CIMA Financial Management (F2) Syllabus
The Financial Management syllabus continues the concepts, knowledge and skills developed in the Financial Operations (F1) module of the CIMA course to more advanced areas within financial accounting such as the preparation of full consolidated financial statements and developments in external reporting.
A substantial element of the financial management syllabus involves the analysis and interpretation of accounts.
The F2 syllabus comprises of four main areas and the Chartered Institute of management Accountants have stipulated the suggested study weighting for each of the areas and this has been included alongside the title.
A. GROUP FINANCIAL STATEMENTS (35%)
• Relationships between investors and investees, meaning of control and circumstances in which a subsidiary is excluded from consolidation.
• The preparation of consolidated financial statements (including the group cash flow statement and statement of changes in equity) involving one or more subsidiaries, sub-subsidiaries and associates (IAS 1(revised), 7 and 27, IFRS 3).
• The treatment in consolidated financial statements of minority interests, pre and post- acquisition reserves, goodwill (including its impairment), fair value adjustments, intra-group transactions and dividends, piece-meal and mid-year acquisitions, and disposals to include sub-subsidiaries and mixed groups.
• The accounting treatment of associates and joint ventures (IAS 28 and 31) using the equity method and proportional consolidation method.
• Accounting for reorganisations and capital reconstruction schemes.
• Foreign currency translation (IAS 21), to include overseas transactions and investments in overseas subsidiaries.
B. ISSUES IN RECOGNITION AND MEASUREMENT (20%)
• The problems of profit measurement and the effect of alternative approaches to asset valuation; current cost and current purchasing power bases and the real terms system; Financial Reporting in Hyperinflationary Economies (IAS 29).
• The principle of substance over form and its influence in dealing with transactions such as sale and repurchase agreements, consignment stock, debt factoring, securitised assets, loan transfers and public and private sector financial collaboration.
• Financial instruments classified as liabilities or shareholder’s funds and the allocation of finance costs over the term of the borrowing (IAS 32 and 39).
• The measurement, including methods of determining fair value, and disclosure of financial instruments (IAS 32 and 39, IFRS 7).
• Retirement benefits, including pension schemes – defined benefit schemes and defined contribution schemes, actuarial deficits and surpluses (IAS 19).
• Share-based payments (IFRS 2): types of transactions, measurement bases and accounting; determination of fair value.
C. ANALYSIS AND INTERPRETATION OF FINANCIAL ACCOUNTS (35%)
• Ratios in the areas of performance, profitability, financial adaptability, liquidity, activity, shareholder investment and financing, and their interpretation.
• Calculation of Earnings per Share under IAS 33, to include the effect of bonus issues, rights issues and convertible stock.
• The impact of financing structure, including use of leasing and short-term debt, on ratios, particularly gearing.
• Limitations of ratio analysis (e.g. comparability of businesses and accounting policies).
• Interpretation of financial statements via the analysis of the accounts and corporate reports.
• The identification of information required to assess financial performance and the extent to which financial statements fail to provide such information.
• Interpretation of financial obligations included in financial accounts (e.g. redeemable debt, earn-out arrangements, contingent liabilities).
• Segment analysis: inter-firm and international comparison (IFRS 8).
• The need to be aware of aggressive or unusual accounting policies (“creative accounting”), e.g. in the areas of cost capitalisation and revenue recognition, and threats to the ethics of accountants from pressure to report “good results”.
• Reporting the results of analysis.
D. DEVELOPMENTS IN EXTERNAL REPORTING (10%)
• Increasing stakeholder demands for information that goes beyond historical financial information and frameworks for such reporting, including, as an example of national requirements and guidelines, the UK’s Business Review and the Accounting Standard Board’s best practice standard, RS1, and the Global Reporting Initiative.
• Environmental and social accounting issues, differentiating between externalities and costs internalised through, for example, capitalisation of environmental expenditure, recognition of future environmental costs by means of provisions, taxation and the costs of emissions permit trading schemes.
• Non-financial measures of social and environmental impact.
• Human resource accounting.
• Major differences between IFRS and US GAAP, and progress towards convergence.
CIMA Financial Management F2 Past Papers
A number of past paper questions have been provided to provide an example of the typical questions found in F2 assessment papers.
EAU operates a defined benefit pension plan for its employees. At 1 January 2010 the fair value of the pension plan assets was $2,600,000 and the present value of the plan liabilities was $2,900,000.
The actuary estimates that the current and past service costs for the year ended 31 December 2010 is $450,000 and $90,000 respectively. The past service cost is caused by an increase in pension benefits. The plan liabilities at 1 January and 31 December 2010 correctly reflect the impact of this increase.
The interest cost on the plan liabilities is estimated at 8% and the expected return on plan assets at 5%.
The pension plan paid $240,000 to retired members in the year to 31 December 2010. EAU paid $730,000 in contributions to the pension plan and this included $90,000 in respect of past service costs.
At 31 December 2010 the fair value of the pension plan assets is $3,400,000 and the present value of the plan liabilities is $3,500,000.
In accordance with the amendment to IAS 19 Employee Benefits, EAU recognises actuarial gains and losses in other comprehensive income in the period in which they occur.
Calculate the actuarial gains or losses on pension plan assets and liabilities that will be included in other comprehensive income for the year ended 31 December 2010. (Round all figures to the nearest $000).
EAU granted 1,000 share appreciation rights (SARs), to its 300 employees on 1 January 2009. To be eligible, employees must remain employed for 3 years from the date of issue and the rights must be exercised in January 2012, with settlement due in cash.
In the year to 31 December 2009, 32 staff left and a further 35 were expected to leave over the following two years.
In the year to 31 December 2010, 28 staff left and a further 10 were expected to leave in the following year.
No actual figures are available as yet for 2011.
The fair value of each SAR was $8 at 31 December 2009 and $12 at 31 December 2010.
Prepare the accounting entry to record the expense associated with the SARs, for the year to 31 December 2010, in accordance with IFRS 2 Share-based Payments.
(Total for Question One = 10 marks)
RBE owns 70% of the ordinary share capital of DCA. The total group equity as at 31 December 2009 was $4,000,000, which included $650,000 attributable to non-controlling interest.
RBE purchased a further 20% of the ordinary share capital of DCA on 1 October 2010 for $540,000.
During the year to 31 December 2010, RBE issued 2 million $1 ordinary shares, fully paid, at $1.30 per share.
Dividends were paid by both group entities in April 2010. The dividends paid by RBE and DCA were $200,000 and $100,000, respectively. Total comprehensive income for the year ended 31 December 2010 for RBE was $900,000 and for DCA was $600,000. Income is assumed to accrue evenly throughout the year.
a) Explain the impact of the additional 20% purchase of DCA’s ordinary share capital by RBE on the equity of the RBE Group.
b) Prepare the consolidated statement of changes in equity for the year ended 31 December 2010 for the RBE Group, showing the total equity attributable to the parent and to the non-controlling interest.
(Total for Question 2 = 10 marks)
Assessments last three hours with a 20 minute period before the assessment allowed for reading and planning. During the reading period candidates may make notes on the question paper.