CFAI Mock PM Q60 liability, captures, 2010, interest

fishmarket

about why someone prefers RI approach..The answer is B, but i can't think of why A and C are wrong.

When i was doing 2010 mock, it says off-balance sheet items do not affect the amount of equity since off-balance sheet asset and off-balance sheet liability offset each other.

So why A is wrong?

Choice C, doesn't the interest expense in RI model correctly captures the cost of debt?

Choice B, i don't get the answer, what does 'non-recurring items do not need to be made to the book value because they are already reflected in the value of the assets' mean?

Thanks a lot!!

ryanlb

stephaniez Wrote:
-------------------------------------------------------
> about why someone prefers RI approach..The answer
> is B, but i can't think of why A and C are wrong.
>
> When i was doing 2010 mock, it says off-balance
> sheet items do not affect the amount of equity
> since off-balance sheet asset and off-balance
> sheet liability offset each other.
>
> So why A is wrong?
>
> Choice C, doesn't the interest expense in RI model
> correctly captures the cost of debt?
>
> Choice B, i don't get the answer, what does
> 'non-recurring items do not need to be made to the
> book value because they are already reflected in
> the value of the assets' mean?
>
> Thanks a lot!!


with ur explanation for A, once you get the PV of the lease payments on ur books, then the combination of dep and interest is higher in the first period, decreasing NI..., decreasing Equity.

Why would u adjust book value of equity for non-recurring items?