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M1 - CIMA Masters Gateway Assessment (CMGA) 22 November 2011 - Tuesday Afternoon Session
M1 - CIMA Masters Gateway Assessment (CMGA) 22 November 2011 - Tuesday Afternoon Session
Instructions to candidates
You are allowed three hours to answer this question paper. You are allowed 20 minutes reading time before the examination begins during which you should read the question paper and, if you wish, highlight and/or make notes on the question paper. However, you are not allowed, under any circumstances, to open the answer book and start writing or use your calculator during this reading time. You are strongly advised to carefully read ALL the question requirements before attempting the question concerned (that is, all parts and/or subquestions). The question requirements for Section A are highlighted in a dotted box. ALL answers must be written in the answer book. Answers or notes written on the question paper will not be submitted for marking. You should show all workings as marks are available for the method you use. ALL QUESTIONS ARE COMPULSORY. Section A comprises 3 questions on pages 2 to 5. Section B comprises 1 question containing 12 objective test sub-questions on pages 6 to 10. Maths tables and formulae are provided on pages 11 to 13. These are detachable for ease of reference. The list of verbs as published in the syllabus is given for reference on page 15. Write your candidate number, the paper number and the examination subject title in the spaces provided on the front of the examination answer book. Also write your contact ID and name in the space provided in the right hand margin and seal to close. Tick the appropriate boxes on the front of the answer book to indicate which questions you have answered.
TURN OVER
SECTION A 75 MARKS
[You are advised to spend no longer than 45 minutes on each question in this section]
Required (a)
Calculate the total direct labour hours over the lifetime of the product. (6 marks)
(b)
Calculate the contribution that SDF will earn from the product over its lifetime. (3 marks)
(c)
Explain Target Costing, illustrating your answer using the scenario provided. (4 marks)
(d)
Explain how each of the following techniques may be used by SDF: (i) (ii) (iii) Value Analysis Functional Cost Analysis Kaizen Costing (12 marks) (Total for Question One = 25 marks)
Note: The value of the learning index for a 75% learning curve is -0.4150
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November 2011
Question Two As part of STU College's ambitious strategy for growth, investment is being made in a student village. The Finance Director of STU College has been appointed as the project manager and is in the early stages of setting up the project. This will be a complex project involving the construction of new buildings to provide for the growth in student numbers, including living accommodation for students, teaching rooms and sports and recreation facilities. A state of the art business and conference facility will be built and it is hoped that this will create a new income stream attracting corporate clients to use and pay for the facilities. The build will be a collaborative venture funded by the college and investment from two local businesses. The regional authority currently owns the land that STU College wants to acquire to build the student village. The regional authority, whose members are directly elected by local residents, makes the decisions on whether to accept or reject planning proposals made. It was recently reported in the local paper that the local residents are unhappy about the proposals because of both the disruption during the build and then having students in the neighbourhood. The development will mean that staff from two STU College departments will be relocated to the new site which is two miles away from the main campus. In the first open meeting held by the Finance Director to communicate the proposals, he was met with a hostile reaction from staff, with most of them being very unhappy about moving to the new site. The Finance Director knows that this will be a complex project to manage and that project management software will be essential in making his job achievable. He is also aware that the project has a number of different stakeholders that he must consider in putting together the project plan.
Required: (a)
Discuss how project management software can help the Finance Director and his team successfully carry out the project. (13 marks)
(b)
Using examples, explain why the Finance Director should consider the interests of the different stakeholders in the student village project. (12 marks) (Total for Question Two = 25 marks)
TURN OVER
November 2011 3 CMGA
Question Three
The statements of financial position for ABC and XYZ as at 31 December 2010 are provided below: ABC $000 ASSETS Non-current assets Property, plant and equipment Available for sale investment (note 1) Current assets Inventories Receivables Cash and cash equivalents Total assets EQUITY AND LIABILITIES Equity Share capital ($1 equity shares) Retained earnings Other reserves Total equity Non-current liabilities Long term borrowings Current liabilities Total liabilities Total equity and liabilities XYZ $000
Additional information 1. ABC acquired a 75% investment in XYZ on 1 May 2010 for $7,600,000. The investment has been classified as available for sale in the books of ABC. The gain on its subsequent measurement as at 31 December 2010 has been recorded within other reserves in ABC's individual financial statements. At the date of acquisition, XYZ had retained earnings of $6,400,000. It is the group policy to value non-controlling interest at fair value at the date of acquisition. The fair value of the non-controlling interest at 1 May 2010 was $3,200,000. As at 1 May 2010 the fair value of the net assets acquired was the same as the book value with the following exceptions: The fair value of property, plant and equipment was $1,600,000 higher than the book value. These assets were assessed to have an estimated useful life of 16 years from the date of acquisition. A full year's depreciation is charged in the year of acquisition and none in the year of sale. The fair value of inventories was estimated to be $400,000 higher than the book value. All of these inventories were sold by 31 December 2010. On acquisition ABC identified an intangible asset that XYZ developed internally but which met the recognition criteria of IAS 38 Intangible assets. This intangible asset is expected to generate economic benefit from the date of acquisition until 31 December 2011 and was valued at $300,000 at the date of acquisition.
2.
3.
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A contingent liability, which had a fair value of $420,000 at the date of acquisition, had a fair value of $168,000 at 31 December 2010. 4. An impairment review was conducted at 31 December 2010 and it was decided that the goodwill on the acquisition of XYZ was impaired by 20%. ABC sold goods to XYZ for $600,000. Half of these goods remained in inventories at 31 December 2010. ABC makes 20% margin on all sales. No dividends were paid by either entity in the year ended 31 December 2010.
5.
6.
Required: (a)
Explain how the fair value adjustments identified above will impact both the calculation of goodwill on the acquisition of XYZ and the consolidated financial statements of the ABC group for the year ended 31 December 2010. (7 marks) Prepare the consolidated statement of financial position as at 31 December 2010 for the ABC Group. (18 marks) (Total for Question Three = 25 marks)
(b)
TURN OVER
November 2011 5 CMGA
SECTION B 25 MARKS
[You are advised to spend no longer than 45 minutes on this section]
Question Four
4.1 M plc is a divisionalised company that has, for many years, used a number of computer models in its budgetary planning and control process. Three of these models are outlined below. Models: (i) Divisionalised targets are set for each month-end cash balance. A spreadsheet model is then used to forecast the net cash flow and the resulting monthly cash balances. Where necessary, control action is taken by the division to achieve the desired month-end cash balances. An exponential smoothing model is used by the divisions to prepare a forecast of sales volume each week. If these forecasts show the budgeted sales level will not be achieved, the division is required to take the appropriate control action. A control model is used to determine the minimum and maximum levels for each inventory item used by the division. The model produces an exception report whenever the actual inventory level reaches the minimum or maximum, so that control action can be taken if necessary.
(ii)
(iii)
Which of the above are feedforward control models? A B C D Models (i) and (ii) only Models (i) and (iii) only Models (ii) and (iii) only Models (i), (ii) and (iii) (2 marks)
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November 2011
4.2
A Ltd is a manufacturing company that has no production resource limitations for the foreseeable future. The Managing Director has asked the company managers to coordinate the preparation of their budgets for the next financial year. In what order should the following budgets be prepared? (i) (ii) (iii) (iv) (v) Sales budget Cash budget Production budget Purchases budget Finished goods inventory budget
A B C D
(ii), (iii), (iv), (v), (i) (i), (v), (iii), (iv), (ii) (i), (iv), (v), (iii), (ii) (iv), (v), (iii), (i), (ii) (2 marks)
4.3
B Ltd makes a single product which requires two components, X and Y. The forecast for next year is that B requires 5,000 each of X and Y. Both components are made on the same type of machine of which B has two, giving a total of 12,480 hours of available machine hours next year. The variable cost of internal manufacture and the machine hours needed for X and Y are given below, together with the prices quoted by an external contractor to supply the components. Component X Y Machine hours/unit 1 3 Variable cost ( unit) 40 30 Supplier price ( unit) 47 48
What is the minimum cost for which B Ltd can acquire all the components it requires for next year? A B C D 392,750 395,126 398,428 400,120 (2 marks)
TURN OVER
November 2011 7 CMGA
4.4
L plc has a divisional structure. In the last year L1 division recorded an operating profit of 3.9 million on capital employed of 17 million (comprising 16 million of non-current assets and 1 million of net current assets). L1 division is considering a project which is planned to increase annual operating profit by 250,000, but which will require non-current assets to increase by 1.2 million and average inventory levels by 300,000. L plc imposes a 12% capital charge on all of its divisions and values all divisional assets at original cost for evaluation purposes. Given the information above, will using Return on Investment and/or Residual Income to evaluate the performance of the management of L1 division encourage the management to accept the project? Return on Investment Residual Income Yes No No Yes (2 marks)
A B C D
Yes No Yes No
4.5 A B C D
Which ONE of the following of Fayol's functions of management is concerned with getting individuals and groups working together to achieve organisational objectives? Controlling Planning Coordinating Commanding (2 marks)
4.6 A B C D
Which ONE of the following is a type of decision made at Strategic Business Unit level? Production schedule Approach to marketing a product Acquisitions Diversification (2 marks)
4.7 A B C D
Which ONE of the following is a feature of the Abilene paradox? Group pressure to agree with a decision Minimising conflict in the group Riskier decisions are taken by the group Team members do not want to disturb group consensus (2 marks)
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November 2011
4.8
With reference to Porter's Five Forces model identify THREE factors that can create barriers to entry for a new entrant. (3 marks)
4.9
GH granted share options to its 300 employees on 1 January 2009. Each employee will receive 1,000 share options provided they continue to work for GH for three years from the grant date. The fair value of each option at the grant date was $1.22. The actual and expected staff movement over the three years to 31 December 2011 is provided below: 2009 - 25 employees left and another 40 were expected to leave over the next two years. 2010 - A further 15 employees left and another 20 were expected to leave the following year. The charge to GH's income statement for the year ended 31 December 2010 in respect of the share options was:
A B C D
4.10 JK operates a defined benefit pension plan. The fair value of the plan assets at 31 December 2010 was $13.1 million. The present value of the plan liabilities at 31 December 2010 was $13.9 million. JK currently adopts the corridor approach for the treatment of actuarial gains and losses. Unrecognised actuarial losses as at 31 December 2010 totalled $0.5 million. The net pension asset or liability that would be included in JK's statement of financial position as at 31 December 2010 is A B C D $300,000 pension asset $300,000 pension liability $800,000 pension liability $1,300,000 pension liability (2 marks) 4.11 AD acquired 100,000 shares in BC on 25 October 2010 for $3 per share. The investment resulted in AD holding 5% of the equity shares of BC. The related transaction costs were $12,000. BC's shares were trading at $3.40 on 31 December 2010. The investment has been classified as held for trading. The increase in value of the investment will result in A B C D a credit to retained earnings of $28,000 a credit to retained earnings of $40,000 a credit to profit or loss of $28,000 a credit to profit or loss of $40,000 (2 marks) TURN OVER
November 2011 9 CMGA
4.12 Statement of comprehensive income for the year ended 31 December for KL 2010 $m 252 (203) 49 (18) (16) 7 (12) 10 (3) 7
Revenue Cost of sales Gross profit Distribution costs Administrative expenses Share of profit of associate Finance costs Profit before tax Income tax expense Profit for the year
The operating profit margin (to the nearest two decimal places) of KL for the year ended 31 December 2010 is A B C D 3.97% 5.95% 8.73% 19.44% (2 marks)
End of Question Paper Reminder All answers to Section B must be written in your answer book. Answers to Section B written on the question paper will not be submitted for marking Maths tables and formulae are on pages 11-13 which are detachable for ease of reference
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4% 0.962 0.925 0.889 0.855 0.822 0.790 0.760 0.731 0.703 0.676 0.650 0.625 0.601 0.577 0.555 0.534 0.513 0.494 0.475 0.456
Interest rates (r) 5% 6% 0.952 0.943 0.907 0.890 0.864 0.840 0.823 0.792 0.784 0.747 0.746 0.705 0.711 0.665 0.677 0.627 0.645 0.592 0.614 0.558 0.585 0.527 0.557 0.497 0.530 0.469 0.505 0.442 0.481 0.417 0.458 0.394 0.436 0.371 0.416 0.350 0.396 0.331 0.377 0.312 Interest rates (r) 15% 16% 0.870 0.862 0.756 0.743 0.658 0.641 0.572 0.552 0.497 0.476 0.432 0.410 0.376 0.354 0.327 0.305 0.284 0.263 0.247 0.227 0.215 0.195 0.187 0.168 0.163 0.145 0.141 0.125 0.123 0.108 0.107 0.093 0.093 0.080 0.081 0.069 0.070 0.060 0.061 0.051
7% 0.935 0.873 0.816 0.763 0.713 0.666 0.623 0.582 0.544 0.508 0.475 0.444 0.415 0.388 0.362 0.339 0.317 0.296 0.277 0.258
8% 0.926 0.857 0.794 0.735 0.681 0.630 0.583 0.540 0.500 0.463 0.429 0.397 0.368 0.340 0.315 0.292 0.270 0.250 0.232 0.215
9% 0.917 0.842 0.772 0.708 0.650 0.596 0.547 0.502 0.460 0.422 0.388 0.356 0.326 0.299 0.275 0.252 0.231 0.212 0.194 0.178
10% 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 0.386 0.350 0.319 0.290 0.263 0.239 0.218 0.198 0.180 0.164 0.149
11% 0.901 0.812 0.731 0.659 0.593 0.535 0.482 0.434 0.391 0.352 0.317 0.286 0.258 0.232 0.209 0.188 0.170 0.153 0.138 0.124
12% 0.893 0.797 0.712 0.636 0.567 0.507 0.452 0.404 0.361 0.322 0.287 0.257 0.229 0.205 0.183 0.163 0.146 0.130 0.116 0.104
13% 0.885 0.783 0.693 0.613 0.543 0.480 0.425 0.376 0.333 0.295 0.261 0.231 0.204 0.181 0.160 0.141 0.125 0.111 0.098 0.087
14% 0.877 0.769 0.675 0.592 0.519 0.456 0.400 0.351 0.308 0.270 0.237 0.208 0.182 0.160 0.140 0.123 0.108 0.095 0.083 0.073
17% 0.855 0.731 0.624 0.534 0.456 0.390 0.333 0.285 0.243 0.208 0.178 0.152 0.130 0.111 0.095 0.081 0.069 0.059 0.051 0.043
18% 0.847 0.718 0.609 0.516 0.437 0.370 0.314 0.266 0.225 0.191 0.162 0.137 0.116 0.099 0.084 0.071 0.060 0.051 0.043 0.037
19% 0.840 0.706 0.593 0.499 0.419 0.352 0.296 0.249 0.209 0.176 0.148 0.124 0.104 0.088 0.079 0.062 0.052 0.044 0.037 0.031
20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162 0.135 0.112 0.093 0.078 0.065 0.054 0.045 0.038 0.031 0.026
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Cumulative present value of $1 per annum, Receivable or Payable at the end of each year for n years
1 (1+ r ) n r
1% 0.990 1.970 2.941 3.902 4.853 5.795 6.728 7.652 8.566 9.471 10.368 11.255 12.134 13.004 13.865 14.718 15.562 16.398 17.226 18.046
2% 0.980 1.942 2.884 3.808 4.713 5.601 6.472 7.325 8.162 8.983 9.787 10.575 11.348 12.106 12.849 13.578 14.292 14.992 15.679 16.351
3% 0.971 1.913 2.829 3.717 4.580 5.417 6.230 7.020 7.786 8.530 9.253 9.954 10.635 11.296 11.938 12.561 13.166 13.754 14.324 14.878
4% 0.962 1.886 2.775 3.630 4.452 5.242 6.002 6.733 7.435 8.111 8.760 9.385 9.986 10.563 11.118 11.652 12.166 12.659 13.134 13.590
Interest rates (r) 5% 6% 0.952 0.943 1.859 1.833 2.723 2.673 3.546 3.465 4.329 4.212 5.076 5.786 6.463 7.108 7.722 8.306 8.863 9.394 9.899 10.380 10.838 11.274 11.690 12.085 12.462 4.917 5.582 6.210 6.802 7.360 7.887 8.384 8.853 9.295 9.712 10.106 10.477 10.828 11.158 11.470
7% 0.935 1.808 2.624 3.387 4.100 4.767 5.389 5.971 6.515 7.024 7.499 7.943 8.358 8.745 9.108 9.447 9.763 10.059 10.336 10.594
8% 0.926 1.783 2.577 3.312 3.993 4.623 5.206 5.747 6.247 6.710 7.139 7.536 7.904 8.244 8.559 8.851 9.122 9.372 9.604 9.818
9% 0.917 1.759 2.531 3.240 3.890 4.486 5.033 5.535 5.995 6.418 6.805 7.161 7.487 7.786 8.061 8.313 8.544 8.756 8.950 9.129
10% 0.909 1.736 2.487 3.170 3.791 4.355 4.868 5.335 5.759 6.145 6.495 6.814 7.103 7.367 7.606 7.824 8.022 8.201 8.365 8.514
11% 0.901 1.713 2.444 3.102 3.696 4.231 4.712 5.146 5.537 5.889 6.207 6.492 6.750 6.982 7.191 7.379 7.549 7.702 7.839 7.963
12% 0.893 1.690 2.402 3.037 3.605 4.111 4.564 4.968 5.328 5.650 5.938 6.194 6.424 6.628 6.811 6.974 7.120 7.250 7.366 7.469
13% 0.885 1.668 2.361 2.974 3.517 3.998 4.423 4.799 5.132 5.426 5.687 5.918 6.122 6.302 6.462 6.604 6.729 6.840 6.938 7.025
14% 0.877 1.647 2.322 2.914 3.433 3.889 4.288 4.639 4.946 5.216 5.453 5.660 5.842 6.002 6.142 6.265 6.373 6.467 6.550 6.623
Interest rates (r) 15% 16% 0.870 0.862 1.626 1.605 2.283 2.246 2.855 2.798 3.352 3.274 3.784 4.160 4.487 4.772 5.019 5.234 5.421 5.583 5.724 5.847 5.954 6.047 6.128 6.198 6.259 3.685 4.039 4.344 4.607 4.833 5.029 5.197 5.342 5.468 5.575 5.668 5.749 5.818 5.877 5.929
17% 0.855 1.585 2.210 2.743 3.199 3.589 3.922 4.207 4.451 4.659 4.836 4.988 5.118 5.229 5.324 5.405 5.475 5.534 5.584 5.628
18% 0.847 1.566 2.174 2.690 3.127 3.498 3.812 4.078 4.303 4.494 4.656 7.793 4.910 5.008 5.092 5.162 5.222 5.273 5.316 5.353
19% 0.840 1.547 2.140 2.639 3.058 3.410 3.706 3.954 4.163 4.339 4.486 4.611 4.715 4.802 4.876 4.938 4.990 5.033 5.070 5.101
20% 0.833 1.528 2.106 2.589 2.991 3.326 3.605 3.837 4.031 4.192 4.327 4.439 4.533 4.611 4.675 4.730 4.775 4.812 4.843 4.870
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FORMULAE
Annuity
Present value of an annuity of $1 per annum receivable or payable for n years, commencing in one year, discounted at r% per annum:
PV =
1 1 1 r [1 + r ]n
Perpetuity Present value of $1 per annum receivable or payable in perpetuity, commencing in one year, discounted at r% per annum: PV =
1 r
Growing Perpetuity Present value of $1 per annum, receivable or payable, commencing in one year, growing in perpetuity at a constant rate of g% per annum, discounted at r% per annum: PV = Time series Additive model: Series = Trend + Seasonal + Random Multiplicative model: Series = Trend*Seasonal*Random Regression analysis The linear regression equation of Y on X is given by: Y = a + bX where: b= and or solve
Covariance ( XY ) Variance ( X )
1 r g
or Y Y = b(X X ), =
n XY ( X )( Y ) n X ( X )
2 2
a= Y bX
Y = na + b X XY = a X + b X2
Exponential Geometric Learning curve Yx = aX
b
Y = ab b Y = aX
where: Yx = the cumulative average time per unit to produce X units; a = the time required to produce the first unit of output; X = the cumulative number of units; b = the index of learning. The exponent b is defined as the log of the learning curve improvement rate divided by log 2.
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VERBS USED
List State Define
DEFINITION
Make a list of Express, fully or clearly, the details of/facts of Give the exact meaning of
Communicate the key features Highlight the differences between Make clear or intelligible/State the meaning or purpose of Recognise, establish or select after consideration Use an example to describe or explain something
Put to practical use Ascertain or reckon mathematically Prove with certainty or to exhibit by practical means Make or get ready for use Make or prove consistent/compatible Find an answer to Arrange in a table
Level 4 - ANALYSIS How you are expected to analyse the detail of what you have learned.
Analyse Categorise Compare and contrast Construct Discuss Interpret Prioritise Produce
Examine in detail the structure of Place into a defined class or division Show the similarities and/or differences between Build up or compile Examine in detail by argument Translate into intelligible or familiar terms Place in order of priority or sequence for action Create or bring into existence
Level 5 - EVALUATION How you are expected to use your learning to evaluate, make decisions or recommendations.
Counsel, inform or notify Appraise or assess the value of Advise on a course of action
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