1). Answer to question 1
The Amortisation of goodwill is one of the many concepts which though old have not lost their significance with respect to their applicability and relevance. It is specifically important due to the fact that many organisations need to amortise their amount of goodwill over its life on a straight line basis. The life of goodwill involves significant estimate as well as assumptions on the part of the management. This makes it both difficult and subjective at the same time. Use of estimate and assumptions become important because it is not reasonably possible to state the accurate amount of goodwill. Due to the fact that the amount of goodwill is an estimate made by the entity its recording and corresponding amortisation doesn’t provide the shareholders with any relevant or crucial information that is the reflection of the economic performance and position of the company (Titman et al. 2017). Recognising this matter the International Accounting Standard Board (IASB) has rightly stated that it will no longer be compulsory for the companies to ascertain the useful life of the goodwill for the purpose of amortising it over its useful life using the straight line method. In pursuance of this the International Financial Reporting Standard (IFRS) 3 has clearly prescribed that it is no longer compulsory for the companies to amortise the goodwill over its useful life. It concluded that amortising same amount of goodwill over the years will be unable to provide any useful information to the shareholders as this is a redundant process.
In comparison to that the method of impairment testing is more scientific and justifiable in terms of ascertaining the current value in use and the net realisable value of the non-current assets. It is due to the fact that via this method it is possible to ascertain the actual benefit or the revenue generating capability off the asset that is accruing to the entity. This enables the financial statements of the entity to give a more realistic and true and fair view of the entity’s financial position and financial performance. The same method shall be applied with respect to goodwill in order to ascertain the actual value of the goodwill that should be reflected in the financial statements of the entity. This should preferably be done annually in sync with the preparation of the financial statements.
The method of impairment testing would necessitate the entity to report or recognise the effect of impairment loss if there has been a reduction in the value of the goodwill. In this method the prime benefit for the shareholders is that the effect of goodwill in real terms is getting reflected in the balance sheet (Scott 2015). It is not necessary that the company’s goodwill will reduce every year similarly it is also not mandatory that the total value of the goodwill will take the entire time as ascertained by the management to get amortised. The actions and performance of the entity may result in maintaining the present level of goodwill or destroying it all of a sudden. Thus, the method of impairment testing is a better way of amortising goodwill as it directly reflects the effect of the management’s actions on the goodwill of the entity.
2).Answer to question 2
a)
$778493
Issue Price of Debenture= A+B= $1105753.00
b).
C).
The Journal entry using the completion method:
Answer to question 4
a)
The AASB 116 is concerned with the treatment of property, plant and equipment provided some other standard does not necessitate any other treatment. As per Paragraph 31 of the standard if there is a possibility of measuring the fair value of the assets reliably, the entity must value the corresponding asset at revalue amount. The revalued amount must be arrived at by deducting accumulated depreciation and impairment loss. In addition to this Paragraph 39 of the standard specifies that if there is an increase in the amount of the asset due to revaluation then such increase must be recorded in the other comprehensive income and should be grouped under equity as revaluation reserve (Waxman 2017). Further, only such amount of the increase due to revaluation should be included in the profit and loss account which has been recognised as a loss due to revaluation with respect to the corresponding asset.
The Paragraph 40 states that the decrease in the value of asset due to revaluation shall be recognised in the profit and loss immediately except if there is some balance in the revaluation reserve. In that case it must be deducted from the revaluation reserve first and the remaining amount will go to profit and loss if any.
b)
Reference:
Scott, W.R., 2015. Financial accounting theory (Vol. 2, No. 0, p. 0). Prentice Hall.
Titman, S., Keown, A.J. and Martin, J.D., 2017. Financial management: Principles and applications. Pearson.
Waxman, K.T. ed., 2017. Financial and business management for the doctor of nursing practice. Springer Publishing Company.
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