Assume that you are a team of graduate accountants working for Avatar Group Ltd, a public accounting firm Situated at 777 Avenue, Melbourne, VIC 3000. The Manager of your firm, Ms. Julia Roy has asked you to draft a letter in response to an email received from a client – Mr. Mike Dixon, the Managing Director of Dixon Ltd, raising several accounting issues – see the copy of the email

Address all the technical issues/discussions in the letter.

Re: Accounting Issues: Year Ending 30 June 2020 From: Mike Dixon (mdixon@dixonltd.com.au) Sent: 15 June 2020 To: Julia Roy (Julia.Roy@Avatargroup.com.au) Dear Julia 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 accounting team 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 is the background to our problem - as you know, Dixon Ltd is a leading company in the sale of frozen and canned fish produce. The waters are sold under the brand 'Ocean Fresh', which is the brand the company developed when it commenced operations and which is still used today. Fish caught in the northern oceans are sold under the brand name 'Salty Taste', the brand developed by Nemo Ltd. Dixon Ltd acquired all the assets and liabilities of Nemo Ltd a number of years ago when it took over that company's operations. products are sold under two brand names. Fish caught southern Australian Dixon Ltd has always marketed itself as operating in an environmentally responsible manner, and is an advocate of sustainable fishing. The public regards it as a dolphin-friendly company as a result of its previous campaigns to ensure dolphins are not affected by tuna fishing. The marketing manager of Dixon Ltd has noted the efforts of the ship, the Panamax, to disrupt and hopefully stop the efforts of Japanese whalers in the Pacific Ocean and the publicity that this has received. He has recommended to the board of directors that Dixon Ltd strengthen its environmentally responsible image by guaranteeing to repair any damage caused to the Panamax as a result of attempts to disrupt the Japanese whalers. He believes that this action will increase Dixon Ltd.'s environmental reputation, adding to the company's goodwill. He has told the board that such a guarantee will have no effect on Dixon Ltd.'s reported profitability. He has explained that, if any damage to the Panamax occurs, Dixon Ltd can capitalise the resulting repair costs to the carrying amounts of its brands, as such costs will have been incurred basically for marketing purposes. Accordingly, as the company's net asset position will increase, and there will be no effect on the statement of profit or loss and other comprehensive income, this will be a win-win situation for everyone. The chairman of the board knows that the marketing manager is very effective at selling ideas but knows very little about accounting. The chairman has, therefore, asked me to provide him with a summary advising the board on how the proposal should be accounted for under the Financial Reporting Standards and how such a proposal would affect Dixon Ltd.'s financial statements. 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 Mike Dixon Managing Director, Dixon Ltd Level 20, 555 Queen Street, Adelaide SA 5000