Importance of Accounting Standards and Their Application in Financial Statements

The report deals with the importance of the accounting standard and shows how the company should able to record the same in the financial statement of the company. It also shows the accounting standard of intangible asset, contingent liability and impairment of intangible asset. It also show how the company should deal with the case of the Lawsuit which was been filled upon the Delta Ltd.

Running head: Financial Accounting
Financial Accounting
Name of the Student
Name of the University
Author Note

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Financial Accounting
Executive Summary
The report deals with the importance of the accounting standard and shows how the company
should able to record the same in the financial statement of the company. It also shows the
accounting standard of intangible asset, contingent liability and impairment of intangible
asset. It also show how the company should deal with the case of the Lawsuit which was been
filled upon the Delta Ltd.

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Table of Contents
Introduction................................................................................................................................3
Question 1:.................................................................................................................................3
1A – AASB 137 – Contingent Liabilities..............................................................................3
1B – Lawsuit against Delta Ltd..............................................................................................3
Question 2:.................................................................................................................................4
2A – AASB 138 & AASB 136..............................................................................................4
2B Difference in AASB 138 and AASB 136 in regards of the accounting treatment...........4
2C Companies view point on AASB 138..............................................................................5
Conclusion..................................................................................................................................5
References..................................................................................................................................6

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Introduction
The company should follow the entire accounting standard so that it will able to flow
their business operation very smoothly and effectively. Accounting standard show all the
guidelines which the company should follow while preparing their financial statement. It help
the company to each type of details which the company have to know while preparing the
financial statement of the company (Hoyle, Schaefer and Doupnik 2015). The report is based
upon the accounting standard and show it should be followed by the company. It consists of
AASB 137, AASB 136 and AASB 138. The first of the report show the standard related to
contingent liability and also provide necessary details about the Delta lawsuit. The remaining
part of the report will take into consideration of the accounting related to intangible and
impairment of assets. It also show other aspects of both standard from view point of the
company.
Question 1:
1A – AASB 137 – Contingent Liabilities
As per the standard it state that the contingent liabilities are the items which are not
recorded in the balance sheet of the company but only necessary disclosure should be given
the company in their annual report (Krahel and Titera 2015). The standard contain a
paragraph which state that an company can able to record an obligation as contingent
liabilities as only when is indication of the obligation from any uncertain future event and it is
been sure that the company will have to pay the amount than only it will able to record such
obligation as an disclosure in the annual report of the company (Aasb.gov.au 2019).
1B – Lawsuit against Delta Ltd
As per the given case study of the Delta Ltd, it can be seen that the customer have
filled a lawsuit against the company in December 2018 in regard of the failure of the
company product. It is seen that the company is confident that they will able to win the case
but as per the lawyer it state that if they lose the case than an obligation of $50000 should be
paid by them to the customers. As per AASB 137 in paragraph 86 it contain that the company
should record the obligation as only when they able to see that they have to pay the obligation
but as per the case there is little chance that the company is not available to defend the case
so it should not record the same in the notes on account. The conclusion is given as the
company will able to succeed in the case so it should not record any amount in the annual
report of the company (Aasb.gov.au 2019).
Question 2:
2A – AASB 138 & AASB 136
AASB 138 is related to the accounting intangible asset as it state that the company is
not able to record the internally generated intangible asset as it not able to show the
expenditure which is been incurred upon the intangible asset (Marton and Runesson 2017).
The company should value the intangible asset in cost in the initial stage of the asset. As per
AASB 136 it contain a paragraph 10(a) which state that the company should analysis the
value of intangible asset by comparing the carrying amount with recoverable amount
(Aasb.gov.au 2019).
2B Difference in AASB 138 and AASB 136 in regards of the accounting treatment
It can be said that the company is easily able to record the value of acquired intangible
asset compare to the value of internally generated intangible asset. As per the standard the
intangible asset which is been acquired by the company is value cost or fair value from the
business combinations (Oulasvirta 2014). If the company acquired asset in the process of

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business combination than it should use fair value to know the cost of the intangible asset. So
as per the paragraph 63 in AASB 138 so it show all the realisation of the intangible asset and
after the completing of the realisation all the treatment in regards of the intangible asset are
similar to each other (Aasb.gov.au 2019).
2C Companies view point on AASB 138
The reason of the reluctant to do the alteration on the accounting standard AASB 138
in regards of internally occur intangible asset recognition which is been discussed below:
Preference of managers in regard of inflated profits:
The revenue and earning which is been obtained by the acquisitions in regards of the
expense items in related to the intangible asset amortisation. It will also affect the ratio of teh
company return on equity and return on asset which will be better in future it the write off the
same is been done in the current period rather than the upcoming future period.
Cost and benefits:
It is been seen that the company should able to record the expenses which are related
to intangible asset so it should can record expenses like running of the procedure, gauging
fair value and the cost of payment in regards of the auditor for the reviewing the measure
related to the company (Teixeira 2014).
Conclusion
The report shows about the importance of accounting standard and how it helps the
company to prepare the financial statement of the company. It provides the details how the
company should record the transaction and also how the disclosure should be made in the
company annual report. As per the above discussion it is been conclude about the different
accounting standard and how it help the company to do the valuation of the account. It also
state about the lawsuit which is filled against the company delta Ltd and how it should deal
with the disclosure of the same in the annual report of the company. Lastly it show the
loopholes which are there in AASB 138 and also gave explanation of the same.

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References
Aasb.gov.au., 2019. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB137_07-04_COMPjun14_04-14.pdf
[Accessed 26 May 2019].
Aasb.gov.au., 2019. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB138_08-15_COMPoct15_01-18.pdf
[Accessed 26 May 2019].
Aasb.gov.au., 2019. [online] Available at:
https://www.aasb.gov.au/admin/file/content102/c3/AASB136_07-04_ERDRjun10_07-09.pdf
[Accessed 26 May 2019].
Hoyle, J.B., Schaefer, T. and Doupnik, T., 2015. Advanced accounting. McGraw Hill.
Krahel, J.P. and Titera, W.R., 2015. Consequences of Big Data and formalization on
accounting and auditing standards. Accounting Horizons, 29(2), pp.409-422.
Marton, J. and Runesson, E., 2017. The predictive ability of loan loss provisions in banks–
Effects of accounting standards, enforcement and incentives. The British Accounting
Review, 49(2), pp.162-180.
Oulasvirta, L., 2014. The reluctance of a developed country to choose International Public
Sector Accounting Standards of the IFAC. A critical case study. Critical Perspectives on
Accounting, 25(3), pp.272-285.
Teixeira, A., 2014. The international accounting standards board and evidence-informed
standard-setting. Accounting in Europe, 11(1), pp.5-12.