ACC203 Financial Accounting: Pewter Ltd Repair Program Analysis

This report, in the form of a business letter from McKenzie and Associates to Pewter Ltd, addresses the accounting implications of a proposed repair program. It analyzes the program's impact on key financial statements including the balance sheet, income statement, cash flow statement, and statement of changes in equity. The analysis considers the program as an expenditure and its potential effects on owner's equity, profitability, and liquidity. The report also touches upon the program's compliance with Australian government legislation regarding charitable operations and concludes with a discussion of the long-term profitability versus short-term losses associated with the strategy.

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Business Letter
Students Name
Course Studied
Professor’s Name
Institutional Affiliation
Department
Date

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McKenzie Accountant
668 Georgia Street, Melbourne, VIC 300
Phone number
Email address
September 9, 2018
Mr. Con Pewter
Managing Director
Pewter Ltd
[e-mail]
668 Georgia Street, Melbourne, VIC 300
Dear Mr/Ms. Pewter
his letter is formulated in response to the requested accounting issues brought to the senior managementT
department of the Mc enzie and Associates company through an email he fundamental argumentsK . T
presented in this letter resulted from the operation of intensive study regarding the primary issues in the
email As a fi rm its pleasure to possess potential e perts in the fi eld of accounting including the necessary. , x
resources required in research operations herefore the message presented by the letter is globally. T ,
supportive having been obtained from diversity pieces of literature on the internet and undergoing an
intensive analysis by the company accountant e pertsx .
ollowing the presented email the fundamental issue that needs to be addressed is the how to accountF ,
for the suggested repair program as a way of curbing the competition presented by the apanese whalersJ .
ith regards to the argument presented by the marketing director to e ecute the program the ideologyW x ,
aims at enhancing the competitiveness of the company owever the key issue is the manner in which. H ,
accounting process should be done with regards to the fi nancial documentation standards here e ist four. T x

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primary fi nancial statements that need to be acknowledged during the reporting process of the business
operations he Accounting books in this case include the cash fl ow statement profit and loss account. T , , , ,
balance sheet and the statement regarding variations in the owner s equity herefore it is necessary to’ . T ,
perform an analysis of the issues systematically as per the fi nancial statements named above.
A balance sheet refers to a book of accounts that indicates the fi nancial operation of a business sually a. U ,
balance sheet tells if the business is capable of paying off all the debts without venturing into the personal
incomes of the investors ft en a balance sheet is made up of two primary sections namely the asset section. O ,
and the liability part (Steven, 2017, pg.1). With regards to the proposed strategy, the program is an
item of expenditure thus more of a debt than an asset. Following the accounting equation
whereby Assets is equal to liabilities + owners' equity, then an increase in the liability side by the
program is likely to reduce the owner's equity (Investopedia, 2018, pg.1). Conclusively, it would
be irrational to take on a program that reduces the owners' equity.
An income statement, on the other hand, is one of the primary books of accounts that indicates
whether a firm is generating profits or a loss (Accounting Simplified.Com, 2018, pg.1). The
profit and loss account is made up of the revenue side and the credit side. With regards to the
ideology that the proposed program is an item of expenditure, then the strategy will increase the
credit side of the income statement. However, we can't hesitate to mention the fact that the
program is likely to be more profitable over time. The program abides by the legislation of the
Australian government to enhance charitable operations in the country (AASB, 2018, pg.4).
Therefore, the strategy is profitable in the long term but makes huge losses on a short-term basis.
Following the mathematical equation
Loss/profit is given by the Total Revenue - Total cost
A –ve value represents a loss whereas a +ve value represents profitability.

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Cash flow statement shows the movement of bank and cash balances with a provided
period. There exist two types of cash flows namely the cash outflow and the cash inflows. With
regards to the fact that the program is an item of expenditure, the strategy is likely to enhance
cash outflow.
The following mathematical representation can be derived from cash flow statements
Liquidity=Cash Inflow-Cash outflow
herefore the proposed strategy minimizes the liquidity of the fi rm by increasing the cash outflow thusT ,
irrational for it may hinder the efficiency of the daily operations in the business.
A statement concerning the changes in equity displays the income earned by the owners of the
business sually changes in equity originate from various components like legislation changes regarding. U ,
the accounting process dividend payments and income statements ust like in the balance sheet the, , . J ,
suggested strategy has a higher probability of minimizing the owner s equity' .
Thank you.
Yours faithfully,
Signature
Name
Accounting professional

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References
AASB, 2018. AASB Discussion Paper: Improving Financial Reporting for the Australian Public
Sector. AASB, p.4. Available at:
https://www.aasb.gov.au/admin/file/content102/c3/DP_IFRPS_06-18.pdf. [Accessed 9th
Sep. 2018]
Accounting-simplified.com. (2018). 4 Types of Financial Statements | Explanation | Examples |
Templates. [online] Available at:
https://accounting-simplified.com/financial/statements/types.html [Accessed 9th Sep.
2018].
Staff, I. (2018). Financial Statements. [online] Investopedia. Available at:
https://www.investopedia.com/terms/f/financial-statements.asp [Accessed 9th Sep. 2018].
Bragg, S. (2018). The four basic financial statements. [online] Accounting Tools. Available at:
https://www.accountingtools.com/articles/the-four-basic-financial-statements.html
[Accessed 9th Sep. 2018].