Question 2 (15 marks)

Overstatement of net income might have dire consequences on the financial position of a company. Financial results are made available to users of financial information for decision making therefore the misinformation might lead to improper financial decisions. Depreciation is one of the expenses that affect net income. The following extract from two employees of Mzansi (Pty) Ltd, Sihle, who is the accounts payable clerk and Ntombi, the cashier, went as follows:

Sihle: Ntombi, could I get your opinion on something?

Ntombi: Sure, Sihle. Sihle: Do you know Mavis, the fixed asset clerk?

Ntombi: I know who she is, but I do not know her very well, why?

Sihle: Well, I was talking to her at lunch last week about how she liked her job, etc. You know, the usual.and she mentioned something about having to keep two sets of books one for taxes and another for the financial statements. That cant be good accounting, can it? What do you think?

Ntombi: Two sets of books it doesnt seem right to me Sihle: It doesnt seem right to me either. I was always taught that you must use generally accepted accounting practice (GAAP) or IFRS to write up a set of books. What can be the difference between the two sets of books?

If you were Ntombi how would you respond? Do you think this is ethical?