IAS 36 Impairment of assets
IAS 36IE Treatment of a future restructuring
Example 5
In this example, tax effects are ignored. IAS 36IE Treatment of a future restructuring
Background
IE44 At the end of 20X0, entity 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 CU3,000 and a remaining useful life of 10 years.
IE45 The plant’s recoverable amount (ie higher of value in use and fair value less costs of disposal) is determined on the basis of a value in use calculation. Value in use is calculated using a pre-tax discount rate of 14 per cent.
IE46 Management approved budgets reflect that: IAS 36IE Treatment of a future restructuring
- at the end of 20X3, the plant will be restructured at an estimated cost of CU100. Since K is not yet committed to the restructuring, a provision has not been recognised for the future restructuring costs.
- there will be future benefits from this restructuring in the form of reduced future cash outflows.
IE47 At the end of 20X2, K becomes committed to the restructuring. The costs are still estimated to be CU100 and a provision is recognised accordingly. The plant’s estimated future cash flows reflected in the most recent management approved budgets are given in paragraph IE51 and a current discount rate is the same as at the end of 20X0.
IE48 At the end of 20X3, actual restructuring costs of CU100 are incurred and paid. Again, the plant’s estimated future cash flows reflected in the most recent management approved budgets and a current discount rate are the same as those estimated at the end of 20X2. IAS 36IE Treatment of a future restructuring
At the end of 20X0
Schedule 1. Calculation of the plant’s value in use at the end of 20X0
- Excludes estimated restructuring costs reflected in management budgets.
- Excludes estimated benefits expected from the restructuring reflected in management budgets.
IE49 The plant’s recoverable amount (ie value in use) is less than its carrying amount. Therefore, K recognises an impairment loss for the plant. IAS 36IE Treatment of a future restructuring
Schedule 2. Calculation of the impairment loss at the end of 20X0
| IAS 36IE Treatment of a future restructuring | Plant CU |
| 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 20×1
IE50 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
IE51 The entity 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 110 and 111 of IAS 36, the recoverable amount of the plant is re-determined at the end of 20X2.
Schedule 3. Calculation of the plant’s value in use at the end of 20X2
- Excludes estimated restructuring costs because a liability has already been recognised.
- Includes estimated benefits expected from the restructuring reflected in management budgets.
IE52 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. IAS 36IE Treatment of a future restructuring
Schedule 4. Calculation of the reversal of the impairment loss at the end of 20X2
(a) The reversal does not result in the carrying amount of the plant exceeding what its carrying amount would have been at depreciated historical cost. Therefore, the full reversal of the impairment loss is recognised.
At the end of 20X3
IE53 There is a cash outflow of CU100 when the restructuring costs are paid. Even though a cash outflow has taken place, there is no change in the estimated future cash flows used to determine value in use at the end of 20X2. Therefore, the plant’s recoverable amount is not calculated at the end of 20X3. IAS 36IE Treatment of a future restructuring
Schedule 5. Summary of the carrying amount of the plant IAS 36IE Treatment of a future restructuring
nc = not calculated as there is no indication that the impairment loss may have increased/decreased.
Source EU rules on financial information disclosed by companies
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IAS 36IE Treatment of a future restructuring IAS 36IE Treatment of a future restructuring IAS 36IE Treatment of a future restructuring IAS 36IE Treatment of a future restructuring IAS 36IE Treatment of a future restructuring IAS 36IE Treatment of a future restructuring IAS 36IE Treatment of a future restructuring IAS 36IE Treatment of a future restructuring IAS 36IE Treatment of a future restructuring IAS 36IE Treatment of a future restructuring