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ACC 204 : Corporate Accounting Assignment

   

Added on  2019-10-30

8 Pages1587 Words198 Views
PART AIMAPIRMENT LOSS FOR INDIVIDUAL ASSET Every organization which is governed by Corporation Act, 2001 has to present itsFinancial Reports in accordance with rules and regulations defined under Act. It impliesthat entity has to follow the Generally Accepted Accounting Principles as framed byAustralian Accounting Standard Board. One of the standards issued by Australian Accounting Standard Board is AASB 136relating to Impairment of Assets which requires every entity should access the correctvalue of assets every year to be recorded in financial statements which should notincrease the recoverable amount and also laid down the procedure that should appliedby entity to ensure than the assets are recorded at correct value which is not higherthan recoverable amount on the reporting date (AASB Official Website, 2007). As per AASB 136, amount at which asset is carried in books of the entity at a reportingdate which is calculated by deducting the amount of the Depreciation that has beenaccumulated over the period of time and loss on Impairment incurred from the cost t isthe Carrying amount. And the excess of the market value and value in use is theamount recoverable from asset. Loss is the excess of recoverable amount over carryingamount (EY Official Website, 2010). Fair Value of Asset means the amount which can be collected from the sale of an assetto other party who is interest in buying the asset at the market value.Present value of the cash inflows is the Value in Use is the can be release from theasset over its expected future life. Only Non Current Assets of the entity is covered as AASB 136 for consideringImpairment loss which includes all tangible assets and Intangible Assets.

Following are Assets which are not Impaired as AASB 136 as they are covered withspecific standard as defined by Board:-InventoryConstruction contract AssetDeferred Tax AssetEmployee Benefits AssetFinancial AssetInvestment Property recorded at Fair ValueBiological AssetsAssets held for SaleAssets associated with Insurance Contract RECONGITION AND MEASUREMENET OF IMPAIEMENT LOSS OF AN INDIVIDUAL ASSETImpairment Loss can be recognized and measured only if the recoverable amount isless than the carrying amount on reporting date (Parker, 2004). Recoverable amount incommon parlance is the amount at which the asset can be sold in the market but theaccounting standard has the different stand which says that the maximum of the valuein use and selling price will be regarded as the recoverable amount of the asset.Following the pointer which ensures that there is a need for Impairment of the Asset:-a)When the life of intangible asset is not defined or it has infinite life, Impairmentloss has to be recognized every reporting date which is annually.b)Market value of Asset carried in books has been decline more than expectationwith its use and passage of time.c)The external environmental factors of an entity in which entity is operating hasgone high level of changes which can impact the value of assets of an entityd)Value in use and recoverable amount of an asset has been affected with thechange in expected market interest ratee)Market Capitalization of an entity is less than its net assets value which has beenreported in the booksf)There is indication of harm or obsolescence of physical asset in an entity

g)The entity is planning to discontinue its operations or disposed off its majorassets or plan for restructuring in near futureh)The expected output from assets is not coming that is asset is not performing asper the expectation (Xu, Anandarajan and Curatola, 2011)As per paragraph 58-64 of AASB 136, Impairment loss of individual Asset otherGoodwill shall be recognized and measured as follows:-Step 1:Calculate the difference between the Carrying Amount and Recoverable Amount onreporting date. If the carrying amount is more than recoverable amount then nothing hasto be done. Otherwise the difference so calculated is the Impairment Loss.Step 2:Identity the nature of Asset whether the Asset is revalued Asset. For an asset which has not been revalued, the Impairment loss should be transferred toProfit & Loss Account of an entity.In case for an asset which has been revalued, the impairment loss shall be adjustedfrom the revaluation reserve by the amount of revaluation reserveThe above steps shall be applied by every entity for recognition and measurement ofIndividual Asset excluding Goodwill (Reinstein and Lander.,2004).Following are other points of consideration for recognition and measurement ofImpairment of Loss:-When the Impairment Loss exceeds the Carrying amount of an assets, thenexcess shall be recognized as liability if required as per AASB standardsOnce the recognition of Impairment Loss is done, the future depreciation shall becalculated using the revised carrying amount over its remaining life of an asset.After doing Impairment of Individual Asset, the entity has to disclose thefollowing in its Financial Report:-

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