Corporate Accounting And Business Research - MyAssignmenthelp.com

Question: Discuss about theCorporate Accounting And Business Research. Answer: Impairment loss for cash generating units excluding Goodwill Impairment loss FB the carrying amount of an asset or cash generating unit, which exceeds the recoverable amount. This directly indicates that the carrying amount is recognized after deducting any accumulated depreciation and impairment loss of an asset present within the organization. On the other hand, Glaum et al. (2013) criticizes that rigorous implementation of the impairment loss could decrease actual net profit of the organization. For example, the identification of recoverable amount, net selling value, carrying amount and depreciation amount could be used in identifying the actual impairment loss faced by the organization. The impairment loss is mainly reflected in balance sheet and income statement of the organization where total asset value is reduced. Under IAS 36, relevant method of recognition for impairment loss is depicted, which could be used by the organization during the formulation of their annual report. In this context, some researchers mentioned that impairment loss is mainly a decrease in the net carrying value that exceeds future undisclosed cash flow of the asset (Iasplus.com 2018). Recognition method can be used in accordance with IAS 36, which allows the organization to identify the impairment loss of the Asset. The impairment loss is mainly identified when the carrying amount of asset is greater than the recoverable amount. Impairment loss is directive reflected in comprehensive income of the organization, where fair valuation method is used in accordance with IAS 16 standard. Therefore, it could be understood that for identifying impairment loss comparison between carrying amount and recoverable amount of an asset needs to be conducted by the organization. Furthermore, with the help of IAS 36 impairment of assets, organizations are able to ensure that assets are not carried more than the actual recoverable amount, which is higher than the fair value less the disposable cost. However, there is an exception towards the calculation of impairment loss, where deductions from goodwill and certain intangible assets are conducted identify the actual impairment loss incurred by the organization. There are certain test regarding detection of impairment of an asset, which is used in detection of cash generating units. Avallone and Quagli (2015) further stated that when fair value of the asset declines below carrying amount the difference is written off, which is mainly knows as impairment loss. The use of impairment loss directly allows the organization to depict actual value of their assets in the annual report. Adequate identification process of the impairment loss needs to be conducted by the organization. This is mainly conducted at the end of each reporting period, where entities are required to assess on the indication of impairment present in their asset. The list of external and internal indicators of impairment are provided in IAS 36, which could allow the organization to adequately conduct impairment process on their annual report. After the indication of an asset that may be impaired, asset recoverable amount is calculated, which could be used in calculating the impairment loss incurred by the organization. Andre, Dionysiou and Tsalavoutas (2018) argued that without the indications companies are not able to detect the actual impairment loss. However, there are certain indication of the impairment from the external sources, which needs to be evaluated by the organization. Indication from external sources mainly depict decline in market value, negative changes in technology, market, economy or laws, increment in market interest rates and increment in net Asset of the company than market capitalization. These identified indications mainly state the possibility of impairment present in an organization, which could lead to impairment loss. There are certain indications that might generate from internal source, which could allow the organization to detect impairment in their operations. These internal sources are obsolescence or physical damage of asset, asset being idle, part of destruction or held for disposal, worst economic performance than expected and investment in subsidiaries or joint ventures. This above identified internal sources could directly lead to impairment loss incurred by the organization, which might directly reflect in their income and balance sheet. Hence, by using both external and internal source of indications, organizations are able to detect impairment in their assets, which could reduce fair value of their assets. This impairment loss detection could also help in formulating accurate financial condition of the organization to the shareholders, which might help them to make adequate investment decisions. According to IAS 36, impairment losses and reversement is conducted in profit and loss sta tement, which helps in detecting losses incurred by the organization. However, the impairment loss incurred by the organization is deductible by goodwill maintained by the company. This relevant deduction eventually helps in reducing the impairment loss incurred by the organization during the fiscal year. Shaari, Cao and Donnelly (2017) stated that the use of impairment loss directly allows the organization to detect actual value of their asset in the annual report. Hence, it could be understood that organizations with the help of IAS 36 are mainly able to detect actual impairment loss incurred during the fiscal year. The detection of recoverable amount,disposable amount and fair value of an assets allows the organization to calculate the actual impairment loss incurred during the fiscal year. According to IAS 36,cash flow projection should be based on reasonable assumptions which are attainable by the organization in future. Therefore, the detection of fair value and carrying value could help in identifying actual impairment present in the asset. Preparation of journal entries for any impairment loss occurring in 30 June 2015 Particulars Amount Patent 213,000.00 Building 49,000.00 Fittings 31,000.00 Inventory Goodwill 11,000.00 Total 304,000.00 Gali Ltd calculated the value in use of the division to be 284,000.00 Impairment loss 20,000.00 Goodwill 11,000.00 Remaining impairment losses for tangibles 9,000.00 Distribution of impairment loss Amount Portion Allocation loss Net carrying amount Patent 213,000.00 72.7% 6,542.66 206,457.34 Building 49,000.00 16.7% 1,505.12 47,494.88 Fittings 31,000.00 10.6% 952.22 30,047.78 Total 293,000.00 100% 9,000.00 284,000.00 Journal Entries for impairment loss: Particulars Amount Amount Impairment loss Dr 9,000.00 Accumulated depreciation and impairment loss-patent 6,542.66 Accumulated depreciation and impairment loss-building 1,505.12 Accumulated depreciation and impairment loss-fittings 952.22 (Allocation of impairment loss) Reference: Andr, P., Dionysiou, D. and Tsalavoutas, I., 2018. Mandated disclosures under IAS 36 Impairment of Assets and IAS 38 Intangible Assets: value relevance and impact on analysts forecasts.Applied Economics,50(7), pp.707-725. Avallone, F. and Quagli, A., 2015. Insight into the variables used to manage the goodwill impairment test under IAS 36.Advances in Accounting,31(1), pp.107-114. Glaum, M., Schmidt, P., Street, D.L. and Vogel, S., 2013. Compliance with IFRS 3-and IAS 36-required disclosures across 17 European countries: company-and country-level determinants.Accounting and business research,43(3), pp.163-204. Iasplus.com. (2018).IAS 36 Impairment of Assets. [online] Available at: https://www.iasplus.com/en/standards/ias/ias36 [Accessed 9 Jan. 2018]. Shaari, H., Cao, T. and Donnelly, R., 2017. Reversals of impairment charges under IAS 36: evidence from Malaysia.International Journal of Disclosure and Governance,14(3), pp.224-240.