Planetary Boundary Implications Impairment -Myassignmenthelp.Com

Question: Discuss About The Planetary Boundary Implications Impairment? Answer: Introducation The AASB 136 defines an asset of any company to be impaired if the value recorded of that asset in the companys balance sheet is found to be greater than the actual market price of that specific asset. The written-down assets of a company are known as the fixed assets and goodwill because the carrying values time spans for those assets are larger for the purpose of impairment. If, however, a particular assets carrying amount is found to be larger than the assets value recoverable, then in that case that specific asset of the company is taken to be impaired (Bond, Govendir and Wells 2016). Therefore, in the presence of symptoms of an asset to be impaired, the concerned company needs to estimate the recoverable amount for that asset, for finding out impairment in the asset (if any present). Generally, the companies conduct the test of impairment on the concerned assets by estimating the amount recoverable for the assets at the end of the reporting periods. However, if there are strong indications of presence of impairment in assets, then the company can carry out the impairment test not just annually, but more frequently (Rennekamp, Rupar and Seybert 2014). Irrespective of the presence of symptoms indicating impairments in assets, the companies need to test their intangible assets, which do not have a definite useful life, or their tangible assets, which are yet unavailable for the purpose of impairment. For a particular asset, the concerned company at any point can carry out the impairment test within an accounting year. However, the company needs to perform the test on the asset consistently at the same time in each of the successive accounting years. There may be different times for impairment testing on different assets of the company. There remain several indications towards the presence of impairment of assets in the company, the indicators being both external as well as internal (Corgnati et al. 2013). The internal indications include a) physically damaged or obsolescent available assets, b) evidences of changes which affect the companies adversely (these changes mainly include the presence of idle or restructured assets, disposal plans for the assets prior to the end of their expected life, presence of idle assets and others). On the other hand, the external indicators of impairments of a companys assets include- a) the presence of symptoms of considerable dynamics with potential negative impacts on the concerned company, b) presence of assets with significantly decreased market value than the expected value, c) presence of increased return or interest rate, the rate increasing considerably within a specific span of time, thereby having potential implications on the companys discount rate, which in turn is use d by the company for the purpose of the estimations of the value of the assets (Johnson 2014). In general, the recoverable value of an asset is the higher value among the assets fair value less the disposal cost and the value in use of the same. The same notion is also applicable not only for the individual assets but also for the cash generating units of the company. The estimation of the value of the asset is done through- a) the future expected time variations or the variations in the cash flow which are anticipated to occur, b) the uncertainty cost, which is inherently included in the assets, c) future cash flow estimations which the company expects to generate, d) other exogenous determinants like the market participation, market liquidity and the expected cash flows in the future for the company (Guthrie and Pang 2013). In turn, the expected cash flows includes- a) the cash flows expected to be received for asset disposal, b) the estimations of the inflow cash which are expected to be acquired from the generation of cash inflow from consistent asset usage. As per the Para 66-108, of the AASB 136, there are guidelines for the identification requirements for those assets including cash generating units, for determination of the carrying amount and for the recognition of the impairment losses for the cash generating units and the goodwill. If there are indications of impairment in any asset, then the company in concern needs to calculate the amount recoverable for the same. However, it may happen in some cases that the estimation of the recoverable amount of the asset in concern is not feasible (AASB 2014). In such cases, the company can assess the recoverable amount of the CGU, which includes the asset considered. CGUs are primarily the smallest group of assets, which involve the regulation of cash flow and are independent of cash inflows from other assets or from other group of assets. The recoverable amount of a CGU is generally the higher value among the fair value less disposal cost and the CGUs value in use. In the process of impairment testing of a CGU or a group of CGU, with the goodwill allocated, the impairment loss is first allocated to the carrying amount of that of the goodwill and after that allocation, the remaining amount of loss is distributed among the other assets, present within the same CGU (Dinh et al.). The loss is allocated on the carrying amount of each of those asset, in pro rata basis. This process does not decrease the carrying amount of the asset under the higher between the assets recoverable amount and zero. The process of allocation of impairment loss is same for an individual CGU or a group of CGUs. If there arises cases where goodwill allocation to a single CGU is not feasible on non-arbitrary basis, then in those cases, impairment test is conducted at the companys lowest level, whose goodwill has been indentified for the purpose of internal management. As per Para 5 of the IFRS 8, the concerned level should not be higher than the operating segment. The allocation of the goodwill to the group of CGU can lead to multiple requirements of the test for impairment. For example, the testing of one CGU can be done for individual CGU and for the CGU group, which has the goodwill allocated to it. Therefore, to allocate the loss arising out of impairment to a CGU, excluding the goodwill, the same has to be conducted on a pro rata basis and it has to be done on the carrying amount of the other assets which are also included under the concerned CGU (Linnenluecke et al. 2015). References AASB, C.A.S., 2014. Business Combinations.Disclosure,66, p.77. Bond, D., Govendir, B. and Wells, P., 2016. An evaluation of asset impairments by Australian firms and whether they were impacted by AASB 136.Accounting Finance,56(1), pp.259-288. Corgnati, S.P., Fabrizio, E., Filippi, M. and Monetti, V., 2013. Reference buildings for cost optimal analysis: Method of definition and application.Applied energy,102, pp.983-993. Dinh, T., Kang, H., Morris, R. and Schultze, W., Evolution of Intangible Asset Accounting: Evidence from Australia.Journal of International Financial Management and Accounting. Guthrie, J. and Pang, T.T., 2013. Disclosure of Goodwill Impairment under AASB 136 from 20052010.Australian Accounting Review,23(3), pp.216-231. Johnson, P.F., 2014.Purchasing and supply management. McGraw-Hill Higher Education 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. Rennekamp, K., Rupar, K.K. and Seybert, N., 2014. Impaired judgment: The effects of asset impairment reversibility and cognitive dissonance on future investment.The Accounting Review,90(2), pp.739-759.