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Study Session 6: Financial Reporting and Analysis: Quality of Financial Reports and Financial Statement Analysis

Why is a deferred tax liability created for Goodwill?

Most companies use straight-line depreciation for financial statements and accelerated depreciation for income tax returns. So this means they have more taxes in the P&L statement as compared to the actual taxes paid. So they created a deferred tax liability for this because eventually they do have to pay this tax. When they do pay this extra tax, at that time, the DTL in the books will progressively reduce. This I fully understand.

loss due to valuation of issued bonds

Hello All, i am looking at these financials and there is a 64,086 million loss due to change in the value of issue bonds.

What standard requires a company to revalue issued bonds? Does this mean that the financial statement gets hit as the credit quality improves… I did not run across this back in my CFA days. Thanks!

DTA - unwind and unused capital allowance

Hi - have 2 specific questions regarding tax credits:

1. Looking at a company that made a chunk of earnings from the unwind of a deferred tax asset from intangibles. Shouldn’t an unwind be 0 net impact on earnings or what are the steps impacting the financial statements? Or has an expense been incurred before and hence the unwind leads to the positive earnings impact?

2. What is an DTA related to unused capital allowance? How is the DTA booked?


Cannabis Companies - Reconciling Biological assets, inventories, and cash flow

Hi guys,

I have been studying MJ companies and I am having a hard time figuring out the relationship between biological assets and CFO - cash flow from operations. 

So my theory is: FV adjustments to inventories when biological assets are harvested could potentially understate CFO. 

I’ll detail out a scenario and need a second set of eyes to determine if my accounting is correct or not. 

Example (numbers are completely theoretical):

CFAI FRA Reading 19 - EOC #8

The question asks what is the impact to the company’s interest coverage ratio by excluding the investment in associates. The answer provided by the curriculum is that it is not affected. As interest coverage = EBIT / interest expense, I understand that the asset “investment in associates” does not affect that equation. However, my line of thinking is that the associated equity income (or lack thereof in this case) would decrease EBIT and therefore the interest coverage ratio. Can anyone explain if I am missing something here?