CFA level 1
CFA level 1 Complete Study Guide (722
Terms) with Verified Detailed
Definitions 2023-2024.
, CFA level 1
Available-for-sale securities - Answer: Under US GAAP, debt securities not
classified as either held-to-maturity or held-for-trading securities. investor is
willing to sell but not actively planning to sell.
available-for-sale debt securities are reported at fair value on the balance sheet
with unrealized gains included as a component of other comprehensive income
Amortized cost - Answer: The historical cost (initially recognized cost) of an asset,
adjusted for amortization and impairment.
Historical cost - Answer: In reference to assets, the amount paid to purchase an
asset, including any costs of acquisition and/or preparation; with reference to
liabilities, the amount of proceeds received in exchange in issuing the liability
Realizable (settlement) value - Answer: With reference to assets, the amount of
cash or cash equivalents that could currently be obtained by selling the asset in an
orderly disposal; with reference to liabilities, the undiscounted amount of cash or
cash equivalents expected to be paid to satisfy the liabilities in the normal course
of business.
Antidilutive - Answer: With reference to a transaction or a security, one that
would increase earnings per share (EPS) or result in EPS higher than the
company's basic EPS—antidilutive securities are not included in the calculation of
diluted EPS.
, CFA level 1
Comprehensive income - Answer: All changes in equity other than contributions
by, and distributions to, owners; income under clean surplus accounting; includes
all changes in equity during a period except those resulting from investments by
owners and distributions to owners. Comprehensive income equals net income
plus other comprehensive income.
Diminishing balance method - Answer: An accelerated depreciation method, i.e.,
one that allocates a relatively large proportion of the cost of an asset to the early
years of the asset's useful life.
Direct write-off method - Answer: approach to recognizing credit losses on
customer receivables in which the company waits until such time as a customer
has defaulted and only then recognizes the loss.
LIFO layer liquidation - Answer: liquidation of old, relatively low-priced inventory;
happens when the volume of sales rises above the volume of recent purchases so
that some sales are made from relatively old, low-priced inventory. Also called
LIFO liquidation.
Matching principle - Answer: accounting principle that expenses should be
recognized in the same period in which the associated revenue is recognized
Multi-step format - Answer: income statement format that presents a subtotal for
gross profit (revenue minus cost of goods sold).
, CFA level 1
Net book value - Answer: remaining (undepreciated) balance of an asset's
purchase cost. For liabilities, the face value of a bond minus any unamortized
discount, or plus any unamortized premium
Period costs - Answer: Costs (e.g., executives' salaries) that cannot be directly
matched with the timing of revenues and which are thus expensed immediately.
Return on sales - Answer: calculated as net income divided by revenue; indicates
how much of each dollar of revenues is left after all costs and expenses. Also
referred to as net profit margin.
Single-step format - Answer: format of the income statement, a format that does
not subtotal for gross profit (revenue minus cost of goods sold).
Specific identification method - Answer: inventory accounting method that
identifies which specific inventory items were sold and which remained in
inventory to be carried over to later periods.
Total comprehensive income - Answer: change in equity during a period resulting
from transaction and other events, other than those changes resulting from
transactions with owners in their capacity as owners.
Treasury stock method - Answer: method for accounting for the effect of options
(and warrants) on earnings per share (EPS) that specifies what EPS would have
CFA level 1 Complete Study Guide (722
Terms) with Verified Detailed
Definitions 2023-2024.
, CFA level 1
Available-for-sale securities - Answer: Under US GAAP, debt securities not
classified as either held-to-maturity or held-for-trading securities. investor is
willing to sell but not actively planning to sell.
available-for-sale debt securities are reported at fair value on the balance sheet
with unrealized gains included as a component of other comprehensive income
Amortized cost - Answer: The historical cost (initially recognized cost) of an asset,
adjusted for amortization and impairment.
Historical cost - Answer: In reference to assets, the amount paid to purchase an
asset, including any costs of acquisition and/or preparation; with reference to
liabilities, the amount of proceeds received in exchange in issuing the liability
Realizable (settlement) value - Answer: With reference to assets, the amount of
cash or cash equivalents that could currently be obtained by selling the asset in an
orderly disposal; with reference to liabilities, the undiscounted amount of cash or
cash equivalents expected to be paid to satisfy the liabilities in the normal course
of business.
Antidilutive - Answer: With reference to a transaction or a security, one that
would increase earnings per share (EPS) or result in EPS higher than the
company's basic EPS—antidilutive securities are not included in the calculation of
diluted EPS.
, CFA level 1
Comprehensive income - Answer: All changes in equity other than contributions
by, and distributions to, owners; income under clean surplus accounting; includes
all changes in equity during a period except those resulting from investments by
owners and distributions to owners. Comprehensive income equals net income
plus other comprehensive income.
Diminishing balance method - Answer: An accelerated depreciation method, i.e.,
one that allocates a relatively large proportion of the cost of an asset to the early
years of the asset's useful life.
Direct write-off method - Answer: approach to recognizing credit losses on
customer receivables in which the company waits until such time as a customer
has defaulted and only then recognizes the loss.
LIFO layer liquidation - Answer: liquidation of old, relatively low-priced inventory;
happens when the volume of sales rises above the volume of recent purchases so
that some sales are made from relatively old, low-priced inventory. Also called
LIFO liquidation.
Matching principle - Answer: accounting principle that expenses should be
recognized in the same period in which the associated revenue is recognized
Multi-step format - Answer: income statement format that presents a subtotal for
gross profit (revenue minus cost of goods sold).
, CFA level 1
Net book value - Answer: remaining (undepreciated) balance of an asset's
purchase cost. For liabilities, the face value of a bond minus any unamortized
discount, or plus any unamortized premium
Period costs - Answer: Costs (e.g., executives' salaries) that cannot be directly
matched with the timing of revenues and which are thus expensed immediately.
Return on sales - Answer: calculated as net income divided by revenue; indicates
how much of each dollar of revenues is left after all costs and expenses. Also
referred to as net profit margin.
Single-step format - Answer: format of the income statement, a format that does
not subtotal for gross profit (revenue minus cost of goods sold).
Specific identification method - Answer: inventory accounting method that
identifies which specific inventory items were sold and which remained in
inventory to be carried over to later periods.
Total comprehensive income - Answer: change in equity during a period resulting
from transaction and other events, other than those changes resulting from
transactions with owners in their capacity as owners.
Treasury stock method - Answer: method for accounting for the effect of options
(and warrants) on earnings per share (EPS) that specifies what EPS would have
