Impairment Test in Corporate Accounting- MyAssignmenthelp.com

Question: Discuss about theImpairment Test in Corporate Accounting and Practice. Answer: Introduction This essay consists of various rules and regulations which are applicable on impairment test applied on assets. In this essay, a key study is prepared on the applicable rules and laws which should be followed while reversal of impairment of loss of an individual asset. It is evaluated that Impairment test is necessary to identify the true and fair view of assets of organization. Reversal of an Impairment Loss for Individual Assets Each and every organization has to disclose its financial statement which reflects true and fair view. The impairment of assets is one of the methods to determine the true and fair view of the assets shown in the balance sheet of organization. This impairment test is defined under the international accounting standard 136 which covers all the applicable rules and regulations in determined approach. This international accounting standard-136 describes the classification of assets which could be deployed for the impairment test including impairment test method for financial and non financial assets. This impairment test will help organization to determine impairment loss by estimating the true value of all the assets of organization. It is considered that IAS-36 has several provisions and rules which are implemented with a view to cover the impairment losses from the goodwill and other intangible assets (Duh, Lee and Lin, 2009). Identification of Assets that may be Impaired In this impairment test, assets are impaired when recoverable amount is less than carrying amount. As per the IFRS, It is evaluated that intangible assets of company should be gone through impairment test on each and every reporting period. A company could easily implement impairment test on its assets irrespective of lives and amount of intangible assets (IFRS, 2009). Application of this Standard: IAS 136 is applicable on the following assets such as land, fitting, plant, equipment, building and machineries. However, following assets are not included while implementing impairment test in the organization such as inventories and other goods. Nonetheless, investment in Subsidiaries Company and goodwill are reported as main assets on which impairment test is applied for recoverable amount. Impairment Loss It is the amount of losses which arise after deducting the recoverable amount from the carrying amount of individual assets. In this essay, impairment loss is identified only on individual assets for identifying their true value. Computation of impairment loss Impairment loss = Carrying amount of assets- recoverable amount Where, Carrying amount of individual asset is value of cash inflow which is calculated after deducting all the impairment loss. It is considered that Paragraph 18- 57 of international accounting standard assist accountant to determine recoverable amount of individual assets. Carrying value of assets would be higher of the two following. Value of assets in internal business functioning Or Fair value of CGU less cost of sale Recognizing and measuring an impairment loss: In paragraph 65-108 impairment loss is recognized. Impairment loss is measured only if carrying amount of asset is higher than recoverable amount (Ernst young, 2017). An impairment loss of individual assets shall be allocated in systematic way. Firstly loss will be satisfied from the goodwill then remaining loss will be charged from the others assets on pro rata basis. Reversal of Impairment Loss of Individual Assets The impairment loss of individual assets shall be assessed at the end of period when assets are reported. There is need to be sign that an impairment loss recognized in prior period for an assets other than goodwill that may have decreased. Therefore, impairment loss recognized in earlier period for assets other than goodwill shall be reversed. A reversal of impairment loss for assets shall be determined immediately in profit and loss account, unless the revaluated assets carried at revalued amount as per the IFRS rules and regulations. In addition to this any reversal of computed impairment loss of a revalued assets shall treated as revaluation. However, there is another provision given that an impairment loss recognized for goodwill will not be accounted for reversal subsequent period. For the further explanation of reversal of impairment loss it is given that the increased carrying amount of assets other than goodwill which has been taken for reversal of impairment loss shall not exceed the carrying amount which would be determined and had no impairment loss recognized for the assets in prior year. This reversal of impairment loss will be distributed to the cash generating units on pro rata basis other than goodwill. Therefore, Increment in carrying amount will be used for reversal of impairment losses and recognized as per the regulations given in paragraph 119. In addition to this, reversal of impairment loss of non revaluated assets will be recorded in profit and loss account. On the other hand, impairment of loss would be recorded in balance sheet to reduce the value of assets (Rennekamp, Rupar and Seybert, 2014). Now in the end, it would be inferred that each and every organization should be indulged applying IAS 136 rules and regulation in systematic manner to identify true and fair view of individual assets. References Duh, R.R., Lee, W.C. and Lin, C.C., 2009. Reversing an impairment loss and earnings management: The role of corporate governance. The International Journal of Accounting, 44(2), pp.113-137. 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. IFRS 2009, Module 27 impairment of assets, London: IFRS foundation. Ernst Young 2017, impairment accounting the basics of IAS 36 impairment of assets, viewed on 18 May 2017 from https://www.ey.com/Publication/vwLUAssets/Impairment_accounting_the_basics_of_IAS_36_Impairment_of_Assets/$FILE/Impairment_accounting_IAS_36.pdf.