Chapter 22

Impairment of fixed assets and goodwill

1 The Theory Behind the Impairment Review

2 The Requirements of IAS 36

2.1 Scope

2.2 When an impairment test is required

2.2.1 Indicators of impairment

2.2.1.A Market capitalisation

2.2.1.B Future performance

2.2.1.C Individual assets or part of CGU?

2.2.1.D Interest rates

2.3 The impairment test

2.3.1 Impairment of assets held for sale

3 Fair Value Less Costs to Sell

3.1 Using FVLCS for the purposes of impairment testing

3.1.1 Estimating FVLCS without an active market

3.1.2 IFRS 13 – Fair Value Measurement – and IAS 36

4 Determining Value in Use (VIU)

4.1 Dividing the entity into cash-generating units (CGUs)

4.1.1 Active markets and identifying CGUs

4.2 Identifying the carrying amount of CGU assets

4.2.1 Consistency and the impairment test

4.2.1.A Environmental provisions and similar provisions and liabilities

4.2.1.B Finance leases

4.2.1.C Trade debtors and creditors

4.2.1.D Pensions

4.2.1.E Cash flow hedges

4.2.2 Corporate assets

4.3 Estimating the future pre-tax cash flows of the CGU under review

4.3.1 Budgets and cash flows

4.3.1.A Cash inflows and outflows from improvements and enhancements

4.3.1.B Restructuring

4.3.1.C Terminal values

4.3.1.D Foreign currency cash flows

4.4 Identifying an appropriate discount rate and discounting the future cash flows

4.4.1 Discount rates and the weighted average cost of capital

4.4.2 Calculating a pre-tax discount rate

4.4.3 Calculating VIU using post-tax cash flows

4.4.4 Approximations ...

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