Revaluations and Impairment Testing of Non-Current Assets

Running Head: REVALUATIONS AND IMPAIRMENT TESTING OF NON-CURRENT
ASSETS
REVALUATIONS AND IMPAIRMENT OF NON – CURRENT ASSETS
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1REVALUATIONS AND IMPAIRMENT TESTING OF NON-CURRENT ASSETS
Table of contents
In response to Question 1...........................................................................................................2
In response to Question 2...........................................................................................................2
In response to Question 3...........................................................................................................3
Reference list..............................................................................................................................9

2REVALUATIONS AND IMPAIRMENT TESTING OF NON-CURRENT ASSETS
In response to Question 1
Simba Ltd has come up with the adoption of revaluation model for the fixed assets but
the model has some limitations like the fair value of certain items cannot be determined. In
order to deal with this problem the director of Simba Ltd has put forward the proposal of
adopting the fair value concept as this tends to improve the scenario of the company’s
financial position and can eliminate the need of depreciation. The board should adopt the
proposal of the director because the fair market value concept is based on the current
information derived from the market (Goncharov, Riedl & Sellhorn 2014). The fair market
value concept is considered as a modern concept of valuing the assets which does not follow
the historical cost concepts wherein the companies measured the values of the assets based on
the nominal cost (Müller, Riedl & Sellhorn 2015). Simba Ltd can avail several benefits by
adopting this proposal which is discussed in the following sections:
Improvement in the financial statements: In fair market valuation the assets are
valued at current market price which can increase the valuation of the assets recorded in the
balance sheet. This appreciation of assets enhances the company’s economic condition which
indicates that the company has maintained a good wealth management (Yamamoto, 2014).
The financial ratios are also enhanced due to the appreciation and hence ensures a better
financial report which reveals the true and fair information to the stakeholder’s of the
company (Barker, & Schulte 2017).
Elimination of need of depreciation: In a situation where the fair market value has
fallen below the book value the assets become the impaired assets and their accounts are
written down and hence the amount of depreciation is adjusted based on the carrying cost of
the impaired assets (Bepari, Rahman & Mollik 2014).
In response to Question 2
According to US GAAP, Impairment is considered as an accounting concept that
describes the reduction of company’s listed assets especially the fixed assets. While testing
the impairment the calculation of total profit, cash flows and other items are expected to
estimated using the book value method that is cost model or in other id words it can be said
the book value minus accumulated depreciation and impaired loss identified in the pat years
(Hamberg & Beisland 2014). As per IFRS the revaluation model is considered as an
accounting principle wherein the fixed assets that are recorded in the balance sheet at cost are
carrying over the fair market value based on the current market activities and it can increase

3REVALUATIONS AND IMPAIRMENT TESTING OF NON-CURRENT ASSETS
and decrease the value of the assets (Bepari & Mollik 2015). The fair value of assets dictate
whether the carrying costs are adjusted up or down. For an instance depreciation of an
impaired capital assets based on carrying costs is dictated by the fair value because the
amount of the depreciation is adjusted and are carried forward in order to re estimate the total
amount based on the carrying cost of the impaired assets. In such a situation the test for
impairments is not necessary (Baboukardos & Rimmel 2014). Under the cost model it is a
compulsion to carry out the test or impaired assets in order to understand the significant
changes in the market price of the assets. According to US GAAP a business does not require
to impair its assets if the fair market value decreases but on the other hand as per IFRS after
the revaluation of book value of the fixed assets they can be adjusted to the market value
periodically by using both the models (Glau, Landsman & Wyrwa 2015.
In response to Question 3
(a). The fair value as per AASB 13 is a market based estimation and is not an entity
based measurement (Johansson, Hjelström & Hellman 2016). There are some assets and
liabilities for which the market information are available and some assets and liabilities for
which the information are not available the objective of fair market value in both the cases
will be same that is estimating the price in order to sell out the assets or transferring the
liabilities. The assets and liabilities that are estimated under fair market value are standalone
assets or liabilities or group of cash generating assets or liabilities (Griffin, 2014).
The assets of Medibank health insurance are investments that are listed and unlisted
securities that aims at supporting the insurance liabilities and are valued at fair market value
(Palea, 2014). The investment in the listed and unlisted securities are designated as the assets
for trading and are used for short term selling and these assets are also valued in fair market
value (Sun, 2016). The
fair market value
estimation of
Medibank is
subjective in nature
and are classified
into a hierarchy
based on the
subjectivity. Level 1
disclose the quoted
30th June
2018 in $m
Level 1 Level 2 Level 3 Total
Australian
equities
- 144 - 144
International
equities
- 170 - 170
Property 2 156 - 158
Infrastructure - 50 - 50
Fixed income 86 1700 - 1786
Total
balance as
on 30th June
2018
88 2220 - 2308