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Accounting Standard 136 Impairment Assignment

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Added on  2020-04-07

Accounting Standard 136 Impairment Assignment

   Added on 2020-04-07

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ANSWERIMPAIRMENT LOSS FOR CGU’S EXCLUDING GOODWILLImpairment – Australian Accounting Standard 136 has defined the impairment as the excess ofthe amount of the carrying amount of an asset over the amount which is recoverable from theasset at that point of time (AASB 136, 2011).Carrying Amount – The value at which the asset is recorded in the books of accounts is known asthe carrying amount. Carrying amount is nothing but the book value of an asset which is derivedafter deducting the depreciation from the cost of the asset. Recoverable Amount – International Accounting standard 36 has defined the recoverable amountas the higher of value in use or net selling price (IAS 36, 2014).-Value in use is the present value of cash inflows likely to be generated in the future years.These are discounted at the rate equivalent to either the internal rate of return of thecompany or the cost of capital.-Net Selling price is equivalent to the difference between the selling price of an asset andcost of disposing of the asset. Cash Generating Units – As per the Australian Accounting Standard 136, cash generating unitshave been defined as the cluster of asset which is very small and which is easily identifiable andrelatable to the particular class of the assets. It has been also defined that the cash flows of onegroup of assets will be independent of the other cluster. The concept has been introduced becauseof the fact that some of the assets were not able to provide the economic benefits in terms of thecash flows on their own. Therefore, this small group of assets or the cluster of assets has beenmade (IAS 36, 2014). Impairment Loss for CGU’s excluding Goodwill:Impairment loss is charged to the profit and loss account and is deducted from the value of theasset as shown in the balance sheet. In case there is the situation that the goodwill as shown inthe books of the company is not able to allocate on reasonable basis then the followingcircumstances will follow (Carlin, 2009; Zucca, 2012):
Accounting Standard 136 Impairment Assignment_1
Non allocation of Goodwill and company assets Allocation of goodwill onlyAllocation of company assets onlyAllocation of few assets of the company. The loss on impairment shall be calculated without including the goodwill in the followingmanner:a)At first the cash generating units will be found b)Then it is ascertained as to which specific asset they belong. c)Then the cash flows that the each of the cash generating unit will generate will beidentified and calculated with reasonable terms (Wines, 2009)d)Applying the discount rate as mentioned in the company details and the value in use isidentified as equivalent to the present value of cash inflows. e)Calculating the amount which can be recovered from the asset as defined as the netselling price.f)Calculating the amount recoverable as higher of value shown in (d) or (e)g)Then the carrying amount will be identified for only of the cash generating unitsh)Identifying and calculating the loss on impairment as the difference between the valueshown in step (g) and step (f)i)Revised carrying amount is calculated by deducting the impairment loss from thecarrying amount.j)The huge cash generating unit and calculate its recoverable amount. k)Finally calculating the carrying amount of this huge cash generating unit and calculatingthe impairment loss accordingly (Ghazaleh, 2011). Then the amount of the loss on impairment so calculated will at first allocated to the goodwilland then to the assets of the company.
Accounting Standard 136 Impairment Assignment_2

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