DFS June 05 - How I Approached It

System · June 2005

I've had a numer of posts via the forums and via e-mail asking me how long it took me to do, whether I found it difficult and one particular e-mail asked if I "agreed" with the contents of the paper and the time you are given to do it. I therefore thought it appropriate to post a thread rather than answer each one individually - hope those that emailed read this. It took me a lot longer than 3 hours 15 minutes. This was because I didn't attempt the paper under exam conditions. I also had to verify my answers to make sure that what I was posting was relevant and something that could be useful feedback to you guys in the interim prior to the AAT submitting their formal answers. I would be wasting my time (Sunday afternoon) and your time if my answers were not something I could be confident you could usefully use. My thanks go to Annette "aka Bluewednesday" who also reviewed my answers. So far, only 1 error has been spotted relating to the STRGL and that isn't something I'm unduly worried about. I will knock off 1 mark when I assess my answers against the AAT!! My approach was a methodical and careful one. Depending on how confident you were in the exam ultimately depends on whether you could have been "careful". Bear in mind the exam is 3 hours long (I don't count the 15 minutes because you can't answer the question). There is a lot to do in those 3 hours and as I have said above, it took me a lot longer (4 and a half hours to be precise). The Profit and Loss and Balance Sheet was fairly straight forward - the only stumbling block was the opening shareholders funds which I had to re-work backwards as to what they were PRIOR to the share issue in order to arrive at the opening funds to be included in the reconciliation. As I stated in my previous post, this I thought was a little cruel and could have been a bit offputting. Goodwill, calculation of investment in an associate, FRS 9 (Assoc & Joint Ventures), FRS 12 (Provisions) were quite okay. One student commented on the discursive contents of my answers. The answers I have provided are quite comprehensive but I deal with technical issues relating to SSAP's, FRS's, UITF's and FREDs on a daily basis and therefore my answers go into a bit more detail than that that would be expected of you in the exam. This also applies to the report you had to write relating to Partridge and Carrington. Issues such as concluding that the EPS in Partridge is lower than Carrington because Partridge has got high Gearing may not have been something you would have written because it's not something that would automatically come to you in exam pressure. I recognised this because my approach and the fact that I was not under exam pressure gave me scope to analyse the figures in a bit more detail. The Statement of Principles question, in my opinion, was quite vague. I had to read the question three or four times in order to establish exactly what the question was asking. I do not think you guys would have had time to read the question this many times given the fact that it was the last question on the paper. As it was a discursive question, it did give scope for various and relevant answers. One post seemed to dispute what I had put in my answer but what I said was relevant BUT NOT PRE-PRESCRIPTIVE. Again, discursive questions will attract a whole audience of answers and unlike, say, a question asking for a Balance Sheet, there is no right or wrong way of answering discursive questions other than sticking to the requirements. With regard to the content - you are never going to get an exam where you do not think the content is too much. I thought the content was reasonable, but as my approach was not under timed conditions, I am not able to comment on whether I thought the exam was time-pressured.

System · July 2005

DFS June 05 - How I Approached It

Hi, Thanks for posting these sample answers - it's been very useful to look at. I'm afraid I disagree with a couple of your answers though (although there's no guarantee I'm right - I'm not qualified in anything yet... although I'm hoping to be AAT qualified on August 16th :-) The first thing is the first 2 ratios - it looks like you have used the profit after dividends, whereas from what we were taught it should be the profit before dividends (as they are ordinary, not preference shares). Otherwise a company paying good dividends would make their EPS look worse, which would seem illogical. This then gives a different result for the written bit, as the company with the greater return (for this financial year) is also the one with the greater risk due to high gearing. The other thing (which I'm less sure about) is the value of the investment in the associate. I think what you've done so far is right, but you also need to add on the ownership percentage (25% or whatever it was) of the net assets at the balance sheet date. I think I made this 4750 in the exam, so plus your 450 gives 5200. (Sorry, I don't feel like doing the full calculations again - doing it once for real in the exam was quite enough!) This seems logical, as you've invested in the company, so your investment will change in value depending on the state of the company. Anyway, I'm happy to stand corrected on any of this - guess I'll find out in August if I've got it all wrong! Cheers, Jill

System · July 2005

DFS June 05 - How I Approached It

Hi Jill thank you for your response. I've had a couple of posts disagreeing with my return on equity calculation and I have therefore re-visited the BPP study texts to double check. I think you may be getting confused with ROCE (as did another student). I looked at the question and it did ask for return on EQUITY (otherwise known as return on shareholders capital) not on capital employed. The formula I used therefore was appropriate to return on equity. With regards to EPS again I referred to BPP texts to make sure the formula I used was in line with the question requirements and the formula (per BPP) is: EPS = Earnings / number of shares The earnings figure is the profit after everything has been paid out (including preference dividends). Or, as per BPP (amended as to avoid breach of copyright): profit after: taxation minority interest pref divis and extraordinary items. The one thing to note with ratio analysis is that there are various ways of interpreting what the question requires. For example, return on equity (otherwise known as return on shareholders capital) could easily be construed as return on capital employed (otherwise known as return on assets). with regard to the investment in associate, I forgot what you said in your post so I will post another message in answer. I will let you know my result when the AAT issue their answers.

System · July 2005

DFS June 05 - How I Approached It

Ref the investment in associate - I'm not sure why you would add the 25% on to the cost of the investment because the 25% of the net assets is the net assets BEFORE the associate was purchased therefore I understand that you would deduct the net assets at acquisition from the cost of the investment as would be done when calculating Goodwill on consolidation? The only difference in this question was the fact that Grant was an associate (25%) and the other one (can't remember the name) is a 60% holding - therefore a subsidiary. The template I used on my answer and also on the articles I posted regarding consolidations were as follows:- Cost of Investment Less Net Assets on acquisition (being share capital, share premium, P&L reserves etc) Gives a figure. You take the group %age (e.g. in the June answer it is 25% - deduct this figure from the cash purchase (i.e. cost of investment) and the resulting figure is the unamortised investment. I amortised the investment in my answer, but you might get away without amortising it. Regards Steve

DFS June 05 - How I Approached It

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