Subject Name: Financial Accounting & Reporting 1
Learning Outcome 4: Develop information gathering (research) and communication strategies to enable the provision of professional advice to a client.
Objective: The objective of this assignment is to learn to effectively research a technical aspect of accounting and communicate professional advice to a client, via a business letter.
Background to the case study:
You are a graduate accountant working for Piper, Pepper and Associates a public accounting firm situated at 59889, George Street, Unley, SA 5061. The senior manager, of your firm, Peter Piper, has asked you to follow up on an email sent by a client, namely –
Mary McCarthy, the managing director of McCarthy’s Cafes Ltd – her email has raised a number of
issues regarding her company and your manager would like you to research the issues and draft a response in the form of a business letter – see email information in case study details below. The maximum length of the letter is 1,250 words (excluding any calculations).
Part A: Technical component 15% - This mark covers the technical content of your advice and the explanation on each of the issues, the calculations and the sources used.
Part B: Communication Skills – Letter Writing 10% - This mark covers the generic skills of business
letter writing; layout, clear meaning, structure and organisation, appropriate tone and grammar, spelling and punctuation etc.
The assignment is designed to test the following skills:
1. Your knowledge and your ability to research the issues and then apply the information appropriately using judgement to correctly identify the relevant standards and legislation that relate to the issues raised by the client.
2. Your written communication skills – business letter writing
Any work which has been copied or shared between students will result in a Fail grade for both students concerned. So please make sure that the answer to this individual assignment is your own work and not copied from any source. Please make sure you follow the guidelines for assignments especially those relating to the presentation of written work, late assignment policy and academic integrity.
Re: Numerous Accounting Issues
From: Mary McCarthy [mary.mccarthy@Mccarthyscafes.com.au] Sent: Monday, 1 August 2016 at 8.30am
Cc: Kate Peterson[kate.peterson@Mccarthyscafes.com.au]
Attachment: Issues Raised by the Board
Thanks for your letter suggesting we meet to plan the year end accounting work for the financial year ending 31 December 2016
There are quite a few issues that the board of directors has raised with me in relation to the financial statements and I have noted them below for your response. Some of the directors are concerned about these issues as the company has just moved from being a proprietary company to a public company (with effect from 1 March 2016), and they think this changes matters.
To assist us in our decision making process could you please make sure that any relevant sources such as the AASBs, Corporations Act, reference books, journal articles, and/or websites are referenced so that the accounting team here could check them out when evaluating your answer. If you could kindly copy the newly appointed Financial Controller, Kate Peterson in on your response she could start the review process.
I must confess I am not too worried about it as I am sure that all we need to do is to prepare the financial statements as we did last year. That’s correct isn’t it? I will be overseas at the Olympics in Rio and will then go on a marketing trip until the end of September but look forward to hearing from you by the time I get back.
Best wishes and regards
Mary McCarthy Managing Director, McCarthy’s Cafes Ltd
Suite 6889, Level 18, Cafe Plaza Building
685 Charles Street
Adelaide SA 5000
ATTACHMENT McCarthy’s Cafes Ltd
Issues raised by the Board of Directors
In April 2016 the company purchased a segment of another business from Karen’s Coffees Ltd and paid
$ 950 000 for it. Karen’s Coffees is a coffee bean roasting business and the book value of the net assets acquired amounted to $ 620 000. We are unsure as to how we should record this transaction in our books
of account. Margaret who used to write up the books for us mentioned that the difference was “goodwill”
and that we should show it in our books as an asset, namely goodwill. However Kate thinks we should treat this quite differently and has told the board of directors that the business segment we purchased
(namely, coffee bean roasting) may not be as successful as we think. She thinks that we may have
overpaid for the business and is suggesting we evaluate the business segment as a cash generating unit and consider the need to impair it. The board is quite confused and would like very clear guidelines about this matter.
According to the revised budgeted profit and loss statement for the year ending 31 December 2016 it would appear that the company may not make the previously budgeted profit of $ 1,250,000 and will fall short by about 10% to 15%. One of the directors pointed out that the company had land (2 blocks) purchased in the 1960s and that the actual value of the land was very much more than the amount stated on the balance sheet. It was then suggested that the company revalue just the two blocks that were understated and increase the assets and profits by the difference which should amount to approximately
$ 250 000. This would then increase the profits for the year and would allow us to achieve the budgeted profit and declare the projected proposed dividends without a problem.
Earlier this year in May 2016 we discovered that the depreciation on plant and machinery had been incorrectly calculated at 2% instead of 20%; similarly buildings were depreciated at 0.5% instead of 5% in calculating the depreciation for the year ended 31 December 2015. No adjustments have been made in respect of this incorrect calculation to date. As it is just a book entry can we just ignore the error and calculate this year’s depreciation correctly and record it accordingly in this year’s accounts. Do we have to correct last year’s depreciation? How do we account for it if we do? We have also miscalculated the useful life span of our computer systems (bought in February 2015) at 5 years (that’s what we were told when we bought the computer systems) when it should have been just 3 years (present information available to us). Do we need to worry about it or could we just ignore it and claim the extra amount at the end of the three years when the computer systems are replaced?
Hint: Remember that your firm plans to charge the client for your advice; as a check ask yourself if you would pay for the advice you have drafted!
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