CMA Foundation Paper 2 (FFCA) common mistakes
CMA Foundation Paper 2 (FFCA) · Understand the traps and how to avoid them.
Recording a transaction on the wrong side of the account or omitting the corresponding credit, so that the trial balance still agrees but the error stays hidden.
Candidates learn the double-entry rule as a rote phrase ('debit the receiver') and then post line by line without checking that every entry has equal debits and credits in the correct accounts; compensating errors are the ones that survive a trial balance, so practice feedback never flags them.
What to do instead
After each journal entry, state the two accounts affected and their nature (asset, liability, capital, income, expense) before writing Dr/Cr, then confirm total debits equal total credits for that single entry. Separately memorise which error types a trial balance cannot detect (error of principle, complete omission, compensating error, wrong account of the same class) so you stop treating a balanced trial balance as proof of accuracy.
Treating a capital payment (e.g., purchase of machinery, repayment of a loan) as a revenue expense, or a revenue item as capital, when preparing the final accounts.
The classification depends on benefit period and nature of the item, not on the size of the amount or the name of the supplier; candidates under time pressure default to the account name (e.g., 'repairs' or 'installation charges') without asking whether the spend creates a lasting asset.
What to do instead
Apply a two-question test to every ambiguous item: does it give benefit beyond the current period, and does it increase earning capacity rather than maintain it? Classify installation, carriage inward on plant and legal fees on property as capital; classify routine repairs and annual maintenance as revenue. Practise a mixed list of ten such items and justify each in one line.
Failing to adjust for outstanding expenses, prepaid expenses, accrued income, income received in advance and depreciation before preparing the financial statements.
Candidates prepare the trading and profit and loss account directly from the trial balance, forgetting that the trial balance is pre-adjustment; adjustments appear as notes and are easy to overlook when the clock is running.
What to do instead
Adopt a fixed routine: list every adjustment, and for each write the double entry and its two effects (one on profit, one on the balance sheet) before touching the statements. Use a working table with columns for item, P&L effect, asset/liability effect. Verify the adjusted profit by recomputing from the trial balance profit.
Mismatching the closing stock figure between the trading account and the balance sheet, or forgetting to adjust closing stock for goods drawn by the proprietor or for damaged stock.
Closing stock appears in two places and candidates update one but not the other; goods taken for personal use and abnormal losses are treated as ordinary sales or ignored entirely.
What to do instead
Treat closing stock as a single number carried to both statements, and adjust it first for drawings in goods and abnormal loss before using it. Write the adjusted stock value at the top of the workings page and reference it in both places. Reconcile by checking that the balance sheet totals after every change.
Preparing a bank reconciliation starting from the cash book and treating cheques deposited but not yet credited as a deduction from the bank statement balance.
Candidates memorise the direction of adjustments as a list without understanding the reconciling logic, so they apply the adjustment to the wrong starting point or in the wrong direction.
What to do instead
Always state the starting point explicitly (balance as per cash book or as per bank statement) and derive each item from first principles: ask whether the item has already been recorded in the book you are starting from. Practise the same data from both starting points and check the two reconciliations agree.
Computing depreciation on the original cost under the reducing balance method (or on written-down value under straight line), and charging a full year's depreciation on assets bought mid-year.
Both methods use the same vocabulary and the formula is recalled loosely; the time-apportionment rule is forgotten because most textbook examples assume a full year.
What to do instead
Write the method name at the top of the working and apply its base explicitly: cost less residual value over useful life for straight line, opening written-down value for reducing balance. Apply depreciation pro rata from the date of purchase or sale unless the question states a full-year policy, and show the asset account and provision account together so the closing book value is visible.
Mixing up the treatment of normal loss, abnormal loss and abnormal gain in process costing, and valuing closing work in progress without an equivalent-units computation.
Candidates treat all losses as a deduction from cost, forgetting that normal loss is absorbed by good output while abnormal loss and gain are valued at the normal cost per unit and taken to the profit and loss account; equivalent units require a separate discipline that is often skipped.
What to do instead
For every process account, first compute normal output and the normal cost per unit on the basis of normal output (scrap value of normal loss reduces process cost). Value abnormal loss and abnormal gain at that normal cost per unit and route them to the P&L. For WIP, prepare a statement of equivalent units by element (material, labour, overhead) with a stated degree of completion, then cost per equivalent unit.
Classifying a cost as fixed or variable by its name, and treating a stepped or semi-variable cost as purely fixed or purely variable when computing contribution and break-even.
Candidates rely on labels such as 'rent' or 'power' instead of cost behaviour within the relevant range; semi-variable costs need a high-low or scatter separation that is easy to skip under exam pressure.
What to do instead
Classify by behaviour over the relevant range, and split semi-variable costs using the high-low method before computing contribution. State the relevant range and the assumptions in one line. Check the answer by recomputing total cost at two activity levels and confirming the fixed element stays constant.
Using the total absorption cost instead of relevant cost when deciding whether to accept a special order or make or buy a component.
Candidates default to the profit figure from the cost sheet because it looks authoritative, ignoring that fixed costs already absorbed are not relevant and that opportunity cost of scarce capacity must be included.
What to do instead
Build a relevant-cost schedule that includes only future, incremental cash flows and opportunity costs, and explicitly excludes sunk costs and apportioned fixed overhead. Test the decision against spare capacity: if capacity is limited, add the contribution forgone on displaced sales. State the qualitative factors briefly alongside the number.
Presenting a cost sheet that mixes prime cost, works cost, cost of production and cost of sales, and omitting items such as direct expenses, factory overhead absorption or closing finished goods stock.
The vertical format has a fixed sequence of subtotals, and candidates add items in the order they appear in the question rather than in the cost-sheet order; opening and closing stock of finished goods is a common omission.
What to do instead
Memorise and reproduce the standard ladder before entering numbers: direct material consumed, direct labour, direct expenses, prime cost; add factory overhead and adjust WIP for works cost; adjust finished goods and add administration overhead for cost of production; add selling and distribution overhead for cost of sales. Leave a blank line for each subtotal and check each against its definition.