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Recognition of Obligation to Perform Contract

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Added on  2020-05-16

Recognition of Obligation to Perform Contract

   Added on 2020-05-16

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120 January 2018Mr Christopher Sampson718 Geelong Street, Melbourne, VIC 3000 Telephone 28 2 6295 7010 www.magentaandassociates.com.au20 January 2018Mr. Christopher SampsonThe managing DirectorBeachlife Ltd.Level 7, 927 William Street,Brisbane QLD 4000Respected Sir, Thank you very much for providing a quick response to us via e-mail. We assure you thatlike all previous times, this time also we promise to provide you with a solution and advice
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220 January 2018Mr Christopher Sampsonwhich will be best for you towards taking an appropriate decision in relation to the issues whichhave been raised by you. As always this time also we expressly assure you that all adviceprovided to you by us would be in compliance to legal provisions especially the provisions ofAASB, IFRS and the Corporation Act 2001 (Cth).It must be known to you that the nature of intangible assets is not physical. A few assetswhich can be categorized under intangible assets are goodwill, business methodologies, patents,brand recognition and trademarks. These assets may exist over a indefinite or definite period.The process which is used to determining the valuation of intangible assets is not very simple inthe same way as it is with valuation of Brand Recognition, therefore it needs solid and definitemethodology for its evaluation. When it comes to internally recognized intangible assets itcannot be given a valuation unless it has been sold. According to the provisions of InternationalFinancial Reporting Standards (IFRS) and Para 63 of IAS 38 the ability of the consumer todifferentiate between brand through a symbol or logo is known as brand recognition. Theexpectations of the customers is also raised in relation to the quality of the product and providesupport to the organization to collect its attributes and accordingly promote the products. As theregular market does not deal with intangible assets such as brand recognition, there are severalissue in relation to its valuation. In addition it has been stated by Bond, Govendi and Wells(2016) that the amount which is often paid towards such assents are less than its actual value. Forinstance, as stated in the issue though the directors wish to generate $800000 in relation to thebrand value of ‘Sun n Surf Shirts’; when they are actually selling it in the market they may get$650,000.
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320 January 2018Mr Christopher SampsonFor the purpose of indentifying the internally generated assets such as brand, there arethree options available in relation to the recognition in financial statement in compliance ofobjectivity, effectiveness, integrity and efficiencies. According to the options the externallyrequired brand is treated as goodwill in relation to the purchasing company’s financial statement.The recognition of intangible assets in compliance of AASB 138 can be done when reliablemeasurement of its value can be done the expectation is that that future economic attributes willattribute the company. As provided by you through the e-mail reliably the measurement of thebrand value cannot be done and in addition as there is no definite useful life in relation to thebrand they cannot be a part of the financial assets of the company. However such disclosure canbe done through note via financial statements. In relation to the second issue raised by you, we would like to advice you that thefollowing has to be taken into consideration in relation to recognition and measure of revenue forcash outflows and inflows of customer contract. Recognition of contract with customer Recognition of obligation to perform contract Distributing the transaction cost towards performance obligation to the contract Recognizing revenue after the completion of contract performance obligation Moreover, according to accounting standards the amount which is kept separate by anorganization in order to meet future commitment is known as “provision”. The primary objectiveof a provision is to make the current year balance appropriate by adjusting it. Under the income
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