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financial accounting
Questions and Answers of
Financial Accounting
Possies Ltd considers that its most valuable asset is its employee yet it has to leave them off the statement of financial position. Explain this situation.
Hines (1991) argues that conceptual frameworks ‘presume, legitimise and reproduce the assumption of an objective world and as such they play a part in constituting the social world conceptual
Do you believe it is appropriate that we have a single, global set of accounting standards as well as one conceptual framework that has global applicability? Explain your answer.
Can the practice of financial reporting be undertaken without knowledge of various theories that can be related to accounting?
Can the implications of various aspects of financial reporting be well understood in the absence of knowledge of related theories?
Why and how might management not act in the interests of the firm?
How can management expropriate the wealth of debtholders?
What are debt covenants and why are they put in place?
What might be a goal of a well-designed management compensation scheme?
Who are perceived to be the ‘primary users’ of general purpose financial reports?
What knowledge of financial accounting are the users of financial statements expected to possess?
What is included in a Directors’ Declaration, and what are the implications if a director signs the declaration and the organisation subsequently fails, owing millions of dollars that it cannot
What is the relevance to Australia of Interpretations issued by the IFRS Interpretations Committee?
What authority do Interpretations issued by the IASB and AASB have in the Australian financial reporting context? If they do have authority, from where does this authority emanate?
If directors believe that the application of a particular accounting standard is inappropriate to the circumstances of their organisation, what options are available to them when compiling their
What is ‘general purpose financial reporting’?
Describe the roles of ASIC, the AASB, the ASX and the FRC, and the relationships between these regulatory bodies.
What is the role of the Australian Accounting Standards Board (AASB) with respect to general purpose financial reporting within Australia?
What is the IASB and how does it affect financial reporting regulation in Australia?
Does the AASB have legal power to enforce accounting standards within Australia?
What enforcement powers does the IASB have?
What is the relevance of the International Accounting Standards Board (IASB) to general purpose financial reporting within Australia?
What is the role of the independent auditor, and why would the manager or the users of financial statements be prepared to pay for the auditor’s services?
What power does the IASB have to enforce the accounting standards that it develops, and which are in use internationally?
Provide a justification as to why large companies should have to produce financial statements that comply with accounting standards but small companies should not have to do this.
Define ‘generally accepted accounting procedures’.
If the auditor provides an opinion that the financial statements comply with accounting standards, does this indicate that there are no errors in the financial statements?
What does it mean to say that some financial statements are ‘true and fair’? How would a director try to ensure that the financial statements are true and fair before he or she signs a
What are the functions of the IASB?
Although not permitted, outline some possible theoretical advantages and disadvantages associated with permitting directors to deviate from accounting standards in situations where compliance with
What are some of the possible cultural impediments to the international standardisation of accounting standards?
Why did the FRC decide that Australian Accounting Standards needed to be consistent with those being issued by the International Accounting Standards Board?
Explain why the adoption of International Financial Reporting Standards in Australia might have led to material changes to reported profits.
Accounting standards change across time. Why?
If a company adopted a particular accounting policy that ASIC considered to be questionable, in principle ASIC might consider taking legal action against the company’s directors for failing to
Considered together, does the set of existing accounting standards provide guidance for all transactions and events that might arise within an organisation? If not, what guidance is available to the
Visit the website of a company listed on the ASX. Review the company’s corporate governance disclosures and determine whether the company complies with the ‘Eight Essential Principles of
The decision that Australia would adopt IFRSs was in large part based on the view that Australian reporting entities, and the Australian economy, would benefit from adopting accounting methods that
It is argued by some researchers that even in the absence of regulation, organisations will have an incentive to provide credible information about their operations and performance to certain parties
Any efforts towards standardising accounting practices on an international basis imply a belief that a ‘onesize-fits-all’ approach is appropriate at the international level. That is, for example,
Provide some arguments for, and some arguments against, the international standardisation of financial reporting. Which arguments do you consider to be more compelling?
Evaluate the claim that ‘accounting is the language of business’.
Review a number of accounting standards and then discuss how accounting standards are structured.
You are a junior executive of a large mining company and had been asked to show how the performance (as measured in terms of profitability) of the company has been improving over the past ten years.
Evaluate and explain the following claim: Unless there is consistency globally in the implementation of accounting standards and subsequent enforcement mechanisms, we cannot expect accounting
What is the relationship between corporate responsibilities, accountability and accounting?
Identify some responsibilities that you think organisations have in relation to how they conduct their operations (they could be social, environmental or financial responsibilities). Having done
What are the three main components of the definition of assets?
What is the history of conceptual frameworks within Australia?
What are the five different ‘elements’ of financial accounting?
What force of law does the Conceptual Framework have?
What qualitative characteristics will useful financial accounting information be expected to possess?
If the directors of a large listed Australian company consider that the application of a particular accounting standard is not appropriate to their circumstances, what should they do? Do they have to
What benefits are generated as a result of having a conceptual framework for financial reporting?
What is the difference in role between a conceptual framework for financial reporting and accounting standards?
Lehman (1995) provides a definition of accounting, this being that it is ‘both the means for defending actions and the means for identifying which actions one must defend’. He further states that
In a newspaper article dated 27 April 2019 entitled ‘Flight Centre turbulence as guidance cut, shares hit’ (by Sarah Danckert, The Age, p. 1), it was noted that the travel company Flight Centre
As we know, there is a requirement within the Corporations Act that financial statements be ‘true and fair’. There is also a requirement that company directors comply with accounting standards.
The summarised Balance Sheet of X Ltd. on 31.3.2018 is as under :On the above date, X Ltd. is absorbed by Y Ltd. on the following conditions :(1) All the assets and liabilities are taken over at book
The summarised Balance Sheets of A Ltd. and B Ltd. as on 31.3.2018 are as under :On the above date, A Ltd. decided to absorb B Ltd. under the following conditions :(1) A Ltd. will take over all the
The following is the Balance Sheet of X Ltd. as at 31st March, 2018 :On 1st April, 2018, Y Ltd. took over the business of X Ltd. in an amalgamation in the nature of merger. Y Ltd. will issue 1,00,000
On 31st March, 2018 the Balance Sheet of X Ltd. stood as follows :On this date, X Ltd. took over the business of Y Ltd. for ₹6,60,000 payable in the form of its fully paid equity shares of ₹10
The summarized Balance Sheets of A Ltd. and B Ltd. on 1.4.2018 are as under :On the above date, A Ltd. decided to absorb B Ltd. under the following conditions :(1) A Ltd. will take over all the
B Co. Ltd. was absorbed by A Co. Ltd. on 31st March, 2018 on which date the Balance Sheet of B Co. Ltd. was as followsThe terms and conditions were :(a) That A Co. Ltd. took all the liabilities, and
X and Co. Ltd. absorbed the business of Y and Co. Ltd., as a going concern as at 31st March, 2018 the assets and liabilities of the latter company on that date being as under :The terms of the
Atma Ram Ltd. is agreed to acquire the business of Kumbat Ltd. as on 31st March, 2018. The summarised Balance Sheet of Kumbat Ltd. on that date was as under :The consideration payable by Atma Ram
Mary Bula Ltd. agreed to acquire the goodwill and assets other than cash of Narayan Ltd. as on 31st March, 2018. The summarised Balance Sheet of Narayan Ltd. as on that date was as follows :The
In the current financial year, a company was having an average collectibles period of 630 days and an inventory conversion period of 900 days. Its sales for the year stood at 700 and cost of goods
Refer to the Chapter Opener on the InterGlobe Aviation’s Initial Public Offering. Briefly comment on the wide range of questions raised there. Negative Networth Indigo Airlines Public
This case is in continuation of Mini Case 2.6 of Chapter 2, on Ram Traders Limited and his chilli business. Please present the financial statements of Ram Traders as a Joint Stock Company with
The following balances are extracted from the books of Banshi Lal Power Cables Ltd.(a) Authorized Capital ₹1 crore divided into Equity Shares of ₹2 each.(b) Issued and fully paid up 2 lakh equity
True or FalseMemorandum of Association determines the constitution for the internal management of the company.
State whether the following statement are True or False:A limited company is a separate legal entity, independent of its owners.
Fill in the blanks with appropriate word/words:(a) Profit on sale of fixed assets and revaluation of fixed assets/liabilities are all examples of _________________ reserves.(b) The _____________
Lawreshwar Polymers Limited is a Jaipur-based public company listed on the Bombay Stock Exchange with an issued and fully paid up share capital of ₹13.6 crore (each share of ₹10 par value).
As a director of Nagaland Trucks Company Limited, you have invited applications for 2,00,000 equity shares of ₹10 each, payable as follows:The applications were received for 2,50,000 equity
True or FalseIf a share is sold by a company for ₹3.75 and its nominal value is ₹1, the difference of ₹2.75 is known as a share premium.
What is ‘share capital’? Explain the various types of share capital found in a balance sheet.
Arati Drugs Limited wanted to extend its production operations in the northern region of India. For this, the directors issued a prospectus inviting applications for 50,00,000 equity shares of ₹10
State whether the following statement are True or False:An article of association defines the scope of activities and relations of the company with outside world.
A newly formed company has had a successful first year of operations and posted net income on its books. The accounting records reflect this fact because:(a) The Retained Earnings account has a
Pioneer Distilleries Limited manufacturing ethanol and industrial alcohol is listed on the Bombay Stock Exchange. For the accounting year ended 31st March of 2010, Pioneer Distilleries came out with
True or FalseDividend to equity shareholders is always cumulative.
Vanshika Sinha started a firm, naming it Rangoli Colors Limited, with an authorized capital of ₹2,00,000, with 12% preference shares of ₹100 each and 3,00,000 equity shares of ₹100 each,
Where do you show the following items in a Balance Sheet?(a) Securities Premium Account(b) Authorized Share Capital(c) Capital Reserve(d) Redeemable Cumulative Debentures(e) Cumulative Preference
State whether the following statement are True or False:A share’s book value is the price for which a person could buy or sell a share of the share.
Preference shareholders enjoy certain advantages over equity shareholders. Which of the following is not an advantage of owning a preference share?(a) No voting rights.(b) Dividend amounts are fixed
True or FalseThe forfeited shares can be re-issued by the company at par, premium or discount.
Jai Jawan Jai Kisan Company Limited forfeits 2,00,000 shares of ₹5 each, originally issued at a premium of ₹1 per share. The shareholder paid ₹2 per share on application but did not pay the
There is always an independent authority verifying a company’s account, namely, the external auditor for every company! In such a scenario, why should there be a regulator for monitoring of public
State whether the following statement are True or False:The Share Premium Account is a capital reserve and the Profit and Loss Account is a revenue reserve.
Hardik Company Limited is facing losses from its business. It is bought by Bahujan Company Limited. At the time of takeover, Bahujan Company finds that after deducting assets at its market value from
True or FalseCalls in arrear indicate the amount of called up money, which has not been received in full.
The Reliance group started growing initially, through an expansion of Reliance Textile Industries Limited. The following are the excerpts forming a part of the balance sheet of Reliance Textile
In the recent past, has there been any change in SEBI regulations for raising finance by issuing equity shares? If yes, please list the essential ones out.
The following is the balance sheet of Robin’s Utthappam Ltd. as on 31st March, 2016:All the stakeholders meet and it is settled that the company would be worthless being liquidated at that point in
Deepak Fertilizers and Petrochemicals Corporation Limited (DFPCL) is part of the CK Mehta business group. It is a multi-product portfolio company consisting of chemicals, petrochemicals, fertilizers
State whether the following statement are True or False:The rate of interest payable on the calls in advance is prescribed by the articles of association of the company.
State whether the following statement are True or False:The board of directors of the company must pass a resolution for the forfeiture of the shares.
This case is an extension of Mini Case 2.3 in Chapter 2 titled “A Bank and a Manufacturer”, wherein you are provided with the abridged balance sheets of two well-known companies, namely, Bank of
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