Fosters Case

1871 Words May 1st, 2011 8 Pages

Corporate Accounting Assignment

Hao Cheng 3781727 Yang Siyu 3778363 Tutor: Ghazaleh Shokrollahi Thursday 10 a.m. – 11 a.m. 1 p.m. – 2 p.m.

Question 5:
Fosters, the beverage giant of Australia has been all over the news recently, as the company has reported a huge loss and the stock price keeps falling. All of these problems might be brought by its troublesome wine business. This report will try to explain why Fosters is under this infaust circumstance by answering the eight following question.

Question 1: Why is an impairment test considered
…show more content…
The most important influence comes from the hope of overtake or demerge, which requires the company to have an impairment test.

Question 4: What assumptions need to be made when undertaking an impairment test, and what effect would these have for evaluating the performance of Fosters and its competitors?
The first assumption need to be made when undertaking an impairment test is to make sure all assets that may be impaired are included in the test. IAS 36 has a list of external and internal indicators of impairment. If there is an indication that an asset should be impaired, the calculation of the asset's recoverable amount should be done. [IAS 36.9]
The recoverable amounts of the following types of intangible assets should be measured annually whether or not there is any indication that it may be impaired, which means all intangible assets in Foster have to be included. An intangible asset with an indefinite useful life means: * an intangible asset not yet available for use * goodwill acquired in a business combination (Patell and Wolfson, 20009)
If the company does not include all intangible assets, the impairment test for written down value would be underestimated, resulting in the performance of Fosters being overestimated while the performance of its competitors might be underestimated.
Second, the impairment test should be true and fair. If the company does not reflect true and fair test, the test would be
Open Document