A customer filed a lawsuit against Delta Ltd in December
Assessment 3
Assessment Type: Individual assessment - research report.
Purpose: Assess students' knowledge of relevant accounting standards. Students are required to prepare a research report which evaluates their interpretation of accounting standards. This assessment relates to learning outcomes a, b, c, d and e.
Topic: Research based individual assignment.
Task Details: Students are required to attempt the following two questions.
1. A customer filed a lawsuit against Delta Ltd in December 2018. The lawsuit was for costs and damages allegedly incurred as a result of the failure of one of Delta Ltd's electrical products. The amount claimed was $3 million. Delta Ltd's lawyers have advised that the amount claimed by the customer is extortionate and that Delta has a good chance of winning the case. However, the lawyers have also advised that if Delta Ltd loses the case it is expected that costs and damages awarded would be $500,000.
Required:
A) Explain the accounting for contingent liabilities with reference to AASB 137.
B) Under AASB 137, how should Delta Ltd disclose accounting implications of this lawsuit in its financial statements as at 31 December 2018?
2. In the article entitled 'U.S. firms challenged to get "intangibles" on the books', Byrnes and Aubin (2011) noted that some companies in the United States were accounting for intangibles such as brands, patents, and information technology differently depending on whether they were developed internally or acquired. Different accounting treatments can have a large impact on accounting numbers where internally generated intangibles developed at low cost by one company are sold at significant mark ups to another company.
Required:
A) Explain the accounting for internally generated intangible assets and impairment of intangible assets with reference to AASB138/IAS 38 and AASB136/IAS36 respectively.
B) Discuss any differences between accounting for internally generated intangible assets and acquired intangible assets in AASB 138/IAS 38.
C) Discuss why companies may be reluctant to press for changes in AASB 138/ IAS 38 to require more recognition of internally generated intangible assets.
Hint
Accounts & Finance"The contingent liability is a potential liability which might or might not become an actual liability, where it becoming an actual liability depends on a future event occurrence or non-occurrence.In accounting, some contingent liabilities and their related contingent losses are such as:- recorded with a journal entry- are limited to a notes disclosure to the financial ...
"The contingent liability is a potential liability which might or might not become an actual liability, where it becoming an actual liability depends on a future event occurrence or non-occurrence.
In accounting, some contingent liabilities and their related contingent losses are such as:
- recorded with a journal entry
- are limited to a notes disclosure to the financial statements
- not disclosed or recorded.
IAS 37 Provisions, Contingent Liabilities and Contingent Assets outlines the accounting for provisions i.e. liabilities of uncertain timing or amount, together with possible assets or contingent assets, and contingent liabilities/possible obligations and present obligations which are not probable or not reliably measurable. The provisions are measured at the best estimate including uncertainties and risks, of the expenditure required to settle the present obligation, and reflects the expenditures present value required to settle the obligation where the money's time value is material."
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