Applying AASB 137 to Warranty and Long Service Leave Expenses

The assignment discusses the application of Australian Accounting Standards Board (AASB) 137 to Bartlett Limited, a company listed on the Australian Stock Exchange. It examines the recognition of warranty expenses and long service leave expenses as contingent liabilities, following the framework provided by AASB 137. The conclusion highlights the importance of classifying assets and liabilities in accordance with professional body guidelines.

Conceptual Framework and
Issue of Shares by instalments
Contents

INTRODUCTION...........................................................................................................................3
Application of principle of AASB 137 to recognition of warranty expenditures and long
service leave expenses for company............................................................................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................4

INTRODUCTION
Business is required to classify expenses and assets in accordance to their nature. Present
report deals with Bartlett Limited listed on Australian Stock Exchange is facing problem to
classify expenses in terms of contingent liabilities. Thus, AASB 137 has been used to disclose
and effectively classify various expenditures.
Application of principle of AASB 137 to recognition of warranty expenditures and long service
leave expenses for company
The AASB (Australian Accounting Standards Board) provides framework for recording
assets and liabilities in the financial statements of the company. It guides firm to ensure that
recognition criteria of assets and liabilities and relevant information should be accompanied in
financials to impart information to users of financial information. Bartlett Limited which is listed
on Australian Stock Exchange and is facing problems regarding the recognition of warranty
expenses and long service leave expenditures in terms of employees (Pawsey, Ananda and
Hoque, 2018).
In relation to this, AASB 137 is effective to provide clarity to company to recognize
contingent liabilities and contingent assets in the best possible manner. It can be said that
warranty expenses should be recognized as contingent liabilities as it may occur in the future. As
per AASB 137, this type of liabilities which is an obligation that arises when company sell goods
to customers and as such, occurrence or non-occurrence will be based on uncertain events of
future. This implies that warranty expenses should be assessed only when it is realized. As per
the norms of ASSB 137, recognition shall not be made of contingent liability when there is
surety that nothing will occur in future because of past events. Warranty expenses are those costs
which Bartlett Limited expects to incur for repair and replacement of commodities being sold to
customers.
The matching concept also reflects that firm should match revenue with expenditures
made. Thus, Bartlett Limited should stop recognizing warranty expenses before they are actually
incurred. On the other hand, long service leave is termed as qualifying criteria of providing ten
years of continuous service by an employee for organization (Compiled AASB Standard 137.
2014). As per AASB 137, these expenses are required to be disclosed in financial statement such
as income statement as employees who meet this criteria shall be provided long leave on the

basis of continuous services imparted to organization. Thus, this expense are required to be
classified and disclosed in income statement as it may occur in the future course of action. Thus,
Bartlett Limited is required to follow the framework provided by the professional body and
disclose warranty expenses only when costs are actually incurred. On the other hand, long
service leave expenditures should be accompanied in financials as contingent liabilities.
CONCLUSION
Hereby it can be concluded that organization should classify assets and liabilities as per
the framework imparted by professional body. The warranty expenses are likely to be occur or
not depends whether product sold is defective or not. Moreover, long service leave expenses
should be disclose as contingent liabilities in the financial statement.

REFERENCES
Books and Journals
Pawsey, N., Ananda, J. and Hoque, Z., 2018. Rationality, accounting and benchmarking water
businesses: An analysis of measurement challenges. International Journal of Public Sector
Management. 31(3). pp.290-315.
Online
Compiled AASB Standard 137. 2014 [PDF] Available Through: <
http://www.aasb.gov.au/admin/file/content105/c9/AASB137_07-04_COMPjun14_04-14.pdf >