Accounting Standard and Practices for Impairment Test - BHP Billiton Case Study

Running head: ACCOUNTING STANDARD AND PRACTICES
Accounting standard and practices
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1ACCOUNTING STANDARD AND PRACTICES
Table of Contents
Answer (a)..................................................................................................................................2
Answer (b)..................................................................................................................................4
Answer (c)..................................................................................................................................5
Answer (d)..................................................................................................................................6
References..................................................................................................................................7

2ACCOUNTING STANDARD AND PRACTICES
Impairment test analyses whether the items from balance sheet are worth the stated
amount in the balance sheet. The amount in the balance sheet shall be reduced if impairment
test signifies lower value. The testing for impairment can be applied for tax accounts as well
as commercial that is audit accounts (Guthrie and Pang 2013). Impairment is the accounting
principle that states permanent reduction of the value of company’s assets, generally the fixed
assets. While the test for impairment is carried out, total profit, other benefits and cash flow
that are expected to be created from particular asset are compared periodically with the book
value of the assets (Bepari, Rahman and Mollik 2014).
Answer (a)
Key estimates and judgements
While determining the assets recoverable amount in absence of the quoted market
price, the estimates are made for the present value of the future tax cash flows. The estimates
need considerable management judgements and the judgements are subject to uncertainty and
risk that are beyond the company’s control (Bond, Govendir and Wells 2016). Therefore,
possibilities are there that the changes in the circumstances will alter the projections
materially that may impact the asset’s recoverable amount at the reporting date. Further, the
projections are made from the judgement of market participant that includes volumes for
future production, prices, tax attributes, discount rates and operating costs.
For the year ended 30th June 2017, BHP Billiton charged US$ 193 million under
impairment. Out of total US$ 193 million, charges for impairment for various assets are as
follows –
 Petroleum sector – US$ 102 million
 Copper sector – US$ 14 million