Corporate Accounting and Reporting for Cash-Generating Units

Question: Discuss about theCorporate Accounting and Reporting for Cash-Generating Units. Answer: Reversal of impairment loss for cash-generating units: One of the major accounting principles is that excessively valued assets need not be present in the balance sheet statement. As a result, it requires some concepts related to value in opposition to which the carrying amount of the asset could be compared to determine whether it is excessive. According to Paragraph 1 of AASB 136, the impairment of asset would explain the methods that each organisation needs to adopt for assuring that the asset carrying amount does not exceed the recoverable asset amount. Moreover, according to the above-stated paragraph, assets are carried at amounts, which exceed their overall recoverable amounts, if the amount expected to be recovered from asset sale is lower compared to the carrying amount (AASB 2015). In such case, the assets could be described as impaired and along with this, standard requires the company to recognise losses of impairment and time related reversal of impairment and compulsory disclosures. There is realisation of impairment loss, in case; the asset carrying value is greater compared to the recoverable amount, which is greater of the fair asset value minus value in use and cost to sell. Paragraph 59 of AASB 136 states that if the carrying value of the asset is greater in contrast to its recoverable amount, the former would be reduced to its latter. Such reduction would be considered as impairment loss (Accounting, Part and Plans 2015). However, the procedure of recording impairment loss would change depending on the pursuance of the asset to the revaluation model or recorded at cost. As per Paragraph 60 of AASB 136, the impairment loss recognition is required to be carried out urgently, until the asset carrying amount is conducted at re-valued amount according to the other standard. This yardstick would represent the revaluation model in AASB 116. Hence, the loss of impairment related to a re-valued asset is required to be considered as decrease in revaluation in compli ance with the other yardstick. The assets could be impaired with the help of two methods and these methods take into account the revaluation model and the cost model. Based on the cost model and Paragraph 61 of AASB 136, the realisation of loss related to impairment is required to be carried out instantly in gain or loss at the time cost is utilised for recording any impaired asset. This signifies that there needs to be realisation of loss as expense in the income statement of the organisation (Boennen and Glaum 2014). As per the model of revaluation and Paragraph 60 of AASB 136, at the time of carrying impaired asset like property, plant and equipment at re-valued amount, the treatment associated with impairment loss is identical to decrease in revaluation. In order to reiterate, the impairment loss associated with re-valued asset is recognised in income statement in the primary phase. This would help in assuring that such amount does not exceed the account pertaining to revaluation surplus for the same asset (Detzen et al. 2016). The objective is achieved by debiting the account of remaining revaluation surplus, which is applicable to the asset and the deferred tax liability before any loss balance is recognised in the form of expense in the income statement. However, some instances might be present, in which the recoverable amount of written down asset in past exceeds the carrying value of the asset (Kabir and Rahman 2016). As per Paragraph 110 of AASB 136, a firm is required to locate any indication that impairment loss recognised in previous years for any asset besides goodwill might have declined or the same does not exist. Hence, Paragraph 110 of AASB 136 requires various internal and external indicators for the impairment loss reversal. These indications comprise of significant rise in the asset market value, considerable modification with desirable effect on the organisation, decline in the rates of market interest, desirable changes associated with asset utilisation and evidence. These signify that the economic performance of the asset is greater compared to the expectations (Guthrie and Pang 2013). From the perspective of the cost model, the impairment loss reversal could not increase the carrying value of the asset beyond the overall depreciated value. However, it is noteworthy that the real policy of depreciation is applicable to the asset. Hence, for an asset conducted at cost, the reversal of impairment loss would be recognised as an income item in the income statement of a firm in compliance with Paragraph 119 of AASB 136 (Laing and Perrin 2014). For example, it has been assumed that an amount of $13,000 impairment loss has been realised on machinery and it has been recorded at 30th June 2015. The assumption is made further at 30th June 2017, in which the machinery carrying value has been $11,333. This takes into account cost of $50,000 minus accumulated depreciation amounting to $25,667 and accumulated impairment loss of $13,000. The recoverable amount has been valued at $18,000. The actual rate of depreciation is assumed as 10% per year for six years. Under such situation, the carrying machinery value would be $20,000. Since the carrying value is more than the recoverable amount, the impairment loss realised in the past amounting to $6,667 could be reversed to restate the machinery carrying value to $18,000. As a result, the past carrying amount would be increased. Under such scenario, the loss of accumulated impairment is to be debited, while the reversal of impairment loss is to be credited and both have the same amount o f $6,667. For the model of revaluation, in case, the loss of impairment is treated as expense along with recording in income statement, the reversal would be carried out in the same through crediting the income amount (Linnenluecke et al. 2015). For example, a particular equipment item has carrying amount of $90,000 with $100,000 in equipment account and $10,000 in accumulated depreciation. In order to record the past impairment losses, there is revaluation decrement of $30,000. These losses have reduced the balance of revaluation surplus and deferred tax liability account. References: AASB, C.A.S., 2015. Investments in Associates and Joint Ventures. Accounting, A., Part, B. and Plans, D.B., 2015. Notes to the financial statements. Boennen, S. and Glaum, M., 2014. 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