CFA Financial Reporting and Analysis 1

Question 1

Under IFRS, which of the following is NOT a required component of a complete set of financial statements?

Accepted Answer

Statement of retained earnings

Answer

IFRS requires a statement of financial position, statement of comprehensive income, statement of changes in equity, statement of cash flows, and notes — a standalone statement of retained earnings is not required.

Question 2

A company uses the LIFO inventory method. During a period of rising prices, compared to FIFO, LIFO will result in:

Accepted Answer

Lower net income and lower inventory on the balance sheet

Answer

Under rising prices, LIFO assigns higher-cost inventory to COGS, reducing net income, and retains older, lower-cost inventory on the balance sheet.

Question 3

Which depreciation method results in the highest depreciation expense in the early years of an asset's life?

Accepted Answer

Double-declining balance

Answer

The double-declining balance method applies a fixed rate to the declining book value, generating the highest depreciation charge in the earliest years.

Question 4

Under the accrual basis of accounting, revenue is recognized when:

Accepted Answer

The performance obligation is satisfied

Answer

Under IFRS 15 and ASC 606, revenue is recognized when (or as) the entity satisfies a performance obligation by transferring control of a promised good or service.

Question 5

An analyst notices that a company's receivables turnover ratio has declined significantly over the past year. This most likely indicates:

Accepted Answer

Customers are taking longer to pay their invoices

Answer

A declining receivables turnover ratio means accounts receivable are growing relative to sales, suggesting customers are taking longer to pay.

CFA Practice Test

CFA Practice Test

CFA Financial Reporting and Analysis 1