Study tips for AAT Level 4 Financial statements – part 2

Preparation is key when studying the AAT Level 4 Financial Statements unit

Preparation is key when studying the AAT Level 4 Financial Statements unit

BPP tutor Catherine Rutter returns with the second part of her post on AAT Level 4 Financial Statements unit. In this post, she offers advice on answering the consolidated accounts preparation question and ratio calculations.


Studying AAT Level 4 Financial Statements series


Consolidated accounts preparation question

With groups, the key to a good answer is having a good approach, knowing how to do each of the standard workings (goodwill, non-controlling interest and retained earnings) and also knowing how to do your key adjustments.

You know they will be there, so make sure you know how to do a revaluation on acquisition; ensure you can cope with any inter-company cancellations, including those with unrealised profit and those involving dividends; and can adjust for any goodwill impairment.  Remember to look out for pre-acquisition retained earnings in the subsidiary and remove it from the parent’s percentage in the group retained earnings working.

A good approach involves:

  1. Understand the group situation – percentage ownership, date of ownership etc
  2. Add the given single company statements and enter the correct totals into the proforma (You can then close this box and have more space)
  3. Work through any additional information given
  4. Complete any remaining workings – goodwill, non-controlling interest and retained earnings should always be present – and transfer their totals into the proforma.

Ratio calculations

I know it is not the advice you want to hear, but there is no short-cut:  Learn the formulae and be able to calculate each one!

Short form questions

Task 5 will be a series of short-form requirements such as multiple choice and true/false.  The questions will be based on a range of accounting standards.  My only advice is not to leave any out.  If you don’t know, guess!

Written questions

The three written questions will be human marked and are like normal paper based questions except you will type instead of write.  Do not let yourself down here – step up to the plate and show us that you are made of sterner stuff than those that have gone before…

Helpful hints for passing AAT Level 4 Financial Statements:

Layout – ensure that each answer has a good layout.  This means that you should use headings, (where appropriate) and explain your points clearly.  In the analysis question in Task 8 of the CBT you will be asked to write in the format of a letter, report, e-mail or notes.

Answer the question that is asked – not the question you think the assessor should have asked!  It is helpful to write the key words of the question on your scrap paper and do a rough plan around each word you have written.  This will ensure you answer all parts of the question.  Each part should ideally have its own heading and paragraphs. Do not just tell the examiner everything you possibly know around a topic that is mentioned in the question.

Terminology – now is not the time for humility…show off your knowledge by using correct terminology.  You do not need to know standard numbers (eg IAS 16 – Property, plant and equipment) but you do need to know what they say.

Do not standard spot – there are fourteen examinable financial reporting standards in this assessment and you need to have a general idea of what is contained in each standard.  This includes the theory behind consolidations. The AAT provide a summary of the standards in the ‘Study and Assessment guide’ on their website – go and take a look.

Attention to detail in the analysis question – saying that a ratio has increased or decreased will earn you no marks at all.  You need to state whether the increase or decrease is a good thing or a bad thing (example: the 5% increase in GP% is good…); what the ratio means (…because it shows that the company is making more profit per unit sold than before…); potential reasons for the movement (…this could be caused by a change in selling price or a change in sales mix…); how it can be improved (…reducing production costs could improve this percentage…).  Also be ready to conclude at the end of the question (…based on the excellent GP%, I would invest…)

Conclusion

Remember that there are still lots of easy marks to be won – don’t just focus on the challenging stuff, get the easy mark too!  Yes, it is a tough paper but stick to the basics – good exam technique and good knowledge – and you will do well.

Further support for the Financial Statements (FSTM) unit can be accessed by using the study support search facility on the AAT website (MyAAT login required) or reading Steve Collings’s post from last year. Catherine’s Part 1 is also available online.

Catherine Rutter is a tutor at BPP.

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