In order to determine whether an impairment exists, a company needs to determine if the market value of an asset has dropped below its carrying value.
An impairment loss should only be recorded if the anticipated future cash flows are unrecoverable. Therefore, in the case of land impairment, a company would typically need to anticipate a sale in the near future in order to record a remeasurement to the lower value. If its sale is not imminent, the value of the land could reasonably be expected to recover over time.
One of these issues arose around the identification and valuation of goodwill impairment. Goodwill is typically analyzed and tested for impairment on an annual basis. However, if a "triggering event" occurs, such as the drastic downturn in the economy as a result of the COVID outbreak, companies are urged to test their goodwill for impairment outside of the annual basis. An additional and immediate review may be necessary in order to remeasure the value of the goodwill accurately.
When testing for goodwill impairment, a company can chose from one of two methods. The income approach uses discounted future cash flows to identify the value of goodwill. The market approach utilizes fair market valuations to determine the value of goodwill based on similar transactions within the same sector or industry. The income approach to remeasuring goodwill is complicated by difficulties surrounding the projection of future cash flows.
With an uncertain future, as well as increasing government involvement in business relief, it is more difficult for companies to accurately project their cash flows. Additionally, there are more immediate issues affecting a company's ability to project future cash flows due to business closures, curtailed operations, uncertain employee sick leave, and decreased productivity due to work-from-home arrangements.
The market approach is similarly muddled because accurate market analysis and comparable transaction selection is problematic as well. Financial Statements.
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Translation and remeasurement of foreign entity statements. Upcoming SlideShare. Like this presentation? Why not share! Embed Size px. Start on. Show related SlideShares at end. WordPress Shortcode. Following remesurement, the results will be translated into the reporting currency. The difference between translation and remeasurement can be explained in relation to the functional currency and reporting currency. When the functional currency is converted into reporting currency, it is named as a translation.
At times where certain transactions are reported in either local currency or a foreign currency, they should be converted into functional currency prior to converting into reporting currency. Exchange rates are subjected to fluctuations constantly since the demand and supply for currencies alter where appreciation of a currency demonstrates a boost in the result and vice versa.
Reference: 1. Financial reporting developments A comprehensive guide Foreign currency matters. Dili has a professional qualification in Management and Financial Accounting. Generally, this common currency is of the country in which the company has its headquarter. A firm that functions in one or more country often uses such a concept. Remeasurement, on the other hand, is a process to convert the financial result in another currency into the functional currency of a company.
This means if a company maintains accounts in the local currency, then it needs to switch the numbers in the functional currency. However, its functional currency is USD. However, it recently got a foreign currency loan in Indian Rupee. Translation is a process to convert the financial numbers of a subsidiary into the functional currency of the parent company. A company usually goes for translation if its functional and reporting currencies are not the same.
Or, when the local currency is equal to the functional currency.
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