Business Letter and Financial Accounting Report for ACCM4200

This financial accounting report addresses two key issues: accounting for patents and depreciation of assets, as per AASB standards. The report details the initial cost, amortization, and impairment of patents, including derecognition procedures. It also outlines the depreciation methods, including the treatment of residual value and scenarios where depreciation should be recorded. The report emphasizes the importance of consistent application of accounting principles, useful life, and changes in accounting estimates. The report is written in a business letter format and provides recommendations to Shadow Ltd., offering insights for financial decision-making and reporting.

Letter Writing
John Smith
Accountant
Kapland and Associates
396 Ann Street
Brisbane
QLD 4000
Ms Miley Jaspen
Manager,
Kapland and Associates
396 Ann Street
Brisbane
QLD 4000
Dear Miss Miley Jaspen
RE: ISSUE 1 AND ISSUE 2
Thank you for tasking me to address the issues reflected in based on AASB (138, 116,
136, and 108. It will assist Shadow Ltd. accounting team in decision-making process. A
summary of findings are presented below with comprehensive analysis enclosed as attachment 2.
In regards to issue 1;
The accountant should first records the cost of acquiring patent at initial cost. When it
files for a patent application, this cost shall encompass documentation, registration alongside

additional fees (legal) linked to application. Accountant will progressively charge patent cost to
expense over useful life via straight-line amortization. When a patent ceases to give value, or a
decreased value level accountant should recognize impairment to eliminate or reduce carrying
amount (CA). When Shadow Ltd. stops using its patented idea, accountant should derecognized
patent by debiting balance in accumulated amortization account and crediting a balance in patent
asset account. Accountant should record any remaining unamortized balance as a loss when asset
is not fully amortized at derecognition.
In regards to issue 2;
The accountant should systematically allocate machine’s depreciation amount (DA) over
its useful life (UL). He should review UL and residual value (RV) every period closure. If
prospects vary from past approximations, he should account for changes as a changes in
estimates of accounting. He must recognize deprecation even when FV of machine surpasses its
CA provided RV stays below its CA irrespective of repair and maintenance. He must first deduct
RV before determining DA. If RV surges to amount equal/above CA, he should record
depreciation as zero until RV is below machine’s CA. He should depreciate even when the
machine is indolent or superannuated from its active usage except if machine is depreciated
entirely. When using usage methods of depreciation, he should record zero depreciation charge
even without production.
Yours Faithfully,
Signature
John Smith