@vincentt
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Up13
A simple example to illustrate that:
For example, in your inventory there are 2 items (each cost $50 and $100).
You sold 1 item @ $200 with tax 30%.
With FIFO, your COGS will be $50 and the amount get taxed will be $45.
Cash Outflow = -$150 (for the goods)
Taxed = -$45
Cash Inflow = +$200
Total = $5With LIFO, your COGS will be $100 and the amount you’ll get taxed will be $30.
Cash Outflow = -$150
Taxed = -$30
Cash Inflow = +$200
Total = $20Hence, LIFO has higher COGS ($100) and higher cashflow ($20)
Hope that helps 😉
Up6I’m just finishing exam 3 afternoon paper as we speak, 1 last item set to go and i’m ready to review it.
Have you done the first 3? How was it?
If all goes according to plan i’ll be starting exam 4 on monday. I thought I’ll get some practices with schweser before I do the CFAI ones.
Up6The first hedge is a matched hedge (as in the initial amount is the same as the selling forward amount) – use mid-market spot rate.
The second hedge is a mismatched hedge (initial amount is different from the actual selling forward due to increased value in foreign investment) – use bid (or ask for buying forward).
Hedge 1:
The reason behind that is, when you first purchase JPY 800m @ Ask rate, you sell a forward JPY 800m @ Bid rate, hence you should use mid-market spot rate because both notional amount are the same you’re able to take the mid rate.Hedge 2:
When you first buy EUR 8m @ Ask rate, you also sell forward EUR 8m @ Bid rate, and subsequently you sell additional EUR for the increased value in your foreign investment. Due to the difference in notional amount, you are not able to use the mid rate but the Bid rate for sell (Ask for buy) forward.Also, p221 should explains further:
“The pricing of swaps will differ slightly depending on whether they are matched or mismatched swaps. If the amount of the base currency involved for the spot and forward legs of the swap are equal (a matched swap), then these are exactly offset- ting transactions; one is a buy, the other a sell, both are for the same amount, and a common spot exchange rate is typically applied to both legs of the swap transaction. Because the client is not being charged a bid–offer spread on the spot rate, it is standard practice to use the mid-market spot exchange rate for the swap transaction.”
Hope that helps.
Up6In Level 1, I used to ensure my notes are complete in a way anyone can use it, but that’s silly. Your notes is only for you, only take notes of what you don’t already know. For example, by looking at a certain formula on a post it note on your wall daily, you will eventually remember it, then move it to your notepad.
Certain concepts are easier to grasp after a few practice questions, certain ones are not, hence i would advise taking notes when you’re reviewing your practice exams/questions. Take notes of concepts in the questions you don’t know and got wrong, thought you knew and got wrong, also the ones that you don’t know but got it right.
If you have done enough questions, you will eventually have a “complete” notes on the areas you are weak on.
Up5I’ll be honest, I dug out last years L2 text book before answering and managed to find a paragraph, that was it. Was also in a different SS, so unsure whether it’s one of the bits they have significantly changed this year?
Points for dedication!
+1 Indeed!!
Up5Well, I might not be able to explain this accurately but based on my understanding notching means you have different credit ratings for the bond and the said bond’s issuer.
For example, say Company A issued Bond X, both ‘A’ and ‘X’ and Company A is having a higher rating than X but because the way bond X was structured, makes it riskier hence the rating is lower than the issuer’s (in this case, company A) rating.
Up5@mattjupiter yup without prior experience with accounting.
Fixed income is hard as well (since we are only allowed to pick one and FRA is way heavier weighted) but till you grasped the concept of interest goes up price goes down and coupon vs YTM? You’ll be fine. At least from my experience with no financial background.Up5has everyone completely gone through the entire syllabus and on practice questions now?
Up5@-) is this the kind of question I should be expecting in the exam? In terms of the level of trickiness?
Up5thanks @sophie , I actually understand that like for like comparison. My confusion is on which is the right thing to do usually (at least for the CFA exam):
1. to adjust US GAAP to match IFRS
or
2. to adjust IFRS to match US GAAPHence, I was asking about the formula given in the book (though no further info given), trying to analyse if the + sign really mean something which could tell which framework should be adjusted.
But apart from that, I entirely understand the concept of like-for-like comparison thanks guys!
Up5@diya if you are the kind who couldn’t concentrate when there’s noise then cafe wouldn’t be your place. I get distracted easily when i’m home. Apparently, I have plenty of other stuff to do when i’m about to start and then there goes half an hour. : :-O
Up5@reena yup the right answer is C, but what does ‘leverage the optimal portfolio by borrowing’ means?
From my understanding, that means to invest the funds from shorting the 60% indexed portfolio to the actively managed portfolio?
How would you be able to benefit from diversifying in the indexed portfolio?
