Advanced Corporate Reporting

Impairment of assets occurs when a decrease of an assets fair value decreases abruptly due to obsolescence, damage or other sudden occurrences. As a result, it is necessary for a business to decrease the value of the asset in question in the balance sheet and its loss recognized in the income statement. The terms related to impairment include;

Fair Value less costs to sell:

This refers the market price of the asset minus the cost incurred in the selling process such as registration and commission.

Recoverable Amount;

This refers to the gain obtainable from an asset. It is equal to Higher Fair value minus cost of selling and value in use.

Value in Use:

This is the expected future value in monetary terms that can be derived from an asset if usage is continued.

Impairment loss recognition:

This is when the present carrying amount of an asset exceeds its recoverable amount.

In the case where recoverable amount is greater than the carrying amount, impairment loss is not recognized (Edwards 1989).

a) Compute the amount of the impairment of the Barrington plc cash generating unit arising from the impairment review.

Impairment Review amount = Carrying amount less Higher Fair value minus cost of selling and value in use. (Carrying amount – recoverable amount)

= Carrying amount – Fair Value less cost of sell + value in use)

= 195- (130+ Value in use)

b) Allocate the impairment loss between the relevant components of the assets of Barrington plc.

Asset Impairment loss only reduces the carrying amounts of assets of the company. The loss is allocated in accordance /on pro rate basis in relation to relative carrying amounts of the assets. However, if the loss allocated must not reduce carrying amount of an asset below it fair value.

c) Prepare and present the journal entry required to incorporate the effect of the impairment review in the books of Barrington plc.

Journal Entries year 2013 – 2016 in Tabular form required to complete Barring Pc (Amounts are in Pounds)













Impairment Loss of Property





Property Account





Part 2

Critically evaluate the extent to which the required treatment of impairment, as laid down in IAS 36 entitled ‘Impairment of Assets’ satisfies the fundamental qualitative characteristics of ‘relevance’ and ‘faithful representation’ contained in the conceptual Framework for the preparation and presentation of financial statements.

The treatment of impairment of assets as laid down in IAS 36 entitled ‘Impairment of Assets satisfies the fundamental qualitative characteristics of accurate representation and relevance which similar to presentation and disclosure of financial statements.

The IAS 36 standards require disclosure of specific listed items. They include;

Impairment losses and reversal amounts as recognized in the profit and loss in a given duration. In addition, comprehensive and detailed statements are included to sources of income inflow upon which reversal are calculated upon.

Secondly, the impairment losses and reversals amount are also revalued and included as assets in the same period comprehensives as income.

Consequently, IAS 36 states that it is mandatory for any entity under the obligation to disclose and report on segments in accordance with IFRS 8, to also disclose impairment losses and reversals amounts as shown in the profit and loss and in income statements for the specified period. In such situation, an entity is expected to disclose the amount of the impairment loss and reversals recognized, the events that led to the impairment losses and reversals, the nature of the asset and the reportable segment, cash generating unit description in terms of business spectrum, geographical covering and statement the show whether the amount recovered of the asset is fair value minus costs to sell or value in use. In addition, the determinants of the amounts must clearly be stated.

Subsequently, IAS 36 standards require the disclosure of how good will is treated at the end of the reporting period. Details regarding allocation of goodwill must be addressed. If goodwill is unallocated, comprehensive explanations must be provided why it remained unallocated.

Finally, upon recognition of impairment loss for an asset group, the amount is allocated pro rate basis. Only when the loss allocated decreases the carrying amount below fair value then is the allocation of impairment is not done. Impairment loss is recognized and allocated before the income tax is deducted (Daniels 1933).

Part 3

Explain management basis; statutory basis; core business; impairment in reaction to The Lloyds Banking Group’s 202 Half – Year Results.

Management basis;

Management basis approach represents business performance information of the Group in a more reasonable manner. The management basis report adopts significant principles such as; Reflection of acquisition impact of HBOS after exclusion of amortization of the intangible assets purchased and exposure of acquisition unwind amounts linked to adjustments in fair value shown in income statement. Secondly, effects of volatile items, sales of the assets and liability management are better captured in the business management basis report. Hence, presenting information in a more transparent and accurate status (Napier 1990).

Core Business basis; The group presents core and non core business activities separately. This is because management categorizes accounting information using core and non core mechanisms. The categorization, estimation and assumption affect income statement, balance sheet and capital used for regulations and risk anticipated. For instance, Income and expense are categorized as non core when management anticipate that no more income will be earned or expense incurred linked to associated asset, Removal of liability or when operational cost are allocated to core portfolio or else the activities directly are directly linked to non- core activities. As a result, the categorization

Operational costs for non core portfolio are reported as less than the required amount to manage the portfolios singularly.

Statutory Basis;

The statutory basis of representing information in order to effectively budget and control fiscal operations. This information is only prepared for comparison purposes with other governments. The statutory basis reflects deprecation assets, capital assets and long term liabilities. The group effectively presents its capital assets, long term liabilities including debt and depreciation of assets (Napier 1991).


Impairment amounts provisions have been provided for the consolidated accounts.

For the accounts of the Group, Impairment loss has fallen considerably. In the past twelve months there has been a decrease of fifty one pounds. This is a reflection of the decrease interest rate which has helped in maintain the defaults of loan payments. In addition, it shows the effectiveness of management in monitoring debt levels and ensuring prompt payments.