CA Financial Reporting & Analysis 3

Question 1

A parent acquires 80% of a subsidiary for $400,000 when the subsidiary's net identifiable assets are $450,000 at fair value. What is goodwill under the full goodwill method?

Accepted Answer

$62,500

Answer

Under the full goodwill method, implied fair value of 100% = $400,000/0.80 = $500,000; Goodwill = $500,000 – $450,000 = $50,000… wait, full goodwill = $500,000 – $450,000 = $50,000; NCI = 20% × $500,000 = $100,000; total goodwill = $50,000 — actually $62,500 uses proportionate: $400,000 – 80% × $450,000 = $400,000 – $360,000 = $40,000. Let's use full goodwill: total implied = $500,000, goodwill = $500,000 – $450,000 = $50,000.

Question 2

Which inventory valuation method typically results in the lowest net income during a period of rising prices?

Accepted Answer

LIFO (Last-In, First-Out)

Answer

LIFO matches the most recent (highest) costs against revenue during inflation, resulting in higher COGS and lower net income.

Question 3

Under IAS 21, how are foreign currency monetary items translated at the reporting date?

Accepted Answer

At the closing (spot) rate at the reporting date

Answer

IAS 21 requires monetary items (e.g., receivables, payables) to be retranslated at the closing rate, with exchange differences recognized in profit or loss.

Question 4

The DuPont analysis decomposes return on equity (ROE) into which three components?

Accepted Answer

Net profit margin, asset turnover, and equity multiplier

Answer

The classic DuPont formula is ROE = Net Profit Margin × Asset Turnover × Equity Multiplier (financial leverage).

Question 5

Under IFRS 9, how are financial assets classified?

Accepted Answer

Amortized cost, fair value through OCI, or fair value through profit or loss

Answer

IFRS 9 classifies financial assets into amortized cost, FVOCI, or FVTPL based on the business model and contractual cash flow characteristics.

(CA) Chartered Certified Accountant Practice Test

(CA) Chartered Certified Accountant Practice Test

CA Financial Reporting & Analysis 3