The Five Types of Accounts in Accounting

Running head: ACCOUNTING AND FINANCIAL REPORTING
Accounting and Financial Reporting
Name of the Student
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ACCOUNTING AND FINANCIAL REPORTING
Executive Summary
The following report contains an analysis of the selected aspects of AASB 136, AASB 137 and
AASB 138. It begins with an introduction stating the purpose of the Accounting Standards issued
by AASB. After which analysis is conducted on the impairment of assets of Qantas, recognition
of intangible assets and the accounting for contingent liabilities. It ends with a list of
recommendations which should be follows by the entities in applying the AASB standards as a
part of their business.

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Table of Contents
Introduction..................................................................................................................................1
Impairment of Assets of Qantas...................................................................................................1
Application of AASB 138............................................................................................................2
AASB 137 and Tres Ltd...............................................................................................................2
Recommendations........................................................................................................................2
References....................................................................................................................................4

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Introduction
The Australian Accounting Standards Board (AASB) is the governing body of financial
reporting in Australia. It issues various accounting standards to ensure that the financial reports
prepared by Australian entities are in line with the globally followed accounting standards. Some
of the most prominent accounting standards which tend to be used by a majority of the entities
are AASB 136, 137 and 138. They deal with some of the important aspects related to the
businesses like impairment of assets, recognition of intangible assets and the accounting for
provisions and contingent liabilities in the financial statements.
Impairment of Assets of Qantas
The guidelines of AASB 136 deal with the impairment of assets in an entity. According
to the paragraphs 12-14 of this standard, there are a few indications which suggest that an
impairment loss may have occurred in an entity. They include the external sources of
information and the internal sources of information. The external sources include the observable
indications which suggest a decline in the value of the asset over a period of time
(Legislation.gov.au. 2020). Significant changes which have an adverse impact on the entity and a
reduction in the carrying amount of assets is also a reason for the impairment of the assets. The
internal sources include the physical damage caused to an asset and the evidence about a
reduction in the performance of the asset through internal reporting. The main purpose of
charging impairment loss is to ensure that the assets are not carried at a higher value than their
actual worth. This ensures the accuracy of the financial reporting in the future periods and also
improves the reliability of the results. As the assets employed by the entity are highly efficient, it
will ultimately result in the improvement in the profit earned by the entity directly from its
operations. The annual reports of Qantas suggests that the Underlying PBT of Qantas for the
Financial Year 2015-16 was $1532 million (Qantas.com.au. 2020). Hence, it can be said that the
optimism of Alan Joyce was justified.
Application of AASB 138
The main purpose of AASB 138 is to prescribe the accounting treatment for intangible
assets which are not covered by any other accounting standard. It suggests that an intangible
asset should be recognised under this standard only if the criteria are met. The paragraph 63 of
AASB 138 suggests a list of items which cannot be recognised as an intangible asset. These
include internally generated brands, publishing titles, customer lists and items which are similar
in nature. Similarly, the AASB also explains the manner in which the amortisation of an item
like a customer list should take place (Aasb.gov.au. 2020). The amortisation of an item like a
customer list should take place on the basis of the initial expected useful life of the asset. There
may be further improvements to the asset like a new customer list which tends to add to the
existing customers. Even in those circumstances, the expected benefits should be limited to the
date on which the initial asset was expected. In the case of Mags, the customer list obtained by
the entity cannot be considered to be an intangible asset as it is an internally generated asset and
the estimates used by the entity in its valuation are not reliable. Similarly, the accounting policies
of increasing the useful life is also not justified under the provisions of AASB 138. Hence, the
accounting policies of Mags are not justified and should not be reported as non-current assets.
AASB 137 and Tres Ltd.
The objective of AASB 137 is to ensure that the recognition criteria followed in the
measurement of provisions and contingent assets and liabilities should be appropriate and the
information disclosed in the notes to accounts is sufficient to understand the information

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underlying the provisions. According to paragraph 27 of AASB 137, no entity should recognise a
contingent liability as a part of its financial statements (Aasb.gov.au 2020). However, a
contingent liability should not be recognised only when an entity is certain that the possible
outflow of economic resources due to the contingent liability is remote. It is acknowledged that
the development of contingent liabilities may not take place in the manner in which they were
initially expected to turn out. Hence, they should be constantly monitored by the people
responsible for the preparation of the financial statements. If the outflow of the resources for an
item previously recognised as a contingent liability becomes certain, then the entity should
recognise the same as a provision and state about it in the financial statements.
Recommendations and Conclusion
On the basis of the above discussion, there are a few recommendations which can be
made. One of them is that the impairment of the assets should be done in a timely manner to
ensure the true and fair representation of information in the financial statements. Like in the case
of Qantas, impairment losses written off can result in the betterment of the underlying
performance in the future periods. Similarly, internally generated items like customer lists which
are used by a business in conducting its daily activities should not be recognised as an intangible
asset. Any additions made to items like consumer lists should not change the useful life of the
asset. Any contingent liability should be stated under the same head in the financial statements of
the entity. A provision should be created only when it becomes certain that the contingent
liability will involve the outflow of resources. On an overall basis, it can be stated that the
accounting standards issued by AASB serve the purpose of ensuring a true and fair
representation of the financial statements. However, some of the aspects like the creation of
provisions for contingent liabilities are still not very clear and need to be worked upon
significantly to provide better results to the users of financial statements and the entities.

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References
Aasb.gov.au. (2020). [Online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB138_08-15_COMPoct15_01-18.pdf
[Accessed 23 Jan. 2020].
Aasb.gov.au. (2020). [Online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB137_07-04_COMPjun14_04-14.pdf
[Accessed 23 Jan. 2020].
Legislation.gov.au. (2020). AASB 136 - Impairment of Assets - August 2015. [Online] Available
at: https://www.legislation.gov.au/Details/F2017C00297/Download [Accessed 23 Jan. 2020].
Qantas.com.au. (2020). [Online] Available at:
https://www.qantas.com.au/infodetail/about/corporateGovernance/2016AnnualReport.pdf
[Accessed 23 Jan. 2020].