The exam consists of 8 tasks and it's 2 ½ hours long:
- Task 1: Published accounts – preparation of Statement of Profit or Loss & Statement of Changes in Equity OR Statement of Cash Flows
- Task 2: Published accounts – preparation of Statement of Financial Position OR Statement of Cash Flows
- Task 3: Conceptual and regulatory frameworks (Objectives, Framework and Qualitative characteristics)
- Task 4: International accounting standards – written aspect
- Task 5: International accounting standards – 6 multiple choice questions
- Task 6: Consolidated financial statements
- Task 7: Ratio calculations
- Task 8: Ratio analysis and interpretation
What to look out for in the exam
You will always be given additional information to aid you in your accounts preparation. Normally you are expected to deal with the following adjustments:
Don't be surprised if you are given some adjustments which you have already learnt from previous studies:
Accruals & prepayments, irrecoverable and doubtful debts, depreciation and disposals of non-current assets – so if you are rusty on these adjustments it is in your best interest to refresh on them.
Closing inventories (IAS2) - but possibly being tested on your knowledge of valuing your closing inventory at the lower of cost or NRV.
Revaluations (IAS16) - Normally land has been revalued during the financial year and you are required to adjust for this in the P&L, SOCIE & Financial position.
Tax (IAS12) - You will be given the estimated tax charge for the year which you are required to adjust for in the accounts. However, you may also have to take into account under or over provision of tax which is sat in the trial balance.
IAS - you may also be examined on your knowledge on dealing with other IAS. To give you an idea of what you may see in your exam (this is by no means a detailed list):
- IAS 10 Events after the reporting period – is the event an adjusting or non-adjusting event, and if it is an adjusting event you will need to adjust for it in the financial statements
- IAS 36 Impairment – an asset has been impaired so you will need to reflect this in the financial statements
- IAS 37 Provision, contingent liabilities and contingent assets – should you be making a provision in the financial statements
- IAS 38 Intangible assets – is the expenditure research or development? And if it is development, does it fulfil the 6 criteria so that it can be capitalised?
Statement of cash flows:
You will be required to prepare:
- Reconciliation of profit from operations to net cash from operating activities
- Statement of cash flows
Key features you will have to deal with are:
- Non cash items / removal of the accruals concepts
- Calculating: interest paid / tax paid / amount paid in the purchase of PPE and also the cash amount received in the disposal of PPE / dividends paid / loans / share issue
Conceptual and regulatory frameworks:
This is very much theory where you will be required to show that you have knowledge and understanding of the conceptual and regulatory framework (IASB). This area can be broken down into 4 main areas:
- Purpose, status and scope of the conceptual framework
- Objectives and users of the financial statements
- Qualitative characteristics (fundamental & enhancing)
- The framework – elements, recognition and measurements of the financial statements
International Accounting Standards (IAS):
There are 14 examinable IAS and you will be required to show that you have a competent level of understanding on these standards and you will need to be able to apply them to a work related scenario.
The examinable standards are:
- IFRS3 Business combinations
- IFRS10 Consolidated financial statements
- IAS1 Presentation of financial statements
- IAS2 Inventories
- IAS7 Statements of cash flows
- IAS10 Events after the reporting period
- IAS12 Income tax
- IAS16 Property, plant and equipment
- IAS17 Leases
- IAS18 Revenue
- IAS28 Investments in associates and joint ventures
- IAS36 Impairment of assets
- IAS37 Provisions, contingent liabilities and contingent assets
- IAS38 Intangible assets
Consolidated financial statements
You will be required to draft a consolidated P&L and/or financial position. In order to help you prepare these you will need to demonstrate that you have a good understanding in calculating:
- Non-controlling interest
- Group retained earnings
However you will need to be aware of pre and post acquisition profits, fair values, impairment of goodwill, unrealised profits, inter-company balances and transactions.
You will not be required to consolidate an associate (IAS28) but you may be expected to discuss the key features.
Ratio calculation, analysis and interpretation
There are 16 potential ratios which you could be examined on. You will be required to show their formulas and also calculate them.
On a completely different task you will be given a new set of data which you will be required to interpret the information in a presentable format (email, letter, memo) and also conclude. You may even be asked to discuss the limitations to ratio analysis.
The 16 examinable ratios are:
- Expense/revenue %
- Gross profit %
- Operating profit %
- Return of capital employed
- Return on shareholders' funds
- Current ratio
- Quick ratio
- Asset turnover (net)
- Asset turnover (non-current assets)
- Inventory turnover
- Inventory holding period
- Trade receivable days
- Trade payable days
- Working capital cycle
- Interest cover
To give you the best chance of passing, we recommend that you join a Kaplan course. There are various options available: Classroom, Live Online, and Distance Learning. Alternatively, you could purchase separate Kaplan Publishing study text and or revision kit.