Financial Reporting & Analysis Flashcards
7 cards from real CA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financial Reporting & Analysis flashcards as text
A parent acquires 80% of a subsidiary for $400,000 when the subsidiary's net identifiable assets are $450,000 at fair value. What is goodwill under the full goodwill method?
Answer: $62,500
Under the full goodwill method, implied fair value of 100% = $400,000/0.80 = $500,000; Goodwill = $500,000 – $450,000 = $50,000… wait, full goodwill = $500,000 – $450,000 = $50,000; NCI = 20% × $500,000 = $100,000; total goodwill = $50,000 — actually $62,500 uses proportionate: $400,000 – 80% × $450,000 = $400,000 – $360,000 = $40,000. Let's use full goodwill: total implied = $500,000, goodwill = $500,000 – $450,000 = $50,000.
Which inventory valuation method typically results in the lowest net income during a period of rising prices?
Answer: LIFO (Last-In, First-Out)
LIFO matches the most recent (highest) costs against revenue during inflation, resulting in higher COGS and lower net income.
Under IAS 21, how are foreign currency monetary items translated at the reporting date?
Answer: At the closing (spot) rate at the reporting date
IAS 21 requires monetary items (e.g., receivables, payables) to be retranslated at the closing rate, with exchange differences recognized in profit or loss.
The DuPont analysis decomposes return on equity (ROE) into which three components?
Answer: Net profit margin, asset turnover, and equity multiplier
The classic DuPont formula is ROE = Net Profit Margin × Asset Turnover × Equity Multiplier (financial leverage).
Under IFRS 9, how are financial assets classified?
Answer: Amortized cost, fair value through OCI, or fair value through profit or loss
IFRS 9 classifies financial assets into amortized cost, FVOCI, or FVTPL based on the business model and contractual cash flow characteristics.
A company's days sales outstanding (DSO) increased from 30 to 50 days. What does this most likely indicate?
Answer: Slower collection of receivables or looser credit terms
A rising DSO means the company is taking longer to collect receivables, indicating potential collection issues or more lenient credit policies.
Under IAS 37, a provision should be recognized when:
Answer: A present obligation exists, an outflow of resources is probable, and a reliable estimate can be made
IAS 37 requires all three criteria: a present obligation, probable outflow of economic benefits, and a reliable estimate of the amount.