A couple of people (banni) have requested that we consoldidate and discuss the various adjustmens that must be made on the BS and IS according to the synthesis chapter (ugh). Let this thread serve that purpose. I would start, but I haven’t looked at this is a long time and don’t want to put something wrong down right off the bat. Fire away!
can i start with operating leases- we have to capitalise them A=L+E Assets up Liabilities up
Good one. That would be CA and CL. They also have an impact on the IS, which I can’t remember.
Goodwill. Remove from the balance sheet. A=L+E Assets down equity down. Someone confirm this one please…
wonder2008 Wrote: ------------------------------------------------------- > can i start with operating leases- we have to > capitalise them > > A=L+E > > Assets up Liabilities up Whew, I’m good so far ^^
with operating leases rental income will be lower in the beginning because depn and interest under capital will be higher in the beginning. please someone explain how to cater for taxation? thanks
Capitalization of Interest, anybody?
wonder2008 Wrote: ------------------------------------------------------- > Goodwill. > Remove from the balance sheet. > Important point on this one. Goodwill is NOT removed in RI models according to the CFAI readings IF the results of an aquisition. Edit: Not related to synthesis, but it is an inconsistency I thought I would point out.
LIFO reserve Up inventory, and up equity.
Posted by: dinesh.sundrani (IP Logged) [hide posts from this user] Date: May 24, 2008 12:24PM Capitalization of Interest, anybody? A=L+E Assets down equity down Reduce net income by the interest expense
great Next ----> Take-or-Pay contracts!
litigation, up L, and down E. caution: no change on A. cuz I bombed on this one.
Posted by: naivejoe (IP Logged) [hide posts from this user] Date: May 24, 2008 12:26PM LIFO reserve Up inventory, and up equity. could you please explain whether we still have to adjust the balance sheet and income statement if we are operating under LIFO method with the LIFO reserve??? I have posted this question already however noone seemed to have replied.
some for depreciation changes (my personal “favorite”) Adjustment to depreciation (either straight line to ddb or the reverse) change in depr * (1-t) added to NI for BS: change in depr affects BS in 2 spots: 1) added/subtracted to accumulated depreciation 2) offsetting entry into Shareholder equity Also sale of AR when you move it back into the statement: 1) incr AR for amount of uncollected receivables 2) offsetting entry into Current Liab
wonder2008 Wrote: ------------------------------------------------------- > Posted by: naivejoe (IP Logged) > Date: May 24, 2008 12:26PM > > > LIFO reserve > > Up inventory, and up equity. > > could you please explain whether we still have to > adjust the balance sheet and income statement if > we are operating under LIFO method with the LIFO > reserve??? > because FIFO inventory reflects the current market price. the FIFO measure of inventory amount on the balance sheet is a good approximation of the current cost of the inventory. For analytical purposes, FIFO is preferred on the balance sheet since FIFO is a better approximation of replacement cost. The appropriate balance sheet adjustment is to add the LIFO reserve to inventory and shareholders’ equity. I am just copying the book, it is on book 2 page. 316…
ok this thread rocks- we will do a summary once we go for a bit longer- this is exactly what i’m looking for, simple A - L = E equation and what goes up, what goes down. other things- guarantees, commitments, contingencies (i think naivejoe touched on litigation) selling receivables PP&E- taking things w/ a good mkt value up to mkt value- what’d you do, up assets, up equity? LTD similar- take to mkt value- adjust SE also we should do pensions- that gets tricky w/ the deferred taxes- anyone feel free deferred tax liability not likely to reverse- you’d down L and up equity?
wonder2008 Wrote: ------------------------------------------------------- > Posted by: naivejoe (IP Logged) > Date: May 24, 2008 12:26PM > > > LIFO reserve > > Up inventory, and up equity. > > could you please explain whether we still have to > adjust the balance sheet and income statement if > we are operating under LIFO method with the LIFO > reserve??? > > I have posted this question already however noone > seemed to have replied. usually it will be explicitly stated that you are to adjust statements to reflect FIFO accounting. as for why, I believe it’s because FIFO is preferred for inventory and because the exam writers enjoy torturing candidates
market value of debt increased market value of lt debt: increase LTD, decrease equity. be careful about total debt (need to include current part of long term debt in total debt) . please correct me if i am wrong
environmental liability, up L, and up A
Did you go through the cfa material cases that on cfa website for this section?