Application of Australian Accounting Standards on Impairment of Assets

COMPANY ACCOUNTING
APPLICATION OF AUSTRALIAN ACCOUNTING STANDARDS ON IMPAIREMENT OF
ASSETS
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COMPANY ACCOUNTING
PART I;
ASSB 136 and International Accounting Standards 36 defines asset impairment as the
decrease in value of an asset with an impairment loss value that results from carrying the amount
of the asset is more than the amount the same asset can be recovered
Guthrie and Pang (2013.Pg 230.) This activity of asset impairment is significantly caused by
many factors like the lapse of useful economic life, change in technology and overall economic
market performance, i.e., both resulting from economic and political effects.
Impairment loss a value indeed that makes an asset reduce its cost is only recognized when
the carrying amount or rather the overall value recognition of an asset less all the accumulated
depreciation (net book value) is more than the recoverable amount which is of course the market
value of an asset net its equivalent cost of sales as well as the usage value of the asset at the point
of recognition Lonergan (2007. Pg.7.)
The effective model that is used to recognize the asset is what determines the existence of
impairment loss or not. There is two mode of recognition that determines this aspect of whether
an asset qualifies for impairment or depreciation; IAS 40 defines that fair value model of asset
revolves around assets that are deemed capital appreciative. These assets are referred to as
investment assets, and they are the likes of goodwill, patent, trademarks whose lost value form
part of the profit and loss account.
On the hand, revaluation model involves assets classified in IAS 16 as those which are
meant for goods generation and production as well as services offer they include the likes of
property plant and equipment they are most valued to fair value either up or down, and they form
part of the equity in the balance sheet statement. These two models are used to determine the loss
of value of assets as either as depreciation or amortization.