Disclosure Of Good Will Impairment Under †Myassignmenthelp.Com

Question: Discuss About The Disclosure Of Good Will Impairment Under? Answer: Introducation One of the key accounting principles asserts the fact that there is no such requirement of assets, which have excessive valuations in the financial position statement. This in turn needs the requiring of several concepts of values with respect to which the amount, which is carried by the asset, can be contrasted in order to see if there is surplus. The Paragraph 1 of AASB 136 asserts that the impairment in the assets discusses about the methods, which are adopted by every enterprise in order to ensure that the assets are being carried out at right amounts, which do not exceed the level of the amounts, which are recoverable. The paragraph also asserts that in case the assets are carried over that of the amount, which is recoverable, the amount recoverable through selling of the assets is lower than that of the amount carried by the asset. The asset, in such scenarios, can be considered to be impaired and the standard requires the enterprise to realize the losses from impairment includ ing the time of the impairment loss and that of the disclosures which are essential (Legislation.gov.au 2017). If for an asset the carrying value exceeds that of the recoverable value then the impairment loss occurs. This in turn is higher of assets fair value minus the selling costs and the value, which is in use. Taking reference of the Paragraph 59 of AASB 136, if the recoverable value of an asset is less than the carrying value of the same, then the latter needs to be minimized to that of its former. This kind of minimization is considered as impairment loss. The technique of measuring the impairment loss may differ based on the fact whether the asset is recorded at the cost level or pursues the revaluation model (Tricker and Tricker 2015). According to the same paragraph, the impairment losses need to be immediately realized, except when the carrying of an asset is being made at the amount, which is re-valued, and comply to some other standard. These standards help in denoting the revaluation model as it is in AASB 116. Therefore, the impairment loss, which is related to that of an asset which is re-valued, required to be considered as a decrease in the revaluation according to other standard (Amiraslani, Iatridis and Pope 2013). The two methods with the help of which impairment of assets can take place are the revaluation model and the cost model. According to the Paragraph 61 of AASB 136, in case of the cost model, when an impaired asset is recorded in terms of cost, the loss needs to be recognized immediately in profit or loss terms. This in turn implies that the loss is required to be recognized as expense in the statement of income for the concerned organization (Cotter 2012). In accordance to that of the Paragraph 60 of AASB 136, when the revaluation model is taken into consideration, then while an impairment is carried out, like that of plant, property and that of equipment, at the re-valued amount, then the impairment loss needs to be treated similar to that of a decrease in the revaluation. For the purpose of reiteration, the impairment loss on the re-valued assets is needed to be realized in the statement of income in the first stage in order to ensure that it does not exceed the surplus amount for the similar asset. The target can be achieved with the help of debiting of the leftover surplus account, which in turn is applicable to assets including that of the tax liability, which is deferred, before any kind of loss balance is considered as expenses in the statement of income (Guthrie and Pang 2013). It might happen in some cases that the past written recoverable value of the amount of an asset exceeds the same assets carrying value. As stated by the Paragraph 110 of AASB 136, it is the need of an enterprise to look for the signs of whether an impairment loss in the past for any asset, except that of goodwill, has decreased or became non-existent. As can be derived from the Paragraph 111 of AASB 136, there are needs of several external as well as internal signs for impairment loss reversal. The signs are inclusive of substantial increase in the assets market value, fall in the overall rate of interest in the market, dynamics with favorable implications for that of the organization, positive changes with regards to utilization of assets and signs showing better performance of the same in economic terms, in the contrary of the speculations (Kuzmina, and Kozlovska 2012). Two models, including the cost model as well as the revaluation model, can do the impairment loss reversal. When the cost model is taken into account, the reversal cannot be seen to increase the carrying value of the asset over the depreciated value of the same. In this context, it is to be taken into account that the concerned asset is subjected to the policy of the actual depreciation. In this case, the impairment loss for the asset can be realized in the form of an income item in the statement of income of the concerned enterprise as is stated in the Paragraph 119 of AASB 136 (Guthrie and Pang 2013). For example, an impairment loss for machinery of amount $13,000 is recorded at June 30, 2014. The carrying value of the asset at June 30, 2016, is assumed to be $11,333. This is inclusive of $50,000 cost minus the accumulated depreciation of $25,667 and the accumulated impairment loss of $13,000. The value recoverable is $18,000. There is 10% actual rate of depreciation annually for 6 years. The carrying value in this scenario is supposed to be $20,000. The recoverable value not surpassing the carrying value, the impairment loss realized previously of $6,667 can get reversed in order to restate the carrying value at $18,000. This in turn will raise the initial carrying value. The accumulated loss from impairment, in this scenario, will be debited and the reversal will be credited with $6,667. In the revaluation model, if the impairment loss is taken to be an expense and it is recorded in the statement of income, the reversal will be done by credit of income amount. For example, equipment has $90,000 carrying amount, with $100,000 in account and as depreciation an amount of $10,000. $30,000 of revaluation decrements can be seen to have been realized while previous impairment loss recording. The losses in their turn have minimized the balance of the revaluation surplus and deferred liability of tax account. The recoverable amount of the same is $1110,000 and so for reversal recording of $20,000, the loss of impairment previously, the accumulated depreciation and equipment accounts needs to be debited and has $10,000 balances each. Accounts of revaluation surplus and deferred liability of tax will also be credited and will have $14,000 and $6,000 respectively. Therefore, in the coming periods, there is need of adjustments of the depreciations for the apportionment of the carrying amount (revised) less the residual values in a systematic manner for the remaining useful life (Laing and Perrin 2014). Particulars Amount (in $) Assets' carrying amount (A) 136,000 Value in use of the division (B) 121,000 Fair value of the assets ( C) 87,360 Actual or real asset values (D) [Greater of (B) and (C)] 121,000 Loss from Impairment (E) (A) - (D)] 15,000 Goodwill on acquisition of competing organisations (F) - Impairment loss from subtraction of goodwill (E) - (F) 15,000 Apportionment of Impairment Loss Particulars Amount (in $) Percentage Impairment (in $) Patent 91,000 67% 10,037 Equipment 21,000 15% 2,316 Fittings 13,000 10% 1,434 Inventory 6,000 4% 662 Goodwill 5,000 4% 551 Total Amount of Assets 136,000 100% 15,000 References AASB, C.A.S., 2014. Business Combinations.Disclosure,66, p.77. Amiraslani, H., Iatridis, G.E. and Pope, P.F., 2013.Accounting for asset impairment: a test for IFRS compliance across Europe. Centre for Financial Analysis and Reporting Research (CeFARR). Cotter, D., 2012.Advanced financial reporting: A complete guide to IFRS. Financial Times/Prentice Hall. Guthrie, J. and Pang, T.T., 2013. Disclosure of Goodwill Impairment under AASB 136 from 20052010.Australian Accounting Review,23(3), pp.216-231. Kuzmina, I. and Kozlovska, I., 2012. ACCOUNTING MEASUREMENT OF LONG-LIVED ASSETS: A CASE OF IMPAIRMENT PRACTICE.Journal of Business Management, (5). Laing, G.K. and Perrin, R.W., 2014. Deconstructing an accounting paradigm shift: AASB 116 non-current asset measurement models.International Journal of Critical Accounting,6(5-6), pp.509-519. Legislation.gov.au. (2017).AASB 136 - management of Assets - August 2015. [online] Available at: https://www.legislation.gov.au/Details/F2017C00297/Download [Accessed 13 May 2017]. Tricker, R.B. and Tricker, R.I., 2015.Corporate governance: Principles, policies, and practices. Oxford University Press, USA.