CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

If non-recurring charges are really prior year expenses taken too late, then the practice of ignoring non-recurring charges and focusing on recurring operating income results in an ______.
A. underestimation of a firm's assets
B. overestimation of a firm's earnings trend
C. overestimation of a firm's assets
Explanation: If non-recurring charges are really prior year expenses taken too late, then the practice of ignoring non-recurring charges and focusing on recurring operating income results in an overestimation of a firm's earnings trend.

User Contributed Comments 5

User Comment
americade i sure can't, it's counterintuitive
if they didn't adjust prior yr's earnings down by ignoring non-recurring charges then last yr's earnings were overstated and the trend understated.
Shelton ignoring -1 means overestimate by +1
malawyer its also overestimating assets (i.e. increase ret. earnings in equity)
charlie1 No lawyer. The charges are still recognized but as non-recurring instead of recurring. The assets remain the same. The earnings trend, which is asked in this question, does not include non-recurring income.
nostalgia thanks charlie1, your explanation is really helpful.
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