FSA CFA`

Going concern basis

Assuming the business will continue to exist unless the management intends to liquidate it

Under U.S. GAAP, an asset is considered impaired if its book value is:

Greater than the sum of its undiscounted expected cash flows

Other things equal, a company's operating breakeven level of sales is most likely to increase when:

Its scale of operations is increased. Operating breakeven is calculated as fixed operating costs divided by price minus variable costs per unit. Tax rates and interest charges do not affect the operating breakeven quantity of sales

FIFO COGS =

LIFO COGS − change in LIFO reserve =

FIFO Inventory =

LIFO inventory plus the LIFO reserve

LIFO liquidation

Occurs when a LIFO firm's inventory quantities decline.

finite

amortized

Intangible assets with finite useful lives are

amortized over their expected useful lives Intangible assets with finite lives are amortized over their expected useful lives

finance lease

any lease in which both the benefits and risk of ownership are substantially transferred to the lesee

intangible assets with finite lives

are amortized

Overloading a distribution channel with more goods than would normally be sold during a period

channel stuffing

Dilutive securities

decrease EPS

taxable income exceeds pretax income

deferred tax asset

pretax income exceeds taxable income

deferred tax liability

Intangible assets with indefinite lives are tested

for impairment annually

cash flow from operations under capitalizing

higher

income variability expensing

higher

Intangible assets are reported on the balance sheet at

historical cost less accumulated depreciation

For a firm that uses the LIFO inventory cost method, a LIFO liquidation occurs if:

inventory quantity decreases during a reporting period. LIFO liquidation occurs when the quantity of inventory decreases during a reporting period.

Capitalized interest costs are typically reported in the cash flow statement as an outflow from

investing Capitalized interest costs are reported as CFI on the statement of cash flows

total cash flows expensing

is the same as capitalizing

operating lease the lessor

keeps the leased asset on its balance sheet and continues to record depreciation expense

cash flow from investing capitalizing

lower

A company that capitalizes costs instead of expensing them will have:

lower cash flows from investing and lower income variability Capitalizing costs tends to smooth earnings and reduces investment cash flows. It will also increase cash flow from operations and icnrease profitability in the early years

Compared to expensing, capitalizing costs will most likely result in

lower debt to equity ratios Capitalizing expenses will increase assets by the capitalized amount compared with expensing

An analyst will most likely use the average age of depreciable assets to estimate the company's:

near-term financing requirements. Average age of depreciable assets is useful for estimating financing required for major capital expenditures in the near term to replace depreciated assets.

The revaluation model for investment property is permitted under:

neither IFRS nor U.S. GAAP.

indefinite

not amoritzed

Intangible assets with indefinite lives are

not amoritzed intangible assets with indefinite lives are not amortized but subject to impairment charges

Goodwill

not amortized

Intangible assets with indefinite lives

not amortized

Derecognizing

only when assets are sold, exchanged, or abandoned

Under the fair value model for investment property, unrealized gains and losses are

recognized on the income statement.

Valuation allowance

reduces the carrying value of a deffered tax asset based on managers estimates of probability it will not be realized

finance lease the lessor

removes the leased asset from its balance sheet and adds a lease receivable assset

Operating lease

the benefits or risks are not substantially transferred to the leasee

Under U.S. GAAP, an asset is impaired when:

the firm can no longer fully recover the carrying amount of the asset. An asset is impaired if its future cash flows (undiscounted) are less than its carrying value.

Offsetting of assets

there is no offsetting of assets liabilities or income against expenses unless a specific standard permits or requires it