Corporate Accounting and Reporting

This report delves into the accounting treatment of impairment losses, specifically focusing on the Australian Accounting Standard 136 (AASB 136). It explains the standard's purpose, applicability to various assets (excluding inventories, investment properties, etc.), and the process of identifying and measuring impairment losses for both individual assets and cash-generating units. The report details the calculation of recoverable amount (higher of fair value less costs to sell and value in use), the recognition of impairment losses in the profit and loss statement, and the subsequent adjustments to depreciation. It also clarifies the treatment of impairment losses for cash-generating units, including the allocation of losses to goodwill and other assets, and the conditions for reversal of impairment losses. Finally, the report outlines the disclosure requirements of AASB 136.

RUNNING HEAD: CORPORATE ACCOUNTING AND REPORTING
CORPORATE ACCOUNTING AND REPORTING

CORPORATE ACCOUNTING AND REPORTING 1
Contents
IMPAIRMENT LOSS OF CASH GENERATING UNITS EXCLUDING GOODWILL..........................................2
REFERENCES..........................................................................................................................................6

CORPORATE ACCOUNTING AND REPORTING 2
IMPAIRMENT LOSS OF CASH GENERATING UNITS
EXCLUDING GOODWILL
Accounting of Impairment of assets come under the purview of Accounting Standard
136 (AASB 136). This accounting standard made under section 334 of the corporations Act
2001.
AASB 136 recognises and measures the impairment loss of non-financial assets those
not covered under in any AASB’s. Further this standard will also specify the methods of
performing impairment tests, timings of conducting indication test as well as combination of
assets under tests. Further AASB 136 also prescribes the method of reporting losses of
impairment in financial reports, reversal conditions of impairment losses and last but not the
least disclosure methods and the requirements (AASB-136, 2007).
The main purpose of this standard is to assure that entities cannot carry assets more
than the recoverable amount. Entities are required to impaired assets and charge impairment
loss in the books of accounts. It includes an exception which states that if the carrying
amount is more than the amount to get recovered through use or sale of asset, then in that
case entities can carry assets more than the recoverable amount in their books (Paragraph 1).
This standard is applicable to those entities which prepares books of accounts in
accordance with Corporation Act 2001 (AASB-136, 2007).
This standard applicable to non-financial assets such as buildings, furniture, fixtures,
subsidiaries, associates, joint ventures, equipment, goodwill, machineries etc. (AASB-136,
2007).
Further Paragraph 2 of AASB 136 states that the applicability of this standard does
not extend to book impairment loss of inventories, construction contracts assets, deferred tax

CORPORATE ACCOUNTING AND REPORTING 3
assets, investment property valuing under AASB 140 and other assets which cover its
valuation under AASB 119, AASB 139, AASB 5 and AASB 141 etc. (AASB-136, 2007).
According to paragraph 9 of AASB 136, every entity shall assess at each reporting
date the indication of asset impairment and that indication can be gathered either through
outer sources or inner sources of information. If any sort of indication exists, the recoverable
amount will be estimated by the entity for that particular asset. Apart from indication, entities
can also test for impairment to those intangible assets having infinite life plus those which are
not available for use and for goodwill also on a yearly basis by comparing recoverable
amount with the carrying amount (AASB-136, 2007).
Now the calculation of recoverable amount is stated in paragraph 19-57 of AASB
136 which states that recoverable amount of asset or cash generating unit is higher of the
two: fair value minus cost to sell and the value in use (AASB-136, 2007).
where,
Paragraph 25-29 of AASB 136 describes Fair value minus cost to sell. It means the
value obtainable at the arm’s length price at the time of sale of cash generating units or assets
minus disposal costs if any (AASB-136, 2007).
Value in use means proposed Present value of cash flows derived from cash
generating units or assets.
If in case any amount (that is either value in use or fair value less cost to sell) is
higher than carrying amount of assets or cash generating units then the other amount does not
need to calculate because assets or cash generating units does not gets impaired.

CORPORATE ACCOUNTING AND REPORTING 4
If it is not possible to estimate recoverable amount, then in such circumstances AASB
136 requires the arbitrary allocation of impairment losses to the assets or cash generating
units excluding goodwill (AASB-136, 2007).
After the above estimation, asset is impaired and the impairment loss is computed.
The formula for Impairment loss = carrying amount less recoverable amount
(AASB-136, 2007)
where,
Carrying amount means the net amount of assets or cash generating units after
deduction of accumulated depreciation and accumulated impairment loss amount.
According to Paragraph 59-64 of AASB 136, measurement and the recognition of
impairment loss for individual assets is stated whereas under paragraph 65-108 of AASB
136, measurement and the recognition of impairment loss for the cash generating units or
goodwill it is described (AASB-136, 2007).
Paragraph 60 of AASB 136 Impairment loss must be recognised instantly in the
statement of profit and loss account for non-revalued assets (AASB-136, 2007).
After the recognition of impairment loss, the depreciation amount will be modified as per the
revised carrying amount of assets.
Cash Generating Units
According to Paragraph 6 of AASB 136, Cash generating unit means group of assets
that produces cash inflows which are not related to the cash inflows of other assets.
Cash generating units must be regularly identified for the same assets unless otherwise
specified.

CORPORATE ACCOUNTING AND REPORTING 5
If after conducting test indication of impairment, recoverable amount shall be
computed for the cash generating units only if recoverable amount of individual assets cannot
be estimated.
Recoverable amount for cash generating units shall be calculated same as per the
calculation of individual assets.
Paragraph 104 of AASB 136 describes the impairment loss for a cash generating
units. As discussed above, impairment loss of cash generating units shall be recognised only
when carrying amount of group of assets are more than recoverable amount of group of assets
(AASB-136, 2007).
For cash generating units, amount of impairment loss shall be apportioned in the
following order to reduce the carrying amount:
 Firstly, reduce the goodwill carrying amount which was earlier allocated to the cash
generating units, and
 Secondly, reduce the carrying amount of other assets in a group on the basis of pro-
rata.
Reversal of an impairment loss for a Cash generating units is described under Paragraph
122-123 of AASB 136. Reversal amount of impairment loss shall be apportioned in the same
ratio of allocation of impairment loss (AASB-136, 2007).
Disclosure requirements of this standard:
This standard discloses following items:
 Amount of impairment loss
 Reversal of Amount of impairment loss

CORPORATE ACCOUNTING AND REPORTING 6
REFERENCES
AASB 136. (2007). Impairment of assets. retrieved on 18 September 2017 from
http://www.aasb.gov.au/admin/file/content105/c9/AASB136_07-04_COMPapr07_07-07.pdf.