Financial Accounting Case Studies

This assignment presents two case studies related to financial accounting. The first case involves a company acquiring an asset at a cost of $800,000. The second case explores a sales contract with Goodsports Ltd., where Beachlife Ltd. delivered equipment, incurred maintenance costs, and faced a refund due to unsatisfactory service. Students must analyze these cases and provide solutions related to recording sales, recognizing expenses, and classifying contingent liabilities in financial statements.

Running head: FINANCIAL ACCOUNTING
Financial accounting
Name of the student:
Name of the university:
Author note

1FINANCIAL ACCOUNTING
718 Geelong Street,
MELBOURNE, VIC 3000
Telephone [phone]
www.magentaandassociates.com.au
15th January 2018
Mr. Christopher Sampson
The Managing Director
Beachlife Ltd.
Level 7, 927 William Street,
Brisbane QLD 4000
Dear Christopher,
It is a great delight for us to get the feedback from you and we convey our thankful wish
to you in return of your email that you have sent us. We cannot express our happiness in words
when we saw that you have reached to us and we can guarantee you with the best solutions
available to you so that you can be able to take decision in a better manner. As always, we will
help you to take the proper decision in making the best solutions for the problems persisting in
accounting in addition to the issues that you have described within the body of the previous mail.
You will get help in the recommendation part that will be presented to you as per the
Corporation Act 2001, AASB and the elucidation will also be in context of the accounting issues
that exist in IFRS.
I hope you are attentive of the fact that the contingent liabilities are those that have the
probability of losses which can come up in the future days. The reason behind these upcoming
losses are considered to be either the non- occurrence or occurrence of a particular event. On the
other hand the reason can also be the outcome of a definite event or others as well. There are
several instances that can be taken into consideration in these cases of contingent liabilities such
as the exploration about the failure of the organization which might not be clearly completed yet
and the claim comes that although it is legal in its characteristics but the warranties that exist in
the each and every products are procured by the customers in the end (Macve 2015). The
liabilities which are known to be contingent require to be displayed in the financial statement of
accounting of the company along with the potential amount that has been already estimated by

2FINANCIAL ACCOUNTING
the company. It will help in tracking and keeping a proper record in the annual sheet of the
company. The approximate amount of the company will be helpful in preventing the probable
loss of the company that can arise in the coming days because a specific amount has been kept
separately by the company alongside. That is why it is recommended that contingent liabilities
should always be used for the betterment of the company.
As per Para 29, it can be found out that altogether the liabilities of the company are so
that they have to take care of the responsibilities in such a way that it can be flashed under the
broad banner of contingent liability (Pratt 2016). The prime factor here is that the company
should develop these liabilities from the root because there is no possibility that it will take place
later in the financial year. Henceforth, the explanation related to these liabilities has to be
consistent and continuous which will control the outflow of the resources and this will also bear
the advantage of strengthening the economy of the company. On the other hand it can be said
that the provision or benefit that is available inside the company has to be clearly determined due
to the fact of the current and legit responsibilities which might turn out from the previous events
of the history. Also the assumption can be made in an appropriate way so that the proper worth
of money can be kept separately for it. The primary motive behind the benefit provided to the
company is that it needs to be regulated with the amount or balance of the ongoing financial
year. This will help in getting the cost back that was allocated for a fixed year and the level of
finances that was approximately thought of can be calculated within that specific time period
(Barth 2015).
This is the reason why the provision that is used in the company is not a direct version of
saving, which might look like one in the first place. In general it can be determined that the
amount comes in direct form under the balance sheet which further comes under the banner of
income statement and thus it needs to be placed in the bucket of expenses. Also it can be stated
that the key distinction in between the contingent liabilities and the provision is that the latter one
is taken up in form of the financial statements whereas the former one which is also termed as
contingent can be used under the banner of liabilities. This, in turn, is kept a record in the form of
a note inside the financial statements of the company. In addition to that if there is high rate of
potential liability whereas it is estimated to be around 60 percent to 90 percent then it is
absolutely mandatory to be shown under the banner of provision inside the financial statements
which was used for the company. But it can be contradicted by saying that if it is seen that the
rate of liability has exceeded five percent but still has not reached sixty percent then it should be
kept in record in the form of a note within the financial statement of the company but if the
percentage still falls less than five percent then the company will not be able to decide on any
kind of action about it.
Hence in accordance with the AASB 137 in the Provisions, Contingent Liabilities and
Contingent Assets, the main issue has been explained well in the mail that has been sent
(Henderson et al. 2015). We can help you by providing suggestions that the intangible assets
should also exist in the current balance sheet which will be effective in carrying the requisite

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paying back and that is why the identity will also be created. In this particular case, it can be
observed that the company has an asset of amount $800,000 which was of the time period 30th
June, 2018 and it was also recognized according to the assessment formed by the directors. This
helps in deriving a conclusion of this case that the particular company needs to make
amendments in its policies as per the present occurrence such that accounting will be identified
in terms of the cost which had taken a good shape on the basis of the company’s internal
environment. In addition to that it can also be said that the intangible assets kept for the company
should have a compulsory life in order to help in the purpose of paying off within the particular
time period when it was used. This also needs to be kept in track and a record should be
maintained in the form of a note within the financial statements. That is how the amount can be
taken care of with the intention of paying off or amortization and the report has to be made
keeping in mind the cost of $800,000 which can be later utilized with the remaining value of the
assets of the company.
In considering the second case it can be seen that the company Beachlife Ltd. has gone
for a sales contract with the Goodsports Ltd. on 1st December 2017 with an amount of $90,000
where the payment was done on the 30th of December, 2017. Despite the fact, the equipments
were delivered by the company on 10th December 2017. As per the contract of the Sales
department the Goodsports Ltd. Made way for the factors that will be required to keep the
expenses for the maintenance of the equipment in the first year after the procurement was
already done by the company regarding the product that they manufacture. There was a fixed
cost kept aside for the maintenance of the company which is $7500. On the contrary, Goodsports
Ltd. was not at all glad with the service and the maintenance of the equipment that was provided
to them by the company and that is the reason why they had to make a refund of an amount of
fifteen percent on the total price that were paid by them which makes it a total of $90000 * 15
percent that makes it $13500. Hence, it can be said that the present scene of Beachlife Ltd. they
have to display an amount of $90000 which was recorded as sales under the banner of income
for the purpose of selling the equipments ad they have received the money within the year which
was 30th December 2017. In addition to that the amount that was kept for maintenance that is
$7500 should be placed under the banner of contingent liability within the balance sheet of the
financial statement and also in the statement of income. There is a necessity to keep a record of
the same similarly under the banner of provision for the approximate amount. Moreover, the
amount of $13500 must be shown in the form of notes inside the financial statement of the
company clearly under the banner of contingent liability as this similar kind of liability are not
possible in their characteristic (Warren 2016).
If you come across any kind of doubt about the suggestions that we have provided to you
then do not hesitate to contact us in the given phone number or mail us regarding the issue at any
time.

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Yours sincerely
Ms. Lisa Magenta
Manager
Magenta and Associates
Copy: Emily Thompson
Enc: Letter writing handout

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Reference
Barth, M.E., 2015. Financial accounting research, practice, and financial
accountability. Abacus, 51(4), pp.499-510.
Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial
accounting. Pearson Higher Education AU.
Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision,
Tool, Or Threat?. Routledge.
Pratt, J., 2016. Financial accounting in an economic context. John Wiley & Sons.
Warren, C.M., 2016. The impact of International Accounting Standards Board
(IASB)/International Financial Reporting Standard 16 (IFRS 16). Property Management, 34(3).