Impact + Important Flashcards

1
Q

If a company owns less than 20% shares, it will be reflected in the company’s statements as

A

Investment Assets

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2
Q

Trade debtors is recorded in balance sheet as

A

Current Assets

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3
Q

How are stocks valued in the assets section?

A

1) Cost of stock
2) Net realisable value of stock

whichever is LOWER

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4
Q

Recording prepayment

A

1) Deduct the prepaid amount from expenses ==> Expenses recorded in I/S for that year
2) The prepaid amount in the balance sheet under Current Assets (may be under other receivables)

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5
Q

Gross Profit

A

Revenue - COGS

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6
Q

If the bond is selling at par value, this means

A

yield to maturity = coupon rate

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7
Q

Long term credit ratings by MARC

What are the investment grade category?

A

AAA - BBB

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8
Q

What are the non investment grade category for long term credit ratings by MARC

A

BB-D

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9
Q

A firm has a higher quick (or acid test) ratio than the industry average, which implies.

A

The firm is more likely to avoid insolvency in short run than other firms in the industry.
The firm may be less profitable than other firms in the industry.

Current assets earn less than fixed assets; thus, a firm with a relatively high level of current
assets may be less profitable than other firms. However, its high level of current assets makes
it more liquid.

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10
Q

Balance sheet provides a snapshot of ____

A

financial condition of the firm at a particular time.

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11
Q

If you wish to compute economic earnings and are trying to decide how to account for
inventory

A

LIFO is better than FIFO

LIFO reflects the current cost of goods sold, and thus is a better determinant of economic
earnings.

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12
Q

Given the results of the study by Clayman, you would __________ the stocks of firms
with high ROEs and __________ the stocks of firms with low ROEs.

A

not want to buy, want to buy

Clayman found that investing in firms with high ROEs produced results inferior to those
obtained by investing in stocks with lower ROEs.

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13
Q

Over a period of thirty-odd years in managing investment funds, Benjamin Graham used
the approach of investing in the stocks of companies where the stocks were trading at less
than their working capital value. The average return from using this strategy was
approximately ______.

A

20%

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14
Q

If the interest rate on debt is higher than ROA, then a firm will __________ by increasing
the use of debt in the capital structure.

A

decrease the ROE

If ROA is less than the interest rate, then ROE will decline by an amount that depends on the
debt to equity ratio.

Interest rate on debt lower than ROA –> increase the ROE

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15
Q

A firm has a market to book value ratio that is equivalent to the industry average and an
ROE that is less than the industry average, which implies _______.

A

The relationship P/E = (P/B) / ROE indicates that A is possible.

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16
Q

In periods of inflation, accounting depreciation is __________ relative to replacement cost
and real economic income is ________.

A

understated, overstated

Fixed assets are depreciated based on historical costs and, as a result, are understated relative
to replacement costs during periods of inflation; as a result, real economic income is
overstated.

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17
Q

If a firm has a positive tax rate, a positive ROA, and the interest rate on debt is the same
as ROA, then ROA will be ________.

A

Greater than ROE. If interest rate = ROA; ROE = (1 - tax rate)ROA; ROA > ROE.

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18
Q

During periods of inflation, the use of FIFO (rather than LIFO) as the method of accounting for inventories causes ________.

A

higher incomes taxes. In inflationary periods, the use of FIFO causes overstated earnings, which result in higher taxes.

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19
Q

Return on total assets is a function of _______.

A

the after-tax profit margin and the asset turnover ratio

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20
Q

FOX Company has a ratio of (total debt/total assets) that is above the industry average, and a ratio of (long term debt/equity) that is below the industry average. These ratios suggest that the firm _________.
A. utilizes assets effectively
B. has too much equity in the capital structure
C. has relatively high current liabilities
D. has a relatively low dividend payout ratio
E. none of the above

A

C. has relatively high current liabilities

Total debt includes both current and long term debt; the above relationships could occur only if FOX Company has a higher than average level of current liabilities.

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21
Q

A firm’s current ratio is above the industry average; however, the firm’s quick ratio is below the industry average. These ratios suggest that the firm _________.
A. has relatively more total current assets and even more inventory than other firms in the industry
B. is very efficient at managing inventories
C. has liquidity that is superior to the average firm in the industry
D. is near technical insolvency
E. none of the above

A

A is the only possible answer; total current assets are high, and inventory is a very large portion of total current assets, relative to other firms in the industry.

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22
Q

Which of the following ratios gives information on the amount of profits reinvested in the firm over the years:

A

Retained earnings/total assets

Only retained earnings reflect profits reinvested over the years.

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23
Q

Effect of LIFO vs FIFO on inventory and current ratio

A

A firm using LIFO will have lower priced inventory, thus resulting in a lower current ratio. If inflation continues, these differences will increase over time.

During periods of inflation, LIFO makes the balance sheet less representative of the actual inventory values than if FIFO were used
During periods of inflation, the use of LIFO results in lower priced inventory remaining in stock; thus the balance sheet understates the actual inventory values.

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24
Q
The level of real income of a firm can be distorted by the reporting of depreciation and interest expense. During periods of high inflation, the level of reported depreciation tends to \_\_\_\_\_\_\_\_\_\_ income, and the level of interest expense reported tends to \_\_\_\_\_\_\_\_\_\_ income. 
A. understate, overstate
B. understate, understate
C. overstate, understate
D. overstate, overstate
E. There is no discernable pattern.
A

C. overstate, understate

Depreciation is based on historic costs; thus during periods of inflation depreciation is understated, which results in the overstatement of income. In periods of inflation, interest rates are high, and thus result in the understatement of the firm’s long term earning capacity.

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25
Q
Proceeds from a company's sale of stock to the public are included in \_\_\_\_\_\_\_\_. 
A. par value
B. additional paid-in capital
C. retained earnings
D. A and B
E. A, B, and C
A

D) A&B

When a stock is sold, the par value goes into the Par account and any amount above the par value goes into the Additional Paid-in Capital account.

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26
Q

Expectations hypothesis

A

states that

the forward rate equals the market consensus of expectations of future short interest rates.

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27
Q
31. The concepts of spot and forward rates are most closely associated with which one of the following explanations of the term structure of interest rates. 
A. Segmented Market theory
B. Expectations Hypothesis
C. Preferred Habitat Hypothesis
D. Liquidity Premium theory
E. None of the above
A

Only the expectations hypothesis is based on spot and forward rates. A and C assume separate markets for different maturities; liquidity premium assumes higher yields for longer maturities.

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28
Q

Factors affecting bond price

A

1) Changes in credit quality of issuer
2) Changes in length of period to maturity date of the bond
3) Changes in yield on comparable bonds affecting the required yield

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29
Q

Accounting records are kept for

A

audited within 60 days of completion of transactions

7 years after completion of transaction or operations they relate to

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30
Q

annual general meeting dates

A

18 months from incorporation date

annual

no longer than 15 months from previous AGM

must lodge its annual return with CCM within 1 month after AGM

31
Q

MASB (Malaysian Accounting Standards board is established under?

A

Financial Reporting Act 1997 –> now in 2011 issued a new accounting framework MFRS

32
Q

Physical capital maintenance concept & financial capital maintenance concept

A

gain in PPE valuation –> revaluation reserve in assets

investments securities gain –> income statement

33
Q

Prepayments Treatment

A

Deduct amount of prepayment from expenses. In the balance sheet, enter as prepayment under other receivables or added to other receivables.

34
Q

Accrued expenses / Amount Payable Treatment

A

Add this underpayment to expenses. In the B/s enter as accruals (other payables) under current liabilities

35
Q

Accrued revenue / income in arrears treatment

A

add to other income. In the balance sheet, enter the amount due as other receivables under current assets

36
Q

Unearned revenue or payment received in advance treatment

A

Deduct this amount of ‘excess income’ from revenue. In the B/S enter amount as unearned revenue under current liabilities.

37
Q

Examples of short term borrowings

A

trade credit facilities such as bill discounting, banker acceptances, and export credit financing. Bank overdraft.

38
Q

tax recoverable goes to

A

current tax asset on the balance sheet

39
Q

dividend paid goes to

A

charged to retained profits and not to the income statement rather than a business expense

40
Q

term loans goes to

A

non current liabilities - used to finance long term assets

other types of long- term bank borrowings are project financing loans, syndicated loans, revolving credits, and bridging loans

41
Q

interest paid on loans and borrowings goes to

A

an expense in income statement

42
Q

Bonds treatment

A

bonds are borrowed capital so recognise the cost of borrowing by charging the interest expense in the income statement

43
Q

Preference shares goes to

A

classified and presented as a financial liability

The dividend payable on the preference share shall be treated as a finance cost in the income statement

44
Q

Pension liabilities goes to

A

employee benefit expense in the income statement

45
Q

Long term provisions treatment

A

provision liability

or contingent asset (i.e. wanna sue a lawsuit then get money from it would be an asset)

46
Q

Any investments goes to

A

Non current assets

Investment in subsidiaries
Investment in property

47
Q

Fixed deposits with a licensed bank goes to

A

current assets

48
Q

List the equity line

A

EQUITY

Share capital 
Share premium
Revaluation Reserve
Fair value reserve
Exchange translation reserve
Retained profits 
Shareholders' equity
Minority interest
49
Q

Redeemable preference shares goes to

A

non current liabilities

50
Q

deferred taxation goes to

A

non current liabilities

51
Q

retirement benefits goes to

A

non current liabilities

52
Q

provisions goes to

A

non current liabilities

53
Q

hire purchase and lease goes to

A

non current liabilities

54
Q

current taxation goes to

A

current liabilities

55
Q

other payables and accruals goes to

A

current liabilities

56
Q

dividend payable goes to

A

current liabilities

57
Q

tax expense goes to

A

income statement

58
Q

a separate disclosure of items of income and expense include - (one- off or non recurring items)

A

1) write down of inventories
2) restructuring of activities
3) disposal of PPE
4) disposal of long term investments
5) litigation settlements
6) reversals of provision

59
Q

investing income goes to

A

income statement

60
Q

discontinued operations goes to

A

income statemnt

61
Q

income statement format

A
Revenue 
(COGS)
=Gross Profit
Operating income
(Expenses i.e. distribution costs, administrative)
=Operating Profit 
(Finance cost)
=Profit before Tax
(Income tax expense)
Investing Gains (or losses)
=Profit after tax 

Profit for the year or net income

Net profit represents the profit or loss attributable to equity.

62
Q

What are included in the statement of changes in equity (OR COMPREHENSIVE INCOME)

A

1) changes due to capital contributions e.g. new shares
2) dividends paid
3) changes in accounting policies
4) gains and losses recognised in equity (reserves)
5) net profit for the period

63
Q

Operating activities include

A

1) sale of goods and rendering of service
2) royalties, fees, comission
3) payments to suppliers
4) payments to employees
5) payments of insurance company, policy benefits
6) payment or refund of taxes
7) contracts held for trading or dealing
8) cash advances and loans made by financial institutions

64
Q

Investing activities include

A

1) acquire PPE + long term assets
2) sale of PPE and long term assets
3) equity or debt instruments- interests in JV
4) cash advances and loans made TO OTHER PARTIES
5) repayment of advances and loans TO OTHER PARTIES
6) futures contracts, forward contract, option contract, swap contract

65
Q

Financing activities include:

A

1) proceeds from issuing shares or other equity instruments
2) payments to buyback or redeem shares
3) proceeds from issuing debentures, other BORROWINGS - bonds, notes, mortgages
4) repayments of amount borrowed
5) payments by lessee for reduction of outstanding liability relating to a finance lease

66
Q

Shareholding spread for Main Market listing

A

25% of paid up capital, AND 1,000 public shareholders

67
Q

Shareholding spread for ACE Market listing

A

25% of paid up capital, AND 200 public shareholders

68
Q

What are all the risks included in the higher risk premium

A

Business risk, financial risk, liquidity risk, exchange rate risk, political risk

69
Q

How long are shares traded as ex-rights?

A

3 business days before book closing date

70
Q

What is the date of trading of rights?

A

Date of trading of rights is on the second market day after the dispatch of provisional letters of offer (PLO) or provisional allotment letter (PAL) pertaining to the rights issue. Rights will be ceased to be traded 10 markets days before last date of acceptance and payment.

71
Q

Retention money evaluation - 3 things

A

1) Selling broker from selling client = deduction ratio
2) Buying broker from buying client = 10% + bonus/ total
3) Broker to broker = deduction ratio

72
Q

Defining features of a call warrant

A

1) underlying asset 2) exercise price 3) exercise period

73
Q

Relationship between interest rates and bonds

A

Inverse

Note: Bonds perform well during stable economic conditions and low inflation environment.