Subject Name: Advanced Financial Accounting

Subject Name: Advanced Financial Accounting

Submission: Individual Written Report submitted via Turnitin on MyKBS Word limit: 1,500 words (max.+/- 10%)

Your Task

You are required to prepare a business letter to answer key accounting issues in regard to Income taxes, property, plant & equipment revaluation and revenue.

Assessment Description

Assume that you are a graduate accountant working for Pinnacle Accountants & Co, a public accounting firm located at 87 Islington Street Sydney, NSW 2000. The manager of your firm, Mr. Peter Cliffe asked you to draft a letter in response to an email received from Ms. Sonia Duncan, the managing director of Shine Ltd in response to various key accounting issues. See the copy of the email on the next page.

The maximum length for the body of the letter is 1,500 words. You should address all the technical issues/discussion in the letter, followed by a Reference List.

The breakdown of your assessment marking is as follows.

Technical component 30% - This mark covers the technical content of your advice and the explanation on each of the issues, the calculations and the sources used.

Communication Skills/Writing 5% - This mark covers the generic skills of report writing; layout, clear meaning, structure and appropriate tone and grammar, spelling and punctuation etc.

Application of accounting standards 5% - Sources of information must be cited both in the body of the text (intext referencing) and the end of the assignment (reference list).

Learning Objectives:

After completing this Individual Assignment, you will be able to:

apply accounting principles and standards when accounting for non-current assets

apply accounting principles and standards when accounting for liabilities, revenue and income tax

apply accounting principles and standards of accounting errors and events after reporting periods

develop information gathering and communication strategies to enable the provision of professional advice to a client

Case Study

Assume that you are a graduate accountant working for Pinnacle Accountants & Co, a public accounting firm located at 87 Islington Street Sydney, NSW 2000. The manager of your firm, Mr. Peter Cliffe asked you to draft a letter in response to an email received from Ms. Sonia Duncan, the managing director of Shine Ltd in response to various key accounting issue.

The following is the email sent from Ms. Sonia Duncan to Peter Cliffe.

Re: Accounting Issues: Year Ending 30 June 2023

From: Sonia Duncan ( HYPERLINK "mailto:sduncan@shine.org.au" sduncan@shine.org.au)

Sent: 15 July 2023

To: Peter Cliffe (peter.cliffe@pinnacleaccounting.com.au)

Dear Peter,

Thank you for your phone call this morning. As agreed, I am emailing you regarding the two following accounting issues (listed below). As I do not have any accounting experience, please explain the principles and concepts for me in simple language.

In order to assist our management team in the decision-making process, could you please make sure you reference any relevant sources relating to your advice, for example, AASBs, Corporations Act, and relevant websites?

Issue 1

On 1 July 2021, we acquired an asset for $1,000,000, which it is depreciating using the straight-line method over 20 years (hence, $50,000 depreciation charged each year). We realised a further $200,000 was written off as impairment loss for the year ending 30 June 2023 in addition to $50,000 depreciation for the year in that year. (Recoverable amount of the asset at 30 June 2023 due to economic downturn was estimated to be $700,000).

The board of directors are very concerned about writing off asset values like that and we would like to know whether the asset carrying amount can be increased in the future. Therefore, the directors are also wondering, whether impairment loss can be reversed. We were hoping by 30 June 2024, a favourable reassessment of the recoverable amount occurs as the world economy would be recovered. We would like to ask you to explain the reversal process, if recoverable amount of the asset is estimated to be $880,000 on 30 June 2024. In your explanation, please include the carrying amount of asset and journal entries for depreciation expense for the year ending 30 June 2024; and for the reversal.

Issue 2

Our company operates profitably from a factory that it has leased under an operating lease. Annual lease rentals totaled $120,000. During the year ended 30 June 2023, we relocated its operations to a new factory. The lease on the old factory continues for the next four years (up to 30 June 2027), as it cannot be cancelled and the factory cannot be re-let to another user.

Can you advise, whether the closure of the plant shall be recognised in the financial statements of 2023. Also, let us know any amounts, which shall be recognised in its financial statements.

Issue 3

Recently directors learnt about errors in accounting balances and the following new information became available:

(a) The current tax provision of the prior year was understated by $50,000 based on the final self-assessed tax computation completed in the current year.

(b) The write-down for an item of inventory in the prior year was determined to be overstated. The item was sold in the current year for an amount that exceeded its net realisable value by $20,000.

(c) A machine with a cost of $110,000 and an accumulated depreciation of $20,000 at the end of the prior year was previously estimated to have a residual value of $10,000 and a useful life of ten (10) years. The current year estimates indicated that the residual value was nil and the useful life was eight (8) years. The company used the straight-line method for depreciation.

Can you advise, whether (1) any adjustments are required, if so, (2) show the journal entries to effect the change in estimates. In addition, (3) any disclosure requirements of changes in Accounting Estimates so that we would have clear understanding on this matter.

Please respond by letter (not email) as I would like to present your views to our board.

I look forward to hearing from you shortly.

Regards

Sonia Duncan

Managing director,

Shine Ltd

Level 11, 147 Liverpool Street,

Camden NSW 2585