Contingencies and Provisions of Billabong International Limited

Discuss About The Economic Consequences Financial Reporting.

In this report, proper emphasis had been given on understanding whether the accounting statement of Billabong International Limited are being prepared and in compliance to the prescribed standards (Scott 2015). The purpose of the report is to evaluate the reliability of using these accounting statements by Billabong International Limited in their operations. The current segment analyses the financial report of Billabong International Limited and discusses its significant points that are already highlighted in this report. The primary focus of this report is to deal with providing a detailed understanding as well as analysing the financial statements of Billabong International Limited.

In this requirement, it is needed to discuss about the contingencies and provisions of Billabong International Limited. From the annual report of Billabong International Limited, it is understood that the contingencies are disclosed in these accounting statements of the Business Corporation further divided into several number of financial elements (Nobes 2014). Contingency means assets as well as liabilities that are not accounted as well as have occurred in case of any emergency. Guarantee is the first component that is mentioned in the financial report of Billabong International Limited under the heading Contingencies. To explain in detail, financial guarantee contract are mostly realized and treated as liability because the nature of financial can be seen at the time of issuing the guarantee. Furthermore, this liability is measured at fair value method by following the standards as set by AASB. Therefore, AASB that deals with this liabilities is mentioned under AASB 137 Provisions, Contingent assets and contingent liabilities.

On the other hand, the financial elements that is treated is the Letters of Credit where most of the financial disclosures are given in the statements. Therefore, Billabong International Limited had $2.4 million letters of credit as this is not limited to the leases as well as insurances.

To explain further, the financial disclosure that are being mentioned in the accounting statements had been presented below for the financial year 2017 where there is associated contingent liability mentioned with the terminated agreement. There is further mentioned about this component in the annual report where Billabong International Limited had incurred the contingent liability up to $3.5 million (Martínez?Ferrero, Garcia?Sanchez and Cuadrado?Ballesteros 2015).

Therefore, provisions are mentioned in the accounting statements of Billabong International Limited and shown in the financial year 2017 and amount to $14,160.

Recognition Criteria and Measurement in Association with Provision or Contingent Liability

Recognition criteria and measurement in association with provision or contingent liability

In this requirement, it is needed to discuss about the recognition criteria as well as measurement issues that are linked with the provisions and the contingencies as listed below with proper justification:

Guarantees- One of the recognition criteria that are mentioned in the accounting statements and gets linked with specific liability of guarantees is the measurement as it had been carried out by making use of fair value technique as it is properly highlighted in the AASB 137 (Luez and Wysocki 2016).

Letter of credit- Letters of credit gets recognized and considered as undrawn letters as well as not limited to leases and insurances.

There is no particular information that are mentioned at the time of identifying contingent liabilities

It can be seen that the provisions are measured and considered as one of the best estimates by the management as it is needed for settling down the current obligations as or within the balance sheet date. In addition to that, the discounted rate will be used at the time of evaluating the present value at pre tax rate as it shows the present assessment of the marketing situation. The overall matter gets related to the present time value of money as well as related risks at the same time. Therefore, the interest expenses need to be identified for given period of time.

In this requirement, it is needed to explain about the contingency recorded where it is mentioned in the financial report of the company and termed as guarantees. From the annual report, it can be seen that financial guarantees have been recognized as a part of the liability as it is getting incurred when there is issuance done. In addition to that, the liability is measured at a fair value. Furthermore, the contingency recorder cannot be used at the time of considering other contingent liabilities because it is known that guarantees might fluctuate that lead to improper reflection of the treatment of accounting elements. It will further affect the qualitative characteristics of the accounting statements (Leuz and Wysocki 2016).

In this requirement, it is needed to explain about the plant and equipment under financial leases. The plant and equipment as shown under the heading financial leases are those components that are mentioned in the accounting report of Billabong International Limited and shown amount of $1189 for the financial year 2017. In the year 2016, the financial leases arrives at $1253 (Hoyle, Schaefer and Doupnik 2015). However, the figure is already mentioned in the balance sheet of Billabong International Limited where the rental expenses is treated in relation to operating leases as it had been further categorized into minimum leases payments, sub-leases as well as contingent rentals. The lease liabilities have been occurred by the corporate entity that amounts to $1247 for the financial year 2017 and $1675 in the financial year 2016. Therefore, the accounting body of AASB had resulted in establishing of the accounting standard of AASB 16.

Plant and Equipment under Financial Leases

In this requirement, it is needed to explain about the treatment of leases. This specific accounting standards are needed to be used at the time of treating the leases as mentioned in the accounting statements of the business and the standard is AASB 16 as it had been established by the AASB. In addition to that, the recognition of the interest that have been carried out for given leasing terms (Gigler et al. 2014). In that cases, the exceptions that have been mentioned in the financial report can be either short-term or low value assets in that case.

It is important to understand the fact that plant and equipment under financial leases are carried out when the component are mentioned in the accounting report of the company and shows an amount of $1189 for the year 2017 and $1253 for the year 2016. Therefore, the lease liabilities that have been occurred by the business arrives at $1247 for the year 2017 and $1675 for the year 2016.

In this requirement, it is needed to explain about the reclassification of the leased item. The issue that had been mentioned in the question where it had been asked to describe to which a leased item might be needed or in that case reclassified (Gaynor et al. 2016). In that case, several examples are listed below that will explain the above hypothetical situation:

The leaser results in the transferring of ownership of the assets to the lease and this can be done by the leasing term end

In this example, it is explained about the lease experiences where the option will be to conduct purchase asset at an expected price as it is lowered to that of fair value

In this example, it is mentioned about the nature of leased assets that help in leasing and utilizing without even incorporating any of the main rectifications (Amiram et al. 2018).

In this requirement, it is needed to explain about the non-current asset impairment method. One of the problem that is mentioned in the question is that about a specific asset that had been mentioned in the financial statements of the business organization has been asked to be recognized and needed details have been asked for verification purposes (Frias?Aceituno, Rodríguez?Ariza and Garcia?Sánchez 2014). To explain in details, this asset that had been selected is receivables that had been mentioned in the accounting statements of the Billabong International Limited and shows account balance of $7351 for the financial year 2017. On analysis, it is noted that the receivables account shows the amount that is pending or in that case the amount that is received from the debtors of the business organization. However, the receivables even account for the portion of sales that have been asked for carrying out on credit. It is important to understand the fact that disclosures included in the annual report of the company and mentions about the categorization of receivables and these are prepayments, prepaid costs of borrowing as well as other receivables.

Treatment of Leases

In the annual financial report of Billabong International Limited, information regarding to the valuation of receivables had been mentioned and even declared that the non-current receivables are not impaired in that way (Francis et al. 2015).

In this requirement, it is needed to discuss about the valuation method for non-current assets. Fair value consideration or on that case historical cost valuation can be treated as one of the alternative method that can be used for valuing the receivables of the company. There are two valuation methods that impact increase in the valuation of the specific amount as it overall give rise to negative effect. Furthermore, it is preferred to make use of fair value techniques in comparison to historical cost techniques. It is because fair value accounting is suggested by the Accounting Board (Flower 2016).

Conclusion

From the above analysis, it can be seen that the report renders a detailed analysis of all the requirements mentioned. This report conduct detailed analysis of different points relating to Billabong International Limited and with that, conclusion is being formed. It is noted that corporate entity has more or less adhered accounting regulations that are needed at the time of preparing financial statements. By this, it is understood that financial statements have been prepared with much diligence as well as care at the same time. However, the preparation of financial statements had been done by the Business Corporate Entity of the company and it shows the fact where enough disclosures will be required for bringing improvement and developing specific task of financial reporting by the corporate entity.

Reference List

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