Bank loan covenants?, page-16

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04/01/16

13:25

Post #: 16722420
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Originally posted by stockanalysisguru ↑

david you are on to it here. I've thought about this and have never seen it before where a current asset has been assessed as impaired by management in between reporting dates but that same asset is then sold or settled prior to the next reporting date. There would certainly be questions to answer, by doing it between periods rather than accounting for it as a trading loss it inflates "underlying" profits. For example, if it were consistently done between periods a company could attempt to continue to report "underlying" profits while consistently running at a loss. Impairing assets at reporting date is much more normal, when inventory sells at a loss (compared to its written down value at last reporting date) between reporting dates it is normally part of the trading profit or loss for that period. While it is normal to update the market on changes to trading profits or losses, I've never seen this done before for a listed company where the inventory is impaired in between reporting dates and then sold prior to reporting date. Having said all that, I don't think there is anything technically wrong with what they have done, as long as they can satisfy a couple of questions for the auditors around the triggers for the impairment and when they became known to management. As I've never seen it done before though there may be more to it from an accounting standards perspective that I'm not aware of, I'm sure the auditors will consider this quite closely.

An example of the usual course taken in recent times is the iron ore producers. Many of the higher cost producers are currently selling their iron ore at a loss, which means that their inventory is impaired, and this has happened between reporting periods with the iron ore price plunge. However, they have not done an in between reports impairment, they will simply report it as a trading loss for the period, and impair any inventory that exists at reporting date.

All imo dyor

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Looks like may have picked this one @stockanalysisguru.....gives me no pleasure.

DSH Price at posting: 35.5¢ Sentiment: Sell Disclosure: Not Held
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Bank loan covenants?, page-16

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