Understanding Goodwill Impairment And Its Effects On QBE’s Annual Report

Recording Goodwill Impairment Charges in QBE’s Annual Report

Question:

Discuss about the Accounting Organizations and Society System.

The goodwill impairment is mainly considered a charge that is imposed by organisation in the annual report when carrying value of the goodwill exceeds the fair value. In addition, the overall valuation of goodwill impairment is mainly considered an earnings charge that is recorded by the companies in their income statement. This record in the income statement is mainly conducted to identify whether goodwill is not able to demonstrate the financial results. Adams, Mezzullo and McManus (2015) mentioned that impairments charge directly allow the organisation to reduce the goodwill value according to the change in its future financial gain.

There are different ways in which the overall goodwill impairment charges could be recorded in the annual report of QBE’s. In addition, the impairment expenses are recorded in two statement of the annual report, which directly help in adjusting the fair value of an asset. The annual report of QBE needs to needs to adjust goodwill impairment charge of about $600 million and one-time impairment charge of $150 million. The impairment charges need to be recorded in annual report of the organisation, which could help in improving the financial viability of the organisation. The relevant measure could eventually help in declining the goodwill of QBE from its financial report. The overall onetime impairment charge of $150 million will mainly be deducted from the income statement, which could directly reduce the total profit for the year. Moreover, the goodwill impairment charge of about $600 million will mainly be reflected in non-current assets of the balance sheet. Hence, the impairment change will mainly reduce the value of goodwill in the annual report. Bebbington and Larrinaga (2014) stated that use of impairment expenses directly allow the organisation to adjust their intangible assets, which could help in depicting the fair value of the organisation.

The relevant intangible assets need to be disclosed in the financial report of QBE, as it might help in improving the financial report. However, the reputation of the chairperson cannot be considered intangible assets, which is adequately depicted in IFRS 3, and IE16-IE44. The relevant measures directly indicate that the individual person cannot be considered an intangible asset of an organisation. According to the relevant Initial Accounting for Internally Generated Intangible Assets, it could be identified that -any kind of work or programmes can be considered intangibles assets (Cortesi et al. 2015). However, the person that is contributing to the intangible asset cannot be considered an intangible asset of an organisation. This can be identified from the paragraph 33 A, where it states that artist related works like literary work, television programmes and plays can be identified as intangible asserts. However, persons having the talent to create the programs and play are not considered intangible assets, where it cannot be listed in the annual report of an organisation.

Disclosure of Intangible Assets in the Financial Report

However, the programs and policies, which try to increase the financial income of the company in future, can be listed in the annual report of QBE. Hence, the CEO cannot be listed as the intangible assets of the organisation as per the AASB and IFRS rule. Drury (2013) mentioned that the relevant rules and regulations directly state that the organisation can list the intangible assets, which could provide relevant future income for the organisation. The organisation could also use the contract based, technology based, customer-related based and marketing related intangible assets, which could be listed in annual report of the organisation. Therefore, it could be assumed that QBE cannot enlist the reputation of CEO, as the intangible assets in their annual report.

From the overall evaluation of the Lion Nathan, case relevant benefits that could be identified from operations. This could eventually allow the organisation to reduce the overall tax that is been given and maximise their retained income. The relevant sale of the property could eventually allow the organisation to increase their cash reserves, which could raise the investment capacity of Lion Nathan. The leaseback transaction could also help in improving the overall profitability of the organisation. This lease transaction could eventually allow the organisation to get deductions in their tax amount, which in turn could help in increasing the retained income that could eventually raise shareholders wealth. Hoyle, Schaefer and Doupnik (2015) mentioned that reduction in overall tax expenses directly allows the organisation for retaining more income in the business, which could directly help in improving shareholders wealth.

Moreover, the sales value could eventually allow the organisation to obtain more cash, which could in turn help in improving its investment capability. Furthermore, the high cash reserves could eventually allow Lion Nathan to conduct the required level of investments on hotels, which could improve revenue stream of the organisation. Malak (2015) mentioned that companies with high investment scope could eventually allow the organisation to generate the relevant profitability from investment that could increase firm value and raise shareholder wealth.

The relevant lease needs to be a finance lease, as Lion Nathan could adequately enlist the asset in balance sheet. The finance lease is mainly considered, as a general loan, where the asset directly appears in the balance sheet. This finance lease also allows the organisation to hold the asset as ownership, which could directly allow the company to initiate both interest and depreciation in their books. These overall measures could directly allow Lion Nathan to reduce the overall tax expenses and increase relevant retained income. However, the operating lease method does not allow the organization to enlist the asset in their balance sheet, which could in turn reduce its total assets (McEwen and Hunton 2015). The operating lease method only allows interest expenses to be deducted from the annual report and the company in their income statement calculates no depreciation. Therefore, it could be understood that using operating lease does not provide Lion Nathan any kind of advantage for improving its financial position in the annual report. Hence, It could be identified that using the finance lease measure could eventually allow Lion Nathan to improve its capital assets, which could be listed in the annual report.

Using the Finance Lease Method Over the Operating Lease Method

Relevant entries need to be conducted by Lion Nathan on its income statement and balance sheet to reflect the sale of pubs. This directory allows Lion Nathan for reducing the total assets and depicting any kind of loss of profit that was obtained from the sale of pubs.  any kind of profit and loss will directly be reflected on the income statement where it would be stated as loss or profit from sale of asset. On the same aspect relevant deduction in the balance sheet for a particular asset needs to be conducted adjusting the balance sheet according to the current total assets of the organisation. In this context, Mo and Waples (2015) stated that the use of asset sale directly allows the organisation to obtain the relevant cash for supporting a new investment idea, which could provide higher returns from investment. The detection of any kind of profits obtained by the organisation is directly depicted in income statement, which portrays the current transaction that is conducted by the organisation. Moreover, the cash transactions of the sale will also be reflected on cash flow statement, relevant reductions from sale of assets will be depicted.

Depreciation is mainly calculated on the basis of actual value of an asset, which could directly reflect in annual report of the organisation. There will be a change in depreciation valuation that needs to be conducted by Lion Nathan in their annual report, as the lease value will mainly be calculated for depreciation purposes. In addition, any kind of profit from the sale of pub will directly increase the valuation of the Asset, while a loss would reduce the valuation of the Asset. This relevant reduction or increment in the asset value could also change the depreciation value, as Lion Nathan will be using finance leasing method. This finance leasing method directly allows the organisation to depreciate the asset in the annual books and record the assets in balance sheet (Smith 2017). Hence, the depreciation will change for Lion Nathan in their annual report, as valuation of the Asset will change.

Reference and Bibliography:

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