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CFA Level 1 > Financial Reporting & Analysis - Balance Sheet > Flashcards

Financial Reporting & Analysis - Balance Sheet Flashcards

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CFA flashcards
1
Q

Balance sheet - intrinsic or market value?

A

Neither. Balance sheet components are sometimes marked-to-market and historical cost.

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2
Q

Definition: current assets

A

Assets used, sold or traded in one year or less.

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3
Q

Definition: non-current

A

Assets used, sold or traded in > 1 year, or 1 business cycle, whichever is longer.

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4
Q

Definition: working capital

A

Current assets - current liabilities

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5
Q

Classified balance sheet

A

Separately classified as current & non-current assets

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6
Q

Liquidity based balance sheet

A

Organized by liquidity. Allowed to organize this way, if it provides relevant & reliable info (usually banks use this format)

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7
Q

Held to Maturity Securities

A
  1. Amortized cost.

3. Other comprehensive income, not net income.

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8
Q

Held for trading Securities

A
  1. Fair value

2. Net income

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9
Q

Available for Sale Securities

A
  1. Fair value

2. Other comprehensive income, not net income

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10
Q

Assets measured at fair value

A
  1. Held for trading
  2. Available for sale
  3. Derivatives
  4. Non-derivative instruments hedged by derivatives
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11
Q

Assets measured at cost or amortized cost

A

1 Held to maturity.

  1. Unlisted instruments
  2. Loans and receivables
  3. All other liabilities not mentioned as fair value
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12
Q

Accounts receivable

A

Net of realizable value (i.e. after deducting allowance for doubtful accounts).

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13
Q

Inventories

A
  1. GAAP: measured at the lower of cost or market value

2. IFRS: lower of cost or net realizable value

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14
Q

Asset: cash & cash equivalents

A

Reported at amortized cost or fair value.

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15
Q

Retail cost method

A

= sales value - gross average margin (for each homogenous group).
Impact of markdowns should also be considered.

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16
Q

Standard cost measure

A

Measures normal levels of materials, labor and capacity

17
Q

Property Plant & Equipment (PPE)

A
  1. GAAP: cost model

2. IFRS: cost or revaluation (must be consistent within asset class.

18
Q

PPE cost model

A

Carried at amortized cost (historical cost - depreciation/depletion/impairment)

19
Q

Definition: current liabilities

A

expected to be settled over the course of entity’s normal operation cycle or < 12 months.

20
Q

Impairment

A
  1. Loss recognized on income statement.

2. Reversals permitted under IFRS, but not GAAP.

21
Q

Intangible assets

A
  • Non-monetary assets with out physical substance.
  • IFRS: cost or revaluation model (must be active market)
  • GAAP: cost model
22
Q

Investment property

A
  1. Land used for rental income or capital appreciation.
  2. IFRS: cost or revaluation models.
  3. GAAP: no definition
23
Q

Amortization & impairment: intangible w/ finite life

A
  1. Systematically amortized over best guess of useful life

2. Tested for impairment at least annually (same as PPE)

24
Q

Amortization & impairment: intangible w/ indefinite life

A
  1. Not amortized

2. Tested for impairment at least annually

25
Q

Indefinite tangibles

A
  1. Internally created intangibles are subjective

2. Under GAAP/IFRS are expensed rather than reported on balance sheet.

26
Q

Treasury shares

A

No gain or loss reported if reissued at a later date.

27
Q

Definition: good will

A

Generated through acquisition if purchase price > fair value of identifiable assets/liabilities.

28
Q

Definition: retained earnings

A

cumulative net income not paid to owners as dividends

29
Q

Definition: liquidity

A

Ability to meet short-term financial commitments

30
Q

Definition: solvency

A

Ability to meet long-term commitments

31
Q

Common size balance sheet

A
  1. State each balance sheet item as a % of TOTAL ASSETS.
32
Q

Ratio: current

A
  1. Formula: current assets / current liabilities

2. Type: liquidity

33
Q

Ratio: quick (acid)

A
  1. Formula: (cash + marketable securities + receivables) / current liabilities
  2. Type: liquidity
34
Q

Ratio: cash

A
  1. Formula: (cash + marketable securities) / current liabilities
  2. Type: liquidity
35
Q

Ratio: Long-tem debt to equity

A
  1. Formula: total LT debt / total equity

2. Type: solvency

36
Q

Ratio: debt to equity

A
  1. Formula: total debt / total equity

2. Type: solvency

37
Q

Ratio: total debt

A
  1. Formula: total debt / total assets

2. Type: solvency

38
Q

Ratio: financial leverage

A
  1. Formula: total assets / total equity

2. Type: solvency

CFA Level 1 (6 decks)

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