AC3193

AC3193 Accounting: Markets and Organizations

Candidates should answer FOUR of the following EIGHT questions: ONE from Section
A, ONE from Section B, ONE from Section C and ONE further question from any
section. All questions carry equal marks.

Extracts from compound interest tables are given after the final question on this paper.

Please find questions on the following page.

© University of London 2023

Page 1 of 7
Section A: Answer at least ONE question.

Question 1
Excerpts from Welsh Slate Ltd.’s statement of financial position for the year ended 31
December 2021 showed non-current assets of £150,000 (acquired on 1 January 2021),
before depreciation of £50,000 for the year. The company had no inventory brought
forward from 2020 and made purchases totalling £60,000, which accrued evenly
throughout 2021. Closing inventory, valued at £20,000, was acquired on 30 November
2021. The company’s financial director also provides you with the following price
change indices for 2021, one representing the general retail price index, and the other,
a specific index to reflect the replacement cost for all of the company’s assets.

Retail Price Index All assets

1 January 100 100
30 June 120 140
30 November 140 150
31 December 160 180

Required:
a) How does Current Value Accounting (CVA) and Current Purchasing Power
Accounting (CPP) attempt to deal with the issue of changing prices?
7 marks

b) What are the limitations of CVA and how does Fully Stabilised Current Value
Accounting (FSCVA) correct this?
3 marks

c) Calculate the real realised and the real unrealised holding gains and losses on
inventory and non-current assets that would appear in a set of fully stabilised current
value accounts, stabilised in pounds (£) as at 31 December 2021.
10 marks

d) Without further calculation, where would the FSCVA holding gains and losses, along
with gains and losses on monetary items, be recorded in the financial statements?
2 marks

e) How does FSCVA differ from Hicks’ approach to defining capital and income?
3 marks
Total: 25 marks

Page 2 of 7
Question 2
So Solid Ltd. makes bespoke furniture for high-end homes. The company has three
factories across Britain and is considering what to do with these operations. The
company has a cost of capital of 8% per annum and their management has given you
the following information.

Teak factory:
This is one of the company’s most established factories. The factory generates sales of
£95,000 a year on an annual cost base of £40,000. There is a small but steady market
for the furniture that the company produces. The company’s sales director is confident
that the level of sales and cost base can indefinitely be maintained into the future. The
accounting or net book value of the factory is £350,000. The company has the option of
disposing this factory immediately for £175,000 and it will cost £11,000 to do so. A
similar factory nearby has recently sold for £436,000.

Oak factory:
This is the company’s largest operation. The factory generates a contribution, net of
costs, of £520,000 a year and is expected to do so for the next twelve years. The
factory machinery used also has an expected useful life of twelve years, and can be
sold for £1,000,000 at the end of its life. The accounting or net book value of the factory
is £1,200,000. If the factory were to be disposed in its current condition today, it would
fetch £1,530,000 before transaction costs of £58,000. A similar factory is currently on
sale for £4,500,000.

Spruce factory:
The company has acquired this factory as part of its merger with a former competitor.
The type of furniture made is not a specialism of the company, and it is weighing up the
various costs and benefits of disposing the factory. Currently, the factory generates a
contribution, net of costs, of £100,000 a year and can be expected to do so for ten
years. The machinery also has a ten-year useful life, and has an end-of-life value of
£280,000. The accounting or net book value of the factory is £740,000. If the factory
were to be disposed in its current condition today, it would fetch £960,000 before
transaction costs of £30,000. A similar factory is currently on sale for £975,000.

Required:
a) Define Deprival Value and explain its relevance for measuring asset values.
4 marks

b) Calculate the deprival values of all three factories to the nearest £1.
12 marks

c) On the basis of your answer in (b) and by stating any additional assumptions you
have made, what do you think the company should do with each of the distilleries?
4 marks

d) What are the potential limitations standard-setters face in using deprival values to
measure assets in Financial Reporting?
5 marks
Total: 25 marks

Page 3 of 7
Section B: Answer at least ONE question.

Question 3
a) Chua (1986) attempts to classify different approaches to the development of
accounting theories through research. Outline and assess her efforts.
17 marks

b) How influential has Chua’s (1986) approach been?

3 marks

c) Do we need to consider philosophy of method in research seeking to develop theories

of accounting?
5 marks

Question 4
What do writers in accounting theory today mean by the construct ‘emancipatory
accounting’? How has understanding of this construct changed according to S. Gallhofer
and J. Haslam (2017 online; 2019 published; “Reflections on the emancipatory
accounting construct: shifting meaning and the possibilities of a new pragmatism”, Critical
Perspectives on Accounting, Vol. 63).
25 marks

Question 5
Discuss key debating points arising from Efficient Markets Hypothesis research. What
does capital markets-based research tell us about how share prices incorporate
accounting information?
25 marks

Page 4 of 7
Section C: Answer at least ONE question.

Question 6
Minty, the recently appointed Controller of Duntravlin Ltd is asked to summarize his vision
of control for the organization. Minty has been working on his vision and he is worried
about how to convince the Board of Directors.

Minty wants to set different kinds of targets across the organization. In some
departments, he sees very challenging targets to be appropriate. In others, he wants the
targets to be easy to achieve. In other departments, he wants managers and employees
together to set their own budgets. He also sees it relevant in some departments to
forecast financials and then act upon these forecasts as a mode of control.

Minty knows that the Board is currently divided between two positions and he does not
like either of the positions. One position, championed by the Finance Director, Lester
Piglet, thinks the budgets should be set as a completely fresh exercise every month.
Piglet also feels, integral to his position, that there is little relationship between the
company’s goals and the current narrow financial targets of the company. The other, the
preference of the Sales Director, Ernest Hummingbird (who has written a memorandum
on ‘beyond budgeting’), is to scrap the budgeting system.

Required:
Putting yourself in Minty’s position, write a report to seek to convince the Board. Where
you think Minty should be less than confident about his vision you should indicate this in
the report.
25 marks

Question 7
In a debate about ethical issues, the directors of AntoniaMowbray Ltd take different views.
The Managing Director Venky Lenihan sees no conflict between pursuing profits and
corporate social responsibility. Even to survive, she argues, a business must satisfy the
stakeholders. Kurt Kaminski, the Marketing Director, argues that companies can try to
convince their stakeholders to support ethical strategies (they can sell the idea to them
and get them on side). The Finance Director, Ms Diaz Dack, suggests that the key thing
is to follow professional ethical codes. The Operations Director, Mandy Dolan, sees two
key ethical issues that need to be addressed: budgetary slack and not challenging flawed
control indicators.

Required:
Drawing on relevant academic and practitioner literature, discuss the ethical issues and
possible ways forward.
Total: 25 marks

Question 8
Assess the case for using market-based measures of performance for management
control.
Total: 25 marks

Page 5 of 7
Present Value interest factor per £1.00 due at the end of n years for interest rate of:
% 1 2 3 4 5 6 7 8 9 10
n
1 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909
2 0.980 0.961 0.943 0.925 0.907 0.890 0.873 0.857 0.842 0.826
3 0.971 0.942 0.915 0.889 0.864 0.840 0.816 0.794 0.772 0.751
4 0.961 0.924 0.888 0.855 0.823 0.792 0.763 0.735 0.708 0.683
5 0.951 0.906 0.863 0.822 0.784 0.747 0.713 0.681 0.650 0.621
6 0.942 0.888 0.837 0.790 0.746 0.705 0.666 0.630 0.596 0.564
7 0.933 0.871 0.813 0.760 0.711 0.665 0.623 0.583 0.547 0.513
8 0.923 0.853 0.789 0.731 0.677 0.627 0.582 0.540 0.502 0.467
9 0.914 0.837 0.766 0.703 0.645 0.592 0.544 0.500 0.460 0.424
10 0.905 0.820 0.744 0.676 0.614 0.558 0.508 0.463 0.422 0.386
11 0.896 0.804 0.722 0.650 0.585 0.527 0.475 0.429 0.388 0.350
12 0.887 0.788 0.701 0.625 0.557 0.497 0.444 0.397 0.356 0.319
13 0.879 0.773 0.681 0.601 0.530 0.469 0.415 0.368 0.326 0.290
14 0.870 0.758 0.661 0.577 0.505 0.442 0.388 0.340 0.299 0.263
15 0.861 0.743 0.642 0.555 0.481 0.417 0.362 0.315 0.275 0.239
16 0.853 0.728 0.623 0.534 0.458 0.394 0.339 0.292 0.252 0.218
17 0.844 0.714 0.605 0.513 0.436 0.371 0.317 0.270 0.231 0.198
18 0.836 0.700 0.587 0.494 0.416 0.350 0.296 0.250 0.212 0.180
19 0.828 0.686 0.570 0.475 0.396 0.331 0.277 0.232 0.194 0.164
20 0.820 0.673 0.554 0.456 0.377 0.312 0.258 0.215 0.178 0.149
21 0.811 0.660 0.538 0.439 0.359 0.294 0.242 0.199 0.164 0.135
22 0.803 0.647 0.522 0.422 0.342 0.278 0.226 0.184 0.150 0.123
23 0.795 0.634 0.507 0.406 0.326 0.262 0.211 0.170 0.138 0.112
24 0.788 0.622 0.492 0.390 0.310 0.247 0.197 0.158 0.126 0.102
25 0.780 0.610 0.478 0.375 0.295 0.233 0.184 0.146 0.116 0.092

% 11 12 13 14 15 16 17 18 19 20
n
1 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833
2 0.812 0.797 0.783 0.769 0.756 0.743 0.731 0.718 0.706 0.694
3 0.731 0.712 0.693 0.675 0.658 0.641 0.624 0.609 0.593 0.579
4 0.659 0.636 0.613 0.592 0.572 0.552 0.534 0.516 0.499 0.482
5 0.593 0.567 0.543 0.519 0.497 0.476 0.456 0.437 0.419 0.402
6 0.535 0.507 0.480 0.456 0.432 0.410 0.390 0.370 0.352 0.335
7 0.482 0.452 0.425 0.400 0.376 0.354 0.333 0.314 0.296 0.279
8 0.434 0.404 0.376 0.351 0.327 0.305 0.285 0.266 0.249 0.233
9 0.391 0.361 0.333 0.308 0.284 0.263 0.243 0.225 0.209 0.194
10 0.352 0.322 0.295 0.270 0.247 0.227 0.208 0.191 0.176 0.162
11 0.317 0.287 0.261 0.237 0.215 0.195 0.178 0.162 0.148 0.135
12 0.286 0.257 0.231 0.208 0.187 0.168 0.152 0.137 0.124 0.112
13 0.258 0.229 0.204 0.182 0.163 0.145 0.130 0.116 0.104 0.093
14 0.232 0.205 0.181 0.160 0.141 0.125 0.111 0.099 0.088 0.078
15 0.209 0.183 0.160 0.140 0.123 0.108 0.095 0.084 0.074 0.065
16 0.188 0.163 0.141 0.123 0.107 0.093 0.081 0.071 0.062 0.054
17 0.170 0.146 0.125 0.108 0.093 0.080 0.069 0.060 0.052 0.045
18 0.153 0.130 0.111 0.095 0.081 0.069 0.059 0.051 0.044 0.038
19 0.138 0.116 0.098 0.083 0.070 0.060 0.051 0.043 0.037 0.031
20 0.124 0.104 0.087 0.073 0.061 0.051 0.043 0.037 0.031 0.026
21 0.112 0.093 0.077 0.064 0.053 0.044 0.037 0.031 0.026 0.022
22 0.101 0.083 0.068 0.056 0.046 0.038 0.032 0.026 0.022 0.018
23 0.091 0.074 0.060 0.049 0.040 0.033 0.027 0.022 0.018 0.015
24 0.082 0.066 0.053 0.043 0.035 0.028 0.023 0.019 0.015 0.013
25 0.074 0.059 0.047 0.038 0.030 0.024 0.020 0.016 0.013 0.010

Page 6 of 7
Present Value interest factor for an annuity of £1.00 for a series of n years for interest
rate of:
% 1 2 3 4 5 6 7 8 9 10
n
1 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909
2 1.970 1.942 1.913 1.886 1.859 1.833 1.808 1.783 1.759 1.736
3 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487
4 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.312 3.240 3.170
5 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791
6 5.795 5.601 5.417 5.242 5.076 4.917 4.767 4.623 4.486 4.355
7 6.728 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868
8 7.652 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335
9 8.566 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.995 5.759
10 9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145
11 10.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495
12 11.255 10.575 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814
13 12.134 11.348 10.635 9.986 9.394 8.853 8.358 7.904 7.487 7.103
14 13.004 12.106 11.296 10.563 9.899 9.295 8.745 8.244 7.786 7.367
15 13.865 12.849 11.938 11.118 10.380 9.712 9.108 8.559 8.061 7.606
16 14.718 13.578 12.561 11.652 10.838 10.106 9.447 8.851 8.313 7.824
17 15.562 14.292 13.166 12.166 11.274 10.477 9.763 9.122 8.544 8.022
18 16.398 14.992 13.754 12.659 11.690 10.828 10.059 9.372 8.756 8.201
19 17.226 15.678 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.365
20 18.046 16.351 14.877 13.590 12.462 11.470 10.594 9.818 9.129 8.514
21 18.857 17.011 15.415 14.029 12.821 11.764 10.836 10.017 9.292 8.649
22 19.660 17.658 15.937 14.451 13.163 12.042 11.061 10.201 9.442 8.772
23 20.456 18.292 16.444 14.857 13.489 12.303 11.272 10.371 9.580 8.883
24 21.243 18.914 16.936 15.247 13.799 12.550 11.469 10.529 9.707 8.985
25 22.023 19.523 17.413 15.622 14.094 12.783 11.654 10.675 9.823 9.077

% 11 12 13 14 15 16 17 18 19 20
n
1 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833
2 1.713 1.690 1.668 1.647 1.626 1.605 1.585 1.566 1.547 1.528
3 2.444 2.402 2.361 2.322 2.283 2.246 2.210 2.174 2.140 2.106
4 3.102 3.037 2.974 2.914 2.855 2.798 2.743 2.690 2.639 2.589
5 3.696 3.605 3.517 3.433 3.352 3.274 3.199 3.127 3.058 2.991
6 4.231 4.111 3.998 3.889 3.784 3.685 3.589 3.498 3.410 3.326
7 4.712 4.564 4.423 4.288 4.160 4.039 3.922 3.812 3.706 3.605
8 5.146 4.968 4.799 4.639 4.487 4.344 4.207 4.078 3.954 3.837
9 5.537 5.328 5.132 4.946 4.772 4.607 4.451 4.303 4.163 4.031
10 5.889 5.650 5.426 5.216 5.019 4.833 4.659 4.494 4.339 4.192
11 6.207 5.938 5.687 5.453 5.234 5.029 4.836 4.656 4.486 4.327
12 6.492 6.194 5.918 5.660 5.421 5.197 4.988 4.793 4.611 4.439
13 6.750 6.424 6.122 5.842 5.583 5.342 5.118 4.910 4.715 4.533
14 6.982 6.628 6.302 6.002 5.724 5.468 5.229 5.008 4.802 4.611
15 7.191 6.811 6.462 6.142 5.847 5.575 5.324 5.092 4.876 4.675
16 7.379 6.974 6.604 6.265 5.954 5.668 5.405 5.162 4.938 4.730
17 7.549 7.120 6.729 6.373 6.047 5.749 5.475 5.222 4.990 4.775
18 7.702 7.250 6.840 6.467 6.128 5.818 5.534 5.273 5.033 4.812
19 7.839 7.366 6.938 6.550 6.198 5.877 5.584 5.316 5.070 4.843
20 7.963 7.469 7.025 6.623 6.259 5.929 5.628 5.353 5.101 4.870
21 8.075 7.562 7.102 6.687 6.312 5.973 5.665 5.384 5.127 4.891
22 8.176 7.645 7.170 6.743 6.359 6.011 5.696 5.410 5.149 4.909
23 8.266 7.718 7.230 6.792 6.399 6.044 5.723 5.432 5.167 4.925
24 8.348 7.784 7.283 6.835 6.434 6.073 5.746 5.451 5.182 4.937
25 8.422 7.843 7.330 6.873 6.464 6.097 5.766 5.467 5.195 4.948

END OF PAPER

Page 7 of 7
 Examiners’ commentaries 2023 (May)

Examiners’ commentaries 2023 (May)

AC3193 Accounting: markets and organisations

Important note

This commentary reflects the examination and assessment arrangements for this course in the
academic year 2022–23. The format and structure of the examination may change in future years,
and any such changes will be publicised on the virtual learning environment (VLE).

Information about the subject guide and the Essential reading

references

Unless otherwise stated, all cross-references will be to the latest version of the subject guide (2021).
You should always attempt to use the most recent edition of any Essential reading textbook, even if
the commentary and/or online reading list and/or subject guide refer to an earlier edition. If
different editions of Essential reading are listed, please check the VLE for reading supplements – if
none are available, please use the contents list and index of the new edition to find the relevant
section.

General remarks

Learning outcomes

At the end of this course and having completed the Essential reading and activities you should be
able to:

critically assess the impact of positive and normative accounting theories and their
applications in dealing with complex financial accounting issues such as alternative
accounting conventions, conceptual framework and economic income approach

discuss the different approaches in regulating financial accounting information

discuss the demand and implications of financial information in capital market research

evaluate the applications of sociological and organisational approaches to the study of

accounting

evaluate issues arising from management control in its organisational context

discuss various approaches to performance measurement and control in various types of

organisations, and devise and evaluate indicators of performance

discuss contingency theory and its impacts on management control practices in organisations

discuss the ethical issues of using management control methods and its use in non-profit
organisations.

1
AC3193 Accounting: markets and organisations

What the examiners are looking for

Candidates are expected to answer a question from each of the three sections (A, B and C) and a
fourth question from any of the sections. In Section A, Questions 1 and 2 are the numerically based
questions, and all candidates must attempt at least one question. In Section B, Questions 3 to 5 are
essay-based questions taken from the first half of the module (financial accounting / markets). In
Section C, Questions 6 to 8 are essay-based questions from the second half of the module
(management accounting / organisations).

Questions 6 and 7 adopt a case study-like style, rather than a more conventional essay, to deal with
the challenges of moving to an examination environment that is increasingly online based.

Examiners are expecting candidates to show technical competency in Section A and an ability to
demonstrate critical and independent thinking for the remaining discursive questions in Sections B
and C. This would include the use of examples that relate directly to their argument (clearly
described and logically fitting with the argument made) and indications that the student has read
and is able to understand material outside of the lecture notes. Basic essay writing skills are also to
be expected (for example, introduction, arguments in each of the main sections supported by
examples and use of academic literature, conclusion).

Examination revision strategy

Many candidates are disappointed to find that their examination performance is poorer than they
expected. This may be due to a number of reasons, but one particular failing is ‘question
spotting’, that is, confining your examination preparation to a few questions and/or topics which
have come up in past papers for the course. This can have serious consequences.

We recognise that candidates might not cover all topics in the syllabus in the same depth, but you
need to be aware that examiners are free to set questions on any aspect of the syllabus. This
means that you need to study enough of the syllabus to enable you to answer the required number of
examination questions.

The syllabus can be found in the Course information sheet available on the VLE. You should read
the syllabus carefully and ensure that you cover sufficient material in preparation for the
examination. Examiners will vary the topics and questions from year to year and may well set
questions that have not appeared in past papers. Examination papers may legitimately include
questions on any topic in the syllabus. So, although past papers can be helpful during your revision,
you cannot assume that topics or specific questions that have come up in past examinations will
occur again.

If you rely on a question-spotting strategy, it is likely you will find yourself in difficulties
when you sit the examination. We strongly advise you not to adopt this strategy.

2
 Examiners’ commentaries 2023 (May)

Examiners’ commentaries 2023 (May)

AC3193 Accounting: markets and organisations

Important note

This commentary reflects the examination and assessment arrangements for this course in the
academic year 2022–23. The format and structure of the examination may change in future years,
and any such changes will be publicised on the virtual learning environment (VLE).

Information about the subject guide and the Essential reading

references

Unless otherwise stated, all cross-references will be to the latest version of the subject guide (2018).
You should always attempt to use the most recent edition of any Essential reading textbook, even if
the commentary and/or online reading list and/or subject guide refer to an earlier edition. If
different editions of Essential reading are listed, please check the VLE for reading supplements – if
none are available, please use the contents list and index of the new edition to find the relevant
section.

Comments on specific questions

Candidates should answer FOUR of the following EIGHT questions: ONE from Section A, ONE
from Section B, ONE from Section C and ONE further question from any section. All questions
carry equal marks.

Section A

Answer at least ONE question.

Question 1

Excerpts from Welsh Slate Ltd.’s statement of financial position for the year ended
31 December 2021 showed non-current assets of £150,000 (acquired on 1 January
2021), before depreciation of £50,000 for the year. The company had no inventory
brought forward from 2020 and made purchases totalling £60,000, which accrued
evenly throughout 2021. Closing inventory, valued at £20,000, was acquired on 30
November 2021. The company’s financial director also provides you with the
following price change indices for 2021, one representing the general retail price
index, and the other, a specific index to reflect the replacement cost for all of the
company’s assets.

Retail Price Index All assets

1 January 100 100
30 June 120 140
30 November 140 150
31 December 160 180

3
AC3193 Accounting: markets and organisations

Required:

(a) How does Current Value Accounting (CVA) and Current Purchasing Power
Accounting (CPP) attempt to deal with the issue of changing prices?
(7 marks)
(b) What are the limitations of CVA and how does Fully Stabilised Current Value
Accounting (FSCVA) correct this?
(3 marks)
(c) Calculate the real realised and the real unrealised holding gains and losses on
inventory and non-current assets that would appear in a set of fully stabilised
current value accounts, stabilised in pounds (£) as at 31 December 2021.
(10 marks)
(d) Without further calculation, where would the FSCVA holding gains and losses,
along with gains and losses on monetary items, be recorded in the financial
statements?
(2 marks)
(e) How does FSCVA differ from Hicks’ approach to defining capital and income?
(3 marks)

Total: 25 marks

Reading for this question

Subject guide, Chapter 4 and Errata to the chapter.

Alexander, D., A. Jorissen, M. Hoogendoorn, C.V. Mourik and C. Kirwan, International

Financial Reporting and analysis. (Andover: Cengage Learning EMEA, 2020) 8th edition,
Chapters 5 and 12.

Approaching the question

(a) The subject guide covers key ideas that discusses the various strengths and limitations of
CVA and CPP in dealing with changing prices.
(b) Candidates should focus specifically on CVA’s limitations, which are discussed in the
subject guide, namely on how it only accounts for specific price rises, but not the wider
changes across the economy. Conceptually, FSCVA attempts to account for both general as
well as specific price changes, but this can render the system more complex to understand.
(c) We have:

4
 Examiners’ commentaries 2023 (May)

(d) Both FSCVA holding and monetary gains and losses to the income statement.
(e) There are many possible discussion points, but these are a sample:
• FSCVA is based on a cost/entry price approach to measuring capital and income.
• Hicks’ approach is based on expectations of economic value that an asset can potentially
generate.
• FSCVA assumes a cost/price approach is a good approximation to measuring
capital/income.
• Hicks’ assumes that estimated revenue generation over time can be used for
measurement.

Question 2

So Solid Ltd. makes bespoke furniture for high-end homes. The company has three
factories across Britain and is considering what to do with these operations. The
company has a cost of capital of 8% per annum and their management has given you
the following information.

Teak factory:

This is one of the company’s most established factories. The factory generates sales
of £95,000 a year on an annual cost base of £40,000. There is a small but steady
market for the furniture that the company produces. The company’s sales director
is confident that the level of sales and cost base can indefinitely be maintained into
the future. The accounting or net book value of the factory is £350,000. The
company has the option of disposing this factory immediately for £175,000 and it
will cost £11,000 to do so. A similar factory nearby has recently sold for £436,000.

Oak factory:

This is the company’s largest operation. The factory generates a contribution, net of
costs, of £520,000 a year and is expected to do so for the next twelve years. The
factory machinery used also has an expected useful life of twelve years, and can be
sold for £1,000,000 at the end of its life. The accounting or net book value of the
factory is £1,200,000. If the factory were to be disposed in its current condition
today, it would fetch £1,530,000 before transaction costs of £58,000. A similar
factory is currently on sale for £4,500,000.

Spruce factory:

The company has acquired this factory as part of its merger with a former
competitor. The type of furniture made is not a specialism of the company, and it is
weighing up the various costs and benefits of disposing the factory. Currently, the
factory generates a contribution, net of costs, of £100,000 a year and can be

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AC3193 Accounting: markets and organisations

expected to do so for ten years. The machinery also has a ten-year useful life, and
has an end-of-life value of £280,000. The accounting or net book value of the factory
is £740,000. If the factory were to be disposed in its current condition today, it
would fetch £960,000 before transaction costs of £30,000. A similar factory is
currently on sale for £975,000.

Required:

(a) Define Deprival Value and explain its relevance for measuring asset values.
(4 marks)
(b) Calculate the deprival values of all three factories to the nearest £1.
(12 marks)
(c) On the basis of your answer in (b) and by stating any additional assumptions
you have made, what do you think the company should do with each of the
distilleries?
(4 marks)
(d) What are the potential limitations standard-setters face in using deprival values
to measure assets in Financial Reporting?
(5 marks)

Total: 25 marks

Reading for this question

Subject guide, Chapter 5 and Errata to the chapter.

Alexander, D., A. Jorissen, M. Hoogendoorn, C.V. Mourik and C. Kirwan, International

Financial Reporting and analysis. (Andover: Cengage Learning EMEA, 2020) 8th edition,
Chapter 6.

Approaching the question

This question is by far the most attempted question in the May 2023 examination. Candidates
also performed better on this question compared to the rest of the paper.

(a) This is a standard definition question and discussed extensively in the subject guide.
(b) We have:

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 Examiners’ commentaries 2023 (May)

(c) We have:

(d) Like part (a), this is again a standard question, with limitations of deprival value discussed
at length in the subject guide.

Section B

Answer at least ONE question.

Question 3

(a) Chua (1986) attempts to classify different approaches to the development of

accounting theories through research. Outline and assess her efforts.
(17 marks)
(b) How influential has Chua’s (1986) approach been?
(3 marks)
(c) Do we need to consider philosophy of method in research seeking to develop
theories of accounting?
(5 marks)

Reading for this question

Subject guide, Chapters 2, 7 and 8.

Chua, W.F. ‘Radical developments in accounting thought’, Accounting Review 61(4) 1986, pp.
601–32.

Gallhofer, S. and J. Haslam ‘Some reflections on the emancipatory accounting construct: shifting
meaning and the possibilities of a new pragmatism’, Critical Perspectives on Accounting 63, 2019.

Laughlin, R. ‘Empirical research in accounting: alternative approaches and a case for

“middle-range” thinking’, Accounting, Auditing and Accountability Journal 8(1) 1995, pp. 63–87.

Approaching the question

This question in Section B was generally poorly answered. A good answer would attempt an
overview of Laughlin (1995), which would bring out a framing categorisation of approaches along
three dimensions: subjectivist-objectivist, critical-conservative and open-closed. Such attempts
might also elaborate the influences upon Laughlin, such as Burrell and Morgan, and Chua. Good
answers evaluating Laughlin would potentially compare his approach with those of others (for
example, Chua (1986)), noting his addition of a third dimension for framing categorisation. In
evaluating Laughlin, it would be important to elaborate strengths and limitations. Laughlin

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AC3193 Accounting: markets and organisations

notes that a philosophy of method is implicit in any research design. But if it is considered
explicitly, he argues, it can strengthen method.

Question 4

What do writers in accounting theory today mean by the construct ‘emancipatory

accounting’ ? How has understanding of this construct changed according to S.
Gallhofer and J. Haslam (2017 online; 2019 published; “Reflections on the
emancipatory accounting construct: shifting meaning and the possibilities of a new
pragmatism”, Critical Perspectives on Accounting, Vol. 63).

(25 marks)

Reading for this question

Subject Guide Chapters 1, 2, 7 and 8.

Cited in the question itself.

Gallhofer, S., J. Haslam and A. Yonekura ‘Accounting as differentiated universalism for

emancipatory praxis: accounting delineation and mobilisation for emancipation(s) recognising
democracy and difference’, Accounting, Auditing and Accountability Journal 28(5) 2015, pp.
846–74.

Approaching the question

This was the least popular question not just for Section B, but for the whole paper. Nonetheless,
candidates who did attempt this question did perform relatively better, on average, compared to
other questions in Sections B or C.

A good answer would bring out how emancipatory accounting has been informed by
developments in social theory. The construct gives emphasis in accounting theory to the detail of
impacts of accounting in organisations and society in practice. This detail includes appreciation
of progressive and regressive impacts of accounting at any moment in time in these contexts. It
also includes appreciation of the way in which the impacts of accounting change over time.

Question 5

Discuss key debating points arising from Efficient Markets Hypothesis research.
What does capital markets-based research tell us about how share prices
incorporate accounting information?

(25 marks)

Reading for this question

Subject guide, Chapter 6.

Whittington, G. ‘Financial accounting theory: an overview’, British Accounting Review 18(2)

1986, pp. 4–41.

Ball, R. and P. Brown ‘An empirical evaluation of accounting income numbers’, Journal of
Accounting Research 6(2) 1968, pp. 159–78.

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 Examiners’ commentaries 2023 (May)

Approaching the question

This was by far the most popular question in Section B, but also one that often did not include
more critical reflections of the theory, and/or were short on detail as to how to apply the theory.

Answers should explain what is meant by capital market research around the efficient markets’
hypothesis. Capital market research has investigated the information content of corporate
earnings announcements as well as many other accounting and disclosure items. It is often
argued that more informed choices between accounting and disclosure alternatives could be made
if the expected impacts on share prices are anticipated when making financial reporting
decisions. Good answers would refer to key points raised in Chapter 6, for example, about what
the research does not show (but might be understood to show).

Answers may also include discussions on why investors primarily rely on historical cost income
measurements, whether investors obtain information from sources other than accounting
information, the value or otherwise of information content from earnings announcements,
earnings persistence etc. Answers may also acknowledge the contributions of Ball and Brown
(1968) and how this has sparked a new paradigm in positivistic research into information
perspectives on accounting.

Section C

Answer at least ONE question.

Question 6

Minty, the recently appointed Controller of Duntravlin Ltd is asked to summarize

his vision of control for the organization. Minty has been working on his vision and
he is worried about how to convince the Board of Directors.

Minty wants to set different kinds of targets across the organisation. In some
departments, he sees very challenging targets to be appropriate. In others, he wants
the targets to be easy to achieve. In other departments, he wants managers and
employees together to set their own budgets. He also sees it relevant in some
departments to forecast financials and then act upon these forecasts as a mode of
control.

Minty knows that the Board is currently divided between two positions and he does
not like either of the positions. One position, championed by the Finance Director,
Lester Piglet, thinks the budgets should be set as a completely fresh exercise every
month. Piglet also feels, integral to his position, that there is little relationship
between the company’s goals and the current narrow financial targets of the
company. The other, the preference of the Sales Director, Ernest Hummingbird
(who has written a memorandum on ‘beyond budgeting’), is to scrap the budgeting
system.

Required:

Putting yourself in Minty’s position, write a report to seek to convince the Board.
Where you think Minty should be less than confident about his vision you should
indicate this in the report.

(25 marks)

Reading for this question

Subject guide, Chapter 14.

Merchant, K.A. and W.A. Van der Stede, Management control systems: Performance

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AC3193 Accounting: markets and organisations

measurement, evaluation and incentives. (Harlow: Pearson, 2017) 4th edition Chapter 8.

Approaching the question

Questions 6 and 7 were the least popular questions in Section C. Candidates are expected to
engage with the core elements of the case and to apply their knowledge and understanding of
what they have learned to the case. Those that rely on reproducing boilerplate answers will find
such questions more challenging.

In Question 6, it is relevant to note that feed-forward control can operate alongside feed-back
control. The former is where predictions of outcomes are compared with where the organisation
wants to be, and corrective action can be taken at that stage (the latter is comparing outcomes
with budgets and flexed budgets). It is the case that budgets are targets rather than forecasts (if
forecasts might be used in constructing targets), but this does not negate the potential benefits
of feed-forward control. Reference is made to ‘considerable effort’ – it is relevant to review the
costs of various features of control systems with the benefits (these may change over time).

Most research suggests that motivation to achieve targets is increased where targets are set just
above what might be reasonably expected. But it does arguably depend on so many other things,
including other incentive schemes, operation of bonus systems and employee share ownership
systems. Also, participation here is relevant, although this may not necessarily be the same as
letting people set their own targets. Research suggests participation also increases motivation,
but again, there are other factors that this depends upon. A complex organisation may have
different target setting systems, though this could potentially create its own motivational issues,
as may have happened here. Again, it is important to keep these things under review.

Zero-based budgeting could be compared with other approaches to budgeting such as incremental
budgeting – advantages and disadvantages could be highlighted and the point about keeping
under review could be made.

More generally, advantages and disadvantages of budgeting can be delineated, as in organisations

facing very dynamic environments. That said, the possibility of seeking to influence the business
environment (not just reacting to it), budgets may lose their relevance for control very quickly.
Perhaps it is a question of emphasis. Some organisations might benefit more from seeking to
understand the environment and themselves. But targets and the need to maintain control –
with certain aspects potentially being very key such as basic cash control – are still going to be
important (beyond budgeting need not in this sense mean getting rid of budgets altogether).
There are translation issues going from longer-term objectives to short-term financial targets.
There is therefore a need for a more holistic set of measures, which will depend on the
organisation, its goals, and the context. This will determine how much emphasis to place on the
latter (i.e. short-term financial targets).

Question 7

In a debate about ethical issues, the directors of AntoniaMowbray Ltd take different
views. The Managing Director Venky Lenihan sees no conflict between pursuing
profits and corporate social responsibility. Even to survive, she argues, a business
must satisfy the stakeholders. Kurt Kaminski, the Marketing Director, argues that
companies can try to convince their stakeholders to support ethical strategies (they
can sell the idea to them and get them on side). The Finance Director, Ms Diaz
Dack, suggests that the key thing is to follow professional ethical codes. The
Operations Director, Mandy Dolan, sees two key ethical issues that need to be
addressed: budgetary slack and not challenging flawed control indicators.

Required:

Drawing on relevant academic and practitioner literature, discuss the ethical issues
and possible ways forward. (Total: 25 marks)

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 Examiners’ commentaries 2023 (May)

Reading for this question

Subject guide, Chapter 19.

Merchant, K.A. and W.A. Van der Stede, Management control systems: Performance
measurement, evaluation and incentives. (Harlow: Pearson, 2017) 4th edition Chapter 15.

Approaching the question

See opening comment to Question 6 as well.

The chapter on the ethics of management control presents interesting material on the points
made by the Operations director – the two areas mentioned may here overlap as they are both
likely forms of internal deception. Contingencies and ways forward should be discussed.

The same chapter does also consider professional ethical codes – it would be useful to point out
their limits in relation to all the issues discussed, perhaps bringing in appreciation of the
philosophies of ethics debated in the chapter. Codes by their nature are often somewhat
superficial and instrumental, although this does not mean that they have no value.

Regarding the views of the Managing Director and the Marketing Director, a critical perspective
would at least question whether organisational survival is the same thing as making the best
ethical contribution to society, although some organisational sociologists approach this view with
their construct of ‘structural functionalism’.

Perhaps there is a balance to be arrived at on a continuum where the more ethical an

organisation is, the more profits it makes – but many would then see a tipping point (and that is
where some might argue regulations such as the law may have a role). The Marketing Director’s
point is a good one and there is surely some sense in this. And indeed, organisations can even
seek to change legalistic or quasi-legalistic regulations that favour better ethical operations
(which might also create more level playing fields).

Even so, there are arguably limits to such arguments too. Many organisations in very
competitive markets may find it difficult to shape things in this way and have little autonomy as
far as more expansive notions of corporate social responsibility are concerned (so that
extra-organisational controls would arguably take on a greater relevance).

Question 8

Assess the case for using market-based measures of performance for management
control.

(Total: 25 marks)

Reading for this question

Subject guide, Chapter 16.

Merchant, K.A. and W.A. Van der Stede, Management control systems: Performance
measurement, evaluation and incentives. (Harlow: Pearson, 2017) 4th edition Chapter 10.

Approaching the question

This is the most popular question in Section C. As expected of a popular question, the quality of
answers differed tremendously, from well thought out essays to boilerplate answers that do not
address the critical elements of the question.

The question is seeking demonstration of knowledge and understanding of a key concept and
different perspectives on its possibilities. It is useful to define or delineate market-based measures

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AC3193 Accounting: markets and organisations

as well as to ensure that both strengths and limitations are given adequate attention. A basic
market-based notion of performance is the dividend paid in a period plus (or minus) the change
in the market value of shares over the period.

Strengths include ease of measurement, measurement available on a timely basis, precision of

measure, objectivity (in the sense that or to the extent that it might not be easily influenced by
the managers), understand-ability and cost-effectiveness.

Limitations (aside from this only being available to companies whose equities are traded on the
stock market) include controllability as it is often outside the control of managers being assessed
– overall performance in general may not entirely be controllable. It might especially be difficult
to link to efforts of managers lower in the hierarchy. There may thus be motivational impact.
There may be a mismatch and even a lack of correlation between accounting profits and
economic profits, of course. The market will not know everything about the company (some of
this secrecy or confidentiality may be helpful in the longer term for manifest growth but not
immediately). The market may not price equities very well.

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