The paper 'Newcrest Mining Ltd - Impairment of Assets" is a good example of a finance and accounting assignment. An asset impairment test concerns with a market price drop of the company’ s fixed asset. Impairment of asset is realized when the carrying value is greater than the fair value. This occurs due to the fact that many companies inflate the values in the balance sheet. Many accountant do not perform an impairment test each accounting period or on every the fixed asset of the company, performing an impairment test on each asset is unnecessary and thus, the impairment test is always conducted every year based on the proper approach specified by the accounting standards Condition for an impairment test to be conducted The asset impairment test is always conducted when there is a decline in the market price of the asset or where there are key changes in the usage of the asset or changes in legal factors on the manner in which business employs its assets.
This condition will make an accountant performance and impairment test in order to test for materiality of the impairment loss and to document such impairment loss in order to ensure that the users of the financial statement are provided with the reliable annual report for investment decision making as well as ensuring that the company financial statement portrays a true and fair view of its performance. Ways of conducting impairment Accountant ascertains impairment into distinct ways, First, the accountant ought to compile the past value for the entire asset documented on the company’ s general ledger.
Air value for the entire assets of the company emanates from the current market prices where they may dispose of the asset and therefore, an asset with higher fair value than book value depicts asset impairment. The second methodology of testing for impairment requires a practitioner to undertake a cash flow analysis against the current asset cost.
This is done by calculating the sum of total unrecognized cash flow from the future years and thus the sum of each asset represents the future benefit from each asset. Where the future benefit exceeds the book value, then there is an impairment of the assets. Accounting for impairment loss The corporation is required to write off the impairment loss against the income realized from a given financial year, The accounting system provides for a different approach to writing off the asset impairment such that, total impairment loss may be divided into the portion to be accounted for in different accounting period in order to reduce the consequences of lumpsum deduction of impairment loss from the reported net income.
Corporation, therefore, must disclose such impairment to the shareholders in order to make them know of the major business changes and ensuring that information is accurate concerning the business situation and financial difficulty it is facing.
Documentation of the impairment loss is the compliance of International accounting standard 36 as well as the international financial reporting standard 3 (Accounting for impairment) the standard provides that every organization should account for an impairment loss in the incomes statement as well as the financial statement to ensure that shareholders are given accurate information concerning the company’ s financial position.
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