Impairment Under Australian Accounting †Myassignmenthelp.Com

Question: Discuss About The Impairment Under Australian Accounting? Answer: Introduction Impairment refers damage. In reference to the accounting prospective impairment refers to a reduction in value or reduction in future benefits from any asset or profit generating unit. Impairment accounting under Australian accounting standards is done under AASB 136. This essay is written for putting lights on the topic of reversal of impairment loss on goodwill. Impairment loss Additional book value of assets in the cash generating unit over the recoverable amount, of cash generating unit, known as impairment loss on such cash generating unit (Anon., 2017). Book value means carrying amount of asset or carrying amount of all assets in cash generating unit. Recoverable amount means amount that can be recovered by the organization from assets in cash generating unit. Such amount can be recovered either through use or through sale in open market. Highest amount that can be recovered from the assets in cash generating unit is known as recoverable amount of cash generating unit. Impairment loss of goodwill Self generated goodwill is not allowed for the organization to record as accounting asset. It can be recorded only when a company pays price for assets and liabilities at an amount higher then identifiable amount. Impairment of goodwill recorded when recoverable amount of assets of cash generating unit of goodwill will become lower than their carrying amount (Seetharaman et al., 2006). Under this method firstly organization required to identify cash generating unit then determine book value of assets in cash generating unit and amount that can be recovered by the organization from cash generating units assets. After this impairment loss for the cash generating unit will determine. This impairment loss firstly apportioned to the goodwill and remaining will apportioned to all assets of cash generating units in the ratio of their carrying amounts (Shoaf Zaldivar, 2005). Moreover, as per IFRS 3 goodwill cannot be amortized on the basis of discretion of the organization. This standard mandates that goodwill can only be tested for impairment annually and cannot be undergone to other unsystematic amortization. Reversal of impairment loss An impairment loss is allowed to reverse for assets other than goodwill when impairment loss decreased. This reversal of impairment loss on assets other than goodwill always remains below the amount of impairment loss net of amortization accounted earlier on the assets other than goodwill (International Accounting Standards Committee, 1998). Due to the reversal of impairment loss future depreciation on assets other than goodwill will be effected. However, the rules for reversal of impairment of goodwill are different from the rules for reversal of impairment loss on tangible assets. As per AASB 136, paragraph 124 and 125, reversal of impairment of goodwill is cannot be done. If goodwill related to any cash generated unit impaired ones then it cannot be reversed like other assets of cash generated units by the rule of reversal of impairment loss (Australian Accounting Standards Board, 2007). Moreover, as per AASB 136 goodwill can only record by the organization when such goodwill such goodwill purchased by the organization. When goodwill ones impaired by the organization then it will terminate to be an asset. When an impairment loss is reversed by the organization on such impaired goodwill then such reversal will result in the accounting of internally generated goodwill in the books of accounts on the basis of self generated estimates (Australian Accounting Standards Board, 2007). In turn, this will result in a violation of the Australian accounting standard. Furthermore, not only AASB 136 but also various accounting standards like US GAPP, IFRS (Wines et al., 2007), Indian accounting standards etc also impose a prohibition on the reversal of impairment of goodwill. IAS 36 specifically imposes a ban on the reversal of impairment loss on the goodwill. These accounting standards also prohibit such reversal due to same reason i.e. reversal of impairment loss on the impaired good will result in the accounting of internally generated goodwill in the books of accounts on the basis of self generated estimates. In turn, this will result in a violation of the accounting standard. In addition to this, as there is a prohibition on the accounting of internally generated goodwill in the books of accounts on the basis of self generated estimates, hence revaluation of goodwill is also prohibited. Because revaluation of goodwill also results in the accounting of internally generated goodwill in the books of accounts on the basis of self generated estimat es. Conclusion Above discussion provides various arguments regarding the accounting for the impairment and specifically accounting for impairment of goodwill and reversal of impairment loss on goodwill. This discussion presents a clear conclusion that it is not possible to account reversal of impairment loss on goodwill. Organizations can only reduce the amount of goodwill at their own discretion, judgments and accounting estimations but they cannot increase the amount of goodwill either by making a revaluation of goodwill asset or by reversing goodwill impairment. Since, this addition will result in the accounting of self generated goodwill asset, which is prohibited. References , 2017. IAS 36 Impairment of Assets. [Online] Available at: https://www.iasplus.com/en/standards/ias/ias36 [Accessed 2017 september 12]. Australian Accounting Standards Board, 2007. Impairment of Assets. [Online] Available at: https://www.aasb.gov.au/admin/file/content105/c9/AASB136_07-04_COMPapr07_07-07.pdf [Accessed 12 september 2017]. International Accounting Standards Committee, 1998. Impairment of assets. International Accounting Standards Committee. Seetharaman, A., Sreenivasan, J., Sudha, R. Ya Yee, T., 2006. Managing impairment of goodwill. Journal of Intellectual Capital, 7(3), pp.338-53. Shoaf, V. Zaldivar, I., 2005. goodwill impairment. Review of Business, 26(2), p.31. Wines, G., Dagwell, R. Windsor, C., 2007. Implications of the IFRS goodwill accounting treatment. Managerial Auditing Journal, 22(9), pp.862-80.