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Answer 1

Fiduciary duties of directors

- To act in good faith, with reasonable care, and in the best interest of the company
and its shareholders.
3 types of fiduciary duties

Duty of obedience
Requires a director to avoid committing acts beyond the scope of the process
of a corporation as defined by its charter or the laws of the stake of

Duty of loyalty
A director must act in good faith and must not allow his personal interest to
prevail over the interest of the corporation

Duty of care
Require a director to be diligent and prudent in managing the companys
affairs. To safeguard the interest of shareholders and prudent to take into
account the interests of stakeholders when creating governance structure.

Student should relate the fiduciary duties to the issues stated in the case.

The directors are more concerned on their own interests instead of the company
and shareholders interest.

The directors develop some of the companys project.

The directors are too closed to the management (risk of impaired independent).
The directors set their remunerations and the remunerations are above the
average remuneration paid to the BOD within the industry.
The directors do not meet AXA staff without the management present.
The directors fail to pick up the Red Flags.

(3 marks for each duty that relates to the case = 4 x 3 = 12)


To remain in the market and survival, business needs support from the stakeholders
that include shareholders, customers, creditors, activists, government, suppliers and
other related groups. ()
People will support the business due to the following factors (Relate to the case).

Trustworthiness The company can be trusted to serve the public

Responsibility, - The company is responsible for its actions
Reliability The company can be relied upon
Credibility The company is credible.

The company cannot focus merely on profit but also on protecting the public
interests . Therefore, the company should make decision that;

-provide justice and fairness to the stakeholders

-does not offend any particular group
-provide more benefit that pain to the majority stakeholders.
( = 1 mark, Total (9 marks + 3 mark for explanation: 13 marks).

To overcome the accounting treatments shortcomings

Highlight the incompliance issues to the financial controller, finance manager .
Ensure that the appropriate staffs take remedial actions .
Send the junior staffs for accounting trainings .
Explain the importance of compliance to GAAP and company procedures .

5 suggestion(5 x 3 marks = 15 marks).

Students should relate the duties of auditors stated in the fundamental principles of
MIA By Law on code of professional conduct to the case
Fundamental Principles of MIA By Law on code of professional conduct

Member should act in the public interest

At all times, maintain the good reputation of the profession and its ability to
serve the public interest
Perform with
o Integrity
o Objectivity and independence
o Professional competence and due care
o Confidentiality
Not to be associated with any misleading information or representation.
(10 marks)/

Question 2 : Freezy Ltd


Major impact if Freezy lose Tohiba as it major customer

Substantial loss of revenue i.e. loss of 33% and profit of 49%
Losing substantial amount of revenue and profit will bring another major issues
going concern issues, meaning can the company sustained its business in future
Losing money also will reduce the potential development of new technology as less
money available for R&D
If company wants to maintain their investment in R&D, the company needs to find
external fund to replace the losing money. This, however will increase the financial
cost of the operation thus, reducing the margin of profit.
As a result of (iv), if the company want to maintain the similar profit margin, the need
to sella higher price, in which will in turn possibly reduce the unit sold to the customer
Losing a major customer also give a negative signal to the market, make it difficult
forFreezy to maintain its reputation and market leader.

points X 4 marks = 20 marks)


The margin calculated excludes the indirect cost such as administrations, indirect
overheads. Thus, it does not represent the real profit make by the company. It is
important for the company to include all the manufacturing cost as this costing
method is more accurate in determining the actual profit of the company. In other
words, full costing method should be adopted. Thus, the calculation must take into
the consideration of the depreciation of the machinery.


The new calculation to determine the profit of FFA shows that the company actually
only make profit of $26.67 and incur loss of $13.33 for every unit sold to Secconz and
European customer respectively. The overall calculation also shows that in overall,
the company revenue generated only can cover the total manufacturing cost. This
calculation however exclude the administration cost in which the company in overall
making losses if the administration cost will take into consideration.

Cost of new machinery
Useful life
Annual depreciation
Depreciation per unit

8.3 million
2 years
4.15 million
4.15 million/75,000 units

Profit from selling of FFA to Secconz:

Per unit ($)
Direct cost:
Direct materials
Direct labour


Indirect cost:
Factory overheads



Selling price


Profit per unit (excluded administration cost)


Profit/loss from selling of FFA to European customer:

Margin per unit


Loss per unit


Overall calculation
Manufacturing cost calculation:
Secconz ($)
Europe ($)
Total ($)
Direct material
Direct labour
Direct cost
Factory overhead
Depreciation on
Total Manufacturing cost
Income statement (extract)
Less: Manufacturing cost
Gross profit

(15 marks)

Report to board of directors:

Note the student need to prepare the answer with the proper format of report
The key answers/recommendation that should be included in the report:
i Reduce the selling price charged toTohiba. This is however short term solution as the
company may demand for further reduction in future.
iii Find new customer and market in other countries such as ASEAN region, India,
South African and Middle East
iv Find alternative supplier that can provides the material at lower cost. Thus, the
company can increase the margin of profit without increasing the selling price.
v Adopting new management accounting technique such as JIT, TQM, business
process reengineering to reduce cost of production
vi Produce in mass production to benefit from economies of scale
vii Protection of intellectual property to safeguard their technology from being copying
by competitors and new entrants.

(Format of the report = 6 points X 2.5 marks = 15 marks)