Impairment loss for Cash generating units excluding Goodwill
External sources of information:
- The carrying amount of the total asset of the entity should be higher than its market capitalization.
- The passage of time or normal use of the asset has led to a greater-than-expected decline in the asset’s market value.
- The market in which the entity is operating or the asset is present has experienced, or will experience, significant changes affecting the entity adversely (Henderson et al, 2014). The key market forces are important elements to consider. The changes in terms of technology, economy, or changes in the policies or legal terms impact entity heavily.
- If the market interest rates changes, that is, if it increases then the asset’s recoverable amount is likely to decrease materially as the discount rate that is used for the computation of the ‘value in use’ will be impacted (Best et al, 2014).
Internal sources of information:
The asset’s obsolescence or physical damage is evident.
The way in which the asset is being used or will be used in the future, has experienced, or will experience in near future, significant changes affecting the entity adversely.
- .Carrying amount of the allocated goodwill should be reduced.
- .Prorate the impairment loss to other assets based on their carrying amounts within the unit.
- Fair value (excluding costs to sell)
- Value in use, and
- The amount of impairment losses recognised, along with the line items where included, in the income statement.
- The amount of impairment loss reversals recognised, along with the line items where included, in the income statement.
- Also, the amount on revalued assets and loss reversals on revalued assets recognised directly in equity.
It is recommended that the companies should make good future plans. If the market cap seems to be going down in comparison to the NAV, then this can be one of the triggers to impairment. A VIU test should be conducted where it may be identified that the projections related to the cash flow projections are not as per the expectation. This is where the causes should be identified by the companies.
Henderson, S., Peirson, G., Herbohn, K., & Howieson, B., (2014), Issues in Financial Accounting, Pearson: Australia
Dagwell, R., Wines, G., & Lambert, C., (2012), Corporate Accounting in Australia, Pearson: Australia
Mills, A., & Woodford, W., (2015), Company Accounting, Pearson: Australia
Marsden, S., (2010), Australian Master Bookkeeper’s Guide, CCH Australia Limited: Australia
Best, P., Fraser, D., Tan, R., Willett, R., Horngren, C., Harrison, W., & Oliver, M., (2012), Financial Accounting, Pearson: Australia