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ACC 203 Financial Accounting For Provision And Contingent Liability (doc)

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Introduction to Financial Accounting (ACC 203)

   

Added on  2020-05-28

ACC 203 Financial Accounting For Provision And Contingent Liability (doc)

   

Introduction to Financial Accounting (ACC 203)

   Added on 2020-05-28

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718 Geelong Street, Melbourne, VIC 3000 Telephone 28 2 6295 7010 www.magentaandassociates.com.au16 January 2018Mr. Christopher SampsonThe managing DirectorBeachlife Ltd.Level 7, 927 William Street,Brisbane QLD 4000Dear ChristopherI would like to thank you for your prompt response through e-mail. As we always provided you with the best possible solutions, this time also we will assist you in making the decisions regarding the raised issues. We further assure you that the solutions will be complied with theCorporation Act, IFRS and AASB.Yu may be aware of the fact that the intangible assets are not physical by nature. Some of the examples of intangible assets are trademarks, patents, business methodologies, brand recognition and goodwill. The intangible assets can have definite period of life or indefinite period of life. As the procedure for intangible asset valuation like brand recognition valuationis not easy, it requires definite and solid methodology for the purpose of valuation. Further, incase of internally generated intangible asset the asset is not recognized until it is sold. As per Para 63 of IAS 38 and International Financial Reporting Standards (IFRS) brand recognition is the ability of the consumers to identify the brand from distinctive logo or artistic symbol. Italso raise the customer’s expectation with regard to the product quality and assist the company to accumulate the company’s attributes and and can campaign for the product
ACC 203 Financial Accounting For Provision And Contingent Liability (doc)_1
216 January 2018Mr Christopher Sampsonaccordingly. As the intangible asset like brand are not dealt in regular market, various issues generated for valuing the brand. It is further identified that the amount paid as the brand valueare generally less as compared to the actual worth of the brand. For example, in the stated issue though the directors want to recognize $ 800,000 with respect to the ‘Sun n Surf Shirts’ brand, at the time of selling the brand they may get offer for only $ 600,000. For recognizing the internally generated asset like brand, three options are there through which the brand can be recognized in the financial statement in accordance with the efficiencies, effectiveness, integrity and objectivity. As per the options the brand that is externally acquired shall be accounted as goodwill under the financial statement of purchasing company. In accordance with AASB 138 on Recognition of intangible assets, the intangible asset can only be recognized when its value can be measured reliably and the future economic attributes are expected to be attributed to the company. In the given issue stated by you, as ‘Sun n Surf Shirts’ brand’s value reliably cannot be measured and the brand has no definite useful life, it cannot be recognised in the company’s financial asset. However,it can be disclosed through notes to financial statements. Regarding the 2nd issue we would like to state that AASB 118 – Revenue, revenue shall be recognized while it is probable that the upcoming economic benefits will be the inflow for company and the benefits can be reliably measured. Further, the revenue shall be recognized from the below mentioned events and transactions –Rendering of the servicesSale of the goodsUsing of company’s dividends, royalties and interest yielding assets by others.Further, as per the AASB 137 – Provisions, contingent liabilities and contingent assets, the provision is the amount kept aside by the company for meeting the future obligation. Main purpose of the provision is to adjust the current year balance and make it appropriate. Provisions are recorded as current liability under the balance sheet and under the income statement as expense. For creating the provision the obligation shall be probable and it must be at the future date with regard to the date of balance sheet and the obligation shall be legal or constructive obligation. on the other hand the contingent liability is the expected liability
ACC 203 Financial Accounting For Provision And Contingent Liability (doc)_2

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