Intermediate Financial Accounting: AASB 137 and AASB 138 Analysis

This document presents a comprehensive solution to an intermediate financial accounting assignment. The assignment addresses key concepts including provisions as defined by AASB 137, specifically analyzing a company's obligation to restore a polluted environment and the methods for estimating provision amounts. It then delves into intangible assets, focusing on the definition and recognition of a Master Licence under AASB 138. The solution determines the Master Licence's identifiability, differentiates it from goodwill, and assesses its subsequent measurement. The analysis includes whether the Master Licence has a finite or infinite useful life, considering the license's time frame and renewal possibilities. The document provides detailed workings and a reference list supporting the analysis.

Running head: INTERMEDIATE FINANCIAL ACCOUNTING
Intermediate Financial Accounting
Name of the Student:
Name of the University:
Author’s Note:

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INTERMEDIATE FINANCIAL ACCOUNTING
Table of Contents
Answer to Question No. 1:..............................................................................................................2
Answer to Question No 2................................................................................................................3
Answer to Question No 3................................................................................................................5
Reference List..................................................................................................................................7

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INTERMEDIATE FINANCIAL ACCOUNTING
Answer to Question No. 1:
Dr. Cr.
Date Amount Amount
01-07-2014 Machinery A/c. Dr. $7,00,000
To, Bank A/c. $7,00,000
30-06-2015 Depreciation Expense A/c. Dr. $60,000
To, Accumulated Depreciation -
Machinery A/c. $60,000
Accumulated Depreciation -
Machinery A/c. Dr. $60,000
To, Machinery A/c. $15,000
To, Gain on Revaluation A/c. $45,000
Income Statement A/c. Dr. $60,000
To, Depreciation Expense A/c. $60,000
Gain on Revaluation A/c. Dr. $45,000
To, Asset Revaluation Reserve A/c. $45,000
30-06-2016 Depreciation Expense A/c. Dr. $65,000
To, Accumulated Depreciation -
Machinery A/c. $65,000
Income Statement A/c. Dr. $65,000
To, Depreciation Expense A/c. $65,000
30-06-2017 Depreciation Expense A/c. Dr. $65,000
To, Accumulated Depreciation -
Machinery A/c. $65,000
Loss on Revaluation A/c. Dr. $35,000
Accumulated Depreciation -
Machinery A/c. Dr. $1,30,000
To, Machinery A/c. $1,65,000
Particulars

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INTERMEDIATE FINANCIAL ACCOUNTING
Income Statement A/c. Dr. $65,000
To, Depreciation Expense A/c. $65,000
Asset Revaluation Reserve A/c. Dr. $1,65,000
To, Loss on Revaluation A/c. $1,65,000
30-06-2017 Depreciation Expense A/c. Dr. $30,000
To, Accumulated Depreciation -
Machinery A/c. $30,000
Bank A/c. Dr. $5,00,000
Accumulated Depreciation -
Machinery A/c. Dr. $30,000
To, Machinery A/c. $5,20,000
To, Profit on Sale of Machinery A/c. $10,000
Profit on Sale of Machinery A/c. Dr. $10,000
Income Statement A/c. Dr. $20,000
To, Depreciation Expense A/c. $30,000
Workings:
Date
Opening
Balance
Residual
Value
Estimated
Life (in yrs.)
Depreciation
p.a.
Accounting
Period
(months)
Depreciation
charged
Closing
Value
Revaluation/
Sale Profit/(Loss)
A B C D=(A-B)/C E F=Ex(D/12) G=A-F H I=H-G
30-06-2015 $7,00,000 $1,00,000 10 $60,000 12 $60,000 $6,40,000 $6,85,000 $45,000
30-06-2016 $6,85,000 $1,00,000 9 $65,000 12 $65,000 $6,20,000 $6,20,000 $0
30-06-2017 $6,20,000 $1,00,000 8 $65,000 12 $65,000 $5,55,000 $5,20,000 -$35,000
31-12-2017 $5,20,000 $1,00,000 7 $60,000 6 $30,000 $4,90,000 $5,00,000 $10,000
Answer to Question No 2
(a) In accordance to AASB 137, the provision is defined as the liability of the uncertain
amount and any kind of uncertain timing. These are defined as the liabilities by
predicting that a precise estimation can be made as they are the existent obligations and it

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INTERMEDIATE FINANCIAL ACCOUNTING
is possible that the resource outflow that comprises of the embodying economic benefits
that will be essential in order to settle the accountabilities (Adhariani et al., 2017).
Brown Ltd’s obligation to restore the polluted environment is regarded as a provision
because of the fact that taking care of the environment is an obligation for the company in
order to attain economic benefits as the sustainability of the environment would satisfy
the consumers and thereby the company would be able to operate their business in an
effective manner and generate profit for themselves. The restoration of the environment
is beneficial for the development of the organization as well for the welfare of the society
and accordingly this will be provision for the company.
(b) The three approaches that according to AASB 137 can be used by any entity in order to
estimate the amount that is to be identified as a provision are by determining the expected
value that is to be identified, the present value of the provision and the future event value
(Richardson et al., 2016).
(c) Brown Ltd has taken risk into account by undertaking judgments under the scenario of
uncertainty in order to make sure that the income and the assets are not overstated and the
liabilities are not understated (Overland, 2014). The alternate process of taking risk into
account is done by creating excess provisions.
(d)
Dr. Cr.
Date Amount Amount
30-06-2017 Restoration Cost A/c. Dr. $8,41,485
To, Provision for Contingent Liability A/c. $8,41,485
Particulars

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INTERMEDIATE FINANCIAL ACCOUNTING
Workings:
Cost Probability Probable Cost
A B C=AxB
$8,40,000 20% $1,68,000
$8,00,000 70% $5,60,000
$6,00,000 5% $30,000
$4,00,000 5% $20,000
Expected Cost D $7,78,000
Discount Rate E 4%
Period (in years) F 2
Contingent Liability G=Dx(1+E)^F $8,41,485
Answer to Question No 3
(a) Master Licence is able to satisfy the definition of an intangible asset with respect to
AASB 138 and specifically can determine the criterion of identifiability as the definition
needs the intangible asset to be recognisable in order to differentiate it from the goodwill
(Steenkamp, & Steenkamp 2016). In this manner the master licence is not goodwill for
the company but is an authority or power that empowers the company to undertake their
services and activities in an effective manner.
(b) The process with the help of which Wilson Security Services Ltd would assess the Master
Licence subsequent to the initial recognition is done with the help of the fact that after the
initial recognition, the lessee records for the intangible assets that are under the finance
needs with respect to this standard (Russell, 2017). In this manner the fee that is paid by
Wilson Security Services Ltd is looked upon as the carrying amount of the asset and
thereby the expenses of the intangible assets can be recorded.

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INTERMEDIATE FINANCIAL ACCOUNTING
(c) This question has looked to determine whether the useful life of Master Licence is
determined to be infinite or finite. In this scenario, it is seen an asset is looked upon to be
finite if the number of production, the length or the similar units have the same features
(Bodle et al., 2018). On the other hand, an intangible asset will be looked to have an
infinite useful life as the assessment of the precise factors, there is no foreseeable
restriction to the period during the time over which the asset is estimated to create inflow
of net cash for the entity. In this manner, there has been an observation that Master
Licence has a finite useful life as the license has a time frame till which it has its
usefulness. Once the time period expires and the licence is not renewed then it would not
have any power and authority. The license has the power and authority for the time of
five years after the date of issues and once the time expires, the license does not have any
kind of validity. The license does not remain an intangible asset after the expiry of the
time period and after the renewal of the license the license gains its usefulness and
accordingly can be used for the purpose of undertaking business in an effective manner in
the business environment. In this manner, it can be said that Master License has finite
useful life.

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INTERMEDIATE FINANCIAL ACCOUNTING
Reference List
Adhariani, D., Sciulli, N., & 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). Palgrave Macmillan, Cham.
Bodle, K., Brimble, M., Weaven, S., Frazer, L., & Blue, L. (2018). Critical success factors in
managing sustainable Indigenous businesses in Australia. Pacific Accounting
Review, 30(1), 35-51.
Overland, J. (2014). Corporate Social Responsibility Reporting and Directors’ Duties: The
Australian Experience. In Corporate Social Responsibility in the Global Business
World (pp. 135-152). Springer, Berlin, Heidelberg.
Richardson, G., Taylor, G., & Lanis, R. (2016). Women on the board of directors and corporate
tax aggressiveness in Australia: An empirical analysis. Accounting Research
Journal, 29(3), 313-331.
Russell, M. (2017). Management incentives to recognise intangible assets. Accounting &
Finance, 57(S1), 211-234.
Steenkamp, N., & Steenkamp, S. (2016). AASB 138: catalyst for managerial decisions reducing
R&D spending?. Journal of Financial Reporting and Accounting, 14(1), 116-130.