Consolidated Profit and Loss Account
Added on 2020-05-16
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ANSWER TO PART APart (i)The company – Pacific Star Network Limited has been allocated. The company is based in theMelbourne and is a listed company listed in the Australian Stock Exchange. For deepunderstanding and the analysis of the impairment testing the annual report for the financial yearending thirty of June two thousand seventeen has been selected. The annual report contains thedirector’s responsibility statement, financial statements containing the balance sheet, profit andloss account and the notes to the financial statements and the independent auditor’s report. Forthe purpose of the analysis, the main focus will be on the consolidated profit and loss accountand the notes to the account forming part of the financial statements of the company for the yearunder consideration. As per thirteen note number and the three note number, the company has tested the followingassets for the purpose of the impairment. These are: -Goodwill of the company. As the goodwill of the company is not amortized but impairedin accordance with the relevant accounting standard. -Intangibles assets of the company – the major intangible assets in the consideration arethe masthead. The other intangibles are radio licenses, patents and trademarks, website ofthe company, inside football masthead, goodwill obtained on the acquisition or thebusiness combination and customer relationships. -Financial assets and the financial instruments of the company. These include the loansand advances which are recoverable in cash or in kind during the normal course of thebusiness and include the receivable on account of the sundry debtors which has beenclassified under the head of trade and other receivables. -Property plant and equipment of the company as specified separately in note number tenof the financial statements of the company. It includes studio facilities, computerequipment, motor vehicles, office equipment, plant and equipment and improvements. 1
-Lastly the investment made by the company during the year under consideration or andthat too by using the equity method of accounting of the investments as prescribed theaccounting standard. Part (ii)The annual report of the company has not only provided as to how the impairment of assets havebeen tested but have also provided that how the company has tested for the impairment of theassets at all the levels. The details of the procedure are given below as mentioned in the annualreport of the company:-At first the impairment is defined as the excess of the carrying amount of the asset at theparticular date over the recoverable amount of that particular asset. -The carrying amount is equivalent to the amount as carried in the financial statements atthe particular date.-The recoverable amount is defined as the amount equivalent to the higher of the twofigures. These are value in use and the net selling price. -Value in use is equivalent to the amount that is obtained by discounting the cash flows ofthe company that has been estimated for the future years at the discounting rate andincludes the discounted value of the terminal value of the asset at the end of its usefulperiod. -Net selling price is the amount equivalent to the receipts available after deducting all theexpenses pertaining to the sale of that asset. -Where the individual assets are identified as being not capable of producing or generatingthe cash flows on their independent basis then the assets are allocated according to thecash generating units through which the capability of generating the cash flows can beestimated easily (AASB, 2016). -At first, for the impairment testing of the property plant and equipment, the company hasadopted the value in use and has estimated the cash flows on the basis of the businessprojections as duly approved in the board meeting of the board of directors of thecompany. It has been identified that the carrying amount as stated is not in excess of therecoverable amount and thus impairment has not been charged. 2
-Secondly, the intangibles have been tested for the purpose of the impairment. As theintangibles are not capable of producing the income on its own therefore the company hasidentified the two main cash generating units. These are broadcasting cash generatingunits and other one is publishing cash generating units. Under the first cash generatingunits, the company has clubbed radio licenses and under the second cash generating unitthe company has clubbed remaining intangibles including the publications, journals andslow and inside football. -Thirdly, the trade receivables and the other receivables have been tested on the basis ofthe time period within which it will be received. The company has defined the ageingschedule of the debtors and accordingly has identified which receivables shall be treatedas impaired. Impaired is not in equivalent terms with the term of bad debts. The majorconsideration is in respect of the two types of risks namely credit risk and the other one isliquidity risk. In this way, the company has prescribed the procedure for the impairment test and has testedaccordingly. Part (iii)In parlance with the annual report of the company for the year under consideration, the companyhas reported the figures of the impairment of assets under the following heads:Goodwill of the company has been impaired by $7442 thousands in the financial yearending 2017 as compared to Nil in the previous financial year ending 2016. The goodwillimpairment has been charged on the major acquisition of Morris Media made by thecompany in the previous financial year and impairment charged in the current financialyear (Company Official Website, 2017). Masthead being an intangible of the company has been impaired by $797 thousands inthe financial year ending 2017 as compared to Nil in the previous financial year ending2016. The intangible is known by the name of Inside Football masthead.3
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