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Assignment On Principle Of Impairment

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Added on  2020-02-23

Assignment On Principle Of Impairment

   Added on 2020-02-23

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Assignment On Principle Of Impairment_1
IMPAIRMENT2Part A:The basic principle behind impairment is the fact that the asset would never bereported in the financial statements over and above the recoverable amount. This isthe higher of the fair value of the asset less the costs to sell and its value which is inuse. The carrying value of the asset would be compared in with the amount thatwould be recovered if the asset is sold in the market. An asset is stated to have beenimpaired when the amount that could be recovered is less than the value at whichthe cost has been reported in the books of accounts. Any difference between theformer and the latter is then termed as an impairment loss and is carried on to thestatement of profit and loss.All of the assets that are reported in the books of accounts or in the financialstatements are generally tested for review with regard to an impairment wheneverthere is an indication that an asset could have been impaired. There are some of theassets such as the goodwill and the intangible assets that have an indefinite lifewhich are tested for an impairment each year even when there is an absence of theconditions that could indicate impairment. The amount that is capable of beingrecovered is calculated for each one of the individual assets. There is generally noteven one asset that is able to generate revenues for the company all by itself. Itneeds the other assets for the purposes of generating the cash flows. This is termedas the cash generating units. It is mainly described as the smallest group of theassets which is able to generate in the cash flow which mainly depends on the othercash flows of the other assets or the groups of the assets. Whenever there is a business communication, then the amount of the goodwillearned or recovered is able to be allocated to the cash generating units of the
Assignment On Principle Of Impairment_2
IMPAIRMENT3acquirer which is expected to benefit from the business combination. But the largestgroup of the cash generating unit which is permitted is for the impairment testing ofthe goodwill which generally operates at the lowest level of the operating segment As per the rules of the IAS 36 which deals with the impairment of the assets, thetesting of impairment of the assets is usually performed as the level which is muchmore bigger than the operating stement which has been defined out under the IFRS8 which deals with an operating segment.There are many of the issues that are created since the IFRS 8 allows the fact that ahigher level of the operating segment which could be reported is created in casesome of the conditions have been set The standard though is not very much clear asto the aggregation of the allocation of the goodwill for the cash generating unitsalong with the testing of impairment. This would be no longer than the operatingsegment before and after the aggregation has taken place. In order to deal with thisuncertainty (AASB, 2017). The IASB went on to amend the standard and state thefact that the operating segment in no case could be larger than the operatingsegment before the aggregation takes place. The entities would definitely ensurethat the cash generating units would be aligned in with the operating segments.The amount that is capable of being recovered is usually the same for each one ofthe individual asset. The carrying amount of the cash generating units comprises ofthe assets that are capable of being directly attributed to the reasonable andconsistent basis for the cash generating units. These include the corporate assetsand the goodwill (IFRS, 2017). In the case, wherein goodwill is allocated to anoperating unit and then that operating units has been disposed of, then the amount
Assignment On Principle Of Impairment_3

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