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Impairment of assets

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Added on  2020-05-16

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REVERSAL OF IMPAIRMENT OF GOODWILL REVERSAL OF IMPAIRMENT OF GOODWILL 6 6 REVERSAL OF IMPAIRMENT LOSS OF GOODWILL REVERSAL OF IMPAIRMENT LOSS OF GOODWILL Author’s Note: Impairment refers to an accounting principle which is associated with permanent reduction in the value of the assets of the company which are generally fixed assets. The calculation of impairment of assets is covered by AASB 136 which is a standard issued on impairment of assets by

Impairment of assets

   Added on 2020-05-16

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Running head: REVERSAL OF IMPAIRMENT LOSS OF GOODWILL
REVERSAL OF IMPAIRMENT LOSS OF GOODWILL
Name of the Student:
Name of the University:
Author’s Note:
Impairment of assets_1
REVERSAL OF IMPAIRMENT OF GOODWILL
1
Impairment refers to an accounting principle which is associated with permanent
reduction in the value of the assets of the company which are generally fixed assets.
The testing of the impairment of assets the profits, cash flows and other benefits which
are associated with the specific assets. If the book value of the assets exceeds the
benefits associated with the assets than such a difference is written off and the assets
value is decreases in the balance sheet (Capalbo 2013).
The impairment of assets is only done when the difference between the fair value
and carrying amount is deemed to be unrecoverable. The calculation of impairment of
assets is covered by AASB 136 which is a standard issued on impairment of assets by
the Australian Accounting Standard Board (Aasb.gov.au. 2018). Goodwill refers to the
payment which the company incurs in order to get certain economic benefits in future. In
some sense it also refers to the good reputation of the company among the general
public. This is considered to be an intangible asset of the company and the same is also
subjected to impairment principles (AbuGhazaleh, Al-Hares and Haddad 2012). The
calculations of impairment of goodwill is done by allocating the goodwill to a cash
generating unit which is of the lowest level. As per AASB 136 ‘s Paragraph 1
impairment of assets states what are the techniques which business use in order to
make sure that the assets are being carried out in right amounts and the value does not
exceed the amount level which are recoverable (Aasb.gov.au. 2018). This paragraph
also states that in case the asset’s value are carried over than the amount which is
recoverable, the recoverable amount which is received by selling the asset is lower than
the carried over value. AASB 136 requires the company to recognize such impairment
Impairment of assets_2
REVERSAL OF IMPAIRMENT OF GOODWILL
2
losses along with the timing of the loss and also requires proper disclosure of the above
in the financial reports.
In a case where carrying amount is more than the recovery amount than it is said
that an impairment loss has occurred. This is higher than assets ‘s fair value minus the
selling cost and the value which is in use (Kuzmina. and Kozlovska 2012). As per the
paragraph 59 of the standard, if the recoverable value of an assets is less than its
carrying value then carrying value will be minimized to that value as the recoverable
amount. The method of estimating and calculating may differ from organization to
organization. The standard also states that the impaired loss is to be realized as soon it
is recognized with exceptions that other standards apply or the asset has been
revalued. The standard is also very useful in analyzing the revaluation model of AASB
116.
The methods which are used in the impairments of assets are the
revaluation model and the cost model. As per the cost model, when an impaired asset is
recorded on the cost basis than the same should be recorded in the profit and loss in
terms as soon as possible. Therefore it is clear that the same loss should be recorded in
the income statement as an expense for that particular organization. As per Paragraph
60 of AASB 136, revaluation method is considered when impairment is done for assets
like plant and machinery, equipment at a revalued amount than such a loss is treated
similar to that of a decrease in revaluation. In case of revaluation model, if the
impairment loss is taken as an expense and recorded in the profit and loss account than
the reversal will be posted in the credit side of the profit and loss account which cancel
out the situation and reversal will be done. For example, an assets which has a carrying
Impairment of assets_3

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