2 The Superior Software House （SSH) commenced trading on 1 December 2002 in the country of

2 The Superior Software House (SSH) commenced trading on 1 December 2002 in the country of Bonlandia. SSH

develops bespoke software packages on behalf of clients. When requested to do so, SSH also provides training to

clients’ staff in the use of these software packages. On 1 December 2006, the directors of SSH established a similar

semi-autonomous operation in Karendia. All software packages are produced in Bonlandia and transferred to Karendia

at cost plus attributable overheads i.e. there is no mark-up on the software packages transferred from Bonlandia to

Karendia.

Karendia is a country in which the structure of industry has changed during recent years. There has been a major

shift from traditional manufacturing businesses to service orientated businesses which place a far greater emphasis

upon the use of business software.

The operational managers in both Bonlandia and Karendia have no control over company policies in respect of

acquisitions and financing.

The operational manager of Bonlandia receives a bonus of 40% of his basic salary for meeting all client delivery

deadlines in respect of Karendia. At a recent meeting he instructed his staff to ‘install client software by the due date

and we’ll worry about fixing any software problems after it’s been installed. After all, we always fix software problems

eventually’. He also stated that ‘it is of vital importance that we grow our revenues in Karendia as quickly as possible.

Our clients in Karendia might complain but they have spent a lot of money on our software products and will not be

able to go to any of our competitors once we have installed our software as all their businesses would suffer huge

disruption’.

Financial data (all stated on an actual basis) in respect of the two divisions for the two years ended 30 November

2007 and 2008 are shown on the next page:

Required:

(a) Assess the financial performance of SSH and its operations in Bonlandia and Karendia during the years

ended 30 November 2007 and 2008.

Note: you should highlight additional information that would be required in order to provide a more

comprehensive assessment of the financial performance of each operation. (14 marks)