Impairment Loss in Accounting: Treatment, Valuation, and Guidelines for Cash Generating Units

accounting

Contents
Part-A....................................................................................................................................................3
Introduction...........................................................................................................................................3
Conclusion.............................................................................................................................................5
Part-B.....................................................................................................................................................6
References.............................................................................................................................................8

Part-A
Introduction
According to Australia`s accounting principles, intangible and tangible are recognised at their
realisable value in financial declaration. In some situation, when the price of tangible or
intangible asset is estimated more than the realisable value, then impairment brings the value
of assets at a realisable figure. Although, the assets are valued at cost in the financial
statements but after considering the revaluation of tangible and intangible assets on the basis
of market situation on timely basis. Moreover, accounting standards and principles require
that revaluation should not lead to overvaluation of amount in financial statements. ASAB
136 prescribed the treatment of impairment loss, which is simple while calculating the
amount on single asset but calculation of cash generating unit can become complicated. This
essay deals with the discussion of impairment loss related to cash generating unit (AASB
136. 2009).
The prime aim of calculating and identifying the impairment loss is to make certain that
tangible and intangible assets are not overestimated in financial reports. According to
accounting standards, the valuation can result in either undervaluation or overvaluation.
When an asset is overvalued, there arises a possibility of overestimation of the asset.
Impairment is an abrupt or sudden reduction in the fair value due to damage or usage. For
example- significant fall in fair and market value of an asset and if it occurs then the amount
reflected in the financial reports that would be above what it can be. Impairment loss is
amount when carrying amount of the asset is more than the recoverable sum (Ernst & Young
LLP. 2015).
While testing the impairments, a company has to keep an eye on the carrying amount of an
asset regularly that is shown in the financial reports. The organisation should recognize