The directors of HiTech Production Ltd understand that is required to prepare financial reports under the Corporations Act However, they believe that applying the requirements of AASB 136/IAS 36 Impairment of Assets would not provide a fair presentation because the resulting $80 000 impairment loss is only temporary. advise the directors how this problem should be addressed in the financial statements in accordance with AASB 101/IAS 1.Issue 2.HiTech Production Ltd provides professional advisory services to develop internal and external reporting systems to facilitate the integration of various forms of technical equipment into the business models of their clients. The contracts take up to 18 months, culminating in the delivery of a report to clients outlining the design of integrated in
ion systems, as well as specifications and procedures for implementation.Until recently, HiTech Production Ltd progressively recognised revenue from providing services in accordance with AASB 118/IAS 18 Revenue. It recognised revenue and expenses and hence, profit, based on the stage of completion of its contracts with customers.The finance director of HiTech Production Ltd recently attended a presentation on the implementation of AASB 15/IFRS 15 Revenue from Contracts with Customers, where he discovered that the company would need to change the way it accounted for revenue. It would not be permitted to recognise revenue under AASB 15/IFRS 15 until the report is delivered to the customer on completion of the contract.The estimated that the change in accounting policy would result in a 30% reduction in revenue and a 50% reduction in profit in the year of adoption of the new Standard. The directors thought this would be misleading to investors because the amount of work and cash inflows was expected to remain stable. response to address this concern.ACCM4200 FAR1 – T3 2018 – Group Page 3 of 6
Issue 3.A customer has filed a lawsuit against HiTech Production Ltd in December 2020 for costs and damages allegedly incurred as a result of the failure of one ofcompany’s electrical products. The amount claimed was $5 million. HiTech Production Ltd’s lawyers have advised that the amount claimed is extortionate and that the company has a good chance of winning the case. However, the lawyers have also advised that if HiTech Production Ltd loses the case itsexpected costs and damages would be about $500 000.How should HiTech Production Ltd disclose this event in its financial statements as at 31 December 2020?RegardsMr Mark WisemanManaging Director, HiTech Production Limited Level 9, 54 William Street,Brisbane QLD 4000Hint: Remember that your firm plans to charge the client for your advice; as a check ask yourself if you would pay for the advice you have drafted!