Accounting Standard & Regulations | Report Myer Holdings Ltd
Added on 2020-02-24
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Accounting Standard & Regulations1
IntroductionThe present report presents the major accounting issues need to be considered by MyerHoldings Ltd, an ASX listed firm in the development of its general purpose financial report. Themajor area of the concern in this context is to develop a report for the CFO as an accountinggraduate of the company for consideration of impairment of assets. The AASB 136 standardrepresents amendment in the current reporting standard regarding assets impairment that appliesto annual reporting periods beginning on or after 1 July 2009 but before 1 January 2010. Thereduce disclosure requirements as per the AASB 136 requires business corporations to ensurethat its assets are not carried at more than its recoverable amount (Bond, Govendir and Wells,2016). The report has addressed the processes, information and flexibility required by businessesfor determining asset impairments with reference to Myer.Outlining the Evidence Determining the Necessity of Impairment Testing of Assets InRelation to MyerThe AASB 136 amendment adopts IAS 36 impairment of assets standard as developed bythe IASB. As analyzed from the data flow of the company, the evidence gathered in relation tonecessity for asset impairment is as follows:Asset Flow: It can be stated from the data analysis of the company that asset amount inall its stores is either uniform or has demonstrated an increasing trend. It has beenobserved that none asset presents a declining trend over the last financial year in all itsstores and therefore there is no signal of asset impairment.Asset Amount: it has been analyzed from the asset base that its net assets have notundergone major changes and all are contributing equally towards its overall assetsindicating no asset impairment.Turnover of Assets: As analyzed from the financial figures of asset turnover ratio of thecompany, there is no asset impairment as the ratio is relatively same over the past fewyears (Myer Holdings Limited 2016 Annual Report, 2016).Outlining the processes required to be addressed in determining any asset impairments byMyer2
The goodwill recognized by the company on acquiring Myer business amounts to $349.5million have been allocated to each of the cash generating units of the group as depicted from itsconsolidated financial statements. As per the AASB 136 Impairment of Assets standard, thegoodwill and intangible assets with unpredictable useful life of a business entity need to be testedon an annual basis for impairment. The asset impairment for these assets has been tested by theGroup through the adoption of use discounted cash flow model. This model is based on using thecash flow estimates of the group for the five year term. The cash flows generated beyond theperiod of five years are extrapolated through the use of a terminal growth rate. The model isbased on utilizing the following assumptions: Discount or pre-tax rate at 14.4% Terminal growth rate at 2.5%Gross operating profit margin at 39.5%The management on the basis of the model has tested the asset impairment if any exists. Themanagement has concluded that increase in the value of future cash flows over the net carryingvalues of assets of CGU’s there is no alteration in the key assumptions adopted. As such, there isno possible reason for carrying value of CGU to exceed from the asset recoverable amount. Thereview of net carrying value of asset in the group store was carried out for identifying the assetimpairment. The recoverable amount of assets in stores was estimated through discounted cashflow model and the major assumptions were found to be in consistency with those mentionedabove. Thus, on the basis of sensitivity analysis of the key assumptions, it can be said that thereis no asset impairment at Myer’s stores (Myer Holdings Limited 2016 Annual Report, 2016).Information required in determining asset impairmentsThe IAS 36 accounting standard is developed for carrying out impairment testing of alltangible and intangible assets. As per the standard, all assets need to test that they are within theimpairments scope when there is indication of any impairment. The impairment testing ofgoodwill and intangible assets need to be carried about annually (Hussey, 2010). The majorinformation needed for determination of asset impairments by Myer Holdings can be depictedthrough the following diagram:3
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