FSA

Question 1

How do you treat

1. Gain from sale of land
2. Depreciation

in CFO calculations?

Answer 1

Gain = include

Depreciation= add back in (non-cash)

Question 2

Calculate coefficient of variation and explain how it is used?

Answer 2

Mean / SD

Coefficient of variation of sales (standard deviation of sales / mean sales) is a measure analysts can use to compare the sales variability of different firms

Question 3

When an asset is revalued past it’s original value, what happens?

Answer 3

balance sheet - back to normal
income statement - surplus

Question 4

For a lessor, how are lease payments classified?

Answer 4

For a lessor, lease payments are classified as operating cash inflows under both IFRS and U.S. GAAP.

Question 5

convert lifo to fifo

Answer 5

Balance Sheet
Inventory FIFO: Inv LIFO + LIFO Reserve
Cash FIFO: CASH LIFO - (LIFO reserve x tax rate)
Equity FIFO: Equity LIFO + [LIFO Reserve x (1-T)]

I/S
COGS FIFO: COGS LIFO - Change in LIFO Reserve
Tax FIFO: Tax LIFO + [Change in LIFO Reserve x Tax rate]
NI FIFO: NI LIFO + [Change in LIFO Reserve x (1 - Tax rate)]

Question 6

New process for calculating weighted average shares outstanding

Answer 6

1. Initial shares (+ stock dividends applies from start) x (months year)
2. Reacquired shares x months year
3. Issued shares x months year

/12

Question 7

Explain the treatment of research and development costs under IFRS

Answer 7

Research costs must be expensed

Development costs, under certain circumstances, may be capitalized.

Question 8

What are the key causes of a DTL and DTA

Answer 8

Permanent tax differences such as
1.tax credits
2.non-deductible expenses
3.tax differences between capital gains and operating income give rise to differences in the effective and statutory tax rates.

Question 9

Explain the treatment of a sale of treasury stock

Answer 9

The gain on the sale of treasury stock is not reported on the income statement but is reflected on the statement of changes in stockholders’ equity and on the balance sheet. The sale proceeds simply increase equity and increase cash.

Question 10

Which accounting board requires estimated amortization expense for the next 5 years

Answer 10

US GAAP

Question 11

Calculate the reinvestment ratio

Answer 11

Cash paid for long term assets
/
CFO

Question 12

What requires retrospective presentation

Answer 12

Changes in accounting principle require retrospective presentation.

Accounting estimates e.g a change in the salvage value of an asset is a change in accounting estimate, which does not apply retrospectively.

Question 13

Explain the treatment of non-cass transaciton

Answer 13

Non-cash transactions are disclosed separately in a note or supplementary schedule to the cash flow statement.

Question 14

Explain the differences in standards regarding balance sheet presentation (liquidity vs current or non current)

Answer 14

Liquidity-based balance sheet presentation is an exception, under IFRS only, to the requirement (under both IFRS and U.S. GAAP) for assets and liabilities to be classified as current or non-current. Under IFRS, a firm may present a liquidity-based balance sheet if this format is more reliable and relevant than a classified balance sheet.

Question 15

Calculate Interest Expense

Calculate total interest expense

Calculate amortization of premium for discount and premium bonds

Answer 15

PV bond x YTM at issuance

Difference between FV and PV

Amortization of premium / discount =

Premium: PMT - interest expense
Discount: Interest expense - PMT

Question 16

Calculate goodwill

Answer 16

Purchase price - (fair value of assets - fair value of liabilities)

Question 17

What are the differences between Direct and Indirect calculation of CFO

Answer 17

Direct
Cash collected from customers, typically the main component of CFO.
Cash used in the production of goods and services (cash inputs).
Cash operating expenses.
Cash paid for interest.
Cash paid for taxes.

Step 1: Begin with net income.
Step 2: Add or subtract changes to balance sheet operating accounts
Step 3: Add back all noncash charges to income (such as depreciation and amortization) and subtract all noncash components of revenue.
Step 4: Subtract gains or add losses that resulted from financing or investing cash flows (such as gains from sale of land).

Question 18

Explain how a gain or a loss is calculated when selling, exchanging or disposing of long lived assets

Answer 18

When exchanging
Carrying value of old asset - fair value of new asset (or carrying value if more evident).

When selling an asset
Difference between carrying value - amount received

When abandoning an asset
Loss = carrying value of asset