Assessment Description Assume that you are a team of graduate accountants working for Arnold Group Co, a public accounting firm situated at 346 Gregory Street, Sydney, NSW 2000. The Manager of your firm, Ms. Helen Arnold has asked you to draft a letter in response to an email received from a client Mr. Jose Brown, the Managing Director of Sunshine Ltd, raising several accounting issues see the copy of the email on the next page. The maximum length for the body of the letter is 1,500 words. You should address all the technical issues/discussion in the letter, followed by a Reference List.

Dear Helen Thank you for your phone call this morning, as agreed I am emailing you regarding the accounting issues we briefly discussed. By the way to assist the Board of Directors in our decision-making process could you please make sure you reference any relevant sources relating to your advice, for example, AASBs, Corporations Act, and relevant websites? Here are the issues we are most concerned about: Recently Brown Ltd have acquired all the shares of Pink Ltd. One of the assets in the statement of financial position of Pink Ltd was $42,000 goodwill, which had been recognised by Pink Ltd upon its acquisition of a business from Blue Ltd. Having prepared the acquisition analysis as part of the process of preparing the consolidated financial statements for Brown Ltd, the directors have asked you to explain these following issues:

Issue 1 What is the purpose of preparing consolidated statements as well as separate financial statements? Do we need to prepare separate financial statements if we are required to prepare consolidated statements?

Issue 2 How does the recording of goodwill by the subsidiary (Pink Ltd) affect the accounting for the groups goodwill? When goodwill is impaired in later years, should the impairment loss be recognised in the records of Brown Ltd or as a consolidation adjustment? How will it be recorded? What happens when it is fully impaired?

Issue 3 Where a fair increment involves a depreciable asset (increased by $50,000), why is depreciation expense adjusted in subsequent years? How is the depreciation rate/method determined when the depreciation rate/methods of Pink Ltd are different to those used by Brown Ltd?

Please respond by letter (not email) as I would like to present this to the Board. I look forward to hearing from you shortly. Regards Jose Brown Managing Director, Sunshine Ltd Level 6, 510 William Street, Sydney NSW 2000