It is not difficult to guess that settles relatively quickly lose value if it relates to a single asset, or a particular machine or device.

As an example we will use the CNC machine , the net book value (initial value net of accumulated depreciation) is ? 100 thousand, the fair value of ? 60 thousand, the expected cost of sales estimated at ? 5 htousand , while the forecasted net free cash flow in the next four years are as follows: ? 25 thousand, ? 20 thousand, ? 15 thousand and ? 10 thousand, net cash flow from the sale of the machine - ? 5 thousand. The discount rate is 10%.

Settlement allowance is calculated in this example during the three main steps :

The recoverable amount - the higher of the market value (fair value) or use

•     fair value - cost of sales = ? 60 thousand - ? 5 thousand = ? 55 thousand

•     value-in-use = (25K) / (1 +0.1 ) + ( 20 K) / ? (1 +0.1 ) ? ^ 2 + (15 K) / ? (1 +0.1 ) ? ^ 3 + (10 K) / ? (1 +0.1 ) ? ^ 4 + (5 K) / ? (1 +0.1 ) ? ^ 4 = ? 61 thousand

wartość użytkowa=  (25 K)/(1+0,1)+(20 K)/?(1+0,1)?^2 +(15 K)/?(1+0,1)?^3 +(10 K)/?(1+0,1)?^4 +(5 K)/?(1+0,1)?^4 =? 61,000

•     fair value (? 55 thousand) < value in use ( ?61 thousand)

Thus, in the present case the recoverable amount is equal to ? 61 thousand.

Determining the size of the asset impairment - it is the difference between the recoverable amount and the carrying value of the machine:

•     impairment = ? 100 thousand - ? 61 thousand = ? 39 thousand

•     Determine the carrying amount of the asset after adjustment:

? 100 thousand - ? 39 thousand = ? 61 thousand

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