HA2032 Corporate Accounting Oz Assignment Help

HA2032 Corporate Accounting Oz Assignment Help

HA2032 Corporate Accounting Oz Assignment Help

Part A:

In order to keep the value of the assets up to date in the books, they are checked for impairment. Impairment refers to the state when the recoverable amount of the asset falls below the carrying amount. The difference between the carrying amount and recoverable amount is the impairment loss[ CITATION Alv13 \l 1033 ].

The set of smallest group of assets, which are used by the enterprise to generate cash flows are referred to as cash generating unit. The dependencies of the cash flows are on the use of all these assets, and they should be received for the external parties[ CITATION Aus \l 1033 ]. It is important that the dependency of the assets on each are identified using the financial management policy for acquisition and disposal, along with that of use of asset and generation of revenues. Using all these factors a cash generating unit and its components are identified[ CITATION Aus1 \l 1033 ].

The goods which are manufactured using these assets should be marketable in the active market. Even if such goods are used for internal consumption entirely for the organisation, then too these assets would be considered as a cash generating unit. When the cash flows from such assets are expected to be affected by the pricing policy of the organisation, in such cases it is the management’s responsibility to implement the arms length price on these goods in order to evaluate the sag flows generated from these assets. This cash flow will help us determine the value in use of the cash generating unit[ CITATION Bra15 \l 1033 ].

It is the entity’s responsibility to report about the assets of the cash generating unit form year to year, until any justified changes are required by the circumstances. Where the any of the assets forming part of a cash generating unit are transferred to other unit, then appropriate disclosures regarding the same are required to be made. The reports should also mention about any reversals of impairment loss or further loss charges on cash generating units.

In order to check a cash generating unit for impairment, we need to determine the recoverable amount of each of the assets of the cash generating unit[ CITATION Eas10 \l 1033 ]. Where the recoverable amount of assets cannot be determined on an individual basis, then under such circumstances, the recoverable amount of the nit as a whole should be considered while checking for impairment. Where the assets are dependent on some other asset, then under such circumstances the cash flows for individual assets are difficult to account for, and hence, the recoverable amount of the unit as a whole is taken into account[ CITATION Ela15 \l 1033 ].

For the calculation of the impairment loss of a cash generating unit, we need to determine the recoverable amount[ CITATION Fri12 \l 1033 ]. The recoverable amount for cash generating unit should be higher of value in use and the fair value net of selling expenses. The carrying amount of the assets of a cash generating unit which are expected to contribute to the future cash flows of the entity should only be taken into consideration. Also, the liabilities of the cash generating unit which are directly connected with the revenue generation should be taken into account.

While recording the impairment loss for the assets of a cash generating unit, the new carrying amount should not be less than, highest of the following:

1. Value in use
2. Fair value (net of selling expenses)
3. Zero

The impairment of the cash generating units is to be calculated just like that of any other individual asset. When the carrying amount of the cash generating unit is more than the recoverable amount, then the difference is recorded as impairment loss on cash generating unit in the books. The impairment loss so calculated is first allocated to the goodwill, and then the remaining loss is distributed in the proportion of the carrying amount of the assets of the cash generating unit. The loss so calculated will be deducted from the carrying amount of such assets. The loss will be treated in the books in the same manner as the impairment loss of an individual asset[ CITATION Sim12 \l 1033 ].

If the cash generating unit contains an asset that does not generate any cash, then the impairment loss should be allocated to such asset also. The loss allocated to such asset shall be based on the carrying amount like that of the other cash generating assets. The carrying amount of the non cash generating asset shall be determined based on the services of such asset used by the whole unit. This will result in the display of the carrying amount of the non cash generating asset net of impairment loss.

The reversals of impairment loss of the assets of a cash generating unit will also be reversed based on pro rat basis of the carrying amounts of these assets, except for the non cash generating asset, which will not be considered while reversal of impairment losses.

For the assets whose recoverable amount cannot be determined, impairment loss for such assets will be calculated if the carrying amount of such asset exceeds the fair value net of selling expense. If the cash generating unit is as a whole is not impaired, then impairment for individual assets of such units should be ignored.

The impairment test for the cash generating units should first be excited in order to impair the assets. If the test concluded that the unit is impaired then impairment should be calculated as stated above. Proper disclosures regarding the assets impaired during a reporting period is required to be made in the annual report.

Therefore, it is important that the impairment of the cash generating units are properly calculated, accounted and disclosed in the books, in order to ensure correct information for the users of the financial statements.

Part B:

We have been provided with the carrying amount of the following assets:

Item

Carrying Amount

Factory

1,83,700

Trade mark

42,000

Vehicle

26,000

Inventory

11,000

Goodwill

9,000

Total CA

2,71,700

The recoverable amount of this cash generating unit is 244700 and the carrying amount is 271700. This results in impairment loss of $27000 (271700-244700). We have been provided with the recoverable amount of factory as $177132. This means impairment of the factory is $6568 (183700-177132). Also, the unit has goodwill of $9000 which will be first written off form the impairment loss. This leaves the impairment loss of $11432 (27000-6568-9000) which is to allocated amongst the remaining assets on pro rata basis as given below:

Particulars

Carrying Amount

Ratio

Impairment Loss

Trade mark

42,000

0.53

6,078 (11432*0.53)

Vehicle

26,000

0.33

3,762 (11432*0.33)

Inventory

11,000

0.14

1,592 (11432*0.14)

 

79,000

 

11,432

The following is the new carrying amount of the assets of the cash generating unit:

Item

Carrying Amount

Factory

1,77,132

Trade mark

35,922

Vehicle

22,238

Inventory

9,408

Total CA

2,44,700

The following journal entry to record the above loss in the books will be passed:

Particulars

Dr Amt

Cr Amt

Accumulated Impairment account

27,000.00

 

To Factory

 

6,568.00

To Trademark

 

6,077.77

To Vehicle

 

3,762.43

To Inventory

 

1,591.80

To Goodwill

 

9,000.00

(Being impairment on assets realised)

 

 

 

 

 

Impairment loss

27,000.00

 

To accumulated impairment Account

 

27,000.00

(Being impairment Loss realised)

 

 

Bibliography

1. Alvarez, F. (2013). Financial statement analysis. Hoboken, N.J.: Wiley.
2. Australian Accounting Standards Board. (n.d.). Impairment of Assets. Retrieved from www.aasb.gov.au: https://www.aasb.gov.au/admin/file/content105/c9/AASB136_07-04_COMPjun09_01-10.pdf
3. Australian Accounting Standards Board. (n.d.). Property, Plant and Equipment. Retrieved from www.aasb.gov.au: https://www.aasb.gov.au/admin/file/content105/c9/AASB116_07-04_COMPjun09_01-09.pdf
4. Bragg, S. (2015). IFRS guidebook. Hoboken: Wiley.
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