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HA 3011 Advanced Financial Accounting Statements

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  • Course Code: HA 3011
  • University: Holmes Institute
  • Country: Australia


In the excel file “Find Your Company” you will find the listed company you have been given for this course. This file will be made available on Friday of Week 4. Complete this assignment for the company you have been given. Please be careful to use the listed company you have been given. Your assignment will not be marked if you use a different company to the one you have been given; and you will be asked to resubmit your assignment using the right company. Go to the website of your company, by clicking on the URL next to your company in the list of companies in the file “Your Company”. Then go to the Investor Relations section of the website. This section may be called, “Investors”, “Shareholder Information” or similar name. In this section, go to your firm’s annual reports and save to your computer your firm’s latest annual report. For example, these may be dated 30 June 2015 or 31 March 2016. Do not use your firm’s interim financial statements or their concise financial statements. You are need to do the following tasks: Please read the relevant footnotes of your firm’s financial statements carefully and include information from these footnotes in your answer. Within your firm’s latest annual report
(i) From your firm’s annual report find out the asset/s that your firm has tested for impairment.
(ii) How did your firm conduct the impairment testing?
(iii)Has your firm recorded any impairment expenditures during the period?
(iv) Identify the key estimates and assumptions used by your firm in conducting the impairment testing.
(v) Do you find any sort of subjectivity involved in the impairment testing process? How can this subjectivity influence the outcome of the impairment testing?
(vi) What do you find interesting, confusing, surprising or difficult to understand about the impairment testing?
(vii) What new insights, if any, have you gained about how companies conduct impairment testing? (viii) Based on your assignment, comment on the “fair value measurement”.



Bell Financial Group Limited Company has been given to make the analysis of the annual report of the company. The company is Australia based and listed on the stock exchange of Australia. The company is in into the business of broking, financial and advisory related services. For the purpose of the analysis of the impairment testing the company’s annual report of the company for the financial year ending 2016 has been considered. It is because the year end results for the year 2017 will be made available after 21st of February 2018 as mentioned on the website of the company.

The company has tested the following assets including the tangibles and the intangibles both for the purpose of the impairment as laid down in the accounting standard number 136. These are:

  • Other intangibles assets of the company and the major intangible Goodwill of the company which is acquired on the business combinations, mergers of acquisitions. Other intangible comprises of research and development and customer lists.  
  • Loans and Advances given by the company in the ordinary course of the business.
  • Property plant and equipment of the company including the furniture and fixture, office equipment and leasehold improvements.
  • Trade receivables from whom the amount is receivable on account of the supply of services or selling of any product (Company Official Website, 2016).

Thus, following are the assets which have been tested for the impairment.

The company has conducted the tests for impairment of the aforementioned assets in accordance with the accounting standard number 136 and also in accordance with the key assumption and the estimates that the company has made in accordance with the present market conditions.

The process of the impairment tests have been listed below:

  • In the beginning, the carrying amount is identified and which is equal to the amount as mentioned in the statement of affairs of the company.
  • Then the recoverable amount will be determined and well calculated
  • Then both the values are compared and in case the carrying amount in identified as in excess of the recoverable amount then the impairment will be charged to that particular assets.
  • For identifying the recoverable amount, few calculations are required to be made. These include the calculation of value in use and the net selling price. Value in use is the amount which will be equal to the net present value of the cash inflows and the outflows estimated for the future years and that too comprises of the terminal value of the asset at the end of its useful life. Net selling price is nothing but the amount equal to the amount received as net of expense for the sale of the assets (AASB, 2016).
  • For the impairment of the trade receivables and the loans and advances the risk factors are observed as to whether the company will be able to receive the exact amount stated in the balance sheet or the less will be received. If second will be the case then the impairment will be charged.  
  • The annual report has further stated that in case the individual assets as stated in the balance sheet may be it tangible or intangible is not able to provide the income independently to the company then the cash generating units will be identified and accordingly the recoverable amount and the carrying amount will be ascertained.

When the carrying amount of an asset exceeds the recoverable amount of the assets, the charge of impairment is required to be made on the asset by deducting the value from the asset of the company and by charging the equivalent amount to the statement of the profit and loss account.   In the case of the given company – Bell Financial Group Limited, the assets have been tested for impairment but zero value has been charged to the consolidated statement of the profit and loss account. The detail of the impairment charges and the assets corresponding to impairment is give below:

  • The company has reported the Nil Amount of impairment on loans and advances as at 31stof December 2016.
  • Trade debtors and other receivables also have included the Nil amount of the impairment for the year ending 31stof December 2016 and also nil amount in the previous year.
  • No impairment has been charged for the goodwill and other intangibles also not only for the current financial year ending but also for the financial year ending 31stof December 2015.
  • Impairment has also not charged for the property plant and equipment not only for the current financial year ending but also for the financial year ending 31stof December 2015 (Company Official Website, 2016).

The key assumptions and the estimates as used by the company for the purpose of calculation of the impairment charges have been detailed below:

  1. The first and foremost basic assumption is that the tangibles and the intangibles are tested for the impairment on the yearly basis and that too on the end of the financial year that is the balance sheet date.
  2. Secondly the trade and other receivables including the loans and advances are tested for the impairment on ongoing basis. It is because the trade receivables forms part of the working capital of the company and it is required to check for impairment on regular basis otherwise the receivables will be quoted on high values.
  3. Apart from other intangibles the goodwill is also tested for the impairment on frequent basis in case the circumstances and the facts existed. The goodwill is allocated to retail and wholesale which further represents the lowest level and is available basically for the purpose of internal monitoring by the company.
  4. For loans and advances, the impairment check is done on individual basis rather than as the whole group.
  5. The cash flows projected for determining the recoverable amount has been obtained from the financial plan of the company which has been sanctioned by the management of the company and discounting rate used is approximately 11 percent and is after tax rate (Company Official Website, 2016).
  6. The growth rate has been identified keeping in consideration the market conditions, inflationary conditions and pricing of the services.

Thus, the above are the key assumption and the estimates that have been used for testing of the impairment.  

In common parlance subjectivity is meant as being influenced by someone or feelings. If the term subjectivity is used for the impairment testing then in some manner it will doubt the accuracy of the financial statements of the company and its true and fair view.

The company has charged nil amount of the impairment in the entire asset which details that the company has in some manner manipulated the figures for the impairment calculations. Secondly the company has not detailed the calculation of the value in use and also not disclosed the mode of computing the discounting whether it is the cost of capital or the weighted average cost of capital.

For me the impairment testing process is the surprising one as nil amount of impairment has been charged after making various key assumptions and the estimates. It depicts either the company is working very well or is working in very ineffective manner.

No impairment can be charged by the big and listed company is the most surprising fact for me.  Confusing part is that the disclosure of the calculation of the discounting rate has not been given. Thus, the impairment testing is confusing as well as surprising for me.

The company has mentioned the provision of the Australian Accounting and standard number 13 on the fair value measurement and stated that the fair value is equal to the amount received for selling of the asset or pair for transferring the liability. The company has made the accounting classifications and mentioned the fair value accordingly. For instance financial assets measured at fair value and not measure at fair value comprising of equity securities and the current assets including the debtors and cash respectively.


The former accounting standard on lease carets the doubt about the real liabilities for the company in case of the operating lease contracts. At the time of the crisis in financial sector, some of the major retail companies have recorded their off the balance sheet liabilities which long term operating lease obligations to 66 times higher than the actual reported liabilities (Ely, 2015). Also, the business the not so quick to record and ascertain the correct amount of liability in former accounting treatment of operating lease. Also, the lack of information about the amount of liability in the balance sheet makes the situation of investor to assess the net worth of the company with calculation done by him for ascertain the liabilities. This will create ambiguity among different users to the financial information. The company and its management also manipulate the unaware investors about the fact of their non recognition of the liabilities in the balance sheet. Thus, with these facts it can be said the accounting treatment under former standard by IASB lacks the reality in economic terms (Day and Stuart, 2013).

The chairperson has said the statement of having off the balance sheet 66 times higher than the reported debts in the balance sheet for reporting entities because of the fact the reporting entities under former accounting standard need not to record the operating lease commitments which are generally long term in nature (Ma, 2011). They are able to influence the different users to the financial information to fool them by disclosing operating lease commitment as contingent commitment and having high asset base. This dodge in law will attract most of the companies to enter into the operating lease arrangements which are very high than the actual liabilities. This situation creates actual long term financial commitments which were recorded off the balance sheet to higher than reported commitments with 66 times or with unexpected huge amount (Singh, 2011).

There is the deficiency of comparison under the former scenario on leases as the accounting treatment for lessee and lesser are very different from each other. If the financial accounts of the two companies working in same industry are not comparable then they cannot play in market against each other in the same manner. Comparability of the financial information helps in understanding the different trends and their on the future performance of the company which is majorly required for creating an opinion about the affairs of the company (Singer, 2017). This can be substantiating with help of the example of the airline companies. In airline companies the accounting treatment under former rules for recording the lease contracts for the selling the fleet by lesser is different from the accounting treatment of buying the fleet by lessee despite of the fact the financial commitment in the lease contracts are exactly the same for both. Thus it can be considered true that no playing fields available for these two companies working in same industry in terms of analytical review (Gross, 2014).


The modification in lease contracts will demand huge change in the accounting in the books of the lessee as the lessee has to record all its liabilities and assets relating to lease assets to have better economic position. This will demand cost to change the systematic arrangements already placed in before by the management of the company (Knubley, 2010; Moore and Nagy, 2013). Also, the human nature of rigidity towards the change will also lacks the popularity of modification in the lease contracts by the companies. Thus, the new changes are discourage by the different business sectors as it will create negative impact on the accounting of leases and can have undesirable economic and financial effect (Lim, 2014).

The changes in lease accounting treatment are not making lease contracts out of market. In fact, they helps in removing the artificial benefits to accounting and helps in having the real accounting picture of the business so they will not lose the real economic benefit and remain appealing to avoid the risk of ownership of asset. Also, the changes helps in improved and authentic credit rating of the business as the credit rating are done after considering all the commitments which can hamper the assets of the company. Thus, it helps the investors to have better leasing decisions along with management of the company to go for lease contract over having the ownership of the asset (FASB, 2016).



AASB, (2016), “Impairment of Assets” available at  accessed on {23-01-2018}.

AASB, (2016), “Financial Instruments: Recognition and Measurement” available at accessed on {23-01-2018}.

Company Official Website, (2016), “Annual Report 2016”, available on accessed on {23/01/2018}.

Day, R. and Stuart, R., (2013), “New lease accounting proposal: what it means and what companies can do to prepare.” Financial Executive, 29(6), pp.11-13.

FASB, (2016), “New Guidance on Lease Accounting” available at  accessed on {23/01/2018}.

Ely, K.M., (2015), “Operating lease accounting and the market's assessment of equity risk”. Journal of Accounting Research, pp.397-415

Gross, A.D, (2014). “The path of lease resistance: How changes to lease accounting treatment may impact your business”. Business Horizons, 57(6), pp.759-765.

Knubley, R., (2010). “Proposed changes to lease accounting”. Journal of Property Investment & Finance, 28(5), pp.322-327

Lim, S.C., (2014), “Market Recognition of the Accounting Disclosure and Economic Benefits of Operating Leases: Evidence from Borrowing Costs and Credit Ratings”.

Ma W, (2011), “Impact on Financial Statements of New Accounting model for leases” available at accessed on {23/01/2018}

Moore, S. and Nagy, A., (2013), “

Contract Structuring Under The New Lease Accounting Rules: The Case Of Custom Design Retail, Inc.” Global Perspectives on Accounting Education, 10, p.81

Singer, R, ( 2017), “Accountinq for Leases Under the New Standard, Part 1: Definition and Classification of Leases and Lessee Accounting”. CPA Journal, 87(8).

Singh, A.,( 2011). “A restaurant case study of lease accounting impacts of proposed changes in lease accounting rules”. International Journal of Contemporary Hospitality Management, 23(6), pp.820-839.

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