Question

QUESTION TWO

1. Use ONE MAIN accounting concept from the framework of accounting to provide acceptable solutions to the following accounting problems

1. The accountant is not sure as to whether to include cash received from a transaction in the income statement or the cash book

2. The managers wish to assess the effectiveness of its standard costing system

3. The directors are doubting the professional acumen of the staff in the valuation department of the firm

4. It is not clear whether to include some assets in the income statement or the statement of financial position

5. The accountant of a cash-based business wishes to save on cost by relying solely on the cash book and ignoring other ledger accounts                                                               [10 Marks]

2. Accounting is increasingly becoming irrelevant in modern business practice and business schools should shift focus to other more useful areas of management processes. Do you agree with this sentiment? Elaborate [4 Marks]

c) Evaluate the accounting standard setting process used by the International Accounting Standards Board                                                                                                                                   [6 Marks]

Answer 1

A

As per the Fraework of Accounting

i. An entry in a cash book will be posted as and when there is come In/ Out Movement of cash to/ From the entity. The same can also be considered for income Statement if and only iff the cash Receipt/ Payment is happened out of Incomes/ Expenses unless the Income/ Expenses occured on accrual basis.

ii.The manager can check the effectiveness of Standard costing by comparing the standard costs with the Actual costs and By analysing the variances between Standard Cost & Variance cost he can get to know about the causes for such Variances.

iii.In order to assess the Professional Accumen of Valuation Departmrnt, the manager can compare the values of an object given by such professionals after valuation with the market value/ prices of such object.

iv.If there is a probability that the asset can bring some future economic benefits to the entity over the next two or more reporting periods, then the same can be considered in presenting the financial position of the company. Otherwise, the same will considered in Income Statement of the Entity.

v. Relying only upon the cash ledger for the purpose of Costing will not give better results. As Cash book will not contain the details of the costs incurred but no payment has been done.In Such cases, it is suggestible to not to depend upon the Cash book alone. He can rely on other costing ledgers like Direct and Indirect materials/ Labours/ Overheads etc.,

B. As accounting is mainly focused on the recognizing, Measuring , Presenting and Disclosure of a Financial Transaction, It won't consider/ Take care of Human resource relationships, Pubilc Replationships and other management Areas.

As Human Resource is one of the most important Factor for the purpose of Reuuning/ Success of an Entity and Accounting won't take care of the same, There is some shift in management from Accounting to some other areas for the effective Running of the entity.

Accounting is only about Presentaion of Historical data in a good manner for the purpose of Management and other stakeholders.It won't take care of the Relations with humans, Society etc., which are essential for the Business.

So, the Management has to definitely look for other tools to fulfill above said deficiency of Accounting.

C.On the need of a New International Standard,

The International Accounting Study board of International Accounting Standards Board will draft the New Accounting standard and shares such draft with other regulatory bodies for their comments.After receiving the Comments from such regulatory bodies, the International Accounting Study board will make the needed modifications to the draft and the Modified draft will be shared with the general public for their comments. After receiving the comments from General Public, The Draft will be re modified, if necessary. Then, Finally it issues the New International Accounting Standard.

This is the process of setting a new International Accounting Standard by  International Accounting Standards Board.