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EduPristine>Blog>CFA Webinar on FSA: Questions and Answers

CFA Webinar on FSA: Questions and Answers

November 21, 2013

Now that the CFA exam is just around the corner, we are sure you are notching up your CFA preparation by greater levels. Needless to say, CFA candidates around the world are feeling the same way right now.

Therefore, EduPristine is conducting a series of webinars to answer any questions or doubts on various topics.

The answers to the questions are given right here as well. This is bound to aid your CFA exam prep for certain.

Below, you will find a brief summary of some of the most crucial points on FSA.

#CFA Questions and Answers

So without further ado, let’s proceed to the questions and answers!

Years of life with no salvage value, tax rate 41 %, revenues 14384 constant over the years, using SLM for financial purposes, and accelerated depreciation is 35% for year 1 & 2, and 30% for year 3. Year 4 and 5 the tax rate has changed from 41 to 31 %. What will be DTL at the end of year 3. What will be the adjustment at the end of year 3 in income statement? Will it be DTL or DTA? Explain this in detail.

Answer 1:

  • Straight-line depreciation = $25,352 / 5 = $5,070.
  • Income using straight-line depreciation = $14,384 ’ $5,070 = $9,314.
  • Accelerated depreciation (years 1 and 2) = 0.35($25,352) = $8,873.
  • Income (years 1 and 2) = $14,384 ’ $8,873 = $5,511.
  • Accelerated depreciation (year 3) = 0.3($25,352) = $7,606.
  • Income (year 3) = $14,384 ’ $7,606 = $6,778. 

Deferred tax liability at the end of year three, after the change in the expected tax rate, will be $3,144: 

  • DTL for year 1 = $1,178.93 = [($9,314 ’ $5,511) (0.31)].
  • DTL for year 2 = $1,178.93 = [($9,314 ’ $5,511) (0.31)].
  • DTL for year 3 = $786.16 = [($9,314 ’ $6,778) (0.31)].
  • $1,178.93 + $1,178.93 + $786.16 = $3,144

If you are paying less and you need to pay more in the near future you, create DTL because this is a liability."

What is valuation allowance? Explain in detail.

Answer 2:

“DTA & DTL is just only because of the temporary difference between financial statement and tax accounting. Hence, if in the future you are estimating that your future profit is not sufficient to pay more taxes you need to adjust your DTA through valuation allowance(GAAP). “

Is it possible to adjust Deferred Tax Asset with Deferred Tax Liablities?

Answer 3:

DTA can be adjusted or netted off against DTL, only when the enterprise has a legally enforceable right to set off.”

What is the carrying value of a bond?

Answer 4:

“It is the value of Bond according to company balance sheet.”

Please tell me how to convert from LIFO to FIFO or vice versa.

Answer 5:

“End Val – Beg Val = NI – Div Declared”

What is the difference between cash flow and fund flow?

Answer 6:

“Cash flow statement only records the cash inflow and outflow of company and they deal with financial statement.

Fund flow statement basically deals with sources of funds and application of funds.”

To read more, just follow the link to CFA Webinar on Ethics and Corporate Finance.

If you have any queries, comments or questions feel free to post them in the comments section or visit our forum!

There will be subsequent blogs on more questions and discussions that will take place during the following days. So stay tuned for more!

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Trusted by Fortune 500 Companies and 10,000 Students from 40+ countries across the globe, it is one of the leading International Training providers for Finance Certifications like FRM®, CFA®, PRM®, Business Analytics, HR Analytics, Financial Modeling, and Operational Risk Modeling. EduPristine has conducted more than 500,000 man-hours of quality training in finance.


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