Part A (a)
The present value of all future cash flows is a factor in the calculation of Value-in-Use (AASB 136 (30)). The Telstra Ltd management makes assumptions that future operating performance (or cash flow) of the asset can be appropriately predicted based on historical performances and expected future performances (Telstra, p94). This complies with AASB 136 (33), (34) and (35).
Future net cash flows have to be discount back to present value (AASB 136 (56)). The assumption that Telstra has makes is that the discount rate will be based on the weighted average cost of capital (AASB A17) with specific risk premiums. As required by AASB (A18), Telstra has excluded specific risk premiums from all other calculations to avoid double up.
Typical of a Listed Company, Telstra is made up of Cash Generating Units (CGU) which have different discount rates. Telstra makes the assumption that the asset in the Telecommunications Network, that is ubiquitous throughout Australia, does not generate cash independently of each other. Therefore the telecommunications unit forms one large CGU known as Telstra Entity.
Part A (b)
Investors depend on information for the best allocation of their scarce resources. Following the recent global financial crisis, there should be significant impairment in many companies that have suffered falls in market capitalisation and revenue. Similarly, impairment reversals should also be prominent part of financial statements in the years following the GFC. During the past volatile years the investor would be given impairment amounts based on subjective judgements and rates that quickly become obsolete (Lonergan, 2010). Often key assumptions are near word for word repetition of the appropriate Fair Value and/or Value-in-Use clauses of the AASB 136 in the notes which only tells the investor what choice of impairment calculation was used. This would include subjective assessments by management or outside consultants. Mayorga (2012) found...
Please join StudyMode to read the full document