Analysis of Impairment of Assets and its Impact on Capital Structure of the Listed Manufacturing Companies in Sri Lanka

Abstract

The asset impairment accounting system has been introduced throughout the world since the mid-1990s due global financial crises (GFC). However, until Sri Lankan Accounting Standard (SLAS) 42 (Lankan Accounting Standard (LKAS) 36 - 01/01/2012) was issued in 1998 there were so far no rules as to how this should be done in Sri Lanka. The application of the LKAS 36 made the impact on net income then stock holders’ equity at the same time long term assets. To measure that impact financial leverage ratios were used. The study data has been collected for the period of five years from 2007/2008 to 2011/2012 of listed manufacturing companies in CSE. The impairment amount and its impact on capital areas its independent variables. The long term debt to assets and long term debt to equity are the dependent variable. The descriptive statistics were calculated for our entire variables and then Pearson’s correlation coefficient was calculated to identify the preliminary relationship among all the variables. The regression analysis was used to examine the significance fixed and random effects models. From the findings impairment loss amount has no significant impact on financial leverage ratio while the amount impact on financial leverage has significant impact on debt ratio.