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CFA LEVEL 1 - Exams| Questions with 100% Verified Answers
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CFA LEVEL 1 - Exams| Questions with100% Verified Answers
New Products of Types of Transactions - ✔ ✔ - new products or types
of transactions arrive on a regular basis
they may result from economic events internal or external to the company, or
they may be transactions the company has entered into
keeping up to date on new products or types of transactions allow for improved
analytical skills
Company Disclosures Regarding Changes in Accounting Policies - ✔ ✔ - accounting
policies must be applied uniformly to maintain consistency in reporting
when a change in policy is made, it must be disclosed on a summary sheet or as
a footnote
- changes are generally applied retrospectively
,Company Disclosures Relating to Critical and Significant Accounting Policies - ✔
✔ -when there are changes to how the elements of a financial statement are
calculated, then a disclosure should be added to the report
critical and significant accounting policy changes are the ones where
the deviation may be material to a user
Full Disclosure Principle: says that any information that affects the full
understanding of a company's financial statements must be included with the
financial statements
disclosures include: changes to accounting policies, assumptions made,
judgments, framework used
Evolving Standards and the Role of the CFA Institute - ✔ ✔ - changes in rules
and regulations can affect the valuation and financial reporting of a company
CFA Institute actively follows regulatory bodies like the International Accounting
Standards Board (IASB) and the Financial Accounting Standards Board (FASB),
offering advocacy to both
CFA Institute advocates financial statements that are timely, consistent,
comparable, and transparent
Understanding Income Statements - Introduction - ✔ ✔ - income statement
presents information on a company's revenues and expenses over a period
of time
, the difference is earnings, or profit/loss
both IFRS and GAAP allow the income statement and statement of
comprehensive income to be presented in one section or separately, and
both equity and fixed income analysts use income statement data
Income Statement Components and Format - ✔ ✔ - income statement
components include net revenue minus COGS, SG&A expenses to make operating
income
from this, interest expense, depreciation expense, and tax expense are
deducted for net income
there are many other potential elements, including gains and losses from non-
operating items
expenses can be grouped by nature or function, and the income statement
can be single-step or multi-step in format
Basic EPS Calculation - ✔ ✔ - "common" = GAAP term, "ordinary" = IFRS term
= (NI - P Dividends) / Weighted Average # of Shares Outstanding
the denominator of this is a time-weighted average and reflects the impact of
share issuances, share repurchases, stock splits, and stock dividends
, Simple vs. Complex Capital Structure - ✔ ✔ - in a complex capital structure,
some debt is convertible to new common (or ordinary) shares
potential dilution of earnings is accounted for in diluted EPS, which is lower than
basic EPS
a simple capital structure is one without convertible debt
Discontinued Operations - ✔ ✔ - must be separately stated on the
income statement, allowing an analyst to disregard the impact on future
financial performance
Non-Operating Items - ✔ ✔ - non-operating items will vary depending on
whether the company is a financial service
non-operating items should be stated separately on the income statement
analysts who observe a significant amount of non-operating income in a
company's reports should investigate further before making an investment
decision
Diluted EPS and the If-Converted Method - ✔ ✔ - the if-converted method for
calculating diluted EPS assumes the common shares had been exchanged for
all convertible preferred stock at the start of the period
the diluted EPS value that results from this methodology must always be
equal to, or less than, basic EPS
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