2102AFE: Financial Accounting- Report Writing Assignment

Internal Code: MAS1395

Report Writing Assignment:

Introduction: John Daily has recently received a substantial inheritance on the death of his mother. John wants to use this money to his advantage and invest it for his future because he would like to retire early. He is considering buying some shares in Woolworths Ltd because he thinks it would be a stable investment that would provide a good income stream in future years. John has been doing his own research on this company, however, he has some accounting-related issues he would like addressed before he makes the decision to go ahead with this investment. John has come to you for advice, in your capacity as the senior accountant of the Financial Accounting and Reporting section of Prime Accountants, a chartered accounting firm specialising in small client consultancy. The specific accounting-related issues raised by John are outlined below: 1. John is primarily basing his opinion about investing in Woolworths Ltd on the popularity and profile of this supermarket, given that Woolworths is one of Australia’s major supermarkets. He has accessed the company’s 2015 Annual Report, but is concerned about whether the information in this report can be trusted. John’s best friend has told him that in order for information to be included in financial reports it must exhibit the Conceptual Framework’s qualitative characteristics. John would like you to identify and explain each of these characteristics and what they mean for quality of the information disclosed in the Woolworths Ltd annual report. 2. John is interested in Woolworths Ltd’s asset base because he knows that assets are important in the event of a company winding up due to bankruptcy or insolvency. a. In relation to Property, Plant, and Equipment, John has become aware that there are two ways to value these assets subsequent to their initial recognition, including the cost model and the revaluation model. He has noticed that Woolworths Ltd uses the Cost model. Compare and contrast these two measurement methods for John and provide a professional opinion of which measurement method provides more reliable information about Property, Plant, and Equipment values. Your professional opinion must be supported by valid arguments from sources that are reliable, reputable, and relevant. b. John has been following the yearly evaluation of the Woolworths Ltd brand published by Business Insider (provided on L@G). He has noticed that the value of the Woolworths’ brand reported in this article is significantly higher than the value of brand names reported in the Woolworth Ltd annual report. Outline for John why these two brand values are different. Identify and explain the reasons why the accounting requirements for internally generated intangible assets are very stringent. Identify and explain to John an example of a real-world company where intangible assets led to problems with the valuation of the company. Required: Prepare a 1,100 word Letter of Advice for John whereby you fully address each of the issues he has raised, as outlined above, and advise John whether he is able to base his investment decision primarily upon the information disclosed in Woolworths Ltd’s annual report. Within this process you must ensure that you explain thoroughly all relevant accounting terms because John’s knowledge of them is very limited. He must be able to understand your Letter of Advice. Refer to the accounting standards where appropriate so that John knows the authority on the information. The current address for John Daily is: 82 Figtree Court, Cleveland, 4163. You may use any address that you feel is appropriate for the Prime Accountants accounting firm.