Impairment of Assets Accounting

This assignment delves into the complexities of impairment of assets accounting under Australian Accounting Standard Board (AASB) 136. It explores the concepts of carrying value, recoverable amount, and different valuation models used for impaired assets. The document provides a step-by-step analysis of how to recognize impairment losses under AASB 136, including the impact on the income statement and balance sheet. The assignment also includes practical examples illustrating the application of these accounting principles.

ASSIGNMENT 1
Assignment 1
Name of the student
Name of the University
Authors note

ASSIGNMENT 1
Table of Contents
Answer to Part A:........................................................................................................3
Answer to Part B:........................................................................................................6
References & Bibliography:.........................................................................................8

ASSIGNMENT 1
Answer to Part A:
As per the financial accounting principles, there might happen that the
financial statement of organizations has assets that do not have excessive
valuations. For ascertainment of value of assets, the carrying value of assets needs
to be contrasted with some value concepts. Australian accounting standard boards
under section 334 of Corporations Act, 2001 makes accounting standard AASB 136
impairment of assets. The objective of standards deals with prescribing the
procedures that is applied by entity for ensuring that assets are not carried at more
than recoverable amount. If the amount that is recorded after the sale of assets is
less than carrying amount, then the assets are carried at recoverable amount. With
reference to this, assets can be explained as impaired. Organization are required to
recognize the impairment as per this standard as mandatory disclosures and time of
recognizing impairment loss.
If the recoverable amount is less than carrying value of assets, then the
impairment is realised. The amount should be higher of fair value less value of
assets in use and cost of selling. If the carrying value of an asset is more than their
recoverable amount, then according to “Paragraph 59 of AASB 136”, then the
carrying value of assets should be minimized to its former. As per AASB 2014, then
such minimisation is adjudicated as an impairment loss. Nonetheless, there is
variation in techniques that is used in variation of recording impairment loss and this
is dependant upon fact that whether assets is recorded at costs and is pursuant to
model of revaluation. Impairment loss needs to be realised immediately as per
paragraph 60 of AASB 136”. This is done unless the assets are carried at revalued
amount that is ain compliance with another standard. The model of revaluation is

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denoted in standard that is in AASB 116. Therefore, as per the other standard, the
impairment loss in relation to other assets are treated as decrease in revaluation
(Banker et al., 2016).
Revaluation model and cost model are the two methods that are used for
impairing the assets. According to paragraph 61 of AASB 136”, the cost model make
use of cost for recording any assets that are impaired. Impairment of assets needs to
be immediately recognized in profit and loss. It is indicative of the fact that loss
associated with the asset impairment should be realized as expenditures in the
income statement of organization.
According to paragraph 60 of AASB 136”, the impairment of assets such as
plant, property and equipment is made at carrying value of re valued amount, then
according to revaluation model, then the decrease in revaluation and treatment of
loss related to impairment is identical. For the purpose of restatement in initial stage,
the impairment loss in relation to assets that are impaired that is recorded in income
statement. This is done for the reason that loss does not exceed the amount of
revaluation surplus for the identical assets. The leftover account in revaluation
surplus is accomplished by debiting the leftover of revaluation surplus account. Prior
to recognizing the loss associated with impairment as expenditure in income
statement, the surplus is applied and related to assets along with deferred tax
liability.
Nonetheless, there can be many instances, when the carrying value of assets
in past is lower than recoverable amount of assets have been written down in value.
It is essential on art of organization to ascertained any signs of loss of impairment
that is realized in the past for any assets. However, this would exempt goodwill value

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and its existence in organization. All this is done as per “Paragraph 110 of AASB
136. The reversal of loss of impairment of assets according to “paragraph 111 of
AASB 136requires external as well as internal signs of impairment. Some of the
signals depicting assets impairment involves significant changes that involve or
might have positive impact on organization, any rise in assets market value,
favourable changes made in the utilization of assets, decline ion interest rate of
market, and deviation in economic performance of assets (Crawford, 2016).
There are two different models for carrying out loss of impairment of assets
comprising of revaluation and cost model. Carrying value of assets cannot be raised
beyond its value of depreciation for asset impairment in relation to cost model.
Nonetheless, it is essential to consider the fact that policy of depreciation needs to
be accounted in this case. Therefore, according to paragraph 119 of AASB 136, it is
need to realise the impairment loss reversal as an item of expenditure in the income
statement.
This can be explained with the help of an instance, suppose an organization
on 30th June 2014, has incurred an impairment loss on machinery of $ 13000. $
11333 has been recorded as an assets carrying value that involves cost of $ $50,000
by deducting depreciation $25,667 and impairment accumulated loss at $ 13000. For
period of six years, the rate of depreciation has been assumed at rate of 10%. The
carrying asset value in this case is arrived at $ 20000. If the carrying value of assets
needs to be restated at $ 18000, then the impairment loss that has been realized
previously at $ 6667 can be reversed, since the recoverable value is more than loss
of impairment. The impairment loss reversal in this case will be credited and loss
arising from accumulated impairment is debited with $ 6667 amount.

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It has been assessed that recoverable amount of assets is recorded at $
110000. Equipment, depreciation account and loss from impairment needs to be
debited with amount $ 10000 each for recording impairment loss reversal of $ 20000.
Deferred tax liability and revaluation surplus account will be credited in the income
statement with value of $ 14000 and $ 6000 respectively.
Answer to Part B:
Dr. Cr.
Date Amount Amount
30/06/2017 Impairment Loss A/c. $9,000
Plant A/c. $2,168
Equipment A/c. $1,987
Fittings A/c. $1,277
Inventory A/c. $568
Goodwill A/c. $3,000
Profit & Loss A/c. $9,000
Impairment Loss A/c. $9,000
In the books of Gali Ltd.
Journal Entries
Particulars
(Being assets under the specific cash generating unit impaired)
(Being impairment loss transferred to P/L A/c.)
Workings:
Particulars Amount
Fair Value,less, Cost to Sell $0
Value in Use $81,000
Recoverable Amount $81,000
(Higher of Fair Value & Value in
use)
Less: Carrying Amount of CGU $90,000
Total Impairment Gain/(Loss) ($9,000)
Calculation of Impairment Loss:

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Particulars
Carrying
Amount Fair Value
Impairment
Loss
Total Impairment Loss $9,000
Less:
Plant $60,000 $57,832 $2,168
Goodwill $3,000 $0 $3,000
Balance Impairment Loss $3,832
Particulars
Carrying
Amount Weightage
Impairment
Loss
Balance Impairment Loss $3,832
Equipment $14,000 51.85% $1,987
Fittings $9,000 33.33% $1,277
Inventory $4,000 14.81% $568
Total $27,000 100% $3,832
Impairment Loss Allocation as per Weightage:
Allocation of Specified Impairment Loss:

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References & Bibliography:
Banker, R. D., Basu, S., & Byzalov, D. (2016). Implications of Impairment Decisions
and Assets' Cash-Flow Horizons for Conservatism Research. The Accounting
Review, 92(2), 41-67.
Collison, D., Jansson, A., Larsson-Olaison, U., Power, D. M., Cooper, C., Gray,
R., ... & Jonnergård, K. (2016). The Modern Corporation Statement on
Accounting.
Crawford, C. W. (2016). ACTG 201.05: Principles of Financial Accounting.
Munter, P. (2017). FASB Simplifies Goodwill Impairment Accounting for Public
Business Entities. Journal of Corporate Accounting & Finance, 28(5), 63-68.