Report on Property Plant and Equipment
Added on 2020-05-16
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ANSWERSPART A(i)In accordance with annual report of the company for the financial year ending 30th ofJune 2017, following are the assets that the company has tested for the impairmentloss or impairment charges if any during the period:-Property Plant and Equipment-Goodwill -Loans and Advances-Financial Instruments-Other Intangible assets like computer software, core deposits, customerrelationship, other acquired intangibles and trustee license. -Other assets including accrued income, repayments already made by thecompany, debtors of the company from whom the payment is required to bereceived and deferred expenditure if any. (ii)The company has conducted the impairment testing in accordance with the relevantprovisions of the accounting standards.In accordance with the provisions of the Australian accounting standard one hundredand thirty six on impairment of assets, the company is currently conducting theimpairment test on an annual basis. At the end of each year and at each of the balancesheet date, the company assesses whether there are any indication that the value of theassets as stated in the balance sheet of the company is weakened. For the purpose oftesting, the main emphasis is on the comparison of the recoverable amount with thecarrying amount of the particular asset. Recoverable amount is the higher of the value in use and the net selling price. Valuein use is defined as the present value of all the cash flows that are estimated for thefuture depending upon the useful life of an asset and the present value of the residualvalue of the asset at the end of its useful life. Net selling price is the selling price ofthe asset less the cost that is incurred to sell the product.Carrying amount is the amount of the assets which are stated in the balance sheet. TheCompany has also determined the cash generating units because of the fact that thecash flows to be derived from the assets cannot be derived separately (AASB, 2016).1
(iii)Yes, the company has recorded the impairment expenditures in the statement of theprofit and loss account. As per the provisions of the accounting standard number onehundred and thirty six, the impairment loss is charged to the statement of the Profitand Loss account on one hand and on the other hand the impairment loss is charged tothe value of the asset of the company and accordingly after deduction the carryingamount of the assets have been disclosed at the year end. Following are details forwhich the impairment expense has been charged (Company Official Website, 2017):S. No.ParticularsAmount of ImpairmentCharges (In Million dollar)1Property plant and equipment21.82Loans and Advances 107.903Financial Assets0.34Other acquired Intangibles0.4(iv)Following are the key estimates and assumptions that have been used by the firm forconducting the impairment testing:-The assets will be tested for impairment at the end of the each year that is to say atthe balance sheet date. -In case of the property plant and equipment, the company has made theassumption that in case the carrying amount of the assets exceeds the recoverableamount, then the impairment loss will be recognized. -As per the note number nine of the financial statements of the company, theimpairment of loans and advances is made when there are chances of having thefailure in the timely achievement of the repayment of the total amount whichincludes the principal as well as the interest on the outstanding principal. It isirrespective of the banking norms whether the loans and advances so given aredue or has been outstanding for a period more than ninety days. In case of loansand advances, the impairment loss or the charges are made only when thecompany has the objective proof of having the loan portfolio in total loss. -The company has also made the key assumption regarding the loans and advancesand that is termed in the notes to the financial statement as the specific provision.Under this head, the provision is made only when there is the reasonable doubt on2
the collection of the principal and interest from the customer and then all theirrecoverable are written off or adjusted against the specific provision. It is donein the period in which the loans and advances so become irrecoverable. -Company has made the head of the collective provision, where the individualloans which are not grouped earlier are regrouped under this head and theprovision is made accordingly for the irrecoverable pertaining to the individualloans. (v)Yes, although the company is in compliance with the relevant provisions of theaccounting standard, but there is the subjectivity in the form of the differentdisclosure heads created by the company for bifurcating the impairment provision.Secondly, subjectivity is present in the estimation of the future cash flows on thebasis of which the value in use is determined (Intelligent Investor, 2017). The first form of the subjectivity will confuse the investors of the company inunderstanding the impairment testing. The second form of subjectivity can lead the outcome to be distorted. It is because theestimation of the cash flows can appreciate the value of assets and can depreciate thevalue of assets. If in case it is not correctly determined then there will be the casewhere the value of the net block of assets is depreciating on one hand and on the otherhand the company’s net worth is deteriorating. I find somewhere it has confusion and at most of the times it is interesting. It isbecause it is different industry and the way they have dealt with the loans andadvances is different. (vi)The insight is that the company is performing well in the estimation of impairmentloss. It is because all the method that has been applied by the company is in totalcompliance with the provisions of the accounting standards. And the impairmenttesting is very fair and correct.(vii)In note number 22 of the financial statements, the fair value measurement has beendescribed. Fair value is equivalent to the price that the company will receive whenthe company will sell the asset and the price at which the company will be able tocomplete its obligation. Fair values have been calculated by having the unadjusted3
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