Financial Accounting Report: Impairment and Lease Standards
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This report delves into the intricacies of advanced financial accounting, focusing on impairment and lease accounting. It begins by analyzing the impairment of assets, including inventory, goodwill, and receivables, referencing Hills Industry Limited's annual report. The report details the accounting provisions for impairment, including recoverable amounts, write-downs, and the treatment of goodwill. It also explores key assumptions made by companies in impairment testing. The second part of the report examines lease accounting, discussing the impact of the previous standards and the introduction of IFRS 16. It highlights the issues with off-balance sheet liabilities and the changes that IFRS 16 will bring to financial reporting, affecting how companies account for operating leases and the allocation of capital. The report concludes by emphasizing the importance of fair value measurement and the benefits of the new standards for investors and management. References from the annual report and other academic sources are included.
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TABLE OF CONTENTS
Question 1........................................................................................................................................3
Part A...........................................................................................................................................3
Part B...........................................................................................................................................3
Part C...........................................................................................................................................4
Part D...........................................................................................................................................4
Part E...........................................................................................................................................4
Part F............................................................................................................................................4
Part G...........................................................................................................................................5
Part H...........................................................................................................................................5
Question 2........................................................................................................................................5
Part A...........................................................................................................................................5
Part B...........................................................................................................................................6
Part C...........................................................................................................................................6
Part D...........................................................................................................................................6
Part E...........................................................................................................................................6
References........................................................................................................................................8
Question 1........................................................................................................................................3
Part A...........................................................................................................................................3
Part B...........................................................................................................................................3
Part C...........................................................................................................................................4
Part D...........................................................................................................................................4
Part E...........................................................................................................................................4
Part F............................................................................................................................................4
Part G...........................................................................................................................................5
Part H...........................................................................................................................................5
Question 2........................................................................................................................................5
Part A...........................................................................................................................................5
Part B...........................................................................................................................................6
Part C...........................................................................................................................................6
Part D...........................................................................................................................................6
Part E...........................................................................................................................................6
References........................................................................................................................................8

QUESTION 1
Part A
By considering the annual report of Hills industry limited, the impairment assets are inventory,
assets transferred, intangible assets, goodwill, plant, property, equipment and other receivables
(Annual report of Hills Limited, 2017). The further statement shows that goodwill and accounts
receivables were impaired in 2016, but the same transaction is not noticed in 2017, as it is
already on its fair value as per applicable accounting provisions.
The annual report shows that the net loss of the year ended is inclusive of a total expenditure of
$4.395 million regarding inventory’s impairment (including purchased stick on agreeing on a
distribution contract with Tyco during Feb 2015 of amount of $3.461 million and other departure
brands with an amount of $0.934 million) (Annual report of Hills Limited, 2017). Moreover,
unrealised losses are eradicated unless and until the transaction offers proof of assets transfer
impairment. Impairment of intangible assets, receivables and goodwill is stated as non-IFRS
measures which are not subjected to review of the audit.
Part B
For the impairment of assets; the residual values of assets and their useful life are audited and
altered if suitable, at the end of every accounting period. The carrying amount of assets is written
down instantly to its recoverable amount, in case the carrying amount is more than its predicted
recoverable amount. Profits and losses on disposable are identified by making comparisons of
proceeds with the asset’s carrying amount (Huikku, Mouritsen and Silvola, 2017). These are
inclusive of gains or losses. While revaluing assets are sold, it is the policy of Group to do
transferring of amounts comprise in reserves in context with those assets to the proceeds reserve.
In terms of goodwill; the value of an asset held on the purchase of subsidiaries is inclusive of
intangible assets is considered. Goodwill is not considered as amortised. However, it is tested for
impairment on an annual basis or more often when changes in situations show that may be
impaired. Further, it is carried at less cost accumulated impairment losses, Profits and losses on
enterprise disposal contain the goodwill’s carrying in relation with the enterprise being sold
(Chen, Shroff and Zhang, 2014).
Part A
By considering the annual report of Hills industry limited, the impairment assets are inventory,
assets transferred, intangible assets, goodwill, plant, property, equipment and other receivables
(Annual report of Hills Limited, 2017). The further statement shows that goodwill and accounts
receivables were impaired in 2016, but the same transaction is not noticed in 2017, as it is
already on its fair value as per applicable accounting provisions.
The annual report shows that the net loss of the year ended is inclusive of a total expenditure of
$4.395 million regarding inventory’s impairment (including purchased stick on agreeing on a
distribution contract with Tyco during Feb 2015 of amount of $3.461 million and other departure
brands with an amount of $0.934 million) (Annual report of Hills Limited, 2017). Moreover,
unrealised losses are eradicated unless and until the transaction offers proof of assets transfer
impairment. Impairment of intangible assets, receivables and goodwill is stated as non-IFRS
measures which are not subjected to review of the audit.
Part B
For the impairment of assets; the residual values of assets and their useful life are audited and
altered if suitable, at the end of every accounting period. The carrying amount of assets is written
down instantly to its recoverable amount, in case the carrying amount is more than its predicted
recoverable amount. Profits and losses on disposable are identified by making comparisons of
proceeds with the asset’s carrying amount (Huikku, Mouritsen and Silvola, 2017). These are
inclusive of gains or losses. While revaluing assets are sold, it is the policy of Group to do
transferring of amounts comprise in reserves in context with those assets to the proceeds reserve.
In terms of goodwill; the value of an asset held on the purchase of subsidiaries is inclusive of
intangible assets is considered. Goodwill is not considered as amortised. However, it is tested for
impairment on an annual basis or more often when changes in situations show that may be
impaired. Further, it is carried at less cost accumulated impairment losses, Profits and losses on
enterprise disposal contain the goodwill’s carrying in relation with the enterprise being sold
(Chen, Shroff and Zhang, 2014).

Customer relationship, patents, trademarks and brand create a limited useful life and are carried
at the cost-less impairment losses. Further; Trade receivable are realized formerly at their fair
value and consequently are evaluated at amortised costs by make use of less provision and
interest method for impairment (Li, 2015).
It can affect the accounting procedures of Group for its financial assets and liabilities, with a rise
in the impairment provision versus trade receivables estimated as per the AASB 9.
Part C
For recording impairment expenses company applies following provision; in a situation where
recoverable amount of asset is less from the carrying amount of asset, then the carrying amount
is discounted to the amount of recovery of the asset and the discounted amount (impairment loss)
is considered as an expense (Annual report of Hills Limited, 2017). In case the carrying amount
of asset is revalued then the treatment of impairment loss is done as a revaluation reduction by
applying the relevant accounting standards. Ultimately, the overdue amounts are realized in P&L
as the sold goods costs in case of stocks, depreciation and impairment in a situation of plant and
equipment.
Part D
Key assumptions by company:
If a trade receivable wherein an impairment allowance has realised is considered as
uncollectible at a later time and is written-off in opposition to the allowance account.
Goodwill is allocated to the units of cash generation with the intention of impairment
testing (Annual report of Hills Limited, 2017).
Depended on the reduced part default rates, it is believed by the Group that no allowance
of impairment is essential in terms of trade receivables.
The company is not providing preference to early adoption of provisions of AASB 9.
Part E
Impairment testing is generally based on the estimation of asset’s values by reducing estimated
future cash flows by making use of appropriate rates of discounting (Mazzi, Liberatore and
Tsalavoutas, 2016). Given the subjectivity of aspects of impairment estimations, calculations and
at the cost-less impairment losses. Further; Trade receivable are realized formerly at their fair
value and consequently are evaluated at amortised costs by make use of less provision and
interest method for impairment (Li, 2015).
It can affect the accounting procedures of Group for its financial assets and liabilities, with a rise
in the impairment provision versus trade receivables estimated as per the AASB 9.
Part C
For recording impairment expenses company applies following provision; in a situation where
recoverable amount of asset is less from the carrying amount of asset, then the carrying amount
is discounted to the amount of recovery of the asset and the discounted amount (impairment loss)
is considered as an expense (Annual report of Hills Limited, 2017). In case the carrying amount
of asset is revalued then the treatment of impairment loss is done as a revaluation reduction by
applying the relevant accounting standards. Ultimately, the overdue amounts are realized in P&L
as the sold goods costs in case of stocks, depreciation and impairment in a situation of plant and
equipment.
Part D
Key assumptions by company:
If a trade receivable wherein an impairment allowance has realised is considered as
uncollectible at a later time and is written-off in opposition to the allowance account.
Goodwill is allocated to the units of cash generation with the intention of impairment
testing (Annual report of Hills Limited, 2017).
Depended on the reduced part default rates, it is believed by the Group that no allowance
of impairment is essential in terms of trade receivables.
The company is not providing preference to early adoption of provisions of AASB 9.
Part E
Impairment testing is generally based on the estimation of asset’s values by reducing estimated
future cash flows by making use of appropriate rates of discounting (Mazzi, Liberatore and
Tsalavoutas, 2016). Given the subjectivity of aspects of impairment estimations, calculations and
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disclosures regarding uncertainties and assumptions are significant for the users of financial
reporting.
Part F
Based on this study, I had found that understanding meaning of impairment is easy, but its
application is highly complex due to changing provision of accounting standards. For me, the
most surprising aspect regarding this study was that corporate entities are required to update the
value of assets on the basis of fair value measurement concept. This enhances the authenticity of
provided financial information by company (Kabir and Rahman, 2016). Although, this standard
provides prospects of manipulating financial data and comparison of financial figures in terms of
impairment is highly confusing.
Part G
With this study, I have learned that impairment testing tends to ensure that assets of a company
are not carried at greater than their recoverable amount that is, the higher of fair value minus
expense related to disposal of asset and value in use. The exemption of goodwill and some
intangible assist by which a yearly impairment testing is needed, companies are needed to
conduct impairment testing when there is a proof of assets impairment (Kabir, Rahman and Su,
2017). Further the testing might be conducted specifically for the units of cash-generating
wherein an asset does not create cash inflows which are highly not based on those from other
assets.
Part H
Fair value measurement is applicable to IFRS which needs or allows the same or disclosures and
offers a particular IFRS structure of evaluating the fair value and needs disclosures regarding fair
value measurements (McDonough and Shakespeare, 2015). The standards state fair value in the
context of an exit price concept while making use of a 'fair value hierarchy' thereby resulting in a
market-based instead of an entity-specific notion.
QUESTION 2
Part A
The chairperson of the IASB believes that the former accounting standard for leases did ‘not
reflect economic reality because listed companies throughout the world have the leases of approx
reporting.
Part F
Based on this study, I had found that understanding meaning of impairment is easy, but its
application is highly complex due to changing provision of accounting standards. For me, the
most surprising aspect regarding this study was that corporate entities are required to update the
value of assets on the basis of fair value measurement concept. This enhances the authenticity of
provided financial information by company (Kabir and Rahman, 2016). Although, this standard
provides prospects of manipulating financial data and comparison of financial figures in terms of
impairment is highly confusing.
Part G
With this study, I have learned that impairment testing tends to ensure that assets of a company
are not carried at greater than their recoverable amount that is, the higher of fair value minus
expense related to disposal of asset and value in use. The exemption of goodwill and some
intangible assist by which a yearly impairment testing is needed, companies are needed to
conduct impairment testing when there is a proof of assets impairment (Kabir, Rahman and Su,
2017). Further the testing might be conducted specifically for the units of cash-generating
wherein an asset does not create cash inflows which are highly not based on those from other
assets.
Part H
Fair value measurement is applicable to IFRS which needs or allows the same or disclosures and
offers a particular IFRS structure of evaluating the fair value and needs disclosures regarding fair
value measurements (McDonough and Shakespeare, 2015). The standards state fair value in the
context of an exit price concept while making use of a 'fair value hierarchy' thereby resulting in a
market-based instead of an entity-specific notion.
QUESTION 2
Part A
The chairperson of the IASB believes that the former accounting standard for leases did ‘not
reflect economic reality because listed companies throughout the world have the leases of approx

3 trillion Euros, particularly in the sectors like airline, retail and shipping sectors. According to
the accounting requirements, above 85% of such leases are listed as operating leases. Further,
these leases are not recorded on the balance sheet. Indeed, it can be said that the accounting does
not reflect the reality of economy (Ghafoor and Khan, 2017). Apart from the operating leases
which are not recorded on the balance sheet, by considering this aspect it can be said that these
leases can create real liabilities. In the financial crises, few retail chains got bankrupted as they
were not able to amend according to today’s economic reality.
Part B
In accordance with the analysis conducted by IASB, in the situation of some retailers, the total
value of these off-balance sheet debts was up to 66 times more than the value stated under
balance sheet (Weidner, 2016). The reason behind this is they were having considerable long-
period commitments of these debts in their stores but had misleading inclining balance sheets.
They did not state the accurate picture of their balance sheet which resulted in insufficient
comparability. Their significant debt liabilities were consisted of lease obligations due to which
they had 66 times over value.
Part C
Current standards are not suitable for these sectors, as the operating leases are similar to each
other although having the same background leases results in complexity to compare. Further, the
new IFRS 16 being effective by 2019 will have corresponding provisions which are applicable to
all industries (McCall, 2017). This will address such issues; it will lead to considerable changes
in balance sheets of companies. All the operating leases will be realized as assets and liabilities
thereby reflecting the core economics.
Part D
The new standard is likely to impact approximately half of the total listed companies. The
specified change will not become popular with each and every company, the reason behind this
unpopularity is; IFRS will not eliminate leasing industries from business, and the leases will
appeal to best the best financial source (O'Regan, 2015). The IASB consider that it is not likely
that the increased leased obligation visibility will have an effect in context with borrowings and
debts. costs will be engaged in the new system to adopt IFRS 16, and the benefits of the same
will highly compensate the losses.
the accounting requirements, above 85% of such leases are listed as operating leases. Further,
these leases are not recorded on the balance sheet. Indeed, it can be said that the accounting does
not reflect the reality of economy (Ghafoor and Khan, 2017). Apart from the operating leases
which are not recorded on the balance sheet, by considering this aspect it can be said that these
leases can create real liabilities. In the financial crises, few retail chains got bankrupted as they
were not able to amend according to today’s economic reality.
Part B
In accordance with the analysis conducted by IASB, in the situation of some retailers, the total
value of these off-balance sheet debts was up to 66 times more than the value stated under
balance sheet (Weidner, 2016). The reason behind this is they were having considerable long-
period commitments of these debts in their stores but had misleading inclining balance sheets.
They did not state the accurate picture of their balance sheet which resulted in insufficient
comparability. Their significant debt liabilities were consisted of lease obligations due to which
they had 66 times over value.
Part C
Current standards are not suitable for these sectors, as the operating leases are similar to each
other although having the same background leases results in complexity to compare. Further, the
new IFRS 16 being effective by 2019 will have corresponding provisions which are applicable to
all industries (McCall, 2017). This will address such issues; it will lead to considerable changes
in balance sheets of companies. All the operating leases will be realized as assets and liabilities
thereby reflecting the core economics.
Part D
The new standard is likely to impact approximately half of the total listed companies. The
specified change will not become popular with each and every company, the reason behind this
unpopularity is; IFRS will not eliminate leasing industries from business, and the leases will
appeal to best the best financial source (O'Regan, 2015). The IASB consider that it is not likely
that the increased leased obligation visibility will have an effect in context with borrowings and
debts. costs will be engaged in the new system to adopt IFRS 16, and the benefits of the same
will highly compensate the losses.

Part E
The new IFRS 16 standards will result in the improved allocation of capital which will be highly
beneficial for the growth and development of the economy. The new standards need lessees to
realize all assets within the balance sheet which will further state the right to implement an asset
for a specific time period and the related liabilities meant for payments (Jiang, Wang and
Wangerin, 2017). By considering the same, the new visibility of every lease will result in better
investment decisions made by investors and more overweighed leases against buying decisions
made by management.
The new IFRS 16 standards will result in the improved allocation of capital which will be highly
beneficial for the growth and development of the economy. The new standards need lessees to
realize all assets within the balance sheet which will further state the right to implement an asset
for a specific time period and the related liabilities meant for payments (Jiang, Wang and
Wangerin, 2017). By considering the same, the new visibility of every lease will result in better
investment decisions made by investors and more overweighed leases against buying decisions
made by management.
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REFERENCES
Annual report of Hills Limited. 2017. Available through
<http://corporate.hills.com.au/getattachment/b94ab85c-0d18-4b19-9352-2fc0f436c007/HIL-
Annual-Report-to-Shareholders-FY2017>. [Accessed on 24th January 2017].
Bond, D., Govendir, B. and Wells, P., 2016. An evaluation of asset impairments by Australian
firms and whether they were impacted by AASB 136. Accounting & Finance, 56(1), pp.259-288.
Chen, W., Shroff, P.K. and Zhang, I., 2014. Fair Value Accounting: Consequences of Booking
Market-driven Goodwill Impairment.
Ghafoor, Z. and Khan, M.A., 2017. ISSUES IN FINANCIAL REPORTING. Corporate Social
Irresponsibility: Individual Behaviors and Organizational Practices, p.241.
Huikku, J., Mouritsen, J. and Silvola, H., 2017. Relative reliability and the recognisable firm:
Calculating goodwill impairment value. Accounting, Organizations and Society, 56, pp.68-83.
Jiang, J.X., Wang, I. and Wangerin, D., 2017. How Does the FASB Make Decisions? A
Descriptive Study of Agenda-Setting and the Role of Individual Board Members.
Kabir, H. and Rahman, A., 2016. The role of corporate governance in accounting discretion
under IFRS: Goodwill impairment in Australia. Journal of Contemporary Accounting &
Economics, 12(3), pp.290-308.
Kabir, H., Rahman, A.R. and Su, L., 2017. The Association between Goodwill Impairment Loss
and Goodwill Impairment Test-Related Disclosures in Australia.
Li, X., 2015. Accounting conservatism and the cost of capital: An international analysis. Journal
of Business Finance & Accounting, 42(5-6), pp.555-582.
Mazzi, F., Liberatore, G. and Tsalavoutas, I., 2016. Insights on CFOs’ perceptions about
impairment testing under IAS 36. Accounting in Europe, 13(3), pp.353-379.
McCall, N.C., 2017. Financial Reporting: An Analysis of Accounting Methods and
Principles (Doctoral dissertation, The University of Mississippi).
Annual report of Hills Limited. 2017. Available through
<http://corporate.hills.com.au/getattachment/b94ab85c-0d18-4b19-9352-2fc0f436c007/HIL-
Annual-Report-to-Shareholders-FY2017>. [Accessed on 24th January 2017].
Bond, D., Govendir, B. and Wells, P., 2016. An evaluation of asset impairments by Australian
firms and whether they were impacted by AASB 136. Accounting & Finance, 56(1), pp.259-288.
Chen, W., Shroff, P.K. and Zhang, I., 2014. Fair Value Accounting: Consequences of Booking
Market-driven Goodwill Impairment.
Ghafoor, Z. and Khan, M.A., 2017. ISSUES IN FINANCIAL REPORTING. Corporate Social
Irresponsibility: Individual Behaviors and Organizational Practices, p.241.
Huikku, J., Mouritsen, J. and Silvola, H., 2017. Relative reliability and the recognisable firm:
Calculating goodwill impairment value. Accounting, Organizations and Society, 56, pp.68-83.
Jiang, J.X., Wang, I. and Wangerin, D., 2017. How Does the FASB Make Decisions? A
Descriptive Study of Agenda-Setting and the Role of Individual Board Members.
Kabir, H. and Rahman, A., 2016. The role of corporate governance in accounting discretion
under IFRS: Goodwill impairment in Australia. Journal of Contemporary Accounting &
Economics, 12(3), pp.290-308.
Kabir, H., Rahman, A.R. and Su, L., 2017. The Association between Goodwill Impairment Loss
and Goodwill Impairment Test-Related Disclosures in Australia.
Li, X., 2015. Accounting conservatism and the cost of capital: An international analysis. Journal
of Business Finance & Accounting, 42(5-6), pp.555-582.
Mazzi, F., Liberatore, G. and Tsalavoutas, I., 2016. Insights on CFOs’ perceptions about
impairment testing under IAS 36. Accounting in Europe, 13(3), pp.353-379.
McCall, N.C., 2017. Financial Reporting: An Analysis of Accounting Methods and
Principles (Doctoral dissertation, The University of Mississippi).

McDonough, R.P. and Shakespeare, C.M., 2015. Fair value measurement capabilities, disclosure,
and the perceived reliability of fair value estimates: A discussion of Bhat and Ryan
(2015). Accounting, Organizations and Society, 46, pp.96-99.
O'Regan, P., 2015. Financial Information Analysis: The Role of Accounting Information in
Modern Society. Routledge.
Weidner, D.J., 2016. New FASB Rules on Accounting for Leases: A Sarbanes-Oxley Promise
Delivered.
and the perceived reliability of fair value estimates: A discussion of Bhat and Ryan
(2015). Accounting, Organizations and Society, 46, pp.96-99.
O'Regan, P., 2015. Financial Information Analysis: The Role of Accounting Information in
Modern Society. Routledge.
Weidner, D.J., 2016. New FASB Rules on Accounting for Leases: A Sarbanes-Oxley Promise
Delivered.
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