Need answer for the written assessment worth 15% .

School of Accounting ACCT3004 Accounting Theory and Analysis Sem 1/Tri 1A 2017 Written Assessment Information Sheet Bentley, Miri, CTI and Singapore, Hong Kong Written Assessment (15%) Due 6pm, Friday 7th April 2017 (uploaded through Turnitin on the Blackboard site used by this unit) Background Carcraft Ltd is a company established by the smash repair industry in Australia. Smash repairers fix and repair cars after they have been involved in an accident. Most of the revenue of the smash repair business comes from a small number of insurance companies and car paint is their biggest cost. The industry is very fragmented, comprising many small businesses across Australia. Therefore, the individual smash repairer businesses had very little bargaining power either with the insurance companies or with their suppliers. In order to combat this, Carcraft Ltd was established and aims to negotiate better prices for the smash repairers for their paint and other supplies which they could not do individually due to their size. The structure of Carcraft Ltd is as follows; Directors = 4 shareholder representatives plus Noelle Carcraft Ltd Employees = Noelle, the General Manager and 2 administration staff Shareholders = 40 individual smash repairer businesses (equal shareholding) The income of Carcraft Ltd comprises rebate income from the paint suppliers as well as investment income. The rebate income is calculated as a fixed % of all the paint that each of the shareholder businesses acquire from the main paint supplier and is paid every July based on the paint costs of the prior financial year. Shareholders are generally only provided with financial statements/financial information at the Annual General Meeting (\"AGM\") and the company is NOT listed. Carcraft Ltd has a policy of paying out dividends annually to the shareholders as well as a small proportion of rebates to shareholders in proportion to their contribution to the rebate income. Carcraft Ltd has recently acquired a commercial rental property with bank funding. As a result of the funding, the bank has imposed a debt covenant of a Current Ratio of at least two. Page 1 of 3 Carart Ltd Projected Financial statements for the year ended 30th June 2016 Assets Current Assets Cash at Bank Rebates receivable Total current assets Non-current assets Land & buildings Total non-current assets Total assets Current Liabilities Staff superannuation Dividends payable Rebates payable Total current liabilities Non-current liabilities Bank Loan Total Liabilities Equity Share capital Retained earnings Total Equity 150000 750000 900000 1000000 1000000 1900000 25000 200000 0 225000 Income Rental income Rebates Gross income 100000 750000 850000 Less: Expenses Salaries Rebates paid Other expenses Interest Total expenses 80000 65000 210000 45000 400000 Net Profit Less: income tax Net Profit after tax Less: dividends Net profit after tax and dividends 450000 135000 315000 200000 115000 650000 875000 40000 985000 1025000 Scenario and decision In the June 2016 meeting, Noelle had advised the board that one of the shareholders (Nick) was demanding that an additional $300,000 rebate expense be set aside for him as compensation for his extraordinary contribution to Carcraft's 2015/2016 rebate income. Nick, who is not one of the directors of Carcraft, had threatened to leave the group if this was not confirmed in the June 2016 board minutes. Reluctantly, the board agreed to the additional rebate expense at this meeting, but noting that the rebate expense would only be physically be paid in July 2016 when the rebate income was received. During this meeting, Noelle warned the board that the additional $300,000 may need to be recorded in the 2015/2016 accounts due to the application of the conceptual framework and general purpose accounts. The directors disagreed with this, suggesting that \"Why can't we just record it next year when it is paid? We are not big enough to have to comply with all that stupid accounting standard stuff so we can do what we like. Accounting standards are only for big companies.\" Noelle is unsure of this and has sought your advice as the external accountant to Carcraft Ltd. This advice is to be presented with the draft 2015/2016 accounts to the board in July 2016. REQUIRED The main requirement is to provide a recommendation to the Carcraft board as to whether or not they have to prepare general purpose accounts in accordance with Australian accounting standards. In addition, you should address - The financial impact if the rebate expense is disclosed next year (some financial analysis required) and - Details of any guidance provided by the conceptual framework (if applicable) for this transaction. Your recommendation should be in the form of a Letter of Advice, addressed to the board, together with a transmittal email to Noelle. Page 2 of 3 Important Additional Information This scenario and client are a real case and consulting job that has been undertaken in the past for this company. Therefore, the company can be researched to provide additional information. With most consulting jobs, not all of the information/facts is provided initially in a short summary. As additional background to this scenario, a video of an initial \"client interview\" has been provided on Blackboard. It is strongly suggested that this is viewed and information from the video used in compiling your recommendation. In addition, there will be an opportunity to ask further questions of the scenario of the client, Noelle via email. This is designed to simulate a real life scenario in the work force where you can ask additional information of clients. All questions are to be emailed to the unit co-ordinator who will liaise with Noelle to provide answers. Questions and responses will be put up on the discussion board in blackboard for all students to have access to. Required Format and additional requirements Your recommendation should be in the form 1) A Letter of Advice, addressed to the Board, which includes references 2) A transmittal email to Noelle. The structure of the letter does not need to follow the points addressed above. There are two documents required to be submitted via one document in turnitin The Letter of advice should be limited to 4 pages plus academic references and appendices. A detailed rubric/marking guide will be placed on Blackboard. Note that some marks will be allocated for written communication, with most marks are allocated to content as broadly below: Allocated by document type 15% of 15 marks 85% of 15 marks Communication Content and analysis A separate cover page is not required. However, your Student Name and Student ID should be incorporated into the written communication eg in the address section and your letter should include page numbers. Chicago referencing style is required for in-text and end-text referencing. In-text and end-text references are required. Students need to ensure they discuss the points they think are the most important to ensure that the word limit is adhered to. University policies and procedures for academic misconduct and plagiarism will be applied. Further information is available at academicintegrity.curtin.edu.au. A minimum of six (6) quality references should be provided. Please also refer to the additional resources and templates provided on Blackboard and in the tutorials for writing letters of advice and transmittal emails. Originality reports displaying percentage (%) of similarity can be viewed by students to ensure they have referenced where appropriate and not plagiarised. Students can resubmit their edited documents multiple times prior to the submission time. IMPORTANT - The file name of the word document and the submission title in Turnitin needs to reflect your location and student ID (That is labelled correctly in BOTH places) for example; - BEN_12345678 - FO_12345678 - Miri_12345678 (for Bentley Students) (for Fully Online Students) (for Miri Sarawak Campus Students) - MAU_12345678 (for Mauritius Students) (for Singapore Students) - SING_12345678 Page 3 of 3 CARCRAFT LTD AND THE AUSTRALIAN ACCOUNTING STANDARDS Carcraft Ltd Student's name Lecturer's name Course title Date of submission 1 CARCRAFT LTD AND THE AUSTRALIAN ACCOUNTING STANDARDS To: Carcraft Ltd's Board From: Subject: Recommending for the company to prepare general purpose accounts in accordance with Australian accounting standards. As an accounting expert, I have worked with several organizations concerning this matter. I, therefore, understand the issue at hand and the importance of complying with the Australian accounting standards. Therefore as Carcraft Ltd, we have to prepare the general purpose accounts which are in compliance with Australian accounting standards since it is a reporting entity. This is because the general purpose accounts of financial statements complying with the accounting standards tend to provide reasonably the financial situation, cash flows as well as financial performance of a company. When we consider complying with the Australian accounting standards, information obtained will be essential to all shareholders including the owners, analysts, investors, employees, creditors, and even regulators in decision making and evaluation concerning the distribution of the limited economic resources. The Statement of Accounting Concepts SAC 2- which is the objective of General Purpose Financial Reporting supposes that the general purpose financial reports should be prepared to provide all members or stakeholders with essential information concerning the reporting entity and it is significant for decision making as well as evaluating them in relation to the distribution of limited resources (Navarro-Garca and Madrid-Guijarro 2014). When the company has ensured that its general purpose financial reports meet the latter objective will be the means by which managements along with the governing bodies disseminate their accountability to the members and all users. Moreover, if the statements of accounting concepts are too useful to 2 CARCRAFT LTD AND THE AUSTRALIAN ACCOUNTING STANDARDS guarantee adequate disclosure of the information to users of the reports, it is vital that every entity that should say play their reporting role. Also, if the regulation of the general purpose financial reporting is to be created on a logical and useful ground, it is essentially necessary that such entities for which there are no justifications to report are not needed to report. The financial reports that are in line with the objective of the general purpose financial reporting are indeed general purpose financial reports. Besides, companies and organizations as well that operates by the accounting standards always have their general purpose financial statements more comparable than those that do not have. Hence, allowing investors among other users of the financial statements to appropriately compare the companies. Moreover, financial statements present one way by which the company's management along with the governing body of the business are responsible to those that people that present resources to the firm (Alfredson 2003). The provision of information for the purpose of accountability is in particular essential component of financial reporting by the public sector businesses and the non-profit organizations within the industry. The company has to comply with the Australian accounting standards. However, the Australian accounting standards are developed by the AASB which is supposed to perform a cost-benefit analysis of the impact of the suggested rule before formulating or making it. Once the AASB- established standard is therefore considered as an accounting standard, then the organization's directors are supposed to make sure that the firm's financial statements are following the developed standard. Under s. 45A (1) of Corporations Act), only small proprietary companies or businesses are the ones exempted from complying with the accounting standards: such company is considered small if it has employees less than 50; if it has gross operating revenue less than $25 million: or if it has total assets below $12.5 million (Hancock and Simnett 3 CARCRAFT LTD AND THE AUSTRALIAN ACCOUNTING STANDARDS 2007). The company's board have to consider complying with the Australian accounting standards, but it is not compulsory since it is a little proprietary as it has a total equity of $1,025,000. Small companies are not obligatory to comply with some particular accounting standards. A rebate expense refers to a portion of dividends or interest that is earned by an individual or owner or lender of securities which a short seller is paid off the securities. In this sense, the borrower has to consider paying the interests or rather dividends to the owner. The short selling is deemed to be riskier, and the trades have to be made within a margin account to protect the account from incurring losses ("Adoption Of International Accounting Standards" 2008). In this light, selling short is the selling securities which the investor who in this case is Nick does not own, meaning that he has to borrow securities so as to make the delivery to the company. Therefore, when an investor places a short sale trade, then that person has to deliver the securities to the customer on the trade settlement date. In the case of Carcraft Ltd, we have to consider providing the product rebates so as to boost or enhance our sales without necessarily adding to the company's marketing costs. To understand accounting for deductions expenses, the financial accounting standards board has stipulated that rebates among other sales discounts have to be accounted within a contra account which minimizes the gross sales revenue. Classifying such rebates within separate account rather than just debiting the sales revenue makes it simple or easier for the auditors and management team see the product rebates provided without having necessarily to sift via each and every sales or business transaction for the year. The company has to consider exact and suitable accounting steps when accounting for rebate expenses. This move may enhance sales promotions. For the management to realize the effectiveness of its sales promotion, the managers should be able to accurately account for the 4 CARCRAFT LTD AND THE AUSTRALIAN ACCOUNTING STANDARDS information about the sales rebates. Hence, it is important to correctly enter the entries for the respective deductions within the company. Additionally, the accounting treatment of the rebates focuses on demonstrating information concerning rebates within the most effective way for the users of accounting. For these plausible reasons, the company should consider disclosing the rebate expense at the appropriate time to avoid some financial setbacks. 5 CARCRAFT LTD AND THE AUSTRALIAN ACCOUNTING STANDARDS References "Adoption Of International Accounting Standards". 2008. Australian Accounting Review 18 (3): 173-174. doi:10.1111/j.1835-2561.2008.0021.x. Alfredson, Keith. 2003. "Pathway To 2005 IASB Standards". Australian Accounting Review 13 (30): 3-7. doi:10.1111/j.1835-2561.2003.tb00214.x. "Forum Onadoption Of International Accounting Standards". 2007. Australian Accounting Review 17 (43): 96-96. doi:10.1111/j.1835-2561.2007.tb00319.x. Hancock, Phil, and Roger Simnett. 2007. "Accounting And Auditing Standards Boards". Australian Accounting Review 17 (42): 2-2. doi:10.1111/j.18352561.2007.tb00436.x. Hecimovic, Angela, and Nonna Martinov-Bennie. 2011. "The Differential Impact Of The Force Of Law Australian Auditing Standards". Australian Accounting Review 21 (2): 183-192. doi:10.1111/j.1835-2561.2011.00131.x. Navarro-Garca, Juan Carlos, and Antonia Madrid-Guijarro. 2014. "The Influence Of Improvements In Accounting Standards On Earnings Management: The Case Of IFRS". Australian Accounting Review 24 (2): 154-170. doi:10.1111/auar.12020. 6 CARCRAFT LTD AND THE AUSTRALIAN ACCOUNTING STANDARDS Carcraft Ltd Student's name Lecturer's name Course title Date of submission 1 CARCRAFT LTD AND THE AUSTRALIAN ACCOUNTING STANDARDS To: Carcraft Ltd's Board From: Subject: Recommending for the company to prepare general purpose accounts in accordance with Australian accounting standards. As an accounting expert, I have worked with several organizations concerning this matter. I, therefore, understand the issue at hand and the importance of complying with the Australian accounting standards. Therefore as Carcraft Ltd, we have to prepare the general purpose accounts which are in compliance with Australian accounting standards since it is a reporting entity. This is because the general purpose accounts of financial statements complying with the accounting standards tend to provide reasonably the financial situation, cash flows as well as financial performance of a company. When we consider complying with the Australian accounting standards, information obtained will be essential to all shareholders including the owners, analysts, investors, employees, creditors, and even regulators in decision making and evaluation concerning the distribution of the limited economic resources. The Statement of Accounting Concepts SAC 2- which is the objective of General Purpose Financial Reporting supposes that the general purpose financial reports should be prepared to provide all members or stakeholders with essential information concerning the reporting entity and it is significant for decision making as well as evaluating them in relation to the distribution of limited resources (Navarro-Garca and Madrid-Guijarro 2014). When the company has ensured that its general purpose financial reports meet the latter objective will be the means by which managements along with the governing bodies disseminate their accountability to the members and all users. Moreover, if the statements of accounting concepts are too useful to 2 CARCRAFT LTD AND THE AUSTRALIAN ACCOUNTING STANDARDS guarantee adequate disclosure of the information to users of the reports, it is vital that every entity that should say play their reporting role. Also, if the regulation of the general purpose financial reporting is to be created on a logical and useful ground, it is essentially necessary that such entities for which there are no justifications to report are not needed to report. The financial reports that are in line with the objective of the general purpose financial reporting are indeed general purpose financial reports. Besides, companies and organizations as well that operates by the accounting standards always have their general purpose financial statements more comparable than those that do not have. Hence, allowing investors among other users of the financial statements to appropriately compare the companies. Moreover, financial statements present one way by which the company's management along with the governing body of the business are responsible to those that people that present resources to the firm (Alfredson 2003). The provision of information for the purpose of accountability is in particular essential component of financial reporting by the public sector businesses and the non-profit organizations within the industry. The company has to comply with the Australian accounting standards. However, the Australian accounting standards are developed by the AASB which is supposed to perform a cost-benefit analysis of the impact of the suggested rule before formulating or making it. Once the AASB- established standard is therefore considered as an accounting standard, then the organization's directors are supposed to make sure that the firm's financial statements are following the developed standard. Under s. 45A (1) of Corporations Act), only small proprietary companies or businesses are the ones exempted from complying with the accounting standards: such company is considered small if it has employees less than 50; if it has gross operating revenue less than $25 million: or if it has total assets below $12.5 million (Hancock and Simnett 3 CARCRAFT LTD AND THE AUSTRALIAN ACCOUNTING STANDARDS 2007). The company's board have to consider complying with the Australian accounting standards, but it is not compulsory since it is a little proprietary as it has a total equity of $1,025,000. Small companies are not obligatory to comply with some particular accounting standards. A rebate expense refers to a portion of dividends or interest that is earned by an individual or owner or lender of securities which a short seller is paid off the securities. In this sense, the borrower has to consider paying the interests or rather dividends to the owner. The short selling is deemed to be riskier, and the trades have to be made within a margin account to protect the account from incurring losses ("Adoption Of International Accounting Standards" 2008). In this light, selling short is the selling securities which the investor who in this case is Nick does not own, meaning that he has to borrow securities so as to make the delivery to the company. Therefore, when an investor places a short sale trade, then that person has to deliver the securities to the customer on the trade settlement date. In the case of Carcraft Ltd, we have to consider providing the product rebates so as to boost or enhance our sales without necessarily adding to the company's marketing costs. To understand accounting for deductions expenses, the financial accounting standards board has stipulated that rebates among other sales discounts have to be accounted within a contra account which minimizes the gross sales revenue. Classifying such rebates within separate account rather than just debiting the sales revenue makes it simple or easier for the auditors and management team see the product rebates provided without having necessarily to sift via each and every sales or business transaction for the year. The company has to consider exact and suitable accounting steps when accounting for rebate expenses. This move may enhance sales promotions. For the management to realize the effectiveness of its sales promotion, the managers should be able to accurately account for the 4 CARCRAFT LTD AND THE AUSTRALIAN ACCOUNTING STANDARDS information about the sales rebates. Hence, it is important to correctly enter the entries for the respective deductions within the company. Additionally, the accounting treatment of the rebates focuses on demonstrating information concerning rebates within the most effective way for the users of accounting. For these plausible reasons, the company should consider disclosing the rebate expense at the appropriate time to avoid some financial setbacks. 5 CARCRAFT LTD AND THE AUSTRALIAN ACCOUNTING STANDARDS References "Adoption Of International Accounting Standards". 2008. Australian Accounting Review 18 (3): 173-174. doi:10.1111/j.1835-2561.2008.0021.x. Alfredson, Keith. 2003. "Pathway To 2005 IASB Standards". Australian Accounting Review 13 (30): 3-7. doi:10.1111/j.1835-2561.2003.tb00214.x. "Forum Onadoption Of International Accounting Standards". 2007. Australian Accounting Review 17 (43): 96-96. doi:10.1111/j.1835-2561.2007.tb00319.x. Hancock, Phil, and Roger Simnett. 2007. "Accounting And Auditing Standards Boards". Australian Accounting Review 17 (42): 2-2. doi:10.1111/j.18352561.2007.tb00436.x. Hecimovic, Angela, and Nonna Martinov-Bennie. 2011. "The Differential Impact Of The Force Of Law Australian Auditing Standards". Australian Accounting Review 21 (2): 183-192. doi:10.1111/j.1835-2561.2011.00131.x. Navarro-Garca, Juan Carlos, and Antonia Madrid-Guijarro. 2014. "The Influence Of Improvements In Accounting Standards On Earnings Management: The Case Of IFRS". Australian Accounting Review 24 (2): 154-170. doi:10.1111/auar.12020. 6