FASEA Financial Analysis and Reporting 2

Question 1

Under AASB 15, revenue from a financial planning fee charged upfront for a 12-month advice engagement should be recognised:

Accepted Answer

Ratably over the 12-month service period

Answer

AASB 15 requires revenue to be recognised as performance obligations are satisfied, so a 12-month retainer is spread over the service period.

Question 2

A financial adviser reviews a client's portfolio and notices the P/E ratio of a held stock has risen from 15x to 45x while earnings have stagnated. This most likely signals:

Accepted Answer

Potential overvaluation requiring investigation

Answer

A P/E expansion without earnings growth suggests the market has priced in future growth that may not materialise, indicating possible overvaluation.

Question 3

Which financial statement item would an adviser examine to assess whether a company can meet its short-term obligations without selling inventory?

Accepted Answer

Quick (acid-test) ratio

Answer

The quick ratio excludes inventory from current assets, measuring a firm's ability to cover short-term liabilities with its most liquid assets.

Question 4

When comparing managed fund performance, an adviser should prefer the time-weighted return (TWR) over money-weighted return (MWR) because TWR:

Accepted Answer

Eliminates the distorting effect of client-controlled cash flows

Answer

TWR neutralises the timing of investor cash flows, making it the appropriate measure for comparing investment manager skill across funds.

Question 5

A client holds a bond purchased at a premium. As the bond approaches maturity, the carrying value on their statement will:

Accepted Answer

Fall toward face value

Answer

Premium amortisation under the effective interest method reduces the carrying value of a bond purchased above par toward its face value at maturity.

(FASEA) Financial Adviser Standards and Ethics Authority Practice Test

(FASEA) Financial Adviser Standards and Ethics Authority Practice Test

FASEA Financial Analysis and Reporting 2