# Thread: Free CFA Level 1 Practice Questions for December 2012 exam

1. Thanks Mr. Ratan. This is a very useful initiative.

I think the answer to question 12 is A.

2. Ratan Sir:- Can u plz explain abt GDP based recession indicator index and density of GDP growth during expansions (Q10) ??

Regards,

3. ## Solution to Question #12

Solution to Question #12
Text Solution to Question #12

I was not able to record the video solutions to the problems, will record the solutions and update the same in all the answers.

See the below image.

To find the updated propbability of increase in interest rate given recession has happened, we need to first find out the unconditional probability of recession happening, which we have found earlier as 0.69 (refer to this link)

To solve the problem in a simple manner,
1. Our total case now is recession has happened = 0.69
2. we dont know what caused the recession to happen - it could be because of interest rate increase or interest rate decrease
3. find out what is the chance that recession happened because of interest rate increase it is P(R|I) * P(I) = 0.9 *0.7 = 0.63 - So this becomes our favorable case
4. Now probability is given by favorable case / total case
so, the updated probability = 0.63/0.69
=> 0.91

In the book they have given formula for this, but just think on these lines, focus on the total case and favorable case and find the probability

Regards,
Ratan Gupta
Director, Knowledge Varsity
www.KnowledgeVarsity.com

[QUOTE=ratankv;3008]================================================== ===============
Today's Question (Questions and answers provided by Knowledge Varsity)

This is continuation of the Question #10 - here we are covering the Baye's probability concept

Q12. Let

4. ## Question #13

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Today's Question (Questions and answers provided by Knowledge Varsity)

Question #13 A firm has received a contract to build a flyover; it would take 3 years to build the flyover. The total revenue that the firm will generate is \$50 million and the total cost is \$30 million, which has the following breakup
Costs: 1st year = \$15 million; 2nd year = \$10 million; 3rd year = \$5 million
How much revenue and profit, the firm should report in its 2nd year, if it is following Percentage of completion method, Assume that the firm follows US GAAP.
====== Revenue ====== Profit
A ====== \$10 Mn ====== \$0 Mn
B ====== \$16.67 Mn ====== \$6.67 Mn
C ====== \$16.67 Mn ====== \$0 Mn

5. Ans is B. Is is correct sir ??

6. I guess Ans is C.

Sir, request you to kindly provide videos for the solutions. It's really very helpful.

Regards,

Hi has this Thread stopped running?

8. ## Solution to Question #13

Text Solution
If the firm is following percentage of completion method, we need to find out the percentage of completion in each of the year and accordingly find out the revenue and profit.
For Second year: Cost incurred = \$10 million, Total cost = \$30 million
So, percentage completed in the second year = 10/30 = 33.33%
So, the firm should recognize, 33.33% of the revenue in 2nd year,
• Revenue = 33.33% *Total revenue = 33.33% * \$50 million = \$16.67 million
• Profit = \$16.67 million - \$10 million = \$6.67 million

Regards,
Ratan Gupta
Director, Knowledge Varsity
www.KnowledgeVarsity.com

Originally Posted by ratankv
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Today's Question (Questions and answers provided by Knowledge Varsity)

Question #13 A firm has received a contract to build a flyover; it would take 3 years to build the flyover. The total revenue that the firm will generate is \$50 million and the total cost is \$30 million, which has the following breakup
Costs: 1st year = \$15 million; 2nd year = \$10 million; 3rd year = \$5 million
How much revenue and profit, the firm should report in its 2nd year, if it is following Percentage of completion method, Assume that the firm follows US GAAP.
====== Revenue ====== Profit
A ====== \$10 Mn ====== \$0 Mn
B ====== \$16.67 Mn ====== \$6.67 Mn
C ====== \$16.67 Mn ====== \$0 Mn

9. ## Question #14

Today's Question (Questions and answers provided by Knowledge Varsity)
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Q14. Nagarjuna construction has sold its land to another developer Purvankara for a consideration of \$50 million. The cost of the land was \$30 million. Purvankara will pay in installment, which has the following breakup
1st year = \$25 million; 2nd year = \$15 million; 3rd year = \$10 million
How much revenue and profit, Nagarjuna construction should report in its 2nd year, if it is following Cost recovery method?
==== Revenue ===== Profit
====A. \$15 Mn ===== \$5 Mn
====B. \$15 Mn ===== \$10 Mn
====C. \$10 Mn ===== \$10 Mn

10. ## Question #15

Today's Question (Questions and answers provided by Knowledge Varsity)
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Question #15
Similar to question #14, but this time we are solving for the installment sales method.
Nagarjuna construction has sold its land to another developer Purvankara for a consideration of \$50 million. The cost of the land was \$30 million. Purvankara will pay in installment, which has the following breakup
1st year = \$25 million; 2nd year = \$15 million; 3rd year = \$10 million
How much revenue and profit, Nagarjuna construction should report in its 2nd year, if it is following Installment sales method?
==== Revenue ===== Profit
====A. \$15 Mn ===== \$6 Mn
====B. \$15 Mn ===== \$9 Mn
====C. \$10 Mn ===== \$4 Mn

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