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ACCM4200 Preparation of Business Letter: Financial Accounting And Reporting 1 Assessment 3 Answer

Assessment 3 Information

Subject Code:
Subject Name:
Financial Accounting & Reporting 1
Assessment Title:
Assessment 3
Assessment Type:
Individual Assignment and Video presentation
Word Count:
20 %
Total Marks:

Your Task

  • You are required to prepare a business letter to answer all of the following questions.
  • You are also required to prepare a short video presentation (3 to 5 mins) summarising the key issues you have addressed in your letter.

Assessment Description

Assume that you are a team of graduate accountants working for Hitech Group Ltd, an independent consulting & accounting firm Situated at 111 Avenue, Melbourne, and VIC 3000. The Manager of your firm, Ms. Araneda Jackson has asked you to draft a letter in response to an email received from Mr. Jason Alba, the General Manager of Qantas Airway Ltd, raising accounting issues – see the copy of the email on the next page.

The maximum length for the body of the letter is 1,500 words. You should address all the technical issues/discussion in the letter, followed by a Reference List.

  • Part A: Technical component 10% - 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 5% - This mark covers the generic skills of Letter writing; layout, clear meaning, structure and organisation, appropriate tone and grammar, spelling, and punctuation, etc. throughout the whole assignment.
  • Part C: Communication Skills – Video Presentation 5% - You have to prepare a 3-5 minute video presentation that will keep the audience engaged; the presentation should be well-rehearsed and supplementary material, such as slides and visual aids must be of a professional standard.

Re: Accounting Issues: Year Ending 30 June 2021

From: Jason Alba ([email protected]) Sent: 20 August 2020

To: Araneda Jackson ([email protected])

Dear Araneda,

Thank you for your phone call this morning, as agreed I am emailing you regarding the accounting issues we briefly discussed. By the way to assist the Management team in our decision-making process could you please make sure you reference any relevant sources relating to your advice, for example, AASBs, Corporations Act, and relevant websites?

Here is the background to our problem - Qantas Airways Limited is the flag carrier of Australia and its largest airline by fleet size. Qantas Airways Ltd leases Aircraft from Boeing and Airbus for 20 years at a time. The lease agreement can be cancelled, but a significant penalty will be incurred by Qantas Ltd. The lease payments required 20 payments of equal value at the end of every year up to the twentieth year.

On 20 August 2020, Qantas announced a $2 billion loss, with the coronavirus pandemic slashing its revenue by 21% for the year ended 30 June 2020. This result included a massive $1.4 billion write- down in the value of assets such as its Airbus 380 aircraft fleet.

In the media release announcing the loss, Qantas CEO Alan Joyce was quoted: “COVID will continue to have a huge impact on our business and we're expecting a significant underlying loss in FY [financial year] 21. Yet he remained optimistic about the longer-term prospects for the airline as the pandemic subsides’’, (Qantas Group 2020).

The General Manager of Qantas Airways Ltd is aware of the required disclosures under AASB136 ($1.4 billion write-downs in the value of assets) and therefore asked you to advise him with a summary of the other relevant accounting standards to be applied under the financial reporting framework.

Identify the relevant Australian accounting standards and explain the impact of COVID on Qantas Airways financial reporting for Financial Year 21?

Please respond by letter (not email) as I would like to present this to the Board. I look forward to hearing from you shortly.

Regards Jason Alba

General Manager, Qantas Airways Ltd Level 111, 222 King Street,

Sydney NSW 2000


Re: Accounting Issues: Year Ending 30 June 2021

From: Araneda Jackson ([email protected])

Sent: 25 August 2020

To: Jason Alba ([email protected])

Dear Jason:

With reference to your letter, as agreed I am emailing you the relevant Australian accounting standards and also explain here the required disclosure under the accounting standards in notes of accounts.

AASB 136 Impairment of assets:

AASB 136 is related to the reduction in the book value of assets, at the end of every financial year, it is assessed whether there is any indication or reasons that the assets are required to be impaired. If the indication of impairment of assets exists, then the company is required to forecast the recoverable amount. In case the recovering amount from the assets is calculated as follows (NDAYISABA, 2020). 

The assets’ fair value – the cost of disposal

Value in use, whichever is higher

The recoverable amount of assets are determined on an individual basis if possible, otherwise, the recoverable amount is assessed for cash-generating units to which assets belong. The value in use refers to the PV of forecasted cash inflowthat are estimated to generate from the assets in the following years. The fair value of assets refers to the amount received on the asset’s sale in the orderly transaction between market participants at the date of measurement which is reduced by the cost that is liable to incur for the disposal of that asset such as uninstall cost, advertisement cost, agent commission, etc. In case the book value of assets is more than the recoverable amount then the book value of the asset is reduced to the recoverable amount through the recognition of the impairment loss.

Disclosures under AASB 136:

Qantas Airways Limited is required to make the impairment test on the individual assets as the company is expecting a decrease in the cash flows from the Aircraft due to the COVID-19 pandemic also as per the announcement made by the company as on 20th August 2020 that the company has suffered the loss of $ 2 billion and which results in a massive $ 1.4 billion written-down from the value of non-current assets such as its Aircraft 380 aircraft fleet. 

The loss arises due to the closure of international borders, as the group of Aircraft 380 fleet is expected to decrease in the cash flow for the foreseeable future. The aircraft 380 fleet does not meet the requirements as assets help for sale as they are not available for sale. For the company it is not possible to predicate the cash flows due to the uncertain situation, the company uses the fair value less cost of disposal approach for the calculation of impairment loss.

The company is required to make disclosure of impairment of assets and disclose the impairment loss separately under AASB 136 and the $ 1.4 billion amount should be written-downs in the value of assets (He, Wright, & Evans, 2020).

AASB 16 Lease:

The AASB 16 lease is applicable to the company with effect from 01st July 2019. Leases are recognized naming lease liability along with a corresponding disclosure of the right to use assets as on the date on which the leased assets are available to the company for use. The Australian accounting standard of the lease is applicable to the contracts which provide the right of using the assets to the company for a period of time in exchange for a certain consideration. The lease liability is based on the period of contracts such as short-term leasesand long-term leases such as the short-term lease which is having a period less than 12 months therefore the short-term leases are not recognized as lease liabilities (Bohušová, & Svoboda, 2017).

The leases which have a period of more than 12 months are recognized as lease liabilities as the financial lease based on the present value of lease payments made by the company. The lease contracts include lease components and non-lease components which are required to separate as the lease components are required to disclose as a lease liability and non-lease components are required to disclose as expenses in the consolidated income statement. 

Impact of COVID-19 and disclosure in financial statements:

The international accounting standard board provides relief to the lessee an alternative relief in applying the guidance of AASB 16 as modification accounting for rent concessions as the impact is the direct consequence of COVID-19 if the company meets certain conditions as specified in the amendments. As the practical approach allows the lessee to book and recognize forgiveness or waiver of lease payments lease payment which in nature of variable shown in the income statement and corresponding de-recognition of the part of the lease liability as to the forgiveness or waiver of lease payments (Gray, Liao,  & Strydom, 2018).

In the financial statement, the management is required to make disclosure in the income statement as lease expenses for short-term leases, variable lease expenses which are not included in lease liabilities, and rental waiver as per amendment made in the AASB 16 due to impact of COVID-19. The waiver of rent provided to the lessee is reduced from the lease liabilities as the rent concessions provided to the lessor reduce the liabilities of the company.

AASB 101: Presentation of financial statements:

The companies are required to prepare and present the general-purpose financial statements which are required to prepare in accordance with the Australian accounting standards as adopted by the AASB and the corporation act 2001. The company is required to make a disclosure of going concerned and prepare the financial statement based on this approach. If the company has an issue with going concerned then the company is required to make the disclosure for the same (Su, & Wells, 2018).

Impact of COVID-19 on going-concern approach:

The company has made consolidated financial statements based on the going concern approach as per the media release it is disclosed that COVID will continue to have a huge impact on the business and the company is expecting an underlying loss in the financial year 2021. However, the company is optimistic about the longer-term prospects for the airlines when the impact of COVID-19 subsides. As the company is required to make a disclosure that the company has considered the COVID-19 will not impact the ability of the company to continue as a going concern or to pay the liabilities on time when they become due and payable.

The company also make disclosure of directors' responsibility for assessing the ability of the company to continue as going concerned and assess whether the use of going concern approach for accounting is appropriate along with the disclosure of matter related to going concerned unless there is a possibility or intend to close the company or to discontinue operations and has no other options for the company (Perera, 2016).

AASB 124 Related Party Disclosure:

The related party disclosure refers to the transactions made by the company with the related party such as remuneration to key managerial persons, directors, and transactions with persons related to directors. In this case, the company is required to make disclosure in the financial statements.

Disclosure in the financial statement:

The remuneration report to the KMP such as Chief executive officers, executive directors, and non-executive Directors are required to disclose as per AASB 124. Along with this, the company is a requirement to make disclosure the transactions made by the company with related parties due to the impact of COIVD-19 for gaining certain discounts and benefits are required to disclose in the financial statements. As the following disclosure is made in the financial statements such as (Maisano, 2016).

  • The CEO and executive directors have not taken basic pay for the period of 2020/21
  • The fees are not taken by non-executive directors due to the COVID-19 impact in the year 2020-21.
  • The annual incentives payable to the KMP are not paid during the period.

The other transactions with the related party such as associates are that the Qantas Group as part of the shareholder arrangements co-guarantees the finance lease liability for two Aircraft 320 on the behalf of the associate company i.e. Jetstar Japan. The Qantas Group has provided limited guarantees for supporting the unsecured debt raised by Jetstar Japan for increasing the liquidity in response to COVID-19.

AASB 15 Revenue from contract

The AASB 15 revenue from contract refers to the recognition of revenue income from the contracts and customers. The company has adopted the AASB 15 with effect from 01st July 2018 which is applied to the company retrospectively. Due to the COVID-19 impact, the revenue of the company decreases as the major airline movement and close of the international border movement (Simon, &Macagnan, 2020).

As the company is required to disclose the contracts of financial guarantee as a financial liability at the time when the guarantee is issued. The amount on the financial guarantee contracts the cumulative income are required to disclose as per AASB 15. The company is required to make separate disclosure of the impact of COVID-19 on the revenue income such as revenue income from domestic flights and revenue income from international flights movement.


COVID-19 has a major impact on the company as the major revenue income of the company is related to aircraft movement. The company has taken the aircraft on lease from Boeing and Airbus for 20 years and the company has an impairment loss of $ 1.4 billion as a write-down in the value of assets and loss in the revenue income due to which the company faces huge loss and the management is required to make disclosure as per AASB along with the COVID-19 impact.

I hope the above discussion helps you in the accounting issues arise and disclosing the impact of COVID-19 on financial reporting.


Ms. Araneda Jacson

Manager, Hitech Group Ltd.

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