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Assignment on Advanced Financial Accounting

   

Added on  2020-05-16

11 Pages2673 Words81 Views
Running head: ADVANCED FINANCIAL ACCOUNTINGAdvanced Financial AccountingName of the StudentName of the UniversityAuthor’s Note

1ADVANCED FINANCIAL ACCOUNTINGPart ARequirement IIn Toll Holdings Limited, impairment needs to be done when the market price of an assetis less than the value recorded in the balance sheet. As per the latest financial statements, one canobserve that the corporation has used their business goodwill for the purpose to test impairment(competitiontribunal.gov.au, 2018). It needs to be mentioned that Toll Holdings Limited hascomplies with the required accounting standards and regulations in order to test their goodwill.With the help of the testing of goodwill, the company will be able to adjust their unrealized gainsrelated with goodwill impairment (Scott, 2015).Requirement IIIt needs to be mentioned that Toll Holdings Limited has followed certain specific stepsfor the testing of their goodwill impairment. From the latest annual report of the company, it canbe observed that the allocation of goodwill is done to the company’s business segments, whichrepresents the lowest level in the company at which the management of goodwill is done(competitiontribunal.gov.au, 2018). In the process of the testing of goodwill, the company usesto compare the asset carrying value required to be tested to the recoverable value related with thefuture cash flows that is determined for the value calculation (Deegan, 2012). At the same time,the company has taken certain assumptions for the impairment testing of goodwill. For thispurpose, the cash flow projection is done based on the forecast of five years. Most importantly,for the purpose of the testing of goodwill impairment, Toll Holdings Limited uses to appoint thegoodwill to the cash generating units (competitiontribunal.gov.au, 2018).

2ADVANCED FINANCIAL ACCOUNTINGRequirement IIIIt needs to be mentioned that the business organizations have to incur certainexpenditures due to the testing of the impairment of the assets and these expenditures areconsidered as crucial for the companies. There is not any exception of this fact in case of TollHoldings Limited as the company has also recorded impairment expenditures in their financialstatements. The financial statements of the company indicate towards the absence of anyexpenses related to impairment for the current year (Williams, 2014). However, the total amountof impairment expenditure for the company in the year 2013 was $245.5 million(competitiontribunal.gov.au, 2018). In addition, the company has segregated their impairmentexpenditures in three portions; they are goodwill expenses, other intangible assets and PPE(property, plant and machinery). However, the latest annual report of Toll Holdings Limitedstates that the company has incurred $7 million in 2014 and $7.4 million in 2013 as impairmentlosses on receivables. These are the major impairment expenditures of Toll Holdings Limited(competitiontribunal.gov.au, 2018). Requirement IVFrom the latest financial statements of Toll Holdings Limited, it can be observed that TollHoldings Limited has taken certain assumptions in order to conduct the impairment testing oftheir goodwill. They are as below:In the projection of cash flows, the discount rates refer to the pre-tax discount rate. Themajor components of this discount rate are risk adjusted discount rate and theadjustment in the discount rate for CGU country-specific risks. In this particulardiscount rate, two or more country specific CGU risk rate can be observed. In this

3ADVANCED FINANCIAL ACCOUNTINGprocess, there was an application of additional risk premium so that uncertainties in thecash flows can be reflected (competitiontribunal.gov.au, 2018).Terminal value growth rate refers to the specific growth rate that is applied for theextrapolation of cash flow projection beyond the forecast of five years. The basis ofthese growth rates are the forecast of long-term performance of the logistics assets(competitiontribunal.gov.au, 2018).There is an increase in the terminal value growth rate of Toll Holdings Limited from2013 to 2014; that is 2.50% from 2.00% so that alignment can be done with the long-term international growth rate (competitiontribunal.gov.au, 2018).At 30 June 2013, after the completion of the impairment testing of Toll HoldingsLimited, there was a charge of $204.0 million against the goodwill of the company and$11.4 million for the customer relationship. These are the major assumptions relatedwith the goodwill impairment testing of Toll Holdings Limited(competitiontribunal.gov.au, 2018). Requirement VFrom the goodwill impairment testing of Toll Holdings Limited, it can be observed thatToll Holdings Limited has taken into consideration different assumption so that the testing ofgoodwill impairment can be done in an effective way. In addition, due to the accountingobligation, the management of Toll Holdings Limited uses to review the carrying value of theassets on a regular basis. Toll Holdings Limited recognizes the impairment of any assets whenthe carrying value of the assets is more than the market value. The amount of impairment lossescan be seen in the profit and loss statement of the company and it implies that the revaluation ofthe assets is done on regular basis. Thus, it can be concluded that there is not any subjectivity

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