Conference Financial Markets And Corporate â€Myassignmenthelp.Com

Question: Discuss About The Conference Financial Markets And Corporate? Answer: Introduction IAS 36 deals with the impairment of both the tangible and the intangible assets. As per the IAS, an asset should not be arried in the books at more than the recoverable value., i.e., the higher of the value in use or the fair value of the asset less cost of disposal of the asset. The company needs to check for the potential impairment in the value of the asset if the conditions exist for the same. Goodwill and other intangible assets with indefinite lives should be assessed annually for impairment. The need for impairment arises because the assets needs to be reported only to the extent they actually exist in reality. (Buchanan, et al., 2017) In case the single asset is not being able to generate revenue, then the smallest possible group of asset or the class of asset which would be able to generate the revenue independently would be analysed for impairment. Once the impairment is done, the same needs to be extensively disclosed in the financials disclosures with the test and the los s recorded. Further impairment loss already recognised in the previous period may be required to be reversed if the estimated for determining the recoverable value change. The indicators which are used for the assessment of impairment are classified into 2 categories, namely internal and external factors. IAS 36 is applicable on the plant and machinery, land and building, furniture and fixture, intangible assets, goodwill and investment in other companies or subsidiaries. However, IAS 36 does not applies to deferred tax assets, assets which arise from employement benefits, inventories, assets out of construction contracts, agricultural assets, financial assets, and non current assets being held for sale. (kabir, et al., 2017) Concepts of recoverable value, value in use and the fair value A company needs to check on periodically whether the indicators for impairment of assets exist or not. In case the indicators do exists, then the recoverable amount needs to be calculated for comparison with the carrying value. External indicators includes changing taste, fashion, preferences and technology, increase in the market interest rates, net assets of the company being carried at more than the market capitalization or decline in the market value. Internal factors which may be attributable to the impairment can be asset is lying idle or there is greater obsolescence on the asset or the economic benefit that can be derived from the asset is low or the carrying amount to be invested in the investee or subsidiary company is lower than income earned by such company. The list is just an illustrative list and is not exhaustive.(Das, 2017) The recoverable value of the asset is higher of the value in use of the asset or the fair value of the asset less cost of disposal. To calculate the impairment, assets recoverable amount needs to be compared with the carrying value of the asset, differential being recognised as impairment loss. Depending on the circumstances the recoverable value may have to be calculated for a single asset or a group or class of assets called cash generating unit. (Goldmann, 2016) Value in use may be defned as the present value of future cash flows expected to be generated out of the asset or a CGU using a rate of interest. This maily includes 2 variables: Cash Flow Projections: the expected cash flows that can be earned from the asset or the CGU has to be estimated, the time lag or the timings of the cash flows. The projections should be realistic and based on relevant supportings and reasonable assumptions by the management, it should be based the figures in the latest financial statements or budgets or forecasts. (Fay Negangard, 2017) Also, there cash flows should be exclusive of any major capital expenditure or overhaul cost that the company may be planning to invest in the near future. In case the time range to be used is high, extrapolation should be used beyond 5 years as per the AS. The 2nd most important input is the rate of discount. The rate used should be pre tax discount rate as per the current market conditions and should account for risk on the asset, it should also include the uncertainity element on cash flow from the asset and also the illiquidity factor. IT should be the rate which the investors would be expecting when they make an investment in the project or the rate at which the company would have borrowed the funds from the market to buy that particular asset. (Mahapatra, et al., 2017) Besides all the above considerations, the company should compare the forecast with the previous years estimations or forecast and in case they find there is an overstatement or understatement, the same should be immediately adjusted in the cash flows. All in all, the cash flows should be the weighted average of all the possible outcomes.(J, 2016) Lastly the fair value of the asset is the amount that can be obtained by the sale of asset at the arms length price to a knowledgeable and willing party, less the cost of dispoing the same. (Meroo-Cerdn, et al., 2017) The fair value can be determined in accordance with IFRS 13 or the price which would have been there in the binding sale agreement or the price the asset would have fetched if traded in the active market or in the absence of both the above information, the amount which the entity could extract based on the best information available. In case none of the above information is available, the fair value can ve determined using the discounted cash flow technique. The cost of disposal should include all the transaction cost and other direct cost attributable to its disposal. Conclusion We saw how the recoverable value, the value in use and the fair value less cost of disposal needs to be calculated and what all factors needs to be taken into consideration. However, in case the fair value cannot be ascertained in the absence of information, the value in use becomes the recoverable value and same needs to be compared with the carrying value of the asset. All the important assumptions on the discount rate, methodology of estimating the cash flows, the amount of impairment loss and the amount of depreciation to be adjusted in future needs to be disclosed in the financials statements. References Buchanan, B., Cao, C., Liljeblom, E. Weihrich, S., 2017. Taxation and Dividend Policy: The Muting Effect of Agency Issues and Shareholder Conflicts. Journal of Corporate Finance, Volume 42, pp. 179-197. Das, P., 2017. Financing Pattern and Utilization of Fixed Assets - A Study. Asian Journal of Social Science Studies, 2(2), pp. 10-17. Fay, R. Negangard, E., 2017. Manual journal entry testing : Data analytics and the risk of fraud. Journal of Accounting Education, Volume 38, pp. 37-49. Goldmann, K., 2016. Financial Liquidity and Profitability Management in Practice of Polish Business. Financial Environment and Business Development, Volume 4, pp. 103-112. J, G., 2016. Principles of Australian Contract Law. Australia: Lexis Nexis. kabir, H., Rahman, A. Su, L., 2017. The Association between Goodwill Impairment Loss and Goodwill Impairment Test-Related Disclosures in Australia. 8th Conference on Financial Markets and Corporate Governance (FMCG) 2017, pp. 1-32. Mahapatra, S., Levental, S. Narasimhan, R., 2017. Market price uncertainty, risk aversion and procurement: Combining contracts and open market sourcing alternatives. International Journal of Production Economics, pp. 34-51. Meroo-Cerdn, A., Lopez-Nicolas, C. Molina-Castillo, F., 2017. Risk aversion, innovation and performance in family firms. Economics of Innovation and new technology, pp. 1-15.