ACC204 Assignment Advanced Financial Accounting

Added on - 28 May 2020

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Running head: CORPORATE ACCOUNTING AND FINANCIAL REPORTING (ACC204)Corporate Accounting and Financial Reporting (ACC204)Name of the StudentName of the UniversityAuthor Note
1CORPORATE ACCOUNTING AND FINANCIAL REPORTING (ACC204)Part A: Reversal of impairment loss for the cash generating unitsAn asset, as per the AASB 136, is known to be impaired asset of the concernedcompany if the market price of that particular asset is less than the recorded value ofthe same in the balance sheet of the company in concern. The written down assets areconsidered as fixed assets since the span of time of the carrying value of the same islarger for impairment purpose (Linnenlueckeet al.2015). However, when the carryingamount of an asset is greater than the recoverable value of the same, then the asset isconsidered impaired. It falls, as a responsibility of a company to measure the asset’srecoverable amount if there exists, any indication of impairment in the asset. For thepurpose of the same, assessment needs to be carried out by the company at the end ofeach period of reporting and the asset’s recoverable amount needs to be estimated ifimpairment indication exists for the same (Bond, Govendir and Wells 2016).The company needs to test the intangible assets with indefinite useful life orthose tangible assets, which are not available, yet for impairment use, irrespective ofthe presence of any indication regarding impairment. The company can carry outimpairment at any point of time in an accounting year, given that the company does thesame consistently at that time of each year. To test the impairment of an asset, severalindications can be used (Rennekamp, Rupar and Seybert 2014). Of those, the externalsources include – (a) The asset’s market value which has significantly decreased morethan what was estimated (b) The return rate or interest rate of the market, which hadgone up within a particular period, which is expected to influence the discount rate thecompany, uses to calculate the asset value (c) The considerable changes taken placewhich are expected to have negative implications for the company. Further, the internal
2CORPORATE ACCOUNTING AND FINANCIAL REPORTING (ACC204)sources, which provide indications for - (a) Evidences of obsolescence and physicaldamage of assets which are available (b) The changes having considerably adverseeffects on the company: The changes, which adversely affect the company, include theplans for asset disposal before expected life, idle assets, restructuring or discontinuationplans for the operations including the assets (Guthrie and Pang 2013).The asset’s recoverable amount is usually the higher one among the value in useand the fair value less the cost of disposal. For cash generation also the same theory isapplicable. The asset’s value in use is also estimated through: (a) The possible timevariations or the future cash flow variations which are expected to occur (b) Estimationsof future flow of cash expected to be generated by the concerned company (c) The costof uncertainty, which is present inherently in the assets (d) Exogenous factors likeliquidity in the market, market participation and future cash flows. The future flow ofcash, in its turn includes the following: (a) Cash flows that are to be pair or received forthe disposal of assets (b) The cash inflow estimations for those incurred for cash inflowgeneration from the continuous usage of assets, which can be attributed to the assetson a consistent basis (Ji 2013).The Para 66-108, provides guidelines regarding the identification requirement ofthe cash generating unit, which includes the asset and the carrying amountdetermination and also the impairment loss recognition for the CGU and the goodwill. Inpresence of indication of the impairment of the concerned asset, the individual asset’srecoverable amount needs to be estimated by the company. In case the estimation ofthe recoverable amount of the asset becomes impossible, then the company needs toestimate the CGU’s recoverable amount (Bond, Govendir and Wells 2016). The
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