10 Fatal ACCA FM Mistakes & How to Avoid Them Fast

10 Fatal ACCA FM Mistakes

The 10 most common ACCA FM exam mistakes, drawn directly from official examiner reports for September 2024 through December 2025 sittings, cost candidates between 10 and 30 marks each sitting. With FM’s pass rate stuck at 48–51% (ACCA official data), avoiding these specific errors is the fastest route to joining the passing minority. This guide names each mistake, shows you exactly which examiner report flagged it and which exam question it appeared in, and gives you a concrete fix.

Table of Contents

The 10 Mistakes: Summary Table

Mistake 1: Including Sunk Costs in NPV

Examiner report: MJ25, Sulu Co

What candidates did wrong: R&D costs of $200,000 already spent were included in the NPV calculation. Candidates also failed to add back the annual $50,000 amortisation of those sunk costs when converting from profit to cash flow.

The fix: Sunk costs are past expenditures that cannot be recovered regardless of the project decision. Exclude them entirely. If the question gives you a profit figure that includes amortisation of past R&D, add it back to convert to cash flow.

Quick test: Ask yourself — “Would this cost change if we reject the project?” If no, it’s sunk. Exclude it.

For the complete NPV technique guide, see our investment appraisal guide.

Mistake 2: Using Profit Instead of Cash Flows

Examiner report: SD24, Galle Co

What candidates did wrong: Too many candidates failed to convert from profit to cash flow. They either skipped adjustments entirely or deducted depreciation twice — once as an expense in the profit calculation, then again as a cash flow adjustment.

The fix: NPV uses cash flows, never accounting profits. The conversion process:

1. Start with operating profit
2. Add back depreciation (non-cash item)
3. Add back amortisation of sunk costs
4. Handle working capital changes separately

If the question gives revenue and costs directly (not profit), you’re already working with cash flows — don’t adjust what doesn’t need adjusting.

Mistake 3: Working Capital — Total vs Incremental

Examiner report: SD24 & MJ25

What candidates did wrong: Working capital is described as one of the most reliable mark-losers in FM. Two errors dominate: (1) using the total working capital figure each year instead of the incremental change, and (2) failing to release working capital in the final year.

The fix:

Memory aid: Working capital cash flows are always the change from one year to the next, not the total amount needed.

Mistake 4: WACC — Book Values Instead of Market Values

Examiner report: SD25 (Meen Co), MJ25 (LSL Co)

What candidates did wrong: Common errors included using book values instead of market values, failing to weight costs correctly, and averaging costs rather than applying the WACC formula. The MJ25 report adds that candidates incorrectly added reserves to the market value of equity.

The fix:

• Equity market value = Shares outstanding × Current share price (not balance sheet equity)
• Debt market value = Current trading price × Nominal amount outstanding
• The share price already reflects retained earnings — do not add reserves

WACC = (E/V × Re) + (D/V × Rd × (1−T))

Full marks in SD25 were awarded where candidates clearly calculated market values first, then applied the weighted average. See our dedicated WACC and capital structure guide.

Mistake 5: Cost of Debt — Coupon Rate Instead of IRR

Examiner report: SD25, Meen Co

What candidates did wrong: Common errors included using the coupon rate (7%) as the cost of debt, failing to adjust interest for tax, using nominal instead of market values, and applying a perpetuity method to redeemable debt (for which no marks were available).

The fix: For redeemable debt, calculate the IRR of the after-tax cash flows:

1. Current market price = T0 inflow
2. Annual interest × (1−T) = annual cash flows
3. Redemption value = final year cash flow
4. Use interpolation to find the rate giving NPV = 0

Only use the perpetuity formula Kd = Interest(1−T) ÷ MV for irredeemable (undated) debt. The examiner specifically stated that perpetuity applied to redeemable debt scored zero.

Mistake 6: Gearing Formula Mix-Up

Examiner report: MJ25, LSL Co

What candidates did wrong: The most common gearing errors involved (1) using book values instead of market values, (2) applying D/(D+E) when D/E was required, and (3) adding reserves to market equity value.

The fix: Read the question requirement precisely. D/E and D/(D+E) give different answers:

• D/E for LSL Co: $780m ÷ $3,300m = 23%
• D/(D+E) for LSL Co: $780m ÷ $4,080m = 19%

If the question provides an industry benchmark using a specific formula, match that formula exactly. See our capital structure guide for the full gearing framework.

Mistake 7: IRR Interpolation Sign Errors

Examiner report: SD24 & MJ25

What candidates did wrong: Candidates mix up which NPV goes where in the interpolation formula, use two positive (or two negative) NPVs instead of one of each, or make arithmetic slips under pressure. The examiner highlighted that one sign error can shift the IRR from the correct 9.3% to an absurd 21%.

The fix:

IRR = a + [NPV_a ÷ (NPV_a − NPV_b)] × (b − a)

Where a = lower rate (positive NPV), b = higher rate (negative NPV).

Always label your workings: write out which rate produced which NPV before substituting. The examiner awards method marks, so clear workings protect you even if arithmetic slips.

For the full IRR vs NPV comparison, see our investment appraisal guide.

Mistake 8: Tax Timing Assumptions

Examiner report: SD24, Galle Co

What candidates did wrong: Candidates automatically deferred tax payments by one year, even when the question explicitly stated that tax is paid in the year it arises.

The fix: Never assume tax timing — always read the question. The two scenarios:

This also affects tax-allowable depreciation timing. If TAD is claimed in Year 1 but tax is in arrears, the benefit appears in Year 2.

Mistake 9: Generic Discussion Answers

Examiner report: SD25, MJ25

What candidates did wrong: The SD25 examiner states that high-quality answers engaged with the company scenario and applied theory to the specific situation. Candidates who wrote generic textbook definitions of MM theory or pecking order without linking to the company scored poorly. The examiner also noted that bullet points are not acceptable for “discuss/evaluate” requirements.

The fix:

1. State the theory — one sentence identifying the framework
2. Apply to the scenario — use the company’s actual numbers (gearing ratio, WACC, industry benchmark)
3. Reach a conclusion — advise the board based on your analysis

Write in full sentences for discussion marks. Use the company name. Reference specific figures from your calculations. For risk management discussions, the same principle applies — apply hedging theory to the company’s specific exposure.

Mistake 10: Answering Questions Not Asked

Examiner report: SD24, Galle Co

What candidates did wrong: The examiner noted that time was wasted on defining risk and uncertainty, and on calculating methods such as NPV, IRR, and ROCE, which scored no marks because they were not asked for. Candidates answered the question they expected rather than the one that was set.

The fix:

• Read the requirement twice before starting
• Underline action verbs: “calculate,” “discuss,” “advise,” “evaluate”
• If the requirement says “calculate the NPV,” do not also calculate IRR unless asked
• If the requirement says “discuss the reasons for capital rationing,” do not calculate the profitability index

The SD24 examiner recommends studying all previously published questions on the ACCA Practice Platform.

How to Use This Guide: A 4-Week Action Plan

For the complete FM exam strategy including Section A/B/C techniques, time management, and spreadsheet tips, see our FM exam tips guide.

For all ACCA FM technical articles in one place, visit our FM technical articles compilation. Students needing structured study materials can explore BPP FM printed books or BPP ECR online classes. For valuation-specific techniques, see our FM valuation guide.

FAQ: ACCA FM Exam Mistakes

For official ACCA FM exam guidance, syllabus updates, and past papers, visit the ACCA FM resource page.