CA Sri Lanka Strategic Level Exam cheat sheet

LKAS 1 requires fair presentation, going concern, accrual basis and consistency; departure from a standard must be disclosed with its financial effect quantified.

Consolidation (SLFRS 10): control exists when the investor has power over relevant activities, exposure to variable returns, and ability to use power to affect returns.

Goodwill = consideration transferred + NCI + previously held interest − net identifiable assets acquired; test annually for impairment under LKAS 36, allocate first to goodwill.

Revenue (SLFRS 15) is recognised over five steps: identify contract, identify performance obligations, determine transaction price, allocate price, recognise on satisfaction.

Leases (SLFRS 16): lessee recognises right-of-use asset and lease liability at present value of lease payments discounted at the incremental borrowing rate if rate implicit is unknown.

Deferred tax (LKAS 12) uses the temporary-difference method: carrying amount vs tax base, measured at rates expected to apply on reversal; deferred tax assets require probability of future taxable profit.

Financial instruments (SLFRS 9): classify debt assets by business model and contractual cash-flow characteristics; expected credit losses are recognised before default occurs.

Related party disclosures (LKAS 24) cover key management personnel compensation in total by category and transactions with entities under common control.

Porter's five forces: rivalry, new entrants, substitutes, supplier power, buyer power; a force is strong only if it suppresses industry profitability.

PESTLE covers political, economic, social, technological, legal and environmental factors; use it to identify drivers, not to list facts.

Value chain analysis separates primary activities (inbound logistics, operations, outbound logistics, marketing, service) from support activities (firm infrastructure, HR, technology, procurement).

BCG matrix axes are market growth and relative market share; cash cows fund stars and question marks, while dogs are candidates for divestment.

Ansoff matrix: market penetration, product development, market development, diversification - risk rises along that sequence.

Core competence (Prahalad and Hamel) must be valuable, rare, hard to imitate and non-substitutable to yield sustained advantage.

Balanced scorecard perspectives: financial, customer, internal process, learning and growth; each objective needs a measure, target and initiative.

Stakeholder mapping uses power and interest: high power/high interest = manage closely; low power/low interest = monitor with minimum effort.

WACC = (E/V) × Ke + (D/V) × Kd × (1 − tax rate); use market values and marginal costs for new projects of average risk.

CAPM: Ke = Rf + β × (Rm − Rf); beta measures systematic risk only, so diversification does not remove it.

NPV = present value of cash inflows − initial outlay; accept if positive, and prefer NPV over IRR when projects are mutually exclusive.

Modified duration approximates bond price change: %ΔP ≈ −D_mod × Δyield; convexity improves the estimate for larger yield moves.

Interest rate parity links spot and forward rates to relative interest rates; purchasing power parity links them to relative inflation.

Forward contracts are customised and carry counterparty risk; futures are standardised, margined and marked to market daily.

Operating leverage rises with fixed costs, financial leverage with debt; combined leverage = DOL × DFL, amplifying earnings volatility.

Hedging policy should state the exposure to be hedged, permitted instruments, hedge ratio and reporting; speculation is outside a treasury mandate.

Agency theory: separation of ownership and control creates monitoring costs; independent non-executive directors and audit committees are governance responses.

Cadbury-style principles: board effectiveness, separation of chair and CEO, independent audit committee, and integrity in financial reporting.

The audit committee should comprise independent non-executive directors, meet without management, and oversee external audit, internal control and risk.

Ethical threats under the Code of Ethics: self-interest, self-review, advocacy, familiarity and intimidation; apply safeguards or decline the engagement.

Independence is both of mind and in appearance; familiarity from long association is addressed by rotation or independent quality review.

Confidentiality persists after the professional relationship ends, unless disclosure is required by law or permitted by the client.

CSR/sustainability reporting under GRI covers economic, environmental and social performance with stakeholder inclusiveness and materiality.

Whistleblowing requires a protected disclosure, an independent reporting channel and a policy that prohibits retaliation.

Residence determines the tax base: residents are taxed on worldwide income, non-residents generally on Sri Lanka-source income only.

Capital allowances replace accounting depreciation for tax; the tax base of an asset differs from its carrying amount, creating temporary differences.

Tax planning is legitimate when it has commercial substance; artificial arrangements risk general anti-avoidance rules, penalties and reputational damage.

Deferred tax arises on temporary differences; unused tax losses create a deferred tax asset only when future taxable profit is probable.

Withholding tax applies to specified payments such as interest, rent and royalties; failure to deduct makes the payer liable.

Transfer pricing requires arm's-length terms for related-party transactions, supported by contemporaneous documentation.

Tax incentives (e.g. concessions for qualifying investments) should be evaluated on after-tax NPV, not headline rate alone.

Tax risk management integrates tax into strategy: consider effective tax rate, cash tax timing, compliance cost and dispute exposure.