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Question: Discuss About The Financial Year Or In End Each Of Accounting? Answer: Introducation The term Impairment loss is defined as the amount by which the carrying amount of the asset or of the cash generating unit is more than the amount that could be recovered when the asset is sold. In respect of identification of the asset that could be impaired, in the end of each financial year or in the end of each of the accounting period, the entity is duty bound to check the conditions for impairment. The management has to check as to whether the asset has been impaired or not (CPA Australia, 2017). This is done mainly when conditions exists that suggest that the asset may have been impaired. The IAS 36 lays down some of the internal and external indicators of impairment. In case, there is an indication of the fact that the asset could have bene impaired, then the recoverable value from that asset would be calculated. The following are the conditions on the basis of which the impairment testing is done: When an intangible asset has an indefinite life When that asset is not available for use When the entity has made some business combination due to which goodwill has been calculated The following are the external conditions that affects the same: The market value of the asset has undergone a change There have been some negative changes in the technology, market, economy and the laws When there has been an increase in the interest rate in the market When there are net assets of the company which are higher than the market capitalisation In case, the recoverable amount from the asset is less than the value at which the same has been stated in the books of accounts, then the asset is stated to have been impaired and the difference between the former and the latter would be termed as an impairment loss (PWC, 2017). This amount of impairment loss would be transferred to the statement of profit and loss. The internal sources include the following: When there is an obsolesce or a physical damage When the asset has been sitting idle as the part of a restructuring or which has been held for disposal(MCA, 2017). When there is an adverse economic performance expected in the market In respect of the investments that takes place in the subsidiaries, in the joint ventures or in the associates, the carrying value would be more than the carrying value in the investees assets and also the amount of the divided is more than the amount of the income in the statement of comprehensive income of the investee. The above stated factors or the market conditions are not exhaustive but are just illustrative. When any market condition has existed which shows that impairment has taken place, then the following would be done: In case, the fair value less the costs of the disposal or the value in use is much more than the carrying amount, then it is not necessary to calculate in the other amount and in such cases, the asset would not be impaired In case, the fair varies less the costs of the disposal are not able to be determined, then the recoverable amount would be considered to be the value in use. For the assets that have been disposed off, the amount that could be recovered would be the fair value less the costs of disposal For the fair value less the costs of the disposal, the fair value would be calculated as per the requirements laid down under the provisions of IFRS 13 which deals with the fair value measurement. The costs of the disposal are the direct costs that have bene added and are not as per the existing costs or the overheads. In respect of the value in use, the calculation of the value in use would go on to reflect the following: The estimate of the cash flows in the future that would flow on to the entity from the asset The expectations of all of the possible variations in the amount and in the timing of those expected future cash flows The time value of the money which is represented by the risk free rate of interest in the market (ACCA global, 2017). The price for bearing the uncertainty which is inherent in that stated asset There are many of the other factors such as the illiquidity wherein the market participants would indicate the pricing of the future cash flows which are expected by the entity in order to derive in the cash flows from an asset. The projections of the cash flows are somewhat based upon the reasonable and the supportable assumptions wherein in the most recent budgets and the forecasts. This accounting standard considered the budgets and the forecasts that are not older than about 5 years. In this, the management is also duty bound to ascertain the reasonableness of the assumptions by the way of examining in the causes of the differences between the projections of the cash flows and also the actual cash flows. The projections of the cash flows relates with the current condition of the asset. There are future restructuring that would improve the performance of an assets and hence, the performance of an asset must not be anticipated. When this estimation is done, then it must be made sure that the cash inflows or the outflows do not include the flows from the financial activities or the payment or the receipt of the income taxes (IAS plus, 2017). When there is a cash generating unit to which the goodwill has been allocated for the purposes of impairment, then any amount of impairment loss that the company has incurred would be first allocated to that goodwill and then the remaining impairment loss would be allocated to the other assets on pro rate basis (Erant and Young, 2017). But the management will have to keep it in mind that the value of the asset would never be reduced to below (the higher of its recoverable value or 0). This amount of loss would be allocated following the same process for any single cash generating unit. References: Cpaaustralia.com.au. (2017).Impairment of assets. [online] Available at: https://www.cpaaustralia.com.au/~/media/corporate/allfiles/document/professional-resources/reporting/reporting-ifrsfactsheet-impairment-of-assets.pdf?la=en [Accessed 17 Sep. 2017]. https://www.accaglobal.com, A. (2017).IAS 36 impairment of assets | ACCA Global. [online] Accaglobal.com. Available at: https://www.accaglobal.com/in/en/member/discover/cpd-articles/corporate-reporting/ias36-impairment.html [Accessed 18 Sep. 2017]. Iasplus.com. (2017).IAS 36 Impairment of Assets. [online] Available at: https://www.iasplus.com/en/standards/ias/ias36 [Accessed 18 Sep. 2017]. www.ey.com. (2017).Impairment accounting. [online] Available at: https://www.ey.com/Publication/vwLUAssets/Impairment_accounting_the_basics_of_IAS_36_Impairment_of_Assets/$FILE/Impairment_accounting_IAS_36.pdf [Accessed 18 Sep. 2017]. www.mca.gov.in. (2017).Accounting standard 28. [online] Available at: https://www.mca.gov.in/Ministry/notification/pdf/AS_28.pdf [Accessed 18 Sep. 2017]. www.pwc.com. (2008).Top 10 tips for impairment testing. [online] Available at: https://www.pwc.com/gx/en/ifrs-reporting/pdf/impairment-10tips.pdf [Accessed 18 Sep. 2017].