assignment 1
Advanced Financial Accounting (M) 2014 Assignment 1
Answer to Assignment 1
Question 1
First method is ‘immediate write- off’, which leads to consuming of shareholders’ equity and changeable of rate-of-return measures. With this method, goodwill will remain in the pre-regulation period. Second method is ‘systematic write- off’, which is regularly written off over a limited period. This method is also called amortization that is under AAS 18 and AASB 1013. The third method is ‘ad- hoc write- off’, which can be called as impairment under AASB 136. This method is permanent and can remain unlimited in the balance sheet unless evidence shows its value has been reduced.
Question 2
The deficiency of recovery amount and carrying amount is recognized as impairment loss, which is allocated to reduce the balance of goodwill. Furthermore, the estimation of recovery amount with allocated goodwill is required. The company is needed to make a general estimation of the recovery amount of the asset or CGU. The entity makes estimation for determining whether the impairment loss has occurred. In addition, it is essential for impairment testing for determination of recovery amount, especially for VIU. In other words, estimating VIU requires estimation of future cash flows (Guthrie & Pang, 2013), which inescapably reflects the expectations of managers. Some problems could be created in the initial years of adoption, because the changeable from a simple amortization regime to a complicated impairment regime.
Question 3
The recognition and determination of impairment loss on goodwill would affect the financial statements. Goodwill is an essential part of assets. As a result, if the entities do not obey the accounting standards (not recognize impairment loss); the asset in these entities will become larger than the entities that recognize the impairment loss. Some entities’ financial statement would be led to overstate or unreliably information to the external. Impairment
Answer to Assignment 1
Question 1
First method is ‘immediate write- off’, which leads to consuming of shareholders’ equity and changeable of rate-of-return measures. With this method, goodwill will remain in the pre-regulation period. Second method is ‘systematic write- off’, which is regularly written off over a limited period. This method is also called amortization that is under AAS 18 and AASB 1013. The third method is ‘ad- hoc write- off’, which can be called as impairment under AASB 136. This method is permanent and can remain unlimited in the balance sheet unless evidence shows its value has been reduced.
Question 2
The deficiency of recovery amount and carrying amount is recognized as impairment loss, which is allocated to reduce the balance of goodwill. Furthermore, the estimation of recovery amount with allocated goodwill is required. The company is needed to make a general estimation of the recovery amount of the asset or CGU. The entity makes estimation for determining whether the impairment loss has occurred. In addition, it is essential for impairment testing for determination of recovery amount, especially for VIU. In other words, estimating VIU requires estimation of future cash flows (Guthrie & Pang, 2013), which inescapably reflects the expectations of managers. Some problems could be created in the initial years of adoption, because the changeable from a simple amortization regime to a complicated impairment regime.
Question 3
The recognition and determination of impairment loss on goodwill would affect the financial statements. Goodwill is an essential part of assets. As a result, if the entities do not obey the accounting standards (not recognize impairment loss); the asset in these entities will become larger than the entities that recognize the impairment loss. Some entities’ financial statement would be led to overstate or unreliably information to the external. Impairment
References: James Guthrie and Tsz Ting Pang, ‘Disclosure of Goodwill Impairment under AASB 136 from 2005-2010’, Australia Accounting Review, No. 66, Vol. 23, Issue 3, 2013 Oduware Uwadiae, ‘Impairment of Assets: Measurement of Recovery Amount’, IFRS Watch, 2012