Mocktest financial reporting/Gmsisuccess
Question answer.US CMA Part 1: Financial Reporting
*Topics*: Purchase commitments, warranty, contingencies, impairment, FIFO/LIFO, depreciation, leases, off-BS financing, ratios, prior period, DTA/DTL, allowance, factoring, FOB, investments, consolidation, CF
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*1. Purchase Commitment – Loss Recognition*
*Case*: On 12/15, GMSIsuccess LLP signed non-cancellable contract to buy 10,000 units @ ₹100. At 12/31, market price fell to ₹80. Inventory not yet received.
*Q*: At 12/31, what should be reported under US GAAP?
A. No entry until goods received
B. *Dr. Loss on Purchase Commitment 200,000 Cr. Estimated Liability 200,000*
C. Dr. Inventory 200,000
D. Disclose only in notes
*Answer: B*
*Why*: ASC 330 – If market < contract price on firm commitment, recognize loss immediately: (100-80)×10,000.
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*2. Warranty Liability*
*Case*: GMSIsuccess sells laptops with 1-yr warranty. 2025 sales ₹50L. Past data: 3% units need repair costing 10% of sales price.
*Q*: Warranty expense 2025?
A. ₹0 until claims made
B. *₹150,000*
C. ₹500,000
D. ₹15,000
*Answer: B*
*Why*: Matching: 50,00,000 × 3% × 10% = ₹150,000. Dr. Warranty Expense, Cr. Warranty Liability.
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*3. Loss Contingency*
*Case*: Lawsuit filed Dec 2025. Lawyers say “probable” loss of ₹8L-₹10L. No better estimate within range.
*Q*: 12/31 accrual?
A. ₹0, disclose only
B. ₹10L
C. *₹8L + disclose range*
D. ₹9L average
*Answer: C*
*Why*: ASC 450 – If probable + estimable, accrue. If range, accrue minimum + disclose max.
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*4. Impairment Loss – PPE*
*Case*: Machine BV ₹10L. Undiscounted future CF ₹8L. Fair value ₹7L.
*Q*: Impairment?
A. No, BV < undiscounted CF
B. *₹3L, write down to FV ₹7L*
C. ₹2L
D. Test not applicable
*Answer: B*
*Why*: ASC 360: Step 1 Recoverability – BV 10L > undiscounted 8L = impaired. Step 2: Impairment = BV 10L – FV 7L = 3L.
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*5. FIFO vs LIFO – Rising Prices*
*Case*: 2025: Units purchased Q1@₹10, Q4@₹14. Sold 1,000 units. 500 in inventory. Prices rising.
*Q*: Which method gives higher net income?
A. LIFO
B. *FIFO*
C. Weighted Avg
D. Same
*Answer: B*
*Why*: Rising prices: FIFO COGS = older cheaper ₹10, so lower COGS, higher NI. LIFO COGS = ₹14, lower NI. Ending Inv FIFO higher.
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*6. Depreciation – SL vs DDB*
*Case*: Asset ₹10L, life 5yrs, no salvage. Year 1.
*Q*: DDB vs SL difference in Year 1 expense?
A. DDB ₹1L lower
B. *DDB ₹2L higher*
C. Same
D. DDB ₹4L higher
*Answer: B*
*Why*: SL = 10L/5 = 2L. DDB = 10L × 40% = 4L. Diff = 2L higher.
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*7. Finance Lease – ASC 842*
*Case*: GMSIsuccess leases copier 5 yrs. PV of payments = 95% of FV. Life 5yrs = 100% of asset life.
*Q*: Classification?
A. Operating lease
B. *Finance lease*
C. Short-term lease
D. Not a lease
*Answer: B*
*Why*: ASC 842: ≥1 of 5 criteria met: 95% ≥90% FMV OR life 100% ≥75%. Both met.
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*8. Off-Balance-Sheet Financing*
*Case*: LLP sells receivables with recourse, retains risk of default.
*Q*: Proper treatment?
A. *Record as secured borrowing, keep A/R on BS*
B. Remove A/R, record loss
C. Disclose only
D. Record as equity
*Answer: A*
*Why*: With recourse = not true sale. ASC 860: Treat as collateralized loan. Off-BS only if surrendered control + no recourse.
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*9. Ratios – Solvency vs Liquidity*
*Case*: Current Ratio 2.5, Debt/Equity 3.0, Times Interest Earned 1.2
*Q*: Main concern?
A. Liquidity poor
B. *Solvency risk – high leverage, low coverage*
C. Profitability low
D. No concern
*Answer: B*
*Why*: CR 2.5 ok liquidity. D/E 3.0 high leverage, TIE 1.2 means EBIT barely covers interest = solvency danger.
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*10. Inventory Turnover*
*Case*: COGS ₹60L, Avg Inv ₹10L.
*Q*: Inventory turnover? Days?
A. 6 times, 60.8 days
B. *6 times, 60.8 days*
C. 0.17 times, 2147 days
D. 10 times, 36.5 days
*Answer: A*
*Why*: Turnover = 60/10 = 6. Days = 365/6 = 60.8. Higher turnover = better.
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*11. Prior Period Adjustment*
*Case*: 2026: Found 2024 depreciation understated ₹2L due to math error. Tax 25%.
*Q*: 2026 FS presentation?
A. 2026 expense ₹2L
B. Disclose only
C. *Restate 2024 RE down ₹1.5L net of tax, 2026 beg RE*
D. Prior period error not corrected
*Answer: C*
*Why*: ASC 250: Material error = restate prior periods. Adjust beginning RE, net of tax 2L×75% = 1.5L.
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*12. Deferred Tax Liability*
*Case*: Tax depreciation ₹5L, Book depreciation ₹3L. Tax rate 30%.
*Q*: Year-end DTL?
A. DTA ₹60,000
B. *DTL ₹60,000*
C. No temp diff
D. DTL ₹200,000
*Answer: B*
*Why*: Tax > Book = future taxable. Temp diff 2L × 30% = 60,000 DTL.
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*13. Allowance for Uncollectible*
*Case*: A/R ₹20L, 5% estimated uncollectible. Allowance Cr bal ₹20,000 before adj.
*Q*: Bad Debt Expense?
A. ₹80,000
B. *₹80,000*
C. ₹100,000
D. ₹20,000
*Answer: B*
*Why*: Desired ending Allowance = 20L×5% = 100,000. Current 20,000 Cr. Need 80,000 more: Dr. BDE 80,000.
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*14. Factoring – Without Recourse*
*Case*: Factored ₹10L A/R without recourse. Fee 4%, retained 5% for returns.
*Q*: Loss on sale?
A. ₹0
B. *₹400,000*
C. ₹900,000
D. ₹500,000
*Answer: B*
*Why*: Without recourse = true sale. Loss = factor fee 10L×4% = 400,000. Holdback is receivable, not loss.
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*15. FOB Shipping Point vs Destination*
*Case*: 12/28 shipped FOB shipping point. Goods in transit 12/31.
*Q*: Who reports inventory 12/31?
A. Seller
B. *Buyer*
C. Neither
D. Carrier
*Answer: B*
*Why*: FOB shipping point = title passes at shipping. Buyer records inventory + payable at 12/28.
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*16. Equity Method – Associate*
*Case*: GMSIsuccess owns 30% of XYZ. XYZ NI ₹10L, paid dividend ₹2L.
*Q*: Investment increase?
A. ₹0
B. *₹2.4L*
C. ₹3L
D. ₹10L
*Answer: B*
*Why*: Equity method: Share of NI 30%×10L = 3L income. Dividend reduces investment: 30%×2L = 0.6L. Net +2.4L.
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*17. Consolidation – Subsidiary*
*Case*: Parent owns 80% Sub. Sub NI ₹5L. NCI?
*Q*: NCI share of NI on consolidated I/S?
A. ₹5L
B. *₹1L*
C. ₹4L
D. ₹0
*Answer: B*
*Why*: NCI = 20%×5L = 1L. Consolidated NI includes 100% Sub NI, then deduct NCI share.
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*18. Elimination – Unrealized Profit in Inventory*
*Case*: Parent sold to Sub for ₹10L, cost ₹8L. 40% still in Sub inventory. Tax 25%.
*Q*: Consolidation elimination?
A. Dr. Sales 10L, Cr. COGS 8L, Cr. Inv 2L
B. *Dr. Sales 10L, Cr. COGS 8.8L, Cr. Inventory 1.2L*
C. No entry
D. Dr. RE 2L
*Answer: B*
*Why*: Unrealized profit = (10-8)×40% = 0.8L pretax. Inventory down 0.8L. COGS up 10-8-0.8 = 8.8L.
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*19. Statement of Cash Flows – CFO*
*Case*: NI ₹5L, Depreciation ₹1L, A/R ↑ ₹2L, Inv ↓ ₹0.5L, A/P ↑ ₹1.5L.
*Q*: CFO?
A. ₹5L
B. *₹6L*
C. ₹4L
D. ₹9L
*Answer: B*
*Why*: Indirect: 5 + 1 – 2 + 0.5 + 1.5 = 6L.
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*20. CFF – Cash Flow from Financing*
*Case*: Issued bonds ₹20L, paid dividends ₹3L, repaid loan ₹5L, bought treasury stock ₹2L.
*Q*: Net CFF?
A. *₹10L inflow*
B. ₹12L inflow
C. ₹20L inflow
D. ₹15L outflow
*Answer: A*
*Why*: +20 – 3 – 5 – 2 = +10L inflow.
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*CMA Part 1 Tips*:
1. *ASC 842 Leases*: 5 criteria for finance. Memorize.
2. *Ratios*: Profitability = NI/Sales, Liquidity = CR/QR, Solvency = D/E, TIE.
3. *CF*: CFO = NI + noncash +/- WC. CFF = debt/equity/div. CFI = capex/investments.
4. *Temp Diff*: Tax > Book = DTL. Book > Tax = DTA.
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