Impairment Analysis of Myer Holdings Ltd.

This assignment requires a detailed analysis of Myer Holdings Ltd.'s impairment testing practices in accordance with Australian Accounting Standard Board (AASB) 136. Students must examine the company's methodology for identifying potential impairments, measuring the value in use and recoverable amount, and ultimately determining the amount of any impairment loss. The analysis should focus on Myer's flexibility and approach to these complex accounting standards.

Running head: ACCOUNTING STANDARD AND REGULATION
Accounting standards and regulation
Name of the student
Name of the university
Author note

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Executive summary
The main objective of this report is to provide a clear concept regarding the AASB 136 on
Impairment of asset. The report will mainly focus on the Myer Holdings Ltd, an ASX listed
entity in Australia. The report will take into consideration the procedure f impairment,
evidence for impairment, information valid for successful test of impairment and the
management’s flexibility regarding the impairment test approach for the above mentioned
entity.

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Table of Contents
ASIC Media release 17 -162......................................................................................................4
a. Evident of impairment with regard to Myer Holdings Ltd.................................................5
b. Process of determining impairment....................................................................................5
c. Information relating to determination of impairment.........................................................6
d. Flexibility Myer Holding Limited management for determining impairment...................7
Reference:..................................................................................................................................9

4ACCOUNTING STANDARDS AND REGULATION
ASIC Media release 17 -162
ASIC through their Media Release 17 – 162, approached that the all the organization
who are listed under the ASX, shall prepare their financial statement with the consideration
that it shall fulfil the purposes of the users. To be more specific, the financial report shall be
prepared with transparency and in accordance with the conceptual framework, so that the
statements can be understood by the external as well as the internal users clearly and it must
be able to fulfil the requirements of the users. It is observed by the ASIC that most of the
companies use improper assumptions while preparing their accounts for various transactions
like recognition if liabilities or revenues. As per the statement of John Price, the
commissioner of ASIC, the auditors shall analyse the accounting strategies with regard to the
statements of previous period (Aasb.gov.au 2017).
As per the AASB 136 on Impairment of assets seeks to assure that the assets in the
balance sheet shall not be carried out in the value which is more than the recoverable value of
the asset. For the purpose of impairment, the recoverable value and fair value of the asset less
the cost of disposal must be measured. The impairment loss is the difference between the
recoverable amount and the fair value of the asset. As per the AASB 136, the organization
shall carry out the impairment test at least once in each year. As per Para 12 – 14 under
AASB 136, some indications are considered for impairment of any asset. However, if any
indication for impairment is found with regard to any if the asset of the company, the
management shall immediately test the asset for impairment (Kabir and Rahman 2016).
Various indications of impairment are as follows –
Internal sources –
 It is established that the asset became obsolete or it is damaged physically
 The asset or the CGU of the asset is required to be restructured or it is observed that
the asset is kept in idle position for long run
 While using the asset, the method of use is significantly changed.
External source –
 The technological, environmental, market and legal circumstances of the operating
environment of the entity has been significantly changed
 The asset’s carrying amount exceeds the capitalization of the market
 Significant change is there with regard to the market rate of interest or market return

5ACCOUNTING STANDARDS AND REGULATION
 Owing to normal wear and tear the value of the asset changed considerably.
a. Evident of impairment with regard to Myer Holdings Ltd
 Asset flow – if the impairment test is carried out taking into consideration the asset
flow of various stores of Myer, it can be recognized that that no indication is there
with regard to impairment for any of the stores as there is no significant change
noticed for past few years. Therefore, indication of impairment is not established.
 Turnover of asset – taking into consideration the turnover of assets, it is identified
that the turnover is ranged from 1.40 to 1.80. Therefore, significant shift is not there
that can establish the indication of impairment (Investor.myer.com.au 2017).
However, though above tests do not recognize any asset for impairment, it identified
that to compete with the Amazon, Myer planned to change the outlook of the departmental
store at Frankton. Under the planning they want to change the traditional black and white get-
up of the store with the vibrant yellow colour. Further, the uniform of the store staffs will be
changed from the traditional one. Moreover, the storage system will be altered in such way
that will give more space for storage. All these significances will be regarded as partial
restructure as per AASB 136, which is regarded as the internal source of information for the
indication of impairment of the store (Malone, Tarca and Wee 2015). Therefore, the store in
Frankton shall be tested for impairment.
b. Process of determining impairment
For calculating value or amount of impairment of assets when there is any indication
of impairment of any assets of organization, in such event, it is essential to measure the
carrying value of assets and value in use. The approval of assets by the management of
company regarding assets forms the basis of forecasting the cash flow generated by assets.
Forecast of cash flow is generally for long-tem. Management make use of terminal rate of
growth for calculation of cash flow for long time that is five years (Christensen et al. 2015).
Following assumptions have been made for the calculation of cash flow generated by assets
and they are as follows:
 Pre discount rate has been assumed to be at 14.4%
 Terminal growth rate is assumed to be at 2.5%
 Rate of operating margin concerning goods profit are assumed to be at 39.5%.

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A separate evaluation of each of stores of company is done in order to recognize and
establish impairment requirement. Moreover, forecasting of cash flow generating from assets
is done based on budget of cash generating unit. Calculation of amount of impairment is
doneif there is establishment of indication of impairment. Value in use and carrying value of
asset are used for calculating amount of impairment (Wang 2014).
c. Information relating to determination of impairment
 In order to make the recognition of loss associated with impairment and to carry out
test of impairment, it is required in part of organization to make detail disclosures.
 It is crucial to determine the value of impairment and the reason is attributable to fact
that impairment is made using recoverable value and through value in use.
 Under the revenue statement, identification and recognition of loss associated with
impairment is treated as expense. Under balance sheet, such amount is deduced from
asset closing value of assets.
 Impairment of cash generating unit of assets is regarded for the purpose of
impairment when the recoverable amount of assets is less than carrying amount of
assets.
 It is necessary for organization to reverse the amount of loss associated with
impairment in previous accounting period concerning goodwill or any assets. This is
done in the event if the forecasted value of the recoverable value of assets that are
impaired changes (DeZoort et al. 2017).

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d. Flexibility Myer Holding Limited management for determining impairment
It is not essential for management of company to be expert in accounting as per
Australian securities and investment commission. In such cases, management of organisation
can seek help from accounting firms or by hiring accounting experts. When the forecasted or
projected value relating to accounting does not tally with the required or actual outcome, it is
required by them to discuss matters with accounts by conducting in depth analysis. Data in
financial statements can be presented with more clarity when such analysis is conducted
(Pacter 2014).
As per the requirement of Australian accounting standard board 136, the facts
ascertained in the given case of Myer Holdings Ltd. In such case, it becomes essential for
management to carry out test of impairments at least once in a year. Furthermore, for
measuring the amount of loss related to impairment in the event of any indication of

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impairment, it I required by company to instantly measure the value in use and recoverable
value. From the analysis of case, it is regarded that for carrying out impairment tests, Myer
Holdings Ltd is very adjustable. Survey regarding carrying value of assets is conducted by
organization for each of store and existing signs of impairment is distinguished (Albu et al.
2014). Test of impedance is guaranteed by organization as per AASB 136 fundamentals.
Moreover, various levels of certainties such as estimation of impairment is decided by
organization. Therefore, it can be concluded that company’s management is flexible when it
comes to determine the loss of impairment and carrying out impairment tests.

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Reference:
Aasb.gov.au. 2017. Australian Accounting Standards Board (AASB) - Home. [online]
Available at: http://www.aasb.gov.au/ [Accessed 26 Aug. 2017].
Albu, C.N., Albu, N. and Alexander, D., 2014. When global accounting standards meet the
local context—Insights from an emerging economy. Critical Perspectives on
Accounting, 25(6), pp.489-510.
Christensen, H.B., Lee, E., Walker, M. and Zeng, C., 2015. Incentives or standards: What
determines accounting quality changes around IFRS adoption?. European Accounting
Review, 24(1), pp.31-61.
DeZoort, F.T., Wilkins, A. and Justice, S.E., 2017. Call for papers: The limits of accounting
regulation. Journal of Accounting and Public Policy, 45, p.30Z.
Investor.myer.com.au. 2017. Myer Investor Relations. [online] Available at:
http://investor.myer.com.au/Investor-Centre/ [Accessed 26 Aug. 2017].
Kabir, H. and Rahman, A., 2016. The role of corporate governance in accounting discretion
under IFRS: Goodwill impairment in Australia. Journal of Contemporary Accounting &
Economics, 12(3), pp.290-308.
Malone, L., Tarca, A. and Wee, M., 2015. Non-GAAP earnings disclosures and
IFRS. Accounting and Finance.
Pacter, P., 2014. Global accounting standards-from vision to reality. The CPA Journal, 84(1),
p.6.Page, M., 2014. Business models as a basis for regulation of financial reporting. Journal
of Management & Governance, 18(3), pp.683-695.
Wang, C., 2014. Accounting standards harmonization and financial statement comparability:
Evidence from transnational information transfer. Journal of Accounting Research, 52(4),
pp.955-992.