ACCOUNTING ANALYSIS

Advanced Corporate Reporting Assignment

[Name of the student]

[Name of the Institute]

Part - 1

Computation of Impairment

Question

Statement of financial position of Barrington plc at 30 September 2012

 

£million

Goodwill

£100

Franchising arrangement

£172

Special-purpose freehold property

£195

Other tangible non-current assets

£354

Inventories

£107

Financial assets held for trading

£18

Other assets

£122

Total assets

£1,068

 Total assets Total assets Total assets Total assets

 

Shareholders' equity

 

Share capital

£600

Reserve arising from revaluation of special-purpose property in 2010

£50

Retained profit

£335

Liabilities

£83

Total equity and liabilities

£1,068

Year to 30 September

£million

2013

£256

2014

£340

2015

£275

2016

£104

Compute the amount of the impairment of the Barrington plc cash generating unit arising from the impairment review.

We have taken future cash flow for calculating impairment loss.

Impairment Loss

Fair market value of Assets 620 + 130

£425

£975

Book value of Assets

£1,068

£1,068

Impairment Loss

-£643

£-93

Allocate the impairment loss between the relevant components of the assets of Barrington plc.

Statement of financial position of Barrington plc at 30 September 2012

Allocation of Loss

 

£million

Goodwill £

£100

100

Franchising arrangement £

£172

152

£20

Special-purpose freehold property £

£195

130

£65

Other tangible non-current assets

£354

£ 349

5

Inventories

£107

£ 104

3

Financial assets held for trading

£18

£ 18

Other assets

£122

£ 122

Total assets

1,068

975

£ 93

Shareholders' equity

 

 

Share capital

£600

£ 600

Reserve arising from revaluation of special-purpose property in 2010

50

£50

Retained profit

£335

£ 242

£ 93

 

£985

£892

Liabilities

£83

£83

Total equity and liabilities

£1,068

£975

£ 93

Prepare and present the journal entry required to incorporate the effect of the impairment review in the books of Barrington plc.

Journal Entry

Dr

Cr

Impairment Loss of Asset Account 

£ 20

 

Asset Account - Franchising arrangement

 

£ 20

 

 

 

Impairment Loss of Asset Account 

£ 65

 

Asset Account - Special-purpose freehold property

 

£ 65

 

 

 

Impairment Loss of Asset Account 

5

 

Asset Account -Other tangible non-current assets

 

5

 

 

 

Impairment Loss of Asset Account 

3

 

Asset Account - Inventories

 

3

Part - 2

International Accounting Standards (IAS) provides that the assets should be subject to the test of "impairment" so that it better reflects the value of the asset in the financial statement. IAS 36 deals among the accounting standards deals with the concept of impairment, except for those tangible and intangible assets which are named under IFRS. IAS 36 in this case identifies that assets should be accounted in the financial statements not more than their recoverable value. Therefore in order to justify with this statement it is required by every business entity that all the assets (other than IFRS) are impaired at their recoverable value (Cook & David, 2002, pp. 52 - 58).

This method of impairment is applied to a variety of assets as intangible fixed assets, financial instruments and other tangible or intangible assets that have been acquired with a view to generate the future profits for the entity.

The main motive of using the concept of impairment is to ensure that assets are not stated in the statement of financial position (SOFP) at an increased value they are worth in the business (recoverable amount). No doubt that this approach will reveal in the financial statements of heading to a value that reflects how the company has invested in assets and how they have an updated replacement value considering changes in market history.

Deterioration is also applicable under IAS 39 to the accounts receivable that the entity considered as financial instruments (when securitizing susceptible) as determined by the "accounting profit". In this case applies considering the deterioration of the invoice value versus the present value of the amount ...