Impairment Accounting Practices at Myer Holdings Ltd

This assignment analyzes the impairment accounting practices employed by Myer Holdings Ltd, a prominent Australian retailer. It delves into the company's adherence to the International Accounting Standard Board (IASB) standard AASB 136, which governs asset impairment accounting. The analysis highlights management's flexibility in conducting impairment tests, including annual reviews of the carrying value of assets and identification of potential impairment indicators. It also touches on the disclosure requirements for impairment losses and the role of external auditors in verifying these financial statements.

Running head: ACCOUNTING STANDARDS AND REGULATION
Accounting standards and regulation
Name of the student
Name of the university
Author note

1ACCOUNTING STANDARDS AND REGULATION
Executive summary
The main objective of this report is to focus on the determination of impairment test as per
AASB 136. The report will focus on the impairment evidence, process for the impairment,
required information for impairment and management’s flexibility for impairment with regard
to Myer Holdings Ltd. further, this report will focus on the restructuring of Myer’s Frankston
department store. Moreover, the report will carry out the tests with regard to asset turnover,
asset flow and asset base for determining whether there is any indication of impairment of any
of the stores.

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Table of Contents
a. Evidence with regard to the impairment test.......................................................................4
b. Required process for determining the impairment..............................................................4
c. Required information for determining impairment test.......................................................6
d. Management’s flexibility for impairment determination....................................................7
Reference....................................................................................................................................8

3ACCOUNTING STANDARDS AND REGULATION
As per the ASIC Media Release 17 – 162, ASIC has kept on approaching
organizations to concentrate on giving data for clients of financial reports that is helpful and
significant. Declaring its concentration ranges for 30 June 2017 annual reports of listed
organizations and and different other public organization with numerous shareholders, ASIC
featured key zones to address. ASIC Commissioner John Price stated, 'As with past
announcing periods, chiefs and evaluators should concentrate on estimations of benefits and
bookkeeping strategy decisions. ASIC keeps on observing organizations utilize improbable
suppositions in testing the estimation of benefits or apply unseemly methodologies in regions,
for example, income acknowledgment.'
IAS 36 and AASB 136 on Impairment of assets ensure that an association's benefit is
not composed in the financial reports at the value which is as compared to the recoverable
sum. The recoverable sum for the asset is higher among the fair value of the asset less cost
associated with disposal and the value in use. Just special case to this is some intangible
resources and goodwill (Zhuang 2016). An association might survey at end of the each
accounting time frame that whether any sign exists there for the impairment of any asset and
if any sign is there, at that point the recoverable value of the asset should be measured. Each
organization is required to carry on the impairment test of its asset if there is any sign that the
asset can be impaired. Further, the test can be carried on for the cash generating unit (CGU)
where the asset does not make any income which is generally autonomous of those of
alternate resources. Different indications that may be used to recognize the fact that whether
the asset is going to be impaired or not are as follows –
Internal factors –
 The asset is damaged physically or became obsolete
 Company held the asset to be disposed in near future or part of the asset is getting
restructure or being idle for long time (Amiraslani, Iatridis and Pope, 2013)
 Performance of the asset is not as per expectation
External factors –
 Amount of net assets higher than the capitalization of the market.
 Reduction in the value of the asset
 Enhancement of the market’s interest rate

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 Unfavourable changes in the assets owing to the economies, technologies, markets and
laws.
a. Evidence with regard to the impairment test
 Asset turnover – from the financial statement of Myer Holdings Ltd. it is recognized
that the ratio for the turnover of asset is for past years are ranged between 1.40 and
1.80. Thus, any significant movement for the asset turnover ratio has not been noticed
during the period under consideration. Thus, using this test, it can be stated that no
indication of impairment is there.
 Asset base – looking at the asset base of the company, it is found that asset base of
Myer Holdings Ltd. has not experienced much changes and the asset base are almost
same for the past years. Therefore, if the asset base is used to determine the
impairment indication f the asset, there is clear indication that the asset will not be
impaired (Zhuang 2016).
 Asset flow – from the given data for the flow of asset, it is identified that flow with
regard to all the assets are consistent or enhanced by little amount. Further, the
decreasing trend for any of the store, which can establish the requirement of
impairment test is not found. Therefore, though this tests also impairment indication
could not be established.
Though through the above strategies, impairment test could not be determined, some
indications are there with regard to the department store of the company in Frankston. It has
been identified that to compete with Amazon, company planned to alter their traditional white
and black colours of the stores with the signage of bright yellow and moreover, the staff of the
company will appear in the uniform which is different from the regular uniform of the
company (Malone, Tarca and Wee 2015). Further, the storage system of the company’s
product will be changed from the previous system that will enable to have more free space. As
per AASB 136, these things will be regarded as partial reconstruction that qualifies for the
determination of the test for impairment.
b. Required process for determining the impairment
For determining the test for impairment, Myer calculates the value in use s well as the
recoverable amount of the asset. The model use the forecasting of cash flow based on the
financial budget approved by the management of Myer and the approval is given for the

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period of five years. cash flow more than five years or beyond five years is extrapolated by
using the rate of terminal growth. Major assumptions with regard to the calculation are
mentioned below –
 Pre-tax discount rate of 14.4%
 Operational margin for gross profit at 39.5%
 Terminal growth rate of 2.5%
The management decides the future cash flows from the asset’s carrying value or the
asset’s cash generating unit are as per the budget or it is significantly lower than the budget.
For this purpose, each store of the company is examined separately for determining the
existence of impairment (Gackstatter and Möller 2016). If through the test, it is found that
there is any indication of impairment for any of the store, the recoverable value for the unit is
measured and compared with the value-in-use.

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c. Required information for determining impairment test
Major information required for the impairment test determination of Myer Holdings
Ltd is as follows –
 The measure of loss from the impairent is recognized as cost under the benefit and
misfortune account and is completed at taken a toll. Further, if the affected resource is
as of now a revalued resource under the consent of IAS 16 PPE (IAS 16) and the
immaterial resource (IAS 38) and disability if any is first recorded against the
revaluation perceived beforehand perceived as increases and after that as the extensive
pay to alternate resources.
 With the goal of estimation, the recoverable amount is expressed as higher among the
value-in0use and fair value reduced by the selling cost

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 Loss from impairment that is perceived in the past period for the goodwill or any
advantage must be switched if any adjustment is there concerning the assessments that
were utilized for deciding the recoverable measure of the benefit (Linnenluecke et al.
2015).
 Wide divulgences are required for whatever is left of hindrance and acknowledgment
of debilitation misfortune
d. Management’s flexibility for impairment determination
While ASIC does not anticipate that the directors will be specialists accounting they
should look for clarification and counsel supporting the bookkeeping medications picked and,
where proper, challenge the bookkeeping assessments and medicines connected in the
budgetary report. They ought to especially look for exhortation where a treatment does not
mirror their comprehension of the substance of a plan (Bond, Govendir and Wells 2016). Data
ought to be delivered on a convenient premise and be upheld by suitable examination and
documentation for the autonomous review. This will bolster the nature of money related data
in the market and empower reviewers to concentrate on their part in giving free affirmation on
the budgetary report.
It is perceived that the administration of Myer Holdings Ltd is very adaptable in
completing the tests for deciding the asset’s impairment. In addition, the administration
completes survey for the carrying value of the assets for each of the store of the organization
is attempted and distinguished whether sign of any impairment is exists (Kabir and Rahman
2016). According to the prerequisite of AASB 136, they guarantee to do the test for
impedance no less than one in every year Further, the administration decides different
certainties like assurance of the way that whether level without bounds money streams for the
impairment estimation of the advantages for the CGU of Myer. Thus, it is identified that the
company actively manage the test for determination of impairment annually in compliance
with AASB 136.

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Reference
Amiraslani, H., Iatridis, G.E. and Pope, P.F., 2013. Accounting for asset impairment: a test
for IFRS compliance across Europe. Centre for Financial Analysis and Reporting Research
(CeFARR).
Bond, D., Govendir, B. and Wells, P., 2016. An evaluation of asset impairment decisions by
Australian firms and whether this was impacted by AASB 136.
Gackstatter, T. and Möller, K., 2016. Triggering Events in Asset Impairment Accounting-a
Case Study in the Automotive Industry.
Kabir, H. and Rahman, A., 2016. The role of corporate governance in accounting discretion
under IFRS: Goodwill impairment in Australia. Journal of Contemporary Accounting &
Economics, 12(3), pp.290-308.
Linnenluecke, M.K., Birt, J., Lyon, J. and Sidhu, B.K., 2015. Planetary boundaries:
implications for asset impairment. Accounting & Finance, 55(4), pp.911-929.
Malone, L., Tarca, A. and Wee, M., 2015. Non-GAAP earnings disclosures and
IFRS. Accounting and Finance.
Rennekamp, K., Rupar, K.K. and Seybert, N., 2014. Impaired judgment: The effects of asset
impairment reversibility and cognitive dissonance on future investment. The Accounting
Review, 90(2), pp.739-759.
Zhuang, Z., 2016. Discussion of ‘An evaluation of asset impairments by Australian firms and
whether they were impacted by AASB 136’. Accounting & Finance, 56(1), pp.289-294.