CIMA P2 Common Mistakes & Exam Technique
P2 builds directly on P1's technical base, and most errors come from applying a familiar formula in the wrong direction or to the wrong figure, rather than not knowing the concept at all.
1. ROI can cause goal-incongruent decisions that residual income avoids
A division with a high existing ROI may reject a project that's genuinely worthwhile (return above the cost of capital) because it would dilute the division's average ROI. Residual income doesn't have this problem, since any project earning above the cost of capital increases RI. Questions on divisional investment decisions are often testing this specific distinction, not just the two calculations themselves.
2. Transfer pricing has a minimum and a maximum, and they belong to different divisions
The minimum transfer price (from the selling division's perspective) is marginal cost plus any opportunity cost of the internal sale; the maximum (from the buying division's perspective) is the lower of the external market price and the net value the buyer can generate from it. Mixing up which division's viewpoint each figure represents is a frequent source of error.
3. MIRR applies different rates to inflows and outflows — check which is which
Modified IRR reinvests cash inflows at a specified reinvestment rate and discounts outflows at the finance rate, rather than assuming a single rate for everything as with a simple IRR. Applying the wrong rate to the wrong cash flow direction gives a meaningless result.
4. Balanced scorecard measures must be mapped to the correct perspective
Customer perspective measures (retention, satisfaction) are frequently confused with internal business process measures (cycle time, defect rates) since both ultimately relate to how the organisation runs. Check what the measure is actually assessing — the customer's experience, or the organisation's internal operations — before assigning it a perspective.
5. EVA adjustments can increase profit relative to the RI-basis figure, not just decrease it
Capitalising an item (such as R&D) that was originally expensed in full for RI purposes means only a portion is charged in the current year under EVA — this makes EVA profit higher than the RI-basis figure for that adjustment, the opposite of what many candidates assume by default.
Practise these in context: every P2 question on GoQualified is mapped to the current AICPA & CIMA blueprint, with a full worked explanation so you can see exactly where the marks are. Switch to Exam Sim mode for a timed P2 mock exam (60q / 90 mins) under real exam conditions. Free, no login.