Module Contact: Mrs Amanda Williams, NBS Copyright of the University of East Anglia Version 1

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1 UNIVERSITY OF EAST ANGLIA Norwich Business School. Main Series UG Examination ADVANCED FINANCIAL ACCOUNTING Time allowed: 2 Hours Answer TWO questions Notes are not permitted in this examination. Do not turn over until you are told to do so by the invigilator. Module Contact: Mrs Amanda Williams, NBS Copyright of the University of East Anglia Version 1

2 Page 2 1. Muffin is the chief accountant of a small business. Inventory is an important asset of the business. The amount of inventory, and specific and general price levels, have changed over the year. Muffin has assembled the following information. Basis of valuation Price per unit Closing total Price per unit Opening total ( x 250 units of inventory) ( x 200 units of inventory) Historic cost (HC) 14 3, ,800 Replacement cost (RC) 16 4, ,000 Net realisable value (NRV) 15 3, ,600 In addition the general price index (or Retail Price Index, RPI) has changed as follows: Index Beginning of the year, and date on which opening inventory was purchased 100 Date on which closing inventory was purchased 115 End of year 120 Muffin is puzzled as to how this information could be used to calculate profits on inventory. a) Discuss the limitations of historical cost accounting (HCA) in times of rising prices? (10 marks) b) Advise Muffin about possible methods for calculating 'profit' on inventory from the data she has collected, showing your calculations. (25 marks) c) Muffin argues: 'Specific price changes are always happening, and general inflation affects everyone equally. The accountancy profession should stick to historic cost accounting which has stood the test of time and everyone understands.' Critically evaluate whether Muffin right? Version 1

3 Page 3 2. a) Discuss the role of capital market research? (10 marks) b) Evaluate what is meant by the efficient market hypothesis (EMH)? c) With reference to empirical studies, critically evaluate the extent to which earnings and other accounting disclosures convey information to capital markets. (25 marks) 3. a) Explain why firms voluntary adopt corporate social responsibility reporting or other forms of extended reporting? b) Critically appraise the extent to which the following theories explain corporate social responsibility reporting? Legitimacy theory Stakeholder theory Institutional Theory c) Evaluate which of these theories better explains actual corporate behaviours? Please provide examples from the real world. (20 marks) TURN OVER Version 1

4 Page 4 4. The virtual prohibition on the recognition of many internally generated intangibles outside a business combination is a tacit admission of our inability to deal with such items ( ) the challenge will be to find acceptable, logically consistent method that can value all intangibles that have worth, without arbitrarily scoping out those that present too many difficulties (Ernst & Young, International GAAP 2010, p1135) a) Discuss and evaluate the limitation(s) of current accounting standards in recognising the value of intangibles such as brands and other intangible goods; (20 marks) b) Critically evaluate whether and how Integrated Reporting could be used to recognise intangibles and, more generally, to improve the quality of corporate reporting. (30 marks) END OF PAPER Version 1

5 Exam Feedback This year s exam was two hours long and required students to answer two from a choice of four questions. The lecturers for the final two-thirds of the module each write two questions and so students could adopt the tactic of tackling one or other topic area or getting a good grounding in both. 41% of the group chose to tackle just the questions on measurement, 26% chose to answer just the questions on integrated reporting and related topics, while the remaining 33% chose to tackle questions in both topic areas. Sticking to one or other topic seems to have been the most successful approach with those who chose just integrated reporting scoring an average of 73%, those who tackled just measurement topics scoring 68% on average while those who answered from both topic areas scored 62% on average. However, there is slightly more to this than meets the eye; there were two distinct populations answering across both topics, those who were very confident in both topic areas and the weakest students. The most popular question Q1 was also the most successfully answered, with an average score of 75%. However, the next most successfully answered question, Q4 with an average score of 70% was also the least popular. Overall, I would recommend that weaker students would have been better concentrating on one topic area and preparing thoroughly for it while stronger students were well advised to prepare across all the topic areas.