CFA Practice Question

There are 334 practice questions for this study session.

CFA Practice Question

Which of the following actions will reduce current net income?
A. Capitalizing rather than expensing, a purchase.
B. Changing from the LIFO method to the FIFO method in periods of rising prices.
C. Reclassification of a marketable security that has had a permanent decrease in value from current to noncurrent.

User Contributed Comments 8

User Comment
shasha move a security with decreased value from c.a. to long-term asset will reduce n.i? how's this happened? no clue.
johnsk when you reclassify the security, you must recognize the loss in value. The loss was not recognized when it was a current asset. That's why NI is redued.
cbb1 The key wording is "permanent" decline; thus, although an available for sale security decline in value is normally recorded to equity (and not P&L), once there is a reclass and the decline is permanent, the charge is to P&L and not equity.
matt2noel current = losses on on income statement
broadex where in the study material does it say a change from current to noncurent you recognise impairement loss. This is not change in category of assets as cbbi and others above think.

All accounting frameworks require one to recognise an impairment loss as soon as it happens whether the asset is a current asset or non current asset.

I think this question needs more thought and clarification.
broadex Ignore comment above: currents assets refers to trading securities and non current refers to available for sale(AFS). US GAAP and IFRS does not require ongoing impairment tests on trading instruments. Hence if there is impairment it may not be recognised in P&L if the asset is a trading instrument. However i the asset is an AFS then impairment tests are done and loss recorded in the P&L immediately.

Good question indeed!!!
Nando1 great explanation broadex.
mrpman broadex good stuff, are you able to point out where you got that info. I would just like to brush up on that section
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