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Assignment on Financial Accounting(FA)

   

Added on  2020-05-16

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Running Head: FINANCIAL ACCOUNTING Advanced Financial Accounting
Assignment on Financial Accounting(FA)_1

Financial Accounting 2Part AIntroductionThe company we selected is Transpacific Industries Group Ltd its name changed to Cleanaway Waste management it is a recycling and waste management company providing services to industries operating in Australia. Transpacific came into existence in August 1987and listed on Australian Securities Exchange in May 2005. Requirements(i)We did analyse the firm’s annual report of 2016. The firm has applied impairment test on goodwill that is only asset where firm applied the impairment test is on the goodwill allocatedto the Cash Generating Unit. The goodwill is allocated in staffing, maintenance and marine. (ii)The CGUs to which goodwill is allocated (Staffing, Maintenance and Marine) are tested for impairment annually or the test can be conducted more frequently if the changes or the eventsindicate that the goodwill is impaired. The impairment test is done by reviewing the carrying amounts of the assets and group of assets to decide as if there is any symptom that those assets have undergone any impairment loss. If there is any such sign then the firm will guess the recoverable amount of such asset to access the degree or amount of impairment loss (Dagwell, Wines & Ambert, 2015).(iii)Yes, the firm has recorded an impartment expenditure of $ 102397000 during the period.(iv)The impairment comprises the use of estimates and judgements that are not restricted to timing of the impairment and quantity of impairment. Significant judgements are made by themanagement about the estimation of the impairment indicators, that can be expectations of growth, changes in the competitive position, increase in cost of capital and many other issues that may lead to impairment like business restructuring. In addition this the management is required to make substantial estimations regarding the future cash flows of the firm and about
Assignment on Financial Accounting(FA)_2

Financial Accounting 3the calculation of fair values while measuring the recoverable amount of the assets or the group of assets. The conventions and estimations are made about the forecasted earnings before interest and tax and future cash flows, applicable discount rates, growth rates, residual value and useful life of the asset. The estimates, judgements and assumptions which are madeby management for assessing the impairment are based on forecasted as well current market situations. Changes in operating and economic situations will impact these assumptions that would result in the recognition of changes in impairment in future periods. (v)The Recoverable amount of (CGU) that is Cash Generating Unit is based on the value in use which is calculated by using the pre-tax cash flow projections which are based on the financial budget of 2017 approved by the directors of the firm, which is then extrapolated for four years at a growth rate of 2% (between 1.70% and 1.80%) and pre-tax discount rate used is 12.20%. The cash flow projections of this period are based on the gross margins which were expected to be same throughout this period. These are substantially consistent with the gross margins of 2016. The cash flows which are beyond that five year period are generalizedusing the growth rate of 2.50% per annum. This growth rate is not over the long term averagegrowth rate used in the business markets of Australia. Based on the above assessment, the Director’s concluded that the carrying amount of Goodwill and other intangibles will not go beyond its Recoverable amount (Annual Report, 2016). (vi)The company did the impairment test and identified the impairment loss. It was companies contention that if the recoverable amount of the cash generating unit is less than the carrying amount then the impairment loss will be first allocated to reduce the carrying amount of goodwill if any distributed to the CGU and then to the other assets of the CGU in proportionate amount. The impairment loss of goodwill is directly transferred to profit and loss account and is not to be reversed in the subsequent years (AASB 136, 2009). (vii)Fair Value measurement is all about the price to be received at the point of sale or to transfer the asset. Fair value is market based measurement and not to be called as an entity based measurement. The firm also did the fair value measurement following the criteria used in the market. The fair value is calculated using the cash forecast of 5 years.
Assignment on Financial Accounting(FA)_3

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