FM frequently asked questions (FAQs)

In a computer based exam do I have to structure my NPV appraisal in section C of the exam in a specific way?

The constructed response questions in section C of the exam will be human marked. The marker can see the formulae you have used as well as the numbers you have calculated. There is no need to set out your answer in any particular way, but as always you need to make sure the marker will be able to follow what you are doing. It is therefore important to clearly label any workings.

Do I need to use complex formulae in order to answer spreadsheet questions in section C of a computer based exam?

Exam questions will be answerable using straightforward mathematical functions although formulae from the exam formulae sheet may also be required. It is not necessary to write out the full formula before using it, but any formula should be labelled so that markers know what it is.

The NPV and IRR functions are available for use in section C of the examination. You can practice using these in the specimen exam of the constructed response workspace.

A spreadsheet question may require some comments to be added to a calculation.  The specimen exam shows an example of this.

Are candidates expected to use a discount or premium when calculating exchange rates?

Exchange rates will not be quoted with discounts and premiums. The syllabus allows forecasting exchange rates using purchasing-power parity and interest-rate parity.

Will candidates be required to calculate a project-specific weighted average cost of capital?

While candidates need to know about the concept of a project-specific weighted average cost of capital (see articles in Student Accountant on capital asset pricing model) they will only be required to calculate a project-specific cost of equity.

The actual ex-rights price is unlikely to correspond to the theoretical ex-rights price. Why are candidates required to calculate the theoretical ex-rights price?

The theoretical ex-rights price is a benchmark share price that can be used to evaluate the effects of financing by means of a rights issue.

Can methods of hedging exchange-rate risk and interest exchange-rate risk be assessed numerically?

Yes, for example this can be done using forward-rate agreements, forward-exchange contracts and money-market hedges (see syllabus sections G3a and G4a).

Should candidates try to show an awareness of the current climate or is this more suitable for the Advanced Financial Management exam?

Showing awareness of the current economic climate is important to the extent that it allows candidates to demonstrate understanding in particular topic areas.

For example, candidates could refer to the current economic climate if they were asked about factors to consider in relation to  new sources of finance.

Can you explain more about the timing of tax allowable depreciation and the tax benefits it generates?

Tax-allowable depreciation (TAD) gives a company the benefit of tax relief on the cost of buying non-current assets. The profit on which tax is calculated is reduced by the amount of the TAD, so the tax liability is reduced by an amount equal to the TAD multiplied by the tax rate.

The simplest approach to dealing with TAD in investment appraisal is to claim one capital allowance for each year of operation of an investment project.

The first TAD is claimed in the first year, reducing the tax liability for that year. If tax is paid in the year in which the liability arises, the tax paid in the first year will be lower. If tax is paid one year in arrears, the tax paid in the second year, which is the tax due on the first year's profits, will be lower.

The exam question will state whether tax is to be paid one year in arrears. This approach assumes that the non-current asset, say a machine, was bought at the start of the first year of operation.

A more complicated approach to dealing with capital allowances in investment appraisal is to assume that the machine is bought before the first year of operation. This assumption is closer to what happens in reality, but it makes investment appraisal more difficult.

ACCA recommends students use the first approach when answering examination questions as it is easier to understand and leads to fewer errors.

Are Islamic terminologies going to be used in the exams?

Yes, therefore it is important that candidates are aware of these terms.

There might be other correct approaches to answering questions that are not included in model answers. Would these be given credit?

Yes.  The marking team is diligent in reviewing the range of possible answers and making sure that candidates are given credit even though their answers may not be fully accord with the model answer.

How is Islamic finance likely to be examined?

Calculations are not expected.  The questions are most likely to be narrative.

To what level of detail are candidates expected to know about Fintech and its impact on financial markets and institutions?

The syllabus learning outcome is at a relatively low level, as indicated by the intellectual level 1.  It is not about a detailed understanding of blockchain technology, but about the impact of Fintech changing markets.  Areas which would come under the new learning outocme would be:

• Disintermediation
• Availability of credit
• Potential source of finance (eg Security token offering)
• Technology and financial institutions