CFA Level 1 Practice Question €“ 33
Which of the below items in a balance sheet will most likely get affected after a company sells a machine which it is carrying at $37,500 for a price of $ 40,500
a) Fixed Asset, Cash
b) Fixed Asset, Cash and Reserves & Surplus
c) Cash and Reserves & Surplus
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CFA Level 1 Practice Question €“ 34
HayHay Inc reported a total owner's equity of $ 560,000 at the end of 2012. The owner's equity at the end of the year 2013 stood at $550,000. If the company has reported a net profit of $ 125,000 and paid a dividend of $100,000 during the year 2013 which of the below is least likely to have resulted in Ending Retained Earnings not being equal to the sum of Starting Retained earnings and retained profit for the year 2103 . HayHay Inc
a) Sold a land parcel that they were carrying at $ 220,000 for $185,000
b) Witnessed a $35,000 fall in the value of their Held for Sale securities
c) Estimated that they will realize a loss of $35,000 in their long term contract and recognized it in financial statements
CFA Level 1 Practice Question €“ 35
All else remaining the same which of the below will result in change in Asset Turnover Ratio of a company
a) Buying a Land parcel using cash in the bank account
b) Repaying a liability through money raised from issue of new shares
c) Increasing credit sales
CFA Level 1 Practice Question €“ 36
Below is an excerpt from Caissy Inc's income statement. Based on this statement Vamsi and Brito made the following statements
Vamsi: The company's gross profit margin has been showing consistent signs of improvement. The company seems to be using straight line method of depreciation and have not added any long lived assets between 2010 and 2013
Brito: The company's seems to have maintained a Debt-Equity ratio of Zero in all these years. The cash operating expense of the company as a proportion of sales seems to have witnessed an increase in the accounting year 2012 before coming down in 2013.
a) Vamsi is partially right and Brito is completely incorrect
b) Vamsi is completely correct and Brito is completely incorrect
c) Vamsi is completely correct and Brito is partially correct
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CFA Level 1 Practice Question €“ 37
All else remaining the same which of the below statement would be MOST likely true for a company that uses Double Declining Balance Depreciation (DDB) compared to a company that uses Straight Line depreciation method in the initial years of an asset's life
a) If the companies are making losses then the cash flow from operation of DDB company will be higher
b) The Asset turnover ratio of the DDB company will be higher
c) The Return on Equity of the DDB company will be higher
CFA Level 1 Practice Question €“ 38
T &L; Inc is building a 100 km road which is likely to take three years to complete. The company on completion of first 60 kms will receive Rs.250 mn and will receive another Rs.400 mn. They are expecting the total cost of this project to be Rs.400 mn. At the end of 2nd year they had completed 70 kms of road construction and has spent Rs.300 mn (including first year expense of Rs.100 mn). The Gross profit that the company should report in year 2 is closest to
a) Rs. 125.0 mn
b) Rs.187.5 mn
c) (Rs.-50 mn)
CFA Level 1 Practice Question €“ 39
Bingo Inc is a reseller of electronics which buys goods from manufacturers in bulk and sells to customer at a discount. At the start of the quarter they did not had any inventory. During the last quarter they bought 1000 Televisions for $600,000 and sold 800 televisions for $ 638 each. They also witnessed a marketing and administrative expense of $ 8000 during the quarter. The Revenue that Bingo Inc should report for the quarter is closest to
a) $ 30,400
b) $ 510,400
c) $ 22,400
CFA Level 1 Practice Question €“ 40
KGL inc which follows IFRS is a reseller of wheat grains. Two years back they bought wheat at $24 per quintal. At the end of first year the realizable value dropped to $21 per quintal. Currently the realizable value per quintal of wheat stands at $ 25. The value of wheat inventory that KGL should report in its latest balance sheet will be closest to
a) $ 21 per quintal
b) $ 24 per quintal
c) $ 25 per quintal
CFA Level 1 Practice Question ‚Ź €œ 41
Balu made following statements about revenue recognition. He is most likely correct with respect to
I. If a company has delivered the goods the revenue should be recognized by the company in the same accounting period ir-respective of the collection of cash
II. For exchange of goods the company cannot recognize revenue if it has not sold similar goods to another third party
III. Estimation of appropriate discount rate is not required for installment sales if the company follows US GAAP
a) I only
b) I and III only
c) All three
CFA Level 1 Practice Question €“ 42
A subject coordinator posts discussion questions to his students' everyday (including holiday). The probability of him posting a question with an error is 5%. Over the next 30 days the probability that the coordinator will post error free questions for at least 28 days is closest to
a) 25.86%
b) 81.21%
c) 55.35%
CFA Level 1 Practice Question €“ 43
Super Inc which reported a net profit of $25,650 mn for the year 2013 has 2300 mn ordinary shares outstanding at the beginning of the year. On 1-July 2013 the company issued 400 fresh equity shares. On 1-Aug-13 the company declared a 1:2 share split. At the beginning of the year the company had 1000 mn, $ 100 face value preferred shares outstanding attracting 10% dividend. These preferred shares are convertible in to four ordinary shares per each preference shares held. The diluted EPS of super Inc is closest to
a) $ 2.85
b) $ 1.97
c) $ 1.20
CFA Level 1 Practice Question €“ 44
Below are the selected items from the financial statements of a company which follows US GAAP. The cash flow from Financing of the company is closest to
Net profit: $ 250 mn
Increase in current assets: $ 25 mn
Increase in current Liabilities: $ 20 mn
Interest paid: $ 45 mn
Interest Received: $ 15 mn
Dividend Paid: $ 100 mn
Assets sold: $ 100 mn
Fresh Borrowings: $ 65 mn
Share buy back: $ 90 mn
a) ( $ -125 mn)
b) (-190 mn)
c) ($ -170 mn)
CFA Level 1 Practice Question €“ 45
James and Sandra are discussing about Balance sheet items and made the following statements
James: A goodwill is created in a balance sheet if any asset is bought for a price which is greater than its fair value. Goodwill need not be amortized every year
Sandra: When a held for use asset is sold for price which is greater than its carrying value then the difference will be recorded as other comprehensive income. Held for sale assets cannot be depreciated after classifying them as held for sale assets.
a) James is completely correct and Sandra is Completely correct
b) James is Partially correct and Sandra is Partially correct
c) James is completely incorrect and Sandra is Completely incorrect
CFA Level 1 Practice Question €“ 46
Valor Inc reported Days Inventory in Hand of 75 days and Days sales outstanding of 45 days. Incidentally the company reported an average Inventory and Account receivable which are equal in Dollar terms. Valor's Gross profit margin would be closest to
a) Data Insufficient
b) 60%
c) 40%
CFA Level 1 Practice Question €“ 47
Rahul made following statement with respect to Income taxes, he is correct in making statement
I. When Carrying Value of an asset is greater than Tax base then deferred tax asset would be created.
II. A temporary ir-reversible deferred tax liability can arise if the company is growing and is likely to increase the capital expenditure for the foreseeable future
III. In case an analyst feels a deferred tax asset is irreversible the adjustments that he makes for the purpose of analysis will lead to increase debt to equity ratio
a) All three
b) I and II only
c) II and III only
CFA Level 1 Practice Question €“ 48
All lese remaining the same in the initial year of an asset's usage the Return on Equity of a company that uses Double declining Balance (DDB) Method will be -------------compared to a company that uses Straight Line(SL) method. RoE of
a) DDB Company > SL Company
b) DDB Company
c) RoE will not be impacted by choice of depreciation
CFA Level 1 Practice Question €“ 49
Maya inc reported an Inventory Turnover Ratio of 0.4X. The company uses FIFO inventory valuation method in the present inflationary environment. All else remaining the same if the company had used LIFO inventory valuation their Cash on books would have been
a) Higher
b) Lower
c) Same
CFA Level 1 Practice Question €“ 50
Nosy Inc bought an asset for $ 25,000 with a useful life of 6 years and salvage value of $ 3000. The asset will be depreciated on straight line basis for accounting purpose and for the tax purpose the same will be depreciated on Double declining balance method. The company's tax rate is 35%. Which of the below statements with respect to this asset is LEAST likely to be true. All else remaining the same
a) The asset will create a deferred tax Liability (DTL) of $2294 at the end of year 2.
b) If the company has used Straight line depreciation for both purposes then at the end of year 3 the company's cash would have been lower by $2307
c) During the initial years of operations the Cash return on Equity (CFO/ Average Equity) for this company will be lower than the company that uses SL depreciation for both purpose