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Background You are a recent accounting graduate and have been employed in the Financial Reporting Unit of Myer Holdings Ltd, an ASX listed firm. Preparations are underway for the completion of the general purpose financial report for the year ended 29 July 2018 and you have been asked by the Chief Financial Officer to identify any major accounting issues which will need to be considered. Your attention is drawn to a media release by ASIC on 31 May 2018 (ASIC Media Release 17?162) and this identifies areas of concern where attention will be directed in the ASIC surveillance program. Not surprisingly given a recent academic paper1 ‘impairment of assets’ receives specific mention.

Required:

You are required to prepare a report for the CFO considering whether impairment of assets is an issue requiring address for the firm.

The report should, with reference to AASB 136:

a) With reference to Myer outline what evidence is there that impairment testing of assets is necessary;

b) With reference to Myer outline the processes required to be addressed in determining any asset impairments that might be necessary

c) With reference to Myer outline the information needed in determining asset impairments

d) Evaluate the flexibility management has available in the determination of asset impairments .

Background

Impairment of assets is a substantial accounting reconciliation as it is an important part of a company to identify the true recoverable value of the assets and liabilities recorded in the financial statement of company. According to AASB 136, Impairment of Assets, impairment means falling down in the value of assets whether indefinite or irrevocable of fixed assets including both tangible and non-tangible assets. It occurs due to the overvaluation of assets in the books of accounts from its versatile value, that simply means if the assets are to be sold that may recover less amount as compare to the amount shown in the books of accounts due to overvaluation of assets. This report simply composed for a motive of an announcement through the media that the ASIC (Australian Securities and Investment commissions) has to be done in last of May 2018. This accouchement is shared with the media with an intention to pass the information among all the companies that the financial statements off company would follow all the rules and regulations given in AASB 136 to identify the true recoverable value of the assets and liabilities recorded in the financial statement of company. The AASB 136 covers all the accounting treatment of impairment of assets of financial assets and liabilities of Myer Holding Ltd.

The announcement regarding the impairment of assets clearly declare that this would be the important part of accounting treatment that a firm has to do, as testing of assets that should be impairment mentioned in the financial report of company. The report declares the complete information regarding the importance of the impairment of the assets for the transparent view point of the assets.

According to the announcement done by ASIC the directors and the auditor are responsible for the same terms regarding that, they are as follows:

The directors and auditor make sure that the company's speculation regarding the cash flow of assets must be appropriate that shown in the books of accounts. All the directors needs to evaluate their financial statements and recorded accounts as per AASB 136 so that they could keep the business more transparent towards the stakeholders.

The difference between the actual value and the value that shown in the books are evaluated adequately and in a proper manner by considering adequate cash flows regarding the assets of company.

For doing the evaluation of impairment of assets in Myer Holding Company no speculative data of cash flow considered, only adequate and actual cash flow is considered while evaluating the impairment of assets.

Required Report for CFO

The test of impairment of assets of Myer Holding Company contains the reassessed value of assets and liabilities that might be influenced by the internal and external forces that leads to the adverse or different result of testing.

The risk included in the assets and the places where it deemed to be occurring must decide before deciding the discount rates on risks of Myer Holding Company. The discounted rates are related with the different activities allied with different profit producing activities under different type of risks included.

The cost of issuance must be adequate and affordable in nature regarding to the assets.

The actual value of assets and liabilities that has to be mentioned in the accounting books must be resolute. The process of costing must be ratified through cost drivers.

Evidences of testing of impairment of Myer Holding Company refers to the situation where the company are supposed to be think about the testing of impairment of assets considered in the books of accounts in consequential manner. The evidence may be based on external or internal aspects that lead to the impairment of assets. The evidence that considered is as follows:

It includes any substantial harm that perceive in the Myer Holding Company recently.

All the assets of Myer Holding Company are not operated according to the performance set for them.

The operating cost of company increases unexpectedly at an uncertain level of the firm.

Assets of Myer Holding Company are to be superannuated according to the requirement of the firm as per the plans set previously. In the annual report, these ideas are to be considered for the business.

The performance of Myer Holding Company is not up to mark that is estimated and making unexpected increase in the cost.

There are some of the external factors of Myer Holding Company which might evidence the impairment testing need.

The unexpected increment in the interest rates in the market affect the discount rates which make an adverse fall in the value of the assets that are to be used in the firm.

New technology, procedures, rules or economy introduced in the market that leads to the new expansion in the assets that already in use of the firm.

It includes for putting the carry forward value of assets on the excessive side in the balance sheet over the market capitalization value of Myer Holding Ltd.

Due to rapid changes, decreasing in the valuation of assets, impairment testing helps the company to find out or evaluating the actual value of assets that are to be mentioned in the books of accounts of a company. Determining the evidences is not only the way to cure the problem, the company may determine by certain processes whether the impairment test is to be done or not. The following steps are to be included to find out whether the impairment test is necessary or not:

Impairment of Assets

In the first step, we should check the evidences as they are as much compatible and strong enough that on the basis of them the impairment tests of assets are to be done related to the cash flow of assets.

The second step consist that the company may evaluate various required elements related to this, that considered the impulsive value of tangible and non-tangible assets are doing the comparison between the value of using at present and future after sale value.

The third step, considered whether the valued amount of assets that shown in the books of accounts is less than the impulsive amount of assets that should be determined before.

After determining, whether the assets are to be impaired or not, the company needs to maintain a separate account of losses in profit and loss account that occur during the impairment of assets.

The following information is to be determined in the impairment of assets:

Myer holding's evidences declared that there is the requirement of impairment of assets in their company.

The real impulsive value of assets shows the market situations.

Real value and the value that use in books of accounts is required for determine the actual impulsive value of the assets.

The impairment of assets is to be compared with the previous impairment, and the valuation of impairment should be analyzed.

It also considered that the clients of the company are having updated knowledge regarding the records of assets and liabilities.

The management has the right to gather information from any source or any aspects that is to be needed in the impairment of assets. Wherever, the evidenced collected by the administration regarding the impairment of assets must determine whether the impairment is necessary or not, if there is no requirement then the administration have no right to take a decision regarding this. Only the firm will do impairment of assets if it is needed to be done. The administration cannot back step of doing impairment of assets when it is necessary under the rule AASB 36, Impairment of assets. This will allow the firm to maintain the records of assets and liabilities that may help the shareholders for taking the further decisions. But, if the management is in profit then the impulsive amount is calculated by using market value rather than using real value and all this is manipulated and make approachable afterwards.

Conclusion 

Hence, if the assets of the organization needs to impaired then there is no other option that will resolve this situation rather than impairment of assets. After evaluating the annual report of company, it is inferred that all the accounting treatment regarding the impairment of assets is done by Myer Holding. As per the accounting rules issued by the Australian Securities and Investment Commissions (ASIC), Myer has prepared an attentive and subjective report of financial information to identify the true recoverable value of the assets and liabilities recorded in the financial statement of company.

References

Bepari, Md Khokan, and Abu Taher Mollik. "Regime change in the accounting for goodwill: goodwill write-offs and the value relevance of older goodwill." International Journal of Accounting & Information Management 25(1) (2017): 43-69.

Chen, Wen, Pervin K. Shroff, and Ivy Zhang. Fair value accounting: Consequences of booking market-driven goodwill impairment 25(1) (2017) International Journal of Accounting & Information Management : 44-79

David , Bond, , Brett G., and Peter W. ‘An evaluation of asset impairments by Australian firms and whether they were impacted by AASB 136.’ 56.1 (2016): Accounting & Finance 259-288.

Humayun K , and Asheq R. ‘The role of corporate governance in accounting discretion under IFRS: Goodwill impairment in Australia.’ 12(3) (2016): Journal of Contemporary Accounting & Economics 290-308.

Md Khokan B, , Sheikh F. Rahman, and Abu, T M. ‘Firms' compliance with the disclosure requirements of IFRS for goodwill impairment testing: Effect of the global financial crisis and other firm characteristics. 10(1) (2014)’ Journal of Accounting and Organizational Change ): 116-149.

Paolo P, B,. "IFRS:’ Italian Experience on Impairment Test of Goodwill’ International 2(1) (2014).  Journal of Advances in Management Science , 162-176.

Paul A,  Dionysia D, and Ioannis T. ‘Mandated disclosures under IAS 36 Impairment of Assets and IAS 38 Intangible Assets: value relevance and impact on analysts’ forecasts50(7) (2018).’ Applied Economics : 707-725.

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