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Free Questions › CFA › Financial Statement Analysis
Free CFA Financial Statement Analysis Practice Questions & Answers
900 exam-style Financial Statement Analysis questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 541
Purchased intangible assets appear on the cash flow statement as:
Select an option first.
Correct answer: B — Investing outflows
Explanation: Why B is correct: Acquiring intangible assets is an investing activity. Why others are wrong: A applies to internally developed intangibles. C and D are incorrect.
Question 542
Impairment testing for property, plant, and equipment is required:
Select an option first.
Correct answer: B — Only when indicators of impairment exist
Explanation: Why B is correct: Impairment testing is triggered by signs of impairment, not performed automatically. Why others are wrong: A applies to goodwill, not PPE. C and D are irrelevant.
Question 543
An impairment loss is recognized when:
Select an option first.
Correct answer: A — The asset’s carrying amount exceeds its recoverable amount
Explanation: Why A is correct: Impairment occurs when carrying value is not recoverable. Why others are wrong: B indicates a gain, not impairment. C does not imply impairment. D is unrelated.
Question 544
Under IFRS, impairment losses for long-lived assets:
Select an option first.
Correct answer: A — Can be reversed if recoverable amount increases
Explanation: Why A is correct: IFRS allows reversal of impairment losses (except beyond original carrying amount). Why others are wrong: B is GAAP for assets held for use. C is not allowed. D is incorrect; goodwill reversals are prohibited.
Question 545
Under US GAAP, impairment losses for assets held for sale:
Select an option first.
Correct answer: B — Can be reversed if fair value increases
Explanation: Why B is correct: GAAP allows reversal for assets held for sale. Why others are wrong: A contradicts GAAP. C is not allowed. D is incorrect.
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Question 546
An asset is reclassified as “held for sale” when:
Select an option first.
Correct answer: A — Management intends to sell it and sale is highly probable
Explanation: Why A is correct: Held-for-sale classification requires intent and high probability of sale. Why others are wrong: B does not determine classification. C may trigger testing but not classification. D alone is insufficient.
Question 547
When an asset is reclassified as held for sale, it must be:
Select an option first.
Correct answer: A — Tested for impairment immediately
Explanation: Why A is correct: Reclassification triggers an impairment test. Why others are wrong: B is not required. C is incorrect; derecognition occurs only upon disposal. D is irrelevant.
Question 548
Derecognition of a long-lived asset occurs when:
Select an option first.
Correct answer: B — The asset is sold or no longer provides future benefits
Explanation: Why B is correct: Derecognition requires disposal or lack of future economic benefit. Why others are wrong: A does not require derecognition. C and D do not trigger derecognition.
Question 549
A lease exists only when the contract:
Select an option first.
Correct answer: B — Identifies a specific asset and grants control of its use
Explanation: Why B is correct: A lease requires a specified underlying asset and the customer’s right to control its use. Why others are wrong: A contradicts the requirement for a specific asset. C does not determine whether a contract is a lease. D is irrelevant; leases may be short-term.
Question 550
A lease that effectively transfers the economic ownership of an asset to the lessee is classified as:
Select an option first.
Correct answer: B — A finance lease
Explanation: Why B is correct: Finance leases resemble asset purchases financed with debt. Why others are wrong: A applies when ownership does not effectively transfer. C and D are not classification categories.
Question 551
A lease is classified as a finance lease when:
Select an option first.
Correct answer: C — The lease transfers ownership or meets other finance-lease criteria
Explanation: Why C is correct: Meeting any of the five criteria (ownership transfer, purchase option, major life, PV ≈ fair value, no alternative use) makes it a finance lease. Why others are wrong: A alone does not classify a lease. B contradicts finance-lease criteria. D contradicts the “no alternative use” criterion.
Question 552
A key advantage of leasing for lessors is that it:
Select an option first.
Correct answer: B — Provides a steady stream of payments
Explanation: Why B is correct: Lessors earn predictable payments over the lease term. Why others are wrong: A is false; credit risk remains. C is incorrect; lessors retain ownership. D is not guaranteed.
Question 553
Under a defined-contribution plan, the employer’s pension expense equals:
Select an option first.
Correct answer: B — The required contribution for the period
Explanation: Why B is correct: Defined-contribution plans require only the agreed contribution. Why others are wrong: A and C apply to defined-benefit plans. D is irrelevant.
Question 554
Under a defined-contribution plan, the employer’s obligation ends when:
Select an option first.
Correct answer: B — The contribution is made
Explanation: Why B is correct: Once the contribution is made, the employer has no further obligation. Why others are wrong: A, C, and D do not determine obligation.
Question 555
A defined-benefit pension plan differs from a defined-contribution plan because:
Select an option first.
Correct answer: B — The employer bears the investment and actuarial risk
Explanation: Why B is correct: Defined-benefit plans obligate employers to provide promised benefits, bearing investment and longevity risk. Why others are wrong: A describes defined-contribution plans. C is not necessarily true. D is false; actuarial assumptions are essential.
Question 556
The tax base of an asset represents:
Select an option first.
Correct answer: B — Its value for tax purposes
Explanation: Why B is correct: The tax base is the amount attributed to the asset under tax rules. Why others are wrong: A and D are unrelated. C is the accounting carrying amount, not the tax base.
Question 557
A taxable temporary difference results in:
Select an option first.
Correct answer: B — A deferred tax liability
Explanation: Why B is correct: Taxable temporary differences increase future taxable income, creating a deferred tax liability. Why others are wrong: A applies to deductible differences. C is incorrect. D is unrelated.
Question 558
A deductible temporary difference results in:
Select an option first.
Correct answer: B — A deferred tax asset
Explanation: Why B is correct: Deductible differences reduce future taxable income, creating a deferred tax asset. Why others are wrong: A is opposite. C is irrelevant. D is not temporary.
Question 559
A deferred tax asset is recognized only when:
Select an option first.
Correct answer: B — Future taxable profits are probable
Explanation: Why B is correct: Recognition requires probable future taxable income to utilize the deduction. Why others are wrong: A, C, and D do not determine recognition.
Question 560
When the carrying amount of an asset exceeds its tax base, the result is typically:
Select an option first.
Correct answer: B — A deferred tax liability
Explanation: Why B is correct: Higher carrying amount means future taxable income will be higher. Why others are wrong: A applies when tax base > carrying amount. C is incorrect. D is unrelated.
Question 561
When the carrying amount of a liability exceeds its tax base, the result is typically:
Select an option first.
Correct answer: A — A deferred tax asset
Explanation: Why A is correct: Settling the liability will reduce future taxable income, creating a deferred tax asset. Why others are wrong: B is opposite. C is incorrect. D is false.
Question 562
A deferred tax liability increases when:
Select an option first.
Correct answer: A — Taxable income is lower than accounting income
Explanation: Why A is correct: Lower taxable income today means higher taxable income later → DTL. Why others are wrong: B creates a DTA. C affects measurement, not creation. D is unrelated.
Question 563
A deferred tax asset increases when:
Select an option first.
Correct answer: B — Accounting income exceeds taxable income
Explanation: Why B is correct: Lower taxable income today means future deductions → DTA. Why others are wrong: A creates a DTL. C affects valuation, not creation. D is irrelevant.
Question 564
A permanent difference is one that:
Select an option first.
Correct answer: B — Never reverses
Explanation: Why B is correct: Permanent differences affect only current tax expense and never reverse. Why others are wrong: A describes temporary differences. C and D are incorrect.
Question 565
A company with a low effective tax rate relative to the statutory rate may be benefiting from:
Select an option first.
Correct answer: A — Permanent tax differences
Explanation: Why A is correct: Permanent differences (e.g., tax credits) reduce tax expense relative to statutory expectations. Why others are wrong: B and C do not explain the rate difference. D is unrelated.
Question 566
A deferred tax liability will reverse when:
Select an option first.
Correct answer: B — Future taxable income increases due to prior timing differences
Explanation: Why B is correct: DTLs reverse when future taxable income increases as timing differences unwind. Why others are wrong: A is impossible. C is irrelevant. D affects measurement, not reversal.
Question 567
A deferred tax asset will reverse when:
Select an option first.
Correct answer: C — The company uses the deduction that created the temporary difference
Explanation: Why C is correct: DTAs reverse when the company realizes the future tax benefit. Why others are wrong: A and B do not determine reversal. D affects valuation, not reversal.
Question 568
A company with large deferred tax assets but uncertain future profitability must:
Select an option first.
Correct answer: B — Reduce DTAs using a valuation allowance
Explanation: Why B is correct: If future profits are uncertain, DTAs must be reduced to the amount likely to be realized. Why others are wrong: A violates accounting rules. C is impossible. D is incorrect.
Question 569
Aggressive accounting choices generally aim to:
Select an option first.
Correct answer: B — Increase reported performance in the current period
Explanation: Why B is correct: Aggressive choices inflate current earnings or financial position. Why others are wrong: A describes conservative accounting. C is not the goal. D contradicts aggressive reporting.
Question 570
Conservative accounting choices generally aim to:
Select an option first.
Correct answer: B — Shift income into later periods
Explanation: Why B is correct: Conservative reporting defers income or accelerates expenses. Why others are wrong: A is aggressive. C is not the purpose. D is opposite.
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