Beachlife Ltd Accounting Issues: Contingency, Warranty, and Revenue

This report, prepared by Magenta and Associates, addresses accounting issues faced by Beachlife Ltd. The primary concern is a potential patent infringement claim, which is addressed through the application of AASB 137 regarding contingency liabilities. The report recommends enlisting a $50,000,000 contingency liability based on a 60% probability of occurrence. The second accounting issue involves warranty expenses and the timing of revenue recognition, with the report referencing AASB 137 and AASB 118 to guide the proper treatment of these items in the annual report. The report emphasizes compliance with the Corporation Act 2001, and relevant AASB and IAS standards, providing advice to the board for accurate financial reporting. It offers solutions for the infringement claim and warranty expenses, ensuring Beachlife Ltd can present a true and fair view of its financial position. The letter concludes with an offer of further assistance from Magenta and Associates.

718 Geelong Street,
Melbourne, VIC 3000
9 January 2018
Christopher Sampson
Managing Director, Beachlife Ltd
Level 7, 927 William Street,
Brisbane QLD-4000
Dear Christopher Sampson
The information in the email regarding the accoutring issues sent to me on 13 November
2017 is acknowledged by Magenta and Associates. In response to the email relevant
amendments and advice is been drafted in the letter, which could be useful for the board of
Beachlife Ltd in making adequate decision. Furthermore, the amendments and advice
provided by the accounting team is reliable, as it is backed by years of experience and high-
end professionals. The adjustment needed for the accounting issues is depicted in the letter,
which could be presented to the board of Beachlife Ltd. Therefore, by using the adjustment
entries on the accounting issues Beachlife ltd could adequately draft the annual report and
depict their actual financial position. I whole heartedly thank you for providing our
organisation with the opportunity to serve you with the problems faced in the accounting
treatment. Rest assured any other accounting issues arising in the preparation of the annual
report can be dealt with us. However, for the current accounting issues adequate sources are
provided, which could allow the board in eradicating the accounting issues.
Beachlife Ltd comes under public limited company structure, where it needs to acknowledge
the regulation imposed by Corporation Act 2001. In addition, Beachlife ltd also needs to
comply with Section 292, Section 296 and Section 334, which is used in drafting annual
report of the organisation (Aasb.gov.au 2018). These clauses and sections directly force the
organisation to comply with accounting standards, which are used in the preparation of the
annual report. Therefore, the use of AASB standard and IAS standard are mainly used by the
organisation to ethically portray their actual financial condition in the annual report.
Moreover, the advice on accounting issue that is provided to Beachlife ltd mainly comprises
of AASB standards dealing with the issues. The issues regarding warranty expense and loss is
directly addressed in the letter, which could help in drafting accurate financial report.
Stating the measure used in confining the infringement claim to the annual report:
The major accounting issue that is faced by Beachlife ltd is claim from infringement of
patent, which could, incur in immediate future. This issue is mainly not providing the

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Christopher Sampson
accurate financial condition of the company, where relevant loss can be expected by the
organisation. In the particular situation, contingency liability measure could be used by the
company for addressing the accounting issue. The current financial report of the organisation
needs to include contingency liability section in the annual report for addressing the patent
accounting issue. The contingency measure is mainly taken from AASB 137 paragraph 10,
where the treatment of the issues can be identified. The paragraph mainly states that any kind
of loss, which will be incurred in near future due to the actions taken past will come under
contingency liability (Aasb.gov.au 2018). This situation will mainly be recorded in balance
sheet section, where liability of the company will increase. The ruling of AASB 137 mainly
consists of the all the relevant contingency liabilities that is faced by organisations
(Adhariani, Sciulli and Clift 2017).
The table below mainly indicates the probability or chance of loss, which might incur by the
company in immediate future. However, the highest probability section and chance will be
chosen by the organisation to enlist in their annual report. This mainly indicates the
probability of 60%, where $50,000,000 will be enlisted in the annual report of Beachlife Ltd.
The highest probability is chosen due its high chance of occurrence in near future, which
could allow the company to take accurate measure for depicting its loss in annual report.
Particulars Value Probability
1st chance $87,000,000 30%
2nd chance $50,000,000 60%
3rd chance $30,000,000 40%
The above measure could allow the company in depicting the future loss in their annual
report, which has a probability of 60% occurrence. Therefore, the board with the advice for
infringement of patent expense could adequately draft its annual report. Hence, the board of
Beachlife Ltd could conduct the advised measure for reducing the impact of accounting issue
in the annual report. This would require the board to enlist 50,000,000 in the contingency
liability section of the annual report (Hudson 2016).
Stating the measures that could be used for second accounting issue identified by the board
of Beachlife Ltd.
Christopher Sampson mainly identified the second problem, which was faced by Beachlife
Ltd, while preparing their annual report was the inclusion of warranty expenses. This
inclusion of the expenses could eventually allow the organisation in depicting its actual
financial position for the fiscal year. In AASB 137, relevant measures that needs to be taken
for warranty expense is adequately discussed. In accordance with AASB 137 Paragraph
14(a), the obligations, which intends to raise expenses of the organisation are enlisted in its
annual report (Jones 2017). Moreover, the issue also arises, whether to enlist sale of
equipment in current fiscal year or next fiscal year. AASB 118 Paragraph 9, is mainly used in

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Christopher Sampson
recognising the sale of equipment in the current fiscal year. This directly indicates that with
the revenue recognition method depicted in AASB 118, revenue generated by the company
will be enlisted in the current fiscal year. hence, no continuation of the revenue shall be
conducted in the next fiscal year due to warranty expenses incurred by the organisation.
Therefore, the board needs to recorded sales in current fiscal year, while the current expense
will be listed in contingency liability section (Overland 2014).
Relevant information is disclosed in the letter regarding the accounting issues faced by
Beachlife Ltd. The information provided in the letter is in accordance with AASB standard,
which is currently being used by the organisation. Hence, the board could use drafted letter
for nullifying its accounting issues, which is hampering the preparation of its annual report.
The accounting issue enlisted in the email send on 13 November 2017 is adequately
addressed in the current letter. For any kind of clarification on other accounting issues or
further amplification on existing issues, you can contact Magenta and Associates. Looking
forward to hear from you.
Regards
Lisa Magenta
Manager
Magenta and Associates
718 Geelong Street,
Melbourne, VIC 3000

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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 09 Jan. 2018].
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