Business letter

| May 19, 2015

You are required to prepare a letter of advice to your client that would be accepted by an Australian accounting firm or business as ‘envelope-ready’ i.e. ready to be sent to the client.
• The assignment will be assessed as follows: 1) Technical content will be marked out of 10. This mark only covers the technical content of your advice and explanation on each of the issues. You MUST answer the question mainly in your own words and ensure that any references to the conceptual framework, accounting standards or any other sources are appropriately referenced. 2) Writing skill component will be marked out of 5. This mark covers the following generic business letter writing skills: layout, organization, written expressions and tone. Do not pad your answer with irrelevant material. The specific mark allocation is as follows:

Mark allocation
Technical component
Issue 1
/7
Issue 2
/3
Language component
Layout and Format
/1
Structure and organization
/1
Written expression: Clarity, grammar and spelling, appropriate tone
/3
Total
/15
1
• Format requirements: “Times New Roman”, size 12 with 1.5 line spacing

Background Information
You are a CPA working for an accounting firm called AccPlus. One of your clients is Cairns Ltd, which is located at 133 Smith Street, Notsureville, NSW, 2555. James Manning is the Managing Director of Cairns Ltd. He often contacts you for assistance regarding various accounting issues. On 6 April 2015 he wrote to you outlining the following matters on which he wishes you to provide written advice.
Issue 1:
Cairns Ltd has recently undertaken a business combination with Townsville Ltd. At the start of negotiations, Cairns Ltd owned 30 percent of the shares of Townsville Ltd, and has now acquired the remaining 70 percent of the shares in Townsville Ltd. The negotiations began on 15 August 2014 and enough shareholders in Townsville Ltd agreed to the deal by 31 March 2015 for it to proceed. The purchase agreement required shareholders in Townsville Ltd to exchange their shares for shares in Cairns Ltd. Over the negotiation period, the price of Cairns Ltd’s shares reached a low of $5.40 and a high of $6.20. James Manning is aware that AASB3 has to be applied in accounting for business combinations. However, he seeks your advice concerning:

1. how to account for Cairns Ltd’s original 30 percent interest in Townsville Ltd;

2. the price to use to account for the shares in Cairns Ltd issued to the shareholders in Townsville Ltd; and

3. How the varying dates such as the date of exchange and the acquisition date affect the accounting for the business combination.
Issue 2:
Cairns Ltd intends to maintain Townsville Ltd as a separate operating entity. James Manning is aware that Cairns Ltd will be required to prepare consolidated financial statements at the end of the financial year and also that it will need to apply AASB3 Business Combinations in preparing those statements. However, this has caused some confusion to James as he is not aware of any links between AASB3 and the consolidated accounting standard AASB10. James has asked you to explain why AASB3 may be related to the application of AASB10.
As your advice will be submitted to the company’s board, James would like to letter of advice to incorporate references to accounting pronouncements, where appropriate.
Required:
You are required to prepare a business letter addressing the matters on which advice is sought by James Manning. Your advice should provide clear, succinct answers/explanations and appropriate references to accounting pronouncements.
Maximum length: 1,400 words

 
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