Reference no: EM133829650

Financial Reporting

Assessment - Statement of Advice

Assessment - Provision of advice on accounting issues

Task
You are required to prepare a business letter to address key accounting issues in regards to an acquisition analysis of a wholly owned subsidiary and various intragroup transactions. Also, provide advice on accounting for a foreign currency transaction.

Assessment Description
Assume that you are a graduate accountant working for Wolfram Hart, a public accounting firm situated at 388 Ann Street, Brisbane, QLD 4000. The Manager of your firm, Ms. Lily Morgan, has asked you to prepare a statement of advice in response to an email received from a client, Maddie Shannon, the Managing Director of Tottoys Ltd, raising several accounting issues. Please refer to the email on the next page.
The maximum length for the body of the letter is 2,000 words. You should address all the technical issues and discussion in your advice, followed by a Reference List.

Part A: Technical component - This mark covers the technical content of your advice and the explanation of each of the issues, the calculations and journal entries (where applicable).

Part B: Communication Skills - This mark covers the generic skills of writing; layout, clear meaning, structure and organisation, appropriate tone and grammar, spelling, and punctuation throughout the whole assignment. It also includes referencing.

Case Study Background
Tottoys Ltd is a dynamic toy company that specialises in creating engaging and educational toys for preschool-aged children. With origins as a family owned business in 1924, the company focuses on producing high-quality products that promote learning, creativity, and imaginative play. It's product line includes a variety of toys, from soft plush figures, interactive learning games, to jungle gyms and eco-friendly wooden puzzles, all designed to support early childhood development. Listed on the ASX, with shares trading at $1.60, Tottoys Ltd has steadily established itself as the leading Australian provider of innovative, safe, and enjoyable toys that enrich the lives of pre-schoolers.

Case Study

Draft a business letter in reply and make sure you reference any relevant sources relating to your advice, for example, AASBs, Corporations Act, and relevant sources.

The draft statements of financial position of Byte Ltd at the date of acquisition was as follows:

Prior to going on long service leave, The Chief Accountant identified two inter-company transactions for further consideration when preparing the consolidated accounts. Please help me with any necessary adjusting journal entries required for the preparation of consolidated financial statements and explanations for them. Specific details of these transactions are shown below:

On the 15th of June, 2024, we sold some of our fantasy hero figures with a cost of $27,000 to Byte Ltd on credit for $39,000, generating a profit of $12,000. By the end of the year, Byte Ltd had sold 70% of these goods to external parties using their distribution networks with a 25% markup. The $12,000 profit has already been recognised in our financial statements, improving our results. Is there anything else we need to do? What journal entries, if any, should be recorded? Get Instant Solutions for Your Assignments!

On 1st of January 2024, Tottoys Ltd sold jungle gym equipment to Byte Ltd for $11,000 in cash. The equipment originally cost Tottoys Ltd $7,000 and was classified as inventory. Byte Ltd installed the equipment outdoors at one of its childcare centre's, incurring an additional installation cost of $1,500. Byte Ltd depreciates such equipment at a rate of 10% per annum based on cost. Please explain what I need to do with this transaction and show any journal entries necessary.

The final issue that we seek your assistance with relates to a foreign currency transaction. As part of our recent expansion, we recognised the need for an offshore manufacturing plant to support our operations. This plant will feature custom-designed rotational molding machines, specifically designed to enhance the production of large plastic toys such as playhouses, slides, and playground equipment. To finance the project, we secured a loan of USD 200,000 from Bank of America on 20 July 2023 at an interest rate of 6% per annum. These funds were all used to acquire the necessary components for constructing the manufacturing plant. On the same date, we entered into a binding agreement with an American construction company to help construct this plant using these components according to our specifications. As part of the agreement, we retained the right to inspect and approve the plant throughout its construction to ensure it adheres to our precise requirements. The plant was completed on 20 May 2024, with an additional USD 50,000 spent to finalise its construction. This plant will enable us to meet customer needs over the next decade.

We have not yet recorded any journal entries for these transactions and seek your guidance on the appropriate accounting procedures. Could you please explain the steps required to accurately record these transactions and provide detailed explanations for each journal entry?

Attachment:- Provision of advice on accounting issues.rar