ACC201 Financial Accounting: AASB 137/138 Analysis - Case Study Report

This report provides an analysis of contingent liabilities and intangible assets in accordance with AASB 137 and AASB 138, respectively. It also addresses the performance of impairment assets as per AASB 136. The report includes justifications for answers based on a case study, aligning with the accounting treatments specified in the AASB standards. The analysis covers the recognition and disclosure requirements for contingent liabilities, the valuation of internally generated intangible assets, and the reasons for reluctance in changing AASB 138. The case study of Delta Ltd is examined to determine the appropriate accounting treatment for a lawsuit claim.

Running head: ACC201 FINANCIAL ACCOUNTING
ACC201 Financial accounting
Name of Student
Name of University
Student ID
Author Note

1ACC201 FINANCIAL ACCOUNTING
Executive Summary:
This report focuses on the contingent liabilities ‘accounting treatment as per mentioned in the
AASB 137and intangible assets which is internally generated as per AASB 138 and also
performance of impairment assets as per AASB 136. This report will also justify the answers of
the case study in accordance with the accounting treatment as per AASB.

2ACC201 FINANCIAL ACCOUNTING
Table of Contents
Question 1........................................................................................................................................3
Answer A.....................................................................................................................................3
Answer B.....................................................................................................................................3
Question 2........................................................................................................................................3
Answer A.....................................................................................................................................3
Answer B.....................................................................................................................................4
Answer C.....................................................................................................................................4
Reference and bibliography.........................................................................................................5

3ACC201 FINANCIAL ACCOUNTING
Question 1
Answer A
Contingent liability is the liability which may occur or may not occur because it is the
obligation based on the past performance of the company. Whether the contingent liability will
become the liability or not totally depends on the past events or past occurrence which may
affect the company to produce liability in future. It states that it is not possible to measure the
amount with adequate liability (Aasb.gov.au, 2019)
According to the AASB 137, the organization is not liable to disclose the information
about the contingent liability. On the other hand the company should disclose when the
profitability of outflow is getting down in considerable amount. The only part which should be
disclosed is the resource outflow as the part of contingent liability.Another exception is that the
company can disclose about the contingent liability when the reliable estimate cannot be made.
Companies usually do not expect to develop the contingent liability. Suppose in a situation
where the company is liable to get any kind of obligation which expected to be fulfilled. It
assessed on the basis which is associated with the economic benefit. If likelihood becomes
possible that outflow of economic benefits will be needed for items which was previously taken
and treated as contingent liability, provision for that item is recognised under the financial
statement of the company for the period in which profitability takes place (Aasb.gov.au, 2019)
Answer B
As per mentioned in the case study one of the customer of Delta Ltd launched a lawsuit
against the damage and costs that incurred to the failure of the product of Delta Ltd. The
customer acclaimedfor $ 3 million as compensation against the damage. As per the lawyer of
Delta Ltd advised the claimed amount stated by the client is very high and Delta Ltd has less
chance for pocketing the case.If the company loose the case they have to pay the amount of
$5,000,000 against the damage (Aasb.gov.au, 2019)
The obligating was failure of the electrical product send to the customer by the respective
company. It helps the customer to raise the obligation that the client has went through the
damage because of the failure product of Delta Ltd and the claim raised by the customer is valid.
As per stated by the lawyer of Delta Ltd said that the acclaimed amount by the client that
is $ 3 million is extortionate and Delta Ltd has fair chance of winning the case, in case the
company lose the case, it will have to pay an amount of $ 500,000 as damage (Aasb.gov.au,
2019)
However, in accordance with Para 86 of AASB 137, if the possibility of outflow for the
settlement is remote, the company is not required to disclose any contingent liability for the
event. In the given case of Delta Ltd, high chance is there that they will win the case and hence
the chances of economic ourflow are remote. Therefore it is not required to disclose any
contingent liability (Aasb.gov.au, 2019).

4ACC201 FINANCIAL ACCOUNTING
Question 2
Answer A
Internally generated intangible assets
It is difficult for the financial team to assess whether the intangible assets which is
internally generated should the company recognise for the accounting purpose. The issues which
rise against this case are as follows:
 Need to recognise whether there is an identifiable asset or not and whether the asset will
produce the future benefits for the company. and
 Assets’ value cannot be measured reliably (Legislation.gov.au, 2019)
The cost of the asset which is internally generated in the company is the expenditure
which is incurred from the time when it is first met the criteria for the recognition. It has all the
cost needed for preparing, creating and producing the assets due the cause of intended use.
However, internally generated publishing title, mastheads, brand generated internally shall not be
recognised as the intangible asset (Sacui and Szatmary, 2015).
While assessing whether the intangible assets are impaired or not the organisation need to
follow the guidelines present in AASB 136. Intangible assets are comparing with the carrying
value and also the recoverable value. It can be analysed any time during any time period of the
year and should be carried out at the same time during the financial year (Legislation.gov.au,
2019)
Answer B
Intangible assets which are acquired from other business are to be valued in fair value
and hence the company can realise it in the fair value during the date of acquisitions only. The
business should alwaysrealise the value of the intangible assets in the fair value whether the
company is acquiring the asset from legal rise or from the business combination. On the other
hand internally generated intangible assets basically measured in cost.Value of the same assets is
determined through capitalising the part of costs incurred during the process of production. The
measurement of the goodwill which is generated internally shall not be recognised as asset as it
is not the source which is identifiable (Malone, Tarca and Wee, 2016)
Answer C
It is observed that the companies are reluctantly changing in AASB 138. The reasons are
provided below:
1. To saturate the use of the future profit, where the company is written, the amount of
money which was invested in the research and development which will help to generate
the future earnings and revenues. It will come through the acquisitions of the balanced
through major expenses items and also the amortisation of the intangible assets.
Impacting of the ratio which includes the rate of return on the assets as well as equity will
be better in case the future write-offs take place instead of the periodic amortisation in the
later period (Aasb.gov.au, 2019)
2. Investors considered by the investors as the one time item as the number of large hits are
said to be better for onetime adjustments rather making it periodically. It can be impacted

5ACC201 FINANCIAL ACCOUNTING
from the onetime write-offs which are discounted by the investors and it makes them
happy for the improvement of the profitability for the future year (Aasb.gov.au, 2019)

6ACC201 FINANCIAL ACCOUNTING
Reference and bibliography
Aasb.gov.au. 2019. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB137_07-04_COMPjun14_04-14.pdf
[Accessed 26 May 2019].
Aasb.gov.au., 2019. [online] Available at:
https://www.aasb.gov.au/admin/file/content105/c9/AASB138_07-04_COMPjun14_07-14.pdf
[Accessed 26 May 2019].
Bond, D., Govendir, B. and Wells, P., 2016. An evaluation of asset impairments by Australian
firms and whether they were impacted by AASB 136. Accounting & Finance, 56(1), pp.259-288.
Legislation.gov.au., 2019. AASB 136 - Impairment of Assets - August 2015 . [online] Available
at: https://www.legislation.gov.au/Details/F2017C00297/Download [Accessed 18 May 2019].
Malone, L., Tarca, A. and Wee, M., 2016.IFRS non‐GAAP earnings disclosures and fair value
measurement. Accounting & Finance, 56(1), pp.59-97.
Sacui, V. and Szatmary, M.C., 2015. Intangible assets in business combinations. Revista de
Management Comparat International, 16(3), p.385.
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.
Zhuang, Z., 2016. Discussion of ‘An evaluation of asset impairments by Australian firms and
whether they were impacted by AASB 136’. Accounting & Finance, 56(1), pp.289-294.