103 lines
3.1 KiB
Markdown
103 lines
3.1 KiB
Markdown
### Accounting Equation
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$$\text{Assets} = \text{Equity} + \text{Liabilities}$$
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$$\text{Equity} = \text{Assets} - \text{Liabilities}$$
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---
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### Gross Profit
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$$\text{Gross Profit} = \text{Revenue} - \text{Cost of Sales}$$
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> ⚠️ Other Income is added **AFTER** gross profit — never include it here
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---
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### Straight-Line Depreciation
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$$\text{Annual Depreciation} = \frac{\text{Original Value} - \text{Residual Value}}{\text{Expected Life}}$$
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---
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### Carrying Amount (Book Value)
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$$\text{Carrying Amount} = \text{Original Cost} - (\text{Annual Depreciation} \times \text{Years Elapsed})$$
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> ⚠️ Land is **never** depreciated
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---
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### Declining Balance Depreciation
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$$\text{Depreciation}_n = \text{Remaining Balance}_{n-1} \times \text{Fixed Rate}$$
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> Fixed Rate is typically 2× the straight-line rate
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> Depreciation is **higher** in early years, **lower** later
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---
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### Share of Profit of Associates
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$$\text{Share of Profit} = \text{Ownership \%} \times \text{Investee's Net Income}$$
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> Used when ownership is **20–50%** (equity method)
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> **Non-cash item** — subtract when calculating cash-based ratios
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---
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## Yield Relationships
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| Bond Price vs Par | Relationship |
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|---|---|
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| Price **< Par** (Discount) | Coupon Rate < Current Yield < YTM |
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| Price **> Par** (Premium) | Coupon Rate > Current Yield > YTM |
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| Price **= Par** | Coupon Rate = Current Yield = YTM |
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---
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## Volatility Rules
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| Rule | Relationship |
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|---|---|
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| Interest rates vs price | Rates ↑ → Prices ↓ \| Rates ↓ → Prices ↑ |
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| Maturity & volatility | Longer maturity = **more** price volatility |
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| Coupon & volatility | Lower coupon = **more** price volatility |
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| Duration | Higher duration = **more** price sensitivity |
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---
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## Ownership Thresholds
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$$\text{Ownership} < 20\% \Rightarrow \text{Cost Method (record dividends received only)}$$
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$$20\% \leq \text{Ownership} \leq 50\% \Rightarrow \text{Equity Method (record \% of profit/loss)}$$
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$$\text{Ownership} > 50\% \Rightarrow \text{Full Consolidation}$$
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---
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## Yield Curve Theories
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| Theory | Key Idea | Explains All Curves? |
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| **Expectations** | Long rates = expected future short rates | Partially |
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| **Liquidity Preference** | Investors prefer short-term; demand premium for long | Normal only |
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| **Market Segmentation** | Supply & demand by maturity segment | Yes — all shapes |
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---
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## Common Exam Traps
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> **Gross Profit trap** — Other Income is added *after* gross profit. Never include it in Revenue − Cost of Sales.
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> **Dividends paid vs received** — Dividends *paid* to shareholders = **Financing Activities**. Dividends *received* from associates = **Investing Activities**.
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> **Depreciation is non-cash** — Add back to profit in Operating Activities on the cash flow statement.
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> **Current yield vs YTM** — Current yield ignores capital gain/loss. YTM includes everything. Equal only when bond trades at par.
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> **Semi-annual adjustments** — Divide coupon by 2, multiply periods by 2, divide annual rate by 2.
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> **Carrying amount** — End of Year 2 = subtract *2 years* of depreciation. End of Year $n$ = Cost − (Dep × $n$).
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