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CFA Level 2 > Financial Reporting & Analysis > Flashcards

Financial Reporting & Analysis Flashcards

0
Q

Compare finance lease to operating lease based on financial statement ratios

A 
Finance/Operating
Current ratio - lower/higher
Working capital - lower/higher
Asset turnover - lower/higher
ROA (early) - lower/higher
ROE (early) - lower/higher
Debt/assets - higher/lower 
Debt/equity - higher/lower
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1
Q

Compare finance leases to operating leases from a financial statement perspective

A 
Finance/Operating
Assets - higher/lower
Liabilities - higher/lower
Net income (early) - lower/higher
Net income (later) - higher/lower
Total net income - same
EBIT - higher/lower
CFO - higher/lower
CFF - lower/higher
Total cash flow - same
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2
Q

Formula for LIFO reserve

A

FIFO inventory - LIFO inventory

FIFO inventory = LIFO inventory + LIFO reserve

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3
Q

What is FIFO COGS?

A

LIFO COGS - ΔLIFO reserve

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4
Q

How is inventory valued under IFRS?

A

Lower of cost or net realizable value, where NRV = estimated sales price - selling costs - completion costs

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5
Q

How is inventory valued under GAAP?

A

Lower of cost or market, where market is usually replacement cost and is between NRV and NRV minus a normal profit margin

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6
Q

What is the accounting treatment for investments of 50%?

A

50%: acquisition/consolidation

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7
Q

How are trading assets reflected on the balance sheet and income statement?

A

Balance sheet: fair value

Income statement: interest, dividend, realized gain/loss, unrealized gain/loss

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8
Q

How are available-for-sale assets reflected on the balance sheet and income statement?

A

Balance sheet: fair value, unrealized gain/loss

Income statement: interest, dividend, realized gain/loss

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9
Q

How are held-to-maturity assets reflected on the balance sheet and income statement?

A

Balance sheet: amortized cost

Income statement: interest, amortized discounts, realized gain/loss

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10
Q

How is goodwill tested for impairment under IFRS and calculated?

A

Carrying value > recoverable amount,

where recoverable amount is greater of FV less selling costs and PV of future cash flows

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11
Q

How is goodwill tested for impairment under GAAP and the loss calculated?

A

If carrying value of reporting unit (sum of future cash flows) > fair value of reporting unit

Then, loss = carrying value of goodwill - implied fair value of goodwill

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12
Q

Formula for projected benefit obligation

A

Service cost + interest cost + past service cost +/- actuarial loss/gain - benefits paid

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13
Q

Formula for periodic pension cost (economic pension expense)

A

Service cost + interest cost + plan amendments - actual return on plan assets

Contributions - change in funded status

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14
Q

Current rate method

  • balance sheet
  • common stock
  • income statement
  • dividends
  • CTA
A
  • balance sheet: current
  • common stock: historical
  • income statement: average
  • dividends: historical
  • CTA: equity
  • exposure: net assets
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15
Q

Temporal method

  • balance sheet
  • common stock
  • income statement
  • dividends
  • CTA
A
  • balance sheet
    • monetary assets/liabilities: current
    • nonmonetary assets/liabilities: historical
  • common stock: historical
  • income statement: average
    • COGS: historical
    • depreciation: historical
  • dividends: historical
  • CTA: income statement
  • exposure: net monetary assets
16
Q

When is temporal method used vs current rate method?

A

When there is hyperinflation or the parent makes decisions for the subsidiary

17
Q

Formula for balance sheet accruals ratio

A

(NOA end - NOA beg)/(Avg NOA)

18
Q

Formula for cash flow accruals ratio

A

(NI - CFO - CFI)/(Avg NOA)

19
Q

Compare equity method vs acquisition method of accounting

A

Equity

  • significant ownership
  • add income from investment

Acquisition

  • control
  • include minority interest on BS and IS for portion not owned
  • carrying value equals % income less dividends received
20
Q

Pension expense - IFRS

A

= service costs + net interest income/expense

where net interest = discount rate*funded status (or fund assets - PBO)

21
Q

Pension expense - GAAP

A

= current service costs + interest expense - expected return on plan assets

22
Q

Net operating assets

A

(Total assets - cash) - (total liabilities - debt)

CFA Level 2 (9 decks)

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