Financial Reporting: Long-lived Assets: Financial Statements and Ratios Flashcards Preview

CFA > Financial Reporting: Long-lived Assets: Financial Statements and Ratios > Flashcards

Flashcards in Financial Reporting: Long-lived Assets: Financial Statements and Ratios Deck (15)
Loading flashcards...
1
Q

Implication for years after a capitalized vs non-capitalized expense

A
  1. Capitalized Expense
    - Higher NI the first year
    - Lower NI in following years unless more expenses are capitalized
2
Q

Asset Turnover

A

Sales / Average Assets

3
Q

Effects on Income Statement of Impairment Loss (prior and post years)

A
  1. Prior years NI was likely overstated because depreciation was too low
  2. Year of Impairment will have lower NI
  3. Years following Impairment will have lower NI because depreciation has been increased.
4
Q

Estimate of remaining useful life

A

Est Remaining Useful Life = Net Plant & Equip / Annual Dep Expense

5
Q

Net Plant & Equipment

A

Net Plant & Equip = Gross P&E - Accum Dep.

6
Q

Finance or Capital Lease

A
  1. The risk of the asset is transfered to the Leasee (IFRS)
  2. This is like a rent-to-own situation.
  3. GAAP qualifies a finance lease as one…
    - Ownership is transfered at the end of the lease
    - Lease includes a bargain purchase option
    - Term is 75% or more of the asset’s life
    - PV of lease payments is 90% or more of assets value
7
Q

Operating Lease

A

This is a rental agreement

8
Q

Effect on Fin Statements from Capitalizing an Expense

A
  1. Cash Flow from Operations is Higher / CF Investing is Lower
  2. NI is higher in first year
  3. Assets are higher in initial years
9
Q

Effects of Capitalized Interest on Fin Statements and Ratios

A
  1. Interest payments are in CF from investing
  2. Assets are increased by the interest and it is expensed with the assets depreciation
  3. NI is increased initially as interest is capitalized on the BS
  4. Interest coverage ratio should include capitalized interest payments
10
Q

Interest Coverage Ratio (adjusted for Capitalized Interest)

A
  1. EBIT / Interest Charges
  2. EBIT + (portion of cap interest expensed that period) / Interest expense + Cap interest payments ie (100 + 15) / (20 + 22)
11
Q

Effects on Financial Statements of Capital(finance) Lease

A
  1. IS only shows % of payment that is interest expense
  2. Depreciation and % will be higher on IS than operating intially
  3. BS shows asset and associated liability
  4. CF statement shows lease payments (minus interest) as investment outflows
12
Q

Two types of Financing or Capital Leases

A
  1. Direct Financing: when the PV of the lease payments = fair value of asset
  2. Sales Lease: when PV of lease payments > fair value of asset
13
Q

Estimated Average Useful Life of P&E

A

Est Ave Useful Life = Ave remaining life + average age

14
Q

Estimated Average Age of P&E

A

Ave age = Accum Dep / Dep Exp

15
Q

Effects on Financial Statements for Asset Revaluation

A
  1. Asset values go up on BS
  2. Shown as “other comprehensive income” on BS Equity
  3. ROE will fall because equity goes up

Decks in CFA Class (36):