STUDENT IDENTIFICATION NO MULTIMEDIA Qe UNIVERSITY [ am] MULTIMEDIA UNIVERSITY FINAL EXAMINATION TRIMESTER 3, 20162017 BAC3664 ~ ACCOUNTING THEORY (All Section Groups) 31 MAY 2017 9.00am -12.0pm GHour) INSTRUCTIONS TO STUDENTS |. This question paper consists of2 pages with 4 questions oaly 2. Attempt ALL questions. All questions carry equal marks and distribution ofthe marks for esch question is given 3. Please write all your answers in the Answer Booklet provideQUESTION 1 8) Accounting has been considered to serve many roles. Diseuss the followings i, Accounting as economic goods (4 marks) fi, Standard setting as political process (4 marks) 1b) There are 1 traitionl approaches of theory construction that provide an insight ‘on how theories are constuctod. Theze are the inductive approach and deductive pproach. Differentiate between the inductive and deductive approaches in the onstruction of accounting theory. (marks) ©) Discuss the development of positive accounting theory. How was positive accounting theory approach formulated and differs ftom normative and pragmatic approach’? (marks) ‘Total: 25 marks QUESTION? 1) Explain ROUR (4) purposes for establishing the concept framework (& marks) 1b) Standard overload is defined when ‘the amount of information required to be supplied by reporting entity exceeds the amount reasorably required by users in ‘making economic devsion”. Discuss how standard oveload may adversely affect the usefulness of financial reporting, (marks) ©) ttis argued that he development ofa conceptual framework may be inappropriate because accountants constantly deal with specific issues such as issues in assets recognition for agriultre. Do you agree or disagree? Fleas state your Continued.QUESTION 3 ‘Akey to explaining manager choice of particular accounting methods came fom Agency. ‘Theory, Agency Theory provided the necessary explanation of why the selection of accounting method might mater, and Bence was an important facet in the development of Positive Accounting Theory. 4) Inthe agency theary literature, the firm itself is considered f0 be a nexus of contracts Briefly explain what it means to say that an organisation can be represented asa“ legal nexus of contact” (marks) b) What is ageney relationship and what is an agency cos? How can agency cost be minimized? Explain. (0 marks) ©) According to ‘honus plan hypothesis’, iis argued that rewarding mangers on the basis of accounting profs may induce them to manipulate accounting income. Discuss How managers may manipulate accounting numbers opportnisially ue to the presence of accounting-based bonus schemes. (0 marks) ‘Total: 28 marks QUESTION + 1) if markets ae informationally efficent. corporate news evens such as eamings announcements should be immediately rected in slock prices. However. fonnecting stock-priee reactions to corporate eveats isnt as straightforward ait Sounds, Discuss other fietrs which ean ae the association between profits and share prices (6 marks) 1) Evaluate the flowing statement: an item of accounting information is released by corporation and there is no apparent change in the sar price of the company, the information is not relevant &o the market and thereto’ there ts no point in sliselosing such information agin (lo marks) ©) Various stakeholders have efferent views of what he tradeoff between elevanee ind tlisbilty should be, This is bosause different stakeholders stach different Jmportanee to one quality as opposed to another. Provide TWO (2) examples of such trade-offs Explin the opposing views which would fevor one over theater. (0 marks) otal: 25 marks End of page wa 202