Question

Essential Airlines Pty Ltd owns a number of aircraft. Due to the pandemic affecting Australia and the world, the aircraft has been grounded with no flights occurring.   The airline as at 30 June 2019 had a carrying amount for the aircraft listed in the Statement of Financial Position as $80 million. However the recoverable amount as at 30 June 2020 is only $60 million. As the accountant you plan to record an impairment loss to recognise this. However the owners of the company have asked you not to record the impairment loss at this time.

Required:

1. Why would the owners of Essential Airlines Pty Ltd ask you not to record the impairment loss of the asset during the pandemic?                                        (1 mark)

List and discuss the impacts on the quality of financial information using the fundamental qualitative characteristics of information.

Answer 1

The impairment loss is an expense item in the statement of Profit and loss. During the pandemic, most of the company face heavy losses. The impairment loss would even further add to the loss and deteriorate the profitability of the company.

Hence, the owners of Essential Airlines Pty Ltd. wanted not to record the impairment loss of the asset.

The qualitative information has following impacts-
1. Affecting Going concern- Any major destruction or abandon by supplier or customer is a qualitativee information which affects the going concern of the organisation.

2. Change in stock price- Few informations such as resignation by senior member of the Board may have some impact on the stock prices of the company.