QUESTION 3: Accounting Concepts (10 marks)

For each of the following scenarios, in your own words, using a letter format and references where appropriate:

Ms Daphne Blake is the sole proprietor of Sunsetz, a beach shade sale and hire business specialising in beach tents. Many of the customers who purchase or hire beach shades from Sunsetz have seen theSunsetzshades set up on the beach in front of the shop. The local lifeguards use these shades to rest under between their shifts in the tower.

Ms Blake has had a meeting with the Managing Partner of Michell & Co Accounting Specialists Pty Ltd and you were invited to attend.

During the meeting Ms Blake explained that she felt there was an omission in Sunsetzfinancial statements prepared by Michell & Co Accounting Specialists Pty Ltd. Ms Blake considered that the small area of beach in front of the shop should be recorded as an asset in Sunsetz Balance Sheet. Ms Blake argued that it was due to the beach in front of the business she was able to set up a beach shade daily advertising the beach shades she hires out and sells.

After the meeting, the Managing Partner tells you she is extremely busy with a number of clients at the moment and asks you to prepare a letter to Ms Blake.

REQUIRED:

Please write a letter in your own words, addressed to Ms Blake explaining whether or not the beach directly in front of Sunsetzcan be recorded as an asset in Sunsetzfinancial statements.

The explanation must refer to the appropriate *element definition and apply the facts provided above. Generic answers will achieve minimal marks. (10 marks)

*element = asset, liability, income, expense

Up to an additional 2 marks will be awarded for adhering to the following the formatting requirements:

• Date your letter the 8^thAugust 2020
• Address your letter to Ms Blake, Sunsetz, 26 The Esplanade, Stony Point, South Australia 5959
• Any formal business letter format is acceptable (a template has notbeen provided - students are expected to research business letter formats themselves).
• Consider an appropriate way to sign off your letter
• Set out your letter with subheadings to separate each part of your letter as you address the criteria required
• No specific word count is prescribed. However, given the nature of the questions, it would be expected that the entire letter (including address and sign-off) should require no more than a single A4 page.