Accounting and Financial Reporting

Running head: ACCOUNTING AND FINANCIAL REPORTING
Accounting and Financial Reporting
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Table of Contents
Answer to Question 1:................................................................................................................2
Answer to Question 2:................................................................................................................5
References:.................................................................................................................................9

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Answer to Question 1:
Reversal of an impairment loss of goodwill:
Introduction:
According to the accounting principle, there should not be any overvalued asset in the
balance sheet statement of an organisation. Thus, some value concepts are needed in contrast
to which the carrying amount of the asset could be compared to determine if this is actually
overvalued. As per “Paragraph 1 of AASB 136”, impairment of assets helps in explaining
the methods that all organisations have to adopt in order to ensure that assets are carried at
amounts, which do not exceed their recoverable amounts. Moreover, the above paragraph
emphasises on the fact that the expected recoverable amount from sale of assets must not
exceed the carrying value (Aasb.gov.au 2019). In this situation, the asset is impaired and
thus, impairment loss has to be recognised, which should be followed by the time the loss
occurred and necessary disclosures.
Discussion:
When the recoverable amount of an asset goes beyond its carrying value, there is
recognition of impairment loss, which is the greater of the fair value of the asset less selling
cost and value in use. “Paragraph 1 of AASB 136” states that it is necessary to minimise the
carrying value of an asset to its recoverable amount, when the latter is lower compared to the
former. This minimisation is considered as impairment loss (Darrough, Guler and Wang
2014). However, there would be variation of the technique in recording impairment loss
depending on whether the asset is pursuant to the revaluation model or reported at cost.
According to “Paragraph 60 of AASB 136”, immediate recognition of impairment loss is
necessary; the only exception is available when the carrying value of an asset is adjusted at its

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re-valued amount by adhering to any other standard. This standard indicates towards the
revaluation model, which could be found in AASB 116. Hence, the impairment loss related to
a re-valued asset is required to be treated in the form of a revaluation decrease in accordance
with the other standard.
All classes of assets including goodwill could be impaired in accordance with the
revaluation model and cost model. “Paragraph 61 of AASB 136” emphasises on the cost
model, in which when cost is utilised for recording impaired asset, impairment loss has to be
recognised immediately in the income statement. More precisely, such loss needs to be
reported in the form of expense in the income statement of a business organisation (Chen,
Krishnan and Sami 2014).
“Paragraph 61 of AASB 136” emphasises on the revaluation model, in which when
the carrying value of an impaired asset is conducted at a re-valued amount, there is no
difference in the treatment of revaluation decrease and impairment loss. In order to ensure
reiteration, the impairment loss on re-valued asset is recognised in the statement of profit or
loss initially in order to limit the same in exceeding the amount of revaluation surplus for that
similar asset (Li and Sloan 2017). The objective is met by debiting the balance revaluation
surplus account applied to the asset and related deferred tax liability before any loss balance
is recognised in the form of expense in the statement of profit or loss.
However, there are chances of certain situation, in which the recoverable amount of
an asset has been written off in the previous period going past its carrying value (Filip,
Jeanjean and Paugam 2015). “Paragraph 110 of AASB 136” needs an organisation to
identify any sign that an impairment loss previously recognised for any asset might have
fallen or they have no existence. Hence, “Paragraph 111 of AASB 136” requires various
internal and external indications that would assist in reversing an impairment loss of