In Schweser Exam 3, Afternoon Session, they have a problem set involving residual income, BVPS, EVA, and MVA, and they have the balance sheet with footnotes that indicate that the LIFO was used in accounting and that there was a pension liability. Why don’t you add those back to adjust the balance sheet when calculating residual income? What’s the general rule about adjusting the balance sheet in reference to residual income? Don’t you need the clean-surplus relation to hold? If you don’t adjust for pension liability then the clean-surplus relation won’t hold because you’ll have other comprehensive income…
I have a 1/6 there. I need to review that. RI is my weak link
Anyone?
not sure about LIFO stuff, was there any lifo liquidation. and pension, isn’t pension expense reported on income statement? only unamortized part of past service cost and actuarial losses/gains goes to other comp. income part of BS; this anyway does not involve any cash changes.