Advance Financial Accounting: Impairment and Lease Accounting

This report provides a comprehensive analysis of advance financial accounting, focusing on impairment testing of assets, specifically goodwill, and lease accounting practices. The report examines the impairment testing of assets for Fleetwood Corporation Ltd, addressing impairment expenses, k...Read More

Running head: ADVANCE FINANCIAL ACCOUNTING
Advance Financial Accounting
Name of the Student
Name of the University
Authors Note
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Table of Contents
Assessment task Part A:.............................................................................................................2
Answer to (i):.............................................................................................................................2
Answer to (ii):............................................................................................................................2
Answer to (iii):...........................................................................................................................2
Answer to (iv):...........................................................................................................................3
Answer to (v):............................................................................................................................3
Answer to (vi):...........................................................................................................................3
Answer to (vii):..........................................................................................................................4
Assessment Task Part B:............................................................................................................4
Answer to (i):.............................................................................................................................4
Answer (ii):................................................................................................................................4
Answer to (iii):...........................................................................................................................5
Answer to (iv):...........................................................................................................................5
Answer to (v):............................................................................................................................6
Reference List:...........................................................................................................................7

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Assessment task Part A:
The primary purpose of the report is to place emphasis on the impairment testing of
the asset for Fleetwood Corporation Ltd. The report will additionally address the impairment
expenses incurred during the period with key important assumptions that is used by
Fleetwood corporation in performing the impairment testing.
Answer to (i):
As evident from the current annual report of Fleetwood Corporation Ltd, it is noticed
that the firm for the purpose of impairment has tested Goodwill.
Answer to (ii):
To carry out the impairment testing Fleetwood Corporation has allocated goodwill for
the purpose of impairment in the cash-generating unit that is anticipated to benefit
organization from the synergies of the combination. The cash generating unit of Fleetwood
Corporation Ltd to which the firm has allocated goodwill for impairment is conducted on
annual basis or more constantly when there is an indication that the organization might be
impair (fleetwoodcorporation.com.au 2018). If it is noticed that the recoverable value of the
cash generating unit is lower than the carrying value, then the impairment loss is allocated to
initially to lower the carrying value of the goodwill (Horton 2018). This means that the
impairment loss is allocated to the unit and later to the other assets based on the prorate basis
to the carrying value of each asset in the unit.
Answer to (iii):
During the financial year of 2017, the company recorded the impairment expenditure for
the following

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a. Intangible assets and goodwill: In the financial year of 2017 the company reported an
impairment expenditure stood $10.3 million relating to the impairment of goodwill
and intangible assets in the areas of parts and accessories.
b. Impairment expense on Property, Plant and Equipment: In the financial year of 2016-
17, Fleetwood Corporation Ltd has reported the impairment expenditure on property
plant and equipment for $19,680 (fleetwoodcorporation.com.au 2018).
Answer to (iv):
The key assumptions and estimations that is by Fleetwood in carrying out the
impairment testing is stated below;
a. In ascertaining whether the goodwill is impaired needs an estimation on the value of
the cash generating units to which goodwill is allocated except during the
circumstances where the fair value is determined following the subtraction of cost to
sell the asset (Hoyle, Schaefer and Doupnik 2015). The value that is used in the
computations needs the director’s estimations of the future flow of cash that is
anticipated to originate from the cash generating unit and the appropriate rate of
discount is applied to compute the current value.
Answer to (v):
Under IAS 36 of the Impairment of Assets, it is understood that the asset impairment
is the typical standard and requires a subjective interpretation. The subjective interpretation is
applicable with respect to the managerial requirements and does not restricts the creative
accounting (Huang 2014). As evident from the financial reports of Fleetwood Corporation
Ltd, there was the existence of subjectivity at the time of performing the impairment testing
of goodwill and non-current assets (Hoskin, Fizzell and Cherry 2014). Subjectivity influence
the outcome of the impairment since it is carried out on the discretion of the management in

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deriving the computable value of the recoverable amount when there is no availability of the
current market price.
Answer to (vi):
One of the interesting fact that is found regarding the impairment testing is that the
amount on which the carrying value of the asset or cash generating unit goes past the
recoverable value (Marshall 2016). A better understanding has been gained regarding the
organizations assets following the impairment having the market value of the asset listed on
the balance sheet of the firm. Interestingly assets such as goodwill and long term assets are
generally tested for impairment since the carrying value has long span of time for
impairment.
Answer to (vii):
Fair value can be defined as the framework that requires significant amount of
disclosure associated to the fair value measurement (Macve 2015.). The IASB has used the
fair value tool to improve the disclosure for fair value in such a manner that the users would
be better able to determine the techniques of valuation and inputs that are put into the use to
measure the fair value.
Assessment Task Part B:
Answer to (i):
According to Hemmer and Labro (2016), it is noticed that several organizations using
the US GAAP or IFRS is impacted by the changes in the accounting. Currently, organizations
under the US GAAP or IFRS have commitments and leased assets that amounts
approximately 3.3 trillion and around 80% of the organizations does not reports the leased
assets in the balance sheet since they are treated as operating lease. In order to compensate,
the investors usually considers the estimates that are not consistent, incorrect and

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unparalleled calculations. Hence, it can be stated that previous accounting standards does not
provides the appropriate economic reality.
Answer (ii):
Leasing is considered as the most common source of finance for numerous business
especially in the shipping and airline industry. In the present accounting standards around
85% of the lease is recorded as the operating lease and it is not incorporated in the balance
sheet. Even though it is not recorded in the balance sheet there is no doubt that, the operating
lease results in real liabilities (Kabir, Rahman and Su 2017). During the financial crisis a
large number of retail chains have been bankrupt because they were not able to adjust quickly
in the new reality of the economy. These organizations large value of long term lease
commitments with misleading balance sheet. Consequently, this resulted the lease liabilities
in the off-balance sheet greater than 66 times than the reportable amount of debt. Hence it can
be stated that accounting fails to reflect economic reality.
Answer to (iii):
The argument of chairperson bought forward that the present lease accounting lacks
the comparability (Gale and Larner 2017). Consequently, the airline company leases
numerous airplane, which is different from the competitor and borrows highly to acquire a
large number of lease in spite of their obligations associated to finance may appear similar.
Therefore, there isn’t any level field among these companies.
Answer to (iv):
According to the international accounting standard, it is understood that the new
standard is regarded as controversial (Visvanathan 2017). The reason behind this is that
change is expected to approximately result an effect on most of the listed firms and would not
be regarded prevalent. An important consideration about the unpopularity of accounting

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standard is because of the controversial nature of the standard. The standard might face
warnings associated with the opposing financial impact for changes in the accounting system.
The reportable value of the profit after tax for the organization might be lowered
during the beginning period of lease (Picker et al. 2016). With the incorporation of the new
financial standards the financial ratios of the firm might suffer. Furthermore, the gearing ratio
is anticipated to suffer more with greater value of debt on the balance sheet. Additionally, for
several firms the application of the new accounting standard is considered to be expensive
and might need greater amount both internal and external sources.
Answer to (v):
As per the IASB on evaluating the possible risk prudently, it is understood that risk
and cost can be administered. According to the IASB the IFRS 16 would lead the leasing
industry to be out of the business and lease continuous to remain attractive as the flexible
source of fund. According to the IASB it is not likely that the enhanced visibility of lease
obligations might lead to noteworthy effect in cost related to lending and debt covenants.
There might be cost that are associated with the updating of system for impairment under
IFRS 16 (Visvanathan 2017). As per the IASB the standard aims at increasing the
transparency associated to liabilities which was not stated earlier in the balance sheet until the
users of financial report gains better understanding of the organization. Accordingly, it is
understood that the enhance lease visibility would result in noteworthy effect on cost
associated with lending and debt covenants.

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Reference List:
Fleetwoodcorporation.com.au. (2018). Fleetwood Corporation Limited - Home. [online]
Available at: http://www.fleetwoodcorporation.com.au/ [Accessed 18 Jan. 2018].
Gale, T.M. and Larner, A.J., 2017. Six-Item Cognitive Impairment Test (6CIT). In Cognitive
Screening Instruments(pp. 241-253). Springer International Publishing.
Hemmer, T. and Labro, E., 2016. Productions and Operations Management & Management
Accounting.
Horton, J., 2018. Advanced Financial Accounting and Reporting: Theory, Practice and
Evidence. Routledge.
Hoskin, R.E., Fizzell, M.R. and Cherry, D.C., 2014. Financial Accounting: a user
perspective. Wiley Global Education.
Hoyle, J.B., Schaefer, T. and Doupnik, T., 2015. Advanced accounting. McGraw Hill.
Huang, Z., 2014. Advanced Financial Accounting.
Kabir, H., Rahman, A.R. and Su, L., 2017. The Association between Goodwill Impairment
Loss and Goodwill Impairment Test-Related Disclosures in Australia.
Macve, R., 2015. A Conceptual Framework for Financial Accounting and Reporting: Vision,
Tool, Or Threat?. Routledge.
Marshall, D., 2016. Accounting: What the numbers mean. McGraw-Hill Higher Education.
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.
Visvanathan, G., 2017. Intangible assets on the balance sheet and audit fees. International
Journal of Disclosure and Governance, 14(3), pp.241-250.

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