Busn9118 Financial Accounting Issues For Assessment Answers

1. What is an impairment test?

2. Why is an impairment test considered necessary?

3. When should an entity conduct an impairment test?

4. What is meant by recoverable amount?

5. How is an impairment loss calculated in relation to a single asset accounted for?

6. What is a cash-generating unit?

7. Are there limits in adjusting assets within a cash-generating unit when impairment losses occur? 

Public Losing Confidence in Capitalism

This paper tries to explain and bring out the theories that are relevant to the article that was published in The Australian Financial Review regarding public losing confidence in capitalism.

Malcolm Broomhead, the Chairperson of Orica expressed his feelings regarding the fact that common people are losing their faith over capitalism. With respect to the positive theory of economics, the article reveals that public has been losing confidence in the capitalist system due to their feeling that capitalism has always aimed in gaining profit for them and not taking care of the public and the society (Mackey and Sisodia 2014). It is seen that with respect to the positive theory, the capitalist system has grown in stature due to inefficient control on the exchange rate and the government concentrating more on the fiscal policies rather than the monetary policies that can restrict the capitalist system to misuse their power. These were few of the major factors that had led to financial crisis that influenced the public to lose their faith over capitalism.

Mr Broomhead gave proof that the advent of Mr Donald Trump elected as the President of United States of America and the voters of United Kingdom deciding to come out of the European Union reveals the loss of confidence of the public in capitalism and with respect to the normative theory the public are under the hope that these changes can improve their standard of living and lifestyle (Financial Review 2017).

The capitalist system slowly began to lose public confidence since the impact of the financial crisis, which struck the world in the year 2008. This effect is in regards to the positive theory. The ineffective government policies with respect to the trade policies, interest rate, exchange rate and various other destructive policies were one of the most significant factors that lead to the financial crisis (Kroker and Weinstein 2015). The inefficiency of the government and the business operations, which a positive theory of economics had let the people down and therefore the common people decided to move away from the system of globalized business and the government bodies to a much simpler world.

The normative theory explains that there is a need to transform the business functions of the organizations operating in the economy so that they can again gain confidence of the public they are part of the solution and not the reason for their difficulties.

The positive theory explains that lack in the effectiveness of the government policies and improper business plans has led to a rise in inflation and stagnation in the market (Zingales 2014). The unexpected governmental deficits and widening in the trade gap were the signs that revealed the demise of the capitalist world economy. The common people were slowly getting aware of such situations as there was a fall in their standard of living and income. The price of the goods is increasing in leaps and bounds but the income of the consumers were subsiding.

Mr. Broomhead with respect to the normative theory made it clear that it is important to regain the trust of the people by making them aware that distribution of wealth is not possible without the creation of wealth.

The other reason that came into light with respect to the loss in confidence over capitalism was the complex organizational structure of the firms. It is known that the main aim of the people who are investing in a firm is to earn profit. However, the highly complex structure of remuneration for the executives had an impact on the obscure factors and therefore, was not a motivation for the employees and the stakeholders (Streeck 2014). It is seen that the reports of remuneration are highly difficult to understand and the final long-term outcome of their incentives remains a mystery till the final day.

Mr Broomhead was in the idea of transforming the remuneration structure of their organization and increasing the number of shareholders from the executives of the organization so as to provide better incentive and creating measures that are under the control of the executives themselves (Beckert 2013).

Therefore, it is seen that the analysis is based on the positive and normative theories and article reveals that the most important factor behind people losing confidence in capitalism is due to the ineffective government policies and the complex remuneration structure of the capitalist business. They are all with the idea of generating revenue but are not concerned about the welfare of the society.  Mr Broomhead through this article tries to advice all the organizations and the government that are active in the global environment to motivate and influence people about the importance of creating wealth as creation of wealth will lead to distribution of wealth in the market, which will lead to rise in the standard of living of the public. It is even recommended that the organizations change their business structure and the government amends their policies to bring back a positive image of capitalism in front of the public. The article shows that Mr Broomhead has related the positive and the normative theories with his article to make the article more relevant to the readers.

 

 

Reference List

Beckert, J., 2013. Capitalism as a system of expectations: Toward a sociological microfoundation of political economy. Politics & Society, 41(3), pp.323-350.

Financial Review. (2017). Orica chair Malcolm Broomhead says confidence in capitalism is waning. [online] Available at: https://www.afr.com/business/mining/orica-chair-malcolm-broomhead-says-confidence-in-capitalism-is-waning-20161215-gtbr5n [Accessed 31 Mar. 2017].

Kroker, A. and Weinstein, M.A., 2015. The political economy of virtual reality: pan-capitalism. CTheory, pp.3-15.

Mackey, J. and Sisodia, R., 2014. Conscious capitalism, with a new preface by the authors: Liberating the heroic spirit of business. Harvard Business Review Press.

Streeck, W., 2014. Buying time: The delayed crisis of democratic capitalism. Verso Books.

Zingales, L., 2014. A capitalism for the people: Recapturing the lost genius of American prosperity. Basic books.