Addressing Accounting Issues for Beachlife Ltd - Advisory Guidance

The letter serves as an advisory response from Magenta and Associates to Christopher Sampson, Managing Director of Beachlife Ltd, addressing specific accounting issues identified in a prior email. The primary concerns involve recording methods for sales and warranty expenses and the treatment of potential infringement claims under AASB standards. The advisory outlines how to record these items accurately in the company's annual report to ensure compliance with regulations such as the Corporation Act 2001 and relevant AASB sections. For warranty expenses, the advice highlights using AASB 137 for recognizing provisions due to future obligations from sales. Similarly, for infringement claims, it suggests recording a contingency liability based on assessed probabilities of occurrence, emphasizing the highest probability scenario. This comprehensive advisory aims to aid Beachlife Ltd in presenting an accurate financial position and meeting regulatory requirements effectively.

718 Geelong Street,
Melbourne, VIC 3000
2 January 2018
Christopher Sampson
Managing Director, Beachlife Ltd
Level 7, 927 William Street,
Brisbane QLD-4000
Dear Christopher Sampson
The email send on 13 November 2017 was acknowledged by me, where accounting issues
had been highlighted that needed adequate advice. Amendments or advice on two different
type of entries had been required by you. I whole heartedly assure you that my accounting
team has all the adequate experience, which is needed for addressing the issues. Moreover, all
the relevant adjustments that needs to be presented to the board are depicted in the letter,
which could help in adjusting all the entries and display correct financial condition of your
company. I thank you for providing our organisation with the opportunity to help you with
your accounting issues and we have provided all the relevant source with the advice, which
could help in nullifying the accounting issues.
Being a public limited company Beachlife Ltd needs to be comply with all the regulations
and acts imposed by regulators such as Corporation Act 2001. In addition, it also needs to
comply with Section 296, Section 334 and Section 292, which directly states the preparation
of Financial report with all the accounting standard and regulations (Aasb.gov.au 2018). The
company also needs to be comply with the AASB standard in drafting the financial report,
which has standards and paragraph in addressing different issues of accounting. Hence, the
advice needed for the accounting issues will comply with AASB standard and regulation.
Moreover, the letter addressed problems regarding warranty expenses and losses, which will
incur in immediate future.
Identifying the methods in which infringement claim can be recorded in annual report:
The infringement claim is mainly identified to have different chance of occurrence in next
fiscal year, which could be recoded in form of contingency liability in the current annual
report. This infringement claim is mainly a future expenses, which will be conducted by the
company due to actions taken in past. According to AASB 137 paragraph 10, accommodation
of contingency liability can be conducted by companies in their annual report in grounds of
futures expenses (Aasb.gov.au 2018). In paragraph 10, adequate assumption of the expenses
is mainly listed, which needs to be conducted by the company in their annual report.

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2 January 2018
Christopher Sampson
Moreover, AASB 137 also states the possibility of obligation, which might arise from past
event and its occurrence in future is uncertain. Therefore, the transaction will be recorded in
balance sheet under contingency liability section.
Particulars Probability Value
1st chance 30% $87,000,000
2nd chance 40% $30,000,000
3rd chance 60% $50,000,000
The above table mainly represents the probability of the expenses, which might incur from
the infringement patent claim. In addition, the highest probability section must be recorded in
the contingency liability, as it has the highest chance of occurrence. Hence, the contingency
liability section will mainly include a patent infringement claim of $50,000,000 in the annual
report. Therefore, the board could adequately enlist the expenses under contingency liability.
Identifying the methods used in recording sales and warranty expenses:
The second listed problem that was faced by Beachlife Ltd is the accounting treatment of
sales and warranty expenses. In the current situation, AASB 137 can be identified to have the
appropriate measure in dealing with the warranty expenses, as it can be conducted in next
fiscal year. Therefore, AASB 137 paragraph 14(a) directly states the estimation of obligation,
which increases the expenses provision of the company increase their expenses provision
(Aasb.gov.au 2018). AASB 118 paragraph 9 directly states the revenue recognition method,
which is used by the company in identifying its sales (Komninos and Cameron 2017). The
sale of equipment is mainly conducted in the current fiscal year, where the payment is also
competed. Hence, the record of sales will be conducted in current fiscal year with a
contingency liability addressing the warranty expenses, which might be incurred by the
company.
Consequently, all information regarding the accounting issues has been disclosed in the letter
with specific guidance to AASB standards. The identified measures can be presented to the
board for addressing the accoutring issues and adequately draft the annual report. Thus, the
board could depict their actual financial position in the annual report.
With the details provided in the letter, I hope to clear all the clarification, which was enlisted
in the email sent on 13 November, 2017. For any kind of further clarification on other
accounting issues kindly contact Magenta and Associates. Looking forward to hearing from
you.
Regards
Lisa Magenta
Manager
Magenta and Associates

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2 January 2018
Christopher Sampson
718 Geelong Street,
Melbourne, VIC 3000

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2 January 2018
Christopher Sampson
Reference and Bibliography:
Aasb.gov.au. (2018). [online] Available at:
http://www.aasb.gov.au/admin/file/content105/c9/AASB137_07-04_COMPoct10_01-11.pdf
[Accessed 03 Jan. 2018].
Adhariani, D., Sciulli, N. and Clift, R., 2017. Quantitative Optimisation Model, Results and
Discussion. In Financial Management and Corporate Governance from the Feminist Ethics
of Care Perspective (pp. 209-284). Springer International Publishing.
Komninos, J. and Cameron, R.B., 2017. IMPACTS OF REVENUE RECOGNITION
CHANGES IN THE CONSTRUCTION INDUSTRY.
Ritchie, M., 2015. What is air worth? Appropriately pricing landfills. Waste+ Water
Management Australia, 42(2), p.46.