ACCA FM September 2026: Current Price Terms vs Year 1 Price Terms — When Do You Inflate Year 1?
Two phrases in an FM question decide whether your whole NPV is right or exactly one year out. "Current price terms" means you start inflating in year 1. "Year 1 price terms" means year 1 is already inflated — leave it alone.
Get that base wrong and you don't lose a mark. You lose the table.
What the examiner actually said
In the Gini Co question (FM March/June 2023), selling price, variable cost, incremental fixed costs and working capital were all given in current price terms. The examining team were explicit: because the figures are in current prices, "it is appropriate to begin inflation in year 1."
Then came the warning most students never read. The same report notes that past questions have given figures in year 1 price terms, "where it is inappropriate to apply the inflation factor to the year 1 figure."
Same syllabus area. Same calculation. Opposite treatment. The only thing that tells you which one you're in is four words buried in the scenario.
Why this is not a one-mark error
Gini Co part (a) was worth 12 marks — and Section C questions in FM carry 20 marks each. An NPV table compounds its own mistakes. Inflate from the wrong base and your revenue line is wrong in every year, so your variable cost line is wrong, so taxable profit is wrong, so the tax figures are wrong, so the net cash flow is wrong. Own-figure rule will rescue some method marks, but only if your workings are visible. If you did it all in one cell, the marker cannot follow you and cannot pay you.
The three errors that travel with it
Examiner reports across sittings flag the same cluster: inflating each year's cash flow by one year only, deflating instead of inflating, and using a rate different to the one given. Year 3 revenue at 4% general inflation needs multiplying by 1.043 — not by 1.04.
Two lines are exceptions and students inflate them anyway. Tax-allowable depreciation is calculated on the asset's actual cost, so it does not get inflated. And residual value is very often already stated in nominal terms — the MJ23 report says of Gini Co, "the residual value was given in nominal terms, and hence the impact of inflation has been reflected in this figure." Inflate it again and you have double-counted.
Worked example
Selling price $50 per unit. Inflation 5%. Four-year project.
If the question says "current price terms":
Year 1: 50 × 1.05 = $52.50
Year 2: 50 × 1.052 = $55.13
Year 3: 50 × 1.053 = $57.88
Year 4: 50 × 1.054 = $60.78
If the question says "year 1 price terms":
Year 1: $50.00 — untouched
Year 2: 50 × 1.05 = $52.50
Year 3: 50 × 1.052 = $55.13
Year 4: 50 × 1.053 = $57.88
Identical arithmetic, shifted one year. Apply the first treatment to a year 1 price terms question and you have overstated revenue in all four years, and every figure downstream of it.
What to do
Highlight the price-basis phrase before you build anything. Find "current price terms" or "year 1 price terms" in the scenario and write the year 1 figure down as a separate working before you touch the NPV table.
Put inflation in its own working above the table. One row per cash flow, using (1+i)n — where n is the year number for current price terms, and n−1 for year 1 price terms. Different cash flows often inflate at different rates, so never reuse one factor row for everything.
Run the three-line check before you discount. Tax-allowable depreciation is on actual cost. Residual value stated in nominal terms is already inflated. Year 0 investment and initial working capital are never inflated and never sit in year 1.
The bottom line
FM passed 48% in June 2026 — mid-table for Applied Skills, and a long way from safe. Investment appraisal is one of the two 20-mark questions you are most likely to meet in Section C, and the marks are sitting in a table that either compounds your accuracy or compounds your error.
You sit this exam between 7 and 11 September. Read the four words before you build the table.