FAR 2

Question 1

How net Profit margin % is calculated?

Answer 1

Net profit after tax divided by total sales

Question 2

How to calculate Return on Asset?

Answer 2

Net Income divided by Average total Asset Value

Question 3

How Contingency exist in last year settled in current year before last year financials is issued treated on last year financials?

Answer 3

the condition is considered a recognized subsequent event. and expense and liability must be increased.

Question 4

How is goodwill recorded?

Answer 4

Goodwill is recorded at Historical cost and test for impairment every year on same date.

Question 5

How should the settlement be reported when litigation exist at year end and settled in next year and amount is known?

Answer 5

Accrued (because amount is known and litigation was exist before year end) and disclosed in foot notes

Question 6

How is size/revenue test done on Segment reporting?

Answer 6

10% of total sales (including intercompany sales)

Question 7

How does “reporting sufficiency” done on segment reporting?

Answer 7

The “reporting sufficiency” test requires that all reportable segments (looking at external sales only) have at least seventy-five percent of the total external sales of the entire entity. If you need to add any additional company to satisfy this test then add highest sales segment from the remaining segments.

Question 8

Days in inventory Ratio

Answer 8

Ending inventory divided by COGS divide by 365

Question 9

Cash conversion cycle

Answer 9

Days sales in accounts receivable + Days in
inventory – Days of payables outstanding

Question 10

What forms include unaudited financial statements

Answer 10

6k is filled semiannually by foreign private issuers and contains unaudited FS.
10Q which is filled by US companies include unaudited FS