(a)What is the function and primary focus of financial accounting?

(b)Identify two important variables to be considered when making an investment decision.

(c)What is meant byaccounting standards?Why should all companies follow accounting standards in reporting to external users?

(d)Explain the role of the auditor (Independent accountant) in the financial reporting process.

(a)For each of the following situations, indicate whether youagreeordisagreewith the financial reporting practice employed andstatethe basicassumptionoraccounting principlethat is applied (if you agree) or violated (if you disagree)

(i)EABLadjusted the valuation of all assets and liabilities to reflect changes in the purchasing power of the Shilling.

(ii)Tallow Oil Companychanged its method of accounting for oil and gas exploration costs from successful efforts to full cost. No mention of the change was included in the financial statements. The change had a material effect on Tallow's Financial Statements.

(iii)Nandi Flame Manufacturing Companypurchased a machine having a five-year life. The cost of the machinery is being expensed over the life of the machinery.

(iv)Quickmart Companypurchased inventory for sh. 18 Million at a liquidation sale of a competitor - Nakumatt because the inventory was worth sh. 25 Million. Quickmart valued the inventory in its subsequent statement of financial position at sh. 25 Million.

(v)Mombasa Bicycle Companyreceived a large order for the sale of 1,000 bicycles at sh. 10,000 each. The customer paid Mombasa the entire amount of sh. 10 Million on March 15. However, Mombasa did not recordany revenueuntil April 17 the date the bicycles were delivered to the customer.

(vi)Kenya Airways Companypurchased two small calculators at a cost of sh. 32,000. The cost of the calculators was expensed even though they had a three - year estimated useful life.

(vii)Uchumi Companyprovides financial statements to external users every three years.

(viii) The CEO ofMagadi Companyasked the Company Financial accountant to charge miscellaneous expense for the purchase of an Automobile to be used solely for personal use.

(ix) At the end of its 2019 financial year.Abuachu Industries Companyreceived an order from a customer for sh. 45 Million. The Merchandise will be delivered early in 2020, because the sale was made to a long-time customer, the financial accountant recorded the sale in 2019.

(x)At the beginning of its 2020 financial year,Ruiru Imports Companypaid sh. 4.8 Million for a two-year Lease on warehouse space. Ruiru recorded the expenditure as an asset to be expensed equally over the two-year period of the Lease.

(b)What is a subsidiary ledger? What type of information is contained in anAccounts receivable subsidiary ledger?

(c)Explain what aControl Accountis? Describe theaccounts receivable controlandAccounts Payable ControlAccounts.