Task

Your task is to analyse client information using the information and questions raised by the CEO, and present the findings in a Statement of Advice with a covering Business Letter.

For each issue, you are expected to:

1) Identify the facts and accounting topic

2) Apply the relevant legislation, accounting standard and/or process

3) Make a recommendation and/or summary of the correct accounting treatment

Description

Assume that you are part of a team of graduate accountants working for Seachange Group Pty Ltd, an independent consulting & accounting firm situated at 58 Kirra Terrace, Brisbane, QLD 4000. The Manager of your firm, Ms Amanda Buchan, has asked you to draft a letter in response to an email received from Mr Mark Privilege, the CEO of Swing Strength Ltd (a public company), raising accounting issues - (please refer to the email on the next page).

You should address all the technical issues/discussion in the statement of advice, followed by a Reference List.

Part A: Technical component 30% - This mark covers the technical content of your advice and the explanation of each of the issues, the calculations, the journal entries and the sources used.

Part B: Communication Skills 10% - This mark covers the generic skills of writing, layout, clear meaning, structure and organisation, appropriate tone and grammar, spelling, and punctuation, etc. throughout the whole assignment.

Email

From: Mark Privilege

To: Amanda Buchan

Subject: Accounting Issues: Year Ending 30 June 2022

Sent: 30 May 2022

Dear Amanda

Thank you for your time today.

As discussed, I am reaching out to you to discuss the following issues from our most recent board meeting. Jerry (our outgoing CFO) wasn't around to answer any of these questions, and therefore it was difficult for me to give an accurate response as I don't have an accounting background.

Our company is currently reviewing a couple of investment proposals. First, one recommendation is to buy 25% of a Western Australian company (a family business). The family members would still own the remaining 75%. These guys manufacture some fantastic accessories, and they would be a great addition to our existing product lines. We are still negotiating a price. If we make this investment, does it mean we'll own 25% of all the assets and liabilities of this company? If so, could we sell these assets in the future if a need arise or if we get a favourable price? In the second proposal, we are considering buying another 35% of a New Zealand based company (we already own 15%). Would you be able to please shed some light on how to account for these two investments in our accounting records?

As discussed, most of the board members, including myself, are very confused about the purpose of consolidation entries. Our accountant tells me we must delete certain accounting transactions before preparing the consolidated accounts. Is this true? If it is, I am flabbergasted as to why we are deleting transactions from our records. And more importantly, why are we wasting money recording these transactions in the first place. As I said, I am not an accountant, and therefore I would appreciate it if you could provide a couple of simple examples to support your views on this issue.

The last issue is something that the external auditors raised to our audit committee. The auditors spoke to Jerry just before he left the company and were concerned about Jerry's lack of knowledge around accounting for goodwill. Jerry told the auditors that goodwill is the value associated with the business name, and therefore the goodwill amount is decided by the Board. He stated that if a business is famous and well-known within the community, the company can recognise goodwill in its books after consulting with some business valuation experts. Could you please clarify this goodwill issue for me? What is goodwill? Is it an asset? How should it be recognised? How do we use this goodwill? Do we need to depreciate it? Could we sell this goodwill?

Would you mind responding by letter (not email) as I would like to present your views to our Board? I look forward to hearing from you shortly.

Regards

Mark Privilege

CEO Swing Strength Ltd

Level 5, 49 Pepper Street,

Brisbane QLD 4000