ACC2115 - Company Accounting - Draft Letter of Advice - Curly Waters - Accounting Assessment Answer

Assessment Task:

ACC2115: Company Accounting  Assessment Answer

The scenario
Imagine that you are a recent graduate working for an accounting practice and your manager has asked you to prepare a ‘basis of advice’ report and a ‘draft letter of advice’
(you should make up a name for your manager and the accounting practice and create your own letterhead and report header). You are familiar with the client, as you prepare the monthly BAS statement for this company. These two documents will be reviewed by your manager before being sent to the relevant partner of the firm.

The Client
Curly Waters is the owner of Bad Boards Pty Ltd, a large proprietary company under the Corporations Act, which makes surfboards and other surfing equipment. Bad Boards has a strong social media presence and has built a significant customer list from its use of Facebook and Instagram. The company has an annual marketing budget of about $800,000, used to grow its list and to build the ‘Bad Boards’ brand. It also has several part-time staff (total wage cost of approximately $200,000 per year), who maintain the customer list and the company’s social media presence. Recently, Curly was approached by a local IT developer, who offered to sell him another customer list for $500,000 (Australian customers only). She developed an app, which has proved very popular on Facebook. The app takes images from the user’s device, merges them into a surfing image from a world famous surf break and provides an image showing the user riding the wave. The resulting image looks very realistic and the user can then share it over a number of social media platforms. The app is free and under its terms and conditions it is able to extract a user’s demographic data and other details, which are used to construct regional customer lists, which can then be on-sold. Curly has approached your accounting practice for advice in relation to the potential acquisition of the customer list from the IT developer and the treatment of the marketing expenditures and the wage costs. He is concerned that in the previous two financial years, profit has been understated because these expenditures have been treated as expenses, whereas he sees the customer list and brand name as important assets of the business. He is worried that the balance sheet does not reflect the value of the firm, which is particularly important to him, as he is considering selling the company, preferably to an ASX listed company that can, in his words, ‘pay me top dollar’.

Required:
1. Prepare a ‘basis for advice’ report for your manager in which you define the issues raised by your client, identify and apply the requirements of relevant legislation
and accounting standards to each issue, describe any other relevant factors that need to be considered and describe and justify the advice you suggest for the client in the draft ‘letter of advice’.

2. Prepare a draft ‘letter of advice’ to Curly Waters, the owner of Bad Boards Pty Ltd, to address each of the issues he has raised. The letter of advice needs to inform
him of the requirements of relevant legislation and accounting standards, describe other relevant factors and provide relevant business advice.

Requirements – Basis of Advice Report:
The report should outline the advice provided in the draft letter of advice to the client and justify the advice by reference to the specific paragraphs/sections of the relevant
accounting standards/legislation. An appendix to the report is to be provided in which you provide the exact quote for each paragraph/section identified/discussed in the report (the appendix will only be referred to by the manager if necessary; the partners of this firm do not like to see quotes in the report itself and want it to be in your own words).

You should use headings and sub-headings in your report to organise your thoughts. Tables and diagrams can also be used if it is an effective way of presenting your ideas. Requirements – Draft Letter of Advice Your client is a very good businessperson but has limited knowledge of accounting terminology. Your letter of advice needs to be less formal than the report and should be in a style suitable for a non-accountant. Again, headings etc. are suitable in your letter  (it is not an essay). The client is not interested in all of the technical arguments,don’t include them.

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