Accounting Standards 1-29 - Seth & Associates

. the enterprise’s incremental borrowing rate; and
c. other market borrowing rates.
51. These rates are adjusted:
a. to reflect the way that the market would assess the specific risks
associated with the projected cash flows; and
b. to exclude risks that are not relevant to the projected cash flows.
Consideration is given to risks such as country risk, currency risk, price risk
and cash flow risk.
52. To avoid double counting, the discount rate does not reflect risks for which
future cash flow estimates have been adjusted.
53. The discount rate is independent of the enterprise’s capital structure and the
way the enterprise financed the purchase of the asset because the future cash
flows expected to arise from an asset do not depend on the way in which the
enterprise financed the purchase of the asset.
54. When the basis for the rate is post-tax, that basis is adjusted to reflect a pretax
rate.
55. An enterprise normally uses a single discount rate for the estimate of an
asset’s value in use. However, an enterprise uses separate discount rates for
different future periods where value in use is sensitive to a difference in risks
for different periods or to the term structure of interest rates.
Recognition and Measurement of an Impairment Loss
56. Paragraphs 57 to 62 set out the requirements for recognising and measuring
impairment losses for an individual asset. Recognition and measurement of
impairment losses for a cash-generating unit are dealt with in paragraphs 87 to
92.
57. If the recoverable amount of an asset is less than its carrying amount, the
carrying amount of the asset should be reduced to its recoverable
amount. That reduction is an impairment loss.
58. An impairment loss should be recognised as an expense in the statement
of profit and loss immediately, unless the asset is carried at revalued
amount in accordance with another Accounting Standard (see
Accounting Standard (AS) 10, Accounting for Fixed Assets), in which
case any impairment loss of a revalued asset should be treated as a
revaluation decrease under that Accounting Standard.