Do you always make adjustments to the financial statements before calculating the RI (to adjust the dirty surplus)? Because I know that Schweser says not to adjust goodwill for RI, and that capitalizing operating leases tends to overstate assets, so what do we adjust before calculating the value of the firm using the residual income method?
I thought the ONLY thing you don’t adjust for was goodwill, whereas on FSA equations you do adjust for it. Here we go. SS 12 R45 LOS m Adjust for: -Operation leases, treat as capitalized. -Consolidate SPEs -Reserves and allowances -Adjust inventory to FIFO -Add pension funded status (using IFRS unless stated otherwise on the exam) -Deferred tax liabilities should be eliminated and reported as equity if not expected to reverse -Nonrecurring items should be removed Goodwill should NOT be adjusted R&D not defined well, probably won’t be asked.
One last thing: “Deferred tax liabilities should be eliminated and reported as equity if not expected to reverse.” Do you mean DTL should be eliminated, period, and that it should be equity if not expected to reverse? Meaning DTL is always removed? Or are you just saying that you leave DTL as is unless it’s expected to not reverse? Having trouble with the way it’s phrased is all sorry.
If it’s expected to reverse, i.e. if it actually represents a future liability, it stays as a DTL in the liabilities portion of BS. If it is NOT expected to reverse, move it to equity. Same as level 1, I think.
Cubemonkey Wrote: ------------------------------------------------------- > If it’s expected to reverse, i.e. if it actually > represents a future liability, it stays as a DTL > in the liabilities portion of BS. If it is NOT > expected to reverse, move it to equity. Same as > level 1, I think. Yes.