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IAS 36 — Impairment of Assets PDF

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Added on  2021-06-17

IAS 36 — Impairment of Assets PDF

   Added on 2021-06-17

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CASH GENRATING UNIT IMPAIRMENT LOSS WITHOUT GOODWILLImpairment Meaning According to AASB 136/IAS 36 – Impairment of Assets, Impairment refers to the amount inexcess of the recoverable amount shown in balance sheet as carrying amount on the particularreporting date. Impairment will only be tested for tangible assets like Property, Plant andEquipment and for intangible assets like Goodwill, Copyrights, and Patents etc. It will not bedone for current assets like inventory (AASB 136, 2011).Carrying AmountValue at which asset is recorded in Balance sheet or book value of asset recorded in financialstatements is called as Carrying Amount of any asset. Carrying amount is stated value whichcalculated after deducted of accumulated depreciation and accumulated impairment.Recoverable Amount Australian Accounting Standard Board 136/ IAS 36 describe the recoverable amount as greaterof fair value less cost of disposal and value in use (IAS 36, 2014). In which value in use is thepresent value of expected future cash flows that certain to be received from usage of asset andwhich are discounted at pre tax rate which is generally equal to the cost of capital of thecompany. Fair value less cost of disposal means the market price of the asset which the companywill get after selling the asset at current date less directs cost attributable to asset for making thesale happen.Cash Generating Units According to AASB 136, Cash generating units means group of assets which are small in sizeand can be easily identified as separate parts but related to class of asset particularly identified.This concept has been introduced to overcome the limitation of non generation of cash flows bysome individual assets on its own but economic benefits can be obtained from it when they arecombined with certain class of asset. In CGU’s all assets are similar in nature but they areindependent of each other so that combined future economic benefits can be ascertain. AASBhas instructed all the companies that cash generating units cannot be greater in size thancompany’s operating segments (IAS 36, 2014).
IAS 36 — Impairment of Assets PDF_1
Calculation of Cash generating unit Impairment Loss excluding Goodwill:Before calculating impairment loss, impairment testing should be done for CGUs so that validityof loss from impairment can be judged. Impairment test can be performed at any time during thereporting period which makes it mandatory to perform the testing at the same time of thereporting period which is of past year. All CGUs are not required to be tested at the time of theyear. Company should identify finest time for analyzing the individual CGUs which can bebased on data availability like availability of forecast, budgets, seasonality of business, closingtime of business etc. Impairment Loss once calculated will be charged in statement of profit or loss as an expense andon the other hand reduced the carrying value of the asset shown in books of account (Zucca,2012). It will be calculated for Cash Generating units which does not include Goodwill in thefollowing manner:-I.First step is to identify the cash generating units that means identification of group ofassets which similar in nature can form cluster of asset. Individual assets will consider forforming group which cannot generate cash flows on their own.II.After identifying the Cash generating units then it will be ascertained or find out as towhich particular asset CGU’s belongIII.Third step to find out and identified the cash flows that will be generated by cashgenerating units in future on reasonable basis (Wines, 2009)IV.Next step is to calculate the value in use for cash generating units. Value in use will becalculated using the given pre tax discount and future expected cash flows which can begenerated from CGU. Value in use the present value of cash flows which will bediscounted with appropriate identified discount rate (Carlin, 2009)V.Calculate the fair value of CGU and cost of disposal which can be incurred if all theassets of CGU will be sold in open market. It means calculation of net selling price whichwill be received from agreement to sell by the company in ordinary market conditions.
IAS 36 — Impairment of Assets PDF_2

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