Financial Accounting Report: Intangible Assets, Revenue, Provisions

This financial accounting report, prepared by Magenta and Associates, addresses key issues faced by Beachlife Ltd. The report analyzes the treatment of intangible assets, such as brand recognition, under IFRS and AASB standards, concluding that internally generated brands may not be recognized as assets. It then examines revenue recognition principles, recommending specific steps for contract and revenue accounting. Furthermore, the report explains the creation and accounting of provisions for future obligations, as well as the handling of contingent liabilities. The report provides detailed solutions, including the sale of equipment to Goodsports Ltd., outlining the accounting treatment for sales revenue, maintenance provisions, and contingent liabilities. Overall, the report offers practical guidance on financial reporting in compliance with accounting standards.

Running head: FINANCIAL ACCOUNTING
Financial Accounting
Name of the Student
Name of the University
Author Note

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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,
We would like to thank you for the quick response through the mail. We as always try to provide
the best possible solutions and this time as well we would like t provide the same solutions so
that it can help you in making better decisions regarding the issues faced by your company. We
also assure to you that the solutions that will be provided by us will be in accordance to the
Corporation Act, IFRS and AASB.
You might be aware of the fact that the assets that are intangible in nature are the ones that
cannot be touched. There are some examples of intangible assets as well such as patents and
trademarks of the company, methodologies of business, goodwill and the recognition of the
brand (Bond, Govendir and Wells 2016). These assets that are intangible in nature may have a
definite or an indefinite period of life within the organization. In accordance with the procedure

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for the valuation of the intangible assets such as recognition of the brand, the valuation of it is
not that easy. This requires solid and definite methodology, which will help in the valuation of
these assets. The procedure of valuation of the intangible assets such as recognition of the brand
is not easy and would require the use of a better style of methodology, which will help in
determining its valuation (Goodwin et al. 2016). Additionally, the intangible assets that are
generated within the organization will not be recognized until it has been sold by the company.
In accordance with Para 63 of IAS 38 and International Financial Reporting Standards (IFRS),
the recognition of brand is the ability of the customers in identifying the brand from its artistic
symbol and the distinct logo that one can associate with the organization. This also helps in
raising the expectation of the customers with respect to the quality of the product and assists the
company in accumulating the behaviours and the attributes, which can help in the campaigning
of the product as well. The assets that are intangible in nature such as the brand cannot be dealt
with in the regular consumer market, as there are different issues that may be generated due to
the valuation of these brands (Picker et al. 2016). It can be identified on a further manner that the
amount that is paid, which is the brand value are lower than the actual worth of the company
when compared to it. An example of this would be the issue that has been stated by the directors
as $800,000 has to be recognized by ‘Sun n Surf Shirts’ during the selling of the brand, which
can be realized at an amount of $800,000.
The recognition of the assets that has been generated internally such as the brand of the
company, there are three options that has to be considered, which will help in the recognition of
the brand in the financial statement and will be in accordance with the integrity, objectivity,
efficiencies and effectiveness. In accordance with the options that are present regarding the
acquiring of the assets through external manner, it needs to be recorded under the goodwill

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section in the financial statement of the organization that has purchased the asset (Sinclair and
Keller 2014). With respect to AASB 138 on Recognition of assets that are intangible, the
intangible assets can only be in recognition when the value of it can be measured through a
reliable and a futuristic attribute of the economy so that it can help in the attribution of the
company (Tysiac 2015). With respect to the given issue as stated by you for the case of ‘Sun n
Surf Shirts’, the value of the brand cannot be measured in a reliable manner and the brand does
not have a definite useful life. This will prevent the asset to be recognized within the financial
asset of the company. Moreover, it can be recorded as notes in the financial statement and can be
disclosed in that section only.
With respect to the second issue, we would like to provide the suggestion to you in accordance to
AASB 15 Revenue from the Contracts with customer that the measurement and recognition of
the entity has to be done through the outflow and inflow of cash that is related in nature can be
accounted through the agreement of sales by the following way:-
 The performance obligation of the contract has to be recognized
 The contract with the customer has to be recognized
 The price of the transaction regarding the obligation of the contract with respect to
performance has to be distributed
 The recognition of the revenue has to be completed after the performance obligation of
the contract has been realized (Wagenhofer 2014)
Furthermore, in accordance with the accounting standards, an amount has to be kept aside by the
company as provision so that it can help in meeting the responsibilities that may come up in the
future. The primary purpose of this provision will be to adjust the balance in the current year and

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make it in an appropriate manner. These provisions will be recorded as current liability in the
balance sheet of the company and will be recorded under the expenses head in the income
statement of the company (Gamper 2017). This provision can be created, which will be probable
and has to be set at a future date and a proper date has to be mentioned in the balance sheet for
the obligations that are constructive or legal in nature. On the contrary, the liability that is
contingent in nature is the liability that is expected and may happen due to the occurrence of any
uncertain events (Hendrickson 2014). If the amount of this liability can be estimated in a better
way for the chances that it can take place in the future, then it has to be recorded under the head
of expense and loss in the financial statement of the company as well as in the balance sheet
under the heading of liability.
In the issue that has been stated by you for selling the equipment to Goodsports Ltd by Beachlife
Ltd., the seller has to provide maintenance for the equipment for the first 12 months after the
sales has been completed for an amount of $7,500. Nevertheless, Goodsports Ltd is also entitled
for a refund of 15 percent of the maintenance work if they find that the work is not satisfactory
where the value is coming to be ($90, 000 * 15%) that is $13,500. This transaction will be
recorded under the heading of sales in the income statement of the company at $90,000, as the
payment was received on 30th December, 2017 for the sale that was made by the company.
Additionally, the charge for maintain the equipment that was part of the responsibility for the
company was estimated in a reliable manner to $7,500, which needs to be shows under the
heading provision in the financial statement and in the balance sheet as well under the heading
current liability. Additionally, since there is no probability of the contingent liability that has
been established, which amounts to $13,500 will be recorded as notes rather than including it in
the financial statement of the company.

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In case of any doubt or query regarding the issues, you can always contact me in our official
contact number or through e-mail.
Yours sincerely
Ms. Lisa Magenta
Manager
Magenta and Associates
Copy Stewart Hudson
Enc Letter Writing Handout

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Reference List
Gamper, Catherine, et al. "Managing disaster-related contingent liabilities." (2017).
Hendrickson, Joshua R. "Contingent liability, capital requirements, and financial reform." Cato
J. 34 (2014): 129.
Bond, D., Govendir, B. and Wells, P., 2016. An evaluation of asset impairment decisions by
Australian firms and whether this was impacted by AASB 136.
Goodwin, J., Atilgan, Y., Simsir, S.A. and Ahmed, K., 2016. Investor reaction to accounting
misstatements under IFRS: Australian evidence.
Picker, R., Clark, K., Dunn, J., Kolitz, D., Livne, G., Loftus, J. and Van der Tas, L.,
2016. Applying international financial reporting standards. John Wiley & Sons.
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.
Wagenhofer, A., 2014. The role of revenue recognition in performance reporting. Accounting
and Business Research, 44(4), pp.349-379.