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History of Financial Accounting Reporting

Question:

Discuss about the History of Financial Accounting Reporting.

Answer:

One of the major issues that were viewed by the company is adjustment of deferred tax liabilities in the current year from the perspective of financial accountant. In other words, this letter will be addressing the issue where the selected company is not willing in cheating for making return at the time of adjusting the tax payable amount in a given reported period (Weil, Schipper and Francis 2013). This present letter will be discussing on the issues that is faced by the company and should be reduced in future course of time.

Deferred tax liability is one of the items that are shown in the statement of financial performance that mainly accounts for adjusting with the financial aspects such as accounting of the company as well as carrying valuation of taxation at the same time (Saunders and Cornett 2014). It is one of the essential factors in understanding what the company can deduct from tax as well as purpose of the accounts in an effective way. It becomes important for observing the dissimilarity connecting taxable profits of the company as well as proceeds recorded previous to tax. By using applied secretarial for deferred tax liabilities, it is the accounting that is used for deferred tax liabilities where a company will be explaining unrealized tax debt (Pratt 2013). This will take into account the statement of the performance for a given company. In accordance with AASB 112, when tax becomes realized, it involves together the accounts of DTL as well as cash account of the firm that will be even being summary with the same value. On the other hand, over-paid taxes amount will be returned to the company in way of tax relief (McLaney and Atrill 2014). AASB 112 explains that DTA will be dealt as temporary deductable differences between unused taxes that are unused tax that loses forward in the most appropriate way. At the time of collection of tax, company requires to account it as a deferred tax in accordance with AASB 112 (Weil, Schipper and Francis 2013). Therefore, it is essential for financial consideration aligning with the current tax liability. For instance, $ 200 will be treated as current tax operating cost that will be accustomed under the present tax liability as well as posted beneath the current liabilities account as mentioned in the statement of monetary presentation in an effective way (Macve 2015).

On the contrary, when the business makes both the explanation for DTA as well as DTL, then it is required to calculate tax in the given year where the different quantity will be recorded under the existing liability as mentioned in the statement of monetary presentation (Lovell 2014).

From the above journal entries, it indicate that the company will be getting different results when an accountant will not be considering difference of tax amount at the end of financial year (Horngren et al. 2013). At the same time, company requires paying tax such as deferred figure at the end of reporting period. Therefore, there is difference between temporary of deferred amount that will be having strong impact in the current reporting year. It is essential in investing time for calculating DTA as well as DTL as posted as current assets as well as current liabilities on simultaneous terms (Henderson et al. 2015).

In the letter, it was found that the concern was regarding variance handling in the warranty accounting (Edwards 2013). According to AASB 137, it discusses on contingent liabilities and contingent assets where company unit will have a strategy for guarantee under the compliance of the corporation. This company had made promise for their customers for repairing or rebalancing the types of damages of items for given days considering sales (Dutta and Patatoukas 2016). In other words, some eventual costs gets related with the obligations of the warranty that cannot be known with certainty as mentioned at a given sale date. It is essential in making a reasonable estimation used for warranty obligations or expenses at the same time. This costs needs to be incorporated aligning with present revenues from sales. As far as future costs are concerned, it includes warranties and guarantees that will be associated with the present revenues from sales (Deegan 2013). The company method will not be recognizing the guarantee expenses before the cost of service contract after actual incurring as it will be treated wrong. It is not right in approaching ways in order to deal with such frequent variances in the amount of warranty expenses (Weil, Schipper and Francis 2013).

If a particular product needs to be replaced or repaired, in that case the business entity will be incurring the cost of warranty in conducting activities for specified time (Bazley et al. 2013). These are the potential costs in relation with warranty as treated under contingent liability for business enterprises. It is essential in consider the fact that recording of such warranty costs will be presented in the statement of financial of business entities. In case of generalized concept of accounting. It involves all companies for understanding the potential impact for estimating the extent of potential liabilities (Saunders and Cornett 2014).

It is essential for the company in following the below-mentioned formulae at the stage of accounting:

Cost of the units × subject to a claim × cost per claim (average) = Warranty Costs

It is advisable to the company in using historical data for the purpose of establishing proportion of goods that is likely to be treated as warranty assert (Weil, Schipper and Francis 2013). In other words, some of the industrial data is required for calculating the average cost for replacing a repair product. It requires complying with the matching concept in the accounting whereby estimated cost will be related to warranty (Saunders and Cornett 2014). This will be recorded in the current period as the revenue will be recognized from the product sale. In order to complete the transactions, following amounts needs to be journalized:

It may happen sometime that the warranty cost liability will be treated as warranty reserve (Weil, Schipper and Francis 2013). For the first year of operation, it can be viewed that claim for warranty will be produced for products that is being sold by the business operations as well as actual costs. These costs will be incurred after replacing or repairing the given defective items. As far as actual cost for warranty is concerned, it incurs amount of $ 6550 at the specified period. These are the operating cost of guarantee that has been accounted and presented in the declaration of monetary presentation as not in the statement of comprehensive profits (Saunders and Cornett 2014). Actual costs journal entries has been recorded for warranty expenses are as follows:

It is therefore noticed that your company will face difficulty on handling the variation in the amount of cost of warranty (Saunders and Cornett 2014). Balanced amount of the cost of warranty arrives at $ 7500- $ 6500 that equals to $ 950. The company should view at the scenario as it is enough in covering the remaining potential claims for the sold products in the first year. Such claims remain fluctuating because of escalating proportion of claims or cost of repair. Some of changes will be accounted as it will reflect in the book of accounts. For example, warranty expenses arrive at 2500, then the designed figures that needs to be enhanced by $ 2500- $ 950 equals to $ 1550 (Weil, Schipper and Francis 2013). The company requires passing the journal entries are as follows:

It is recommended to the company in continuing the process till the expiration of warranty. Till that point of time, it is required to allow further warranty cost in the book of accounts.

I would hereby point out that you company us deciding in selling one of the division to a Canadian business as it really good because new corporation will be paying an additional $ 1.5 Million with fair value of the particular net assets. In other words, it is essential in understand that goodwill will be treated as fair market value of the particular assets as well as liabilities of the corporation after acquisition of purchase price as mentioned AASB 1013 (Saunders and Cornett 2014). In case these deal with the Canadian company will gets through, then it will give $ 1.5 Million as goodwill as it will be adjusted with the book of accounts. This standard explains that the goodwill will be dealt if the deal had continued effects into the given business (Weil, Schipper and Francis 2013). Therefore, added pay of $ 1.5 Million will be over the fair value of the particular net assets at the time of making the statement of financial performance Unrecorded patent will be journalized by your company like:

In the previous letter, it was mentioned that company has established shares from the Canadian company in return of this division as it will be considered as shareholder of Canadian company (Saunders and Cornett 2014). In other words, some consideration has to be mentioned based on how much ownership company will be getting for a specified period. For example, if an individual is holding more than 50% shares of Canadian corporation, the business will be treated as auxiliary as well as recorded in given shares as mentioned in the statement of financial presentation. Therefore, the shareholding of the Canadian company will be accounting for the given shares as investment in asset column of balance sheet for a specified period (Weil, Schipper and Francis 2013).

Reference List

Bazley, M., Hancock, P., Fisher, C., Lovell, A., Berk, J., DeMarzo, P., Berk, J. and DeMarzo, P., 2013. Financial Accounting: An Integrated. Thomson Pty Ltd, South Melbourne.

Deegan, C., 2013. Financial accounting theory. McGraw-Hill Education Australia.

Dutta, S. and Patatoukas, P.N., 2016. Identifying Conditional Conservatism in Financial Accounting Data: Theory and Evidence. The Accounting Review.

Edwards, J.R., 2013. A History of Financial Accounting (RLE Accounting) (Vol. 29). Routledge.

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

Horngren, C.T., Sundem, G.L., Schatzberg, J.O. and Burgstahler, D., 2013. Introduction to management accounting. Pearson Higher Ed.

Lovell, H., 2014. Climate change, markets and standards: the case of financial accounting. Economy and Society, 43(2), pp.260-284.

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

McLaney, E.J. and Atrill, P., 2014. Accounting and Finance: An Introduction. Pearson.

Pratt, J., 2013. Financial accounting in an economic context. Wiley Global Education.

Saunders, A. and Cornett, M.M., 2014. Financial institutions management. McGraw-Hill Education,.

Weil, R.L., Schipper, K. and Francis, J., 2013. Financial accounting: an introduction to concepts, methods and uses. Cengage Learning.

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