DO NOT OPEN THIS QUESTION PAPER UNTIL YOU ARE TOLD TO DO SO.

Financial Pillar

F1 Financial Operations
24 May 2012 Thursday Morning Session
Instructions to candidates
You are allowed three hours to answer this question paper. 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 2012

F1 Financial Operations

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 o 50% of additions to property, plant and equipment in the accounting period in which they are recorded; 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; 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 Exempt goods 0% 15% 0%

May 2012

Financial Operations

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 Complete the following sentence.

Under the OECD model tax convention an entity will generally have residence for tax purposes in . . (2 marks)

1.2

XZ sells two types of product, A and B. A is standard rated for VAT purposes and B is zero rated. All purchases have incurred VAT at standard rate. XZs sales (inclusive of VAT where applicable) for the three months to 31 March 2012 were: $ A B 63,250 24,150 87,400

XZs purchases for the three months to 31 March 2012 were $32,333 exclusive of VAT. Calculate the amount of VAT that XZ is due to pay for the three months to 31 March 2012. (2 marks)

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1.3

An entity earns a profit of $60,000 for the year to 31 March 2012. The entity is assessed as owing $15,000 tax for the year. Which ONE of the following types of tax would best describe the tax due? A Capital tax. B Income tax. C Wealth tax. D Consumption tax. (2 marks)

1.4

List TWO possible powers that a tax authority may be granted to enable it to enforce tax regulations. (2 marks)

1.5

A customer purchases goods for $115, inclusive of VAT. From the customers point of view the VAT could be said to be: A a direct tax with formal incidence. B an indirect tax with formal incidence. C a direct tax with effective incidence. D an indirect tax with effective incidence. (2 marks)

1.6

Which ONE of the following is NOT a fundamental ethical principle indentified in CIMAs code of ethics? A Professional competence. B Professional behaviour. C Integrity. D Independence. (2 marks)

1.7

Which ONE of the following would NOT be regarded as a responsibility of the IASB? A Responsibility for all IFRS technical matters. B Publish IFRSs. C Overall supervisory body of the IFRS organisations. D Final approval of interpretations by the IFRS Interpretations Committee. (2 marks)

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1.8

TY is the main contractor employing sub-contractors to assist it when required. TY has recently completed a contract replacing a roof on the local school. Despite this, the roof has been leaking and some sections are now unsafe. The school is suing TY for $20,000 to repair the roof. TY used a sub-contractor to install the roof and regards the sub-contractors work as faulty. TY has raised a court action against the sub-contractor claiming the cost of the schools action plus legal fees, a total of $22,000. TY has been informed by legal advisers that it will probably lose the case brought against it by the school and will probably win the case against the sub-contractor. How should these items be treated in TYs financial statements? A A provision should be made for the $20,000 liability and the case against the subcontractor ignored. B A provision should be made for the $20,000 liability and the probable receipt of cash from the case against the sub-contractor disclosed as a note. C No provisions should be made but the $20,000 liability should be disclosed as a note. D A provision should be made for the $20,000 liability and the probable receipt of cash from the case against the sub-contractor recognised as a current asset.

(2 marks)

1.9

BN has an asset that was classified as held for sale at 31 March 2012. The asset had a carrying value of $900 and a fair value of $800. The cost of disposal was estimated to be $50. According to IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, which ONE of the following values should be used for the asset in BNs statement of financial position as at 31 March 2012? A $750 B $800 C $850 D $900 (2 marks)

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1.10 MN obtained a government licence to operate a mine from 1 April 2011. The licence requires that at the end of the mines useful life, all buildings must be removed from the site and the site landscaped. MN estimates that the cost of this decommissioning work will be $1,000,000 in ten years time (present value at 1 April 2011 $463,000) using a discount factor of 8%. According to IAS 37 Provisions, Contingent Liabilities and Contingent Assets how much should MN include in provisions in its statement of financial position as at 31 March 2012? A $100,000 B $463,000 C $500,000 D $1,000,000 (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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Financial Operations

Section B starts on the next page

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May 2012

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) Required:
Explain the main benefits, to users of the accounts, of including a statement of cash flows in published financial statements. (Total for sub-question (a) = 5 marks)

(b)

The draft financial statements for the year ended 31 March 2012 for TX include the following: $000

Statement of comprehensive income (extract) Income tax expense Notes to the accounts: Over provision for the year to 31 March 2011 Estimate of tax due for the year to 31 March 2012 Increase in deferred tax provision for the year to 31 March 2012

850

(50) 700 200 850

Statement of cash flows (extract) Tax paid in the year to 31 March 2012

600

Required:
(i) Explain how deferred tax arises.

Use the information given above to: (ii) Identify the most likely reason for the increase of $200,000 in the deferred tax provision for the year to 31 March 2012. (iii) Explain what the over provision of $50,000 in the income statement represents. (Total for sub-question (b) = 5 marks)

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Financial Operations

(c)

PQ is resident in Country X. PQs summary income statement for the year ended 31 March 2012 was as follows: $000 567 (253) 314 85 (12) 387

Revenue Cost of sales and other expenses Finance income Finance cost Profit before tax

Other expenses include depreciation of $92,000 and amortisation of intangible assets of $14,000. PQs property, plant and equipment qualified for tax depreciation of $98,000 for the year. PQ holds a number of bonds and bank deposits in Country Z. PQ received interest of $85,000 (net of withholding tax at 15%) during the year to 31 March 2012. Country X has a double taxation treaty with Country Z that provides for double taxation relief using the tax credit method.

Required:
Calculate the estimated amount of corporate income tax that PQ is due to pay for the year ended 31 March 2012. (Total for sub-question (c) = 5 marks)

(d) Required:
(i) Explain the difference between an excise duty and a single stage sales tax. (3 marks) Describe the characteristics of commodities that make them most suitable, from the revenue authoritys point of view, for the application of excise duty. (2 marks) (Total for sub-question (d) = 5 marks)

(ii)

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(e)
The International Accounting Standards Boards (IASB) Framework for the Preparation and Presentation of Financial Statements (Framework) identifies five key elements of financial statements.

Required:
(i) Define income and equity in accordance with the IASB Framework. (3 marks)

(ii)

Explain the criteria that must be met for income to be recognised in an entitys financial statements. (2 marks) (Total for sub-question (e) = 5 marks)

(f)
You are a trainee accountant working for ABC, which is listed on the local stock exchange. A new chief executive has recently been appointed and has queried the benefits to ABC of having an external audit carried out each year.

Required:
Prepare a short briefing note that highlights the benefits of an external audit to ABC.

(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
DFGs trial balance at 31 March 2012 is shown below: Notes 5% Loan notes (issued 2010, redeemable 2020) Administrative expenses Amortisation of patent at 1 April 2011 Cash and cash equivalents Cost of sales Distribution costs Equity dividend paid 1 September 2011 Income tax Inventory at 31 March 2012 Land and buildings at cost Loan interest paid Ordinary Shares $1 each, fully paid at 1 April 2011 Patent Plant and equipment at cost Provision for deferred tax at 1 April 2011 Provision for buildings depreciation at 1 April 2011 Provision for plant and equipment depreciation at 1 April 2011 Retained earnings at 1 April 2011 Sales revenue Share premium Trade payables Trade receivables $000 180 27 56 554 90 55 10 186 960 7 550 (vii) (ii) (iii) (iv) (v) (vi) 90 480 75 33 234 121 1,200 110 61 135 2,747 Additional information: (i) The income tax balance in the trial balance is a result of the under provision of tax for the year ended 31 March 2011. There were no sales of non-current assets during the year ended 31 March 2012. The tax due for the year ended 31 March 2012 is estimated at $52,000 and the deferred tax provision should be increased by $15,000. Depreciation is charged on buildings using the straight line method at 3% per annum. The cost of land included in land and buildings is $260,000. Buildings depreciation is treated as an administrative expense. Up to 31 March 2011 all plant and equipment was depreciated using the straight line method at 12.5%. However some plant and equipment has been wearing out and needing to be replaced on average after six years. DFG management have therefore decided that from 1 April 2011 the expected useful life of this type of plant and equipment should be changed to a total of six years from acquisition. The plant and equipment affected was purchased on 1 April 2007 and had an original cost of $120,000. This plant and equipment is estimated to have no residual value. All plant and equipment depreciation should be charged to cost of sales. 12 Financial Operations 2,747 $000 280

(i) (ii)

(ii) (iii)

(iv)

(v)

May 2012

(vi)

The sales revenue for the year to 31 March 2012 includes $15,000 received from a new overseas customer. The $15,000 was a 10% deposit for an order of $150,000 worth of goods. DFG is still waiting for the results of the new customers credit reference and at 31 March 2012 has not despatched any goods. On 1 April 2008 DFG purchased a patent for a secret recipe and manufacturing process for one of its products. Due to recent world economic difficulties DFG has carried out an impairment review of its patent. At 31 March 2012 the patent was found to have the following values: Value in use $50,000 Fair value less cost to sell $47,000 On 1 July 2011 one of DFGs customers started litigation against DFG, claiming damages caused by an allegedly faulty product. DFG has been advised that it will probably lose the case and that the claim for $35,000 will probably succeed.

(vii)

(viii)

Required: (a) Briefly explain how items (vi) and (vii) should be treated by DFG in its financial
statements for the year ended 31 March 2012. (6 marks)

(b) Prepare DFGs statement of comprehensive income and statement of changes in

equity for the year to 31 March 2012 AND a statement of financial position at that date in accordance with the requirements of International Financial Reporting Standards. (19 marks) 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

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Question Four
The draft statements of financial position at 31 March 2012 and statements of comprehensive income for the year ended 31 March 2012 for three entities, Loch, River and Stream are given below: Statements of Financial Position as at 31 March 2012:

Notes Non-current Assets Property, plant and equipment Investments: Loan to River 156,000 Ordinary shares in Stream at cost Current Assets Inventory Trade receivables Current a/c with River Cash and cash equivalents Total Assets Equity and Liabilities Equity shares of $1 each Retained earnings Non-current liabilities Loan from Loch Current liabilities Trade payables Loan interest payable Current a/c with Loch Total Equity and Liabilities

Loch $000 1,193 300 223 1,716

River $000 767 0 0 767 320 570 0 58 948 1,715 600 385 985 300

Stream $000 670 0 0 670 87 90 0 14 191 861 520 125 645 0

(iv) (iii) (vi)

(vii) (viii)

1,107 1,320 101 62 2,590 4,306 3,500 413 3,913

(iii)

(ix) (viii)

393 0 0 393 4,306

340 15 75 430 1,715

216 0 0 216 861

Statements of Comprehensive Income for the year ended 31 March 2012 Loch $000 1,500 (865) 635 (124) 511 (80) 431 (118) 313 River $000 693 (308) 385 (70) 315 (40) 275 (20) 255 Stream $000 227 (84) 143 (35) 108 (12) 96 (16) 80

Revenue Cost of sales Gross profit Expenses Finance cost Income tax expense Profit for the year

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Additional information: (i) (ii) Loch holds shares in two other entities, River and Stream. Loch acquired all of Rivers equity shares on 1 April 2011 in a share for share exchange. The agreed purchase consideration was $950,000, however Loch has not yet recorded the acquisition in its accounting records. On the 1 April 2011 Lochs shares had a market value of $2.00 each. Rivers retained earnings were $130,000 on 1 April 2011. On 1 April 2011 Loch advanced River a 10 year loan of $300,000. The fair value of Rivers property, plant and equipment on 1 April 2011 exceeded its carrying value by $144,000. The excess of fair value over carrying value was attributed to buildings owned by River. At the date of acquisition these buildings had a remaining useful life of 12 years. Lochs accounting policy is to depreciate buildings using the straight line basis with no residual value. Loch carried out an impairment review of the goodwill arising on acquisition of River and found that as at 31 March 2012 the goodwill had been impaired by $20,000. Loch purchased its shareholding in Stream on 1 April 2011 for $223,000 when Streams retained earnings were $45,000. The fair value of Streams net assets was the same as its carrying value at that date. Loch exercises significant influence over all aspects of Streams financial and operating policies. Loch occasionally trades with River. During September 2011 Loch sold River goods for $220,000. Loch uses a mark-up of 50% on cost. At 31 March 2012 all the goods remained in Rivers closing inventory. River posted a cheque to Loch for $26,000 on 29 March 2012 which did not arrive until 7 April 2012. At 31 March 2012 $15,000 loan interest was due and had not been paid. River had accrued the loan interest due at the year end but Loch had not accrued any interest income.

(iii) (iv)

(v) (vi)

(vii)

(viii) (ix)

Required: (a) Prepare the journal entry to record the purchase of River in Lochs accounting records.
(3 marks)

(b) Prepare the consolidated statement of comprehensive income for Loch for the year
ended 31 March 2012 AND a consolidated statement of financial position for Loch as at 31 March 2012, in accordance with the requirements of International Financial Reporting Standards. (22 marks) Notes to the financial statements are not required, but all workings must be clearly shown. (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

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 Interest rates (r) 4% 5% 6% 0.962 0.952 0.943 0.925 0.907 0.890 0.889 0.864 0.840 0.855 0.823 0.792 0.822 0.784 0.747 0.790 0.746 0.705 0.760 0.711 0.665 0.731 0.677 0.627 0.703 0.645 0.592 0.676 0.614 0.558 0.650 0.585 0.527 0.625 0.557 0.497 0.601 0.530 0.469 0.577 0.505 0.442 0.555 0.481 0.417 0.534 0.458 0.394 0.513 0.436 0.371 0.494 0.416 0.350 0.475 0.396 0.331 0.456 0.377 0.312
-n

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

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

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

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 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 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

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

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

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: 1 1 PV = 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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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.

VERBS USED
List State Define

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

Level 2 - COMPREHENSION What you are expected to understand.

Describe Distinguish Explain Identify Illustrate

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

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

Apply Calculate Demonstrate Prepare Reconcile Solve Tabulate

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

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

Analyse Categorise Compare and contrast 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

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

Advise Evaluate Recommend

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

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Financial Pillar

Operational Level Paper

F1 Financial Operations

May 2012

Thursday Morning Session

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