Accounting Treatment of Goodwill and Contingent Liability

This article discusses the accounting treatment of goodwill and contingent liability under AASB, IFRS and Corporation Act 2001. It also provides expert suggestions from McKenzie and Associates. The article covers the definition of goodwill, its importance, and recognition criteria. It also explains the concept of contingent liability, its recognition criteria, and disclosure requirements. The article is relevant for students studying advanced accounting and professionals seeking expert advice on accounting treatment.

668 George Street,
Melbourne, VIC 3000
Telephone [phone]
www.mckenzieandassociate.com.au
8 September 2018
Mr. Con Pewter
The managing Director
Pewter Ltd.
Level 6, 510 King William Street,
Adelaide SA 5000
Dear Pewter
Thank you for the reply you have sent through e-mail. As we have long relationship and the
company always delighted you with the required solution, we would like to assure you that
like previous issues this time also the company will suggest you the best possible solution.
Further, we would like to ensure you that the suggestions will be complied with the
requirement of AASB, IFRS and Corporation Act 2001.
Goodwill of the business is major intangible asset that indicates the part of business value
that is not attributable towards other assets of the business. To be more specific, it states the
synergy between various assets used by business for producing income. Goodwill improves
the company’s value through improving the products, reputation, customer base and brand
value. However, improving the future economic benefit is regarded as one of the main feature
for goodwill. As per the given scenario, the company’s action with regard to Steve Irwin’s
efforts will improve the image of the company regarding environmental responsibility.
Hence, the company can expect that this action will improve their customer base. However,
as the goodwill created will be regarded as internally generated goodwill that is though the
expenses incurred, it does not meet the recognition criteria for intangible asset as the
generation source is not available. Therefore, the goodwill will not be recognized under
financial statement.

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8 September 2018
Mr Con Pewter
Contingent liability is prospective liability that may happen on the basis of concluding of any
indecisive event. Under the financial statement the contingent liability is recognized if it is
probable that the contingency will take place and the amount of the obligation can be
estimated reliably. As per AASB 137 contingent liability must be disclosed under the notes to
financial statement unless the probability of economic outflow is negligible. Under the given
scenario, guarantee offered by Pewter Limited regarding damage must be disclosed under the
notes to financial statement. Moreover, if the damage actually takes place and the company
requires making any payment, the same shall be recognized under the profit and loss
statement as expenses.
If you have any doubts or query with regard to the accounting treatment of the issues
mentioned by you and the suggestion provided, please contact us through our official contact
number or main address.
Yours sincerely
Ms. Maria McKenzie
Manager
McKenzie and Associates
Copy Johnson Hogwart
Enc Letter Writing Handout

3
8 September 2018
Mr Con Pewter
Bibliography
Aasb.gov.au., 2018. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB138_07-04_COMPjun14_07-14.pdf
[Accessed 8 Sep. 2018].
Beams, F. A., Brozovsky, J. A., & Shoulders, C. D., 2017. Advanced accounting. Pearson.
Goodwin, J., Atilgan, Y., Simsir, S.A. and Ahmed, K., 2016. Investor reaction to accounting
misstatements under IFRS: Australian evidence.
Sinclair, R.N. and Keller, K.L., 2014. A case for brands as assets: Acquired and internally
developed. Journal of Brand Management, 21(4), pp.286-302.