Assessment 3 Case Study Information

Subject Code: ACCM4200

Subject Name: Advanced Financial Accounting
Assessment Title: Assessment 3
Assessment Type: Statement of Advice
Word Limit: 2,000 words (+/- 10%)
Weighting: 40%
Total Marks: 40
Submission: Individual via Turnitin on MyKBS.
Due Date: Tuesday of Week 13 at 19:55 AEST

Your Task

You must prepare a Statement of Advice (SoA) that addresses all the questions raised in the
letter on the following three pages of this document.

Assessment Description

Assume that you are a team of graduate accountants working for Kaplan Pty Ltd, an independent
consulting & accounting firm located at 63 Elizabeth Street, Sydney, NSW 2000. Among other
things, your firm provides its clients with advice regarding accounting issues, including applying
the Australian Accounting Standards in preparing Financial Reports. You must prepare a
Statement of Advice (SoA) for National Ltd to address several accounting issues raised by Ms.
Kathy King on behalf of the company's directors. Ms. King has raised these issues in a letter in
the following pages.

The maximum length for the SoA is 2,000 words (+/- 10%). You should address all the technical
issues in your advice, followed by a Reference List. Marks will be awarded based on two
components:

Technical component 30% - This includes the technical discussion in your SoA, the
explanation of each issue, and the sources used. You must analyse the information provided
and recommend the correct accounting treatment. You must justify your recommendations by
referencing specific paragraphs of relevant accounting standards. You must explain the rationale
behind each accounting standard requirement.

Communication Skills (Writing Skills) component 10% - marks will be awarded based on
your ability to gather information and effectively communicate strategies to the client as part of
the SoA. It will also cover the generic skill of writing, clear meaning, structure and organisation,
appropriate tone and grammar, spelling, and punctuation, etc., throughout the whole
assignment.

Refer to the rubrics at the end of this document for a breakdown of marks.

Kaplan Business School Assessment 3 Case Study

Letter received from Ms. Kathy King (High Ltd)

Ms. Kathy King

On behalf of the Directors of High Limited
8 Goulbourne St, Sydney NSW 2000

27 May 2024

The Manager
Kaplan Pty Ltd, Accounting firm
63 Elizabeth Street, Sydney, NSW 2000

Dear Sir/Madam

I am writing to seek your advice regarding numerous accounting issues for the year ended 30
June 2024. Our senior accountant is on indefinite sick leave and we require your services. I have
included following items that we require for your completion. All work must comply with the
Australian Accounting Standards and please also provide a detailed explanation of the rationale
behind the appropriate accounting treatments.

The items of concern are as follows:

Item 1

The following information is financial statements of High Ltd for the year ended 30 June 2024.

Income statement of High Ltd for the year ended 30 June 2024

$'000 $'000
Sales 927
Interest revenue 11
Dividend revenue 5
Total Income 943
Less Expenses
Cost of Sales 320
Other expenses (paid) 15
Bad debts expenses 7
Wages expense 266
Interest expense 14
Depreciation - plant 95
Loss of sale of plant 10 (727)
Profit before income tax 216
Less income tax expenses (74)
Profit for the year 142

Kaplan Business School Assessment 3 Case Study

Statement of financial position of High Ltd as at 30 June 2023 and 2024

2023 2024
Current assets $'000 $'000
Deposits at call 131 277
Trade receivable 221 253
Less allowance for bad debts (11) (8)
Interest receivable 20 15
Inventories 285 335

Non-current assets
Loan receivable 40 40
Plant at cost 1760 2115
Less accumulated depreciation (230) (295)

Current liabilities
Trade payables 90 100
Accruals 20 30
Tax payables 45 74
Bank overdraft 80 65

Non-current liabilities
Convertible notes 300

Shareholders’ equity
Issued capital 1556 2256
Retained earnings 125 207

Other information

1) For the purposes of the statement of cash flows, High Ltd defines cash and cash equivalents as
including cash on hand and at bank and short-term deposits at call, net of outstanding bank
overdrafts.

2) During the reporting period, High Ltd made two issues of ordinary shares as follows:
• the convertible notes outstanding at 30 June 2024 were converted to 150 000 ordinary
shares issued at a conversion price of $2.00 per share; and
• 200 000 shares were issued at $2.00 per share for cash.

3) During the year ended 30 June 2024, plant and equipment costing $60 000 and having a book
value of $30 000 was sold and made a loss of $10 000.

4) The opening and closing balances of the “accruals” accounts (under current liabilities) were
attributable to wages and salaries and interest payable as follows:

Kaplan Business School Assessment 3 Case Study

 Wages and Salaries Interest
Opening at 1/7/2023 $5,000 $15,000
Closing at 30/6/2024 $10,000 $20,000

5) The company had access to bank overdraft facilities of up to a maximum of $100 000. The
bank overdrafts were payable on demand and were subject to annual review.

6) The accounting policy of High Ltd was to disclose interest received and dividends received as
investing activities.

Please prepare a statement of cash flows for High Ltd using the direct method. Additionally,
include the note sections for cash and cash equivalents and provide a reconciliation of profit for
the period to net cash flows from operating activities.

Item 2

Please provide some recommendation on the following issues with appropriate accounting
treatments as per the Australian Accounting Standard.

1) As at the beginning of the current financial year 2024, High Ltd has two provision accounts:
(a) Provision for lawsuit claims $14m, and
(b) Provision for warranty $29m.

During the year ended 30 June 2024, the lawsuit claims were settled at $16m and warranty
costs of $32m were paid. We would like to increase the warranty provision to $39m at year
end in tandem with the increase in products sold during the year.

Please provide journal entries (if any) that we should make for 30 June 2024 to prepare our
annual report. Please show all workings (settlement of the lawsuit claims and increase of
warranty provision).

2) High Ltd is the primary contractor responsible for constructing a power plant for Thai Lid. It has
been discovered that there are defects in the construction of the power plant. The estimated
cost to fix these defects is $100m. It had previously recognised a provision for warranty of
$40m on the project as part of project costs. However, High Ltd believes it can recover a
substantial part of the costs from the subcontractors who performed some of the construction
works. Negotiations with these subcontractors are ongoing, and so far, only two subcontractors
have accepted liability. The amount of reimbursement that is considered virtually certain is
estimated to be $10m.
Kaplan Business School Assessment 3 Case Study
 Can you explain with journal entries how High Ltd shall account for the above estimates of
costs and reimbursements? What would be criteria for recording such liabilities?

3) The ice cream factory located in Thailand has been incurring losses for the past 3 years.
Management is contemplating the option of either restructuring the plant or selling it to an
external party. Management believes that losses will continue for another 2 years at about
$30m per year before the business operation could turnaround. At year end, neither the
restructuring plan nor the plan to sell was finalised. The carrying amount of the net assets of
the plant at year end was $400m. Based on its current condition, the recoverable amount of the
plant was estimated at $350m.

Can you explain the accounting treatment that shall be accorded to the above case, shall we
record provision liabilities?

4) On 18 March 2024, the Board of Directors of the company decided to close down the chocolate
making products plant. On 25 May 2024, a detailed plan for closing down the plant was agreed
by the Board; letters were sent to customers warning them to seek an alternative source of
supply and redundancy notices were sent to the staff of the plant. The carrying amount of the
net assets of the plant is $20m. The net proceeds from selling the individual assets and settling
the liabilities is $12m.

Other costs expected to be incurred are as follows.

• termination costs of $2m (changes in management structure costs),
• costs to sell a line of business $3m,
• staff relocation costs $1.2m,
• staff retraining costs $1.4m and
• expected additional operating costs for the first quarter of 2025 financial year $8m.

The closure of the plant is expected to be completed by 25 August 2024. The company's year-
end is 30 June.

Can you please explain, with reasons, whether the closure of the plant shall be recognised in
the financial statements of 2024. Also, state the amount of provision, if any, which shall be
recognised in its financial statements.

Kaplan Business School Assessment 3 Case Study

I look forward to hearing from you shortly.

Yours sincerely,

Kathy King
Managing director,

On behalf of the Directors of High Limited

8 Goulbourne St,
Sydney NSW 2000

Requirements of Statement of Advice

1) You must include the following in your Statement of Advice (SoA):

a) Cover Page should include:
i) name/logo of your accounting and consulting firm
ii) The words "Statement of Advice"
iii) Who the document is prepared by
iv) Who the document is prepared for
v) Date
vi) Brief information on what the document is about
b) Table of Contents
c) Recommendations and explanations – must include in-text referencing
d) Reference list

2) Any sources that you use need to be acknowledged in order to avoid plagiarism.
Information on referencing can be found under "Study Resources – Academic Skills" on
MyKBS at this link.

3) You must identify and refer to specific paragraphs of the relevant accounting standards in your
advice.

Kaplan Business School Assessment 3 Case Study

Important Study Information

Academic Integrity Policy

KBS values academic integrity. All students must understand the meaning and consequences of
cheating, plagiarism and other academic offences under the Academic Integrity and Conduct
Policy.

• What is academic integrity and misconduct?

• What are the penalties for academic misconduct?
• What are the late penalties?
• How can I appeal my grade?

The answers to these questions can be accessed at https://www.kbs.edu.au/about-us/school-

policies.

Length Limits for Assessments

Penalties may be applied for assessment submissions that exceed prescribed limits.

Study Assistance

Students may seek study assistance from their local Academic Learning Advisor or refer to the
resources on the MyKBS Academic Success Centre page. Further details can be accessed at
https://elearning.kbs.edu.au/course/view.php?id=1481

Kaplan Business School Assessment 3 Case Study

Rubrics

Technical Excellent: >75% Average: 50% - 75% Weak: <50%

Component (30%)
22.5 to 30 marks 15 to 22 marks Less than 15
marks
All technical issues Most technical Most technical issues
raised clearly issues raised not identified or
identified and reasonably clearly, addressed.
addressed. identified, and Displays a lack of
Clear, correct, and addressed. understanding of
decisive advice Mostly correct advice some or most of the
provided, displaying displaying a technical issues
Items 1 & 2
an outstanding reasonable raised making it
(30 marks) understanding of understanding of difficult for the client
each of the technical some of the technical to understand.
issues raised, so issues raised, so that Little or no reference
that it is easy for the it is relatively easy for to the AASBs.
client (non- the client (non-
accountants) to accountants) to
understand. understand.
Reference has Reference has been
been correctly correctly made (with
made to the AASBs gaps) to the AASBs
with detailed with some paragraph
paragraph numbers.
numbers.

Kaplan Business School Assessment 3 Case Study

 Communication Excellent: >75% Average: 50% - 75% Weak: <50%
Skills Component
(10%)
3 to 4 marks 2 to 2.9 marks Less than 2 marks
A proper format for Format of SoA could Proper format not
a SoA has been be improved. used.
used. SoA clearly Most issues clearly Issues not
identifies each identified. clearly
issue. Format effective and identified
Statement of advice
Format is effective professional with Format is
structure (4 marks)
and professional. some exceptions. neither
In-text referencing In-text referencing effective nor
included where mostly included professional.
required. where required. In-text referencing
Complete reference Reference list partly hardly or not included
list in the right format. incomplete or not at all.
always in the right Reference list
format. incomplete or not
the right format.
2.25 to 3 marks 1.5 to 2.2 marks Less than 1.5
marks
The presentation is Information, Difficult to
logical, persuasive, arguments, and understand for
and well supported by evidence are well audience, no
Language and
evidence, presented, mostly logical/clear
presentation (3
demonstrating a clear clear flow of ideas and structure, poor flow
marks)
flow of ideas and arguments. of ideas, argument
arguments. Reasonably lacks supporting
Fluent professional professional writing evidence.
writing style style. Meaning may be
throughout. Grammar Grammar and spelling unclear.
and spelling accurate mainly accurate Grammar and
throughout. spelling contain
numerous
errors.
2.25 to 3 marks 1.5 to 2.2 marks Less than 1.5
marks
Inclusion of adequate Only a couple of Non-inclusion of in-
and sufficient in-text inclusion of adequate text referencing. In-
In-text reference referencing. In-text in-text referencing. In- text referencing
(3 marks) referencing match with text referencing match does not match with
referencing items at with referencing items referencing items at
the end of SoA at the end of SoA the end of SoA

Kaplan Business School Assessment 3 Case Study