Reference no: EM133926200 , Length: word count:2000

Financial Reporting

Title - Statement of Advice

Assessment - Provision of Advice on Accounting Issues

Task
Analyse client information using the information and questions raised by the CEO, and present the findings in a Report with a covering Business Letter.

Assessment Description

Assume that you are part of a team of graduate accountants working for an independent consulting & accounting firm. The Manager of your firm has asked you to prepare a statement of advice in response to an email received from a client, raising accounting issues - (a copy of the email will be released in Week 11 after the assessment webinar).
You should address all the technical issues/discussion in the report, followed by a Reference List. For each issue, you are expected to:
Identify the facts and accounting topics
Apply the relevant legislation, accounting standard and/or process
Make a recommendation and/or summary of the correct accounting treatment.

Assessment Instructions
The assignment will need to be submitted as a word document electronically through MyKBS - use the link under "Assessments".
Any work which has been copied or shared between students will result in a Fail grade for all students concerned. Therefore, please make sure that the answer to this assignment is your work and not copied or bought from any source. In completing this assignment make sure you follow the guidelines for assignments especially those relating to the presentation of written work, late assignment policy and academic integrity.
Please refer to the Assessment Marking Guide to assist you in completing all the assessment criteria.

Referencing
Any sources that you use need to be acknowledged in order to avoid plagiarism. Information on referencing.

In-Text Referencing and the Reference List
Sources of information must be cited both in the body of the text (in-text referencing) and the end of the assignment (reference list). Failure to do so will result in penalties. Remember that when referencing an Annual Report, it is a corporate document that does not have a particular author, but it will still require referencing any time you use information from it. Any other documents or books or other references you use will also require referencing.

Assessment - Statement of Advice

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 Denton Crown, a public accounting firm situated at 297 Ivory Lane, Melbourne, VIC 3008. The Manager of your firm, Mr Grant Balansky, has asked you to prepare a statement of advice in response to an email received from a client, Ms. Flossy Molar, the Managing Director of Dentara 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. Get expert-level assistance in any subject with our assignment help services.

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
Dentara Ltd is a pioneering Australian dental technology company headquartered in Melbourne. Established in 1994 by prosthodontist Dr. Phil Lings, Dentara began as a small-scale manufacturer of precision dental prosthetics. Over three decades, it has transformed into a leading force in the Australian dental sector, offering advanced solutions in digital diagnostics, surgical robotics, and integrated clinical software. In 2023, Dentara acquired Brisbane based Enamora Ltd, gaining a key patent in synthetic enamel regeneration and strengthening its position as a leader in dental biotechnology in Australia. As of 1 July 2023, Dentara's shares were trading at $1.25 on the ASX, reflecting strong investor confidence in its growth strategy. The company maintains an incremental borrowing rate of 5% and is subject to a corporate tax rate of 30%.

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. See the email below.

Dear Grant,

I am reaching out to you for assistance as our Chief Accountant is currently on long service leave. I need to understand the accounting implications of our recent takeover of Enamora Ltd so that I can present the consolidated financial statements to the Board of directors and respond to any further questions they may have concerning the accounts for the year ended 30 June 2025. As I do not have any accounting experience, please explain the principles and concepts for me in simple language.

As you are aware, we have successfully acquired 100% of the issued shares of Enamora Ltd on
1 July 2023, on an ex-dividend basis. Enamora Ltd, founded in 2010, is a Brisbane-based manufacturer specialising in synthetic enamel restoration. Its acquisition in 2023 marked a strategic milestone for us, granting access to a breakthrough enamel regeneration patent and strengthening our position as a leader in dental biotechnology. At the time of acquisition, Enamora Ltd's shares were trading on the ASX at $1.75 each.

Under the terms of the acquisition, Enamora Ltd shareholders received the following consideration:

An upfront cash payment of $0.40 per share
A deferred cash payment of $0.20 per share, payable on 1 July 2024, and
One Dentara share for each Enamora share held

The cost of issuing the Dentara shares amounted to $1,900. In addition, legal expenses incurred in relation to the acquisition totalled $22,500.

The financial statements of Enamora Ltd as at 1 July 2023 showed the following information:
At the acquisition date, all assets of Enamora Ltd were recognised at their fair values in its balance sheet, with the exception of inventories, which had a fair value of $142,000. In accordance with AASB 138 Intangible Assets, Enamora Ltd's internally generated ten-year patent for synthetic enamel regeneration -despite having an assessed fair value of $44,000-was not recognised in its financial statements. Additionally, Enamora Ltd disclosed by note a contingent liability in relation to a legal claim filed by a patient, alleging that the synthetic enamel coating emitted a glow in the dark and, more concerningly, began to bubble and flake off. An independent expert assessed the fair value of this liability at $36,000.

Our Trainee Accountant prepared an acquisition analysis and calculated goodwill of $19,000. This was determined as the consideration paid ($351,500?) less the market capitalisation of the company of $332,500 (190,000 shares * $1.75 per share = $332,500) to be reported as goodwill in the accounts. Can you check if this calculation is accurate and provide me with any necessary journal entries to prepared consolidated financial statements for 30 June 2025? Please show all workings and explain each journal entry, as I need to be able to respond to questions from the Board of Directors.

Enamora Ltd was acquired to help expand our business into biotechnology and therapeutic products. However, the acquisition has not brought the financial benefits we expected. The company has been unable to sell its main products because they have not received approval from the Therapeutic Goods Administration (TGA), which is required to legally sell medical products in Australia. As a result, these products have not generated any revenue. Also, strong competition from overseas companies has contributed to a financial loss for Enamora Ltd during this reporting period. Given the financial difficulties Enamora Ltd is experiencing, how could this impact the value of goodwill? What accounting steps should we consider to address these issues in our group financial statements? We also encountered further challenges with inventory. Enamora's existing stock from the acquisition proved to be slow-moving, with only 20% sold to existing customers within the first month of the acquisition. The remaining 80% remained unsold for over a year, effectively becoming dead stock. Finally, in September 2024, we were able to offload all this inventory at a substantial discount to Smiles Without Borders, an international dental care provider committed to delivering affordable and accessible treatment across global markets.

Before commencing long service leave, the Chief Accountant identified two intra-company transactions that require further analysis for the preparation of the consolidated financial statements. Please assist by providing any necessary adjusting journal entries along with explanations. Specific details of these transactions are shown below:

On 1 July 2023, Dentara Ltd sold a piece of equipment to Enamora Ltd for $88,000 in cash. The equipment originally cost $123,456 and had a carrying amount of $100,000 at the date of sale. Dentara Ltd applies depreciation using the diminishing value method at 10%, whereas Enamora Ltd uses the straight- line method. Independent valuers have confirmed that the equipment has a remaining useful life of five years. The Chief Accountant was mumbling something about not recording these transactions. Won't the accounts then be incomplete? Please explain what I need to do with the transaction and show any journal entries necessary.

On 12th of June 2025, we sold some of our home teeth whitening kits to Enamora Ltd on credit for $26,000. The cost of these kits was $19,000, resulting in a gross profit of $7,000, which has already been recognised in our financial statements. By 30 June 2025, Enamora Ltd had on-sold 70% of these goods to external customers through its distribution channels, applying a 40% markup. The $7,000 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?

The last matter I need your help with is a foreign currency transaction. On 1st of July 2024, we took a bold step toward expansion. With blueprints in hand for a state-of-the-art manufacturing plant, we signed a loan agreement with the Bank of America, borrowing USD $300,000 to purchase critical components for building the facility that would power our future. As engineers transformed plans into reality through six months of construction, integration, and testing, we invested a further A$100,000 to bring the facility to full operational readiness. By 31st of December 2024, the plant stood complete-ready to hum with productive energy over the next decade of its useful life.

The loan carries a fixed annual interest rate of 5%, with repayments scheduled in arrears-a single interest payment was due and paid on 30 June 2025.

We have not yet recorded any journal entries for these transactions and would greatly appreciate your guidance on the appropriate accounting treatment. Specifically, could you please outline the correct steps to ensure these transactions are recorded accurately? We would also be grateful if you could provide the relevant journal entries, accompanied by clear and detailed explanations for each.

Please respond by letter (not email) as I would like to present this to the Board. I look forward to hearing from you shortly.

Assessment Instructions

The assignment will need to be submitted electronically through MyKBS - use the link under "Assessments".
Please refer to the Assessment Marking Guide to assist you in completing all the assessment criteria.