RESEARCH CASE STUDY - BYRNE LIMITED

Background

Byrne Limited is an Australian company. Directors have formed a view on a number of issues require clarification. The views of directors may not be in compliance with a specific Australian Accounting Standard (AASB), Corporations Act 2001, and relevant websites. This will mean that the company financial statements will not provide a true and fair view, which is contrary to the Corporations Act 2001.

CASE STUDY

This research question consists of a case study: You are a graduate accountant who has completed your Bachelor of Business Studies at the Peter Faber Business School ACU. You are now working for Baxter and Associates a public accounting firm. The address of the firm is 12 Eagle Street, Brisbane Qld 4000.

The manager of your accounting practice, Ms. Pippa Baxter has asked you to draft a letter in response to an email received from a client - MrBastin Byrne, the managing director of Byrne Ltd, raising number of issues regarding his company - see the copy of the email on the following page.

Thank you for your telephone call this morning, as agreed I am emailing you regarding five (5) accounting issues we briefly discussed. By the way to assist the accounting team in our discussion - making process could you please make sure you reference any relevant sources relating to your advice, for example, AASBs, Corporations Act 2001, and relevant websites.

Q1. At our recent board meeting, Ambrose a director of our company suggested that we no longer need to show our non-current assets at their cost value in the balance sheet. Is this correct? Could you please outline our options? Would you advise us to show all our assets at cost value, fair value, or market value or just increase those assets that have appreciated in the market?

Q2. The board is also concerned with the frequent variances in the amount of warranty expenses that were initially recognised compared to the actual cost of the 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 expenses before the warranty cost is actually incurred. The directors are wandering why we should complicate a very simple way of calculating warranty expenses - why not "stick with" recognising the expense when we pay for it. This way we won't have to deal with all these variances. What do you think we should do and why?