Balance Sheet Analysis

Question 1

Vertical common size analysis of BS

Answer 1

Expressing each BS item as % of asset

Question 2

Liquidity ratio (Denominator is not avg but total)

Answer 2

measuring entity’s ability to meet short term obligation

Question 3

Solvency ratio (Denominator is not average but total)

Answer 3

measuring entity’s ability to meet long term obligation

Question 4

Valuation model

Answer 4

IFRS - Cost & Revaluation model (can be used only when active mkt is available) USGAAP - Cost model

Question 5

Administrative cost for specific project

Answer 5

can’t be capitalized even if project is in development phase

Question 6

Economic Goodwill

Answer 6

Based on the economic performance of the entity. Not reflected in BS but in Share Price

Question 7

Accounting Goodwill

Answer 7

Based on accounting standards and is reported only in the case
of acquisitions.

Question 8

Financial instrument

Answer 8

contract that gives rise to a financial asset of
one entity, and a financial liability or equity instrument of another entity. Valued at FV or amortized cost

Question 9

Amortized cost

Answer 9

Financial assets are measured at AC if asset’s cash flow occur on specified dates & consist solely of principal and interest & business model is to hold asset till maturity. US GAAP & IFRS has same conditions

Question 10

FVTOCI

Answer 10

IFRS - Financial assets are subsequently measured at FVTOCI (i.e., any unrealized G/L in OCI) if the business model’s objective involves both collecting contractual cash flows and selling the financial assets. This IFRS category applies specifically to debt investments, namely assets with cash flows occurring on specified dates and consisting solely of principal and interest. However, IFRS also permits equity investments to be measured at FVTOCI if, at the time a company buys an equity investment, the company decides to make an irrevocable election to measure the asset in this manner.
US GAAP - available-for-sale debt sec are measured at FVTOCI. All investments in equity securities are measured at FVTPL unless shares give co significant influence. Debt securities designated as trading securities are also measured at FVTPL