Avatar Group Ltd,

777 Avenue, Melbourne,

VIC 3000.
17th September 2020

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

Dear Mike Dixon,

I am very much happy about the trust you have placed on us. Avatar Group Ltd’s success
depends on how well we provide professional and appropriate solutions for our clients in order to
make important decisions in the organizations. With reference to the phone conversation we has
and the email I received on 15th June 2020, I am very glad to advice on the particular issue that
you have mentioned. I hope the recommendations I provide will assist you in making this
important decision in the organization.

According to the discussion we had the issue you have is, your company is trying to show the
environmental responsibility to the public through helping the Panamax ship. As you have stated
if any damage happens for the Panamax ship during the time they stop Japanese Whalers, as a
company you will capitalize the repair costs that results to its brands which mainly focuses on
the costs incurred for marketing. Also as the manager suggested you are hoping the particular
situation would not have an effect on your profit or loss and other comprehensive income.
Although you consider as this is important to your organization there are certain consideration in
my point of you about the case.

Firstly you consider this will help the company to increase the net asset position. According to
the Australian Accounting Standards for Business this cannot be usually identified as an asset of
the organization. According to this company can consider the benefit they are going to get from
the certain situation as contingent asset. In AASB contingent asset usually arises from unplanned
as well as unexpected event which provides benefits to the company in its economy. In the
particular situation company is going to help the Panamax ship through incurring its repair costs,
in which the company will not know whether it provides a benefit in future or not. If it provides
benefit to your company only you will be able to recognize it as contingent asset. According to
AASB 137 paragraph 89 these assets will not usually added in your financial statements because
you would not be able to recognize the particular income which might never be realized in the
company. You also need to appoint a special team in assessing these assets in order to make sure
the particular developments that are recognized through this reflected in a proper manner in your
financial statement. Therefore if the assets through this visibly rises as your manager suggested
the net asset position can be increased but you need to consider each and every point before
deciding on this case.

Your company is also planning on Dixon Ltd will capitalize the particular repairing costs to the
company brands carrying amounts, whereas you are trying to include these costs as marketing
costs. Thus the company is trying to include an expense in a different area of the financial
statement in an unfair manner, so you should consider this. According to Corporate Act financial
statement of your company should fairly present the values which decides your financial
position, financial performance of your company and cash flows as well. This usually includes
the fair representation of your company’s details such as transactions, other financial events for
assets, income as well as for expenses which sets up the Financial Reporting Conceptual
Framework. The AASB also makes sure the same standards were practice when your company
prepare the financial statement. Nevertheless according to paragraph 15 with respect to the
AusCF entities, your company should present your financial statements fairly in which the unfair
practices might cause issues to your organization and the company by providing unfair value
might lose their license to do the business according to these standards.

Also for circumstances like in your company to explain this particular information, according to
AusCF19 you cannot rectify the particular inappropriate practices and policies followed in your
statements through notes or other materials. According to the 19 th paragraph in AusCF entities, if
an information misleads the Australian Accounting Standard will create conflicts between the
financial statements and the created framework. Also according to the AucCF’s paragraph 24 for
the purpose of the paragraphs AusCF19–AusCF23 mentions that there will be conflict between
the objective and particular information when the company does not represent the faithful values
of transactions. This can be misleading by the Australian Accounting Standard for Business and
it might create many issues for your company to do the business in a proper manner. Also Dixon
Ltd, since you are a public sector company it is important for you to prepare your annual reports
following the chapter 2M of Corporations Act. The act itself mentions a company working in the
particular sector should produce true and fair values presented as well as they need to show the
exact financial position of the company in the particular period which complies with the
Australian Accounting Standards and Corporations Regulations of the year 2001.

Therefore considering the following accounting standards in Australia, it can be noticed that the
decision that your organization is going to make has an affect from the accounting standards as
well. Although the idea refreshing which will create a good will for your organization, you also
should prepare to face many consequences that is going to occur due to this. As summarizing my
details on accounting you should firstly consider whether this might actually make an increase in
your net asset income, in which I have mentioned certain points. And also secondly you need to
consider, your company is going to include this section in a completely different area in which
you are going to include these expenses under the brands marketing expenses in which it can be
considered as including unfair values or preparing unfair statements according to the accounting
standards in the country. Also I hope this will definitely have an effect on the statement of profit
or loss and other comprehensive income since this is going to be an expense for the organization.

Therefore I am hoping my recommendations on the particular topic is clear and I hope it will
help you in clarifying issues relating to accounting and I hope you will be able to make
appropriate decision on it considering this. I would also appreciate if we could schedule a
discussion for further issues you have about the case. In this way, we believe that our discussion
would be more meaningful and clear. Also, if applicable, please prepare the supporting
documents of the issues raised so my team could corroborate it immediately once we meet.
Please let me know your preferred day and time so I could coordinate this internally and will be
able to provide more clear understanding about the issue.
Yours Sincerely

______________________________

Julia Roy
Manager,
Avatar Group Ltd.
References
AASB, 2016. Application of Australian Accounting Standards, Victoria: Australian Accounting
Standards Board.

AASB, 2020. Hot Topics. [Online]

Available at: https://www.aasb.gov.au/Hot-Topics.aspx
[Accessed 16 September 2020].

AASB, 2020. Presentation of Financial Statements, Victoria: Australian Accounting Standards

Board.

AASB, 2020. Provisions, Contingent Liabilities and Contingent Assets, Victoria: Australian
Accounting Standards Board.

Australian Government, 2020. Corporations Act 2001. [Online]

Available at: https://www.legislation.gov.au/Details/C2018C00031
[Accessed 16 September 2020].

OPC, 2013. Corporations Act 2001, Canberra : Office of Parliamentary Counsel.