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Corporate Accounting Assignment Solved

   

Added on  2020-05-16

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CORPORATE ACCOUNTING ANDREPORTING
Corporate Accounting Assignment Solved_1
Part A:Impairment is a procedure that involves identifying those assets in the balance sheet whose carrying value is more when compared to the recoverable amount. Hence, we can say that impairment of assets means re- recording the assets at its fair value.Recoverable amount of all the individual assets is the main component that is required to be known in order to compute the impairment loss for each cash generating unit. Sometimes it becomes difficult to determine the recoverable amount for individual asset. In such a case the recoverable amount for the entire cash generating unit should be taken into consideration in order to calculate impairment loss. The situation of difficulty in determining the recoverable amount of individual asset arises when cash flows that are going to be generated are dependent on the usage of any other asset in the cash generating unit (Gibson, 2013).A cash generating unit comprises of few assets that helps the company to generate future cashflows. Obviously, the cash flows are dependent on how the management makes use of it. The generation of revenue from such assets are dependent on various other factors also such as the policies that are followed by the management in respect to usage, decision regarding acquisition and disposal of such assets. The cash flow generated from such asset should be received from the external parties.These assets are said to be cash generating units only when the goods produced by such assets are marketable. We can say that pool of asset will be regarded as a cash generating unitalso when the goods produces are capable of being consumed within the organisation. Many times the cash inflows of the company is highly affected by the internal pricing policies that are adopted by the company. But it is important to know the value of cash generated from a particular cash generating unit. Therefore, the company should apply arms length price in determining such value (Greite, 2007).A reporting has to be done from time to time in relation to the assets that form part of the cash generating units. The company has to provide a disclosure if it decides to transfer a particular asset from one cash generating unit to another. All the adjustments such as any lossthat has been reversed or any impairment loss that has been further made has to be recorded.As discussed above, we have to determine the recoverable amount to calculate the impairment loss of a cash generating unit. It is observed that the fair value of such assets are greater to fair value after deducting selling expenses from it. Only those assets that make a contribution in generating future revenues should be taken in the CGU all other should be excluded. In relation to the liabilities, only those liabilities that are directly and wholly relatedto the asset contained in the cash generating unit should be considered (Ittelson, 2009).The calculation of impairment loss is very similar to the loss that is calculated on the normal asset. Loss has to be recognised when the carrying value of an asset exceeds the fair value. The total loss that has been calculated will be allocated to all the assets that are contained in the unit in the ratio of their carrying value. The impairment loss that is calculated is shown as a deduction from carrying asset which leads to reduction of value of the asset. The treatment
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for the loss of each asset of the cash generating unit is same as the treatment of normal asset (Loftus, 2013).There is an important point that has to be kept in mind while allocating the loss to the variousasset of the unit- the amount that has been deducted as a loss should not reduce the carrying amount of the assets below the higher of the following (Mard et al. 2011)-Fair value net of sale expensesValue in useZeroThe remaining loss has to be distributed among the other asset of the CGU in the pro rata basis.Usually, there are assets that are cash generating but sometimes there are also some assets that are non cash generating but still forms a part of the CGU. In such a case, if such asset Is impaired, then the carrying amount of such asset will also be added in the carrying amount of the unit. However, the carrying amount of such non cash generating asset can be determined by the service of the asset that is used by the CGU (Rahman, 2014).In a case when the recoverable amount of the asset cannot be determined, then impairment could be done if the carrying amount of such asset is higher to the fir value net of impairmentloss. If the CGU to which this particular asset belongs is not impaired then there are no adjustments made in the carrying amount, even though this particular asset has been impairedindividually.An entity has to carry out an impairment test in order to record these impairment losses. The above steps that has been explained above has to be followed. All the entities must make a disclosure in its annual reports if there is any information relating to impairment during the last reporting period. It should also report if there is any reversal of losses (Wahlen et al., n.d.). This loss that has been reversed is also divided among the different assets on the pro rata basis. There may be an increase in the carrying amount of the assets but there shall be no increase in the carrying asset in relation to the non cash generating assets.We can conclude that it is the duty of the entity to carry out proper calculations, to record all the losses properly and provide disclosures wherever required in the financial statements for the impairment of cash generating unit. All the steps has to be followed thoroughly so that theentity can make correct calculations and provide a correct reporting in its annual reports (Revsine, 2015).
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