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DO NOT OPEN THIS QUESTION PAPER UNTIL YOU ARE TOLD TO DO SO.

Financial Pillar

F1 Financial Operations
23 May 2013 Thursday Morning Session
Instructions to candidates

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 will not be 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).
ALL answers must be written in the answer book. Answers 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 10 sub-questions and is on pages 3 to 5.
Section B comprises 6 sub-questions and is on pages 6 to 9.
Section C comprises 2 questions and is on pages 10 to 13.
The country Tax Regime for the paper is provided on page 2. Maths tables
and formulae are provided on pages 17 and 18.
The list of verbs as published in the syllabus is given for reference on page
19.
Write your candidate number, the paper number and examination subject title
in the spaces provided on the front of the 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 the
questions you have answered.

F1 Financial Operations

You are allowed three hours to answer this question paper.

TURN OVER
The Chartered Institute of Management Accountants 2013

COUNTRY X - TAX REGIME FOR USE THROUGHOUT THE EXAMINATION PAPER

Relevant Tax Rules for Years Ended 31 March 2007 to 2013


Corporate Profits
Unless otherwise specified, only the following rules for taxation of corporate profits will
be relevant, other taxes can be ignored:
x Accounting rules on recognition and measurement are followed for tax purposes.
x All expenses other than depreciation, amortisation, entertaining, taxes paid to
other public bodies and donations to political parties are tax deductible.
x Tax depreciation is deductible as follows:
o

50% of additions to property, plant and equipment in the accounting


period in which they are recorded;

25% per year of the written-down value (i.e. cost minus previous
allowances) in subsequent accounting periods except that in which the
asset is disposed of;

No tax depreciation is allowed on land.

x The corporate tax on profits is at a rate of 25%.


x No indexation is allowable on the sale of land.
x Tax losses can be carried forward to offset against future taxable profits from the
same business.
Value Added Tax
Country X has a VAT system which allows entities to reclaim input tax paid.
In country X the VAT rates are:
Zero rated
Standard rated
Exempt goods

May 2013

0%
15%
0%

Financial Operations

SECTION A 20 MARKS
[You are advised to spend no longer than 36 minutes on this section]

ANSWER ALL TEN SUB-QUESTIONS IN THIS SECTION

Instructions for answering Section A:


The answers to the ten sub-questions in Section A should ALL be written in your
answer book.
Your answers should be clearly numbered with the sub-question number and
then ruled off, so that the markers know which sub-question you are answering.
For multiple choice questions, you need only write the sub-question
number and the letter of the answer option you have chosen. You do not
need to start a new page for each sub-question.

Question One
1.1
An entity makes a taxable profit of $500,000 and pays corporate income tax at 25%.
The entity pays a dividend to its shareholders. A shareholder receiving $5,000 dividend then
pays the standard personal income tax rate of 15% on the dividend, paying a further $750 tax.
The tax system could be said to be:
A
B
C
D

A classical system
An Imputation system
A partial imputation system
A split rate system
(2 marks)

1.2
Tax authorities use various methods to reduce tax avoidance and tax evasion.
(i)
(ii)
(iii)
(iv)

Increase tax rates to compensate for losses due to evasion.


Make the tax structure as complicated as possible.
Increase the perceived risk by auditing tax returns.
Simplify the tax structure, minimising allowances and exemptions.

Which of the above methods could be used to help reduce tax evasion and avoidance?
A
B
C
D

(i) and (ii)


(i) and (iv)
(ii) and (iii)
(iii) and (iv)
(2 marks)

1.3
List TWO of the main methods of giving double taxation relief.
(2 marks)

Financial Operations

May 2013

1.4
CG purchased an asset on 1 April 2006 for $650,000, exclusive of import duties of $25,000.
CG is resident in Country X where the indexation factor increased by 50% in the period from 1
April 2006 to 31 March 2013.
CG sold the asset on 31 March 2013 for $1,200,000 incurring transaction charges of $17,000.
Calculate the capital gains tax due from CG on disposal of the asset.
(2 marks)

1.5
Which ONE of the following gives the meaning of rollover relief?
A
B
C
D

Trading losses can be carried forward to future years.


Inventory can be valued using current values instead of original cost.
Capital losses made in a period can be carried forward to future years.
Payment of tax on a capital gain can be delayed if the full proceeds from the
sale of an asset are reinvested in a replacement asset.
(2 marks)

1.6
Countries are subject to a variety of economic, social and political factors. In some countries
accounting rules are largely driven by taxation laws. The legal system in these countries is
known as:
A
B
C
D

Case law
Common law
Code law
Tax law
(2 marks)

1.7
List TWO potential benefits of global harmonisation of accounting standards to multinational
entities.
(2 marks)

May 2013

Financial Operations

1.8
List TWO functions of the IFRS Advisory Council.
(2 marks)

1.9
The IASBs Conceptual Framework for Financial Reporting (2010) splits qualitative
characteristics of useful information into two categories, fundamental and enhancing.
List the TWO fundamental qualitative characteristics.
(2 marks)

1.10
An external audit report usually has the following 5 sections:
(i) Title and addressee
(ii) Introduction
(iii) Scope
(iv) ***
(v) Signature and name of audit firm
State the section marked (iv).
(2 marks)

(Total for Section A = 20 marks)

Reminder
All answers to Section A must be written in your answer book.
Answers or notes to Section A written on the question paper will
not be submitted for marking.

End of Section A
Section B starts on the next page

TURN OVER
Financial Operations

May 2013

SECTION B 30 MARKS
[You are advised to spend no longer than 9 minutes on each sub-question in this
section.]

ANSWER ALL SIX SUB-QUESTIONS IN THIS SECTION 5 MARKS EACH


Question Two

(a)
Extracts from CFQs Statement of financial position at 31 March 2013, with comparatives
appear below:

Property, plant and equipment


Non-current asset investments at fair value
Deferred development expenditure

31 March 2013
$million
635
93
29

31 March 2012
$million
645
107
24

During the year to 31 March 2013, CFQ sold property, plant and equipment for $45m. It had
originally cost $322m and had a carrying value of $60m at the date of disposal.
CFQs statement of profit or loss for the year ended 31 March 2013 included:
x depreciation of property, plant and equipment of $120m;
x amortisation of deferred development expenditure of $8m;
x revaluation loss on investments of $21m.

Required:
Prepare the cash flows from the investing activities section of CFQs statement of cash
flows for the year ended 31 March 2013.
Total for sub-question (a) = 5 marks)

(b)
Ace is a management accountant working as part of a small team that has been set up by ZY,
his employer, to evaluate tenders submitted for contracts being awarded by ZY.
He has just discovered that one of the other team members accepted large payments in
exchange for information, from an entity at the time it was considering tendering. Ace
suspects that this may have influenced the winning tender submitted by the entity.

Required:
Explain the steps that Ace could follow to ensure that he adheres to CIMAs code of
ethics for professional accountants.
(Total for sub-question (b) = 5 marks)

May 2013

Financial Operations

(c)
On 1 January 2012 PS issued at par, 500,000 $1 5% cumulative preferred shares,
redeemable at par in four years. The issue costs were $20,000.
PS has not issued preferred shares before and the managing director has asked you to
explain how the preferred shares should be treated in the financial statements of PS.

Required:
Explain with reasons, how PS should:
(i) classify the preferred shares in its financial statements for the year ended 31 December
2012, in accordance with IAS 32 Financial Instruments: Presentation;
(ii) account for the related costs in accordance with IAS 39 Financial Instruments:
Recognition and Measurement.
(Total for sub-question (c) = 5 marks)

(d)
GH, an entity operating in Country X, purchased plant and equipment on 1 April 2011 for
$260,000. GH claimed first year allowances and thereafter annual writing down allowances.
GH depreciates plant and equipment over 6 years, using the straight line method, assuming a
10% residual value.

Required:
(i) Define the meaning of the tax base of an asset and its significance for deferred tax.
(2 marks)
(ii) Calculate the amount of the deferred tax provision that GH should include in its
statement of financial position as at 31 March 2013 in respect of this plant and
equipment.
(3 marks)
(Total for sub-question (d) = 5 marks)

Section B continues on the next page

TURN OVER
Financial Operations

May 2013

(e)
MTs summarised statement of profit or loss for the year ended 31 March 2013 is as follows:

Gross profit
Administrative expenses
Distribution costs
Finance cost
Profit before tax

$
187,000
(126,000)
(22,000)
39,000
(2,000)
37,000

Administrative expenses include donations to the local ruling political party of $5,000 and
depreciation of property, plant and equipment of $39,000 (inclusive of depreciation of new
purchases).
MT an entity operating in Country X made a tax loss for the year ended 31 March 2012. The
loss carried forward at 31 March 2012 was $12,000.
At 31 March 2012 MTs tax written down value of its property, plant and equipment was
$120,000. All of these assets qualified for the annual tax depreciation allowances. MT
purchased property, plant and equipment during the year to 31 March 2013 for $30,000.

Required:
Calculate the amount of tax that MT is due to pay for the year ended 31 March 2013.
(Total for sub-question (e) = 5 marks)

May 2013

Financial Operations

(f)
During the last VAT period AV purchased materials and services costing $620,000 excluding
VAT. $400,000 were standard rated for VAT and $220,000 were zero rated.
AV sold the following goods to its customers during the period, including VAT:
x At standard rate $828,000
x At zero rate $150,000
Assume that AV had no other VAT related transactions during the period.

Required:
(i) Explain the difference between a cascade sales tax and value added tax (VAT).
(2 marks)
(ii) Calculate the net profit/loss that AV should recognise AND the VAT due
for the period.
(3marks)
(Total for sub-question (f) = 5 marks)

(Total for Section B = 30 marks)

End of Section B
Section C starts on the next page

TURN OVER

Financial Operations

May 2013

SECTION C 50 MARKS
[You are advised to spend no longer than 45 minutes on each question in this section.]

ANSWER BOTH QUESTIONS FROM THIS SECTION 25 MARKS EACH


Question Three
SA has two divisions, division A and division B. On 31 March 2013, SAs management board
agreed to dispose of its loss-making division B. In previous accounting periods the two
divisions had been classified as separate operating segments in accordance with IFRS 8
Operating Segments.
On 31 March 2013 division B was classified as held for sale in accordance with IFRS 5 Noncurrent assets held for sale and discontinued operations. All net assets, income and
expenditure of division B are included in the trial balance.
SA trial balance at 31 March 2013 is shown below:

Long term borrowings


Administrative expenses
Cash and cash equivalents
Distribution costs
Equity dividend paid
Inventory at 31 March 2013
Buildings at valuation
Loan interest paid
Ordinary shares $1 each
Plant and equipment at cost
Provision for deferred tax at 31 March 2012
Provision for plant & equipment depreciation at 31 March 2012
Provision for buildings depreciation at 31 March 2012
Retained earnings at 31 March 2012
Revaluation reserve at 31 March 2012
Sales revenue division B
Sales revenue division A
Cost of goods sold division B
Cost of goods sold division A
Trade payables
Division B disposal costs
Trade receivables

Notes
(vii)
(vi)
(vi)

(i); (iv)

$000
263
202
145
55
68
995
13

800
(i); (iv)
(ii)
(iii); (iv)
(iii); (iv)

1,010
72
360
50
183
80
185
2,784
230
1900
51
78
56
5,015

Additional information:
(i)

There were no sales of non-current assets during the year ended 31 March 2013.

(ii)

The tax due for the year ended 31 March 2013 is estimated to be $50,000. This
includes a tax reduction of $40,000 that relates to discontinued operations. The
deferred tax provision relates to division A and should be reduced to $69,000.

May 2013

10

$000
450

Financial Operations

5,015

(iii)

Plant and equipment depreciation is provided at 20% per year on the reducing balance
basis. Buildings are depreciated at 2.5% per year on a straight line basis. All
depreciation is charged to administrative expenses. SAs policy is to charge a full years
depreciation in the year of acquisition and no depreciation in the year of disposal.

(iv)

Division Bs assets included in the trial balance at 31 March 2013 are:


The plant and equipment cost and related provision for depreciation include the
following amounts for division B:
x plant and equipment cost $180,000
x plant and equipment, provision for depreciation $140,000
The buildings balances in the trial balance include:
Cost Depreciation
$000 $000
460 23

Factory division B
Division B has no further assets at 31 March 2013.
(v)

The fair value of division Bs net assets at 31 March 2013 was $431,000.

(vi)

The running costs of division B for the period 1 April 2012 to 31 March 2013 (included
in the trial balance) are:
x Administrative expenses $30,000
x Distribution costs $125,000

(vii)

The long term borrowings incur an annual interest rate of 6%.

Required:
(a) Explain the criteria that have to be met in order to classify division B as held for sale in
accordance with IFRS 5 Non-current assets held for sale and discontinued operations.
(3 marks)

(b) Prepare the statement of profit or loss and a statement of changes in equity
for SA for the year to 31 March 2013 and a statement of financial position at that date, in
accordance with the requirements of International Financial Reporting Standards.
(22 marks)

Notes to the financial statements are not required, but all workings must be clearly shown. Do
not prepare a statement of accounting policies.
(Total for Question Three = 25 marks)

Section C continues on the next page

TURN OVER

Financial Operations

11

May 2013

Question Four
The draft statements of financial position at 31 March 2013 and statements of profit or loss for
the year ended 31 March 2013 for three entities, are given below:
Statements of financial position as at 31 March 2013

Notes
Non-current Assets
Property, plant and equipment
Investments:
17,370,000 Ordinary shares
in Green at cost
3,980,000 Ordinary shares
in Tee at cost

Current Assets
Inventory
Trade receivables
Cash and cash equivalents

Club
$000

Green
$000

Tee
$000

(vi)

50,050

30,450

28,942

(i);(ii);(iii)

35,610

(iv)

8,000
93,660

_
30,450

_
28,942

(v)

34,910
38,790
5,010
78,710
172,370

9,310
16,530
1,480
27,320
57,770

2,580
2,660
318
5,558
34,500

112,620
0
15,630
128,250

17,370
3,470
10,650
31,490

15,920
0
3,590
19,510

32,000

15,000

9,140

11,320
800
12,120

10,830
450
11,280

5,530
320
5,850

172,370

57,770

34,500

(vii)

Total Assets
Equity and Liabilities
Equity shares of $1 each
Share premium
Retained earnings
Non-current liabilities
Long term borrowings
Current liabilities
Trade payables
Loan interest payable

Total equity and liabilities

Summarised statements of profit or loss for the year ended 31 March 2013

Income tax expense


Profit for the year

Club
$000
130,000
(75,470)
54,530
(37,660)
16,870
(1,600)
15,270
(3,050)
12,220

May 2013

12

Revenue
Cost of sales
Gross profit
Expenses
Finance cost

Green
$000
67,410
(40,470)
26,940
(20,230)
6,710
(900)
5,810
(1,160)
4,650

Tee
$000
31,890
(18,920)
12,970
(9,460)
3,510
(640)
2,870
(580)
2,290

Financial Operations

Additional information:
(i)

Club acquired all of Greens equity shares on 1 April 2011 in a share for
share exchange. The agreed purchase consideration was $35,610,000.
Greens retained earnings were $3,000,000 on 1 April 2011.

(ii)

The fair value of Greens property, plant and equipment on 1 April 2011
exceeded its carrying value by $1,200,000. The excess of fair value over
carrying value was attributed to buildings owned by Green. At the date of
acquisition these buildings had a remaining useful life of 12 years. Clubs
accounting policy is to depreciate all property, plant and equipment using the
straight line basis with no residual value.

(iii)

Club carried out an impairment review of the goodwill arising on acquisition


of Green and found that as at 31 March 2013 the goodwill had NOT been
impaired but had actually increased in value by $50,000.

(iv)

Club purchased its shareholding in Tee on 1 April 2012 for $8,000,000. The
fair value of Tees net assets was the same as its carrying value at that date.
Club exercises significant influence over all aspects of Tees financial and
operating policies.

(v)

Club occasionally trades with Green. During February 2013 Club sold Green
goods for $960,000. Green had not paid for the goods by 31 March 2013.
1
Club uses a mark-up of 33 /3% on cost. 20% of the goods had been sold by
Green at 31 March 2013.

(vi)

Club sold a piece of machinery to Green on 1 April 2012 for $115,000. The
machinery had previously been used in Clubs business and had been
included in Clubs property, plant and equipment at a carrying value of
$90,000. Club had recognised the profit on disposal in revenue. The
machinery had a remaining useful life of 5 years on 1 April 2012.

(vii)

Green transferred $115,000 to Club on 31 March 2013 which was not


recorded by Club until April 2013.

Required:
(a) Explain how a post acquisition increase in goodwill, for example in note (iii) above, should
be treated in consolidated financial statements.
(2 marks)

(b) Prepare the consolidated statement of financial position for Club as at 31 March 2013, in
accordance with the requirements of International Financial Reporting Standards.
(23 marks)
Notes to the financial statements are not required, but all workings must be clearly
shown.
(Total for Question Four = 25 marks)

(Total for Section C = 50 marks)

End of Question Paper


Maths Tables and Formulae are on Pages 17 and 18

Financial Operations

13

May 2013

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May 2013

14

Financial Operations

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Financial Operations

15

May 2013

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May 2013

16

Financial Operations

MATHS TABLES AND FORMULAE


Present value table

Present value of $1, that is (1 + r)-n where r = interest rate; n = number of


periods until payment or receipt.
Periods
(n)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

1%
0.990
0.980
0.971
0.961
0.951
0.942
0.933
0.923
0.914
0.905
0.896
0.887
0.879
0.870
0.861
0.853
0.844
0.836
0.828
0.820

2%
0.980
0.961
0.942
0.924
0.906
0.888
0.871
0.853
0.837
0.820
0.804
0.788
0.773
0.758
0.743
0.728
0.714
0.700
0.686
0.673

3%
0.971
0.943
0.915
0.888
0.863
0.837
0.813
0.789
0.766
0.744
0.722
0.701
0.681
0.661
0.642
0.623
0.605
0.587
0.570
0.554

Interest rates (r)


4%
5%
6%
0.962
0.952
0.943
0.925
0.907
0.890
0.889
0.864
0.840
0.855
0.823
0.792
0.822
0.784
0.747
0.790
0.746
0.705
0.760
0.711
0.665
0.731
0.677
0.627
0.703
0.645
0.592
0.676
0.614
0.558
0.650
0.585
0.527
0.625
0.557
0.497
0.601
0.530
0.469
0.577
0.505
0.442
0.555
0.481
0.417
0.534
0.458
0.394
0.513
0.436
0.371
0.494
0.416
0.350
0.475
0.396
0.331
0.456
0.377
0.312

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

Periods
(n)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

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

Interest rates (r)


14%
15%
16%
0.877
0.870
0.862
0.769
0.756
0.743
0.675
0.658
0.641
0.592
0.572
0.552
0.519
0.497
0.476
0.456
0.432
0.410
0.400
0.376
0.354
0.351
0.327
0.305
0.308
0.284
0.263
0.270
0.247
0.227
0.237
0.215
0.195
0.208
0.187
0.168
0.182
0.163
0.145
0.160
0.141
0.125
0.140
0.123
0.108
0.123
0.107
0.093
0.108
0.093
0.080
0.095
0.081
0.069
0.083
0.070
0.060
0.073
0.061
0.051

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

Financial Operations

17

May 2013

Cumulative present value of $1 per annum, Receivable or Payable at the end of each year for n years
1 (1 r )  n
r

Periods
(n)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

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

Interest rates (r)


4%
5%
6%
0.962
0.952
0.943
1.886
1.859
1.833
2.775
2.723
2.673
3.630
3.546
3.465
4.452
4.329
4.212
5.242
5.076
4.917
6.002
5.786
5.582
6.733
6.463
6.210
7.435
7.108
6.802
8.111
7.722
7.360
8.760
8.306
7.887
9.385
8.863
8.384
9.986
9.394
8.853
10.563 9.899
9.295
11.118 10.380 9.712
11.652 10.838 10.106
12.166 11.274 10.477
12.659 11.690 10.828
13.134 12.085 11.158
13.590 12.462 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

Periods
(n)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20

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

Interest rates (r)


14%
15%
16%
0.877
0.870
0.862
1.647
1.626
1.605
2.322
2.283
2.246
2.914
2.855
2.798
3.433
3.352
3.274
3.889
3.784
3.685
4.288
4.160
4.039
4.639
4.487
4.344
4.946
4.772
4.607
5.216
5.019
4.833
5.453
5.234
5.029
5.660
5.421
5.197
5.842
5.583
5.342
6.002
5.724
5.468
6.142
5.847
5.575
6.265
5.954
5.668
6.373
6.047
5.749
6.467
6.128
5.818
6.550
6.198
5.877
6.623
6.259
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
4.793
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

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:

1
1
PV = 1 

n
r
[1  r ]
Perpetuity
Present value of $1 per annum, payable or receivable in perpetuity, commencing in one year,
discounted at r% per annum:

PV

1
r

May 2013

18

Financial Operations

LIST OF VERBS USED IN THE QUESTION REQUIREMENTS


A list of the learning objectives and verbs that appear in the syllabus and in the question requirements for
each question in this paper.
It is important that you answer the question according to the definition of the verb.
LEARNING OBJECTIVE
Level 1 - KNOWLEDGE
What you are expected to know.

Level 2 - COMPREHENSION
What you are expected to understand.

VERBS USED

DEFINITION

List
State
Define

Make a list of
Express, fully or clearly, the details/facts of
Give the exact meaning of

Describe
Distinguish
Explain

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

Identify
Illustrate
Level 3 - APPLICATION
How you are expected to apply your knowledge.

Apply
Calculate
Demonstrate
Prepare
Reconcile
Solve
Tabulate

Level 4 - ANALYSIS
How are you expected to analyse the detail of
what you have learned.

Level 5 - EVALUATION
How are you expected to use your learning to
evaluate, make decisions or recommendations.

Financial Operations

Analyse
Categorise
Compare and contrast

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

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

Advise
Evaluate
Recommend

Counsel, inform or notify


Appraise or assess the value of
Advise on a course of action

19

May 2013

Financial Pillar

Operational Level Paper

F1 Financial Operations

May 2013

Thursday Morning Session

May 2013

20

Financial Operations