Advanced Financial Accounting - Impairment Assessment

Added on - 28 May 2020

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Running head: ADVANCED FINANCIAL ACCOUNTINGAdvanced financial accountingName of the universityName of the studentAuthors note
1ADVANCED FINANCIAL ACCOUNTINGTable of ContentsAssessment Task Part A:.................................................................................................................2Requirement i).................................................................................................................................2Requirement ii)................................................................................................................................2Requirement iii)...............................................................................................................................2Requirement iv)...............................................................................................................................3Requirement v)................................................................................................................................3Requirement vi)...............................................................................................................................4Requirement vii)..............................................................................................................................4Requirement viii).............................................................................................................................5Assessment Task Part B:.................................................................................................................5Requirement i).................................................................................................................................5Requirement ii)................................................................................................................................6Requirement iii)...............................................................................................................................7Requirement iv)...............................................................................................................................7Requirement v)................................................................................................................................8References list:...............................................................................................................................10
2ADVANCED FINANCIAL ACCOUNTINGAssessment Task Part A:Requirement i)The evidence of impairment of individual trade receivables leads to recognition ofprovision for impairment loss. It can be ascertained from the latest annual report of WHK limitedthat trade receivables have been tested for impairment. Total amount of trade receivables thathave been impaired stood at pre tax value of $ 5.4 million. Cash flow from impairment for tradereceivables for year stood at $ 2223000 in year 2011 compared to $ (341000) in year 2010 whenthere was negative cash flow generated from impairment (Delisted.com.au 2018).Requirement ii)Assessment of impairment of all assets is done by evaluation of conditions that areregarded particular to the group and any specific assets that might lead impairment. Impairmenttriggers that existed at reporting date is not considered by management and organization does notcarry impairment of such assets. Impairment of assets is performed annually by making anyadjustment in actual run off and trail run off (Macve 2015).Impairment testing of goodwill is conducted by WHK limited in three ways. In firstmethod, allocation of carrying amount of goodwill is attributed to the cash-generating unit.Determination of recoverable amount of goodwill for all cash-generating units is based on valuein use. Allocation of goodwill is done to such units if that has been acquired through businesscombination identified through country of operations and business segments (Bohušová 2015).Impairment testing for goodwill is conducted annually according to accounting policy.
3ADVANCED FINANCIAL ACCOUNTINGRequirement iii)Determination of recoverable amount of goodwill is done for all cash-generating unitsthat is based on value in use calculations using the projections of cash flow. Forecast of cashflow is performed by making the assumption such as growth rate, discount rate and grossmargins. Aggregate carrying amount of cash generating unit cannot exceed recoverable amountif there is any possible changes in key assumptions. Value in use calculations forms the basis ofrecoverable amount of cash generating units. Organization conduct evaluation of conditionsthose are specific to particular assets such as economic environment, demand financial andprofessional services and any possible changes in legislation (Linet al.2017).Requirement iv)Impairment of intangible assets such as goodwill is assesse according to accountingpolicy adopted by standard. Assets are tested for impairment on annual basis by makingadjustment for any differences in experiences of actual run off and trail run off. Recognition ofimpairment loss is done in the statement of profit and loss. WHK limited recognized theprovision of impairment of assets such as trade receivable when there is indication that it will notbe recovered in future. Loss related to impairment is discounted at effective interest rate bymaking comparison between the present value of estimated future cash flow and carrying amountof assets (Horton 2018).Requirement v)Existence of any subjectivity in estimates of organization will help in accuracy of animpairment testing. The recoverable amount of assets in organization is determined by makingjudgments in respect of parameters and input.In this aspect, it is required by organization tocarefully consider international accounting standard. Possibility that assets will be subjected to
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