FRA Eriksson questions

CFA Level II FRA
#1

Hello,

I have a couple questions about Eriksson on-line case. The case is quite confusing so I couldn’t asnwer two questions and the explanation didn’t help. Specifically …

Question 1 - calculate YoY sales growth for the US subsidiary caused by echange rate fluctuations in SEKUSD. My solution was based in the case informathon that USD sales per store in the US were the same in both years as well as the number of stores. The case also provides consolidated sales in SEK, sales in Sweden in SEK, and sales in the EU in SEK, everything for both years. So it is no brainer to calculate SEK sales in the US and knowing that USD sales were flat to find out the amount of SEK sales growth caused by FX:

However the CFAI performs very different calculations that result in a different answer. Though I understand the official approach, it doesn’t look natural to me and less obvious.

So can anyone share his/her experience asnwering this questions and approach you took? Technically speaking, there is another entity in LatAm - Anart, but because it “sells all of its production to Trana and Trana’s other subsidiaries” I figured out that all these transactions are eliminated during consolidation. Perhaps, I’m wrong here. Would appreciate any ideas on thos issue.** Questions 5 - calculate effect on NI from the proposed tax reform in Sweden. I completely missed the issued with the LatAm subsidiary so my answer was wrong. The explanation, in general, is clear, except one point. The case states: "Sweden operates under a tax treaty with all countries in which it has subsidiaries, such that it will owe taxes _on foreign earned income to the extent that the Swedish rate exceeds the foreign rate_." My interpretation is that the company pays difference on its foreign income if this income was taxed at a lower rate than in Sweden. Makes sense. However, in the explanation CFAI calculates tax effect by applying full tax rate to the EBT of the LatAm subsidiary. The final answer is not significantly different, though. So should be a difference between statutory tax rates in Sweden and LatAm used in calculations instead of the statutory rate in Sweden?** Anyway, Eriksson is quite frustrating case and I very hope that we will not see anything like it in June, however I’d prefer to be prepared. So your commentaries and opinions are welcome.

#2

Apologies for the bump.

I just attempted this Vignette from the CFAI website and got 3 out of 6 despite being (or at least, thinking) that I was thorough in my preparation.

Is this the level of difficulty that we can expect in the actual paper?

#3

HopefulAspirant, Ericksson is notorious on these forums, see: https://www.analystforum.com/forums/cfa-forums/cfa-level-ii-forum/91357207

#4

That is very comforting to know. 3/6 doesn’t sound too bad now. :stuck_out_tongue:

Thanks, BlackMamba!

#5

LOL, you got 3/6 in this vignette at your first attempt? You should start moving to the next chapter, buddy. I got 1/6 at that time btw.

#6

I’ve never been so proud of a 3/6 before. :’) While Ericksson is still the gold standard in terms of difficulty, I actually found a few of the other FRA topic tests to be slightly tough too. Hopefully the exam’s a lot easier.

#7

Going to bump this one with an extra question:

question 3:

3 of 6

The best estimate of the proportion of Anart’s sales that is reflected in Trana’s consolidated income statement is:

100%. 0%. 80%.

In short, the answer states that the correct answer is 0%. Reasoning behind this is that we would consolidate (since 80% owned) and then exclude intercompany sales to avoid double counting.

I completely understand this reasoning if the vignette indeed just stated that they owned 80% of a company. However, the vignette states that the foreign company was established by Erikkson to benefit from lower labor and shipping costs. I therefore would have accounted for it as a joint venture (since established by Eriksson and the other foreign company itself). I would then have used the equity method > only include net earnings and so no sales reported on the single line in the IS. Same answer but different reasoning…

Is the question just a little bit ambiguous or am I interpreting “joint venture” wrong?

#8

Dude, forget Erikssen. Nothing like that will come up in the exam. It’s an outlier topic test and not worth the time to effort. Trust me, I am a retaker and you can be assured the FRA CFA questions are crystal clear compared to some of the topic tests

#9

just skip this, don’t waste your time.