IFRS Based Accounting Standards †Free Samples to Students

Question: Discuss about the IFRS Based Accounting Standards. Answer: Introduction: Australian securities and investment commission has asked companies to focus on providing relevant information that are meaningful and useful to their users of financial reports. It is required by auditor and directors to focus in accounting policy choice and assets value. ASIC is of the view that most of companies make use of unrealistic assumptions for testing values of assets and application of inappropriate approaches in areas of revenue recognition. Risk criteria forms the basis of reviewing financial reports that helps in determining compliance with accounting standards and Corporation act. For addressing issues, ASIC features some of zones by declaring range of concentrations of public organization and listed organizations. It is stated by commissioner of ASIC that chiefs and evaluator as per past announcing periods should concentrate on decisions of bookkeeping strategies and estimating benefits (Albu et al. 2014). AASB 136 states that it is required by entity to conduct impairment test for assets that will ensure that assets are not overvalued. Value of assets that can be compared to recoverable sum and associated benefits are no involved in financial reports. Recoverable value of assets for disposal and value in use is more than assets fair value less costs. Such assets might involve goodwill and intangible assets. Any organization showing signs of repairing assets should undertake impairment test (Oulasvirta 2014). Moreover, test can also be undertaken for assets where they do not make any income such as cash generating unit. There are internal and external sources of indication for carrying out assets impairment. Evidence of Impairment testing of assets of Myer Holdings limited Considering the case of Myer Holdings limited, it is not possible to recognize goodwill from acquisition of business by separating cash generating unit. Therefore, it is required for business to allocate goodwill. Asset flow- It can be identified from the given data relating to flow of assets that they are consistent or have increased by little amount. There is no evidence of impairment test and it is not required to conduct test of impairment as evident by decreasing trend of stores. Establishment of indication of impairment is difficult from the given data. Asset base- There has not been much change in assets base of Myer holdings limited and for the past few years, they have remained more or less same in value. Considering the asset base for undertraining impairment, there is clear indication that assets are not required to be impaired (Bond et al. 2016). Turnover of assets- It can be ascertained from Myer holding ltd financial statements that asset turnover ratio has ranged from 1.40 to 1.80. During the period under consideration, there is no significant movement of asset turnover ratio. Therefore, impairment of test is not indicated using this particular test. Therefore, considering the above strategies, it is certainly not possible for undertaking impairment. However, looking at the departmental store of company in Frankston, there are some indications for impairment. Myer has planned for altering the colours of their departmental stores for competing with Amazon. Changing system of storing products would also be altered that will result in more free space (Preiato et al. 2014). All the aspects discussed above are considered as partial construction that qualifies determination of impairment of assets according to AASB 136. Outlining process for determining asset impairment Calculation of recoverable amount of assets and value in use is done by Myer holdings ltd for determining assets impairment test. Forecasting cash flow is done based on model that is approved by management of organization. Extrapolation of cash flow for more than five years is done using the terminal growth rate. Some of the assumptions for calculation are given below: Terminal growth rate is assumed at 2.5% Gross profit operating margin is assumed to be at 39.5%. Pre-tax discount rate is assumed to be at 14.4%. Management of organization decides future flow of cash resulting from cash generating unit of assets and their carrying value. Future cash flow is estimated based on budget and value can be considerably lower than budget. In order to determine existence of impairment of assets, separate examination of each stores of company is done. If any indication of impairment of stores are indicated using the test, then the management of organization measures recoverable value of unit and make comparison with value in use (Lawson et al. 2013). Information is required in determining asset impairment Information required for determining impairment test of Myer Holdings ltd are as follows: Recoverable amount of assets within the intention of estimating is expressed as percentage that is higher among the fair value of assets deducted by selling price and fair value in use. Loss from impairment of assets is recognized as cost under misfortune and benefit account. Against the perceived revaluation, affected resources are revalued under immaterial resource (IAS 38) and IAS 16 PPE (IAS 16) (Guthrie and Pang 2013). It is essential to determine recoverable values and value in use relating to impairment of assets. When the recoverable amount is lower than carrying amount, then only cash generating unit is considered for impairment. Under the balance sheet statement the loss amount resulting from asset impairment is deducted from asset closing value. Moreover, under revenue statements, loss arising from impairment is treated as loss. It is necessary on part of organization to switch off loss arising from impairment relating to goodwill in past period. Furthermore, for assessing recoverable measures of asset impairment and they are require to utilize the information. For acknowledging misfortune of debilitation, it is required by company to have wide divulgences. Management flexibility in determining impairment of assets It is not anticipated by ASIC that directors would be looking for bookkeeping and budgetary report and in this regard, they are required to look for counselling support and clarification. There needs to be suitable examination and documentation of data and they need to be delivered on convenient premise. Nature of money related data is strengthened in market and focusses on preparation of budgetary report. It is certainly possible that management of organization might not be expert in accounting and they can seek accounting advice from accounting firms and accounting experts. This will assist management in clearly presenting their financial statements. Myer Holding limited carry out asset impairment test at least once in a year as found in the case study. Impairment test is undertaken according to AASB 136. While completing the assets impairment tests, it can be ascertained that Myer holding is very adaptable. Survey is conducted by organization regarding assets carrying value and wh ether there exists any evidence of impairment. Test relating to impedance is not guaranteed as per pre requisites of AASB 136. Different level of uncertainties is decided by level of management that help in giving assurance of the fact that cash generating unit of Myer holdings would be advantageous without money bound streams. Therefore, it can be identified from the evidence depicted by case study and discussing the relevant facts deduce that there is active engagement on part of company for determining impairment test annually that are in compliance with AASB 136. Conclusion: From the above analysis, it can be concluded that Myer holdings limited determine the asset impairment tests by complying with the requirement of AASB 136. For measuring the loss arising from impairment, it is required by company to measure the value in use and recoverable value in the event of indication of asset impairment. Therefore, it can be concluded that management of Myer holdings limited is flexible when it comes to determine the loss arising from impairment and carrying out asset impairment test. 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