You are an experienced accountant working for a newly formed publicly listed company, Five Star Ltd. Your main focus is aligning company processes and policy with the applicable AASB accounting standards. Senior management of Five Star Ltd have sought your advice in relation to the application of AASB 136 Impairment of Assets.

Required:

There are two parts to this report, Part A will detail your understanding of the general application of AASB 136. Part B will provide you the opportunity to give practical examples of how other corporate entities apply the standard and account for the impairment of assets.

Part A.

Write a succinct report to management specifically explaining:

The purpose of the impairment test for assets.

When to undertake an impairment test.

How the existence of goodwill will affect the impairment test.

The basic steps to be followed in applying the impairment test for (a) individual assets and (b) cash generating units.

How to account for reversals of Impairment losses.

Part B.

In this part of the report, you must choose a reporting entity to discuss in relation to impairment testing. You will need to access your chosen company's most recent annual report.

Some company suggestions:

Boral Ltd (BLD)

CSR Ltd (CSR)

Cochlear Limited (COH)

JB HiFi Limited (JBH)

Wesfarmers (WES)

Woolworths Group Ltd (WOW)

Qantas Group (QAN)

Choose one of these companies (or any other) that has experienced asset impairment and/or reversal of impairment where you can gather enough information to discuss general reasons why this is the case – consider industry and general economic factors. Endeavour to tie up your findings in Part B with the theory you presented in Part A. (e.g. what are the indicators of impairment or reversal, what RA was used, FV-DC or V in Use etc.).

In Part B of the report, management has requested that you explain, by example, how this other company is applying AASB 136. Consider the financial statements of your chosen reporting entity and indicate to management the effect of impairment testing on the financial statements. In doing this you need to indicate to management various aspects of the entity that you have discovered from the annual report, financial statement notes etc.:

Introduce your chosen company and discuss it briefly – what industry is it in, its size, does it comply with AASB/IFRS (you should find this information at the beginning of the notes section where the company discusses general policies)

The measurement basis for assets

What are the company’s assets, including property, plant and equipment and intangible assets? Do they have goodwill?

Have any assets been impaired? Is there an explanation for this?

Has any reversal of impairment losses occurred?

What is the effect of asset impairment/reversals of asset impairment on the balance sheet and the income statement? (You will need to look at relevant notes to the accounts)