TO BE RETURNED AT THE END OF THE EXAMINATION.
THIS PAPER MUST NOT BE REMOVED FROM THE EXAM CENTRE.
Surname:
First name:
Student number:
Course:
MID SEMESTER EXAMINATION
AUTUMN 2013
SUBJECT NAME
: Accounting Standards and Regulation
SUBJECT NO.
: 22420
DAY/DATE
: Thursday, 18th April, 2013
TIME ALLOWED
: 2 Hours plus + 10 Min. reading time
START/END TIME
: 9:00 – 11:10
NOTES/INSTRUCTIONS TO CANDIDATES:
(1)
All questions are to be answered
(2)
This is a restricted book examination.
Students are permitted to bring either the
2012 or 2013 editions of the Accounting
Handbook (Prentice Hall) or the Financial
Reporting Handbook (John Wiley).
Underlining and highlighting are permitted, but no written notes are allowed. No other books, notes, computers are permitted.
(3)
Calculators may be used.
(4)
Show all workings and calculations with your answers.
(5)
This paper consists of 60 marks. It contributes 30% of your mark for this subject. 1
Marker’s use only
1
/15
Functions &
Motives
2
/15
Construction
3
/15
Assets
4
/7
Agriculture
5
/8
Liabilities
TOTAL
/60
22420 Accounting Standards and Regulation
Question 1:
(a)
Accounting Functions and Managerial Motives
Required: What are the three functions of accounting.
15 Marks
(3 marks)
(i) (ii) (iii) (b)
Required: A recent US report into financial statement fraud found that over 60% of financial statement fraud was improper revenue recognition. Identify one reason why management would attempt to reduce revenue in the current year. Discuss why they would do this.
(6 marks)
2
22420 Accounting Standards and Regulation
(c)
There is an agency conflict between managers and the shareholders for whom they act. These conflicts relate to things such as different attitudes to risk and to profitability. Since these concepts are reflected in contracts which use accounting measures, managers have an incentive to manipulate those accounting measures. (By measures, we mean raw numbers as well as ratios.)
Required: Give an example of an accounting manipulation that management may undertake (2 marks), and explain why this manipulation would be beneficial for management (4 marks). (part (c) total 6 marks)
3
22420 Accounting Standards and Regulation
Question 2:
Revenue Recognition
15 Marks
FlamingCranes Ltd has been contracted to redevelop a site on Sydney’s Broadway. The contract price is
$4590m. FlamingCranes Ltd estimates that it is going to cost $3450m and 3 years to build.
At the end of the first year, $989m has been spent, and FlamingCranes Ltd estimates that it will cost another
$2760m to complete. They have billed the client $918m and received $857m.
By the end of the second year, a total of $2415m had been spent on the project since commencement, and
FlamingCranes Ltd estimates that it will cost another $1426m to complete. During the second year they billed the client $2754m and received $2025m.
By the end of the third year, the Broadway redevelopment was complete, and the cost incurred by
FlamingCranes in the final year was $1265m. During this year, they also billed the client for the remaining amount on the contract, and the client paid the contract in full. You can assume FlamingCranes Ltd can reliably estimate stage of completion.
(a)
(i)
Required: Calculate:
(3 marks)
% complete from the start of construction to the end of year 1 (1 marks)
year 1:
(ii)
% complete from the start of construction to the end of year 2 (1 marks)
