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.

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.

Financial Accounting & Reporting 1

Assessment 2 – Letter Writing Assignment

Dear Peter,

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

Assessment 2 – Letter Writing Assignment

ATTACHMENT

McCarthy’s Cafes Ltd

Issues raised by the Board of Directors

Issue 1:

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

$ 950000 for it. Karen’s Coffees is a coffee bean roasting business and the book value of the net assets

acquired amounted to $ 620000. 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.

Issue 2:

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.

Issue 3:

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?