a machine has suffered physical damage but is still working although not as well as 612436

Individually impaired assets within CGUs

A machine has suffered physical damage but is still working, although not as well as before it was damaged. The machine’s FVLCD is less than its carrying amount. The machine does not generate independent cash inflows. The smallest identifiable group of assets that includes the machine and generates cash inflows that are largely independent of the cash inflows from other assets is the production line to which the machine belongs. The recoverable amount of the production line shows that the production line taken as a whole is not impaired.

Assumption 1: budgets/forecasts approved by management reflect no commitment of management to replace the machine.

The recoverable amount of the machine alone cannot be estimated because its VIU may be different from its FVLCD (because the entity is going to continue to use it) and can be determined only for the CGU to which it belongs (the production line).

As the production line is not impaired, no impairment loss is recognised for the machine. Nevertheless, the entity may need to reassess the depreciation period or the depreciation method for the machine. Perhaps a shorter depreciation period or a faster depreciation method is required to reflect the expected remaining useful life of the machine or the pattern in which economic benefits are expected to be consumed by the entity.

Assumption 2: budgets/forecasts approved by management reflect a commitment of management to replace the machine and sell it in the near future.

Cash flows from continuing use of the machine until its disposal are estimated to be negligible. The machine’s VIU can be estimated to be close to its FVLCD. Therefore, the recoverable amount of the machine can be determined and no consideration is given to the CGU (the production line) to which it belongs. As the machine’s carrying amount exceeds its FVLCD, an impairment loss is recognised to write it down to FVLCD. [IAS 36.107].