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1IAS 36: Impairment of Assets
2IntroductionImpairment of the assets refers to any deduction in value of assets owned by thecompany. These assets are referred as the cash generating units and they generate economicresources in future for the definite time period. This accounting report aims to carry out theanalysis that will examine implication of impairment of assets in the Myer Holdings Limited.IAS 36 deals with the impairment of assets and provides detailed provisions on how theimpairment of assets is done. According to this standard the carrying or writing value of theassets must be greater than its recoverable amount (Collings, 2015). This report will guide through the need, process and data required by the MyerHolding Limited to carry out the impairment testing for their respective CGUs. Evidence that provides need to carry out the impairment testing of CGUs or Assets incontext to Myer HoldingsIn order to find out which CGUs or Assets are needed to make the impairment, thereis needed to make division of assets into tangible and intangible assets. Below are the somepoints that provide the information on whether it is required to carry out impairment or notwith respect to Myer Holding Limited.Assets recognition and change in value: After making the analysis of the financial statementsof the Myer Group it can be said that the flow of assets has been relatively same and therewas no proof that there has been any decline in the value of assets over the past years. Asthere is no major change in the value of assets it can be said that there is no indication ofimpairment of assets (Hussey, 2010). Carrying value of the assets: Carrying value of assets means the value that the asset carries inthe balance sheet. In order to make reference to impairment testing it is necessary to check
3any change in value at the end of year as compared with the previous year. It has been foundthat there is no such change in the value of assets in the past years (Myer Holdings Limited2016 Annual Report, 2016).Assets turnover ratio: Assets turnover ratio means value of total assets to the total revenue ofthe company. This ratio shows any change in total assets in relation to the revenue. It hasbeen evaluated that there was similar asset turnover ratio during the past few years thatindicates that there is no requirement to carry out the impairment testing (Myer HoldingsLimited 2016 Annual Report, 2016).Manner through which impairments can be determined in case of Myer HoldingsIn order to determine the impairment of assets the Myer Holding has used thediscounted cash flow model. As indicated in the annual report of the company in year 2016,the value of goodwill is being taken as $27.1 million and life of the goodwill has been astaken as indefinite. The goodwill is being the most important of the business, it cannot bedividend on individual basis to each Cash Generating Units of the group, and so wholeamount of the goodwill is being distributed to the business as whole. In order to carry out theimpairment of goodwill there is need to find out the recoverable amount that such asset willprovide in future years(Myer Holdings Limited 2016 Annual Report, 2016). For this purposevalue in use of the goodwill is compared with the recoverable amount of goodwill and anydifference is termed as impairment amount which has to be deducted to measure the actualcarrying value of goodwill for that year. For the rest of assets impairment is carried throughsame method but the life of assets has been taken on the basis of their productivity. In orderto calculate the discounted cash flow from the assets, management has used projections overthe five years on the basis of the financial budgets and growth rate. To find the cash flowprojections company has used major assumptions like sales growth and gross profit margin.
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