Mr. Christopher Sampson
The managing Director
Beachlife Ltd.
Level 7, 927 William Street,
Brisbane QLD 4000
Dear Christopher,
We would like to thank you for the quick response through the mail. We as always try to provide the best possible solutions and this time as well we would like t provide the same solutions so that it can help you in making better decisions regarding the issues faced by your company. We also assure to you that the solutions that will be provided by us will be in accordance to the Corporation Act, IFRS and AASB.
You might be aware of the fact that the assets that are intangible in nature are the ones that cannot be touched. There are some examples of intangible assets as well such as patents and trademarks of the company, methodologies of business, goodwill and the recognition of the brand (Bond, Govendir and Wells 2016). These assets that are intangible in nature may have a definite or an indefinite period of life within the organization. In accordance with the procedure for the valuation of the intangible assets such as recognition of the brand, the valuation of it is not that easy. This requires solid and definite methodology, which will help in the valuation of these assets. The procedure of valuation of the intangible assets such as recognition of the brand is not easy and would require the use of a better style of methodology, which will help in determining its valuation (Goodwin et al. 2016). Additionally, the intangible assets that are generated within the organization will not be recognized until it has been sold by the company. In accordance with Para 63 of IAS 38 and International Financial Reporting Standards (IFRS), the recognition of brand is the ability of the customers in identifying the brand from its artistic symbol and the distinct logo that one can associate with the organization. This also helps in raising the expectation of the customers with respect to the quality of the product and assists the company in accumulating the behaviours and the attributes, which can help in the campaigning of the product as well. The assets that are intangible in nature such as the brand cannot be dealt with in the regular consumer market, as there are different issues that may be generated due to the valuation of these brands (Picker et al. 2016). It can be identified on a further manner that the amount that is paid, which is the brand value are lower than the actual worth of the company when compared to it. An example of this would be the issue that has been stated by the directors as $800,000 has to be recognized by ‘Sun n Surf Shirts’ during the selling of the brand, which can be realized at an amount of $800,000.
The recognition of the assets that has been generated internally such as the brand of the company, there are three options that has to be considered, which will help in the recognition of the brand in the financial statement and will be in accordance with the integrity, objectivity, efficiencies and effectiveness. In accordance with the options that are present regarding the acquiring of the assets through external manner, it needs to be recorded under the goodwill section in the financial statement of the organization that has purchased the asset (Sinclair and Keller 2014). With respect to AASB 138 on Recognition of assets that are intangible, the intangible assets can only be in recognition when the value of it can be measured through a reliable and a futuristic attribute of the economy so that it can help in the attribution of the company (Tysiac 2015). With respect to the given issue as stated by you for the case of ‘Sun n Surf Shirts’, the value of the brand cannot be measured in a reliable manner and the brand does not have a definite useful life. This will prevent the asset to be recognized within the financial asset of the company. Moreover, it can be recorded as notes in the financial statement and can be disclosed in that section only.
With respect to the second issue, we would like to provide the suggestion to you in accordance to AASB 15 Revenue from the Contracts with customer that the measurement and recognition of the entity has to be done through the outflow and inflow of cash that is related in nature can be accounted through the agreement of sales by the following way:-
Furthermore, in accordance with the accounting standards, an amount has to be kept aside by the company as provision so that it can help in meeting the responsibilities that may come up in the future. The primary purpose of this provision will be to adjust the balance in the current year and make it in an appropriate manner. These provisions will be recorded as current liability in the balance sheet of the company and will be recorded under the expenses head in the income statement of the company (Gamper 2017). This provision can be created, which will be probable and has to be set at a future date and a proper date has to be mentioned in the balance sheet for the obligations that are constructive or legal in nature. On the contrary, the liability that is contingent in nature is the liability that is expected and may happen due to the occurrence of any uncertain events (Hendrickson 2014). If the amount of this liability can be estimated in a better way for the chances that it can take place in the future, then it has to be recorded under the head of expense and loss in the financial statement of the company as well as in the balance sheet under the heading of liability.
In the issue that has been stated by you for selling the equipment to Goodsports Ltd by Beachlife Ltd., the seller has to provide maintenance for the equipment for the first 12 months after the sales has been completed for an amount of $7,500. Nevertheless, Goodsports Ltd is also entitled for a refund of 15 percent of the maintenance work if they find that the work is not satisfactory where the value is coming to be ($90, 000 * 15%) that is $13,500. This transaction will be recorded under the heading of sales in the income statement of the company at $90,000, as the payment was received on 30th December, 2017 for the sale that was made by the company. Additionally, the charge for maintain the equipment that was part of the responsibility for the company was estimated in a reliable manner to $7,500, which needs to be shows under the heading provision in the financial statement and in the balance sheet as well under the heading current liability. Additionally, since there is no probability of the contingent liability that has been established, which amounts to $13,500 will be recorded as notes rather than including it in the financial statement of the company.
In case of any doubt or query regarding the issues, you can always contact me in our official contact number or through e-mail.
Yours sincerely
Ms. Lisa Magenta
Manager
Magenta and Associates
Copy Stewart Hudson
Enc Letter Writing Handout
Reference List
Gamper, Catherine, et al. “Managing disaster-related contingent liabilities.” (2017).
Hendrickson, Joshua R. “Contingent liability, capital requirements, and financial reform.” Cato J. 34 (2014): 129.
Bond, D., Govendir, B. and Wells, P., 2016. An evaluation of asset impairment decisions by Australian firms and whether this was impacted by AASB 136.
Goodwin, J., Atilgan, Y., Simsir, S.A. and Ahmed, K., 2016. Investor reaction to accounting misstatements under IFRS: Australian evidence.
Picker, R., Clark, K., Dunn, J., Kolitz, D., Livne, G., Loftus, J. and Van der Tas, L., 2016. Applying international financial reporting standards. John Wiley & Sons.
Sinclair, R.N. and Keller, K.L., 2014. A case for brands as assets: Acquired and internally developed. Journal of Brand Management, 21(4), pp.286-302.
Tysiac, K., 2015. FASB delays revenue recognition effective date by one year. Journal of Accountancy.
Wagenhofer, A., 2014. The role of revenue recognition in performance reporting. Accounting and Business Research, 44(4), pp.349-379.
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