Statement of Cash Flow - Essay Example

Warranty Name of the Student Instructor’s Name Institution Affiliation Date of Submission Accounting Letter McKenzie and Associates 777 South Terrace Adelaide Sa 500 maria. mckenzia@mckenzieand associatos.com.au Con pewter Managing Director, Pewter Ltd Level 6,510 King William Street Adelaide SA 500 conpowter@pewterlimited.com.au Dear Pewter Thank you for your email regarding the accounting problems. We have keenly assessed the accounting problems that you pinpointed and provided this counsel. 1 As per the IAS 19 worker Benefits (which was amended in the year 2011), it delineates the bookkeeping prerequisite for worker advantages fits and advantages in the long overhaul, for example, benefit leave. This particular standard builds up the rule that the price of giving worker advantages ought to be perceived in the period in which the advantage is earned by the worker as opposed to when it is payable or paid. The AASB 119 standard as a provision of the Australian accounting establishes out extended administration leave privileges ought to be perceived and calculated in workers monetary statements. Additionally, AASB 119 standard demands the identification of these things in the financial statement. Present and non-present liability Service expenditure Interest expenditure Actuarial losses and gains/ Re-measurement Present and non-present liability AASB 19 standard sets out that the liabilities for an extended administration leave ought to be computed utilizing an actuarial strategy (the secured unit credit technique). The computation includes projecting salaries of workers and accumulated long administration leave qualification to the date the worker turns out to be qualified to recoup these advantages for every prospective year, the likelihood of exit of a worker because of reducing, incapacity, death, withdrawal and retirement are thought to be in the computation. The current long service value of the leave liability is specifically susceptible to these suppositions. Rate of discount Worker turnover Increase in salaries and the manner and the time leave is in reality taken (the pattern associated with taking leave) Service expenditure It characterized as the extended administration service entitlements value, accumulated amid a financial year. Service cost is additionally highlighted in the financial year’s income statement. To compute service expenditure, we determine the current value of new accumulations. Liability’s total interest The interest cost is defined as the interest accumulated on the extended administration leave liability over the financial year. The interest expenditure computation identification of long service leave liability at the beginning of the financial year, the advantages offset amid the financial year and the service expenditure it is highlighted in the revenue statement. Re-estimation of the risk These occurs because of alterations in actuarial presumptions or because of experience amid the by the worker instead of when it is offset. It ought to be recognized in the financial statement whether a non-current or a current obligation or premium or administration expenditure in the revenue statement. 1 As per the overall accepted accounting rules, income ought to be identified when a person earns it as opposed to when he/she receives it. The amount of money paid to begin ought not to be separately recorded. However, it ought to be incorporated as expenditure in the revenue statement. The total amount gotten as sales income ought to be recorded as the sales amount at the start of the quarter immediately the retailers make the shipment. The net amount recording gotten as sales income will absolutely simplify matters. 2 A provisional differentiation is the discrepancy between the carrying amount of a resource and tax base as valued of tax principle. A deferred charge obligation a duty is expected for the present time frame, however, has not yet been paid. It is a measure of pay duty payable in future regarding an assessable impermanent contrast. A deferred charge resource is measure of pay assessments recoverable in future periods in regard of deductible impermanent contrasts or conveys forward of unused duty misfortunes or credit. The issue of failing to liability losses or account deferred tax asset includes the following: Income is identified in one period for tax functions and the various period for accounting functions. A number of assets possess a different tax base for government agencies in contrast to the practices of accounting. The organization ended up paying a lot of much tax and merits to have an amount of the cash returned. Expenses and losses and identified in the revenue statement before the relevant tax authority identifies them. Present tax liability accounting does not consider the transitory contrasts which may emerge for example because of various strategies for accounting devaluation which may vary with the income tax function. Additionally, in adherence with coordinating role of accounting that argues exposer such as taxes ought to be accounted for the time for which they apply instead of the time that they will be offset, for example, unearned revenue, warranty expenditure, accumulated cost or rate of fulfillment technique for a construction worker. Conclusion We prepare a statement of cash flow so as to demonstrate how cash flows from operation and activities that use cash flow. This report has shown the alterations in financial positions prompting from operational actions, financial activities, and investing activities. This data can be later on be utilized by an assessor to come up with a conclusion. Additionally, a cash flow statement helps coming up with cash predictions. Later on, this is utilized in inside administration in determining administration policies particularly those that touch on finances. Additionally, the report is credited for impacting in cash arranging. Through the cash flow statements preparation, a business can think about the execution of particular ventures. By looking at the real money flows against anticipated revenue, a business can understand how the venture is continuing. An income statement measures a company's financial performance, for example, costs, income, losses and profits over a predetermined timeframe. Along these lines, this implies that both financial reports have their significance. Regards, Mckenzie and Associates 777 South Terrace Adelaide SA500 Warrant As much as the company tries to avoid warranties, as it affects their net profit as underlined by AASB 15, it is not possible for a company to stop recognizing the warranty expense before the warranty cost is incurred. This is because from the definition in AASB article warranty expense is the cost a manufacturing company or business incur for replacement or repair of goods that have been sold therefore it is from the incurring the cost of replacing a good that we get the warrant expense. In AASB 15 it requires that the client or the customer should be provided with significant warranties more so in the companies that are involved in the manufacturing, software and licensing development, construction, real estate and telecommunications. The warranty expense and cost are intertwined therefore from the article we see that product warranties issued by the manufacturer for any product should be within the scope of AASB 118 or AASB 137 (Australian Accounting Standards Board, 2010). The company will offer to issue the warrant so as to attract the investors or customers so as they can buy their products. The warrant tends to increase the customer's confidence in a product. Since the buyer buys good with the confidence that in a case of breakage they will be replaced if and only if there is evidence of valid warrant, in that case, the company will incur the cost of replacing the product which is also the warrant expense. In AASB 15 it underlines that in a construction company revenues may be delayed if goods of nature given to customers are recognize after the construction e.g. extended warranties. A Company that fails to recognize the warranty may be prone to face the consequences according to AASB 137 legal action may be taken by the client if he or she buys good which is have no warrant and turns to be faulty. If the warrant was implied or written warranty for example consumer may decide to sue the company for breaching it may incur the customer cost and lawyers fee for bringing the case to the court. This means that a company will have to compensate the customer the warranty expenses and all the cost incurred in the court. In the article, AASB 137 states that there is the legal obligation of committing to the past event that is a sale of a product with warranty and failure to which there will be litigation process. It provides for recognition for the best estimate of the cost of making goods under the warranty product which is sold before the reporting period as shown in paragraph 14 and 24 of the article. Paragraph 14 provides that a company has a present obligation or legal obligation as a result of past event which is the sale of products on warranty. In the case of successful litigation, the complainant will be reimbursed as provide in paragraph 85,86 and 87 where it is appropriate to treat a single class of provision relating to warranties of the different product but it will not be fair to consider a single class amounts that relate to normal warranties that are subject to legal proceedings. Where they there are a number of similar obligations the possibility that an outflow will be required is a settlement will be determined by considering the class of obligation as a whole according to paragraph 24 (Australian Accounting Standards Board, 2010). A company cannot make use of warranty based on actual data. This is because the warrant expense is calculated using the matching principle where the expense is recognized the same time the transaction took place. That is the expenses and the revenues related to the sale of the product were recorded at the same time. Therefore the historical percentage of the expense of sales of the product purchased is determined since from the AASB 137 it is stated that an entity will recognize the expenses after the revenue is incurred (Tulsian, 2007). The actual data may not be as the historical data and the calculation of the warrant expenses may be erroneous since matching principle does not apply. It is, therefore, evident that for a company to be liable for warrant expense the cost is based on the historical information. According to Australian Accounting Standards Board (2010), in calculation of warranty, there is use matching principle as discussed in article AASB 118 which underlines that; AASB 118 provides that any entity should disclose any contingent liabilities and contingent asset in accordance to AASB 137 where contingent liability and contingent assets might come from products, for instance, claims, warranty expenditures and potential losses (Chadha & Bagrial 2005). On matching principle, revenue and expenses provide that warranty expenses are incurred when other conditions for revenue recognition have been satisfied (Australian Accounting Standards Board, 2010, paragraph 19). For a company to cut down a warrant expense, it can do so by producing high-quality goods hence reduce the replacement caused due to damages or breakages like Microsoft Company can increase the quality of the mobile phones and other accessories so as for reducing the expenses incurred when the phones are returned for repair or replacement. The company can also reduce warranty expense by insuring against the risk that accrues from a warranty claim. The company can also reduce warranty cost by reducing fraudulent claims by use of predictive technologies. In this, 10-15 percent are categorized to intentional fraudulent, and by eliminating it, you will be to save time, resources and money. One can also improve the processes by identifying the source cause of the defect and try to improve on the equipment used in the process of manufacture, and this helps the company to improve the process of production and the produce a quality product (Tulsian, 2007). They can also reduce the expenses by going online as it will cut on costs of printing, archiving and distributing catalogs and avoiding all these makes a product to be popular. Article AASB 4 explain this where it provide for insuring of warranties and other guarantees. Product warranty issued by another party for good sold by manufacturer or retailer indirectly but it will not apply to good sold directly by manufacturer or retailer. References Australian Accounting Standards Board [AASB] 2010, AASB 101 Presentation of financial statements, Canberra, viewed 14 July 2011 Chadha P.R. and Bagrial A.K. (2005): Business Law, Pragati Publications Deegan, C 2010, Australian financial accounting, 6th ed, Wiley, NSW Tulsian P.C. (2007): Business Law Tata McGraw Hill. . Read More