Question 7: Theory questions (20 marks)

1. As an asset loses its ability to provide services, cash needs to be set aside to replace it. Depreciation accomplishes this goal. Do you agree/disagree? Please explain why and illustrate with reference to an example. (5 marks)

2. Companies can distribute both cash dividends and share dividends. What are the major differences between these two types of dividends? Explain with reference to an example. (5 marks)

3. Identify the factors that are considered in classifying an expenditure as a capital or a revenue expenditure. Provide examples of both types of expenditure. (4 marks)

4. Important objectives of a system of internal controls are to safeguard assets and to enhance the accuracy and reliability of the accounting records. Briefly discuss how (1) cost-benefit considerations, (2) the human element, and (3) the size of the business affects the implementation of a system of internal controls. Illustrate with an example. (6 marks)