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Sir i am looking at one of the external indicators of impairment which goes as follow:
1) An increase in the market interest rate or market rate of return on investments likely to affect the discount rate used in calculating value in use.
My question sir, how can the above affect the calculation of the value in use?
Hi,
If the interest rate is increased then the discount factor will fall and the present value will fall too as we are multiplying the cash flows by the lower discount factor, therefore there may be a potential impairment due to the reduced value in use.
Thanks
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