Corporate Accounting and Reporting: Measurement of Impairment Loss

This report delves into the critical aspects of corporate accounting and reporting, specifically focusing on the measurement and recognition of impairment loss for assets. The report begins by defining corporate accounting and its role in financial statement analysis. It then explores the concept of impairment loss, explaining its occurrence when asset values decline and the need for testing. The report details the two methods for measuring impairment losses, including the recoverability test, and provides journal entries for various scenarios, such as assets carried at cost, asset decreases, and revaluation of assets. Furthermore, the report analyzes a practical example, allocating impairment losses across different assets within a cash-generating unit (CGU). The conclusion emphasizes the significance of understanding impairment loss in financial analysis and reporting, summarizing the key concepts and accounting treatments discussed throughout the report. The report also includes a table that illustrates the allocation of impairment loss across various assets within a CGU, providing a clear and practical application of the concepts discussed.

Corporate Accounting
and Reporting

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
PART A...........................................................................................................................................1
Measurement and recognition of impairment loss.................................................................1
PART B............................................................................................................................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5
..........................................................................................................................................................5

INTRODUCTION
Corporate accounting is the stem of accounting that deals with the companies financial
statements and formulation of final accounts. Such as cash flow statements analysis and
interpretation of results and certain specific activities are undertaken which are associated with
amalgamation and preparation of consolidated statements (Zadek, Evans and Pruzan, 2013). The
project essay is about entries related with impairment loss for an assets and other property..
PART A
Measurement and recognition of impairment loss
In corporate accounting, it is the drop-off in value of possession net amount that increase
the future unrevealed cash flows. It occurs at the time when a company sells or abandons any
property or assets that is of no use for the company any more. An impairment loss can be
identified gradually in income statements, unless the assets are carried at measurable amount in
relation to the another standards. In each organization, a situation comes when the present value
of assets gets reduced. So, the business need to test for impairment (Yallapragada, Roe and
Toma, 2012). It is used to record and compact assets for the revaluation. At the time assets are
revalued, market value gets fluctuated, which is periodical. On an annual basis the goodwill of
the company must be revalued. In case of Individual assets there are some requirement which
are needed to be followed by the company. Such as:
 When the redeemable value of an assets is less than the carried amount, the carrying cost
must be decreased to the redeemable amount.
 The difference amount among the decrease form the past carry amount to the redeemable
amount is considered as impairment loss.
 Asset was revalued to an incresed amount in accordance with AASB.
If a company has faced a impairment losses it should be debited to “loss on alteration” and
credited to the assets. The major impact seen over the income statements is that decrease in
income amount but there is also a cut down in total assets in the balance sheet.
Impairment measurement:
In every organization assets are considered to be the most crucial element, in this if the
assets suffers a loss in their value than it is necessary to calculate the total damage which is done
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by testing to measure and recognise the value of total losses incurred during tha year. There are
two method to measure such losses:
 The company need to preform a recoverability test in order to determine, if an
impairment loss has occurred. It also indicate that, whether the future value of the assets
unaccounted cash flow is minimum than the book value of the assets.
 Impairment losses can be identified and measure through calculating difference in book
value and market value of the assets (Impairment: Recognition & Measurement for IAS
36, 2016).
The are some journal entries which are recorded in case of impairment loss. Those are
mentioned underneath:
If assets are carried at cost: Under this situation an assets would not be depreciated and
for this entry is made:
DR Impairment written down (Expenses) ….... x
CR Accumulated impairment losses to the assets …...x
In case if assets get decrease: A company is write off the amount of assets that has been
decreased, concern businesses entity would not required to write off any depreciable charges on
the property (Kieso, Weyg and Warfield, 2010). Another things that need to be considered is that
there is no need to create any special impairment account in this situation. In case company
credit an account with the name accumulated depreciation and impairment losses. They need to
pass a simple journal entry regarding this:
DR Impairment written down ….................... x
CR Accumulated depreciation and impairment losses ….........................x
While, recording this entry into books of account, company need to consider the value of plant
and machinery, which should be recorded at depreciated value in the income statements.
In case of revaluation of assets: In this situation impairment loss is below the
revaluation surplus. In that context a journal entry is recorded for those assets in which losses are
minimum than early losses.
Revaluation a/c Dr...................................x
Tax liability a/c Dr.....................................x
To Impairment losses a/c......................x
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In situation with the impairment loss is higher than revaluation surplus: In this
particular condition, treatment of decreased assets in which value is higher than the past
assessment values. These are follow:
DR Impairment written Down …........................x
DR Deferred Tax assets …...........................x
DR Revaluation Surplus ….............................x
DR Deferred Tax liability …......................x
CR Total Assets …..................................... x
Depreciable assets: In case, impairment losses are more than past revaluation increase in assets,
in that case, accountant need to pass a journal entry as:
 Write off depreciation:
DR Accumulated Depreciation ….........................x
CR Deferred Tax liability ….....................................x
 Recognised total losses in which the devaluation is less than the past increments.
DR Revaluation Surplus …..................................x
DR Deferred Tax liability ….................................x
CR Total Assets ….........................................x
If the company gets an idea that those assets which are having remaining life, amortise
techniques or the redeemable value should be reviewed and adjusted (Kimmel, Weygandt and
Kieso, 2010). This case prohibits the revert of losses for the reputation of the company. CGU
must be open with those assets which are to be known systematically from time after time, unless
any changes are justified to it. The carry value of CGU would be established on the basis of
consistent in that manner in which the recover amount is determined (Bevis, 2013).
PART B
Particular CA Pro-rata Impairment loss allocated Adjusted CA
Patent 65000 65/96*6000 4062.5 60937.5
building 15000 15/96*6000 937.5 14062.5
Fittings 9000 9/96*6000 562.5 8437.5
Inventory 4000 4/96*6000 250 3750
Goodwill 3000 3/96*6000 3000
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Total CA 96000
As the FV-CD of the patent is 65000, the maximum impairment loss that can be allocated
to the patent is limited to 2191. The remaining amount 4062.5-2191= 1871.5 must be allocated
across the other assets in the CGU.
Particular
Adjusted
CA Pro-rata
Impairment
loss allocated
Total impairment loss
allocated
Patent 1871.5
building 14062.5 14062.5/26250*1871.5
1002.5892857
143 13059.9107142857
Fittings 8437.5 8437.5/26250*1871.5
601.55357142
86 7835.9464285714
Inventory 3750 3750/26250*1871.5
267.35714285
71 3482.6428571429
Total CA 26250
Journal entry in case of Impairment losses:
Impairment loss A/c DR.........................$ 9000
Goodwill A/c CR...............................$ 3000
Building A/c CR.................................$ 2070.53
fixtures A/c CR …..............................$ 1130.52
Inventory A/c CR..................................$ 608.2
Patent A/c CR …....................................$ 2191
(Being losses are adjusted on the other assets)
CONCLUSION
From the project report it has been articulated that corporate accounting and reporting is
the major issue which is required to be considered by the company. It is required to undertake
financial analysis of a company which are facing problem of impairment of losses. This project
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essay has been summarised with all the recognised and measurement which are related with
individual assets are discussed under it. There are various entries which are needed to be passed
in relation to impairment of losses.
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REFERENCES
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