ACCG923 - Analysis of AASB 136 Impairment of Assets for Ansell Limited

This report provides a detailed analysis of AASB 136, focusing on the impairment of assets and its application to Ansell Limited, a company listed on the ASX. It examines the objectives of AASB 136, including the procedures for ensuring assets are recorded at their recoverable amount, and discusses the impairment and amortization of intangible assets. The report identifies indicators of impairment, relevant disclosures in financial reports, and major complexities involved in impairment assessments. It also covers the disclosure requirements for impairment as per AASB 136, the main objectives of General Purpose Financial Reporting (GPFR), and offers recommendations for improved financial reporting. The analysis includes specific examples from Ansell Limited's 2017 annual report, highlighting how the company addresses impairment of trade receivables and intangible assets, and meets the disclosure requirements of AASB 136.

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ACCOUNTING STATEMENT ANALYSIS

Impairment of Assets
Executive summary
When it comes to the financial report of a listed entity there are various regulations that need
to be followed. To ensure that the valuation of the assets are in conformity with the procedure
and is properly disclosed in the annual report, the relevant treatment needs to be properly
scrutinized. To ensure this, Ansell Limited that is listed on the ASX and is a constituent of
ASX 300 is selected. Further, AASB 136 that is impairment of assets is studied in the light of
Ansell Limited.
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Impairment of Assets
Contents
Objectives of AASB 136- Impairment of Assets.....................................................................................4
 Impairment and Amortisation of Intangible Assets.......................................................................5
 Indicators of impairment...............................................................................................................5
 Relevant disclosures in the financial report...................................................................................6
Major complexities and key issues involved in the impairment............................................................6
Disclosure requirement for Impairment as per AASB 136.....................................................................7
Main objectives of the General Purpose Financial Reporting (GPFR)....................................................8
Recommendation..................................................................................................................................8
References.............................................................................................................................................9
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Impairment of Assets
Objectives of AASB 136- Impairment of Assets
This standard was made by Australian Accounting Standard Board under section 334 of
Corporation Act 2001 on 15th July 2004. The objective of this standard is to deal with the
procedures used by an organization to ensure that assets are recorded at their recoverable
amount only. This standard prescribes that in case the carrying amount is more than the
recoverable amount, then in such a case, the difference between the carrying amount and the
recoverable or saleable amount is termed as an impairment loss. In case the carrying amount
is lesser than the recoverable amount then in such case the impairment losses shall be
reversed (Ansell, 2017). The company shall disclose entire impairment information in its
annual reports.
Assets that were impaired- the following assets were impaired or impairment reversal was
done during the year ended 30th June 2017:
i. Trade Receivables- in the company Ansell Limited, trade receivables are
booked at an amount due from them. Assets which are past their due date are
considered as comparable. The credit period ranges from 30-60 days depending
upon the policies with different customers. Trade receivables are booked as per
the value of the invoice (Ansell, 2017). In the current year, there was an
impairment reversal in trade receivables amounting to $ 0.6m. This means that the
assets previously treated as bad debts that were written off earlier now became
recoverable so the impairment loss was required to be reversed.
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Impairment of Assets
(Ansell, 2017)
 Impairment and Amortisation of Intangible Assets.
The intangible assets like Goodwill are not amortized because it is difficult to judge the finite
useful life of the asset. It may also be patented or not patented in the name of the company.
Brand names may be amortized over a period of time but this requires a careful judgment of
the life of the asset. This amortization of brand, development costs and other intangible assets
are to be booked on the Income Statement. However, this is restricted to assets having finite
lives only (Ansell, 2017).
 Indicators of impairment
Intangible assets having an indefinite life are tested for impairment at the year-end. These
assets are checked for any impairment loss as a part of the year-end policy. In case any of
such indication is available, the asset is tested and its recoverable value is compared with its
carrying cost (Peirson et. al, 2015). The recoverable value of such asset is determined as fair
value less cost to be incurred for its sale. An impairment loss in regard to the goodwill or any
other indefinite intangible asset is not reversed by the company because it is unlikely that any
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Impairment of Assets
increase in the recoverable value can be linked with any event occurring after the impairment
loss has been booked (Ansell, 2017).
 Relevant disclosures in the financial report
The company Ansell limited has done the relevant disclosures wherever the impairment of
assets has taken place. Also, the auditors have disclosed their concerns with regard to any
future impairment of intangible assets in the key audit matters (Ansell, 2017).
Major complexities and key issues involved in the impairment
As impairment or amortization is a major hit on the financial position of the company, it has
to be adequately backed up by facts and figures or any material event which takes place at the
year-end. Any impairment loss can also be recognized before the year-end provided it is
backed up by the material event and approved by the management. However, it is more
appropriate that impairment is tested for the assets at the year-end but in the view of
continuity, it should be tested at the same time every year. At the time of impairment, the
cash flows, the growth rate, discount rate and the financial statements should be prepared and
approved by the management (Kieso et. al, 2010). So this involves a careful assessment of the
financial statements and the significant events surrounding the company.
The judgment as to impairment of any asset requires the judgment of finite life of an asset
and its utility to the company. It becomes all the more complex when the life of an intangible
asset has to be judged (Shoaf & Zaldivar, 2005). Also, a cost incurred for attaining or
building an intangible asset is difficult to determine because sometimes the intangible assets
are self-constructed and there is hardly any cost attached to the acquisition of intangible
assets other than patenting costs.
The company has to extensively disclose all the material events, rates applicable, assumptions
made regarding the impairment of the assets. Impairment can be positive or negative
depending upon the carrying value and the recoverable value of the asset. But in both the
cases, the management has to disclose the information with underlying assumptions and
documents with the company shareholders (McKaig, 2011). So the impairment event is a
complex issue which has to be critically analyzed in the light of various events as it is an
event which affects the going concern of the company.
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Impairment of Assets
Disclosure requirement for Impairment as per AASB 136
As per the provisions of AASB 136 the company needs to extensively disclose all the matters
related to the impairment of assets. The company Ansell Ltd. has in the following ways
disclosed the impairment information in relevance with the AASB 136:
i. Recognising of impairment losses and reversal of impairment losses in books of
accounts- the company has an impairment reversal in trade receivables which it has
disclosed in its annexure to Income Statement. Also, the provision for allowances has been
disclosed by the company in its financial statements.
ii. Amount of impairment losses and reversal of impairment losses on the revalued assets
have been duly disclosed by the company in its annual reporting.
iii. As per the disclosure requirements of AASB 136, the disclosure of impairment must
be different for different classes of assets. The company has given different disclosures for
non-current assets impaired during the year and for the intangible assets impaired or
amortised during the year (Hamilton et. al, 2011).
iv. As per the disclosure requirements of AASB 136, the assets should be defined with
regard to its finite and infinite lives. The company Ansell Limited has in its annual report
and financial reports notes to account disclosed the recognition and measurement of its
tangible and intangible assets (Hamilton et. al, 2011).
v. The other disclosure requirements are the discount rate, growth rate, etc which have
been duly defined in the annual report of the company which is clear from the following
image
Hence, it can be said that the company Ansell Limited has incorporated its disclosure
requirements for the year ending reports. The company is very particular in fulfilling its
disclosure requirements
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Impairment of Assets
Main objectives of the General Purpose Financial Reporting (GPFR)
It focuses on providing the relevant information to the users of financial statements as the
users cannot amend or organize the information given in the financial statements according to
their needs. Such users include banks, taxation authorities, shareholders, etc. The GPFR also
help the management in defining their responsibility and accountability with regard to the
presentation of financial statements to its users (Deegan, 2011). The GPFR should disclose
the relevant information regarding profitability of the company, its correct financial position,
financing and investing activities during the year, the compliances required and compliances
done during the year, etc.
The disclosures did by the company Ansell Ltd. in the year 2017 with regard to the
impairment of assets in the annual reports are compatible with the objectives of the General
Purpose Financial Reporting. This can be seen from the fact that the company has disclosed
all the impairment losses and reversal of impairment losses during the year in its annual
report. Not only this, but the company has also clearly explained and disclosed the method of
calculation and recognition of such impairment losses in the financial statements (Kieso et.
al, 2010). The company has defined the treatment of all kinds of assets, the meanings of
impairment losses for each class of assets of the company, the discount rates, the growth rates
used by the company for the purpose and all the self-explanatory information relevant to the
impairment.
Recommendation
The above information and disclosures are very helpful for the users of financial statements
such as investors, financial institutions, shareholders, taxation authorities etc. as the
company’s correct financial position gets disclosed in the annual report. The same is also
required for the valuation of assets of the company. Valuation of assets is required for various
purposes and reporting of the company. In case the rating of the company is to be measured
then also the valuation of the assets is required. Hence, the company is efficient in meeting
out its requirement of disclosure of relevant information.
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Impairment of Assets
References
Ansell Limited. (2017) Ansell Limited annual report and accounts 2017 [online]. Avilabnle
from http://www.ansell.com/en/About/Media-Center/Press-Releases/Ansell-Limited-
Announces-2017-Full-Year-Results.aspx [Accessed 29 April 2018]
Deegan, C. M. (2011) In Financial accounting theory. North Ryde, N.S.W: McGraw-Hill
Hamilton, K., Hyland, B. and Dodd, J. L. (2011) Impairment: IASB-FASB Comparison.
Drake Management Review. [online]. 1(1), p. 55–67. Available from:
https://pdfs.semanticscholar.org/8d8f/5fd070193d6fa52e79d1dee9cc6632159d8a.pdf
[Accessed 29 April 2018]
Kieso, D., Weygandt, J., Warfield, T., Young, N and Wiecek, I . (2010) Intermediate
accounting, Toronto: John Wiley & Sons Canada.
Kieso, D., Weygandt, J., Warfield, T; Young, N. and Wiecek, I . (2010) Intermediate
accounting. Toronto: John Wiley & Sons Canada.
McKaig, T 2011, Understanding Impairment Accounting: What It Is and When It Is Used.
Available from: http://www.financepractitioner.com/accountancy-checklists/understanding-
impairment-accounting-what-it-is-and-when-it-is-used [Accessed 29 April 2018]
Parrino, R, Kidwell, D. and Bates, T. (2012) Fundamentals of corporate finance. Hoboken,
NJ: Wiley
Peirson, G, Brown, R., Easton, S, Howard, P. and Pinder, S. (2015) Business Finance, 12th
ed. North Ryde: McGraw-Hill Australia.
Shoaf, V. and Zaldivar, I.P. (2005) Goodwill impairment: convergence not yet achieved.
Available from: http://www.freepatentsonline.com/article/Review-Business/133756140.html
[Accessed 29 April 2018]
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