Advanced Corporate Accounting

Question: Discuss about the Advanced Corporate Accounting. Answer: Introduction: Impairment loss is acknowledged only when the carrying value of an asset surpasses its recoverable sum that is more than the fair value of the asset less the expenses to sell and worth that in use. According to the AASB 136, Para 59, only if an assets recoverable amount is lesser than its carrying amount, the assets carrying amount should be deducted to its recoverable amount and this particular deduction is known as impairment loss (Charteredaccountants.com.au 2016). On the other hand, as per the AASB 136, Para 60, an impairment loss is generally identified instantaneously in the loss or gain, unless the particular asset is approved at a revalued amount as per the Standard (Charteredaccountants.com.au 2016). The impairment loss of a revalued property should be considered as a revaluation fall according to the other Standard. Therefore, technically, the terminology impairment loss can be defined as the reduction in the net carrying value, the acquirement expense less depreciation, of a property which is more than the undisclosed flow of cash of the similar asset in the future. It can also be said that an impairment loss generally takes place when the assets are abandoned or sold as the organization does not expects any longer regarding the advantages of the operations for long-term. This is the particular fact, for which it varies from a written-down, although the impairment losses frequently resulted into a taxation delay for the property. On the basis of the kinds of assets that are impaired, the shareholders of a publicly held organization might also lose its equity in their stocks that might also resulted into a lower value of debt to equity ratio. The objective of the accounting standard AASB 136 is to suggest the methodologies that a unit can incorporate in order to make sure regarding its assets that will be carried at no more than the recoverable amount (Aasb.gov.au 2016). The particular asset is carried at greater than its recoverable amount only if the carrying sum surpluses the total sum to be recovered by selling the assets. This particular standard can be applied to every unit which is needed to construct the fiscal reports according to the Part 2M.3 of the Corporations Act and this is a coverage unit (Aasb.gov.au 2016). This standard can also be implemented for common rationale of the monetary reports of every other coverage. Additionally, the AASB 136 Standard of Accounting is also implemented within the fiscal news, which is, or is considered for common principle of fiscal reports. This standard of accounting (AASB 136) has various scopes and thus it can be implemented within the accounting for all assets impairment other than the inventories (AASB 102), properties that arises from the contracts of construction (AASB 111), deferred tax assets (AASB 112 Income Taxes) (Aasb.gov.au 2016). The other properties that arises from the benefits of the employees (AASB 119) and the fiscal assets that are present in the scope of Financial Instruments: Recognition and Measurement (AASB 139) are also considered as the exceptional impairment of assets for the scope of the AASB 136 (Aasb.gov.au 2016). Moreover, the Investment Property (AASB 140), Agricultural activities that are determined through fair value (AASB 141), Insurance contracts (AASB 4) and Non-current assets that are held for discontinuation and sale of operations (AASB 5) are also enlisted under exceptional cases (Aasb.gov.au 2016). Therefore, it can be said that the particular standard of accounting AASB 136 is only applied to those monetary assets that are classified under AASB 127, AASB 128 and AASB 131 (Aasb.gov.au 2016). The accounting stan dard AASB 127 is related to the subsidiaries under Consolidated and Separate Financial Statements, on the other hand, AASB 128 is related to the associates under Investments in Associates and AASB 131 implies the joint ventures under Interests in Joint Ventures (Bragg 2013). However, the impairment loss can be measured and recognized as per some requirements that are mentioned in the Paragraphs 59-64 (Aasb.gov.au 2016). According to the mentioned paragraphs, the impairment losses can be measured and recognized for an individual property other than the goodwill and cash-generating units that are dealt with the paragraphs 65-108 (Picker 2012). When the estimated amount for the impairment loss is more than the assets carrying amount to which this is related, a unit should determine a liability only if that is needed by another Standard. In addition to this, with the identification of the impairment loss, the amortization and the depreciation charge for the particular property should be accustomed. The reason behind this is that it helps in assigning the amended carrying amount of the assets in the future by subtracting the outstanding value on the methodical order over its rest of the functional life. It has been found that when an impairment loss is identified, the associated deferred tax liabilities or assets are identified as per the accounting standard AASB 112 (Dagwell et al. 2012). This is done by evaluating the amended carrying amount of the property with its taxation base. According to the Paragraphs 66-108, the requirements for determining the cash-generating units are set out to which the property is belonged and is identified for carrying amount. From this, the impairment losses are recognized in order to generate cash units and the goodwill. Therefore, it can be said that the identification of the impairment losses is very simple and can be done systematically. Thus, the calculation of the impairment loss is also simple. At first, the factors responsible for leading the impairment of the assets should be identified. Some of the factors include regulatory enforcement or new legislation, change in market situations, workforce turnover and decrease in functionality of the assets for aging (Jersey 2013). It has been found that implementation of new technologies or techniques might lead to drop in the fair market value. In other words, it can be said that the fair market value calculation is the essential part as without its proper calculation, the impairment of asset cannot be determined. Thus, the fair market value plays an important role in the calculation of the impairment loss and as it is assigned, its value can be easily compared with the assets carrying value that is present in the fiscal declarations. The impairment losses are generally identified either by the revaluation model or the cost model, based on the criteria that the debited amount has changed by new or adjusted fair market valuation. (i) Calculation of Impairment Loss:- Particulars Amount Carrying Amount of Assets (A) $1,680,000 Recoverable Amount of Assets (B) $1,420,000 Fair Value of Assets ( C) $171,000 Real Value of Assets (D = Higher of B C) $1,420,000 Impairment Loss (A-D) $260,000 Less : Goodwill on Acquisition $40,000 Impairment Loss Less Goodwill $220,000 Impairment Loss Allocation:- Particulars Amount Percentage Impairment Land 200000 12% 26829 Inventory Products 180000 11% 24146 Brand "Crossbow Shoe" 160000 10% 21463 Shoe Factory 700000 43% 93902 Machinery for Manufacturing Shoes 400000 24% 53659 TOTAL 1640000 100% $220,000 In the Books of Crossbow Ltd. Journal Entry Dr. Cr. Date Particulars Amount Amount ($) ($) 30/06/2015 Impairment Loss A/c. Dr. 260,000 To, Goodwill A/c. 40000 To, Land A/c. 26829 To, Inventory Products A/c. 24146 To, Brand "Crossbow Shoes" A/c. 21463 To, Shoe Factory A/c. 93902 To, Machinery A/c. 53659 (Being the net identfiable assets liabilities and goodwill impaired based on the recoverable amount) Income Statement A/c. Dr. 260,000 To, Impairment Loss A/c. 260000 (Being the amount of impairment loss on machinery transferred to Income Statement ) References Aasb.gov.au. 2016.Aasb.gov.au. [online] Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB136_07-04_COMPapr07_07-07.pdf [Accessed 24 Sep. 2016]. Bragg, S. 2013.Accounting best practices. Hoboken, N.J.: John Wiley Sons. Charteredaccountants.com.au. 2016.AASB 136 Impairment of assets. [online] Available at: https://www.charteredaccountants.com.au/Industry-Topics/Reporting/Australian-accounting-standards/Analysis-of-AASB-standards/AASB-136--Impairment-of-assets?standard= [Accessed 24 Sep. 2016]. Dagwell, R., Wines, G., Lambert, C. and Psaros, J. 2012.Corporate accounting in Australia. Frenchs Forest, N.S.W.: Pearson. Jersey, C. 2013.Introduction to corporate accounting. New Delhi: Random Exports. Picker, R. 2012.Advanced corporate accounting. Milton, Qld: John Wiley Sons.