with the requirements of International Financial Reporting Standards.

Notes to the financial statements are not required but all workings must be shown. (20 marks) (Total for Question Four = 25 marks)

End of Question Paper Maths Tables and Formulae are on Pages 17 and 18

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MATHS TABLES AND FORMULAE Present value table -n

Present value of $1, that is (1 + r) where r = interest rate; n = number of periods until payment or receipt. Periods (n) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

1% 0.990 0.980 0.971 0.961 0.951 0.942 0.933 0.923 0.914 0.905 0.896 0.887 0.879 0.870 0.861 0.853 0.844 0.836 0.828 0.820

2% 0.980 0.961 0.942 0.924 0.906 0.888 0.871 0.853 0.837 0.820 0.804 0.788 0.773 0.758 0.743 0.728 0.714 0.700 0.686 0.673

3% 0.971 0.943 0.915 0.888 0.863 0.837 0.813 0.789 0.766 0.744 0.722 0.701 0.681 0.661 0.642 0.623 0.605 0.587 0.570 0.554

Periods (n) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

11% 0.901 0.812 0.731 0.659 0.593 0.535 0.482 0.434 0.391 0.352 0.317 0.286 0.258 0.232 0.209 0.188 0.170 0.153 0.138 0.124

12% 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322 0.287 0.257 0.229 0.205 0.183 0.163 0.146 0.130 0.116 0.104

13% 0.885 0.783 0.693 0.613 0.543 0.480 0.425 0.376 0.333 0.295 0.261 0.231 0.204 0.181 0.160 0.141 0.125 0.111 0.098 0.087

Financial Operations

Interest rates (r) 4% 5% 0.962 0.952 0.925 0.907 0.889 0.864 0.855 0.823 0.822 0.784 0.790 0.746 0.760 0.711 0.731 0.677 0.703 0.645 0.676 0.614 0.650 0.585 0.625 0.557 0.601 0.530 0.577 0.505 0.555 0.481 0.534 0.458 0.513 0.436 0.494 0.416 0.475 0.396 0.456 0.377

6% 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 0.527 0.497 0.469 0.442 0.417 0.394 0.371 0.350 0.331 0.312

7% 0.935 0.873 0.816 0.763 0.713 0.666 0.623 0.582 0.544 0.508 0.475 0.444 0.415 0.388 0.362 0.339 0.317 0.296 0.277 0.258

8% 0.926 0.857 0.794 0.735 0.681 0.630 0.583 0.540 0.500 0.463 0.429 0.397 0.368 0.340 0.315 0.292 0.270 0.250 0.232 0.215

9% 0.917 0.842 0.772 0.708 0.650 0.596 0.547 0.502 0.460 0.422 0.388 0.356 0.326 0.299 0.275 0.252 0.231 0.212 0.194 0.178

10% 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 0.386 0.350 0.319 0.290 0.263 0.239 0.218 0.198 0.180 0.164 0.149

Interest rates (r) 14% 15% 16% 0.877 0.870 0.862 0.769 0.756 0.743 0.675 0.658 0.641 0.592 0.572 0.552 0.519 0.497 0.476 0.456 0.432 0.410 0.400 0.376 0.354 0.351 0.327 0.305 0.308 0.284 0.263 0.270 0.247 0.227 0.237 0.215 0.195 0.208 0.187 0.168 0.182 0.163 0.145 0.160 0.141 0.125 0.140 0.123 0.108 0.123 0.107 0.093 0.108 0.093 0.080 0.095 0.081 0.069 0.083 0.070 0.060 0.073 0.061 0.051

17% 0.855 0.731 0.624 0.534 0.456 0.390 0.333 0.285 0.243 0.208 0.178 0.152 0.130 0.111 0.095 0.081 0.069 0.059 0.051 0.043

18% 0.847 0.718 0.609 0.516 0.437 0.370 0.314 0.266 0.225 0.191 0.162 0.137 0.116 0.099 0.084 0.071 0.060 0.051 0.043 0.037

19% 0.840 0.706 0.593 0.499 0.419 0.352 0.296 0.249 0.209 0.176 0.148 0.124 0.104 0.088 0.079 0.062 0.052 0.044 0.037 0.031

20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162 0.135 0.112 0.093 0.078 0.065 0.054 0.045 0.038 0.031 0.026

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Cumulative present value of $1 per annum, Receivable or Payable at the end of each year for n years 1− (1+ r ) − n r

Periods (n) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

1% 0.990 1.970 2.941 3.902 4.853 5.795 6.728 7.652 8.566 9.471 10.368 11.255 12.134 13.004 13.865 14.718 15.562 16.398 17.226 18.046

2% 0.980 1.942 2.884 3.808 4.713 5.601 6.472 7.325 8.162 8.983 9.787 10.575 11.348 12.106 12.849 13.578 14.292 14.992 15.679 16.351

3% 0.971 1.913 2.829 3.717 4.580 5.417 6.230 7.020 7.786 8.530 9.253 9.954 10.635 11.296 11.938 12.561 13.166 13.754 14.324 14.878

Interest rates (r) 4% 5% 6% 0.962 0.952 0.943 1.886 1.859 1.833 2.775 2.723 2.673 3.630 3.546 3.465 4.452 4.329 4.212 5.242 5.076 4.917 6.002 5.786 5.582 6.733 6.463 6.210 7.435 7.108 6.802 8.111 7.722 7.360 8.760 8.306 7.887 9.385 8.863 8.384 9.986 9.394 8.853 10.563 9.899 9.295 11.118 10.380 9.712 11.652 10.838 10.106 12.166 11.274 10.477 12.659 11.690 10.828 13.134 12.085 11.158 13.590 12.462 11.470

7% 0.935 1.808 2.624 3.387 4.100 4.767 5.389 5.971 6.515 7.024 7.499 7.943 8.358 8.745 9.108 9.447 9.763 10.059 10.336 10.594

8% 0.926 1.783 2.577 3.312 3.993 4.623 5.206 5.747 6.247 6.710 7.139 7.536 7.904 8.244 8.559 8.851 9.122 9.372 9.604 9.818

9% 0.917 1.759 2.531 3.240 3.890 4.486 5.033 5.535 5.995 6.418 6.805 7.161 7.487 7.786 8.061 8.313 8.544 8.756 8.950 9.129

10% 0.909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 6.145 6.495 6.814 7.103 7.367 7.606 7.824 8.022 8.201 8.365 8.514

Periods (n) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

11% 0.901 1.713 2.444 3.102 3.696 4.231 4.712 5.146 5.537 5.889 6.207 6.492 6.750 6.982 7.191 7.379 7.549 7.702 7.839 7.963

12% 0.893 1.690 2.402 3.037 3.605 4.111 4.564 4.968 5.328 5.650 5.938 6.194 6.424 6.628 6.811 6.974 7.120 7.250 7.366 7.469

13% 0.885 1.668 2.361 2.974 3.517 3.998 4.423 4.799 5.132 5.426 5.687 5.918 6.122 6.302 6.462 6.604 6.729 6.840 6.938 7.025

Interest rates (r) 14% 15% 16% 0.877 0.870 0.862 1.647 1.626 1.605 2.322 2.283 2.246 2.914 2.855 2.798 3.433 3.352 3.274 3.889 3.784 3.685 4.288 4.160 4.039 4.639 4.487 4.344 4.946 4.772 4.607 5.216 5.019 4.833 5.453 5.234 5.029 5.660 5.421 5.197 5.842 5.583 5.342 6.002 5.724 5.468 6.142 5.847 5.575 6.265 5.954 5.668 6.373 6.047 5.749 6.467 6.128 5.818 6.550 6.198 5.877 6.623 6.259 5.929

17% 0.855 1.585 2.210 2.743 3.199 3.589 3.922 4.207 4.451 4.659 4.836 4.988 5.118 5.229 5.324 5.405 5.475 5.534 5.584 5.628

18% 0.847 1.566 2.174 2.690 3.127 3.498 3.812 4.078 4.303 4.494 4.656 7.793 4.910 5.008 5.092 5.162 5.222 5.273 5.316 5.353

19% 0.840 1.547 2.140 2.639 3.058 3.410 3.706 3.954 4.163 4.339 4.486 4.611 4.715 4.802 4.876 4.938 4.990 5.033 5.070 5.101

20% 0.833 1.528 2.106 2.589 2.991 3.326 3.605 3.837 4.031 4.192 4.327 4.439 4.533 4.611 4.675 4.730 4.775 4.812 4.843 4.870

FORMULAE Annuity Present value of an annuity of $1 per annum, receivable or payable for n years, commencing in one year, discounted at r% per annum:

PV =

1 1 1 − n r  [1 + r ]

  

Perpetuity Present value of $1 per annum, payable or receivable in perpetuity, commencing in one year, discounted at r% per annum:

PV =

1 r

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Financial Operations


LIST OF VERBS USED IN THE QUESTION REQUIREMENTS A list of the learning objectives and verbs that appear in the syllabus and in the question requirements for each question in this paper. It is important that you answer the question according to the definition of the verb. LEARNING OBJECTIVE Level 1 - KNOWLEDGE What you are expected to know.

Level 2 - COMPREHENSION What you are expected to understand.

VERBS USED

DEFINITION

List State Define

Make a list of Express, fully or clearly, the details/facts of Give the exact meaning of

Describe Distinguish Explain

Communicate the key features Highlight the differences between Make clear or intelligible/State the meaning or purpose of Recognise, establish or select after consideration Use an example to describe or explain something

Identify Illustrate Level 3 - APPLICATION How you are expected to apply your knowledge.

Apply Calculate Demonstrate Prepare Reconcile Solve Tabulate

Level 4 - ANALYSIS How are you expected to analyse the detail of what you have learned.

Level 5 - EVALUATION How are you expected to use your learning to evaluate, make decisions or recommendations.

Financial Operations

Analyse Categorise Compare and contrast

Put to practical use Ascertain or reckon mathematically Prove with certainty or to exhibit by practical means Make or get ready for use Make or prove consistent/compatible Find an answer to Arrange in a table

Construct Discuss Interpret Prioritise Produce

Examine in detail the structure of Place into a defined class or division Show the similarities and/or differences between Build up or compile Examine in detail by argument Translate into intelligible or familiar terms Place in order of priority or sequence for action Create or bring into existence

Advise Evaluate Recommend

Counsel, inform or notify Appraise or assess the value of Advise on a course of action

19

November 2011


Financial Pillar

Operational Level Paper

F1 – Financial Operations

November 2011

Thursday Morning Session

November 2011

20

Financial Operations


F1 – Financial Operations 24 November 2011  

F1 – Financial Operations 24 November 2011

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