Many people have problem in dealing with management paper, but why? Problems could arise because:
1. Questions are always different.
2. Not easy to understand.
3. Sometime the way of answering question cannot be found in textbook.
Questions are always different
This doesn't mean that examiner only change the numbers, this means that the question is completely a new type of question. Therefore, it is quite impossible to predict what question will come out in exam. Although practice questions will help, but the most important thing to do is to think how the topics are questioned and how they can be answer instead of keep practicing questions, ie. put yourself in an examiner point of view.
Not easy to understand
It is common that a lot of technical knowledge are found in any management paper, whether performance, business or finance. To really understand them well, read through the examples given in the textbook to get some idea first, then try to apply them to the real world, you can ask lecturer on how they can be used. Having a group to discuss about the best way to understand the thing can help, especially when you are totally confused, some of your friends may understand what you didn't and you might be good in certain areas that your friends find them difficult, sharing knowledge will improve the understanding and understanding is the best way to pass management paper.
Sometime the way of answering question cannot be found in textbook
You may find that why textbook does not include the format of answer given by examiner, this is very common, it is actually because there is no strict format of answering questions. This is the main reason why memorisation is not useful to pass management paper, so how to improve the technique? Clearly doing questions can help but what I suggest is to think from different angle, don't memorise the examiner answer, the answer is specifically related to the question only and cannot be applied to other type of question (most of the time). Remember there is no one perfect answer but whatever answer you give, especially theories, justify that you are right, you will get marks even you gave a wrong point.
In conclusion, the definition of understanding related to management paper is:
1. Being able to write in your own words which have the same meaning as what is given in the book.
2. Being able to put the knowledge into practice.
3. Being able to give some examples.
4. Being able to pick relevant information.
5. Being able to criticise and justify.
Monday, April 25, 2011
Friday, April 22, 2011
Effective ways to study
Sometime you can find that the brain is blocking the knowledge from entering. This happens when you are not effective, here are some tips:
1. Know your best time in a day - if you can learn well in the morning, then take the opportunity to study in the morning. When the exam is near, revising in the best time is very important to make sure that you are really revising.
2. Go for some entertainments or sports - this may sound ridiculous, but only through this you can refresh your mind, our brain always need some time to close study mode. Play some games, watch some movies, shopping and so on, do these when you feel that the knowledge is not coming in.
3. Group study - the members of the group must be fully aiming for study, not for chit chatting, ask questions within the group and discuss the answer together, this will improve your awareness of many other issues.
4. Do questions - if you feel that after some time, you are not feeling like studying, then go for past year papers or exam kit, do a number of questions. This is the releasing of "death knowledge" inside your brain and making it "live", this is a good practice and after a while you will get back to book again.
5. Study plan - if you are not self-motivated to study, make a timetable of when to study and follow it strictly, this is a self-coercive-motivation.
6. Follow-up - if you attend classes, after each of the class, read again what you just learnt in class, this is the easiest and most effective way of learning as by doing so, the knowledge will stick in your mind for a long time.
7. Making your notes - reading the book may be boring, so it is good to make notes at the same time of studying, at least you are doing something while reading. Don't copy the sentences from the book, try to make your own sentence which might replace one paragraph in the book.
8. Enough of sleep - this is very important to keep your brain shut up from saying "I don't want to learn, I want to rest".
9. Study for a short time per day is better than studying a long time in one day of a week.
10. Focus - keep focus while you are studying, do not think of anything else, for example when you are studying F7, don't think about "how an agency relationship is formed" or "what to eat later", your mind should only has F7, nothing else.
There are other ways that people will use while studying but the above are what I suggest from my experience so far, these changed my life :)
1. Know your best time in a day - if you can learn well in the morning, then take the opportunity to study in the morning. When the exam is near, revising in the best time is very important to make sure that you are really revising.
2. Go for some entertainments or sports - this may sound ridiculous, but only through this you can refresh your mind, our brain always need some time to close study mode. Play some games, watch some movies, shopping and so on, do these when you feel that the knowledge is not coming in.
3. Group study - the members of the group must be fully aiming for study, not for chit chatting, ask questions within the group and discuss the answer together, this will improve your awareness of many other issues.
4. Do questions - if you feel that after some time, you are not feeling like studying, then go for past year papers or exam kit, do a number of questions. This is the releasing of "death knowledge" inside your brain and making it "live", this is a good practice and after a while you will get back to book again.
5. Study plan - if you are not self-motivated to study, make a timetable of when to study and follow it strictly, this is a self-coercive-motivation.
6. Follow-up - if you attend classes, after each of the class, read again what you just learnt in class, this is the easiest and most effective way of learning as by doing so, the knowledge will stick in your mind for a long time.
7. Making your notes - reading the book may be boring, so it is good to make notes at the same time of studying, at least you are doing something while reading. Don't copy the sentences from the book, try to make your own sentence which might replace one paragraph in the book.
8. Enough of sleep - this is very important to keep your brain shut up from saying "I don't want to learn, I want to rest".
9. Study for a short time per day is better than studying a long time in one day of a week.
10. Focus - keep focus while you are studying, do not think of anything else, for example when you are studying F7, don't think about "how an agency relationship is formed" or "what to eat later", your mind should only has F7, nothing else.
There are other ways that people will use while studying but the above are what I suggest from my experience so far, these changed my life :)
Wednesday, April 20, 2011
Dealing with F4 exam
While F4 seems like it is filled with large volume of laws, there are certain exam techniques to deal with it. The following has to be noticed:
1. Not required to remember section number at all. Quoting section number of Acts in exam will not earn a single mark.
2. 10 marks mean at least 10 valid points.
3. By quoting case name, it replaces the need of giving example. If you can't remember the case name, then example or illustration is needed to earn you 1 mark, ie. one case can earn you 1 mark.
4. Not necessary to write answer like examiner. Examiner's answer is perfect, you have to write in your own words in order to impress the examiner, explain the laws with your understanding and be brave to put down your answer.
5. Time management must be good. You have 18 minutes for each question, but you may only need about 15 minutes to deal with first 7 questions, giving you extra 21 minutes (3 minutes x 7 questions) to deal with last 3 questions. Time is quite enough to finish the 10 questions with sufficient length of answer (which is at least 10 valid points).
6. It is best to write answer in essay form, however for example, if you are explaining some advantages or disadvantages, you may write a heading (eg. advantages of judicial precedent), underline it and then write the advantages below it (eg. (i) Uniformity - by following the decision of the precedent case, the uniformity of the judges decision is promoted instead of having many different decisions which may cause complication).
7. Write your answer using simple and clear English, with this the markers can easily understand what you write.
Just don't perceive this paper is difficult, then it should be okay. The law English may be harder to understand, but take some time to understand and think a way to write in your own words :)
1. Not required to remember section number at all. Quoting section number of Acts in exam will not earn a single mark.
2. 10 marks mean at least 10 valid points.
3. By quoting case name, it replaces the need of giving example. If you can't remember the case name, then example or illustration is needed to earn you 1 mark, ie. one case can earn you 1 mark.
4. Not necessary to write answer like examiner. Examiner's answer is perfect, you have to write in your own words in order to impress the examiner, explain the laws with your understanding and be brave to put down your answer.
5. Time management must be good. You have 18 minutes for each question, but you may only need about 15 minutes to deal with first 7 questions, giving you extra 21 minutes (3 minutes x 7 questions) to deal with last 3 questions. Time is quite enough to finish the 10 questions with sufficient length of answer (which is at least 10 valid points).
6. It is best to write answer in essay form, however for example, if you are explaining some advantages or disadvantages, you may write a heading (eg. advantages of judicial precedent), underline it and then write the advantages below it (eg. (i) Uniformity - by following the decision of the precedent case, the uniformity of the judges decision is promoted instead of having many different decisions which may cause complication).
7. Write your answer using simple and clear English, with this the markers can easily understand what you write.
Just don't perceive this paper is difficult, then it should be okay. The law English may be harder to understand, but take some time to understand and think a way to write in your own words :)
Deciding on the performance measures
How do we decide which key performance indicators (KPIs) are suitable for a specific person or thing? A good performance measure should:
1. Provide incentive to divisional manager to make decisions which are in the best interests of the overall company - that means, the KPIs must promote goal congruence, not dysfunctional decision making by the manager. To achieve the goal congruence, KPIs should not cause the managers to think of themselves only, financial performance indicators (FPIs) are the one that cause this problem, eg. if manager's performance is measured by residual income (RI), he may not accept a project that gives him negative RI at the beginning of the project but in fact the project has a positive net present value (NPV). Although present value of RI is equal to NPV, if negative RI can cause manager to lose bonus, he will not accept the project although the project can maximise shareholders wealth or improve overall profitability of the organisation.
2. Take into account the principle of controllability - managers should only be held accountable for what they can control, therefore it is important to look at what the managers are responsible to. Looking at the responsibility centres, we can understand that each responsibility centre's manager must be assessed using different KPIs. For example, for a cost centre manager, profit should not be used as the KPI, instead standard costing variance analysis should be used (more common one), if the manager is a production manager, material usage variance and labour efficiency variance could be under their control (however you should realise that sometime they are not, eg. sales director wants the production manager to produce more units which caused adverse material usage variance. Therefore, KPIs must not ignore principle of controllability.
3. Recognise long-term and short-term objectives - measures such as return on investment (ROI), RI, net profit margin are all short-term measures. They do not recognise the long-term performance. FPIs are being critised that they will cause short-termism behaviour. However, FPIs such as price/earning ratio will be useful as share price in market can indicate the true performance of the manager. Non-financial performance indicators (NFPIs) are very useful to avoid short-termism, eg. measure the performance of a production manager by looking at cost per unit and quality of the product, with this manager cannot manipulate his performance. Balanced scorecard is useful for this point, it includes FPIs and NFPIs and also focus on the critical success factors (CSFs). CSFs are performance requirements that are fundamental to an organisation's success. With balanced scorecard, it looks at four perspectives:
(a) Financial
(b) Customer
(c) Internal business process
(d) Learning and growth
For each perspective, CSFs are identified and KPIs are identified for each CSF.
Therefore, a good performance measure is important because it can assist the organisation to remain sustainable and also growth. The above does not intended to provide knowledge on KPIs but examples are taken since they are related to the 3 points stated.
1. Provide incentive to divisional manager to make decisions which are in the best interests of the overall company - that means, the KPIs must promote goal congruence, not dysfunctional decision making by the manager. To achieve the goal congruence, KPIs should not cause the managers to think of themselves only, financial performance indicators (FPIs) are the one that cause this problem, eg. if manager's performance is measured by residual income (RI), he may not accept a project that gives him negative RI at the beginning of the project but in fact the project has a positive net present value (NPV). Although present value of RI is equal to NPV, if negative RI can cause manager to lose bonus, he will not accept the project although the project can maximise shareholders wealth or improve overall profitability of the organisation.
2. Take into account the principle of controllability - managers should only be held accountable for what they can control, therefore it is important to look at what the managers are responsible to. Looking at the responsibility centres, we can understand that each responsibility centre's manager must be assessed using different KPIs. For example, for a cost centre manager, profit should not be used as the KPI, instead standard costing variance analysis should be used (more common one), if the manager is a production manager, material usage variance and labour efficiency variance could be under their control (however you should realise that sometime they are not, eg. sales director wants the production manager to produce more units which caused adverse material usage variance. Therefore, KPIs must not ignore principle of controllability.
3. Recognise long-term and short-term objectives - measures such as return on investment (ROI), RI, net profit margin are all short-term measures. They do not recognise the long-term performance. FPIs are being critised that they will cause short-termism behaviour. However, FPIs such as price/earning ratio will be useful as share price in market can indicate the true performance of the manager. Non-financial performance indicators (NFPIs) are very useful to avoid short-termism, eg. measure the performance of a production manager by looking at cost per unit and quality of the product, with this manager cannot manipulate his performance. Balanced scorecard is useful for this point, it includes FPIs and NFPIs and also focus on the critical success factors (CSFs). CSFs are performance requirements that are fundamental to an organisation's success. With balanced scorecard, it looks at four perspectives:
(a) Financial
(b) Customer
(c) Internal business process
(d) Learning and growth
For each perspective, CSFs are identified and KPIs are identified for each CSF.
Therefore, a good performance measure is important because it can assist the organisation to remain sustainable and also growth. The above does not intended to provide knowledge on KPIs but examples are taken since they are related to the 3 points stated.
Tuesday, April 19, 2011
Tackling CAT T10
This paper is a management paper, what this indicates? This means that calculations alone won't help you pass the exam. Normally over 40% is about theories so you must really understand and able to demonstrate your knowledge in many areas. Starting December 2010, examiner has changed so don't analyse past year papers and study the topics selectively, we never know what the new examiner will do, but the format of the paper remains the same. The syllabus of this paper is quite big, here are some advices for each syllabus area.
1. Cash receipts and payments
This introduces you about the different between cash and accrual accounting, we prepare cash budget on the cash basis. Cash budget is a more popular exam question compared to other forecast such as cleared funds forecast or forecast statement of cash flow. You must always remember that only items involving cash flows will be included in cash forecasting. Theory question may test you on the understanding of treasury in the organisation or Baumol cash management model.
2. Cash balances
With the extra funds, you should be able to suggest some ways to invest the money, the knowledge of source of finance may help you in this part. Before investing the extra funds, one should consider the risk, liquidity (how easily it can be converted to cash), maturity (time to mature) and return. I suggest you to read the article by former examiner titled "investing cash surpluses".
3. Working capital management
This includes managing working capital cycle, inventory, payables and receivables. Working capital cycle or cash operating cycle is important for the company to stay liquid and "functioning", it is quite straightforward to calculate, practice the past year questions, long working capital cycle will indicate liquidity risk. You may also be asked to calculate the required working capital based on the budgeted inventory days, receivable days and payable days given. Managing inventory is something quite simple in T10, knowledge of T4 has covered most of it except just-in-time (JIT), here I will suggest you to read an article by new examiner titled "inventory control". Managing payables is a small area normally examined together with inventory, common question will be to ask you to decide whether to order based on EOQ or order more to get discount. Managing receivables will be a big one so I would discuss it separately.
4. Credit management
The theories in this part are very important. When we are talking about managing receivables, credit policies are important which determine how the credit term is given. You have to know some internal and external source of information to decide the creditworthiness of the customer before giving credit. Some legal issues may be asked, for example the elements of contract.
For collection of debts, company can choose to offer early settlement discount to encourage early payment, maximum discount to be offered could be asked. Company can also employ factoring or invoice discounting service, the main difference between them is that factor will administer the sales ledger while invoice discounter will not administer the sales ledger, invoice discounting is only used to raise finance. You may be required to decide the viability of using factoring service, just calculate the cost of factoring and the cost of not factoring which is relatively straightforward, there are a number of past year questions to practice (important for June 2011). Finally, collection of debt through legal proceeding is less common, I suggest you to read former examiner article titled "managing debtors".
5. Source of finance
This is a full theory part, be sure you are familiar with this area. Financial markets, economic environment, short, medium and long-term finance and also finance for SMEs are discussed in this area. Questions normally focus on long-term finance and financial markets in the past, if you did learnt everything in this area by understanding different types of finance (and memorise something if possible since you are new to the finance world), you will earn a lot of easy marks in exam because questions on this area are normally easy. Many people failed T10 because of leaving out this area.
6. Short-term decisions
This is more related to T7 but is added to T10 and deleted from T7 to balance the syllabus coverage. This includes relevant costing, short-term decisions such as make-or-buy and limiting factor and finally CVP analysis. All of these have been covered in T4, so you should be happy with them, but if you are not good in these, be sure to master them, CVP analysis is quite popular and is asked in 3 consecutive exams. If a question comes out from this area, you should be able to deal with it using T4 knowledge.
7. Capital investment appraisal
You also learnt it in T4, in T10 it is more detailed requiring you to calculate the net cash flows. In every exam, this area will surely appear as one of the four questions in section B. Techniques to be familiar include accounting rate of return (ARR), payback, discounted payback, net present value (NPV) and internal rate of return (IRR). Theory question would ask you to give the advantages and disadvantages of the techniques above and also the capital investment procedures. If the question requires you to use NPV approach to appraise the project, relevant costing knowledge is important to determine the relevant cash flows. There are many past year questions to practice and I will suggest you to read the article by former examiner titled "capital investment appraisal". (Note: not the Nigel Coulthurst's article).
In summary, to pass T10:
1. Never ignore theories (essential)
2. Think outside of the box when answering question, be practical and apply knowledge specifically to the question.
3. Focus on key areas (source of finance, cash budgets, working capital management, credit management, short-term decisions and capital investment appraisal.
4. Do not be selective in the topics to study.
5. Answer easy question first in exam, there is normally at least one question which is more difficult than the others.
6. Read the articles that I suggested above which I think are more useful.
7. Practice some past year questions, don't learn the ways to do them, learn "why" the ways are used.
1. Cash receipts and payments
This introduces you about the different between cash and accrual accounting, we prepare cash budget on the cash basis. Cash budget is a more popular exam question compared to other forecast such as cleared funds forecast or forecast statement of cash flow. You must always remember that only items involving cash flows will be included in cash forecasting. Theory question may test you on the understanding of treasury in the organisation or Baumol cash management model.
2. Cash balances
With the extra funds, you should be able to suggest some ways to invest the money, the knowledge of source of finance may help you in this part. Before investing the extra funds, one should consider the risk, liquidity (how easily it can be converted to cash), maturity (time to mature) and return. I suggest you to read the article by former examiner titled "investing cash surpluses".
3. Working capital management
This includes managing working capital cycle, inventory, payables and receivables. Working capital cycle or cash operating cycle is important for the company to stay liquid and "functioning", it is quite straightforward to calculate, practice the past year questions, long working capital cycle will indicate liquidity risk. You may also be asked to calculate the required working capital based on the budgeted inventory days, receivable days and payable days given. Managing inventory is something quite simple in T10, knowledge of T4 has covered most of it except just-in-time (JIT), here I will suggest you to read an article by new examiner titled "inventory control". Managing payables is a small area normally examined together with inventory, common question will be to ask you to decide whether to order based on EOQ or order more to get discount. Managing receivables will be a big one so I would discuss it separately.
4. Credit management
The theories in this part are very important. When we are talking about managing receivables, credit policies are important which determine how the credit term is given. You have to know some internal and external source of information to decide the creditworthiness of the customer before giving credit. Some legal issues may be asked, for example the elements of contract.
For collection of debts, company can choose to offer early settlement discount to encourage early payment, maximum discount to be offered could be asked. Company can also employ factoring or invoice discounting service, the main difference between them is that factor will administer the sales ledger while invoice discounter will not administer the sales ledger, invoice discounting is only used to raise finance. You may be required to decide the viability of using factoring service, just calculate the cost of factoring and the cost of not factoring which is relatively straightforward, there are a number of past year questions to practice (important for June 2011). Finally, collection of debt through legal proceeding is less common, I suggest you to read former examiner article titled "managing debtors".
5. Source of finance
This is a full theory part, be sure you are familiar with this area. Financial markets, economic environment, short, medium and long-term finance and also finance for SMEs are discussed in this area. Questions normally focus on long-term finance and financial markets in the past, if you did learnt everything in this area by understanding different types of finance (and memorise something if possible since you are new to the finance world), you will earn a lot of easy marks in exam because questions on this area are normally easy. Many people failed T10 because of leaving out this area.
6. Short-term decisions
This is more related to T7 but is added to T10 and deleted from T7 to balance the syllabus coverage. This includes relevant costing, short-term decisions such as make-or-buy and limiting factor and finally CVP analysis. All of these have been covered in T4, so you should be happy with them, but if you are not good in these, be sure to master them, CVP analysis is quite popular and is asked in 3 consecutive exams. If a question comes out from this area, you should be able to deal with it using T4 knowledge.
7. Capital investment appraisal
You also learnt it in T4, in T10 it is more detailed requiring you to calculate the net cash flows. In every exam, this area will surely appear as one of the four questions in section B. Techniques to be familiar include accounting rate of return (ARR), payback, discounted payback, net present value (NPV) and internal rate of return (IRR). Theory question would ask you to give the advantages and disadvantages of the techniques above and also the capital investment procedures. If the question requires you to use NPV approach to appraise the project, relevant costing knowledge is important to determine the relevant cash flows. There are many past year questions to practice and I will suggest you to read the article by former examiner titled "capital investment appraisal". (Note: not the Nigel Coulthurst's article).
In summary, to pass T10:
1. Never ignore theories (essential)
2. Think outside of the box when answering question, be practical and apply knowledge specifically to the question.
3. Focus on key areas (source of finance, cash budgets, working capital management, credit management, short-term decisions and capital investment appraisal.
4. Do not be selective in the topics to study.
5. Answer easy question first in exam, there is normally at least one question which is more difficult than the others.
6. Read the articles that I suggested above which I think are more useful.
7. Practice some past year questions, don't learn the ways to do them, learn "why" the ways are used.
Tackling CAT T7
Some people will find this paper easy and some will find it very difficult. This paper covers the basic performance management knowledge that needs to be understood by an accountant including costing, forecasting, budgeting, variance analysis and performance measurement. The syllabus of this paper is quite big but without difficult knowledge. Theories are too important to pass this exam, examiner will try to examine 60% calculations and 40% theories. Examiner will also focus on the key areas of the syllabus so be sure you check the study guide. Here are some advices for each syllabus area.
1. Principle of cost accounting
This covers absorption costing (AC), marginal costing (MC) and activity-based costing (ABC). The knowledge of AC and MC are covered in detailed in T4, so in T7, they are not likely to be examined as a more than 10 marks question, the main focus is on ABC which is new. To do ABC comfortably, think the cost driver rate as similar to overhead absorption rate (OAR) but it divides the cost driver instead of budgeted activity level, keep an eye on the activity consumed by the product, then you should have no problem getting the accurate answer.
2. Collection of information
This gives you some general knowledge of where to get the information, sampling will be more important in this area. There are many types of sampling techniques but probably you might have difficulties in differentiating multi-stage sampling and cluster sampling, the only difference is that multi-stage sampling still involve some random in picking the sample at the end but for cluster sampling, every items in the final sub-population will be investigated. You must make sure that you can explain the sampling techniques in your own words and understand when each of them is suitable (since each has some limitations).
3. Analysis of information
Presenting information through graphs, tables or diagrams would be less common, but you may be required to write a report with your position as an accounting technician, therefore you must know the format of the report which can help you earn marks and be able to interpret information with common sense. It is important as well to know how to calculate Laspeyres' and Paasche indices, base year and current year are the key to differentiate them. This might help:
(a) Laspeyre price index - weighted by base year quantities.
(b) Paasche price index - weighted by current year quantities.
(c) Laspeyre quantity index - weighted by based year price.
(d) Paasche quantity index - weighted by current year price.
Therefore, if you know one, you can do the rest, they normally appear in MCQ.
4. Forecasting
Common exam questions on this area will focus on high-low method, time series analysis and adjusting historical data using index numbers. People who find difficulties in this area are probably because of not enough understanding because forecasting in T7 is one of the easiest topics. When you apply time series analysis, a trend is needed and you will be given the linear equation for trend, so just solve the equation to get trend, seasonal variations will also be given, so the information needed to forecast sales is normally easy to find in exam question, forecast sales = trend +/x seasonal variation (if additive model is used, then "+"; if multiplicative model is used, then "x"). If you are not told what model to use, you can see from the seasonal variations given, if you saw "+40%", definitely multiplicative model should be used. Adjusting historical data to a forecast data using index number is very straightforward, no issue here.
5. Budgetary planning
Preparing budgets are common in T7, you may be asked to prepare sales budget, production budget, material usage budget, material purchase budget or labour budget, there is nothing difficult as you can do it by understanding the information given. Sometime, time series analysis can be examined together with sales budget. The theories of budgeting such as incremental budgeting, zero-based budgeting (ZBB) and rolling budget have to be understood and you should be able to explain in your own words in exam.
6. Budgetary control
You are already familiar with responsibility accounting, here you will see it again, this is very important in practice, therefore you will also see it in ACCA F5, just understand it. You should understand why we use flexible budgets for control purpose instead of fixed budgets. You may be required to prepare flexible budgets for three level of activities and later flexed the budget, variances from comparing flexed budget and actual result are useful to managers. You should also have some ideas of behavioural aspects of budgeting (how budget affects behaviour of people) which include knowledge about participative and top-down approach to budgeting, he meaning of goal congruence and dysfunctional decision making.
7. Variance analysis
This topic is also one of the easiest topics in T7. There are many ways of calculating variances, you should learn the way that is suitable to you, there are three ways that I have observed so far:
(a) Formula approach
(b) Common sense approach (which I used)
(c) Systematic approach (which examiner used)
I develop common sense approach by looking at how the variances are calculated, this approach is suitable if you think other approaches are not easy. Beside knowing how to calculate variances and do reconciliation, you must interpret them and give possible causes. Factors to consider before investigating the variances are quite common sense and you should learn about control chart. Examiner has wrote 4 articles related to standard costing and variance analysis, I will suggest you to read "understanding the causes of variances" and "variance investigation".
8. Performance measurement
This is very important, there are many invaluable key performance indicators (KPIs) knowledge to learn. In general, you should be able to do ratio analysis, use balanced scorecard, use value for money (VFM) and also calculate control ratios to measure the performance of the business.
For ratio analysis, you may need to compare the ratio of the company with last year ratio, other company or industry averages and comment on the performance, you should be familiar with ratio analysis already.
To use balanced scorecard, you must understand what each perspective means and to identify KPIs more specifically, you have to figure out the critical success factors (CSFs), KPIs will be based on CSFs.
Value for money means providing a service in a way which is economical, efficient and effective (3 Es), you should understand what 3 Es mean.
Control ratios include efficiency, capacity and activity ratio which you learnt in T2 and T4.
In divisional performance measurement, you should remember what responsibility accounting taught us, ie. manager is responsible for what he can control. Therefore, do not measure the performance of the manager by looking at the total division's cost or profit!
Performance measurement is a huge and important area which directly helped you in ACCA F5, so I will suggest you to read the examiner article titled "performance measurement", it is a great one.
9. Pricing
This is a very simple area and normally come out as part of ABC where you are required to mark-up the cost. However the theories such as factors influencing pricing, advantages and disadvantages of cost-plus pricing or fixed price quotations and tenders must not be ignored as there might be significant easy marks to earn in exam.
10. Cost management
This covers total quality management (TQM), cost reduction, value analysis, life cycle costing and target costing, mostly theories. In TQM, you must be able to explain each of the cost of quality (there are 4), it is easier to learn using own words. You must be able to differentiate cost reduction and cost control and suggest some cost reduction methods suitable for the given scenario. For value analysis it is just about explaining so just understand it. There are only theories for life cycle costing so you should be able to describe the 4 or 5 stages of product life cycle. In target costing, you should understand that it is an opposite way of doing things, ie. from selling price to cost instead of cost to selling price. As you know there is sometime a cost gap (target cost is different from current cost) and we need to close the cost gap, value engineering/value analysis is suitable to be used and also other cost reduction methods.
In summary, to pass T7:
1. Focus on the key areas (forecasting, budget preparation, flexible budgets, variance computation and interpretation, performance indicators, cost reduction and value enhancement).
2. For something not understood, take time to read and read until you get what it means.
3. Don't learn the way of doing the questions, learn 'why' the way is used.
4. Practice some past year questions, if you cannot understand something, try to read examiner's report where examiner may provide some guidance on it.
5. Do not ignore theories which constitute you about 40% in exam, explaining or giving advantages/disadvantages are very common.
6. In exam, start from the easy question. Use the reading time effectively by at least go through all 4 questions in section B, start from your strong area.
1. Principle of cost accounting
This covers absorption costing (AC), marginal costing (MC) and activity-based costing (ABC). The knowledge of AC and MC are covered in detailed in T4, so in T7, they are not likely to be examined as a more than 10 marks question, the main focus is on ABC which is new. To do ABC comfortably, think the cost driver rate as similar to overhead absorption rate (OAR) but it divides the cost driver instead of budgeted activity level, keep an eye on the activity consumed by the product, then you should have no problem getting the accurate answer.
2. Collection of information
This gives you some general knowledge of where to get the information, sampling will be more important in this area. There are many types of sampling techniques but probably you might have difficulties in differentiating multi-stage sampling and cluster sampling, the only difference is that multi-stage sampling still involve some random in picking the sample at the end but for cluster sampling, every items in the final sub-population will be investigated. You must make sure that you can explain the sampling techniques in your own words and understand when each of them is suitable (since each has some limitations).
3. Analysis of information
Presenting information through graphs, tables or diagrams would be less common, but you may be required to write a report with your position as an accounting technician, therefore you must know the format of the report which can help you earn marks and be able to interpret information with common sense. It is important as well to know how to calculate Laspeyres' and Paasche indices, base year and current year are the key to differentiate them. This might help:
(a) Laspeyre price index - weighted by base year quantities.
(b) Paasche price index - weighted by current year quantities.
(c) Laspeyre quantity index - weighted by based year price.
(d) Paasche quantity index - weighted by current year price.
Therefore, if you know one, you can do the rest, they normally appear in MCQ.
4. Forecasting
Common exam questions on this area will focus on high-low method, time series analysis and adjusting historical data using index numbers. People who find difficulties in this area are probably because of not enough understanding because forecasting in T7 is one of the easiest topics. When you apply time series analysis, a trend is needed and you will be given the linear equation for trend, so just solve the equation to get trend, seasonal variations will also be given, so the information needed to forecast sales is normally easy to find in exam question, forecast sales = trend +/x seasonal variation (if additive model is used, then "+"; if multiplicative model is used, then "x"). If you are not told what model to use, you can see from the seasonal variations given, if you saw "+40%", definitely multiplicative model should be used. Adjusting historical data to a forecast data using index number is very straightforward, no issue here.
5. Budgetary planning
Preparing budgets are common in T7, you may be asked to prepare sales budget, production budget, material usage budget, material purchase budget or labour budget, there is nothing difficult as you can do it by understanding the information given. Sometime, time series analysis can be examined together with sales budget. The theories of budgeting such as incremental budgeting, zero-based budgeting (ZBB) and rolling budget have to be understood and you should be able to explain in your own words in exam.
6. Budgetary control
You are already familiar with responsibility accounting, here you will see it again, this is very important in practice, therefore you will also see it in ACCA F5, just understand it. You should understand why we use flexible budgets for control purpose instead of fixed budgets. You may be required to prepare flexible budgets for three level of activities and later flexed the budget, variances from comparing flexed budget and actual result are useful to managers. You should also have some ideas of behavioural aspects of budgeting (how budget affects behaviour of people) which include knowledge about participative and top-down approach to budgeting, he meaning of goal congruence and dysfunctional decision making.
7. Variance analysis
This topic is also one of the easiest topics in T7. There are many ways of calculating variances, you should learn the way that is suitable to you, there are three ways that I have observed so far:
(a) Formula approach
(b) Common sense approach (which I used)
(c) Systematic approach (which examiner used)
I develop common sense approach by looking at how the variances are calculated, this approach is suitable if you think other approaches are not easy. Beside knowing how to calculate variances and do reconciliation, you must interpret them and give possible causes. Factors to consider before investigating the variances are quite common sense and you should learn about control chart. Examiner has wrote 4 articles related to standard costing and variance analysis, I will suggest you to read "understanding the causes of variances" and "variance investigation".
8. Performance measurement
This is very important, there are many invaluable key performance indicators (KPIs) knowledge to learn. In general, you should be able to do ratio analysis, use balanced scorecard, use value for money (VFM) and also calculate control ratios to measure the performance of the business.
For ratio analysis, you may need to compare the ratio of the company with last year ratio, other company or industry averages and comment on the performance, you should be familiar with ratio analysis already.
To use balanced scorecard, you must understand what each perspective means and to identify KPIs more specifically, you have to figure out the critical success factors (CSFs), KPIs will be based on CSFs.
Value for money means providing a service in a way which is economical, efficient and effective (3 Es), you should understand what 3 Es mean.
Control ratios include efficiency, capacity and activity ratio which you learnt in T2 and T4.
In divisional performance measurement, you should remember what responsibility accounting taught us, ie. manager is responsible for what he can control. Therefore, do not measure the performance of the manager by looking at the total division's cost or profit!
Performance measurement is a huge and important area which directly helped you in ACCA F5, so I will suggest you to read the examiner article titled "performance measurement", it is a great one.
9. Pricing
This is a very simple area and normally come out as part of ABC where you are required to mark-up the cost. However the theories such as factors influencing pricing, advantages and disadvantages of cost-plus pricing or fixed price quotations and tenders must not be ignored as there might be significant easy marks to earn in exam.
10. Cost management
This covers total quality management (TQM), cost reduction, value analysis, life cycle costing and target costing, mostly theories. In TQM, you must be able to explain each of the cost of quality (there are 4), it is easier to learn using own words. You must be able to differentiate cost reduction and cost control and suggest some cost reduction methods suitable for the given scenario. For value analysis it is just about explaining so just understand it. There are only theories for life cycle costing so you should be able to describe the 4 or 5 stages of product life cycle. In target costing, you should understand that it is an opposite way of doing things, ie. from selling price to cost instead of cost to selling price. As you know there is sometime a cost gap (target cost is different from current cost) and we need to close the cost gap, value engineering/value analysis is suitable to be used and also other cost reduction methods.
In summary, to pass T7:
1. Focus on the key areas (forecasting, budget preparation, flexible budgets, variance computation and interpretation, performance indicators, cost reduction and value enhancement).
2. For something not understood, take time to read and read until you get what it means.
3. Don't learn the way of doing the questions, learn 'why' the way is used.
4. Practice some past year questions, if you cannot understand something, try to read examiner's report where examiner may provide some guidance on it.
5. Do not ignore theories which constitute you about 40% in exam, explaining or giving advantages/disadvantages are very common.
6. In exam, start from the easy question. Use the reading time effectively by at least go through all 4 questions in section B, start from your strong area.
Sunday, April 17, 2011
Tackling CAT T6
This is considered the easiest paper of CAT advanced level papers, but again the difficulty level is actually the same as other advanced level papers. The syllabus of financial accounting covered in this paper is very basic, therefore you can easily understand the topics especially by doing the past year papers. The 14 past year papers have actually covered the full syllabus of T6. Here are some advices on each syllabus area.
1. General framework
Here you will learn about the IASB framework including conceptual framework and regulatory framework. This is the most basic knowledge that one should have as an accountant, although man think that this is just theory and not important, it is actually very important especially when you go further in financial accounting. You should read through and try to understand the concepts (especially the quantitative characteristics of financial statement) and also be able to explain the role of IASC, IASB, IFRIC and SAC and the standard-setting process.
2. Preparing financial statements
This includes financial statements for limited company and also partnership. IAS may not be important in this paper, practice every question in past year papers related to limited company and partnership, one of them will definitely come out in exam. This syllabus area is relatively straightforward and many found them easy to handle with time available.
3. Statement of cash flows
IAS 7 is relevant for this, you should learn the direct and indirect method of preparing statement of cash flows although indirect method is recommended by IASB and exam will focus on indirect method. This is just about format, showing the cash flows from operating activities, cash flows from investing activities and cash flows from financing activities, the words "operating", "investing" and "financing" tell you what you need to include, this area is again the easy one.
4. Interpretation of financial statements
The calculations of ratios are straightforward, you just need to know the formula for each ratio. However many marks are given for commenting on the ratios. To give a good comment, your comment should:
(a) Compare the ratio with a benchmark's ratio, the benchmark is normally the previous year, other company or industry average.
(b) Give possible causes of the ratios relevant to background information (if available).
This syllabus area is simple and helpful when you proceed further in ACCA.
5. Consolidated accounts
You will only have one subsidiary and you are in the point of view of the parent company. Three workings will be needed to complete the consolidation:
(a) Goodwill calculation.
(b) Consolidated retained earnings.
(c) Non-controlling interest (NCI).
For the other workings, you can do them in the income statement and statement of financial position so that you can save time. Questions on consolidation will be straightforward in T6 without any complicated issue. The theory about associate will be important for you to gain some marks, probably 3-5 marks, explaining the significant influence relationship. You can master this area by doing the related past year questions.
In conclusion, to pass T6:
1. Do as many past year questions as you can.
2. Time is always enough, but manage it well, use reading time to go through every question instead of staying at one question.
3. Present the answer according to format.
4. Do not ignore theory part of the syllabus, at least read through.
1. General framework
Here you will learn about the IASB framework including conceptual framework and regulatory framework. This is the most basic knowledge that one should have as an accountant, although man think that this is just theory and not important, it is actually very important especially when you go further in financial accounting. You should read through and try to understand the concepts (especially the quantitative characteristics of financial statement) and also be able to explain the role of IASC, IASB, IFRIC and SAC and the standard-setting process.
2. Preparing financial statements
This includes financial statements for limited company and also partnership. IAS may not be important in this paper, practice every question in past year papers related to limited company and partnership, one of them will definitely come out in exam. This syllabus area is relatively straightforward and many found them easy to handle with time available.
3. Statement of cash flows
IAS 7 is relevant for this, you should learn the direct and indirect method of preparing statement of cash flows although indirect method is recommended by IASB and exam will focus on indirect method. This is just about format, showing the cash flows from operating activities, cash flows from investing activities and cash flows from financing activities, the words "operating", "investing" and "financing" tell you what you need to include, this area is again the easy one.
4. Interpretation of financial statements
The calculations of ratios are straightforward, you just need to know the formula for each ratio. However many marks are given for commenting on the ratios. To give a good comment, your comment should:
(a) Compare the ratio with a benchmark's ratio, the benchmark is normally the previous year, other company or industry average.
(b) Give possible causes of the ratios relevant to background information (if available).
This syllabus area is simple and helpful when you proceed further in ACCA.
5. Consolidated accounts
You will only have one subsidiary and you are in the point of view of the parent company. Three workings will be needed to complete the consolidation:
(a) Goodwill calculation.
(b) Consolidated retained earnings.
(c) Non-controlling interest (NCI).
For the other workings, you can do them in the income statement and statement of financial position so that you can save time. Questions on consolidation will be straightforward in T6 without any complicated issue. The theory about associate will be important for you to gain some marks, probably 3-5 marks, explaining the significant influence relationship. You can master this area by doing the related past year questions.
In conclusion, to pass T6:
1. Do as many past year questions as you can.
2. Time is always enough, but manage it well, use reading time to go through every question instead of staying at one question.
3. Present the answer according to format.
4. Do not ignore theory part of the syllabus, at least read through.
Saturday, April 16, 2011
Tackling CAT T5
This paper is sometime regarded as the most difficult paper of CAT, however to be honest, as this paper is one of the advanced level papers, the difficulty is the same as other advanced level paper, but what makes it difficult? The main reason is that it is full of theories, people tend to be strong in calculations but weaker in dealing with theories. Generally, to pass this paper you must be brave to answer the questions using your own words, do not stop and think for the best answer as there is no best answer, time is very limited so my suggestion is "JUST WRITE" :) now let's look at each syllabus area.
1. The business and accounting environment
This area is one of the easiest areas, probably the one that causes difficulty is the organisation structure topic, don't try to remember the advantages and disadvantages different structure, try to understand what each type of organisation structure means. Always avoid memorising the advantages and disadvantages.
2. Effective management of business and accounting systems
This is an interesting one, I still remember that the SPAM SOAP mnemonic really help in answering many internal control questions, so try to remember that. Pre-requisites of fraud, ie. dishonesty, motivation and opportunity would not bring any difficulty. Finally you should have some idea about management information system (MIS).
3. Management theory, principles and techniques
This is the key area that caused many failing this paper, there are so many theories written by the theorists and you have to remember them. What you can do is try to create some mnemonics or pictures for each theory that help you to remember, do not think that you can leave the 14 marks and do other questions, the 14 marks are very important to help you pass and if you did remember the theories, normally the 14 marks are free marks to you.
4. Individual effectiveness at work
This is another interesting one, you are now learning to manage self and also people instead of managing system. When you are asked about self management question, don't tell me that you need to study the book in order to be able to manage self, you can answer even without the knowledge from book. Managing people questions such as appraisal and training are not difficult but you need to have some knowledge from the book and get the idea. Communication is always the important one (although it came out in December 2010).
5. Health, safety and security in the working environment
For me I would say security is the easier than health and safety but it depends. Although there are only 2 chapters in the book about this syllabus area, it will form a 20 marks question so you can see how important they are. Many of these areas are common sense, only some key words to learn, eg. delay, checking and alarm as the principles of security.
In conclusion, to pass T5 you have to:
1. Cover the whole syllabus.
2. Practice past year papers and at least read the answer (that's what I did).
3. Learn to write fast and do not stop in exam.
4. Understand what you learnt and be able to write in own words.
All the best, June 2011 is your final chance to take T5 as paper-based exam :)
1. The business and accounting environment
This area is one of the easiest areas, probably the one that causes difficulty is the organisation structure topic, don't try to remember the advantages and disadvantages different structure, try to understand what each type of organisation structure means. Always avoid memorising the advantages and disadvantages.
2. Effective management of business and accounting systems
This is an interesting one, I still remember that the SPAM SOAP mnemonic really help in answering many internal control questions, so try to remember that. Pre-requisites of fraud, ie. dishonesty, motivation and opportunity would not bring any difficulty. Finally you should have some idea about management information system (MIS).
3. Management theory, principles and techniques
This is the key area that caused many failing this paper, there are so many theories written by the theorists and you have to remember them. What you can do is try to create some mnemonics or pictures for each theory that help you to remember, do not think that you can leave the 14 marks and do other questions, the 14 marks are very important to help you pass and if you did remember the theories, normally the 14 marks are free marks to you.
4. Individual effectiveness at work
This is another interesting one, you are now learning to manage self and also people instead of managing system. When you are asked about self management question, don't tell me that you need to study the book in order to be able to manage self, you can answer even without the knowledge from book. Managing people questions such as appraisal and training are not difficult but you need to have some knowledge from the book and get the idea. Communication is always the important one (although it came out in December 2010).
5. Health, safety and security in the working environment
For me I would say security is the easier than health and safety but it depends. Although there are only 2 chapters in the book about this syllabus area, it will form a 20 marks question so you can see how important they are. Many of these areas are common sense, only some key words to learn, eg. delay, checking and alarm as the principles of security.
In conclusion, to pass T5 you have to:
1. Cover the whole syllabus.
2. Practice past year papers and at least read the answer (that's what I did).
3. Learn to write fast and do not stop in exam.
4. Understand what you learnt and be able to write in own words.
All the best, June 2011 is your final chance to take T5 as paper-based exam :)
Wednesday, April 13, 2011
Exam entry for June 2011 exam
If you have not paid for your exam fees, I suggest you to do it immediately or as soon as possible because there will be an extra charges for late exam entry, about two times the normal fees. The deadline for exam entry is 15/4/2011. Finally you are reminded to start doing your revision now as there are only about 7-8 weeks left for the showdown ;)
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