Did you know that theory requirements can be worth up to 12% of the total marks on the higher-level paper? It depends on your question choices but, either way, getting your theory answers right can be the difference between making or missing your target grade in the exam.
Theory is examined in almost every question on the higher-level paper and it’s become more popular with the examiner in recent years. Reports from the Chief Examiner have highlighted that many students score poorly when answering theory questions.
There are two reasons for this:
- Students forget to revise the key theory topics.
- Students don’t practice writing out theory answers under exam conditions.
Top tips for theory perfection
The good news is there is absolutely no reason for you not to excel at theory. Theory questions offer some of the easiest marks available in the exam. With the right preparation, it’s possible to score 100% in theory. That’s a nice handy 10 or 12% if you can get it!
To ace theory in your exam, I recommend you follow these steps:
- Set aside time to understand and revise theory in each topic;
- Pick the last 3 - 4 past exam questions in each topic and note any theory requirements;
- Summarise the answers for each topic and learn those answers by heart;
- Practice doing past exam questions in each topic under timed conditions;
- Always answer the theory requirements when doing these questions and write out your theory answers quickly using short bullet points.
The last bit is really important. Most students I tutor in my online classes are very good at practising past exam questions. But they often skip the theory part of questions when they practice them. It’s understandable – you get to the end of a long question, you look at the theory requirement and say “Hmmm, not sure about that, I’ll just look it up in the solution”. But you're giving up a golden opportunity to revise the theory and perfect your technique at answering theory questions quickly.
Mixing it up
There's actually not a huge amount of theory on your syllabus so the examiner likes to mix things up a bit. Very often, a theory question will be very similar to previous years but it will be asked in a slightly different way. For example, you could be asked about the benefits of low gearing in part (c) of the Interpretation of Accounts question. Then, the next time this comes up, the examiner might ask what are the disadvantages of high gearing. In that case you just need to state the opposite of the benefits of low gearing!
So, as you revise the theory in each topic, it’s a really good idea to try and think about the different ways in which the examiner might ask you to explain the same thing.
If you do encounter a theory question on the exam that looks completely new, chances are the answer is a very practical one. Think through the question and try and come up with simple common-sense answers. Write down what feels right and make sure you address the question being asked.
Now let’s look a model solution to a sample theory question. This example, from a recent past paper, is part (c) from the 100-mark question on Interpretation of Accounts (which is always Q.5):
(i) Explain the term ‘Gearing’.
(ii) What are the benefits to a business of having a low gearing?
(iii) State two ways to reduce the gearing of a company.(15)
Short and snappy!
With 15 marks available for this requirement you need to knock out your answer in under 7 minutes. If you spend any longer than that you’re eating into your time for other questions. So that means you have about two minutes for each of the three questions. No time for big long paragraphs. You need to use short, snappy bullet points.
Here’s my answer:
- Gearing is the percentage a company's capital employed that is financed by fixed interest capital (e.g. debentures, loans and preference shares).
- If gearing is > 50% a company has high gearing. If gearing is < 50% a company has low gearing.
- A highly geared company is riskier for ordinary shareholders as it is more dependent on outside providers of capital.
(ii) Benefits of low gearing
- The company is less dependent on outside providers of capital.
- Interest payments are lower so more profits are available for distribution to shareholders.
- This increases the scope for dividends.
- Lower interest payments means higher interest cover which makes the company less exposed if there is fall in profits.
- The company has more scope to increase gearing if required for new investment.
(iii) Ways to reduce gearing
- Reduce ordinary dividends thereby increasing shareholders' funds.
- Issue more ordinary shares.
Because I’ve used bullet points and short sentences in my answers, I can easily write all this down in 6 minutes or less. But unless you practice doing this under timed conditions, you won’t be able to do it in the exam! The other great thing about writing out the answers when you practice the questions is that your brain will remember those answers much more easily than if you just read them off a page.
I hope this article helps you to better prepare yourself for the theory requirements in the exam. If you need further guidance on the more likely topics to come up in your exam in June, check out my FREE 20-minute course called “Build Your Game Plan” which you’ll find here:
The most popular theory questions in each topic are covered in detail in the individual courses which you will find on the Course Page here:
Best of luck in your mocks!!