ASSIGNMENT

Advanced Corporate Reporting Assignment

Advanced Corporate Reporting Assignment

Part 1

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

The objective of IAS 36 is to lay down the methods applied by entities to make sure that the value of its assets to not exceed their market value. The market value is the recoverable amount that an entity will receive from the sale of the asset. If the value of the assets stated in the financial statements is more than the amount that can be recovered through its sale, the machine is considered to be impaired (IAS 36 Impairment of assets. n.a.). This accounting standard specifies every entity to recognise such loses and also specifies that they should be reversed when needed. If the possibility of determining the market value of an individual asset, the market value of the cash-generating unit should be determined.

IAS 36, “Impairment of Assets” satisfies the fundamental characteristics of 'Relevance' to a great extent. By revaluing assets to a value not more than the recoverable value, the entity makes it easier for decision makers and planners to get a better view of the status, value, and position of the entity. The best decisions can only be made what an accurate value of assets and liabilities is available. If the value is more than the recoverable amount, heavy investments, if unsuccessful, can lead to problems from which the entity may not be able to recover since the value of the firm will be less than what is represented in the financial statements.

Another reason this accounting standard fully complies to the framework of 'Relevance' is that since the information in the financial statement will be correct, the ability of the entity to make realistic predictions of the future is enhanced. With accurate information, the structure of the assets can be properly understood and the profit and loss can be more accurately calculated. In some cases the amount may not be considered relevant since the values are modified without any actual event taking place (Tosen, pp. 71). The revaluation based on assumptions and estimated future cash flows may always have errors in it, therefore, judging the accuracy of the values can be difficult.

It is sometimes difficult to present a balance sheet which shows the true and fair view of the ...