Tax Assignment | Accounting Issues Assignment

Added on - 28 May 2020

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Running head: TAXTaxName of the Student:Name of the University:Authors Note:
TAX1To:Christopher Sampson (Managing Director Beachlife Ltd.)From:Lisa MagentaDate:Subject:The response to accounting issues raised in the previous email.Respected sir,In this letter an attempt is made to provide response to the email received from youcontaining certain accounting issues faced by your company. An effort has been made in theletter to present clear conception about the situation then a legitimate accounting treatmenthas been suggested. In pursuance of this the provisions laid down in AASB has been referredextensively. It is expected that via this letter the problems or issues faced by the companywill be effectively and efficiently eradicated.On critically analysing the case provided it can be seen that the issues raised shouldbe addressed by refereeing to the AASB 137. The main reason for suggesting the changes isthe application of various requirement provided in the different para graphs of the standardAASB 137. Therefore, prior to explaining the current case the few important terms that arerelevant to the case are contained in the Para 10 of the AASB 137 regarding some key andrelevant financial items are explained (Tran and Zhu 2017).Provision:As per the AASB a provision is that kind of a liability which has an uncertain timeand amount associated with it.
TAX2Contingent Liability:It is defined asA)An obligation which may possibly arise out of past events and its actuality will besubstantiated by the happening or non-happening of one or more future events that isuncertain which are not wholly within the control of the management or company(Crawfordet al. 2014).B)A current obligation that has arisen out of past events but is not recognised due to:i)Less chances of an outflow of resources embodying economic benefitsbeing required for the settlement of the obligationii)The amount that is required to settle the obligation cannot beestablished reliably based on the available information.Relationship between provision and contingent liability:It can be said that due to uncertainty in the amount and the timing of the occurrence ingeneral perception it is assumed that all the provisions are contingent because of theuncertainty in the amount and timing of their occurrence. But, the standard in Para 12 andPara 13 has made a clear distinction between the provisions and contingent liabilities.Contingent liabilities will only be those liabilities whose existence depends on the occurrenceor non-occurrence of an uncertain event in future that is beyond the whole control of theentity. Moreover, those liabilities will also be termed as contingent which does not fulfil therecognition criteria (Tran 2015).RecognitionThe accounting treatment of the event is dependent on the recognition criteria statedin the accounting standards.
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