Questions and Answers of Accounting Practice

Provide one example of a question addressed by each of the three ‘environmentally differentiated conventional accounting’ systems. What distinguishes each of these examples from the questions
Link the following environmental transactions and events with the relevant environmental accounting system:1 A tax on emissions of carbon dioxide 2 Capital expenditure on a water-recycling plant 3 A
What is a stakeholder? Why are some stakeholders interested in comparing measures of corporate economic and ecological performance? Provide an example in which shareholders are the stakeholder group.
Do stakeholders influence environmental accounting systems? Do environmental accounting systems influence stakeholders? Provide an example to illustrate your argument.
Chambers (1999) argues that money and monetary calculation are among the greatest simplifiers of complex affairs.What advantages does the use of a money measure of activity have for decision-makers?
According to Rubenstein (1994: 3):For the first time in accounting’s sleepy history, there is a growing recognition among accountants and nonaccountants alike that accounting, the value-free,
Discuss the following issues relating to criticism of conventional accounting.1 Conventional accounting uses the accrual convention.What is the accrual convention? What is the main benefit of accrual
What is the concept of ‘bounded rationality’? How might the concept be used to help distinguish between the provision of serviceable and unserviceable accounting information in environmental
Reactions of stakeholders who do not feel that accounting provides serviceable information include: resignation and loyalty; voice; and exit.1 Why are exit and voice of particular importance as
Conventional accounting systems are said to have some ‘uncontested advantages’over the absence of accounting systems. What are these ‘uncontested advantages’?
Conventional accounting provides information about a ‘cluster of financial circumstances’that are of concern to all stakeholders.What are these circumstances?
Is there a ‘cluster of physical ecological circumstances’ that can be identified as relevant to all stakeholders? List and relate them to the respective stakeholders.
‘Conventional management accounting systems provide the foundation for all other accounting systems.’What are the main differences and links between conventional management accounting and
Baxter International Inc. (USA) established the following environmental goals in 1997 for 2005: global targets to cut packaging, energy consumption, toxic emissions to the air and the generation of
Use of the term ‘economic cost’ may be contrasted with use of the term‘accounting cost’.The term ‘cost’ is used in different contexts (and by different individuals) with different
How do full-cost accounting and full-cost pricing differ? Are they related?
External and internal costs:a How do external and internal environmental costs differ? Provide three examples of an external, and four examples of an internal, environmental cost. In your examples of
What are opportunity costs? Why are they important to managers? What is the opportunity cost of not investing in environmental protection? Provide an example to support your answer.
Compare and contrast the following two statements. Are they concerned with achieving eco-efficiency, eco-effectiveness or both?1 Businesses should sack the unproductive kilowatt-hours, tonnes and
Explain how the notions of effectiveness, efficiency and equity are related to decision-making, sustainable development and accountability.
What is the difference between an accountor and an accountee? Is it important for the needs of both to be taken into account when designing an accounting system? Provide reasons for your view.
Environmental accounting systems have been proposed for sovereign nations as well as for companies. Consider how a macro (national) and a micro (company)view of environmental accounting might differ.
Why is a distinction made between conventional accounting and ecological accounting?
Why has the importance of environmental accounting to business grown in the past ten years?
What is an external stakeholder? Provide an example of a situation where pressure from external stakeholders has pushed managers to engage with environmental issues.
What mechanisms are available to help provide stakeholders with an assurance that a company complies with environmental regulations?
If fines for non-compliance are much higher than ever before, how might increased transparency, brought about by environmental accounting disclosures, still act as a competitive advantage to a
What are the reasons for most companies having a poorly co-ordinated collection of environmental data? How are these reasons related to the distinction made between fixed and variable costs of
Stakeholders’ views. Broken Hill Proprietary Co. Ltd (BHP). BHP is an Australian-based global mineral resources company. A tailings dam constructed at the Ok Tedi copper and gold mine in Papua New
Costs of information: increasing environmental expenditures. Most major corporations are spending in the tens of millions of dollars annually on environmental costs, with the larger ones spending in
Shell’s statement of business principles (Shell 1998: 24): Principle 6, on health, safety and the environment (HSE).Consistent with their commitment to contribute to sustainable development, Shell
Environmental compliance: a market opportunity. Table 2.1 shows estimates of the size of the market for environmental technologies and services needed to comply with environmental standards. In 1996
Why is involvement of top management important to the success of a corporate environmental management and accounting system?
Distinguish between syntactics, semantics and pragmatics. Are these perspectives independent of each other or are they interwoven?
What is the critical test for any accounting system? Does this test rely on syntactic, semantic or pragmatic perspectives?
Define the two main environmental objectives proposed for management of companies: sustainable development and eco-efficiency. Are these objectives related?
Is sustainable development a useful, practical perspective for business to adopt?If yes, how is it useful? Explain your view, giving reasons.
The efficiency ratio measures the relation between outputs from and inputs to a process. According to the WBCSD, a company wanting to become eco-efficient should strive to:1.Reduce the material
How do ecological product efficiency and ecological function efficiency differ?How are they measured? Are measures of these two types of ecological efficiency linked?
Is a ‘win–win’ situation the only practical way to move business towards sustainability?
What are the characteristics of data required to generate knowledge about corporate eco-efficiency?
Who are the main users of financial accounting information, and what are their information needs?
Define assets and liabilities.
Why are ‘provisions’ a problem?
Why do we not have ‘pure’ historic cost accounting?
Distinguish between ‘revenues’, ‘income’ and ‘gains’.
Why is ‘profit’ seen as being important?
What is ‘profit’?
Explain the meaning of ‘relevance’ and ‘reliability’ in financial reporting.
Examine the main methods of measuring (or valuing) assets.
Define revenues and expenses. What other sorts of gain are there?
What are the tests for recognizing an intangible asset?
Is profit usually overstated when historic cost accounting is used?Explain.
To what extent is it possible for published financial statements to meet the needs of different user groups?
Does financial accounting have any fundamental accounting concepts? Is it more helpful to establish objectives and constraints?
Financial statements are part of the process of making the directors of companies accountable to their shareholders. How accountable do you think they really are?
Examine the idea of accountability in relation to an organization with which you are familiar (e.g. a university, a church, a football club, a national government).
Why is it not easy to define and measure profit?
Describe how to calculate:a current ratio;b quick ratio;c capital gearing ratio;d interest cover.
Why are inventories excluded from current assets when calculating the quick ratio?
How is the return on ordinary shareholders’ capital employed calculated?
If debentures are included as part of capital employed, what figure is used for ‘return’? How and why does it differ from the ‘return’ figure used for calculating return on ordinary
If a company’s gross profit ratio has increased, what does that tell us about the volume of sales and selling prices?
You are given the following statement of financial position information about the Nikkigra Company.You are required to comment on the financial position and performance of the company, making use of
Why would you expect retailers to have lower current ratios than manufacturers?
What information (in addition to the current ratio, quick ratio, capital gearing ratio and interest times cover) would you want to assess a company’s solvency?
Accounting ratios are said to be most useful when making comparisons. If you had a set of ratios for a company, what comparisons would you make?
What are the main limitations of accounting ratios?
How could a company increase its profitability when sales are falling (assuming that it is unable to increase sales)?
You are given the following statement of financial position information about Jackdan Ltd. You are required to comment on the financial position and performance of the company, making use of
Which is more important: increasing ROCE, or increasing earnings per share, and why? Can a company increase its earnings per share year after year, although its ROCE is steadily falling?
In what circumstances can a substantial improvement in a company’s position result in a reduction in their ROCE?
In what circumstances can a steady increase in a company’s ROCE be a symptom of a company being in decline?
Many companies’ profitability is lower than it should be because they have too much money tied up in assets. They should aim to have a zero level of assets. This would lead to a ROCE of
Most efforts to reduce the amount of funds tied up in assets are wasted because one type of asset is turned into another: inventories and surplus buildings become receivables and cash. The total
The Executive Service Company has high levels of inventory, and impressive premises; their sales/net assets ratio is 1 : 1. The QuickValue Service Company has low levels of inventory, and
Explain the meaning, calculation and significance of each of the following:a P/E ratio;b dividend yield;c dividend times cover.
Is a company’s statement of financial position value (net asset value) likely to be higher or lower than its market value? Explain.
If a company currently has a dividend yield of 10 per cent, does that mean that someone investing £100 today will receive £10 dividend in the coming year? Explain.
You are given the following information about two companies. You are required to fill in the missing items for Beermouth plc. Alemouth plc Beermouth plc share capital (20p shares) 1,600,000 2,000,000
Comment on the dividend yield of Alemouth plc.
Comment on the relationship between the net assets per share of Beermouth plc and its share price (or on the relationship of the total of shareholders’ funds to the market capitalization).
What is the level of the FTSE 100 today? What is the average P/E ratio of the top 100 companies? What is their dividend yield and dividend cover? You are given the following information about the
You are given the following information about two companies, partly extracted from their most recent statement of financial position and income statement, and partly taken from the financial press.
You are given the following information about Swin Gin plc:You are required to calculate the P/E ratio for each year, and comment on how the market appears to have reacted to changes in EPS. Year 1
Assess the usefulness of P/E ratios and suggest how they might be misleading.
Select a recent takeover bid (e.g. Kraft and Cadbury). Assess the various factors that determined the price that was eventually agreed for the company which was taken over.
Look at the shares listing in the Financial Times. What is an average P/E ratio? Select some companies with high P/E ratios. Do they seem to have anything in common? How useful are the P/E ratios
Look at the shares listing in the Financial Times. What is an average dividend yield? Select some companies with high dividend yields. Do they seem to have anything in common? How useful are the
Each member of the group selects one or two companies in which they believe the shares are likely to increase in price during a selected period. A long period may be preferable, but in a 10-week
Each group forms one or more hypotheses about how to select companies where the increase in share prices is expected to be higher than the average for the FTSE 100 companies. Examples might include
Each group chooses three different sectors (e.g. pharmaceuticals and biotech; construction and materials; travel and leisure and retailers). The key stock market indicators are found for each sector
Which of the following are shown on a statement of financial position: assets; expenses; liabilities; sales; share capital; profit for the year?
What is the difference between a non-current asset and a current asset?
Give examples of non-current (or ‘fixed’) assets. In what circumstances would some of the items you have listed be current assets?
Arrange the three main statement of financial position items (assets, liabilities, equity) as an equation.
A statement of financial position appears to show what a business is worth. What are the main problems with this statement?
You are given the following simplified statement of financial position of the Sandin Castle Company:a Calculate the current ratio.b Calculate the liquidity ratio.c After preparing the statement of
You are given the following simplified statements of financial position of the Windysand Company as at 31 December:a How much profit does it at first seem that the company made during year 2?b How
You are given the following simplified statements of financial position of two very similar companies, Domer Castle Company and Warmer Castle Company as at 31 December year 1.During year 1 the

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