Title: Floods in Queensland Essay Example

Title: Floods in Queensland

Table of Contents

1.0 Introduction 2

2.0 Floods in Queensland 2

3.0 Recognition, measurement and disclosure issues 4

3.1 Items of inventory destroyed or damaged 4

3.2 Items of property, plant and equipment destroyed or damaged 5

3.3 Government assistance to be received 6

3.4 Collectability of accounts receivable 6

3.5 Cleaning up costs that will be incurred in May 2011 7

3.6 A contract to supply books that Milley cannot fulfill 7

4.0 Recommendations 7

5.0 Conclusion 8

6.0 Bibliography 8

1.0 Introduction

Current flood tragedies in Queensland and Victoria have brought about a shocking and far-reaching economic effect. Several organizations have been affected directly by the disaster. The flood also affected other organizations indirectly through business relationships that these organizations have with organizations that are affected directly. These economic effects normally bring about accounting problems that need to be considered. Organizations with reporting periods that ended before the floods, for instance a 31st December 2010 year end entity that was impacted by the floods in January 2011, should take into account if any successive event disclosures that relates to floods’ impact should be provided in financial statements of 31st December 2010 (Bryan 2005).

2.0 Floods in Queensland

A series of floods have affected Australia since the beginning of December 2010. The floods initially hit the state of Queensland plus its capital city, Brisbane. The floods caused many people to evacuate towns and cities. Over two hundred thousand individuals and seventy towns were affected by the floods. The damage was primarily approximated to be about one billion dollars. It therefore reduced the Australia’s gross domestic product to thirty billion dollars. Many industries including publishing industry were seriously hit by the flood. Seventy five percent of Queensland’s state was declared a disaster zone. Those living along Fitzroy and Burnett Rivers were badly affected by the flood as compared to those living near Condamine, Ballone and Mary Rivers. Unexpected flash flood moved through the central district of Toowoomba before the devastating communities within Lockyer valley.

The floods in Queensland killed about thirty five individuals and by 26th January 2011, an additional nine individuals were recorded missing. Many firms including Milley limited were badly hit by the flood. The floods in Queensland were later followed by the Victoria floods of 2011 that destroyed more than fifty businesses and communities including Milley’s limited warehouse. Thousands of houses and businesses in Ipswich and Brisbane were flooded when Brisbane River overflowed. The floods spread widely across Queensland from December 2010 to January 2011 with a number of separate rain occurrences causing rivers to bulge over along period of time. Several places including Chinchilla and Condamine were flooded by water on many instances. Approximately three hundred roads were closed plus nine main highways (Bryan 2005).

Economically, the floods in Queensland caused the commodities’ prices to go up. It also caused business chains to incur a lot of millions of dollars. Communities that were affected by floodwaters faced food shortages and increase in the cost of living. The floods also made many people to avoid buying scholastic materials thus affecting publishing industry. Coal railway lines were not in operation and several mine sites were flooded. This interfered with transportation of books to Milley’s limited warehouse. The flood caused shortage of publishing papers in Milley limited. Thousand of books were also stocked in the warehouse since they could not be transported for selling. The continual wet conditions resulted to health problems thus causing many employees to boycott their office work. The roadways were also damaged seriously.

3.0 Recognition, measurement and disclosure issues

3.1 Items of inventory destroyed or damaged

There is always delay of time between the end of reporting period and financial statements’ authorization. When natural calamity occurs after the end of reporting period and earlier to authorization, the accounting standards AASB 110 Events After the Reporting Period needs the event to be recognized as non-adjusting and the business disclose for every material category of non-adjusting event, the event’s nature and an approximation of its financial impact or a statement that such an approximation cannot be created. However, when the natural calamity event offers conditions’ evidence that prevailed at the end of reporting period, AASB 110 needs that the quantity identified in statements of accounts shows adjusting event. Finding out therefore whether the natural calamity event is an adjusting or non-adjusting event is always a straightforward stuff. However, in other scenarios things might not be very clear (Ryan 2007).

According to Ryan (2007), when the natural calamity event happens prior to the end of reporting period, it is important to consider the accounting needed of, for instances, inventory’s items, financial assets, goodwill and intangible assets, burdensome contracts, property, plant and equipment destroyed, restoration costs, buying or reconstructing items and government compensation under insurance policies. It is important to keep in mind that incase after the end of reporting period the impact of natural disaster is in such away that there is no sensible alternative than to liquidate the entity or stop trading, then AASB 110 will demand an essential change in the basis of accounting, rather than a change to the quantities recognized in the initial basis of accounting. AASB 102 Inventories needs inventories’ measurement at lower cost and net sensible value. Inventories that are impacted by natural disaster event need to be assessed and valued. The exercise of putting down inventories to their net sensible value need to be in line with the observation that assets should not be taken in excess of quantities expected to be obtained from the sales or use. The amount of all write-down inventories to net obtainable value and every inventory’s losses need to be recognized as cost within the period that write-down or loss occurred.

3.2 Items of property, plant and equipment destroyed or damaged

Items of property, plant and equipment can be obtained for environmental or safety purposes. The acquisition of plant, property and equipment enhances the future economic gains of any given existing item. Plants and equipments are always necessary for an entity to acquire future economic gains from other assets. These kinds of items of property, equipments and plants can qualify for recognition as assets since they allow an entity to get future economic gains from associated assets in surplus of what could have been obtained had it not attained. Under the principle of recognition, an entity cannot recognize within the carrying amount of a property’s item, equipment and plant the costs of servicing an item daily. The costs rather, can be recognized in profit or loss incurred. The daily servicing costs are initially the labor and consumables’ costs and can incorporate small parts’ cost.

The item of property’s cost, equipment and plant is the cash price that is similar at the recognition date. Incase the payment is deferred past usual credit terms, the difference among the cash price equivalent and the whole payment can be recognized as interest over the credit’s period unless such interests are capitalized with respect to AASB123. A single or more items of property, equipment and plant might be obtained in exchange of a non-monetary asset or a mix of monetary and non-monetary assets (Bryan, 2005).

3.3 Government assistance to be received

AASB 116 needs that third party compensation for items of property, equipment and plant that were damaged, lost or given up be entailed in loss or profit when the compensation becomes receivable. However the standards that are relevant to other assets and revenue are always silent on this issue. AASB 120 Accounting for Government grants and disclosure assistance needs that the government assistance to entities that have been affected by natural disaster should not be recognized until there is reliable assurance that the entity will comply with all conditions that are attached to it, thus grant can be received. AASB 137 illustrates that compensation from third parties can only be receivable if the income’s realization is nearly certain. It is therefore possible that the compensation’s recognition from third parties can occur in later reporting period than the loss or impairment’s recognition (Jacobson & Boyle, 2003).

3.4 Collectability of accounts receivable

Entities need to have a good follow-up procedure as part of their accounts receivable collections system. This normally reminds customers politely that their account is due and the consequences that might come up the outstanding bills are not paid on time. In Queensland, of late, the shape of the economy is mixed up and due to floods and cyclone several businesses including Miller Limited are in bad shape. It is perceived that the small end of town appears to be badly affected (Jacobson & Boyle 2003).

3.5 Cleaning up costs that will be incurred in May 2011

Though the impact of flood on commercial properties is likely to be minimal, the building that is affected badly will have to operate within a week or so. The buildings in the CBD were affected with several basements flooded and power loss. All these need to be restored and basements cleaned up. Some other costs might be incurred via relocating a higher position within the building. Repair and replacement of community centers, business premises, main roads, bridges and railways will result to a two-year reconstruction program that costs approximately ten billion dollars.

3.6 A contract to supply books that Milley cannot fulfill

A contract of supplying books should be maintained by Milley Limited. There is therefore a need for the entity to ensure that enough books are published regardless of the impact of natural disaster. In case the entity finds it hard to fulfill the supply as agreed in the contract, it can be penalized heavily due to bridge of contract.

4.0 Recommendations

It is important to recognize Items of inventory destroyed as non-adjusting and the business disclose for every material category of non-adjusting event. Items of property, equipment and plant damaged can qualify for recognition as assets since they usually permit an entity to get future economic. It is also important for an entity to ensure that their incomes are certain so that incase of natural calamity they can receive government assistance.

5.0 Conclusion

From the discussion, it is clear that floods caused devastating effects in Queensland. The floods killed about thirty five individuals in Queensland and by 26th January 2011, an additional nine individuals were recorded missing in the region. Business premises including Milley’s warehouse were seriously damaged. Several Recognitions, measurements and disclosures issues normally occurs if a given area is hit by natural disaster. Measures have to be put in place to ensure that the after effects are put under control to avoided loses that are likely to be incurred.

6.0 Bibliography

Bryan E., 2005, Natural hazards, Cambridge: Cambridge University Press.

Ryan S. J., 2007, Personal Financial Literacy, Cengage Learning.

Jacobson G L. & Boyle M., 2003, Financial Management: Better Controls Essential to Improve the Reliability of Dod’s Depot Inventory Records, New York: DIANE Publishing.