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Corporate Accounting Assignment - AASB 136: IMPAIRMENT OF ASSETS

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Assignment

This assignment has 2 parts, 1000 + 10% word theory interpretation essay and a response to a practical application of the theory.

The assignment must be typed, use Arial font, 12, to avoid plagiarism, make sure you do proper referencing, at least use 6 references, to be submitted the soft copy in Turnitin and hard copy in lecture Week 10. Please ensure you attach a KOI assignment cover sheet, with ID numbers and signed. Late assignments will be...

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Question Preview:

Assignment

This assignment has 2 parts, 1000 + 10% word theory interpretation essay and a response to a practical application of the theory.

The assignment must be typed, use Arial font, 12, to avoid plagiarism, make sure you do proper referencing, at least use 6 references, to be submitted the soft copy in Turnitin and hard copy in lecture Week 10. Please ensure you attach a KOI assignment cover sheet, with ID numbers and signed. Late assignments will be penalised, 10% deduction per day.

 

Part A:

1000 word short essay about the following:

 

At 30 June 2014, Longreach Ltd is considering undertaking an impairment test. Having only recently adopted the international accounting standards, the management of Longreach Ltd seeks your advice in relation to this test under AASB 136 Impairment of Assets.

 

Required

Write a report to management, specifically explaining:

1. the purpose of the impairment test

2. how the existence of goodwill will affect the impairment test

3. the basic steps to be followed in applying the impairment test.

 

 

Part B:

Crossbow Ltd is an entity that specialises in the manufacture of leather footwear for women. It has aggressively undertaken a strategy of buying out other companies that had competing products. These companies were liquidated and the assets and liabilities brought into Crossbow Ltd.

At 30 June 2015, Crossbow Ltd reported the following assets in its statement of financial position:

 

Land     $200 000

Inventory products 180 000

Brand ‘Crossbow Shoes’ 160 000

Shoe factory 700 000

Machinery for manufacturing shoes 400 000

Goodwill on acquisition of competing companies 40 000

$1 680 000

Because of the competition from overseas as customers pursue a strategy of buying online rather than visit Crossbow Ltd’s stores, Crossbow Ltd assessed its impairment position at 30 June 2015. The indicators suggested that an impairment loss was probable. Crossbow Ltd calculated a recoverable amount of its company of $1 420 000. The fair value less costs of disposal of the land was $171 000.

Required

Prepare the journal entry(ies) for any impairment loss occurring at 30 June 2015.

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Solution preview

Impairment Test is performed in an entity when it realizes the need as the carrying amount of the assets is more than the fair value of the assets. This impairment test is done to ensure that whether the assets of the organization are not overstated, and the assets don’t include any irrecoverable amount or value. If the fair value of the assets is less than their book value, the assets will be recognized at fair value and the curtailment in the book value is the impairment loss. This impairment loss is accounted immediately in the statement of Profit and Loss.

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