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                  ADVANCEFINANCE IMPAIRMENTNAME:LOVERPREET SINGHSTUDENTID: PCC3055  Table of Contents Assessment task Part A..

3 (i)          Assets tested for impairment 3 (ii)        Method of conducting impairment test 4 (iii)       Impairment expenditures. 5 (iv)       Assumptions and estimates used by the company for conducting impairment test 6 (v)        Subjectivity involved in the process of impairment testing. 7 (vi)       Interesting, surprising, difficult or confusing part to understand impairment testing.

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7 (vii)      New insights regarding conducting the impairment 8 (viii)         Fair value measurement 8 Assessment task Part B.. 9 (i)          Reason why the former accounting standards does not reflect the economic reality.

9 (ii)        Reasons why under the previous accounting standards the lease liabilities of the reporting entities in the balance sheet were 66 times more than the reported debts under the balance sheet 9 (iii)       Reasons why the Chairperson of IASB is in the view that under the previous accounting standard no level playing field was there among some airline entities. 10 (iv)       Reasons why the Chairperson is in the view that the new standard will not be popular with everyone  10 (v)        Possibilities that the new visibility with regard to all the leases will result into better informed decision for investment 11 References. 12  Assessment task Part AThe primary objective of the given report is to concentrate on theimpairment criteria and the assumptions that have been used by the givencompany Campbell Brothers Limited. The Campbell Brothers Limited is a testingservices provider. It was formerly under the name Campbell Brothers that waslater on changed to ALS Limited. Based in Australia the company is soap andchemical manufacturer company, which is listed under the Australian Stockexchange (Alsglobal.

com 2018). The company has its primary operations in fourmajor divisions, which range from the Minerals, Industrials, Energy and LifeSciences. The company is of the biggest testing and analytical groups aroundthe globe.             While accounting for a company, thefinancial asset of a company is assessed at a given reporting period in orderto give evidence in case the asset is impaired. In accounting terms, an assetis considered impaired when the evidence which has been earlier collectedstates that certain events which have occurred in the course of business havehas a negative impact on the cash flow values of the future. In such cases,certain impairment charges need to be taken and the loss needs to be calculated(AmirALSani, Iatridis and Pope 2013). An impairmentloss is with respect to the financial or non-financial asset, which is measuredat an amortized cost.

The amortized cost is the difference between the presentvalue of the asset, which is estimated, and the carrying cost. There arecertain assets, which are impaired individually, and certain assets areimpaired in groups.  (i)                Assets tested for impairmentAs witnessed from the annual reports of the company for the year endedas on 31 March 2016.Goodwill the goodwill as wellas other non-financial assets is tested for impairment cases and this kind oftest can take place for more than a year in case of occurrence of certainevents that indicate certain circumstances for which the impairment may have tobe taken place (AmirALSani, Iatridis  and Pope 2013).

Other tangible assets-Other tangibleassets like the Trade receivables were also taken into consideration for theimpairment testPlant and equipment- Plant  and equipment were also tested for the sametest.(ii)              Method of conducting impairmenttestAs stated earlier the intangible assets and goodwill are generally undertakenfor an impairment test when an event takes place in an organization, which mayindicate that the carrying amount of the asset is not recoverable. In other circumstances,there are certain assets that are tested for impairment case more than once in ayear if there exists a circumstance, which may suggest so. After this, thegoodwill and other assets are allocated to the unit that is cash generating forthe test (Andrews 2012).

The method thatis followed is extremely simple. The assets belonging to the lower class aregrouped together for which cash flows can be recognized separately and for the assets,which are not dependent on these, are grouped different. All other assetsexcept that of goodwill who have undergone impairment have the chance ofreversal as per the date at which the reporting is done.(iii)            Impairment expenditures The company recorded impairment expenses for the year ended 31 March2016 as follows –  Intensive assets and goodwill-According to the given report during the annual period the total costa andcharges on goodwill came up to 265 million $.Plant property and equipment-For plant and equipment 11.1million $ were the impairment charges (Carlin andFinch 2010).Other intangible assets- Forother intangible assets the cost was 41.

5 million $.Hence, the total cost was 317.9 million $.(iv)            Assumptions and estimates usedby the company for conducting impairment testALS Global makes several assumptions and estimates, as they areconcerned about their financial statements and regarding their future. Thisoutcome which may be received by the estimates need to be equivalent will theactual outcomes of the firm`s results.  The taken estimates and assumptions have considerablenumber of risks that can affect the profitability  of the firm and lead to problems in thematerial adjustments. The given estimates need to be discloses through notes inthe accounts.  Due to the sensitivity ofthe market, the recoverable amount for the assets like goodwill needs to betaken into account for the calculation of the future cash flows as well(Carlin, Finch and Laili 2009).

The recoverable amount is calculated for the asset’svalue in use. The estimates need to be made depending upon the variouspolicies. These estimates are revised regularly.

The key assumptions made for the calculation are :Pre-tax discount rateCompound average growth rate(v)              Subjectivity involved in theprocess of impairment testingAs per the IAS 36 rule on the Impairment of assets , it is believedthat it is a typical standard in the IFRS. However, it is subject to interpretation,may vary as per the managerial requirement, and can give rise to creativity (Rennekamp, Rupar and Seybert 2014). In theannual report of Campbell brothers, there exists certain amount of relativityand subjectivity in the manner in which the impairment test is conducted (Cotter 2012). The management had theopportunity to exploit their discretion and carried the test for impairment forvarious assets based on their opportunity. This fact can be proved with the help of the factor that the particularallocation of goodwill and other assets .(vi)            Interesting, surprising,difficult or confusing part to understand impairment testingAfter analyzing the annual reports of ALS Global, it could bewitnessed that the confusing part is the initiation and the induction of theimpairment. As stated previously the induction of impairment depends both oninternal as well as external events, the frequency of the test is dependingtotally on the discretion of the management (Fitó,Moya and  Orgaz 2013).

As itdepends totally on the discretion of the management. There might be chancesthat the impairment, which is generally undertaken, is under subjective and maydepend on the choice of the management. Hence, as stated earlier there existschances that the management might carry out the test based on the opportunitiesavailable and utilize the impairment option when there is a downturn in thevalue of the given asset.(vii)          New insights regardingconducting the impairment The impairment loss can be described as the difference between thecarrying amount of the given asset and the recoverable amount of the asset.When the recoverable amount of the asset in cases where the value in use comesinto picture, is higher than it may be a case where the value of the asset isreduced b the disposable cost (Lee and Hooy2013). The fair value of an asset is determined through the sales agreementor the value of the asset, which has been taken from the market where theparticular asset is usual, traded. In other cases, the value as per the IAS 36,can be described as the present value of the cash flows that might occur infuture from the asset.(viii)        Fair value measurementAccording to the new IFRS 13, the fair value of an asset isdetermined through- The sales agreement.

The value of the asset in themarket where it is traded (Ifrs.org. 2018).

The availability of the bestinformation at which the company can sell the asset. Assessment task Part B(i)                Reason why the formeraccounting standards does not reflect the economic realityIt is believedthat nearly 1 out of two companies who make the use of US GAAP or IFRS havebeen affected by the several changes and alterations that have taken place inthe given year. According to the current scenario, the companies who areregistered under US GAAP or the IFRS have nearly $3.

3 trillion worth leasedassets and other commitments. Out of these, nearly 2/3rd of the datais not reported in the balance sheet. This is because, they are often treatedas operating leases (Jennings and Marques 2013).In order to compensate this kind of a loss the investors generally includethose estimates, which are just a prediction. These are inaccurate andincomparable computations. Hence,  it isoften reflected that the accounting standards, which were used earlier, did notreflect the economic reality.(ii)              Reasons why under the previousaccounting standards the lease liabilities of the reporting entities in thebalance sheet were 66 times more than the reported debts under the balancesheet As statedearlier, when the previous accounting standard was in use nearly 85% of the companies, put their leases amount under operating leases and not under the balancesheet.

Although these operating leases were not recorded under the givenbalance sheet, they were able to create liabilities, which were real (loans, retirementand education 2018). Hence, when financial crises will occur,  certain companies were not able to adapt tothe new systems and they went bankrupt. Their balance sheets were quite leanwhereas they had a large amount of commitments with respect to the long termoperating leases. For this reason, the lease liabilities of the reportingentities in the balance sheet were 66 times more than the reported debts underthe balance sheet   (iii)            Reasons why the Chairperson ofIASB is in the view that under the previous accounting standard no levelplaying field was there among some airline entities The primaryproblem with the earlier accounting systems is that they had problems withrespect to comparability. For an airline industry, a majority of the leases istreated as operating leases and thus they are not recorded in the balancesheet.

In cases where the airline company they have an operation strategy which suggests them to lease their wholefleet, their statements will not be comparable to the companies of the airlineindustry who do not lend their fleet and instead purchase  their fleet (Marshall2016). Hence, due to this reason, it is often said that there exists nolevel playing field among the given airline companies. When the new givenstandards will be introduced, it is believed that these kinds of problems willnot be there as all the given eases will be taken as assets and the givenlessees ill account as liabilities.

The problem is proposed to be resolved.(iv)            Reasons why the Chairperson isin the view that the new standard will not be popular with everyoneAny new changethat takes place in the organization, necessarily has an impact on many of thelisted companies and is believed not to be popular among everyone. The mainreason is that change is difficult to accept and that it might also lead tosevere affects with respect to the economic circumstances and even the costsassociated to implement the given changes may not be acceptable. The givencompanies need to be prepared to make the given accounting changes in theirgiven income statement and even the balance sheets. Apart from the visibleimpacts, it is also believed that there will be certain contractualarrangements as well as banking policies, which are associated with thestatements of the country (Md Khokan , Rahman and Mollik 2014).  Theseare generally related with the human resource aspects and may change thestructure of the bonus payment and relevant ratios.(v)              Possibilities that the newvisibility with regard to all the leases will result into better informeddecision for investmentThe boon indisguise with respect to the new accounting standard is that the companies willprovide more transparency in their accounting statements.

This transparencyshall result in better information for the investors who plan to invest theirsavings in the various shares of the company (Ramannaand Watts 2012). With the former accounting standard in use, thecompanies used to keep their operating leases  under the income statement and this made itimpossible for the investors to compare. Therefore, when the new standard willupgrade to IFRS 16, then the investors will be able to take better decisionsfor their company.

 ReferencesAlsglobal.com ,2018. ALS. onlineAlsglobal.com. Available at: https://www.

alsglobal.com/-/media/als/resources/myals/…/2016-annual-report.pdfAccessed 25 Jan.

2018.AmirALSani, H.,Iatridis, G.E.

and Pope, P.F. ,2013. Accounting for asset impairment.

 London:Cass Business School.AmirALSani, H.,Iatridis, G.

E. and Pope, P.F. ,2013. Accounting for asset impairment: atest for IFRS compliance across Europe. Centre for Financial Analysis andReporting Research (CeFARR).Andrews, R. ,2012.

Fair Value, earnings management and asset impairment: The impact of a change inthe regulatory environment. Procedia Economics and Finance, 2,pp.16-25.

Carlin, T.M. and Finch, N. ,2010. Resisting compliance with IFRS goodwillaccounting and reporting disclosures evidence from Australia, Journal ofAccounting and Organizational Change, Vol. 6 No.

2, pp. 260-280. Google ScholarLink Infotrieve Carlin, T.M.

and Finch, N. ,2011. Goodwill impairment testing under IFRS: afalse impossible shore?, Pacific Accounting Review, Vol. 23 No.

3, pp.368-392. Google Scholar Link Infotrieve  Carlin, T.M., Finch, N. and Laili, N.H. ,2009.

Goodwill accounting in Malaysia and thetransition to IFRS – a compliance assessment of large first year adopters,Journal of Financial Reporting and Accounting, Vol. 7 No. 1, pp. 75-104.Google Scholar Link InfotrieveCotter, D. ,2012.

 Advancedfinancial reporting: A complete guide to IFRS. Financial Times/Prentice Hall. 

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