According to the AASB conceptual framework, cash is defined as an asset for the company. The definition of asset provided by the framework is that they are those future economic benefits which are controlled or owned by the organization as an outcome of past transactions or events (AASB. 2018). In case of Himalaya Ltd, the cash worth $20,000 was an asset for the café. The same got stolen and for that, accountant needs to take it into consideration by passing a journal entry. It is the situation of loss by theft and as per the accounting framework; loss is treated as an expense for the entity. In accounting, all the expenses and losses will be debited and the cash account will get credited. So the entry will be:
Loss by theft a/c $20,000
To cash a/c $20,000
This is how the accountant will record the event in café’s books of accounts.
The court has ordered to Himalaya Ltd to repair the environmental damage and the company is not aware about the cost to be incurred for the repair work. The accountants are required to make a provision for the environmental costs and disclose the related information in their financial reports. The AASB 134 requires companies to prepare their Interim Financial Report in which they have to make estimates regarding the environmental cost that are going to be incurred in future. The provisions regarding the same has to be made with a sufficient amount as the expense has not incurred yet and is likely to be incurred in future (AASB. 2015).
The café has received a donation of worth $10,000 for which the entry has to be made in the books. The accountants are required to pass an entry for the same. As donation received is an income for the café and is credited whereas the cash received will be an asset that has to be debited. The journal entry will be:
Cash a/c $10,000
To Donation received a/c $10,000
Accounting standard AASB 1004 requires the companies to disclose all the contributions received in form of grants and donations by individuals other than government and owners. As per the framework, the amount of donations is to be recognized in company’s financial statements (AASB. 2015). The conceptual framework of AASB has defined various requirements for the recognition, presentation and disclosure of different type of elements in the financial statements of the entity. The accountants of Himalaya Ltd have to follow such framework in order to record such transactions and events in their reports.
Capitalized costs are the expenses that are added to the value of fixed assets at cost basis. Such costs generally incurred at time of purchasing or installing a fixed asset such as machinery, land, plant and equipment. According to the accounting standard 10 Accounting for Fixed Assets, the component of cost of a fixed asset includes its purchase price, import duties and any sort of directly attributable cost of installing the asset in the business. The costs which are directly attributable include delivery and handling costs, installation costs, site preparation and professional fees (MCA. 2018). International Accounting Standard (IAS) 16 Capitalization of Costs suggested that all the expenses incurred in relation to assets are to be capitalized until the asset is brought to its location and is in working condition (IAS. 2014). According to these standards, every company which is installing or introducing a new asset into its business has to capitalized some specific costs in order to calculate the total cost of that fixed asset. However, expenses incurred after the asset has brought to the location and in working mode are not included and capitalized in the total cost.
In case of Riyaz Ltd, the total installation cost of machinery will include labor and travel cost for the managers and freight and insurance charges which incurred in respect of brining the new machinery in the factory. Labor and cost of travelling has incurred in order to inspect the possible new machines and bring the suitable one in the factory. It is kind of a transportation cost which is to be capitalized as it has been incurred before bringing the machine into working mode. As far as freight and insurance costs are considered, they are the handling cost incurred at time of introducing the machine in the factory. In addition to this, the renovation cost incurred on a particular section of the factory before getting the machine should also be capitalized in the total cost of the asset. It is a kind of site preparation cost incurred with a motive to ensure that all other parts of the factory can easily access the machinery. All the above discussed costs has incurred to bring the machine to its location and creating the conditions needed for it to operate in a manner decided by the management.
Copyright is the intangible asset which means the legal right of the owner of an intellectual property. Intangible assets refer to the non-physical assets that are used by the company over the longer period of time. They require a proper valuation and accounting in accordance with the relevant standards. The Australian accounting framework consists of a standard AASB 138 Intangible Assets which includes the recognition and measurement of all the intangible having finite and indefinite useful lives. Generally, assets having identifiable value and life span and are acquired appears on the balance sheet of the company as they can be easily amortized. According to the standard, intangibles having finite useful life are amortized by applying a relevant and suitable amortization method (AASB. 2015). Moreover, the residual value of such asset is assumed to be zero until and unless there is a probability of purchasing the asset by third part or there is an active market for that asset. On the hand, intangible assets with indefinite life like goodwill are not amortized and are tested for impairment according to AASB 136. Companies are required to compare the carrying amount and recoverable amount of the asset annually or where there is a likelihood of conducting impairment of that asset. Standard also require entities to disclose about whether the intangible asset is acquired or internally generated (AASB. 2015).
In case of Harry Ltd, two copyrights are been there one is being internally generated at a cost of $10,500 and other is acquired from the Oxford University Press for $12000. The treatment of both the assets will be as follows:
According to the Australian standard AASB 119 Employee Benefits there are some short and long term benefits provided to the employees. Short term employee entitlements include those benefits which are to be settled within the 12 months after the year in which the service is rendered by the employee. They include salaries, wages, annual leaves and others. Long term employee entitlements are the benefits which are been settled in more than 12 months after the year of rendering services such as gratuity and long service leaves. The liability for long service leaves are measured on the basis of the various factors including some assumptions such as salary inflation and discounting rate. Changes in the factor will affect the carrying amount of liability (AASB. 2014).
It will be advisable to the accountant of Harry Ltd, to follow the approach that is in accordance with the AASB 119. As per the standard, the liability for long service leave has to be recognized as current and non-current liability, depending upon the criteria of 12 months. Instead of considering the 10 year period, they should recognize it for 12 or more than 12 months as suggested by the standard. Moreover, the liability should be measured at the present value and classified as long term benefits.
References
AASB (2014). Employee Benefits. [Online]. Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB119_09-11_COMPjun14_07-14.pdf [Accessed 24 September 2018].
AASB (2015). Contributions. [Online]. Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB1004_12-07_COMPjan15_07-15.pdf [Accessed 24 September 2018].
AASB (2015). Intangible Assets. [Online]. Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB138_08-15_COMPoct15_01-18.pdf
AASB (2015). Interim Financial Reporting. [Online]. Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB134_08-15_COMPoct15_01-18.pdf [Accessed 24 September 2018].
AASB (2018). Definition and Recognition of the Elements of Financial Statements. [Online]. Available at: https://www.aasb.gov.au/admin/file/content102/c3/SAC4_3-95.pdf [Accessed 24 September 2018].
Austin, L. (2007). Accounting for intangible assets. University of Auckland Business Review, 9(1), pp.63-72.
Collings, S. (2011). Accounting for intangible assets. Global Accountant Magazine, pp.22-25.
IAS (2014). IAS 16: Capitalization of Costs. [Online]. Available at: https://www.frascanada.ca/international-financial-reporting-standards/ifrs-discussion-group/search-past-meeting-topics/item81466.pdf [Accessed 24 September 2018].
MCA (2018). Accounting for Fixed Assets. [Online]. Available at: https://www.mca.gov.in/Ministry/notification/pdf/AS_10.pdf [Accessed 24 September 2018].
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