[Essay Help]: 3101AFE Accounting Theory And Practice
3101AFE Accounting Theory And Practice.
Deegan Topics 4 and 5 (part): International accounting
Do you believe standardization of accounting standards leads to standardization of accounting in practice? Discuss in the context of known environmental factors (obstacles to comparability) that lead to national differences in accounting.
Australia and China have different accounting cultures. For each of the four accounting values developed by Gray (1988) (i.e. Professionalism versus statutory control; uniformity versus flexibility; conservatism versus optimism; and secrecy versus transparency), discuss your expectations of similarities and differences in (Grey’s) accounting values between Australia and China.
The accounting standards of the FASB are rule-based, whereas the accounting standards issued by the IASB are principles-based. Rules-based standards are by their nature quite lengthy, particularly if they seek to cover as many situations as possible. Do you think it would be easier to circumvent the requirements of rules-based or principles-based accounting standards? Explain your reasoning.
Global standardization of accounting requires the United States to adopt IFRS. Do you think it is likely that the United States will embrace IFRS in the near term, and what do you think are some factors that might discourage the United States from adopting IFRS?
Deegan Topic 7: Positive accounting theory
Explain the efficiency perspective and the opportunistic perspective of positive accounting theory. Why is one ex ante and the other ex post?
If a company pays its senior managers under accounting-based bonus plans would the managers, or the shareholders (or both), prefer the use of conservative accounting methods? Explain the reasons for your answer.
If a large company subject to a high degree of political scrutiny has a choice between expensing and capitalizing an item of expenditure, what does the political cost hypothesis of Positive Accounting Theory predict will be the preferred choice? Explain your answer.
Read Accounting Headline 7.8. (Battered Babcock to meet bankers) Babcock and Brown had negotiated an agreement with lenders that its market capitalization would not fall below an agreed amount of $7.50 per share. However, the share price dipped below this agreed amount, meaning that the lenders could demand repayment of the funds if they choose to invoke their right to do so.
From a PAT theory perspective, why would Babcock have agreed to this market capitalization requirement rather than other types of covenants, such as a restriction on the organization’s total liabilities to total tangible assets? Further, why would the banks have negotiated to have this market capitalization agreement included within the debt agreement?
Read Accounting Headline 7.11(New accounting standards could trigger debt covenants) and answer the following questions:
(a)Why could the new accounting standard trigger debt covenants, creating a technical default?
(b)Do you think the likelihood this new accounting standard will be released would already be influencing lease companies?
(c)Do you think lenders would prefer that more leases be recognised and disclosed on borrowers’ balance sheets, or be kept off balance sheet?
Deegan, Ch.16 see readings tab on L@G: Accounting Policy Choice and Presentation of Financial Statements
If an expense is inadvertently omitted in a year prior to the years presented in the current year financial statements, the correction is debited to opening retained earnings in the earliest period presented. An alternative sometimes proposed is that the error should be recognized in profit or loss in the period it is discovered. What are the reasons for proposing the error be presented through profit or loss in the period it is discovered?
Consider the following two independent scenarios:
Scenario 1: Fishtail Ltd has always measured its’ manufacturing equipment using the cost basis in accordance with AASB 116. In the current year, it decides the revaluation method will provide more relevant and reliable information to investors.
Scenario 2: Fishtail Ltd has always depreciated its’ motor vehicle fleet using the straight-line method. In the current year, Fishtail decides that the diminishing value method will better reflect the consumption of the assets going forward.
Which of the above scenarios is a change in accounting policy, and which is a change in accounting estimate? Describe the accounting for each scenario naming the affected accounts.
Consider the following two independent scenarios:
Scenario 1: Rabbit Ltd has always calculated its warranty provision as 2% of sales. In the current year, Rabbit decides the provision should be 3% of sales.
Scenario 2: During the preparation of the financial statements, Rabbit Ltd learns a flood in the previous financial year destroyed raw materials (inventory) that had been stored off-site. The materials were uninsured. There was no expense recorded in the previous year in relation to the flood damage. The raw material was valued at $75 000 which is a material amount for the company. The loss is deductible and the tax rate is 30 per cent.
Which of the above scenarios is a prior period error, and which is a change in accounting estimate? Describe the accounting for each scenario naming the affected accounts.
Categorize each of the following financial instruments as financial assets, financial liabilities, or equity instruments:
(d)Investment in the ordinary shares in part (c);
(e)Cumulative, redeemable preference shares in the books of the issuer. Shares are redeemable at the option of the holder.
(f)The holder’s investment in the preference shares in part (e)
What factors influence the value of a derivative financial instrument, and how are changes in the value of derivatives treated from an accounting perspective?
Is there a consequence for reported profit or loss of the issuer if a preference share classifies the instrument as debt rather than equity? Explain the consequence.
What is the definition of Fair Value in ASSB 13? And what is the meaning of ‘orderly’ transaction’?
Explain what is a right of set-off, and when does a right of set off exist?
In some organizations, leave accumulates if not used-up each year while other organizations forfeit unused leave. Similarly, some organizations pay out accumulated leave if an employee leaves service while in other organizations they do not. Explain the accounting treatment for these different leave entitlements using the correct terminology to describe these terms and conditions.
When do we employ net present value techniques to discount employee benefits in accordance with AASB 119?
3101AFE Accounting Theory And Practice
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