Dear Maria Thank you for your phone call this morning, as agreed I am emailing you regarding the accounting issues we briefly discussed. By the way to assist the accounting team in our decision-making process could you please make sure you reference any relevant sources relating to your advice, for example, AASBs, Corporations Act, and relevant websites.
1. At our recent board meeting, several directors raised concerns about spending too many man hours (and dollars I must say) on accounting for future tax consequences. Their biggest argument was that as long as the tax man is happy and we are not cheating on our tax returns, then we are simply wasting money in accounting for temporary differences and deferred tax assets (DTAs) and deferred tax liabilities (DTLs) (which I must admit is a mystery to me). Do you have any problems if we do not account for the DTAs and DTLs and just account for the current tax liability?
2. The board is also concerned with the frequent variances in the amount of warranty expense that was initially recognised compared to the actual cost of warranty the company paid/incurred to fix/replace the faulty products. Therefore at the most recent board meeting it was agreed to stop recognising the warranty expense before the warranty cost is actually incurred. Instead expense will be recognised when we actually pay for these warranty repairs/replacements. This way we won't have to deal with all these variances.
3. We recently decided to sell one of our divisions to a Canadian company since we have decided not to focus on that particular line of business. Negotiations are still ongoing however it looks like the Canadian company is willing to pay an additional $1.5 million on top of the fair value of identifiable net assets agreed by both of us. If this deal doesn't go through, can we recognise this $1.5 million as goodwill in our books? We are also unsure of how to account for an unrecorded patent which we will transfer to them? In return for this division, the Canadian company will issue us some shares as well. Does this mean we will be shareholders of this Canadian company? If so, then how should we account for these shares?