Report on Financial Accounting Issues and Solutions for Pewter Ltd

This report provides a comprehensive analysis of the financial accounting and reporting issues encountered by Pewter Ltd. It delves into the complexities of accounting for deferred tax assets (DTA) and deferred tax liabilities (DTL), highlighting the time consumption and financial costs associated with these processes. The report also examines the challenges related to accounting for sales revenue adjustments and inventory returns from retailers, including the recording of expenses incurred on product advertisement. Through a detailed examination of these issues, the report offers suggestions for improvement, including the importance of accurately recording financial transactions and the significance of maintaining comprehensive financial records. A business letter from a management accountant at Mckenzie and Associates is included, providing practical advice and recommendations to address the identified problems. The report concludes by emphasizing the critical role of financial accounting in determining an organization's economic position and supporting informed decision-making for future business operations. The appendices include examples of DTA calculations and illustrations of the impact of tax changes.

FINANCIAL ACCOUNTING
AND REPORTING

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
PART 1............................................................................................................................................1
Issues occurred in financial recording for Pewter Ltd................................................................1
PART 2............................................................................................................................................4
Business letter to Pewter Ltd for reducing occurred issues........................................................4
CONCLUSION ...............................................................................................................................5
REFERENCE...................................................................................................................................7
APPENDIX......................................................................................................................................8

INDEX OF TABLES
Table 1: Income statement...............................................................................................................8
Table 2: Tax authority......................................................................................................................8

ILLUSTRATION INDEX
Illustration 1: Impact on changes in tax due to DTA and DTL.......................................................3

INTRODUCTION
Financial accounting and reporting is useful for maintaining all transactions of the
enterprise regarding business operations. Including this, through operations' recording,
profitability of entity is also analysed on which forecasting is created for future activities. The
present report is based on understanding issues related to Mr. Con Pewter Managing Director of
Pewter Ltd on deferred tax assets (DTA) and deferred tax liabilities (DTL) entries in financial
statements of the organisation. Similarly, accounting for presenting expenditures incurred on
advertisement of products by retailers of Australia in each quarter. However, on these issues,
suggestions to overcome the occurred issues through business letter by accountant of Mckenzie
and Associates is to be expressed. Therefore, issues related to accounting of financial
transactions and methods to solving out them will be introduced through this case study.
PART 1
Issues occurred in financial recording for Pewter Ltd
In the case scenario, it is recognised that Pewter Ltd is facing issues related of time
consumption on accounting for DTAs and DTLs. Similarly, making adjustments that affect sales
revenue and return of inventories by retailers and its entry in financial accounting (Cheng,
Ioannou and Serafeim, 2014). However, accounting of deferred assets and liabilities as well
adjustments in financial statements' importance can be described as below:
 Too much time consumption on accounting of DTA and DTL: As per the case
scenario, it is noticed that too much man hours are consumed on accounting of deferred
tax assets and liabilities in balance sheet. It is recorded in current assets side of the
balance sheet impact on economic position of the enterprise. However, it is linked with
future business operations and forecasting on them as well used for reducing taxable
income (Midrigan and Xu, 2014). Moreover, it is created when income tax payable is
higher than tax paid to government. Therefore, accountant of the organisation should
record these transactions which is helpful for forecasting on future business operations
for Pewter Ltd.
 Money related issues: Including above mentioned issue, it is determined that
organisation has to spend time and money on accounting as well suggestions regarding
accounting of of deferred assets and liabilities (Segal, Shaliastovich and Yaron, 2015).
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Similarly, entity follows business ethics and do not cheat on tax returns. Therefore,
financial issues and time consuming occurred in preparing and maintaining balance sheet.
 Recording of adjustments regarding paying fee to retailers for advertisement of
products:
In the given case study, it is evaluated that Pewter Ltd has created agreement with its several
retailers to pay charges on shipment of products monthly for advertise and selling them.
However, it is contracted that retailers return sales revenue with deducting cost incurred on
promoting its goods quarterly. In this way, board of Pewter Ltd express view that it is not
necessary to accounting these adjustments as consideration of cost of doing business. Similarly,
it is expressed that received amount will be recorded as sales revenue (Pasquariello, 2014).
Therefore, Pewter Ltd asks suggestion on recording of this adjustment separately or not.
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Therefore, issues occurred in recording DTA, DTL and adjustments are occurred that
affect sales revenue and financial performance of Pewter Ltd. It is also recognised that for
recording these transactions, too much time spent and also impact on cost for doing business. In
this way, organisation asks suggestion to solve out the issue as well curious to known about why
it is important to record these transactions in financial statements of the enterprise. Along with
this, it can be recognised that imbalanced financial recording may determine affect monetary
position of the enterprise. It also affects inventory management and recording of each and every
financial transaction for forecasting and decision making on further years' business operations for
Pewter Ltd. However, amount of both current assets and liabilities of balance sheet can be equal
impact on financial position of the enterprise and further business activities (Financial
3
Illustration 1: Impact on changes in tax due to DTA and DTL
(Source: Changes in taxes for DTA and DTL)

Accounting, 2016). Thus, it is analysed that these issues can be reduced effectively in respect of
recording financial transactions and achieving economic stability of the company.
PART 2
Business letter to Pewter Ltd for reducing occurred issues
Above mentioned issues can be solved out by analysing significance of recording
deferred assets, liabilities and adjustments in financial statements for Pewter Ltd. Being
management accountant of Mckenzie and Associates, I would like to suggest for recording of
deferred tax assets and liabilities with its importance that can be understood through business
letter as:
Mr. Con Pewter
Pewter Ltd.
Mckenzine and Associates
668 George Street
Melbourne, VIC 3000.
Subject: Suggestions on reducing issues occurred in Pewter Ltd.
Recording of deferred assets, liabilities are essential affect economic position of the
enterprise. However, difference in recording of deferred assets can be explained through this
example (See appendix 1st). In this example, two tables are mentioned of income statement and
tax authority which shows importance of recording DTA. . As interest rate is assumed as 25%
on business operations. Therefore, difference in net income has been introduced affect
monetary position of the enterprise. As per this calculation, it would be suggested for Pewter
Ltd to record DSA and DSL for effective forecasting on further business operations. Including
this, it will be helpful for reducing tax issues and increasing profitability of the entity. Thus, this
accounting should be recorded to identify monetary position of organisation efficiently.
Recording of adjustments in financial transactions: As board of Pewter Ltd asks
suggestions on recording of financial transactions with retailers to entering sales revenue and do
not recording of expenses incurred on advertisement of products and services. Similarly,
retailers also return remaining inventories with revenue affect inventory management and
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productivity of the enterprise. It impacts on net income of the business entity regarding its
operations. Although cost incurred on promoting goods by retailers is not so mandatory to be
recorded but it is needed to be recorded affect all expenses, income and further financial
transactions for the organisation. However, an idea generated regarding expenditures incurred
on business activities in the future time demonstrates actual economic position of entity.
Besides this, accountant of the organisation should record all transactions related to expenses on
each business operation separately as well in the financial statements. Therefore, a clear and
effective financial recording can be presented affect business activities in the future time.
Similarly, it is considered as additional expenses like cost on shipping, advertisement of goods
and services etc. but required to be maintained. However, actual position of financial
transactions regarding incurred expenses and gained sales revenue is recognised that affect
profitability and further business operations for Pewter Ltd.
Overall, it is suggested to accountant of Pewter Ltd to prepare and maintain each and
every financial transaction affect profitability, monetary position and further business
operations of the entity. It is related with profitability and inventory management of the
business organisation . Therefore, actual position of entity can be recognised affect further
business activities also generates ideas for inventory management and optimum utilization of
resources and fund efficiently. Including this, reduction in taxes different strategies for
improving economic position are determined affect business activities and its strength in respect
of business and marketing of goods.
Yours Faithfully
Management accountant
Mckenzine and Associates
CONCLUSION
It is concluded that recording of each and every financial transaction is essential affect
economic position of organisation. In this regard, usefulness of accounting for deferred assets
and liabilities as well all expenditures incurred by Pewter Ltd has been understood. However,
suggestions on financial recording for the organisation is identified through this assignment.
Including this, impact of recording these financial transactions has been understood influence
monetary position of enterprise as well different ideas for financial development is expressed.
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Thus, deep knowledge regarding financial accountancy and maintaining all records is determined
affect financial performance of the enterprise through this report.
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REFERENCE
Books and Journal
Cheng, B., Ioannou, I. and Serafeim, G., 2014. Corporate social responsibility and access to
finance. Strategic Management Journal. 35(1). pp. 1-23.
Midrigan, V. and Xu, D.Y., 2014. Finance and misallocation: Evidence from plant-level data.
The American Economic Review. 104(2). pp. 422-458.
Pasquariello, P., 2014. Financial market dislocations. Review of Financial Studies. 27(6). pp.
1868-1914.
Segal, G., Shaliastovich, I. and Yaron, A., 2015. Good and bad uncertainty: Macroeconomic and
financial market implications. Journal of Financial Economics. 117(2). pp. 369-397.
Online
Financial Accounting. 2016. [Online]. Available through:
<https://www.saylor.org/site/textbooks/Financial%20Accounting.pdf>. [Accessed on 16th
September 2017].
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APPENDIX
Appendix 1st:
Example of Deferred Tax Asset Calculation:
Income statement:
Table 1: Income statement
Particulars Amount ($)
Revenue 5000
Warranty Expense 70
Taxable Income 4930
Taxable Payable 1232.5
Net Income 3697.5
Tax authority:
Table 2: Tax authority
Particulars Amount ($)
Revenue 5000
Warranty Expense 0
Taxable Income 5000
Taxable Payable 1250
Net Income 3750
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