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An entity is reviewing one of its business segments for impairment. the c.v of its net asset is $20 million . management has produced two computation for the value-in-use of the business segment. the first value ($18 million ) excludes the benefit to be derived from a future reorganization ,but the second value ($22 million )includes the benefit to be derived from the future reorganization. there is an active market for the sale of the business segment
should the business segment impaired?
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Hi,
I have done a past exam question yesterday which dealt with the same issue. I quote from the answer.
” Cash flow projections should relate to the asset in its current condition and future restructurings to which the entity is not comitted and expenditure to improve/ enhance the asset’s performance should not be anticipated. ”
So according to the above future restructuring should not be included but only the asset in it’s current condition. So I would say use the $18m and impair.
Refer to December 2011 Q3 Scramble
Firstly I’d like to agree to anna1023 that the $18m should be used as value in use.
However the question seems to be incomplete. As mentioned in your question, there’s an active market for selling the business, thus the question should have provided the selling price and the selling costs, because to determine impairment, you need to compare THE HIGHER OF net selling price or value in use (that is the $18m) against the NBV.
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