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ACC 203 Financial Accounting For Constructive And Legit Responsibilities

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Question:

Develop information gathering (research) and communication strategies to enable the provision of professional advice to a client.
 
 

Answer:

Dear Christopher,

We are extremely happy to see that you have remembered us and that is why we would like to show our gratefulness in response to the mail that you have sent to us. We cannot express our joy to see that that you have written to us and we assure you to provide you with the best solution that is available. With those possibly the best solutions it will become easy for you to make the right choice and that also in an appropriate way. As always we will help you in solving the problems related to accounting in addition to all those critical problems that you have mentioned in the mail. Moreover we will also help you with the recommendation that will be provided to you as per the Corporation Act 2001, AASB and its representations will adhere to the problems of accounting that will be reflected by IFRS (Macve 2015).

You should be acquainted with the fact that there is a term known as contingent liabilities which refer to the fact that there are potential losses that can take place in the future days either due to the occurrence or non- occurrence of a particular event or at the most due to the after effect of a specific event as well. There are many examples which can be considered in this case of contingent liabilities such as the information about failure in organization which is not yet done and claims for its legit characteristic and the warranty present in every product that are procured by the customers. The liabilities which are considered as contingent liabilities need to be displayed in the financial statements of the company and the estimated amount also for keeping a record in the annual balance sheet (Pratt 2016). This is the particular amount that can save the company from any kind of crisis situation that can come up in the near future because an amount of money is already kept aside for the future.      

As per Para 29, it can be observed that in combination and in plenty the list of liabilities of the company need to be treated under the broad heading of contingent liability (Barth 2015). These are the liabilities which need to be taken care of in the primary stage because there is hardly any chance that they will take place in the financial year. That is why the scrutiny of these liabilities has to be in a continuous form so that the output can be easily recognized and that will help the company to be beneficial. Again it can be contradicted that the benefit that the company will get needs to be determined. In determining those, it will be helpful for the current constructive and the legit responsibilities that had a chance to evolve from the past events can be calculated properly and an exact amount of money can be kept aside for it. The primary intention behind this is that it needs to be adjusted with the balance amount of the ongoing year properly which will be beneficial in bringing up the cost that was of another year and the financial statuses that was calculated before can belong to that particular period.

 

That is the reason why the use of provision inside the company is not considered as a version of saving but it might look like one in the first place. Whereas it can be identified in general under the balance sheet which in turn is covered under the broad banner of income statement and it is kept in place of the expenses. In addition to that, the key factor which differentiates provision from contingent liabilities is that the former one is taken as a part of the financial statements where the latter is put under the broad banner of liabilities. Here the amounts are recorded in terms of a note in the financial statement of the company. Also if there is high potential liability which is around 60 percent to 90 percent then it needs to be displayed in the financial statement of the company. On the contrary if the same is more than 5 percent but less than 60 percent then a record needs to be kept in the form of notes in the financial statement of the company. Again if the liability rate is below 5 percent then the company is not allowed to take up any action regarding it.

Hence, in compliance with the AASB 137 in the Provisions, Contingent Liabilities and Contingent Assets, the problem is well mentioned in the previous email received from you (Henderson et al. 2015). In that case it can be recommended that the intangible assets should be present in the balance sheet which will lead to the paying back and then the related identification. For the given case the company has an asset of the value of $87 million as per 30th June 2017 which was recognized by the valuation of the directors. Thus it can be stated that the company must make amendments in its policies and procedures along with the ongoing happenings keeping in mind the recognition of accounting with that of the cost so that it can be carried out and developed on an internal basis. The intangible assets of the company also have a life which will be helpful in paying off the debts within the time frame when it was being used. So this particular amount can be used with the purpose of paying back which needs to be reported at the cost of $87 million so that it can be applied with the remaining vale of the assets.

In accordance with the second case, it can be observed that the Beachlife Ltd. had gone over a sales contract with the Alpine Ltd. on 12th December 2017 with a particular amount of $180000 on the basis of which the payment was done in 31st December 2017. Nevertheless the required equipments were delivered by the company on 22nd December 2017. As per the contract that took place between the two companies, Alpine Ltd. had provide a maintenance factor for the first year after the procurement was completed by the company about the product (Warren 2016). For maintenance the amount that was fixed had a value of $15000. But the Alpine Ltd. was not at all happy with the service provided to them regarding maintenance that was provided to them and that is why they claimed a refund of 15 percent of the total amount that they paid which makes it a total of $180000 * 15% = $27000. Therefore it can observed in this case that Beachlife Ltd. must demonstrate an amount of $180000 as the recorded sale under the broad banner of income related to the sale of the equipments because they had got their exact amount within 31st December 2017. Also the amount of $15000 which was kept aside for maintenance will now be placed under the banner of contingent liability in the balance sheet and also recorded in the income statement under the banner of provision. The amount of $27000 must be illustrated in the financial statement as contingent liability because there is no probability of this liability.

For further doubt or query, call or mail us at any time without hesitation. 

Yours sincerely

Ms. Lisa Magenta

Manager

Magenta and Associates 

Copy: Emily Thompson

Enc: Letter Writing Handout

 

Reference

Barth, M.E., 2015. Financial accounting research, practice, and financial accountability. Abacus, 51(4), pp.499-510.

Henderson, S., Peirson, G., Herbohn, K. and Howieson, B., 2015. Issues in financial accounting. Pearson Higher Education AU.

Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision, Tool, Or Threat?. Routledge.

Pratt, J., 2016. Financial accounting in an economic context. John Wiley & Sons.       

Warren, C.M., 2016. The impact of International Accounting Standards Board (IASB)/International Financial Reporting Standard 16 (IFRS 16). Property Management, 34(3).           

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