Asset Impairment Analysis of Myer Holdings Limited

This report analyzes the asset impairment of Myer Holdings Limited, a listed company in Australian Security Exchange. It evaluates the evidence that shows the need for testing assets impairment of the firm, the procedure in testing assets impairment, the information required and also the Management flexibility available in the determination of the asset impairment.

Executive Summary
This report document shows the analysis of asset impairment of Myer Holdings Limited, a listed
Company in Australian Security Exchange. It’s aimed at evaluating with reference, the evidence
that shows the need for testing assets impairment of the firm, the procedure in testing assets
impairment, the information required and also the Management flexibility available in the
determination of the asset impairment.
Introduction
Myer Holdings Limited is a merchant store company in Australia. It operates approximately 60
retail stores located across Australia. Myer limited company deals with a range of products
including menswear; women wear, children’s wear, electronics, cosmetics, and accessories
among others.
Impairment of assets occurs on intangible assets which involve identifiable non-monetary assets
that cannot be touched, physically measured or seen. For the financial year ended July 2018,
Myer Holdings limited had net intangible assets of $359,000,000. Intangible assets include
goodwill, Copyright, trademarks and trade secrets. Goodwill involves the difference between the
price that the company paid and the book value of the assets. Some intangible assets are
amortized, that gives a provision of depreciation on intangible assets while most of them are
written off when the company realizes that the assets are impaired. Accounting standard AABS
136, deals with non-financing assets like goodwill, identifiable intangible assets, and property,
plant and equipment. Non financing assets of a company are critical and they do affect not only
the financial position of a firm but also the financial performance of an entity, thus the
information relating to such need to be provided so that financial statements provide relevant and
reliable financial information important to the potential investors and other users of the data.
Impairment testing involves the process of ascertaining whether the net book value of assets also
called carrying amount outlined in the balance sheet of an organization needs to be maintained or
reduced. "Empirical evidence on the application of CGUS in the context of goodwill impairment
testing" TM Carlin, KJI, and Finch, (2010).

Possible of evidence of Assets impairment in Myer's Holding Limited
Change in the entity's environment such as political, technological, economic, market, and legal
involved with Myer Holding Limited needs to ascertain whether it affected the carrying amount
of the organization’s assets.
Change in sale volume of the organization- There has been noticed a drastic reduction change in
the sale volume as shown by the income statement of the year 2018 and that of 2017. This is an
evidence of asset impairment such as Goodwill of the organization to the customers could have
reduced leading to sale volume reduction.
Decline in the value of assets- The provision done on assets for the year financial year ended in
July 2018 is more than normal wear and wear, and this could be attributed by asset impairment in
Mayer Holdings Limited.

Carrying amount of asset in Myer's Holdings Limited is more than that of market value as
illustrated in the financial statements and the notes of the financial statements. This is a proper
indicator of the asset impairment of the company.
Production level in the company reduced since some of the assets has become obsolete. Thus
need to test asset impairment in the entity as there is an indication of such cases.
The financial performance of Myer Holding Limited has reduced for the fiscal year ended July
2018. The previous year the company had a profit of 11million, but for the current financial year,
it has a loss of 460million. This is a clear indicator of assets impairment.
Decline in the market share of the company- It has been noticed the reduction in market share of
the organization. There is 2.28% drop in the market share. This is an evidence of asset
impairment, "Australian Accounting Review, Better late than never, the timing of goodwill
impairment testing in Australia" KJi (2013).

The procedure of testing asset impairment in Myer Holdings Limited
AASB 136 accounting standards outline the procedures followed in assessing the organization’s
asset impairment. This will ensure comprehensive testing and provision of information which is
relevant and reliable. The following procedure should be followed;
Selection of asset to be tested- Someone in charge with the fixed assets sorts the carrying
amount of fixed assets by deducting the depreciation of assets provided in that year from the
previous book value of the assets. He can use the Pareto principle of determining the
depreciation rate, which is 20% for assets that firm 80% of the organization’s fixed assets.
Determination of the impairment Level- The discounted future expected Cash flows for each
asset is determined, where the value is recorded in the fixed assets register adjusted to the given
asset. A note is made in any case the carrying amount of an asset is more than the expected
discounted cash flows of the asset. If such notice is done, the asset impairment is calculated by
deducting the projected discounted cash flows of the asset from its carrying amount, and then the

journal entry is created for the balance in the general ledger as adjusting entry, (Carlin and Finch,
2011).
Updating Accounting Records- The requested general entry is posted to the general ledger by the
general ledger Accountant. The impairment is ensured that it is recorded to the fixed assets
register for each indicated assets together with the reasons for assets impairment.
Revision of the Depreciation Calculation - The depreciation of the new reduced value of the
impaired assets is calculated for the remaining useful life, "Empirical evidence on the
application of CGUS in the context of goodwill impairment testing,“ TM Carlin, K J I, and N
Finch, (2010)
Information needed in determining the asset impairment in Myer Holdings Limited.
Cash flows and Assumptions
The cash flow information is needed in the calculation of assets impairment Myer Holdings
limited as this will assist in the prediction of future cash flows of the organization. Discounted
Cash flow is used fewer disposal costs to determine the fair value of the asset.
The asset value- To determine the carrying amount of the asset as the records in the balance
sheet
Income statement to evaluate the financial performance of the firm and check whether there is an
increase or decrease in the sale volumes.
We should also have information concerning the environmental factors under which Myer
Holdings Limited is operating; we need to know technological, market, economic, political and
legal environments of the company.
The market rate of the interest - Increase in market interest rate with effect the asset's value in
use and thus we need to know it to calculate the discounted Cash flows if an asset.
Management accounting Statements which will help to ascertain whether there is an increase in
the production cost. Any adverse variance between the budgeted cost and the actual cost will

help us to deduce the reason for asset impairment, “Impairment of Goodwill and Accounting
Quality," PV Hulzen, L Alfonso, G Georgeakopoulos, (2011)
There is a need to know the assumptions applied in the determination of carrying amount of the
asset as to investigate their credibility and relevance in determining the impairment loss of an
asset, determination of impairment level,
The flexibility the management has available in determining the asset impairment
Each director has the duty of skill, competence, and diligence to understand the information
contained in the financial report of the organization and ascertain whether the information
contained reflect the true and fair view of financial affairs of the organization. Directors and
financial reports(INFO 183). Thus the audit committee and the management should understand
the need and adequacy of assets impairment and the adequacy of the related closure of such
information. The management should have adequate skills in matters about the assets
impairment.
The management should have sufficient information about the asset impairment and can instruct
both internal and external auditors and experts and to monitor them and review the performed
work and report, "International Journal of …, Amortization versus Impairment of Goodwill and
Accounting Quality" PV Hulzen, L Alfonso, G Georgeakopoulos… (2011)
Myer Holdings Limited is an established firm and has an appropriate review process including
review of independent work, sufficient authority, experience, and expertise. This makes
flexibility of management in determining the asset impairment easy.
Historically, Myer Holdings limited has been known of instituting incentives and providing
accountability to the financial report to come up with the quality report. The management is held
to account for quality reports thus there is a need for them to be flexible to ensure that determine
the net value of intangible assets and write off any impairment loss discovered. This will increase
the credibility of financial information contained in the financial statements.
There has been experienced a change in the management for the resent year and every executive
aimed at being innovative and coming up with quality reports that could be facilitated by proper
testing of asset impairment.

Conclusion
In conclusion, there has been evidence of Assets impairment in Myer Holdings limited like a
decrease in the, decrease in the value of the asset, increased market rate of interest affecting the
expected cash flow of the assets among others.
The asset impairment testing method involves selecting the asset to be tested, updating
accounting records and revising depreciation calculation.
Information needed includes the market interest rate, asset value, the assumption used among
others and the management flexibility to the determination and Testing of asset impairment has
been confirmed effective.

References
TM Carlin, N Finch, (2011) Pacific Accounting Review, Goodwill impairment testing under IFRS
J Guthrie, TT Pang (2013), Australian Accounting Review, Disclosure of Goodwill Impairment under AASB
136 from 2005–2010 Australia
K Ji (2013), Australian Accounting Review, Better late than never, the timing of goodwill impairment
testing in Australia
TM Carlin, K Ji, N Finch, (2010) Empirical evidence on the application of CGUS in the context of goodwill
impairment testing
TM Carlin, N Finch…, (2010), Asian Review of …FRS36 and post-transition compliance quality among
Singapore firms
Z Li, PK Shroff, R Venkataraman, IX Zhang, (2011), Review of Accounting Studies, Causes and
consequences of goodwill impairment losses
TM Carlin, N Finch, (2010), Evidence on the Use of Outlier Discount Rates in IFRS Goodwill Impairment
Testing
PV Hulzen, L Alfonso, G Georgeakopoulos…(2011) - International Journal of …, Amortization Versus
Impairment of Goodwill and Accounting Quality.