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:
Assume that you are a graduate accountant working for Fairfield and Associates a public accounting firm situated at 77767 Main Street, Geelong, Victoria 3220. The senior manager, of your firm, Paul Fairfield, has asked you to follow up on an email sent by a client, namely -
Anita Humphreys, the managing director of Annie's Boutiques Ltd - her email has raised several 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. Therefore, please make sure that the answer to this individual assignment is your own work and not copied from any source. In completing this assignment make sure you follow the guidelines for assignments especially those relating to the presentation of written work, late assignment policy and academic integrity.
Issues raised by the Board of Directors
Issue 1:
According to the revised budgeted profit and loss statement for the year ending 31 December 2016 the company may not make the previously budgeted profit of $ 1,800,000 and will fall short by about 20%. One of the directors pointed out that the company had made provisions for long service leave and for annual leave which collectively amounted to $ 200,000 as at 31 December 2015; this provision is estimated to be increased by a further $ 60,000 at the end of this year making the total estimated provision $ 260,000 at the year end. Since this provision related to future payments the director suggested we should write it back to income and recognise the expense when the payment is made in the future. This will minimize the budget deficit significantly.
Issue 2:
On the 31st of January 2016 Annie's Boutiques Ltd merged with another business Lucy's Gallery Ltd but did not take over any business segments. We merely bought 70% of the share capital as an investment. It was decided to let Lucy Lima continue to manage the business as the general manager as it had been operating very successfully under her leadership. One of the directors suggested that because of this transaction Annie's Boutiques Ltd was now seen as "a progressive dynamic business with a lot of goodwill" and that we should value this goodwill and bring it into our books as an asset with a corresponding credit to other income. Could you please let us know how we could value it - calculate a dollar amount for goodwill? Another director suggested that this could mean more profits which would also help bridge the budget deficit. The board is quite confused and would like very clear guidelines about this matter.
Issue 3:
Catherine, the new financial controller has suggested that we calculate and then recognise deferred tax assets and deferred tax liabilities in the balance sheet as at 31 December 2016. Unfortunately, as our deferred tax liability is greater that the deferred tax assets, Catherine informs us that the net difference would be shown as an increase in the income tax expense account which will in turn reduce the profit after tax. Is it necessary to show the deferred tax assets and liabilities? What do they represent? We have always shown the tax we need to pay for the quarter as current tax liabilities as it is nearly always payable in the next quarter. The income tax expense has always reflected the amount of tax that the Australian Taxation Office (ATO) confirms that we owe them and eventually pay. Surely, we do not have to change this?
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!