Corporate Accounting and Reporting 2: An Analysis of Asset Impairment

This report provides a detailed analysis of corporate accounting and reporting, focusing on the concept of asset impairment. It explains how a decrease in an asset's net carrying amount can lead to unrevealed cash flows, and how impairment occurs when an asset's ability to generate benefits declines. The report emphasizes the importance of recognizing influential dynamics like market changes and obsolescence when assessing impairment. It outlines the process of determining an asset's fair market price, comparing it to its carrying value, and recognizing impairment loss if the fair market value is lower. The report references key accounting standards such as AASB 136 and IAS 16, explaining how impairment loss is measured, recognized in the income statement, and treated in relation to revaluation surplus. The report also provides a practical example using XYZ, illustrating the accounting treatment of impairment loss, including the offset against revaluation surplus and the adjustment of depreciation expense in subsequent years. Finally, the report includes a list of relevant references.

Running head: CORPORATE ACCOUNTING AND REPORTING
Corporate Accounting and Reporting
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1CORPORATE ACCOUNTING AND REPORTING
Table of Contents
Part A:.............................................................................................................................. 2
Part B:.............................................................................................................................. 5
References:......................................................................................................................7

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Part A:
Certain decrease in an asset’s net carrying amount leads to development of
upcoming unrevealed cash flows. The net carrying value might be gathered through
reducing depreciation from the asset acquisition expenses. Impairment takes place
while a company abandons or sells its asset because of drop in its capability to attain
advantages (Abdo 2016). For this reason, it is not required to consider impairment loss
as loss within a company’s profit and loss account. In computing the impairment loss,
certain influential dynamics leading to impairment of asset must be recognized. This
influential dynamic encompass changes in market situations, employee turnover, new
regulations or obsolescence associated with asset. Relied on the same, an asset’s fair
market price must be estimated and this can be considered as value that can be
attained once it is sold within the market (Carvalho, Rodrigues and Ferreira 2016). This
asset is to be realized as recoverable value or as estimated generation of future cash
flows in case the operation is carried out.
The fair market price must be compared with carrying value of assets mentioned
within the financial reports of the company after allocating the same. In case the fair
market value remains below the asset’s holding cost, this signifies the asset impairment.
In case of the impairment, results attained with support of the impairment might be
efficient from the perspective of the company (Che Azmi and English 2016). This is the
cause for which the need for investment increases. For measuring the impairment loss,
certain requirements are needed to be followed. Definite recoverable amount must be
decreased in case it is less in comparison to the carrying value. Secondly, impairment
loss is attained loss that is experienced through attaining variation between the

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decrease in final carrying value associated with recoverable value (D’Arcy and Tarca
2016). Finally the income loss realization is carried out in the income statement till the
revaluation reduction treatment is prescribed within a different accounting standard.
This might take place, in case there is an upward asset revaluation as per “ IAS 16-
Property, Plant andEquipment” in the previous years. This is in consideration to
allocating the revaluation, right impairment and revaluation surplus (Detzen, Stork
genannt Wersborg and Zülch 2016).
In consideration to “Paragraphs 59-64 of AASB 136”, it is likely to recognise the
needs for measuring impairment loss for different assets. “Paragraphs 59-64 of AASB
136” indicates that the carrying amount must be decreased to the recoverable amount,
in case the recoverable amount remains less in comparison to the carrying value. Such
reduction is considered as impairment loss. As per “Paragraph 60 of AASB 136”,
impairment loss recognition might be within loss or profit till the assets carrying value is
conducted at re-valued amount. This is in account to other standard like the revaluation
model, as mentioned within AASB 116 (Saastamoinen et al.2016). Certain impairment
loss is associated with re-valued amount with regard to re-valued asset that might be
deemed as revaluation derease in accordance to other standard.
“Paragraph 61 of AASB 136” indicates that impairment loss linked with assets
that not re-valued are realised within the income statement. Conversely, certain
impairment loss recognition is conducted to an extent that such loss does not go
beyond the revaluation surplus amount for an identical asset. For this reason, the
revaluation surplus is decreased because of the impairment loss on re-valued asset. As
per “Paragraph 61(1) of AASB 136”, re-valued asset based impairment loss is

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recognised within the income statement for the non-profit organizations. Conversely,
impairment loss recognition is conducted within the income statement for the non-profit
organizations (Tan et al.2016). Conversely, the impairment loss recognition is
conducted at an extent that such loss does go beyond the revaluation surplus amount
for the asset classes. Moreover such revaluation surplus is decreased because of
impairment loss on the asset class.
“Paragraph 62 of AASB 136” indicates that an anticipated amount of impairment
loss is increased in comparison to the carrying amount of asset to which it depends. In
such situation a liability might be realised in case other standard deals with the same.
As per the “Paragraph 63 of AASB 136”, certain adjustments are conducted in account
to depreciation or amortization expense for an asset for assigning the revised carrying
amount. This is subtracted from the residual amount in case realization of impairment
loss. This is to be carried out in realization to amortized or depreciation expense for an
asset in assigning the revised carrying amount. This is subtracted from residual amount
in case impairment loss is realised (Tan et al. 2016). This is to be carried out in a
systematic manner over the rest useful life. Lastly, in accordance with “Paragraph 64 of
AASB 136”, realization of impairment loss making sure that the deferred tax assets or
liabilities is needed in adherence to AASB 112. This is through contrasting the tax
assets or liabilities and accordingly the revised carrying amount is needed to get
complied with AASB 112. This might be attained by contrasting revised carrying amount
of asset along with tax base.
For instance, XYZ has a machine that $160,000 carrying amount at the
beginning of the financial year. The asset was previously re-valued along with

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revaluation surplus account having balance of $10,000. During the year, one employee
caused damage to the machine due to which impairment asset is conducted. The
anticipated recoverable machine value is $120,000 and the total incurred depreciation
amount for such asset is $16,000(Tan et al. 2016).
$10,000 might be deemed as offset in comparison to the surplus revaluation of
the asset. Moreover, it is reported as negative figure within the comprehensive income
statement for the year, rather than the impairment loss. The leftover amount of $30,000
can be written off to be expenditure over the year other than the impairment loss.
Moreover, such leftover amount might be written off as expenditure within the year
along with an asset carrying value that can get aligned with the recoverable value that is
$120,000 (Linnenluecke et al.2015). In the upcoming year, certain depreciation expense
might rely on carrying value of new asset that is $120,000 subtracted from anticipated
residual amount. For this reason, the depreciation cost associated with impaired asset
might be adjusted in the upcoming years.
Part B:

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References:
Abdo, H., 2016. Accounting for Extractive Industries: Has IFRS 6 Harmonised
Accounting Practices by Extractive Industries?. Australian Accounting Review, 26(4),
pp.346-359.
Carvalho, C., Rodrigues, A.M. and Ferreira, C., 2016. Goodwill and Mandatory
Disclosure Compliance: A Critical Review of the Literature. Australian Accounting
Review, 26(4), pp.376-389.
Castellano, N.G., Corsi, K. and Del Gobbo, R., 2015. Goodwill Disclosure in Europe.
Profiles of disclosing companies. Eastern European Business and Economics
Journal, 1(2), pp.32-65.
Che Azmi, A. and English, L.M., 2016. IFRS Disclosure Compliance in Malaysia:
Insights from a Small‐sample Analytical Study. Australian Accounting Review.
D’Arcy, A. and Tarca, A., 2016. Reviewing goodwill accounting research: What do we
really know about IFRS 3 and IAS 36 implementation effects. Working paper.
Detzen, D., Stork genannt Wersborg, T. and Zülch, H., 2016. Impairment of Goodwill
and Deferred Taxes Under IFRS. Australian Accounting Review, 26(3), pp.301-311.
Linnenluecke, M.K., Birt, J., Lyon, J. and Sidhu, B.K., 2015. Planetary boundaries:
implications for asset impairment. Accounting & Finance, 55(4), pp.911-929.

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Saastamoinen, J., Ojala, H., Pajunen, K. and Troberg, P., 2016. Analyst Characteristics
and the Level of Critical Perception of Goodwill Accounting. Australian Accounting
Review.
Tan, A., Chatterjee, B., Wise, V. and Hossain, M., 2016. An investigation into the
potential adoption of international financial reporting standards in the United States:
Implications and implementation. Australian Accounting Review, 26(1), pp.45-65.