Corporate Accounting and Reporting (pdf)
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Running head: CORPORATE ACCOUNTING AND REPORTINGCorporate Accounting and ReportingName of the Student:Name of the University:Author’s Note:Course ID:
1CORPORATE ACCOUNTING AND REPORTINGReversal of an impairment loss of goodwill:Reversal of impairment loss could be described as a situation, in which anorganisation could declare an asset as valuable, which was recorded previously in theform of impairment loss. If the holding cost of the asset is more than its fair marketvalue, the asset is said to be impaired (Chen, Shroff and Zhang 2017). However, whenthe impairment loss is reversed, the asset is considered as valuable. Thus, asset is nottreated in the form of burden to profit. Primarily, at the time of recognising impairmentreversal, the carrying amount of an asset is raised to its new recoverable amount.However, it need not be more than the original amount or depreciated carrying value, asthis would result in no impairment recognised in the past. The impairment loss reversalis realised as income in the income statement of an organisation. In case, the assetsare carried at re-valued amounts and there was previous write-off against impairmentloss revaluation, it is treated in the form of reversal of impairment loss (Linnenluecke etal. 2015). According to “Paragraph 109 of AASB 136”, all the requirements for reversingimpairment loss are realised for a cash-generating unit or an asset in prior periods. Theimpairment loss could be reversed for three types of assets, which include individualassets, cash-generating units and goodwill. The reversal of impairment loss in relationto goodwill could be evaluated from “Paragraphs 124 and 125 of AASB 136”. It hasbeen assessed that impairment loss realised for goodwill need not be reversed in thesubsequent year, as laid out in “Paragraph 124 of AASB 136” (Aasb.gov.au 2018).This is because goodwill is treated as intangible asset under the above standard. The
2CORPORATE ACCOUNTING AND REPORTINGstandard allows realisation of past impairment reversals of goodwill only where the risein value could be attributed clearly to the unanticipated reversal of external eventcausing the original impairment to be realised (Boennen and Glaum 2014). “Paragraph 125 of AASB 136” states that “AASB 138 Intangible Assets” doesnot allow internally generated goodwill to be recognised in the financial statements. Thisis because any rise in recoverable amount of goodwill in the years following therealisation of impairment loss for that goodwill is probable to be a rise in internallygenerated goodwill, instead of impairment loss reversal realised for the acquiredgoodwill (Bugeja and Loyeung 2015).It is highly important to identify the true value of the items in the balance sheetstatement in the functioning of the business organisations. Hence, all the organisationsare required to conduct impairment test, if it is found on evaluation at the reporting datethat the recoverable amount of an asset is not more in contrast to its carrying amount.However, it is necessary to take into account goodwill for impairment test annually. Forimpairment test, goodwill acquired in business would influence the impairment test oncash-generating unit, which is a group of assets that helps in generating cash flows fora corporate entity. Goodwill needs to be allocated to the cash-generating unitsestimated to derive benefits from the combination synergy of two businesses. In suchsituation, the annual impairment test for the cash-generating unit to which goodwill isdistributed need to be carried out at reporting time (Detzen, Stork Genannt Wersborgand Zülch 2016).
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