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Question 2 (a) MFRS 136 Impairment of Assets seeks to ensure that an entity's assets are not carried at more than their recoverable amount (i.e.
Question 2 (a) MFRS 136 Impairment of Assets seeks to ensure that an entity's assets are not carried at more than their recoverable amount (i.e. the higher of fair value less costs of disposal and value in use). Impairment test is important especially in the context of financial reporting quality in that it requires the exercise of considerable management judgement and reporting discretion. There are many factors which can affect the quality of impairment accounting and one of it is valuation issue. Required: Discuss the importance and significance of the valuation issue when conducting an impairment test under MFRS136 Impairment of Assets. [15 marks] Question 3 YGL Berhad specialises in the communications sector with three main Cash Generating Units (CGU). Goodwill was a significant component of total assets. In the year ended 31 December 2020, YGL has performed an impairment test of the CGUS. The cash flow projections were based on the most recent financial budgets approved by management. The realised cash flows for the CGUs were negative in 2020 and far below budgeted cash flows for that period. The directors had significantly raised cash flow forecasts for 2021 with little justification. The projected cash flows were calculated by adding back depreciation charges to the budgeted result for the period with expected changes in working capital and capital expenditure not taken into account. Required: Discuss whether the action taken by the directors is appropriate. [15 marks]
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