Accounting Standards 1-29 - Seth & Associates

following cases:
a. if the discount rate used in calculating the asset’s value in use is
unlikely to be affected by the increase in these market rates. For
example, increases in short-term interest rates may not have a
material effect on the discount rate used for an asset that has a long
remaining useful life; or
b. if the discount rate used in calculating the asset’s value in use is likely
to be affected by the increase in these market rates but previous
sensitivity analysis of recoverable amount shows that:
i. it is unlikely that there will be a material decrease in
recoverable amount because future cash flows are also likely
to increase. For example, in some cases, an enterprise may
be able to demonstrate that it adjusts its revenues to
compensate for any increase in market rates; or
ii. the decrease in recoverable amount is unlikely to result in a
material impairment loss.
13. If there is an indication that an asset may be impaired, this may indicate that
the remaining useful life, the depreciation (amortisation) method or the residual
value for the asset need to be reviewed and adjusted under the Accounting
Standard applicable to the asset, such as Accounting Standard (AS) 6,
Depreciation Accounting, even if no impairment loss is recognised for the
asset.
1 Attention is specifically drawn to paragraph 4.3 of the Preface, according to which accounting standards are
intended to apply only to material items.
2 Reference may be made to the section titled ‘Announcements of the council regarding status of various
documents issued by the Institute of Chartered Accountants of India’ appearing at the beginning of this
compendium for a defeiled discussion on the implications of the mandatory status of an accounting standard.
3 A financial asset is any asset that is:
a. cash;
b. a contractual right to receive cash or another financial asset from another enterprise;
c. a contractual right to exchange financial instruments with another enterprise under conditions that are
potentially favourable; or
d. an ownership interest in another enterprise.
4 In the case of an intangible asset or goodwill, the term ‘amortisation’ is generally used instead of ‘depreciation’.
Both terms have the same meaning.
Measurement of Recoverable Amount
14. This Statement defines recoverable amount as the higher of an asset’s net
selling price and value in use. Paragraphs 15 to 55 set out the requirements
for measuring recoverable amount. These requirements use the term ‘an
asset’ but apply equally to an individual asset or a cash-generating unit.