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Financial Statement Analysis: Learning Outcomes
Financial Statement Analysis: Learning Outcomes
Analysis
LEARNING OUTCOMES
Inventories
The candidate should be able to:
□ contrast costs included in inventories and costs recognised as expenses in the
period in which they are incurred
□ describe different inventory valuation methods (cost formulas)
□ calculate and compare cost of sales, gross profit, and ending inventory using
different inventory valuation methods and using perpetual and periodic
inventory systems
□ calculate and explain how inflation and deflation of inventory costs affect
the financial statements and ratios of companies that use different inventory
valuation methods
□ explain LIFO reserve and LIFO liquidation and their effects on financial
statements and ratios
□ demonstrate the conversion of a company’s reported financial statements from
LIFO to FIFO for purposes of comparison
□ describe the measurement of inventory at the lower of cost and net realisable
value
□ describe implications of valuing inventory at net realisable value for financial
statements and ratios
□ describe the financial statement presentation of and disclosures relating to
inventories
□ explain issues that analysts should consider when examining a company’s
inventory disclosures and other sources of information
12 Topic 3 Financial Statement Analysis
Long-Lived Assets
The candidate should be able to:
□ compare the financial reporting of the following types of intangible assets:
purchased, internally developed, acquired in a business combination
□ explain and evaluate how capitalising versus expensing costs in the period in
which they are incurred affects financial statements and ratios
□ describe the different depreciation methods for property, plant, and equipment
and calculate depreciation expense
□ describe how the choice of depreciation method and assumptions concerning
useful life and residual value affect depreciation expense, financial statements,
and ratios
□ explain and evaluate how impairment, revaluation, and derecognition of
property, plant, and equipment and intangible assets affect financial statements
and ratios
□ describe the different amortisation methods for intangible assets with finite lives
and calculate amortisation expense
□ describe how the choice of amortisation method and assumptions concerning
useful life and residual value affect amortisation expense, financial statements,
and ratios
□ describe the revaluation model
□ explain the impairment of property, plant, and equipment and intangible assets
□ explain the derecognition of property, plant, and equipment and intangible
assets
□ describe the financial statement presentation of and disclosures relating to
property, plant, and equipment and intangible assets
□ analyze and interpret financial statement disclosures regarding property, plant,
and equipment and intangible assets
□ compare the financial reporting of investment property with that of property,
plant, and equipment
□ identify and contrast costs that are capitalised and costs that are expensed in the
period in which they are incurred
Income Taxes
The candidate should be able to:
□ describe the differences between accounting profit and taxable income and
define key terms, including deferred tax assets, deferred tax liabilities, valuation
allowance, taxes payable, and income tax expense
□ explain how deferred tax liabilities and assets are created and the factors that
determine how a company’s deferred tax liabilities and assets should be treated
for the purposes of financial analysis
□ calculate income tax expense, income taxes payable, deferred tax assets, and
deferred tax liabilities, and calculate and interpret the adjustment to the
financial statements related to a change in the income tax rate
□ calculate the tax base of a company’s assets and liabilities
□ evaluate the effect of tax rate changes on a company’s financial statements and
ratios
□ identify and contrast temporary versus permanent differences in pre-tax
accounting income and taxable income
Financial Statement Analysis Topic 3 13
□ describe the use of financial statement analysis in screening for potential equity
investments
□ explain appropriate analyst adjustments to a company’s financial statements to
facilitate comparison with another company