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
Under IAS 12, a deferred tax liability arises when:
Answer: Tax depreciation exceeds accounting depreciation creating a taxable temporary difference
When tax depreciation exceeds book depreciation, the asset's tax base is lower than its carrying amount, creating a taxable temporary difference and a deferred tax liability.
A company with high operating leverage will experience which of the following?
Answer: Greater sensitivity of operating income to changes in revenue
High operating leverage means a large fixed cost base, so small revenue changes produce amplified swings in operating income.
Under IFRS, when an asset is revalued upward under the revaluation model, the surplus is initially recognized in:
Answer: Other comprehensive income as a revaluation surplus
IAS 16 requires revaluation increases to be credited to OCI and accumulated in equity as a revaluation surplus, unless reversing a prior revaluation decrease in P&L.
Which of the following best describes the purpose of segment reporting under IFRS 8?
Answer: To provide information about different business activities and geographic areas for user decision-making
IFRS 8 requires disclosure of operating segment information to help users evaluate the nature and financial effects of an entity's diverse business activities.
The price-to-earnings (P/E) ratio is most useful for comparing companies that:
Answer: Operate in the same industry with similar capital structures
The P/E ratio is most meaningful when comparing peer companies in the same industry with similar capital structures and accounting policies.
Under IAS 10, which of the following is an adjusting event after the reporting period?
Answer: Discovery of fraud that existed at the reporting date
Fraud discovered post-period that existed at the reporting date is an adjusting event because it provides evidence of conditions at the balance sheet date.
A company's common-size income statement expresses each line item as a percentage of:
Answer: Net sales (revenue)
Common-size income statements express each line as a percentage of net sales/revenue, enabling cross-period and cross-company comparisons regardless of size.