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Advanced Financial Reporting And Analysis

Subject : business-skills
Instructions:
  • Answer 50 questions in 15 minutes.
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  • Match each statement with the correct term.
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This is a study tool. The 3 wrong answers for each question are randomly chosen from answers to other questions. So, you might find at times the answers obvious, but you will see it re-enforces your understanding as you take the test each time.
1. Under GAAP 1) Purchased patentes - copyrights - franchises - licenses - brands - and trademarks 2) Direct response advertising 3) Goodwill arising from transactions - (Proceeds - FMV net assets required = goodwill) 4) Software development costs once






2. Inventory TO = COGS / Avg. Inventory - LIFO = Higher - FIFO = Lower - DOH = 365/(Inv. T/O) = 365/( COGS/ Avg. Inv.) - LIFO = lower days - FIFO = higher days - Gross Profit margin = Gross profit/ revenues - LIFO = lower - FIFO = higher






3. Shows the financial position of a firm AT A SINGLE POINT in time A = L + E.






4. (net income - preferred dividends)/weighted average of common shares outstanding - only income from continuing operations is considered






5. Part of indenture that place restrictions on the firm that protect bondholderns and increase value of the firm's bond - Breach is technical default






6. 2 step-process 1) Recoverability: carrying value > undiscounted CF from asset's use and disposal 2) Loss measurement: Loss is the excess of carrying value over the asset's fair market value or PV of cash flows - Loss reversal for held-for-use assets






7. Increase in an asset: deduct (use of cash) - Increase in a liability: add (source of cash) - Decrease in an asset: add (source of cash) - Decrease in a liability: deduct (use of cash)






8. Taxes payable + chg deferred Tax as per Financial Report






9. Interest Expense = Amortization






10. 1) if 50% of its revenue is earned externally 2) if a business area has at least 10% of a firm's: Revenue; or Operating profit; or Use of asset 3) Business and geographical segments






11. 1) Purpose and context 2) Data Collection 3) Data Processing 4) Analysis/Interpretation of data 5) Develop conclusions and recommendations 6) Follow-up






12. IAS 39 Marketable securities - IAS 2 Inventories (LIFO prohibited) - IAS 16 PP&E - JV (IFRS: proportional consolidation) - IAS 38 Intangibles - IAS 18 & 11 Contruction Contracts - Extraordinary Items: Prohibited in IFRS - Cash Flow Statement






13. 1) Responsibility to establish and maintain adequate internal controls 2) Mgmt's framework for evaluating internal controls 3) Assessment of the effectiveness of internal controls over the last operating period 4) Statement of auditor's attestment 5)






14. Depreciation exp = (cost - accum depre)/useful life x 2 - Does NOT use residual value but depreciation stops when residual value has been reached - reduce EBIT - NI - Assets - Equity and decrease ROA & ROE






15. Nonreversal DTL - therefore it is permanent = Equity. therefore decrease in DTL = Increase in Equity - Reversal DTL - therefore it is temp = Liability






16. Aggressive Revenue Recognition - Diff. growth rates of operating cash flow and earnings - Abnormal comparative sales growth - Abnormal inventory growth as compared to sales - Moving nonoperating income and nonrecurring gains up to I/S to boost revenu






17. Income subject to tax as per Tax Return






18. Used when estimates of revenue or cost are unreliable or short-term contracts - (US GAAP only) Revenue - expense - and profit is recognized at completion (IFRS) Revenue is recognized to the extent of contract cost - cost are expensed when incureed






19. FASB: Asset is a future economic benefit - IASB: Asset is a RESOURCE from which future economic benefit is expected to flow.






20. 1) Capitalize interst during construction period when building its own operating facility; 2) Interest must actually be paid by the firm; 3) Specific and general debt interest is capitalized






21. Trading securities - Available-for-sale - Derivatives (standalone or embedded in non-derivative intrument) - Assets with fair value exposure hedged by derivatives






22. Current Ratio (CA/CL): Higher - Work. Cap (CA -CL): Higher - Asset TO: (Sales/TA): Higher - ROA (EAT/TA): Higher - ROE (EAT/E): Higher - Debt/Equity: Lower - Understates Leverage ratios (b/c not recognized as a liability) - Overstates Coverage ratios






23. 1) Evaluating equity investments for a portfolio; 2) Evaluating potential M&A; 3) Evaluating a subsidiary of a parent company; 4) Deciding on private equity/ venture cap investment 5) Determine creditworthiness - borrowing; 6) Extending credit to






24. Income Tax Expense/Pretax Income (EBIT) Income Tax Exp. = Taxes payable + chg in deferred ta






25. Tax liability based on taxable income as per TAX Report/RETURN






26. Is more relevant than book value: Recent changes allow more liability to be recorded at FMV (IFRS & GAAP require disclosure of FMV) - Downward adj. in liability will Increase equity and decrease leverage ratio - Upward adj in liability will decrease






27. I/S: COGS lower - EBT higher - Taxes: higher - NI: higher - B/S: INV: higher - W/C: higher - are/E: higher - CF: CFO: lower






28. NI/Avg. Total Assets - NI + Int (1-t) / Avg. Total Assets - Operating ROA: Operating INc/ Avg. Total Assets






29. 1) B/S asset increased to FMV 2) Increase above original cost to equity via revaluation surplus account (comprehensive Income)






30. Refers to change in mgmt judgement Does NOT require restatement of prior pd earnings; Disclose in footnotes






31. Income Tax Expense < Taxes Payable - F/S < Tax Return - Pay more tax now but more on reversal






32. Timing differences (depreciations) - Permanent differences






33. Employer contributes specific % - No guarantee on future benefits - Employee bears investment risk - Pension expense = employer contribution






34. 1) Development of high quality - transparent and enforceable global standards; 2) Promote application of standards; 3) Take into account special needs (small & med entities & emerging markets); 4) Convergence of nat'l and int'l standards






35. 1) understandability; 2) relevance; 3) reliability; and 4)comparability - No hierarchy






36. Interest Rec'd - CFO/CFI Divs Rec'd - CFO/CFI Interst Paid - CFO/CFF Divs Paid - CFF/CFO Overdraft = cash - not CFF






37. Refers to changes from one GAAP method or IFRS method to another IFRS & US GAAP require prior year data shown in f/s to be adjusted.






38. Depreciation exp = (cost-residual value)/ useful life






39. 'Assets' - Cash spent on long-term assets - Proceeds from the sale of long-term assets - Cash flow from investments in JVs - affiliates - and long-term investments in securities (trading securities are CFO) - [CFI = Cash additions - cash rcvd on disp






40. 365/(AR T/O) = 365/(Rev/Avg. AR)






41. Ensure that information in f/s is useful to a wide range of users.






42. Outflow - (bringing bond DOWN to par)






43. When Statutory tax rate does NOT equal Effective tax rate - Tax expense does note equal pretax income x statutory rate






44. Slow moving or obsolete inventory






45. EBIT/ *Gross Interest EBITDA/ *Gross Interest *(inc'd capitalized interest) - How many times is EBIT or EBITDA bigger than gross interest? Higher ratio is desired. Shows ability to cover int. payment






46. It is the purchase of an asset using debt finance.






47. Employer promises specific payment stream at retirement - Payments are based on yrs of service - retirement age - and final salary - Employers bears investment risk - Funded by pool of assets - Complicated accounting






48. Adjustments Involves erros or new accounting standards - Resate prior period - Disclose nature and effect on NI - Errors may indicate weakness in internal controls






49. Trade relief - Contingent consideration - Union concessions






50. EU 1) Int'l Accounting Standards Board; 2) Unified int'l frameworks of accounting standards (IFRS); 3) Addopted by EU in 2005






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