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How to approach extended writing tasks

Suitable for

the AAT Accounting Qualification

at

Level 3

and

Level 4

Alan Dawson, B.Ed (Hons), MAAT

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Contents

Page

Introduction 3 What examiners are looking for 4 Read the question 5 Planning your answers 7 Selecting the format 9 Writing the answers 11 Examples 14 What not to write 29 Summary 31

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Introduction

The AAT have introduced extended written tasks in some of their accounting qualification units. This booklet is not intended to explain the principles of these units, but it does explain how to write answers which will improve your skills at written English. Many students have come across these units and are not prepared for the extent or style of English that will be required to achieve good marks in these tasks. Simply repeated text from the study manuals is unlikely to be awarded full marks, and in many cases will achieve very few marks at all. The extended writing tasks are designed to assess the candidates’ extent of knowledge and (above all) the application of their knowledge to real situations. There will never be just one right answer to these tasks and the nature of the required answers will vary according to the unit and to how the question is worded. It is hoped that this booklet will give candidates a better idea of how to approach these questions and how to construct well prepared answers. This booklet will not cover the details of each unit as this is given in the study manuals. Here we will simply look at how to create well structured sentences and how to express details and ideas in a way which will achieve the highest marks. The units which will require extended writing tasks are LEVEL 3

Professional Ethics (PETH) LEVEL 4

Financial Performance (FPFM)

Budgeting (BDGT)

Financial Statements (FSTM)

Cash Management (CSHM)

Credit Control (CRDC)

External Auditing (EXTA)

Business Tax (BTAX)

Personal Tax (PAX)

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What examiners are looking for

The answers to the questions will be marked from several different viewpoints.

1) You must be able to communicate clearly, effectively and imaginatively. You must know how to write for a particular purpose (e.g. to inform or to explain). You must know how to write in a specific form (e.g. an email, a business letter or a report). You must know how to write for a specific audience (e.g. your manager, your shareholders or the general public).

2) You must choose appropriate vocabulary relevant to the form, purpose and

audience. You would use a different vocabulary when writing to your friend from writing to your managing director.

3) You must organise the information and ideas into a structured sequence.

Not only do you need to have a number of ideas, but you will also need to structure them. You should have a clear opening, a clear and logical sequence of paragraphs and (if required) a powerful conclusion.

4) Ideas should flow from one to the other and should have an overall sense

of connection. If you’ve planned your answer it will show in your writing.

5) Grammar, punctuation and spelling are not specifically assessed, but they are signs of a good writer and will impress your examiner. Make sure you spell the technical words correctly. ‘Professional’ and ‘independence’ are words often misspelled, but you ought to be able to get these right. Poor grammar and spelling indicate a poor approach to writing your answer.

6) While examiners are looking for good knowledge and understanding of the

topic(s), they don’t want to read a list of facts. Instead, they will want to see how you can arrange selected facts into a structured response.

7) You will need to interpret the subject yourself. The examiner is looking for

your analysis and not a copy of what you have read in the book or heard from other people. Often there are no ‘right’ answers, only good ones. They are looking for a well argued and well constructed answer.

8) Make sure your answer is relevant. While you might think that including

just about everything you know about the topic will get you more marks, it won’t. You should only include relevant facts. Don’t speculate on possible causes or effects unless you are asked to. Use the facts you are given and build your answer around them.

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Read the question

This may at first seem obvious, but many marks have been lost because the candidate has given a good answer to the wrong question. Obviously you will need to know the subject matter, but you will also need to know how to organise your answer. The way you answer will often be determined by some key words in the question. Here is a list of the most common instructions in the extended writing tasks. STATE This requires the simplest form of an answer. There will be no analysis or explanation. You should give a clear account of the situation, or say exactly what you have learned. You may be asked to ‘state’ certain principles or terms. You should do this without comment, but even so, make sure you give your answer in sentences – lists and one word answers are not good responses. DESCRIBE Give a detailed explanation of how and why something happens. ANALYSE Break the issue into its individual parts. Look at each part and use supporting evidence for and against. Show how the individual parts interrelate. EXPLAIN Give reasons for and say why a situation occurs or is resolved. It may require you to say what is meant by the use of a particular term. You should show any sequence of events clearly, define key terms, and support your answer with relevant evidence. EVALUATE Decide on the merit of a situation or argument. You should state to what extent you agree or disagree. Provide evidence which agrees and provide evidence which disagrees. Come to a final conclusion and, based on the evidence given, say why you have come to that conclusion. In many cases the evidence will be overwhelming either for or against, but don’t be afraid to state your own conclusion. The examiner will be looking at how you have come to your conclusion more than the conclusion itself. IDENTIFY Say what are the key points to address and state what the implications are. COMMENT ON Pick out the main points and give your opinion. Back up your opinion with relevant evidence and/or logic. DISCUSS This is an opportunity to show your skills at reasoning. Select your evidence and be sure to show evidence both for and against. Make sure you arrive at a conclusion and explain why you have come to this conclusion referring to the evidence you have provided. REVIEW Look thoroughly into an issue. You should make a critical assessment and not simply a description.

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COMPARE You must identify the similarities and the differences between two or more issues or situations. It will not be sufficient to show only similarities. You must also show the differences. Comment on whether you think the similarities or differences are more important. ILLUSTRATE Give examples INDICATE Point out, but not in great detail. SHOW Demonstrate with supporting evidence. DEMONSTRATE Same as SHOW. RECOMMEND This is similar to ‘compare’ but you will be given a specific person or organisation to whom or to which you should address your answer. Your answer must end with a decision one way or another.

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Planning your answers

Good answers to extended writing tasks cannot be achieved without some sort of planning. How much planning will vary from person to person and question to question. If you are asked to ‘state’ there won’t be a lot of planning. You will simply need to remember the facts and write them out. If you are asked to ‘evaluate’ you will need much more planning. Let us take an example. Suppose we need to answer the question “Are we too dependent on technology?” You should write down the main things you want to say. To start with you should write down anything that comes into your head.

It makes us less active

Examples of technology – computers, iphones, games consoles, satellite navigation systems

Makes our lives easier

Easier communication

More access to information

Technology can be expensive

Makes business more efficient

People lose mental skills

People lose physical skills

People don’t get as much exercise

People may lose the ability to interact.

There are a lot of ideas here, but you should select those that are relevant to what you want to say and reject those that are irrelevant or don’t fit with what you want to say. It doesn’t matter how good an idea is; if it’s not relevant you must reject it. However, make sure you keep a balance between the positives and the negatives.

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The next stage is to develop these ideas. Let’s look at one attempt to develop the ideas.

1 Why technology is a good thing

2 Why we should have more technology

3 How we could not survive without technology

4 Conclusion that technology is essential. This plan is poor.

It considers only one point of view

The points are too vague

There is no introduction

Although there is a conclusion it doesn’t show how this conclusion has been arrived at.

Consider another attempt

1 Introduction – what do we understand by technology – computers, iphones, computer games consoles

2 What are the good points – makes our life easier – access to more

information and more quickly – makes businesses more efficient and gives more people access to them – makes communication easier and wider

3 What are the bad points – makes us less active – we may lose the mental

skills – we may lose physical skills – people lose the ability to interact

4 Conclusion – technology is useful but we must not let it dominate our personal lives.

This plan is much more useful. It shows the structure of our answer. It shows what we want to write and where in the answer we should write it. It will avoid the rambling answers given by some candidates and it will help produce a logical sequence of ideas. You will note that we have left out some of our original ideas. ‘Technology can be expensive’ doesn’t fit with what we want to say. ‘People don’t get much exercise’ is almost the same as ‘it makes us less active’.

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Selecting the format

Some questions will simply ask you to give the answer, but others will ask you to write a letter or send an email. You may also be asked to write a report. No format Some questions will simply ask you to write an answer. This doesn’t mean that you should abandon all the planning and preparation we covered on the previous pages. However, it does mean that you won’t need to bother with stating the subject matter, recipients and senders. Double check that there is no answer format required as you will lose marks if you don’t follow the correct format (see below). Email You won’t be given a real email to send but it will have the same format.

Make sure you include an email address. The email address should be given to you, but if not, make up a suitable one. It’s unlikely you will have the subject title given to you so what you put must be appropriate. Make sure it’s long enough to explain the contents, but not so long that it’s difficult to fit into the space available. You will be expected to show who the email is from. There may be a scenario where you have to give the name suggested in the question. If there isn’t one you should put your own name or your own position. This could be john.smith@business.co.uk or it could be trainee.accountant@office.com

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The business letter Business letters must use formal language. You will probably be given a house style letter heading. There must be the name and address of the person who the letter is going to. There must be a date. You will start the letter with either ‘Dear Sir or Madam’ or with ‘Dear …’ and then the name of the person. If you name the person either state Mr Jones or Mrs Smith, Remember that the closing for ‘Dear Sir or Madam’ is ‘Yours faithfully’ and ‘yours sincerely’ in all other cases.

The report If you are asked to write a report it will be a short report for all units except ISYS. This will be covered in another booklet. However, the report must include a person who it’s going to (along with their position if you know it), a person who it’s from, a date and a subject. You may again be given a scenario complete with names and dates, or you may have to put appropriate names and dates. In any case, be sure not to leave them out. To: Nikoloz Gilauri, Finance Manager From: Maria Fekter, Accounts Assistant Date: 22nd January 2016. Report on Staff Training Requirements for the coming year.

DAWSON SUPPLIES 45 Scartho Street, Immingham, IM15 2BH

The Purchasing Department Patel Fabrics 132 Anglian Way, Norwich, NR3 6FG 1st December 2015

Dear Sir or Madam:

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Writing the answer

You should always refer to your plan when writing the answers. Start by introducing what you intend to discuss. Paragraphs Each topic should be in its own paragraph. Start the paragraph with a topic sentence. This is like a sub-heading. For example “Technology can be useful to us in our lives”. The remaining sentences in the paragraph will develop the idea in more detail. Paragraphs should follow a logical sequence. You will need to use connectives. These are words and phrases to show how your ideas are linked together. Connectives include At first Later Consequently As a result In contrast Because of this Connectives keep your ideas together. They allow the reader to follow your reasoning and to see how one idea links to another. Being objective You must ensure that the reader doesn’t see your personal involvement being more important than the point you are trying to make. Avoid “I”, “me”, “we” or “us”. Instead of “We made a decision to …” write “The decision was to ….”. Instead of “I calculated the answer to be …”, write, “The answer was calculated to be….”

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Americanism Remember that this is an English qualification and so you should try to avoid American English. Below are some common differences you may come across when writing your answers British American centre center litre liter labour labor analyse analyze licence license Colloquial language Avoid colloquial language in your answers. Try to avoid informal language when writing a formal answer. “the business went bust” is better expressed by “the business went bankrupt” “the figures were rubbish” is better expressed as “the figures were poor”. Non academic language In less formal language it is common for non specific language to be used. People will often say “in this country”, or “we can see”. In academic language this is not specific enough. The questions arise ‘in what country?’ or ‘who can see?’. It would be better to write “in the United Kingdom”, and “it can be seen” Abbreviations Try to avoid literary abbreviations. You should not use “e.g.”, but use “for example”. Don’t use “i.e.” but use “that is”. Acronyms are abbreviations of an organisation, procedure or apparatus. HMRC is the acronym for Her Majesty’s Revenue and Customs. EC is the acronym for the European Community. Some acronyms are so common that they need no explanation (such as USA or DIY), but the convention on less common acronyms is that you should write it in full the first time it occurs with the acronym in brackets after. Subsequently just the acronym can be used

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Absolute terms Words such as “never”, “always” and “forever” should be used with caution. It doesn’t mean that they can’t be used, but you should ensure that never means never. For example “You will never lose your money if you invest in Icelandic banks”. The statement is almost true, but as many local authorities found to their cost, on rare occasions you could lose your money. Cliché’s Some expressions come into such frequent use that they lose their original meaning. “At the end of the day” “Take the bull by the horns” “Time will tell” “Reading between the lines” “Every cloud has a silver lining”. Take the following paragraph. “Time was running out for the business. It had been in the red for many a long year and the bank laid its cards on the table. It looked like the writing was on the wall when they were saved by the bell. The directors pulled out all the stops and gave the business a glimmer of hope, by propping up the business with an injection of cash. The business went from strength to strength and now the shares have gone through the roof”. The paragraph can only be understood if you understand all the cliché’s. Obviously there are far too many cliché’s here for a suitable academic answer. It is better to avoid cliché’s altogether, but certainly they should not be used in close proximity like this.

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Examples

Let’s look at some example questions and some example answers. It doesn’t matter if you have studied the relevant topics at this point. What you need to take from these examples are the principles. Example Question 1 State the elements of the triple bottom line in relation to sustainable development. So here the important word to look at is ‘State’. This means that you simply need to recall the elements without comment or explanation. Planning will simply be the list of elements:

Social equality

Environmental protection

Economic growth For such a short list you may not want to write this down, but be careful with longer lists. Writing them down will help to ensure you haven’t left any out. Remember that a list is unlikely to get you full marks so you may need to put it in a sentence or two. Example Answer 1 The triple bottom line has three elements. They are social equality, environmental protection and economic growth. This is sometimes abbreviated to ‘people, planet and profit’. Because the question asks you to ‘state’ there is no need for you to write anything else. You won’t lose marks if you write more, but you will lose time.

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Now let’s look at a question which at first appears to be the same, but will require a very different answer. Example Question 2 Describe the elements of the triple bottom line in relation to sustainable development. Here you should see that the key word is ‘describe’. Example answer 1 would struggle to get you half marks here. ‘Describe’ will require a detailed explanation as well as stating the elements. Don’t go headlong into writing your answer – prepare it first. If you don’t you could finish up with a rambling answer with possible omissions. You want to organise your ideas and make sure you have answered the question fully. You first need to collect your ideas. Your initial planning could look something like this:- Care for environment Economic benefit to the whole community Avoid cutting down trees Contribute to local community Happy workers Save energy Recycle Donations to local charities and clubs Safe working Deal with only ‘green’ suppliers Giving back to the community Bruntland report

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You may be able to think of other ideas, but next we need to organise our ideas. Introduction – Bruntland report - state the elements – people, planet and profit Social equality – people – ensuring employees are happy – contribute to local community – social impact of the business – safe working environment – fair working hours – giving to the community – health care – donations to local charities – care for society in general – overseas suppliers Environmental protection – planet – care for the environment – avoiding destructive practices – avoid cutting down trees – save energy – reduce waste – recycle Economic growth – profit – not traditional profit – economic benefit of the whole society – creating wealth not only for business – creating employment – profits will sustain the community. We don’t need a conclusion because we are only asked to ‘explain’. Now let us construct our answer Example Answer 2 The triple bottom line arose from the Bruntland Report of 1987. The report identified three components of sustainable development. They are social equality, environmental protection and economic growth. It can be abbreviated to people, planet and profit. Social equality means sustaining the well-being of people. The people referred to would include employees. A socially responsible organisation would ensure that workers are paid a fair wage and work for a suitable number of hours a day/week. It may provide health care for the employees, education and training, or even recreational facilities. However, social equality is not restricted to the organisations own workforce. It would extend to the local community as well. A socially responsible organisation would give donations to local charities and sponsor local sporting events. Further afield, the organisation would ensure that its overseas suppliers provided decent working conditions for its employees and there was no exploitation of certain groups such as children or the underprivileged. Environmental protection means preserving the planet’s resources. The environmentally responsible organisation would care for the environment by avoiding destructive practices such as cutting down trees without replacing them, or over fishing. The organisation would reduce its carbon footprint by following a policy of saving energy (such as switching off unnecessary lights) and reducing waste by recycling. Economic growth means creating wealth, but not simply the traditional profit for the organisation. It involves creating wealth for the community and economic benefits for society in general. Economically responsible organisations will create jobs, introduce

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education and training programmes for its workers and the local community and generally create an environment which will sustain the community. The question asked for a description, so there is no need for further comment. Now let’s look at a question which needs the most complex answer. Example Question 3 Evaluate the following statement: “For a business to succeed in the 21st Century, it must adopt triple bottom line accounting”. ‘Evaluate’ is the key word in the question. This requires you to decide on the merit (or otherwise) of the statement. You will need to provide evidence both for and against the statement and it will require you to come to a final conclusion. Whether you decide to agree or disagree with the statement really doesn’t matter. The important point here is how you have presented your argument. You will need to interpret the statement yourself. The examiner is looking for your interpretation and not a copy of what you have read in the book or heard from other people. Beware of copying other people’s ideas without the relevant acknowledgement. If you try to pass off other people’s work as your own the consequences can be very harsh (see later in this booklet). Similarly, simply stating what you have read in the study manual will get you very few marks.

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Let’s look at a possible initial plan. planet, people, profit directors have a conflict between satisfying shareholders and satisfying the community Try to do no harm to the environment Financing the community can be expensive Need to look at the long term future of the business Difficult to measure people and planet in financial terms Future is unsustainable without concern about the environment Sustainability is seen as expensive and time consuming Our planet is in danger of running out of resources If you look after your workers there will be decreased employee turnover Business must still make a profit in order to be able to function TBL must not be used as a cheap publicity stunt Reducing waste can reduce expenses A business must be seen as more than just creating profits for its shareholders Social responsibility will boost reputation Resistance to change There are no standards on what to report

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Now we need to organise our ideas. Some ideas will be rejected. Even if you think it’s a good idea you must reject it if it doesn’t fit in with your answer. Introduction – what is TBL - planet, people, profit – used due to growing demand Businesses must reduce the harm to the environment – some procedures will actually reduce costs – switching off lights – recycling Businesses must look after their workforce – easier to recruit – decreased employee turnover – looking after the community – better reputation – increase in share price and revenue. Disadvantages – resistance to change – conflict between shareholder needs and community needs Difficult to measure people and planet in financial terms – sustainability is seen by some as a publicity stunt. Businesses need to cut costs, but financing the community costs money. TBL reporting costs time No standards on what to report in TBL If sustainability is not adopted there will be no business in the future A business must be seen as more than creating profits Conclusion – agree with statement Now we need to build our plan into full sentences and paragraphs. There should be a short explanation of the technical terms. Here the Triple Bottom Line is explained very briefly, but not nearly in so much detail as in example 2. When writing the answer make sure you use business language. This must not be so technical that a reasonable person cannot understand it (unless you explain the terms) but the language must not be infantile. The example answer below gives a full answer. You may be able to think of further ideas which you would include yourself if faced with this question. You may not agree with the conclusion. However, the process is the important point to learn here. There is an introduction and a conclusion. Both advantages and disadvantages are discussed in full. There is also a rationale as to why the conclusion has been arrived at. You should note that the answer NEVER uses ‘I’ or ‘we’ even though the conclusion is a personal opinion.

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Example Answer 3 There are growing demands on businesses from shareholders and the community at large to provide more information about the operations of a business than simply the monetary profit it has achieved over a set period. Companies are being encouraged to include information on sustainability. John Elkington came up with the phrase the ‘triple bottom line’ (TBL) as a method for measuring sustainability. The factors to measure are social, environmental and economic (people, planet and profit). Businesses are recognising that there are finite resources today, and, more importantly, in the future, so there should be additional reporting by companies on sustainability factors. Many businesses are coming to the viewpoint that they must look at what impact they have on the world around them. It is vital that they lessen the chance that their activities will cause harm to global resources. Some environmentally sustaining activities will actually reduce costs. For example, switching off unnecessary lighting or recycling materials will have a positive impact on costs Businesses are realising that looking after their workforce will not only benefit the employees, but will benefit the business as well. Employee recruitment becomes easier and employee turnover will be much reduced. Looking after the local community also has its advantages. The company’s reputation will be boosted and this will lead to an increase in share price and an increase in the number of people wanting to buy from the business. The TBL is not without its disadvantages. As with any new procedure there is always resistance. There is fear of the unknown, or the feeling that ultimately nothing will change. Directors may see a conflict between satisfying shareholders and satisfying the community. Social and environmental factors are hard to quantify. How do you measure the social or environmental impact of your business? There are concerns by some businesses that the TBL is nothing more than a publicity stunt. All reports cost money to compile, but social and environmental reporting makes no improvement to the company’s earnings. In times of austerity, businesses need to cut their costs to survive; not add more. Additional reporting costs time. It is of no benefit to adopt the TBL if the public and stakeholders are not made aware of its contents. Informing the public takes time which could be used better in running the business. Businesses that behave unethically are fully aware of their actions and are unlikely to stop practices which create extra monetary profits. There are no reporting standards, so a business can report how well it is doing at recycling, but omit to mention that it buys materials from other countries where child labour is used. On balance, those who reject the TBL approach are looking only at short term financial profits. If businesses don’t adopt an environmentally sustainable approach there will be no raw materials for the business in future years. If the community is not

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sustained and the workforce moves away there will be no labour for the business in years to come. Building a business is more than simply creating profits for its shareholders. Building a business is creating wealth and well-being in its environment, both locally and worldwide. Therefore, if a business in the 21st Century does not adopt the TBL approach there will be no business at all in the future. In conclusion, the statement “For a business to succeed in the 21st Century, it must adopt triple bottom line accounting” is a valid one. It is unlikely you will be required to give an answer as extensive as this in the AAT exams, but the process will be the same, no matter how long the answer should be. You should not write more than what is required. What is required will vary from question to question and to a large extent depend on the key word (e.g. ‘State’, ‘Explain’, ‘Evaluate’, etc). Your answer should be concise and not brief. Make sure you make your point but don’t labour your point. Your argument will have less impact if you write more than is necessary to express what you want to express.

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Let’s look at one more example. We’ll look at a financial reporting exercise this time. Example Question 4 You are provided with the following information about Alpha Ltd and Beta Ltd.

Alpha Ltd Beta Ltd

Operating Profit for the year £1,500,000 £950,000 Return on shareholders funds 15.1% 24.3% Gross profit percentage 43% 45% Gearing 38.6% 17.8% Interest cover 3.7 times 13.7 times a) Explain the meaning of each ratio b) Comment on the relative profitability and financial position of the two

companies based on the information given. c) Recommend to your managing director which company she should invest in Here there are three parts to the question. It seems obvious, but ensure you answer all three parts. In the heat of the moment it is quite possible to answer the first two parts and forget completely about the final part. It’s a good idea to write down a, b and c and tick them off as you answer them. The first part of the question has the key word ‘explain’. You will remember that this will require you to say what is meant by the use of the terms and relate it to the figures given.

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The plan should be quite straightforward. Return on shareholders funds – profit generated by the use of equity finance - Beta has generated more profit from the funds available. Gross profit percentage – percentage profit generated by the revenue of the company without reference to expenses – Beta slightly better Gearing – shows how much the business is financed by debt – Alpha has relatively more debt Interest cover – shows how many times the finance costs could be met out of the profit generated – Beta better. The ideas are already organised so we can extend our ideas into full sentences. Example Answer 4 a) Four ratios are given for consideration for the businesses Return on shareholders funds shows the profit which has been generated from the investments made by the shareholders. It shows the percentage return the shareholders receive on their investment. If the percentage drops or is small the shareholder may decide to invest elsewhere. In this case the shareholder will get a better return from Beta Ltd. Gross profit percentage shows the profit generated from sales based purely on the cost of the goods to be sold. What is a good percentage figure will vary from one business area to another and from one size of business to another. A large business can successfully have a smaller gross profit percentage compared to a small one because of the larger revenue. The actual amount of profit will be higher even though the percentage may be lower. Here Beta Ltd has a marginally better gross profit percentage Gearing shows the long term financial stability of the company. It shows what percentage the business is financed by debt. The higher the percentage, the less secure the business. Debt is not bad if managed carefully, but it must never become uncontrollable. Here Alpha has more of its assets financed by debt. Interest cover shows how many times profits can cover the cost of interest on debts. It shows the level of safety of a business due to it generating profits sufficient to cover the cost of debt. The more times the cover the better. Here Beta Ltd is able to cover the interest costs many more times than Alpha. You will remember that ‘explain’ doesn’t require your opinion. In the answer above we have explained each of the ratios and related the answer to the information given.

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The key words in part (b) are ‘Comment on’. Now you ARE required to give your opinion. However, it’s not just a matter of saying one is better than the other. While you may come to this conclusion, you will need to explain your argument. The initial planning may look similar to this:- Alpha Ltd makes more profit in monetary terms. Shareholders get more for their money from Beta Ltd than Alpha Ltd. Alpha has slightly lower GP percentage. Alpha the larger company and so can afford a lower GP percentage. £1,500,000 / 15.1% = £9.9m in shares £950,000 / 24.3% = £3.9m in shares Alpha has more of its assets tied up in debt Beta is much more able to afford its debts. Beta is the smaller company Beta has the smaller profit in monetary terms Beta is more efficient at generating profit

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These ideas will now need to be organised. These ideas can be organised in several different ways. You could organise them according to company or you could organise them according to ratio. Here I will organise them according to company, although you could still produce a good answer if you organised them according to ratio. You could also organise them according to profitability/financial position. Introduction – Alpha makes more profit in monetary terms – Alpha is the larger company - £15,000,000 / 15.1% = £9.9m in shares - £950,000 / 23.3% = £3.9m shares Alpha – 15.1% return on shareholders funds – far better than banks can offer- has more money to distribute to shareholders but there will probably be more shareholders or shareholders will need a larger investment to get the same return as Beta. Gross profit percentage is 43% - whether this is good or not will depend on the nature of the business. In any case, being a larger company than Beta it will be able to be successful on a lower gross profit percentage. Gearing - percentage of 38.6% - third of all its assets financed by debt - not necessarily a problem. Interest cover – 3.7 times – still manageable – more than ¼ of its profits is spent on interest. Beta – 24.3% return on shareholders funds – an attractive return for shareholders – has less profit to distribute but needs fewer funds to get a good return. Gross Profit percentage – 45% - depends on nature of business but almost in line with Alpha Ltd Gearing – 17.8% - less than a fifth of assets financed by debt – Beta seems more secure than Alpha Interest cover – 13.7 times – very little of its profits spent on interest. Had there not been a part (c) to the question, you would have given your opinion on the merits or otherwise of each company. As it is, we need to reserve our rationale on our opinion for the final part. It is vital that you read ALL the question before you answer any part of it. You need to cover each part fully. If you give your conclusion in part (b) there will not be enough for you to cover in part (c).

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So now let’s write out our answer to part (b) in full. Example Answer 4 b) From the figures provided we can see that Alpha Ltd makes a bigger profit monetarily than Beta Ltd. It can be calculated that Alpha is also the bigger company. If the profit is £15,000,000 and the return is 15.1% there must be £9.9m of shareholders funds invested in the business £15,000,000 / 15.1% = £9.9m in shares For Beta Ltd the calculation is £950,000 / 23.3% = £3.9m in shares. Alpha has a 15.1% return on shareholders funds. In the present economic climate this is far better than anything the banks can offer. Alpha has more money available to distribute to its shareholders than Beta, but there will either be more shareholders, or the shareholders will require a larger investment to receive the same return as Beta. The Gross Profit (GP) percentage for Alpha is 43%. How good this is will depend on the nature of the business. The industry average can be found from government statistics, but being a larger company it should be able to manage on a lower GP percentage than a smaller company such as Beta. Alpha’s gearing percentage is 38.6%. This means that over a third of its assets are financed by debt. This isn’t necessarily a problem but it may dissuade some potential investors particularly if it gets any higher. Interest cover is 3.7 times. Alpha is able to make enough profit to cover debt charges, but a quarter of all its profit is spent on interest. This means relatively less money for shareholders and could make some potential investors look elsewhere. Beta has a 24.3% return on shareholders funds. This is very attractive to potential investors. Although Beta has less profit in total to distribute to shareholders, they will need fewer funds in order to receive the return. GP percentage is 45%. To decide whether this is good or not will depend on the nature of the business, but it seems to be in line the GP percentage of Alpha. Beta’s gearing is 17.8%. Less than a fifth of all assets are financed by debt and as a result Beta seems a more secure business than Alpha. Beta’s interest cover is 13.7 times, meaning that very little of its profits are spent on interest costs.

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Now let’s look at part (c). The key word here is ‘Recommend’. You will have to say which of the two companies is better, but you must also show any reservations there might be in your answer. A good answer will not be all good or all bad. You are also told that you need to make your recommendation to your managing director. This will tell you the style of your answer. Had it said it was for your friend or colleague, your answer would have been much more ‘chatty’ in style. Here, however, your language needs to be formal and to the point. Much of the planning has been completed in part (b), but you should still lay out what you want to say and organise it. Alpha has a higher profit figure Beta more profitable – return on shareholders funds – funds available for distribution are limited if a large investment is required GP percentage is insignificant Beta has better financial position – lower gearing; higher interest cover – Alpha not in difficulties; it’s just Beta is better Limitations on the information available – no indication of future trends – no indication of past performance – we don’t know if there is a reason for the present figures Recommend Beta

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Example Answer 4 c) The profit figures for Alpha Ltd and Beta Ltd at first suggest that Alpha is making more profit. This is true if we look at the monetary figures, but a more in-depth analysis of the figures give a different viewpoint. Beta Ltd is the more profitable company. It has a higher return on shareholders funds which means that shareholders will get a better rate of return on their investments. However, the funds available for distribution are smaller than Alpha. This shouldn’t be a problem unless a multimillion pound investment is envisaged, as the amount of investment possible may be limited if this is the case. Beta has a slightly better Gross Profit (GP) percentage. The significance of this is not great as a larger business can be successful with a lower GP percentage. The difference between the two businesses is small and consequently not significant in the decision on whether to invest. Beta Ltd has a more secure financial position. Beta has significantly lower gearing and an even more significant interest cover. This means that Beta has a much lower percentage of its assets funded by debt and also the cost of the debts it has are much easier to cover from the profits made. The figures do not indicate that Alpha Ltd is in difficulties, but it does show that Beta Ltd is in a much healthier position. Care must be taken with the figures given. They show the situation only for the previous year. They give no indication of future trends. The figures don’t show whether Beta’s excellent financial position will continue to future years. Similarly, they don’t show if Alpha’s less attractive results will continue to be less attractive in the future. The figures available don’t show if there is a reason for the present position of either or both companies. Based on the figures given and the analysis performed, the recommendation is that Beta Ltd is a better investment than Alpha Ltd. Note how each point is qualified by either giving the case for the other company, or by showing the limitations of the figures given. The figures given here were overwhelming in favour of Beta so you would have difficulty in making a case for Alpha. This will usually be the case in the actual assessments. Even so, your actual recommendation is not based on a right or wrong answer, but on your ability to make your case. Note how the words ‘I’, ‘me’, ‘we’ and ‘us’ do not feature at all in the answers. Even when giving your recommendation it is far better to show that the analysis indicates what you recommend rather than personal preference.

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What not to write

Extended writing tasks are intended to assess your ability to adapt your knowledge and understanding in simulated situations. There will be other tasks in the assessment which assess your knowledge and (where appropriate) other tasks still which assess your calculation abilities. Therefore, you won’t get many marks in these extended writing tasks if you do no more than write what you have learned from the books. Remember that the examiners are looking for YOUR ideas. While you must have a good understanding of the topic, you must give your own interpretation of them. Beware of giving the answer you read in the book. Firstly the exam questions will give a different scenario from the one in your study manual. No matter how similar it seems, the actual exam question will require a different approach or a different outcome. The examiner is looking for your interpretation and not the one in the book. (The examiner has already seen the one in the book!!) You should beware of plagiarism. Plagiarism is the unacknowledged use of another person’s work as if it were your own. The term ‘work’ does not simply mean words. It includes ideas. The term ‘use’ does not only mean word for word copying, but it also includes paraphrases of what other people have said or done. Intentional plagiarism is regarded as a very serious offence by the AAT and there are a range of penalties, depending on the seriousness of the offence. It is therefore essential that you give your own answers and not those you have remembered from the book. Lists are acceptable when asked for, but not in extended writing tasks. Even when asked to ‘state’ you should write in complete sentences. There are a number of reasons for poor marks in exams.

1. Not answering the question set. You won’t get any marks for an answer that doesn’t address the question, no matter how good your writing is. You must carry out the precise instructions. If it says ‘explain’ then simply stating the terms will get very few marks. If you are asked to analyse, an explanation is not sufficient.

2. Giving undue weight to unimportant parts of the question. For example, an

introduction to your answer is important, but it should not be so extensive as to constitute more than the rest of your answer. If the question asks you to analyse, you will need to explain the terms but not to a greater extent than your analysis.

3. Not providing evidence to support your answer. You must never come to a

conclusion without supporting evidence.

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4. Providing irrelevant evidence. This is often associated with ‘waffling’. Don’t write for the sake of it. If it’s irrelevant, leave it out. If you’ve made your point don’t make it over and over again.

5. Factual errors. You must know the topic(s).

6. Lack of structure or logic to the answer. Planning your answer is essential.

7. Shallow answers. Not showing enough knowledge or failing to consider the

topic in enough detail.

8. Poor English. Spelling and grammar are not assessed, but you will need to ensure that your answer can be understood.

9. Half an answer. Failing to appreciate there are two parts to a question. If a

question says ‘explain and give recommendations’ an explanation alone is not sufficient.

10. Not considering different sides of a topic or argument. You must always

balance positives with negatives.

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Summary The AAT extended writing tasks should not be approached as an extra, unimportant part of the assessment. You can gain a lot of marks from good answers. In some ways they are easier than the calculations because there is no right or wrong answer. If you study thoroughly and prepare your answers with care they are a means of gaining lots of marks in your assessments. You will need to practice your writing skills before the actual assessment. If you are used to planning your writing, the answers to the questions in the assessment will become relatively straightforward. Remember that the examiner is looking to give you marks – not take them away. However, they will be restricted by following a strict marking guide. Examiners can’t give marks for wrong answers, incomplete answers or where the candidate hasn’t answered the question given. Don’t be afraid of giving your own opinion. Indeed, in many cases this is what is required. What is important is not what conclusion you come to, but how you have arrived at that conclusion. However, you can’t come to a conclusion without evidence. This is what the examiners are looking for. They want to see that you can base your conclusion objectively on the information presented to you. If you know your topic and follow the guidance in this booklet, there is every reason to believe that you will complete this type of question with excellent marks.