CFA Level 1 Revision Lecture | Financial Statement Analysis - Part I | CA Vikas Vohra | edZeb

Overview of the 12 readings with a combined weightage of 13 to 17%. Importance of revising corporate finance before delving into FRA.

Explanation of how companies prepare financial statements including the income statement, balance sheet, and cash flow statement. Example of analyzing a company's performance compared to the previous year.

Introduction to IFRS and the importance of following rules and standards to reduce volatility in financial reporting. Explanation of key principles like accrual, consistency, etc.

Understanding the matching principle in financial reporting, with examples like depreciation and cost allocations based on revenue generation periods.

Explanation of FIFO, LIFO, and weighted average methods for computing inventory costs with examples and comparisons.

Discussed the impact of profits on Equity and ratios, and explained how changes in profits affect ratios like percentages, leading to a decrease in percentages.

Explained the concept of inventory days and turnover ratio, detailing how higher inventory days signify lower turnover ratio and how to compute inventory turnover ratio using different formulas.

Compared FIFO and perpetual inventory methods, discussed scenarios of perpetual and periodic updating, and explained how to convert financial statements from one method to another.

Detailed the concept of Leo Reserve, demonstrated its calculation, and illustrated how to convert cogs from Leo to FIFO methods to report lower costs and higher profits.

Explained the concept of liquidation in a rising price scenario, discussed its impact on profit margins, and highlighted the sustainability of margin improvements due to liquidation.

Impairment charges are important in accounting and signify a decline in the value of inventory. They impact various financial ratios and can lead to adjustments in cost of goods sold and equity.

Reversal of impairment charges allows for an increase in inventory value and profits. This involves accounting adjustments based on the principle of prudence.

Differences in inventory valuation methods between IFRS and US GAAP impact financial reporting. IFRS allows for reversal of impairments, while US GAAP follows a more conservative approach.

Companies need to disclose how inventories are valued, including methods used and any impairment charges. These disclosures aid in better financial statement analysis.

Discussion on revised gross profit margins and the impact of changing inventory methods.

Explanation about defer tax liability and its impact on financial statements.

Importance of understanding income taxes to solve related problems.

Explanation of how rising costs impact a company's decisions and profitability.

Comparison of inventory scenarios and their effects on profitability and financial ratios.

Step-by-step calculation of weighted average for inventory valuation.

Impact of higher debt equity ratio on financial statements.

Comparison of methods and their impact on inventory turnover ratios.

Comparison of inventory valuation under IFRS and US GAAP.

Discussion on liquidity concerns and inventory management.

Explanation of different depreciation methods and their application in accounting.

Explains the calculation of depreciation using the Straight Line Method over 30 years for an asset with a cost of 3 lakh and a life of 15 years.

Discusses the depreciation calculation on interiors over 15 years with details on the amount and total charges.

Compares depreciation methods including component depreciation, IFRS options, and the implications on expenses and profits.

Discusses the importance of matching expenses with revenue, particularly in the construction phase, and how it impacts the profit and loss account.

Analyzes the impact of different depreciation methods like Double Declining Balance (DDB) and SLM on profitability and Return on Equity (RoE).

Highlights how the choice of depreciation method affects equity, profitability ratios, and financial statements.

Explains the treatment of expenses, capitalization, and its impact on profit and loss accounts, particularly in the case of asset construction.

Covers the capitalization of costs like delivery charges and their allocation to profit and loss accounts, emphasizing the impact on equity and debt ratios.

Compares different depreciation methods like DDP and unit of production method for optimizing profits and tax payments.

Explains the concept of amortization, its even distribution, and how it impacts intangible assets' costs over time.

In this section, the speaker explains the process of solving a problem using the DP method for depreciation calculations. The example involves computing the book value and ending net book values using two methods.

The speaker discusses the difference between two methods of depreciation and analyzes which method is likely to result in higher profit margins in the later years. The example provided involves a company acquiring an asset with zero salvage value.

The speaker demonstrates the calculation of depreciation using the Double Declining Balance (DDB) method for an asset. The example involves determining the depreciation amount using the DDB method with a given salvage value.

The speaker explains how choosing an accelerated amortization method, specifically DDP, can impact the profit margins of a company in a specific year. The answer provided relates to the choice of DDP resulting in higher profit margins in a later year.

The speaker delves into the concept of impairment, providing examples related to a car accident affecting asset value and declining demand for CDs. The explanation includes the basis of impairment on economic benefits to the company in the future.

A comparison between IFRS and US GAAP regarding impairment is discussed by the speaker, highlighting differences in when impairment is recognized and how impairment charges are calculated under each accounting standard.

The topic of reversal of impairment charges under IFRS is explained, detailing the conditions under which reversal is permitted and the maximum amount that can be reversed based on prior impairment charges.

This chapter covers the impact of impairment charges on financial statements, discussing the adjustments made to assets, equity, and profit due to impairment charges as per accounting standards.

The speaker introduces the concept of revaluation, explaining how companies can show fixed and intangible assets at fair value and the implications of upward and downward revaluation on financial statements.

Explanation of how cash flows are generated in the future and the computation of cash flows, along with incurring capital expenditures.

Discussion on accumulated depreciation, depreciation every year, and the remaining life of assets.

Explanation of investment property, its purpose to earn rental income or capital appreciation, and examples related to factories and properties.

Description of cost models for property, including cost model and fair value model, and their impact on showing property value.

Explanation of converting investment property to inventory, the valuation process, and the treatment of gains and losses.

Discussion on revaluation models, fair value disclosure, useful life disclosure, and reconciliation statements for property assets.

Solving practice questions related to characteristics of investment property, fair value model, and cash flow impacts.

Explanation and examples of disclosures required under IFRS, amortization rates, and impact on financial statements.

Discussion on fixed asset turnover ratio, its interpretation, and the impact of impairment and depreciation on financial ratios.

Analysis of impairment losses, net profit margins, and their effects on financial reporting and profitability.

Discussion on purchasing land and a truck, importance of fair value, and computation of prices and values in different scenarios.

Preparing financial statements based on revaluation of assets, impact on equity and debt, and maintaining interest coverage ratio.

Explanation and calculation of interest coverage ratio using EBIT and actual interest paid to the bank.

Discussion on impairment charges computation based on net realizable value and comparison with carrying value.

Computation of impairment charges and net realizable value following IFRS guidelines for financial reporting.

Impact of revaluation on financial statements, including losses and gains and adjustments in equity.

Effects of reducing asset's useful life on depreciation, operating profit margin, and total asset turnover ratio.

Explanation of the conditions under which reversal of impairment losses is allowed under IFRS guidelines.

Different methods of disposing of fixed assets, including sale, abandonment, and removal from a cash generating unit.

Calculation of accumulated depreciation and determination of carrying value at a specific date.