TaxTMI 
TaxTMI 
TaxTMI 
Impairment of Assets
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assets, other than: (a) inventories (see AS 2, Valuation of Inventories); (b) assets arising from construction contracts (see AS 7, Construction Contracts); (c) financial assets1, 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 to dispose of the asset: (i) if the disposal costs are....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cluding 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 Corporate assets are assets other than goodwill that contribute to the future cash flows of both the cash generating unit under review and oth....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 operating profit or loss flowing from the asset that are significantly worse than those budgeted; (c) a significant decline in budgeted net cash flows or operating profit, or a significant increase in budgeted loss, flowing from the asset; or (d) operating losses or net cash outflows for the asset, when current period figures are aggregated with budgeted figures for the future. 11. The concept of materiality applies in identifying whether the recoverable amount of an asset need....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lue 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 believe that an asset s value in use materially exceeds its net selling price, the asset s recoverable amount may be taken to be its net selling price. This will often be the case for an asset that is held for disposal. This is because the value in use of an asset held for disposal will consist mainly of the net disposal proceeds, since the future cash flows from continuing use of the asset until its disposal are likely to be negligible. 18. Recoverable amount is determined for an individual asset, unless the asset does not generate cash infl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 cash flows. Basis for Estimates of Future Cash Flows 26. In measuring value in use: (a) cash flow projections should be based on reasonable and supportable assumptions that represent management s best estimate of the set of economic conditions that will exist over the remaining useful life of the asset. Greater weight should be given to external evidence; (b) cash flow projections should be based on the most recent financial budgets/forecasts that have been approved by management. Projections based on these budgets/forecasts should cover a maximum period of five years, unless a lon....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sset 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 discount rate includes the effect of price increases due to general inflation, future cash flows are estimated in nominal terms. If the discount rate excludes the effect of price increases due to general inflation, future cash flows are estimated in real terms but include future specific price increases or decreases. 33. Projections of cash outflows include future overheads that can be attributed directly, or allocated on a reasonable and consistent basis, to the use of the asset. 34. When the carrying amount of an asset does not yet include all the cash outflow s to be incurred before it is ready for use or sale, the estimate of future cash outflows includes an estimate of any further cash outflow that is expected to be incurred before the asset is ready for use or sale. For example, this is t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ormance, 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 originally assessed standard of performance. 42. Estimates of future cash flows should not include: (a) cash inflows or outflows from financing activities; or (b) income tax receipts or payments. 43. Estimated future cash flows reflect assumptions that are consistent with the way the discount rate is determined. Otherwise, the effect of some assumptions will be counted twice or ignored. Because the time value of money is considered by discounting the estimated future cash flows, these cash flows exclude cash inflows or outflows from financing activities. Similarly, since the discount rate is determined on a pre -tax basis, future cash flows are also estimated on a pre-tax basis. 44. The estimate of net cash flows to be received (or paid) for the disposal of an asset at the end of its useful life should be the amount that an enterprise expects to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 timing from estimates. 50. As a starting point, the enterprise may take into account the following rates: (a) al determined using techniques such as the Capital Asset Pricing Model; (b) the enterprise s incremental borrowing rate; and (c) other market borrowing rates. 51. These rates are adjusted: (a) to reflect the way that the market would assess the specific risks associated with the projected cash flows; and (b) to exclude risks that are not relevant to the projected cash flows. Consideration is given to risks such as country risk, currency risk, price risk and cash flow risk. 52. To avoid double counting, the discount rate does not reflect risks for which future cash flow estimates have been adjusted. 53. The discount rate is independent of the enterprise s capital structure and the way the enterprise financed the purchase of the asset because the future cash flows expected to arise from....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncome (see Illustration 3 given in the Illustrations attached to the Standard). Cash-Generating Units 63. Paragraphs 64 to 92 set out the requirements for identifying the cash-generating unit to which an asset belongs and determining the carrying amount of, and recognising impairment losses for, cash-generating units. Identification of the Cash-Generating Unit to Which an Asset Belongs 64. If there is any indication that an asset may be impaired, the recoverable amount should be estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, an enterprise should determine the recoverable amount of the cash- - generating unit). 65. The recoverable amount of an individual asset cannot be determined if: (a) the asset s value in use cannot be estimated to be close to its net selling price (for example, when the future cash flows from continuing use of the asset cannot be estimated to be negligible); and (b) the asset does not generate cash inflows from continuing use that are largely independent of those from other assets. In such cases, value in use and, therefore, recoverable amount, can be determined only for the asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tached to the Standard illustrates identification of a cash-generating unit. 68. If an active market exists for the output produced by an asset or a group of assets, this asset or group of assets should be identified as a separate cash-generating unit, even if some or all of the output is used internally. If this is the case, management s best estimate of future market prices for the output should be used: (a) in determining the value in use of this cash-generating unit, when estimating the future cash inflows that relate to the internal use of the output; and (b) in determining the value in use of other cash-generating units of the reporting enterprise, when estimating the future cash outflows that relate to the internal use of the output. 69. Even if part or all of the output produced by an asset or a group of assets is used by other units of the reporting enterprise (for example, products at an intermediate stage of a production process), this asset or group of assets forms a separate cash-generating unit if the enterprise could sell this output in an active market. This is because this asset or group of assets could generate cash inflows from continuing use that would ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cash-generating unit, they cannot be allocated to the cash-generating unit on a reasonable and consistent basis. This might be the case for goodwill or corporate assets such as head office assets. Paragraphs 78 to 86 explain how to deal with these assets in testing a cash-generating unit for impairment. 76. It may be necessary to consider certain recognised liabilities in order to determine the recoverable amount of a cash-generating unit. This may occur if the disposal of a cash-generating unit would require the buyer to take over a liability. In this case, the net selling price (or the estimated cash flow from ultimate disposal) of the cash-generating unit is the estimated selling price for the assets of the cash-generating unit and the liability together, less the costs of disposal. In order to perform a meaningful comparison between the carrying amount of the cash-generating unit and its recoverable amount, the carrying amount of the liability is deducted in determining both the cashvalue in use and its carrying amount. Example A company operates a mine in a country where legislation requires that the owner must restore the site on completion of its mining operations. The c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e carrying amount of goodwill can be allocated on a reasonable and consistent basis to the cash- generating unit under review; and (ii) then, compare the recoverable amount of the cash- generating unit under review to its carrying amount (including the carrying amount of allocated goodwill, if any) and recognise any impairment loss in accordance with paragraph 87. The enterprise should perform the step at (ii) above even if none of the carrying amount of goodwill can be allocated on a reasonable and consistent basis to the cash-generating unit under review; and (b) if, in performing the bottom-up test, the enterprise could not allocate the carrying amount of goodwill on a reasonable and consistent basis to the cash-generating unit under review, the enterprise should also perform a -down test, that is, the enterprise should: (i) identify the smallest cash-generating unit that includes the cash-generating unit under review and to which the carrying amount of goodwill can be allocated on a reasonable and consistent basis (the - generating unit); and (ii) then, compare the recoverable amount of the larger cash- generating unit to its carrying amount (including the carryi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s there is persuasive evidence that there is no risk that the larger cash-generating unit is impaired. Corporate Assets 83. Corporate assets include group or divisional assets such as the building of a headquarters or a division of the enterprise, EDP equipment or a research centre. The structure of an enterprise determines whether an asset meets the definition of corporate assets (see paragraph 4) for a particular cash- generating unit. Key characteristics of corporate assets are that they do not generate cash inflows independently from other assets or groups of assets and their carrying amount cannot be fully attributed to the cash-generating unit under review. 84. Because corporate assets do not generate separate cash inflows, the recoverable amount of an individual corporate asset cannot be determined unless management has decided to dispose of the asset. As a consequence, if there is an indication that a corporate asset may be impaired, recoverable amount is determined for the cash-generating unit to which the corporate asset belongs, compared to the carrying amount of this cash-generating unit and any impairment loss is recognised in accordance with paragraph 87. 85. In ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....paragraph 65): (a) an impairment loss is recognised for the asset if its carrying amount is greater than the higher of its net selling price and the results of the allocation procedures described in paragraphs 87 and 88; and (b) no impairment loss is recognised for the asset if the related cash- generating unit is not impaired. This applies even if the asset s net selling price is less than its carrying amount. Example A machine has suffered physical damage but is still working, although not as well as it used to. The net selling price of the machine is less than its carrying amount. The machine does not generate independent cash inflows from continuing use. The smallest identifiable group of assets that includes the machine and generates cash inflows from continuing use that are largely independent of the cash inflows from other assets is the production line to which the machine belongs. The recoverable amount of the production line shows that the production line taken as a whole is not impaired. Assumption 1: Budgets/forecasts approved by management reflect no commitment of management to replace the machine. The recoverable amount of the machine alone cannot be estimated....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lowing indications: External sources of information (a) the asset s market value has increased significantly during the period; (b) significant changes with a favourable effect on the enterprise have taken place during the period, or will take place in the near future, in the technological, market, economic or legal environment in which the enterprise operates or in the market to which the asset is dedicated; (c) market interest rates or other market rates of return on investments have decreased during the period, and those decreases are likely to affect the discount rate used in calculating the asset s value in use and increase the asset s recoverable amount materially; Internal sources of information (d) significant changes with a favourable 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, the asset is used or is expected to be used. These changes include capital expenditure that has been incurred during the period to improve or enhance an asset in excess of its originally assessed standard of performance or a commitment to discontinue or restructure the opera....
X X X X Extracts X X X X
X X X X Extracts X X X X
....scount), even if the recoverable amount of the asset becomes higher than its carrying amount. Reversal of an Impairment Loss for an Individual Asset 101. The increased carrying amount of an asset due to a reversal of an impairment loss should not exceed the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset in prior accounting periods. 102. Any increase in the carrying amount of an asset above the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset in prior accounting periods is a revaluation. In accounting for such a revaluation, an enterprise applies the Accounting Standard applicable to the asset. 103. A reversal of an impairment loss for an asset should be recognised as income immediately in the statement of profit and loss, unless the asset is carried at revalued amount in accordance with another Accounting Standard (see Accounting Standard (AS) 10, Property, Plant and Equipment) in which case any reversal of an impairment loss on a revalued asset should be treated as a revaluation increase under th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion of internally generated goodwill. Any subsequent increase in the recoverable amount of goodwill is likely to be an increase in internally generated goodwill, unless the increase relates clearly to the reversal of the effect of a specific external event of an exceptional nature. 110. This Standard does not permit an impairment loss to be reversed for goodwill because of a change in estimates (for example, a change in the discount rate or in the amount and timing of future cash flows of the cash-generating unit to which goodwill relates). 111. A specific external event is an event that is outside of the control of the enterprise. Examples of external events of an exceptional nature include new regulations that significantly curtail the operating activities, or decrease the profitability, of the business to which the goodwill relates. Impairment in case of Discontinuing Operations 112. The approval and announcement of a plan for discontinuance 5 is an indication that the assets attributable to the discontinuing operation may be impaired or that an impairment loss previously recognised for those assets should be increased or reversed. Therefore, in accordance with this Standar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in the statement of profit and loss during the period and the line item(s) of the statement of profit and loss in which those impairment losses are included; (b) the amount of reversals of impairment losses recognised in the statement of profit and loss during the period and the line item(s) of the statement of profit and loss in which those impairment losses are reversed; (c) the amount of impairment losses recognised directly against revaluation surplus during the period; and (d) the amount of reversals of impairment losses recognised directly in revaluation surplus during the period. 118. A class of assets is a grouping of assets of similar nature and use in an enterprise s operations. 119. The information required in paragraph 117 may be presented with othe r information disclosed for the class of assets. For example, this information may be included in a reconciliation of the carrying amount of fixed assets, at the beginning and end of the period, as required under AS 10, Property, Plant and Equipment. 120. An enterprise that applies AS 17, Segment Reporting, should disclose the following for each reportable segment based on an enterprise s primary format (as defi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....terial in aggregate to the financial statements of the reporting enterprise as a whole, an enterprise should disclose a brief description of the following: (a) the main classes of assets affected by impairment losses (reversals of impairment losses) for which no information is disclosed under paragraph 121; and (b) the main events and circumstances that led to the recognition (reversal) of these impairment losses for which no information is disclosed under paragraph 121. 123. An enterprise is encouraged to disclose key assumptions used to determine the recoverable amount of assets (cash-generating units) during the period. Transitional Provisions6 124. On the date of this Standard becoming mandatory, an enterprise should assess whether there is any indication that an asset may be impaired (see paragraphs 5-13). If any such indication exists, the enterprise should determine impairment loss, if any, in accordance with this Standard. The impairment loss, so determined, should be adjusted against opening balance of revenue reserves being the accumulated impairment loss relating to periods prior to this Standard becoming mandatory unless the impairment loss is on a revalued a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oodwill can be allocated on a reasonable and consistent - - the goodwill cannot be allocated on a reasonable and consistent basis to X s cash-generating unit, M applies the -up and -down tests. B - Plant for an Intermediate Step in a Production Process Background A5. A significant raw material used for plant Y s final production is an intermediate product bought from plant X of the same enterprise. X s products are sold to Y at a transfer price that passes all margins to X. 80% of Y s final production is sold to customers outside of the reporting enterprise. 60% of X s final production is sold to Y and the remaining 40% is sold to customers outside of the reporting enterprise. For each of the following cases, what are the cash-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-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ogether is the smallest identifiable group of assets that generates cash inflows from continuing use that are largely independent. A14. In determining the value in use of A and B plus C, M adjusts financial budgets/forecasts to reflect its best estimate of future market Case 2 A15. It is likely that the recoverable amount of each plant cannot be assessed independently because: (a) there is no active market for A s products. Therefore, A s cash inflows depend on sales of the final 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....23. At the end of 20X0, enterprise T acquires enterprise M for Rs. 10,000 lakhs. M has manufacturing plants in 3 countries. The anticipated useful life of the resulting merged activities is 15 years. Schedule 1. Data at the end of 20X0 (Amount in Rs. lakhs) End of 20X0 Allocation of purchase price Fair value of identifiable assets Goodwill(1) Activities in Country A 3,000 2,000 1,000 Activities in Country B 2,000 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 cu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....65752 180 20X8 290(1) 0.57175 166 20X9 304(1) 0.49718 151 20X10 3% 313(2) 0.43233 135 20X11 -2% 307(2) 0.37594 115 20X12 -6% 289(2) 0.32690 94 20X13 -15% 245(2) 0.28426 70 20X14 -25% 184(2) 0.24719 45 20X15 -67% 61(2) 0.21494 13 1,360 Value in use (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 3....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 of the depreciated historical cost of the Country A identifiable assets at the end of 20X6 (Amount in Rs. lakhs) End of 20X6 Identifiable assets Historical cost 2,000 Accumulated depreciation (133.3 * 6 years) (800) Depreciated historical cost 1,200 Carrying amount (Schedule 1) 1,113 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 amount to be re-estimated. Therefore, no calculation of the recoverable amount is required to be performed. At the End of 20X2 A47. The enterprise is now committed to the restructuring. Therefore, in determining the plant s value in use, the benefits expected from the restructuring are considered in forecasting cash flows. This results in an increase in the estimated future cash flows used to determine value in use at the end of 20X0. In accordance with paragraphs 94-95 of this Standard, the recoverable amount of the plant is re-det....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mpairment. 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 14%. A52. Management approved budgets reflect that: (a) in 20X4, capital expenditure of Rs. 250 lakhs will be incurred to renew the engine of the plane; and (b) this capital expenditure will improve the performance of the plane by decreasing fuel consumption. A53. At the end of 20X4, renewal costs are incurred. The plane's estimated future cash flows reflected in the most recent management approved budgets are given in paragraph A56 and a current discount rate is the same as at the end of 20X0. At the End of 20X0 Schedule 1. Calculation of the plane s value in use at the end of 20X0 (Amount in Rs. lakhs) Year Future cash flows Discounted at 14% 20X1 221.65 194.43 20X2 214.50 165.05 20X3 205.50 138.71 20X4 247.25(1) 146.39 20X5 253.25(2)....
X X X X Extracts X X X X
X X X X Extracts X X X X
....overable amount (Schedule 3) 1,220.72 Reversal of the impairment loss 173.24 Carrying amount after reversal 1,150.00 Carrying amount: depreciated historical cost (Schedule 5) 1,150.00(1) (1) The value in use of the plane exceeds what its carrying amount would have been at depreciated historical cost. Therefore, the reversal is limited to an amount that does not result in the carrying amount of the plane exceeding depreciated historical cost. Schedule 5. Summary of the carrying amount of the plane (Amount in Rs. lakhs) Year Depreciated historical cost Recoverable amount Adjusted depreciation charge Impairment loss Carrying amount after impairment 20X0 1,500.00 1,211.28 0 (288.72) 1,211.28 20X1 1,350.00 n.c. (121.13) 0 1,090.15 20X2 1,200.00 n.c. (121.13) 0 969.02 20X3 1,050.00 n.c. (121.13) 0 847.89 20X4 900.00 (121.13) renewal 250.00 - 1,150.00 1,220.72 (121.13) 173.24 1,150.00 20X5 958.33 n.c. (191.67) 0 958.33 n.c. = not calculated as there is no indication that the impairment loss may have increased/ decreased. Illustration 7 - Application of the -Up and Top-Down Tests to Goodwill In this illustration, tax effects are i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oss is recognised for A as a result of the - test. A66. Since the goodwill could not be allocated on a reasonable and consistent basis to A, M also performs a 'top-down' test in accordance with paragraph 78(b) of this Standard. It compares the carrying amount of Z as a whole to its recoverable amount (Z as a whole is the smallest cash-generating unit that includes A and to which goodwill can be allocated on a reasonable and consistent basis). Schedule 5. Application of the -down test (Amount in Rs. lakhs) End of 20X4 A B C Goodwill Z Carrying amount 1,300 1,200 800 120 3,420 Impairment loss arising from the 'bottom-up' test 0 - - - 0 Carrying amount after the 'bottom-up' test 1,300 1,200 800 120 3,420 Recoverable amount 3,400 Impairment loss arising from 'top-down' test 20 A67. Therefore, M recognises an impairment loss of Rs. 20 lakhs that it allocates fully to goodwill in accordance with paragraph 87 of this Standard. Illustration 8 - Allocation of Corporate Assets In this illustration tax effects are ignored. Background A68. Enterprise M has three cash-generating units: A, B and C. There are adverse changes in the technological environment i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....allocation of the carrying amount of the headquarter building (Amount in Rs. lakhs) End of 20X0 A B C Total Carrying amount 100 150 200 450 Useful life 10 years 20 years 20 years Weighting based on useful life 1 2 2 Carrying amount after weighting 100 300 400 800 (100/800) (300/800) (400/800) Allocation of the carrying amount of the building (based on pro-rata above) 19 56 75 150 Carrying amount (after allocation of the building) 119 206 275 600 Determination of Recoverable Amount A75. The 'bottom-up' test requires calculation of the recoverable amount of each individual cash-generating unit. The 'top-down' test requires calculation of the recoverable amount of M as a whole (the smallest cash- generating unit that includes the research centre). Schedule 2. Calculation of A, B, C and M s value in use at the end of 20X0 (Amount in Rs. lakhs) Year A B C M Future cash flows Discount at 15% Future cash flows Discount at 15% Future cash flows Discount at 15% Future cash flows Discount at 15% 1 2 3 4 5 6 7 8 9 1 18 16 9 8 10 9 39 34 2 31 23 16 12 20 15 72 54 3 37 24 24 16 34 22 105 69 4 42 24 29 ....