Chartered Institute of Management Accountants (CIMA) Management Level: Management Accounting (E2, F2, P2) Syllabus

What is a Gantt chart used for in project management?

A horizontal bar chart that shows project activities against a timescale, displaying start/finish dates, durations, overlaps and progress — useful for scheduling and monitoring.

In network analysis (critical path method), what is the 'critical path'?

The longest sequence of dependent activities through the network, determining the shortest possible project duration. Activities on it have zero float, so any delay delays the whole project.

Define 'float' (slack) in a project network and give the formula for total float.

Float is the time an activity can be delayed without affecting a later constraint. $$\text{Total float} = \text{Latest finish} - \text{Earliest start} - \text{Duration}$$

What is a PERT estimate of expected activity time, and what is the formula?

PERT uses a weighted average of three estimates. $$t_{e} = \frac{o + 4m + p}{6}$$ where $o$ = optimistic, $m$ = most likely, $p$ = pessimistic time.

What is the purpose of a 'Project Initiation Document' (PID)?

It defines the project — objectives, scope, deliverables, business case, roles, plan, budget and constraints — and acts as the baseline agreement and reference point for control throughout the project.

In consolidated accounts, how is goodwill on acquisition calculated (full goodwill method)?

$$\text{Goodwill} = (\text{Consideration transferred} + \text{NCI at acquisition} + \text{Fair value of previously held interest}) - \text{Fair value of net assets acquired}$$

How is non-controlling interest (NCI) measured at the acquisition date under IFRS 3 (two permitted methods)?

Either at fair value (full/'gross' goodwill method) or at the NCI's proportionate share of the acquiree's identifiable net assets (partial goodwill method).

How is an associate accounted for in consolidated financial statements?

Using the equity method: initially at cost, then the carrying amount is increased/decreased by the investor's share of post-acquisition profits/losses and other changes, with the share of profit shown in the consolidated income statement.

What ownership/influence thresholds distinguish a subsidiary, an associate, and a simple investment under IFRS?

Subsidiary = control (usually >50% voting, full consolidation). Associate = significant influence (presumed 20-50%, equity method). Below 20% (no significant influence) = investment under IFRS 9.

In a step acquisition where control is achieved, how is the previously held equity interest treated under IFRS 3?

It is remeasured to fair value at the date control is obtained, and any resulting gain or loss is recognised in profit or loss; this fair value forms part of the consideration in the goodwill calculation.

On disposal of a subsidiary, how is the group gain or loss on disposal broadly calculated?

$$\text{Gain/loss} = (\text{Proceeds} + \text{FV of any retained interest}) - (\text{Net assets at disposal} + \text{Goodwill remaining} - \text{NCI})$$ adjusted for amounts recycled from other comprehensive income.

Under IFRS 9, into which categories are financial assets classified, and on what basis?

Classified by business model and contractual cash flow ('SPPI') test into: amortised cost, fair value through other comprehensive income (FVOCI), or fair value through profit or loss (FVTPL).

What is the difference between a financial liability and an equity instrument under IAS 32?

A financial liability carries a contractual obligation to deliver cash or another financial asset; equity is a residual interest with no such obligation. Substance over form governs classification (e.g. redeemable preference shares are usually liabilities).

How is a compound (convertible) financial instrument split-accounted under IAS 32?

The liability component is measured first as the present value of cash flows discounted at the market rate for similar non-convertible debt; the equity component is the residual (total proceeds minus liability component).

What is hedge accounting designed to achieve, and name the three types of hedge relationship under IFRS 9.

It matches the timing of gains/losses on a hedging instrument with the hedged item to reduce P&L volatility. Types: fair value hedge, cash flow hedge, and hedge of a net investment in a foreign operation.

Under IFRS 9's 'expected credit loss' model, what are the three stages of impairment?

Stage 1: 12-month expected credit losses (no significant increase in credit risk). Stage 2: lifetime ECL (significant increase in credit risk, not yet credit-impaired). Stage 3: lifetime ECL on credit-impaired assets, with interest on the net carrying amount.

Under IFRS 15, what are the five steps of the revenue recognition model?

(1) Identify the contract, (2) identify the performance obligations, (3) determine the transaction price, (4) allocate the price to the obligations, (5) recognise revenue as/when each obligation is satisfied.

Under IFRS 16, how does a lessee account for a lease (excluding short-term/low-value exemptions)?

Recognise a right-of-use asset and a lease liability at the present value of lease payments. The asset is depreciated and the liability accrues interest; the single model removes the old operating/finance lease distinction for lessees.

Under IAS 37, what three conditions must be met to recognise a provision?

(1) A present obligation (legal or constructive) from a past event, (2) a probable outflow of economic benefits, and (3) a reliable estimate of the amount can be made.

What is the return on capital employed (ROCE) formula, and why is it a key profitability ratio?

$$\text{ROCE} = \frac{\text{Operating profit (PBIT)}}{\text{Capital employed}} \times 100\%$$ where capital employed = total equity + long-term debt. It measures how efficiently long-term funds generate operating profit.

How is the gearing ratio (capital gearing) calculated, and what does it indicate?

$$\text{Gearing} = \frac{\text{Debt}}{\text{Debt} + \text{Equity}} \times 100\% \quad\text{or}\quad \frac{\text{Debt}}{\text{Equity}}$$ It measures financial risk — the proportion of long-term finance from fixed-return debt.

State the formula for interest cover and what it measures.

$$\text{Interest cover} = \frac{\text{Profit before interest and tax (PBIT)}}{\text{Interest expense}}$$ It measures how many times operating profit covers interest, indicating ability to service debt.

What is the 'cash operating cycle' (working capital cycle) and how is it calculated?

The time between paying for inputs and receiving cash from customers. $$\text{Cycle} = \text{Inventory days} + \text{Receivables days} - \text{Payables days}$$

Give the formula for the current ratio and the quick (acid-test) ratio.

$$\text{Current ratio} = \frac{\text{Current assets}}{\text{Current liabilities}}, \qquad \text{Quick ratio} = \frac{\text{Current assets} - \text{Inventory}}{\text{Current liabilities}}$$

What is the formula for earnings per share (basic EPS) under IAS 33?

$$\text{Basic EPS} = \frac{\text{Profit attributable to ordinary shareholders}}{\text{Weighted average number of ordinary shares}}$$

Distinguish a rights issue from a bonus (scrip) issue of shares.

A rights issue raises new cash by offering existing shareholders new shares at a discount in proportion to holdings. A bonus issue raises no cash — it capitalises reserves to issue free shares, increasing share count without changing total equity.

What is the cost of equity using the dividend growth model (Gordon's model)?

$$K_{e} = \frac{D_{0}(1+g)}{P_{0}} + g$$ where $D_0$ = current dividend, $g$ = growth rate, $P_0$ = ex-div market price.

State the Capital Asset Pricing Model (CAPM) formula for the cost of equity.

$$K_{e} = R_{f} + \beta (R_{m} - R_{f})$$ where $R_f$ = risk-free rate, $\beta$ = systematic risk, and $(R_m - R_f)$ = the equity market risk premium.

State the formula for the post-tax cost of irredeemable debt.

$$K_{d} = \frac{i(1-T)}{P_{0}}$$ where $i$ = annual interest (coupon), $T$ = corporation tax rate, and $P_0$ = ex-interest market value of the debt.

State the weighted average cost of capital (WACC) formula for a firm with equity and debt.

$$\text{WACC} = \frac{E}{E+D}K_{e} + \frac{D}{E+D}K_{d}(1-T)$$ where $E$ and $D$ are the market values of equity and debt.

What is the contribution per unit, and how does it relate to the break-even point?

$$\text{Contribution} = \text{Selling price} - \text{Variable cost per unit}; \qquad \text{Break-even units} = \frac{\text{Fixed costs}}{\text{Contribution per unit}}$$

What is the margin of safety and how is it calculated (in units or %)?

The amount by which expected sales exceed break-even sales. $$\text{Margin of safety \%} = \frac{\text{Budgeted sales} - \text{Break-even sales}}{\text{Budgeted sales}} \times 100\%$$

What is the key difference between absorption costing and marginal costing in valuing inventory?

Absorption costing includes fixed production overheads in unit/inventory cost; marginal costing values inventory at variable cost only and treats fixed overheads as period costs. Profits differ when inventory levels change.

In Activity-Based Costing (ABC), what is a 'cost driver'?

The factor that causes the cost of an activity to change (e.g. number of set-ups, orders, or inspections). Overheads are assigned to products based on their consumption of cost drivers, giving more accurate product costs.

What is 'target costing' and how is the target cost derived?

A market-led technique where price is set first. $$\text{Target cost} = \text{Target selling price} - \text{Required profit margin}$$ The firm then engineers the product/process to meet that cost; any shortfall is the 'cost gap' to close.

What is the difference between value-added and non-value-added activities in lean/cost management?

Value-added activities increase the worth of a product to the customer; non-value-added activities (e.g. inspection, storage, waiting) consume resources without adding customer value and should be minimised or eliminated.

State the formula for net present value (NPV) and the decision rule.

$$NPV = \sum_{t=0}^{n} \frac{C_{t}}{(1+r)^{t}}$$ Accept the project if $NPV > 0$ (it increases shareholder wealth); reject if $NPV < 0$.

Define the internal rate of return (IRR) and its decision rule.

The discount rate at which $NPV = 0$. Decision rule: accept a project if $\text{IRR} > \text{cost of capital}$. It can be estimated by interpolation: $$IRR \approx L + \frac{N_{L}}{N_{L}-N_{H}}(H-L)$$

What is the formula for the discounted payback period concept, and one advantage over simple payback?

It is the time taken for cumulative discounted cash flows to recover the initial outlay. Advantage: it accounts for the time value of money, unlike simple payback which ignores it.

How is the present value of a perpetuity calculated (and a growing perpetuity)?

$$PV = \frac{C}{r}; \qquad \text{growing perpetuity } PV = \frac{C}{r-g}$$ where $C$ = annual cash flow, $r$ = discount rate, $g$ = growth rate.

What is the accounting rate of return (ARR) formula?

$$ARR = \frac{\text{Average annual accounting profit}}{\text{Average (or initial) investment}} \times 100\%$$ A project is accepted if ARR exceeds a target rate; it ignores the time value of money.

How is the equivalent annual cost (EAC) used to compare assets with different lives?

$$EAC = \frac{\text{PV of costs}}{\text{Annuity factor for the asset's life}}$$ The asset with the lowest EAC is preferred, since it converts differing-life cash flows into a comparable annual figure.

In transfer pricing, what is the general rule for the minimum transfer price a selling division should accept?

$$\text{Minimum transfer price} = \text{Marginal (variable) cost} + \text{Opportunity cost of the transferred unit}$$ If there is spare capacity, opportunity cost is zero, so the minimum is marginal cost.

Distinguish Residual Income (RI) from Return on Investment (ROI) as divisional performance measures.

ROI = controllable profit / divisional investment (a %). RI = controllable profit − (notional interest × investment), an absolute money figure. RI is goal-congruent because it accepts any project earning above the cost of capital, whereas ROI may reject such projects that lower the average.

State the formulas for ROI and Residual Income.

$$ROI = \frac{\text{Controllable divisional profit}}{\text{Divisional capital employed}} \times 100\%; \qquad RI = \text{Profit} - (\text{Cost of capital} \times \text{Investment})$$

What are the four perspectives of Kaplan and Norton's Balanced Scorecard?

Financial, customer, internal business process, and learning and growth (innovation) perspectives — linking long-term strategy to operational measures beyond purely financial ones.

In variance analysis, give the formula for the total sales margin variance and its two sub-variances.

Total sales margin variance splits into: sales price variance = $(\text{actual price} - \text{standard price}) \times \text{actual units}$, and sales volume variance = $(\text{actual units} - \text{budgeted units}) \times \text{standard margin per unit}$.

How are the material price and material usage variances calculated?

Material price variance $= (\text{standard price} - \text{actual price}) \times \text{actual quantity purchased}$. Material usage variance $= (\text{standard quantity for actual output} - \text{actual quantity}) \times \text{standard price}$.

What is the difference between feedback control and feedforward control?

Feedback control compares actual results with plan after the event and corrects future action (e.g. variance reports). Feedforward control compares a forecast of expected results with the desired outcome before the event and acts in advance to prevent deviation.

What is the difference between business risk and financial risk?

Business risk is the variability of operating profits arising from the nature of operations (demand, costs, competition). Financial risk is the additional variability in returns to shareholders caused by the use of debt (gearing) and fixed financing costs.

Name the four generic risk responses in the 'TARA' framework.

Transfer (e.g. insurance), Avoid (cease the activity), Reduce (controls to lower likelihood/impact), and Accept (retain the risk). The choice depends on the risk's likelihood and impact.

What are the three lines of defence in a risk management/internal control model?

First line: operational management that owns and manages risk. Second line: risk and compliance functions that oversee and monitor. Third line: internal audit providing independent assurance to the board/audit committee.

In COSO's framework, what is the difference between 'risk appetite' and 'risk tolerance'?

Risk appetite is the amount and type of risk an organisation is willing to pursue or retain to achieve its objectives. Risk tolerance is the acceptable level of variation around specific objectives — the practical boundary within the appetite.

What is the purpose of internal controls, and name the main categories in a typical classification.

To safeguard assets, ensure reliable reporting, promote efficiency and ensure compliance. Categories (e.g. mnemonic SPAMSOAP): Segregation of duties, Physical, Authorisation, Management, Supervision, Organisation, Arithmetic, and Personnel controls.