FYUGP 1st Sem Accounting MODULE 2 PDF

UNIVERSITY OF KERALA FOUR YEAR UG PROGRAMME (2024 Admission Onwards) B.COM FIRST SEMESTER Course Title: ACCOUNTING PRINCIPLES & STANDARDS Course Code: UK1DSCCOM100...

UNIVERSITY OF KERALA FOUR YEAR UG PROGRAMME (2024 Admission Onwards) B.COM FIRST SEMESTER Course Title: ACCOUNTING PRINCIPLES & STANDARDS Course Code: UK1DSCCOM100 Academic Level: 100-199 MODEL QUESTIONS MODULE - 2 (Questions and Answers is strictly followed by new exam pattern) For detailed video classes, question paper discussions and more model questions, please log on to: https://learneclearn.com/  QUESTION PATTERN FYUGP END SEMESTER EXAMINATION (For 2024 Admission onwards) Discipline: Commerce Course Title: Accounting Principles and Standards (UK1DSCCOM100) Semester: 1 Academic Level: 100-199 Time: 2 Hours Marks: 56 SECTION A Answer ALL questions. Each question carries 1 mark 1. ………………………………………………………….Remember 2. ………………………………………………………….Remember 3. ………………………………………………………….Understand 4. ………………………………………………………….Understand 5. ………………………………………………………….Understand 6. ………………………………………………………….Understand SECTION B Answer ALL questions in Two or Three sentences. Each question carries 2 Marks 7. ………………………………………………………….Understand 8. ………………………………………………………….Understand 9. ………………………………………………………….Apply 10.……………………………………………......................Apply 11…………………………………………………………...Apply SECTION C Answer ALL 4 questions, choosing among options within each question. Short Answer. Each question carries 4 marks. 12(a)…………………………………………… ……………Apply 12(b)…………………………………………………………Apply 13(a)………………………………………............................Apply 13(b)…………………………………………………………Apply 14(a)…………………………………………………………Analyze 14(b)…………………………………………………………Analyze 15(a)…………………………………………… ……………Analyze 15(b)…………………………………………………………Analyze For detailed video classes, question paper discussions and more model questions, please log on to: https://learneclearn.com/  SECTION D Answer ALL 4 questions, choosing among options within each question. Long Answer. Each question carries 6 marks. 16(a)…………………………………………………………..Analyze 16(b)…………………………………………………………..Analyze 17(a)…………………………………………………………..Evaluate 17(b)…………………………………………………………..Evaluate 18(a)…………………………………………………………..Evaluate 18(b)………………………………………………………….Evaluate 19(a)………………………………………………………….Create 19(b)……………………………………………………….....Create For detailed video classes, question paper discussions and more model questions, please log on to: https://learneclearn.com/  QUESTIONS & ANSWERS (OBJECTIVE TYPE QUESTIONS – 1 MARK) COGNITIVE LEVEL: REMEMBERING 1. What type of asset includes machinery? Answer: Tangible 2. Question: Which method involves equal depreciation every year? Answer: Fixed 3. Question: What term refers to the gradual reduction in the value of intangible assets? Answer: Amortisation COGNITIVE LEVEL: UNDERSTANDING 1. What is the method of depreciation that reduces the asset's value more in the initial years? Answer: Diminishing 2. Which type of asset includes trademarks and goodwill? Answer: Intangible 3. What is the term for reducing the value of an asset over time? Answer: Depreciation For detailed video classes, question paper discussions and more model questions, please log on to: https://learneclearn.com/  (VERY SHORT ANSWER QUESTIONS – 2 MARKS) COGNITIVE LEVEL: UNDERSTANDING 1. What is the key difference between tangible and intangible assets? Answer: Tangible assets have physical substance, while intangible assets do not but still provide value, such as patents or trademarks. 2. How does the fixed installment method calculate depreciation? Answer: It allocates an equal amount of depreciation every year over the asset's useful life. 3. What is the purpose of amortization in accounting? Answer: Amortization systematically reduces the value of intangible assets over time, similar to depreciation for tangible assets. COGNITIVE LEVEL: APPLY 1. How would you apply the diminishing balance method to calculate depreciation? Answer: Multiply the asset's book value at the beginning of the year by a fixed depreciation rate to get the depreciation expense for that year. 2. If a company changes its depreciation method, how should it account for the change? For detailed video classes, question paper discussions and more model questions, please log on to: https://learneclearn.com/  Answer: The company should adjust future depreciation based on the new method but disclose the change and its impact in financial statements. 3. How would income tax regulations affect the calculation of depreciation? Answer: Depreciation must be calculated according to the rates and methods prescribed by tax regulations, ensuring compliance with tax laws. (SHORT ANSWER QUESTIONS – 4 MARKS) COGNITIVE LEVEL: APPLY (Problems can be expected) 1. How can a business apply the fixed installment method to depreciate its assets? Answer: The business would allocate a fixed amount of depreciation each year by dividing the asset's cost (minus salvage value) by its useful life. This ensures that the same depreciation expense is recorded annually. 2. If an asset's useful life is reassessed and extended, how should depreciation be adjusted? Answer: The remaining book value of the asset should be spread over the newly estimated useful life, lowering the annual depreciation amount going forward. 3. Question: How would you apply the diminishing balance method to depreciate an asset that costs Rs.10,000 at a 20% depreciation rate? Answer: In the first year, the depreciation would be Rs.2,000 (20% of Rs.10,000). In the second year, the depreciation would be Rs.1,600 (20% of the remaining Rs.8,000), and so on. For detailed video classes, question paper discussions and more model questions, please log on to: https://learneclearn.com/  COGNITIVE LEVEL: ANALYSE (Problems can be expected) 1. How would you analyze the impact of switching from the fixed installment method to the diminishing balance method on a company’s financial statements? Answer: Switching to the diminishing balance method would result in higher depreciation expenses in the early years and lower expenses later. This would reduce net income initially but increase it in later years. 2. How can you differentiate between depreciation and amortization in terms of asset type and accounting treatment? Answer: Depreciation applies to tangible assets and spreads the cost over their useful life. Amortization applies to intangible assets and does the same, but intangible assets generally have no salvage value. 3. How would you assess the effect of income tax regulations on the choice of depreciation methods? Answer: Income tax regulations may favor certain depreciation methods, such as accelerated depreciation, allowing businesses to reduce taxable income more quickly, which impacts cash flow and tax planning strategies. LONG ANSWER QUESTIONS: 6 MARKS COGNITIVE LEVEL: ANALYSE (Problems can be expected) 1. Analyze the financial impact of using the diminishing balance method versus the fixed installment method of depreciation on a company's financial performance. Answer: The diminishing balance method results in higher depreciation expenses in the earlier years of an asset's life and lower expenses in later years. For detailed video classes, question paper discussions and more model questions, please log on to: https://learneclearn.com/  This method can benefit a company by reducing taxable income early on, as depreciation is considered an expense. However, this also means lower net profits and potentially lower dividends in the initial years. On the other hand, the fixed installment method spreads depreciation evenly over the asset's life, leading to stable expenses and net income. Financial performance under the diminishing method might initially appear worse, but as depreciation expenses decrease over time, net income increases. Companies with fluctuating profits may prefer the diminishing method, while those seeking consistent reporting may opt for the fixed installment method. 2. How does the change in depreciation methods affect financial ratios such as return on assets (ROA) and debt-to-equity ratio? Answer: A change in depreciation methods, such as from the fixed installment method to the diminishing balance method, directly impacts financial ratios. In the initial years of switching to the diminishing balance method, depreciation expenses are higher, which reduces net income. As a result, the return on assets (ROA) decreases because ROA is calculated as net income divided by total assets. Additionally, higher depreciation lowers the book value of assets, impacting the asset base used in ROA calculations. The debt-to-equity ratio might be indirectly affected if the company’s equity is reduced due to lower net income and retained earnings. Over time, as depreciation expenses reduce, ROA and profitability indicators will improve. COGNITIVE LEVEL: EVALUATE (Problems can be expected) 1. Evaluate the advantages and disadvantages of using the diminishing balance method of depreciation for tax purposes. Answer: The diminishing balance method provides certain advantages for tax purposes. The primary advantage is that it accelerates depreciation, allowing companies to claim higher depreciation expenses in the early years of an asset's life, thus reducing taxable income and deferring tax liabilities. This can improve a company’s cash flow by allowing it to retain more earnings during periods of significant investment in new assets. However, one disadvantage is that this method may lead to lower reported profits in the For detailed video classes, question paper discussions and more model questions, please log on to: https://learneclearn.com/ early years, which can be less attractive to investors and stakeholders seeking consistent or high returns. Additionally, the diminishing balance method may not accurately reflect the asset’s actual usage pattern, especially for assets that have a more uniform wear and tear. 2. Critically evaluate how changes in accounting standards or tax regulations might influence a company's decision to adopt a particular depreciation method. Answer: Accounting standards and tax regulations play a critical role in a company’s choice of depreciation method. When accounting standards change, companies may be required to re-evaluate their depreciation methods to ensure compliance. For example, if a new standard mandates a more detailed alignment between depreciation and the actual use of an asset, a company may need to switch from the fixed installment method to the diminishing balance method. Similarly, tax regulations often incentivize companies to adopt accelerated depreciation methods, like the diminishing balance method, to maximize tax benefits. The adoption of specific methods may be influenced by tax breaks or deductions allowed for accelerated depreciation. However, companies must also weigh the financial reporting impact, as a method that minimizes taxes might negatively affect reported earnings, which could impact investor perceptions and stock prices. COGNITIVE LEVEL: CREATE (Problems can be expected) 1. Create a scenario where a company needs to adjust its depreciation method due to a significant change in its business model. How should the company approach this change, and what considerations should be made? Answer: Imagine a company that shifts from a capital-intensive manufacturing model to a more service-oriented business. This change implies that tangible assets, such as machinery, will play a reduced role in the company’s operations, while intangible assets like software and intellectual property will become more critical. In this scenario, the company might switch from the diminishing balance method, which favors early depreciation, to the fixed installment method, as the remaining machinery will likely have a longer useful life with less wear and tear. The company should carefully consider the For detailed video classes, question paper discussions and more model questions, please log on to: https://learneclearn.com/ impact of this change on its financial statements, ensuring transparency in its reporting. It must also assess the tax implications of the new method and decide if the change aligns with regulatory requirements. Additionally, management should communicate the reasons for the change to stakeholders, highlighting how the shift in business strategy necessitates a new approach to depreciation. 2. Create a proposal for an alternative method of depreciation that could be used in industries with highly fluctuating asset usage, such as tech companies. How would this method be applied, and what benefits would it offer? Answer: An alternative method of depreciation that could be developed for industries with fluctuating asset usage, such as tech companies, is the Usage-Based Depreciation Method. This method calculates depreciation based on the actual utilization of the asset rather than time. For example, if a company buys a piece of server hardware, depreciation would be calculated based on data traffic processed through the server or the number of hours it operates. Each year, the depreciation expense would be adjusted to reflect the actual use. The benefit of this method is that it closely aligns depreciation with the asset’s performance and revenue generation, offering a more accurate reflection of its economic value. For companies experiencing rapid changes in technology and usage patterns, this method provides flexibility. It would avoid over-depreciating assets that are underused or under-depreciating those that are overused, leading to a more precise allocation of costs in financial reporting For detailed video classes, question paper discussions and more model questions, please log on to: https://learneclearn.com/