Background and Objective of AASB 136
Analyse the financial statements regarding to the impairment of assets.
This standard was made by Australian Accounting Standard Board under section 334 of Corporation Act 2001 on 15th July 2004. The objective of this standard is to deal with the procedures used by an organization to ensure that assets are recorded at their recoverable amount only. This standard prescribes that in case the carrying amount is more than the recoverable amount, then in such a case, the difference between the carrying amount and the recoverable or saleable amount is termed as an impairment loss. In case the carrying amount is lesser than the recoverable amount then in such case the impairment losses shall be reversed (Ansell, 2017). The company shall disclose entire impairment information in its annual reports.
Assets that were impaired- the following assets were impaired or impairment reversal was done during the year ended 30th June 2017:
Trade Receivables- in the company Ansell Limited, trade receivables are booked at an amount due from them. Assets which are past their due date are considered as comparable. The credit period ranges from 30-60 days depending upon the policies with different customers. Trade receivables are booked as per the value of the invoice (Ansell, 2017). In the current year, there was an impairment reversal in trade receivables amounting to $ 0.6m. This means that the assets previously treated as bad debts that were written off earlier now became recoverable so the impairment loss was required to be reversed.
The intangible assets like Goodwill are not amortized because it is difficult to judge the finite useful life of the asset. It may also be patented or not patented in the name of the company. Brand names may be amortized over a period of time but this requires a careful judgment of the life of the asset. This amortization of brand, development costs and other intangible assets are to be booked on the Income Statement. However, this is restricted to assets having finite lives only (Ansell, 2017).
Intangible assets having an indefinite life are tested for impairment at the year-end. These assets are checked for any impairment loss as a part of the year-end policy. In case any of such indication is available, the asset is tested and its recoverable value is compared with its carrying cost (Peirson et. al, 2015). The recoverable value of such asset is determined as fair value less cost to be incurred for its sale. An impairment loss in regard to the goodwill or any other indefinite intangible asset is not reversed by the company because it is unlikely that any increase in the recoverable value can be linked with any event occurring after the impairment loss has been booked (Ansell, 2017).
Impaired Assets and Their Treatment in Ansell Limited
The company Ansell limited has done the relevant disclosures wherever the impairment of assets has taken place. Also, the auditors have disclosed their concerns with regard to any future impairment of intangible assets in the key audit matters (Ansell, 2017).
As impairment or amortization is a major hit on the financial position of the company, it has to be adequately backed up by facts and figures or any material event which takes place at the year-end. Any impairment loss can also be recognized before the year-end provided it is backed up by the material event and approved by the management. However, it is more appropriate that impairment is tested for the assets at the year-end but in the view of continuity, it should be tested at the same time every year. At the time of impairment, the cash flows, the growth rate, discount rate and the financial statements should be prepared and approved by the management (Kieso et. al, 2010). So this involves a careful assessment of the financial statements and the significant events surrounding the company.
The judgment as to impairment of any asset requires the judgment of finite life of an asset and its utility to the company. It becomes all the more complex when the life of an intangible asset has to be judged (Shoaf & Zaldivar, 2005). Also, a cost incurred for attaining or building an intangible asset is difficult to determine because sometimes the intangible assets are self-constructed and there is hardly any cost attached to the acquisition of intangible assets other than patenting costs.
The company has to extensively disclose all the material events, rates applicable, assumptions made regarding the impairment of the assets. Impairment can be positive or negative depending upon the carrying value and the recoverable value of the asset. But in both the cases, the management has to disclose the information with underlying assumptions and documents with the company shareholders (McKaig, 2011). So the impairment event is a complex issue which has to be critically analyzed in the light of various events as it is an event which affects the going concern of the company.
As per the provisions of AASB 136 the company needs to extensively disclose all the matters related to the impairment of assets. The company Ansell Ltd. has in the following ways disclosed the impairment information in relevance with the AASB 136:
Recognising of impairment losses and reversal of impairment losses in books of accounts- the company has an impairment reversal in trade receivables which it has disclosed in its annexure to Income Statement. Also, the provision for allowances has been disclosed by the company in its financial statements.
Disclosure Requirements of AASB 136
Amount of impairment losses and reversal of impairment losses on the revalued assets have been duly disclosed by the company in its annual reporting.
As per the disclosure requirements of AASB 136, the disclosure of impairment must be different for different classes of assets. The company has given different disclosures for non-current assets impaired during the year and for the intangible assets impaired or amortised during the year (Hamilton et. al, 2011).
As per the disclosure requirements of AASB 136, the assets should be defined with regard to its finite and infinite lives. The company Ansell Limited has in its annual report and financial reports notes to account disclosed the recognition and measurement of its tangible and intangible assets (Hamilton et. al, 2011).
The other disclosure requirements are the discount rate, growth rate, etc which have been duly defined in the annual report of the company which is clear from the following image
Hence, it can be said that the company Ansell Limited has incorporated its disclosure requirements for the year ending reports. The company is very particular in fulfilling its disclosure requirements
It focuses on providing the relevant information to the users of financial statements as the users cannot amend or organize the information given in the financial statements according to their needs. Such users include banks, taxation authorities, shareholders, etc. The GPFR also help the management in defining their responsibility and accountability with regard to the presentation of financial statements to its users (Deegan, 2011). The GPFR should disclose the relevant information regarding profitability of the company, its correct financial position, financing and investing activities during the year, the compliances required and compliances done during the year, etc.
The disclosures did by the company Ansell Ltd. in the year 2017 with regard to the impairment of assets in the annual reports are compatible with the objectives of the General Purpose Financial Reporting. This can be seen from the fact that the company has disclosed all the impairment losses and reversal of impairment losses during the year in its annual report. Not only this, but the company has also clearly explained and disclosed the method of calculation and recognition of such impairment losses in the financial statements (Kieso et. al, 2010). The company has defined the treatment of all kinds of assets, the meanings of impairment losses for each class of assets of the company, the discount rates, the growth rates used by the company for the purpose and all the self-explanatory information relevant to the impairment.
The above information and disclosures are very helpful for the users of financial statements such as investors, financial institutions, shareholders, taxation authorities etc. as the company’s correct financial position gets disclosed in the annual report. The same is also required for the valuation of assets of the company. Valuation of assets is required for various purposes and reporting of the company. In case the rating of the company is to be measured then also the valuation of the assets is required. Hence, the company is efficient in meeting out its requirement of disclosure of relevant information
Ansell Limited. (2017) Ansell Limited annual report and accounts 2017 [online]. Avilabnle from https://www.ansell.com/en/About/Media-Center/Press-Releases/Ansell-Limited-Announces-2017-Full-Year-Results.aspx [Accessed 29 April 2018]
Deegan, C. M. (2011) In Financial accounting theory. North Ryde, N.S.W: McGraw-Hill
Hamilton, K., Hyland, B. and Dodd, J. L. (2011) Impairment: IASB-FASB Comparison. Drake Management Review. [online]. 1(1), p. 55–67. Available from: https://pdfs.semanticscholar.org/8d8f/5fd070193d6fa52e79d1dee9cc6632159d8a.pdf [Accessed 29 April 2018]
Kieso, D., Weygandt, J., Warfield, T., Young, N and Wiecek, I . (2010) Intermediate accounting, Toronto: John Wiley & Sons Canada.
Kieso, D., Weygandt, J., Warfield, T; Young, N. and Wiecek, I . (2010) Intermediate accounting. Toronto: John Wiley & Sons Canada.
McKaig, T 2011, Understanding Impairment Accounting: What It Is and When It Is Used. Available from: https://www.financepractitioner.com/accountancy-checklists/understanding-impairment-accounting-what-it-is-and-when-it-is-used [Accessed 29 April 2018]
Parrino, R, Kidwell, D. and Bates, T. (2012) Fundamentals of corporate finance. Hoboken, NJ: Wiley
Peirson, G, Brown, R., Easton, S, Howard, P. and Pinder, S. (2015) Business Finance, 12th ed. North Ryde: McGraw-Hill Australia.
Shoaf, V. and Zaldivar, I.P. (2005) Goodwill impairment: convergence not yet achieved. Available from: https://www.freepatentsonline.com/article/Review-Business/133756140.html [Accessed 29 April 2018]
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