Buy Schewser Materials

Today I bought the Schweser notes. This time I sign up for the Premium Instruction package which includes VCDs. However, the VCDs stock will only be available in middle Jan or end of Jan. It is so late.

Time to Restart Engine

It seems it is time to restart to brain engine. Was trying to read the CFAI texts but it was really very dry. Was busy at work. I stopped work from March to June this year to study for the L1. After that exam, I was horrified that business was so poor. I think it has to do with me stopping marketing altogether for that three months. So it affected another three months of business. In total, I lost six months of business as a result of this. Only this Nov/Dec did my business pick up. But it has been tedious. Most cases are fee-based planning. So need to put up to 30 hours of work just for one case.

I read in the forum that getting the video from Schweser is good for L2. Also ensuring answering questions at the end of the each chapter in CFAI text is very important.

I'll be buying the materials soon.

Feel really depressed

After looking at the text, i reall felt lousy. So much to learn and the pain of reading these books really make me feel scare. It is really torturing going through this. I am considering whether can I lower my pain to get Video lessons as a supplement? What I intend to do is to read all the text quickly within one month. When Schweser or Stalla comes up with their materials, maybe I can start my study program formally by viewing the videos and studying the text in depth. This year when doing my Level 1, I found using the Schweser text very much useful except for Economics because the CFA text on Economics were already very well written.

I am also depressed because there hasn't been much business lately. I believe I have already accumulated so much knowledge but why aren't there many clients wanting to tap my brain? I will be so please to service them with what I really know so much. So it really makes me think whether this CFA journey is worth it? Would people appreciate all the hard work put in? Will people be willing to pay me for providing them with such service?

CFA Level 2 text arrives

Today I receive the CFA Level 2 text at around 12pm by UPS. So it looks like this is the start of the part 2....

Here We Go Again

Same Old Sh*t Again

Marching Down the Avenue

11 More Months and I’ll be Through.....

Just registered for Level 2

Today I just registered for Level 2 June 2010 exam. Here goes again....

Yipee! CFA Level 1 - Passed!

Just login - I passed the Level 1. I also scored above 70% for all topics.

In the meantime, I am disappointed that the passing rate was so high. 46% of the Level 1 candidate passed. Dec 2008 passing rate was 35%. The passing rate for the pass few years for level were:

2005 June 36%

2005 Dec 34%

2006 June 40%

2006 Dec 39%

2007 June 40%

2007 Dec 39%

2008 June 35%

So this year's passing rate was extremely high. Is it because of the 3 choices of question (previously 4) or is it because candidates are more prepared?

Whatever is it, if the passing rate is so high, the value of the cfa paper decreases.

Countdown to Exam Release

The result of the CFA Level 1 exam will be release no earlier than 9am ET 28 July 2009. In Singapore time, that means no earlier than 9pm 28 July 2009. It is countdown time... again!

It is OVER!! Very happy. Got back my life.

It has been a hell of a day and here is a chronology of the exam:

6 June 2009 10pm – Did my final readings on ethics and GIPS. Deliberately read it while I was on bed tuck in to sleep so that I can make myself sleep quickly. It works, by 11pm I was sleepy and I felt asleep. However, the night was not good as I keep on getting up for fear that the alarm clock will not ring.

7 June 2009 6:30am – I end up getting at this time instead of the scheduled 7am. Actually I woke up at 5am and forced myself to sleep as I keep on having nightmare that the alarm clock did not ring!

I took a heavy breakfast as previous night had bought some stuff to eat. Beside drinking the usual dose of coffee, I drank an additional cup of water knowing that I will have no chance to drink until lunch. My wife told me to take a cab to the exam hall as public transport will be too long to wait. I agreed.

7:40am – I took a cab to Singapore Expo. I arrived at 7:50am at Hall 3. Wow, there was already a big crowd outside. I tried to figure what I should do and I realize I need to locate my seat number. I managed to find my sit number from the board. At the same time I also saw that there was a booth for those who forgot to bring their tickets. Apparently they were able to check for the candidate. I thought that it was quite considerate for CFAI to have such a booth for forgetful candidates.

8:00am – They started to call the candidates to check-in. Had to put my belongings at an assigned place outside the hall. By the look at it, there was absolutely no security whatsoever. A very big sign board stated that nobody will be held responsible for the lost of belongings.

I lined up to check-in. After waiting for a while, I was told that I cannot bring in the BA2+ Professional’s soft covers. So I have to put it in my bag and queue all over again!! While queueing, a candidate cut queue. I told him he needed to line up but he gave an excuse that he was there initially. He thought I was blind. What an ill-manner person. Can he gain a profit for cutting queue? Obviously he must had lost his mind!

In the meantime, I saw someone who in panic dropped his calendar. Opps… hope nothing bad happen! Than I saw those with a cover for the eraser has to throw the cover away. Ridiculous!

Finally entered the exam hall. Feel like some kind of Matrix with zombies in the hall! Also observed that about ¼ did not turn out.

9am – At last, the exam started. I needed to shade the ovals and these were so small!

And I cannot believe it! The exam is so easy. Ethics were quite easy. Econs were chicken. FSA was strangeforward. In fact, all subjects were chicken… But to think about it, the standard is quite similar as the CFAI mock exam but I guess because I was prepared. The Schweser Vol 1 and Vol 2 exams were quite similar in difficulty as the real thing. However, the QBank’s Readings’ questions were terribly difficult.

There was not many “trick” questions for the real thing. Either you know or do not know.

10:30am – Felt very urgent and wanted to go to the toilet. Felt really great after relieving the pressure!

12am – At last the exam for the 1^st paper was over. It was an easy paper. Strangely, there were some who left the exam hall much earlier. Looks like they failed.

Managed to get my free lunch packet because it is one of the privileges as a Student member of CFA Singapore. Not bad. And I was soooo thirsty. Drank the entire mineral water (included in the lunch package). Also I noticed that Stalla had a booth giving free mineral water plus an “energy pack.” Not sure what was in the energy pack…

Found a corner and ate to my hearts content. Wife SMS asking me how was it and I told her it was chicken for the morning.

I placed my bag at the usual place but to my horror found many stationery all over the floor. It looks like some thief had a good time stealing stuff from those bags. Too bad..

1pm – It is time to go in. Decided to go in earlier because there wasn’t any space to sit outside the hall.

Just before the exam started again, I saw a small commotion. The proctor (think must be the leader because she worn a different color), confisticate two calculators from this candidate. I couldn’t hear what she was saying but can see by body language she was scolding him. My guess is that the guy had brought in two calculators there were not approved for the CFA exam. Poor thing! He must had thought having two calculators were “safe” but he ended up no calculator! Later, he spoke to another proctor and after a while I saw the first senior lended the BA2+ Professional calculator to him stating that another candidate was willing to lend him. Good for him! Except that if he never had use that calculator before, he will be in trouble still!

2pm - Exam started again. This time, the body was very weak. After lunch, the brain seems to be very slow. Feel dizzy. Felt terrible. The afternoon sleepy spell was killing me!

I told myself that once I reached question 181 (half way), I must go for toilet break. So when the question arrived, I went to the toilet and wetted my face. Then I discovered that there was a water dispenser just outside the toilet! Aiyo, why I didn’t see it in the morning? So I took a small cup of drink. Now, I felt much better and ready (again). This time, I was much more alert and I could answer the questions without the mental sleepy torture!

Then I saw one lady left who probably gave up.

As for difficulty, it was chicken also. The questions were very easy. But I realized that the mental exhaustion was horrific. Although it was easy but familiarity with every topics were necessary. One cannot afford to use too much brain power for each question. Otherwise, mentally one will not be able to endure the intense brain power required. Moreover, 1.5 mins per question isn’t a lot of time. So familiarity with every topics is a must. No short-cut to learning because there is no time during exams to make “deductions.”

There were a number of calculations but most are quite simple. The longest was (___ deleted this because it is against the exam rules to say what came up for exam ___) which I had to calculate all parameters twice (i.e. 10 ratios to calculate). Other than that it was quite simple and chicken.

5pm – At last it is over! Cannot wait to get out of the exam hall!

As I typed this, I found myself very very mentally exhausted. Hope that I can recover by tomorrow. Also felt very dehydrated. The exam hall was cold and dry. Currently felt like a dried duck.

Overall – I think the exam is chicken but the mental exhaustion will cause many to fail. The only way to pass this exam is to be expert in all subjects by doing infinitely number of sample questions so that there will be less brain power required to do the actual questions. I think I should be able to pass.

The day has arrived - 7 June 2009 (CFA Level 1 Exam)

Today is the day I go for the exam. This post was scheduled ahead and will appear automatically on 7 June 2009 at 9am. When this post appears, I will be at Expo staring to my first question.

It has been a long battle with this exam. I did not expect it to be so difficult. I know of many candiates who had failed. Among those who passed are those who are already chartered holders. I started studying since end of last year. However, it was beginning of March that I stopped work to concentrate in studying. Once in a while I still go back to work to help my client transact and provide continuing servicing to existing clients. Fortunately the opportunity cost of not working is not much since we are having a recession.

I have lost track on how much time I spent studying. So far, it seems that I have master all topics. I also seem to be quite strong on FSA since I spent a lot of time on it after hearing nightmares from other candidates how difficult this topic is.

Passing shouldn't be a problem but you never know because "freak" accident can always happen.

Schweser Vol 2 Exam 3 AM

Scored 83%. I felt it was very difficult.

Schweser Vol 1 Exam 2 PM

Scored 85%. Looks good. But I am getting really tired but I can't sleep.

CFA Level 1 Schweser Vol 1 Exam 2 AM score

I scored 86%. I felt it was too easy. I am getting worried that the Schweser's exam is too easy as compared to the real thing.

9 days left & counting

Today receive the last newsletter from CFA before the exam. Wearing mask is permitted now in view of the Swine Flu. There are now 4 cases of Swine Flu in Singapore. Hope that this has no impact on this exam.

10 days left & counting

Classical, Keynesian, Monetarist View

I need to download the following into my brain:

Classical view:

* Economy self-regulating and always at full employment

* Aggregate demand/supply flunctuations: technology is the most significant influence

* Money wage that lies behind the short-run aggregate supply is instantly & completely flexible

Keynesian view:

* Economy if left alone would rarely operate at full employment

* Active help from fiscal policy & monetary policy is required

* Expectations are the most significant influence on aggregate demand

* Money wage that lies behind the short-run aggregate supply is extremely stick in the downward direction

Monetarist view:

* Economy is self-regulating and normally operate at full employment provided that monetary policy is not erratic and that the pace ofmoney growth is kept steady

* The quantity of money is the most significant influence on aggregate demand

* Money wage that lies behind the short-run aggregate supply is sticky

To do more questions or review text?

I am not sure whether should I continue to do questions or should I now concentrate to review text. It seems there are just too many kind of questions that can come up with.

11 days left & counting

I am running out of steam. I cannot wait for the exam to be over to get back to life.

CFA Level 1 Mock Exam PM

The above supplied by CFAI was horrible. I scored 77.5%! It is a terrible score for me. Either I have forgotten many concepts or it was really difficult. One particular calculation was not required (or at least the LOS did not say "compute") came out. And than the mock exam answer inserted a comment saying that the review board argued among themselves and decided that it should be tested ... and even say it could even come out on the LIVE exam! Aiyo...

Not many trick questions

After doing so many sample questions, i found that there aren't many trick questions. Many CFA questions are straight forward - either you know or do not know. Most of the questions are derived from the text and so it is not that you need a lot of extra help. For example, one question in the cfai level 1 mock exam i took is the question on how the short term and long term Philips Curve will change when the natural unemployment change. The answer is quite straight forward - both curves shifts! Those who did not study it will not know the answer.

However, I do realised that the FSA's Income Tax is one of the Readings that are the worst written. Some external help is required to understand Income Tax for FSA. The mock exam tested on deferred taxes. If you do not have external help, you can never answer it.

Body ache & pain

I think I am coming down with a flu. Body is ached and my leg is in pain. Seems to be swelling. Urgg!! Must be the "exam fever"!!

15 days left & counting

I think I am fully prepared for the exam. However, my health isn't. My foot and knee are painful. Not sure is it because I sat down in one position for too long or that I am coming down with a flu. My son just recovered for a nasty flu (after taking that flu jab!)

2009 Level 1 Mock Exam AM

Scored 87% !! Yeepee. The questions are mostly very easy. Like chicken. So far my week points are related to taxes in FSA. So will need to revise.

Also always fall into those trick questions which are usually double or even triple negatives. Here is a question with a triple negatives "least likely... unrealiability... anomaly" In one sentence there is 3 negatives!

For those who are not aware, this mock exam is provided by the CFAI itself and is meant to represent the same level of difficulty as the actual exam.

17 days left & counting

My son has a high fever. Looks like I am not able to practice as many quesions as I wanted.

Schweser Vol 1 Exam 1 PM

Scored 82%. This time seems that failed on the "Financial Reporting and Analysis: Techniques, Applications, and International Standards Convergence" part. Looks like I need to re-read this section.

18 days left & counting

As I completed the Schweser Vol 1 Exam 1 AM, I noticed that I am frequently trick by double negative questions such as

"... least likely more problematic"

Also am still grasping the effects on the cashflows & ratios for Finance type lease and operating lease for lessee and lessor.

Schweser Exam Vol. 1 Exam 1 AM score

I scored 77.5% over 120 questions. Will revised tonight the weak subjects and hopefully can do better tomorrow.

19 days left & counting

Previously I did the 60 samples questions from CFAI.

I noticed it tested on normalization of P/E with company size adjustments using BVPS. The Schweser Notes did not provide a detail example on how to do this. Had to refer to the main CFAI text. It looks to me that there are cases which the notes did not cover. I think I better look through the text thoroughly again.

Another area is the Working Capital for LOS 46.d. The question asked about the mismatching strategy but the Schweser Notes offer nothing on this area.

Still on another area is pertaining to the LOS 9.g which the latest errata from CFAI says that "construct and interpret a confidence level interval for a normally distributed random variable." has been deleted. Yet the sample question asked about the interpretation of the confidence level for normal distribution. How like this?

One frustrating thing about the sample questions is not able to view the question again after taking it. I can have all the answers and explanationatory notes but cannot review the question again. So it is almost as good as rubbish. Fortunately while I was taking the sample question test, I noted down which questions are problematic for me.

20 days left & counting

I just completed the CFAI's 60 sample questions. I scored 83%!! Yeah!

21 days left & counting

22 days left & counting

30 days Countdown to CFA Level 1

There are 30 days left to the CFA Level 1 exam. I have been studying everyday. I think I'll pass but I am having problem retaining memory. Thank goodness that I don't have much work to do since we are having one of the worst economic crisis. Singapore's GDP growth is projected to be -10% this year - looks like the economy is more like an emerging market country than a developed one!

I did found that ethics to be quite easy to pass. Just need to read the readings and notes a zillion times. No math involved and that's a good thing. I did not spent much time on it yet I could get above 70% on the Qbank. It consist of 15% in weightage and that's just second to FSA which is 20%. Indeed Ethics cannot be neglected as it is almost like a give away kind of topic.

By the way, couple of days ago I got up from sleep with a shock and it occured to me that I am in my final phase of the exam prepation.

Level 1 Ticket Received

Today the ticket for Level 1 exam is made available. That means that the cry for battle has started. The battle will be at Singapore Expo. I hope my brain can retain all the materials and also I hope the Swine Flu don't escalate.

The actual amount of time require to study CFA Level 1

The CFA's website recommends studying at least 250 hours for each level of CFA. Alternatively 10-15 hours each week for 18 weeks. This assumes 1 Study Session per week.

From my own experience that is not enough. Despite having some background in fixed income, equity and derivatives, quant, basic econs and basic accounting, the recommended amount isn't enough.


I think a more realistic schedule is to study 10-15 hours each week over 36 weeks. This is more realistic. Since an undergraduate degree is required to take the CFA, it implies that many people who take this exam isn't very very young. Thus, the brain is not as super as before.

For me, I found my own physical stamina to be the limiting factor. Thus, having a good health and physically strong is also an important factor.

Economics comments

I have found that the Schweser notes for Economics aren't good. Perhaps because the CFA's text for this topic was written by Parkin and that his textbook has evolved more than a decade. CFAI's text on Economics is quite well written. I did found that there is quite a number of repetition as especially with regard to the aggregate demand and aggregate supply.

It is about 1 month away from the exam. I've written to the CFA customer service whether will the exam be postpone if the Swine-flu gets worst. They say they will inform me if that happens. Looks like I've to buy the N95 facemask for the exam!

Monopoly, monopolistic competition and oligopoly

Found that the above topics were poorly written in the Schweser Notes. I have to summary and make my own notes for it.

Feel tired again

For the past two days I felt I cannot breathe properly. Feel so tired and lethargic. Yesterday I went for a swim over 16 laps but I still feel so tired. My concentration power has reduced significantly. This is terrible. Don’t know why. This CFA exam is such a torture. It is like claiming up a bottom – as you go higher the less oxygen. I sometime feel that as the oxygen gets less, it is possible to just “die” without even knowing it. Not so such whether such big sacrifices is worth it or not. Just notice that my son seems to have suddenly grown taller over the few months. It shows how much energy I have spent on the text. I know many clients don’t care about all these exams. Even I have achieve it, it doesn’t mean anything great for clients. So I really wonder what I am doing is sensible or not.

SelfTest FSA+Corporate Finance

I generated 120 questions from Q Bank on Financial Statement Analysis/Corporate Finance. My score was 84%. Not bad for a start. I hope to increase the score higher. I'll next move to Economics to review the topic in more in depth.

Careless mistake

I hate myself for making so many careless mistakes. Had being doing the MCQs and realised that most mistakes I made were careless mistakes. I knew the answer but somehow enter the wrong answer... urggg!!

Zombie like / Rojak

My wife complained to me that I am becoming like a zombie husband. I don't talk anymore and whenever she talks to me, I did not response. This exam is really getting on everybody's nerve! I had being studying very hard especially before my energy level goes down again due to sitting down too much. The sacrifice that I am making for sitting for this exam is very great. Firstly, I can't play with my two kids and they being growing up needed attention. Maybe when they grow up, they'll abandon me to the old folks home for neglecting them during these three years of being a zombie thanks to this exam. Secondly, I really wonder what is the exact opportunity cost of putting so much attention to this exam. I don't mind opportunity cost in terms of $$ for which I am prepared to sacrifice. But rather, what happens if life is taken away? My life, kids' life? Wife's life? Over the past weekends, were informed that my client's wife got cancer. Then yesterday, was informed one of my relative had cancer too and seem to be an advanced stage. Both are young people. Also in the hot news now is a massive food poisoning case in which hundreds of people felt ill after eating rojak at Gelang Serai. Two persons have died while another woman had a miscarriaged. I heard of people dying of illness and accidents but die due to eating rojak? I also heard of people having miscarriage due to accidents but due to eating rojak? Life is so precious. What is the exact opportunity cost of taking so much time for this exam? I don't know.

Let's don't think so much. I hope to complete one reading today.

Breaking another record

Today, I swam 24 lengths! OK, it is actually 10 laps, rested for a few minutes and followed by 14 lengths. This was within 45 mins. OK, I know it isn't fanatistic but for a person like me it is a remarkable achievement!

But now my body is aching all over the place. I hope I can complete one reading revision by tonight.

Free Cash Flow to Firm (FCFF) / Free Cash Flow to Equity (FCFE)

The FCFF is the cash flow available to debt suppliers and shareholders after all operating expenses have been paid and after necessary investment in working capital & fixed capital have been made.

FCFF = Net Income + Non-cash charges + InterestExpense (1 – tax rate) – Fixed investment – Working Capital Investment

OR

FCFF = Cash flow from operation + X – Fixed Investment

Where X = Interest Expense*(1-tax rate) for US.GAAP (because US GAAP always include Interest Expense as its operation)

X = Interest Expense*(1-tax rate) for IFRS if it classify Interest Expense as operating activity.

Also, X = Dividends paid for IFRS if it classify dividends payment as operating activity.

Recall: In IFRS, Dividends paid can be classified as operation or financing. Also in IFRS, interest expense can be classified as operation or financing too.

Free Cash Flow to Equity

FCFE = CFO + X – Net Borrowing – Net Debt Repayment – Fixed Investment

X = Dividends paid in IFRS if it is classified as operation

Calculating cash received for equipment sold

LOS 34:f - demonstrate the steps in the preparation of direct and indirect cash flow statements, including how cash flows can be computed using income statement and balance sheet data;

One of the difficulty in understanding this LOS is calculating the cash received for equipment sold based on the Income & Balance Sheet statements. It does not help that the SchweserNotes just bypass this particular calculation. I must say that the Notes were poorly written for this particular LOS 34:f. The examples given were only for calculating the cash paid for purchase of equipment. The example given on page 114 did not have a sale of equipment. Shame!

If the company has not sold of equipment, calculating the cash flow for purchase of equipment is easy. In this case, cash paid for purchase of equipment = Ending Historical Cost of Equipment – Beginning Historical Cost of Equipment.

But if there is a sale of equipment, it becomes complicated. The CFA Institutes reading were no better in its description. It just give the 3 steps to calculate the cash received for sale of equipment on page 264 at Reading 34 without much explanation on the rationale. There are so many steps that there isn’t enough time to calculate during examination. Shame shame!

After cracking my brain, here is the right flow of thought:

Beginning Historical Cost of Equipment (from Balance Sheet)
- Beginning Accumulative Depreciation (from Balance Sheet)
- Depreciation Expense for the period (from Income Statement)
+ Purchase of Equipment (from footnotes)
- Historical Cost of Equipment Sold
= Ending Historical Cost of Equipment (from Balance Sheet)
– Ending Accumulative Depreciation (from Balance Sheet)

Rearrange the equation and you’ll get the Historical Cost of Equipment Sold.

Therefore, cash received for sale of equipment = Historical Cost of Equipment Sold + Gain (from Income Statement).

Energy Level Up

Yesterday I swam 22 laps! OK, I cheated a little bit - it was 8 laps, rested a couple of mins, 12 laps, rested 5 mins and 2 laps. Nevertheless it was a remarkable recording breaking for me! My energy level blew the roof top. But today, I felt very tiried and body was aching. But this tired feeling is not lethargic which no amount of rest can help. So looks like my energy level is up for a few days.. hopefully enough for me to revise some chapters.

I think even if I fail my CFA exam, I probably would have increased my level of fitness by then!

Horror

I discovered that I did not study the Study Session 10 of FSA consisting of 5 readings!

Today had tried to revise FSA right from the start. The old problem of feeling tired and lethargic sets in. Very irritating. Have to go for a swim tomorrow. Had swam 16 laps last week. Tomorrow I shall try 20. Also may need to increase my exercise frequency to maybe twice a week.

Update - completed derviative

I completed Derivative today. Now, it is time to proceed to Alternative investment. Should't be too difficult since there are only two readings.

Increasing physical stamina cannot be overemphased. Yesterday morning, I swam 16 lengths breaststoke while my son was having his usual swimming class. Swimming 16 lenghts is breaking my own personal record! I also feel much more in energy and perhaps that's why my absorption rate is higher for this CFA study.

Completed Equity/Fixed Income

I have completed studying Equity & Fixed Income. Today I completed the last chapter of Fixed Income.

Now, I shall proceed to Derviatives and Alternative Investments. I think I am on schedule.

There is one thing I realised when studying for this exam is that mental and physical health are extremely important. On Friday and Saturday, my family & I went to Rasa Sentosa Resort to relax. It is also the school holiday. After the two days get away, my mental and physical productively increases tremenously.

Since physical stamina is so important for this coming CFA Level 1, I'll probably go for a swim more frequently. I am thinking of swimming every day in order to ensure I am fit enough for that six hours mental stressed exam!

Update

I've completed Corporate Finance, Portfolio Management and Equity Investments. I am now left with Fixed Income, Derivatives and Alternative Investments.

I had also decided to purchase the Schweser Notes together with the QBank and the two volumes of exam questions. I bought the notes after I am convinced that I needed a summary of the CFA's text. The CFA's text are poorly written unfortunately.

I also have stopped working since begining of March in order to concentrate on the CFA exams. Had stop making effort to find new clients but am still currently servicing existing clients and pending cases. Anyway since the current economy is going on a tailspin with Singapore projected to have -10% GDP growth, my opportunity cost of not working is less. Revenue for the first few months of this year had been good and so that will help with my family's expenditure for the next few months.

Income Taxes (Reading 37)

So far, this is the worst chapter I've seen. The text is poorly written. Seems to me that the authors just lift the text from the technical specification wholesale.



Deferred tax Assets - Is like the company overpaying income tax which it expects a future refund (or a reduction in tax) provided there is future profit to remain taxable.



Deferred tax liability - Is like the company underpaying the income tax which it expects to pay back in later period provided there is future profit to remain taxable.



In the Income Statement: Income tax expense (based on accounting profit) = net increase in deferred tax liablity + tax payable (which is the amount that is going to be paid in cash to the authority)



Tax Base of an Asset = The amount that will be deductible for tax purposes in future periods as the economic benefits become realized. "Deductible" means able to reduce tax payable.



==>I still cannot mechanically understand how to determine the Tax Base of an Asset :(



Tax Base of a Liability = Carrying amount - any amount that will be tax deductible in future.

If the liability is a prepaid revenue, tax base of liability = carrying amount - the revenue that will not be taxable in future.

Completed Inventories (Reading 35)

This was another horrible chapter. The concepts are not difficult to grasp but the chapter was poorly written. Instead of giving a systematic explanation and formulae, it gave many examples instead. With so many figures in the example, it tends to cloud the underlying concepts. I have to make my own summary by extracting from the examples given. This was not a good chapter to read.

By end of this week, I've to complete 3 chapters. It looks to me that it is impossible. I spent one full day on Inventories itself.

Converting a financial statement from LIFO to FIFO

Adjustment for Inventory value in balance sheet:
Inventory (FIFO) = Inventory(LIFO) + LIFO Reserve
Total Assets (FIFO) = Total Asset (LIFO) + LIFO Reserve

Adjustment for Cost of Goods Sold in Income Statement:
Y2006 Cost of Goods Sold (FIFO) = Y2006 Cost of Goods Sold (LIFO) - (Y2006 LIFO Reserve - Y2005 LIFO Reserve)

Call this deltaReserve = (Y2006 LIFO Reserve - Y2005 LIFO Reserve)

Adjustment to Net Income:
Net Income (FIFO) = Net Income (LIFO) + deltaReserve * (1 - tax rate)

Estimated Cumulative tax savings under LIFO vs FIFO:
Cumulative Gross Profit Saved
= Cumulative Gross Profit (FIFO) - Cumulative Gross Profit (LIFO)
= LIFO Reserve

Cumulative tax saved under LIFO = LIFO Reserve * tax rate (assuming constant tax rate in previous years)

Adjustment to Tax Deferred Liability:
Increased in (Debt) tax deferred liability (FIFO) = LIFO Reserve * tax rate

Adjustment to retained earnings:
Increase in retained earnings (FIFO) = LIFO Reserve * ( 1 - tax rate)

LIFO and FIFO ratios:
Inventory turnover ratio (FIFO) = Cost of Goods Sold (FIFO) / Inventory (FIFO)

Number of days of inventory (FIFO) = 365 / Inventory turnover ratio (LIFO)

Gross Profit Margin (FIFO) = Gross Profit / Revenue = (Revenue - Gost of Goods Sold (FIFO) ) / Revenue

Current Ratio (FIFO) = Current Assets / Current Liability = Total Assets (FIFO) / (Total Liability (LIFO) + Increased in (Debt) tax deferred liability (FIFO))

Return On Assets (FIFO) = Net Income / Total Asset = Net Income (FIFO)/Total Assets (FIFO)

Debt To Equity (FIFO)
= Total Liability / Shareholders' Equity
= (Total Liability (LIFO) + Increased in (Debt) tax deferred liability (FIFO)) / (Equity (LIFO) + Increase in retained earnings (FIFO))

Understanding Cash Flow Statements

The Reading 34 turns out to be one of the greatest torture I have to go through. I took more than one and a half week on it. Partly because I had to work and hence could not have a continous study time of straight six hours but partly because the topic turns out to be deadly difficult. What is so difficult about cash flow right? Goodness, you cannnot imagine how accountants have invented horrible things probably just to make sure they keep their jobs! The Net Income to Operational Cash Flow reconciliation turns out to be non-trival. Familiarisation of accurals are extremely important. Determining how much cash the firm receives from sale of an equipment just examining the Income and Balance Sheet was not easy. But there are some standard formulaes that must be committed to the brain. Since my mind is fresh I'll type it here because I am sure these will become alien to me once again a few months down the road when I make my revisions:

Reconcile Net income to Operation Cash Flow:
Start:
+Net Income
- Depreciation Expense (because depreciation is recognised as an expense but there is no outflow of cash)
- Change in Accounts Receivable (because a positive change receivable means revenue but cash has yet to be collected from the customer)
+Change in Accounts Payable (because a positive change payable means expense was recognised but firm has yet to pay cash to suppliers)
- Change in Inventory (a positive change in inventory means cash is been paid to suppliers yet no expense is recognised)
= Cash Flow Due to Operations

Calculating Cash Received from sale of equipment:
First Step: Calculate Historical Cost of equipment sold -

Begin Equipment Historical Cost
+Equipment Purchase during the year
- Ending Equipment Historical Cost
= Historical Cost of equipment sold

Second Step: Calculate depreciation value of equipment sold -

Begin Accumulated depreciation
+Depreciation expense for the year
-ending Accumulated depreciation
= depreciation value of equipment sold

Third Step: Calculate cash received from equipment sold-
Book Cost of equipement sold = Historical Cost of equipment sold -depreciation value of equipment sold
Plus Gain (loss)
= cash received from equipment sold

Calculating cash paid to suppliers, customers, employees, and "other operating expenses", income taxes must be commtited to the brain cells.

Starts FSA-8 tonight

Tonight i'll start on the Study Session 8 of Financial Reporting and Analysis.

So far I am OK with FSA although I am running a little bit behind time. It looks to me that all the hype from the prep providers which have been saying how difficult FSA is isn't that true. In fact, reading the text really give a firm foundation in FSA.

Moved on to FSA

I have already started reading the financial reporting and analysis. Preliminarily, the text are quite easy. The explanations in the text are good enough. Previously I attended a free sample lecture on FSA from Stalla. After reading the text, it seems that the lectures were not relevant at all. It was taught too fast and the lecture spent too much time on debit and credit. In the text, debit and credit are considered optional reading! In fact, the text managed to explain the concepts of double entry accounting without even teaching the T-accounts. After reading Reading 30, I could do basic double entry accounting without figuring out the debits and the credits. I could also answer most of the questions at the end of the Reading. I think I made the right decision that it is not necessary to spent many on those prep-course. Phew!