Standard template for exam question

REMEDIAL EXAMINATION

Subject : Accounting Theory

Lecturer : Imas Nurani Islami, S.Pd., M.Sc

Study Program : Accountancy

Question

1. When you are running a business, you need assets for generating revenue. For
recording you need dollar amount. The dollar amount could be obtained from
recognizing and measuring the asset as well. So, how do you define, recognize and
measure the assets..?

2. Sometimes you don’t have much money for financing your business, eventually you
borrow money from third parties or buy on account from vendors. This we call
liabilities. How do you define, recognize, and measure the liabilities..?

3. When the first time you open the business (star up business), you need money to put
onto your business (company) as equity/capital. The capital later will grow overtime.
How do you define equity..?

4. We need revenues for surviving the business, without revenues no business could
keep alive. How do you define, recognize, measure the revenues..?

5. For generating income, we need to sacrifice resources. The sacrifice is called

expenses. How do you define, recognize, measure expenses..?

6. In Positive Accounting Theory we recognize terms of Contracting Theory, Agency

Theory, Agency Problem, Agency Cost, Debt Covenants, Signaling Theory, and
Political Process. Please specify what is the meaning of those terms..?

Page 1 of 3
Standard template for exam question

Answer
6- Contract theory is the study of the way people and organizations
construct and develop legal agreements. ... Contract theory draws upon
principles of financial and economic behavior as different parties have
different incentives to perform or not perform particular actions

What is the Agency Theory

The agency theory is a supposition that explains the relationship
between principals and agents in business. Agency theory is concerned with
resolving problems that can exist in agency relationships due to unaligned
goals or different aversion levels to risk. The most common agency
relationship in finance occurs between shareholders (principal) and company
executives (agents).

What is the Agency Problem

The agency problem is a conflict of interest inherent in any relationship where
one party is expected to act in another's best interests. In corporate finance,
the agency problem usually refers to a conflict of interest between a
company's management and the company's stockholders. The manager,
acting as the agent for the shareholders, or principals, is supposed to make
decisions that will maximize shareholder wealth even though it is in the
manager’s best interest to maximize his own wealth.

What Are Agency Costs?

An agency cost is a type of internal company expense which comes from the
actions of an agent acting on behalf of a principal. Agency costs typically arise
in the wake of core inefficiencies, dissatisfactions and disruptions, such
as conflicts of interest between shareholders and management. Payment of
the agency cost is to the acting agent.

A debt covenant is a number of restrictions that a

borrower agrees to that are set by the lending institution.

Signaling theory is useful for describing behavior when two parties

(individuals or organizations) have access to different information. Typically,
one party, the sender, must choose whether and how to communicate
(or signal) that information, and the other party, the receiver, must choose
how to interpret the signal.

Definition of political process

: the process of the formulation and administration of
public policy usually by interaction between social groups
and political institutions or between political leadership
and public opinion

Page 2 of 3
Standard template for exam question

Page 3 of 3