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Caa 301-A: Financial Accounting Theory Question Paper

Caa 301-A: Financial Accounting Theory

Course:Bachelor Of Commerce

Institution: Kca University question papers

Exam Year:2009

1
UNIVERSITY EXAMINATIONS: 2009/2010
FIRST YEAR STAGE I EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
CAA 301-A: FINANCIAL ACCOUNTING THEORY
DATE: DECEMBER 2009 TIME: 2 HOURS
INSTRUCTIONS: Answer All the Questions
QUESTION ONE (30 MARKS)
A. In the preparing the accounts of your company you are faced with a number of problems. These
are summarized below:
(i) The managing director wishes the company’s good industrial relations to be
(ii) reflected in the accounts.
(iii) The long term future success of the company is extremely uncertain.
(iv) Although the sales have not yet actually taken place, some liable customers of
the company have placed several large orders that are likely to be extremely
profitable.
(v) One of the owners the company have invested his drawings in some stocks and
shares.
(vi) At the year end, an amount is outstanding for electricity that has been consumed
during the accounting period.
Required:
2
State which rule the accountant would normally follow in dealing with each of the above
problems; explain briefly what each rule means and how each should be applied. (10 Marks)
B. State & explain the principles of accounting on which each of the treatments described
below are based.
(i) Calibre or quality of management is not disclosed on the balance sheet.
(ii) Debentures are marked at the same amount in the shillings which the
company borrowed though the purchasing power of many may have
substantially changed.
(iii) Advance received from a customer is not taken as income or sales.
(iv) Rent paid for that portion of the premises utilized by the owner of the
business for his personal use is reduction of owner’s equity.
(v) Costs of advertising campaign are charged as expense in the period in
which they are incurred. (10 Marks)
C. As per section 149 of the Companies Act, explain the items which must be contained in an
Income Statement and show what must be disclosed by such items. (10 Marks)
QUESTION TWO (20 MARKS)
a) The Chief Accountant of Punda Milia ltd. is in a dilemma regarding the disclosure of Human
Resources as an asset in the financial statements. He has approached your firm of Kigo Otieno
& Associates (CPA) for professional advice. Explain to him the objectives of HRA
(6 Marks)
b) Discuss the characteristics of a hyperinflationary economy (4 Marks)
c) In accounting in a hyperinflationary economy, how should the comparative figures be restated?
(4 Marks)
d) Discuss the type of disclosure in the financial statements (6 Marks)
3
QUESTION THREE (20 MARKS)
a) Discuss the limitations of historical cost accounting (10 Marks)
b) Explain form and content of interim financial statements (10 Marks)
QUESTION FOUR (20 MARKS)
a) Explain the approaches to development of accounting theory (10 Marks)
b) Explain the problems created by regulation of accounting (10 Marks)

Caa 301-A: Financial Accounting Theory Question Paper

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