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Financial Accounting Theory Question Paper
Financial Accounting Theory
Course:Bachelor Of Commerce
Institution: Kca University question papers
Exam Year:2010
UNIVERSITY EXAMINATIONS: 2009/2010
THIRD YEAR STAGE 1 EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CAA 301: FINANCIAL ACCOUNTING THEORY - DAY&EVENING
DATE: APRIL 2010 TIME: 2 HOURS
INSTRUCTIONS: Answer ALL Questions
QUESTION ONE
A. Explain the role of qualitative characteristics of accounting information in financial reporting and comment on the relationship between the feedback value and the predictive value as part of the qualities of accounting information. (7 Marks)
B. Revenue is usually recognized at the point of sale however under special circumstances other bases are used. Disregarding these special circumstances, discuss the merits of the following objections to the sales basis of revenue recognition:
(i.) It is too conservative because revenues are earned throughout the production process.
(4 Marks)
(ii.) It is not conservative enough because accounts receivable do not represent disposable
funds, sales returns and allowances may be made, doubtful accounts maybe incurred in
a later period. (4 Marks)
QUESTION TWO
A. While the development costs of a product may meet the definition of an asset, the costs might not meet the asset recognition criteria. Explain (4 Marks)
B. The major argument in support of accounting regulation is based on the doctrine of market failure. Market failure occurs when the market is unable to provide information to those who are in need of it. Discuss reasons as to why market failure occurs. (3 Marks)
C. In the view of your discussion and basing your arguments on other theories. Is it profitable to have a regulated or unregulated accounting profession? (13 Marks)
QUESTION THREE
The law by itself is not dynamic as it usually fall behind new ideas and developments and does not always cover the technical aspects of financial reporting. This is the reason as to why in addition to legal stipulations accounting practice is heavily influenced by pronouncements issued by professional accounting bodies in form of accounting standards. In Kenya, effective 1st January 1999, the professional body adopted international accounting standards issued by international accounting standards committee.
Required:
A. Why would Kenya drop the national standards to adopt the international standards?
(5 Marks)
B. To what extent has the adoption of international accounting standards improved the usefulness of accounting information (15 Marks)
QUESTION FOUR
A. Despite the effort by the accounting profession to have a single framework of financial
reporting, it should be noted tat no single framework is universally accepted or totally relied upon in practice. Discuss the reasons why we are yet to have a universally acceptable
framework. (10 Marks)
B. The effect of inflation on financial accounting and reporting as well as the rationale for providing supplementary information disclosing these effects have been discussed by
government and by accounting profession in selected countries. Current Purchasing Power
(CPP) accounting is one of the recommended methods of computing that supplementary
information. Briefly discuss the criticisms of CPP. (10 Marks)
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