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Concept of Impairment Assignment PDF

   

Added on  2021-06-17

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Running head: IMPAIRMENT Impairment Name of the studentName of the universityStudent IDAuthor note

IMPAIRMENT 1The concept of ImpairmentImpairment test is the process of analysis of whether the items from balance sheet areworth the stated amount in the balance sheet. The amount in the balance sheet shall bereduced if impairment test signifies lower value. The testing for impairment can be appliedfor tax accounts as well as commercial that is audit accounts (Bodle, Cybinski and Monem2016). Impairment is the accounting principle that states permanent reduction of the value ofcompany’s assets, generally the fixed assets. While the test for impairment is carried out,total profit, other benefits and cash flow that are expected to be created from particular assetare compared periodically with the book value of the assets.The chosen company whose corporate governance and risk is to be analysed is AGL,which a company that deals with integrated energy resources and is in the industry for morethan 150 years. The ASX based company AGL has more than 180 years of experience in theindustry and is s public listed organisation that deals with gas, electricity, solar PV andrelated products and services to more than 3.6 million customer accounts across Australia. Itis the oldest company, which at present 90 S&P/ASX companies and is the largest electricity generation body with largest ASX-listed investor in renewable energy.Answer (a)ASICs findings:While determining the assets recoverable amount in absence of the quoted marketprice, the estimates are made for the present value of the future tax cash flows. The estimatesneed considerable management judgements and the judgements are subject to uncertainty andrisk that are beyond the company’s control (Vanza, Wells and Wright 2018). Therefore,possibilities are there that the changes in the circumstances will alter the projections

IMPAIRMENT 2materially that may impact the asset’s recoverable amount at the reporting date. Further, theprojections are made from the judgement of market participant that includes volumes forfuture production, prices, tax attributes, discount rates and operating costs (Kabir andRahman 2016). There is no impairment charges in the present year. However prior to 2017the impairment charges were in February 2016, AGL announced that following a review ofits natural gas assets, exploration and production of natural gas assets will no longer be a corebusiness for AGL due to the volatility of commodity prices and long development lead times.As a result, AGL recognised an impairment charge of $640million after tax in relation tothose natural gas assets.Impairment break up of AGLTests for impairment are carried out yearly for goodwill. Apart from this, theimpairment test for all the assets are carried out while any indication is there for impairment.If carrying amount of asset is more than the recoverable amount then the assets is impaired(Kabir, Rahman and Su 2017). The increase in Natural Gas Underlying EBIT was primarily aresult of higher Spring Gully and Camden revenue, Hunter and Gloucester asset salesincluding provision review, lower depreciation following the impairment recognised in theprior year, and labour optimisation initiatives. This was partly offset by increased operatingcosts from with capital expenditure recognised as operating expense following theimpairment. The following table summarises the natural gas sales volume and associated revenueduring the year:

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