Cap 2 SFMA Assessment Study Group

Cassi Education · 18-12-2012 07:14PM #1

Hi All,

Hope this is of some use while preparing for the assessment.

Best of luck to all.

CASSI Education

lilly89 · 19-12-2012 12:28AM

Hi all

Does anyone know what areas to study for the SFMA Jan2013 assesement?

cian twomey · 19-12-2012 09:51PM

looks like WACC, Job costing and lease v buying to mw

autumnbelle · 20-12-2012 10:18AM

For the FR Assessment is it only the IFRS and IAS listed on the competancy statement. About ten ?

cian twomey · 20-12-2012 01:27PM

apparently so, as its the first year i dont think anyone knows really what to expect, i going to focus on the IFRS and IAS listed on the competency statement and hope for the best, there seems to be a lot of work in it

autumnbelle · 20-12-2012 02:08PM

I was only gonna do the few listed under the Interm assessment part, with work Ive not gotten to look at anything, not even sfma

Taxuser1 · 20-12-2012 02:14PM

hi all,

i'm all on for forming a study group of some sort if anyone wants to DM me. I'm away until the 29th.

The Financial reporting is fine but the SFMA is tough. Looks like a good bit of prep work and then hoping to get a jump on what they mights ask. From a theory point of view, I thought of Responsibility Centres, Relevant Costing and ABC costing which should be straightforward. I thought the Lease versus Buy is straightforward enough. Looks like performance ratios also but with no P & L, maybe this is a red herring.

Would appreciate any feedback anyway. I'm on the elevation side of things and am not in practice so it's pretty much all theory to me.

autumnbelle · 20-12-2012 02:20PM

Id be on for it too taxuser. Its very hard to find the time to do it all. Yeah I was wondering why the balance sheet was there

cian twomey · 20-12-2012 02:24PM

from looking at the SMFA paper my guess for the practical question would be job costing of the project, calculating the WACC and lease v buy, not a clue what could come up as theory but taxuser1 seems to have some good possabilities above,

@autumnbelle, i think the def ones to come up are IAS 1 plus all the consolidation standards from looking at the sample papers, you might get away with leaving things like construction contracts out

would like to get involved in some sort of study group as per taxuser idea above if a few people are interested, doing all this stuff on my own so bouncing a few ideas off people would be a great help

Taxuser1 · 20-12-2012 02:25PM

are we all based in Dublin, first off?

cian twomey · 20-12-2012 02:47PM

im based in the north west myself

thumbelinda · 20-12-2012 03:33PM

Hi all,

Is anyone around to meet up before Saturday? Heading away over Xmas do not back in Dublin til 6th jan n would like to bounce some ideas off other students?

Taxuser1 · 20-12-2012 03:48PM

i'm free if it's worth getting a group together maybe early saturday morning ?

Itx Claire · 20-12-2012 06:13PM

Hi all
On the elevation myself, in Dublin over Christmas and new year available for study group any ideas on places?

Imported but · 20-12-2012 06:37PM

I work in Dublin but live in the North East (Dundalk). Got a few days off and not keen to go to Dublin. However I'll keep an eye on this thread (a very good idea it is), and contribute when I can... probably be after Christmas before I have worked through the samples. One thing on the SFMA case is that I think there could be an ethics angle, with Dan Brown wanting the company to issue preference shares at 6% that he'll buy, when the bank loan seems likely a less expensive source of finance for the company. Anyone know off the top of their head if there's a tax effect on preference share dividends in the same way as on loan interest? My hunch is there is not, so that not only is it 5% bank vs 6% pref. shares, but it's 5% less tax relief vs 6% with no tax relief. The flipside is that the bank loan is only 3 years so there's a risk around refinancing (interest rates higher / finance unavailable), whereas the preference shares are likely to be perpetual, redeemable only when it suits the company. At the very least the pref shares should be available to all shareholders (as a rights issue perhaps) and not just Dan, so that if the economics make them a bargain then it's shared fairly among all the existing shareholders. The independent directors might have to stand their ground on this matter - depending of course what the questions are...

thumbelinda · 21-12-2012 08:15AM

I can enquire from the institute if they would allow us to use one of their rooms for a study group Saturday morning if anyone is interested? Let me know if u are n ill give them a call? Otherwise I might be able to arrange an alternative At my own work address which is 10 mins walk from city centre so can enquire today.

Taxuser1 · 21-12-2012 10:02AM

thumbelinda wrote: »

I can enquire from the institute if they would allow us to use one of their rooms for a study group Saturday morning if anyone is interested? Let me know if u are n ill give them a call? Otherwise I might be able to arrange an alternative At my own work address which is 10 mins walk from city centre so can enquire today.

Hi Linda, suits me as well. Thanks

thumbelinda · 21-12-2012 10:43AM

@Taxuser1, I contacted the Institute and they have told me that there would be a charge to use one of their rooms so I have arranged a room where I work which is 10 mins from city centre, has free parking on site and is right on the Luas so should be handy to get to. Is there a way of sending a private message to people with the details? Any one else wanting to come along please let me know. I am thinking a 10am start if that suits people so that we will be finished nice and early?

Hewhodares · 21-12-2012 01:50PM

Im on the Elevation Programme and based in Dublin. I won't be around for next week though.

blizzard13 · 21-12-2012 02:06PM

Perhaps we could arrange another study group for after Christmas as a lot of us wont be in Dublin this week coming in @hewhodares?

Hewhodares · 21-12-2012 05:36PM

Ye I can go tomorrow if one is being organised or if somebody wants to organize one the week after I am free whenever suits.

Has anybody else worked out the WACC yet? I've worked it out using the following

Ke=14.4% MV of the Equity is €75,000,000
Kp=6% MV of Pref. shares is €5,000,000
Kd=4% MV of Debt is €20,000,000

I worked out Ke using the dividend growth model.I'm not sure if its correct though. The Lease Vs Buy can't be done yet since no information is given about how the Capital Allowances will be dealt with.

I think some information regarding the costing of the tender may be missing, i'm not sure though.

ElizaJane1 · 22-12-2012 12:48PM

I agree with hewhodares regarding the cost of equity calculation using the div growth model.
I also agree with earlier posts that WACC, Relevant Costing & Lease v's Buy are likely computational questions. Does anyone see any other possible questions?
As regards Theory questions that could be asked. Does anyone else agree that corp Governance/ethics/fraud are possible areas that may be asked?
The fact that the preparation of accounts seem to be a bit of a joke in the company seems to create a situation where a fraud could occur.

Also some of the following would need to be queried.

Chairman not acting on his belief that business is underperforming.

Getting his golfing buddy to perform assesment.

Paying dividend in loss making year.

Chairman looking to acquire pref shares. Do these 5 million shares not need to be offered to existing shareholders first? Also would a special resolution not be required as the current shareholders positions would be diluted?

They seem eager to get rid of existing debentures. however it looks like they are trying to force the issue and maybe they are de-frauding the debenture holders by painting a gloomy picture regarding the company's performance.

It looks like the chairman is eager to get his hands on these pref shares and maybe he is undervalueing the company to do so?
For example the company made an expected loss of 2 million in 2011. this is after a write down on land & buildings of 15 million.

Maybe the company is performing better than the chair man is letting on?

Has any one else any ideas on any other possible theory questions?

The Little Fella · 22-12-2012 12:58PM

ElizaJane1 wrote: »

I agree with hewhodares regarding the cost of equity calculation using the div growth model.
I also agree with earlier posts that WACC, Relevant Costing & Lease v's Buy are likely computational questions. Does anyone see any other possible questions?
As regards Theory questions that could be asked. Does anyone else agree that corp Governance/ethics/fraud are possible areas that may be asked?
The fact that the preparation of accounts seem to be a bit of a joke in the company seems to create a situation where a fraud could occur.

Also some of the following would need to be queried.

Chairman not acting on his belief that business is underperforming.

Getting his golfing buddy to perform assesment.

Paying dividend in loss making year.

Chairman looking to acquire pref shares. Do these 5 million shares not need to be offered to existing shareholders first? Also would a special resolution not be required as the current shareholders positions would be diluted?

They seem eager to get rid of existing debentures. however it looks like they are trying to force the issue and maybe they are de-frauding the debenture holders by painting a gloomy picture regarding the company's performance.

It looks like the chairman is eager to get his hands on these pref shares and maybe he is undervalueing the company to do so?
For example the company made an expected loss of 2 million in 2011. this is after a write down on land & buildings of 15 million.

Maybe the company is performing better than the chair man is letting on?

Has any one else any ideas on any other possible theory questions?

It's very important that the company gets rid of the existing debenture and secure new funds. Otherwise it is going to face major liquidity problems. €10,000 in cash to fund a dividend payout of €3 million in the near future just doesn't go.

Imported but · 22-12-2012 01:06PM

Good thoughts ElizaJane1!

ElizaJane1 wrote: »

...pref shares. Do these 5 million shares not need to be offered to existing shareholders first? Also would a special resolution not be required as the current shareholders positions would be diluted? ...Has any one else any ideas on any other possible theory questions?

Preference shares don't usually have voting rights, so ordinary shareholders' control in the company might not be diluted by their issue. I'm not sure about the need for a special resolution: we'd need to know if the issue is covered under the company's Articles of Association which seems to me to be getting a bit out-of-scope for the SFMA paper. But I do agree that it's unethical to allocate them to the chairman without allowing other shareholders an opportunity (see my previous post). P.

The Little Fella · 22-12-2012 01:45PM

Couple of points I have noted.

one of the issues raised is the need to develop into new international markets. This is not addressed in any of the briefing points so we could be asked to write a plan for this. The company only has experience of working on the Irish market, no international experience and no plans to address this by securing new personnel.
Sean White who made the tender has no experience of management accounting. If the margins on the tender are going to be small, how accurate are his projections if he has no experience in the area. Danger of it being loss making.
Although the new debenture is a lower interest rate, the interest for the year will actually increase from €500k to €1 million.
A dividend that is increasing on average by 10% a year is simply unsustainable. No hope of securing 10% growth every year to sustain this. Also the company is going to have invest in securing new contracts as it has lost a lot of business to Bush. It would be more appropriate to reduce the dividends or not pay for a few years to put the company in a good position again.
Is the company having problems with bad debts as it has been profitable until this year yet it is in a terrible cash situation now or has the dividend payout each year been eating up profits.

conor1979 · 23-12-2012 11:57AM

Can someone please let me know where I can find the past CA papers for SFMA on Chartered's website?

I'm going around in circles on the student site and haven't a clue!

23-12-2012 12:16PM

I want to thank everyone who has contributed so far. It's a very helpful discussion, especially when your trying to figure this out on your own!

The main topics seem to be covered. Just my own take on some issues.

Tree is a PLC and Bush is a Ltd company.

It may be advantageous to takeover Bush throuh a combination of equity( 10.14m prior to €3m payout of dividends) and debt.

May be provided with financial infomation on Bush Ltd and be asked to value the company
(Discounting Bush Ltd due to lack of marketability of shares)

If it this topic were to asked my feeling is that it would be theory based.

Here are some other areas that I think could be asked. I'm probably way but we wont know until 12.01.2013

Loss of Key Personnel effects on Company

PLC V Private company (Tree Ltd V Bush)

Identify Key Performance Indicators for Tree PLC

Finance Manager Duties ( came up in Sept 2010)

Managing Director Duties

Assess the Viability of taking over Bush Ltd. (Session 5)

Impact on a company for not receiving adequate Financial information

Impact of losing Key personnel to Competitors (Bush LTD)

Performance Measurement

23-12-2012 12:19PM

conor1979 wrote: »

Can someone please let me know where I can find the past CA papers for SFMA on Chartered's website?

I'm going around in circles on the student site and haven't a clue!

I hope this helps.

http://students.charteredaccountants.ie/Student-Information/Exams/Continuous-Assessment/CAP2-Assessment-Past-Papers/

conor1979 · 23-12-2012 12:49PM

0028673 wrote: »

I hope this helps.

http://students.charteredaccountants.ie/Student-Information/Exams/Continuous-Assessment/CAP2-Assessment-Past-Papers/[/QUOTE]

Thanks for that, I really appreciate it.

For some reason I get brought to a completely different page!

23-12-2012 04:47PM

conor1979 wrote: »

0028673 wrote: »

I hope this helps.

http://students.charteredaccountants.ie/Student-Information/Exams/Continuous-Assessment/CAP2-Assessment-Past-Papers/[/QUOTE]

Thanks for that, I really appreciate it.

For some reason I get brought to a completely different page!

No problem.

autumnbelle · 25-12-2012 03:58PM

0028673 wrote: »

conor1979 wrote: »

No problem.

autumnbelle · 25-12-2012 03:59PM

autumnbelle wrote: »

0028673 wrote: »

No time to do any studying

tbventure · 27-12-2012 10:12AM

Hi all

Would someone be able to upload a copy of the assessments on here!
I have to repeat SFMA and I have to decide to redo the assessment or bring forward last years mark

Thanks

cian twomey · 27-12-2012 12:17PM

hi all,

on the WACC calculation has anyone worked out the ex div price of the shares, we are given the 15.60 cum div and a accumulated div of 3 million not div per share as is given in a lot of the review question, just wondering if anyone has an ideas,

Cookie33 · 27-12-2012 12:47PM

cian twomey wrote: »

hi all,

on the WACC calculation has anyone worked out the ex div price of the shares, we are given the 15.60 cum div and a accumulated div of 3 million not div per share as is given in a lot of the review question, just wondering if anyone has an ideas,

I worked out the market value to be 75 million. (5m X 15.6) - 3m.

Anyone know the cost for debentures? I've got the market value as 4.4m

yussss5 · 27-12-2012 02:34PM

Hi i was wondering if anyone would be willing to share their workings for wacc? I am having trouble with this area and would help to see other peoples workings particularly for the percentages.

I am also unsure of how to factor in the tax and depreciation for the lease v. Buy aspect of the case. If anybody could provide some insight on this aspect also i would be very grateful.

Thanks!

blizzard13 · 27-12-2012 05:19PM

Hi yussss5, I too am having difficulty with those areas... with regards the lease, is it an operating lease as the lessor provides the maintenance etc?

cian twomey · 27-12-2012 10:02PM

thanks for the help cookie 33 makes a bit more sense now, regarding the lease v buy part of the question, we dont have the capital allowance information so i assume that will be given to us on the day, my opinion would be to then determine the best method by discounting the cash flows for each methond at the cost of borrowing after tax, not sure what rate of borrowing to use ie 10% for the current debentures or new rate of 5% from the proposed loan,

conor1979 · 28-12-2012 02:20PM

Has anyone signed into their student portal today?

I logged on and my 'Course Material's' section is empty:mad:

Has this happened to anyone else?

jbcapII · 28-12-2012 02:34PM

conor1979 wrote: »

Has anyone signed into their student portal today?

I logged on and my 'Course Material's' section is empty:mad:

Has this happened to anyone else?

I was able to see Sfma material this morning....

Cookie33 · 28-12-2012 02:43PM

Has anyone got a costing template worked out? The more I look at it, the more confused I get with it

Cagney87 · 28-12-2012 03:01PM

the course material page is gone blank for me aswell, so annoying!!

littlemiss123 · 28-12-2012 03:06PM

@cian twomey: I would assume you discount the cash flows of back to PV at the 10% after tax cost of capital that is given in the same paragraph as the information on the lease or buy option?

I was wondering then if a WACC calculation will be required of us at all? I would imagine we would be required to compare the different methods of financing from a theoretical point of view rather than calculations? I could be wrong...just musing...

@yussss5: In my opinion this is how the tax effect should be taken into account.

Cost of Machine 9k
Decapital Allowance (say) 15% = 1,350
Tax saving on deductible capital allowance = 20% of 1,350 = 270
This amount will then be included as a positive cash flow in your calculations. The capital allowance in the final year, i.e. year two will be a balancing allowance to bring the cost down to residual value.

The tax effect of the maintenance charges if the machine is purchased is 20% too.
The tax saving on the lease payments would just be 20% of the 550 I think.

This is all just in my own opinion, I could be completely wrong.....

yussss5 · 28-12-2012 03:33PM

littlemiss123 wrote: »

@cian twomey: I would assume you discount the cash flows of back to PV at the 10% after tax cost of capital that is given in the same paragraph as the information on the lease or buy option?

I was wondering then if a WACC calculation will be required of us at all? I would imagine we would be required to compare the different methods of financing from a theoretical point of view rather than calculations? I could be wrong...just musing...

@yussss5: In my opinion this is how the tax effect should be taken into account.

Cost of Machine 9k
Decapital Allowance (say) 15% = 1,350
Tax saving on deductible capital allowance = 20% of 1,350 = 270
This amount will then be included as a positive cash flow in your calculations. The capital allowance in the final year, i.e. year two will be a balancing allowance to bring the cost down to residual value.

The tax effect of the maintenance charges if the machine is purchased is 20% too.
The tax saving on the lease payments would just be 20% of the 550 I think.

This is all just in my own opinion, I could be completely wrong.....

Thanks for your help! Do we need to factor in depreciation too because they give useful life and residual value?

yussss5 · 28-12-2012 03:34PM

blizzard13 wrote: »

Hi yussss5, I too am having difficulty with those areas... with regards the lease, is it an operating lease as the lessor provides the maintenance etc?

I think its an operating lease. Im not sure what the difference is in accounting for operating and finance leases though.

littlemiss123 · 28-12-2012 03:56PM

yussss5 wrote: »

Thanks for your help! Do we need to factor in depreciation too because they give useful life and residual value?

No because depreciation is not a 'cash flow' and is not tax deductible. Capital allowances are the tax deductible alternative to a depreciation charge.

Your balancing allowance in year 2 will bring you down to the residual value. As per my previous example:

Cost: 9,000
Capital allowance (say 15%) year 1: 1,350
Tax saving year 1 (20% tax rate): 270
Balancing allowance year 2: 9,000 [cost] LESS 1,350 [allowance claimed in y1] LESS 1,500 [residual value] = 6,150
Tax saving year 2: 1,230

Therefore your capital allowances/balance allowance have brought your cost down to your RV over the two years: 9,000 - 1,350 - 6,150 = 1,500

Capital allowances still aren't a cash movement though and aren't included in your NPV calculation. Your tax savings of 270 and 1,230 will be included in Y1 and Y2, as will your RV of 1,500 in year 2.

Does that make sense?

Lougil · 28-12-2012 04:00PM

Also the parliament buildings contract is only for one year so it would have to taken into consideration whether or not it's worth submitting the tenders are viable if the margin of any profit is narrow.

CW1989 · 28-12-2012 06:37PM

cian twomey wrote: »

hi all,

on the WACC calculation has anyone worked out the ex div price of the shares, we are given the 15.60 cum div and a accumulated div of 3 million not div per share as is given in a lot of the review question, just wondering if anyone has an ideas,

Hi,

For the ex div price I got €15.
Dividend due is €3m
Number of shares is 5m (€7.5m value in BS but nominal value is €1.50 so that's €7.5m/5m)
Dividend per share is 0.60cent (€3m/5m)
Ex div price is €15.60 cum div minus the div per share of 0.60cent therefore it's €15

Has anybody else got this?

cian twomey · 28-12-2012 07:01PM

CW1989 wrote: »

Hi,

For the ex div price I got €15.
Dividend due is €3m
Number of shares is 5m (€7.5m value in BS but nominal value is €1.50 so that's €7.5m/5m)
Dividend per share is 0.60cent (€3m/5m)
Ex div price is €15.60 cum div minus the div per share of 0.60cent therefore it's €15

Has anybody else got this?

got the same figures as yourself, anyone else get anything differnet

blizzard13 · 29-12-2012 12:11AM

i got the same result too guys for WACC... lets just hope they ask us to calculate it!

yussss5 · 29-12-2012 09:49AM

littlemiss123 wrote: »

No because depreciation is not a 'cash flow' and is not tax deductible. Capital allowances are the tax deductible alternative to a depreciation charge.

Your balancing allowance in year 2 will bring you down to the residual value. As per my previous example:

Cost: 9,000
Capital allowance (say 15%) year 1: 1,350
Tax saving year 1 (20% tax rate): 270
Balancing allowance year 2: 9,000 [cost] LESS 1,350 [allowance claimed in y1] LESS 1,500 [residual value] = 6,150
Tax saving year 2: 1,230

Therefore your capital allowances/balance allowance have brought your cost down to your RV over the two years: 9,000 - 1,350 - 6,150 = 1,500

Capital allowances still aren't a cash movement though and aren't included in your NPV calculation. Your tax savings of 270 and 1,230 will be included in Y1 and Y2, as will your RV of 1,500 in year 2.

Does that make sense?

Also, it is definitely an operating lease (per any book that defines operating and finance leases). I wouldn't worry about the accounting treatment of either as this is not a financial reporting exam, I would just focus on the advantages/disadvantages of operating leases, one of which is that it is a source of off balance sheet financing but that is as far as I would go regards accounting treatment of leases.

That makes sense thanks very much for that! I am still having some problems in working out the NPV though. For both options lease and buy they work out negative every time. High negative numbers. I'm still unsure what actually goes into this npv calculation and how the lease is dealt with.

Cap 2 SFMA Assessment Study Group

Comments