Goodwill Impairment and Its Implications

This assignment delves into the concept of goodwill impairment and its various implications in the realm of finance and accounting. It examines the theoretical framework surrounding goodwill impairment recognition and measurement, drawing upon authoritative pronouncements like US GAAP and IFRS. The analysis extends to the practical consequences of goodwill impairments, including their effects on financial reporting, firm performance, and investor perceptions. The assignment utilizes relevant academic research and case studies to illustrate the complexities and challenges associated with goodwill impairment.

Running head: ADVANCE FINANCIAL ACCOUNTING
Advance Financial Accounting
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Assessment Task Part A:............................................................................................................3
i) Finding out from company’s annual report that assets that is used by the firm for testing its
impartment:................................................................................................................................3
ii) Depicting how impairment testing was conducted by the firm:............................................3
iii) Depicting whether the firm has recorded any impairment expenditure during the fiscal
year:............................................................................................................................................4
iv) Identifying the key estimates and assumption used for conducting the impairment testing:
....................................................................................................................................................5
v) Depicting whether any kind of subjectivity is involved in impairment testing and stating
how this subjectivity could influence outcome of impairment testing:.....................................5
vi) Depicting what was interesting, confusing, surprising or difficult to understand about the
impairment testing:.....................................................................................................................6
vii) Depicting new insights about the impairment test conducted by the company:.................6
viii) Commenting on the fair value measurement:.....................................................................7
Assessment Task Part B:............................................................................................................7
i) Explaining why the chairperson of IASB believes that accounting standard for lease did not
reflect economic stability:..........................................................................................................7
ii) Depicting why under former accounting measure liabilities were up to 66 times greater
than debt reported on their balance sheet:..................................................................................8
iii) Depicting why under former accounting standard there was no level playing field between
some airline companies:.............................................................................................................9
iv) Depicting the case for unpopularity of the new accounting standard for lease:...................9
v) Depicting the possible reason, why it is said that new visibility of all lease will lead to
better investment decision:.......................................................................................................10

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Reference and Bibliography:....................................................................................................12

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Assessment Task Part A:
i) Finding out from company’s annual report that assets that is used by the firm for
testing its impartment:
The company has been conducting impairment testing on intangible assets, goodwill,
customer relationships, Branding, project development cost in software. Chandler Macleod
Group Limited has been conducting impairment test on all the above-mentioned categories,
which helps in identifying the overall loss incurred by the organization during the fiscal year.
This detection of the impairment loss directly allows the company to adjust their assets
according to its actual value presented in the market. impairment testing of goodwill and
intangible assets with indefinite lives are conducted by Chandler Macleod Group Limited,
which helps in allocating goodwill to individual business units (Chandlermacleod.com 2018).
This impairment testing directly helps in detecting the losses that is incurred by the
organization in valuation during the fiscal year. the cost related project development and
software are directly adjusted with the help of impairment testing.

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ii) Depicting how impairment testing was conducted by the firm:
The above figure mainly helps in identifying the overall Impairment testing which
was conducted by the company during the fiscal year. the company directly uses goodwill,
project development cost, software, leased software, brand names, and customer relationship
in their impairment testing. The net book value is directly reported in the annual report which
helps in identifying in the fair value that is less than the actual report value. This increases the
impairment loss conducted by the organization doing the fiscal year. Impairment loss on
software, leased software, brand names and customer relationships were conducted during the
fiscal year (Chandlermacleod.com 2018). Organization with the help of impairment loss was
able to identify the net carrying amount of each assets that was used in the empowerment
testing. This detection is helpful in identifying actual financial position of an organization.
iii) Depicting whether the firm has recorded any impairment expenditure during the
fiscal year:
The firm has experienced empanelment lost during the fiscal year, where adequate
allowance for impairment loss are conducted by the management. This allowance for

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impairment loss mainly helped in reducing trade receivables that is entered by the
organization during the fiscal year. this allowance for impairment loss on trade receivables
are mainly presented, due to the adequate recognition of traditional receivables being
impaired. The overall reduction of trade receivables mainly helps in identifying the actual
value that will be received by the company during the fiscal year (Chandlermacleod.com
2018). Impairment loss of project development cost, software, leased software, brand names,
and customer relationship ate also detected in the annual report.
iv) Identifying the key estimates and assumption used for conducting the impairment
testing:
Adequate assumptions were conducted by the organization before the estimation of
impairment loss incurred during the fiscal year. The use of adequate accounting policies such
as IASB 136 was utilized by the organization for drafting the overall Impairment cost
incurred during the fiscal year (Chandlermacleod.com 2018). reasonable assumptions
estimated by the organization for calculating the overall fair value for its assets. majority of
the assumption are conducted on intangible assets, which was used by the organization for
impairment testing. The organization conducts valuation of goodwill, cost and software’s to
detect the actual impairment loss incurred during the financial year.
v) Depicting whether any kind of subjectivity is involved in impairment testing and
stating how this subjectivity could influence outcome of impairment testing:
From the overall evaluation impairment testing of the organizations are conducted
with the help of subjectivity, as adequate estimates and developments are used in the
impairment process. Moreover, subjectivity is present within the organization, which directly
increases the sensitivity and leads to assumptions that need to be conducted to verify terminal
growth. Impairment testing is directly influenced by subjectivity, which needs to be

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controlled by the organization to reduce its negative impact on the improvement process. This
prevention could eventually help in detecting actual loss incurred by the organization due to
corrections in valuation.
After validating the annual report of Chandler Macleod Group Limited, it could be
detected that low subjectivity was present during the impairment testing
(Chandlermacleod.com 2018). The organization mainly focused the impairment testing on
goodwill, project development cost, software, leased software, brand names, and customer
relationship. However, reduction in impairment loss was conducted only on project
development cost, software, leased software, brand names, and customer relationship due to
the revaluation process. This indicates that low subjectivity was present during the
impairment testing process.
vi) Depicting what was interesting, confusing, surprising or difficult to understand
about the impairment testing:
After validating the annual report of Chandler Macleod Group Limited it was
surprising to identify that adequate impairment testing process was not depicted in details.
The process of the implement testing was not adequately provided by the company in the
annual report, where hypothetical changes in the family were conducted. In addition, no
impairment loss was deducted from Goodwill which was surprising, while other intangible
assets value was deducted during the fiscal.
vii) Depicting new insights about the impairment test conducted by the company:
From the evaluation of the annual report no new Insights on the overall impairment
testing was identified. In addition, the company has been using impediment testing on
intangible assets, which had been conducted by many of the companies. However, test on

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goodwill was conducted, where no deductions made by the organization, while other
intangible assets were deducted and revalued as per fair value.
viii) Commenting on the fair value measurement:
Fair value reporting directly allows the organization to detect its actual financial
position to the investors, which takes adequate decisions based on portrayed financial
condition. the fair value is mainly identified by using the accounting estimates such as cost of
capital, which helps in hotel in the actual value of an asset. This detection of the actual value
of the Asset allows the organization to represent is total assets. Hence, fair value
measurement is necessary attribute, which needs to be conducted by all the organization to
represent the actual financial condition to the shareholders.
Assessment Task Part B:
i) Explaining why the chairperson of IASB believes that accounting standard for lease
did not reflect economic stability:
From the evaluation it could be identified that the existing lease standard did not
provide clear picture of the overall company, which was mainly conducted due to the

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existence of different accounting models for various transactions. Furthermore, there was no
possibility under the existing standard to measure actual liabilities of the business, as
organizations could represent values according to their perspective (Abuaddous, Hanefah and
Laili 2014). Likewise, leased liability and assets are not represented on financial reports as
the current accounting for lease does not require organizations to disclose it on the financial
statement. Further evaluation is being conducted by IASB regarding lease commitments,
where $3.3 million worth of lease all over the world are not been disclosed properly in the
balance sheet. However, financial analyst and investors seek information regarding operating
lease in the annual report, which is not adequately provided in the statement. This improper
implementation of adequate standards directly mitigates the possibility of operating lease
been incorporated in financial metrics. Moreover, this non-availability of adequate operating
lease could eventually reduce capability of investors and analyst to evaluate the actual
financial position of the organization. Adequate financial standard is needed for reducing the
problems that arise from operating lease that is maintained by organization to conduct their
operations. Nevertheless, the evaluation of available information directly indicates that
investor adjust after evaluating the balance sheet to comply with actual financial position of
an organization, which does not reflect the economic reality (Banker, Basu and Byzalov
2016).
ii) Depicting why under former accounting measure liabilities were up to 66 times
greater than debt reported on their balance sheet:
The previous accounting standard did not force organization to present operating lease
on their annual report, which did not represent the actual liabilities that is incurred from
operations. moreover, other financial metrics such as operating cash flow, net income,
liabilities, and earnings before interest and tax does not represent the actual value, which

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could be identified if adequate lease commitments are presented on the balance sheet.
Organizations does not list lease commitments in their annual report, as it might affect the
actual Assets and liabilities incurred by them (Chang and Yen 2015). This would directly
under the total liability and Assets of an organization, as information regarding lease
commitments are not provided in the annual report. In addition, the management mainly
depicts debt in their annual report, which is less than the leased assets acquired by the
management. This is the main reason for off-balance sheet liabilities being higher than the
liability listed in annual report.
iii) Depicting why under former accounting standard there was no level playing field
between some airline companies:
The situation directly indicates the controversy that is linked with the former
accounting standard, which depicts the complications of creating financing and operating
lease. problems related to lease is directly indicated the current situation, which portraying
wrong information in the annual report. Companies having operating lease or not required to
make this closes on balance sheet, which is the main reason for airline companies not having
level playing field in their annual report. some of the airline companies buys aircraft fleet
while others lease assets to conduct its operations. Therefore, the financial position of such
airline companies needs to be different in comparison to companies purchasing the aircraft
(Filip, Jeanjean and Paugam 2015). There is relevant possibility that financial position of the
airline companies are identical, as leased properties are not listed in the annual report, which
helps in depicting the actual financial condition of an organization. This is the main reason,
why no level playing field between Airlines are identified by investors, as they are not liable
to enlist leased aircraft in their annual report.

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iv) Depicting the case for unpopularity of the new accounting standard for lease:
The current standard rules are relatively having a lengthy process for controlling,
tracking and enlisting the leased property. New process needs to be developed by the
organization to account for their leased property in the annual report. Adequate information
needs to be collected by the management regarding their leased property, which could be
disclosed in their annual report. Changes in the fundamental treatment of lease by the lessee
need to be conducted in the annual report which might help in depicting actual liability of an
organization. This would eventually increase the reported Assets and liabilities of an
organization as leaves properties will be enlisted in the balance sheet. Moreover, under IFRS
16 no distinction between off balance sheet and on balance sheet of the lease amount can be
seen (Giner and Pardo 2015). Moreover, it could be assumed that implementation of lease on
balance sheet would directly reduce viability of the organization to conduct adequate testing
depicting accurate leased standard in their annual report. This implementation would directly
increase leverage of the organization and allow investors to identify the actual financial terms
in which the company is conducting operations. The collection of information for the leased
data is relatively time consuming for the organization.
v) Depicting the possible reason, why it is said that new visibility of all lease will lead to
better investment decision:
The implementation of new account requirements eventually helps in reducing the
overall guesswork and rough estimates made by investors regarding leased assets. This
implementation could eventually allow the investor to identify leased requirements of the
company, which could in turn help in making adequate investment decisions. Moreover, the
implementation of the new standard could eventually help in conducting relevant comparison
between buying and leasing opportunities presented to an organization. With the help of new

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accounting standard organizations can disclose leasing commitment in their annual report
which increases the transparency level portrayed to their shareholders (Gordon and Hsu
2017). This could eventually allow the organization to bring in more flexible source of
Financing to support their financial activity. The disclosure conducted by organizations could
eventually allow the management to check their actions, while taking decision regarding
leased assets. This measure could eventually allow the management to help create distinction
between off balance sheet and on balance sheet operating lease of the organization.

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Reference and Bibliography:
Abuaddous, M., Hanefah, M.M. and Laili, N.H., 2014. Accounting standards, goodwill
impairment and earnings management in Malaysia. International Journal of Economics and
Finance, 6(12), p.201.
Banker, R.D., Basu, S. and Byzalov, D., 2016. Implications of Impairment Decisions and
Assets' Cash-Flow Horizons for Conservatism Research. The Accounting Review, 92(2),
pp.41-67.
Chandlermacleod.com. (2018). Recruitment Agency & Human Resource Services | Chandler
Macleod. [online] Available at: https://www.chandlermacleod.com/ [Accessed 24 Jan. 2018].
Chang, M.L. and Yen, T.Y., 2015. Does Reversal of Asset Impairment Loss Matter?
Evidence from China. International Research Journal of Applied Finance, 6(4), pp.197-222.
Filip, A., Jeanjean, T. and Paugam, L., 2015. Using real activities to avoid goodwill
impairment losses: Evidence and effect on future performance. Journal of Business Finance
& Accounting, 42(3-4), pp.515-554.
Giner, B. and Pardo, F., 2015. How ethical are managers’ goodwill impairment decisions in
Spanish-listed firms?. Journal of Business Ethics, 132(1), pp.21-40.
Gordon, E.A. and Hsu, H.T., 2017. Tangible Long-Lived Asset Impairments and Future
Operating Cash Flows under US GAAP and IFRS. The Accounting Review.
Guler, L., 2016. Has SFAS 142 improved the usefulness of goodwill impairment loss and
goodwill balances for investors?. Review of Managerial Science, pp.1-34.

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HONGMAN, G., 2017. Research on the Evolution of the Impairment Loss Model of
Financial Assets-Based on the Realization of the Expected Loss Model. Agro FOOD Industry
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Linnenluecke, M.K., Birt, J., Lyon, J. and Sidhu, B.K., 2015. Planetary boundaries:
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Lobo, G.J., Paugam, L., Zhang, D. and Casta, J.F., 2017. The effect of joint auditor pair
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Penner, J.W., Kreuze, J.G. and Langsam, S.A., 2016. INSTRUCTORS'NOTES:
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ASSETS BETWEEN US GAAP AND IFRS. Academy of Educational Leadership
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Small, R., Smidt, L. and Joseph, A., 2017. Impairment of assets-does it actually
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Sun, L. and Zhang, J.H., 2017. Goodwill impairment loss and bond credit
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