Six to Eight Customer Refunds and Warrants

The assignment content discusses the measurement and recognition of provisions, specifically for decommissioning a chemical manufacturing plant. The most likely amount to be measured is the estimated cost of decommissioning, which is calculated using a discounted present value method. The provision is recognized when there is a present obligation resulting from past events, with a reliable estimate of the amount required to settle the obligation. Additionally, the assignment touches on intangible assets, specifically computer software packages, and discusses the recognition criteria for these types of assets.

Running head: INTERMEDIATE FINANCIAL ACCOUNTING
Intermediate financial accounting
Name of the University
Name of the student
Authors note

1INTERMEDIATE FINANCIAL ACCOUNTING
Table of Contents
Answer to Question 1:..............................................................................................................2
Requirement a:.....................................................................................................................2
Requirement b:.................................................................................................................... 3
Answer to Question 2:..........................................................................................................5
Requirement a:.....................................................................................................................5
Requirement b:.................................................................................................................... 5
Requirement c:.....................................................................................................................8
Answer to Question 3:..............................................................................................................8
Requirement a:.....................................................................................................................8
Requirement b:.................................................................................................................... 9
Reference:.............................................................................................................................. 11

2INTERMEDIATE FINANCIAL ACCOUNTING
Answer to Question 1:
Requirement a:
Entities or organizations do not have any voluntary change in accounting policies if it
applied Australian accounting standard at an early basis. In accordance with paragraph of
AASB 108, management of an organization can apply accounting policies from the recent
pronouncement of other standard setting bodies. This is applied in the absence of an
Australian accounting standard that is applicable to a specific certain event, transactions and
conditions. Standard setting bodies that is making recent pronouncements should have
similar conceptual framework for developing accounting standards. If the entities are
choosing an accounting policy following pronouncement amendment, then such change or
adoption of that particular accounting policy is accounted and they are divulged as a
voluntary change in accounting policy. Voluntary change in accounting policies has an
impact on current period. Furthermore, entities are required to disclose nature of change in
accounting policy if it is impracticable to determine the adjustment amount. Application of
new accounting policy should provide relevant information (Stice&Stice, 2013).
The change in accounting policies from cost model to revaluation model are required
to determine the accounts that are to be restated. In the given scenario, Magenta Ltd is
applying a retrospective change that is regarded as the application of new accounting policy
to the conditions, events and transactions as if the policy have been already applied. Change
is accounted according to transitional provisions that is applicable and is specified in
relevant standards is the initial application of Australian accounting standards results
change in policy. Change is specified retrospectively if there is no specification of transitional

3INTERMEDIATE FINANCIAL ACCOUNTING
process. Magenta ltd is required to assess all the accounts that would be affected by the
change in accounting policy and implementation of revaluation model. In the event of
discovery of material error in presentation, measurement and recognition of elements of
financial report. In such situation, it is required by entity to restate the financial statement
retrospectively as per AASB 108.
Requirement b:
Journal Entries
Dr. Cr.
Date Particulars Amount Amount
1/7/2014 Plant & Equipment A/c. Dr. $200,000
To, Cash A/c. $200,000
30/6/2015 Depreciation Expenses A/c. Dr. $25,000
To, Accum Dep.- Plant &
Equipment A/c. $25,000
30/6/2016 Depreciation Expenses A/c. Dr. $25,000
To, Accum Dep.- Plant &
Equipment A/c. $25,000
30/6/2017 Depreciation Expenses A/c. Dr. $25,000
To, Accum Dep.- Plant &
Equipment A/c. $25,000
Accum Dep.- Plant &
Equipment A/c. Dr. $75,000
To, Plant & Equipment A/c. $65,000
To, Asset Revaluation
Reserve A/c. $10,000
30/6/2018 Depreciation Expenses A/c. Dr. $27,000
To, Accum Dep.- Plant &
Equipment A/c. $27,000

4INTERMEDIATE FINANCIAL ACCOUNTING
30/6/2019
Accum Dep.- Plant &
Equipment A/c. Dr. $27,000
Asset Revaluation Reserve A/c. Dr. $10,000
Impairment Loss A/c. $6,000
To, Plant & Equipment A/c. $43,000
Income Statement A/c. Dr. $6,000
To, Impairment Loss A/c. $6,000
1/7/2019 Cash A/c. Dr. $60,000
Loss on Sale of Asset A/c. Dr. $9,000
To, Plant & Equipment A/c. $69,000
Workings:
Depreciation Schedule:
Date
Op.
Balan
ce
Estim
ated
Life
Resid
ual
Valu
e
Depreci
ation
p.a.
Peri
od
(in
yea
rs)
Depreci
ation
Charged
Depreci
ated
Value
Fair
Value
Revalu
ation
Gain/(L
oss)
Closi
ng
Value
1/7/2
014
$200,
000 8 $0 25000 1 $25,000
$175,00
0
$175,
000 $0
$175,
000
1/7/2
015
$175,
000 7 $0 25000 1 $25,000
$150,00
0
$150,
000 $0
$150,
000
1/7/2
016
$150,
000 6 $0 25000 1 $25,000
$125,00
0
$135,
000
$10,00
0
$135,
000
1/7/2
017
$135,
000 5 $0 27000 1 $27,000
$108,00
0
$92,0
00
($16,00
0)
$92,0
00
1/7/2
018
$92,0
00 4 $0 23000 1 $23,000 $69,000
$69,0
00 $0
$69,0
00

5INTERMEDIATE FINANCIAL ACCOUNTING
Answer to Question 2:
Requirement a:
According to AASB 137, contingent liabilities are the existence of possible events that
might arise from past are confirmed by non-occurrence or occurrence of some events that
are not within the control of entity. Recognizing the possible obligations arising from such
events is difficult because it is not possible to measure the obligation amount with sufficient
reliability. Moreover, for settling the obligations, it is not plausible there would be
requirement of that an outflow of resources.
The operation of chemical manufacturing plant by Greymouth Ltd requires licences
from government as it satisfies the definition of major hazard facility. It is required by
organization to decommission the manufacturing plant after its useful life. For
decommissioning, it is required by organization to incur some cost in recycling some of
equipment and dismantling the chemical plant. It can be seen that the cost of
decommissioning of the chemical manufacturing plant by Greymouth Ltd cannot be
determined. The outflow of resources is not probable and it is difficult to measure the
obligation amount with sufficient reliability.
Requirement b:
Three methods for estimating the amount to be recognized as provision according to
AASB 137 Provision, contingent liabilities and contingent assets are depicted below. The
best expenditure estimate is to be recognized as provision for settling the obligation at the
date of balance sheet.

6INTERMEDIATE FINANCIAL ACCOUNTING
 Large population of events provision are required to be measured at probability-
weighted expected value. This involves customer refunds and warrants.
 There needs to be provision for one off events for which measurement are to be
done at the most likely amount. Such event involves settling of lawsuit, cleaning up
of environment and restructuring
 The current market assessment concerning risks that are specific to liabilities and
time value of money are reflected by the above measurement basis. A discounted
present value using a discount rate that is pre-taxed is used as measurement.
As per the standard, it is required by Greymouth ltd to record all the transactions
regarding the provision recognition. In nutshell, it can be said that the methods of
recognizing the provision is done at reliable basis and valid estimate, measuring the
provision based ion time value of money and valuation to be done by considering the
uncertainties and risks in transactions and events.
It is essential on part of organization to recognize the amount of cost or expenditure
relating to decommissioning of the chemical manufacturing plant in the current year itself
along with considering the future risks associated with the operation. Concerning the
estimation of the present value of cost or expenses of decommissioning, it would be
suitable for organization to adopt the measurement method of time value of money. The
provision amount is represented as expenditure value when the effect of time value of
money is material. Cash outflow provisions after the reporting period are more onerous
compared to cash outflow for same year. Employing the method of time value of money
would help organization in estimating the present value of decommissioning cost of
chemical manufacturing plant. Discount rate used by organization for estimating the present

7INTERMEDIATE FINANCIAL ACCOUNTING
value of future cash outflow regarding this can be pre-tax discount rate. Risk in adjusted
estimation of future cash outflow regarding decommissioning of the plant does not reflect
the risks.
Therefore, in this situation, the most appropriate method for estimating the amount
to be recognized as the cost of provision of manufacturing plant decommissioning is the
time value of money.
As per AASB 137, provision is recognized by an entity when it has present obligation
resulting from past events, the amount of obligation has reliable estimate and for settling
the obligation, it is required to have a probability of any resource outflow representing
economic benefits. Appropriate measurement bases and recognition criteria are required to
be applied to provisions as per AASB 137 (Russell, 2017). Recognition of provision is done
when there is liability .
On the basis of the information provided, the amount of contingent liability for
decommissioning is calculated below:
Particulars
Probablit
y Amount
Estimated Cost:
$520,000 15% $78,000
$500,000 80% $400,000
$300,000 5% $15,000
Expected Cost of
Decommissioning $493,000
Discount Rate 5%
Period 25
Contingent Liability $145,584

8INTERMEDIATE FINANCIAL ACCOUNTING
Requirement c:
Journal Entry:
Dr. Cr.
Date Particulars Amount Amount
30/06/201
6 Cost of Discommissioning A/c.
$145,58
4
Contingent Liability
for Disommissioning
A/c.
$145,58
4
Answer to Question 3:
Requirement a:
IAS 138 prescribes the measurement, recognition and disclosure that is applicable to
intangible assets that are not specifically dealt with another standard. The definition of
intangible assets as per AASB 138 is provided as an identifiable non-monetary assets that
does not have any physical substances. The two characteristics of intangible assets as per
the standards includes that intangible assets are not identifiable and they lack physical
substance (Pandey et al., 2014).
 Intangible assets as per standards are not identifiable
 One of the key characteristics that separates intangible assets from tangible assets is
that they lack physical substances.
One of the two characteristics is required to be met for an intangible asset to be
identifiable is that they arise from contractual or legal rights and such assets have capability
of being transferred and are separate from entity. For an intangible asset depicting that they
do not have any physical resources are that there are several recognition and requirement

9INTERMEDIATE FINANCIAL ACCOUNTING
of measurement for non-physical assets. Moreover, there are number of unique
characteristics of intangible assets.
In option 1, prime media would be acquiring license for using computer software
packages from Digital solution. However, the acquired license cannot be transferred,
exchanged and sold after the expiry. As per the definition of intangible assets according to
AASB 138 standard, an intangible asset can be transferred. As given in option 2, computer
software package is internally developed and they would be patented at an additional cost
of $ 15000. Since, software is internally developed; it would be regarded as intangible
assets. However, in option 3, the internally developed software is not patented and
therefore no additional cost is incurred. In both the options that is option 2 and option 3,
assets is controlled by entity and therefore the internally developed software is considered
as intangible asset.
In option 2, computer software is internally developed and patented at an additional
cost. Therefore, patent acquisition would help in transferring the assets that also gives them
other legal rights (Huang, 2014). Therefore, option 2 satisfies the criteria of identifiability in
the intangible asset definition.
Requirement b:
Prime Media ltd is requires applying the recognition criteria before they have been
recognised as asset. Before the items is recognized as intangible asset, it is required that
their definition meets the following recognition criteria. Recognition criteria of intangible
assets are faced with number of issues. For intangibles that have been separately acquired,
it is considered as per AASB 138 that probability recognition criteria is always taken into
consideration. An intangible assets is recognised by Prime media if and only if

10INTERMEDIATE FINANCIAL ACCOUNTING
 Entity can reliably measure the cost of intangible assets
 There is probability that expected future economic benefits attributable to assets
would flow to entity

11INTERMEDIATE FINANCIAL ACCOUNTING
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from Australian companies. Corporate Ownership and Control, 13(1), 930-939.
Huang, Z. (2014). Intermediate Financial Accounting.
Maynard, J. (2017). Financial accounting, reporting, and analysis. Oxford University Press.
Pandey, S., Chaubey, D. S., &Tripathi, D. M. (2017). Financial Accounting Information and Its
Impact on Investment Decision in Equities. Management Convergence, 7(2).
Russell, M. (2017). Management incentives to recognise intangible assets. Accounting &
Finance, 57(S1), 211-234.
Stice, E. K., &Stice, J. D. (2013). Intermediate accounting. Cengage Learning.
Tran, A. (2015). Can taxable income be estimated from financial reports of listed companies
in Australia?. Browser Download This Paper.