Question

Explain whether the grounding of the Boeing 737 max aircraft would affect the financial statements of airlines, such as Southwest, United and American Airline, that have acquired Boeing 737 max aircraft.

Grading rubric:

Explanation of the relevant accounting principles relating to the identification, calculation and recording of an impairment loss.	3 points
Extract from the textbook, including page reference.	0.5 point
Application of the accounting principles and conclusion.	1 point

Your post should be approximately 200 to 250 words and should focus only on the accounting principles relevant to the scenario.

Answer 1

Ans : The accounting principal relating to the identification , calculation and recording of an impairment loss is as follows (IAS -36):

Impaired assets should be recognise at NOT more than their recoverable amount. An asset is said to be impaired if its carrying amount (book value) is greater than the amount to be recovered either by way of using the asset in its business or by selling the asset. If the asset is impaired , the entity requires recognising an impairement loss, i.e. the amount by which the carrying amount of an asset exceeds its recoverable amount. The carrying amount should be reduced to its recoverable amount. That reduction is impairement loss and the same should be debited to profit and loss account.

The grounding of aircraft would affect the financial statements of airline companies because they will have to recognise impairement loss and its recoverable amount should be calculated and bring the carrying value down to its recoverable amount.

Companies should assess at every balance sheet date whether their is any indication that the impairement loss recognised in previous year may be decreased or no longer exist. if any such condition exists, the companies should estimate recoverable amount of that asset and reverse the impairement loss recognised earlier.