Document ID: chunk:federal_register_of_legislation:F2023C00180:front:0:p50
Version: federal_register_of_legislation:F2023C00180
Segment Type: other
Provision Reference: 
Character Range: 130628–136420

those activities are regarded as not impaired.
IE25 At the beginning of 20X2, a new government is elected in Country A. It passes legislation significantly restricting exports of T's main product. As a result, and for the foreseeable future, T's production in Country A will be cut by 40 per cent.
IE26 The significant export restriction and the resulting production decrease require T also to estimate the recoverable amount of the Country A operations at the beginning of 20X2.
IE27 T uses straight-line depreciation over a 12-year life for the Country A identifiable assets and anticipates no residual value.
IE28 To determine the value in use for the Country A cash-generating unit (see Schedule 2), T:
(a) prepares cash flow forecasts derived from the most recent financial budgets/forecasts for the next five years (years 20X2–20X6) approved by management.
(b) estimates subsequent cash flows (years 20X7–20Y2) based on declining growth rates. The growth rate for 20X7 is estimated to be 3 per cent. This rate is lower than the average long-term growth rate for the market in Country A.
(c) selects a 15 per cent discount rate, which represents a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the Country A cash-generating unit.

Recognition and measurement of impairment loss
IE29 The recoverable amount of the Country A cash-generating unit is CU1,360.
IE30 T compares the recoverable amount of the Country A cash-generating unit with its carrying amount (see Schedule 3).
IE31 Because the carrying amount exceeds the recoverable amount by CU1,473, T recognises an impairment loss of CU1,473 immediately in profit or loss. The carrying amount of the goodwill that relates to the Country A operations is reduced to zero before reducing the carrying amount of other identifiable assets within the Country A cash-generating unit (see paragraph 104 of AASB 136).
IE32 Tax effects are accounted for separately in accordance with AASB 112 Income Taxes (see Illustrative Example 3A).
Schedule 2. Calculation of the value in use of the Country A cash-generating unit at the beginning of 20X2

Year                                                                                                               Long-term growth rates  Future cash flows  Present value factor at 15% discount rate(a)  Discounted future cash flows

                                                                                                                                                              CU                                                                                      CU

20X2 (n=1)                                                                                                                                                    230(b)                                                                      0.86957     200
20X3                                                                                                                                                          253(b)                                                                      0.75614     191
20X4                                                                                                                                                          273(b)                                                                      0.65752     180
20X5                                                                                                                                                          290(b)                                                                      0.57175     166
20X6                                                                                                                                                          304(b)                                                                      0.49718     151
20X7                                                                                                               3%                                         313(c)                                                                      0.43233     135
20X8                                                                                                               (2%)                                       307(c)                                                                      0.37594     115
20X9                                                                                                               (6%)                                       289(c)                                                                      0.32690     94
20Y0                                                                                                               (15%)                                      245(c)                                                                      0.28426     70
20Y1                                                                                                               (25%)                                      184(c)                                                                      0.24719     45
20Y2                                                                                                               (67%)                                      61(c)                                                                       0.21494     13
Value in use                                                                                                                                                                                                                                          1,360

  (a) The present value factor is calculated as k = 1/(1+a)n, where a = discount rate and n = period of discount.
  (b) Based on management's best estimate