How I Passed CIMA F2 Exam

It was a case of third time lucky when taking the CIMA F2 exam this week – I finally got the PASS mark I desperately needed – the official scaled score from CIMA was 108 out of 150 and proficient in all areas of the F2 syllabus!

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Ah, what a relief!

How I Passed the F2 Exam

As you are probably aware, I am self studying the CIMA qualification without any classroom tuition and looking back at my first two sittings (especially the first one) I was under prepared despite feeling relatively confident on exam day.

I knew F2 would be a tough exam for me as I barely got a pass mark and scored just 50% on the F1 paper back in November 2014 when sitting it under the old syllabus (it was 50% needed to pass the exam!).

Despite covering all of the CIMA study text for F2 and taking a few mock exams I was missing some of the key theory behind F2 – in particular Financial Instruments, Group Accounts, and interpretation of Financial Ratio’s (so pretty much everything!). While I was confident after scoring quite well in the mock exams I wasn’t able to apply the theory to different scenario’s in the exam.

The second attempt I felt more prepared, spent more time studying the theory and using more exam questions (this time from Kaplan as well as Astranti). But I narrowly missed out with a score of 94.

For the third attempt, I really put the hours in and studied every day for two weeks leading up to the exam. Covering all 200 questions in the Kaplan exam kit and even purchased the Astranti F2 master class.

Fortunately it paid off in the end and there seems to be no shortcuts when trying to pass these CIMA objective tests!

Here are a few of my lessons learnt:

CIMA F2 Exam: Lessons Learnt

  • Study, Study, Study: to get the results and achieve the pass mark you really need to put the hours and study all areas of the syllabus with the right mix of theory and questions practice. You can never take enough practice questions or mock exams.
  • Push Yourself: tackle your weak areas when preparing for the exam, really focus on the parts of the syllabus you struggle with – otherwise you can expect to fail.
  • Speak to other students: speak to other students in the same boat as you, there are plenty of Facebook groups, whats-app groups and the CIMA connect site gives you the chance to contact other students. Do it and exchange ideas, tips and advice.
  • Never Give Up: after failing the F2 exam for the second time I was disheartened and was tempted to move on to a different paper – but someone actually commented on the site and suggested to re-take it as soon as possible as I was so close to the pass mark and the content will still be fresh in my mind. That was probably the best piece of advice I could have been given.

Keep going and if you put the hard hours of study in you will see the benefits when getting your results! 

My F2 Resources

Astranti F2 Master Class – ten hours worth of revision classes on the F2 syllabus including practice questions and exam tips.

Kaplan F2 Exam practice kit – 200 F2 exam style questions from Kaplan (you can access it online too).

I’ve also updated the My Progress page with the current status of my studies – one step closer to the end!

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The Week Ahead – 4th July 2016

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As you may have read last week, I failed my F2 resit on Friday and I’ve now got my scaled score which was 94 out of 150 – so I was just six away from a pass – which is probably a question or two on the wrong side of  pass mark. So agonising.

I am half a mind whether to re-take the F2 next or move on to a different subject as quite honestly, the prospect of sitting another Advanced Financial Reporting paper and the weeks of revision beforehand is at the back mind. However, I saw some interesting comments last week that I should re-take it as soon as I can while it’s still fresh.

Anyway, I have a couple of weeks holiday planned so I will make a decision after that.

CIMA News

The CIMA August case studies are edging closer at the final set of pre-seen materials for the SCS is released today (I believe?). I will get the preview videos posted on the site tomorrow/Wednesday, meanwhile students are taking the OCS and MCS can find some helpful resources below.

OCS August 2016: Wise Choice Hotels

MCS August 2016: SparkSpace

The CIMA Student Website

If you’ve passed a CIMA exam recently and would like to share some advice or tips then please get in touch via mail or twitter – or leave a comment below. The idea of this site to share resources, tips and advice that will help other students.

As mentioned, this week the final set of August case study resources will go live while I will also be looking at CIMA qualified jobs – a reminder why we are all sitting these exams!

F2: Failed again

My second attempt at the F2: Advanced Financial Reporting paper resulted in my second failure. This time, though, it’s more demoralising than the first sitting!

I felt well prepared and felt confident when I finished the exam – so it was a blow to see the words “fail”on the provisional result at the exam centre. I’ll wait for the official result and scaled score to gauge how close or far away I was for a pass mark.

The main challenges in the exam today were choose three from the options below; if any area then this was the one I felt weaker today. The F2 Advanced Financial Reporting paper is a real tough – achieving the 70% pass mark, it seems, is a really BIG ask.

Which makes me wonder how I will fare further down the line?

I’m also pondering whether to shelve this subject for now and move on to E2 and P2?

It feels like I have been staring at this subject for so long no seems to be going in any more.

Anyway, for those preparing for CIMA objective tests you might want to watch this video below from CIMA on how to approach the exam.

Good Luck!

The Week Ahead – 27th June 2016

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It’s generally a quiet time for students who are more concerned with thinking about where to go on summer holiday but there was MASSIVE news in the UK where the vote to leave to the EU went the way of the LEAVE campaign.

This will, of course, have big implications on the global financial markets as well as the economy. It’s worth keeping a close eye on developments and I’m sure you can relate a few CIMA topics to it! Here is an interesting article from The Economist on Britain and the EU: A tragic split.

CIMA News

Elsewhere, the case study August season will begin to rev it’s engine this week when the CIMA MCS pre-seen material is released. I posted some links last week on the OCS scenarios – Wise Choice Hotels. The usual video previews are available on the site.

For a full schedule of the exam sittings, pre-seen material release date and exam entry deadlines, please see the table below.

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The CIMA Student Website

This week I will be posting up the materials for the MCS August case study exam, meanwhile I am sitting my F2 resit this Friday so I will be posting up my reaction and how I fared on Friday afternoon.

I’m hoping it’s a case of second time lucky and I am feeling well prepared, although slightly nervous about the time pressure in the exam. However, I plan to take this advice here from a successful objective test student. It’s well worth a read if you are also worried about how to approach the new style objective tests under the 2015 syllabus.

Good Luck and Happy Studying!

Long Term Finance – Equity and Debt Financing

The F2 syllabus expands on our knowledge from the operational level. The F1 paper focused on the short-term financing options but the management level of CIMA looks at more long-term financing solutions.

And this is where we need to understand the role of capital markets (the stock exchange) and the difference between Equity Financing and Debt Financing.

Long-Term Financing

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Most companies will need to find a source of long-term financing in order to grow and expand. Of course, organic growth will result in increased revenue and more available cash but in order to expand a business will usually need a large sum of money to either invest in research and development, buy new fixed assets or to acquire other businesses.

With this in mind, companies need to look at a range of sources for long-term financing and find the best solution for them.

The more traditional methods like long term bank borrowings are fairly straight forward to understand, so I thought it would be best to focus on the role of capital markets and explain the difference between Equity and Debt financing.

The Capital Markets

Otherwise known as the stock market or stock exchange. Most of us have an idea what the stock market is but we need to understand the role it plays for sources of long-term finance for businesses.

For example:

  • Joe Bloggs owns Company A and wants to raise finance through the stock market so it becomes a listed company (this means that Company is listed on the stock market and therefore investors can buy shares in the company).
  • However, in order for Joe to retain control of the company he needs to retain 51% of the shares in Company A.
  • Company A is valued at £400,o00 and is looking to raise £100,000.
  • It’s share price is £50 each – in order to raise the necessary finance they will need to sell 2000 shares (2000 x £50 = £100,000) which means giving away control of 25% of the company.

The above scenario is an example of Equity financing as it involves the company giving away a share of it’s equity (25% of ordinary shares) in return for capital investment.However, capital markets like the stock exchange can also involve debt financing which I’ll briefly explain before looking further into the equity side of things.

Debt Financing

This involves raising long term finance without losing ownership of the company. You might wonder how this is possible if it’s traded on the stock market? Well, bear with me for a moment.

Firstly, Company A would need to have some “security” to offer like fixed assets (land, building etc). Now the company can borrow a fixed amount of money against their security in return they will pay an interest fee without losing any control of the company. This is known as a Debenture (or bond, loan stock or note)

However, if Company A cannot make the repayments to the holder of the debenture then they risk losing their security.

In terms of the capital market; these Debentures CAN be traded by the holder on the stock market – although it’s worth noting that the holder has NO voting rights in the company.

Equity Financing – Ordinary and Preference Shares

As mentioned in our example above; when a company sells shares on the stock market then the ordinary shares of the company are sold to investors. This is the most common form of stock and a dividend is paid to the holder of the stock at the company’s discretion.

Meanwhile, a company also has the option to raise additional finance by offering Preference Shares (or preferred stock). The holder of preference shares do not have voting rights yet they are entitled to a fixed dividend paid each year.

Here is a run down of the different types of preference share and their characteristics.

Convertible Preference Share

– these types of shares are convertible from preference to an ordinary share. The holder has the right to be able to convert the share whenever they want. This maybe the case when the holder would like to have voting rights in the company.

Cumulative Preference Share

– this type of preference share entitles the holder to receive a regular dividend payment no matter what. For example, the company may pay a dividend in year 1 but not year 2 and year 3 – however, the company decides to pay a dividend in year 4 the holder will be paid out the cumulative balances from year 2 and year 3. Ensuring that the holder of the cumulative preference receives a FULL payment from all four years.

Non-Cumulative Preference Share

– as the above example, but the holder will not receive any dividend payment for years 2 and 3 when the company decided not to pay a dividend.

Participating Preference Shares

– this is a progressive type of preference share that entitles the holder an additional payment if the company hits certain targets that are pre-defined. For example, the holder will receive a share of the profits from the existing subsidiary if a specific sales revenue is hit.

Understanding Deferred Tax

Deferred Tax is a subject that has cropped in in my F2 studies and I’ve realised it’s not such a difficult topic to understand.

In my working experience, deferred tax is a not a subject most finance professionals want to even look at. “Let the tax department handle it” or “speak to the business controller” are the usual responses when deferred tax is mentioned in the office. So this mindset already clouded my judgement when thinking about it.

But here is my (simple as possible) explanation on how deferred tax works.

What is Deferred Tax?

It’s basically creating a provision (deferred tax liability) or a prepayment (deferred tax asset) due to temporary differences that arise when calculating the tax payable.

There is no movement of cash to consider but just a release of the provision/prepayment created once the temporary differences have reversed themselves.

There are two types of differences when calculating tax.

Permanent differences and Temporary differences, but for deferred tax purposes we are only concerned with the calculation of the Temporary differences.

Below is an illustration on both types of differences.

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Calculating Deferred Tax

As mentioned above, the deferred tax charge can be calculated using two different methods. The timing difference approach and the temporary difference but not to get to bogged in information we don’t need I have calculated the deferred tax using the temporary difference approach as stated in IAS 12.

Here is the scenario and the steps I took in the above example.

Temporary Difference Scenario

  1. Company A purchases a new fixed asset for 750
  2. Tax relief of 100% has been given to the purchase of a new asset of 750 in year 1.
  3. The useful life of the asset is three years and will be depreciated fully in that time.

Temporary Difference Calculation

  1. We are concerned with the Statement of Financial Position (balance sheet) when using this approach.
  2. Calculate the net value of the assets for accounting purposes and tax purposes.
  3. The tax rate is applied to the difference between the accounting and tax net values.
  4. In year 1, the deferred tax amount is 50 (500 x 10% tax rate)

Accounting Entries

The deferred tax entry for year 1 would be:

DR – 50 Tax Charge (income statement)     CR – 50 Deferred Tax Liability (SOFP)

Then, in year 2, the deferred tax liability on the SOFP should be reduced to 25 so the accounting entries would be as follows:

DR – 25 Deferred Tax Liability (SOFP)    CR – 25 Tax Charge (income statement)

Deferred Tax Assets

I’ve looked at the creation a deferred tax liability in the above example but in some cases, the deferred tax calculation will arise in an asset being created.

Here are the following situations that would see a creation of a deferred tax asset.

  1. A deductible temporary difference
  2. Unused tax losses
  3. Unused tax credit

Simply put, a deferred tax asset is an amount that a company can deduct from future tax liability to reduce the tax bill. For example, a company has unused tax losses of 5000 and the tax rate is 25% – therefore the deferred tax asset is calculated as 5000 x 25% = 1250