Originally Posted by
Australopithecus
The difference between the 747 and the 380 is that the 747 has some residual value while the 380 does not, except as parts. Air France has just announced they are quitting the 380 completely by 2022.
Question for accounting experts: How is the balance sheet affected when an asset is worthless yet still has ten years left on the depreciation schedule?
That is a fantastic question given the "confronting loss" in FY15. Over $2.6 billion of the "loss" was accounting loss as the long haul fleet was "impaired". What this means is that the "judgement" is that the book value of the asset exceeds the asset value that can realised if sold.
That many analysts asked questions of the book value prior to the "loss" is because the book values were considered not realistic.
Thus, specifically under AASB 136 the impairment becomes a judgement combining accounting treatments and valuation assessments. A bit of nudge-nudge wink-wink between the big 4 auditors and "executive management" helps with the timing. It was really lucky that the "impairment" in FY15 was the year before the recovery at which time millions of management share options vested.
To answer the question, ASIC has some concerns about asset impairment.
While there are many judgmental areas involved in impairment testing, if the asset is considered to be
impaired because the value recognised on the balance sheet cannot be recovered that impairment loss must be recognised at the time it is identified.
With regulators and auditors likely all members of the Chairman's lounge, it is something that "isn't recognised" until a more convenient time.
To paraphrase Upton Sinclair,
"It is difficult to get a man to understand something, when his salary (perks) depends upon his not understanding it!"