Ct2 FAQ

Discussion in 'CT2' started by Margaret Wood, Oct 16, 2006.

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  1. Margaret Wood

    Margaret Wood Member

    This thread contains the Subject CT2 questions asked most frequently by students, with answers written by ActEd's tutors. It was last updated January 2017.

    Question:

    I would like to clarify the examiner´s approach to marking the multiple-choice questions in the exam. Is there negative marking for questions attempted and answered incorrectly? If so, should the solution workings be shown to obtain partial credit or to distinguish it from a guess and avoid a negative mark for an incorrect answer?

    Answer:

    The MC marking is very simple - 2 marks for a correct answer, 0 for an incorrect answer. There is no negative marking.

    There is no need to show your workings in the exam. However, if you are doing assignments, it is a good idea to show your workings so that the marker can correct any mistakes.


    Question

    In Chapter 2, what does it mean when it says that a finance lease appears as an asset and a liability in a company's balance sheet?

    Answer

    It means that a finance lease is treated in the same way as a loan in the balance sheet. If a company takes out a finance lease on a vehicle, it leases it for the whole life of the vehicle. Although the company doesn't technically own the vehicle, it is recorded in the balance sheet as an asset of the company. Since it hasn't paid for the vehicle in full, it has a liability to pay the lease for the rest of the vehicle's life.

    This treatment contrasts with that of an operating lease (eg leasing a digger for a month), which does not appear in the balance sheet.

    Question

    I don't understand the taxation of dividend income, discussed in Chapter 3. What is meant by an "imputed" tax system?

    Answer

    A company pays dividends to its shareholders out of its post-tax profit, ie out of the profit it has left after it has paid corporation tax. The shareholders then receive the dividend as part of their income and therefore it could be subject to income tax. The government has to decide how to treat this dividend income. In some countries, the dividend income is taxed again. In the UK, the "imputed" tax system means that some of the tax paid by the company is "attributed to" the shareholder. The system has changed recently, but basic-rate taxpayers pay a very low rate of further tax on dividends received. Higher-rate tax-payers pay a higher rate of further tax. (All investors now receive a significant allowance that brings most people out of the bracket where they will pay any further tax at all, but this is not really anything to do with an imputation tax system!)


    Question

    Why would a creditor want a warrant in a bankrupt company?

    Answer

    A warrant is an option to buy shares in a company, so it does seem strange that these might be offered to creditors of a bankrupt company. However, if the company is bankrupt, the creditors are unlikely to get much anyway. Also, the administrators of the company might be able to sell off some assets or some whole parts of the company, reschedule some loans and get some creditors to accept "loans for equity" deals, so that the company might end up being worth something and could be sold to another company. By giving the creditors warrants, they have an incentive to try and negotiate some restructuring that gets the company back on its feet.

    Question

    Is it OK in Subject CT2 to write in bullet points?

    Answer

    Bullet points are fine provided they are of sufficient length to fully describe your idea. "Some customers may not have paid for the goods, causing a cashflow issue" is fine, whereas "goods on credit" is probably not.
     
    Last edited by a moderator: Jan 3, 2017
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