Financial Reporting & Analysis

[IFT Team]

Please use this discussion thread to ask and discuss queries related to Financial Reporting & Analysis topic.

[ali goga]

hi do we need to memorise each and every difference between IFRS and US GAAP for CFA L1 exams ?

[Arif Irfanullah]

Focus on the important differences.  These will be highlighted in my slides. 

On Thu, Jul 4, 2013 at 9:40 PM, ali goga <goga...@yahoo.com> wrote:

hi do we need to memorise each and every difference between IFRS and US GAAP for CFA L1 exams ?

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Regards,

Arif Irfanullah

www.arifirfanullah.com

 

[Arif Irfanullah]

I hope your studies are coming alone well. With my local group I'm currently on FRA. Our FRA quiz is on 28 July.

On a different note, I'd like group members to start interacting a little more.   To encourage you to do so I will ask you to post answers to examples presented in the IFT slides.  This way you can discuss questions and compare answers with fellow CFA Level I candidates.

In the lecture on Long-lived assets (Reading 30), I've asked you to calculated ratios for companies using different depreciation methods.  Please solve  this on your own first and then take a look at the solution presented in the attached Excel file.

[Arif Irfanullah]

Find attached slides and an Excel file for R32 Noncurrent Liabilities.

If you find this material useful feel free to share with fellow CFA Level I candidates.  Please also spread the word on forums/groups such as linkedin groups and AnalystForum.

On Monday, June 3, 2013 12:27:17 AM UTC+5, IFT Team wrote:

[Arif Irfanullah]

I hope your studies are coming along well.

Find attached slides for readings 33, 34 and 35.  

I will send out the quiz tomorrow.

On Monday, June 3, 2013 12:27:17 AM UTC+5, IFT Team wrote:

[Arif Irfanullah]

FRA quiz and solutions attached. 

Next we will start corporate finance.

On Monday, June 3, 2013 12:27:17 AM UTC+5, IFT Team wrote:

[aamir...@gmail.com]

I have a small query regarding the impairment of assets. Say e.g. an asset is impaired from its cost of 1000 to 800 and in the income statement we'll show a loss of 200 and the asset value will be written down to 800. My question is.... what will be happen to the accumulated depreciation that is already charged on the above asset or asset classes? We can say like what if the accumulated depreciation already charged on the asset is 500 leaving a book value of 500 and in other scenario we can say... that the accumulated depreciation is say 100 only leaving a book value of 900. I'm confused here...

[Rizwan Ali]

Aamir, I believe that when impairment is recorded as loss in Income Statement, the other leg of showing this increase in accumulated impairment (similar to acc depreciation contra asset account). Acc. Depreciation won't be having any direct impact. Impairment can be happen during depreciation period or after depreciation period.

After Depreciation Period:

Let say a company purchase an equipment for 1000 and have residual value of 100 with life of 9 years. After 10 years Acc. Dep would be 900 and its carrying value is 100. If impairment happen after 9 years, based on carrying value, test for impairment and if pass, it will be shown as loss in IS and Acct Impairment increase. There would be no further depreciation. Under IFRS, if Carrying Amount is less then the Recoverable amount, there won't be impairment loss recorded.

During Depreciation Period:

Impairment will only occur due to any natural disaster, major decrease of market value etc. In that reason let say 1 year has already passed and acc. depreciation = 100 and Carrying value is also equal to book value to 900 (using SLD). A sudden natural disaster happen and your asset is now worth of 500 (recoverable amount). So impairment loss (after testing) is of 400. In Income statement loss on impairment will be increase 400 and acc impr. will be increase by 400. So Acc. Depr = 100 and Acc. Impr = 400. For next year(s), the depreciation can be either apply on same rate (500-100/8) or company can analyze its residual value and remaining life for further depreciation.

IAS 36 (http://www.readyratios.com/reference/ifrs/ias_36_impairment_of_assets.html)

17. If there is an indication that an asset may be impaired, this may indicate that the remaining useful life, the depreciation (amortisation) method or the residual value for the asset needs to be reviewed and adjusted in accordance with the Standard applicable to the asset, even if no impairment loss is recognised for the asset.

63After the recognition of an impairment loss, the depreciation (amortisation) charge for the asset shall be adjusted in future periods to allocate the asset’s revised carrying amount, less its residual value (if any), on a systematic basis over its remaining useful life.

121 After a reversal of an impairment loss is recognised, the depreciation (amortisation) charge for the asset shall be adjusted in future periods to allocate the asset’s revised carrying amount, less its residual value (if any), on a systematic basis over its remaining useful life.

Hope it will help.

On Wed, Jul 31, 2013 at 11:08 PM, <aamir...@gmail.com> wrote:

I have a small query regarding the impairment of assets. Say e.g. an asset is impaired from its cost of 1000 to 800 and in the income statement we'll show a loss of 200 and the asset value will be written down to 800. My question is.... what will be happen to the accumulated depreciation that is already charged on the above asset or asset classes? We can say like what if the accumulated depreciation already charged on the asset is 500 leaving a book value of 500 and in other scenario we can say... that the accumulated depreciation is say 100 only leaving a book value of 900. I'm confused here...

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Regards, Rizwan Qahir Ali
the gain is not worth the pain

[Ankit Kumar]

I have gone through the video on bond price which is carried on Balance sheet .

whenever we any company is offering Coupon Rate > Market Interest Rate , we record net proceeds from the issue at premium and we regularly amortize.

The doubt is : I feel that whenever its issued at premium so it will lead to investors having same market rate of return rather than a higher return, so dont u think we should record it at par value, as then only YTM > Market interest rate or else both may become equal

[Asad Khan]

I dont quite understand your query, but I can make a few basic points

Coupon rate > Market = Premium ----> The value of bond is adjusted and decreases to par value i.e. 115 to 100

Coupon rate < Market = Discount------> Here, the bond value increases to par as it was given at discount 90 to 100

[Hira Mufti]

Hi
Struggling with R27 ( cash flow statements and analysis ) particularly how to treat accounts receivable and payable
Please help

[haider iqbal]

I thought this question was quite interesting. Hope it benefits everyone.

Junior analyst Xander Marshall sends an e-mail to his boss, Janet Jacobs, CFA, suggesting that Peterson Novelties is manipulating its results to artificially inflate profits. He cites four reasons for his conclusion:

• The LIFO reserve is declining. 
• Earnings are much higher in the September quarter than in other quarters.
• Many nonoperating and nonrecurring gains are being recorded as revenue.
• Much of Peterson’s earnings come from equity investments not reflected on the cash-flow statement.

Jacobs is less concerned about Peterson’s earnings than Marshall is, though she does resolve to check out one of his concerns. Which of Marshall’s observations best supports his conclusion?

A) Nonoperating and nonrecurring gains recorded as revenue.

B) The declining LIFO reserve.

C) Equity investment earnings not reflected on the cash-flow statement.

Your answer: A was incorrect. The correct answer was C) Equity investment earnings not reflected on the cash-flow statement.

On its own, a declining LIFO reserve is not a sign of fraud. Peterson Novelties could have simply moved a lot of inventory and disclosed the LIFO liquidation in its footnotes. When unusual gains are recorded as revenue they will artificially boost sales growth. Each of the above issues are potential danger signs, but can also be easily explained in a manner beyond reproach. However, earnings from equity investments that do not generate cash flow are of very low quality and warrant further examination.