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AASB 136 requires an entity to disclose the following for each CGU for which the carrying amount of
goodwill or intangible assets is significant in comparison with the total carrying amount of the goodwill
or intangible assets:
b. the carrying amount of intangible assets with indefinite useful lives allocated to the unit (group of
units);
c. the basis on which the unit’s (group of units’) recoverable amount has been determined (i.e. value in
use or fair value less costs of disposal);
i. each key assumption on which management has based its cash flow projections for the period covered
by the most recent budgets/forecasts.
ii. a description of management’s approach to determining the value(s) assigned to each key assumption
iii. the period over which management has projected cash flows based on financial budgets/forecasts
approved by management and, when a period greater than five years is used for a cash-generating unit
(group of units), an explanation of why that longer period is justified.
iv. the growth rate used `to extrapolate cash flow projections
v. the discount rate(s) applied to the cash flow projections. e. if the unit’s (group of units’) recoverable
amount is based on fair value less costs of disposal, the valuation technique(s) used to measure fair
value less costs of disposal.
Regulator focus and other considerations AASB 136 includes specific disclosure requirements for the
growth and discounts rates separately from (and in addition to) each key assumption on which the cash
flow projections are based. In this context, the regulators’ view is that a reference to ‘growth’ is
meaningless unless the item is identified – for example, as sales, margins or costs. This is likely to remain
an area that is subject to scrutiny for groups with large amounts of goodwill or indefinite-lived intangible
assets on the balance sheet.
AASB 136 as amended is equivalent to IAS 36 Impairment of Assets as issued and amended by the IASB.
On 1st July
Particulars Amount
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use Ful Life 20 years
Depreciation $50,000
Carrying Amount on 30 June 2020 that Means after 2 Years
So
Impairment Loss of Assets: -it is a permanent reduction in value of assets. reduction may be due
to internal or external factor. Impairment of assets is treated as loss but depreciation is treated as
expenses. Due to impairment carrying amount of assets in books of accounts is reduced.
impairment is reduction in fair market value of assets
According to Australian Accounting standard 116 the depreciation can be termed as the
allocation of wear and tear and decrease in monetary value of assets over its useful life. It is
basically a method to allocate cost of tangible assets to it useful life. In Impairment loss we take
the expected loss in market value of assets or we report the assets in value which it will
ordinarily get in market or expected value is use whichever is less. We under this method
consider current value of assets and any difference is write off as impairment.
2)
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Recoverable Amount: -as per Australian Accounting Standards recoverable amount is higher of
an asset's fair value less cost to sell.
Recoverable amount is the value that assets will recognized while we sale it in market or the
normal benefit the assets will give us in its lifetime whichever is less.
3) Yes, we can reverse the impairments if the value of assets is increased in future
4)
When the Asset Impaired earlier Now Revalued up words due to Market Conditions that Fair
Value Has been increased
so Earlier Impairment loss Provided will be Reversed and Remaining Amount will be transferred
to Revaluation Reserve
Depreciation $50,000
So out of Earlier impairment Loss = $200,000 Will be Reversed and Balance amount that is
$880,000 - $850,000 = $30,000
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Material Omissions or misstatements of items are material if they could, individually or
collectively, influence the economic decisions that users make on the basis of the financial
statements. Materiality depends on the size and nature of the omission or misstatement judged in
the surrounding circumstances. The size or nature of the item, or a combination of both, could be
the determining factor.
Prior period errors are omissions from, and misstatements in, the entity’s financial statements for
one or more prior periods arising from a failure to use, or misuse of, reliable information that:
(a) was available when financial statements for those periods were authorized for issue; and
(b) could reasonably be expected to have been obtained and taken into account in the preparation
and presentation of those financial statements.
The current tax provision of the prior year should be increased by $50,000.
2. The write-down for an item of inventory in the prior year should be reversed by $20,000.
Explanation:
1. The current tax provision of the prior year should be increased by $50,000. This is because the
understated tax provision results in an understatement of the current year's tax expense.
2. The write-down for an item of inventory in the prior year should be reversed by $20,000. This
is because the overstated write-down results in an overstatement of the current year's cost of
goods sold.
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3. The current year's tax provision should be increased by $50,000. This is because the
understated tax provision in the prior year results in an understatement of the current year's tax
expense.
Contract can have a written and non-written form or be implied (contract may not be
limited to goods or services explicitly mentioned in a contract, but also include those
expected to be delivered due to business practices or statements made)
Should be approved by parties, and have a commercial basis
Should create enforceable rights and obligations between parties
Should have a consideration established taking into account ability and intention to pay
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provides specific benefits associated with it, in its own right or together with other
fulfilled obligations
is separable from other obligations in the contract – goods or services offered are
not integrated or dependent on other goods or services provided already under the
contract; the obligation provides goods or services rather than only modifies
goods or services already provided
Transaction price is the most likely value the entity expects to be entitled to in exchange
for the promised goods or services supplied under a contract
May include significant financing components and incentives and non-cash amounts
offered, which affect how revenue is recognized
Allocation is based on the standalone selling price of goods or services forming that
performance obligation
Allocation of transaction price may include allocation of discounts, which are applied:
The point of revenue recognition is the point when performance obligation is satisfied,
per each distinctive obligation
May result in revenue recognition at a point in time or over time
the customer simultaneously receives and consumes the asset/service as the vendor
performs the service, or
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the vendor’s performance creates or enhances an asset (for example, work in progress)
that is controlled by the customer as the work progresses.
Advice to Director:
The contract here would be online purchase and payment of $240 by customer for mobile phone
and sim card hence entering contract with Optimus Ltd and signing it Performance obligation
will be for Optimus Ltd to supply a mobile handset and prepaid sim card. Thus steps 1 to 4 has
been met. The next step is revenue recognition step 5.
Revenue will be recognized by Optimus Ltd once $100 worth calls has expired or in three-month
period beginning the day the contract is entrée into.
Since financial reports are prepared on monthly basis, revenue will be recognized proportionate
to the amount used out of $100 worth of calls made.
The journal entry would now be to debit cash and credit earned revenue for every month.
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