Corporate Accounting: Impairment Loss Reversal - Detailed Analysis

This essay provides an analysis of the reversal of impairment loss in corporate accounting, focusing on directives stated under IAS 36 for Impairment. It discusses the recoverable amount of assets, fair value, and value in use, highlighting the importance of recognizing entries in the balance sheet where the total amount recoverable is lesser than the cost of carrying. The essay also covers the computation of fair value, the determination of recoverable amounts, and the factors considered when a company believes its asset worth is impaired, including the approximation of recoverable amounts, the role of cash flow, and the rate of discount. It further explores the concept of fair value as the selling price agreed upon by both buyers and sellers and the significance of disposal costs in asset sales. Desklib offers a platform to explore similar assignments and study resources.

Running head: CORPORATE ACCOUNTING
Corporate Accounting
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CORPORATE ACCOUNTING
Reversal of Impairment Loss for Goodwill
Depreciation is present for non-current assets with passage of time and this is why in the
financial assertions these sorts of assets are valued in respect of cost of depreciation or else
after revaluation of these kinds of items corporate accounting. In essence, there are several
times when carrying amount enumerated for diverse non-current assets does not match with
the specific amounts that are recoverable (Tahat et al. 2017). Directives stated under IAS 36
for Impairment indicate recoverable amount as greater fair value of a specific asset after
deduction of cost of disposal or else overall selling price and takes into account used value.
As rightly indicated by Guthrie, ciwntkw and Pang (2013), value obtained after subtracting
the cost of disposal is referred to as fair value of the particular asset according to revised
regulation of IAS 36 on impairment of asset declared as on March 31, 2004. Thereafter, a
brief discussion is carried out on the overall recoverable amount, specific value that is in use
along with fair value.
As rightly indicated by Australian firms and whether they were impacted by AASB
136. Accounting & Finance as well recoverable amount is referred to as higher amount of the
fair value of a specific asset otherwise value that is in use. However, for the purpose of
ascertainment of asset impairment the notion of recoverable amount is employed Corporate
accounting. The formula that is used for computation of the fair value is hereby mentioned
below:
In this regard, it can be hereby stated that the definite recoverable amount presents the value
that is in use. In essence, fair value refers to the selling price of a specific asset of a reporting
entity in the market. Again , cost of disposal indicates towards incremental expenditure

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attributable to disposal of a particular asset and the sale of the same (Bond Govendir and
Wells 2016).
As regards standard accounting, it can be hereby mentioned that it is obligatory for different
business concerns to concentrate and recognize different entries in the balance sheet in which
total amount recoverable is lesser than the cost of carrying. The notion of the directive IAS
36 is analogous to that of the concepts of costs or else Market Value, whichever is lesser for
firm’s inventories. However, in certain cases in which company believes that its asset worth
to be impaired, there is need to approximate overall amount that is recoverable from the fixed
asset. In essence, the total amount recoverable is equal to the value that is in use for different
cases where fair value of a specific asset is lower than the cost of disposal (Watson 2015).
Fundamentally, the recoverable amount of the fixed asset equals fair value after deduction of
cost of disposal at the time when the reporting entity is willing to sell different assets (Hull
and White2014). In case if the asset does not get impaired, then recoverable amount is not
necessary to enumerate. As such, it is necessarily the situation where the total amount
recoverable (that is to say, fair value after deducting disposal cost) is lower than overall
carrying amount of the firm’s asset.
As correctly mentioned by uthrie and Pang (2013), value that is in use indicates towards net
present value (also simply referred to as NPV) of flow of cash. Business concerns acquired
the value that is in use for calculating definite recoverable amount (Agrawal and Cooper
2017). Thus, the loss impaired with the particular asset is computed. The formula for
calculation of value in use is hereby mentioned below:

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At the time when firms believe that specific scale value of a particular asset can be impaired
then in that case, it should carry out proper approximation of the total amount of recovery for
the asset Bond et al. 2016). In this connection it can be hereby said that specific directives as
well as guidelines for approximating values that is in use are also presented in the regulation
IAS 36.
In essence, cash flow of the upcoming period can be enumerated from the asset usage. In
particular, other probable elements of assets also need to be taken into consideration whilst
enumerating stream of cash.
As suggested by Watson (2015), Rate of discount can be regarded to be an important element
of the value of asset. In particular, the average cost of capital of a business concern is
enumerated by taking into account time value of money. In particular, the rate of specifically
time value is regarded as the rate of discount. Besides the rate of discount, another essential
factor is liquidity. Particularly, it is the capability of selling an asset and therefore,
convertibility to necessarily liquid cash.
Particularly, there are certain important assumptions as regards projection of stream of cash
that is to say forecasting of flow of cash and planning of budget (Agrawal and Cooper 2017).
Business concerns mainly carry out a forecast of five year budget and present projected
figures in the long run. Essentially, the rate of discount that is utilized in ascertaining asset’s
present value need to be one of the following:
- Incremental borrowing costs
-Weighted average of capital cost of the company
- Other subsisting rate of market borrowing

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In this connection it can be observed that “value in use” is normally lesser than the fair
market value due to employment of a conservative tactic.
In particular, it refers to asset’s selling price in the particular market. Fundamentally, fair
value can be considered to be the price based on which both parties involved in transaction
buyers as well as sellers are agreed upon without any kind of compulsion. Particularly, the
selling price of a firm’s asset can be deduced from the market (Robinson and Sensoy 2016).
In essence, the uncomplicated way of undertaking this involves comparing prices of different
transactions of identical assets in the market. Singleton-Green (2014) suggests that the
mechanism of enumerating fair value of a specific asset includes observation of product
along with special features, conduction of a study on history of firm’s assets and age of the
same. Also, four or else five items need to be discovered for proceeding with the process of
analysis. Similar product need to have identical features with respect to age, physical
condition or else history. The following step involves calculation of the average price of the
selected identical product by utilizing the rule of standard averaging. In essence, this can
provide a notion regarding market of the selected items. For the purpose of cross examining
the deduced market prices, there is need to take the selected sample items to the expert in a
bid to confirm value of the market.
As far as accounting is concerned, the disposal cost indicates towards supplementary cost of a
specific asset that a particular corporation needs to put up with and contribute in asset sale. In
essence, it is somewhat like a liability of the upcoming period that is presented in the income
assertion at the time when the corporation bears the cost. Business concern enumerates the
cost of disposal of an asset at the time when value of asset is necessarily impaired as
recommended in the standard directive of impairment of asset particularly, directives of IAS
36 for impairment of asset (Rennekamp et al. 2014). In this regard it can also be hereby

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mentioned that the business concern suspend the liability only at the time when the business
fails to ascertain overall fair market value of particular asset under consideration.

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References
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Guthrie, J. and Pang, T.T., 2013. Disclosure of Goodwill Impairment under AASB 136 from
2005–2010. Australian Accounting Review, 23(3), pp.216-231.
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Rennekamp, K., Rupar, K.K. and Seybert, N., 2014. Impaired judgment: The effects of asset
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Robinson, D.T. and Sensoy, B.A., 2016. Cyclicality, performance measurement, and cash
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Watson, L., 2015. Corporate social responsibility research in accounting. Journal of
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