ACC 203 Financial Accounting For Provision And Contingent Liability

Added on - 28 May 2020

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Financial accounting and reporting 1Name of the studentName of the universityAuthor note
119 January 2018Mr Christopher Sampson718 Geelong Street,Melbourne, VIC 3000Telephone 42 6 3725 January 2018Mr. Christopher SampsonThe managing DirectorBeachlife Ltd.Level 7, 927 William Street,Brisbane QLD 4000Dear ChristopherThank for your prompt response that highlighted the issues currently facing by your companyto prepare the annual report. The issues mainly related to the compliance of variousrequirements and interpretations issued by AASB, IFRS and Corporation Act 2001. As wealways provide you with the best possible solutions, this time also we are assuring you toprovide you with the solutions that will be complied with the AASB and IFRS requirements.The letter will focus on the accounting issues faced by your organization and the possiblesolutions that can help your board to incorporate the treatment in the annual report. On behalfof Magenta and Associates I thank you for believing us and giving us an opportunity to serveyou. The letter will also provide you with the sources and references that will assist you tounderstand the advices associated with the accounting standards.You may know that all the companies registered under Australian Stock Exchange arerequired to follow the accounting standards and interpretations issued by IFRS whilepreparing their financial statements. Beachlife Limited, being a public limited company mustfollow the AASB guidelines and requirements of Corporation Act 2001 while preparing theirfinancial statement. Moreover, the company shall follow the relevant statutes, sections andclauses while treating any item in their financial statement. The issues faced by the company
219 January 2018Mr Christopher Sampsonat present are related to the treatment of brand recognition and the treatment of contingentliability.Suggestions for issue 1 –Intangible assets are those assets which do not have any physical existence, for instance,goodwill, patent rights, brand name, license agreements and trademarks. As the intangibleassets do not have any physical substance and are not dealt in the regular active market, thevaluations of these assets are not very easy. Further, the valuation depends on the factwhether the asset has definite useful life or indefinite useful life. In accordance with Para 63of IAS 38 and interpretation of IFRS the internally generated assets are not recognised in thebalance sheet of the company under the head of asset. Likewise the brand is considered as theintangible assets. As the brand helps the customers to recognize the product and generatetheir expectations, the valuation of brand cannot be done with any valuation method. Further,various issues created while measuring and valuing the brand. The value of the intangibleasset like brand cannot be measured exactly until it is sold. Here in the given case, thedirectors want to recognize $ 800,000 for the brand ‘Sun n Surf Shirts’, however, at the timeof selling they may get only $ 500,000 or $ 600,000,As per the accounting standard AASB – 138 on recognition of the intangible asset, if theasset’s cost is reliably measured and it is quite possible that the future benefit of the asset willaccrue to the company then only it can be recognized. As the brand ‘Sun n Surf Shirts has nodefinite useful life and the value cannot be measured reliably until it is sold, it cannot berecognized as asset under the financial statement.Suggestions for issue 2 –We would like you to know that the Financial Accounting Standards Board (FASB) and theInternational Accounting Standards Board (IFRS) have led to the issuance of the newstandard in relation to revenue that is IFRS 15. IFRS 15 essentially relates to the revenuefrom contracts with the customers that supersede all the requirements pertaining to therecognition of revenue standards that have been stated by IFRS and GAAP. This particularstandard reflects the principles that a corporate entity has to apply for the purpose ofmeasuring and recognizing the revenue and the inflows and outflows of cash associated withit. The sales agreement amount should be recorded by adhering to the IFRS 15 standards.This should be excited by following the five steps that have been listed down below:Identification of the contract with the customerIdentification of the performance related obligations of the contractDetermining the effective transaction priceAllocating the transaction price to the performance obligation of the contract
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