Essence and Requirements of Impairment of Assets

Running head: ACCOUNTING AND FINANICAL REPORTING
Accounting and Financial Reporting
Name of the Student:
Name of the University:
Author’s Note:

1ACCOUNTING AND FINANCIAL REPORTING
Table of Contents
Answer to question 1:......................................................................................................................2
Sub part (a):.................................................................................................................................2
Sub part (b):.................................................................................................................................2
Sub part (c):.................................................................................................................................2
Sub part (d):.................................................................................................................................3
Answer to question 2:......................................................................................................................4
Answer to question 3:......................................................................................................................6
Sub part (a):.................................................................................................................................6
Sub part (b):.................................................................................................................................6
Answer to question 4:......................................................................................................................7
Answer to question 5:......................................................................................................................9
References and bibliography:........................................................................................................11

2ACCOUNTING AND FINANCIAL REPORTING
Answer to question 1:
Sub part (a):
Grace Limited takes services from a cloud service provider and there was a disruption in
the services for the last 14 days, which caused a major loss to the Grace Limited. Grace Limited
went for legal actions and claimed $300,000 for such damages. This cannot be considered as an
adjusting event. Until and unless the claim is realized, there would be no effect of such a claim
on profit or loss of the company. Hence, no adjusting entry is required for that, and it can only be
shown in the notes to the balance sheet.
Sub part (b):
The government announcement had an impact on the value of the said property. The
director of the company valued the asset after the government announcement at $800,000 less
than the current book value of the asset. The value assessed by the director can be considered as
the fair value and it needs to be restated in the financial books of accounts. Hence, this is and
adjusting event and needs a proper adjustment entry in accordance with the accounting standard
AASB 13.
Journal
Particulars Debit Credit
Revaluation Loss $ 800,000
Land $ 800,000

3ACCOUNTING AND FINANCIAL REPORTING
Sub part (c):
In this case, the car was purchased by the manager in his name using the company’s fund,
but the asset was shown in the books of the company. When the fraud activity is disclosed, the
manager agreed to refund the amount to the company. In this case, the company should
derecognize the value of asset in the books along with the respective accumulated depreciation.
Therefore, this is an adjusting event and following adjustment entry is needed for recording the
event.
Journal
Particulars Debit Credit
Bank $ 38,000
Accumulated Depreciation $ 1,000
Motor Car $ 38,000
Retained Earnings $ 1,000
Sub part (d):
Grace Limited is having some financial assets of a current market value of $500,000.
Subsequently, the market price of such financial assets slips down to $250,000. As per the
accounting standard AASB 13 such assets are subject to fair valuation and as the market value of
such financial assets decreases, the company needs to recognize that fall in market price in their
financial books of accounts. Hence, this is an adjusting event and following adjusting entry is
needed.
Journal
Particulars Debit Credit
Revaluation loss on financial assets $ 250,000
Investment in shares of Slipp Limited $ 250,000