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Computation of Impairment Loss Essay

   

Added on  2020-05-16

9 Pages1380 Words97 Views
RUNNING HEAD: Computation of impairment loss under impairment test1Name of the studentTopic- Computation of impairment loss and disclosure of same under impairment testUniversity

Computation of impairment loss and disclosure of same under impairment test2Part A: Essay on impairment loss and disclosure of same under impairment testIntroductionWith the ramified economic changes and complex business functioning, all the listedcompanies are implementing impairment test to identify the true and fair value of their assets indetermined approach. Impairment test is implemented with a view to identify the true and fairvalue of the assets after a certain period of time. This essay has focused on how impairment lossis charged on the assets of company to showcase their true and fair value to its stakeholders.After that concept disclosure of impairment losshave been justified. An impairment loss forgoodwill is never reversed as there are several assets which are taken by company under theimpairment test. If circumstances are favorable then these impairment loss occurred on assets arereversed in its profit and loss account. This impairment loss is charged on the profit and loss ofcompany. The accounting frameworks followed in Australia prescribes the accounting standards136 (AASB-136) to handle with the provision of accounting treatment (AASB, 136, 2007). Theimpairment loss is referred as loss which has been computed by reducing the recoverable amountform the carrying value. Nature of Impairment LossIt is considered that impairment loss is recognized to showcase the true and fair value ofthe assets in the books of accounts. It is evaluated that due to internal and external factors ofbusiness, value of assets decrease. Therefore, accountant book this impairment loss in the profitand loss account of company and reduce the value of the assets with the same impairment loss.2

Computation of impairment loss and disclosure of same under impairment test3As per the international accounting standards, assets and liabilities of company should bedisclosed at their true and fair value (Huikku, Mouritsen, & Silvola, (2017).As per the proProvision enunciated in AS 136, it is evaluated that impairment loss is computed on all assets ofcompany except inventories, deferred tax, investment and other few categories. However,computation of impairment loss is highly based on the carrying amount or recoverable amount ofassets. The carrying amount is the value of assets which is shown in the books of account. Ifcarrying amount is less than its recoverable amount then that shortage of amount would bebooked as impairment loss. Nonetheless, recoverable amount is also computed with thereferences to fair value and CGU. Impairment loss= Carrying amount - Recoverable amount (Value in us e Recoverable amount= or net selling price which every is higher) Carrying amount= (Historical cost- Accumulated depreciationHowever, due to the internal and external factors, it could be inferred that impairmentloss recognized for an assets other than goodwill might no longer exist. These factors reflect thesignificant favourable changes which increase the value of the business or its assets. Therefore,this impairment loss could be reversed on the basis of market situation and favourable factors ofbusiness. In order to reverse the impairment loss on its assets, company needs to increase itsprofit with the same impairment loss and also the same impairment loss will be added back in thebooks of account of company on which impairment test was performed. It is evaluated that ifcarrying amount of the assets is less than its recoverable value then there would be impairmentloss and same would be charged from the profit and loss account. After that impairment loss will3

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