Reference no: EM132470964

Assessment Description

• The Manager of your firm, Ms. Samantha Cole has asked you to draft a businese letter in response to an email received from a client - Mr. King Edwards, the CEO of Tom Ltd, raising accounting issues related to Business combination and Consolidated Financial statements- see the copy of the email.

Dear Samantha

Thank you for helping us with these accounting issues. Our CFO had to go on leave urgently to attend some personal matters and therefore I appreciate your assistance at such short notice.

Here are the issues we are most concerned about:

point 1. The biggest issue the board is concerned about is intra-group transactions. Our accounts team told us that we need to eliminate the intra-group transactions before we prepare the consolidated financial statements. The board has questioned why we record these transactions in the first place when we end up eliminating them. To be honest, I am with them. I am not an accountant but it makes perfect logic not record anything in our books when we end up deleting those transactions. As you know, book-keeping is a very expensive exercise.

point 2. The second issue we need help with is accounting for different types of investments. Can you please summarise the difference when we hold 1% of another entity vs 20% vs 50% vs 80% vs 100%? I don't even know if there is a difference at all? I thought all such investments will appear as assets in our books under the "Investment in XXX" account? One of the board members stated that accounting for such investments is not the same. Therefore, the whole board would like to clarify this confusion.

Question 1: 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 any relevant legislation?