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Purpose of Accounting Standard Assignment

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Added on  2019-09-20

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Purpose of Accounting Standard Assignment_1
IntroductionGail Ltd made valuation about their China division as a CGU. The unit has different assets, and they are disclosed at their carrying value. It provides detailed information about the carrying value of every asset. Carrying amount is the recognizable amount after adjusting for the accumulated depreciation and any related impairment losses. AASB 136 is more relevant to Gali Ltd case scenario. The company did not provide any provision for revaluing the goodwill of the company. There is no indication of fair value less cost of all other cash generating assets except for land. In this paper, there is a detailed discussion about the AASB 136 and their relevance to the Gail Ltd while preparing the impairment loss account. AnalysisAASB 136 is an accounting standard that deals with the impairment of assets. The purpose of the accounting standard is to ensure that the assets of the company disclosed on the balance sheet are not in excess to their recoverable amount (Dagwell, Wines and Lambert, 2007).It aims at providing a true and fair accounting statement. Recoverable amount is the amount that asset can generate it is the fair value after adjusting the value in use of the asset and the costs to sell the asset. As per AASB 136, assets that are subject to impairment are land and building, property, machinery, goodwill and other intangible assets held by the company. Current assets of the company are not subject to the impairment losses. In this case, the Gali Ltd is not considering thegoodwill for impairment loss determination. But as per AASB 136, goodwill of the company is subject to impairment if the fair value after adjusting for the costs is lower than the amount that is presented in the balance sheet of the company (IFRS, 2009). 2
Purpose of Accounting Standard Assignment_2
In this case, there is no indication about the leases of Gali Ltd for performing the calculation; therefore, AASB 117 that is related to the leases are irrelevant for this case (AASB, 2009). Gali Ltd did not indicate the impairment of goodwill which is mandatory while making anevaluation of all the accounts of the company. When the company is making fair value valuation of the assets, they should include goodwill in such valuation. If the company is not including the goodwill in the revaluation and not charging for any impairment, then it indicates that the managerial discretion highly dominates the company. In this case, Gali Ltd is highly influenced by the decision of the management, and it will give rise to more agency problem in the future. The main reason for Gali to avoid the goodwill revaluation could be that their value would be much lesser than the value projected by them in their books (Wiley, n.d.). It might result in pulling down the overall value of the total assets of the company. Gali Ltd did not specify the assets that have caused the impairment losses by indicating the fair value adjusted for the cost of the various accounts. There is the only indicationof the Land’s fair value less the cost of disposal (Department of Treasury and Finance, 2015). The total value did not independently specify which account was undervalued or all assets value was slightly lower than the market value therefore pro-rata basis is used for the analysis. Carrying amount is the recognizable amount after adjusting for the accumulated depreciation and any related impairment losses. In this case, Gali Ltd has reported the carrying value of the assets of the division. As per AASB 136 inventory will not be revalued by the business for any impairment losses (AASB, 2009). Thus, Gali Ltd will ignore the inventory while determining the impairment losses. From the given information, it is clear that Gali Ltd didnot include goodwill for the impairment loss determination.3
Purpose of Accounting Standard Assignment_3

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