Impairment Loss: Measurement and Recognition | Essay IAS36

Added on -2020-02-18

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Impairment Loss: Measurement and Recognition
ContentsPart A: Impairment Loss: Measurement and Recognition..............................................................3Introduction......................................................................................................................................3 Impairment Loss.............................................................................................................................3Objective......................................................................................................................................3Application of IAS 36..................................................................................................................4Indentifying impaired asset and Measuring Recoverable Asset..................................................4Recoverable Amount....................................................................................................................5Conclusion.......................................................................................................................................6Part B: Journal entries......................................................................................................................7
Part A: Impairment Loss: Measurement and RecognitionIntroductionAn entity requires assessing their assets that are impaired or not and for this purpose anentity requires a standard that can be used to do the same. To gain information, a businessorganization considers various means. In order to have a proper understanding, it uses itsexternal and internal sources to get an idea about the performance of their assets. IAS36impairment of assets is a standard that is quite commonly used by the entities for the assessmentof their assets (Impairment accounting – the basics of IAS 36 Impairment of Assets, 2008).IAS36 is a measure that helps firms in determining the assets that are impaired and cannot earnback recoverable amount. IAS36 assist the firms in categorizing their assets which are notperforming and what alternative measures can be used for the same to incur less losses. The application of IAS 36 is quite wide. Due to the recent economic uncertainty thesubject of impairment has came to spotlight. After which various entities has decided to reassesstheir impairment testing models and processes (Dagwell, Wines and Lambert, 2015). The essayportrays the importance of identifying assets that are impaired and cannot be used further. Thesubject matter of the essay deals with the significance of measures which helps in identifying theassets that are impaired. In the essay IAS36, a widely accepted and popular method is discussed.Identification of Impaired Assets and Losses Objective IAS 36 impairment of assets ensures that an entity’s assets are not carried for more thantheir recoverable amount which means that the higher the fair value and less cost of disposal of
the asset. The assets that have impaired burdens the organization with huge amount of cost andexpenses, in such a scenario when innovation and technology has reached its peak, assets arebecoming obsolete quite rapidly. In such a scenario, IAS36 provides a reliable platform toidentify the assets which are becoming impaired (IAS 36 — Impairment of Assets, 2017).Organization in general assesses their assets on periodic bases. The managers are aware of theassets and about their working life that are being used in the organization. Hence in order tomaintain the losses, organization requires keeping an eye on their assets. IAS36 is a quite famousmethod that is being used by various organizations (Impairment of Assets, 2007). This method isapplicable to every kind of assets irrelevant of their nature. It helps the organization to maintainassets that can be recovered at the position of no loss and no gain. Application of IAS 36IAS 36 is a measure or standard that is used by various firms to assess their impairedlosses. It is also important to know that how and where this standard is applied. IAS36 is amethod that can be applied to various assets and is in being used by firms from several years. Itprovides accurate data about the asset and organizations plan out their strategies for the asset onthe same way (Henderson, Peirson, Herbohn and Howieson, 2015). In general IAS36 is a methodthat can be applied to any firm, but specifically a firm which is listed in the stock exchange orthat which maintains a proper balance sheet can gain benefit from the method. The methodIAS36 helps in assessing various kinds of assets of the organization on time to time basis (IAS36 — Impairment of Assets, 2017).Identifying impaired asset and Measuring Recoverable Asset Assets play an important role in increasing the goodwill of an organization. Howeverthey have a fixed working life after which they become obsolete. In today’s dynamic

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