Accounting Standard

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Answer 1

  1. A) In the language of accounting, the term goodwill is an intangible asset that is accrued or amortized when an organisation is going to purchase to another company. In the business environment, private companies calculate the value of the goodwill by the different methods. Even though, according to accounting standard, the value of the goodwill should be recorded as the assets on the basis of yearly.

At the same time, impairment in the goodwill is identified as a loss in the income of the company and group. It is also known as the loss in the goodwill account in the financial statement of the company. The amount of the goodwill impairment should be recorded after the effective evaluation difference between the amount in which assets have purchased and current fair market value of the company’s assets (AASB 136, 2010).

The accounting standard AASB 136 is developed for the impairment of assets in the business. It also determines that impairment of assets applies to each entity required to prepare financial reports in accordance with part 2M.3 in the corporation act. However, the main aim of this standard is to ensure that the faire value of the business and assets are not able recover the excess amount. It also ensures that amount will not be carried no more than its recoverable amount (Zhuang, 2016).

In the context of QBE, the goodwill impairment charge will be reported in the below manner

Debit   Impairment of goodwill $600(Million)
Credit   Accumulated impairment of goodwill $600(Million)


Debit   Profit and loss $600(Million)
Credit   Impairment of goodwill $600(Million)


When goodwill is impaired, the accounting entry is:

Debit   Impairment of goodwill $150(Million)
Credit   Accumulated impairment of goodwill $150(Million)



Debit   Profit and loss $600(Million)
Credit   Impairment of goodwill $600(Million)


According to AASB136, in the context of impact of the goodwill impairment on the intangible assets of financial assets, it is found that impairment loss is identified in the income statement of the company. It will negatively affect the net income of the company due to loss has been found. At the same time, assets will be also written down equal of the impairment loss which is reported in the income statement.

  1. B) The chair person of QBE Belinda Hutchinson can be known as the human resource of the company. It is wrong to say that it is an asset of the company. But, according to AASB 136, chairmen can be concerned as the intangible assets for the company. In order to measure the intangible assets amount, the calculation of the recoverable amount is determined according to the most recent positive margin of the company Bond, et al. 2016)

Answer 2

  1. A) According to the accounting standard AASB 117, following are some benefits of that can happen to Lion Nathan as a result of the sale and leaseback transactions.
  • It can allow to Lion to operate from the same premise with avoiding from the risk associated risk associated with the owning property.
  • By the help of this, Lion will be able to reinvest the working capital to growth the business.
  • Lion can also get the taxation benefit as the leasing the costs are offset as an operating expense
  • The fixed monthly rent under sale and leaseback will be got in the a big amount (Wong & Joshi, 2015).
  1. B) In the context of the given case study, it was found that the lease will be finance lease because Lion wants continue retain the control of the properties. Due to this, the Lion will be continued to hold the risk associated with the property.
  2. C) According to the accounting standard AASB 117, it can be said that the needed accounting adjustment of any profit or loss depends on lease whether it is financial lease or operating lease. Even through, in this case, it is found the nature of the lease is financial.

In order record the value of the profit and loss by the sale of Pub, the Lion is requires to have a differ account rather that can report the amount of loss and profit on the sale of pub. In this kind of the account, the loss and profit of Pub will not be recorded instant as income by a seller lease. Instead of this, the amount of the loss and profit will be deferred and amortised over the lease term.

In the AASB 117 in paragraph no 59 states that “If a sale and leaseback transaction consequences in a finance lease, any excess of sales proceeds over the carrying amount shall not be immediately recognised as income by a seller-lessee. Instead, it shall be deferred and amortised over the lease term (AASB 117, 2010).

On the other hand, in the context of the operating lease, the paragraph no of 61 in the AASB 117 depicts that the value of the profit and loss of the sale of Pub will be recognised or recorded immediately. This paragraph shows that if the sales of pub come under the operating lease than seller of the lease can report the amount of the loss and profit immediately. It is totally differ from the lease under the financial lease (Wong & Joshi, 2015).

At the same time, in paragraph 63 of AASB 117, it is determined that when the faire fair value of the leaseback  and sale transaction happens less as compared to carrying amount of the assets, at that time loss value is equal to the difference amount between the carrying amount .

  1. D) In the AASB 117, the paragraph 53 shows that depreciation policy for leased assets should be concerned with the general policy of the lessor’s for depreciation and similar assets. At the same time, paragraph 51 depicts that the calculation of the depreciation is calculated according to the straight-line basis over the lease.


AASB 117 (2010). Leases: Compiled AASB Standard – RDR Early Application Only [Online] Available at:

AASB 136 (2010). Impairment of Assets: Compiled AASB Standard – RDR Early Application Only

Bond, D., Govendir, B., & Wells, P. (2016). An evaluation of asset impairment decisions by Australian firms and whether this was impacted by AASB 136.

Wong, K., & Joshi, M. (2015). The impact of lease capitalisation on financial statements and key ratios: Evidence from Australia. Australasian Accounting Business & Finance Journal9(3), 27.

Zhuang, Z. (2016). Discussion of ‘An evaluation of asset impairments by Australian firms and whether they were impacted by AASB 136’. Accounting & Finance, 56(1), 289-294.

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