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Strategy for Cracking PE-2

Considering a professional approach, all the papers, and all the topics of each of the papers covered in the curriculum are equally important for any chartered accountant. However, from an exam perspective, we should plan our studies by analyzing the trend, so as to make sure that we do not over emphasize a "less important" topic at the cost of an "important" topic. So it is better to make a review of each of the topics, and make our studies "productive". Here is an analysis of each of the PE-2 papers.

Paper I: Accounts:

This seems to be a lengthy paper, but it is an easier subject as compared to others. It is more important to analyze this paper than any other paper as all the questions asked are compulsorily required to be answered. It is better to divide the subject into sections:

Section I: Single Entry, Departmental Accounts, Branch Accounts, Hire Purchase & Installment System, and Investment Accounts.

Section II: Cash Flow Statement, and Funds Flow Statement.

Section III: (Format Chapters): Accounts of Banking, Electricity Supply, and Insurance Companies. Insolvency Accounts (Non-Corporate), Liquidation of Companies, Company Final Accounts.

Section IV: Partnership Accounts.

Section V: Company Accounts (other than format chapters): Share Capital, Underwriting of Shares, Buyback of Shares, Redemption of Preference Shares and Debentures, Profit Prior to Incorporation, Amalgamation, Absorption, and External Reconstruction, Internal Reconstruction.

Section VI: Others: Farm Accounts, Government Accounts

Section VII: Accounting Standards

General Trend:

Generally 1 question is asked from Sec. I, II, & III each. At least 1 question is asked, either from Sec. IV or Section V. And, as we all know Q6 contains at least three questions from Accounting Standards (Sec VII).

Important chapters are:

Cash Flow Statement.

Fund Flow Statement.

Single Entry.

Hire Purchase.

Banking Cos.

Insurance. Cos.

Amalgamation, Absorption, and External Reconstruction.

Internal Reconstruction.

Important Accounting Standards are 6,12,18,16,17,22,4,5,9,20,26,7,12. Follow this sequence for AS. However, in the new course only limited standards are relevant. So we may plan our studies accordingly. Generally no separate questions in Q6 are asked from AS-3 (Cash Flow), AS-14 (Amalgamation), AS-11 (Foreign Currency), and AS-19 (Accounting for Leases), since these are already covered in the chapters. It is advisable to quickly finish Farm Accounting and Government Accounts from the compilation, and give time for other important topics. However, at least one question is generally asked from these topics in Q6.

Cash Flow Statement and Fund Flow Statement should be thoroughly prepared in accounts paper itself, because fund flow though usually not asked in accounts, is an important topic in FM, and we hardly get any time to revise all the topics on the last day of Costing and FM paper.

Paper II-Auditing

This paper has very limited syllabus as compared to others.

A combination of study material, reference books, and private compilation is advisable.

Company Auditor (Company Audit-I) is very important, one should use a reference book for this topic. Company Audit II is important for practical questions asked in Q1, and Q2. It is advisable to use private compilation for this chapter, for the only reason that module contains only theoretical concepts and provisions of the companies act in this chapter.

Vouching, verification, and special audits are chapters with lot of weight-age. However, we all know that these chapters are very general. One should have a quick read of these chapters from private compilation. Moreover, in the new course all of us are having a practical coverage of these chapters, during our practical training. One should read general considerations of vouching, and verification from module, and rest from a private compilation.

Read the first three chapters (Nature of Auditing, Audit Evidence, and Preparation of an Audit). Read the first one from a reference book, second and third from module. These chapters are important for short notes. Try starting the paper from short notes. Use the language of module, and give your best in this question, so that examiner is impressed and ignores the mistakes in other questions. In chapter 3, important topics are Audit Working Papers, Audit Risk (especially for short note question), and Sampling. Try to give your best in presenting your answers for short notes.

In case of time constraint, students leave any one topic in option, however while doing this one should note that all the other topics are prepared thoroughly. Generally students prefer to leave "Internal Control" (although very important in practical situations) topic in option. If one is leaving this topic, at least he should not leave topics like "Auditing around the computer", and "Auditing through the computer".

Paper III-Law

Unlike PE-2, in PCC we have two additional parts with this subject viz., BC and Ethics. So this subject seems to be the lengthiest one, with four parts- Business Law, Corporate Law, B.C., and Ethics. In fact, it is easier to get through those subjects which have more divisions, like this one. Strength of one sub-part can cover the weakness of another. It is preferable to initiate with corporate law.

Business Law:

Instead of over-emphasizing Contract Act, one should try completing Partnership Act and Sale of Goods Act (especially "conditions and warranty") first. These topics can fetch equal marks as contract act, but they are shorter than the Contract Act.

Negotiable Instruments Act is the most important topic as we all know. Study material seems to be the best source for definitions, and other important basic concepts (Pg.1-22). Prepare practical questions, and rest of the theoretical part of this topic from a reference book.

It is not advisable to give much time to general contracts, in special contracts "Agency", "Bailment, and Pledge", are more important topics. In the Sale of Goods Act, "conditions and warranty", and "unpaid seller" are favorite topics of the institute.

For business law, one may even use his S.Y.B.Com text books for topics like General Contracts, and Sale of Goods Act. However, it should be noted that few topics like Auction Sale would not be covered in those books.

Section reference should not be over-emphasized; however it is easier to remember the provisions of any law section-wise.

Corporate law:

It is advisable to finish corporate law first, in the paper, as well as in the preparation.

Most important topics are Memorandum of Association, Articles of Associations, and Meetings. Except for these topics and practical questions, the compilation issued by the institute is suggested. This is because; it has enough coverage of other topics. Use any one reference book for practical questions.

Ethics and BC should be strong if one is weak in law.

Paper IV-Costing and FM:

Again this one seems to be a lengthy and most difficult subject. But as mentioned earlier, it is easier to get through in those subjects which have more divisions. If one is strong in FM, he can cover his weakness in costing; and vice-versa. Moreover, a detailed subject wise comparison of papers reveal that Costing and FM paper being new for PE-1, and CPT cleared candidates, questions asked are comparatively easier than in other subjects. Problem arises on the last day, when we have a huge rock in front of us, and the time to climb that is very limited. So better make a plan of what "exactly" you are supposed to revise on the last day, and how you’re going to allot your 8-10 hours on several topics. Crux lies in the fact to score 40 marks in the first two hours itself, rather than attempting to complete 100 marks paper at the cost of its quality. It is neither necessary, nor advisable to start with the first question. If FM of the candidate is better than costing, he should obviously start with FM. If one is confused with some unfamiliar point in any question he should quickly move on to other questions, rather than wasting much of his "very limited" time of 180 minutes.


Most important chapters are:





Process costing

These topics should be completed first. Out of these 5, at least 4 are generally asked in 60 marks PE-2 papers. However, in the new course we have 50 marks costing paper.

When one has finished reading these chapters, other chapters- which are now-a-days frequently asked- should be completed viz.

Operating Costing.

Contract Costing.

Joint Products/ By-Products.

Theory questions are frequently repeated. Compilation is suggested for theory questions or one may use suggested answers from Nov. ‘02 for theory questions. Compilation should even be used even for practical questions. At least all questions from the compilation for the above 8 topics should be practiced thoroughly.

Financial Management:

This is perhaps the most interesting paper ever in CA curriculum. FM is a very practical paper and many Chartered Accountants have made very bright careers in finance. Basics of this paper should be strong, as the same will be demanded not only in CA final, but also in our professional life.

Three most important topics in FM are:

Capital Budgeting.

Cost of Capital.

Funds Flow Statement.

One can hardly find any PE-2 paper, without a question of either capital budgeting or cost of capital. As mentioned earlier, funds flow statement should be covered thoroughly in accounts, as we can save time on the last day of FM paper. Moreover, fund flow statement gives us a base for preparing cash flow statement, so we can study both the topics simultaneously in accounts paper itself.

Working Capital Estimation, Debt Management, and Leverage are also important topics.

Theory topics like Sources of Finance, and Capital Structure Theories should be covered from the compilation, as these questions are frequently repeated. One should be very careful while selecting a reference book for Financial Management. One should keep in mind, that the book selected clarifies the concepts, of the subject; rather than simply providing solved answers of practical questions.

Paper V-Tax

This paper seems to be the easiest one to most of the candidates, as all of us have tax assignments during practical training. It can be generalized that Central Sales Tax is given first preference by all the candidates. Later, all the Heads of Income should be completed. Ideally, if one is having basic knowledge of taxation, he should follow the sequence as:

Income from House Property,

Capital Gains,


Profits and Gains from Business and Profession, and

Income from Other Sources.

At PE-2 level one should not over-emphasize the topic of Business and Profession, because in PE-2 it is a theory oriented topic, and even if a practical question is asked it is easy to answer the same, if provisions of the chapter are known to the candidate. Generally there is one practical question on Income from Salaries. If not, it is usually covered in the question of computation of total income. "Capital Gains" is also an important topic, as we all know. Exemptions u/s 54 are repeated frequently, and these exemptions are also important as far as practical perspective is concerned.

Generally one short note from the chapter of "Assessment Procedure" is asked. It is also useful during practical training.

A reference book is must for this subject, for solving practical questions.

Paper VI-Information Technology

It is now very clear to all of us, that we can not imagine a Chartered Accountant without the knowledge of computers. Today is the age of information, and a CA student should possess required computer skills to enhance his professional qualities. We should thank our institute for making this paper a part of the curriculum.

Chapter 10 (Networking), and Chapter 11 (Internet) are the most important topics, both in paper and practical life.

Other important chapters are:

Chapter 6 : Software.

Chapter 8 : DBMS.

Chapter 9 : Some Advanced Systems.

Chapter 12 : Database Performance Monitoring.

Chapter 14 : Flow Charts.

Chapter 15 : Decision tables.

It is advisable to complete these eight chapters first. As majority of the questions are asked from theses chapters.

Chapter 2 - as we all know - is important for Q2 on "distinguish between" question. One may have a quick read of MS-Office chapters, as we can easily answer them, provided we have basic knowledge of the same, and we have taken our practical IT training seriously. One can easily clear this subject if he has thoroughly prepared the above chapters.


While following the above strategy, one should note that there are no short cuts to success. We need not cut-short the course of PE-2, but we can make an attempt to find the loose bonds of a long chain, and strategically break that; which is otherwise difficult. At the end of the day, the fact remains- "CA: The one who is awake in those that sleep."

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