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Kim Smith.
Kim Smith.-
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Noah098
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Maam here the new regulatory requirements will be enforceable next year when the production line will also be ready for use, so why does the existing production line needs to be impaired this year(30 nov 20X2) and not next year(30nov 20X3, the year in which legal requirements are enforced)?
Kim Smith
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Because value in use is based on estimated future cash flows – and that estimate changes NOW.
Noah098
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maam I have always struggled to discern when the useful life needs to reduce V/s when the impairment charged.
If a competitor launches rival product then the useful life of the drug will reduce, hence an increase in amortisation charge. But if legislation changes will make a machine redundant in some time(say 3years) then we charge impairment now.
why launch of rival product is not an indicator of impairment for capitalised drug? why not reduce the useful life of machine likely to be made redundant in some time?
Kim Smith
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They are not mutually exclusive. The carrying amount at the reporting date cannot exceed it’s recoverable amount (you know from SBR how this is determined). This amount is then depreciated/amortised over remaining useful life.
Noah098
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