HA 3011 Report on Impairment Testing and the Subjectivity
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Advance Financial Accounting (HA 3011)
Added on 2020-05-28
HA 3011 Report on Impairment Testing and the Subjectivity
Advance Financial Accounting (HA 3011)
Added on 2020-05-28
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Running head: ADVANCED FINANCIAL ACCOUNTINGAdvanced Financial AccountingName of the Student:Name of the University:Author’s Note:Course ID:
1ADVANCED FINANCIAL ACCOUNTINGTable of ContentsPart A:..............................................................................................................................................2Answer to Part (i):.......................................................................................................................2Answer to Part (ii):......................................................................................................................3Answer to Part (iii):.....................................................................................................................3Answer to Part (iv):.....................................................................................................................5Answer to Part (v):.......................................................................................................................5Answer to Part (vi):.....................................................................................................................6Answer to Part (vii):....................................................................................................................6Answer to Part (viii):...................................................................................................................7Part B:..............................................................................................................................................7Answer to Part (i):.......................................................................................................................7Answer to Part (ii):......................................................................................................................8Answer to Part (iii):.....................................................................................................................8Answer to Part (iv):.....................................................................................................................9Answer to Part (v):.......................................................................................................................9References:....................................................................................................................................11
2ADVANCED FINANCIAL ACCOUNTINGPart A:The intention of this report is to concentrate on the criteria of impairment andassumptions used on the part of M2 Telecommunications Group Limited for carrying outimpairment tests on assets. The report would deal with the procedures of impairment testing andthe subjectivity involved in such procedures. For commenting on these procedures, the annualreport of the organisation for the period ended 30th June 2015 has been taken into consideration,as it has not published annual reports after the stated period. M2 Telecommunications GroupLimited was an Australian wholesaler and retailer of telecommunication services, gas, power andinsurance products. The organisation had two divisions comprising of consumer division andwholesale division. It had over 3,000 staffs in Australia, New Zealand and the Philippines;however, it merged with Vocus Communications on 5th February 2016 (M2.com.au 2018).An impaired asset is an asset, which has a lower market value in contrast to its carryingvalue. The assets likely to be impaired include tangible fixed assets like property, plant andequipment and intangible assets like goodwill (Khokan Bepari, Rahman and Taher Mollik 2014).After making adjustment with the carrying amount of the impaired asset, the loss is recorded inthe income statement of the organisation. When impairment is written off, the asset would haveminimised carrying cost, since the adjustments would be realised in the form of loss and thiswould minimise the asset value. Answer to Part (i): According to the annual report of M2 Telecommunications Group Limited in 2015, theimpairment testing for various classes of assets has been conducted. Goodwill and otherintangible assets have not been amortised; instead, they are tested for yearly impairment. If the
3ADVANCED FINANCIAL ACCOUNTINGfrequency is greater than once in a year due to variations in events or circumstances, it signifiesthat the assets might be impaired and they are recorded in the financial statements at cost lessany accumulated loss of impairment (M Carlin, Finch and Manh Tran 2014). The other assetssuch as trade receivables and property, plant, equipment and inventory are tested for impairmentat the time there is an indication that the carrying amount of the asset might not be recoverable. Answer to Part (ii): M2 Telecommunications Group Limited conducts a two-step process for impairmenttesting. The initial step is to contrast the fair value of the reporting unit to its carrying valuecomprising of goodwill. If the carrying value of the operating unit is greater in comparison to itsfair value, the second step of the impairment test needs to be carried out for ascertaining theamount of impairment loss, if any (Bond, Govendir and Wells 2016). The second step contraststhe implied fair value of the reporting unit with the carrying amount of that unit. If the impliedfair value is lower in contrast to the carrying amount, impairment charge is realised in an amountidentical to that excess. The loss realised could not exceed the carrying amount of the asset. Answer to Part (iii): The organisation recorded the following impairment expenditures for the period ended30th June 2015:Intangible assets and goodwill:In this period, the organisation has recorded overall impairment of $71,323,000($105,207,000 - $33,884,000), out of which $30,033,000 was recorded against software,$33,461,000 was recorded against customer contracts, $7,829,000 was recorded against IRU,while brands and goodwill are not subject to impairment.
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