CIMA 2010 Chartered Management Accounting Qualification - Specimen Examination Paper P3

Pillar P

Specimen Examination Paper

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 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. Answer the compulsory questions in Section A on page 7. Answer TWO of the three questions in Section B on pages 8 to 11. Maths Tables and Formulae are provided on pages 12 to 15. The list of verbs as published in the syllabus is given for reference on page 16. 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 which questions you have answered.

The Chartered Institute of Management Accountants 2008

P3 Performance Strategy

P3 Performance Strategy

CIMA 2010 Chartered Management Accounting Qualification - Specimen Examination Paper P3

STRATEGIC LEVEL PRE-SEEN CASE MATERIAL Power Utilities __________________________________________________________________________ Background Power Utilities (PU) is located in a democratic Asian country. Just over 12 months ago, the former nationalised Electricity Generating Corporation (EGC) was privatised and became PU. EGC was established as a nationalised industry many years ago. Its home government at that time had determined that the provision of the utility services of electricity generation production should be managed by boards that were accountable directly to Government. In theory, nationalised industries should be run efficiently, on behalf of the public, without the need to provide any form of risk related return to the funding providers. In other words, EGC, along with other nationalised industries was a non-profit making organisation. This, the Government claimed at the time, would enable prices charged to the final consumer to be kept low. Privatisation of EGC The Prime Minister first announced three years ago that the Government intended to pursue the privatisation of the nationalised industries within the country. The first priority was to be the privatisation of the power generating utilities and EGC was chosen as the first nationalised industry to be privatised. The main purpose of this strategy was to encourage public subscription for share capital. In addition, the Governments intention was that PU should be enabled to take a full and active part in commercial activities. These include raising capital and earning higher revenue by increasing its share of the power generation and supply market, by achieving growth either organically or through making acquisitions. This, of course, also meant that PU was exposed to commercial pressures itself, including satisfying the requirements of shareholders and becoming a potential target for take-over. The major shareholder, with a 51% share would still be the Government. However, the Minister of Energy has recently stated that the Government intends to reduce its shareholding in PU over time, now that the privatisation has taken place. Industry structure PU operates 12 coal fired power stations across the country and transmits electricity through an integrated national grid system which it manages and controls. It is organised into three regions, Northern, Eastern and Western. Each region generates electricity which is sold to 10 private sector electricity distribution companies which are PUs customers. The three PU regions transmit the electricity they generate into the national grid system. A shortage of electricity generation in one region can be made up by taking from the national grid. This is particularly important when there is a national emergency, such as exceptional weather conditions. The nationalised utility industries, including the former EGC, were set up in a monopolistic position. As such, no other providers of these particular services were permitted to enter the market within the country. Therefore, when EGC was privatised and became PU it remained the sole generator of electricity in the country. The electricity generating facilities, in the form of the 12 coal fired power stations, were all built over 15 years ago and some date back to before EGC came into being. The 10 private sector distribution companies are the suppliers of electricity to final users including households and industry within the country, and are not under the management or control of PU. They are completely independent companies owned by shareholders. The 10 private sector distribution companies serve a variety of users of electricity. Some, such as AB, mainly serve domestic users whereas others, such as DP, only supply electricity to a few industrial clients. In fact, DP has a limited portfolio of industrial customers with 3 major clients whom it finds costly to service. Structure of PU The structure of PU is that it has a Board of Directors headed by an independent Chairman and a separate Managing Director. The Chairman of PU was nominated by the Government at the time of the announcement that PU was to be privatised. His background is that he is a Performance Strategy 2 Specimen Exam Paper

CIMA 2010 Chartered Management Accounting Qualification - Specimen Examination Paper P3

former Chairman of an industrial conglomerate within the country. There was no previous Chairman of EGC which was managed by a Management Board, headed by the Managing Director. The former EGC Managing Director retired on privatisation and a new Managing Director was appointed. The structure of PU comprises a hierarchy of many levels of management authority. In addition to the Chairman and Managing Director, the Board consists of the Directors of each of the Northern, Eastern and Western regions, a Technical Director, the Company Secretary and the Finance Director. All of these except the Chairman are the Executive Directors of PU. The Government also appointed seven Non Executive Directors to PUs Board. With the exception of the Company Secretary and Finance Director, all the Executive Directors are qualified electrical engineers. The Chairman and Managing Director of PU have worked hard to overcome some of the inertia which was an attitude that some staff had developed within the former EGC, but PU is now operating effectively as a private sector company. There have been many staff changes at a middle management level within the organisation. Within the structure of PUs headquarters, there are five support functions; engineering, finance, corporate treasury, human resource management (HRM) and administration, each with its own chief officers, apart from HRM. Two Senior HRM Officers and the Chief Administrative Officer report to the Company Secretary. The Chief Accountant and Corporate Treasurer both report to the Finance Director. These functions are replicated in each region, each with its own regional officers and support staff. Regional Managers of EGC The Regional Directors all studied in the field of electrical engineering at the country's leading university and have worked together for a long time. Although they did not all attend the university at the same time, they have a strong belief in the quality of their education. After graduation from university, each of the Regional Directors started work at EGC in a junior capacity and then subsequently gained professional electrical engineering qualifications. They believe that the experience of working up through the ranks of EGC has enabled them to have a clear understanding of EGCs culture and the technical aspects of the industry as a whole. Each of the Regional Managers has recognised the changed environment that PU now operates within, compared with the former EGC, and they are now working hard to help PU achieve success as a private sector electricity generator. The Regional Directors are well regarded by both the Chairman and Managing Director, both in terms of their technical skill and managerial competence. Governance of EGC Previously, the Managing Director of the Management Board of EGC reported to senior civil servants in the Ministry of Energy. There were no shareholders and ownership of the Corporation rested entirely with the Government. That has now changed. The Government holds 51% of the shares in PU and the Board of Directors is responsible to the shareholders but, inevitably, the Chairman has close links directly with the Minister of Energy, who represents the major shareholder. Board meetings are held regularly, normally weekly, and are properly conducted with full minutes being taken. In addition, there is a Remuneration Committee, an Audit Committee and an Appointments Committee, all in accordance with best practice. The model used is the Combined Code of Corporate Governance which applies to companies which have full listing status on the London Stock Exchange. Although PU is not listed on the London Stock Exchange, the principles of the Combined Code were considered by the Government to be appropriate for the corporate governance of the company. Remuneration of Executive Directors In order to provide a financial incentive, the Remuneration Committee of PU has agreed that the Executive Directors be entitled to performance related pay, based on a bonus scheme, in addition to their fixed salary and health benefits. Capital market PU exists in a country which has a well developed capital market relating both to equity and loan stock funding. There are well established international institutions which are able to provide funds and corporate entities are free to issue their own loan stock in accordance with internationally recognised principles. PU is listed on the countrys main stock exchange. Specimen Exam Paper 3 Performance Strategy

CIMA 2010 Chartered Management Accounting Qualification - Specimen Examination Paper P3

Energy consumption within the country Energy consumption has doubled in the country over the last 10 years. As PU continues to use coal fired power stations, it now consumes most of the coal mined within the country. Government drive for increased efficiency and concern for the environment The Minister of Energy has indicated to the Chairman of PU that the Government wishes to encourage more efficient methods of energy production. This includes the need to reduce production costs. The Government has limited resources for capital investment in energy production and wishes to be sure that future energy production facilities are more efficient and effective than at present. The Minister of Energy has also expressed the Governments wish to see a reduction in harmful emissions from the countrys power stations. (The term harmful emissions in this context, refers to pollution coming out of electricity generating power stations, which damages the environment.) In response to the Governments wishes, PU has established an ethical code. Included within the code are sections relating to recycling and the reduction in harmful emissions, as well as terms and conditions of employment. Introduction of commercial accounting practices at EGC The first set of accounts were produced for PU in 2008. Extracts from the Statement of Financial Position from this set of accounts are shown in Appendix A. Within these accounts, some of EGC's loans were "notionally" converted by the Government into ordinary shares. Interest is payable on the Government loans as shown in the balance sheet. The "other reserves" is a sum which was vested in EGC when it was first nationalised. This represents the initial capital stock valued on a historical cost basis from the former electricity generating organisations which became consolidated into EGC when it was first nationalised. Being previously a nationalised industry and effectively this being the first set of "commercially based" accounts, there are no retained earnings brought forward into 2008.

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CIMA 2010 Chartered Management Accounting Qualification - Specimen Examination Paper P3

APPENDIX A EXTRACTS FROM THE PRO FORMA ACCOUNTS OF POWER UTILITIES BALANCE SHEET As at 31 December 2008 $ million Non-current assets (net) Current assets Inventories Receivables Cash and cash equivalents Total current assets Total assets Equity and reserves Ordinary shares Other reserves Total equity and reserves Non-current liabilities (Government loans) Current liabilities Payables Total liabilities Total equity and liabilities 15,837 1,529 2,679 133 4,341 20,178

5,525 1,231 6,756 9,560 3,862 13,422 20,178

End of Preseen Material

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CIMA 2010 Chartered Management Accounting Qualification - Specimen Examination Paper P3

SECTION A 50 MARKS
Question One
Unseen Case Material

Background The privatisation of EGC, the Asian countrys sole electricity generating company, took place just over a year ago and it became Power Utilities (PU). Non Executive Directors were appointed by the Government to the PU Board. One of the first decisions made by the new Board of Directors was to establish an ethical code of conduct in order to demonstrate to the companys stakeholders that PU takes its corporate responsibilities very seriously. Ethical code Part of the ethical code covered terms and conditions of employment within PU. The issues covered by this part of the code related to the: Payment at least of the legal minimum wage Freedom for employees to join a trade union Provision of safe working conditions Commitment not to employ young people under the age of 15 years old Maintenance of working hours of employees being kept to the normal national levels

In addition, PU, as part of its ethical code, committed to recycle as much waste products as possible and to reduce harmful emissions into the atmosphere by 20% per year for the next 5 years after which the target for harmful emissions will be reviewed. Foreign exchange risk PU concluded an export agreement just after it was privatised to sell some equipment which was surplus to requirement to a neighbouring developing country, B land. This was an unusual transaction which was brought about by PU replacing some of its equipment with more modern and efficient plant. The terms of the sale was that B land will pay PU, in 3 months time, B 70 million. The current spot rate is B67.5 to $1. Over the past few months the exchange rates between the B and the $ have been volatile and PUs Corporate Treasurer is considering the following hedging strategies: 1. A forward market hedge 2. A money market hedge 3. An option hedge Remuneration of PUs directors Besides their fixed salary, and health benefits, the Executive Directors are entitled to performance related pay based on the following terms: A variable bonus if performance is higher that the pre- determined annual target for PUs profit before tax. If the directors achieve the target they obtain a bonus of 75% of basic salary. If the target is exceeded by 20% or more, then their salary level is increased by 200%. 25% of the bonus will be paid in cash and the remainder in share options which can be taken up after 2 years.

The requirement for Question One is on page 7

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CIMA 2010 Chartered Management Accounting Qualification - Specimen Examination Paper P3

Required (a)
Discuss the extent to which each of the following characteristics of PU creates potential risks for the companys shareholders: (i) (ii) (iii) (iv) The remuneration of the executive directors; The corporate treasury function in terms of foreign exchange hedging strategies; Its social and environmental policies; Its ethical code of conduct. (20 marks)

(b)

(i)
(ii)

Explain how an audit committee should contribute to the effective internal audit of PU. Discuss the role of the audit committee of PU in promoting good corporate governance. (18 marks)

(c)

Discuss the three hedging strategies proposed by the Corporate Treasurer and how each might be used to mitigate risk. (12 marks) (Total marks for Question One = 50 marks)

End of Section A

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CIMA 2010 Chartered Management Accounting Qualification - Specimen Examination Paper P3

SECTION B 50 MARKS ANSWER TWO OF THE THREE QUESTIONS

Question Two
CSX is a distribution company, which buys and sells small electronic components. The company has sales of $200 million per annum on which it achieves a profit of $12 million. Central Warehouse Department The company has a large Central Warehouse Department employing 100 staff over two shifts. The warehouse contains 30,000 different components, which are of high value and are readily saleable. Technological change is commonplace and components can become obsolete with little warning. Twice a year, the Purchasing Manager authorises the disposal of obsolete inventory. Inventory control is carried out through a computer system that has been used by the company for the last ten years. Purchasing and receiving Inventory is ordered using manual purchase orders based on tender prices. Goods received into the Central Warehouse are recorded on a manual Goods Received Note which is the source document for computer data entry. Data entry is done by clerical staff employed within the Central Warehouse. Customer orders Orders from customers are entered into the computer by clerical staff in the Sales Department. The computer checks inventory availability and produces a Picking List which is used by Central Warehouse staff to assemble the order. Frequently, there are differences between the computer inventory record and what is physically in the store. The Picking List (showing the actual quantities ready to be delivered) is used by clerical staff to update the computer records in the Central Warehouse. A combined Delivery Note/Invoice is then printed to accompany the goods. Accounting At the end of each financial year, a physical check of inventory is carried out which results in a significant write-off. To allow for these losses, the monthly operating statements to the Board of Directors include a 2% contingency, added to each months cost of sales. Internal Audit Department The companys Internal Audit Department has been asked by the Board to look at the problem of inventory losses. Managers in the Central Warehouse believe that inventory losses are the result of inaccurate data entry, the old and unreliable nature of the computer system and the large number of small inventory items which are easily lost, or which warehouse staff throw away if they are obsolete or damaged.

The requirement for Question Two is on page 9

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CIMA 2010 Chartered Management Accounting Qualification - Specimen Examination Paper P3

Required: (a)
(i) Explain the risks faced by CSX in relation to its inventory control system. (7 marks)

(ii) Recommend specific improvements to the inventory systems internal controls. (8 marks)

(b)

Explain (without being specific to the CSX scenario) the type of tests or techniques, both manual and computerised, that internal auditors might use in assessing the adequacy of inventory controls. (10 marks) (Total for Question Three = 25 marks)

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CIMA 2010 Chartered Management Accounting Qualification - Specimen Examination Paper P3

Question Three
Warren Buffett, the stock market investor, views derivatives as a time bomb, but many corporate treasurers clearly perceive them as very useful tools for reducing risk.

Required: (a)
Discuss the reasons for such divergent viewpoints. (13 marks)

The International Accounting Standard on Financial Instrument Recognition and Measurement (IAS 39) requires companies to include all derivatives that are used for trading purposes on the balance sheet, and to apply fair value rather than historic cost to such instruments. All changes in these fair values are to be recognised in the profit and loss account. This method of accounting is defended on the grounds that it ensures that the disclosures better reflect the risks that are being taken, thereby improving the information available to the stock market.

Required: (b)
Explain the additional risks, arising from these rules, that may be faced by companies that regularly trade derivatives for profit. (5 marks)

An investor holds a portfolio of shares that has varied in value over the last twelve months between 15 million and 18 million. All stock is highly liquid and can be sold within one day. The daily profit and loss distribution is assumed to be normally distributed with a mean of zero and a standard deviation of 60,000.

Required: (c)
(i) Explain the meaning of the term value at risk from the perspective of a pensions fund manager. (4 marks) (ii) Analyse the value at risk of the portfolio, assuming a 95% confidence level and a one day holding period. (3 marks) (Total for Question Four = 25 marks)

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CIMA 2010 Chartered Management Accounting Qualification - Specimen Examination Paper P3

Question Four
AMF is a market leading, high technology manufacturing organisation producing components for the computer industry. AMF has adopted a lean approach to all its functions and has already made a decision to implement a new enterprise resource planning system (ERPS) to support the management of its customers, suppliers, inventory, capacity planning, production scheduling, distribution and accounting functions. The Board of AMF is considering the outsourcing of the design, delivery, implementation and operation of the ERPS to a specialist contractor that has an excellent reputation within the computer industry.

Required:
Write a report to the Board of AMF that:

(a)

Discusses the advantages and disadvantages of outsourcing the ERPS system as suggested above, when compared to developing and operating the system in-house. (5 marks)

(b)

Evaluates the main risks involved in outsourcing the ERPS and advises how these risks might be mitigated. (10 marks) Recommends the processes and controls that AMF should adopt to achieve a successful transition to a chosen outsource supplier, should that be the decision of the Board. (10 marks) (Total for Question Five = 25 marks)

(c)

End of Question Paper

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CIMA 2010 Chartered Management Accounting Qualification - Specimen Examination Paper P3

MATHS TABLES AND FORMULAE

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CIMA 2010 Chartered Management Accounting Qualification - Specimen Examination Paper P3

Present value table

Present value of 1.00 unit of currency, 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 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 0705 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

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

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

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

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

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

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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CIMA 2010 Chartered Management Accounting Qualification - Specimen Examination Paper P3

Cumulative present value of 1.00 unit of currency per annum

1(1+ r ) n Receivable or payable at the end of each year for n years 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

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

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

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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CIMA 2010 Chartered Management Accounting Qualification - Specimen Examination Paper P3

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 1 r [1 + r ] n

PV =

Perpetuity Present value of 1 per annum, payable or receivable in perpetuity, commencing in one year, discounted at r% per annum: 1 PV = 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: 1 PV = r g

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CIMA 2010 Chartered Management Accounting Qualification - Specimen Examination Paper P3

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.

VERBS USED
List State Define

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

Level 2 - Comprehension What you are expected to understand.

Describe Distinguish Explain Identify Illustrate

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

Level 3 - Application How you are expected to apply your knowledge.

Apply Calculate Demonstrate Prepare Reconcile Solve Tabulate

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 are you 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 are you expected to use your learning to evaluate, make decisions or recommendations.

Advise Evaluate Recommend

Counsel, inform or notify Appraise or assess the value of Propose a course of action

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