Accounting Consulting Firm, AVATAR GROUP - Accounting & Finance Assignment Help

Assignment Task

1 Bennett Street
ADELAIDE SA 5000
Telephone 61 8 318 51410
www.avatargroup.com.au

20 September 2020
Mr Mike Dixon
Managing Director, Dixon Ltd
Level 20, 555 Queen Street
Adelaide SA 5000

Dear Mike,
It is an honor to address you as an accounting consulting firm, AVATAR GROUP, with extensive experience providing solutions and accounting and financial advice, our experience is backed by the satisfactory results in the decision-making of our distinguished clientele. In addition, we have a high-level specialized technical team to meet any accounting and financial requirements, guaranteeing efficiency, and effectiveness in your organization.
In reference to the request for advice previously exposed by email, we will carry out a detailed and supported development of the analysis carried out based on the proposal presented by the marketing department to provide accounting support and clarify doubts regarding the impact of the results, we will present technical conclusions that we hope will satisfy your concerns and guide you successfully in meeting your organizational objectives.
First, it is important to contextualize the reality to which the sector in which the company's commercial activities are carried out is exposed and to understand the social, political, and environmental background that this implies and as a consequence the accounting impact. The market for canned and frozen products in Australia is in a stage of commercial maturity despite the fact that the market is not diversified, in terms of products and suppliers, according to studies by the Economic and Commercial Office of the Embassy of Spain in Sydney. This sector is directly linked to the development of the industrial fishing sector, which is the fourth most important of the country's food base and Australia has the third-largest fishing area in the world.
Australia has very clear legislation regarding the fishing of species around the territory, with which main attention is paid to seasonality, the food chain, and the fishing region at the time of licensing this activity. However, the fishing sector off the Australian coast is facing environmental conflicts due to the indiscriminate hunting of a protected species such as the whale; This species of cetacean is protected in reserve areas because of the noise from industry or marine activities could cause physical damage or affect reproduction cycles. Despite the efforts of the Australian environmental committees to avoid this action, Japan has been involved in whaling activities, to which the Asian country justifies its action by supporting hunting for scientific purposes, this type of action could generate important diplomatic conflicts.
Incorporating ourselves in the organizational problems exposed regarding Dixon Ltd, it is understood that at the beginning of operations they developed the brand called "Ocean Fresh", which has operations in the south of the country. "Ocean Fresh" has not been considered for accounting purposes as an intangible asset because the brand has been generated internally, this means for Dixon Ltd those disbursements during the period elapsed in the development of this brand were charged to the financial statements as expenses, as supported in AASB 138 / IAS 38, Paragraph 63.
In the same way, Dixon Ltd became a creditor of the assets and liabilities of the company Nemo Ltd, which had a brand developed under the name "Salty Taste", which operated on the northern side of the territory. Regarding this commercial agreement carried out years ago, this transaction is considered a business combination and must be treated for all purposes under the scope of the AASB 3 / IFRS 3 standard that stipulates that it is considered a business combination when the assets acquired and the liabilities assumed constitute a business and all the accounting information is consolidated. Under this premise, it can be inferred that “Salty Taste” (brand developed by Nemo Ltd), has been acquired as an intangible asset in a business combination operation.
“Salty Taste”, for accounting purposes, is recognized as an intangible asset because it meets the criteria for recognition of intangible assets stipulated in AASB 138 / IAS 38, which indicate the following criteria: Identifiability, Control of the resource in question and existence of future benefits.
It should be noted that Dixon Ltd has worked to create an institutional image of environmental support, in the same way, its operations are carried out taking into account environmental responsibility measures and that are friendly for the care and subsistence of marine species. For this reason, the possibility of supporting a project that guarantees the repair of damages to the Panamax vessel is being evaluated in the event of a confrontation with Japanese whalers who are carrying out indiscriminate whaling in Australian territory. The objective of this initiative would be to reinforce the image of the environmental responsibility of the company and to benefit from the publicity of this campaign.
In order to give accounting support to this approach and with the assumption of accepting the proposal presented, it should be considered to take into account various actions that have an accounting impact on the company:
Given the fact of assuming a possible obligation, such as repairing the Panamax damage in the event of a confrontation with whalers, and taking into account the outflow of resources in the future which cannot be reliably measurable as long as the occurrence does not exist, this obligation it must be accounted for as a contingent liability due to the nature of its structure and Dixon Ltd will report the existence of such liability through notes (AASB 137, paragraph 28); however, if the confrontation occurs and in the face of the prospect of having an outflow of economic resources in the future, they will be recognized as a provision in the financial statements of the period in which the events occurred (AASB 137, paragraph 30).
In addition, if the obligation as a provision is assumed in the future, at the end of the accounting period of the occurrence this account will have an effect on the profitability of the company as the occurrence will increase the expense account and this will decrease profitability.
No cost incurred for the development of this project to generate future benefits will be capitalizable as intangible assets are not recognized and marketing disbursements are recorded as expenses (AASB 38 / IAS 38, paragraph 69).
Goodwill generated internally as a result of the increase in Dixon Ltd's reputation will not be recognized as an asset because it is not an identifiable resource as it is not generated from any contractual or legal exercise (AASB 138 / IAS 38, paragraph 48).
In conclusion, Dixon Ltd can assume the accounting risks implicit in the project proposed by the marketing area, however, the result obtained from the campaign carried out will be recognized to enhance the institutional image of the company but will not generate present benefits and if it can negatively alter the profit and loss statement.
If you have any questions or concerns regarding the above, please do not hesitate to contact me.
Yours sincerely
Danica Garcia
Accounting Advisor
Avatar Group Ltd

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