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TMI BlogImpairment of AssetsX X X X Extracts X X X X X X X X Extracts X X X X ..... sets, other than: (a) inventories (see AS 2, Valuation of Inventories); (b) assets arising from construction contracts (see AS 7, Accounting for 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 to dispose of the asset: (i) if the disposal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sts 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 Corporate assets are assets other than goodwill that contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 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 operating profit or loss flowing from the asset that are significantly worse than those budgeted; (c) a significant decline in bud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgets/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 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turing. 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 further 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 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 timing from estimates. 50. As a starting point, the enterprise may take into account the following rates: (a) the enterprise's weighted average cost of capital determined using techniques such as the Capital Asset Pricing Model; (b) the enterprise's incremental borrowing rate; and (c) other market borro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt 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 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 po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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. Illustration 1 in the Illustrations attached 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 fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Where assets are grouped for recoverability assessments, it is important to include in the cash-generating unit all assets that generate the relevant stream of cash inflows from continuing use. Otherwise, the cash-generating unit may appear to be fully recoverable when in fact an impairment loss has occurred. In some cases, although certain assets contribute to the estimated future cash flows ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the value in use for the cash-generating unit is determined after consideration of the restoration costs and is estimated to be ₹ 70,00,000 (Rs. 1,20,00,000 less ₹ 50,00,000). The carrying amount of the cash-generating unit is ₹ 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 increased by the carrying amount of those assets and decreased by the carrying amount of those liabilities. Goodwill 78. In testing a cash-generating unit for impairment, an enterprise should identify whether goodwill that relates to this cash-generating unit is recognised in the financial statements. If this is the case, an enterprise should: (a) perform a 'b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enerating 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 impairment loss that exists for the cash-generating unit excluding any consideration of goodwill; and (b) then, any impairment loss that exists for goodwill. Because an enterprise applies the 'bottom-up' test first to all assets that may be impaired, any impairment loss identified for the larger cash-generating unit in the 'top-down' t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 should be allocated to the other assets of the unit on a pro-rata basis. 89. The goodwill allocated to a cash-generating unit is reduced before reducing the carrying amount of the other assets of the unit because of its nature. 90. If there is no practical way to estimate the recoverable amount of each individual asset of a cash-generating unit, this Standard requires the allocat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice. 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 cash-generating unit in prior accounting periods. These requirements use the term 'an asset' but apply equally to an individual asset or a cash-generating unit. Additional requirements are set out for an individual asset in paragraphs 101 to 105, for a cash-generating unit in paragraphs 106 to 107 and for goodwill in paragraphs 108 to 111. 94. An enterprise should assess at each balance sheet date whether there is any indication that an impairment loss recognised for an asset in prior accounting periods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce 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 that asset. An enterprise is required to identify the change in estimates that causes the increase in estimated service potential. Examples of changes in estimates include: (a) a change in the basis for recoverable amount (i.e., whether recoverable amount is based on net selling price or value in use); (b) if recoverable amount was based on value in use: a change in the amount or timing of estimated future cash flows or in the discount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, the carrying amount of an asset should not be increased above the lower of: (a) its recoverable amount (if determinable); and (b) 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. The amount of the reversal of the impairment loss that would otherwise have been allocated to the asset should be allocated to the other assets of the unit on a pro-rata basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 agreements may indicate that the assets of the discontinuing operation may be further impaired or that impairment losses recognised for these assets in prior periods may have decreased. As a consequence, when such events occur, an enterprise re-estimates the recoverable amount of the assets of the discontinuing operation and recognises resulting impairment losses or reversals of impairment losses in accordance with this Standard. 115. A price in a binding sale agreement is the best evidence of an asset's (cash-generating unit's) net ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rment 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 segment based on the enterprise's primary format (as defined in AS 17); and (iii) if the aggregation of assets for identifying the cash-generating unit has changed since the previous estimate of the cash-generating unit's recoverable amount (if any), the enterprise should describe the current and former way of aggregating assets and the reasons for changing the way the cash-generating unit is identified; (e) whether the recoverable amount of the asset (cash-generating unit) is its net selling price or its value in use; (f) if recoverable amount is net selling price, the basis used to determine net selling p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 this illustration is: (a) to give an indication of how cash-generating units are identified in various situations; and (b) to highlight certain factors that an enterprise may consider in identifying the cash-generating unit to which an asset belongs. A - Retail Store Chain Background Al. Store X belongs to a retail store chain M. X makes all its retail purchases through M's purchasing centre. Pricing, marketing, advertising and human resources policies (except for hiring X's cashiers and salesmen) are decided by M. M also owns 5 other stores in the same city as X (although in different neighbourhoods) and 20 other stores in other cities. All stores are managed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 each plant cannot be assessed independently from the recoverable amount of the other plant because: (a) the majority of X's production is used internally and could not be sold in an active market. So, cash inflows of X depend on demand for Y's products. Therefore, X cannot be considered to generate cash inflows that are largely independent from those of Y; and (b) the two plants are managed together. A10. As a consequence, it is likely that X and Y together is the smallest group of assets that generates cash inflows from continuing use that are largely independent. C - Single Product Enterprise Background A11. Enterprise M produces a single product and own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gible 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 replace them immediately with new titles for the same customer segment. What is the cash-generating unit for an individual magazine title? Analysis A18. It is likely that the recoverable amount of an individual magazine title can be assessed. Even though the level of advertising income for a title is influenced, to a certain extent, by the other titles in the customer segment, cash inflows from direct sales and advertising are identifiable for each title. In addition, although titles are managed by customer segments, decisions to abandon titles are made on an individual title basis. A19. Therefore, it is likely that individual magazine titles generate cash inflows that are largely independent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fiable 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 price of the Country A cash-generating unit is not determinable, as it is unlikely that a ready buyer exists for all the assets of that unit. A28. To determine the value in use for the Country A cash-generating unit (see Schedule 2), T: (a) prepares cash flow forecasts derived from the most recent financial budgets/forecasts for the next five years (years 20X5- 20X9) approved by management; (b) estimates subsequent cash flows (years 20X10-20X15) based on declining growth rates. The growth rate for 20X10 is estimated to be 3%. This rate is lower than the average long-term growth rate for the market in Country A; and (c) selects a 15% discount rate, which represents a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the Country A cash-generating unit. Recognition and Measurement of Impairment Loss A29. The recoverable amount of the Country A cash-generating unit is 1,360 lakhs: the higher of the net selling price of the Country A cash-generating unit (n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Impairment Loss recognised in the statement of profit and loss 350 Impairment Loss allowed for tax purposes - Timing Difference 350 Tax Effect of the above timing difference at 30% (deferred tax asset) 105 Less: Deferred tax liability due to difference in depreciation for accounting purposes and tax purposes [(1,000 - 800) x 30%] 60 Deferred tax asset 45 A34. In accordance with AS 22, Accounting for Taxes on Income, the enterprise recognises the deferred tax asset subject to the consideration of prudence as set out in AS 22. Illustration 4 - Reversal of an Impairment Loss Use the data for enterprise T as presented in Illustration 2, with supplementary information as provided in this Illustration. In this Illustration, tax effects are ignored. Background A35. In 20X6, the government is still in office in Country A, but the business situation is improving. The effects of the export laws on T's production are proving to be less drastic than initially expected by management. As a result, management estimates that production will increase by 30%. This favourable change requires T to re-estimate the recoverable amount of the net assets of the Country A operations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntry A assets at the end of 20X6 (Amount in Rs. lakhs) End of 20X6 Goodwill Identifiable assets Total Gross carrying amount 1,000 2,000 3,000 Accumulated depreciation/amortisation (800) (780) (1,580) Accumulated impairment loss (200) (107) (307) Carrying amount 0 1,113 1,113 Reversal of impairment loss 0 87 87 Carrying amount after reversal of impairment loss 0 1,200 1,200 Illustration 5 - Treatment of a Future Restructuring In this Illustration, tax effects are ignored. Background A40. At the end of 20X0, enterprise K tests a plant for impairment. The plant is a cash-generating unit. The plant's assets are carried at depreciated historical cost. The plant has a carrying amount of ₹ 3,000 lakhs and a remaining useful life of 10 years. A41. The plant is so specialised that it is not possible to determine its net selling price. Therefore, the plant's recoverable amount is its value in use. Value in use is calculated using a pre-tax discount rate of 14%. A42. Management approved budgets reflect that: (a) at the end of 20X3, the plant will be restructured at an estimated cost of ₹ 100 lakhs. Since K is not yet committed to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -determined at the end of 20X2. Schedule 3. Calculation of the plant's value in use at the end of 20X2 (Amount in Rs. lakhs) Year Future cash flows Discounted at 14% 20X3 420>(1) 368 20X4 570>(2) 439 20X5 380>(2) 256 20X6 450>(2) 266 20X7 510>(2) 265 20X8 510>(2) 232 20X9 480>(2) 192 20X10 410>(2) 144 Value in use 2,162 (1) Excludes estimated restructuring costs because a liability has already been recognised. (2) Includes estimated benefits expected from the restructuring reflected in management budgets. A48. The plant's recoverable amount (value in use) is higher than its carrying amount (see Schedule 4). Therefore, K reverses the impairment loss recognised for the plant at the end of 20X0. Schedule 4. Calculation of the reversal of the impairment loss at the end of 20X2 (Amount in Rs. lakhs) Plant Carrying amount at the end of 20X0 (Schedule 2) 2,051 End of 20X2 Depreciation charge (for 20X1 and 20X2 Schedule 5) (410) Carrying amount before reversal 1,641 Recoverable amount (Schedule 3) 2,162 Reversal of the impairment loss 521 Carrying amount after reversal 2,162 Carrying amount: depreciated historical cost (Schedule 5) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20X3 205.50 138.71 20X4 247.25>(1) 146.39 20X5 253.25>(2) 131.53 20X6 248.25>(2) 113.10 20X7 241.23>(2) 96.40 20X8 255.33>(2) 89.51 20X9 242.34>(2) 74.52 20X10 228.50>(2) 61.64 Value in use 1,211.28 (1) Excludes estimated renewal costs reflected in management budgets. (2) Excludes estimated benefits expected from the renewal of the engine reflected in management budgets. A54. The plane's carrying amount is less than its recoverable amount (value in use). Therefore, F recognises an impairment loss for the plane. Schedule 2. Calculation of the impairment loss at the end of 20X0 (Amount in Rs. lakhs) Plane Carrying amount before impairment loss 1,500.00 Recoverable amount (Schedule 1) 1,211.28 Impairment loss (288.72) Carrying amount after impairment loss 1,211.28 Years 20X1-20X3 A55. No event occurs that requires the plane's recoverable amount to be re-estimated. Therefore, no calculation of recoverable amount is required to be performed. At the End of 20X4 A56. The capital expenditure is incurred. Therefore, in determining the plane's value in use, the future benefits expected from the renewal of the engine are considered in f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Illustration 7 - Application of the 'Bottom-Up' and 'Top-Down' Tests to Goodwill In this Illustration, tax effects are ignored. A58. At the end of 20X0, enterprise M acquired 100% of enterprise Z for ₹ 3,000 lakhs. Z has 3 cash-generating units A, B and C with net fair values of ₹ 1,200 lakhs, ₹ 800 lakhs and ₹ 400 lakhs respectively. M recognises goodwill of ₹ 600 lakhs (Rs. 3,000 lakhs less ₹ 2,400 lakhs) that relates to Z. A59. At the end of 20X4, A makes significant losses. Its recoverable amount is estimated to be ₹ 1,350 lakhs. Carrying amounts are detailed below. Schedule 1. Carrying amounts at the end of 20X4 (Amount in Rs. lakhs) End of 20X4 A B C Goodwill Total Net carrying amount 1,300 1,200 800 120 3,420 A - Goodwill Can be Allocated on a Reasonable and Consistent Basis A60. At the date of acquisition of Z, the net fair values of A, B and C are considered a reasonable basis for a pro-rata allocation of the goodwill to A, B and C. Schedule 2. Allocation of goodwill at the end of 20X4 A B C Total End of 20X0 Net fair values 1,200 800 400 2,400 Pro-rata 50% 33% 17% 100% End of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 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 in which M operates. Therefore, M conducts impairment tests of each of its cash-generating units. At the end of 20X0, the carrying amounts of A, B and C are ₹ 100 lakhs, ₹ 150 lakhs and ₹ 200 lakhs respectively. A69. The operations are conducted from a headquarter. The carrying amount of the headquarter assets is ₹ 200 lakhs: a headquarter building of ₹ 150 lakhs and a research centre of ₹ 50 lakhs. The relative carrying amounts of the cash-generating units are a reasonable indication of the proportion of the head-quarter building devoted to each cash-generating unit. The carrying amount of the research centre cannot be allocated on a reasonable basis to the individual cash-generating units. A70. The remaining estimated useful life of cash-generating unit A is 10 years. The remaining useful lives of B, C and the headqua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lest 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) A B C M Year 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 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 17 44 25 128 73 5 47 24 32 16 51 25 143 71 6 52 22 33 14 56 24 155 67 7 55 21 34 13 60 22 162 61 8 55 18 35 11 63 21 166 54 9 53 15 35 10 65 18 167 48 10 48 12 35 9 66 16 169 42 11 36 8 66 14 132 28 12 35 7 66 12 131 25 13 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 199 in use 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 val ..... X X X X Extracts X X X X X X X X Extracts X X X X
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