## Ias 36 discount rate inflation

either in real terms, which exclude inflation, or in nominal terms. IAS 36 requires the use of pre-tax cash flows and pre-tax discount rates in the impairment test. Assets and cash generating units (CGUs') included within the scope of IAS 36 are : – Property, Plant the CGU. In this case, care is needed to ensure that the appropriate discount rate is used. future inflation and other market pressures). Let me also warn you about the inflation. You need to be consistent in projecting your cash flows and selecting your discount rate. You can either adjust your Capex is assumed annual 500 increased by the inflation rate. Step 3: Discount net cash flows with pre-tax discount rate. Now it's time to select the most appropriate Discount rate. In measuring value in use, the discount rate used should be the pre-tax rate that reflects current market assessments If the discount rate excludes the effect of price increases attributable to general inflation, future cash flows are estimated in real terms (but include future specific Impairment of Assets: a guide to applying IAS 36 in practice i. Impairment of most emphasis on the selection of a discount rate (IAS 36.A.4). (although general inflation is not taken into account if the future cash flows from continuing use.

## If the discount rate excludes the effect of price increases attributable to general inflation, future cash flows are estimated in real terms (but include future specific

If the discount rate excludes the effect of price increases attributable to general inflation, future cash flows are estimated in real terms (but include future specific Impairment of Assets: a guide to applying IAS 36 in practice i. Impairment of most emphasis on the selection of a discount rate (IAS 36.A.4). (although general inflation is not taken into account if the future cash flows from continuing use. AASB 136 Impairment of Assets as amended incorporates IAS 36. Impairment 40 Estimates of future cash flows and the discount rate reflect consistent assumptions exclude the effect of general inflation, the entity also excludes this effect Intangible Assets to converge with IFRS 3 and revised versions of IAS 36 and IAS 38 estimating the discount rate when an asset-specific rate is not directly rate exclude the effect of general inflation, the entity also excludes this effect. 29 Jan 2010 from International Accounting Standard (IAS) 36, Impairment of Assets, published are likely to affect the discount rate used in calculating an asset's value in use inflation, future cash flows are estimated in nominal terms.

### ble amount, Value in use, Discount rate, Cash flows, Fair value, CGU IAS 36 – International Accounting Standard, Impairment of Assets discount rate to a great extent depends on changes in interest rates, inflation and risk. The study

suitability of cash flows and the discount rate used in impairment testing under IAS 36. Cash flows and discount ESMA (the European Securities and Markets Authority) has identified the following enforcement priorities that they, together with national bodies in Europe, will examine within listed companies’ 2015 financial statements: • Determining the appropriate discount rate to apply • The impact of taxation on the impairment test, given the requirement in IAS 36 to measure VIU using pre-tax cash flows and discount rates • Ensuring that the recoverable amount and carrying amount that are being compared are consistently determined IFRS 16 and IAS 36 . Discount rate (WACC) The way of determining the . discount rate. should be consistent with what is included in the cash flows. If the lease payments are not deducted from the free cash flows to the firm (approach 1 above), then the resulting net cash flows include the cash that will be used to pay the lease obligation. Regulators have stated that many companies are not fully complying with the somewhat onerous disclosure requirements of IAS 36. Therefore, it is essential to disclose the discount rate and long-term growth rate assumptions in the discounted cashflow models used. There are no exemptions from the disclosure requirements.

### 29 Jan 2010 from International Accounting Standard (IAS) 36, Impairment of Assets, published are likely to affect the discount rate used in calculating an asset's value in use inflation, future cash flows are estimated in nominal terms.

Regulators have stated that many companies are not fully complying with the somewhat onerous disclosure requirements of IAS 36. Therefore, it is essential to disclose the discount rate and long-term growth rate assumptions in the discounted cashflow models used. There are no exemptions from the disclosure requirements. revised or operations disposed of IAS 36 requires goodwill to be reallocated, based on relative values, to the units affected. • Valuation issues. IAS 36 requires the recoverable amount of an asset or CGU to be measured as the higher of the asset’s or CGU’s Fair Value Less Costs to Sell (FVLCS) and Value in Use (VIU). The carrying value of goodwill and the number of CGUs are analysed between the operating segments in the Group below. In accordance with IAS 36 Impairment of Assets, the CGUs to which significant amounts of goodwill (greater than 10% of the total value) The IASB’s implementation of IFRS 9 eligible hedged items is favourable to entities issuing inflation-indexed debt and converting an inflation adjusted rate to a fixed rate through the use of an inflation indexed swap. Inflation as a risk component. Interest Rate Components: Inflation, Liquidity, and Risk IFRS IN PRACTICE fi IAS 36 IMPAIRMENT OF ASSETS βDECEMBER 2013 3 INTRODUCTION IAS 36 Impairment of Assets sets out requirements for impairment which cover a range of assets (and groups of assets, termed ‘cash generating units’ or CGUs). A number of assets are excluded from its scope (e.g. financial instruments and IAS 37 explicitly prescribes that : a. The amount of the provision is the present value of the expenditure expected to be required to settle the obligation; b. The discount rate applied is a pretax rate that reflects current market assessments of the time value of money and the risks specific to the liability; and. about interest rates and salary and benefit increases) in any given future period assume the same inflation level in that period.” The Companies may, thus, consider changing the salary growth rate by a similar magnitude as is the movement in discount rate (subject to the existing salary growth rate assumption being reasonable).

## IFRS 16 and IAS 36 . Discount rate (WACC) The way of determining the . discount rate. should be consistent with what is included in the cash flows. If the lease payments are not deducted from the free cash flows to the firm (approach 1 above), then the resulting net cash flows include the cash that will be used to pay the lease obligation.

Regulators have stated that many companies are not fully complying with the somewhat onerous disclosure requirements of IAS 36. Therefore, it is essential to disclose the discount rate and long-term growth rate assumptions in the discounted cashflow models used. There are no exemptions from the disclosure requirements. revised or operations disposed of IAS 36 requires goodwill to be reallocated, based on relative values, to the units affected. • Valuation issues. IAS 36 requires the recoverable amount of an asset or CGU to be measured as the higher of the asset’s or CGU’s Fair Value Less Costs to Sell (FVLCS) and Value in Use (VIU). The carrying value of goodwill and the number of CGUs are analysed between the operating segments in the Group below. In accordance with IAS 36 Impairment of Assets, the CGUs to which significant amounts of goodwill (greater than 10% of the total value) The IASB’s implementation of IFRS 9 eligible hedged items is favourable to entities issuing inflation-indexed debt and converting an inflation adjusted rate to a fixed rate through the use of an inflation indexed swap. Inflation as a risk component. Interest Rate Components: Inflation, Liquidity, and Risk IFRS IN PRACTICE fi IAS 36 IMPAIRMENT OF ASSETS βDECEMBER 2013 3 INTRODUCTION IAS 36 Impairment of Assets sets out requirements for impairment which cover a range of assets (and groups of assets, termed ‘cash generating units’ or CGUs). A number of assets are excluded from its scope (e.g. financial instruments and

flows and the discount rate should be expressed consistently, either in real terms, which exclude inflation, or in nominal terms. IAS 36 requires the use of pre-tax cash flows and pre-tax discount rates in the impairment test. In practice, primarily because of the widespread use of the Capital Asset Pricing Model — post-tax costs [IAS 36.56] For impairment of an individual asset or portfolio of assets, the discount rate is the rate the entity would pay in a current market transaction to borrow money to buy that specific asset or portfolio. Capex is assumed annual 500 increased by the inflation rate. Step 3: Discount net cash flows with pre-tax discount rate. Now it’s time to select the most appropriate discount rate. In many cases, companies use their own cost of capital derived by WACC model, which is often OK for auditors, too. IAS 36 Impairment of Assets provides guidelines of what items are to be included or excluded in the cash flow projections used in a value in use calculation. These guidelines are presented in the table below. if the discount rate includes a premium related to inflation; Exclude: if the discount rate does not include a premium related to IFRS 16 and IAS 36 . Discount rate (WACC) The way of determining the . discount rate. should be consistent with what is included in the cash flows. If the lease payments are not deducted from the free cash flows to the firm (approach 1 above), then the resulting net cash flows include the cash that will be used to pay the lease obligation.