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Caa 301A Financial Accounting Theory (Day) Question Paper

Caa 301A Financial Accounting Theory (Day)

Course:Bachelor Of Commerce

Institution: Kca University question papers

Exam Year:2011

1
UNIVERSITY EXAMINATIONS: 2010/2011
SECOND YEAR EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
CAA 301A FINANCIAL ACCOUNTING THEORY (DAY)
DATE: DECEMBER2011 TIME: 2 HOURS
INSTRUCTIONS: Answer Question One and Any Other Two Questions
Question One
Lemu Ltd acquired a specialised industrial machine on 1st July 2007 at a cost of Ksh 1.8 million.
Depreciation is charged on a straight line basis over eight years. It is the company policy to
revalue the assets after every three years. As at 30th June 2010 the company had a current cost of
Ksh 2.7 million.
a) Explain why it may be necessary to restate the value of the machinery to current prices
(5 Marks)
b) Compute the revaluation reserves and prepare the adjusting journal entries (4 Marks)
c) Outline the limitation of financial statements based on historical costs (6 Marks)
d) Although information based on current prices might be more relevant it may not be
reliable, discuss (10 Marks)
e) Briefly explain the meaning and differences between inductive accounting theory and
positive accounting theory (5 Marks)
Question Two
The financial statement users have placed greater importance on relevance of individual accounts
balances than the overall picture presented by the financial statements.
2
Required
a) Evaluate in detail the importance of assets recognition criteria (6 Marks)
b) State the items that can be classified as Other Comprehensive Income (OCI) and the
International Financial Reporting Standards framework (7 Marks)
c) Discuss whether the absolute usefulness of the financial statements is achievable (7 Marks)
Question Three
The global financial market is becoming more integrated for better or for worse. This will
command a common financial reporting frame work.
a) Discuss the content of financial reporting frame work (6 Marks)
b) Outline the benefit of a converged reporting frame work (8 Marks)
c) Discuss the various challenges that confront standard setters toward achieving a common
reporting frame work. (6 Marks)
Question Four
The usefulness of financial information depends on its ability to meet the need of various groups of
users. As part of the attempt to meet the information need gap, the move is toward more non
financial disclosure.
Required
a) Briefly explain the inherent limitation of the financial statement (4 Marks)
b) Discuss the qualitative attributes of the information (8 Marks)
c) Discuss criteria to be applied by management in determining materiality thresholds
(8 Marks)
Question Five
The director of your company is concerned about the company declining fortunes and profitability.
In order to reflect better performance the director is prosing recognizing some of the customer
orders and deposits as revenue. The director is also proposing certain assets to investment
property and to be valued at fair value.
Required
a) Explain to the director the relevant accounting concept likely to be violated (6 Marks)
b) Discuss the other basis of measurement that may be applied in respect to company asset
(6Marks)
c) State other relevant disclosure that should be made in the financial statements (8 Marks)

Caa 301A Financial Accounting Theory (Day) Question Paper

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