Advanced Corporate Accounting-business letter

Background Information

You are a CPA working for an accounting firm called AccPlus. One of your clients is Cairns Ltd. James Manning is the Managing Director of Cairns Ltd. He often contacts you for assistance regarding various accounting issues. Recently he has expressed some concerns over a number of current issues as shown in the memorandum below and he is seeking your professional accounting advice.

To: AccPlus
From: James Manning
Manager Director—Cairns Ltd
133 Smith Street, Notsureville, NSW, 2555
Date: 6 April, 2014
Re: Accounting Issues

1. Cairns Ltd has recently purchased land to be used as corporate headquarters. However,I am unsure whether the following items should be capitalised into the cost of the
land. Please indicate whether or not they should be capitalized. If they should not,
please explain how to account for these costs.
a. Costs incurred to demolish a small factory located on the land when it was
b. A substantial amount of rock blasting and removal of soil had to be completed
prior to the construction of the foundations of the building.
c. Because the office building was set back from the public road, a paved road
that led from the public highway to the entrance to the office building was

2. Cairns Ltd has received 1,000 shares in Geraldton Ltd, trading at $4 each, as a gift
from a grateful client. Could you please explain the principles of how to account for
these shares by reference to the Conceptual Framework?

3. Cairns Ltd has recently bought a café with a panoramic view of the coast from its
windows and we are convinced that this panoramic view attracts customers to our
café. According to the Conceptual Framework, is it permissible to recognise this view
as an asset?

As your advice will be submitted to the company’s board, I would like to see appropriate
references to support your advice.
Kind Regards
James Manning


Write a business letter giving advice to James Manning, providing clear answers and explanations to each of the three accounting issues he raises in the memorandum.

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