(b) Discuss the relative costs to the preparer and benefits to the users of financial statements of increased

disclosure of information in financial statements. (14 marks)

Quality of discussion and reasoning. (2 marks)

(ii) Construct the argument against Professor West’s opinion, and in favour of Professor Leroi’s opinion that

a principles-based approach would be preferable in developing countries. Your answer should consider

the particular situations of developing countries. (10 marks)

(b) Identify and explain THREE approaches that the directors of Moffat Ltd might apply in assessing the

QUALITATIVE benefits of the proposed investment in a new IT system. (6 marks)

(b) Explain how the use of SWOT analysis may be of assistance to the management of Diverse Holdings Plc.

(3 marks)

The IOA Division is also considering whether to undertake an investment in the West of the country (the West Project).

An initial cash outlay investment of ￡12 million will be required and a net cash inflow amounting to ￡5 million is

expected to arise in each of the four years of the life of the project.

The activities involved in the West project will cause the local river to become polluted and discoloured due to the

discharge of waste substances from mining operations.

It is estimated that at the end of year four a cash outlay of ￡2 million would be required to restore the river to its

original colour. This would also clear 90% of the pollution caused as a result of the mining activities of the IOA

Division.

The remaining 10% of the pollution caused as a result of the mining activities of the IOA Division could be cleared

up by a further cash outlay of ￡2 million.

(c) Evaluate the West project and, stating your reasons, comment on whether the board of directors of NCL plc

should spend the further ￡2 million in order to eliminate the remaining 10% of pollution. (6 marks)

(Ignore Taxation).

(e) Briefly discuss FOUR initiatives that management might consider in order to further enhance profitability.

(4 marks)

(c) (i) Using ONLY the above information, assess the competitive position of Diverse Holdings Plc.

(7 marks)

(ii) Explain THREE strategies that might be adopted in order to improve the future prospects of Diverse

Holdings Plc. (6 marks)

3 Better budgeting in recent years may have been seen as a movement from ‘incremental budgeting’ to alternative

budgeting approaches.

However, academic studies (e.g. Beyond Budgeting – Hope & Fraser) argue that the annual budget model may be

seen as (i) having a number of inherent weaknesses and (ii) acting as a barrier to the effective implementation of

alternative models for use in the accomplishment of strategic change.

Required:

(a) Identify and comment on FIVE inherent weaknesses of the annual budget model irrespective of the budgeting

approach that is applied. (8 marks)

2 The Information Technology division (IT) of the RJ Business Consulting Group provides consulting services to its

clients as well as to other divisions within the group. Consultants always work in teams of two on every consulting

day. Each consulting day is charged to external clients at ￡750 which represents cost plus 150% profit mark up. The

total cost per consulting day has been estimated as being 80% variable and 20% fixed.

The director of the Human Resources (HR) division of RJ Business Consulting Group has requested the services of

two teams of consultants from the IT division on five days per week for a period of 48 weeks, and has suggested that

she meets with the director of the IT division in order to negotiate a transfer price. The director of the IT division has

responded by stating that he is aware of the limitations of using negotiated transfer prices and intends to charge the

HR division ￡750 per consulting day.

The IT division always uses ‘state of the art’ video-conferencing equipment on all internal consultations which would

reduce the variable costs by ￡50 per consulting day. Note: this equipment can only be used when providing internal

consultations.

Required:

(a) Calculate and discuss the transfer prices per consulting day at which the IT division should provide

consulting services to the HR division in order to ensure that the profit of the RJ Business Consulting Group

is maximised in each of the following situations:

(i) Every pair of consultants in the IT division is 100% utilised during the required 48-week period in

providing consulting services to external clients, i.e. there is no spare capacity.

(ii) There is one team of consultants who, being free from other commitments, would be available to

undertake the provision of services to the HR division during the required 48-week period. All other

teams of consultants would be 100% utilised in providing consulting services to external clients.

(iii) A major client has offered to pay the IT division ￡264,000 for the services of two teams of consultants

during the required 48-week period.

(12 marks)