Study Zone

AAT Exams 2010

How to get a pass in FRA & PCV

The key to passing FRA is a good understanding of double entry and the financial statements required for a sole trader and partnership. The paper is split into two sections. Section 1 deals with ‘mini tasks’, which will then enable the candidate to produce a trial balance for the final task. Section 2 starts with a trial balance, where extra adjustments will be required, then the production of the financial statements.
Elements from the foundation paper will be found in section 1. You may be required to prepare, for example, the sales ledger control account and preparation of a trial balance. New topic areas that need to be focused on that come up each sitting are treatment of fixed assets, including calculation of depreciation and the accounting entries for a disposal. Most students are able to deal with calculation of depreciation, but students find accounting for a disposal difficult. Make sure you practise as many disposal questions as possible and can deal with the double entry of a disposal.
Dealing with bad debt write offs and provision for doubtful debt is another key topic area that will be examined each time. Again, understanding the double entry of a bad debt and provision for doubtful debts is key.
Section 2 will require at least five adjustments to the current trial balance. Remember the rules of double entry. All debits require a corresponding credit account and the two entries must equal the same. Knowing the formats of the financial statements are very important and the profit and loss account and balance sheet can be examined each sitting. Either or both statements can appear in the exam.
Partnerships is a very important topic and shouldn’t be ignored. Either section can contain a partnership, so expect to be able to deal with appropriation account for a partnership, current and capital accounts and, of course, dealing with goodwill. Make sure you can prepare any of the accounts and dealing with the double entry of goodwill is very important. You will need to be able to deal with a maximum of three partners.
There are some accounting standards that must be learnt for this paper, as discussion on these will appear. FRS 15 Tangible fixed assets, SSAP 9 stock valuation, FRS 18 accounting policies and SSAP 5 VAT are the examinable standards.
There are a number of examiners’ articles students should read before sitting this paper. These include the accounting standards and topics on partnerships. They can be found on the AAT website.
PEV
Some of you may be wondering, how do I pass PEV? I learn the variances: the material should cost £x and it did cost £x, therefore the price variance is y. I learn the ratios, gross profit divided by turnover multiplied by 100 is z. I write a report and still fail, so what do I do next?
A lot of you spend time rote-learning formulas for the main questions from both sections, but then fail to recognise what Cliff (the examiner) is asking you to do – and therefore fail. For example, in section 1 of December’s paper you may have thought that the tasks followed a ‘typical’ pattern:
Task 1.1
a) Calculate basic cost and quantity tasks.
b) Calculate some variances.
c) Prepare a reconciliation statement.
But in reality the tasks were:
a) Calculate quantity and costs for materials for a given budgeted quantity (10,000 one-kilogram packs of coffee) from a standard cost card for a 1kg pack.
b) Calculate direct material price and usage variances for three types of direct materials, rather than all the variances.
c) Prepare an operating statement that reconciled the actual material costs with the standard material costs for producing 9,500 one-kilogram packs of coffee.
Recognising the differences to the ‘typical’ question is vital to passing this exam. So by all means learn how to calculate the variances, but you must practise this skill in different styles of questions, which will allow you to apply your knowledge, not just your memory.
In section 2, Cliff usually asks you to calculate a range of ratios, so there should be no surprises here. But you must learn the formulas, and show your workings as you go along. Cliff will give you information for his scenario so use it.
Cliff wrote two articles in which he detailed his approach to answering his questions, so it’s worth reading these.
Finally, look at the ‘peripheral’ areas – time series, indexation, lifecycle costing, value analysis; these areas are examined consistently (not all at once) so get to grips with these to ensure that you are allowing yourself the best opportunity to get the maximum marks from this paper. Attempt only 75% of the paper and you are reducing your chances of being successful.
• Thanks go to Jo Watkins and Jane Godfrey

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