Financial Reporting & Analysis Flashcards
7 cards from real CFA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financial Reporting & Analysis flashcards as text
Under IFRS, which inventory cost flow assumption is prohibited?
Answer: LIFO
IFRS prohibits the use of LIFO (Last-In, First-Out) for inventory valuation, while US GAAP permits it.
A company reports net income of $500,000 and has average total assets of $5,000,000. What is its Return on Assets (ROA)?
Answer: 10%
ROA = Net Income / Average Total Assets = $500,000 / $5,000,000 = 10%.
Which financial statement best reflects a company's ability to meet short-term obligations?
Answer: Balance sheet
The balance sheet shows current assets and current liabilities, which are used to assess short-term liquidity.
When a company switches from the straight-line to the double-declining balance depreciation method, this is a change in:
Answer: Accounting principle
Changing the depreciation method is a change in accounting principle, requiring retrospective application under US GAAP.
Deferred tax liabilities arise when:
Answer: Tax expense exceeds taxes payable
A deferred tax liability occurs when taxable income is lower than accounting income, so taxes payable now are less than tax expense recognized.
The cash conversion cycle (CCC) is calculated as:
Answer: DSO + DIO - DPO
CCC = Days Sales Outstanding + Days Inventory Outstanding - Days Payable Outstanding, measuring how long cash is tied up in operations.
Under US GAAP, research costs are:
Answer: Expensed as incurred
US GAAP requires both research and development costs to be expensed as incurred, unlike IFRS which capitalizes qualifying development costs.