Financial Accounting 2 (ACC203) - Letter of Advice for White Pty Ltd

This document presents a letter of advice prepared by a graduate accountant from Baker and Associates for Scott White, the managing director of White Pty Ltd. The letter addresses several key accounting issues faced by the company, including warranty provisions for computer chips, the impact of n...Read More

Running head: MANAGEMENT ACCOUNTING
Management Accounting
Name of student:
Name of the University
Authors’ note

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MANAGEMENT ACCOUNTING
BUSINESS LETTER
Baker and associates
55 York Street, Sydney.
NSW 2000.
Date: 16-9-2019
Scott White
Managing director of White Pty Ltd
Level 2, 55 York Street,
Sydney NSW 2000
Dear, Scott White,
I am writing this letter on behalf of your email regarding the accounting issues that
the company was faced during the accounting period. This letter is providing the possible
solutions and relevant accounting disclosures statements on behalf of accounting standards
and accounting principles. Those issues and its probable solutions are given as follows;
Issue 1:
White Pty Ltd is the manufacturer and seller of computer chips. Normally, the company
selling its products under the terms of the contract for sale, including warranties as an extra
benefit. Such warranties would be including repair or replacement of products if such
products faced any complications. Generally, the company providing three years of
warranties for every product from the date of sale. Now in the first year that the warranty has
been available, the company does not have any relevant data regarding the warranties.

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According to the provisions given under the AASB 137 provisions, contingent Liabilities and
Contingent Assets, in case of a business, there are several similar obligations available like
warranties for individual products. The probability of cash outflow will be required in case of
a settlement, determined by considering the class of responsibilities as a whole. Normally
such uncertainties are surrounding, or the company should recognize the probable expenses
as the number of provisions regarding the warranties of such products. The provisions are
measuring in case of involving a large population of items, then normally the obligations are
estimated by weighting all possible outcomes through their associated probabilities.
As per AASB 137 Para 14, a contingent liability is normally recognized when the company
(White Pty Ltd) has some present obligations due to its past event. It also has a probability of
outflow of some economic benefits in the case to settle the obligations and such obligations
can be reliably evaluated.
According to the provisions that are provided in the Para 36, generally, the provisions are
measured at the best possible estimates regarding expenditure, which is required to settle the
present obligation at the end of normal reporting period along with consideration relating to
risk or uncertainties. Generally in case of disclosures, for each an individual provision, the
opening and closing amounts need to disclose. As per the provision of Para 84-92, the main
reason behind any changes, including the nature of obligations that are giving rise to the
general rules need to disclose in the annual report.
Using the provisions providing under the AASB 137, the White Pty Ltd. is needed to disclose
the number of warranties in its financial statement. Under the head of clauses, contingent
Liabilities and Contingent Assets. It is one type of obligations of the company. In case of
providing such warranties for individual products, the company should maintain the proper
amount of provisions for those probable future expenses. Generally, as per the terms, the

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company normally provide a warranty of three years from the date of sale. So, the company
should follow the provisions and maintain the entire probable and possible expenses
regarding the product warranty for the next three years.
Issue 2:
White Pty Ltd. is continuing its operation in New Zealand. New Zealand has recently faced
some issues relating to natural disasters, which is affecting the services of White Pty Ltd
seriously. Most of its suppliers were significantly affected, and they are not in a position to
continue their business operation further. In that situation, one of the plants of White Pty Ltd.,
which is used in the process can able to use further only half of its standard capacity for the
next three year.
According to the provisions given under the AASB 116, generally, any Property, Plant and
Equipment of the company, which is used to conduct its business operations are considered
as tangible assets. Such assets need to disclose in its acquired value less accumulated
deprecations, in the company’s financial statements. In accordance with the para of 74(c)
usually, the amount of contractual commitments for using such property, plant and equipment
in the course of constructions need to disclose in the financial statements.
Another AASB 117 for lease, provide some provisions which implicate that if any assets are
distributed for business operations normally consider as the transfer of property for the
purpose lease. In such a case, the company need to disclose its incomes from property lease
in the income statement during its leasing period. According to the para of 14, usually, any
lease of plant or property generally considered as operating or fiancé lease.
According to the provisions given under the AASB 137 provisions, contingent Liabilities and
Contingent Assets, in case of any natural disasters, which is affecting the company’s assets

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seriously, the company need to disclose the value of such assets under the head of provisions,
contingent Liabilities and Contingent Assets in financial statements. In accordance with the
provisions given in such AASB, the company should make a provision account for such
affected assets and also need to consider the reasonable value after deducting any amount if
received as compensation from third parties.
Using the provisions that mentioned above, it can be provided as a suggestion that the
company is required to maintain such amount of losses in its income statement and also need
to disclose a provision account to make some relevant provision for failure.
Along with those above mentioned issues, the company White Pty Ltd. faced another
problem where the competitors of the company announced that it had developed a new
generation of computer chips, which would result in 15 percent reduction in the cost to
manufacture.
The company, White Pty Ltd., is generally engaged in manufacturing computer chips.
According to the provision of AASB 102 Inventories, para 9 inventories are generally valued
at cost price or net realizable value whichever is lower. Based on same provisions it can be
concluded that in case of White Pty Ltd., the company can consider the value of such chips at
15 percent lower price as it is the present realisable or market value of those computer chips.
Issues 3:
White Pty Ltd. had several employees, who have been working under this company from a
long-time period; some of them are from more than ten years. The company has always
provided annual leave and sick leave to its employees. However, the company’s accounting
team is not familiar with any other benefits are contributing to the employees or not.

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An employee benefit is generally defined as the kind of benefits, which includes various
types of non-wages compensation usually provided to employees in addition to their regular
wages or salaries. The provisions of AASB 119 Employee benefits represent how the
employee entitlements are to be recognized and measured in the company’s financial
statements. As per the provision of AASB 119, provisions for employee liabilities are
normally disclosed in the balance sheet of the company. Long term liabilities, such as
extended service leave that are normally not expected to be paid within 12 months. It is
generally measured at present value whereas current service cost and actuarial gains and
losses are normally included in the profit and loss or income statements of the company. In
case of assets are reserved for funding employee benefits, such assets are recorded at fair
value.
As per the para 5 of AASB 119, employee benefits generally include the short-term employee
benefits, which is expected to be settled wholly before twelve months after the end of the
annual reporting. Post- employee benefits such as the recruitment benefits, life insurance or
Medicare benefits and long-term employee benefits such as long-term paid absences such as
long-service leave, service jubilee benefits and also the long-term disability benefits or
termination benefits.
In the para 8 of the AASB 119, the general definition of Employee benefits is provided.
Employee benefits usually include all forms of consideration given by an entity in exchange
for service rendered by the employees. The short-term employee benefits are defined as the
benefits, which is expected to be settled wholly before twelve months after the end of the
annual reporting. The post-employment benefits are normally defined as the benefits that are
payable generally after the completion of employment servicing period.

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As per the provisions have given under the AASB 119, the company needs to disclose its
employee benefits norms in the annual report of the company. Along with such, the company
should also need to aware every employee’s about the benefit’s policies. In case of providing
such benefits, the company also need to record such expenses in the financial statements of
the company.
It can be concluded that this letter includes all the relevant solutions regarding accounting
issues. Meeting in person would allow us to evaluate your wants and needs fully, our team is
available to meet any time. Please let me know at your earliest convenience when you would
be available.
Cordially,
Baker and associates
55 York Street, Sydney.
NSW 2000.

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Bibliography and References:
AASB137(2019).[ebook]Availableat:https://www.aasb.gov.au/admin/file/content105/c9/
AASB137_07-04_COMPjun14_04-14.pdf [Accessed 15 Sep. 2019].
AASB116(2019).[ebook]Availableat:https://www.aasb.gov.au/admin/file/content105/c9/
AASB116_08-15_COMPoct15_01-18.pdf [Accessed 15 Sep. 2019].
AASB117(2019).[ebook]Availableat:https://www.aasb.gov.au/admin/file/content105/c9/
AASB117_08-15.pdf [Accessed 15 Sep. 2019].
AASB119(2019).[ebook]Availableat:https://www.aasb.gov.au/admin/file/content105/c9/
AASB119_09-11.pdf [Accessed 15 Sep. 2019].
Botelho, R., Azevedo, G., Costa, A. and Oliveira, J., 2015. Property, Plant and Equipment
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Dau-Schmidt, K.G., Finkin, M. and Covington, R., 2016. Legal protection for the individual
employee. West Academic.
Lessambo, F.I., 2018. Long-Term Assets: Plant, Property, and Equipment. In Financial
Statements (pp. 81-93). Palgrave Macmillan, Cham.
Shields, J., Brown, M., Kaine, S., Dolle-Samuel, C., North-Samardzic, A., McLean, P.,
Johns, R., O'Leary, P., Robinson, J. and Plimmer, G., 2015. Managing employee performance
& reward: Concepts, practices, strategies. Cambridge University Press.