Applying International Financial Reporting - Myassignmenthelp.Com

Question: Discuss About The Applying International Financial Reporting? Answer: Inttoducation The primary purpose of the report is to place emphasis on the impairment testing of the asset for Fleetwood Corporation Ltd. The report will additionally address the impairment expenses incurred during the period with key important assumptions that is used by Fleetwood corporation in performing the impairment testing. As evident from the current annual report of Fleetwood Corporation Ltd, it is noticed that the firm for the purpose of impairment has tested Goodwill. To carry out the impairment testing Fleetwood Corporation has allocated goodwill for the purpose of impairment in the cash-generating unit that is anticipated to benefit organization from the synergies of the combination. The cash generating unit of Fleetwood Corporation Ltd to which the firm has allocated goodwill for impairment is conducted on annual basis or more constantly when there is an indication that the organization might be impair (fleetwoodcorporation.com.au 2018). If it is noticed that the recoverable value of the cash generating unit is lower than the carrying value, then the impairment loss is allocated to initially to lower the carrying value of the goodwill (Horton 2018). This means that the impairment loss is allocated to the unit and later to the other assets based on the prorate basis to the carrying value of each asset in the unit. During the financial year of 2017, the company recorded the impairment expenditure for the following Intangible assets and goodwill: In the financial year of 2017 the company reported an impairment expenditure stood $10.3 million relating to the impairment of goodwill and intangible assets in the areas of parts and accessories. Impairment expense on Property, Plant and Equipment: In the financial year of 2016-17, Fleetwood Corporation Ltd has reported the impairment expenditure on property plant and equipment for $19,680 (fleetwoodcorporation.com.au 2018). The key assumptions and estimations that is by Fleetwood in carrying out the impairment testing is stated below; In ascertaining whether the goodwill is impaired needs an estimation on the value of the cash generating units to which goodwill is allocated except during the circumstances where the fair value is determined following the subtraction of cost to sell the asset (Hoyle, Schaefer and Doupnik 2015). The value that is used in the computations needs the directors estimations of the future flow of cash that is anticipated to originate from the cash generating unit and the appropriate rate of discount is applied to compute the current value. Under IAS 36 of the Impairment of Assets, it is understood that the asset impairment is the typical standard and requires a subjective interpretation. The subjective interpretation is applicable with respect to the managerial requirements and does not restricts the creative accounting (Huang 2014). As evident from the financial reports of Fleetwood Corporation Ltd, there was the existence of subjectivity at the time of performing the impairment testing of goodwill and non-current assets (Hoskin, Fizzell and Cherry 2014). Subjectivity influence the outcome of the impairment since it is carried out on the discretion of the management in deriving the computable value of the recoverable amount when there is no availability of the current market price. One of the interesting fact that is found regarding the impairment testing is that the amount on which the carrying value of the asset or cash generating unit goes past the recoverable value (Marshall 2016). A better understanding has been gained regarding the organizations assets following the impairment having the market value of the asset listed on the balance sheet of the firm. Interestingly assets such as goodwill and long term assets are generally tested for impairment since the carrying value has long span of time for impairment. Fair value can be defined as the framework that requires significant amount of disclosure associated to the fair value measurement (Macve 2015.). The IASB has used the fair value tool to improve the disclosure for fair value in such a manner that the users would be better able to determine the techniques of valuation and inputs that are put into the use to measure the fair value. According to Hemmer and Labro (2016), it is noticed that several organizations using the US GAAP or IFRS is impacted by the changes in the accounting. Currently, organizations under the US GAAP or IFRS have commitments and leased assets that amounts approximately 3.3 trillion and around 80% of the organizations does not reports the leased assets in the balance sheet since they are treated as operating lease. In order to compensate, the investors usually considers the estimates that are not consistent, incorrect and unparalleled calculations. Hence, it can be stated that previous accounting standards does not provides the appropriate economic reality. Leasing is considered as the most common source of finance for numerous business especially in the shipping and airline industry. In the present accounting standards around 85% of the lease is recorded as the operating lease and it is not incorporated in the balance sheet. Even though it is not recorded in the balance sheet there is no doubt that, the operating lease results in real liabilities (Kabir, Rahman and Su 2017). During the financial crisis a large number of retail chains have been bankrupt because they were not able to adjust quickly in the new reality of the economy. These organizations large value of long term lease commitments with misleading balance sheet. Consequently, this resulted the lease liabilities in the off-balance sheet greater than 66 times than the reportable amount of debt. Hence it can be stated that accounting fails to reflect economic reality. The argument of chairperson bought forward that the present lease accounting lacks the comparability (Gale and Larner 2017). Consequently, the airline company leases numerous airplane, which is different from the competitor and borrows highly to acquire a large number of lease in spite of their obligations associated to finance may appear similar. Therefore, there isnt any level field among these companies. According to the international accounting standard, it is understood that the new standard is regarded as controversial (Visvanathan 2017). The reason behind this is that change is expected to approximately result an effect on most of the listed firms and would not be regarded prevalent. An important consideration about the unpopularity of accounting standard is because of the controversial nature of the standard. The standard might face warnings associated with the opposing financial impact for changes in the accounting system. The reportable value of the profit after tax for the organization might be lowered during the beginning period of lease (Picker et al. 2016). With the incorporation of the new financial standards the financial ratios of the firm might suffer. Furthermore, the gearing ratio is anticipated to suffer more with greater value of debt on the balance sheet. Additionally, for several firms the application of the new accounting standard is considered to be expensive and might need greater amount both internal and external sources. As per the IASB on evaluating the possible risk prudently, it is understood that risk and cost can be administered. According to the IASB the IFRS 16 would lead the leasing industry to be out of the business and lease continuous to remain attractive as the flexible source of fund. According to the IASB it is not likely that the enhanced visibility of lease obligations might lead to noteworthy effect in cost related to lending and debt covenants. There might be cost that are associated with the updating of system for impairment under IFRS 16 (Visvanathan 2017). As per the IASB the standard aims at increasing the transparency associated to liabilities which was not stated earlier in the balance sheet until the users of financial report gains better understanding of the organization. Accordingly, it is understood that the enhance lease visibility would result in noteworthy effect on cost associated with lending and debt covenants. Reference List: Fleetwoodcorporation.com.au. (2018).Fleetwood Corporation Limited - Home. [online] Available at: https://www.fleetwoodcorporation.com.au/ [Accessed 18 Jan. 2018]. Gale, T.M. and Larner, A.J., 2017. Six-Item Cognitive Impairment Test (6CIT). InCognitive Screening Instruments(pp. 241-253). Springer International Publishing. Hemmer, T. and Labro, E., 2016. Productions and Operations Management Management Accounting. Horton, J., 2018.Advanced Financial Accounting and Reporting: Theory, Practice and Evidence. Routledge. Hoskin, R.E., Fizzell, M.R. and Cherry, D.C., 2014.Financial Accounting: a user perspective. Wiley Global Education. Hoyle, J.B., Schaefer, T. and Doupnik, T., 2015.Advanced accounting. McGraw Hill. Huang, Z., 2014. Advanced Financial Accounting. Kabir, H., Rahman, A.R. and Su, L., 2017. The Association between Goodwill Impairment Loss and Goodwill Impairment Test-Related Disclosures in Australia. Macve, R., 2015.A Conceptual Framework for Financial Accounting and Reporting: Vision, Tool, Or Threat?. Routledge. Marshall, D., 2016.Accounting: What the numbers mean. McGraw-Hill Higher Education. Picker, R., Clark, K., Dunn, J., Kolitz, D., Livne, G., Loftus, J. and Van der Tas, L., 2016.Applying international financial reporting standards. John Wiley Sons. Visvanathan, G., 2017. Intangible assets on the balance sheet and audit fees.International Journal of Disclosure and Governance,14(3), pp.241-250.