Question

6. When shares are issued, accounts such as the application, allotment and call accounts are use.

REQUIRED

Describe, respectively, whether these accounts are assets or liabilities (or neither).

7. Determine whether the following items would be classified and recorded as liabilities;

   (a) provision for repairs

   (b) provision for long-service leave

   (c) dividends payable

   (d) a guarantee for the debts of a subsidiary.

8. It is often argued that managers would prefer to show lower levels of debt than higher levels of debt. Why do you this this might be so?

9. Explain how the release of a new accounting standard could potentially cause a reporting entity to violate an existing debt covenant.

10. According to Legitimacy Theory, what are the implications for an organization that fails to comply with the expectations held by society?

11. In relation to schemes aimed at reducing carbon emission, briefly explain how a ‘cap-and-trade’ system operates.

12. Legitimacy Theory relies upon the theoretical notion of a ‘social contract’. What is a ‘social contract’ and why is it link to Legitimacy Theory?

13. What are some of the motivations that might drive corporate managers to voluntarily disclose social and environmental performance information?

14. What is personal social responsibility and what is the role of business educators in instilling the idea of personal social responsibility and what is the role of business educators in instilling the idea of personal social responsibility within students?

Answer 1

(6)Share Application, Allotment and Call Accounts are Personal A/c as the share is
capital for business received by the owner of business or any other person. So the person investing in the business in the form of share is giver. Rule of Personal A/c: "Debit the receiver, credit the giver" is applicable.

(7)(a)& (b) In the year of creation they are considered as an expense as well as a liability. In the subsequent years they are treated as liability until the amount set as provision is realized.

(c) Dividends payable is a liability as it will be paid in the coming financial year.

(d) a guarantee for the debts of a subsidiary is a liability because the holding company will have to meet the liabilities of the subsidiary if the subsidiary is unable meet its outstanding dues at the time of winding up.

(8) Managers would prefer to show lower levels of debt than higher levels of debt due to following:

• Bank can give them credit easily
• Investors can invest in them.
• To show itself as a going concern company.
• To maintain leverage in the company’s capital structure.

(10) Legitimacy is dynamic in that the relevant publics continuously evaluate corporate output, methods, and goals against an ever evolving expectation. The legitimacy gap will fluctuate without any changes in action on the part of the corporation. Indeed, as expectations of the relevant publics change the corporation must make changes or the legitimacy gap will grow as the level of conflict increases and the levels of positive and passive support decreases.

The second major source of a legitimacy gap occurs when previously unknown information becomes known about the organization – perhaps through disclosure being made within the news media. In relation to this possibility, an interesting reference to ‘organizational shadows’ has been made.

The potential body of information about the corporation that is unavailable to the public – the corporate shadow (Bowles, 1991) – stands as a constant potential threat to a corporation’s legitimacy. When part of the organizational shadow is revealed, either accidentally or through the activities of an activist group or a journalist, a legitimacy gap may be created.

In relation to the above source of a legitimacy gap, we can consider how society reacted to media revelations made about certain sportswear companies alleged to be sourcing products from sweatshops in Asia (for example, Nike); revelations about the pollution being caused by mining companies’ tailings dams in remote environments (for example, BHP Billiton’s operations in Papua New Guinea); or revelations about how the products of particular companies impact consumer health (for example, the reaction to the McDonalds investigation as told in the movie Supersize Me ). All these revelations arguably had significant cost implications for the respective companies involved – and to solve the legitimacy problems the organizations. Typically relied upon various disclosure strategies.

However, the legitimacy-threatening activities were potentially going on for years before the news media ran stories on the adverse social and environmental activities – it was the news media coverage that ultimately created the threats to the corporations, not necessarily the actions themselves.

(11) ‘Cap-and-Trade’ system

It’s a system designed to reduce pollution in our atmosphere.

The cap on greenhouse gas emissions that drive global warming is a firm limit on pollution. The cap gets stricter over time.

The trade part is a market for companies to buy and sell allowances that let them emit only a certain amount, as supply and demand set the price. Trading gives companies a strong incentive to save money by cutting emissions in the most cost-effective ways.

Caps limit harmful emissions

The government sets the cap across a given industry, or ideally the whole economy. It also decides the penalties for violations.

Carbon dioxide and related pollutants that drive global warming are main targets of such caps. Other pollutants that contribute to smog can also be capped.

In carbon dioxide's case, the heat-trapping greenhouse gas mixes into the upper atmosphere and has a global effect. Reducing emissions locally lowers levels around the world.

Companies are allowed to emit set amounts

The total amount of the cap is split into allowances, each permitting a company to emit one ton of emissions. (You'd have to drive 2,400 miles, roughly the distance between New York and Las Vegas, to emit that much carbon dioxide.)

The government distributes the allowances the companies, either for free or through an auction.

The cap typically declines over time, providing a growing incentive for industry and businesses to reduce their emissions more efficiently, while keeping production costs down.

Trading can lead to cuts in pollution sooner

Companies that cut their pollution faster can sell allowances to companies that pollute more, or "bank" them for future use.

This market – the "trade" part of cap and trade – gives companies flexibility. It increases the pool of available capital to make reductions, encourages companies to cut pollution faster and rewards innovation.

Because there are only so many allowances available, total pollution drops as the cap falls.As companies use established techniques to lower emissions, such as adopting energy-efficient technology, entrepreneurs see opportunity.

(12) Social contract theory is another descriptive theory about society and the relationship between rules and laws, and why society needs them. Thomas Hobbes (1588-1689) proposed that a society without rules and laws to govern our actions would be a dreadful place to live. Hobbes described a society without rules as living in a “state of nature.” In such a state, people would act on their own accord, without any responsibility to their community. Life in a state of nature would be Darwinian, where the strongest survive and the weak perish. A society, in Hobbes’ state of nature, would be without the comforts and necessities that we take for granted in modern western society. The society would have:

• No place for commerce
• Little or no culture
• No knowledge
• No leisure
• No security and continual fear
• No arts
• Little language

It is linked to legitimate theory so that it can see to the concerns not fulfilled under the CSR initiative.