Accounting Standards and Regulations for Impairment- myassignmenthelp

Question: Discuss about theAccounting Standards and Regulations for Impairment. Answer: According to the AASB 136 and IAS 36 rules of Impairment, business organizations do not have the right to write down the assets in the financial statements in a value that is higher than its recoverable amount (Guthrie Pang, 2013). The recoverable value of the assets is more among the used value and the fair value is lower than the disposal cost. Some intangible assets and goodwill are the exceptional case. In case the organizations can get the indication of their asset impairment, it is required for the organizations to conduct the test of impairment. In case the assets are not able to generate any cash flow, then the test can be conducted for the cash-generating unit and this process is largely independent compared to the other assets. At the end of the financial years, the business organizations need to assess whether there is any indication of asset impairment. In case, there is any indication about asset impairment, business organizations need to measure the recoverable amount. Different types of indications can be seen for asset impairment (Linnenluecke et al., 2015). They can be categories in external sources and internal sources. External Sources Reduction in the asset market value Negative changes in various aspects like laws, markets, economics and technologies Market interest rate increase Higher amount of net assets of the companies when compared to market capitalization Internal Sources Case of obsolesce or physical damage The asset is die for disposal or the asset is idle for restructuring Negative performance of the company Required Evidence for Myers Asset Impairment Testing Asset Flow: According to the provided data flow of Myer, it can be seen that the flow of all stores of the company has either increased or been stable. In addition, there is not any trend of reduction in the assets over the past one year. Thus, there is not any indication for impairment (DArcy Tarca, 2016). Asset Base: From the information of Myers asset base, it can be seen that there has not been any alteration in the assets and in the last few years, the percentage of contribution of the assets towards the net assets more or less the same. Thus, there is not any indication for impairment (Ji, 2013). Asset Turnover: After taking into consideration the asset turnover ratio of Myer, it can be observed that over the last five years, the asset turnover ratio of the company has been moving around 1.41 to 1.76. Thus, it can be see that there are not any significant fluctuations in the assets turnover ratio of the company over the last five years. Hence, from this test, it is also proved that there is not any indication of impairment (DArcy Tarca, 2016). Required Procedure for the Determination of Impairment According to the AASB 136 rules of Asset Impairment, business organizations need conduct the asset impairment test on yearly basis and Myer has been complying with this rule over the years. At the time of testing the asset impairment, Myer has found the recoverable amount with the help of discounted cash flow model. Based on the annual budget of Myer, this particular model uses to forecast the cash flow as per the approval of the management for the period of five years. In addition, with the help of terminal growth rate, the cash flows for the period of more than five years are extrapolated (Gros Koch, 2015). The key assumptions of this model are as follows: Pre-tax rate of discount at 14.4% Terminal growth rate at 2.5%, and Operational gross profit margin at 39.5% Thus, the management of the company determines the future cash flow level for the assets carrying value for the CGU of the company during the consideration period. In addition, the management of the company has also determined each store carrying value; and they are undertaken and indentified in the existence of assets impairment. In case there is any indication of asset impairment, the measurement of assets recoverable value is done with the help of discounted cash flow model. Consistency can be seen in the major assumptions and the above-mentioned assumptions (Zhuang, 2016). Thus, it can be said that for the year ended 2016, there is not any indication of asset impairment at the stores of Myer. Required Information for Impairment Determination Some other information is required for the determination of impairment of Myer Holdings Limited. They are as follows: In case it can be observed that there is an indication for asset impairment, then it is required to determined recoverable amount of the assets and the assets cash generation. When the recoverable amount is less than the carrying value of the assets, there is an indication of CGU or asset impairment. The recoverable amount of goodwill or intangible assets with indefinite useful life or the value of the intangible assets that are not ready to be used on the date of reporting, are needed to be valued at the end of each year at least for once, irrespective of the fact that whether there is any indication for impairment or not (Kabir, Rahman Su, 2017). In order to measure the value, the recoverable amount needs to be higher in the used value and fair value that is less than the selling cost. The amount of loss caused from the asset impairment is considered as the expenses and they come under the profit and loss account and needs to be carried out on cost basis. Under the permission of IAS 16 PPE (IAS 16) and intangible assets (IAS 38), the impacted assets are first revalued and then recognized as comprehensive income (Detzen, Stork genannt Wersborg Zlch, 2016). There is a requirement of wide disclosure for the impairment and recognition of loss in impairment. It is needed to reverse the impairment losses that are recognized in the last year for goodwill and others assets. It needs to be done in case there is any alteration regarding the determination of recoverable amount of the assets. Availability of Flexibility from Management for Impairment Determination From the analysis of the various aspects of the company, it can be seen that the management of Myer has great flexibility for carrying out assets impairment tests for each of the financial years. According to the rules and regulations of AASB 136, the management of the company provides assurance about carrying on the impairment tests of the assets at least once in a year (Malone, Tarca Wee, 2016). In addition, determination can be seen from the end of the companys management on different aspects like the determination of future cash flows of the company that carries the value of the assets of CGU of Myer. Apart from this, it is the responsibility of Myers management to review the carry out value of each of the stores of the company and the management needs to make it sure that whether there is any indication of impairment or not. In case the management finds any indication of impairment, it is needed to measure the recoverable amount of the assets with the help of discounted cash fl ow model. In this situation, it can be seen that there is collaboration between the major assumptions and above-mentioned assumptions of the asset impairment. In addition, it can also be seen that the management of the company uses to determine the value regarding recoverable amounts of the cash generating units based on VIU approach (Toms, 2012). Thus, based on the above discussion, it can be said that the management of Myer Holding Limited plays an active role in determining the impairments of assets of the company. On the other hand, the management of Myer actively complies with all the rules and regulations of AASB 136 in order to carry out various processes to determine the impairment of assets of the company. References DArcy, A., Tarca, A. (2016).Reviewing goodwill accounting research: What do we really know about IFRS 3 and IAS 36 implementation effects. Working paper. Detzen, D., Stork genannt Wersborg, T., Zlch, H. (2016). Impairment of Goodwill and Deferred Taxes Under IFRS.Australian Accounting Review,26(3), 301-311. Gros, M., Koch, S. (2015). Goodwill Impairment Test Disclosures Under IAS 36: Disclosure Quality and its Determinants in Europe. Guthrie, J., Pang, T. T. (2013). Disclosure of Goodwill Impairment under AASB 136 from 20052010.Australian Accounting Review,23(3), 216-231. Ji, K. (2013). 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