Corporate Accounting Reporting Assignment-Myassignmenthelp.Com

Question: Discuss About The Corporate Accounting Reporting Assignment? Answer: Introduction Impairment of assets is being dealt with by IAS 36. It tells that the assets of the entity should not be carried at more than the recoverable value in the books i.e., higher of value in use or fair value of the asset less the cost of disposing it. In case, there exists the condition of the impairment of the asset. the company needs to check on truing down the value of the asset except goodwill and some other intangible assets for which the annual impairment test is carried out separately. (Buchanan, et al., 2017) In case the single identifiable asset is not generating revenues, then the group of assets together known as cash generating unit capable of generating revenue independently and which is independent of other assets has to be assessed for impairment. IAS 36 does not applies to inventories, deferred tax assets, financial assets, construction contracts, agricultural and insurance contract assets. Concepts on Impairment of CGU and other factors A company needs to assess whether the assets need to be impaired or not based on the various internal or external factors. If the factors of impairment exists, then the recoverable amount needs to be ascertained. External Indicators include decline in market value, increase in the market interest rates, changing technology or net assets of the company is valued higher than the market capitalization. Whereas, internal factors include greater obsolescence for the asset, asset is lying idle or economic performance to be derived from the asset is expected to be low or the carrying amount of the asset to be invested in the subsidiary or elsewhere exceeds the total income from the investee company. This is just an example and the list is non-exhaustive. At the time of impairment, the depreciation method, the useful life of the asset and residual value may also be reassessed for adjustments.(Das, 2017) In case the value in use or the fair value cost of disposal is more than the carrying value, the question of recoverable amount does not arises and hence the asset need not be impaired. In case the fair value cannot be determined, the value in use becomes the recoverable amount. Fair value is determined based on IFRS 13, which deals with Fair value measurement. Direct costs related to disposal qualify for being recognised as cost of disposal. Moreover, the value in use is determined using a number of variables like future estimated cash flow generation from the asset, time value of money, the variations in the timing of the receipt of those cash flows, the uncertainty if any and few other factors. Cash flow projections should be made on the just and reasonable grounds and in case the time is large, extrapolation should be used beyond five years as per the IAS. (Fay Negangard, 2017) The projections should be calculated using the current asset condition and not accounting for any ove rhaul expenditure to be incurred, if any, on the asset. While measuring the value in use, the interest rate to be used should be pre-tax such that it is representative of the risk as per the market and the time value of money. In addition, it should be the rate, which the investors would have asked for in case they would have invested a particular amount in the asset. The discount rate used here should be the rate at which the company would have borrowed to buy an asset. Based on the above inputs, the impairment loss can be recognised in the books in case the recoverable value is less than the carrying value of the asset. This impairment cost needs to be charged off to the Profit and loss accounting and the future years depreciation needs to be adjusted. (Meroo-Cerdn, et al., 2017) The concept of a single asset mentioned above should be applied to a group of assets called cash generating unit in case single independent asset is not able to generate revenue. The calculation of the impairment of the goodwill recorded in the books or acquired during a deal is completely different. There can also be case where the impairment done may be needed to be reversed. The procedure for the reversal is same as for impairment where for each accounting period, assessment needs to be done if the impairment loss needs to be decreased based on the positive internal and external factors remaining for the asset. (Mahapatra, et al., 2017) Few rules needs to be followed like no reversal should be there to unwind the discount or the impairment reversal should not exceed the original amount of impairment in any circumstance and again the future years depreciation amount needs to be adjusted. Reversal of the impairment loss for goodwill is not allowed as per IAS 36. Disclosures to be given: Major disclosure in the notes to accounts include impairment loss being recognised and reversed in the profit and loss account, impairment loss on recognised and reversed assets being shown in other comprehensive income (OCI); events which led to the recognition of the impairment loss in the books, the amount of loss, the internal and external factors identified, the rate of discount being used in calculation of value in use, the cash generating unit and its class of assets, amount of impairment by class and segment of the assets. (kabir, et al., 2017) Conclusion We saw all the factor and related variables, which need to be considered for evaluating the asset or a group or class of assets for impairment. In practice, the valuation of the assets is not easy and depends a lot on the professional judgement and the estimates taken while calculation. Against the values taken for impairment, the stakeholders continue to raise doubts on the assessment of impairment, the supporting based on which the same has been done and the transparency while disclosing the same in the financials. The concept of cash generating unit is purely based on the judgement of the management and they need to evidentiate the same. References Buchanan, B., Cao, C., Liljeblom, E. Weihrich, S., 2017. Taxation and Dividend Policy: The Muting Effect of Agency Issues and Shareholder Conflicts. Journal of Corporate Finance, Volume 42, pp. 179-197. Das, P., 2017. Financing Pattern and Utilization of Fixed Assets - A Study. Asian Journal of Social Science Studies, 2(2), pp. 10-17. Fay, R. Negangard, E., 2017. Manual journal entry testing : Data analytics and the risk of fraud. Journal of Accounting Education, Volume 38, pp. 37-49. kabir, H., Rahman, A. Su, L., 2017. The Association between Goodwill Impairment Loss and Goodwill Impairment Test-Related Disclosures in Australia. 8th Conference on Financial Markets and Corporate Governance (FMCG) 2017, pp. 1-32. Mahapatra, S., Levental, S. Narasimhan, R., 2017. Market price uncertainty, risk aversion and procurement: Combining contracts and open market sourcing alternatives. International Journal of Production Economics, pp. 34-51. Meroo-Cerdn, A., Lopez-Nicolas, C. Molina-Castillo, F., 2017. Risk aversion, innovation and performance in family firms. Economics of Innovation and new technology, pp. 1-15.