accounting theory (ACT4173)

Answer any TWO [2] of the four questions provided below: (Marks: 10*2=20) 1. Illustrate the classification and measurement of financial instruments? (10) 2. Distinguish between proprietary theory and entity theory? (10) 3. Explain the agency theory and the key agency costs? (10) 4. Discuss the three essential characteristics of assets with suitable examples? (10) Page 1 of 2 Southeast University [Fall 2020] Part B: SHORT CASE STUDY TOTAL MARKS: 20 This part of the question is compulsory and must be answered. Your friend Lima recently started a restaurant business in Dhaka. She prepared her first year of financial reports and realized that despite attracting many customers her cash slow and profitability position is weak. She has recorded all her fixed assets in fair value. The fixed assets have been depreciated using the straight line method. She has also capitalized the research and development cost in her Balance Sheet. She has recognized all sales from services when she received orders from her customers. In the month of May, there was a sudden fire outbreak in her restaurant which damaged some of her equipment but she kept the value of those assets unchanged in her Balance Sheet. One of her customers who dined in her restaurant had a allergic reaction and decided to take legal action against her restaurant. It is probable that in the future she might have to pay some compensation to the customer for the damage. Lima knows that you have Accounting Major from Southeast University so she is seeking your advice on how to resolve the above Accounting issues. Requirement: [Marks: 20] Using appropriate Accounting Standard knowledge to provide suggestion to Lima on how to resolve the above issues in an appropriate manner. -END ~ Page 2 of 2