We currently have two accounting issues. Could you please provide us with some accounting advice for each issue. Please reference any relevant Australian Accounting Standards (AASB) in your letter, so we can show our external auditors at year end.

1. A customer has lodged a law suit against our company. We sold the customer a harddrive which was faulty and it has caused a huge loss of data for their business. The court decision to award damages to the customer was held on 26th June 2014; however the amount of the damages will not be decided until 30th September 2014.

Our lawyer has advised the damages will be between $50,000 and $1 million.

Please advise what steps we should take, in order to record this event in ourfinancial statements for the year ended 30th June 2014.

2. Our sales team sells iPads and offers an interest-free period of 12 months to certaincustomers. These customers received the benefit of having their payment deferredfor 12 months. The total amount owing by these customers is $10,000 and we use 7% as our discount rate in all financial transactions. Please advise what the correctaccounting treatment would be to record these transactions.

Please respond by letter (not email) as I would like to present this to the board. I lookforward to hearing from you in the near future.

Regards

P Keens

Peter Keens

Managing Director, Logitech Ltd

Level 1, 250 Hutt Street

Adelaide SA 5000

This research question consists of a case study: You are a graduate accountant working for Black and Associates a public accounting firm. The address of the firm is 666 RadcliffeRoad, Adelaide SA 5000. The manager of your firm, Tom Jones has asked you to draft a letter in response to an email received from a client - Peter Keens, the managing director of Logitech Ltd, raising a number of issues regarding his company.