FSA trouble attention, trouble, reading, getting, advice

dmrktrading

Any one else getting crushed from FSA? I am not doing well on the end of reading CFAI questions.....any advice?
Seems like they pay a lot of attention to ratios which seems more like a level 1 thing.

ayaz_mahmud369

John Harris class. I failed the test once but got >70% on fsa both times I took the test.

Sportsman

I failed L2 last June mostly due to the fact that I got crushed by FSA, <50%. If you want to pass L2 you have to know FSA. I've heard great things about John Harris. He also teaches FSA for Schweser's Windsor Week. If he is in your area I would definitely take his course.

neil1234

Yeah, the first couple of chapters dont look much different than L1, except for the "item set" format questions.

Question: In translating from LIFO to FIFO, the increase in net income is calculated as the after-tax increase in the reserve. This makes sense to me and there is no issue. However, the increase in retained earnings is calculated as the after-tax reserve for the current period. This seems counterintuitive to me. I would think the retained earnings would increase by the amount of increase in net income. Can anybody help to clarify???

busterbluth

that doesnt make any sense....retained earnings is a component of equity. additionaly, you dont provide much of an explanation....

benbenxiong

also, how would you factor in a 5% divedent payout ratio?? this simple calculation seems to assume this a pure growth company...

tianxin

you're making this too hard.
You cannot shift an asset account directly to the equity portion of the balance sheet (or should I say with only a few exceptions, but you will deal with this in the clean surplus assumption in equity later). Here it is an inventory adjustment, and the LIFO reserve has been added to the LIFO inventory, in order for the fundamental accounting equation to hold (A=L+E) only the after tax portion of the reserve amount should be added to the equity account.
You don't have to worry about all the other stuff b/c The change in the reserve has been passed through the I/S in the from of higher COGS and revenue and will impact equity when closing entries are made at month end.
If that isn't making sense it may just be one of those things that you have to take a leap of faith with the curriculum, memorize that this is the state of the world, and trust that in due time it may finally start to congeal.

wizofoz

edit the above:
with this inventory adjustment no add'l rev. is passed through and I only realized after my post 'posted' that this could likely cause some confusion.

RepoToronto

I am looking into this pretty deep, but thats the only way to fully understand all the moving parts. Thanks, your explanation is pretty good. I get the jist that the P&L (net income) represents information over a period of time whereas the Balance Sheet (retained earnings) is at a point in time. Theoretically however, the net income should be the link to the balance sheet. I would need to build a model and tie it out to the penny to get this level of detail.

Thanks though, much appreciated!