Impairment of fixed assets
Real life example:
Solution - how to calculate impairment provisions to fixed assets ...?
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Next - Production line XYZ with net book value of GBP 12,000 as at 31.12.2023
- Since the beginning of 2023 the sale of products from XYZ has been generating a loss - internal indicator
- Market value of the XYZ line is about GBP 10,000 (December 2023)
- value in use of the XYZ line - after discounting of the free cash flows from use of the line in 2023-2026 is about GBP 10,500.
Solution - how to calculate impairment provisions to fixed assets ...?
- an indicator of potential impairment => an impairment test is required
- Recoverable amount => the higher of: market (fair) value or the value in use of XYZ => GBP 10,500
- the basis for impairment provision for XYZ => the lower of: recoverable amount or net value
- Impairment provision amount => negative difference between recoverable amount and book value => (10,500 - 12,000) => GBP 1,500
