Ind AS 36 'Impairment of Assets' 15. At 31 st March, 20X1, the assets of a CGU are being reviewed for impairment. The carrying value of the CGU's…

CA Final · Financial Reporting · RTP · November 2024
Ind AS 36 'Impairment of Assets' 15. At 31 st March, 20X1, the assets of a CGU are being reviewed for impairment. The carrying value of the CGU's net assets is 65 lakhs (excluding any restructuring provision), and remaining useful economic life of recognised asset is eight years. Management's approved budgets at 31 st March, 20X1 include restructuring costs of 3,50,000 to be incurred in 20X2; the restructuring is expected to generate cost savings of 1,00,000 per annum from 20X3 onwards. Formal budgets have been prepared for the three years to 31 st March, 20X4. A zero-growth rate is assumed, because market conditions are extremely competitive, and this is expected to continue for the foreseeable future. The future cash flow estimates are as follows: Year With restructuring consideration Without restructuring consideration ₹ ₹ 20 X1-20X2 5,20,000 8,70,000 20 X2-20X3 10,00,000 9,00,000 20 X3-20X4 10,50,000 9,50,000 20 X4-20X5 10,50,000 9,50,000 20 X5-20X6 10,50,000 9,50,000 20 X6-20X7 10,50,000 9,50,000 20 X7-20X8 10,50,000 9,50,000 20 X8-20X9 10,50,000 9,50,000 In 20X2, the net cash flows without restructuring (₹ 8,70,000) exceed the net cash flows with restructuring (₹ 5,20,000) by the amount of the restructuring costs (₹ 3,50,000). The future cash flows (which exclude inflation) have been discounted at a rate of 4%. For simplicity, it has been assumed that the cash flows arise at the end of each year. Compute Impairment Loss at 31 st March, 20X1 when- (i) Restructuring costs is recognised in the financial statements at 31 st March, 20X1 (ii) Restructuring costs is not recognised in the financial statements at 31 st March, 20X1

Suggested Answer and Working Notes:

Computation of present value of cash flows under both the following conditions: Year Discount factor With restructuring consideration Without restructuring coordination Future net cash flows Present value Future net cash flows Present value (a) (b) (c)=(a)x(b) (d) (e)=(a)x(d) 20 X1-20X2 0.962 5,20,000 5,00,000 8,70,000 8,36,000 20 X2-20X3 0.925 10,00,000 9,25,000 9,00,000 8,32,000 20 X3-20X4 0.889 10,50,000 9,33,000 9,50,000 8,45,000 20 X4-20X5 0.855 10,50,000 8,98,000 9,50,000 8,12,000 20 X5-20X6 0.822 10,50,000 8,63,000 9,50,000 7,81,000 20 X6-20X7 0.790 10,50,000 8,30,000 9,50,000 7,51,000 20 X7-20X8 0.760 10,50,000 7,98,000 9,50,000 7,22,000 20 X8-20X9 0.730 10,50,000 7,67,000 9,50,000 6,94,000 Value in use 65,14,000 62,73,000 The impairment calculations at 31 st March, 20X1 differ according to whether or not provision for the restructuring costs is recognised in the financial statements. This will depend on whether the requirements of Ind AS 37 have been met for recognition. (i) Provision for restructuring costs recognised at 31 st March, 20X1 If provision has been made for restructuring costs, the costs and benefits of the restructuring are taken into account in determining the CGU's value in use. Here, the post restructuring value in use (₹ 6,514,000) exceeds the CGU's carrying value (₹ 6,500,000 less restructuring provision of 350,000). Hence, there is no impairment of the CGU's assets. In the year to 31 st March, 20X1, the financial statements reflect the following charges. Restructuring provision 350,000 Impairment loss Nil (ii) No provision for restructuring costs recognised at 31 st March, 20X1 If no provision for restructuring costs is permitted by Ind AS 37, the costs and benefits of the restructuring have to be stripped out of the projections in determining the CGU's value in use. Here, the CGU's carrying value (₹ 65,00,000) exceeds its pre-restructuring value in use (₹ 62,73,000). Therefore, there is an impairment loss of 2,27,000. In the year to 31 st March, 20X1, the financial statements reflect the following charges: Restructuring provisions Nil Impairment loss 2,27,000

Topics: Ind AS 36

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