Accounting Theory Question Paper

Accounting Theory

Course:Bachelor Of Commerce

Institution: Kenyatta University question papers

Exam Year:2009

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2009/2010
FIRST SEMESTER EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE
BAC 405: ACCOUNTING THEORY

DATE: Wednesday 30th December, 2009 TIME: 2.00 p.m – 4.00p.m

INSTRUCTIONS:

Attempt all Questions

Be neat and concise

Marks are allocated on each question are shown
QUESTION ONE
a)
“Practitioners in the accounting profession agree that there is need for regulation of financial information in the form of international standards” Explain the barriers to international harmonization. [4 marks]
b)
Explain the relationship between economic income and accounting income. [4 marks]
c)
Highlight the different categories of timing differences in accounting for income tax. [8 marks]
d)
Differentiate between descriptive and welfare approaches to the development of accounting theory. [4 marks]

QUESTION TWO
a)
Explain the term depletion. [2 marks]
b)
A mine has estimated 3, 000 000 tons of coal, it cost and sh. 30,600,000 and an estimated residue value of and sh. 600 000. In the first year of operation 1000000 tons of coal was mined and sold. In the second year 1200 000 tons coal was mined and sold.

Required
i)
Compute the depletion charge for the first and second year of operation.
ii)
Show the disclosure values of the mine in the balance sheet for end of year 1 and year 2. [6 marks]
c)
A recent article questions whether the resources used by government bodies are assets as the IAS defines the term. The article point out that resources used by government have some features not found in commercial sector.
i)
They have a social, rather than commercial purpose. In particular, they are provided without the prospect of generating positive cash inflows.
ii)
They are available for the direct use of the community at large. Office furniture, motor vehicles and equipment held by government agencies are not community assets as they are meant to be used by management, not the public at large.
iii)
They are not saleable, either because there is no market (as is frequently the case in the non profit sector) or because management is prevented, in the community interest from selling them.

Required:
Discuss whether, in your view, government resources should be excluded from the definition of assets: consider things such as the national parks in your answer should the definition of assets be broadened to include these resources? If so how? If not, what do you suggest governments include when drawing up statements of financial position? [6 marks]

QUESTION THREE
a)
Explain the factors that influence the most desirable level of disclosure by
corporations. [4 marks]
b)
Nicholas Dopuch and Shyam Sunder, Professors at the University of Chicago at
the time of writing this, said “ We should not be surprised if auditors, like everyone else, seek to maximum their own wealth through participation in the accounting process. If the provision of economically useful information implies greater exposure to the risk of being sued without corresponding benefits of higher compensation, they will not see the provision of eccomonically useful information (however defined) as their objective of the financial accounting process”.

Required
Discuss their view in the light of determining who the users of accounting are
whether they have an objective in common. [6 marks]

c)
“Accounting standards are based on a mixture of accounting theory. Current practice and policies” Discuss with particular reference to the development of accounting standards in any country of your choice. [4 marks]
d)
Demo Co. Ltd bought machine for Kshs 3, 000 000. The company intends to use the machine for five years. The company policy is to depreciate machines at 20% per annum. The company’s net profit for the year amounts to sh. 4,500,000. The government allows capital allowance of 100% for the kind of class on 1st year of use. Corporation tax is 30%
Required
Calculate deferred tax for the year. [6 marks]

QUESTION FOUR
a)
“ Much of the criticisms leveled against alternative methods of reporting costs in
the past were based on various criteria that did not discriminate” Explain the
statements using the following criteria .
i)
Going Concern Assumption
ii)
Economic Reality
[8 marks]
b)
The quantitative characteristics of financial statements include understandability, relevance, reliability and comparability. Explain what is meant by reliability and comparability. [4 marks]
c)
Explain two source of accounting authority. [4 marks]

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