Accounting Standards 1-29 - Seth & Associates

38. A restructuring is a programme that is planned and controlled by management
and that materially changes either the scope of the business undertaken by an
enterprise or the manner in which the business is conducted.
39. When an enterprise becomes committed to a restructuring, some assets are
likely to be affected by this restructuring. Once the enterprise is committed to
the restructuring, in determining value in use, estimates of future cash inflows
and cash outflows reflect the cost savings and other benefits from the
restructuring (based on the most recent financial budgets/forecasts that have
been approved by management).
Example 5 given in the Appendix illustrates the effect of a future restructuring
on a value in use calculation.
40. Until an enterprise incurs capital expenditure that improves or enhances an
asset in excess of its originally assessed standard of performance, estimates
of future cash flows do not include the estimated future cash inflows that are
expected to arise from this expenditure (see Example 6 given in the Appendix).
41. Estimates of future cash flows include future capital expenditure necessary to
maintain or sustain an asset at its originally assessed standard of performance.
42. Estimates of future cash flows should not include:
a. cash inflows or outflows from financing activities; or
b. income tax receipts or payments.
43. Estimated future cash flows reflect assumptions that are consistent with the
way the discount rate is determined. Otherwise, the effect of some
assumptions will be counted twice or ignored. Because the time value of
money is considered by discounting the estimated future cash flows, these
cash flows exclude cash inflows or outflows from financing activities. Similarly,
since the discount rate is determined on a pre-tax basis, future cash flows are
also estimated on a pre-tax basis.
44. The estimate of net cash flows to be received (or paid) for the disposal of
an asset at the end of its useful life should be the amount that an
enterprise expects to obtain from the disposal of the asset in an arm’s
length transaction between knowledgeable, willing parties, after
deducting the estimated costs of disposal.
45. The estimate of net cash flows to be received (or paid) for the disposal of an
asset at the end of its useful life is determined in a similar way to an asset’s net
selling price, except that, in estimating those net cash flows:
a. an enterprise uses prices prevailing at the date of the estimate for
similar assets that have reached the end of their useful life and that