Management Accounting

This report analyzes a proposal in management accounting regarding the funding of ship repairs and its impact on financial statements. It discusses the marketing manager's suggestion, accounting standards, and the potential violation of rules. Recommendations are provided for the company to consider.

Running head: MANAGEMENT ACCOUNTING
Management Accounting
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Table of Contents
Introduction......................................................................................................................................3
Discussion:.......................................................................................................................................3
Recommendations............................................................................................................................7
Conclusion.......................................................................................................................................7
References........................................................................................................................................9

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Executive Summary
West Ltd is an organization and the owner of the two brands in the fishing industry. The
company is involved in the production and selling of frozen and canned fish. The company is a
dolphin friendly company assume by the people. This is the reason for its huge goodwill and
brand image. The company got a proposal in doing a campaign against the whalers in the oceans.
The marketing manager proposed that the repair cost of the ship have to be funded by the
company. The company thinks to capitalize the repair cost to the carrying cost. The report
contains a detailed analysis about these proposal acceptance according to the accounting
standards.

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Introduction
The company West Ltd is a prime company in sale of frozen and canned fish. The
products of the company are being sold under two brand name Artic Fresh and Tropical Taste.
Fishes that were been caught in southern Australia are sold under the brand name Artic Fresh and
the fishes that were been caught in the northern oceans are being sold under the brand name
Tropical taste. West ltd acquired all the assets and liabilities of fishy tales that was the
developing companies of the brand Tropical Taste. The marketing manager has suggested the
company to disrupt the whalers. This will result in increased for the goodwill and environmental
reputation of the company. The company is known as the Dolphin friendly as they have done a
campaign previously to ensure that the dolphins have not been affected by the tuna fishing. The
marketing manager has also explained that if any damage occurs to Steve Irwin during the event
then the company have to fund the cost for its repairs. The company has decided to capitalize the
cost with the carrying amount of the brand. The purpose of this report is to analyze the problem
with proper accounting standards.
Discussion:
The marketing manager of the company has very good selling ideas for the company. The
company is popular and has a brand name as because of their campaigns initiatives. The
campaigns done previously by the company increases the goodwill and the brand image of the
company. This also shows that the company is very much concerned about the environment and
has the responsibility in preserving it. The new initiative that the marketing manager wants to
take from the side of the company is to disrupt the whalers in the oceans. The whalers are the
persons who generally harm the whales of the oceans as then they can have their meat, blubber
and the skin of the whales. The main reason behind this is that latter they will be able sale those
things in exchange of money (Urquhart and Acott, 2014). The marketing manager of the
company had shown a concern about the ship, this is the reason why the, marketing manager had
propose the board of the directors to bear the cost the cost for repairing the damaged portion of
the ships that may occur during the event. The marketing manager of West Ltd had little
knowledge about the accounting transactions and the accounting standards that needed to be
followed. The manager believes that this proposal will not effect on the revenue earned by the

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company rather it will the lead to increase in the brand image and goodwill of the company more
than before. West Ltd has come up with a solution on basis of this solution provided by their
productive and effective manager. The company had decided that they will fund the cost to the
carrying amount of the brands (Dabholkar, Nakhawa and Yardi, 2014). This type of cost is
generally incurred for the marketing purpose of the company. This will lead to increase in
company’s net asset position and additionally there will be no effect on the income statement,
profit and loss and other comprehensive income of the company. This will result in a win-win
situation for the company as after bearing the cost the financial statements of the company
remain unchanged and unaffected (Ryan et al. 2013). The carrying cost of the company refers to
the holding cost of the inventory. The repair and maintenance activities contain of all the actions
that has the objective of maintaining or restoring an asset. Repairs are generally done to bring the
machine or the thing to its previous form. The repair and the maintenance are classified as under
the nature, size, class of asset, workshop type. The asset mentioned here will come under the
class of asset. This cost includes the repair materials, spare parts, supervision, management and
many other things (AASB, 2013). The measurement of the cost is done on the basis of historical
or actual cost. As per the CAS- 6 the valuation of the receipt of materials is to be based on the
terms and conditions that were stated in the purchase, supply, and sources of the supply that is
native or imported. The purchase price includes the duties, taxes and the trade amounts. The
consumption of this materials is done through the first in first out process, last in last out process
or the weighted average capital method. The cost of repairs and maintenance is to be recognize
as a class of asset wise besides the nature and the size as dealt above. The cost is to be measure
as according to the category of the major asset. The accounting entries are shown below.

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The repair and maintenance cost include any imputed cost that means the cash outlay or the
expenses. The credit and the recoveries relating to the cost will be deducted. The asset such as
property, plant or equipment after the recognition the cost shall be carried less by nay
accumulated depreciation and impairment loss (AASB, 2015). However if the carrying cost of
class of asset increase as a result of revaluation. This will result in increase of net revaluation
which will be credited directly to the equity under the heading of revaluation reserve. The rise in
Net revaluation shall be identified in profit or loss to the extent that it reserves a Net revaluation
less of the same class of the assets identified earlier in profit or loss statement of the company.
However, if the carrying amount of a class of asset is reducing as a result of revaluation, then the
reduced amount will be recognized in profit or loss statement of the company (Mallory, 2013).
The decreased amount will be debited directly to the equity under the heading of revaluation
reserve to the extent of the credit reserve balances in the revaluation reserve of that class of asset
(Banerjee, 2014). The financial report for the each class of property need to be disclosed. The
financial report have to recognize the expenditure amount of carrying of an asset such as plant
and equipment, property and machines while preparing it (DRURY, 2013). The recognized
carrying amount of the asset has been carried under the cost model. Net asset position of a
company means the total excess of assets over the total liabilities (Stringer, Whittaker and
Simmons, 2016). The debt of the company under the financial agreement, pavilion consulting
debt and the seller transaction expenses does not include in the calculation of Net assets or Net

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asset position. The value of this net asset position represents a funds market value (Australian
Accounting Standards Board, 2010). This value represents the price at which the investor can
buy or sell units of the fund. The value increase when the value of securities increase and
decreases when the value of the securities decreases. The funding that the company’s does for
the repair and maintenance of fixed asset of the company. This kind of cost of expenditure comes
under the revenue cost in the financial statement. The expenses that are incurred on the fixed
assets include cost that are aimed at maintaining. This kind of cost generally focus on
maintaining of repairing of the asset, than increasing the earning capacity of the particular asset
(Haroun, 2015). These cost are experienced on a daily basis by the companies. For an example
however when a accompany buy any particular asset for the production of the company the cost
of installation and purchase price of the machine will be referred a capital expenditure cost
(Svedäng and Hornborg, 2014). When after a long time in future when the asset could not
perform anymore or its productivity reduces then the company incur some cost on the repair and
maintenance of it. This kind of expenses will come under the revenue cost. This kind of cost do
not form a part of the fixed asset cost they are posted in the income statement as expenses for the
period when they have been incurred (Aasb.gov.au, 2019). The company is planning to add
revenue cost with the carrying cost of the brands. The company is planning to show such cost as
a cost incur for the marketing purpose. The cost which are incurred for the marketing purposes is
generally the advertisement cost, agency fees, customer survey expenses, gifts given to the loyal
customers, printed materials and leaflets distributed among the peoples, sponsorship given to the
clubs and for the events (Australian Accounting Standards Board, 2018). These are all the
marketing expenses generally incurred by company for marketing purpose. West Ltd decides to
add up the revenue cost with carrying amount for marketing purpose, this will lead to the
violation of the accounting rules and accounting standards. The company thinks that it will be a
win-win situation for everyone (Byard, 2013). This is because the company can show the repair
cost that means the revenue cost adjusted with the carrying cost. Then it will not affect the
income statement and the company will not keep the marketing manager also happy. The brand
image if the company will also rise as due to this proposal. According to the accounting
standards all the expense and the cost are needed to be added separately when the report will go
for the audit the auditor may cancel the whole report. The illegal act that the companies generally
follows regarding the transaction and the events, auditors are generally aware of it (Uzunca and

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Li, 2018). The auditors generally detect and report misstatements resulting from illegal acts
having a direct and material effect on the calculation of the financial statement. This lead to the
stakeholders to be get effected faulty reporting will affect the investors as they will invest in a
wrong way and later they will run in loss for investing in the shares.
Recommendations
The firm operates in the fishing industry and has a goodwill and a very good brand image
and currently own two brands. This is to be recommended to the firm after the analysis is that
The firm should listen to the proposal of the marketing manager as his proposal will be benefited
for the company. The brand image of the company rise more in the future. This will be god for
the marketing purpose as because more customers gets attracted to a company which has a very
goodwill.
The firm should do more campaign like this, as then more people will get to know about the
company. For example, the company or the marketing manager can take the next initiative to
clear the waste from the ocean water as then the more fish will be available for the company.
This will also be a very good campaign as the people is really bothered about this matter. ‘
The firm should do the funding for the repair and maintenance of the ship as that is a valuable
asset for the company and West ltd should report the expenses as the revenue cost in the income
statement.
Conclusion
This is to be concluded from the above analysis of the report is that the company West
Ltd is taking the initiative to preserve the environment and the fishes of the water. The previous
campaign done by the company for the dolphins is really liked by the peoples and they assume
that this company is a dolphin friendly company. The two brands own by the company provide
the company a very good earning per year. The proposal given by the manager of the marketing,
will be very beneficial for the company. The damage that will occur during the event to the ship
is the responsibility of the company to fund the cost of repair of the ship. All the companies bear
this cost and every asset require this cost, as because all assets need to get repair in future as to
get back in the position they were earlier. The companies report this cost in the financial

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statement under the revenue cost head, accordingly it gets effected in the income statement of the
company. This company should also follow this as then the auditor will also may not be able to
detect any miscalculation or any fault in the report.

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References
AASB, C.A.S., 2013. Property, Plant and Equipment.
AASB, C.A.S., 2015. Investment property.
Aasb.gov.au (2019). Australian Accounting Standards Board (AASB) - Home. [online]
Aasb.gov.au. Available at: https://www.aasb.gov.au/ [Accessed 5 Sep. 2019].
Australian Accounting Standards Board (2010). Inventories. [ebook] Australia: Australian
Accounting Standards Board, p.28. Available at:
https://www.aasb.gov.au/admin/file/content102/c3/AASB1019_3-98.pdf [Accessed 6 Sep.
2019].
Australian Accounting Standards Board. (2018). Compiled AASB Standard. [ebook] Australia:
Australian Accounting Standards Board., p.22. Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB116_08-15_COMPoct15_01-18.pdf
[Accessed 5 Sep. 2019].
Banerjee, B., 2014. Cost accounting theory and practice. PHI Learning Pvt. Ltd.
Byard, R.W., 2013. Commercial fishing industry deaths–Forensic issues. Journal of forensic
and legal medicine, 20(3), pp.129-132.
Dabholkar, T.A., Nakhawa, P. and Yardi, S., 2014. Common musculoskeletal problem
experienced by fishing industry workers. Indian journal of occupational and environmental
medicine, 18(2), p.48.
DRURY, C.M., 2013. Management and cost accounting. Springer.
Haroun, A.E., 2015. Maintenance cost estimation: application of activity-based costing as a fair
estimate method. Journal of Quality in Maintenance Engineering, 21(3), pp.258-270.
Mallory, T.G., 2013. China's distant water fishing industry: Evolving policies and
implications. Marine Policy, 38, pp.99-108.

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Ryan, K.L., Wise, B.S., Hall, N.G., Pollock, K.H., Sulin, E.H. and Gaughan, D.J., 2013. An
integrated system to survey boat-based recreational fishing in Western Australia 2011/12.
Fisheries Research Division, Western Australian Fisheries and Marine Research Laboratories.
Stringer, C., Whittaker, D.H. and Simmons, G., 2016. New Zealand's turbulent waters: the use
of forced labour in the fishing industry. Global Networks, 16(1), pp.3-24.
Svedäng, H. and Hornborg, S., 2014. Selective fishing induces density-dependent
growth. Nature communications, 5, p.4152.
Urquhart, J. and Acott, T., 2014. A sense of place in cultural ecosystem services: the case of
Cornish fishing communities. Society & Natural Resources, 27(1), pp.3-19.
Uzunca, B. and Li, S.C., 2018. 6How sustainable innovations win in the fish industry:
Theorizing incumbent-entrant dynamics across aquaculture and fisheries. Handbook of
Knowledge Management for Sustainable Water Systems, p.133.