Evaluation Impairments By Australian Firms -Myassignmenthelp.Com

Question: Discuss About The Evaluation Impairments By Australian Firms? Answer: Introducation In these days the impairment tests are more common method adopted by the corporate entities so as to ensure that the assets have not been overstated. A per Gros and Koch (2015), when the assets carrying amount is substantially higher to the recoverable amount, the situation is stated as impairment. However, certain assets such as inventories, resalable assets as well as deferred tax assets are excluded from such tests as they do not need one. Moreover, some other assets present in an organization also get an exclusion from being impaired on an annual basis. Though, various classes of assets need mandatory annual impairing test. Such type of assets encompasses intangible assets with infinite life, goodwill gained during merger or acquisition and various certain intangibles yet to be used. The impairment test is a mandatory process mainly carried out to judge whether the asset is integral part of the organization as per its internal as well as external information and if the same has been reflected as per the accounting standards and set of frameworks. Moreover, when an asset reflects some indication of being impaired, an impairment test becomes a must (Kabir, Rahman and Su 2017). IAS 36 and AASB 136, describes the regulations that are being associated with impairment test. As per the same, the concerned organization is responsible for anticipating the indication of impairment of an asset at the end of annual reporting year. If any such identification is observed, the recoverable amount of asset is expected to be justified as per the format present in Paragraph 9 of IAS 36. Paragraph 12 of AASB 136 has also led some identification towards valuation of impaired assets, which makes it mandatory for the organization to carry out an impairment test. The indication of the asset impairment could also be ascertained through information of certain other sources as well. In some of the cases of observable indications as stated by Paragraph 12 (a) of AASB 136, the value of the concerned asset has sink substantially during a certain period that exceeds the expectation due to usual usage or due to ongoing time frame. Sometimes there could be also a scenario wherein an organization might have been affected by substantial negative changes during a year. This is clearly mentioned in Paragraph 12 (b) of AASB 136, which also mentions if such scenario happens in future. The aforementioned effects might take place in various environment in which the asset operates (KhokanBepari, Rahman and Taher Mollik 2014). An impairment test becomes a mandate when interest rates in market or rate of return on investment have marched northwards within a certain period, as stated by Paragraph 12 (c) of AASB 136. Such a spike might be an influencing subject for discount rates while calculating the value-in-use of the particular asset together with lowering recoverable amount of the particular asset in context of materiality. Furthermore, according to Paragraph 12 (d) of AASB 136, such an impairment test should be carried out during the period when market capitalization of the organization is lower in contrast to its carrying amount of total assets (AASB 2014). Determination of necessity of conducting an impairment test for the organization could be ascertained through the information accessed via internal sources. Hence, when an indication is preset in physical form i.e. damage of the asset or its obsolesce, is pointed out by Paragraph 12 (e) of AASB 136. With the changes expected to be arose through some negative impact on the entity, such as the asset becomes obsolete, any discontinuation plan or any operational restructuring to which the asset fit in or disposal of the asset before its expiry date (Linnenluecke et al. 2015). An organization might need to calculate the recoverable amount of asset as it may identify some other evidence of asset impairment. Hence, if cash flow exists for acquisition of asset or a substantial amount of cash is considered to show it greater than actual budget, then such signs may suggest that the asset have been tested for impairment. Whenever, the cash flow for acquisition of asset is higher than its original budget, an impairment test becomes mandatory for the same (Mazzi, Liberatore and Tsalavoutas 2016). It makes it more necessary for the test when cash flow for the asset in a particular period has been combined with the budget of that of the approaching year. In case, if the recoverable amount of the particular asset is higher in context to carrying amount, the organization has the option to avoid the re-calculation of the recoverable amount taking into consideration that no events left out for eradicating the variance. As per Paragraph 16 of AASB 136, an organization may opt out from projecting a recoverable amount of the asset if there is an increment in market rates or investment but with certain conditions such as rise in short-term rates of interest that do not affect the rate of discount on materialistic context (Steele 2015). However, if the discount rate used to calculate the value-in-use of the asset is being influenced by the changes in market rates post sensitivity analysis of the recoverable amount, then it reflects two situations. Primarily, a materialistic decline in recoverable asset is not a prospect as future cash are likely to increase. For example, the organization may reflect that in order to reimburse the elevated market rates, the revenues have been adjusted. Secondly, a decline in recoverable amount might not direct towards loss of material impairment (Zhuang 2016). Finally, as per Paragraph 17 of AASB 136, if an asset is impaired, it may depict that review is relevant for the useful life of the same. Any method, be it depreciation or residual asset value, they are needed to be as per the standard that is applicable to the asset. This is an integral part may or may not be there any realization of loss attributing towards loss of the particular asset. Hence, if the difference between fair value and disposal is above the carrying value of the asset, value-in-use does not need to be estimated. References: AASB, C.A.S., 2014. Business Combinations.Disclosure,66, p.77. Gros, M. and Koch, S., 2015. Goodwill Impairment Test Disclosures Under IAS 36: Disclosure Quality and its Determinants in Europe. Kabir, H., Rahman, A.R. and Su, L., 2017. The Association between Goodwill Impairment Loss and Goodwill Impairment Test-Related Disclosures in Australia. Khokan Bepari, M., F. Rahman, S. and Taher Mollik, A., 2014. Firms' compliance with the disclosure requirements of IFRS for goodwill impairment testing: Effect of the global financial crisis and other firm characteristics.Journal of Accounting Organizational Change,10(1), pp.116-149. 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. 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. Steele, N., 2015. Accounting: Get the numbers right.Company Director,31(5), p.41. Zhuang, Z., 2016. Discussion of An evaluation of asset impairments by Australian firms and whether they were impacted by AASB 136.Accounting Finance,56(1), pp.289-294.