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Hba2303:Financial Accounting Question Paper
Hba2303:Financial Accounting
Course:Bachelor Of Commerce
Institution: Meru University Of Science And Technology question papers
Exam Year:2012
QUESTION ONE – 30 MARKS
(a) Accounting systems have to be in line with the environment. Discuss. (12Marks)
(b) Differentiate between the following pair of terms:- (i) Accounting theory and accounting practice (3Marks) (ii) Descriptive and normative theory (3Marks) (iii) Accounting postulates and principles (3Marks)
(c) Explain briefly the welfare approach to accounting theory. How does it differ from other approaches? (5Marks) (d) Behavioural approach to accounting theory is slow but it has a bright future. Discuss. (4Marks)
QUESTION TWO – 20 MARKS
(a) Explain the stages of the formulation of accounting standards. (10Marks) (b) Explain the advantages and disadvantages of free market and regulatory approaches to standard settings. (10Marks)
QUESTION THREE – 20 MARKS
(a) Financial statements based upon historical cost basis are meaningless and highly distorted. Briefly discuss the steps taken to make adjustments for inflation in the financial statements. (8Marks)
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(b) Men Ltd started business on January 2009 with an initial investment of Kshs. 1.4m which comprised shs. 1.2m as capital by the owners of the company and shs. 200,000 as loan from bank at 10% interest. On the same day, the company purchased a machine costing sh. 1m and goods worth shs. 400,000. The machine was depreciated at 10%. On both June and the same year, one half of the goods were sold for shs. 600,000. The movement in the price index numbers during the year were as follows:-
Jan 1 June 30 Dec 31 Index of general prices 100 200 132 Index of specific prices 100 160 180
Assuming that the movements in prices of goods and machines were similar and no income tax. Required: Prepare income statement and balance sheet according to the following methods: (i) Historical cost accounting (4Marks) (ii) Replacement cost accounting (4Marks) (iii) General purchasing power accounting (4Marks)
QUESTION FOUR – 20 MARKS
(a) Discuss the arguments for and against the inclusion of the values of human assets in external reporting. (12Marks)
(b) The estimated annual wages and salaries for the next five years for Boflo Ltd are shs. 30m, 4m, 5m, 6m and 7m respectively. The accounting rate of return 9ARR) of the company for the current and preceding four years were 20, 15, 12, 12 and 10 respectively and the ARR of all the firms in the industry for the corresponding period were 15, 10, 8, 6 and 5 respectively. Required: acuat t adustd prsnt au accordn to rmanson’s adustd dscount utur as model. (8Marks)
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