ACCRA Financial Accounting
Background to the case study:
Assume that you are a graduate accountant working for McKenzie and Associates a public accounting firm situated at 668 George Street, Melbourne, VIC 3000. The manager of your firm, Ms Maria McKenzie has asked you to draft a letter in response to an email received from a client – Mr Con Pewter,
The Managing Director of Pewter Ltd, raising a key accounting issue regarding his company – see the copy of the email on the next page. The maximum length of the letter is 1.5 pages. You should address all the technical issues/discussion after the letter on separate pages.
- Part A: Technical component 10% – 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 organization, appropriate tone and grammar, spelling and punctuation etc. The assignment is designed to test the following skills:
- Your knowledge and your ability to research the issues and then apply the information appropriately using judgment to correctly identify the relevant standards and legislation that relate to the issues raised by the client.
- Your written communication skills – business letter writing
Re: Accounting Issues: Year Ending 30 June 2018 From: Con Pewter (firstname.lastname@example.org) Sent: 5 July 2018
To: Maria McKenzie (email@example.com)
Pewter Ltd Level 6, 510 King William Street,
Adelaide SA 5000
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!
Pewter Ltd. is a market leader in the industry of frozen fish and canned fish sales. In addition, another known fact is that Pewter Ltd. brand value and goodwill is highly dependent upon its an image as an environmentally responsible and dolphin friendly organization. In the past also your company had supported the campaign of protecting dolphin in the tuna fishing process. This had helped the company increase its market value.
The current problem of the company in this situation is the effect of the cost of repairing cost of Steve Irwin to show support toward effort stopping the Japanese whaling activities.
In another hand, the company wants to keep up its image as an environmentally responsible organization and the company’s marketing manager think that the sponsoring the cost of repairing the mentioned ship will show public its care about the environment and gather public attention and increase awareness of the company in the market.
This repairing cost of a Steve Irwin can be recognized as an asset value of the company as the definition of an asset under AASB Framework is that asset is a resource of the company which is gained by the company in any past event and will expect to give future economic benefit to the company (Camfferman & Zeff, 2015).
Therefore, it is totally legal to recognize this expense as a cost value of an asset of the company. The company can show this cost of repairing as a capital expenditure and charge its total cost over many financial years (Gitman & Juchau & Flanagan, 2015).
Some of my recommendations are marketing this cost as the cost of supporting the ocean environment and gather as much publicity about this campaign as possible. This will help the company increase its sales. Therefore, the revenue and cash flow can be increased by this cost (Steenkamp, 2017). In the balance sheet, the company can show this cost as a noncurrent asset as this cost will benefit the company for more than one financial year. The company can also make a separate fund in its financial statement to support this type of campaign as supporting this type of campaign is required for the long-term sustainability of this company (Trevino & Nelson, 2016). In the present situation record this cost as a cost of a non – current and charge income statement by a percentage in every financial year. Thank you for taking our advice and please contact me at my above-mentioned email if you have any query.