If you’re preparing for your CIMA CGMA F2 exam, don’t worry.
CIMA’s CGMA F2 Advanced Financial Reporting is one of the three objective test units within CIMA’s CGMA Management Level. This unit builds directly on the foundations set in the F1 unit, taking you deeper into IFRS Accounting Standards whilst introducing group accounting and financial analysis. It’s a technical subject, but with the right strategy, it’s absolutely manageable.
Let’s break down what this exam involves, how to approach the syllabus, the key challenges, and the best ways to overcome them. We’ll explore:
- The topics you’ll learn in the syllabus
- The structure of the exam
- How this unit helps towards your career/studies
- Common challenges and tips to overcome them
- Example question and answer
- Additional resources
What are the exam topics?
The F2 syllabus is split into five examinable areas, each contributing to the overall assessment:
- Financing capital projects (15%) - This area looks at long-term sources of finance and the calculation of Weighted Average Cost of Capital (WACC). It’s a numbers-heavy section with formulas you’ll need to be comfortable applying quickly and accurately.
- Financial reporting standards (25%) - Building directly on F1, this introduces more advanced IFRS Accounting Standards. You’ll explore topics such as financial instruments, intangible assets, and other transactions with complex recognition and measurement rules. There’s a lot of detail here, and you’ll need a good grasp of the principles behind each standard.
- Group accounts (25%) - A part of the exam that many learners find challenging. It’s technical, uses new terminology, and requires practice to master.
You’ll cover: the consolidation process for subsidiaries (including goodwill, non-controlling interests, and fair value adjustments), associates and joint arrangements.
- Integrated reporting and sustainability reporting (10%) - These contemporary reporting frameworks reflect the shift away from reporting purely financial information and towards long-term value creation, including sustainability, environmental impact and stakeholder relationships.
- Analysing financial statements (25%) - Here you learn how the financial statements are used to help stakeholders make decisions. You’ll apply analysis techniques to the financial statements and evaluate the results.
What is the exam structure?
The F2 exam is 90 minutes long and consists of 60 objective test questions (OTQs). This works out as 1.5 minutes per question - so you don’t have time to dilly dally.
All questions are multiple choice. Question variations include single-answer multiple choice, ‘more than one correct answer’ multiple choice (e.g. which two of the following), drag and drop, or type in the answer.
The F2 exam also has no ‘apply all’ questions (which is fantastic news as nobody likes them). Questions will consist of calculations and narrative style.
My advice would be to run through the exam in order, attempting the ‘easier’/quicker questions first and leaving any calculations until the end (as they are the ones that take longer than 1.5 mins per mark).
The percentage weighting will reflect the number of questions you’ll find on each syllabus area. For example:
- Financing capital projects (15%) = 9 questions
- Financial reporting standards (25%) = 15 questions
- Group accounts (25%) = 15 questions
- Analysing financial statements (25%) = 15 questions
- Integrated reporting (10%) = 6 questions.
With such tight timing, it’s crucial to keep moving. If a question looks lengthy or calculation-heavy, flag it and come back to it later.
How does the CIMA CGMA F2 exam subject help towards my career and/or studies?
F2 Advanced Financial Reporting is mainly focused on the published financial statements, which are used by the stakeholders of the business to make their decisions. These statements are critical for the continued development and growth of the business. Financial statements can be instrumental in attracting future financing and investment, in maintaining stakeholder relations and will shape executive decision-making.
Even though management accountants may not prepare published financial statements day-to-day, understanding them is vital. This knowledge will help you add gravitas to your ideas, whether that’s providing advice to clients or pitching ideas and opinions to executive managers.
If you aspire to work in a listed entity or large group structure, a solid grasp of the consolidation process will set you apart.
Common challenges for the CIMA CGMA F2 exam
A very large syllabus
The key challenge of F2 is that there is a lot to learn. You really do need to be learning rules and techniques off by heart to have a chance of attempting the questions within the challenging timeframes.
The exam will test all syllabus areas (and all topics within the syllabus areas) meaning that coverage of the syllabus is essential. You cannot ‘ignore’ content in the hope that it will not come up, as every chapter/learning outcome will be tested at least once.
Group accounting and financial instruments
From my experience, group accounting and financial instruments are the typical points of distress for most learners. These topics are technical, use unfamiliar jargon and unusual techniques, which candidates are often uncomfortable with.
To fully understand these areas, having a grasp of double-entry accounting techniques does make things easier, which does create issues for those resistant to the lures of debits and credits.
How to overcome these challenges
To summarise, there’s a lot to learn and the content is difficult. So what can you do to manage this problem? I can offer a few bits of advice:
1. Practice what you learn
Firstly, work hard but work wisely. Don’t just plough through your notes for each topic area and try to learn the content off by heart. You need to practice illustrations, examples, and exam-style questions as you cover each topic.
As a result, this will consolidate your understanding and bring the topic into focus. Just note learning can be dull and inefficient.
2. Be conscious of the syllabus weightings
It’s easy to neglect ‘easier’ topics in favour of the tough, technical areas, but this can lead to you being unsuccessful on the exam day. Remember that ‘Analysis’ has the same syllabus weighting as the highly technical areas like ‘Group accounts’ and ‘Financial reporting standards.’ Therefore, ensure you have full coverage of all syllabus areas by practising all question types, not just the hard bits.
3. Use a timing strategy on exam day
Give some thought to your game plan and tactics on the day of your exam. Timing is extremely crucial, and 1.5 minutes per question is impossible to manage on a question-by-question basis, so break the exam into chunks.
For example, aim for 20 questions every 30 minutes. Maintaining this pace will remove the risk of leaving questions unanswered.
Example question and answer
Here is a typical exam-style question taken from the ‘Group accounts’ syllabus area.
Scenario
NH acquired 400,000 $1 ordinary shares in MK on 1 January 20X5 for $5,000,000. MK has 500,000 ordinary shares in issue. Retained earnings at this date were $3,500,000.
At the acquisition date, the fair values of MK’s net assets were equal to their carrying amounts with the exception of an item of plant and machinery with a fair value $55,000 in excess of its carrying amount. MK depreciates plant and machinery on a straight-line basis and the plant and machinery identified above had a remaining useful lifetime of 10 years from the date of acquisition.
NH calculates non-controlling interest using the proportionate method.
(Required) Calculate the goodwill arising from the acquisition of MK by NH.
Suggested approach
Read and understand the requirements first.
This helps bring the content within the scenario to life. If you read the scenario before the requirement, there is no link between your end objective (of providing a correct answer to the question) and the details in the scenario. it is likely that you will have to repeat reading the scenario all over again, wasting precious time.
Set up your standard workings.
The requirement is to calculate goodwill for the year ended 30 June 20X5 for NH, who is a parent company within a group.
At this point, I would set up any workings that I would expect to use for a goodwill calculation within the group accounts.
There would be three calculations of interest here:
- A group structure working (W1) – a summary of the group structure, dates of acquisition and % ownership
- A net assets of the subsidiary working (W2) - from this working, the details at the acquisition date are most relevant for the goodwill calculation
- A goodwill working (W3).
Active reading
I would now read the scenario ‘actively’. This means that I would read through the details line by line, inserting any relevant information into my workings as I encounter it. Avoid reading the entire scenario all in one go before attempting to input the data. The approach is illustrated as follows:
.png?sfvrsn=a9827b1c_1 "1 (1)")
From this line, I can establish that NH is the parent to MK (as 400,000 of the 500,000 ordinary shares are held by NH = 80% = controlling interest). This also means that MK is a subsidiary to NH. A non-controlling interest of 20% can be established at this point. These details would be noted in (W1) group structure.
The $5,000,000 paid to buy the shares in MK is the cost of investment and is included in the goodwill calculation (W3 see below).
The ordinary share capital of MK ($500,000) would be inserted into MK’s net assets working (W2).
.png?sfvrsn=a1827b1c_1 "2 (1)")
In this line, we have determined the retained earnings of MK at the acquisition date. This would also be inserted into MK’s net assets working (W2).
.png?sfvrsn=a7827b1c_1 "3 (1)")
In the group accounts, all of the net assets of a subsidiary are consolidated at their fair value as at the acquisition date.
Therefore, based on the details here, plant and machinery of MK would be consolidated at an amount $55,000 higher than what is currently shown in MK’s statement of financial position. The net assets of MK at the date of acquisition would need to be increased by $55,000 in W2.
The fair value adjustment would need extra depreciation after the acquisition date. However, goodwill is calculated as at the acquisition date.
Therefore a calculation of the extra depreciation required in the group accounts is not necessary to accurately calculate the goodwill of MK. These details are red herrings for this particular requirement.
.png?sfvrsn=a5827b1c_1 "4 (1)")
This confirms that NCI within the goodwill calculation should be calculated as NCI% x MK's net assets at acquisition. See W3 below.
Workings
As there is no further information to process, I would now complete any outstanding workings.
The goodwill calculation requires the net assets of the subsidiary to be calculated (from W2) and the NCI at acquisition in the goodwill is also reliant on this figure. Therefore, W2 needs to be completed before goodwill can be calculated.
On completion, the workings (W1-W3) should look like this:
W1) Group Structure
NH has acquired 400,000 of the 500,000 ordinary shares of MK. NH owns 80% of MK. MK should be treated as a subsidiary. The acquisition occurred on 1 January 20X5 means NH controlled MK for 6ms of the year ended 30 June 20X5.
NCI is 20%.
W2) Net assets of MK at acquisition
| $ |
|---|
| Share capital | 500,000 |
| Retained earnings of MK at acquisition | 3,500,000 |
| Less | |
| FV of adjustment on plant and machinery | 55,000 |
| | --- |
| | 4,055,000 |
Goodwill of MK as at 30 June 20X5
| $ |
|---|
| Cost of investment | 5,000,000 |
| NCI at acquisition (20% × 4,055,000) | 811,000 |
| Less | |
| FV of subs’ NAs at acquisition (W1) (500,000 + 3,500,000 + 55,000) | (4,055,000) |
| | --- |
| | 1,756,000 |
Answer:
Goodwill = $1,756,000
Additional support and resources
When studying on a course with Kaplan, you will have access to the Academic Support team via the ‘contact a tutor’ option on your MyKaplan. They are available seven days a week and can support you with any tricky topics via live chat, email, or by requesting a call back.
If you have any additional learning needs, get in touch with our inclusion team who can support you.
Read our blog for additional tutor tips for other exam subjects. Additionally, our Kaplan Publishing website offers the CIMA CGMA F2 study material, which can help you during your revision.
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