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  • 1.  Earnings quality CMA Part 2

    Posted 09-22-2022 12:06 AM
    HI All,

    Could you pls help me understand and solve this question please.

    if a corporation has the option to use either a shorter period or a longer period  to amortize a patent and it can use either the declining balance method or  the straight line  method to depreciate  a fixed asset.  The corporation would  be considered to have better earning quality if it uses
    1)Longer period to amortize  patent and declining balance to depreciate the fixed asset.
    2)Longer period to amortize  patent and straight line to depreciate the fixed asset.
    3)shorter period to amortize  patent and declining balance to depreciate the fixed asset.
    4) shorter period to amortize  patent and straight to depreciate the fixed asset.

    Thanks a lot!

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    MONICA DSILVA
    Controller
    SINGAPORE
    Singapore
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  • 2.  RE: Earnings quality CMA Part 2

    Posted 09-23-2022 01:00 AM
    Correct answer should be (3)  bcoz earning quality would be considered better if the expenses are charged to there maximum potential and incomes are considered at highly conservative levels.

    Therefore "charging Parent amortization for a shorter period & depreciating assets at declining method"  would give better quality earnings.


    Best
    Tushar



    Original Message


  • 3.  RE: Earnings quality CMA Part 2

    Posted 09-24-2022 01:55 AM
    Answer is (1) 1)Longer period to amortize  patent and declining balance to depreciate the fixed asset., for presenting better Earnings Quality

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    Sunny Jha
    Muzaffarpur
    India
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    Original Message


  • 4.  RE: Earnings quality CMA Part 2

    Posted 09-24-2022 10:19 AM
    The answer is 3. Please see Gupta explanation 




    Original Message


  • 5.  RE: Earnings quality CMA Part 2

    Posted 09-23-2022 01:20 AM

    The answer will be,
    Shorter Period to Amortize and Declining Method.
    As Per my Understanding, Earning Quality is when you have conservative method in Recognition of Profit

    With Regards,
    Kheerthana,
    Abu Dhabi



    Original Message


  • 6.  RE: Earnings quality CMA Part 2

    Posted 09-23-2022 09:10 PM
     Here is the official answer from Wiley's

    You Answered Correctly!
    "Earnings quality" refers to how useful reported earnings are for measuring a company's performance. One factor that influences earnings quality is the accounting principles and estimates that a firm chooses when preparing its financial statements. Principles and estimates that tend to increase current earnings at the expense of future earnings are associated with lower earnings quality while principles and estimates that tend to decrease current earnings in order to increase future earnings are associated with higher earnings. A shorter amortization period will result in lower current earnings than a longer period will because the shorter period increases current amortization expense. This increases earnings quality. Double-declining depreciation will result in higher future earnings than straight-line depreciation because it increases depreciation expense in the earlier lives of the asset's life. This results in higher earnings quality.


     



    Jacqueline Scott Crossley




    Original Message


  • 7.  RE: Earnings quality CMA Part 2

    Posted 09-23-2022 09:27 PM


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    Jacqueline Scott-Crossley
    Manager
    KGN
    Jamaica
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    Original Message