Financial Accounting Report: Beachlife Ltd. Analysis and Solutions

This financial accounting report, prepared by Magenta and Associates for Beachlife Ltd., addresses two primary issues. The first issue concerns the valuation of the Sun n Surf Shirts brand, where the report suggests recognizing the brand as an intangible asset on the balance sheet, amortizing its value, and accounting for it at its cost of $800,000. The second issue involves revenue recognition under AASB 15, specifically the sale of equipment to Goodsports Ltd. The report details the accounting treatment for the sale, including the recognition of revenue, the setting aside of provisions for maintenance, and the handling of a reimbursement for Goodsports Ltd. It highlights the importance of accurately accounting for contingent liabilities and provisions in the financial statements, emphasizing the correct application of accounting standards.

Running head: FINANCIAL ACCOUNTING
Financial Accounting
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718 Geelong Street
Melbourne, VIC 3000
Telephone [phone]
www.magentaandassociates.com.au
16 January 2018
Mr. Christopher Sampson
The managing Director
Beachlife Ltd.
Level 7, 927 William Street
Brisbane QLD 4000
Dear Christopher,
Issue 1
According to AASB 137, Para 123, contingent liabilities can be identified as similar to
that of primary responsibility. From the given case study, it can be identified that the amount that

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is paid for the brand value is much less in comparison to the real value of the brand. For instance
as mentioned in the issue although the directors want to identify $800000 in terms of the Sun n
Surf Shirts brand, right when the brand was being sold.
In order to identify the brands which are developed from within the company three
options in the financial statement can be used according to integrity, objectivity, efficiency and
effectiveness. With respect to those three options when the brand is acquired from outside will be
accounted as goodwill in the company’s financial statement that is purchasing (Sinclair and
Keller 2014). Therefore, it can be suggested that the intangible assets needs to show in the
balance sheet, which will make way for the necessary amortization and easily recognized. The
company has asset of value $800,000 as on 30th June 2018. It can be determined according to the
valuation which was done by the directors. This can be briefed in this way that the company
needs to make amendments in its policy with the present occurings so that the accounting can be
identified with the cost which was created on an internal basis. The intangible assets have a life,
which will help in its amortization within the particular period for which it was being used.
Thus, this amount will be at par with the paying back purpose and has to be accounted at the cost
of $800,000, which can be applied with the lasting cost of the assets.
Issue 2
Again in the 2nd issue it can be said that AASB 15 Revenue from the contracts with the
customer where the identity will calculate the revenue and the input and output of cash
pertaining to it for the sales agreement through the features listed below-
 Recognising the contract’s performance responsibility
 Identifying the contract with the customer

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 Distributing the transaction’s price with the performance responsibility of the contract
 Identifying the revenue with the completion of the performance responsibility of the
contract (Tysiac2015)
Moreover, according to the accounting standard the provision is the money that is kept
separately for fulfilling the responsibilities that might come in the future. The issue that you have
raised for selling the equipments by the Beachlife Ltd. to Goodsports Ltd. the seller had to
maintain the equipments for 1 year after sales. Moreover the amount which was kept separately
for preservation will be used later on under the banner of contingent liability in the balance sheet
of the company and a record will be kept in the income statement under the banner of provision.
Goodsports Ltd was not all happy with the safeguarding work that was being done by the
company and was permitted for a reimbursement of an amount of 15 percent of the price that
they paid, which is amounted to $90,000 * 15 percent that is $13,500. Therefore, in the existing
scene it can be observed that Beachlife Ltd has to show an amount of $90,000 recorded as sales
under the banner of income for the sale of the equipment, as the amount was paid on 31st
December 2017.
In addition to this, the accounted amount of $7,500 which was kept as continuance has to
be placed under contingent liability within the balance sheet and also in the income statement; it
has to be recorded under the banner of provision for the calculated amount. On the other hand,
the amount of $13,500 is required to be flashed as notes in the financial statement of the
company under the large heading of contingent liability, as this type of legal responsibility is not
credible in nature.

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Therefore it can be concluded that as described initially there is no concurrence with the
idea of netting the overall cost of the store rent to the sales revenue. This is because it has the
characteristic of expenditure and need to be accounted if in any case there is no sale in the
agreement.
Yours sincerely
Ms. Lisa Magenta
Manager
Magenta and Associates
Copy Emily Thompson
Enc Letter Writing Handout

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References
Sinclair, R.N. and Keller, K.L., 2014. A case for brands as assets: Acquired and internally
developed. Journal of Brand Management, 21(4), pp.286-302.
Tysiac, K., 2015. FASB delays revenue recognition effective date by one year. Journal of
Accountancy.