Questions and Answers of Global Financial Accounting

What is TRANSFER AND CONVERTIBILITY PROTECTION
Exhibit 11.11 shows the yield spread between various issues of Argentina bonds and their U.S. Treasury counterparts. The credit spread appears to be smaller than the credit default swap of the nearly
The protection seller on the XYZ default swap that is quoted at 55/65 basis points as of October 8, 1999, in Exhibit 11.7 at the bid-offer on the notional principal of, say, $25 million will receive
It is January 14 and Enterprise USA has 35 million payables in Norwegian kron in 96 days. The treasurer is concerned about appreciation of the kron. Buying an ordinary call can mitigate the firm’s
Bank B has $200 million variable rate loan in its assets portfolio; the rate is to be reset in the next three months. The revenue is exposed to interest rate risk. Bank B wishes to manage its
Brandywine Asset Management fund has invested 5 percent of its portfolio of $1.8 billion in the inverse floater with a current yield of 18 percent. The higher yield in the inverse floater is due to
The spot gold price is currently at $300/ounce. The Canadian Central Bank is contemplating leasing 300,000 ounces of gold to Barrick at the lease rate of 3.75 percent. Barrick intends to sell the
2. Using the following information, how would you show the board of direc- tors the advantages and disadvantages of each hedging tool?You have just been hired by Chockletto International as a risk
1. As a risk manager, you decided to hedge your position in the cash market. How will you use options contracts and/or futures contracts to hedge your position?You have just been hired by Chockletto
5.What is the likely impact of the competitive issues raised by the British government on a deal for Safeway and on its shareholders?
4.What would a 2 percent swing in the exchange rate mean in an approximately £3 billion deal?
3.What is “the winner’s curse,” and is there a threat of that problem for Wal-Mart?
2.What is the likely impact of multiple bidders for Safeway for that com-pany’s shareholders?
1. Offers by J Sainsbury and William Morrison both are stock deals while Wal-Mart contemplates an all-cash offer. What are the implications for Safeway shareholders?
3. Now consider the consequences of several market scenarios at the final delivery day for the contract. Compute the gain or loss on Mainza Capital Management portfolio if the market at the final
1. What is the theoretical futures price for the three-month futures contract for Mainza Capital Management?
Evaluate Real-Wood’s alternatives.
a. What is covered interest rate parity (CIRP)?b.According to the Exhibit 1, does CIRP hold between Canada and the United States?c.If CIRP does not hold, where can you earn the best return?
a. What is the relationship between inflation and interest rates in one country?b.What is the relationship between inflation and interest rates between two countries?c.What is the relationship
a. Distinguish spot and forward rates.b.What is meant by a forward premium or discount?c.What does the forward rate imply about the expected future spot rate?
a. What is purchasing power parity?b. If a Big Mac costs $1.99 (on average) in the United States, what should it cost (on average) in Canada?
a. Are the exchange rates in Exhibit 1 direct or indirect quotations?b. Calculate the corresponding direct/indirect quotations.
How does hedging resemble diversification? How does it differ?
a. Distinguish between hedging and speculation.b.In what sense does failure to hedge constitute speculation?c.Could Real-Wood profit by not hedging?
a. What is political risk?b.Is political risk confined exclusively to international transactions?c.Do only less-sophisticated Third World governments pose political risk?
a. What, in general, is exchange risk?b. What risk does Real-Wood face specifically?
7.Calculate the index of real exchange rates for China (assuming base year of 1994 and the index is set at 100). Merlina Katapodis stared through her office window, scarcely noticing the murky haze
6.How devaluation of China’s currency affected the current account balance? Merlina Katapodis stared through her office window, scarcely noticing the murky haze that spread over Athens. The
5.What is the current account deficit or surplus as percentage of GDP? Merlina Katapodis stared through her office window, scarcely noticing the murky haze that spread over Athens. The Areopagus rose
4.Did China have a financial account surplus or deficit?Merlina Katapodis stared through her office window, scarcely noticing the murky haze that spread over Athens. The Areopagus rose in the
3.Relate the percentage change in current account to the percentage changes in the all-urban Consumer Price Index during the same period. Was there a positive or a negative relation between the two?
2.Was China’s current account in surplus or deficit? Merlina Katapodis stared through her office window, scarcely noticing the murky haze that spread over Athens. The Areopagus rose in the
1.Did China have a merchandise (goods and services) trade surplus or deficit? What is the trend? Merlina Katapodis stared through her office window, scarcely noticing the murky haze that spread over
Explain the Balance of Payments Exposure Management
Difference between Foreign Exchange Risk and Political Risk
Provide examples of adjusting events after the reporting period and explain how these would affect a company's financial statements.
Explain how VAT is accounted for in a wholesale company. Use an example of a sales invoice and of a purchase invoice to illustrate your reasoning. Refer to the definitions of elements of financial
For what purposes may a tax haven be profitably used by a multinational group?
Provide four examples of 'OCI' and explain how they meet the definition criteria of income and expense.
Explain the link between accrual accounting and the concept of working capital.
Explain the crucial role of identifying performance obligations in the five-step revenue model.
Describe the issues of revenue recognition and profit determination relating to long- term construction contracts.
Elaborate how the concept of accruals is applied in accounting for inventory.
A company usually reports on different types of inventory. Elaborate these and explain how they are different.
Elaborate the potential tension between timeliness and verifiability as characteristics of useful financial information.
What are the annual financial statements of a company?
Contrast broadly the regulatory traditions in continental Europe as opposed to the anglophone countries.
Are the financial accounting requirements of entities in the public sector different from those of business in the private sector?
Compare and contrast the different types of accounting regulation that exist.
How is the IASB’s organizational setting structured?
Explain the potential trade-off between relevance and verifiability.
Explain what is meant by relevance, faithful representation and comparability and how they make financial information useful.
What are the objectives which a company’s accounting department should be aiming to achieve?
How is the company’s accounting database organized and from where does it get its data?
How does the COSO report approach a ‘system of internal control’?
Explain the difference between preventive, detective and corrective controls.
What is the relationship between internal control and internal audit?
What is the purpose of external audit, and who carries this out?
Discuss the shortcomings of a statement of financial position as a proxy for company value.
Critically assess the usefulness of fair value as a measurement attribute.
What is the link between a functional presentation and a presentation by nature of the statement of profit or loss? Provide a number of examples to illustrate your point.
Explain what is meant by relevance, timeliness and comparability and how they make financial information useful.
Elaborate the link between a statement of financial position and a statement of profit or loss.
Contrast the accounting consequences of financing the acquisition of a building through a bank loan or as a finance lease.
What is included in the acquisition cost of a long-term tangible asset? Give examples of at least four costs that would be included in the acquisition cost of a new production line.
Discuss the recognition rules for research and development costs.
Under what conditions will the disposal of a long-term tangible asset lead to a loss? How will the sale affect the financial statements?
What are the most common causes of the depreciation of a long-term tangible asset?
Accurately accounting for accruals and deferrals is a major issue in preparing financial statements. Discuss what constitutes an accrual and a deferral and give appropriate examples of the main
Explain why and how deferred revenue is recognized in the statement of financial position.
In what sense is provision accounting a specific application of the principle of accrual accounting?
Explain the meaning of the word ‘impairment’ within the context of IFRS and discuss why it can be difficult to apply the concept to individual assets.
Identify and discuss the main categories of shareholders’ equity that you would find in an IFRS statement of financial position. Be sure to enumerate specific sources included in each main category.
A company that grants defined pension benefits to its employees usually shows in its statement of financial position a net liability representing the difference between the obligation to pay pension
Why does an analyst need to take a view about the riskiness of a company as well as its profitability?
Distinguish between debt and equity and explain the importance of this ratio in financial statement analysis.
What is the working capital cycle, and what are the likely conflicts in managing this from a financial point of view as opposed to a sales or production point of view?
Explain why net working capital tends to be industry-specific.
How does high liquidity affect the risk/return relationship?
Explain briefly the incremental utility of the statement of cash flows to external users of financial statements.
The statement of cash flows contains three major sections. What are these sections and what information is contained in each?
Why does only a small minority of companies use the direct method to elaborate the statement of cash flows?
Discuss the different types of adjustment needed to derive a net operating cash flow figure from net profit. Provide an example of each type of adjustment.
What is the logic of analyzing components of the statement of financial position when constructing a statement of cash flows?
Identify the users and uses of a multinational group’s financial statements as opposed to those of a small company.
Explain how a management report supplements and complements a company’s financial statements.
Explain how the concept of comprehensive income is related to profit of the year.
Provide some examples of ‘other comprehensive income’.
Discuss the differences of the concepts of company, business and business combination within the context of IFRS 3.
Does a controlling interest always imply majority ownership? Does one need to know the exact level of a ownership in a subsidiary in order to prepare consolidated financial statements?
In order to account for investments in other companies it is common to distinguish different degrees of ownership or influence. Describe these and explain the reasoning for the distinctions made.
At acquisition date, the net assets of the acquired subsidiary are included in the consolidated financial statements at their acquisition date fair value. However, most of the parent’s assets and
Describe the different types of joint arrangements and their respective accounting treatment.
Discuss why it is important to complement consolidated financial statements with segment reporting.
A central issue in applying IFRS 8, Operating Segments, is the determination of which operating segments should be reported. Explain the tests to determine whether or not an operating segment is a
In what circumstances can a company’s local (national) currency be different from its functional currency? If different, what are the accounting implications?
Explain why secondary translation differences are not recognized in profit and loss and deferred (as part of equity) under the net investment method.
Discuss the purpose and accounting consequences of currency hedges
Explain the differences between the following value concepts: exit value, value-in-use and deprival value.
What is meant by an executory contract? Do executory contracts affect financial statements?

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