Accounting and Financial Reporting

Running Head: Accounting and Financial Reporting
Accounting and Financial Reporting

Accounting and Financial Reporting
Contents
Executive Summary...............................................................................................................................2
Contingent Liabilities.............................................................................................................................2
Disclosure of accounting implications of the lawsuits by Delta Ltd. in its financial statements............2
Internally Generated Intangible Assets.................................................................................................2
Impairment of Intangible Assets............................................................................................................3
Internally generated intangible assets and acquired intangible assets.................................................3
Companies’ reluctance to press for changes in AASB 138.....................................................................3
Conclusion.............................................................................................................................................3
References.............................................................................................................................................5
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Accounting and Financial Reporting
Executive Summary
This report provides the method of accounting contingent liability, internally generated intangible
assets and impairment of intangible assets as per AASB 137, AASB 138 and AASB 136 respectively. It
also states the dissimilarity between the internally generated intangible asset and acquired
intangible asset. The method of disclosing accounting implication of a lawsuit under AASB 137 is also
sighted. Apart from this, the difference between the accounting of internally generated intangible
asset and acquired intangible asset is also evaluated. Finally, the possible reasons behind the
companies’ reluctance to press for changes in AASB138 are stated.
Contingent Liabilities
1. Disclosure of contingent liability is made only when the likelihood of resources representing
economic benefits is far away
2. That part of obligations where the outflow of funds representing economic benefits is possible
the entity identifies a provision except in the case where reliable evaluations cannot be
constructed
3. The provision is identified in the financial statements of the same time period in which an
outflow representing future monetary benefits is required for an element earlier considered as
a contingent liability.
4. Each entity must unveil the facts like nature of contingent liability, estimate showing the
financial effect of contingent liability, uncertainties linked with outflow amount or timing of
outflow and the probability of settlement if any.
Disclosure of accounting implications of the lawsuits by Delta Ltd. in its financial statements
A customer filed a lawsuit against Delta Ltd in December 2018. The lawsuit was for costs and
damages allegedly incurred as a result of the failure of one of Delta Ltd.’s electrical products. The
amount claimed was $3million. Delta Ltd.’s lawyers have advised that the amount claimed by the
customer is extortionate and Delta has a good chance of winning the case. However, the lawyers
have also advised that if Delta Ltd loses the case it is expected that costs and damages awarded
would be $500000.
At 31 December 2018
Present obligation as a result of a past obligating event – the obligating event is the costs and
damages arising because of the delta’s product failure, which is giving birth to a legal obligation.
An outflow of resources embodying economic benefits in settlement – It might be possible that an
outflow of $500000 will be required for the settlement of the obligation.
Conclusion – – Provision is recognised in order to meet the probable costs and damages for the
settlement of obligation (AASB 137, 2014).
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