ACCOUNTING THEORY: ADVANCE SUBSIDARY

ACCOUNTING
IAL AS THEORY

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Control Account
Question No-1: What is Control account?
Control account is so called because it controls a section of the ledger. By control it means that the
Balance of the control account should equal the total balance of the ledger it is controlling. For
example: the total of the personal account balance of the debtors should equal the balance of the
debtors account in the general ledger.
What are purposes of Control Account?
Or
Evaluate the contribution of Control accounts in ensuring debtors.
Or
Explain the purposes of control accounts
Ans:
I. To act as independent checks on the ledger.
II. They provide a check on the accuracy of entries made in the personal accounts in the sales
ledger and the purchases ledger.
III. The control account accounts could also assist in the location of errors.
IV. Where there is a separation of clerical duties, the control accounts provide an internal
check.
V. The number of accounts in the double entry system can be kept to a manageable size.
Question: Evaluate the contribution of control accounts ensuring that debtors and creditors are
always correct.
They provide a check on the accuracy of entries made in the personal accounts in the sales ledger
and in the purchase ledger. It is very easy to make a mistake in posting entries, because there might
be hundred of entries to make. Figures might get transposed; some entries might be omitted
altogether, so that an invoice or a payment transaction does not appear in a personal account as it
should.
By comparing:
The total balances on the receivables control account with the total of individual balances on the
personal accounts in the sales ledger.
The total balance on the payables control accounts with the total of individual balance on the
personal accounts in the purchases ledger.

Question: The balance of sales of is greater than the balance of sales ledger control account by
£500 –what are the possible reasons of this situation.
 Total balance of sales a/c wrongly under cast or overcast.
 Sales ledger control a/c posting was debited less than 500/-
 Incorrect recording of the sales day book.
 Faulty debit credit rules were applied.

Question: why control account reconciliation statement is prepared? Or Why control account
differs personal ledger.
Answer: Control accounts shows the total of Debtor and Creditor on the other hand ledger shows
the personal a/c of credit customer or credit supplier, Therefore if no errors occurs than; the
balance of the control account and the total Balance of the personal a/c of the customer or supplier
should match. If it does not match then the difference should be to identify the errors to take
necessary measures so that both sales ledger and sales ledger control of matches. But matching the
control account does always means that there is no error.
Manufacturing account
Question: Explain the following term using an example
i) Fixed cost.
ii) Semi Fixed Cost.
Ans: Fixed cost is the cost that tends to remain constant in the short run period. Example:
Depreciation of fixed asset using SLM is an example fixed Cost as long as the fixed asset is being
used.

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Semi fixed cost: when part of the cost will be fixed and part of the cost will be variable, the fixed
cost is called semi fixed cost. And variable part of the cost is called semi-variable cost. For example,
telephone bill by land phone. Part of the bill is fixed as line rent and the part of the bill is variable
according to the usage of the phone.

Question: Distinguish between fixed cost and semi-fixed cost.

Ans: same as b4

Question: Explain the situation where a company/ Manufacturer should cease

production and accept offer from a supplier. evaluate both merits of demerits.
Merit Demerit
 Overall profitability will increase.  Loss on control on production
 Less risk inherent in production process, such  Loss of control on quality
as labor unrest.  Loss on control on price.
 More concentration on business  Failure to use fixed cost otherwise.
development.  Loss of employment
 Loss of foreign currency if imported

Question: Distinguish between direct cost and overhead cost.

Direct Expense Overhead Cost

Raw materials for example For example: Rent
Exp. generally varies according to the volume of Large parts of the cost are fixed.
production. Cannot be attributed directly to the production
Directly attributable to the production process. process, therefore all indirect cost.
Part of prime cost. And can be both production and non
production cost.
Part of Conversion Cost.

Question: What is prime cost and conversion cost?

Ans: Prime cost is the total of all direct cost; it includes raw materials used, direct labor, direct
expense (Royalty). Conversion cost is the addition of Director Labor and factory overhead, since
they convert the Raw materials into finished goods.
Question: what is Transfer Price and how it is created?
Ans: Transfer price is the addition of profit to cost of production. It arises if a factory wants to
determine its profit in the factory before it actually sends to the wholesaler. In that case cost of
production is replaced by the term transfer price in the trading account..

Question: What is cost unit & unit cost?

A cost unit is simply a unit to which costs are related. The specific unit will vary from industry to
industry, for example in steel-making the cost unit would be cost per ton, in motor manufacture
cost per car.
Unit cost means cost of making one product.

Unit Cost: total Cost/Total Unit

Question: What is cost centre?

A unit of organization, management which is responsible for control of its cost. A unit cost will
typically be a department, Division, item of equipment. Assembly department can be an example of
cost unit.
Question: What is Day work & piecework?
Day work: This is an hourly rate of payment to the labor irrespective of the output of the employee
Day work= No. of hrs worked x hourly Rate

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Piecework: This is the rate per piece of work complete irrespective of how long that “piece” takes to
complete.
Piecework: No. of piece completed x Rate per Piece.

Question: What are the advantages of Day work over piecework labor remuneration?
Favorable points
 Easy to measure the type of work.
 Difficulty of measuring or setting the piecework rate.
 Quality of the product can be improved.
Unfavorable points
 More supervisory control is needed.
 More work of product may be completed by the employee in the same time.
 Opportunity to increase the earnings of the employee.
Question: (i) what is profitability?(RATIO ANALYSIS)
The term profitability refers to the ability to generate sufficient excess of income over expenditure
compared to a common yardstick as capital employed to generate that profit or loss.

Question: (d): Sayeda a retailer is considering how to improve profitability: she proposes both the
following
 Reduce price by 20%.
 Purchase lower quality product.
Reduce price by 20%.
 Sales will increase
 Cheaper goods may have greater Mark-Up.
 Greater sales will lead towards greater use of fixed asset.
Purchase lower quality goods for re-sale.
 Poorer quality goods will lead towards loss of business reputation.
 More goods are sold for less profit.
 Reducing prices may lower the Mark-up

Question: Distinguished between Bad Debt & Provision. for Bad Debt.(BAD DEBT)
Bad Debt Provision for B/Debt
Any amounts that cannot be recovered from the 1. If there is a possibility of NOT receiving
debtors is called Bad Debt. money from the debtors is called Prov. for
Bal debt reduces debtor. B/Debt
Usually It is Not be shown in the Balance Sheet 2. PBD will not reduce debtor but it is
deducted from the debtor in the Balance
3. Sheet to comply with Prudence concept..

Question: (e)
What are the advantages and disadvantages of perpetual inventory system? OR
You have decided to shift periodic (F.I.F.O) system to perpetual (LIFO) system- Evaluate your
decision.(MATERIALS)
Ans:
 Perpetual inventory will enable the issuing of stock to be more closely related to the prices.
 Accurate and up to date valuation of stock is available at all times.
 Only find the value after certain period in case of periodic system.
 LIFO will issue stock at rate, close to the replacement cost in inflationary times.
 Perpetual inventory is more complex to operate than periodic inventory.
 LIFO provides a lower closing stock value and therefore lower gross profit in the final
account.
 LIFO is no longer accepted by modern accounting method.
 Breaches the consistency concept.
 Time consuming using perpetual method
Question: What are the advantages of being partner rather than being salaried?(PARTNERSHIP)

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Non: financial factor

 Job security
 risk bearer or has a stake in the business
 Improves the prestige/ standard or improves social status.
 Profit motive involves greater engagement.
Financial factors.
 More money is needed
 Has to take Risk of unlimited liability.
 In this situation profit sharing is low in comparison to profit.
 Profit motive will lead towards quality involvement in the business will result in loss of
Opportunity income.
Question: Advantages & Disadvantages of a Sole Trader
OR
Evaluate the decision of a Sole trader to commence self-employment business.
Advantages:(PARTNERSHIP)
 Can make own decision.
 Profit is solely enjoyed
Disadvantages:
 Often drawings are greater than profit leading towards liquidation.
 Loss of security of guaranteed come.
 Lower liquidity position.
 Greater risk of being bankrupt if the product in NOT making profit in the long run.
Question7 (a): what is the difference between Allocation and Absorption?(OVERHEADS)

Difference between allocations and apportionment:

Allocation: Costs that are wholly identifiable with one cost centre is called cost allocation. For
example, salary of machine supervisor can be allocated to the machining department, the wages of
a cook to a canteen department.
Apportionment: Cost that cannot be charged to just one cost centre, because benefit of the
expenditure is felt by several cost centre. For example for of Rent & Rates, the total of Rent & Rates
has to be shard or apportioned over to the cost centre on some equitable basis.
Question: Evaluate apportionment as a means of recovering O/H rates.
 It provides a basis for recovering overhead costs.
 Reasonable pre-estimate of how costs are actually.
 Calculations are complicated.
 Only an estimate of the costs incurred by each department.
 Reasonable basis not always available.

Question: What are limitations or disadvantages of apportionment of overheads?

Answer: Most of the items of O/H expense are in the nature of common cost & therefore have to be
apportioned to various cost centers or cost units on some suitable bases, while dealing with various
items for the purpose of apportionment a number of basis have been point out earlier. These basis
are Not always logical or scientific. The calculation is often complicated. It is also difficult to take
many policy decisions when costs are apportioned on arbitrary basis.
Question: 10. Evaluate the extent to which control accounts detects fraud in a business(CONTROL
A/C)
Favor
Control accounts are an independent checking mechanism, checking arithmetical accuracy.
Control account allow for separation of duties will be prepared by an independent person.

Against
The control account may not balance for a number of reasons, only one among them is fraud.
Most commonly, the control account will not balance because of errors in double entry not because
of fraud.

Question: (May Jan Q (5): Explain two disadvantages of piecework remuneration system.(LABOR)

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 Difficulty of setting the piecework rate as all jobs will be different.

 Higher labor turnover since someone will lose the job.
 Potential impact on quality of work.
 More accidents to meet targets.
 Loss on reputation of business when motivation is to more quantity less quality.

Question 2. What is credit control policy?(BAD DEBT)

This is controlling procedure for the debtor as to ensure debtor do not go bad. Under the policy
certain parameters are being set so that debtors are being controlled without creating bad
repetition in the market. Certain feature of the credit control policy may be:
 Eligibility of debtor.
 Debtors payment period
 When a debtor will be fall under provision, maintaining aging debtor.
 When & for how much debtor will be bad debtors.
 What measures to be taken for a bad customer?

Question: Evaluate credit control policy: (In 09; Q# 1 (d)

Advantages (Against)
Debtors are not pressed for payment since selective debtors are taken, which will make the
company as a good supplier.
In this particular situation invoices are issued promptly which means knocking the customer to pay.
Effective measures can be taken if No. of Debtor is small.
Disadvantages/ (Against)
If debtors payment period is long than it is often hard to check bad debt.
Controlling measure should be formal or followed by document, for example letters to customer will
be more formal than just telephoning them.
If debtor volume is small than taking action means losing the customer forever.
For a small company ineffective credit control policy means losing the company.

Question# 4: Explain the term depreciation(DEPRECIATION)

Depreciation means the wear of fixed asset due to usage, the lapse of time, innovation.
Question: 5: Whey depreciation is an application of the going concern concept?
Ans: The going concern concept assumes that unless the opposite is known, the business will
operate for an indefinite period of time. Fixed asst so purchased will be used for many years, is
allocated among its life by the name of deprecation. The assumption of going concern concept
therefore allows deprecation to be charged over the life of the asset irrespective of the length.
Question 6: Explain two advantages of reducing Balance method.
Greater Depreciation written off in early years, which may reflects the fact that the assets loses
more value in the early years which is ideal for asset that will be used at a greater pace in the
earlier years.
Total cost of operating the fixed asset would be even over the life of the Asset. Higher depreciation
& lower maintenance in early years. This will reverse in the later years.

Question: Distinguish between capitals of Revenue expenditure.(CAPITAL AND REVENUE

EXPENDITURE)
Capital Expenditure Revenue Expenditure
Capital expenditure is the purchase of fixed 1. Revenue Expenditure is an expense
Assets which will give use to the business for which will give benefit for up to one
more than one accounting years. accounting year in operating the business
Capital expenditure is usually a part of Balance on a day to day basis.
sheet 2. Revenue expenditure is a part of Income
Capital expenditure if fractioned consist of statement
revenue Expenditure. 3. Revenue expenditure cannot be
Example: Depreciation of Van. converted to capital expenditure
4. Example: van Running expenditure

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Question 7 Advise, stating clearly your reasons, whether each of the following are capital
expenditure or revenue expenditure.
a. Machinery Installation cost b. Staff training cost.
Ans: Machinery installation cost is capital exp. these costs are require to bring into a state in which
it can generate long term profits for the business.
Staff Training cost is revenue expenditure because the skill of staff is not normally recorded as an
assets because it cannot be measured in terms of money. Staff can leave any time and the training
would be lost.
Question: Evaluate whether by charging Annual Depreciation will have sufficient cash to replace
the fixed asset.
Question 2 (e)
Ans:
 Depn. Accrues previous years capital expenditure over the life of the Asset.
 Profit will be reduced by Dpn which should result in retention of cash.
 Reduction of profit will increase cash flow as Dpn is a non-cash exp.
 Retention of profit does Not always means retention of cash other factors like inflation,
changes in technology will change the future price of fixed Assets.
Although Accrual concept applies this relates to the exp and cash flow of the previous year.

Question: 10. Evaluate the view to offer 5 year membership fees.

Advantages of 5 Years membership. (SUBSCRIPTION)

Advantages Disadvantages
Cash flow is aided as cash is retained early. Overall Revenue will be reduced.
May be used otherwise in repayment of the The club will be liable to give service for 5
loan & saving interest. years.
Members will be retained for many years.
Attracts new members.
No administration cost is required for 5 years.

Question: Evaluate the Need for partnership argument when trading as partnership. Or Why
partnership Agreement in needed

Advantages: Disadvantages
Defines the business relationship and Expensive since there are cost to prepare the
responsibility agreement.
Formalizes the relationship No flexibility to take account of changing
circumstance
Defines the distribution of Profit. Hard to make decision as agreement among
partners are required.

Question: 2: Distinguish between allocation and appropriation of overloads, state two reasons why
overhead cost are fixed cost or have a large fixed cost amount. (question # a)(OVERHEADS)
Ans: Allocation– The allotment of whole items of cost to a specific cost centre .
Apportionment –– The allotment of proportions of items of cost to a cost centre based upon the
most reasonable basic for apportionment.
O/H comprises a large portion of fixed cost because.
a.Generally they are indirect cost, for example Rent.
b.Often cost are period cost that requires a single payment for example annual insurance.
c.Cannot change according to the volume of production
Question: Evaluate the use of apportionment of overheads in product costing (5 (c)
Ans: Advantages:
 Enables calculation of cost unit.

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 A reasonable basis of assessing the usage of cost.

 Enables prices to be fixed on a reasonable basis.
Disadvantage:
 It Is only an estimate of the overheads used ans therefore lacks the details.
 Establishing a reasonable basis for apportionment may not be simple.

Question 14: State three reasons why a business might offer cash discount. (6a).
Ans: a. Reduces Bad debt. b.Improve liquidity.c.Increase sales.(BAD DEBT)

Question 15: “Control account ensures that the ledgers are always correct and without errors”
(6/d). OR What are advantages of disadvantages of control account(CONTROL A/C)
Ans:
Advantage/favor Disadvantage/against
control account helps to identify whether control account helps to isolate the errors
there is any error in the groups of account. but they control them occurring
They offer some protection against fraud. Control account will only isolate errors to a
group of accounts
Identify arithmetical error
Question 16: Distinguish between an error of commission of error of principle give an example of
each.(ERRORS)

Errors of commission: Nature of transaction same but in the wrong persons for example-Credit
Sales to Mr A was wrongly recorded to Mr B.
Errors of principle: if the revenue expenditure is recorded as capital expenditure or the opposite, it
is called errors of Principle. Example-Repairs to machine is recorded in the machine account.

Question17: Evaluate the role of the accrual (Matching) concept in calculating the profitability of a
business. (7 (c).(CONCEPT)
Ans:
Supporting the statement:
Accrual adjusts income and expenditure to income and expenditure accrued or prepaid to show the
actual income.
Accurate calculation of profit generated in a period.
Profit calculation is consistent with other organization.
Against the statement:
The profit calculated still requires a yardstick of comparison.
Business in different sectors will have different levels of profitability.

Question: When a company with multiple dep’t should close one of department- Evaluate. (1 (c)
ANS:(DEPARTMENTAL)
In favor of closing its. department.
If closing the dep’t. effects the customer of other dep’t since one customer of one dep’t will rely on
the product of the other dep’t.
The fixed O/H may have to be borne by the other dep’t.
services or product used by the other dep’t. may have to be bought from outside at an expansive
rate.
Overall portfolio of the business to make future profit will be dost.

Question: A company depreciates its fixed Asset using Re-valuation method what alternative
method can be used for dept. to justly its Dpn exp. (2(d).(DEPRECIATION)
ANS:
Company may adopt a policy of calculating Dpn on the basis of a recognized method of Dpn such as
Straight line method or Reducing balance Method.
Use of such method would company with accounting concepts like Consistency, Prudence or
Matching.

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Assets like shop fitting or shop furniture should use Straight line Method of DPN as it would be more
appropriate .
Re-valuation method/ Reducing Bal. Method might be use when a large portion of Asset being
depreciated in the initial years without corresponding the similar amount of expense.
In favor of Re-valuation method each Year the balance sheet asset in hand.
Question 3 (2/e): Advantage and Disadvantage of single entry OR Evaluate why double entry book
keeping is NOT kept.(SINGLE ENTRY)
Ans:
Benefits/Advantages:
Details of all transaction of individual accounts would be available.
Final account is easy to draft to establish financial position.
Value of Debtors and Creditors would be readily available.
Disadvantages:
a preparation requires specialist knowledge to maintain.
b.Cost of purchasing specialist knowledge.
c.Time consuming.
Question: 4: Distinguish between direct expense/cost and overhead costs:(MANUFACTURING)
Direct Expense/Direct Cost.
Expense or Cost that can be identified directly in the production process. For example Wood
required to manufacture a Furniture.
Direct Exp. generally vary directly to the level of production process- For example direct labor.
Direct Expenses. are element of prime cost.
Overhead Cost:
Exp. that cannot be directly attributed to the production process- Depn of Machinery .
Costs generally have a high fixed cost element.
Cost not only relate production but also other Administrative or selling expense.
Question 5: Evaluate the situation when the company will use machine hour rather than Direct labor
as the basis for O/H. Recovery Rate.(O/H)
When machine hours should be used .
If the dep’t.is machine intensive machine hour should be used as basis for overhead..
May be used in conjunction with Direct labor hours when both machine and labor works parallelly in
the production process.
When NOT to use machine hours:
Not appropriate for dep’t with labor intensive industry for example Assembly with limited machine
in use.
Simpler to use if the basis is same for all dep’t.
Question 6: (4/C): A company value its Closing stock from trading account rather than taking the
stock count/ stock take means valuing the Closing stock by counting the inventory physically.
(STOCK VALUATION)
Advantages of taking C/S from trading accounts.
Easy to calculate.
Not time consuming.
Complies with accounting standards.
Leads to greater accuracy.
Disadvantages of taking closing stock from Trading Account
Do not detect stock shrinkage such as breakages, theft etc.
Short fall in supply cannot be detected.
Leads to under/over statement of surplus/deficit.

Question 7: What is Job Costing ?(JOB COSTING)

Ans: Job costing is a type of costing technique where the jobs are being worked on a unique basis.
Often they are being made to a specific order such as custom built car,a one-off special export
order. Since each job is being different from the next, requires different amount of labor, materials
and overhead, therefore a separate record is needed to be kept.
Question 8: Explain two characteristics of job costing.
One off/Single order contract.

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Customized requirement.
Each job is comparatively short in duration.
Continuously identifiable Unit.
Hourly charged, quotes prepared for each customer.
Hems not produced for stock.
Question 9: Evaluate the role of the trial Balance in ensuring the accuracy of the books of accounts.
(ERROR)
In Favor Against
Checks that double entry have been caracal out Many errors Not revealed e.g errors of
with a debit and credit. commission., errors of principle.
Checks Balance of all accounts agrees in total. If trial balance, does not agree, no identification
Checks the arithmetic accuracy. of where the errors might occur.
Time consuming.

Question: What is social accounting?(SOCIAL ACCOUNTING)

Ans: Social accounting is a concept based on evaluating the economic function and performance of
the business entity in relation to the society and to the national interest together with any social
costs or benefits generated by it.

Question: What are the objectives of Social accounting?

Ans: The objectives of social accounting are as follows:
To benefit the local community and to preserve the quality of life and the environment.
To avoid premature redundancy of employees by careful planning and recognizing the need for
change at the earliest possibility time and to develope and train employees accordingly.
To protect the heath and safety of employees, customers and members of the community.
And to respect the need to preserve scarce resources.

Question 2: Profit minimization will sometimes increase social cost- discuss.

Ans: The ultimate objective of a company is to minimize shareholder’s wealth; this may often result
in negative impact on social/local community, health and safety of the labor, environment pollution
etc. Company will fixed an equilibrium position so that profit minimization and social benefit is
ensured.
Question: When we depreciate any assets, it means that we will have the cash to replace the
equipment at the end of its life- Evaluate the statement.(DEPRECIATION)
Ans: Supporting the statement
Depreciation accrues a pervious years capital expenditure over the life of the Asset.
Profit will be reduced by the DPN. Which should relate to a retention of profit, although this may
Not be in cash.
Against the statement:
although the accrual convention applies, this relates to the expenditure and cash flow of a previous
year.
The DPN for a year is NOT generally matched by a cash retention to pay for a new asset.
Question 2: What is the Merit and Demerit for a companying of supplying from an overseas supplier
rather than manufacturing on its own.
Merits:
Increased profit
Removal of production difficulties is easy to manage
Positive cash flow from sale of plant and equipment.
Premises released for a Business with better long term prospects.
Demerits:
Continuity of supply will be lost.
Unemployment of contribution to the community will be for gone .
loss of skills and craftsmanship.
If the supply is from overseas than loss of foreign currency.

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Question: Identify and Explain which accounting concept has been broken when as owner is not
maintaining a separate bank account for the business. (ACCOUNTING CONCEPT)
Ans: Business Entity concept is breached. The concept draws a distinction between the business
and the individual, Both the business and the individual should have a separate Bank account to
enable the transaction to be separate.

Question: When single entry record is kept- Evaluate.

Or When double Entry Record is kept- Evaluate.
Or Evaluate the decision of Not to maintaining a complete set of records.(SINGLE ENTRY)
Ans: Advantages of Double Entry:
Records are organized which shows the details of each transaction.
Ease in preparation of financial statement that shows the financial performances of the business.
Balance of individual account is readily available.
Disadvantages of Double Entry:
This is expensive in the sense to maintain a separate accounting corner.
Requires skill to interpret the accounting record.

Question 5 :(5/D): Evaluate the situation when/whether the owner should purchase the “Hi-teach”
electronic equipment. (MISC)
Benefits:
Greater range of market can be captured. since moire services can be given.
Range of services will increase as well.
Keeps the business up to date with technological changes.
Disadvantages:
Cash outflow might result in liquidity crisis.
Maintenance cost might be higher.
Short life of the asset.
Question 6: Evaluate the Role of trial Balance in ensuring the Accuracy of ledger accounts.(ERRORS)
Ans:
Trial Balance reveals the errors where there has Not been a Debit and a Credit of equal value.
The T/B will not reveal errors where the debit of the cerecloth in the ledger has Not been completed
due to some fundamental error eg the wrong account used as an error of principle or error of
commission. Therefore T/B will act as a checking device only when certain situation affecting the
matching of trial Balance is occurring.

Question 7: (1/h): Explain the term Net realizable value.(ACCOUNTING CONCEPT)

Ans: The value after deducting the further cost to make the product readily available for sale from
the hypothetical selling price of the product.

Question 8: Explain why the application of the accruals (matching) concept will be important in
determining how the redecoration of premises will be treated in the income and expenditure
account.
Ans: Accrual concept means to show expense and income as incurred in a period.
Redecoration of premises will be treated as Revenue expenditure as it will benefit the company
within a single year on the other hand Extension to the premises will benefit the company for more
than one year, therefore to find the annual benefit as per prudence concept, it will depreciated, the
depreciation should be treated in income statement complying the Accrual concept.
Question (9): Evaluate the decision of the club to offer ten year subscription at a reduced rate.
(SUBSCRIPTION)
Ans: Points in favor
 Greater subscriber or member will attract.
 Members will retain for ten years.
 The cash generated from the membership will be otherwise invested to a more profitable
concern.
 Inflationary affect can be be avoided.
Point against:

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 Overall profitability will be reduced

 Members service has to be continued .
 Regular member may be attracted more.
Question10: Explain three characteristic of O/H expanses
Overhead expense is the indirect factory expense that be directly attributed to the production
process.
 Usually fixed in nature.
 Acts as assistance in the production process.
 Some overheads are apportioned on suitable logical basis.
Question 11: Evaluate the benefit of using straight line method rather than using Reducing Balance
Method.(DEPRECIATION)
In favor of SLM. Against Straight line method
Simplest depreciation method to compute Does not reflect accurately the difference
- Can be applied to all long-term assets in usage of an asset from one period to the
- The same for each period of assets’ service other
life - Does not necessary match costs with
- Widely acceptable and usable accounting revenues in different types of long-term
method assets
- Might not be appropriate for some
depreciable assets due to rapidly
developing technology, such as computers
Question 12 Explain when a business might maintain a prov. for doubtful Debts.
Ans: Provision for Bad Debt is the possibility occurring Debt. It is to be maintain so that the total
debtor found free from all business risk.
Question 13: Explain when the accounting concept of accruals and materiality may be in conflicts
when preparing the find s/is of a business.
Ans: Accrual concept means to show exp. of become as incurred.
Materiality concept means to ignore value that are petty in amount but teals to distort the financed
statement.
Therefor small expenditure which will be used up over more than one accounting period, the
concepts are in conflict.
Question 14: Evaluate the usefulness accounting standards in preparation of the final account of a
business.(ACCOUNTING CONCEPTS)
Ans: Benefits:
1. Provides of framework for preparation.
2. Accounts of different business can be compared.
3. Profit calculation is reliable.
Disadvantage:
Concepts sometimes are misleading
If requires professional skills to be accepted by all.
Question: Evaluate the advantages of Disadvantages of remunerating sales staff hourly basis to
hourly plus commission basis.(LABOR)
Ans: Hourly Rate + commission:
 Commission is an incentive to obtain sales, but the majority of earnings still based upon the
hourly rate.
 Emphasis on hourly pay still gives priority on customer service.
 On incentive basis there is a provision to increase carnages.
 Increasing the sales for commission often ignores the minimum commitment given to the
customer.
Question 15: Explain whether overhead should be apportioned to different department or Single /
Blanket rate should be applied.(OVERHEAD)
 Differential Rate for different production department should be individually calculated to
ensure that prospective orders are accurately costed to recover overhead expended in
different productive dep’t but to remain competitive.
 Blanket Rate or single rate is easy to calculate.

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 ACCOUNTING THEORY: ADVANCE SUBSIDARY

 Necessary controlling measure can be taken

 if differential rates is applied.
For simple maw factoring process basket rate may be applied.
Question: 16 Critically evaluate the credit control policy of Shukka engineering.(BAD DEBT)
 Failure to take up references leaves the business vulnerable to debtors with a bad debtor
with a bad credit history not paying for goods .there is a higher risk that such debtors will
be bad Debtors.
 Customers should be deeply contacted with increasing severity the moment Debtors
payment period is over.
 The lack of general credit policy may result in customer taking longer time to pay and not
being focused on payment.
 The business is unwise in failing to challenge any debtors in legal proceedings whetever
the situation
 Some customer or the Account staff or sales staff will always take the advantage of lack of
credit control policy.
Question17 (3/c): Business the advantages of disadvantages of single entry.(SINGLE ENTRY)
Advantages:
 Details of all transactions recorded and available for inquiry.
 Individual accounts for each person and category of income and expenditures.
 Accuracy of transaction can be tested through the trial balance.
 Final accounts can be prepared more accurately and frequently.
 Not all transactions are recorded in the cash book though incurred.
Disadvantages:
 Cost of employing skill staff to prepare the accounts.
 More formality to process.
If overhead is under absorbed, this means that more actual overhead costs were incurred than
expected, with the difference being charged to expense as incurred. This usually means that the
recognition of expense is accelerated into the current period, so that the amount of profit
recognized declines.

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