CGA Management Accounting 1 Exam June 2000

CGA-CANADAFINANCIAL ACCOUNTING: LIABILITIES & EQUITIES [FA3] EXAMINATIONJune 2009Marks Time: 3 HoursNotes:1. All calculations must be shown in an orderly manner to obtain part marks.2. Round all calculations to the nearest dollar, except for EPS and financial ratios where two decimal places should be used.3. Unless otherwise indicated, use straight-line amortization.4. Assume a December 31 fiscal year end for all questions, unless otherwise indicated.5. If a test of materiality is required, use 5%.6. Narratives for journal entries are not required. When preparing journal entries, be careful to select account titles that clearly indicatewhere the item will appear in the financial statements. For example, if something is to be on the income statement, it should be labelledas a revenue, expense, or extraordinary item.130 QuestionSelect the best answer for each of the following unrelated items. Answer each of these items in yourexamination booklet by giving the number of your choice. For example, if the best answer for item (a)is (1), write (a)(1) in your examination booklet. If more than one answer is given for an item, that item willnot be marked. Incorrect answers will be marked as zero. Marks will not be awarded for explanations.Note:2 marks eacha. Which of the following best defines a partnership?1) An agreement between persons to create a partnership, (usually) setting out the terms of therelationship2) The relationship between two or more persons carrying on a business with a view to profit3) The situation in which each of a number of persons is personally liable for the full amount of adebt4) A business venture undertaken jointly by two or more partiesb. Assume a Certified General Accountant (CGA) has decided to not apply a specific Handbook sectionto a given transaction, because it would produce misleading financial information to the users of thefinancial statements. Which of the following best describes the action by the CGA?1) This action is acceptable if the amount involved is material.2) This action is acceptable as long as the users are informed of the unique treatment.3) This action is unacceptable; all transactions must be recorded in accordance with GAAP.4) This action is unacceptable, as it violates the Code of Ethical Principles and Rule of Conduct.c. CAM Corporation issued 20-year bonds 3 years ago. Currently, interest rates in the bond market havebeen increasing. How does the increase in interest rates affect CAM?1) There is an economic loss to CAM, but it is not reported in the financial statements.2) There is an economic loss to CAM, and the change is reported in the financial statements.3) There is an economic gain in value of the bonds, but it is not reported in the financial statements.4) There is an economic gain in value of the bonds, and the change is reported in the financialstatements.d. When companies receive an investment tax credit from the government for the purchase of a machine,the amount of the investment tax credit should be credited to which account?1) Income tax expenseearnings2) Retained3) Investment tax credit revenue4) Machinee. Kim and Lou are partners in a law firm. The partnership agreement stipulates that Kim receives a$35,000 salary and 50% of the profits. Kim’s opening capital balance was $100,000 and her ending balance was $160,000. There were no other transactions affecting her capital account. What was the net income of the partnership for the year?1) $25,0002) $50,0003) $60,0004) $85,000f. When shares are retired at more than their original issue price, the journal entry to record theretirement includes which of the following accounts?cash1) Debitto2) Debit to retained earnings3) Credit to contributed capital4) Debit to loss on share retirementg. A board of directors declared a stock dividend and 6,000 fractional share rights were created. How arethe fractional share rights reported in the company’s balance sheet?1) As a long-term investment2) As a long-term liability3) Asequityrevenue4) Ash. A company had an asset with a net book value of $55,000 at the beginning of the year. Based on newinformation, the company changed the residual value of the asset to $5,000 from $7,000 and the remaining useful life to 10 years from 12 years. What amount of amortization should the company record for its fiscal year?1) $4,0002) $4,8003) $5,0004) $5,500i. OLK Company changed its revenue recognition policy from completed contract to percentage-of-completion to better conform to industry standards. As a result, the prior year’s net income should have been $50,000 more. How is the amount reported in the current year’s comparative financial statements?1) As an increase to the current year’s revenue2) As an increase to the current year’s inventory3) As an increase to opening retained earnings of the current year4) As an increase to the current year’s net incomej. KYM Corporation discovered an error in its record keeping from the previous year. Utilities for themonth of December were recorded as $2,600 instead of the correct amount of $6,200. Which of thefollowing journal entries would be made to correct the error in the current year? Ignore taxes......................................................................................... 3,6001) Utilitiesexpense.................................................................................. 3,600 payableUtilitiesearnings...................................................................................... 3,6002) Retained.................................................................................. 3,600 payableUtilities......................................................................................... 3,6003) Utilitiespayable................................................................................ 3,600 earningsRetainedpayable......................................................................................... 3,6004) Utilitiesexpense.................................................................................. 3,600 Utilitiesk. Ned Company reported the following information for its fiscal year:500,000 Netincome $dividends 30,000 PreferredCommon share dividends 20,000Excess of retirement price of preferred shares over average issuance price 12,000Preferred shares are cumulative and carry an annual dividend of $10,000. The preferred dividends listed above include the current year and prior accumulated dividends. What is the amount of netincome available to common shareholders?1) $458,0002) $470,0003) $478,0004) $480,000l. On January 1, 2008, REV Company had 100,000 issued and outstanding common shares. On April 1, 2008, it issued 20,000 more shares. On July 1, 2008, it retired 10,000 shares. What is theweighted average number of common shares?1) 100,0002) 110,0003) 115,0004) 120,000m. A company had a debt-to-equity ratio of 1.52 before issuing convertible bonds. This ratio included $400,000 in equity. The company issued convertible bonds. The value reported for the bonds on the balance sheet was $254,000 and the conversion rights were valued at $21,000. After the issuance of the convertible bonds, what is the debt-to-equity ratio?1) 1.552) 2.053) 2.164) 12.10n. In November 2008, Wer Company entered into a non-cancellable contract to purchase inventory for $120,000 in March 2009. The value of the inventory was expected to be worth $130,000 at the time of purchase. On December 31, 2008, the market value of the inventory was $100,000. Which of thefollowing items would be reported in the 2008 income statement?1) $120,000 included in cost of goods sold2) $20,000 gain on purchase commitments3) $20,000 loss on purchase commitments4) Nothing would be reported on the income statemento. When are voluntary changes in accounting policy allowed?1) Only when the resulting financial statements will be reliable and more relevant2) Only when the resulting financial statements will be more reliable3) Only when the resulting financial statements will be more relevant4) Only when the resulting financial statements will be more objective8 Question 2HM Company had the following opening balances on April 1, 2008:Current liabilitieslong-termnote $ 3,000payable,Interestliability 32,000WarrantyLong-term liabilitiesnote 150,000Long-termThe long-term note has an annual interest rate of 12%, with the next interest payment due July 31, 2008.Warranty is estimated to be 5% of total sales. Total sales were $1,200,000 for the year endedMarch 31, 2009. Total warranty claims settled for the year ended March 31, 2009 were $54,000.Required4 a. Prepare the journal entry to record the long-term note interest payment on July 31, 2008. Assume noreversing entries were done on April 1, 2008.4 b. Prepare the journal entries related to warranty.JKD Company reported the following amounts on its balance sheet at July 31, 2008:Non-current liabilitiesConvertible bonds payable, 10%, due July 31, 2009 $ 4,000,000 Less: Discount on bonds (140,360)3,859,640 EquityCommon stock conversion rights 345,000 Preferred shares, no par, $3, 20,000 shares outstanding, 100,000 authorized 2,000,000 Common shares, no par, 120,000 shares outstanding, 1,000,000 authorized 6,000,000 Additional information1. The preferred shares are non-cumulative and fully participating with common shares after commonshareholders have received $1 per share. Dividends have not been declared for the last 2 years. OnAugust 1, 2008, the board of directors declared $300,000 in dividends to all shareholders on record onAugust 15, 2008. The dividends were paid on September 30, 2008.2. The bonds pay interest each July 31. Each $1,000 bond is convertible into 15 common shares. Thebonds were originally issued to yield 14%. On July 31, 2009, all the bonds were converted after thefinal interest payment was made. JKD uses the book value method to record bond conversions.3. No other share or bond transactions have occurred during the year.Required6 a. Prepare the journal entries to record the declaration and payment of dividends. Include dates as part ofthe journal entries. Also calculate the amount of dividends payable to preferred shareholders andcommon shareholders.3 b. Prepare the journal entries to record the bond interest payment on July 31, 2009.2 c. Calculate the total number of common shares outstanding after the bonds’ conversion onJuly 31, 2009.3 d. Prepare the journal entry to record the bond conversion.RCD Company started operations in 2008. The financial statements of RCD reflected the followingpre-tax amounts for its December 31 year end:2008 2009 Income statement (summarized)Revenues $ 200,000 $ 230,000Amortization expense 25,000 25,000Other operating expenses 110,000 120,000Pre-tax accounting income 65,000 85,000Balance sheet (partial)Property, plant and equipment, cost $ 250,000 $ 250,000(50,000) Accumulated amortization (25,000)225,000 200,000 Unearned rent revenue — 7,000RCD has a tax rate of 30% in 2008 and 35% in 2009, enacted in February each year. The unearned rentrevenue represents cash received from a tenant that will be moving into the building February 1, 2010. Fortax purposes, any cash received for future rent is taxed when the cash is received. CCA for income taxpurposes was claimed as follows: 2008, $12,500; 2009, $23,750.RCD uses the tax liability method of tax allocation.Required3 a. For 2009, calculate the income taxes payable.7 b. For each year (2008 and 2009), calculate the future income tax balance on the balance sheet at the endof the year. Indicate whether the amount is current or long term, and if it is an asset or liability.6 Question 5Information for Esoom Limited follows: Comparative balance sheet (in part)December3131 December2009 2008 Liabilities and shareholders’ equityAccounts payable $ 520,000 $ 600,000Lease liability 1,400,000 1,750,000Bonds payable 900,000 1,200,000Discount on bonds payable (100,000) (200,000)Contributed capital on common share retirement 15,000 0Common shares 1,000,000 1,000,0002,800,000 Retained earnings 3,400,000Total $7,150,0007,135,000 $Additional information1. Of the common shares outstanding at the beginning of 2009, 10% were retired.2. Bonds payable were retired at the beginning of the year through an open market purchase at 102.Discount amortization of $50,000 on the remaining bonds was recorded.3. Net income was $820,000.4. There was a common stock dividend valued at $100,000, and also cash dividends.RequiredPrepare the financing section of the cash flow statement for the year ended December 31, 2009.The following is an excerpt from the 2006 financial statement notes of Manitoba Telecom Services Incorporated (MTS), related to its defined benefit pension plan. All figures are in millions of dollars.Source: Required1 a. Indicate the amount MTS contributed to its pension plan during 2006.1 b. Indicate the amount MTS employees contributed to its pension plan during 2006.2 c. Indicate the amount of pension expense for 2006 that would show on MTS’s 2006 income statement.2 d. Indicate whether the pension plan is over or under funded at end of 2006 and by how much.2 e. Calculate the expected return on plan assets for 2006.2 f. Calculate the interest rate used to calculate interest expense.710 QuestionOn July 1, 2008, Ameri-Can Limited issued $3,000,000 of convertible bonds. The bonds pay annualinterest of 10% on June 30. Each $1,000 bond is convertible into 75 common shares, at the investor’soption, between July 1, 2013 and July 1, 2018, at which time the bonds mature. The financial instrumentwas issued for total proceeds of $3,402,605, yielding 8%. The bonds without the conversion feature werevalued at $2,660,987, yielding 12%. No value can be separately calculated for the option.Ameri-Can also has a stock option plan. The company issued 5,000 options to employees to buy commonshares at $20 per share. An option pricing model valued the options at $50,000. The vesting period is5 years. At the end of the year, $5,000 worth of options lapsed.Ameri-Can has a December 31 year end.Required4 a. Prepare the journal entry to record the issuance of the bonds on July 1, 2008.4 b. Prepare the journal entries to record the issuance and lapse of stock options.2 c. Briefly explain how convertible debt affects the diluted EPS calculation.12 Question8On April 1, 2008, Hedf Company entered into a 5-year lease for equipment. Annual lease payments are$25,000, payable at the beginning of each lease year (April 1). At the end of the lease, possession of theequipment will revert to the lessor. The equipment has an expected useful life of 5 years.Similar equipment could be purchased for $170,000 cash. Hedf’s incremental borrowing rate is 6%.Hedf’s year end is March 31. Hedf uses straight-line amortization for all its capital assets.Required8 a. Prepare all journal entries relating to the lease and leased asset for Hedf’s fiscal year endingMarch 31, 2009.4 b. State the amounts related to the lease that would be reported on the March 31, 2009 balance sheet,indicating the balance sheet classifications, account names, and amounts.END OF EXAMINATION 100FINANCIAL ACCOUNTING: LIABILITIES & EQUITIES [FA3]EXAMINATIONBefore starting to write the examination, make sure that it is complete and that there are no printing defects. This examination consists of 8 pages and 3 pages of attachments. There are 8 questions for a total of 100 marks.READ THE QUESTIONS CAREFULLY AND ANSWER WHAT IS ASKED.To assist you in answering the examination questions, CGA-Canada includes the following glossary of terms.Glossary of Assessment TermsAdapted from David Palmer, Study Guide: Developing Effective Study Methods (Vancouver: CGA-Canada, 1996). Copyright David Palmer.Calculate Mathematically determine theamount or number, showingformulas used and steps taken. (AlsoCompute).Compare Examine qualities or characteristicsthat resemble each other. Emphasizesimilarities, although differencesmay be mentioned.Contrast Comparebyobservingdifferences.Stress the dissimilarities of qualitiesor characteristics. (Also Distinguishbetween)Criticize Express your own judgmentconcerning the topic or viewpoint inquestion. Discuss both pros andcons.Define Clearly state the meaning of theword or term. Relate the meaningspecifically to the way it is used inthe subject area under discussion.Perhaps also show how the itemdefined differs from items in otherclasses.Describe Provide detail on the relevantcharacteristics, qualities, or events. Design Create an outcome (e.g., a plan orprogram) that incorporates therelevant issues and information. Determine Calculate or formulate a responsethat considers the relevantqualitative and quantitative factors. Diagram Give a drawing, chart, plan orgraphic answer. Usually you shouldlabel a diagram. In some cases, adda brief explanation or description.(Also Draw)Discuss This calls for the most complete anddetailed answer. Examine andanalyze carefully and present bothpros and cons. To discuss brieflyrequires you to state in a fewsentences the critical factors. Evaluate This requires making an informedjudgment. Your judgment must beshown to be based on knowledge andinformation about the subject. (Juststating your own ideas is notsufficient.) Cite authorities. Citeadvantages and limitations. Explain In explanatory answers you mustclarify the cause(s), or reasons(s).State the “how” and “why” of thesubject. Give reasons for differencesof opinions or of results.Identify Distinguish and specify the importantissues, factors, or items, usually basedon an evaluation or analysis of ascenario.Illustrate Make clear by giving an example,e.g., a figure, diagram or concreteexample.Interpret Translate, give examples of, solve, orcomment on a subject, usuallymaking a judgment on it.Justify Prove or give reasons for decisions orconclusions.List Present an itemized series ortabulation. Be concise. Point form isoften acceptable.Outline This is an organized description. Givea general overview, stating main andsupporting ideas. Use headings andsub-headings, usually in point form.Omit minor details.Prove Establish that something is true byciting evidence or giving clear logicalreasons.Recommend Propose an appropriate solution orcourse of action based on anevaluation or analysis of a scenario. Relate Show how things are connected witheach other or how one causes another,correlates with another, or is likeanother.Review Examine a subject critically,analyzing and commenting on theimportant statements to be madeabout it.State Clearly provide a position based onan evaluation, e.g., Agree/Disagree,Correct/Incorrect, Yes/No. (AlsoIndicate)Summarize Give the main points or facts incondensed form, like the summary ofa chapter, omitting details andillustrations.Trace In narrative form, describe progress,development, or historical eventsfrom some point of origin.Table 1Present Value of $1ni)(11+Period1%2%3%4%5%6%7%8%9%10%11%12%13%14%15%16%18%20%1.9901.9804.9709.9615.9524.9434.9346.9259.9174.9091.9009.8929.8850.8772.8696.8621.8475.83332.9803.9612.9426.9246.9070.8900.8734.8573.8417.8264.8116.7972.7831.7695.7561.7432.7182.69443.9706.9423.9151.8890.8638.8396.8163.7938.7722.7513.7312.7118.6931.6750.6575.6407.6086.57874.9610.9238.8885.8548.8227.7921.7629.7350.7084.6830.6587.6355.6133.5921.5718.5523.5158.48235.9515.9057.8626.8219.7835.7473.7130.6806.6499.6209.5935.5674.5428.5194.4972.4761.4371.40196.9420.8880.8375.7903.7462.7050.6663.6302.5963.5645.5346.5066.4803.4556.4323.4104.3704.33497.9327.8706.8131.7599.7107.6651.6227.5835.5470.5132.4817.4523.4251.3996.3759.3538.3139.27918.9235.8535.7894.7307.6768.6274.5820.5403.5019.4665.4339.4039.3762.3506.3269.3050.2660.23269.9143.8368.7664.7026.6446.5919.5439.5002.4604.4241.3909.3606.3329.3075.2843.2630.2255.193810.9053.8203.7441.6756.6139.5584.5083.4632.4224.3855.3522.3220.2946.2697.2472.2267.1911.161511.8963.8043.7224.6496.5847.5268.4751.4289.3875.3505.3173.2875.2607.2366.2149.1954.1619.134612.8874.7885.7014.6246.5568.4970.4440.3971.3555.3186.2858.2567.2307.2076.1869.1685.1372.112213.8787.7730.6810.6006.5303.4688.4150.3677.3262.2897.2575.2292.2042.1821.1625.1452.1163.093514.8700.7579.6611.5775.5051.4423.3878.3405.2992.2633.2320.2046.1807.1597.1413.1252.0985.077915.8613.7430.6419.5553.4810.4173.3624.3152.2745.2394.2090.1827.1599.1401.1229.1079.0835.064916.8528.7284.6232.5339.4581.3936.3387.2919.2519.2176.1883.1631.1415.1229.1069.0930.0708.054117.8444.7142.6050.5134.4363.3714.3166.2703.2311.1978.1696.1456.1252.1078.0929.0802.0600.045118.8360.7002.5874.4936.4155.3503.2959.2502.2120.1799.1528.1300.1108.0946.0808.0691.0508.037619.8277.6864.5703.4746.3957.3305.2765.2317.1945.1635.1377.1161.0981.0829.0703.0596.0431.031320.8195.6730.5537.4564.3769.3118.2584.2145.1784.1486.1240.1037.0868.0728.0611.0514.0365.026121.8114.6598.5375.4388.3589.2942.2415.1987.1637.1351.1117.0926.0768.0638.0531.0443.0309.021722.8034.6468.5219.4220.3418.2775.2257.1839.1502.1228.1007.0826.0680.0560.0462.0382.0262.018123.7954.6342.5067.4057.3256.2618.2109.1703.1378.1117.0907.0738.0601.0491.0402.0329.0222.015124.7876.6217.4919.3901.3101.2470.1971.1577.1264.1015.0817.0659.0532.0431.0349.0284.0188.012625.7798.6095.4776.3751.2953.2330.1842.1460.1160.0923.0736.0588.0471.0378.0304.0245.0160.010530.7419.5521.4120.3083.2314.1741.1314.0994.0754.0573.0437.0334.0256.0196.0151.0116.0070.004240.6717.4529.3066.2083.1420.0972.0668.0460.0318.0221.0154.0107.0075.0053.0037.0026.0013.000750.6080.3715.2281.1407.0872.0543.0339.0213.0134.0085.0054.0035.0022.0014.0009.0006.0003.0001Table 2Present Value of an Annuity of $1 Per Period for n Periodsi)i 1(1n−+− Number of Periods1%2%3%4%5%6%7%8%9%10%11%12%13%14%15%16%18%20%1.9901.9804.9709.9615.9524.9434.9346.9259.9174.9091.9009.8929.8850.8772.8696.8621.8475.83332 1.9704 1.9416 1.9135 1.8861 1.8594 1.8334 1.8080 1.7833 1.7591 1.7355 1.7125 1.6901 1.6681 1.6467 1.6257 1.6052 1.5656 1.52783 2.9410 2.8839 2.8286 2.7751 2.7232 2.6730 2.6243 2.5771 2.5313 2.4869 2.4437 2.4018 2.3612 2.3216 2.2832 2.2459 2.1743 2.10654 3.9020 3.8077 3.7171 3.6299 3.5460 3.4651 3.3872 3.3121 3.2397 3.1699 3.1024 3.0373 2.9745 2.9137 2.8550 2.7982 2.6901 2.58875 4.8534 4.7135 4.5797 4.4518 4.3295 4.2124 4.1002 3.9927 3.8897 3.7908 3.6959 3.6048 3.5172 3.4331 3.3522 3.2743 3.1272 2.99066 5.7955 5.6014 5.4172 5.2421 5.0757 4.9173 4.7665 4.6229 4.4859 4.3553 4.2305 4.1114 3.9975 3.8887 3.7845 3.6847 3.4976 3.32557 6.7282 6.4720 6.2303 6.0021 5.7864 5.5824 5.3893 5.2064 5.0330 4.8684 4.7122 4.5638 4.4226 4.2883 4.1604 4.0386 3.8115 3.604687.65177.32557.0197 6.7327 6.4632 6.2098 5.9713 5.7466 5.5348 5.3349 5.1461 4.9676 4.7988 4.6389 4.4873 4.3436 4.0776 3.837298.56608.16227.78617.43537.1078 6.8017 6.5152 6.2469 5.9952 5.7590 5.5370 5.3282 5.1317 4.9464 4.7716 4.6065 4.3030 4.0310109.47138.98268.53028.11097.72177.36017.0236 6.7101 6.4177 6.1446 5.8892 5.6502 5.4262 5.2161 5.0188 4.8332 4.4941 4.19251110.36769.78689.25268.76058.30647.88697.49877.1390 6.8052 6.4951 6.2065 5.9377 5.6869 5.4527 5.2337 5.0286 4.6560 4.32711211.255110.57539.95409.38518.86338.38387.94277.53617.1607 6.8137 6.4924 6.1944 5.9176 5.6603 5.4206 5.1971 4.7932 4.43921312.133711.348410.63509.98569.39368.85278.35777.90387.48697.1034 6.7499 6.4235 6.1218 5.8424 5.5831 5.3423 4.9095 4.53271413.003712.106211.296110.56319.89869.29508.74558.24427.78627.3667 6.9819 6.6282 6.3025 6.0021 5.7245 5.4675 5.0081 4.61061513.865112.849311.937911.118410.37979.71229.10798.55958.06077.60617.1909 6.8109 6.4624 6.1422 5.8474 5.5755 5.0916 4.67551614.717913.577712.561111.652310.837810.10599.44668.85148.31267.82377.3792 6.9740 6.6039 6.2651 5.9542 5.6685 5.1624 4.72961715.562314.291913.166112.165711.274110.47739.76329.12168.54368.02167.54887.1196 6.7291 6.3729 6.0472 5.7487 5.2223 4.77461816.398314.992013.753512.659311.689610.827610.05919.37198.75568.20147.70167.2497 6.8399 6.4674 6.1280 5.8178 5.2732 4.81221917.226015.678514.323813.133912.085311.158110.33569.60368.95018.36497.83937.3658 6.9380 6.5504 6.1982 5.8775 5.3162 4.84352018.045616.351414.877513.590312.462211.469910.59409.81819.12858.51367.96337.46947.0248 6.6231 6.2593 5.9288 5.3527 4.86962118.857017.011215.415014.029212.821211.764110.835510.01689.29228.64878.07517.56207.1016 6.6870 6.3125 5.9731 5.3837 4.89132219.660417.658015.936914.451113.163012.041611.061210.20079.44248.77158.17577.64467.1695 6.7429 6.3587 6.0113 5.4099 4.90942320.455818.292216.443614.856813.488612.303411.272210.37119.58028.88328.26647.71847.2297 6.7921 6.3988 6.0442 5.4321 4.92452421.243418.913916.935515.247013.798612.550411.469310.52889.70668.98478.34817.78437.2829 6.8351 6.4338 6.0726 5.4509 4.93712522.023219.523517.413115.622114.093912.783411.653610.67489.82269.07708.42177.84317.3300 6.8729 6.4641 6.0971 5.4669 4.94763025.807722.396519.600417.292015.372513.764812.409011.257810.27379.42698.69388.05527.49577.0027 6.5660 6.1772 5.5168 4.97894032.834727.355523.114819.792817.159115.046313.331711.924610.75749.77918.95118.24387.63447.1050 6.6418 6.2335 5.5482 4.99665039.196131.423625.729821.482218.255915.761913.800712.233510.96179.91489.04178.30457.67527.13276.66056.24635.55414.9995Table 3 Future Value of $1 at the End of n Periods n)i1(+Period1%2%3%4%5%6%7%8%9%10%11%12%13%14%15%16%18%20%1 1.0100 1.0200 1.0300 1.0400 1.0500 1.0600 1.0700 1.0800 1.0900 1.1000 1.1100 1.1200 1.1300 1.1400 1.1500 1.1600 1.1800 1.20002 1.0201 1.0404 1.0609 1.0816 1.1025 1.1236 1.1449 1.1664 1.1881 1.2100 1.2321 1.2544 1.2769 1.2996 1.3225 1.3456 1.3924 1.44003 1.0303 1.0612 1.0927 1.1249 1.1576 1.1910 1.2250 1.2597 1.2950 1.3310 1.3676 1.4049 1.4429 1.4815 1.5209 1.5609 1.6430 1.72804 1.0406 1.0824 1.1255 1.1699 1.2155 1.2625 1.3108 1.3605 1.4116 1.4641 1.5181 1.5735 1.6305 1.6890 1.7490 1.8106 1.9388 2.07365 1.0510 1.1041 1.1593 1.2167 1.2763 1.3382 1.4026 1.4693 1.5386 1.6105 1.6851 1.7623 1.8424 1.9254 2.0114 2.1003 2.2878 2.48836 1.0615 1.1262 1.1941 1.2653 1.3401 1.4185 1.5007 1.5869 1.6771 1.7716 1.8704 1.9738 2.0820 2.1950 2.3131 2.4364 2.6996 2.98607 1.0721 1.1487 1.2299 1.3159 1.4071 1.5036 1.6058 1.7138 1.8280 1.9487 2.0762 2.2107 2.3526 2.5023 2.6600 2.8262 3.1855 3.58328 1.0829 1.1717 1.2668 1.3686 1.4775 1.5938 1.7182 1.8509 1.9926 2.1436 2.3045 2.4760 2.6584 2.8526 3.0590 3.2784 3.7589 4.29989 1.0937 1.1951 1.3048 1.4233 1.5513 1.6895 1.8385 1.9990 2.1719 2.3579 2.5580 2.7731 3.0040 3.2519 3.5179 3.8030 4.4355 5.159810 1.1046 1.2190 1.3439 1.4802 1.6289 1.7908 1.9672 2.1589 2.3674 2.5937 2.8394 3.1058 3.3946 3.7072 4.0456 4.4114 5.2338 6.191711 1.1157 1.2434 1.3842 1.5395 1.7103 1.8983 2.1049 2.3316 2.5804 2.8531 3.1518 3.4785 3.8359 4.2262 4.6524 5.1173 6.17597.430112 1.1268 1.2682 1.4258 1.6010 1.7959 2.0122 2.2522 2.5182 2.8127 3.1384 3.4985 3.8960 4.3345 4.8179 5.3503 5.93607.28768.916113 1.1381 1.2936 1.4685 1.6651 1.8856 2.1329 2.4098 2.7196 3.0658 3.4523 3.8833 4.3635 4.8980 5.4924 6.1528 6.88588.599410.699314 1.1495 1.3195 1.5126 1.7317 1.9799 2.2609 2.5785 2.9372 3.3417 3.7975 4.3104 4.8871 5.5348 6.26137.07577.987510.147212.839215 1.1610 1.3459 1.5580 1.8009 2.0789 2.3966 2.7590 3.1722 3.6425 4.1772 4.7846 5.4736 6.25437.13798.13719.265511.973715.407016 1.1726 1.3728 1.6047 1.8730 2.1829 2.5404 2.9522 3.4259 3.9703 4.5950 5.3109 6.13047.06738.13729.357610.748014.129018.488417 1.1843 1.4002 1.6528 1.9479 2.2920 2.6928 3.1588 3.7000 4.3276 5.0545 5.8951 6.86607.98619.276510.761312.467716.672222.186118 1.1961 1.4282 1.7024 2.0258 2.4066 2.8543 3.3799 3.9960 4.7171 5.5599 6.54367.69009.024310.575212.375514.462519.673326.623319 1.2081 1.4568 1.7535 2.1068 2.5270 3.0256 3.6165 4.3157 5.1417 6.11597.26338.612810.197412.055714.231816.776523.214431.948020 1.2202 1.4859 1.8061 2.1911 2.6533 3.2071 3.8697 4.6610 5.6044 6.72758.06239.646311.523113.743516.366519.460827.393038.337621 1.2324 1.5157 1.8603 2.2788 2.7860 3.3996 4.1406 5.0338 6.10887.40028.949210.803813.021115.667618.821522.574532.323846.005122 1.2447 1.5460 1.9161 2.3699 2.9253 3.6035 4.4304 5.4365 6.65868.14039.933612.100314.713817.861021.644726.186438.142155.206123 1.2572 1.5769 1.9736 2.4647 3.0715 3.8197 4.7405 5.87157.25798.954311.026313.552316.626620.361624.891530.376245.007666.247424 1.2697 1.6084 2.0328 2.5633 3.2251 4.0489 5.0724 6.34127.91119.849712.239215.178618.788123.212228.625235.236453.109079.496825 1.2824 1.6406 2.0938 2.6658 3.3864 4.2919 5.4274 6.84858.623110.834713.585517.000121.230526.461932.919040.874262.668695.396230 1.3478 1.8114 2.4273 3.2434 4.3219 5.74357.612310.062713.267717.449422.892329.959939.115950.950266.211885.8499143.3706237.376340 1.4889 2.2080 3.2620 4.80107.040010.285714.974521.724531.409445.259365.000993.0510132.7816188.8835267.8635378.7212750.37831469.771650 1.6446 2.6916 4.38397.106711.467418.420229.457046.901674.3575117.3909184.5648289.0022450.7359700.23301083.65741670.70403927.35709100.4382Table 4 Sum of an Annuity of $1 Per Period for n Periodsi 1)i1(n−+NumberofPeriods1%2%3%4%5%6%7%8%9%10%11%12%13%14%15%16%18%20%1 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.0000 1.00002 2.0100 2.0200 2.0300 2.0400 2.0500 2.0600 2.0700 2.0800 2.0900 2.1000 2.1100 2.1200 2.1300 2.1400 2.1500 2.1600 2.1800 2.20003 3.0301 3.0604 3.0909 3.1216 3.1525 3.1836 3.2149 3.2464 3.2781 3.3100 3.3421 3.3744 3.4069 3.4396 3.4725 3.5056 3.5724 3.64004 4.0604 4.1216 4.1836 4.2465 4.3101 4.3746 4.4399 4.5061 4.5731 4.6410 4.7097 4.7793 4.8498 4.9211 4.9934 5.0665 5.2154 5.36805 5.1010 5.2040 5.3091 5.4163 5.5256 5.6371 5.7507 5.8666 5.9847 6.1051 6.2278 6.3528 6.4803 6.6101 6.7424 6.87717.15427.44166 6.1520 6.3081 6.4684 6.6330 6.8019 6.97537.15337.33597.52337.71567.91298.11528.32278.53558.75378.97759.44209.929977.21357.43437.66257.89838.14208.39388.65408.92289.20049.48729.783310.089010.404710.730511.066811.413912.141512.915988.28578.58308.89239.21429.54919.897510.259810.636611.028511.435911.859412.299712.757313.232813.726814.240115.327016.499199.36859.754610.159110.582811.026611.491311.978012.487613.021013.579514.164014.775715.415716.085316.785817.518519.085920.79891010.462210.949711.463912.006112.577913.180813.816414.486615.192915.937416.722017.548718.419719.337320.303721.321523.521325.9587 1111.566812.168712.807813.486414.206814.971615.783616.645517.560318.531219.561420.654621.814323.044524.349325.732928.755132.1504 1212.682513.412114.192015.025815.917116.869917.888518.977120.140721.384322.713224.133125.650227.270729.001730.850234.931139.5805 1313.809314.680315.617816.626817.713018.882120.140621.495322.953424.522726.211628.029129.984732.088734.351936.786242.218748.4966 1414.947415.973917.086318.291919.598621.015122.550524.214926.019227.975030.094932.392634.882737.581140.504743.672050.818059.1959 1516.096917.293418.598920.023621.578623.276025.129027.152129.360931.772534.405437.279740.417543.842447.580451.659560.965372.0351 1617.257918.639320.156921.824523.657525.672527.888130.324333.003435.949739.189942.753346.671750.980455.717560.925072.939087.4421 1718.430420.012121.761623.697525.840428.212930.840233.750236.973740.544744.500848.883753.739159.117665.075171.673087.0680105.9306 1819.614721.412323.414425.645428.132430.905733.999037.450241.301345.599250.395955.749761.725168.394175.836484.1407103.7403128.1167 1920.810922.840625.116927.671230.539033.760037.379041.446346.018551.159156.939563.439770.749478.969288.211898.6032123.4135154.7400 2022.019024.297426.870429.778133.066036.785640.995545.762051.160157.275064.202872.052480.946891.0249102.4436115.3797146.6280186.6880 2123.239225.783328.676531.969235.719339.992744.865250.422956.764564.002572.265181.698792.4699104.7684118.8101134.8405174.0210225.0256 2224.471627.299030.536834.248038.505243.392349.005755.456862.873371.402781.214392.5026105.4910120.4360137.6316157.4150206.3448271.0307 2325.716328.845032.452936.617941.430546.995853.436160.893369.531979.543091.1479104.6029120.2048138.2970159.2764183.6014244.4868326.2369 2426.973530.421934.426539.082644.502050.815658.176766.764876.789888.4973102.1742118.1552136.8315158.6586184.1678213.9776289.4945392.4842 2528.243232.030336.459341.645947.727154.864563.249073.105984.700998.3471114.4133133.3339155.6196181.8708212.7930249.2140342.6035471.9811 3034.784940.568147.575456.084966.438879.058294.4608113.2832136.3075164.4940199.0209241.3327293.1992356.7868434.7451530.3117790.94801181.8816 4048.886460.402075.401395.0255120.7998154.7620199.6351259.0565337.8824442.5926581.8261767.09141013.70421342.02511779.09032360.75724163.21307343.8578 5064.463284.5794112.7969152.6671209.3480290.3359406.5289573.7702815.08361163.90851668.77122400.01823459.50714994.52137217.716310435.648821813.093745497.1908。

管理会计英文试题及答案Management Accounting English Exam Questions and AnswersQuestion 1:The following information is available for XYZ Company:Sales Revenue: $500,000Variable Costs: $150,000Fixed Costs: $100,000Total Assets: $800,000Tax Rate: 30%Calculate the company's contribution margin ratio and net operating income.Answer 1:Contribution Margin Ratio = (Sales Revenue - Variable Costs) / Sales Revenue= ($500,000 - $150,000) / $500,000= 70%Net Operating Income = Contribution Margin - Fixed Costs= ($500,000 - $150,000) - $100,000= $250,000Question 2:ABC Company produces and sells a product with the following data:Selling Price per Unit: $20Variable Cost per Unit: $10Fixed Costs: $50,000Expected Sales Volume: 10,000 unitsCalculate the breakeven point in units and dollars.Answer 2:Breakeven Point in Units = Fixed Costs / Contribution Margin per Unit= $50,000 / ($20 - $10)= 5,000 unitsBreakeven Point in Dollars = Breakeven Point in Units * Selling Price per Unit= 5,000 units * $20= $100,000Question 3:Determine the total cost and average cost per unit for a company based on the following data:Fixed Costs: $30,000Variable Costs per Unit: $5Production Volume: 8,000 unitsAnswer 3:Total Costs = Fixed Costs + (Variable Costs per Unit * Production Volume)= $30,000 + ($5 * 8,000)= $70,000Average Cost per Unit = Total Costs / Production Volume= $70,000 / 8,000= $8.75Question 4:A company has the following cost information:Direct Materials: $20,000Direct Labor: $30,000Other Manufacturing Overhead: $5,000Selling and Administrative Expenses: $10,000Calculate the Cost of Goods Manufactured and Cost of Goods Sold.Answer 4:Cost of Goods Manufactured = Direct Materials + Direct Labor + Other Manufacturing Overhead= $20,000 + $30,000 + $5,000= $55,000Cost of Goods Sold = Cost of Goods Manufactured + Opening Finished Goods Inventory - Closing Finished Goods Inventory= $55,000 + (Opening Finished Goods Inventory - Closing Finished Goods Inventory)Question 5:The following information is available for a company:Gross Profit: $80,000Operating Expenses: $50,000Other Income: $10,000Other Expenses: $5,000Calculate the Net Operating Income.Answer 5:Net Operating Income = Gross Profit - Operating Expenses + Other Income - Other Expenses= $80,000 - $50,000 + $10,000 - $5,000= $35,000Conclusion:In this article, we have discussed various management accounting questions and provided their corresponding answers. These questions covertopics such as contribution margin ratio, breakeven analysis, cost calculation, and net operating income. By understanding and applying these concepts, managers can make informed decisions regarding the financial aspects of their businesses.。

cma领取证书条件CMA（Certified Management Accountant）是国际管理会计师认证考试，是全球公认的管理会计专业认证之一。

只有满足一定条件的考生才能领取CMA证书。

以下是CMA领取证书的条件：1. 完成CMA考试：考生需要通过CMA考试的两个部分，分别是管理会计与财务管理以及战略财务管理。

考生需要在指定的考试时间内完成这两个部分的考试，并达到相应的及格标准。

2. 学历要求：获得CMA证书需要具备本科学历或以上学历。

考生需要提供相应的学历证明，如学位证书或毕业证书。

3. 工作经验：除了通过考试，CMA证书还要求考生具备一定的工作经验。

具体要求根据所在国家或地区的规定而有所不同。

一般来说，考生需要有两年或以上的相关工作经验，其中至少一年的工作经验需要在管理会计领域。

4. 会员资格：考生需要成为CMA专业机构的会员才能领取CMA证书。

具体的会员资格要求也会根据所在国家或地区的规定而有所不同。

成为会员需要提交相应的申请，支付会员费用，并符合会员条件。

5. 遵守道德规范：CMA考生需要遵守职业道德规范。

这包括诚实、透明、保护客户利益、遵循法律法规等。

考生在申请CMA证书时需要签署承诺遵守这些道德规范。

总结起来，要领取CMA证书，考生需要完成CMA考试的两个部分，并达到及格标准；具备本科或以上学历；拥有相关的工作经验，其中至少一年需要在管理会计领域；成为CMA专业机构的会员；并遵守职业道德规范。

通过满足这些条件，考生才能成功领取CMA证书，获得国际管理会计师的资格认证。

cgma机构推出的中文考试真的嘛-概述说明以及解释1.引言1.1 概述在全球化的背景下，越来越多的人意识到学习一门外语的重要性，而中文作为世界上使用人数最多的语言之一，逐渐成为了国际社会对外交流和学习的热门选择。

对于那些希望在商业领域中发展的人来说，掌握中文更是必不可少的技能。

CGMA（Chartered Global Management Accountant，全球特许管理会计师）机构作为国际知名的会计与管理领域专业机构，旨在培养和推广全球管理会计师。

为了提供更广阔的学习和发展机会，CGMA机构推出了中文考试，以满足不同背景和需求的学习者。

本文将对CGMA机构推出的中文考试进行详细介绍和评价，并探讨中文考试对个人和职业发展的影响。

最后，文章还将展望CGMA机构推出的中文考试的未来，以帮助读者更好地了解并把握这一学习机会。

通过本文的阅读，读者将了解到CGMA机构推出中文考试的背景和需求，考试的具体内容和形式，并对这一新兴考试进行综合评价。

此外，还将了解到中文考试对个人和职业发展的重要性，为读者提供对这一考试的深入思考和未来发展前景的展望。

1.2 文章结构在文章1.2部分中，我们将探讨本文的文章结构。

本文主要分为三个部分：引言、正文和结论。

在引言中，我们将概述本文的主题和目的，并提供一些背景信息。

首先，我们会简要介绍CGMA机构以及其在会计和管理领域的重要性。

接着，我们将阐述中文考试在当前社会的背景和需求，以及为什么CGMA 机构决定推出中文考试。

最后，我们将对整篇文章进行总结，提供一些初步的观点和结论。

在正文部分，我们将更深入地介绍CGMA机构推出的中文考试。

首先，我们将详细介绍CGMA机构的背景和其在全球范围内的地位与影响力。

然后，我们将探讨中文考试的背景和需求，包括中文作为全球通用语言的地位和日益增长的中文学习需求。

接着，我们将详细介绍CGMA机构推出的中文考试的内容和形式，包括考试科目、考试难度和考试证书的认可度等方面。

CGA本科合作项目专业资格认证阶段学生管理办法本管理办法适用于中国高校CGA合作项目2001~2004级本科班所有学生并将根据CGA总部的政策调整而调整。

一、合作项目课程设置：1、专业必修课CGA Level 课程名称使用教材考试组织Financial Accounting 1 会计学原理CGA英文原版或学校指定Economics 1 经济学学校指定Level 1Law 1 法律学学校指定合作大学Financial Accounting 2 中级财务会计（上）CGA英文原版Quantitative Methods 1 数理统计学校指定Management Accounting 1 成本会计 CGA英文原版Level 2Communications 1 大学英语学校指定合作大学Financial Accounting 3 中级财务会计（下）Finance 1 财务管理Management Information System 1管理信息系统Level 3Business Case 1 商务案例 1CGA英文原版合作大学Management Accounting 2 高级管理会计Accounting Theory 1 会计理论Auditing 1 审计学Level 4Business Case 2 商务案例 2CGA英文原版合作大学2、专业选修课—CGA资格认证课程（学生自愿选择，不选择不影响获得学位）CGA Level 课程名称使用教材考试组织Level 4 Taxation 1 加拿大税 CGA英文原版CGA Financial Accounting 4 高级财务会计Finance 2 高级财务管理Management Information System 2管理信息系统 2PACEProfessional Applications 1 专业认可综合考试CGA英文原版CGA二、取得CGA资格的条件：1、获得学士或以上学位；2、专业必修课程部分（CGA Level 1~4）获得CGA的豁免；3、按照CGA的要求完成专业选修课程部分（TX1及PACE Level）的学习并通过CGA的全球统一考试；4、两年或两年以上财会及其相关工作经验（工作经验要求在5年之内满足）。

2023年Certified Management Accountant考试真题答案解析在2023年的Certified Management Accountant（CMA）考试中，备受考生关注的是考试的真题及其答案解析。

本篇文章将为大家详细解析2023年CMA考试的真题答案，并依据题目的要求采用适当的格式进行书写。

【第一部分：多选题】1. 题目：在财务管理中，风险管理的目的是什么？答案：正确答案为B，风险管理的目的是最大限度地控制和降低风险程度，以保护组织的利益。

解析：风险管理在财务管理中起到至关重要的作用，它有助于组织最大化地控制和降低风险，以保障组织的可持续发展。

通过有效的风险管理，组织可以预防潜在风险，并采取相应的应对措施，从而减少损失和影响。

2. 题目：根据管理会计的相关原则，成本管理的目的是什么？答案：正确答案为D，成本管理的目的是通过对成本进行系统的控制和分析，提高组织的效益和竞争力。

解析：成本管理是管理会计的重要内容之一，其核心目标是通过对成本的系统化控制和分析，帮助组织提高效益和竞争力。

通过成本管理，组织可以合理控制和优化成本结构，实现资源的最优配置，从而提高运作效率和盈利能力。

【第二部分：判断题】1. 题目：管理会计是一个独立的会计学科，与财务会计完全不相关。

答案：错误解析：管理会计与财务会计虽然在研究内容和方法上存在差异，但二者之间存在紧密的联系和互相补充关系。

管理会计主要关注内部管理和决策，通过提供准确的、实用的管理信息，为组织的决策提供依据。

而财务会计则主要关注对外报告和揭示企业的财务状况及经营成果。

2. 题目：管理会计只应用于大型企业，对中小型企业没有实际意义。

答案：错误解析：管理会计不仅适用于大型企业，对于中小型企业同样具有实际意义。

无论企业规模大小，管理会计都可以帮助企业进行成本控制、业绩评估、决策分析等工作，提高企业的经营效率和竞争力。

【第三部分：解答题】1. 题目：什么是预算编制过程中的波动分析？请简要解释。

CA,加拿大最大最牛的会计师团体,会计准则由它制定,只有CA 能够签署审计报告,特别在安省,(现在CGA正在和政府谈,争取到这个权利,因为在BC和ALBERTA两省,CGA的影响力是很大的).加西和加东虽说最后都要通过UFE的考试+30个月在CA FIRM(这个要求是全国都一样的,现在极少数的大公司也提供CA承认的经验,比如TELUS)里的工作经验 (有人说只要一年相关经验,我从来没有听说过) 对与CA考试的要求不一样.另: 加入CA PROGRAM最最基本的要求:有本科学位+移民身份CGA,加拿大第二大会计师团体,在中国也有分部。

CGA比较注重纯会计方面的东西,职业方向也比较杂,财务经理,财务分析,审计,成本等等都有可能做.总共有十几门课,取决于你所在的大学和所学的专业可以转学分,但是无论如何,你最后在PROFESSIONAL APPLICATION COMPREHENSIVE EXAMS LEVEL里的四门是免不了的,我认识的加拿大本科会计毕业的学生一般需要最后考6门左右(算三个月考一门,要一年半),完成所有CGA 课程+24个月工作经验(其中一年要是SENIOR,有一定管理性质的职位),才能拿到MEMBERSHIP。

加入CGA PROGRAM 最基本要求: 有本科学位。

CMA,主要面向管理者,会计所学知识不如CA和CGA深,但是涉猎领域更广,更重管理。

同CGA一样,有很多门课,取决于你所在的大学和所学的专业可以转学分,我所认识的一个U of T和一个MAMASTER本科会计毕业,在他们已经做完课程评估之后,要先修三到四门课程,然后去考ENTRANCE EXAM, 然后在一年半的时间里有一个关于CASE的EXAM和几次PRESENTATION,如果通过,两年的工作经验(其中半年SENIOR). 在BROCK 读IMACC,其实CMA是很看重的,因为你的课程评估之后，换句话说,BROCK IMACC的课程设置和教学水平,CMA是很认可的,可以直接参加ENTRANCE EXAM,这点任何一所大学的本科毕业的学生是不可能做到的. 最基本要求: 有本科学位三个选那个,个人问题,没有共性.有一点是可以肯定,在加拿大,没有一个DESIGNATION(CFA或AICPA也算),做财务这一块,永远只能停留在JUNIOR LEVEL,而且从COLLEGE毕业想考这三个中的任何一个都需要很久时间的,因为你的学分能TRANSFER 的不多.选择职业就如同选择人生，好的职业从好的专业开始。

CGA-CANADAACCOUNTING THEORY 1 EXAMINATIONMarch 2006MarksTime: 3 HoursNote:All references to the Handbook refer to the CICA Handbook .30 Question 1Select the best answer for each of the following unrelated items. Answer each of these items in your examination booklet by giving the number of your choice. For example, if the best answer for item (a) is (1), write (a)(1) in your examination booklet. If more than one answer is given for an item, that item will not be marked. Incorrect answers will be marked as zero. Marks will not be awarded for explanations.Note:2 marks eacha. The phenomenon known as post-announcement drift (PAD) is one of the earliest recorded examplesof an efficient market anomaly. This phenomenon defines the behaviour of share returns after firms announce their earnings. Which of the following statements about PAD is correct? 1) PAD has been observed only for shares held by sophisticated investors. 2) PAD has been observed only for large firms with a large analyst following.3) PAD reflects the fact that investors appear to underestimate the implication of current earnings forfuture earnings.4) PAD has been observed only for firms belonging to certain industries.b. The real environment in which accountants operate is characterized by incomplete markets. Which ofthe following statements is the most important implication of incompleteness for accountants? 1) Present value calculations cannot be made. 2) True net income does not exist.3) Securities markets will not be fully efficient. 4) Arbitrage forces market value to equal present value.c. Under ideal conditions of uncertainty, only one method of amortization of capital assets is correct.Which method is this? 1) Change in expected present value of asset 2) Reserve recognition accounting (RRR) 3) Straight line4) Change in expected present value of asset adjusted for abnormal earningsd. When the owner of a company hires a manager to run the company, moral hazard may reduce themanager’s incentive to act to maximize the interest of the owner. Moral hazard is a type ofinformation asymmetry that can be reduced or eliminated by drawing up a suitable contract between the owner and the manager. The type of contract known as the “first-best” contract can be achieved under which of the following situations? 1) When the manager can costlessly observe the owner’s action 2) When the manager can figure out the owner’s chosen action3) When the owner can costlessly observe the manager’s chosen action4)When the manager receives a share of the payoff中华财会学习网ww w.1000ck .co me. Stock options are often provided to managers in order to align managers’ and shareholders’ interests.Usually, such stock options are issued with zero intrinsic value. The term “intrinsic value” refers to which of the following statements? 1) The difference between the market value of the underlying share on the grant date and theexercise price of the option2) The price of the option quoted in the financial press on the grant date3) The price of the option calculated using the Black/Scholes option pricing formula4) The difference between the Black/Scholes value of the option and the price of the option reportedin the financial pressf. Some theories of disclosure state that voluntary disclosures by firms raise firm value. For example,Diamond and Verrecchia (1991) argue that voluntary disclosure reduces information asymmetrybetween the firm and the market and increases market liquidity. Which of the following explains why an increase in market liquidity increases firm value?1) Greater market liquidity increases demand for a firm’s shares because large investors can selllarge amounts of shares without lowering the price they receive.2) Greater liquidity increases firm value by increasing the bid-ask spread.3) Greater market liquidity increases firm value by decreasing analysts’ earnings forecast errors. 4) Greater liquidity increases firm value by increasing adverse selection.g. SFAS 133 is an important standard for the accounting for derivatives in the United States. It mandatesdifferent accounting rules for “fair value hedges” versus cash flow hedges. Which of the following statements correctly defines these types of hedging instruments? 1) Fair value hedges are derivative instruments designated as hedges of recognized assets andliabilities.2) Cash flow hedges are derivative instruments designated as hedges of recognized assets andliabilities.3) Fair value hedges are derivative instruments designated as hedges of forecasted transactions.4) Cash flow hedges are derivative instruments that are highly effective in offsetting changes in thefair value of the hedged item.h. Which of the following statements best describes accounting standard setting? 1) The regulation of the release of credible inside information about firms’ future prospects 2) The regulation of firms’ external information production decisions by a central authority3) The regulation of firms’ internal information production decisions by firms’ boards of directors 4)The regulation of firms’ internal information production decisions by a central authorityi.True net income does not exist, except under ideal conditions. What does this statement imply?1) That financial accounting requires professional judgment 2) That markets are incomplete3) That objective state probabilities do not exist4) That to be useful, financial statements must be completely reliable中华财会学习网ww w.1000ck .co mj. One earnings management tool commonly used by firm managers prior to 1989 was “classificatorysmoothing.” However, Section 3480 of the CICA Handbook , adopted in 1989, virtually eliminated the use of “classificatory smoothing” as an earnings management tool. For this reason, Section 3480 is sometimes considered an improvement in financial reporting. Which of the following statements correctly defines classificatory smoothing? 1) Firms recognize extraordinary losses in profit years and extraordinary gains in loss years. 2) Firms recognize asset write-downs in profit years and asset write-ups in loss years.3) Managers smooth earnings from continuing operations by classifying unusual items above orbelow the operating earnings line.4) Firms smooth net income by choosing to classify unusual items above the net income line.k. Which of the following statements about reserve recognition accounting (RRA) based financialstatements is correct?1) RRA-based financial statements for oil and gas firms are more relevant than financial statementsprepared using historical cost (HC) accounting.2) RRA-based financial statements are less relevant than HC-based financial statements. 3) RRA-based financial statements are more reliable than HC-based financial statements. 4) RRA-based financial statements can be derived from HC-based financial statements.l. Positive accounting theory (PAT) forms an important component of financial accounting theory.Which of the following statements appropriately describes PAT? 1) PAT is concerned with predicting managers’ accounting policy choices and how managers willrespond to proposed new accounting standards.2) PAT is concerned with which accounting policy choices managers should make.3) PAT is concerned with specifying managerial accounting policy choice so that it is logicallyconsistent with underlying decision theories.4) PAT is concerned with achieving diversification of accounting policies used in the firm.m. Economists have argued that one implication of securities market efficiency is that a security’s marketprice should fluctuate randomly over time. Which of the following statements describes why this is the case? 1) Security prices change only if some relevant unexpected information comes along.2) Most investors believe that some individuals have superior ability to predict securities marketfluctuations.3) Security prices follow a serially correlated type of time series behaviour.4) Security prices must change when expected events affecting the security are realized.n. The information perspective on decision usefulness views accountants as supplying information forwhich of the following purposes?1) To inform investors about the fair values of assets and liabilities2) To help rational investors revise the main diagonal probabilities of the information system 3) To assist rational investors to make predictions of future firm performance 4) To inform investors about manager performanceo. Which of the following statements about earnings response coefficients (ERCs) is correct?1) ERCs are positively related to beta risk.2) ERCs are positively related to the debt-to-equity ratio. 3) ERCs are positively related to earnings persistence. 4)ERCs are negatively related to earnings quality.中华财会学习网ww w.1000ck .co m14 Question 2In many firms, managers’ compensation is based on measures of managerial effort, namely, net income and share price. This requires managers to share the risk (of uncertain firm payoff) with shareholders and aligns the interests of owners and managers, thereby controlling the effects of moral hazard.However, Fama (1980) argues that incentive contracts such as those stated above are not needed because the managerial labour market controls moral hazard.Required 6 a. Explain two reasons to support Fama’s argument. 8 b. Explain two reasons why Fama’s argument may not hold.10 Question 3The following questions are on decision usefulness.Required 6a. Explain why decision usefulness and reduction of information asymmetry are important factors thatshould be considered during the standard-setting process as necessary criteria for a successful accounting standard.4b. Explain how cost factors may cause an accounting standard to fail even if the standard is decisionuseful and leads to a reduction in information asymmetry. Give two examples of costs of standards.14 Question 4This question is based on the article entitled “VW Shares Rev up Despite ’04 Profit Drop,” which appeared in the February 15, 2005 issue of The Globe and Mail . The article discusses profits and other figures relating to Volkswagen AG for 2004 and 2003.Profits before special items for Volkswagen are reported as €2.015 billion and €2.297 billion for 2004 and 2003, respectively. Information is also provided in the article about Volkswagen’s net cash flows for these two years.EXHIBIT 4-1VW Shares Rev up Despite ’04 Profit DropAnalysts relatively impressed as German giant exceeds not-so-great expectationsThis article has been removed because of copyright restrictions.Source: Christiaan Hetzner, “VW Shares Rev up Despite ’04 Profit Drop,” The Globe and Mail , February 15, 2005, p. B10. Copyright Reuters News Agency.Required11 a.(4) i) Calculate in euros Volkswagen’s total accruals for 2003 and 2004. (3) ii) Compare the relative persistence of Volkswagen’s profits before special item for 2003 and 2004.For which year is the persistence greater? Explain.(4) iii) Based on the market’s response to VW’s profit report and the accruals component of profitcalculated in part (a), can you estimate the relative earnings response coefficients ofVolkswagen’s profit (before special items) for 2003 versus 2004? Explain why you can or cannot.Hint: Use the findings of Sloan (1996) in your answer.3 b. The efficient securities market forms expectations of a firm’s profits. Identify three measures of中华财会学习网ww w.1000ck .co m8Question 5This question is based on the article entitled “Rewarding CEOs Good for Business, Survey Finds,” which appeared in the March 25, 2005, issue of The Globe and Mail .The article reports that the Toronto Stock Exchange companies that paid bonuses in 2003 had a return on equity of 10 percent. Firms that did not pay bonuses had a return on equity of 1.4 percent. Bonuses are a part of managerial compensation related to net income for the year. Return on equity is defined as the ratio of net income and shareholders’ equity (average of beginning and ending shareholders’ equity). The article concludes that payment of bonuses is related to a high level of firm performance.EXHIBIT 5-1Rewarding CEOs Good for Business, Survey FindsPaying bonuses pays off, it would seem.Canadian companies that paid their chief executive officers bonuses in 2003, tended to outperform those companies that didn’t, according to Watson Wyatt & Co.’s annual survey on pay.The 176 TSX-listed companies that paid bonuses in 2003 returned 31 percent to shareholders and had a return on equity of 10 percent, the consulting firm said. The 39 companies that didn’t pay bonuses returned just 6 percent to shareholders with a return on equity of 1.4 percent. The survey used 2003 salaries because that was the most recent period for which data was available.“There is a link, over all, between incentive compensation and performance,” Ray Murrill, executive compensation practice leader and author of the report, said. “Incentive compensation, if done properly, does work. What you don’t want is excessive compensation or none at all, or you won’t get the executive talent that you need.”So who got the big bonuses back in 2003? Watson Wyatt didn’t give specifics but according to a Report on Business survey, Belinda Stronach, the former CEO of Magna International Inc., was Canada’s biggest winner in 2003, raking in a bonus of $6.75-million. In that year, the company’s return on equity was 10.22 percent. Another example of who received a large bonus was Philip Orsino, CEO of Masonite International Corp.Not everyone took a big bonus. BCE Inc. CEO Michael Sabia turned down his payment, worth$1.44-million. He also declined a short-term bonus of $1.475-million last year because of billing glitches that plagued the wireless unit in 2004.Source : Tavia Grant, “Rewarding CEOs Good for Business, Survey Finds,” The Globe and Mail , March 25, 2005, p. B3. Reprinted with permission from the Globe and Mail.Required4 a. Explain why payment of bonuses to managers might lead to high firm performance.4b. Does payment of bonuses based on net income ensure high firm performance? Explain.中华财会学习网ww w.1000ck .co m12 Question 6Easton and Zmijewski (1989) examined the links between unexpected earnings (that is, good news or bad news) for a particular earnings quarter, revisions of analysts’ forecasts for subsequent quarters, andearnings response coefficients. Unexpected earnings (UE) are defined as actual quarterly net income (NI) minus analyst forecasts of earnings for that quarter.The following information is available about two firms, ABC Co. and XYZ Co.Firm Reported NI for quarter 1, 2006(3 months ending March 31, 2006) Analyst forecast of NI for quarter 1, 2006 (3 months ending March 31, 2006) Analyst forecast of NI for quarter 2, 2006 (3 months ending June 30, 2006)Announcement DateAmount Forecast Date Amount Forecast Date AmountABC Co. April 20, 2006 $1.50 per share April 15, 2006 $1.30 per share April 15, 2006 May 15, 2006$0.75 per share $0.80 per shareXYZ Co. April 20, 2006 $2.00 per share April 15, 2006 $2.30 per share April 15, 2006 May 15, 2006 $1.80 per share $1.60 per shareNote that analysts forecasted net income for quarter 2 first on April 15, 2006 (before reported earnings were announced) and subsequently on May 15, 2006 (after reported earnings were announced). This was the case for both ABC and XYZ. For both firms, net income forecasts for quarter 2, 2006, were revised (changed) on May 15, 2006.Required 5a. Easton and Zmijewski define the “revision coefficient” as the change (revision) in analyst quarter 2net income forecast (in cents) for every dollar of unexpected earnings per share for quarter 1. Calculate the revision coefficients for ABC and XYZ.4b. Using the answer to part (a), compare the informativeness of the information system underlying thefinancial statements of ABC with that of XYZ.3 c. Explain the effects of relevance and reliability on an information system.12 Question 7In 1973, W.H. Beaver considered the implications of efficient securities markets for financial reporting. Many of Beaver’s arguments are still relevant today.Required4 a. Beaver argues that it does not matter which accounting policies firms use, as long as the policiesactually used are disclosed. Explain Beaver’s argument.4b. i) If the definition of an efficient securities market were literally true, securities prices wouldcollapse. Explain why.ii) State one reason why securities prices might not in fact collapse. 4 c. Despite Beaver’s arguments in part (a), we observe that managers do care about accounting policies.Use positive accounting theory to explain two reasons why managers care about the accounting policies they use.END OF EXAMINATION100中华财会学习网ww w.1000ck .co mACCOUNTING THEORY 1 [AT1]EXAMINATIONBefore starting to write the examination, make sure that it is complete and that there are no printing defects. This examination consists of 6 pages. There are 7 questions for a total of 100 marks.READ THE QUESTIONS CAREFULLY AND ANSWER WHAT IS ASKED.To assist you in answering the examination questions, CGA-Canada includes the following glossary of terms.GlossaryFrom David Palmer, Study Guide: Developing Effective Study Methods (Vancouver: CGA-Canada, 1996). Copyright David Palmer.Compare Examine qualities or characteristics thatresemble each other. Emphasize similarities,although differences may be mentioned. Contrast Comparebyobservingdifferences. Stressthe dissimilarities of qualities orcharacteristics. (Also Distinguish between) Criticize Express your own judgment concerning thetopic or viewpoint in question. Discuss bothpros and cons.Define Clearly state the meaning of the word orterm. Relate the meaning specifically to theway it is used in the subject area underdiscussion. Perhaps also show how the itemdefined differs from items in other classes. Describe Tellthewhole story in narrative form. Diagram Give a drawing, chart, plan or graphicanswer. Usually you should label a diagram.In some cases, add a brief explanation ordescription.Discuss This calls for the most complete and detailed answer. Examine and analyze carefully andpresent both pros and cons. To discussbriefly requires you to state in a fewsentences the critical factors.Evaluate This requires making an informed judgment.Your judgment must be shown to be basedon knowledge and information about thesubject. (Just stating your own ideas is notsufficient.) Cite authorities. Cite advantagesand limitations.Explain In explanatory answers you must clarify the cause(s), or reasons(s). State the “how” and“why” of the subject. Give reasons fordifferences of opinions or of results. Illustrate Make clear by giving an example, e.g., afigure, diagram or concrete example. Indicate Provide a short explanation.Interpret Translate, give examples of, solve, orcomment on a subject, usually making ajudgment on it.Justify Prove or give reasons for decisions orconclusions.List Present an itemized series or tabulation.Be concise. Point form is oftenacceptable. (Also Enumerate or Identify) Outline This is an organized description. Give ageneral overview, stating main andsupporting ideas. Use headings andsub-headings, usually in point form. Omitminor details.Prove Establish that something is true by citingevidence or giving clear logical reasons. Relate Show how things are connected with eachother or how one causes another,correlates with another, or is like another. Review Examine a subject critically, analyzingand commenting on the importantstatements to be made about it.State Present the main points in brief, clearsequence, usually omitting details,illustrations, or examples.Summarize Give the main points or facts in condensedform, like the summary of a chapter,omitting details and illustrations.Trace In narrative form, describe progress,development, or historical events fromsome point of origin.中华财会学习网w ww.1000c k.co mCGA-CANADAACCOUNTING THEORY 1 EXAMINATIONMarch 2006SUGGESTED SOLUTIONSMarks Time: 3 Hours30 Question 1Note:2 marks eachSources/Explanations: a. 3) Topic 5.2 (Level 1)Answer 1) is wrong because Bartov, Radhakrishnan and Krinsky (2000) find that, in fact, PAD is less for shares held by sophisticated investors. Answer 2) is incorrect because Brown and Han (2000) find that PAD is observed for small firms with little analyst following, not large firms. There is no evidence to support answer 4).b. 2) Topic 1.6 (Level 1)True net income does not exist because all of the firm’s assets and liabilities cannot be valued at their market values under incompleteness. The alternative, present value accounting, is subject to major revisions to estimates under real conditions (for example, RRA). If all assets and liabilities cannot be reliably estimated, true net income does not exist. Answer 1) is incorrect becausepresent value calculations can be made under real conditions (for example, RRA), but they are not necessarily reliable. Answer 3) is incorrect because securities markets can be efficient, relative to all publicly available information, whether true net income exists or not. Answer 4) may be true under ideal conditions, and may also be true in some markets under real conditions, but it is not true if there is no market value to equate to.c. 1) Topic 1.3 (Level 1)Answer 1) is the only correct method under ideal conditions. Answer 2) is incorrect because RRAis used when conditions are not ideal, and it only approximates the correct method. Answer 3) is incorrect because straight-line amortization applies to historical cost accounting, not present value. Answer 4) is incorrect because the change in expected present value already incorporates any abnormal earnings.d. 3) Topic 7.3 (Level 1)If the owner can costlessly observe the manager’s actions, then the owner could write a contract inwhich the manager is paid salary only when the firm-value maximizing action is taken by the manager, and no salary/less salary otherwise. Answers 1) and 2) are backwards. Answer 4) is incorrect because a payoff-sharing contract will motivate the manager to act in the owner’s interest even if the first-best contract is not possible.e. 1) Topic 6.2 (Level 1)This is the definition of intrinsic value. All the other answers are accordingly incorrect.f. 1) Topic 9.2 (Level 1)This is the argument of Diamond and Verrecchia (1991). Answer 2) is incorrect because greater market liquidity reflects smaller bid-ask spreads, not greater. Answer 3) is incorrect because greater market liquidity may or may not lead to lower analysts’ earnings forecast errors. Answer 4) is incorrect because greater market liquidity reflects lower, not greater, adverse selection. Investors withdraw from the market when adverse selection is high.中华财会学习网ww w.1000ck .co mThis is the definition of a fair value hedge. Thus answers 2) and 3) are incorrect. Answer 4) is incorrect because all hedges must be highly effective, not just cash flow hedges.h. 2) Topic 9.1 (Level 2)This is the definition of standard setting in this course. Answer 1) is too restrictive because regulation applies to more than information about future prospects. Answers 3) and 4) are incorrect because standard setting as used in this course relates to the release of public information, not internal information production.i. 1) Topic 1.6 (Level 1)Since net income does not exist, except under ideal conditions, accountants focus on making financial statements useful. This requires a great deal of judgment (for example, to select accounting policies that are useful by making the trade off between relevance and reliability). Judgment is the distinguishing aspect of a profession. Options 2) and 3) are incorrect because incomplete markets and the lack of objective state probabilities imply that true net income does not exist, not the other way around. Option 4) is incorrect because lack of existence implies that reliability and relevance must be traded off.j. 3) Topic 4.4 (Level 1)This is the definition of classificatory smoothing. Answers 1) and 2) are smoothing mechanisms, but not classificatory smoothing. Answer 4) is incorrect because net income is not affected by classificatory smoothing.k. 1) Topic 1.4 (Level 1)RRA is more relevant than HC accounting because it recognizes revenue sooner, that is, as reserves are proved rather than when they are sold. Equivalently, proved reserves are valued at estimated present value rather than at amortized cost. Answers 2) and 3) are backwards. Answer 4) is incorrect because RRA and HC are different bases of valuation. One cannot be derived from the other.l. 1) Topic 6.6 (Level 1)This is the goal of PAT. Its objective is to understand and predict the accounting policy choices made by managers. Answer 2) is incorrect because it refers to normative theories. Answer 3) is incorrect for a similar reason. PAT does not attempt to specify which accounting policies should be used, or their logical consistency. Answer 4) is incorrect because while PAT envisages managers choosing accounting policies from a set of available policies, it does not attempt to achieve diversification of such policies. Furthermore, it is unclear just what diversification means in this context.m. 1) Topic 3.1 (Level 1)Unexpected information by definition can only be random. As a result, security market prices fluctuate randomly. Answer 2) is incorrect because even if the statement is correct, it does not follow that this will result in randomly fluctuating security prices. Answer 3) is incorrect because random fluctuation over time implies serially uncorrelated time series behaviour. Answer 4) is incorrect because the statement is too strong. Security prices will not change if the expectation and the realization are the same.中华财会学习网ww w.1000ck .co mThis follows from SFAC1 of the FASB. Option 1) is incorrect because it relates to the measurement perspective, not the information perspective. Option 2) is incorrect because information helps rational investors revise their prior probabilities of states of nature, not the information system probabilities. Option 4) is incorrect because, while accounting information does inform investors about manager performance, informing investors about managerperformance does not follow from the information perspective. This perspective relates to the supply of useful information for investment decision-making, not manager performance.o. 3) Topic 4.3 (Level 1)14 Question 2Source: Topic 8.1 (Level 2)6 a. If a manager works hard and generates high average payoffs for the shareholders, his/her reputationwill increase on the managerial labour market. This will increase the manager’s reservation utility, and thus increase future compensation. Conversely, a manager who shirks will generate low average payoffs, lower reservation utility, and lower future compensation. Fama argues that the expected reduction in future compensation will deter the manager from shirking. Thus, there is no need for an incentive-based compensation plan.A process of internal monitoring also reduces the need for an incentive-based compensation plan. Forlower-level managers, any shirking will be detected and reported by managers below them who want to get ahead. This will reduce shirking by managers below the CEO level.8 b. Fama’s argument may not hold if managers can disguise the effects of shirking by earningsmanagement. However, since accruals reverse, this strategy will only work in the short run.Managers may be able to disguise the effects of shirking by not reporting, or at least delaying therelease of, bad news. Again, this strategy is likely to work in the short run but not in the long run.Furthermore, Wolfson (1985) provided evidence that while forces of reputation can reduce the moralhazard problem, they do not eliminate the need for an incentive contract.With respect to internal monitoring, Arya, Fellingham, and Glover (1997) present a model thatreduces the moral hazard problem. The model draws on the fact that while the owner usually cannot observe employee effort, other employees can. If an employee shirks in one period, other employees pressure that employee in the next period. The threat of this motivates employees to work hard in both periods. It is still the case, however, that the contract is based on the payoff. Consequently, Fama’s argument that internal monitoring eliminates the need for an incentive contract is not supported.Note:The argument that the takeover market may control moral hazard is also acceptable, as is the argument that the managerial labourmarket may not be fully efficient.For full marks, the argument that reputation controls shirking should be countered by either an “earnings management” argument or a “failure to release information” argument. Also, while the Wolfson study need not be mentioned explicitly, the student should reasonably see the point that reputation reduces but does not eliminate shirking.With respect to the internal monitoring argument, the Arya et. al paper need not be mentioned explicitly but, again, the student should reasonably see that internal monitoring reduces but does not eliminate the need for an incentive contract.中华财会学习网ww w.1000ck .co m。

P a p e r P 1Section A –This ONE question is compulsory and MUST be attempted1Several years ago, World Justice, a well-known charity, published a report on the activities of three major food companies in their marketing of manufactured baby foods in some of the poorer developing countries. The report, provocatively called ‘Killer Companies’, said it had evidence that the three companies were ‘aggressively mis-selling’manufactured baby food products in these poorer countries. It was argued in the report that several problems arose with the use of these products in poorer countries which negatively affected the health of the babies, with many babies reportedly dying as a result. These problems included the use of contaminated water in the preparation of the baby food, an inability of parents to read the instructions, making up product at insufficient concentrations (thereby malnourishing the child) and aggressive selling to health facilities in those countries. Doctors often advised against the use of these products for babies because natural feeding solutions were considered safer and more beneficial in most cases.When the ‘Killer Companies’ report was published, it was widely reported upon and received a lot of social and political attention. T wo of the three companies named in ‘Killer Companies’ immediately decided to withdraw from the business but the third company, Xaxa Company (Xaxa hereafter), recognised what it believed to be an opportunity to take the market share left by the other two. It set about increasing its production capacity accordingly. When asked by journalists why Xaxa had not also withdrawn from the criticised business activity, the chief executive issued a press statement saying that it was a profitable business opportunity and, as the steward of shareholder value, he owed it to the shareholders to maximise their returns.When it became widely known that Xaxa had decided to expand and develop its baby food business in poorer developing countries, Mothers Who Care (MWC), a national charity concerned with infant nutrition, organised a campaign against Xaxa. Strongly believing in the natural feeding of infants, MWC initially organised protests outside the Xaxa head office and also encouraged the public to boycott a wide range of Xaxa products in addition to the baby food products. MWC members started to use the phrase, ‘Xaxa kills babies’ in the hope that it would become widely adopted.As one of the country’s largest companies and operating in many countries, Xaxa has a large issued share volume with the majority being held by institutional investors. Whilst the overall group profits remained strong, some shareholders began to feel concerned about the baby food issue. One prominent fund manager, Hugh Oublie, organised a meeting for institutional shareholders holding large volumes of Xaxa shares and 50 such institutional shareholders attended the meeting. The group became known as the ‘Oublie Group’. Although all members of the Oublie Group wanted to retain their holdings in Xaxa because of the otherwise good returns, a number of questions were framed which they decided to put to the Xaxa management:(i)could the company explain the strategic logic of pursuing the baby food business in poorer developing countries?(ii)was the board concerned about potential reputational damage with phrases such as ‘Xaxa kills babies’ being used widely and in the media?(iii)would the Xaxa board consider withdrawing from the baby food business in poorer developing countries because of the alleged health impacts on children in those countries?The company issued a statement through its investor relations department, replying that the strategic logic was based on what activities provided the most profit to shareholders regardless of the effects on other claims against the company strategy. Second, the board was not concerned with reputation risks because it believed that these were ‘temporary concerns’ which would soon be forgotten. Third, no, the board would not withdraw from the baby food market in those countries because, with the loss of two competitors, profit margins were likely to be higher and competition less. The Oublie Group expressed its dissatisfaction with this reply and said it might seek to influence the appointment of non-executive directors (NEDs) to the Xaxa board to increase the scrutiny of the executive members and their discussions on the subject.Hugh Oublie appeared on television to say that he felt the board of Xaxa lacked balance. He said that, although profitable and a good employer in its home country, the non-executive scrutiny of company strategy had been poor for some time and the board had no meaningful sense of ethics at all. He believed that all of the executive board was dedicated to the mission to produce what he called ‘profit at any social cost’. He further believed that none of the non-executive board members was strong enough to question the strategy and raise the problem of baby food as an ethical issue. It was this lack of non-executive scrutiny which Hugh Oublie believed was a major cause of Xaxa’s unwillingness to reconsider its baby food activity. He said that he had been a long-serving observer and shareholder of Xaxa and he had noticed the company becoming more inward-looking and self-reliant in recent years. He believed2this trend was very unhelpful. In addition, he expressed concerns, on behalf of the Oublie Group, about the strategic management of Xaxa and his belief that the board lacked concern for medium-term business risks brought about by the baby food marketing.As World Justice and MWC continued their campaigns against Xaxa, some other groups became aware of the baby food situation in poorer developing countries. A television programme reported how Xaxa products were actually being used in some of the poorer countries. It claimed to confirm the problems highlighted in ‘Killer Companies’ and it highlighted a number of other Xaxa products which consumers might stop buying if they wanted to put pressure on Xaxa’s management to change their policy on baby food.Partly in response to these pressures, the Xaxa board decided to consider two new initiatives. The first of these was to consider introducing a corporate code of ethics. By carefully drafting this and placing it prominently on its website, the board believed that it could achieve a number of favourable outcomes including improving its reputation.The second initiative was to consider instituting a full risk audit system in response to the negative publicity it had experienced, especially from MWC, whose members were considered to be natural customers of Xaxa’s other products. Private research commissioned by Xaxa showed that the baby food business was damaging Xaxa’s reputation and possibly the willingness of some talented people to apply for jobs with the company. Political support for other company plans had also suffered, such that a recent planning application to set up a new factory by Xaxa, in a business area with no connection with baby food, had received opposition. Protestors, mainly local activists and MWC members, opposed the application with placards saying ‘Xaxa kills babies’. Because the idea of risk auditing was a new initiative for Xaxa, the board has asked a local consultancy to produce guidance on the benefits of risk audit and the benefits of an external, rather than an internal, risk audit.Required:(a)The underlying principles of corporate governance include transparency, judgement and reputation.Explain these three terms and assess the Xaxa board’s performance against each one.(9 marks)(b)Explain the purposes of a corporate code of ethics and examine how the adoption of such a code might makeXaxa reconsider its marketing of baby food in poorer developing countries. (11 marks)(c)Institutional investors are potentially influential stakeholders in a company such as Xaxa.Required:(i)Explain why institutional investors might attempt to intervene in the governance of a company.(ii)Discuss the reasons why the Oublie Group should attempt to intervene in the governance of Xaxa following the events described in the case.Note: The total marks will be split equally between each part.(10 marks)(d)Produce notes from the consulting company for the Xaxa board in response to its need for guidance on riskaudit. The notes should address the following:(i)Discuss, in the context of Xaxa, the stages in a risk audit.(8 marks)(ii)Distinguish between internal and external risk audit, and discuss the advantages for Xaxa of an external risk audit.(8 marks) Professional marks will be awarded in part (d) for the clarity, logical flow, style and persuasiveness of the notes.(4 marks)(50 marks)3[P.T.O.Section B –TWO questions ONLY to be attempted2Bob Wong was fortunate to inherit some money and decided he wanted to invest for the long term in one or more investments so he would have a higher income in retirement. He was not a specialist in accounting and had little understanding of how investments worked.Bob studied an investment website which suggested that he needed to be aware of the level of risk in an investment and also that he needed to know what his basic attitude to risk would be. This meant he needed to decide what his risk appetite was and then select investments based on that.When Bob studied share listings in newspapers, he noticed that they were subdivided into sectors (e.g. banks, pharmaceuticals, mining, retail). He noticed that some sectors seemed to make higher returns than others and he wanted to know why this was. One website suggested that risks also varied by sector and this was partly explained by the different business and financial risks which different sectors are exposed to.One website said that if a potential investor wanted to know about any given company as a potential investment, the company’s most recent annual report was a good place to start. This was because, it said, the annual report containeda lot of voluntary information, in addition to the financial statements. Bob could use this information to gain anunderstanding of the company’s strategy and governance. The website suggested that the contents of the corporate governance section of the annual report would be particularly helpful in helping him decide whether or not to buy shares in a company.Required:(a)Explain ‘risk appetite’ and ‘risk awareness’, and discuss how Bob’s risk appetite might affect his choice ofinvestments.(8 marks)(b)Explain ‘business risk’ and ‘financial risk’ and discuss why risks might vary by sector as the websiteindicated.(8 marks)(c)Distinguish, with examples, between mandatory and voluntary disclosure in annual reports, and assess theusefulness of corporate governance disclosure to Bob in selecting his investments.(9 marks)(25 marks)43Hum and Hoo is an established audit practice in Deetown and has a large share of the audit services market among local businesses. Because Deetown is a relatively isolated area, many clients rely on Hum and Hoo for accounting and technical advice over and above the annual audit. This has meant that, over time, Hum and Hoo has also developed expertise in compliance advice, tax, strategy consulting and other professional services.Because non-audit work is important to Hum and Hoo, staff have ‘business growth’ criteria strongly linked with bonuses and promotion. This means that many of the professional accountants in the firm actively seek to increase sales of non-audit services to businesses in the Deetown area, including from audit clients. The culture of the firm is such that everybody is expected to help out with any project which needs to be done, and this sometimes means that staff help out on a range of both audit and non-audit tasks. The lines between audit and non-audit services are sometimes blurred and staff may work on either, as workload needs demand. Managing partner Cherry Hoo told staff that the non-audit revenue is now so important to the firm that staff should not do anything to threaten that source of income.Cherry Hoo said that she was thinking of beginning to offer a number of other services including advice on environmental reporting and the provision of environmental auditing services. She said she had spoken to local companies which were looking to demonstrate their environmental sustainability and she believed that environmental reporting and auditing might be ways to help with this. She said she was confused by the nature of environmental reporting and so was not sure about what should be audited.Required:(a)Explain ‘ethical threat’ and ‘ethical safeguard’ in the context of external auditing, and discuss the benefits ofeffective ethical safeguards for Hum and Hoo. (8 marks)(b)Explain ‘environmental audit’ and assess how environmental reporting and auditing might enable companiesto ‘demonstrate their environmental sustainability’ as Cherry Hoo suggested.(8 marks)(c)Some corporate governance codes prohibit audit firms such as Hum and Hoo from providing some non-auditservices to audit clients without the prior approval of the client’s audit committee. This is because it is sometimes believed to be against the public interest.Required:Explain ‘public interest’ in the context of accounting services and why a client’s audit committee is a suitable body to advise on the purchase of non-audit services from Hum and Hoo. (9 marks)(25 marks)5[P.T.O.4Mahmood is a junior employee of Tzo Company (a large, listed company). Tzo is a processor of food labelled as containing only high quality meat. The company enjoys the trust and confidence of its customers because of its reputation for high quality products. One day, when passing through one area of the plant, Mahmood noticed some inferior meat being mixed with the normal product. He felt this must be unauthorised so he informed his supervisor, the factory manager, who told Mahmood that this was in fact a necessary cost reduction measure because company profits had been declining in recent months. Mahmood later found out that all stages of the production process, from purchasing to final quality control, were adapted in order to make the use of the inferior meat possible.The factory manager told Mahmood that the inferior meat was safe for humans to eat and its use was not illegal.However, he told Mahmood that if knowledge of the use of this meat was made public, it would mean that customers might stop buying the products. Many jobs could be lost, probably including Mahmood’s own. The factory manager ordered Mahmood to say nothing about the inferior meat and to conduct his job as normal. Mahmood later discovered that the main board of Tzo was aware of the use of the inferior meat and supported its use in seeking to reduce costs and maintain profits. In covering up the use of the inferior meat, the factory produced a fraudulent quality control report to show that the product was purely based on high quality meat when the company knew that this was not so.When Mahmood heard this, he was very angry and considered telling an external source, such as the local newspaper, about what he had seen and about how the company was being dishonest with its customers.Required:(a)Explain how Mahmood might act, in each case, if he were to adopt either conventional or post-conventionalethical assumptions according to Kohlberg’s definitions of these terms. Your answer should include an explanation of these two terms.(8 marks)(b)Construct an ethical case for Mahmood to take this matter directly to an external source such as a newspaper.(8 marks)(c)Some jurisdictions have a compulsory regulatory requirement for an auditor-reviewed external report on theoperation and effectiveness of internal controls (such as s.404 of Sarbanes Oxley).Required:Explain how such a requirement may have helped to prevent the undisclosed use of the inferior meat at Tzo Company.(9 marks)(25 marks)End of Question Paper6。