QUESTION 3: Accounting Concepts (12 marks) As part of your continuing professional development as a graduate accountant

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Question 3 Accounting Concepts 12 Marks As Part Of Your Continuing Professional Development As A Graduate Accountant 1 (255.16 KiB) Viewed 17 times

QUESTION 3: Accounting Concepts (12 marks) As part of your continuing professional development as a graduate accountant at Crase & Stone Accounting Services, the Managing Partner (Lin Stone) has asked you to assist a new client, Emily Watson, who works as a registered financial planner. Lin Stone has met with Emily, and he advises you that she is quite skeptical about coming to see an accountant. Emily was referred to Crase & Stone Accounting Services by her friend Chaz Lounge, however she doesn't understand the concept of accrual accounting, and believes that adjusting her accounts will just delay their preparation and are so small that they make no difference and are a waste of time. She also doesn't understand why money she withdraws from her own business is not treated as an expense. Emily has provided the following Income Statement (prepared using cash accounting) and additional information related to the transactions she has recorded. Watson Financial Planning Services Income Statement For the year ended 30 June 2021 Income: Fees revenue Less: Expenses Profit $285,000 $228,000 $57,000 . . Fees for financial planning advice provided in the year ended 30 June 2020 for $6,000 were collected in the current year and have been included in the revenue above. Fees for financial planning advice provided in the year ended 30 June 2021 of $9,000 are expected to be collected in the following year. These have not been included in the revenue above. Accrued salaries at 30 June 2020 were $3,000. These were paid in July 2020 and have been included in the expenses above. Accrued salaries at 30 June 2021 were $3,500. These were paid in July 2021 and have not been included in the expenses above. Depreciation expense of $13,500 has not been included in the expenses above. Emily Watson withdrew $2,400 per month to cover her personal living expenses, and these have been included in the expenses above. The Managing Partner (Lin Stone) has requested that you do the following: a) Using the above information, prepare an Income Statement using accrual accounting, and show all relevant calculations. (5 marks) b) Explain why the revised statement is considered to be a better measure of profit. (2 marks) c) Explain why it is correct accounting procedure to exclude drawings from expenses. (2 marks) Lin has asked that you prepare your responses in a formal business letter addressed to him (not the client). He will then review your work, and if appropriate your letter will be used as the basis of a response to Emily. The remaining 3 marks will be awarded for following the formatting requirements below: . Date your letter 6 September 2021 Address your letter to Lin Stone (Managing Partner), Crase & Stone Accounting Services, 315 Portrush Rd, Norwood, SA, 5067 Any formal business letter format is acceptable. Please note that template has not been provided. Students are expected to research business letter formats themselves. Set out your letter with subheadings to separate each part of your letter . Use of an appropriate professional way to begin and end your letter. You must consider the context of the letter - who are you writing it to, and how would you communicate with them? The use of appropriate language, accounting terminology and reference in your letter to the specific information presented in the question. No specific word count is prescribed. However, given the nature of the questions, it would be expected that the entire letter (including address and signoff) should require no more than one A4 page.