The CII AF2 October 2019 Exam in Review

Here, we look at the CII’s AF2 (Business Financial Planning) exam paper from October to see what was tested from the syllabus this time. This is useful reading for those preparing for the next sitting of the AF2 exam.

If you haven’t seen it yet, you can find the question paper here.

Question 1

The first case study introduced us to Fred and Ruby, who had 3 teenage children.  Fred was a sole trader, but his business profits had been declining.  A competing business, run by Max and Alex, had agreed to buy Fred’s business as a going concern.

The first question tested processes: firstly, if Fred were to declare himself bankrupt and secondly if he were to enter into an IVA.  For most candidates, this first question should have not caused too many problems, with these areas having been tested before.  Equally, the second question on how bankruptcy affects certain assets (specifically the house, pension and trust property) has also been tested extensively in the past.  However, Question (c) may have been trickier, as this asked for a recommendation as to whether Fred should declare himself bankrupt or whether he should enter into an IVA.  This was for 8 marks, so making the wrong choice would have meant a loss of most of these marks.

Question (d) asked for a description of Fred’s liabilities as a sole trader; his legal position with regard to his employees and the information he must provide to them and finally, in this question, his responsibilities towards his employee who is not required by the new buyers.  Again, this doesn’t seem over-taxing for an AF paper.

Question (e) asked for an explanation of the tax treatment of the sale of the business in relation to the goodwill and the stock.  Question (f) was a calculation; candidates had to work out the amount of profits that fell into two different tax years.  This was for just 5 marks but involved overlap profits as well as written-down tax pool values on equipment as well as a loss, so candidates had to understand how these were dealt with to get the marks on offer.

The final question in Case Study 1 was on buying business premises through an SSAS. This is often tested in AF2, so candidates should have been prepared to answer the questions: the calculation of how much is available to the SSAS; the total costs of the purchase and the advantages to Max and Alex of buying the property through the SSAS compared with buying it directly themselves.

All in all, a good and relatively straightforward Case Study 1.

Question 2

Onto Case Study 2, and here we had two shareholding directors of an electronics company.  It soon became apparent that the questions would have been on keyperson protection and shareholder protection.

The first question tested the benefits of keyperson cover as well as the protection cover that should be advised.  The second question asked why the premiums for the keyperson policy for one of the shareholders would not qualify for corporation tax relief, and also an explanation was needed as to why a multiple of salary approach may not be appropriate for the account manager.  All of these questions tested basic business protection knowledge and should not have caused well-prepared candidates any issues.

Question (c) was also a very straightforward question; candidates had to state the purpose of shareholder protection.  The full four marks should have been gained here!

Finally, Question (d) asked candidates to explain, with reasons, recommendations for an arrangement that would suit their needs and keep any taxation to a minimum and finally explain why a business trust should be used for shareholder protection.

Again, this seemed like another straightforward question, with no particular tricky area for those candidates who had studied the material well.

Question 3

Finally onto question 3 where we were introduced to two self-employed plumbers who want to go into business together.

The first question asked for an explanation of the responsibilities for paying tax as a sole trader and as a limited company.  The exam continued with the advantages of their operating as a partnership and the potential business liability issues.  Candidates then had to recommend a business structure for them and the benefits to one of them if they transferred to the structure recommended; the person had made a loss in his business in the previous tax year, so candidates would have been expected to use this information in their answer.

Finally, an explanation was needed for the concept and purpose of a business budget and the concept of budgetary control.  This area is unlikely to have been overly tested in the past, so it may have been a challenging end to the exam.

Comparing with April 2019’s AF2 Exam Paper

Let’s see what was tested in April to see if there was any overlap; the exam paper can be found here:

• Tax implications of a shareholder taking a loan to buy shares
• Implications and restrictions of buying shares using a SIPP or the company’s SSAS
• Implications for existing key person cover when new person becomes a shareholder
• Drawbacks of using RLPs for shareholder protection
• How shareholder protection arrangements are affected by a new shareholder
• Cross option agreements and life of an another policies
• Amount needed to buy a building via an SSAS and the funding shortfall
• Calculation of the profit attributable to each member in an LLP
• Explanation of the tax treatment of the profits
• Bankruptcy of a member and the consequences for the LLP
• Options to remove the bankrupt as a member of the LLP
• Statutory tests used to determine employment or self-employment
• Implications for the LLP if a member resigns
• IVAs including the process and structure
• Advantages of an IVA rather than being made bankrupt
• Effects of bankruptcy on their main residence and a personal pension
• Order of priority when paying creditors

Using past papers is a crucial part of revision as it allows candidates to understand how the questions are asked, what the examiner was expecting as well as a guide as to what might be tested in the future.

Grab the resources you need!

If you’re studying for your CII AF2 exam, and you’re wanting to feel prepared on exam day, you’ll need to practise applying the knowledge. Grab our free taster to try out one of Brand Financial Training’s resources for yourself.  Click the link to download the AF2 calculation workbook taster now!