Advance financial accounting research and case study

An asset qualifies for impairment in the event that the carrying value is more than the recoverable amount. The carrying amount is determined by deducting accumulated depreciation, amortization and accumulated impairment loss from asset recognized value. On the other hand, the recoverable amount represents the high of an assets fair value less the cost of sale and value in use. An impairment loss is arrived at when the carrying amount is less than the recoverable amount which will be expensed at the period it will be recognized in the financial statements. The ascertaining of the recoverable amount is significant towards establishing a model of valuation that establishes a reflection of underlying reality in the market forces. The revaluation structure under IAS 16 involves the treatment of the loss as a debit on the revaluation surplus account and respective asset account.

The determination of a group of assets under a cash generating unit requires that the model of ascertaining the carrying amount is consistent with the one for the recoverable amount. The adherence of the different conditions and provisions of the standard offers the best valuation model for impairment of assets. Questions Responses. i) The assets tested for impairment include the intangible assets such as loans and Receivables, goodwill, customer contracts, software and the assets classified as available for sale. Impairment testing is based on estimates and organizational judgment that might not reflect the actual value changes of an underlying asset. The subjectivity would impact the accuracy of the measurement for impairment purposes. The decision on whether to use the fair value measurement or the value in use based on an organizational discretion might adversely impact the assessment for impairment.

vi) The interesting component about impairment testing is how it is conducted to factor in the uncertainty of the market forces. Impairment testing is undertaken upon fulfillment of the conditions spelled under IAS 136 that guide the determination of indicators of impairment. The lack of uniformity failed to attain the economic reality of the market through the accounting model. A system that is not uniform for the entities elicits the existence of fair business practices in the market since it allows undue advantage to other business in a competitive market segment. ii) The accounting model allowed the separation of the leases accounting in which most entities preferred the operating lease framework that relieved their balance sheet from the recognition of the lease obligations.

Debt reported in the financial statements was an indicator of the entities position and an opportunity to have obligations unreported increased the appetite for lease obligations that kept increasing from time to time compared to debt that was controlled as a balance sheet item. Leasing plays a pivotal role in most business success thereby making it essential for the organization to declare the level of dependence by an organization to the facility. The symmetry and accuracy of financial reporting will be enhanced hence providing a platform for better decision making by the management and investors. Equality in the market for different business will be achieved based on the requirement to disclose the lease financing. References Carlin, T. M. and Finch, N.