Free CFA Level II Financial Statement Analysis Practice Questions
Financial statement analysis on the CFA Level II exam covers intercorporate investments, employee compensation accounting, multinational operations, and financial reporting quality assessment. Weighted 10-15% (CFA Institute).
Sample Questions
Question 1
Easy
Under IFRS, goodwill is tested for impairment:
Solution
B is correct.
Under IAS 36, goodwill must be tested for impairment at least annually, regardless of whether there are indicators of impairment. Additional testing is required whenever there are specific indicators suggesting the goodwill may be impaired.
This is consistent with US GAAP (ASC 350), which also requires at least annual impairment testing.
Both IFRS and US GAAP require at least annual goodwill impairment testing.
Under IAS 36, goodwill must be tested for impairment at least annually, regardless of whether there are indicators of impairment. Additional testing is required whenever there are specific indicators suggesting the goodwill may be impaired.
This is consistent with US GAAP (ASC 350), which also requires at least annual impairment testing.
Both IFRS and US GAAP require at least annual goodwill impairment testing.
Question 2
Medium
In the five-component DuPont analysis, a decrease in the interest burden ratio (EBT/EBIT) most likely indicates:
Solution
B is correct.
The interest burden ratio is . A lower ratio means that a larger portion of EBIT is being consumed by interest expense before arriving at earnings before tax (EBT).
A decrease in this ratio means interest expense has increased relative to EBIT.
A lower interest burden ratio means more of the company's operating income is being absorbed by interest payments, indicating higher financial leverage costs.
The interest burden ratio is . A lower ratio means that a larger portion of EBIT is being consumed by interest expense before arriving at earnings before tax (EBT).
A decrease in this ratio means interest expense has increased relative to EBIT.
A lower interest burden ratio means more of the company's operating income is being absorbed by interest payments, indicating higher financial leverage costs.
Question 3
Hard
Reynolds applies an analytical adjustment that classifies only service cost as operating and reclassifies all other pension components recognized in P&L to non-operating items. Using Exhibits 1 and 2, Brookfield's adjusted operating profit for 20X1 is closest to:
Solution
B is correct. Reynolds keeps only service cost (current plus past) in operating profit and moves net interest to non-operating; OCI remeasurements never affected operating profit, so no further adjustment is needed for them. Service cost . Adjusted operating profit million.