Financial Accounting Advisory Letter Addressing Pewter Ltd, ACC203

This assignment is a financial accounting advisory letter drafted by a graduate accountant at McKenzie and Associates for Pewter Ltd. The letter addresses the accounting implications of guaranteeing the cost of repairing damage to the Steve Irwin ship, focusing on the impact on profit, environment...Read More

FINANCIAL ACCOUNTING
ADVISORY LETTER ADDRESSING THE IMPACT OF GUARANTEEING REPAIR ON
ANY DAMAGE INCURRED TO STEVE IRWIN SHIP ON PROFIT, ENVIRONMENTAL
REPUTATION AND NET ASSETS GRID OF PEWTER LTD COMPANY
Name
Course:
Professor’s Name
Institution
City
Date

FINANCIAL ACCOUNTING
Ms Maria McKenzie
The Manager McKenzie and Associates
668 George Street,
Melbourne VIC 3000
6Th July 2018.
The Board of Directors,
Pewter Ltd, Level 6,510
King William Street, Adelaide SA 5000
RE: Advisory Letter To The Board Of Directors On Accounting Concerns Highlighted
Regarding Guaranteed Cost Of Repair Relating To Steve Irwin Ship.
Dear Sir/Madam,
Reference is made regarding the email sent to our office on 5th July 2018 relating to the above
subject and hence wish to categorically state that the query and point of concern are well
received and addressed as analyzed below.
The challenge Pewter Ltd is going through is on whether the relevant costs and concern are
assigned to respective cost centres as well as whether they have been accounted for appropriately
under AASB regulations and Company Act as well.
The first concern is on how the damage cost of Steve Irwin is accounted for and under what
ledger of expenses is it expensed. According to AASB introduction clause on expense
subparagraph a and b states that anything that reduces asset and value of a company is an
expense. However, clause one on expenses states that they should be recognized when they are
incurred hence in this case this damage is of speculation Schaltegger and Burritt (2017.Pg.18).

FINANCIAL ACCOUNTING
ASSB 137 outlines that provision on speculation should be placed based on the level of risks
hence the need to account for this damage cost as insurance cost as stipulated in the company act.
This cost of repair and other incidental cost relating to Irwin should be accounted as insurance
expense that indeed reduces the profitability aspect of the firm by the value equivalent to the
damage provision utilized Berry(2017.Pg.12)
All the same I wish to state that this act of environmental competition concern is however of
great benefit to Pewter since it gives them an environment that is conducive for business since
the goodwill earned Chen, Shroff, and Zhang (2017.Pg.24) by the act of repairing other
competitors work equipment create assurance to investors and customers that their means of
doing business is safe and friendly. I likewise wish to state that the net asset increase as stated is
only possible if the cost incurred contributes to goodwill that is recognized as a result of the
environmental concern of the market.
I therefore strongly advise the management to continue to provide insurance provisions that are
accounted appropriately as insurance expense and not marketing since they are just incidental to
marketing unlike to insurance hence an aspect that helps them save and guarantees them business
continuity as avoidance of litigation. This could be a win to win situation to both Pewter and
Japan Whalers only if the risk corresponds to compensation otherwise if not so no win to win
effect is seen Esty and Winston (2009.Pg.7)
Yours Faithfully,
Ms Maria McKenzie

FINANCIAL ACCOUNTING
References
Berry, T., 2017. Estimating realistic startup costs. Retrieved on April, 28.
Chen, W., Shroff, P.K. and Zhang, I., 2017. Fair value accounting: Consequences of booking
market-driven goodwill impairment.
Esty, D. and Winston, A., 2009. Green to gold: How smart companies use environmental
strategy to innovate, create value, and build competitive advantage. John Wiley & Sons.
Schaltegger, S. and Burritt, R., 2017. Contemporary environmental accounting: issues, concepts
and practice. Routledge.