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

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?

Thanks

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?

Goodwill offset against equity

Hello,

Has anyone understood what goodwill offset against equity is and means?

Usually seeing goodwill as asset account, so wonder if and when goodwill is offset? Do companies have a choice?

Thank you

Cash taxes in UFCF

Bit confused regarding the tax rate to use to generate UFCF. Do you rather take the absolute cash taxes from the cash flow statement or the implied tax rate from the income statement and apply the implied tax rate to the EBIT?

Thanks