The CII AF2 October 2020 Exam in Review
Last updated on January 29th, 2021 at 3:43 am
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 exam guide here.
The first case study introduced us to Don and Neil, running their business as a (soon to be dissolved) partnership. Neil is retiring, and Don intends to carry on the business with Julie, a longstanding colleague.
The exam started nicely with a 10-mark question asking for 5 benefits and 5 drawbacks of trading as a limited company rather than a partnership. This should have caused few, if any, problems for candidates.
Question (b) tested crowdfunding as a means of raising finance for the new business with part (i) asking for the three main methods of crowdfunding and (ii) asking for three reasons why providers of finance might prefer to deal with a limited company rather than a partnership.
Candidates then had to calculate Julie’s net income if she took her share of a £125,000 gross profit as a dividend. This was for 9 marks, and the question continued with part (ii) asking for an explanation as to why it is preferable for her remuneration to be taken as salary plus a dividend rather than just a dividend. Both these questions have been asked before in AF2 and shouldn’t have caused too many difficulties for candidates.
Question (d) tested the tax treatment that is applied to a partnership that has transferred its business into a limited company and the steps the new limited company must take at outset with regard to its tax affairs. This question was for 8 marks.
Question (e) tested the legal protection the employees will receive upon transfer and the responsibilities the regulations place on Don and Julie. TUPE has been tested many times in this exam, and anyone using past exam guides would have been able to answer this with ease.
The exam continued with question (f) testing shareholder protection for 8 marks, the IHT position of their shares in the new limited company should either die during the first 2 years of trading – for another 8 marks, and part (iii) asked for the options and implications for the payment of the premiums assuming they each taken out an own life policy as part of a shareholder protection arrangement – for 5 marks.
The final question tested the key requirements and implications, for the new limited company, of pension auto-enrolment for 8 marks, and again a well-prepared candidate would have easily gained most of the marks here.
Overall, Case Study 1 tested a variety of topic areas, most of which we feel have been tested before and should not have been too difficult for the candidate who had studied and prepared well.
Question 2’s case study concerned a limited company employing 20 people full time, with Steven and Keir as shareholding directors of the company. Within the case study, candidates were given details of the profit and loss account and the balance sheet for the years ending 2019 and 2020.
The first two questions were calculations: question (a) asked candidates to calculate the pre-tax operating profit or loss for both years and to comment on the trend. Question (b) asked for 3 ratios; the current ratio, creditor days ratio, and the gearing ratio, and part (iv) asked for a brief explanation of the significance for the company of each of the ratios calculated.
Question (c) asked for an explanation of how Steven and Keir can prevent charges of wrongful trading if they continued trading.
Question (d) asked why a members’ voluntary liquidation may not be an option for them and finally, question (e) asked how the process of administration could help the company to avoid compulsory liquidation.
Overall this question felt it might be more of a challenge than Question 1.Here's a review of the Oct 20 exam paper for #CII #AF2 - it's all about applying technical knowledge, not just a repetition of facts. Click To Tweet
Finally to Question 3, where candidates were introduced to Bridget and Hans, the directors of a limited company set up in 2014. Both had SIPPs and both wanted to buy a second shop currently owned by Bridget’s brother.
The first question asked for the HMRC requirements for the purchase of the new shop via their SIPPs and the consequences if the requirements are not met.
Question (b) asked candidates to calculate the costs they will incur in the purchase of the new property, which included stamp duty and VAT, and part (ii) asked for the additional costs they may incur with the purchase such as advice and legal fees.
Question (c) was also a calculation: firstly, candidates had to work out the total amount Bridget and Hans could borrow using their SIPPs, and part (ii) asked for the shortfall and how this can be made up to finance the purchase of the shop.
Question (d) asked for the advantages of buying the new shop through their SIPPs, and finally, question (e) asked for an explanation of the impact on corporation tax if the new shop is bought through the limited company.
This question covered topics that have been tested before and again, should not have caused too many issues.
Overall, this paper tested some familiar areas that a well-prepared candidate should have been comfortable with answering, particularly those who had used past exam guides to help with their studies.
Comparing with October 2019’s AF2 Exam Paper
With the April exams having been cancelled, the previous AF2 exam was in October 2019 and at that time the following topics were tested:
- Bankruptcy and IVAs
- Liabilities of a sole trader
- Tax treatment of the sale of a business
- Buying business premises through a SSAS
- Keyperson insurance
- Shareholder protection and business trusts
- Paying tax as a sole trader and as a limited company
- Advantages of operating as a partnership and the potential business liability issues
- Business budgets and budgetary control
As you can see there is an overlap between this paper and the more recent 2020 paper. Future candidates should ensure that past papers are included in their study schedule to ensure they know the type of questions that are regularly asked and the format of the answers.
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!