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(Doc) Corporate Accounting and Reporting

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Added on  2021-06-17

(Doc) Corporate Accounting and Reporting

   Added on 2021-06-17

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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:
(Doc) Corporate Accounting and Reporting_1
1CORPORATE ACCOUNTING AND REPORTINGImpairment loss for cash-generating units excluding goodwill:One of the basic impairment principles is that it is not possible to bring forward anasset above its recoverable amount on the statement of financial position, which ishigher of the fair asset value minus selling cost and value-in-use. Comparison is madebetween the carrying and recoverable values of the asset and impairment takes placewhen the former exceeds the latter (Bond, Govendir and Wells 2016). The asset isallocated with impairment during that time with the impairment loss recognised in theincome statement.Whenever any indication is identified for impairment, the related assets aretested for review purpose. However, despite the absence of any indication, annualimpairment is conducted for some assets and they include goodwill and other assetshaving no physical presence (André, Dionysiou and Tsalavoutas 2018). Therecoverable amount is calculated at the level of individual asset. However, the cashflows of an asset are independent from those of other assets and most of the assets areconsidered for impairment testing and they could be classified under cash-generatingunits (Bragg 2017). “Paragraph 104 of AASB 136” cites that it is necessary for the carrying amountto be greater than the recoverable amount so that impairment loss could be recognisedfor a cash-generating unit. The distribution of impairment loss is made to reduce thecarrying value of the asset of that unit in two chronological orders. Initially, there wouldbe reduction in goodwill value assigned to the cash-generating unit and secondly, the
(Doc) Corporate Accounting and Reporting_2
2CORPORATE ACCOUNTING AND REPORTINGother units of the asset in terms of pro-rata depending on the carrying amount of theassets in the unit would be minimised. Due to minimisation of carrying amounts, the treatment would be made in theform of impairment loss on separate assets and recognition is to be made as per“Paragraph 60 of AASB 136” (Aasb.gov.au 2018). Moreover, “Paragraph 105 ofAASB 136” denotes that the reduction of the carrying value must not be lower than thehighest of the three available alternatives in order to distribute impairment loss. Thealternatives are mainly value-in-use, fair value less disposal cost and zero. The amount incurred for impairment loss that could have been distributeddistinctly to the asset requires distribution on pro-rata basis to the other units of theasset. With reference to “Paragraph 106 of AASB 136”, the recoverable amount couldnot be estimated every time for the individual asset of a cash-generating unit. Therefore,this standard requires random distribution of impairment loss between the assets of theunit, the only exception is goodwill. This is because there is collaboration among allclasses of assets in cash-generating unit; the only exception is goodwill (Hellman 2016).In compliance with “Paragraph 107 of AASB 136”, if it is not possible toascertain the recoverable amount of a separate asset, there might be occurrence of twodistinct situations. Initially, the asset realises impairment loss, if the carrying value isgreater than the fair value less disposal cost and the results of the distributionprocedures mentioned under “Paragraphs 104 and 105 of AASB 136” (Lobo et al.2017). Lastly, the asset recognises impairment loss, if no impairment is carried out on
(Doc) Corporate Accounting and Reporting_3

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