Accounting

Question 1

What is the FIFO Inventory Method for IFRS?

Answer 1

First in, first out. Reflects higher gross profit as current revenues matched against older goods in an inflationary environment. FIFO = what it originally costed to produce whereas LIFO= Current value to produce

Question 2

What is an Operating Lease?

Answer 2

• Financing lease - Owner doesn’t own the building and gets rent
• On IS, rent shows up as an OpEx
  -NOTHING shows up on BS although it should technically be recognised as a liability

Question 3

Difference between the Financing Leases?

Answer 3

• A capital lease is different; shows up as if building is purchased with debt and you pay that overtime
• On IS, depreciation and interest exp recorded RATHER than rent
• Shows up on BS on assets & l&e side

Question 4

Significance of EBITDAR?

Answer 4

Rental expense added back to get rid of effects of financial leases as EBITDAR as it also excludes depreciation, interest

Question 5

If stocks’ are in the ‘available for sale’ securities on BS, and the price rises, is the ‘Unrealised gain’ recorded on IS?

Answer 5

No changes on IS &CFS - stocks havent been sold.

Question 6

How is 30% acquisition different from 80%

Answer 6

With 30% acquisition, the financial statements aren’t consolidated - no goodwill created or purchase price allocation. however it’s listed on BS as equity investment

On IS, company adds 0.3* other company’s net income and subtracts on CFS.

With 80% - financial statements consolidated, creating goodwill, allocating purchase price and has 20% Noncontrolling interest

Question 7

In Purchase Price allocation, why is existing goodwill and deferred taxes written off

Answer 7

Because the existing goodwill and deferred taxes have a fair value of 0