Boston m/j 16

Value in use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit (IAS 36).
Ask yourself – if viu is for a specific asset or CGU – what assumptions would you use in calculating its PV? Those that are specific to the asset or CGU or those that are for the company as a whole?
(Even if you were unsure of this in the exam ask yourself why would the audit team bother to recalculate viu using a specific growth rate if that was not the correct accounting treatment?)

It’s not key words from the scenario that you need here but an understanding of what is the meaning of an adjusting event i.e. an event that “provides evidence of CONDITIONS that EXISTED at the end of the reporting period”. Apply this to receivables …
A company’s financial difficulties don’t happen overnight – they emerge over a period of time – so Cleveland was having difficulties at Boston’s reporting date. It is a general rule that assets should be carried in the statement of financial position at not more than their recoverable amount. So Boston assesses whether it will recover $100k from Cleveland and decides that it won’t and so makes a 5% allowance against this amount. But, after the reporting date Boston has new information – it receives $30k and there is a good chance that it will not receive anything more. Is this an adjusting event?
Answer yes – in the light of the new information, Boston now knows that Cleveland’s financial difficulties were greater than it previously thought – and the recoverable amount at the reporting date was only $30k.