CFA CFA Level 2 CFA Mock B Afternoon – Ready Power Case Study (Spoilers)

CFA Mock B Afternoon – Ready Power Case Study (Spoilers)

  • This topic has 2 replies, 2 voices, and was last updated Oct-17 by Chevalier.
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  • Chevalier
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    I got a problem with the answers for question 3 and 4:

    3.) The statement in Note 1.D of Exhibit 3 concerning LIFO liquidations most likely means that for the stated period:
    A. there were no inventory write-downs in either of the two years.
    B. units manufactured (or purchased) equaled or exceeded unit sales for each year.
    C. costs and prices must have been rising throughout.

    The statement in Question:
    No LIFO liquidation occurred during 2012 and 2013.

    The Answer Explenation:
    LIFO liquidation arises when the number of units sold exceeds the number of units purchased or manufactured and thus a portion of the older inventory is sold off or liquidated.

    My answer was (B), the answer sheet says correct answer is (A)

    _______________________________________________________________________________________________________________________________________________________________________________

    With regard to Mays’ comments about the LIFO method, which of his statements is most accurate?
    A. Statement 3
    B. Statement 1
    C. Statement 2

    The statements:
    1. One of the advantages of using LIFO is that it simplifies the accounting process for inventory because it gives the same results for inventory and cost of goods sold whether the company uses a periodic or perpetual inventory system.
    2. Another advantage of using LIFO is that it appears to improve the company’s cash conversion cycle.
    3. One disadvantage with LIFO, however, is that it is more likely that the company will incur inventory write-downs than under the first in, first out (FIFO) method

    The Answer Explenation:
    Only Statement 2 is correct. In periods of rising inventory prices, as recently experienced by the company, LIFO COGS is higher and average inventory is lower, which results in faster inventory turnover and thus lower days of inventory on hand (DOH). Receivables and payables are not affected by the choice of inventory method. The lower DOH will appear to shorten the operating and cash conversion cycles.

    My Answer was (C), the answer sheet says the correct Answer is (A).

    ykilstein
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    If you’re doing it online/not THE PDF’s, the answer letters won’t match what you wrote. Make sure your answer is the same as the one given in content – not answer letter.

    Chevalier
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    I checked that. The CFAI seems to have updated their PDFs. I got an old version, that was wrong πŸ™

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