Révision

Question 1

How to calculate cash flow liquidity ratio?

Answer 1

(Cash+MarketableSecurities+OperatingCashFlow)/Current Liabilities
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Question 2

Cash flow adequacy ratio?

Answer 2

CFO/(CAPEX + Mandatory Debt Repayment + Dividends)

Question 3

Dupont 2 basic formulas:

Answer 3

1. Net Profit Margin X Total Asset Turnover = Return on Investmen
2. Return on Investment X Financial Leverage = Return on Equity

Question 4

How to calculate LCM inv value under US GAAP?

Answer 4

We compare cost to market value

1. Cost given
2. CEILING = NRV
3. FLOOR = NRV - Normal Gross Profit Percentage
4. COMPARE replacement cost (RC) to FLOOR and CEILING and use middle value (between the 3) as market value
5. Compare market value to cost and select the lowest

Question 5

Reversal of impairment losses: when are they allowed according to IFRS?

Answer 5

A reversal can occur if there is an indication that the factors that previously led to the impairment have changed.

Question 6

Reversal of impairment losses: when are they allowed according to US GAAP?

Answer 6

Not allowed

Question 7

Reversal of impairment losses: How does it show on income statement (IFRS…)?

Answer 7

Generally in other income line

Question 8

That is revaluation?

Answer 8

Process of adjusting the carrying amount of an asset on the balance sheet to its current fair value

Question 9

Revaluation: when are they allowed according to US GAAP?

Answer 9

Revaluation is not permitted under generally accepted accounting principles (GAAP), except for marketable securities.

Question 10

Revaluation: when are they allowed according to IFRS?

Answer 10

Entities must perform revaluations with sufficient regularity so that the carrying amount of the asset does not differ materially from its fair value.

Question 11

Revaluation: How does it show on income statement (IFRS…)?

Answer 11

1. Decline in value: other expenses
2. Gain in value (reversal of impairment loss part, so part to reach back initial value): Other Income
3. Upwards revaluation in excess of original cost?: Included in revaluation surplus in Other Comprehensive Income

Question 12

When do firms test for impairment (IFRS)

Answer 12

1. Regular Tests for Certain Assets: Goodwill and intangible assets with indefinite useful lives must be tested for impairment at least annually, regardless of whether there is an indication of impairment.
2. Indicator-Based Tests for Other Assets: For all other assets, impairment testing is required only if there are indicators that the asset may be impaired (e.g., significant declines in market value, adverse changes in technology or markets, evidence of obsolescence, or reduced economic performance).

Question 13

When do firms test for impairment (US GAAP)

Answer 13

1. Goodwill and Indefinite-Lived Intangibles: Similar to IFRS, goodwill and intangible assets with indefinite useful lives must be tested for impairment at least annually
2. Long-Lived Assets (e.g., PP&E): For long-lived assets held for use, impairment testing is performed only when there are indicators of impairment. This includes significant adverse changes in the environment, legal factors, or operational conditions that suggest the carrying value may not be recoverable.

Question 14

Straight line depreciation:

Answer 14

AnnualDepreciationExpense=
(CostofAsset−SalvageValue) / UsefulLifeinYears
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Question 15

Double declining balance:

Answer 15

1. Compute the straight-line depreciation rate
2. Double it
3. Multiply this rate by the beginning book value each year (not the original cost minus salvage value, but the current carrying amount).

Note: Salvage value is not explicitly considered in the annual calculation. However, depreciation stops once the book value reaches the salvage value.

Question 16

Units

Answer 16

1. DepreciationperUnit =

(CostofAsset−SalvageValue) / TotalExpectedUnitsofProduction

2. AnnualDepreciation =

DepreciationperUnit × UnitsUsedinthePeriod
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