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 ADVANCE FINANCE IMPAIRMENTName of the studentName of the universityAuthor Note Table of ContentsAssessment 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?7(vii)?New insights regarding conducting the impairment?8(viii)?Fair value measurement?8Assessment 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?11References?12  Assessment task Part AThe primary objective of the given report is to concentrateon the impairment criteria and the assumptions that have been used by the given company Campbell Brothers Limited. The Campbell Brothers Limited is a testing services provider. It was formerly under the name Campbell Brothers that was later on changed to ALS Limited. Based in Australia the company is soap and chemical manufacturer company, which is listed under the Australian Stock exchange ( 2018). The company has its primary operations in four major divisions, which range from the Minerals, Industrials, Energy and Life Sciences. The company is of the biggest testing and analyticalgroups around the globe. ?While accounting for a company, the financial asset of a company is assessed at a given reporting period in order to give evidence in case the asset is impaired. In accounting terms, an asset is considered impaired when the evidence which has been earlier collected states that certain events which have occurred in the course of business have has 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 impairment loss is with respect to the financial or non-financial asset, which is measured at an amortized cost. The amortized cost is the difference between the present value of the asset, which is estimated, and the carrying cost. There are certain assets, which are impaired individually, and certain assets are impaired in groups.  (i) Assets tested for impairmentAs witnessed from the annual reports of the company for the year ended as on 31 March 2016.• Goodwill the goodwill as well as other non-financial assets is tested for impairment cases and this kind of test can take place for more than a year in case of occurrence of certain events that indicate certain circumstances for which the impairment may have to be taken place (AmirALSani, Iatridis  and Pope 2013).• Other tangible assets-Other tangible assets like the Trade receivables were also taken into consideration for the impairment test• Plant and equipment- Plant  and equipment were also tested for the same test.(ii) Method of conducting impairment testAs stated earlier the intangible assets and goodwill are generally undertaken for an impairment test when an event takes place in an organization, which may indicate 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 a year if there exists a circumstance, which may suggest so. After this, the goodwill and other assets are allocated to the unit that is cash generating for the test (Andrews 2012). The method that is followed is extremely simple. The assets belonging to the lower class are grouped together for which cash flows can be recognized separately and for the assets, which are not dependent on these, are grouped different. All other assets except that of goodwill who have undergone impairment have the chance of reversal as per the date at which the reporting is done.(iii) Impairment expendituresThe company recorded impairment expenses for the year ended 31 March 2016 as follows –  • Intensive assets and goodwill- According to the given report during the annual period the total costa and charges on goodwill came up to 265 million $.• Plant property and equipment- For plant and equipment 11.1million $ were the impairment charges (Carlin and Finch 2010).• Other intangible assets- For other intangible assets the cost was 41.5 million $.Hence, the total cost was 317.9 million $.(iiii) Assumptions and estimates used by the company for conducting impairment testALS Global makes several assumptions and estimates, as they are concerned about their financial statements and regarding their future. This outcome which may be received by the estimates need to be equivalent will the actual outcomes of the firm`s results. The taken estimates and assumptions have considerable number of risks that can affect the profitability of the firm and lead to problems in the material adjustments. The given estimates need to be discloses through notes in the accounts.  Due to the sensitivity of the market, the recoverable amount for the assets like goodwill needs to be taken 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’s value in use. The estimates need to be made depending upon the various policies. These estimates are revised regularly.The key assumptions made for the calculation are :• Pre-tax discount rate• Compound average growth rate(v) Subjectivity involved in the process of impairment testingAs per the IAS 36 rule on the Impairment of assets , it is believed that 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, Ruparand Seybert 2014). In the annual report of Campbell brothers, there exists certain amount of relativity and subjectivity in the manner in which the impairment test is conducted (Cotter 2012). The management had the opportunity to exploit their discretionand carried the test for impairment for various assets based on their opportunity.  This fact can be proved with the help of the factor that the particular allocation 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 be witnessed that the confusing part is the initiation and the induction of the impairment. As stated previously the induction of impairment depends both on internal as well as external events, the frequency of the test is depending totally on the discretion of the management (Fitó, Moya and  Orgaz 2013). As it depends totally on the discretion of the management. There might be chances that the impairment, which is generally undertaken, is under subjective and may depend on the choice of the management. Hence, as stated earlier there exists chances that the management might carry out the test based on the opportunities available and utilize the impairment option when there is a downturn in the value of the given asset.(vii) New insights regarding conducting the impairmentThe impairment loss can be described as the difference between the carrying 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 comes into picture, is higher than it may be a case where the value of the asset is reduced b the disposable cost (Lee and Hooy 2013). The fair value of an asset is determined through the sales agreement or the value of the asset, which has been taken from the market where the particular 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 in future from the asset.(viii) Fair value measurementAccording to the new IFRS 13, the fair value of an asset is determined through- • The sales agreement.• The value of the asset in the market where it is traded( 2018).• The availability of the best information at which the company can sell the asset. Assessment task Part B(i) Reason why the former accounting standards does not reflect the economic realityIt is believed that nearly 1 out of two companies who makethe use of US GAAP or IFRS have been affected by the several changes and alterations that have taken place in the given year. According to the current scenario, the companies who are registered under US GAAP or the IFRS have nearly $3.3 trillion worth leased assets and other commitments. Out of these, nearly 2/3rd of the data is not reported in the balance sheet. This is because, they are often treated as operating leases (Jennings and Marques 2013). In order to compensate this kind of a loss the investors generally include those estimates, which are just a prediction. These are inaccurate and incomparable computations. Hence,  it is often reflected that the accounting standards, which were used earlier, did not reflect the economic reality.(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  As stated earlier, when the previous accounting standard was in use nearly 85% of the companies , put their leases amount under operating leases and not under the balance sheet. Although these operating leases were not recorded under the given balance sheet, they were able to create liabilities, whichwere real (loans, retirement and education 2018). Hence, when financial crises will occur,  certain companies were not able to adapt to the new systems and they went bankrupt. Their balance sheets were quite lean whereas they had a large amount of commitments with respect to the long term operating leases. For this reason, the lease liabilities of the reporting entities in the balance sheet were 66 times more than the reported debts under the balance sheet   (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 The primary problem with the earlier accounting systems is that they had problems with respect to comparability. For an airline industry, a majority of the leases is treated as operating leases and thus they are not recorded in the balance sheet. In cases where the airline company  they have an operation strategy which suggests them to lease their whole fleet, their statements will not be comparable to the companies of the airline industry who do not lend their fleet and instead purchase  their fleet (Marshall 2016). Hence, due to this reason, it is often said that there exists no level playing field among the given airline companies. When the new given standards will be introduced, it is believed that these kinds of problems will not be there as all the given eases will be taken as assets and the given lessees ill account as liabilities. The problem is proposed to be resolved.(iiii) Reasons why the Chairperson is in the view that the new standard will not be popular with everyoneAny new change that takes place in the organization, necessarily has an impact on many of the listed companies and is believed not to be popular among everyone. The main reason is that change is difficult to accept and that it might also lead to severe affects with respect to the economic circumstances and even the costs associated to implement the given changes may not be acceptable. The given companies need to be prepared to make the given accounting changes in their given income statement and even the balance sheets. Apart from the visibleimpacts, it is also believed that there will be certain contractual arrangements as well as banking policies, which are associated with the statements of the country (Md Khokan ,  Rahman and Mollik 2014).  These are generally related with the human resource aspects and may change the structure of the bonus payment and relevant ratios.(v) Possibilities that the new visibility with regard to all the leases will result into better informed decision for investmentThe boon in disguise with respect to the new accounting standard is that the companies will provide more transparency in their accounting statements. This transparency shall result in better information for the investors who plan to invest their savings in the various shares of the company (Ramanna and Watts 2012). With the former accounting standard in use, the companies used to keep their operating leases under the income statement and this made it impossible for the investors to compare. Therefore, when the new standard will upgrade to IFRS 16, then the investors will be able to take better decisions for their company. ,2018. ALS. online Available at:…/2016-annual-report.pdf Accessed 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: a test for IFRS compliance across Europe. Centre for Financial Analysis and Reporting Research (CeFARR).Andrews, R. ,2012. Fair Value, earnings management and asset impairment: The impact of a change in the regulatory environment. Procedia Economics and Finance, 2, pp.16-25.Carlin, T.M. and Finch, N. ,2010. Resisting compliance with IFRS goodwill accounting and reporting disclosures evidence from Australia, Journal of Accounting and Organizational Change, Vol. 6 No. 2, pp. 260-280. Google Scholar Link Infotrieve Carlin, T.M. and Finch, N. ,2011. Goodwill impairment testing under IFRS: a false 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 the transition 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. Advanced financial reporting: A complete guide to IFRS. Financial Times/Prentice Hall.Fitó, M.À., Moya, S. and  Orgaz, N. ,2013. Considering the effects of operating lease capitalization on key financial ratios. Spanish Journal of Finance and Accounting/Revista Española de Financiación y Contabilidad, 42(159), ,2018. IFRS. online Available at: Accessed 25 Jan. 2018.Jennings, R. and Marques, A. ,2013. Amortized cost for operating lease assets. Accounting Horizons, 27(1), pp.51-74.Lee, C.H. and Hooy, C.W. ,2013. Determinants of systematic financial risk exposures of airlines in North America, Europe and Asia. Journal of Air Transport Management, 24,, H., retirement, S., and education, N. ,2018. Bank Accounts, Super, Insurance and Home Loans – AMP. Retrieved 25 January 2018, from, D. ,2016. Accounting: What the numbers mean. McGraw-Hill Higher Education.Md Khokan Bepari, Sheikh F. Rahman and Abu Taher Mollik. ,2014 .Firms’ compliance with the disclosure requirements of IFRS for goodwill impairment testing: Effect of the global financial crisis and other firm characteristics, Journal of Accounting and Organizational Change, Vol. 10 Issue: 1, pp.116149, Ramanna, K. and Watts, R.L. ,2012. Evidence on the use of unverifiable estimates in required goodwill impairment. Review of Accounting Studies, 17(4), pp.749-780.Rennekamp, K., Rupar, K.K. and Seybert, N. ,2014. Impaired judgment: The effects of asset impairment reversibility and cognitive dissonance on future investment. The Accounting Review, 90(2), pp.739-759.

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