FA Financial Reporting & Analysis 3

Question 1

Which of the following represents a key difference between IFRS and US GAAP regarding inventory accounting?

Accepted Answer

US GAAP allows LIFO; IFRS does not

Answer

US GAAP permits LIFO inventory accounting, while IFRS explicitly prohibits it, requiring FIFO or weighted average cost methods.

Question 2

Under US GAAP, interest paid and interest received on the cash flow statement are classified as:

Accepted Answer

Operating activities

Answer

Under US GAAP, interest paid and interest received are classified as operating activities, unlike IFRS which allows more flexibility.

Question 3

When preparing a cash flow statement using the indirect method, the starting point is:

Accepted Answer

Net income from the income statement

Answer

The indirect method starts with net income and adjusts for non-cash items and working capital changes to arrive at operating cash flows.

Question 4

In accounting, goodwill is best defined as:

Accepted Answer

The excess of acquisition price paid over the fair value of identifiable net assets

Answer

Goodwill arises in acquisitions when the purchase price exceeds the fair value of the target's identifiable net assets, reflecting intangibles like reputation and synergies.

Question 5

Which trend in a company's financial ratios would most likely indicate deteriorating operational efficiency?

Accepted Answer

Increasing inventory days (days inventory outstanding)

Answer

Rising inventory days means the company is holding inventory longer before selling it, signaling slower sales or overstocking and reduced efficiency.

FA - Financial Analyst Practice Test

FA - Financial Analyst Practice Test

FA Financial Reporting & Analysis 3