Factors to Consider in Disclosing Contingent Liability

Factors that could be considered in determining the form the disclosures that should be taken and the period of years the disclosures would be made

Contingent liability: This is a form of commitment that depends on the occurrence of the future events which may either happen or not. If a contingent liability that is considered to be both probable and the amount can be estimated with reasonable certainty is basically to be recorded as a loss or expense in the income statement and also as a liability in the company balance sheet (Annan, 2014). It can be noted that if a contingent that is probable but the amount cannot be recorded in the financial accounts, but will be disclosed in the notes to the financial statements. Furthermore, a contingent liability that is very remote that may happen in future need not to be recorded as well as disclosed in the notes section of the financial statements. In this particular case, the factor that needs to be considered is that CBA has settled with the investors for A$50 Million and agreed to pay A$1.5 Million. Therefore, the settlement has occurred that is not contingent (Buchman, Harris, and Liu, 2016). The entry for payment for A$50 Million must be demonstrated as an expense in the income statement for the company. The nature and details of this particular transaction should also be given in the notes for the readers to have a better understanding of the item.

Provision must be made in the account for A$1.5 Million which is an amount not paid but agreed upon, and the obligation must be made in the statement of financial position. The details of this particular transaction must be provided in the notes sections for easy understanding (El-Gazzar, Lilien, and Pastena, 2008). The accounting treatment as above and such disclosures must be included in the financial statement for the FY2012 which is considered to be the year of the transaction. Since this item is considered to be significant and repetitive, complete disclosures must be made in the director’s report and the action plan that would be implemented in future so as to ensure that such incidents do not repeat itself. 

Yearly rental income * PVIFA (n=4, i=8%)

$50,000 * 3.5771 Save Time On Research and Writing Hire a Pro to Write You a 100% Plagiarism-Free Paper. Get My Paper

178855

Guaranteed residual * PVIF (n=4, i=8%)

$40,000 * 0.7350

$29,400

Lease obligation = PV of period rental costs + PV of the guaranteed residual

Lease Liability = $178,855 + $29,400

Lease Amortization Table

Interest payment

12660.4

9673.232

6447.0906

2962.8578

Lease expense on 1/7/2023 is the guaranteed residual

Depreciation payment rented studio

Acc. Depreciation rented studio

iv.  Hopeful Ltd should pay $15,000 that is the variance between fair value of the guaranteed residual and the leased studio.

Acc. Depreciation rented studio

Loss on guaranteed residual

T Pty Limited
Cash Flow Statement for the year ended June 2020
Cash Flows from Operations:	$	$
Profit Before Tax			365000	365000
Add
Depreciation Expense		140000
Increase in interest expense		315000
Increase in accounts payables		154000
Decrease in inventories		288000
				897000	1262000
	Subtract
Increase Accts Rec		508000
					508000
Cash Flows from Operations		754000
Cash Flows from Investing
Interest paid			315000
Income tax paid			100000	415000
Net Cash Flows from Operations	339000
Cash Flows from Investing
Interest received			110000
Dividends received			51000
Squash Pty Ltd bet of cash acquired	-250000
Purchase of tennis equipment		-80000
Proceed from sale of equipment		-50000
Net Cash Flows from Investing activities	-219000
Cash Flows from Financing activities
Payments of finance lease liabilities	-25000
Share capital issue			-750000
Net Cash Flows from Financing activities		-775000
Net decrease in cash and cash equivalents		-655000
Cash and cash equivalents at the beginning of the year	790000
Cash and cash equivalents at the end of the year		135000

Workings 1
HK$8.00 = A$1.00
HK$300,000
Purchases at as 22/4/2018	300,000/8.00 = A$37,500
(HF$300,000/3)	HK$100,000
HK$8.56 = A$1.00
HK$100,000
Purchases at as 30/5/2018	100,000/8.56 = A$11682
Foreign exchange gain		(12500-11682) = 818
HK$8.56 = A$1.00
HK$100,000
Purchases at as 30/6/2018	100,000/8.59 = A$11641
Foreign exchange gain		(12500-11641) = 859
HK$8.56 = A$1.00
HK$100,000
Purchases at as 31/7/2018	100,000/8.94 = A$11186
Foreign exchange gain		(12500-11186) = 1314

Workings 1
Yen160 = A$1.00
Yen 5,000,000
Purchases at as 30/5/2018	5,000,000/160 = A$31,250
Purchases at as 31/7/2018	5,000,000/260 = A$19,230
Foreign exchange gain		(31250-19231) = 12019
20, 000,000 * 11.5 * 10	23,000,000
			Loan = 3,000,000

Date				Dr.	Cr.
30/4	Purchases			A$37500
	Accounts Payables			A$37500
	To record Purchases at as 22/4/2018
30/5	Accounts Payables		A$12500
	Cash				A$11682
	Foreign exchange gain		A$818
	To record Purchases at as 30/5/2018
30/6	Accounts Payables		A$12500
	Cash				A$11641
	Foreign exchange gain		A$859
	To record Purchases at as 30/6/2018
31/7	Accounts Payables		A$12500
	Cash				A$11186
	Foreign exchange gain		A$1314
	To record payment for mortgage payable
30/4	Equipment			A$31250
	Accounts Payables			A$31250
	To record Purchases at as 30/5/2018
31/7	Accounts Payables		A$31250
	Cash				A$19231
	Foreign exchange gain		A$12019
	To record Purchases at as 31/7/2018
31/1	Loan			US$3,000,000
	Interest Payables			US$2,070,000
	Hedge funds			US$930000
	To record Interest payables
31/1	Purchases for car		A$744,680
	Cash				A$714286
	Foreign exchange gain		A$30,394
	To record Interest payables

Annan, M., 2014. The Case of Lease Accounting (Doctoral dissertation, University of Amsterdam).

Biondi, Y., Bloomfield, R. J., Glover, J. C., Jamal, K., Ohlson, J. A., Penman, S. H., …

Wilks, T. J. 2011. A Perspective on the Joint IASB/FASB Exposure Draft on Accounting for Leases: American Accounting Association’s Financial Accounting Standards Committee (AAA FASC). Accounting Horizons, 25(4), 861-871.

Buchman, T. A., Harris, P., & Liu, M. 2016. GAAP vs. IFRS Treatment of Leases and the Impact on Financial Ratios.

Deegan, C. (2012). Australian financial accounting. McGraw-Hill Education Australia.

El-Gazzar, S., Lilien, S., & Pastena, V. 2008. Accounting for leases by lessees. Journal of Accounting and Economics, 8(3), 217-237.

Ji, S. and Deegan, C., 2011. Accounting for contaminated sites: how transparent are Australian companies?. Australian Accounting Review, 21(2), pp.131-153.

Grenier, J. H., Pomeroy, B., & Stern, M. T. 2015. The effects of accounting standard precision, auditor task expertise, and judgment frameworks on audit firm litigation exposure. Contemporary Accounting Research, 32(1), 336-357.

Riccardi, L., 2016. Accounting Standards for Business Enterprises No. 3—Investment Real Estates. In China Accounting Standards (pp. 25-29). Springer Singapore.

Wong, K. and Joshi, M., 2015. The impact of lease capitalisation on financial statements and key ratios: Evidence from Australia. Australasian Accounting Business & Finance Journal, 9(3), p.27.