Impairment loss (IFRS 36)

[BobBobson]

Hi, I do not understand the problem below. I just calculate the loss by substracting the selling price from the carrying value, but this does not seem to be the answer. I am a student and finance is a subject I need to pass, so I am no expert. Sorry if this question is obvious, but I need help.

 

[Triest123]

Hi, I do not understand the problem below. I just calculate the loss by substracting the selling price from the carrying value, but this does not seem to be the answer. I am a student and finance is a subject I need to pass, so I am no expert. Sorry if this question is obvious, but I need help.

=> Your file doesn't work

 

[BobBobson]

I see. Unfortunantly, I cannot edit links or images because I have less than ten posts on this forum. Is there a solution to this? I do not want to spam ten post. Think this is the best option:

Trailer historical cost: €100,000
Straight line depreciation yearly: €2,500
Carrying value (2012): €90,000
Cost of capital: 10%
Salvage value: €15,000

The company has the possiblity to sell the trailer for €36,550. The organization also presented a business plan:

2013: free cash flow €7,200 ; PV (10%) 0.909 ; disc. cash fl. €6,545
2014: free cash flow €6,960 ; PV (10%) 0.826 ; disc. cash fl. €5,752
2015: free cash flow €6,840 ; PV (10%) 0.751 ; disc. cash fl. €5,139
2016: free cash flow €6,600 ; PV (10%) 0.683 ; disc. cash fl. €4,508
2017: free cash flow €6,360 ; PV (10%) 0.621 ; disc. cash fl. €3,949
2018: free cash flow €4,800 ; PV (10%) 0.564 ; disc. cash fl. €2,709
2019: free cash flow €2,400 ; PV (10%) 0.513 ; disc. cash fl. €1,232

What is the impairment loss under IFRS 36? The answer should be €52,471 according to the answer keys, but I do not understand how this is calculated.

 

[Triest123]

Have you considered the associated costs for selling the asset ?

 

[BobBobson]

It does not specifically mention any associated cost for selling the asset. I think that the recoverable amount is not the selling price but the value in use. But I can't get to the correct answer.

 

[Triest123]

It does not specifically mention any associated cost for selling the asset. I think that the recoverable amount is not the selling price but the value in use. But I can't get to the correct answer.

=> The present value of the "salvage value: €15,000" (i.e. the disposal value) should also be
taken into account.

 

[BobBobson]

Could you please give some details on the actual calculation of the impairment loss (i.e. what I need to substract from what)?

 

[Triest123]

Could you please give some details on the actual calculation of the impairment loss (i.e. what I need to substract from what)?

Value in use :
2013: free cash flow €7,200 ; PV (10%) 0.909 ; disc. cash fl. €6,545
2014: free cash flow €6,960 ; PV (10%) 0.826 ; disc. cash fl. €5,752
2015: free cash flow €6,840 ; PV (10%) 0.751 ; disc. cash fl. €5,139
2016: free cash flow €6,600 ; PV (10%) 0.683 ; disc. cash fl. €4,508
2017: free cash flow €6,360 ; PV (10%) 0.621 ; disc. cash fl. €3,949
2018: free cash flow €4,800 ; PV (10%) 0.564 ; disc. cash fl. €2,709
2019: free cash flow €2,400 ; PV (10%) 0.513 ; disc. cash fl. €1,232
2019: salvage value €15,000; PV (10%) 0.513 ; disc. cash fl. €7,695

Total disc. cash fl = €37,529 (value in use)

Recoverable amount is the higher of an asset's fair value less costs of disposal* (sometimes called net selling price) and its value in use

Since the value in use is higher than the selling price €36,550. So the recoverable amount
of the Trailer is €37,529

The impairment loss = Carrying value - Recoverable amount
= €90,000 - €37,529
= €52,471

 

[BobBobson]

Thank you Sir! I did not calculate the salvage value as is clear to me now. That way I kept getting €29,834 as my value in use. Which was lower than the selling price of €36,550. Cheers!