SECTION A [50 MARKS] Answer ALL questions in this section. QUESTION 1 The mission statement of Ditiro PLC is to provide our customers with a top quality product at a fair price. Evaluate the usefulness of this mission statement. (10 marks)

QUESTION 2 Exclusive shoppers is a womens clothing boutique that sells designer luxury items, a market in which it faces significant competition. It has recently published a new mission statement: Exclusive shoppers will continue to grow and innovate as an organization, while acting in a socially responsible way For a future meeting of the board of directors, the marketing director has been asked to prepare a presentation to discuss this in more detail. She has asked you to help her by suggesting objectives that could be used to help the company achieve its missions of growth and innovation. The marketing director has suggested that the only objective for social responsibility will be the happiness of the workforce.

Required: a. Recommend, with reasons, two possible objectives each for both growth and innovation for Exclusive shoppers, as requested by the marketing director. (8 marks)

b. Comment on the proposed objective for social responsibility and recommend, with reasons, an alternative. (4 marks)

QUESTION 3 Consider the following situations. In each case, state whether there is an asset or liability within the definitions given by the framework. Give reasons for your answer. a. Potter Co has purchased a patent for P200,000. The patent gives the company sole use of a particular manufacturing process which will save P30,000 a year for the next five years. (3 marks)

b. Capital Co paid Neo P100,000 to set up a car repair shop, on condition that priority treatment is given to cars from the companys fleet. (3 marks) c. BGG Co provides a warranty with every car sold. (3 marks)

QUESTION 4 Badisa Corporation is a newly formed company. Below are the first ten transactions that Badisa encountered.

1. Invested P100 000 cash, in capital.

2. Purchased building for P240 000, making a P40 000 down payment and singing a promissory note payable for the balance.

3. Paid wages expense of P10 000.

4. Provided services to customers for P30 000 cash.

5. Paid utilities expense of P4 000.

6. Reduced note payable with a P16 000 cash payment (ignore interest costs).

7. Provided services to customers on account, P20 000. 8. Incurred wages expense of P6 000 to be paid in the future.

9. Collected P8 000 on an outstanding account receivable.

10. Withdrew P12 000 for personal use.

Required: Prepare a worksheet of Badisas transactions indicating the accounting equation. (10 marks)

QUESTION 5 Pope (Ltd) just released the third quarterly financial results for 2016. The income statement indicates an income value of P268 987. Identify and explain the assertions made over this income value. (6 marks)

Answer ALL questions in this section.

QUESTION 1 Read the following case and answer the questions that follow. Fly Internet Fly is an internet-based company that sells books, DVDs and CDs to consumers. Flys customers are required to create an account, to which they register their name, address and credit card details. The customers must also create a password, which they must use whenever they wish to log into their account in order to update their details or place an order. Registered customers can log in and place orders very easily because all of their delivery and payment details are already on file. That feature is one of the main factors behind Flys success. The other main factor is that Flys software tracks each customers purchases and uses that information to email recommendations based on past orders. Many customers buy recommendations based on past orders. Many customers buy recommended products, and the proportion is growing because Flys tracking software becomes increasingly accurate as more data is gathered. Fly has recently suffered a security breach involving 2,000 of its highest spending customers. One of Flys analysts had been asked to write a report about those customers buying habits. The report was required urgently and so the analyst copied the customers files onto a memory stick, which he took home to analyse on his home PC over the weekend. He copied the final report onto the same memory stick but lost the stick during the taxi journey into work. The analyst had one of his flatmates email him a copy of the report, which was still on the hard drive of his home PC, so the reports deadline was met. The analyst did not report the loss of the memory stick because he did not wish to get into trouble for losing the data. He hoped that anybody who found the stick would simply erase the files. Over the next two weeks, Fly started to receive complaints from customers that orders were being placed without the account holders permission. Flys policy in these circumstances is to seek clarification from the account holder and suggest that the order could have been placed by a family member who knew the account password. The volume of complaints was higher than usual and the analyst was asked to investigate them to determine whether there was a security problem. The analyst quickly realised that many of the complaints were from the 2,000 customers whose files were on his memory stick and that the person who had found the stick was abusing that information. He admitted the loss of the memory stick and was suspended. Flys customer services department wrote to all of those customers whose accounts had been compromised and offered to cancel any disputed charges on their accounts. The customers were also advised to contact their credit card providers and to study their card statements carefully in case the thief had used that information to defraud them. Several of these customers complained to a national newspaper and Fly received many further complaints concerning disputed charges, mainly from customers whose details had not been copied by the analyst.

Required: Write a report to Flys Board which:

a. Advises on the weaknesses in both the control environment and the internal controls that led to this loss of data; (10 marks)

b. Recommend, stating reasons, actions that Flys board should take:

i. To restore the confidence of its existing and potential customers; (10 marks)

ii. To prevent similar problems occurring in the future. (5 marks)

c. Explain the constraints of the controls from your answer above. (5 marks)

QUESTION 2 Read the following case and answer the questions that follow. You are a consultant and you have recently received an email from one of your clients, ABL plc (a major mining company). Dear Sir/Madam ABL plc has an opportunity to mine for coal in a remote and sparsely populated area. The mining process proposed in this instance would remove all vegetation from the land concerned. After mining has finished, there will remain substantial lakes of poisonous water which will remain toxic for a hundred years. The mining process is profitable, given the current high world value of coal. However, if the company were to reinstate the mined land, the process would be extremely unprofitable. The company has received permission from the government to carry out the mining. The few local residents are opposed to the mining. As you know, our mission statement says that we will endeavour to make the maximum possible profit for our shareholders while recognising our wider responsibility to society. We are aware that our decision relating to the above coal mining opportunity could potentially cause a conflict between our objectives.

Required: a. Advise the management of ABL plc about the potential cause of conflict between the companys objectives and how such conflicts can be dealt with. (10 marks)

b. Outline the ethical issues surrounding the proposed coal mining operations. (10 marks)