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CIMA Gateway Assessments Post Exam Guide May 2011 Exam General Comments Candidates' performance at the May

2011 Gateway paper was a significant improvement on previous sessions under the current syllabus. Candidates from the CGA group achieved the highest overall pass rate (57%) and those from the CPGA group the lowest overall pass rate (42%). The CMGA group achieved an overall pass rate of 49%. Over the four questions in the paper, the CPGA group performed best on Question 1 followed by Question 2. The CMGA group performed best on Question 2 and also performed well on Question 1. The CGA group performed best on Question 1 followed by Question 3 but poorly on Question 2. The CGA group achieved a better balance over the paper as a whole. Question 4 was poorly attempted by all groups, which was very disappointing.

Question 1

(a) (b)

Prepare a schedule that shows the relevant cost of the new customer's order. (12 marks) Explain, for each of the resource items numbered 1 to 7, the reason for each of the values you have included in your answer. (7 marks) Assuming that EC wins the customer order and completes the work, and that resource costs are as expected, explain why the costs reported using the company's job costing system may be greater than the selling price charged for the customer order. Illustrate your answer using direct material A and skilled labour costs. (6 marks) (Total for Question Five = 25 marks)

(c)

Rationale This question tests learning outcome "evaluate the impacts of just-in-time production, the theory of constraints and total quality management on efficiency, inventory and cost."

Suggested Approach Carefully analyse the cost data provided to determine the appropriate value to be used in the cost of the work. Contrast this value with that determined by the company's routine accounting system and explain the differences and difficulties that may arise.

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CIMA Gateway Assessments Post Exam Guide May 2011 Exam

Marking Guide (a) Direct material A Direct Material B Skilled labour Unskilled labour Supervision labour Machine overhead Other overhead (b) Direct material A Direct material B Skilled labour Unskilled labour Supervision labour Machine overhead Other overhead (c) Historic cost v opportunity cost Direct material A Skilled labour Selling price v Job cost

Marks

2 2 2 2 1 2 1 (max 12) 1 1 1 1 1 1 1 (max 7) 1 2 2 1 (max 6) 25

Maximum marks awarded Lead Marker's Comments

Question one was well developed by all three Gateway groups, with CGA achieving the highest marks followed by CPGA. Although the question is not in itself a key area of section B of the P2 syllabus, it is part of the wider requirement in an appreciation of competitive pricing. Candidates need to be aware that papers in the qualification build upon areas of the curriculum contained in earlier papers. Candidates must also understand the nature of the verb levels contained in the requirement when answering the questions.

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CIMA Gateway Assessments Post Exam Guide May 2011 Exam

Question 2(a) Explain the purpose of project feasibility, making reference to the different types of feasibility studies that should be undertaken for the golf course project. (12 marks) Rationale This question is designed to assess candidates' understanding of the purpose of project feasibility and the different types of feasibility that should be undertaken in the early stages of a project. It examines learning outcome B1(d) identify the characteristics of each phase in the project process'.

Suggested Approach Answers should start by explaining the purpose of project feasibility. Candidates should then explain the different types of feasibility that should be considered. Good answers will make reference to the specific issues associated with the golf course project for each type of feasibility study identified.

Marking Guide Purpose of project feasibility, for example: To establish if proposed project can meet its objectives Help decide between alternative project strategies Types of feasibility study: Technical feasibility, for example: Assess nature of technology needed Possible engineering issues Social feasibility, for example Fits with business and social environment Impact on people during construction phase Ecological feasibility, for example: Comply with health and safety legislation Not harmful to surrounding environment Financial feasibility, for example: Determine cost/benefit Use of financial ratios Business feasibility, for example: Fit with business goals Responds to competitor developments Marks can be awarded for other types of feasibility identified, explained in the context of the golf course project Maximum marks awarded

Marks

1 1

2 to 3 marks for each type

12

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CIMA Gateway Assessments Post Exam Guide May 2011 Exam

Question 2(b) Describe the skills the CEO should look for when recruiting a project manager and explain why they are important. (13 marks) Rationale This question requires candidates' appreciation of the skills needed for an effective project manager. It examines learning outcome B1(g) identify structural and leadership issues that will be faced in managing a project team'.

Suggested Approach Answers should develop to explain the range of skills an effective project manager should possess. Weak answers will just identify or describe a narrow range of skills. Good answers will develop a substantive explanation of why each skill is important in the context of project management.

Marking Guide Leadership Communication Negotiation Delegation Problem solving Managing change Marks can be awarded for other skills if relevant to project management Maximum marks awarded

Marks

Up to 3 each skill

13

Lead Markers Comments Performance in this question has usually been quite good in all sessions of the current syllabus. The Project Management question from the E2 syllabus was well attempted by CMGA candidates and reasonably well attempted by the CPGA group. The CGA group performed less well in this question. Candidates lose marks in this question as they don't always answer the question set. Instead, they undertake a 'brain dump' of everything they have learned in project management. This wastes time and can affect the ability to complete the paper in the time given. In requirement (a) candidates often failed to explain the purpose of project feasibility or give reference to different types of feasibility studies as asked in the question. Some candidates spent a lot of time writing about PRINCE2 in general without reference to feasibility and many candidates failed to apply their answers to the golf course project in the scenario.

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CIMA Gateway Assessments Post Exam Guide May 2011 Exam

Question 3

(a) Explain how the investment in FG should be accounted for in the consolidated financial statements of CVB following the acquisition of the additional 60% shareholding. (5 marks) (b) Prepare the consolidated statement of financial position as at 30 September 2010 for the CVB Group.
(20 marks) Rationale This question examines learning outcomes A1(a) and (b) 'prepare a complete set of consolidated financial statements in a form suitable for publication for a group of companies' and 'demonstrate the impact on group financial statements where..'. The question tests the basics of consolidation plus two complex areas; piecemeal acquisition and the subsequent measurement rules for liabilities. Candidates were also tested on the application of the revised IAS 1 and IFRS 3 in drafting the group SOFP.

Suggested Approach Candidates should have drafted the consolidated SOFP pro-forma, inserting goodwill and NCI and worked logically through the headings. With NCI being held at FV at the date of acquisition, it would have made sense to calculate group retained reserves and NCI at the same time, as the adjustments for postacquisition reserves and impairment were a straight 75%/25% split.

Marking Guide Part (a) Explanation of full consolidation, calculation of goodwill and treatment of existing investment Part (b) Full consolidation and calculation and inclusion of goodwill Calculation of group reserves, including intercompany transfer of goods and treatment of AFS treated as disposed of Calculation and inclusion of NCI Subsequent measurement of bonds Maximum marks awarded

Marks

6 7

4 3 25

Lead Marker's Comments This question is usually the most challenging of the paper for all Gateway groups but, overall, performance was better than previous sessions. The question was reasonably well attempted by the CGA group who scored the highest average for the question followed by the CMGA group. However, quite a large percentage of candidates still performed quite poorly from all groups. Candidates must be prepared to undertake a comprehensive consolidation of any of the main financial statements or risk losing a high proportion of the 25 marks allocated. Workings for the calculations should be provided in full.

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CIMA Gateway Assessments Post Exam Guide May 2011 Exam

Question 4 Question 4.1 C plc is a holding company which has a number of divisions. One of the divisions, A, manufactures a component, A1, which is transferred to another division, B, where it is incorporated in product BZ. Division A is working at full capacity. The following information is available: Component A1 per unit 13 5 18 Product BZ per unit 18 30 12 60 80 20

Component A1 Variable costs Fixed costs Selling price Profit

An external customer has asked C plc to sell it 10,000 units of component A1. If C plc agrees, Division A will incur 50,000 of additional inspection costs. The directors of C plc are keen to supply the external customer as they believe other orders will follow. Assuming that there is no other available supply of component A1, what is the minimum price that C plc would have to charge per component if it did not want to suffer a reduction in profits? A B C D 38 43 55 63 (2 marks) Variable cost of A1 (13 x 10,000 units Lost contribution from sales of BZ (80 - 30 - 13) x 10,000 units Additional inspection costs 130,000 370,000 50,000 550,000 The answer is C

Question 4.2 P (International) plc is a UK parent company with an overseas subsidiary. As a result of an increase in taxation in the UK, the company management wishes to transfer profits from the UK to the subsidiary. It is considering changing the transfer prices charged on the goods shipped from the overseas subsidiary to P and the size of the royalty payments paid by P plc to the subsidiary. In order to transfer profit from P (International) plc to the overseas subsidiary, the management of P should A B C D decrease the transfer prices and the royalty payments. decrease the transfer prices but increase the royalty payments increase the transfer prices and the royalty payments increase the transfer prices but decrease the royalty payments (2 marks) As the transfer prices and royalty payments are both made by P to the subsidiary, both should be increased. This will add to the subsidiary's revenue in both respects without any change in its costs. The answer is C

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CIMA Gateway Assessments Post Exam Guide May 2011 Exam

Question 4.3 K plc is a company that comprises five divisions. Each divisional manager is responsible for the divisional budget. In the context of this responsibility accounting system, which of the following would best describe a controllable cost? A B C D A cost for which the behaviour pattern can be analysed to facilitate effective budgetary control. A cost specific to an activity that could be avoided if the activity did not take place. A cost which refers to a decision already taken and which cannot be changed in the short term. A cost which can be influenced by the budget holder. (2 marks) Cost A may allow more effective budgetary control but this does not make it controllable. Cost B is an avoidable cost. Cost C is a committed cost. The answer is D Question 4.4 W plc is a large international company involved in the production of timber products, from the initial growing of the timber in its own plantations, right through to the final product ready for the customer. W plc is structured into a number of divisions each dealing with different stages of the production process. W plc appraises its divisional managers through the use of residual income based on controllable profit and controllable net assets. The company uses a cost of capital of 15%. Although each division is an investment centre and the divisional managers are given a great deal of autonomy, the group Finance Director does retain control of the cash function. The following information is available for the Transport division: Profit before interest and tax Profit after tax Divisional net assets Cash (included within the net assets figure What is the residual income for the Transport division: A B C D 20,000 24,000 39,500 59,000 (2 marks) As the manager of Transport division does not control the cash function, any controllable net assets figure should exclude the cash i.e. 1,570,000 less 130,000 = 1,440,000. Therefore: '000s Controllable profit (before interest and tax) 275 Less cost of capital (15% x 1,440,000) (216) 59 Residual income The answer is D 000s 275 240 1,570 130

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CIMA Gateway Assessments Post Exam Guide May 2011 Exam

Question 4.5 An organisation which is typified by teamwork, flexibility and individual participation irrespective of status can be characterised by which type of culture? A B C D Process Culture People Culture Task Culture Power culture (2 marks) The answer is C

Question 4.6 Which conflict handling strategy involves an individual putting the interest of others first and suppressing their own interest? A B C D Accommodation Avoidance Compromise Collaboration (2 marks) The answer is A

Question 4.7 Which ONE of the following determinants of Porter's Diamond model proposes that national competitive advantage is created through the high expectations of local customers? A B C D Factor Conditions Firm strategy, Infrastructure, Rivalry Supporting Industry Demand Conditions (2 marks) The answer is D

Question 4.8 Identify THREE of the support/secondary activities in Porter's Value Chain model. The answer is any three from: (i) (ii) (iii) (iv) Firm Infrastructure Human Resource Management Technology Development Procurement

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Question 4.9 BNM has $10 million $1 ordinary shares in issue at 1 January 2010. On 1 August 2010 BNM issued 2 million $1 ordinary shares at a premium of 30 cents. BNM's profit available to ordinary shareholders was $4 million for the year ended31 December 2010. The basic earnings per share is A B C D 33.3 cents per share 36.9 cents per share 40 cents per share 42.5 cents per share (2 marks) EPS = Profit available to shareholders Weighted average ord shares 4,000,000 (10,000,000 x 7/12) + (12,000,000 x 5/12)

= 36.9 cents per share The answer is B

Question 4.10 The Directors of GHJ, an unlisted entity, have approached the directors of a smaller listed entity and have proposed an agreed takeover by GHJ. The net assets of GHJ are approximately twice as great as the target entity. This type of arrangement is known as a A B C D merger listed acquisition reverse acquisition fresh start acquisition (2 marks) The answer is B

Question 4.11 IOP operates a defined benefit pension plan for its employees. The present value of the pension plan obligations as at 31 December 2010 total $567 million. The fair value of the pension plan assets at that date total $558 million. Unrecognised gains as at 31 December 2010 were $3 million. The statement of financial position of IOP as at 31 December 2010 will show: A B C D a net pension asset of $6 million a net pension liability of $6 million a net pension liability of $9 million a net pension liability of $12 million (2 marks) Cont.

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CIMA Gateway Assessments Post Exam Guide May 2011 Exam

PV of plan obligations FV of plan assets Pensin liability Unrecognised actuarial gains Net pension liability

$m 567 558 9 3 12 The answer is D

Question 4.12 FGH acquired an investment in a listed entity and classified the investment as available for sale. 100,000 shares were acquired at $1.15 on 1 May 2010 and the related acquisition costs were $8,000. The shares were trading at $1.50 at 31 December 2010. The subsequent measurement of the available for sale investment will be recorded by: A B C D Debit investment $19,000 and credit profit or loss $19,000 Debit investment $27,000 and credit profit or loss $27,000 Debit investment $19,000 and credit reserves $19,000 Debit investment $27,000 and credit reserves $27,000 (2 marks) AFS investment - initially recognised (FV + transaction costs) $123,000 $150,000 31 December 2010 - FV $ 27,000 Uplift in value The answer is D

Rationale Question Four sub-questions 4.1 to 4.12 test candidates knowledge of a wide variety of topics within the syllabus, which were not examined in questions one, two and three, through the use of objective test questions (OTQs).

Suggested Approach/Marking Guide Sub-questions 4.1 to 4.12. Except for 4.8 where 1 mark was awarded for each component these sub-questions have been constructed on the basis that there is only one correct answer. Marking is therefore on the basis of 2 marks for a correct answer and 0 marks for an incorrect answer.

Marks

0 or 2

Lead Marker's Comments Performance in this question was a lot poorer than might be expected for a question comprising of (mainly multiple choice) objective test questions. Within each Gateway group, the average mark achieved for this question was the lowest which was most disappointing. This question draws from all parts of the P2, E2 and F2 syllabi not examined in Questions 1, 2 and 3. The poor performance suggests candidates are skipping large areas of the curriculum and many candidates failed the examination due to their poor performance in this question.

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