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Thread: FREE CFA Level 1 sample questions everyday for December 2010 candidates

  1. #111
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    ASSET = LIABILITY + EQUITY

    EQUITY = CAPITAL + RETAINED EARNINGS

    RETAINED EARNING = (OPENING RETAINED EARNING + NET PROFIT (REVENUE - EXPENSES) Less DIVIDENDS DECLARED)

    So i will go for C

  2. #112
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    I like your Explanation Vivek
    Very True (Not only Internal Auditors) & not by Directors

  3. #113
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    Option C is the expanded form of the accounting equation. Option B is broken up to arrive at the expanded form. For my friends information the mother equation is Assets = Liabilities + Owner's Equity. Hence option A is least likely equal to a firm's asset. The catch is - ending retained earnings = Profits - expenses - dividends. So why dividend paid or declared is again deducted in the option as it is already included in the ending retained earnings. Hence option A is the correct option.

    Please advise if my understanding is incorrect.
    - Vivek

  4. #114
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    Quote Originally Posted by vivek2812 View Post
    Lets discuss audit - An audit is an "independent" assessment of the books of account reviewed by an auditor whether external or internal with a motive to disclose the fact that the financial statements are showing "True and Fair View" and also it is free from any material misstatements. It also shows how fair is the management in presenting its financial statements to its financial users. Also note that an audit is always an assurance not a guarantee.
    Here option number A is almost correct but it is not always internal auditors who checks the accuracy, sometimes it is mandatory audit done exclusively by the external or the statutory auditors. So option A is someway bias, hence ruled out. Option C is incorrect for sure as the senior directors of the entity presents the financial statement in the most accurate way for the purpose of audit to the auditors. They are not involved in the conduct of the audit. They are definitely involved in the creation and the presentation of the financial statements. Option B is Correct on the basis of the above. No explanations required.
    Please advise if my understanding is incorrect.

    - Vivek
    Thanks Vivek for the explanation.
    I agree with your answer.

  5. #115
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    Thanks Takalani. Nice name

  6. #116
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    thanks Sriram

  7. #117
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    Quote Originally Posted by isb2012 View Post
    The answer would be A
    Answer is C

    lIABILITIES+EQUITY = Liabilities + Beg retained earnings + contributed capital +Netincome - Dividends


    = Liabilities + Contributed Capital + Beginning Retained Earnings + Revenues

  8. #118
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    Quote Originally Posted by vivek2812 View Post
    Option C is the expanded form of the accounting equation. Option B is broken up to arrive at the expanded form. For my friends information the mother equation is Assets = Liabilities + Owner's Equity. Hence option A is least likely equal to a firm's asset. The catch is - ending retained earnings = Profits - expenses - dividends. So why dividend paid or declared is again deducted in the option as it is already included in the ending retained earnings. Hence option A is the correct option.

    Please advise if my understanding is incorrect.
    - Vivek

    The way i understand the Equation
    A=EQUITY + LIABILITY
    so what makes Equity (Capital plus Retained Earnings)
    What increase the Equity ... The retained Earnings so C is correct i think

  9. #119
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    but the question is asking which is the least likely. That means which is the option we could disregard when it comes to define a firm's asset. Option A do not support the accounting equation. I think then I will stick to my answer A as the correct option.

  10. #120
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    Ooops i did not note that Vivek
    Thanks for Underlining LEAST LIKELY

    I will go with A For 1 reason (Dividends declared are already taken into account in when reaching retained earnings no need to subtract Dividends from Retained Earning)
    Answer is A

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