Impairment of Assets Under AASB 136

This assignment delves into the accounting treatment of asset impairments under Australian Accounting Standard Board (AASB) 136. It examines the criteria for recognizing an impairment loss, the methods used to measure it, and the disclosures required in financial statements. The discussion includes insights into the reversal of impairment losses and the importance of considering both internal and external factors when assessing potential impairments.

Running head: CORPORATE ACCOUNTING
Corporate Accounting
Name of the Student:
Name of the University:
Author’s Note:

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Table of Contents
Answer to Part A:.............................................................................................................2
Answer to Part B:.............................................................................................................5
Reference List.................................................................................................................. 7

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Answer to Part A:
According to the principles of financial accounting, there can be circumstances
that the financial reports of a firm may consist of assets that do not have
disproportionate valuations. For the determination of the asset value, it is essential to
contrast the carrying value of the assets with some other concepts related to value. The
Australian Accounting Standard Board (AASB) in their Section 334 of the Corporations
Act 2001 has constructed Accounting Standard AASB 136 in relation to the impairment
of the assets. The main of these standards has been to lay down the processes that is
incorporated by the entity to make sure that the assets are lower the carrying amount so
that the assets can be carried at a recoverable value (Picker et al. 2016). In situations
when the amount which is recorded after the sale of the assets is lower than the
carrying value, then the assets are carried out at the recoverable amount. In
accordance to this situation, the assets can be depicted as impaired. The companies
need to indentify such impairments according to the defined standard as an obligatory
disclosure during the time of indentifying the loss of impairment.
If the recoverable value is lower than the carrying asset value, then the
impairment is comprehended. The value requires being more than the fair value and a
lesser value of the asset that is in use and the selling cost. If the carrying amount of the
asset is higher than their recoverable value, then in accordance to “Paragraph 59 of
AASB 136” the carrying asset value requires to be minimized to its previous (Kabir,
Rahman and Su 2017). According to AASB 2014, this minimization is treated as an
impairment loss. Furthermore, there is a variation in the mechanisms that is utilized
while recording the impairment loss variation and this is reliant on the evidence that

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whether the assets are recorded at the cost and is harmonious to the revaluation
framework. The impairment loss requires to be comprehended immediately according to
“Paragraph 60 of AASB 136”. This is undertaken until the assets are carried out at a
revalue figure that is in conformity with the other standards. The revaluation framework
is depicted in the standards that are existent in “AASB 116”. Hence, according to the
other standards, the impairment loss that is in association to the other assets is treated
as reduction in the revaluation (Sellhorn and Stier 2017).
The cost and the revolution framework are the two processes that are utilized for
asset impairing. In accordance to “Paragraph 61 of AASB 136”, the cost framework
utilizes the cost for the purpose of recording the impaired assets. The asset impairment
requires to be indentified instantly in the profit or loss account. It has been investigative
of the evidence that the loss related with the impairment of the asset requires being
comprehended as expenses in the income statement of the firm (Linnenluecke et al.
2015).
In accordance to “Paragraph 60 of AASB 136”, the asset impairment on the
property, equipment and plant is undertaken at the carrying value of the amount that is
revalue, then with respect to the revaluation framework, the reduction in revaluation and
the loss treatment associated with the impairment is similar in nature. During the
intention of restatement in the primary stage, the loss impairment in connection to the
assets is impaired and is recorded in the statement of income (Cummings and Durrani
2016). This is undertaken so that the loss does not surpass the revaluation surplus
amount for the indistinguishable assets. The leftover account in the revaluation excess
is attained with the help of debiting the leftover of the revaluation surplus account.

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Before indentifying the loss related with impairment as an expense in the statement of
income, the additional is associated and applied to the assets in addition to the deferred
tax liability.
Additionally, there can be circumstances, when the carrying asset value
previously is much lower than the asset recoverable amount has been recorded in the
value. It is necessary on the part of the firm to determine any symbols of loss of
impairment that is comprehended previously in any assets. Conversely, this would
excuse the value of goodwill and its presence in the organization. These are all done
according to “Paragraph 110 of AASB 136”. The loss of impairment reversal of the
assets with respect to “Paragraph 111 of AASB 136” is in need of internal and external
signals for impairment. The signals that depict the asset impairment are inclusive of key
transformations that may have a positive effect on the firm, any increase in the market
value, feasible transformations undertaken in the exploitation of the assets; fall in the
rate of interest and variations in the asset performance in the economy (Gordon and
Hsu 2017).
There exist two variant frameworks for undertaking the impairment loss of the
assets that consists of the cost and the revaluation framework. The carrying amount of
the assets may not be increased over their depreciation value for the impairment asset
in association to the cost framework. It is even necessary to look in to the fact that the
depreciation policy requires to be accounted in this scenario. Hence, in accordance to
“Paragraph 119 of AASB 136”, there is a requirement of understanding the reversal of
the impairment loss as an expenditure item within the income statement. There has
been a significant amount of explained rules that are prescribed for the projection of the

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cash flow in AASB 136 and even contains widespread regulations and policies for
examining the goodwill. The examination of the goodwill is undertaken with respect to
the impairment loss of the asset of the company and in this manner the cash generating
opportunity of the company can be comprehended (Kabir and Rahman 2016). The
generation of cash is a significant aspect for any company and therefore the
organizations try to recognize their impairment loss in the asset and place them
effectively in the income statement in order to keep their goodwill in tact as goodwill of
the organization plays a significant factor for the generation of additional cash for the
company externally.
Answer to Part B:
Dr. Cr.
Date Amount Amount
30/06/2015 Impairment Loss A/c. Dr. $75,000
To, Plant A/c. $18,185
To, Equipment A/c. $16,672
To, Fittings A/c. $10,554
To, Inventory A/c. $4,589
To, Goodwill A/c. $25,000
Profit & Loss A/c. Dr. $75,000
To, Impairment Loss A/c. $75,000
In the books of Gali Ltd.
Journal Entries
Particulars
(Being assets under the specific cash generating unit impaired)
(Being impairment loss transferred to P/L A/c.)

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Workings:
Particulars Amount
Fair Value,less, Cost to Sell $0
Value in Use $633,000
Recoverable Amount $633,000
(Higher of Fair Value & Value in
use)
Less: Carrying Amount of CGU $708,000
Total Impairment Gain/(Loss) ($75,000)
Calculation of Impairment Loss:
Particulars
Carrying
Amount Fair Value
Impairment
Loss
Total Impairment Loss $75,000
Less:
Plant $475,000 $456,815 $18,185
Goodwill $25,000 $0 $25,000
Balance Impairment Loss $31,815
Particulars
Carrying
Amount Weightage
Impairment
Loss
Balance Impairment Loss $31,815
Equipment $109,000 52.40% $16,672
Fittings $69,000 33.17% $10,554
Inventory $30,000 14.42% $4,589
Total $208,000 100% $31,815
Impairment Loss Allocation as per Weightage:
Allocation of Specified Impairment Loss:

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Reference List
Cummings, J.R. and Durrani, K.J., 2016. Effect of the Basel Accord capital
requirements on the loan-loss provisioning practices of Australian banks. Journal of
Banking & Finance, 67, pp.23-36.
Gordon, E.A. and Hsu, H.T., 2017. Tangible Long-Lived Asset Impairments and Future
Operating Cash Flows under US GAAP and IFRS. The Accounting Review.
Kabir, H. and Rahman, A., 2016. The role of corporate governance in accounting
discretion under IFRS: Goodwill impairment in Australia. Journal of Contemporary
Accounting & Economics, 12(3), pp.290-308.
Kabir, H., Rahman, A.R. and Su, L., 2017. The Association between Goodwill
Impairment Loss and Goodwill Impairment Test-Related Disclosures in Australia.
Linnenluecke, M.K., Birt, J., Lyon, J. and Sidhu, B.K., 2015. Planetary boundaries:
implications for asset impairment. Accounting & Finance, 55(4), pp.911-929.
Picker, R., Clark, K., Dunn, J., Kolitz, D., Livne, G., Loftus, J. and Van der Tas, L.,
2016. Applying international financial reporting standards. John Wiley & Sons.
Sellhorn, T. and Stier, C., 2017. Fair Value Measurement for Long-Lived Operating
Assets: Research Evidence.