AI Drafter 
TaxTMI 
TaxTMI 
Impairment of Assets
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....e impairment of all assets, other than: (a) inventories (see AS 2, Valuation of Inventories); (b) assets arising from construction contracts (see AS 7, Construction Contracts); (c) financial assets^[1], including investments that are included in the scope of AS 13, Accounting for Investments; and (d) deferred tax assets (see AS 22, Accounting for Taxes on Income). 2. This Standard does not apply to inventories, assets arising from construction contracts, deferred tax assets or investments because existing Accounting Standards applicable to these assets already contain specific requirements for recognising and measuring the impairment related to these assets. 3. This Standard applies to assets that are carried at cost. It also applies to assets that are carried at revalued amounts in accordance with other applicable Accounting Standards. However, identifying whether a revalued asset may be impaired depends on the basis used to determine the fair value of the asset: (a) if the fair value of the asset is its market value, the only difference between the fair value of the asset and its net selling price is the direct incremental costs ....
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....sts of disposal. 4.4 Costs of disposal are incremental costs directly attributable to the disposal of an asset, excluding finance costs and income tax expense. 4.5 An impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount. 4.6 Carrying amount is the amount at which an asset is recognised in the balance sheet after deducting any accumulated depreciation (amortisation) and accumulated impairment losses thereon. 4.7 Depreciation (Amortisation) is a systematic allocation of the depreciable amount of an asset over its useful life.^[2] 4.8 Depreciable amount is the cost of an asset, or other amount substituted for cost in the financial statements, less its residual value. 4.9 Useful life is either: (a) the period of time over which an asset is expected to be used by the enterprise; or (b) the number of production or similar units expected to be obtained from the asset by the enterprise. 4.10 A cash generating unit is the smallest identifiable group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows from other assets or groups of assets. 4.11 Cor....
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....rces of information (e) evidence is available of obsolescence or physical damage of an asset; (f) significant changes with an adverse effect on the enterprise have taken place during the period, or are expected to take place in the near future, in the extent to which, or manner in which, an asset is used or is expected to be used. These changes include plans to discontinue or restructure the operation to which an asset belongs or to dispose of an asset before the previously expected date; and (g) evidence is available from internal reporting that indicates that the economic performance of an asset is, or will be, worse than expected. 9. The list of paragraph 8 is not exhaustive. An enterprise may identify other indications that an asset may be impaired and these would also require the enterprise to determine the asset's recoverable amount. 10. Evidence from internal reporting that indicates that an asset may be impaired includes the existence of: (a) cash flows for acquiring the asset, or subsequent cash needs for operating or maintaining it, that are significantly higher than those originally budgeted; (b) actual net cash flows or....
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....ting Standard (AS) 10, Property, Plant and Equipment^[3], even if no impairment loss is recognised for the asset. Measurement of Recoverable Amount 14. This Standard defines recoverable amount as the higher of an asset's net selling price and value in use. Paragraphs 15 to 55 set out the requirements for measuring recoverable amount. These requirements use the term 'an asset' but apply equally to an individual asset or a cash-generating unit. 15. It is not always necessary to determine both an asset's net selling price and its value in use. For example, if either of these amounts exceeds the asset's carrying amount, the asset is not impaired and it is not necessary to estimate the other amount. 16. It may be possible to determine net selling price, even if an asset is not traded in an active market. However, sometimes it will not be possible to determine net selling price because there is no basis for making a reliable estimate of the amount obtainable from the sale of the asset in an arm's length transaction between knowledgeable and willing parties. In this case, the recoverable amount of the asset may be taken to be its value in use. 17. If there is no reason to b....
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....prise considers the outcome of recent transactions for similar assets within the same industry. Net selling price does not reflect a forced sale, unless management is compelled to sell immediately. 23. Costs of disposal, other than those that have already been recognised as liabilities, are deducted in determining net selling price. Examples of such costs are legal costs, costs of removing the asset, and direct incremental costs to bring an asset into condition for its sale. However, termination benefits and costs associated with reducing or reorganising a business following the disposal of an asset are not direct incremental costs to dispose of the asset. 24. Sometimes, the disposal of an asset would require the buyer to take over a liability and only a single net selling price is available for both the asset and the liability. Paragraph 76 explains how to deal with such cases. Value in Use 25. Estimating the value in use of an asset involves the following steps: (a) estimating the future cash inflows and outflows arising from continuing use of the asset and from its ultimate disposal; and (b) applying the appropriate discount rate to these future cas....
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....nty years) for the products, industries, or country or countries in which the enterprise operates, or for the market in which the asset is used. 30. In using information from financial budgets/forecasts, an enterprise considers whether the information reflects reasonable and supportable assumptions and represents management's best estimate of the set of economic conditions that will exist over the remaining useful life of the asset. Composition of Estimates of Future Cash Flows 31. Estimates of future cash flows should include: (a) projections of cash inflows from the continuing use of the asset; (b) projections of cash outflows that are necessarily incurred to generate the cash inflows from continuing use of the asset (including cash outflows to prepare the asset for use) and that can be directly attributed, or allocated on a reasonable and consistent basis, to the asset; and (c) net cash flows, if any, to be received (or paid) for the disposal of the asset at the end of its useful life. 32. Estimates of future cash flows and the discount rate reflect consistent assumptions about price increases due to general inflation. Therefore, if the dis....
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....gement and that materially changes either the scope of the business undertaken by an enterprise or the manner in which the business is conducted^[4]. 39. When an enterprise becomes committed to a restructuring, some assets are likely to be affected by this restructuring. Once the enterprise is committed to the restructuring, in determining value in use, estimates of future cash inflows and cash outflows reflect the cost savings and other benefits from the restructuring (based on the most recent financial budgets/forecasts that have been approved by management). Illustration 5 given in the Illustrations attached to the Standard illustrates the effect of a future restructuring on a value in use calculation. 40. Until an enterprise incurs capital expenditure that improves or enhances an asset in excess of its originally assessed standard of performance, estimates of future cash flows do not include the estimated future cash inflows that are expected to arise from this expenditure (see Illustration 6 given in the Illustrations attached to the Standard). 41. Estimates of future cash flows include future capital expenditure necessary to maintain or sustain an asset at its ori....
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....arket assessments of the time value of money and the risks specific to the asset. The discount rate(s) should not reflect risks for which future cash flow estimates have been adjusted. 48. A rate that reflects current market assessments of the time value of money and the risks specific to the asset is the return that investors would require if they were to choose an investment that would generate cash flows of amounts, timing and risk profile equivalent to those that the enterprise expects to derive from the asset. This rate is estimated from the rate implicit in current market transactions for similar assets or from the weighted average cost of capital of a listed enterprise that has a single asset (or a portfolio of assets) similar in terms of service potential and risks to the asset under review. 49. When an asset-specific rate is not directly available from the market, an enterprise uses other bases to estimate the discount rate. The purpose is to estimate, as far as possible, a market assessment of: (a) the time value of money for the periods until the end of the asset's useful life; and (b) the risks that the future cash flows will differ in amount or ....
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....dard. 59. An impairment loss on a revalued asset is recognised as an expense in the statement of profit and loss. However, an impairment loss on a revalued asset is recognised directly against any revaluation surplus for the asset to the extent that the impairment loss does not exceed the amount held in the revaluation surplus for that same asset. 60. When the amount estimated for an impairment loss is greater than the carrying amount of the asset to which it relates, an enterprise should recognise a liability if, and only if, that is required by another Accounting Standard. 61. After the recognition of an impairment loss, the depreciation (amortisation) charge for the asset should be adjusted in future periods to allocate the asset's revised carrying amount, less its residual value (if any), on a systematic basis over its remaining useful life. 62. If an impairment loss is recognised, any related deferred tax assets or liabilities are determined under Accounting Standard (AS) 22, Accounting for Taxes on Income (see Illustration 3 given in the Illustrations attached to the Standard). Cash-Generating Units 63. Paragraphs 64 to 92 set out the requirements for identi....
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.... that requires minimum service on each of five separate routes. Assets devoted to each route and the cash flows from each route can be identified separately. One of the routes operates at a significant loss. Because the enterprise does not have the option to curtail any one bus route, the lowest level of identifiable cash inflows from continuing use that are largely independent of the cash inflows from other assets or groups of assets is the cash inflows generated by the five routes together. The cash-generating unit for each route is the bus company as a whole. 67. Cash inflows from continuing use are inflows of cash and cash equivalents received from parties outside the reporting enterprise. In identifying whether cash inflows from an asset (or group of assets) are largely independent of the cash inflows from other assets (or groups of assets), an enterprise considers various factors including how management monitors the enterprise's operations (such as by-product lines, businesses, individual locations, districts or regional areas or in some other way) or how management makes decisions about continuing or disposing of the enterprise's assets and operations. Illustation 1 i....
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....or the purpose of determining the recoverable amount of a cash-generating unit, any reference in paragraphs 15 to 55 to 'an asset' is read as a reference to 'a cash-generating unit'. 73. The carrying amount of a cash-generating unit should be determined consistently with the way the recoverable amount of the cash-generating unit is determined. 74. The carrying amount of a cash-generating unit: (a) includes the carrying amount of only those assets that can be attributed directly, or allocated on a reasonable and consistent basis, to the cash-generating unit and that will generate the future cash inflows estimated in determining the cash-generating unit's value in use; and (b) does not include the carrying amount of any recognised liability, unless the recoverable amount of the cash-generating unit cannot be determined without consideration of this liability. This is because net selling price and value in use of a cash-generating unit are determined excluding cash flows that relate to assets that are not part of the cash-generating unit and liabilities that have already been recognised in the financial statements, as set out in paragraphs 23 and 35. 75. ....
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....o restore the overburden. Disposal costs for the mine are negligible. The value in use of the mine is approximately Rs. 1,20,00,000 excluding restoration costs. The carrying amount of the mine is Rs. 1,00,00,000. The net selling price for the cash-generating unit is Rs. 80,00,000. This amount considers restoration costs that have already been provided for. As a consequence, the value in use for the cash-generating unit is determined after consideration of the restoration costs and is estimated to be Rs. 70,00,000 (Rs. 1,20,00,000 less Rs. 50,00,000). The carrying amount of the cash-generating unit is Rs. 50,00,000, which is the carrying amount of the mine (Rs. 1,00,00,000) less the carrying amount of the provision for restoration costs (Rs. 50,00,000). 77. For practical reasons, the recoverable amount of a cash-generating unit is sometimes determined after consideration of assets that are not part of the cash-generating unit (for example, receivables or other financial assets) or liabilities that have already been recognised in the financial statements (for example, payables, pensions and other provisions). In such cases, the carrying amount of the cash-generating unit is inc....
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....determined for the cash-generating unit to which goodwill belongs. This amount is then compared to the carrying amount of this cash-generating unit and any impairment loss is recognised in accordance with paragraph 87. 80. Whenever a cash-generating unit is tested for impairment, an enterprise considers any goodwill that is associated with the future cash flows to be generated by the cash-generating unit. If goodwill can be allocated on a reasonable and consistent basis, an enterprise applies the 'bottom-up' test only. If it is not possible to allocate goodwill on a reasonable and consistent basis, an enterprise applies both the 'bottom-up' test and 'top-down' test (see Illustration 7 given in the Illustrations attached to the Standard). 81. The 'bottom-up' test ensures that an enterprise recognises any impairment loss that exists for a cash-generating unit, including for goodwill that can be allocated on a reasonable and consistent basis. Whenever it is impracticable to allocate goodwill on a reasonable and consistent basis in the 'bottom-up' test, the combination of the 'bottom-up' and the 'top-down' test ensures that an enterprise recognises: (a) first, any impair....
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....'bottom- up' and 'top-down' tests. 86. An Illustration of how to deal with corporate assets is given as Illustration 8 in the Illustrations attached to the Standard. Impairment Loss for a Cash-Generating Unit 87. An impairment loss should be recognised for a cash-generating unit if, and only if, its recoverable amount is less than its carrying amount. The impairment loss should be allocated to reduce the carrying amount of the assets of the unit in the following order: (a) first, to goodwill allocated to the cash-generating unit (if any); and (b) then, to the other assets of the unit on a pro-rata basis based on the carrying amount of each asset in the unit. These reductions in carrying amounts should be treated as impairment losses on individual assets and recognised in accordance with paragraph 58. 88. In allocating an impairment loss under paragraph 87, the carrying amount of an asset should not be reduced below the highest of: (a) its net selling price (if determinable); (b) its value in use (if determinable); and (c) zero. The amount of the impairment loss that would otherwise have been allocated to the asset shoul....
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....e of the machine or the pattern in which economic benefits are consumed by the enterprise. Assumption 2: Budgets/forecasts approved by management reflect a commitment of management to replace the machine and sell it in the near future. Cash flows from continuing use of the machine until its disposal are estimated to be negligible. The machine's value in use can be estimated to be close to its net selling price. Therefore, the recoverable amount of the machine can be determined and no consideration is given to the cash-generating unit to which the machine belongs (the production line). Since the machine's net selling price is less than its carrying amount, an impairment loss is recognised for the machine. 92. After the requirements in paragraphs 87 and 88 have been applied, a liability should be recognised for any remaining amount of an impairment loss for a cash-generating unit if that is required by another Accounting Standard. Reversal of an Impairment Loss 93. Paragraphs 94 to 100 set out the requirements for reversing an impairment loss recognised for an asset or a cashgenerating unit in prior accounting periods. These requirements use the term 'an asset' but app....
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....ing whether an impairment loss recognised for an asset in prior accounting periods may need to be reversed and the recoverable amount of the asset determined. 97. If there is an indication that an impairment loss recognised for an asset may no longer exist or may have decreased, this may indicate that the remaining useful life, the depreciation (amortisation) method or the residual value may need to be reviewed and adjusted in accordance with the Accounting Standard applicable to the asset, even if no impairment loss is reversed for the asset. 98. An impairment loss recognised for an asset in prior accounting periods should be reversed if there has been a change in the estimates of cash inflows, cash outflows or discount rates used to determine the asset's recoverable amount since the last impairment loss was recognised. If this is the case, the carrying amount of the asset should be increased to its recoverable amount. That increase is a reversal of an impairment loss. 99. A reversal of an impairment loss reflects an increase in the estimated service potential of an asset, either from use or sale, since the date when an enterprise last recognised an impairment loss for th....
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....sly recognised as an expense in the statement of profit and loss, a reversal of that impairment loss is recognised as income in the statement of profit and loss. 105. After a reversal of an impairment loss is recognised, the depreciation (amortisation) charge for the asset should be adjusted in future periods to allocate the asset's revised carrying amount, less its residual value (if any), on a systematic basis over its remaining useful life. Reversal of an Impairment Loss for a Cash-Generating Unit 106. A reversal of an impairment loss for a cash-generating unit should be allocated to increase the carrying amount of the assets of the unit in the following order: (a) first, assets other than goodwill on a pro-rata basis based on the carrying amount of each asset in the unit; and (b) then, to goodwill allocated to the cash-generating unit (if any), if the requirements in paragraph 108 are met. These increases in carrying amounts should be treated as reversals of impairment losses for individual assets and recognised in accordance with paragraph 103. 107. In allocating a reversal of an impairment loss for a cash-generating unit under paragraph 106, t....
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....In applying this Standard to a discontinuing operation, an enterprise determines whether the recoverable amount of an asset of a discontinuing operation is assessed for the individual asset or for the asset's cash-generating unit. For example: (a) if the enterprise sells the discontinuing operation substantially in its entirety, none of the assets of the discontinuing operation generate cash inflows independently from other assets within the discontinuing operation. Therefore, recoverable amount is determined for the discontinuing operation as a whole and an impairment loss, if any, is allocated among the assets of the discontinuing operation in accordance with this Standard; (b) if the enterprise disposes of the discontinuing operation in other ways such as piecemeal sales, the recoverable amount is determined for individual assets, unless the assets are sold in groups; and (c) if the enterprise abandons the discontinuing operation, the recoverable amount is determined for individual assets as set out in this Standard. 114. After announcement of a plan, negotiations with potential purchasers of the discontinuing operation or actual binding sale agreem....
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....nst revaluation surplus during the period; and (b) the amount of reversals of impairment losses recognised in the statement of profit and loss and directly in revaluation surplus during the period. 121. If an impairment loss for an individual asset or a cash-generating unit is recognised or reversed during the period and is material to the financial statements of the reporting enterprise as a whole, an enterprise should disclose: (a) the events and circumstances that led to the recognition or reversal of the impairment loss; (b) the amount of the impairment loss recognised or reversed; (c) for an individual asset: (i) the nature of the asset; and (ii) the reportable segment to which the asset belongs, based on the enterprise's primary format (as defined in AS 17, Segment Reporting); (d) for a cash-generating unit: (i) a description of the cash-generating unit (such as whether it is a product line, a plant, a business operation, a geographical area, a reportable segment as defined in AS 17 or other); (ii) the amount of the impairment loss recognised or reversed by class of assets and by reportable se....
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....ndard becoming mandatory unless the impairment loss is on a revalued asset. An impairment loss on a revalued asset should be recognised directly against any revaluation surplus for the asset to the extent that the impairment loss does not exceed the amount held in the revaluation surplus for that same asset. If the impairment loss exceeds the amount held in the revaluation surplus for that same asset, the excess should be adjusted against opening balance of revenue reserves. 125. Any impairment loss arising after the date of this Standard becoming mandatory should be recognised in accordance with this Standard (i.e., in the statement of profit and loss unless an asset is carried at revalued amount. An impairment loss on a revalued asset should be treated as a revaluation decrease). Illustrations These illustrations do not form part of the Accounting Standard. The purpose of these Illustrations is to illustrate the application of the Accounting Standard to assist in clarifying its meaning. All these illustrations assume the enterprises concerned have no transactions other than those described. Illustration 1 - Identification of Cash-Generating Units The purpose of ....
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....generating units for X and Y? Case 1: X could sell the products it sells to Y in an active market. Internal transfer prices are higher than market prices. Case 2: There is no active market for the products X sells to Y. Analysis Case 1 A6. X could sell its products on an active market and, so, generate cash inflows from continuing use that would be largely independent of the cash inflows from Y. Therefore, it is likely that X is a separate cash-generating unit, although part of its production is used by Y (see paragraph 68 of this Standard). A7. It is likely that Y is also a separate cash-generating unit. Y sells 80% of its products to customers outside of the reporting enterprise. Therefore, its cash inflows from continuing use can be considered to be largely independent. A8. Internal transfer prices do not reflect market prices for X's output. Therefore, in determining value in use of both X and Y, the enterprise adjusts financial budgets/forecasts to reflect management's best estimate of future market prices for those of X's products that are used internally (see paragraph 68 of this Standard). Case 2 A9. It is likely that the recoverable amount of eac....
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....al product by B and C; and (b) although there is an active market for the products assembled by B and C, cash inflows for B and C depend on the allocation of production across the two sites. It is unlikely that the future cash inflows for B and C can be determined individually. A16. As a consequence, it is likely that A, B and C together (i.e., M as a whole) is the smallest identifiable group of assets that generates cash inflows from continuing use that are largely independent. D - Magazine Titles Background A17. A publisher owns 150 magazine titles of which 70 were purchased and 80 were self-created. The price paid for a purchased magazine title is recognised as an intangible asset. The costs of creating magazine titles and maintaining the existing titles are recognised as an expense when incurred. Cash inflows from direct sales and advertising are identifiable for each magazine title. Titles are managed by customer segments. The level of advertising income for a magazine title depends on the range of titles in the customer segment to which the magazine title relates. Management has a policy to abandon old titles before the end of their economic lives and rep....
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.... 1,500 500 Activities in Country C 5,000 3,500 1,500 Total 10,000 7,000 3,000 ^(1) Activities in each country are the smallest cash-generating units to which goodwill can be allocated on a reasonable and consistent basis (allocation based on the purchase price of the activities in each country, as specified in the purchase agreement). A24. T uses straight-line depreciation over a 15-year life for the Country A assets and no residual value is anticipated. In respect of goodwill, T uses straight-line amortisation over a 5 year life. A25. In 20X4, a new government is elected in Country A. It passes legislation significantly restricting exports of T's main product. As a result, and for the foreseeable future, T's production will be cut by 40%. A26. The significant export restriction and the resulting production decrease require T to estimate the recoverable amount of the goodwill and net assets of the Country A operations. The cash-generating unit for the goodwill and the identifiable assets of the Country A operations is the Country A operations, since no independent cash inflows can be identified for individual assets. A27. The net selling p....
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.... 184^(2) 0.24719 45 20X15 -67% 61^(2) 0.21494 13 Value in use 1,360 ^(1) Based on management's best estimate of net cash flow projections (after the 40% cut). ^(2) Based on an extrapolation from preceding year cash flow using declining growth rates. ^(3) The present value factor is calculated as k = 1/(1+a)n, where a = discount rate and n= period of discount. Schedule 3. Calculation and allocation of the impairment loss for the Country A cash-generating unit at the end of 20X4 (Amount in Rs. lakhs) End of 20X4 Goodwill Identifiable assets Total Historical cost 1,000 2,000 3,000 Accumulated depreciation/ amortisation (20X1-20X4) (800) (533) (1,333) Carrying amount 200 1,467 1,667 Impairment Loss (200) (107) (307) Carrying amount after impairment loss 0 1,360 1,360 Illustration 3 - Deferred Tax Effects A33. An enterprise has an asset with a carrying amount of Rs. 1,000 lakhs. Its recoverable amount is Rs. 650 lakhs. The tax rate is 30% and the carrying amount of the asset for tax purposes is Rs. 800 lakhs. Impairment losses are not al....
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....(247) Carrying amount 0 1,113 1,113 Recoverable amount 1,710 Excess of recoverable amount over carrying amount 597 ^(1)After recognition of the impairment loss at the end of 20X4, T revised the depreciation charge for the Country A identifiable assets (from Rs. 133.3 lakhs per year to Rs. 123.7 lakhs per year), based on the revised carrying amount and remaining useful life (11 years). A38. There has been a favourable change in the estimates used to determine the recoverable amount of the Country A net assets since the last impairment loss was recognised. Therefore, in accordance with paragraph 98 of this Standard, T recognises a reversal of the impairment loss recognised in 20X4. A39. In accordance with paragraphs 106 and 107 of this Standard, T increases the carrying amount of the Country A identifiable assets by Rs. 87 lakhs (see Schedule 3), i.e., up to the lower of recoverable amount (Rs. 1,710 lakhs) and the identifiable assets' depreciated historical cost (Rs. 1,200 lakhs) (see Schedule 2). This increase is recognised in the statement of profit and loss immediately. Schedule 2. Determination o....
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....same as those estimated at the end of 20X2. At the End of 20X0 Schedule 1. Calculation of the plant's value in use at the end of 20X0 (Amount in Rs. lakhs) Year Future cash flows Discounted at 14% 20X1 300 263 20X2 280 215 20X3 420^(1) 283 20X4 520^(2) 308 20X5 350^(2) 182 20X6 420^(2) 191 20X7 480^(2) 192 20X8 480^(2) 168 20X9 460^(2) 141 20X10 400^(2) 108 Value in use 2,051 ^(1) Excludes estimated restructuring costs reflected in management budgets. ^(2) Excludes estimated benefits expected from the restructuring reflected in management budgets. A45. The plant's recoverable amount (value in use) is less than its carrying amount. Therefore, K recognises an impairment loss for the plant. Schedule 2. Calculation of the impairment loss at the end of 20X0 (Amount in Rs. lakhs) Plant Carrying amount before impairment loss 3,000 Recoverable amount (Schedule 1) 2,051 Impairment loss (949) Carrying amount after impairment loss 2,051 At the End of 20X1 A46. No event occurs that requires the plant's recoverable ....
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....amount is not calculated at the end of 20X3. Schedule 5. Summary of the carrying amount of the plant (Amount in Rs. lakhs) End of year Depreciated historical cost Recoverable amount Adjusted depreciation charge Impairment loss Carrying amount after impairment 20X0 3,000 2,051 0 (949) 2,051 20X1 2,700 n.c. (205) 0 1,846 20X2 2,400 2,162 (205) 521 2,162 20X3 2,100 n.c. (270) 0 1,892 n.c. = not calculated as there is no indication that the impairment loss may have increased/ decreased. Illustration 6 - Treatment of Future Capital Expenditure In this illustration, tax effects are ignored. Background A50. At the end of 20X0, enterprise F tests a plane for impairment. The plane is a cash-generating unit. It is carried at depreciated historical cost and its carrying amount is Rs. 1,500 lakhs. It has an estimated remaining useful life of 10 years. A51. For the purpose of this illustration, it is assumed that the plane's net selling price is not determinable. Therefore, the plane's recoverable amount is its value in use. Value in use is calculated using a pre-tax discount rate of 1....
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....X4 (Amount in Rs. lakhs) Year Future cash flows^(1) Discounted at 14% 20X5 303.21 265.97 20X6 327.50 252.00 20X7 317.21 214.11 20X8 319.50 189.17 20X9 331.00 171.91 20X10 279.99 127.56 Value in use 1,220.72 ^(1) Includes estimated benefits expected from the renewal of the engine reflected in management budgets. A57. The plane's recoverable amount (value in use) is higher than the plane's carrying amount and depreciated historical cost (see Schedule 4). Therefore, K reverses the impairment loss recognised for the plane at the end of 20X0 so that the plane is carried at depreciated historical cost. Schedule 4. Calculation of the reversal of the impairment loss at the end of 20X4 (Amount in Rs. lakhs) Plane Carrying amount at the end of 20X0 (Schedule 2) 1,211.28 End of 20X4 (484.52) Depreciation charge (20X1 to 20X4-Schedule 5) Renewal expenditure 250.00 Carrying amount before reversal 976.76 Recoverable amount (Schedule 3) 1,220.72 Reversal of the impairment loss 173.24 Carrying amount after reversal 1,150.00 Carrying....
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....mount 1,300 1,200 800 3,300 Allocation of goodwill (using the pro-rata above) 60 40 20 120 Net carrying amount (after allocation of goodwill) 1,360 1,240 820 3,420 A61. In accordance with the 'bottom-up' test in paragraph 78(a) of this Standard, M compares A's recoverable amount to its carrying amount after the allocation of the carrying amount of goodwill. Schedule 3. Application of 'bottom-up' test (Amount in Rs. lakhs) End of 20X4 A Carrying amount after allocation of goodwill (Schedule 2) 1,360 Recoverable amount 1,350 Impairment loss 10 A62. M recognises an impairment loss of Rs. 10 lakhs for A. The impairment loss is fully allocated to the goodwill in accordance with paragraph 87 of this Standard. B - Goodwill Cannot Be Allocated on a Reasonable and Consistent Basis A63. There is no reasonable way to allocate the goodwill that arose on the acquisition of Z to A, B and C. At the end of 20X4, Z's recoverable amount is estimated to be Rs. 3,400 lakhs. A64. At the end of 20X4, M first applies the 'bottom-up' test in accordance with paragraph 78(a) of this Standard. It compares A's recoverable amou....
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....rating unit A is 10 years. The remaining useful lives of B, C and the headquarter assets are 20 years. The headquarter assets are depreciated on a straight-line basis. A71. There is no basis on which to calculate a net selling price for each cash-generating unit. Therefore, the recoverable amount of each cash- generating unit is based on its value in use. Value in use is calculated using a pretax discount rate of 15%. Identification of Corporate Assets A72. In accordance with paragraph 85 of this Standard, M first identifies all the corporate assets that relate to the individual cash-generating units under review. The corporate assets are the headquarter building and the research centre. A73. M then decides how to deal with each of the corporate assets: (a) the carrying amount of the headquarter building can be allocated on a reasonable and consistent basis to the cash-generating units under review. Therefore, only a 'bottom-up' test is necessary; and (b) the carrying amount of the research centre cannot be allocated on a reasonable and consistent basis to the individual cash- generating units under review. Therefore, a 'top-down' test will be applied ....
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.... 35 6 66 11 131 21 14 33 5 65 9 128 18 15 30 4 62 8 122 15 16 26 3 60 6 115 12 17 22 2 57 5 108 10 18 18 1 51 4 97 8 19 14 1 43 3 85 6 20 10 1 35 2 71 4 Value in use 199 164 271 720^(1) ^(1) It is assumed that the research centre generates additional future cash flows for the enterprise as a whole. Therefore, the sum of the value in use of each individual cash- generating unit is less than the value in use of the business as a whole. The additional cash flows are not attributable to the headquarter building. Calculation of Impairment Losses A76. In accordance with the 'bottom-up' test, M compares the carrying amount of each cash-generating unit (after allocation of the carrying amount of the building) to its recoverable amount. Schedule 3. Application of 'bottom-up' t....