West Ltd is a leading company in the sale of frozen and canned
fish produce. These products are sold under two brand names. Fish
caught in southern Australian waters are sold under the brand
‘Artic Fresh’, which is the brand the company developed when it
commenced operations and which is still used today. Fish caught in
the northern oceans are sold under the brand name ‘Tropical Taste’,
the brand developed by Fishy Tales Ltd. West Ltd acquired all the
assets and liabilities of Fishy Tales Ltd a number of years ago
when it took over that company’s operations. West Ltd has always
marketed itself as operating in an environmentally responsible
manner, and is an advocate of sustainable fishing. The public
regards it as a dolphin-friendly company as a result of its
previous campaigns to ensure dolphins are not affected by tuna
fishing. The marketing manager of West Ltd has noted the efforts of
the ship, the Steve Irwin, to disrupt and hopefully stop the
efforts of whalers in the southern oceans and the publicity that
this has received. He has recommended to the board of directors
that West Ltd strengthen its environmentally responsible image by
guaranteeing to repair any damage caused to the Steve Irwin as a
result of attempts to disrupt the whalers. He believes that this
action will increase West Ltd.’s environmental reputation, adding
to the company’s goodwill. He has told the board that such a
guarantee will have no effect on West Ltd.’s reported
profitability. He has explained that, if any damage to the Steve
Irwin occurs, West Ltd can capitalise the resulting repair costs to
the carrying amounts of its brands, as such costs will have been
incurred basically for marketing purposes. Accordingly, as the
company’s net asset position will increase, and there will be no
effect on the statement of profit or loss and other comprehensive
income, this will be a win–win situation for everyone.
Required The chairman of the board knows that the marketing manager is very effective at selling ideas but knows very little about accounting. The chairman has, therefore, asked you to provide him with a report advising the board on how the proposal should be accounted for under accounting standards and how such a proposal would affect West Ltd.’s financial statements.
Required The chairman of the board knows that the marketing manager is very effective at selling ideas but knows very little about accounting. The chairman has, therefore, asked you to provide him with a report advising the board on how the proposal should be accounted for under accounting standards and how such a proposal would affect West Ltd.’s financial statements.
