Bac 405 Accounting Theory Question Paper

Exam Name: Bac 405 Accounting Theory 

Category: Kenyatta University question papers

Exam Year:2011

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2011/2012
FIRST SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
BAC 405:
ACCOUNTING THEORY
=================================================================
DATE: Tuesday 29th November 2011

TIME: 2.00 p.m – 4.00 p.m

INSTRUCTIONS
Answer ALL Questions.

Question One

a)
Briefly explain the meaning and the significance of the following:
i)
Accounting theory
ii)
Accounting concepts
iii)
Accounting principles
iv)
Accounting standards

b)
A machine which will last for five years, depreciated using the straight line method
was bought on January 2004 for kshs. 5,000. On 1 January 2006 the same kind of
machine (with no improvement was bought for kshs. 6,000). The price index was
100 at January 2004 and at January 2006 was 120 while in December 2006 it was
130. How would the machine appear in the balance sheet at the end of 2006 using
historical and adjusted historical cost methods.



(5 marks)




Page 1 of 3


Question Two
a)
Accounting standards improve the quality and uniformity of reporting and introduce a
definitive approach to the concept of what is true and fair. List the main advantages
and disadvantages of accounting standards.



(8 marks)

b)
A decision was recently made by the council of the Institute of Certified Public
Accountants of Kenya (ICPAK) to shift to the International Standards and to phase
out Kenyan Accounting Standards.
What reasons have persuaded the council to make this change and what benefits are
likely to accrue to the accounting profession?



(7 marks)

Question Three
Many cooperate boards are now agreed on the need to take responsibility for any potential or
actual social impact caused by their companies’ activities. This is done through a social
responsibility report.

Required
a)
Write short notes on six issues/stakeholders that may be addressed by company’s
social responsibility report.





(6 marks)
b)
Explain five benefits that would accrue to a company from the reporting of the
ecompany’s social responsibility activities.



(5 marks)

c)
Comparing conventional financial accounting reporting with social responsibility
reporting, list and explain five challenges peculiar to social responsibility accounting.










(5 marks)

d)
Identify four shortcomings of traditional accounting methods in the context of
accounting for human resources.




(4 marks)



Page 2 of 3


Question Four
a)
Explain what is mean by materiality in relation to financial statements and state two
factors affecting the assessment of materiality.



(4 marks)

b)
Explain what is meant by materiality in relation to financial statements relevant to
users.








(5 marks)

c)
Two characteristics contributing to reliability are ‘neutrality’ and ‘prudence’. Explain
the meaning of these two terms. Explain how a possible conflict between them could
arise and how that conflict should be resolved.



(5 marks)

d)
One of the requirements of financial statements is that they should be free from
material error. Suggest three safeguards which may exist, inside or outside a
company to ensure that the financial statements are free from material error.

(6 marks)




Page 3 of 3




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