Core 1 — Practice Case 4

Ref. Minimum Proficiency Indicator (MPI) Description CPA Way N/P/Y Feedback
AO1 (Financial Reporting — Development costs)
1 Identifies the financial reporting issue Situation Y
2 Analyzes the capitalization criteria for development costs in relation to case facts: Analyze Y
— technical feasibility
3 — intention to complete Analyze Y Really great work on this here for providing the relevant criteria here. This was an excellent
4 — ability to use or sell Analyze Y way to approach this issue!
5 — availability of resources Analyze P
However, a couple of your criteria support did need a bit more depth here.
6 — ability to measure expenditures Analyze Y
7 — generates future economic benefits Analyze P For d - you have stated that Kareem still needs $100,000 to finish the project, which is true,
8 Recommends whether the development costs should be capitalized, consistent with analysis Conclude Y but the criteria isn't whether more money is needed, but rather if there is any concerns with
9 Concludes on the impact of the adjustment on the financial statements Conclude Y having those amounts available to NHH. This need for more money wouldn't be an issue if
NA The candidate does not address this assessment opportunity. Kareem was able to obtain financing! As such, it is important to indicate that the concern
NC The candidate does not meet the standards for reaching competence. here is that more funding is needed, and unavailable at this time as Kareem hasn't been
RC The candidate attempts to discuss the accounting treatment for the development costs (Yes on 4 MPIs OR Partial on 6 MPIs). able to obtain financing yet
C The candidate discusses the accounting treatment for the development costs, including a conclusion (Yes on MPIs 1-8). For the last criteria - this one is about being able to obtain future benefits (ie income) from
this asset. You have stated that the results have been positive, but what does this mean in
CD The candidate thoroughly discusses the accounting treatment for the development costs, including a conclusion, and the impact relation to this criteria? Tying in that this shows the product will sell and therefore trigger
of the issue on the financial statements (Yes on all). RC income for NHH, for example, would provide that connection

It is important to always consider the root of the criteria and focus your support to the root of
the criteria to help be clear as to how it is met

AO2 (Financial Reporting — WonderFace lawsuit)

1 Identifies the financial reporting issue Situation Y
2 Analyzes the criteria for recognition of a contingent liability in relation to case facts: Analyze Y
— future event likely
3 — reasonably estimated Analyze Y
4 Recommends whether the contingent liability should be recognized, consistent with analysis Conclude Y Great work on this one as well! Good use of the case facts here!
5 Concludes on the impact of the adjustment on the financial statements Conclude Y
NA The candidate does not address this assessment opportunity. Note that as you move along, incorporating the definition of a contingency may become an
NC The candidate does not meet the standards for reaching competence. expectation with these types of issues. This will support why those criteria were relevant to
RC The candidate attempts to discuss the accounting treatment for the lawsuit (Yes on 2 MPIs OR Partial on 3 MPIs). incorporate here
C The candidate discusses the accounting treatment for the lawsuit, including a conclusion (Yes on MPIs 1-4). CD

CD The candidate thoroughly discusses the accounting treatment for the lawsuit, including a conclusion, and the impact of the issue
on the financial statements (Yes on all).
AO3 (Financial Reporting — Spa contract — Revenue)
1 Identifies the financial reporting issue Situation Y
2 Analyzes the criteria for revenue recognition in relation to case facts: Analyze Y
— measurement Great work on this! Measurement certainly is the criteria of concern here! Great
3 — performance Analyze P identification!
4 — collection Analyze P
5 Recommends when the revenue should be recognized, consistent with analysis Conclude P I would also say that performance may be a concern too as NHH still holds the risk that the
6 Concludes on the impact of the adjustment on the financial statements Conclude P customer will return the products in unsellable condition. Delivery isn't the only factor here
but rather "transferring the risks and rewards". Not all the risks have been transferred quite
NA The candidate does not address this assessment opportunity. yet
NC The candidate does not meet the standards for reaching competence.
RC The candidate attempts to discuss the accounting treatment for the spa contract revenue (Yes on 3 MPIs OR Partial on 4 MPIs). For collection, just having a contract isn't often the best support for this criteria here as
C The candidate discusses the accounting treatment for the spa contract revenue, including a conclusion (Yes on MPIs 1-5). nearly every credit sale is a contract, but yet there are still some that aren't collected.
Instead, there are some stronger supports here, such as the fact that NHH is TMI's sole
CD The candidate thoroughly discusses the accounting treatment for the spa contract revenue, including a conclusion, and the supplier, so they are not likely to risk losing their supplier by not paying. Additionally, it does
impact of the issue on the financial statements (Yes on all). actually look like the revenue has been collected as AR is less than $13,000.
RC
Another thing missing is the conclusion doesn't outline when revenue CAN be recognized!
This is a vital part of these recommendations so do try to incorporate this level of depth
here. This has been an expectation for all revenue rec issues so far, which is a good
indication that it will continue to be an expectation

AO4 (Finance — Valuation — Quantitative)

1 Identifies that a valuation is required Situation Y
2 Calculates the value using net income per draft financial statements Analyze N
3 Adjusts net income for accounting adjustments: Analyze N
(Yes if adjustment is made consistent with the analysis performed)
— development costs write-off
4 — legal accrual Analyze N
5 — revenue with right of return Analyze N
6 Adjusts net income for normalizing items: Analyze N
— consulting fees You have presented a value here, but without any calculations to support where this value
7 — product sale Analyze N comes from!
8 — operating expenses Analyze N
9 — Lilly's salary Analyze N Most often, such as here, the MPIs are provided for each different component of the
10 Calculates the value of NHH using the multiple provided (3), or another supported amount Conclude Y calculation, rather than just the result. As such, the marker needs to be able to see the
work!
11 Compares the asking price to 50% of the value of NHH, consistent with analysis Conclude Y
NA The candidate does not address this assessment opportunity. Even if your result was exactly accurate as to the solution, I wouldn't be able to award the
NC The candidate does not meet the standards for reaching competence. MPIs without seeing the work, so always include the calculation! You had to do the math,
RC The candidate attempts to prepare a preliminary valuation of NHH based on net income with adjustments (Yes on 4 so make sure to show it :)
MPIs OR Partial on 6 MPIs).
C The candidate prepares a preliminary valuation of NHH based on net income, incorporating some adjustments, and
compares asking price to 50% of the value (Yes on 6 MPIs, including MPI 11). NC

CD The candidate prepares a preliminary valuation of NHH based on net income, incorporating several adjustments, including both
accounting and normalizing adjustments, and compares asking price to 50% of the value (Yes on at least 8 MPIs, including MPI
11).

AO5 (Finance — Valuation — Qualitative)

1 Discusses qualitative factor in relation to case facts: Analyze N
(Yes if the candidate identifies a relevant case fact and discusses WHY that would be a positive or negative
qualitative factor)
— own business
2 — market research Analyze P
Great work here considering a few factors for this decision. This was a great start here!
3 — current career and expertise Analyze N
You have also done well to present a good recommendation as well which is something that
4 — business experience Analyze N Lilly was specifically looking for here.
5 — personal situation Analyze Y
6 — work hours Analyze N However, some of your factors needed a bit more depth. For example, with the market
7 — other valid factor Analyze P research being in different demographics - WHY does this matter? Tying in that this could
8 Recommends whether or not Lilly should invest, considering both quantitative and qualitative analysis Conclude Y change the value in a negative way given that the market is likely smaller in Saskatoon, for
example, would help Lilly understand how this factor is meant to be considered.
NA The candidate does not address this assessment opportunity.
NC The candidate does not meet the standards for reaching competence. Without this depth, it isn't clear how you mean for this factor to be considered, which means
RC The candidate attempts to discuss some qualitative factors (Yes on 2 MPIs OR Partial on 4 MPIs). that Lilly may not see it the same way as you do!
C The candidate discusses some qualitative factors and makes a recommendation on whether Lilly should invest (Yes on 4 MPIs, RC
including MPI 8).
CD The candidate discusses several qualitative factors and makes a recommendation on whether Lilly should invest (Yes on at least
6 MPIs, including MPI 8).
Communication — The candidate prepares a response that is logically organized with good use of headings and bullet points. The Y
response is professional in tone and sufficiently readable in terms of spelling, grammar, punctuation, and acronyms/abbreviations. Good formatting throughout - this was clear and easy to follow!

Overall Feedback
Great work here preparing this response in the time constraint expected! This gives you a much better idea of where you need to become a bit more efficient or technically correct than if you had taken more than the expected time on the
response.

Just don't skimp on showing your calculations! Possibly you simply forgot to attach your Excel, but do be careful of this as well!