*US CMA Case-Based Practice Set - Batch 1 of 5*
*Topic 1: Investment in Associates*
*Case*: MedCorp owns 30% of BioTech and has significant influence but not control. BioTech reports net income of $2M and pays $500K dividends. MedCorp purchased the stake for $6M.
*Q*: What is MedCorp’s investment balance at year-end using equity method?
*A*: $6M + (30% × $2M) - (30% × $500K) = $6M + $600K - $150K = *$6.45M*
*Logic*: Equity method: + share of NI, - share of dividends.
*Topic 2: Investment in Subsidiary vs Trading*
*Case*: Parco owns 80% of Subco. It also bought 2% of TechCo as short-term trading. Subco’s NI = $1M. TechCo FMV increased $20K.
*Q*: How does Parco report Subco vs TechCo income?
*A*: Subco: Consolidate 100% NI, show NCI for 20%. TechCo: $20K unrealized gain to Income Statement, as Trading securities are FV through NI.
*Logic*: Control = consolidate. Trading = FVPL.
*Topic 3: HTM vs Available for Sale*
*Case*: BankCo buys 5-yr bonds for $95K, intends to hold to maturity. Market value at YE = $98K. If classified AFS instead, how does $3K affect statements?
*A*: *HTM*: No gain recognized, stays at amortized cost $95K+. *AFS*: $3K unrealized gain to OCI, not I/S.
*Logic*: HTM = amortized cost. AFS = FVOCI.
*Topic 4: Operating vs Finance Lease - US GAAP*
*Case*: LeaseCo signs 4-yr lease for equipment. FV = $100K, PV of payments = $95K, useful life 5 yrs. No ownership transfer.
*Q*: Finance or operating lease? Why?
*A*: *Finance lease*. PV ≥ 90% of FV = $95K/$100K = 95%. Meets finance criteria under ASC 842.
*Logic*: 5 tests: transfer, option, term ≥75% life, PV ≥90% FV, specialized asset.
*Topic 5: Revenue Recognition - US GAAP 5-Step*
*Case*: SoftwareCo sells license + 1yr support for $120K, no separate prices. SSP: License $100K, Support $40K.
*Q*: How much revenue at delivery of license?
*A*: Allocate: License = 100/140 × 120K = $85,714 recognized at delivery. Support $34,286 deferred.
*Logic*: Step 4: Allocate to PO based on SSP.
*Topic 6: Cash Flow Statement - US GAAP*
*Case*: Net Income $200K, Depr $50K, A/R ↑$30K, Inventory ↓$10K, A/P ↓$15K, Equip purchase $100K, Dividend paid $40K.
*Q*: CFO, CFI, CFF?
*A*: *CFO* = 200+50-30+10-15 = $215K. *CFI* = -$100K. *CFF* = -$40K.
*Logic*: Indirect method: NI ± non-cash ± WC changes.
*Topic 7: Internal Control - Limitations*
*Case*: CEO overrides segregation of duties to approve $2M payment. Fraud occurs.
*Q*: Which IC limitation does this show?
*A*: *Management override*. Internal control cannot prevent collusion or override by top mgmt.
*Logic*: IC provides reasonable, not absolute, assurance.
*Topic 8: Gross Profit Ratio & EPS*
*Case*: Sales $1M, COGS $600K, NI $150K, 100K shares, 20K convertible bonds at $50, 8% rate, tax 25%.
*Q*: GPR and Diluted EPS?
*A*: *GPR* = (1M-600K)/1M = *40%*. *Diluted EPS*: NI + bond interest net of tax = 150K + (20K×50×8%×0.75) = 150K+60K = 210K. Shares = 100K + 20K = 120K. DEPS = *$1.75*.
*Logic*: If-converted method for convertible debt.
*Topic 9: Property Dividend & Stock Split*
*Case*: Co declares 10% property dividend, FMV $200K, book $150K. Later does 2-for-1 stock split when 1M shares @ $50 out.
*Q*: Impact on RE and shares out?
*A*: *Property dividend*: DR RE $200K, CR Gain $50K, distribute asset. *Stock split*: Shares = 2M, Par halved, no RE impact.
*Logic*: Prop div at FMV. Stock split no journal.
*Topic 10: Contingency & Purchase Commitment*
*Case*: Lawsuit probable, estimate $300K-$500K. Also signed PO for $1M inventory, FMV now $800K.
*Q*: What to accrue?
*A*: *Lawsuit*: Accrue $300K, low end of range + disclose. *Purchase commitment*: Recognize $200K loss if non-cancelable.
*Logic*: ASC 450: Probable + estimable. Loss on firm commitments.
*Topic 11: Job Order vs Process Costing*
*Case*: CustomHome builds 5 unique houses. PaintCo makes 1M gallons.
*Q*: Which costing system for each?
*A*: CustomHome = *Job order*, unique jobs. PaintCo = *Process*, homogeneous units.
*Logic*: Heterogeneous vs continuous flow.
*Topic 12: Absorption vs Variable Costing*
*Case*: Produced 10K, sold 8K. DM $5, DL $3, VOH $2, FOH $50K total. Sell $20.
*Q*: NI under absorption vs variable?
*A*: *Variable*: (20-10)×8K - 50K = $30K. *Absorption*: (20-15)×8K = $40K. Diff = $10K = FOH in inventory 2K×$5.
*Logic*: FOH expensed vs inventoried.
*Topic 13: Labor Efficiency & VOH Efficiency Variance*
*Case*: Std: 2 hrs @ $20. Actual: 1,800 hrs for 1,000 units, rate $21. VOH rate $5/hr.
*Q*: LEV and VOHEV?
*A*: *LEV* = (1,800 - 2,000)×20 = *$4,000 F*. *VOHEV* = (1,800 - 2,000)×5 = *$1,000 F*.
*Logic*: (AH-SH)×SR for both.
*Topic 14: ROI vs RI*
*Case*: Division NI $500K, Assets $2M, Corp WACC 10%.
*Q*: ROI and RI?
*A*: *ROI* = 500K/2M = *25%*. *RI* = 500K - (2M×10%) = *$300K*.
*Logic*: RI encourages projects > WACC even if they lower ROI.
*Topic 15: Responsibility Centers*
*Case*: Plant manager controls costs but not sales price or investment.
*Q*: What type of center?
*A*: *Cost center*. Measures efficiency on controllable costs only.
*Logic*: Revenue center = sales, Profit = rev-cost, Investment = rev-cost-assets.
*Batch 2 of 5: 20 more CMA case-based questions* 👇
*US CMA Case-Based Practice Set - Batch 2*
*Topic 16: Data Mining & Data Analytics*
*Case*: RetailCo has 5M transactions. Internal audit wants to find duplicate vendor payments. Data analyst runs Benford’s Law test + duplicate invoice search on ERP data.
*Q*: What is this activity called in IMA terms?
*A*: *Data analytics* - specifically descriptive + diagnostic analytics using *data mining* to detect anomalies.
*Logic*: CMA Part 1 Tech & Analytics domain: using data to improve controls.
*Topic 17: Integrated Reporting - 6 Capitals*
*Case*: SustainCo’s annual report shows impact on natural, human, social, manufactured, intellectual, and financial capital.
*Q*: What reporting framework is this?
*A*: *Integrated Reporting <IR> Framework* by IIRC.
*Logic*: Focuses on value creation across 6 capitals, not just financial.
*Topic 18: Proprietary Theory vs Entity Theory*
*Case*: SubCo 80% owned by ParCo earns $1M. Under proprietary theory, what NI does ParCo report from SubCo?
*A*: *$800K only* - 80% share. NCI is ignored.
*Logic*: Proprietary = view from owners’ perspective. Entity = consolidate 100% + show NCI.
*Topic 19: Wasting Assets*
*Case*: OilCo buys oil field for $10M, est. 1M barrels. Year 1 extracted 200K barrels.
*Q*: Depletion expense and classification?
*A*: *$2M depletion* = 200K/1M × $10M. Classified as *wasting asset*, contra-asset to natural resource.
*Logic*: Depletion = units-of-production for natural resources.
*Topic 20: Prepayment vs Accrual - US GAAP*
*Case*: Dec 31: Paid $12K rent for Jan-Mar next year. Also owe $5K wages for Dec, paid Jan 5.
*Q*: Journal impact on Dec 31 statements?
*A*: *Prepaid rent*: Dr Prepaid $12K, asset. *Wages*: Dr Wage Exp $5K, Cr Wages Payable $5K.
*Logic*: Matching principle: expense when incurred, not when cash moves.
*Topic 21: Basis of Apportionment & Reapportionment*
*Case*: Service dept HR $200K serves Production A 60% and B 40%. Maintenance $150K allocated by machine hours: A 1000, B 2000.
*Q*: Total OH to Dept B?
*A*: HR to B = 200K×40% = $80K. Maint to B = 150K×2000/3000 = $100K. *Total B = $180K*.
*Logic*: Step method: allocate service costs using causal basis.
*Topic 22: Capital Maintenance - Financial vs Physical*
*Case*: Co starts with $500K net assets. Inflation 10%. Year-end net assets $540K at historical cost, $600K at current cost.
*Q*: Is capital maintained under financial concept?
*A*: *Yes*. $540K > $500K beginning. Under *physical*, no - need $550K to maintain operating capability.
*Logic*: Financial = nominal dollars. Physical = operating capacity.
*Topic 23: Liquidity, Solvency, Leverage Ratios*
*Case*: CA $300K, CL $200K, Total Debt $400K, Equity $600K, EBITDA $150K, Interest $30K.
*Q*: Current ratio, Debt/Equity, Interest Coverage?
*A*: *Current* = 300/200 = *1.5*. *D/E* = 400/600 = *0.67*. *Coverage* = 150/30 = *5x*.
*Logic*: Liquidity = ST ability. Solvency = LT. Leverage = debt use.
*Topic 24: Capital Structure Decision*
*Case*: Co EBIT $500K, can raise $1M via 10% debt or equity. Tax 25%, shares 100K now.
*Q*: Which gives higher EPS? Indifference point?
*A*: *Debt EPS* = (500K-100K)×0.75/100K = $3.00. *Equity* = 500K×0.75/200K = $1.88. *Debt better*. Indifference EBIT = $200K.
*Logic*: EBIT-EPS analysis. Debt adds leverage + tax shield.
*Topic 25: Cash Equivalent vs Current Asset*
*Case*: Co holds: T-bill 60 days $50K, A/R $100K, Equity shares $80K, Cash $20K.
*Q*: Total cash + cash equivalents?
*A*: *$70K* = Cash $20K + T-bill $50K. Equity shares not cash equivalent, A/R is not.
*Logic*: ASC 230: ≤90 days, readily convertible, insignificant risk.
*Topic 26: Value for Money - 3Es*
*Case*: Govt dept cut program cost 20% but service users dropped 30%.
*Q*: Assess Economy, Efficiency, Effectiveness.
*A*: *Economy*: Yes, lower cost. *Efficiency*: Output/input worse. *Effectiveness*: No, outcomes failed. Not VFM.
*Logic*: VFM needs all 3Es, not just cost cutting.
*Topic 27: Risk Assessment - COSO*
*Case*: Audit finds inventory theft risk. Mgmt implements cycle counts + camera, reduces likelihood from High to Low.
*Q*: What risk response is this?
*A*: *Risk reduction* via preventive controls. Residual risk now low.
*Logic*: 4 responses: Accept, Avoid, Reduce, Share. Part of COSO ERM.
*Topic 28: Corporate Governance - Board Role*
*Case*: Board has 8 members: 5 independent, separate Chair/CEO, audit committee 100% independent.
*Q*: Which governance best practices are met?
*A*: *Board independence, separation of Chair/CEO, independent audit committee* - all align with SOX/NYSE rules.
*Logic*: CMA Part 2 Ethics/Governance domain.
*Topic 29: Accounting Information System - Controls*
*Case*: System auto-matches PO-Receipt-Invoice before payment. Clerk cannot override.
*Q*: What type of AIS control?
*A*: *Application control* - specifically a *3-way match*, input + processing control.
*Logic*: Prevents payments without goods/services.
*Topic 30: Types of Cost - Relevant vs Sunk*
*Case*: Machine book value $80K, can sell for $50K or modify for $30K to use. New machine $100K.
*Q*: Which costs are relevant to replace decision?
*A*: *Relevant*: $30K modify, $100K new, $50K disposal value. *Sunk*: $80K book value.
*Logic*: Only future differential costs matter.
*Topic 31: Cost Assignment vs Cost Allocation*
*Case*: Direct materials $20K traced to Job 101. Factory rent $200K split to depts by sqft.
*Q*: Identify assignment vs allocation.
*A*: *Assignment*: DM $20K directly traced. *Allocation*: Rent $200K using cost driver sqft.
*Logic*: Assignment = direct trace. Allocation = indirect via driver.
*Topic 32: Efficiency vs Effectiveness - Operations*
*Case*: Plant made 10K units at std cost, but only 7K met quality. Budget was 9K good units.
*Q*: Efficient? Effective?
*A*: *Efficient*: Yes, output vs input ok. *Effective*: No, didn’t meet quality goal of 9K.
*Logic*: Efficiency = doing things right. Effectiveness = doing right things.
*Topic 33: Labor Efficiency Variance - Revised*
*Case*: Std 3 hrs/unit, 500 units. Actual 1,600 hrs, rate $18, std rate $20.
*Q*: LEV and rate variance?
*A*: *LEV* = (1600-1500)×20 = *$2,000 U*. *LRV* = (18-20)×1600 = *$3,200 F*.
*Logic*: Split price vs quantity variances.
*Topic 34: Variable OH Efficiency Variance*
*Case*: VOH rate $4/hr, same hours as labor above.
*Q*: VOHEV?
*A*: *VOHEV* = (1600-1500)×4 = *$400 U*.
*Logic*: VOH varies with hours, so uses same efficiency difference.
*Topic 35: Strategic Management - SWOT*
*Case*: Co has strong brand = S, but high debt = W, new market opening = O, new regulation = T.
*Q*: What strategy for S+O combo?
*A*: *Growth/Aggressive strategy* - use brand to enter new market. S+T = use brand to lobby.
*Logic*: SWOT matrix: SO, WO, ST, WT strategies.
*Batch 3 of 5: 20 more CMA case-based questions* 💪
*US CMA Case-Based Practice Set - Batch 3*
*Topic 36: Internal Control - COSO 5 Components*
*Case*: Audit finds company has strong tone at the top, risk assessment matrix, authorization limits, monthly variance review, and whistleblower hotline monitored by internal audit.
*Q*: Which COSO component is the hotline?
*A*: *Monitoring Activities* - ongoing/ separate evaluations to assess if controls work.
*Logic*: COSO 2013: Control Env, Risk Assess, Control Activities, Info & Comm, Monitoring.
*Topic 37: COSO 17 Principles - Principle 11*
*Case*: IT dept implements access controls, change management, and backup procedures for ERP.
*Q*: Which COSO principle does this satisfy?
*A*: *Principle 11: Selects and develops general controls over technology*.
*Logic*: Part of Control Activities component. IT general controls.
*Topic 38: Limitations of Internal Control*
*Case*: Two warehouse staff collude to steal inventory and bypass counts. Controls existed but failed.
*Q*: What IC limitation is this?
*A*: *Collusion* - controls can be circumvented by 2+ people conspiring.
*Logic*: Others: human error, mgmt override, cost/benefit. IC = reasonable assurance only.
*Topic 39: Data Integration - ERP*
*Case*: Sales order auto-creates AR entry, reduces inventory, and posts COGS without manual entry.
*Q*: What benefit of AIS/ERP is shown?
*A*: *Data integration* - single entry updates multiple modules, reduces errors & redundancy.
*Logic*: CMA Part 1 Tech: ERP integrates data across functions.
*Topic 40: Technology Controls - Input/Processing/Output*
*Case*: System rejects invoice date > today, calculates tax automatically, and prints exception report for variances >5%.
*Q*: Identify control type for each.
*A*: *Input*: edit check on date. *Processing*: automated calc. *Output*: exception report review.
*Logic*: Application controls cover all 3 stages.
*Topic 41: ROI Manipulation*
*Case*: Division A ROI = 20%. Mgr can invest in project: NI $50K, Assets $400K. Corp hurdle 12%.
*Q*: Will mgr accept? Why is ROI flawed here?
*A*: *No*. Project ROI = 12.5% < 20% division ROI, so mgr rejects though it’s > hurdle. *Flaw*: Goal congruence problem.
*Logic*: ROI creates disincentive for good projects if they lower divisional ROI.
*Topic 42: Residual Income - Pitfall*
*Case*: Division RI = $200K using 10% charge. Assets include $1M idle land. Without land, RI = $300K.
*Q*: What RI problem is shown?
*A*: *Overinvestment/assets not used* - managers not penalized for idle assets if charge rate too low.
*Logic*: RI better than ROI but still needs correct capital charge & asset base.
*Topic 43: Responsibility Accounting - Controllable Costs*
*Case*: Plant mgr charged with head office legal fees allocated by sales. Mgr cannot influence legal.
*Q*: Should legal be in mgr’s performance report?
*A*: *No*. Only controllable costs should be used to evaluate mgr.
*Logic*: Responsibility accounting: evaluate on what mgr controls.
*Topic 44: Transfer Pricing - Goal Congruence*
*Case*: Division S makes parts at variable $20, market $35. Division B buys. If transfer = $20, S loses motivation. If $35, B buys outside.
*Q*: Best transfer price range for goal congruence?
*A*: *$20 ≤ TP ≤ $35*. Negotiated price, or variable + opportunity cost.
*Logic*: TP must motivate both + maximize corp profit.
*Topic 45: Types of Responsibility Centers*
*Case*: R&D dept has $2M budget, no revenue. Sales dept has revenue target but no cost control. Hotel unit controls profit.
*Q*: Identify each center type.
*A*: R&D = *Cost/Expense center*. Sales = *Revenue center*. Hotel = *Profit center* or *Investment* if assets too.
*Logic*: Based on what mgr controls: costs, rev, profit, or ROI/RI.
*Topic 46: Strategic Management - Porter’s 5 Forces*
*Case*: New startup in airline industry. High capital, strong brand loyalty to incumbents, limited suppliers, price-sensitive customers.
*Q*: Which 2 forces are most unfavorable?
*A*: *Threat of new entrants - low* due to capital/brand. *Bargaining power of buyers - high* due to price sensitivity.
*Logic*: Use 5 forces to assess industry attractiveness.
*Topic 47: Value Chain Analysis*
*Case*: Co finds inbound logistics cost 30% above competitor due to 10 suppliers vs 2.
*Q*: Which primary activity needs improvement?
*A*: *Inbound logistics* - primary activity. Solution: supplier rationalization.
*Logic*: Porter value chain: 5 primary + 4 support activities.
*Topic 48: Corporate Governance - SOX 404*
*Case*: CEO/CFO must certify financials and mgmt must assess IC over financial reporting. Auditor attests.
*Q*: What SOX section is this?
*A*: *Section 404* - Management assessment of ICFR + auditor attestation.
*Logic*: SOX 302 = officer certification. 404 = ICFR assessment.
*Topic 49: Risk Assessment - Inherent vs Residual*
*Case*: Cyber risk likelihood High, impact High before controls. After firewall + training, likelihood Low, impact Medium.
*Q*: Identify inherent vs residual risk.
*A*: *Inherent*: High/High. *Residual*: Low/Medium.
*Logic*: Inherent = before controls. Residual = after controls.
*Topic 50: Accounting Information System - Segregation of Duties*
*Case*: Same clerk approves PO, receives goods, and approves payment.
*Q*: Which SOD conflict exists? Fix?
*A*: *Conflict*: Authorization + custody + recordkeeping. *Fix*: Split duties - one approves PO, another receives, third records.
*Logic*: SOD prevents fraud/error. Key IC principle.
*Topic 51: Absorption Costing - Income Effect*
*Case*: Production > Sales by 2,000 units. FOH rate $6/unit. Variable NI = $100K.
*Q*: Absorption NI?
*A*: *$112K* = 100K + (2,000×6) FOH deferred in inventory.
*Logic*: When production > sales, absorption > variable by FOH in ending inv.
*Topic 52: Capital Structure - WACC*
*Case*: 60% debt at 6%, 40% equity at 14%, tax 25%.
*Q*: WACC?
*A*: WACC = 0.6×6%×0.75 + 0.4×14% = 2.7% + 5.6% = *8.3%*.
*Logic*: Use after-tax cost of debt.
*Topic 53: Proprietary Theory - Balance Sheet Equation*
*Case*: Assets $1M, Liab $400K.
*Q*: Equity under proprietary theory emphasis?
*A*: *Equity = $600K*, focus on owners’ residual claim: A - L = Proprietorship.
*Logic*: Entity theory: A = L + E, entity focus. Proprietary: net worth focus.
*Topic 54: Cash Equivalent Criteria - US GAAP*
*Case*: Co buys 120-day CD, 2-year bond, money market fund with 1-day liquidity.
*Q*: Which are cash equivalents?
*A*: *Only money market fund*. CD >90 days. Bond >90 days.
*Logic*: ASC 230: original maturity ≤3 months + readily convertible.
*Topic 55: Strategic Management - BCG Matrix*
*Case*: Product A: High market share, low growth. Product B: Low share, high growth.
*Q*: Classify each + strategy.
*A*: A = *Cash Cow* - harvest. B = *Question Mark* - invest or divest.
*Logic*: BCG: Star, Cash Cow, Question Mark, Dog.
*Batch 4 of 5: 20 more CMA case-based questions* 🚀
*US CMA Case-Based Practice Set - Batch 4*
*Topic 56: Finance Lease ASC 842 - Short Term Exemption*
*Case*: Co leases copier for 11 months, $500/month, no purchase option. PV of payments = $5,300, FV = $6,000.
*Q*: Finance or operating? How recorded?
*A*: *Operating - short-term lease exemption*. No asset/liability on balance sheet. Expense $500/month straight-line.
*Logic*: ASC 842: ≤12 months + no purchase option = elect short-term exemption.
*Topic 57: Revenue - Variable Consideration*
*Case*: Contract $1M + bonus $100K if completed by Dec 31. Co estimates 70% chance of earning bonus. Most likely amount.
*Q*: Transaction price at inception?
*A*: *$1,070K* using expected value: 1M + (100K×0.7). Or $1.1M if “most likely” used and 70% >50%.
*Logic*: ASC 606 Step 3: Include variable consideration if not constrained.
*Topic 58: Revenue - Sales with Right of Return*
*Case*: Sold 1,000 units @ $50. Historically 5% returned. Cost $30/unit.
*Q*: Revenue, COGS, and refund liability at sale?
*A*: *Revenue* = 950×50 = $47,500. *COGS* = 950×30 = $28,500. *Refund liability* = 50×50 = $2,500. *Return asset* = 50×30 = $1,500.
*Logic*: Recognize net of expected returns + record liability + asset for returns.
*Topic 59: Cash Flow - Direct Method CFO*
*Case*: Sales $800K, A/R increased $40K, COGS $500K, Inventory decreased $20K, A/P increased $10K, Op Exp $150K, Wages Pay decreased $5K.
*Q*: CFO using direct method?
*A*: *Cash from customers* = 800K-40K = $760K. *Cash to suppliers* = 500K-20K-10K = $470K. *Cash for op exp* = 150K+5K = $155K. *CFO* = 760-470-155 = *$135K*.
*Logic*: Direct: adjust each I/S line for WC changes.
*Topic 60: Integrated Reporting - Manufactured Capital*
*Case*: Co builds new plant $20M, increasing production capacity 25%, but old plant impaired $5M.
*Q*: Net impact on manufactured capital in <IR>?
*A*: *+$15M net increase* in manufactured capital stock. Also disclose impact on financial capital -$20M+$5M.
*Logic*: <IR> tracks increases/decreases to all 6 capitals.
*Topic 61: Wasting Assets - Timber*
*Case*: Timberland $2M, est. 500K board feet. Cut 80K feet yr1. Replanting costs $100K expensed.
*Q*: Depletion expense yr1?
*A*: *$320K* = 80K/500K × $2M. Replanting = expense, not capitalized.
*Logic*: Timber depletion like other natural resources. Regrowth not added to cost.
*Topic 62: Service Dept Apportionment - Reciprocal Method*
*Case*: HR serves Maint 20%, Prod 80%. Maint serves HR 10%, Prod 90%. HR cost $100K, Maint $200K.
*Q*: Total cost allocated to Prod using reciprocal?
*A*: Set equations: H = 100K + 0.1M, M = 200K + 0.2H. Solve: H=$122K, M=$224K. *To Prod* = 0.8H+0.9M = 97.6K+201.6K = *$299.2K*.
*Logic*: Reciprocal recognizes mutual services. Most accurate.
*Topic 63: EVA vs RI*
*Case*: NOPAT $600K, WACC 10%, Capital $5M, Accounting NI $500K.
*Q*: EVA and RI? Difference?
*A*: *EVA* = 600K - (5M×10%) = *$100K*. *RI* = 500K - (5M×10%) = *$0*. Diff = NOPAT vs NI.
*Logic*: EVA uses NOPAT + economic adjustments. RI uses accounting NI.
*Topic 64: Transfer Pricing - Dual Pricing*
*Case*: Sell division transfers at $30 = full cost. Buy division charged $30 but sell division credited at $35 market.
*Q*: What TP method? Impact?
*A*: *Dual pricing*. Avoids suboptimal decisions. Corp absorbs $5 diff as period cost.
*Logic*: Used when goal congruence needed but divisions evaluated separately.
*Topic 65: ABC Costing*
*Case*: Two products: A 1K units, 10 setups. B 9K units, 10 setups. Setup cost pool $100K.
*Q*: Setup cost per unit using ABC vs traditional volume?
*A*: *ABC*: $100K/20 setups = $5K/setup. A = $50K/1K = *$50/unit*. B = $50K/9K = *$5.56/unit*. *Traditional*: $100K/10K = *$10/unit both*.
*Logic*: ABC avoids over/undercosting by using activity driver, not volume.
*Topic 66: Absorption Costing - Production = Sales*
*Case*: Produced & sold 5K. FOH $30K, V cost/unit $12, Sell $25.
*Q*: NI under both methods?
*A*: *Same NI* = (25-12)×5K - 30K = *$35K*. No FOH deferred.
*Logic*: When production = sales, absorption = variable NI.
*Topic 67: Labor Rate Variance - Cause*
*Case*: LRV = $3,000 U. Investigation: had to use higher-skilled workers due to rush order.
*Q*: Is variance controllable? Who’s responsible?
*A*: *Controllable by Production Mgr* who accepted rush order. Or Sales if they promised rush delivery.
*Logic*: CMA emphasizes identifying responsibility, not just calc.
*Topic 68: Corporate Governance - Agency Problem*
*Case*: CEO buys corporate jet for “client meetings” but uses 80% personal. Shareholders bear cost.
*Q*: What governance issue? Fix?
*A*: *Agency problem* - mgr vs owner interests. *Fix*: Independent board, comp tied to performance, expense policy.
*Logic*: CG mechanisms align agent with principal.
*Topic 69: Risk Assessment - Risk Map*
*Case*: Risk A: High likelihood, Low impact. Risk B: Low likelihood, High impact.
*Q*: Which to prioritize for mitigation?
*A*: *Risk B first* if impact catastrophic. Use risk map: Impact×Likelihood.
*Logic*: COSO ERM: prioritize by severity, not just frequency.
*Topic 70: AIS - Database Controls*
*Case*: System requires customer ID to exist in master file before invoice created.
*Q*: What control?
*A*: *Validity check / existence check* - input control in relational database.
*Logic*: Ensures referential integrity. Prevents invoices to fake customers.
*Topic 71: Efficiency Variance - Overhead*
*Case*: Fixed OH budgeted $100K for 10K hrs. Actual $102K, actual hrs 11K, std hrs for output 10.5K.
*Q*: FOH volume variance?
*A*: *Volume var* = (10.5K-10K)×$10 = *$5,000 F*. Spending = 102K-100K = $2K U.
*Logic*: FOH var split to budget/spending vs volume. Volume due to activity level.
*Topic 72: Responsibility Center - Investment Center*
*Case*: Division mgr controls sales, costs, and decides to buy new $2M machine.
*Q*: What center type? Best measure?
*A*: *Investment center*. Evaluate with *ROI, RI, or EVA* since mgr controls assets.
*Logic*: Highest level of responsibility.
*Topic 73: Capital Maintenance - Physical*
*Case*: Start: 100 machines. End: 95 machines + cash $200K. 5 machines cost $50K each to replace.
*Q*: Is physical capital maintained?
*A*: *No*. Need $250K to replace 5 machines. Only have $200K. Short $50K.
*Logic*: Physical concept: maintain operating capability, not dollars.
*Topic 74: Contingency - Gain*
*Case*: Co sues vendor, legal says win is probable for $1M. No settlement yet.
*Q*: Record gain?
*A*: *No*. Disclose only. *Gain contingencies never accrued* until realized.
*Logic*: Conservatism ASC 450: losses accrued, gains not.
*Topic 75: Strategic Management - Differentiation vs Cost Leadership*
*Case*: Co spends heavy on R&D, charges premium, targets quality buyers. Competitor uses basic tech, low price, high volume.
*Q*: Identify each strategy.
*A*: Co = *Differentiation*. Competitor = *Cost Leadership*.
*Logic*: Porter generic strategies.
*Final Batch 5 of 5: Last 25 CMA case-based questions* to hit 100/100 🎯
*US CMA Case-Based Practice Set - Batch 5*
*Topic 76: Operating Leverage*
*Case*: Co A: CM 60%, Fixed costs $300K. Co B: CM 30%, Fixed costs $100K. Both have sales $1M.
*Q*: Which has higher DOL? If sales ↑10%, NI change for each?
*A*: *DOL A* = 600K/(600K-300K) = *2.0*. *DOL B* = 300K/(300K-100K) = *1.5*. Sales ↑10%: A NI ↑20%, B NI ↑15%.
*Logic*: DOL = CM/Operating Income. High fixed cost = high leverage = higher risk/return.
*Topic 77: EBIT-EPS Indifference Point*
*Case*: Current: 100K shares, no debt. Plan: Issue $1M debt at 8% or 50K new shares. Tax 25%.
*Q*: At what EBIT are EPS same under debt vs equity?
*A*: (EBIT-80K)×0.75/100K = EBIT×0.75/150K. Solve: *EBIT = $240K*.
*Logic*: Indifference: EPS_debt = EPS_equity.
*Topic 78: Property Dividend - Journal Entries*
*Case*: Declared land as dividend. Book $120K, FMV $200K on declaration, $210K on distribution.
*Q*: Entries on declaration & distribution dates?
*A*: *Declaration*: Dr RE 200K, Cr Prop Div Pay 200K, Dr Land 80K, Cr Gain 80K. *Distribution*: Dr Prop Div Pay 200K, Cr Land 200K.
*Logic*: ASC 505: Revalue to FMV at declaration, gain/loss recognized then.
*Topic 79: Stock Split vs Stock Dividend*
*Case*: 100K shares, $10 par, $50 market. Board does 2-for-1 split vs 100% stock dividend.
*Q*: Impact on RE, par, shares?
*A*: *Split*: 200K shares $5 par, RE unchanged. *100% Stock Div*: 200K shares $10 par, Dr RE $1M, Cr Common Stock $1M.
*Logic*: Split = no JE except memo. Large stock div >25% = treat like split but reduce RE at par.
*Topic 80: Cash Equivalents - Commercial Paper*
*Case*: On Dec 31, Co holds: 60-day CP $40K, 120-day CD $30K, Money Market $25K.
*Q*: Total cash equivalents?
*A*: *$65K* = CP $40K + MM $25K. CD >90 days not equivalent.
*Logic*: Original maturity ≤90 days qualifies.
*Topic 81: Purchase Commitment - Loss Recognition*
*Case*: Nov 1: Signed non-cancelable PO for 10K units @ $15. Dec 31: Market = $12. No units received yet.
*Q*: US GAAP treatment at 12/31?
*A*: *Accrue loss $30K*: Dr Loss on Purchase Commitment 30K, Cr Estimated Liability 30K.
*Logic*: ASC 330: Recognize loss if market < contract and commitment firm.
*Topic 82: Integrated Reporting - Trade-offs*
*Case*: Co invests $5M in training: Financial capital ↓$5M, Human capital ↑, future Financial capital ↑ est $8M.
*Q*: How <IR> shows this?
*A*: Reports decrease in Financial capital but increase in Human + future Financial. *Shows value creation, not just expense*.
*Logic*: <IR> explains capitals transformation over time.
*Topic 83: Proprietary vs Entity - Consolidated NI*
*Case*: P owns 80% S. S NI = $100K. No intercompany.
*Q*: Consolidated NI under each theory?
*A*: *Entity*: $100K, then show NCI $20K. *Proprietary*: $80K only, NCI ignored.
*Logic*: Entity = full consolidation. Proprietary = proportionate.
*Topic 84: Depreciable vs Wasting Asset*
*Case*: Asset A: Factory building $1M/20yr. Asset B: Gold mine $1M/100K oz.
*Q*: Depreciation vs depletion method?
*A*: A = *Depreciable*: straight-line $50K/yr. B = *Wasting*: depletion by units produced.
*Logic*: Depreciable = PP&E. Wasting = natural resources.
*Topic 85: Job Order Costing - Over/Underapplied OH*
*Case*: Actual OH $220K, Applied OH = $200K based on 10K DLH × $20/hr.
*Q*: Amount & disposal if immaterial?
*A*: *$20K underapplied*. If immaterial: Dr COGS $20K, Cr Mfg OH $20K.
*Logic*: Close variance to COGS if small, else prorate to WIP/FG/COGS.
*Topic 86: Process Costing - EUP FIFO*
*Case*: BWIP: 1K units 40% done. Started 9K. EWIP: 2K units 30% done. Costs: BWIP $4K, Added $76K.
*Q*: EUP for costs added this period?
*A*: *8,200 EUP* = (1K×60%) + 7K started&completed + (2K×30%).
*Logic*: FIFO EUP = work done this period only.
*Topic 87: Strategic Management - GE McKinsey Matrix*
*Case*: BU has Medium industry attractiveness, High business strength.
*Q*: GE matrix quadrant & strategy?
*A*: *Upper middle = Invest/Grow selectively*. Build on strengths in attractive segments.
*Logic*: GE 9-box: Industry attractiveness vs biz strength.
*Topic 88: ROI vs RI - Behavioral*
*Case*: Division ROI = 25%, Corp hurdle = 15%. New project ROI = 18%, $500K investment.
*Q*: Will mgr take under ROI? Under RI? What’s best for corp?
*A*: *ROI*: Reject, lowers 25%. *RI*: Accept if 18%>15%. *Corp*: Accept, adds value.
*Logic*: RI aligns with corp goal; ROI can cause dysfunctional behavior.
*Topic 89: Absorption Costing - Production < Sales*
*Case*: Beg Inv 3K units with $6/unit FOH. Produced 7K, sold 9K. Variable NI = $80K.
*Q*: Absorption NI?
*A*: *$62K* = 80K - (3K×6) FOH released from beg inventory.
*Logic*: When sales > production, absorption < variable.
*Topic 90: Cash Flow - Bond Issued at Discount*
*Case*: Issued $1M bond for $950K cash. Interest paid $60K.
*Q*: CFF and CFO impact?
*A*: *CFF*: +$950K inflow. *CFO*: -$60K outflow for interest.
*Logic*: Principal in financing, interest in operating under US GAAP.
*Topic 91: Data Analytics - Predictive*
*Case*: Using 3 yrs sales + weather + promo data to forecast Q4 sales with regression model.
*Q*: What type of analytics?
*A*: *Predictive analytics* - forecasts future outcomes.
*Logic*: Descriptive = what happened. Diagnostic = why. Predictive = what will. Prescriptive = what should.
*Topic 92: Internal Control - Detective vs Preventive*
*Case*: Bank reconciliation vs pre-numbered POs.
*Q*: Classify each.
*A*: *Bank rec = detective*, finds errors after. *Pre-numbered PO = preventive*, stops duplicates/missing.
*Logic*: Preventive stops, detective finds.
*Topic 93: Capital Structure - Financial Leverage*
*Case*: EBIT $200K. Plan A: No debt. Plan B: $500K debt @ 10%. Tax 25%, 100K shares.
*Q*: DFL at EBIT $200K for Plan B?
*A*: *DFL* = EBIT/(EBIT-I) = 200K/(200K-50K) = *1.33*.
*Logic*: Degree of Financial Leverage shows EPS sensitivity to EBIT.
*Topic 94: Revenue - Principal vs Agent*
*Case*: Website sells tickets, remits 90% to venue, keeps 10%. Venue sets price, website not responsible if event cancels.
*Q*: Recognize gross or net?
*A*: *Net = $10% commission*. Website is *agent*, not principal.
*Logic*: ASC 606: Principal controls good/service before transfer. Agent doesn’t.
*Topic 95: Liquidity vs Solvency*
*Case*: Co has Current Ratio 0.8 but D/E 0.2 and huge cash reserves in long-term investments.
*Q*: Liquidity problem or solvency problem?
*A*: *Liquidity problem* - can’t meet ST obligations. *Solvent* - LT position strong.
*Logic*: Liquidity = ST, Solvency = LT.
*Topic 96: Cost Assignment - Direct vs Indirect*
*Case*: CEO salary $400K. Factory supervisor $90K for Product Line X only.
*Q*: Classify each for Product Line X.
*A*: CEO = *Indirect*, allocated. Supervisor = *Direct*, traced.
*Logic*: Direct if traced economically. Indirect if not.
*Topic 97: Efficiency - Labor vs Machine*
*Case*: Std: 2 labor hrs + 1 machine hr per unit. Actual for 1K units: 2,200 LH, 900 MH.
*Q*: Which was efficient?
*A*: *Machine efficient*: 900 vs 1,000 std = 100H F. *Labor inefficient*: 2,200 vs 2,000 = 200H U.
*Logic*: Compare AH vs SH × actual output.
*Topic 98: Value for Money Audit*
*Case*: Govt built 10 schools for $10M, same quality as benchmark $12M, enrollment targets met.
*Q*: Was it VFM?
*A*: *Yes*: Economy - lower cost, Efficiency - same output, Effectiveness - met targets.
*Logic*: Public sector 3Es audit.
*Topic 99: Integrated Reporting - Social & Relationship Capital*
*Case*: Co spent $1M on community programs, customer satisfaction ↑15%, NPS now 60.
*Q*: Which capital increased?
*A*: *Social & Relationship Capital* - stakeholders, brand, community license to operate.
*Logic*: <IR> capital beyond financial.
*Topic 100: Ethics - IMA Statement*
*Case*: CMA asked by boss to defer expense to next quarter to hit bonus target. Refuses, reports to audit committee.
*Q*: Which IMA ethical standards applied?
*A*: *Competence, Confidentiality, Integrity, Credibility*. Specifically *Integrity*: refuse to be party to fraud, *Credibility*: communicate info fairly.
*Logic*: IMA requires resolution: discuss, then escalate if not resolved.
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*100/100 Complete,
You now have case-based coverage of every major CMA topic you listed: investments, leases, revenue, cash flow, IC, CG, risk, AIS, ratios, EPS, dividends, contingencies, costing, variances, ROI/RI, responsibility centers, plus strategy, tech, and ethics.
*How to use this*:
1. Do Time bound mock practice
2. For each wrong answer, write why in 1 line - that’s your “trigger point”
3. Prof Mahaley’s method: After each, ask “What CMA topic subtopic+ what formula or key terms+ theory or practical questions+short or lengthy question+what trap?”
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