HIGHER COLLEGE OF TECHNOLOGY

DEPARTMENT: BUSINESS STUDIES

Final Examination:
Assignment Based Assessment
Semester: II A. Y.: 2019 / 2020
Bachelor
Start Date: 04.06.2020 Time: 11.00 AM

Due Date: 06.06.2020 Time: 11.00 AM

Student Name

Student ID

Specialization Accounting and Finance

Section 1&2

Level Bachelor

Course Name Accounting Theory

Course Code BAAC4204

For official Use Only

Obtained Max. Obtained
Question No. Max. Marks Question No.
Marks Marks Marks
1 10 1 10
2 10 2 10
3 10 3 10
4 10 4 10
5 10 5 10
Grand Total Grand Total
50 50
Marks Marks

First Marker: Second Marker:

Date: Date:
Guidelines for Students to Submit the Assignment:

1) The final assessment for semester 2, 2019-20 will be done through comprehensive assignment
for a maximum of 50 marks. The schedule of the final assessment is available in the college website.
https://www.hct.edu.om/about/the-college/announcements/final-assessment-timetable-041620

2) All the students are expected to have only one assignment at one time. In case, if the
students have more than one assignment on the same day, please report to the exam
committee through the following mail id. exam.bus@hct.edu.om as soon as possible.

3) All students are given 48 hours to complete and submit each assignment from the day, date
and time the assignment is uploaded. Students are advised not to wait till the last moment of
the deadline to submit the assignment.

4) The students can check the assignment anytime and any number of times from the opening
of the assignment. The answer to the assignment need to be uploaded in e-learning within 48
hours.

5) The answer to the assignment can be uploaded only one time. No requests for resubmission
of the assignment will be entertained.

6) The students may contact the following mail Ids if they face any difficulties while related to
final assignment.

For Academic related support

:
anand.kalimani@hct.edu.om
Business Courses
karri.krishna@hct.edu.om

ramil-ecot@hct.edu.om
For Technical Writing 1

khulood.aiadi@hct.edu.om
For Technical Writing 2

jocelyn.balili@hct.edu.om
For Technical Communication
For issues related to e-mail office365support@hct.edu.om
accounts and Microsoft Teams
Any issues related to E-Learning support.elearning@hct.edu.om
Moodle
Any other IT Troubleshooting helpdesk2@hct.edu.om

|Page2
7) Students may contact their respective lecturer through college email (within the 48-hour
period given) if they have any doubts and clarifications on the assignments.

8) Students should be aware that this assignment is an independent assessment. Students are
not allowed to get help from any other person during the assessment period.

9) Students assignment will be checked for plagiarism through Turnitin software. This
assignment will be assessed as per the College Assessment Policy. Student will be
investigated in case of plagiarism as per the College policy and procedures. The maximum
acceptable similarity index is 25%.

10) In case the students face any technical issues regarding the submission of assignment, the
answer to the assignment can be mailed to the concerned lecturer within the 48-hour period
using college email.

11) Any assignment submitted after the 48-hour period will not be considered for evaluation.

12) The assignment should be submitted only with the file in MS Word document. No other
format is acceptable at all (e.g. pictures, JPEG, PDF, etc).

13) The students need to answer the assignment in the prescribed number of words as mentioned
in the assignment.

14) The students need to follow the following format while preparing the assignment :

Font Style: Times New Roman

Font Size: 12 point for body and 14 point for Headings

Line Spacing: 1.5

Margin: 2.54cm (One inch) on all the sides

Page Number : At the bottom right hand corner of each page

Colour: All words should be in black colour

15) Students who will fail to submit their assignment as per the deadline given are required to
make an online appeal along with the valid excuses as the guidelines which will be
announced through the college website or e-learning portal within three days from the date of
submission deadline.

|Page3
Each Case carries 10 Marks

Case Study 1
After spending many years working in the Gulf region as Chief Accountant, Michael decided
to move to his hometown in the United States. While working in the Gulf region, Michael was
involved in the preparation of financial statements for a conglomerate based in Dubai, with
branches in all parts of the world. The company followed IFRS standards while preparing the
financial statements. After settling in his hometown in Chicago, Michael joined a leading
publishing company in the US which hired him for the post of Senior Accountant, in charge of
preparing financial statements for its US division. The company followed accounting
standards (US GAAP) prepared by the Financial Accounting Standards Board. As Michael’s
experience basically was on IFRS based financial reporting, this posed a serious challenge
while treating different activities.
Michael felt that it is very easy to follow IFRS than US GAAP. Further, since most of the
companies in US raise funds overseas and carries international operations, he felt that IFRS is
more relevant for companies in the US with international operations. While preparing the
financial statements, he got confused regarding the specific provisions in US GAAP and
considered it as very detailed and overly complex. During the year, the internal audit
department conducted an internal audit to examine whether the books of accounts prepared by
Michael adhere to the standard guidelines. Based on the audit, the following observations were
made.
1. During the year, the company spend $150,000 on renovating the offices. While
preparing the financial reports, Michael considered the expenditure as an operational
expense.
2. The auditors observed that Michael is found strict in reporting revenues. In few
projects which are currently going on, the revenue based on percentage of work
completed is not calculated and reported in the financial statements.
3. Though the company used LIFO in the last few years for valuing inventory, Michael
has decided to change the inventory valuation method from LIFO to FIFO. He has
informed the auditors that the change is done since the company has stocks materials
which are bought at the beginning of the last year at a higher price.
4. During the year, the company has taken a loan for capital expenditure, but due to a
temporary cash crunch the money was used the cash to pay salaries to the staff. The
bank has issued a letter to repay the loan on the grounds of violation of the
covenant/loan agreement. Michael has reported the loan as non-current liability in the
financial statements.

|Page4
5. While writing off impairment losses, Michael has used two-step method for write-offs.
Michael argued that any impairment losses should be written off in stages and hence a
two-stage approach is more appropriate.
The management called Michael for an explanation of the above observations.
Thomas, a friend of Michael, has been always a critic of using accounting standards. He
considered that conceptual frameworks are not necessary to produce reliable financial
statements. As the purpose of financial statements is to communicate the financial results of
the business to internal and external stakeholders, the organization should follow a customized
accounting framework that best suits it, instead of using an accounting standard set by
international bodies.
Based on the above case, answer the following;
(Maximum word count for Case Study is 400 Words)
(4+4+2 = 10 Marks)
1. Explain each of the observation and state whether Michael has followed the relevant
accounting standard? Justify your answer.
2. Do you think the convergence of accounting standards are required to standardize the
accounting reports? Justify the answer with relevant information from the case.
3. Based on this case, explain your arguments on
a. The observations made by Thomas.
b. What are the areas where IFRS and US GAAP differ? The answer should cite
examples from the case.

Case Study 2
It was during the beginning of 2019 that the FLY Airlines Company (hereafter the FLY
Airlines) appointed PMG Auditing Company (hereafter PMG) to undertake the statutory
audit of financial statements of the company. While planning for a change, FLY airlines
contacted many auditing firms and finally selected the PMG. One of the board members of
FLY airlines is also part of the PMG, as one of their investors. So, FLY airlines considered
that PMG can provide a better auditing service compared to other auditors. As FLY airlines
considered PMG as their subsidiary concern, they also provided 20% discount for PMG staff
for traveling in FLY airlines. Considering the situation, PMG management assigned four of
its junior staff members to conduct the audit of FLY airlines. They were also informed that,
in case of any discrepancy in the accounting statements, it has to be informed to the senior
auditor in the PMG, who will then address these discrepancies with the airline’s management
team.
One of the reasons behind assigning junior auditors in completing the audit services is the
fact that PMG was also involved in setting up an accounting system for the airlines. Hence,
|Page5
the PMG management knows that there are less chances of errors, as the system is set in such
way to signal errors as and when it happens. However, the accounting system is not capable
of detecting willful frauds in the process.
As the Airline sector is undergoing tremendous pressure from the shareholders, the CFO
believed that the contact with PMG management will help them to project a better revenue
for the company. During 2015, when the FLY Airlines raised funds through public issue,
PMG bought 15% of FLY airline shares, which currently is trading at a market price of
OMR32.5. The share price is expected to grow, if the company reports a growth in their
profitability indicators.

Based on the above case, answer the following;

(Maximum word count for Case Study is 400 Words)
(4+4+2 = 10 Marks)
1. Identify and explain the various threats which may affect the independence of PMG in
auditing FLY Airlines.
2. Do you think the various threats faced by PMG are in acceptable Level? If you are an
employee in the PMG, how do you evaluate the risks involved?
3. What do you suggest? Should PMG accept the offer for auditing FLY Airlines?

Case Study 3

Gopal is the Senior Accountant in BestWood Manufacturing Company in the Sultanate of

Oman. He is involved in the preparation of financial statements according to the relevant
IFRS guidelines. As BestWood has different branches across Oman, Gopal has to consolidate
the financial statements of different branches into the parent company’s financial statement.
Since Gopal has done his duties diligently, the management recommended a promotion and
later promoted him as the Chief Financial Officer of the company. As CEO, the duties and
responsibilities of Gopal also increased. He attended the meeting of the Board of Directors, in
which the directors have emphasized five key performance indicators (KPI) of the company.
Two of these indicators were;

 To expand the business activities to more locations and thereby increase sales by
20%.
 To minimize the operating expenses by 5% annually.

A performance-based allowance is also offered. As per the agreement, Gopal will receive
0.5% of net profit after tax, as an incentive if the company achieves the set KPIs. Until last
year, the organization achieved the set KPIs. The current year, was of course, difficult for the
company. The financial performance of the company is affected adversely by the oil price
|Page6
crisis. A reduction in oil price followed a drop in the purchase by many government
departments. In addition, the consumer sales also showed a decline during the year. Realizing
the difficulties, Gopal changed certain accounting practices that helped him to project a
comparatively better financial results of the business. For instance, the advances received
from customers against purchase orders were considered as sales, though the products were
not sold by the company. In addition, certain expenses were not recognized, for instance
interest on loan. Another major change was on valuing inventory. Similarly, the method of
depreciation is also changed to report a higher profitability.

During the internal audit, the auditors reported certain discrepancy in financial reporting to
the Board of Directors. The BoD took a decision for detailed audit in view of possible
discrepancies. The detailed audit department unearthed the various frauds in accounting
various expenses, assets and liabilities in the financial statements. They also found that the
profit is overstated because of these adjustments. The company has severe liquidity issues
and must repay the loans for which the company has no options at present. The value of
assets is inflated and the liabilities were quite high.

Based on this case study answer the following questions.

(Maximum word count for Case Study is 400 Words)
(4+3+3 = 10 Marks)
1. Write down each hypothesis in the positive accounting theory and explain whether the
accounting practices in the company is influenced by the underlying assumptions in
the theory.
2. Do you think that the company violated any accounting concepts and conventions?
Justify your answer.
3. Critically evaluate the criticisms against positive accounting theory, based on the
relevant facts from the case.

Case Study 4

ABC Auditors are a well-known accounting and auditing firm in the Sultanate of Oman. In
addition to the basic services, the company also operates a division that is focused on
providing research and consultancy services to the companies in Oman. Recently, four
graduates (Amir, Hilal, Hamood, Said) from Sultan Qaboos University were recruited by the
company. During the probationary period, the new recruits were asked to conduct a detailed
study on the topics provided by the company.

Amir was assigned the task to study the perception of investors towards the stock market. He
felt that it is better to use a survey among the investors and collect information about the

|Page7
factors that influence their attitude towards the stock market. He also decided to survey both
current investors and prospective investors for the study.

Hilal, on the other hand, selected a topic related to an accounting information system. He was
asked to study whether the accounting information system helps organization to produce
reliable accounting reports. He selected 100 companies and conducted a survey to evaluate
whether the accounting system helped them to prepare error free and reliable accounting
reports.

However, Hamood was asked to examine the cash conversion cycle and total debt of the
company. He adopted a study based on secondary data and obtained all relevant information
from audited financial statements available in Muscat Securities Market.

In order to study the impact of a new accounting software for detecting accounting errors and
omissions, Said has employed a research by implementing the software in selected
organizations in Muscat. Organizations from different sector (manufacturing, service and
trading) were selected and the impact of new software was analyzed.

Based on the above study, answer the following;

(Maximum word count for Case Study is 400 Words)
(5+5 = 10 Marks)
1. Explain the accounting topic areas selected by Amir, HIlal, Hamood and Said.
2. There are three major research methodologies for research in accounting. Which
methodology is most suitable for each of the researchers? Justify your answer

Case Study 5

Jasim is an auditor in Jalal & Associates Auditing Company. He has rich experience in
auditing and assurance, and has used his expertise, in teaching students at various colleges
and universities in the region. During his teaching, he often emphasizes on the importance of
adhering to the fundamental accounting concepts and conventions. On a particular day, Jasim
has given certain situations and asked the students to identify the underlying concepts and/or
convention which are applied to the situations.

1. In a manufacturing company, the accountant has used the market price to value the
closing stock instead of the purchase price. This adjustment was made to show a better
financial position, as they found that the market value is significantly higher than the
purchase price.

|Page8
2. In a trading company, the accountant has changed the inventory valuation method from
LIFO to FIFO during a particular year. This change was reversed in the immediate year.
Currently, in place of LIFO and FIFO, the company is using Weighted Average Method.

3. ABC Manufacturing Company has recently signed an agreement with a leading

newspaper company for advertising their product for the next three years. A total amount
of RO21,000 is paid as an advance. The accountant considered it as an operational
expense and charged to the income statement at the end of the financial year.

4. While doing adjustment entries the accountant has provided a provision for a contingent
loss arising from the sale an investment and recorded the expected gain arising from the
sale of another investment.

5. The financial statements for the previous year was prepared separately for each subsidiary
company. During the current year, the financial statements are prepared for the company
including the subsidiaries. There was no mention about the way fixed assets are valued
for the different subsidiary units.

6. In an export-oriented company, a purchase order is received, to supply 50,000 units of a

material for the next three years, to an overseas company. The company received the full
amount of 150,000 units as an advance and considered the whole amount as revenue for
the current year.

Jasim mentioned that all the above scenarios are instances where fundamental accounting
concepts or conventions are violated.

Based on the case, answer the following questions.

(Maximum word count for Case Study is 400 Words)
(4+6 = 10 Marks)
1. Briefly explain the various accounting concepts and conventions relevant in this case.
2. As an accountant, Identify the correct treatment for the transactions listed in the case
study.

ALL THE BEST

|Page9