Tag Archives: F1 Financial Reporting and Taxation

CIMA f1: Financial reporting

The CIMA F1 Financial Reporting exam is not as tough as many students fear. I remember myself when studying for this paper I dreaded the accounting standards and technical elements of the paper. Fearing that I would never be able to remember and apply them on exam day.

Nevertheless, I did manage a first time pass with the F1 Financial Reporting paper, although this was back around 2014 when the exams were not computer based and the questions were in longer format. But the fundamentals and principles remain the same.

If you are one of the those students that are immediately filled with dread when opening your F1 Financial Reporting textbook (or pdf online text as is the case these days). Then fear not.

A quick glance at the CIMA Exam Pass Rates during 2020 paint a happy picture. The CIMA F1 paper had a 79% pass rate, while the E1 paper (which is considered one of the easier papers) had an 81% pass rate. If you should fear anything at this level it should be the P1 paper which had a very modest 54%.

The F1 Syllabus

F1: Financial Reporting
A. Regulatory environment of financial reporting
B. Financial statements
C. Principles of taxation
D. Managing cash and working capital

The area I want to focus on here is section D on the F1 syllabus: Managing Cash and Working Capital as it’s an area that can be tested heavily in both the objective tests and the case study at operational level.

Understanding Working Capital

Working capital is a measure of the company’s liquidity and is calculated by deducting the current liabilities (trade payables, overdraft etc.) from the current assets (inventory, cash and receivables).

Working Capital = Current Assets – Current Liabilities

It’s a simple formula that tells you how liquid the company is. Perhaps the best way to approach this subject to start from the end and break it down step by step.

The Working Capital Cycle

Many companies will measure the working capital cycle to identify any areas of concern with how the company invests it’s cash. It can tell you if there is an issue with how long it takes to collect cash, are they not utilizing payment terms effectively and do they hold too much inventory?

Simply put;

it’s the length of time between paying suppliers for the purchase of raw materials and receiving cash back into the business when the customer pays our invoice.

The shorter this cycle is, the more efficient the company is run and the quick it can start the process again.

Here is an illustration of The Working Capital Cycle.

The focus will be on the green arrow – how can companies positively impact this cycle?

• Payable Days – is the company making full use of payment terms? This blue arrow could be pushed further out to shorten the working capital cycle.

• Receivable Days – is cash being collected on time? If not, what are the issues? Improving cash collection and reducing this blue arrow would help shorten the working capital cycle.

• Inventory Days – how long is the company holding onto inventory for, can sales be generated more efficiently and can the production process be quicker?

It’s more feasible for a company to focus on extending payment terms and improving cash collection rather than looking at the production or inventory process. These are the kind of questions and thought process you should be going through during a case study exam.

While the objective tests and specifically the F1 Financial Reporting paper you will be required to perform quick calculations and select the right answer.

Measuring Working Capital

These ratios are used to determine how much working capital a business holds and if it’s too much, or if there is a risk of the business not being liquid enough.


Current Ratio = Current Assets/Current Liabilities

In an ideal world, this should always be over 1.

This indicates the company holds more current assets than liabilities – in most industries the benchmark would be around 1.4 to 1.5. However, that is not always the case if we think about the Supermarket Industry where it’s common to be under 1.0.

This is due to the fact they have very little stock on hand as it’s fast moving and very little receivables due to customers paying cash in the store, this cash is used in a fast turnaround for more goods.

The Quick Ratio = Current Assets-Inventories/Current Liabilities

This removes inventory from the equation as it’s the least liquid. If there was an urgent need for a business to cover their liabilities in a short space, this measure will tell us if it’s possible.

It’s basically saying, do we have enough cash on hand and receivables to collect to pay all of our current liabilities. Ideally, it would be just over the 1.0 mark.


Inventory Days = Inventory/Cost of Sales x 365

This measure will tell us how long a company holds onto inventory before it’s sold. If this period is too long or increases over time, then the cost of storing the inventory grows and so does the risk of obsolescence.

Receivables Collection Period = Trade Receivables/Revenue x 365

Here we will understand how efficient the cash collection process is, if the company offers a strict 30 payment terms to their customers but this measure is well over 30 days, the company needs to address it. The shorter this period, the quicker the company can invest the money back into the production of goods and services.

Payables Payment Period = Trade Payables/Cost of Sales x 365

As above, but from other side. If the company has 60 day terms to pay their supplier bit this measure shows only 50 days, then there is a case of paying some suppliers too early. Alternatively, if there is a strain on the working capital cycle a company may look to negotiate longer payment terms with their suppliers.

The Working Capital Cycle = Inventory Days + Receivable Days – Payable Days

Now we can calculate the working capital cycle in days by adding the inventory days to the receivable days and deducting the payable days.

Let’s take a look at example illustrating these ratios in action.

The current ratio of 1.55 is very healthy and shows the company has plenty of current assets to cover their liabilities in the short term. However, if we take inventory out of the equation the quick ratio of 0.81 illustrates the company may struggle to meet their liabilities and need to think about their inventory management.

The Inventory Days of 112 is also high and backups up the quick ratio, that the company is holding too much inventory and for too long. If we look at it in pure values, there is 2000 worth of inventory on the balance sheet despite the cost of sales for the whole year is 6500.

On the other hand, the payable days look to be good. The company is taking 98 days to their creditors which is effective use of the company’s cash, although there needs to balance to ensure vendors are not being LATE and there is a risk of services being cut off.

The receivable days also look to be in good shape, 40 days to collect cash is a good measure but of course this can be benchmarked to their current receivable terms. Is it 30 days, 60 days? In a case study exam you will usually be given some context to judge these numbers on.

In terms of the F1 Financial Reporting objective test, practice calculating the ratios and there are various ways the working capital cycle can be tested. You might be given the ratios themselves and then asked to calculate the total payables value on the balance sheet, all of these type of questions will be most exam practice kits.

CIMA F1 Exam Tips

CIMA F1 Exam Tips

The CIMA F1 exam Financial Reporting and Taxation can be a tough exam to pass. It’s heavily weighted towards financial accounting and reporting – it makes up 45% of the syllabus – so it’s the core area for your studies and revision.

You must be comfortable with the end to end financial accounting process and the production of the following financial statements;

  • Statement of Financial Postion
  • Statement of Comprehensive Income
  • Statement of Changes in Equity
  • Statement of Cash Flows

Meanwhile, there are a host of IFRS’s and IAS’s you will need to get grips with, previously on the blog I have covered IAS 24: Related Party Disclosures and Deferred Tax which are both examinable topics in F1.

CIMA Study Text

Before getting stuck into the F1 syllabus content, choosing your learning provider is key and will shape the weeks of study and revision ahead.

Kaplan, BPP and CIMA Study are the big names out there (personally I use Kaplan for the exam kits and CIMA Study when looking at complete study packages).

But the ideal starting point would be taking advantage of Astranti’s free online study text for the CIMA F1 Financial Reporting and Taxation paper. It’s free, you can study wherever you have an internet connection and it’s easier to digest than some of the more technical texts like BPP.

Corporate Governance

The CIMA F1 paper is focused on financial accounting but don’t fall into the trap of forgetting the more wordy areas of the syllabus.

You may find yourself concentrating on the accounting adjustments and accounting standards but topics like Corporate Governance play a key role and can be source of easy marks. 

Below is a video from Open Tuition on the subject of Corporate Governance to give you an insight into this CIMA F1 topic.

Mock Exams

If you are a regular reader of the website and blog then you will know the importance I place in testing yourself with mock exams. And I’ve recently come across one of the most comprehensive CIMA mock exam resources around.

The Practice Tests Academy have an unrivalled bank of question for each CIMA paper and the F1 Financial Accounting and Taxation paper is no different.

CIMA F1 Mock Exams

You can read more about them here and take a look at the F1 Mock Exam resources here.

The Practice Tests academy have other 500 questions for the F1 syallbus where you can test yourself in study mode or timed exam conditions with 60 random questions on F1.

You will receive feedback on your incorrect answers and an summary at the end of each mock exam to give you the focus areas for your revision. It’s a great tool and goes above and beyond the usual exam practice kits offered by Kaplan and BPP.

*However, personally I also use the hard copies of the Kaplan exam practice kit.

CIMA F1 Revision Class

There is no better way to compliment your F1 studies than by watching the F1 revision classes that are available online.

Especially for those students who are self studying, the addition of watching revision classes from a qualified CIMA tutor can be invaluable and may shed light on some of the tricker areas for the F1 syllabus you have been struggling with.

You can find the full details on the full F1 revision masterclass here.

The CIMA Student F1 exam advice

There is a lot of emphasis (and rightly so) on the CIMA Objective test question styles and making sure you have covered enough objective test mock exams in your revision.

However, I believe you can still learn and really test yourself on the F1 syllabus by answering questions in the longer format.

i.e. going back over longer style questions to ensure you have a full understanding of the subject in question. This will give you a greater chance of achieving a pass mark on exam day.

You can find old exam questions on the CIMA F1 paper by visiting the CIMA connect website and searching for the “Past Questions and Answers” in the study resource type.

CIMA F1 Exam Questions

Finally, if you can answer “YES” to the following questions then I’d suggest you are ready to take the CIMA F1 Financial reporting and taxation.

  • Have you covered the whole F1 syllabus study text?
  • Have you taken 2/3 mock exams to exam conditions?
  • Have you used a mixture of resources? (videos, revision cards, mock exams etc.)
  • Do you have a strategy on how you will approach the exam? (time management)

Good Luck with the CIMA F1 Financial Reporting and Taxation exam!

F1: Useful Links and Resources


The operational level of the CIMA qualification covers the implementation of strategy as well as reporting on the implementation of the strategy. It’s focus is purely on the short term.

The main area of the F1 syllabus revolves around Financial Accounting and Reporting. However, you shouldn’t neglect business taxation as it represents a quarter of the F1 area.

Useful Links

Astranti Operational Level Membership – Free Study Text 2015 – Astranti offer some great free study texts for the whole of the operational level. The complete study text for F1 is available for free (but only the online version), you will need to pay if you want to print the text.

CIMA Connect  F1 Group  – here you will find the F1 homepage on the official CIMA site. It contains various documents and articles related to the syllabus as well as a discussion forum that can e very useful before exam time.

F1 Study Notes: Ethics – this article on Ethics is a great insight into a real life example and will help you when preparing for the F1 paper.

F1 Study Notes: Financial Reporting and Taxation – a brilliant article from CIMA on the 2015 syllabus and how it’s affected the F1 paper. A must read for all students sitting the F1 exam next.

F1 Study Resources Homepage– here you can find all of the study resources that the official CIMA website provides.


*note: you may need to login into your CIMA connect account for some of the above links.