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Information System of Cardino Limited

   

Added on  2020-05-16

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PART APart (i)Cardino Limited Company has been given for the purpose of the study. The company is listed inthe Australian Stock Exchange and deals in the information system, remote sensing and otherrelated areas. For the purpose of the detailed discussion and the analysis the annual report of thecompany for the financial year ending 30th of June of the year 2017 has been selected. The company has tested the following assets for the impairment in accordance with theAustralian accounting standard 136 on the impairment of assets:-Goodwill and other intangibles. It does not include the goodwill which has been acquiredon the acquisition of business or in any other business combination. -Property plant and equipment which forms the major part of the noncurrent assets of thecompany. This major head comprises of the three major assets – land and Building,Office Furniture and Equipment and lastly motor vehicles.-The major current assets through which the working capital and the liquidation of thecompany are maintained and is normally known as Trade debtors.Part (ii)Although the firm conducts the impairment test in accordance with the terms and the provisionsof the Australian accounting standard 136 but following are the procedures that the company hasadopted for the purpose of the testing of the impairment of the assets including some proceduresfor internal purpose and accordingly the impairment has been made:-For Goodwill and other intangibles - Note to the financial statements bearing the numberfourteen consists of the five intangibles. These are goodwill, works contracts, patents andtrademarks, software intangibles and customer relationships. At first the goodwill istested for impairment and the carrying amount of the goodwill as the date is allocated tothe cash generating units as defined for impairment testing. Four cash generating units1
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have been detailed and these are Americas, Asia Pacific (APAC), Construction Sciencesand International Development. Goodwill has never been amortized but is always testedfor the purpose of the impairment. According to the annual report of the company, thecompany performs the impairment tests on annual basis and also on frequent basisdepending upon the needs of the business and the circumstances which follows in thebusiness. The goodwill is allocated on the basis of relative fair value. The company hasthen used the value in used mode of determining the recoverable amount. The value inuse has been calculated on the basis of the projections that the company has made for thefuture years and that too specifically for five years with the figure of the terminal orresidual at the end of the year five. The projections that have been used in the value inuse method have been obtained from the budget plan of the company for the future yearsof 2018 and 2019. The further three years figures have been estimated using the growthrates depending upon the forecasted market conditions and the economic growth of thecompany. These cash flows are discounted at the rate equivalent to the weighted averagecost of capital to the company and this value in use is identified and thus the recoverableamount is measured. In case the carrying amount falls short of the recoverable amountthen there will be no impairment otherwise the impairment is required to be booked.Thereafter the results of the impairment testing are detailed and accordingly theimpairment is booked (AASB, 2016).-For Property Plant and Equipment – For the purpose of the calculation of the impairment,then value in use method is used and the figures stated in the budget is utilized andaccordingly present value of cash flows are determined and recoverable amount iscalculated and then the recoverable amount is compared with the carrying amount andaccordingly the impairment loss is accounted for in the books of accounts. -For Trade Debtors – In the impairment testing of the trade debtors, the risk of receivingpayment is checked and the debtors ageing schedule has been made. Where the paymentis due for more than ninety days then the impairment will be charged. Thus, the impairment testing has been conducted by the company in this mode only. 2
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Part (iii)In accordance with the financial report to the company, the impairment charges have beenaccounted for by the company and have charged to the statement of the profit and loss account.Nil amount of impairment has been charged in case of the goodwill and other intangibles and theproperty plant and equipment but in case of the trade debtors, the company has charged theimpairment of $38626 thousand. The same has been charged only because of the fact that thetrade debtors have been pending or outstanding for the past ninety days and more and therefore,the loss for the irrecoverable has been made irrespective of the amount of bad debts written offby the company. Thus, the company has recorded the impairment in the annual report of thecompany. Part (iv)The company has given the separate note number of twenty which lays down the criticalaccounting estimates and judgments. Although the company has made many key assumptionsand the estimates, but in relation to the impairment following key assumptions and estimateshave been made. These are:-The future cash flows have been estimated on the basis of the budget plan for thefinancial year ending 2018 and 2019. -For further three years the company has considered the growth rate. This growth rate isadjusted to the market conditions and the standing of the company in the market and thecountry. -The discounting rate that has been use for discounting of the cash flows for arriving at thenet present value is pre tax and that too equals to the cost of capital of the company. -Inflationary conditions have been taken for valuing the discounting rate for the cashflows. -There will be only three cash generating unit as the individual asset will not be able togenerate the revenue on its own. 3
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