Learning Outcome 4: Develop information gathering (research) and communication strategies
to enable the provision of professional advice to a client. Background to case study: You are a graduate accountant working for Bentley Hutchins and Associates a public accounting firm situated at 999995 George Street, Sydney. The Manager, of your firm, Peter Mitcham has asked you to follow up on an email sent by a client, namely;
1. Craig Crafters, the managing director of Crafters Ltd – his email has raised a number of
issues regarding his company, and your manager would like you to research the issues and
draft a response in the form of a letter – see information in Case Study Details below.
Maximum Length is 1250 words (excluding any calculations)
Part A: Technical Component (15%) – This mark covers the technical content of your advice
and the explanation on each of the issues, the calculations and the sources used.
Part B: Communication Skills - Letter Writing and Questioning Skills (10%) – This mark
covers the generic skills of business letter writing; layout, clear meaning, structure and
organisation, appropriate tone and grammar, spelling and punctuation.
The assignment is designed to test the following skills:
1. Your knowledge and your ability to research the issues and then apply the information
appropriately using judgement
2. Your communication skills - business letter writing.
Please make sure you follow the guidelines noted in your subject outline especially those
relating to presentation of written work, late policy and academic integrity.
INDIVIDUAL CASE STUDY: Crafters Ltd – (15% technical)
-

Re: Year End Accounting Issues
From: Craig Crafters[craig.crafters@crafters.com.au]
Sent: Monday, 18 August 2014 at 8.30am
To: peter.mitcham@bentleyhutchins.com.au
Cc: Carmen Collins[carmen.collins@crafters.com.au]
Attachment: Issues Raised by the Board
Dear Peter,
Thanks for your letter suggesting we meet to plan the accounting work for the 6 months
ending 31 December 2014.
As discussed with you the board of directors has raised a number of issues in relation to the
financial statements with me and I have noted them below for your response. Some of the
directors are concerned about these issues as the company has just been listed on the ASX
(with effect from 1 August 2014), and they think this changes matters.
To assist us in our decision making process could you please make sure that any relevant
sources such as the AASBs, Corporations Act, reference books, journal articles, and/or
websites are referenced so that the accounting team here could check them out when
evaluating your answer. If you could kindly copy the newly appointed Financial Controller,
Carmen Collins in on your response she could start the review process.
I will be overseas on annual leave until the end of September and look forward to hearing
from you by the time I get back. I do not expect to have much of a problem as such as I am
sure that all we need to do is to prepare the financial statements in the same way as we did
last year that is for the year ended at 30 June 2014. That’s correct isn’t it?
Best wishes and regards
Craig Crafters
Managing Director,
Crafters Ltd
Suite 16198, Level 32, Arcade Building
6256 Giles Street
Adelaide SA 5000

INDIVIDUAL CASE STUDY: Crafters Ltd – (15% technical)
Crafters Ltd
Issues raised by the Board of Directors
Issue 1:
The price on the company’s shares has increased significantly over the year, as we enjoyed a good
financial year with a very positive expectation in terms of future profits. The share price has almost
tripled (overall) in the last two years inspite of the volatile share market.
Five possible new mine sites were discovered and at least three of them are commercially viable. This
was due to the present Board of Directors’ decision to invest about $7.62 million exploring further
possible mines in the demarcated areas.
I also believe that the present Board of Directors is perceived as having integrity and vision and is well
respected and that the shareholders acknowledge this goodwill by continuing to invest in the
company’s shares and in most cases increasing their present investment in the company.

Carmen does not think that this is a good idea but I have requested her to discuss the possibility of
recognising this goodwill in the financial statements as at 31 December 2014 and to agree on a basis
of valuation with you.
Issue 2:
As you know our company has been making large profits and has been performing well during the
year and is expecting a net profit margin of about 40% to 60%. We would like to hold back some of
these profit to help us expand our business in 2015.
The director of business development is presently considering acquiring premises and setting up
our own aboriginal art gallery (as we have access to authentic indigenous artwork at very reasonable prices) and would like to create a provision for business development so that some of
these profits (about 15%) could be quarantined and not paid out as dividend.
In addition to this, the present premises that we use are fairly old and require quite a bit of
maintenance and repair work done on it. Being a heritage building the cost of carrying out this work
will be significant, and the director of operations has suggested that we create a provision for
maintenance and repairs (about 15% of net profits).
This should bring our net profit margin down to around 10% to 30% which is very comparable to the
previous year and as we would still be able to pay the same dividend as last year, should not cause
any panic among the shareholders.
We are concerned that if we did not create these provisions our shareholders will become aware of
the unusual profits earned in this period and will demand a much bigger dividend and expect us to
maintain the same dividend in the future. Creating these provisions will allow us to maintain a
stable dividend of about 12%.
If this suggestion is not acceptable to you, can you please provide us with another alternative,
giving me reasons as to why we should not create these provisions. Please be very specific so that I can clearly explain your suggestion to the Board.
Issue 3:
Carmen and I were going through the last year’s financial statements (year ended 30 June 2014) and
I discovered that the income tax expense account was significantly higher than the income tax the
company actually paid to the ATO as per the cash book. Is there some reason as to why we did not
pay the full amount shown as an expense to the Tax Department? Or has the income tax expense
been calculated incorrectly? If so how do we adjust this?
I also noticed that last year’s Statement of Financial Position (as at 30 June 2014) showed a Deferred
Tax Asset and Deferred Tax Liability which we have never had in our accounts before. Carmen tells
me it is because we became a public company during this year, but this doesn’t make sense at all.
How can becoming a public company cause a change in tax? Could you please explain this in your response, giving examples to make it very clear to us. I also noticed that the current tax liability in the projected Statement of Financial Position as at 31 December 2014 is very much less than what we have estimated as income tax expense for the six month period? How is this possible?
Hint: Remember that your firm plans to charge the client for your advice; as a check ask yourself if
you were Craig Crafters would you pay for the advice you have just drafted in response to his
email!
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