| Country : | Australia |
|---|
Assignment Task :
Subject Learning Outcomes
a) Analyse fundamental accounting theories and standards in order to critically evaluate their relations
b) Present accounting reports for different types of business structures and industries
c) Solve a range of financial accounting problems by applying analytical and problem-solving techniques
d) Make soundly based financial accounting decisions by applying critical and logical reasoning
e) Critically discuss the implications to various stakeholders of the potential ethical and regulatory dimensions of financial reporting.
Question 1
Task details: In June 2020 Great Southern Ltd built a submarine under a contract with the Australian Navy. The contract required Great Southern Ltd to provide a one-year warranty. The accountant was unsure how to measure the warranty because the design of the submarine differed from those previously built by Great Southern Ltd. The trainee accountant was asked to obtain more information, so she asked some engineers for their advice on the expected cost of servicing the warranty. The trainee’s report is summarised below.
The accountant needs to decide whether to recognise a provision for warranty and, if so, how to measure it.
Required:
a) Describe two principles from AASB 137 that are relevant to the accountant’s decision.
b) Use the principles identified in (a), above, to evaluate the trainee accountant’s recommendation.
c) Explain how the provision for warranty should be recorded when the contract was signed?
d) Based on AASB 137.37 and AASB 137.38, explain how the trainee accountant could use the engineer’s estimate to determine the amount for provision for warranty.
Question 2:
Baine Ltd is an Australian mail-order company. Although the sector in Australia is growing slowly, Baine Ltd has reported significant increases in sales and net income in recent years. While sales increased from $100 million in 2010 to $240 million in 2019, profit increased from $6 million to $24 million over the same period. The stock market and analysts believe that the company’s future is very promising. In early 2020, the company was valued at $700 million, which was three times 2019 sales and 26 times estimated 2020 profit.
Company management and many investors attribute the company’s success to its marketing flair and expertise. Instead of competing on price, Baine Ltd prefers to focus on service and innovation, including:
• free delivery
• free gift with orders over $200
As a result of such innovations, customers accept prices that are 60% above those of competitors, and Baine maintains a gross profit margin of around 40%. Nevertheless, some investors have doubts about the company as they are uneasy about certain accounting policies the company has adopted. For example, Baine Ltd capitalises the costs of its direct mailings to prospective customers ($8.4 million at 30 June 2019)
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